Inventory Accounts and Cost of Goods Sold [LO 6] Smith Die Company manufactures cutting dies for the shoe industry. Each set of dies is custom designed to a customer’s templates. During the first week of May, six orders were received from customers. They were assigned job numbers 1005 to 1010. The following transactions occurred during the first week of May:
Smith Die purchased steel on account from Eastern City Steel costing $5,000. The company received and paid for supplies (indirect materials) from Mallard Supply costing $2,300.
Material requisitions indicated that materials were issued to the factory floor as follows:
Job No.
Direct Materials
Indirect Materials
1005
$ 600
1006
800
1007
1,500
1008
600
1009
400
1010
300
Totals
$4,200
$800
The labor time ticket summary reflected the following costs for the week:
Job No.
Direct Labor
Indirect Labor
1005
$1,500
1006
1,900
1007
3,200
1008
1,300
1009
800
1010
600
Totals
$9,300
$6,400
Overhead was applied to all jobs in process at 180 percent of direct labor cost. Jobs 1005, 1006, 1007, and 1008 were completed and transferred to finished goods. Jobs 1009 and 1010 were still in process at the end of the week. Jobs 1005, 1006, 1007, and 1008 were shipped to customers and billed at 150 percent of total job cost.
Required
a. Calculate the total cost of each job.
b. Prepare journal entries to record the above information.
(Managerial Accounting, 4th Edition. John Wiley & Sons pp. 72 - 73).
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To calculate the total cost of each job, we need to consider the direct materials, direct labor, and overhead costs.
a. Total Cost of Each Job:
1. Job 1005:
Direct Materials: $600
Direct Labor: $1,500
Overhead (180% of Direct Labor): $2,700 ($1,500 x 180%)
Total Cost: $4,800 ($600 + $1,500 + $2,700)
2. Job 1006:
Direct Materials: $800
Direct Labor: $1,900
Overhead (180% of Direct Labor): $3,420 ($1,900 x 180%)
Total Cost: $6,120 ($800 + $1,900 + $3,420)
3. Job 1007:
Direct Materials: $1,500
Direct Labor: $3,200
Overhead (180% of Direct Labor): $5,760 ($3,200 x 180%)
Total Cost: $10,460 ($1,500 + $3,200 + $5,760)
4. Job 1008:
Direct Materials: $600
Direct Labor: $1,300
Overhead (180% of Direct Labor): $2,340 ($1,300 x 180%)
Total Cost: $4,240 ($600 + $1,300 + $2,340)
b. Journal Entries to Record the Above Information:
1. Purchase of Steel on Account:
Debit: Inventory Accounts (Raw Materials) - $5,000
Credit: Accounts Payable - $5,000
2. Payment for Supplies from Mallard Supply:
Debit: Supplies Expense - $2,300
Credit: Accounts Payable - $2,300
3. Material Requisitions:
Debit: Work in Process (Job No.) - Direct Materials
Credit: Raw Materials Inventory - Direct Materials
The accounts will vary depending on the job number and amount.
4. Labor Time Ticket Summary:
Debit: Work in Process (Job No.) - Direct Labor
Credit: Direct Labor Expense
The accounts will vary depending on the job number and amount.
5. Applying Overhead to Jobs:
Debit: Work in Process (Job No.) - Overhead
Credit: Manufacturing Overhead
The accounts will vary depending on the job number and amount.
6. Completion and Transfer of Jobs to Finished Goods:
Debit: Finished Goods Inventory - Total Job Cost (including direct materials, direct labor, and overhead)
Credit: Work in Process (Job No.)
The accounts will vary depending on the job number and amount.
7. Shipment and Billing of Jobs:
Debit: Accounts Receivable - Total Job Cost x 150%
Credit: Sales Revenue - Total Job Cost x 150%
Debit: Cost of Goods Sold - Total Job Cost
Credit: Finished Goods Inventory - Total Job Cost
These are the general journal entries to record the transactions. Remember to adjust the accounts accordingly based on the job numbers and amounts provided in the question.