problems of job order costing system

COST AND MANAGMENT ACCOUNTING ASSIGMENT Prepared By,Aasim Shakeel (A)

Problems of Job order Costing SystemQ.1: Margoob Company uses job order cost accounting system. The following information appears in the goods in process controlling account for the month of June 1993, and company uses FIFO method.Debits to Account Credit to accountBalance June 1, 1993 8,000 Transferred to finishedDirect materials 20,000 Goods Inventory account ?Direct Labour 12,000 Balance June 30, 1993 8,500Manufacturing overheadincurred on account 14,000Total debits 54,000 Total Credit 54,000

Over applied Factory overhead Rs. 400 and used Factory overhead rate based on Direct Labour Cost. 90% completed units sold on account for Rs. 50,000.

Solution

Factory overhead Rate =factory overhead X 100 Direct Labor

Factory OverHead Rate= 14000+400 x 100 12000

Factory OverHead Rate = 120 %

GOOD IN PROCESS ENDING INVENTORY COST

Direct Material ( 8,500 – 4, 620 ) 3,880

Direct Labour 2,100

Factory Overhead ( 2, 100 x 120 / 100 ) 2, 520

______Total Good In Process At End 8,500

1


Margoob And CompanyGernal journal

For the mounth of june 31-1993

No PARTICULERS P.R DEBIT CREDIT

1 Good in Process Raw material

Accrued payroll

Factory overhead applied

( To record the manufacturing cost )

46,40020,000

12,000

14,400

2 Finished goods

Goods in process ( To record the completed )

45,900

45,900

3 Cost Of Good Sold ( 45,900 x 90 / 100 )

Finished good (To record the cost of good sold )

41,31041,310

4 Account Receivable

Sale ( To record sate on account )

50,000

50,000

5 Factory Overhead

Account Payable ( To record the actual overhead )

14,000

14,000

6 Over applied Factory Overhead

Cost Of Good Sold(to close the over applied factory overhead )

400

400

2


Goods In Process______________________________________________________________________

//

Balance 8,000// / Transferred to finished 45,900Direct material 20,000 / Direct Labour 12,000 /Overhead Applied 14,400 / balance june 30-1993 8,500

/ ______ / _______

54, 4000/ / 54, 4000Total _______ / ______

/

Q.2 : Sheikh Sons uses a job order cost accounting system.Factory overhead is charged to individual jobs through the use of a predetermined overhead rate based on direct labour cost.The following information appears in the company’s Goods-in-Process Inventory cost for the month of June.

Debit to accountBalance, June 1 Rs. 8,300Raw Materials 12,000Direct labour 9,000Factory overhead (applied to jobs aspercentage of direct cost) 11,700

Rs. 41,000Credit to accountTransferred to Finished goods inventoryaccount 32,000Balance, June 30 Rs. 9,000

REQUIRED:a) Compute the predetermined overhead application rate used by the Company.b) Assuming that the direct labour charged to the jobs still in process at June 30, amounts to Rs. 2,400, compute the amount of factory overhead and the amount of raw materials which have been charged to these jobs as of June 30.c) Prepare general journal entries to summarize:1. The manufacturing costs (materials, labour and overhead) charged to production during June.2. The transfer of production completed during June to the Finished Goods inventory account.3. The Cash sales of 90% of the merchandise completed during June, at a total sales price of Rs. 46,500. Show the related cost of goods sold in a separate journal entry

3


SOLUTION

A) computation of Predetermine Overhead Rate

Factory Overhead Rate = Factory Overhead Rate Direct Labour Cost

Factory Overhead Rate = 11,700 9,000 LABOUR

= 130 % Direct Labour Cost

B ) Calculation For FOH Applied Cost in Ending Inventory Of Good in Process

Total Value of ending Good In Process 9,000

Less : Direct Labour Cost 2,400

FOH Applied ( 2,400 x 130 % ) 3,120 (5,520)

Cost of raw material ( balancing figure ) 3,480

4


M/S Sheikh & SonGeneral & journal

For the month of June- 30 1996

Date PARTICULERS P.R

DEBIT CREDIT

1 Work in process Material Payroll FOH applied

( To recored the Direct Material Direct Labour N Applied FOH to Production )

32,70012,0009,00011,700

2 Finished Good Work In process

( To record transfer of W.I.P in to Finished Good )

32,000

32,000

3 Cost Of Good Sold

Finished Goods

(To record The Cost of Good Sold )

28,800

28,800

4 Accounts Receivable Sale

( To record Sale on Account )

46,500

46,500

Q.3: Sunshine Co. uses a job order cost accounting system. The following information was provided for the month of March.

a) Purchases of direct materials during the month amounted to Rs. 59,700/= on account.b) Materials requisitions issued by the production department during the month total to Rs. 56,200/=

5


c) Time cards of direct workers show 2000 hours worked on various jobs during the month, for total direct labour cost of Rs. 30,000/=d) Direct workers were paid Rs. 26,300/= in March.e) Actual overhead costs for the month amounted to 34,900/=f) Overhead is applied to jobs at a rate of Rs. 18/= per direct labour hour.g) Jobs with total accumulated cost of Rs. 1,16,000/= were completed during the month.h) On March 31, finished goods inventory was valued at Rs. 22,000/=i) During March finished goods were sold for Rs. 1,28,000/= on account.REQUIRED:

Prepare general journal entries for each of the above transactions (including cost of goods sold and closing of factory overhead account.

Sunshine CompanyGeneral Journal

For the Month of March

Date PARTICULERS P.R DEBIT CREDIT

a) Material

Account Payable

(To record Purchase Of raw Material on Account )

59,700

59,700

b) W.I.P

Material

To record direct material )

56,200

56,200

c) W.I.P

Payroll

(To record Direct Labour )

30,000

30,000

d) Accrued Payroll

BankTo record the payment of direct labour)

26,300

26,300

6


e) F.O.H

Account Payable

To record Incurred cost of FOH

34,900

34,900

f) W.I.P

FOH Applied

To record The Applied FOH )

36,000

36,000

g Finished Good

W.I P

Transfer Of WIP into Finished good)

116,000

116,000

h Cost Of good Sold

Finished Good ( 116,000-22,000)

To record cost of good sold )

94,000

94,000

i) Account Receivable

Sale

To record sale on account )

128,000

128,000

Problems of Manufacturing AccountingQ.1: Maroof Manufacturing Company showed beginning and ending inventories balances for 1992:Inventory accounts 1992 Dec. 31 1992 Jan. 1Material Rs. 30,000 Rs. 26,000Goods in process 9,000 12,000Finished goods 35,000 39,000

7


The amount debited and credited during the year to the accounts used in recording manufacturing costs are summarized below:Account Debit Entries Credit EntriesMerchandise Inventory 200,000 19,8000Direct Labour 60,000 68,000Manufacturing overhead 85,000 85,000Goods in process inventory ? ?Finished goods inventory ? ?Required:a) Compute the amounts for 1992:1) Direct Material purchased, 2) Direct Materials used, 3) Direct Labour Payroll paid during the year 4) Direct Labour costs total to units manufactured, 5) The year end liability for Direct Wages Payable, 6) The overhead application rate, assuming that overhead costs are applied to units manufactured in proportion to Direct – Labour cost, 7) Total Manufacturing cost debited to goods in process inventory, 9) Cost of goods sold.b) Prepare Statement of Cost of Goods sold for 1992 SOLUTION

1, Direct material purchase ………..Rs 200,000

2, Direct material Used

Raw material opening inventory 26,000Less: Raw material purchase 200,000 ------------ Raw material available for use 226,000Less: Raw material ending inventory 30,000 ------------

Raw material used 196,000 ------------

3- Direct labour payroll paid Rs 60,000

4- Direct labour used in production 68,000

5- Direct labour wages Balance at end labour used 68,000

Less: Payroll paid 60,000 ----------- Labour wages balance at end 8,000 -----------

6- Factory Overhead rate = factory overhead ----------------------- X 100 Direct labour

= 85,000 ------------ X 100 68, 000

8


Factory Overhead rate = 125 %

Manufacturing Cost

7- Direct material 196,000

Direct labour 68,000

Factory Overhead 85,000 ---------- Manufacturing cost 349,000 ------------

------------------------------------------------------------------------------------------------------------------------Q.2: The Accounting Records of Alladen Mfg. Co. include the following information relating to the year ended December 31, 1996.

December 31 January 1Materials inventory 60,000 47,500Goods in Process Inventory 18,750 20,000Finished goods inventoryJan. 1 (5,000 units) 108,000 95,000Raw Materials purchases 142,500Direct Labour cost 97,500Factory overhead cost 221,250

The company manufactured a single product during 1996, 22,500 units were manufactured and 20,000 units were sold.Required:a) Prepare a statement of cost of finished goods manufactured for 1996.c) Compute the cost of good Sold during 1996 using FIFO method b) Compute the cost of goods sold during 1996, assuming that the FIFO inventory costing is used.d) Compute the cost of the Inventory of finished goods at December 31, 1996 assuming that the FIFO method of inventory costing is used.

A--) SOLUTION Aladdin Manufacturing Co

Cost Of Good ManufacturingFor the period ended December 31. 1996

Raw material used

Material inventory 47,500Add: Raw material purchase 142,000

9


---------- Raw material available for use 190,000Less: Material inventory 60,000 ------------ Raw material used 130,000 Direct labour 97,000 Factory overhead 221,250 ------------- Manufacturing cost 448,750Add: Good in Process Jun 1 20,000 --------------- Total cost of good in process 468,750Less: Goods in process dec 31 18,750 -----------------

COST OF GOOD MANUFACTURED 450,000 ------------------ Working for unitTotal cost unit manufactured 450,000Total unit manufactured 22,500Per unit cost ( 450,000/ 22,500 ) 20 --------------------------------------------------------------------------------------------------B) Finished Good Inventory At end Finshed good January 5,000 unit Add Finished good during the period 22,000 --------- Total finished goods 27,500Less Finished Good Sold 20,000Finished inventory December 31 7,500

- -------- Per unit 20

COST OF FINISHED GOOD SOLD DEC 31 ( 7,500 x 20) 150,000

C_ Cost of good sold During 1996 FIFO inventory method costing used Finishes good January 1 95,000Add: Cost of good Manufactured 450,000 ------------- Finished Good Available for sale 545,000Less: Finishing Good December 31 ( 7,500 x 20 ) 150,000 ------------Cost of good sold 395,000 -------------

Q.3: The following balance have been taken from the general ledger for Fano Manufacturing Company:

Raw Materials Inventory (1-12-91) 37,950Raw Materials Purchases 1,89,600Raw Materials Returns 8,800Carriage Inwards 15,700

10


Direct Labour 2,54,400Indirect Labour 59,250Depreciation (Machinery) 30,850Heat, Light and Power 25,400Factory Rent & Taxes 31,450Factory Repair Expense 19,350Foreman’s Salary 24,500Raw Materials Inventory (31-12-91) 57,500Word in Process Inventory (1-12-91) 53,400The foreman estimates that Rs. 31, 800 of Raw Materials and Rs. 24,800 of Direct

Labour are to be allocated to the unfinished goods in process on 31-12-91.REQUIRED:

1) Determine the factory overhead rate bases on direct labour cost.2) Compute the cost of December 31, 1991 inventory of Goods in Process.3) Prepare a Statement of Cost of Goods Manufactured for December 91.

SOLUTION

Schedule of Factory Overhead

(A)

Indirect Labour 59,250Depreciation (Machinery) 30,850Heat, Light and Power 25,400Factory Rent & Taxes 31,450Factory Repair Expense 19,350Foreman’s Salary 24,500

-----------Total factory overhead 190,800 -------------Factory overhead rate = Factory Overhead ------------------------ X 100 Direct Labour = 190,800 ------------ x 100 254, 400

Factory overhead rate = 75 %

B) Good In Process Ending Inventory Raw Material 31,800Direct Labour 24,800Factory overhead ( 24,800 x 75/ 100 ) 18,600 ----------

11


Total Goods in Process at end 75,200 -----------

C)

FANO MANUFACTURING COCOST OF GOODS MANUFACTURED

FOR THE PERIAD ENDEND DEC---31—1991

Raw material inventory ( 1-12-91) 37,950Add: raw material Purchase 189,600 Add: Carriage inward 15,700

Less: Raw material return 205,300 Net purchase 8,800 ---------- 196,500 : ------------ Raw material available for use 234,450Less: Law material inventory 57,500 ------------ Raw material Used 176,950 Direct labour 254,400 Factory Overhead 190,800 ------------Manufacturing Cost 622,150Add: Good In Process Inventory ( 01-12- 91 ) 75,200 ------------Total goods in Process 675,550Goods In Prosess ( 31-12-91) 75,200 -----------COST OF GOOD MANUFACTURED 600,350 -------------

Problems of Standard Accounting

Q.1: The Accountant for Syntax Inc. have developed the following information manufactured in June 1996.

MaterialsStandard : 80,000 ounces at Rs. 0.30 per ounce.Actual : 88,000 ounces at Rs. 0.29 per ounce.Direct Labour

12


Standard : 4,000 ounces at Rs. 10.00 per ounce.Actual : 3,600 ounces at Rs. 10.40 per ounce.Factory OverheadStandard : 4,000 ounces at Rs. 10.00 per ounce.Actual : 3,600 ounces at Rs. 10,40 per ounce.Factory OverheadStandard : Rs. 9,000 fixed cost and Rs. 5,000

variable cost for 10,000 units normalmonthly volume.

Actual : Rs. 9,000 fixed cost and Rs. 4,600variable cost for 8,000 units actuallyproduced in June

The normal volume is 10,000 units per month, but only 8,000 units were manufactured in June.Required:

Compute the following cost variances for the month of June.a) Material price variance and material quantity variance.b) Labour rate variance and labour usage variance.c) Controllable factory overhead variance and volume variance

SOLUTION : A)terial Price Variance = ( Actual Price – Standard Price ) X Actual Quantity

( Rs: 0.29 - Rs .30 ) x 88,000 unit = Rs 880 Favorable

A.1)rial Quantity variance = (Actual Quantity – Standard Quantity) x Standard price per unit = ( 88,000 units – 80,000 units ) Rs,0,03 = Rs 2,400 unfavorable

B) labour Rate Variance = ( Actual Rate – Standard Rate ) x Actual Hour = ( Rs 10,40 – Rs 10,00 ) x 3,600 = ( 1,440 unfavorable

B,1) labour usage variance = ( Actual Hour – Standard Hours ) x Standard Rate per hour = ( 3,600 hrs – 4, 000 hrs ) x RS 10 = Rs 4,000 favorable

C ) FOH Variance = ( total actual FOH ( 9,000 + 4,600) 13,600 Estimated FOH cost for actual output ( 13,000)

Controllable Variance ( Unfavorable ) 600

WORKING FOR ESTIMATED FOH Fixed assest FOH cost 9,0008,000 unit x ( 5,000 / 10,000

Add Variable cost ( actual output x x Variable FOH Rate 4,000

13


Eliminated FOH cost 13,000 ---------

WORKING FOR VARIANCE AND VOLUME

Etimated FOH cost for actule out put 13,000

Less Applied FOH for actule ( actule output x total FOH rate = 8,000 unit x RS 1.40 = ( 11,200) Volume variance ( unfavorable ) 1,800

Q.2 Riaz Process Standard and Actual Cost data for the single product they manufacture, for the month of September, 1992, are as following:

StandardMaterial 5,000 kgs. @ Rs. 1.60.Labour 5,000 hours @ Rs. 3.60Overhead Rs. 2.80 per Labour hour

ActualMaterial 900 kgs. @ Rs. 1.90 Labour 5,200 kgs. @ Rs. 1.90Overhead Rs. 14,900.REQUIRED:1) Computation Mat. Price Variance, Mat. Quantity Variance. Lab. Wage Variance, Lab. Efficiency Variance, and Overhead Variance.2) General Journal entries for the above.3) General Journal entries to close the variance accounts.

SOLUTION1- Material quantity variance = difference in quantity x standard price 100 x 1.60 160

2-Material price variance = Difference in quantity x actual quantity = 0.30 4,900 = 1, 470

3-labour efficiency Variance = Difference in hour x standard price = 200 x 3,60 = 720

4-labour wages variance = difference in rate x actual hours 0.10 x 5,200 = 520

5-)overhead Variance = Standard cost – actual cost 14,000 - 14,900 900

RIAZ MANUFACTURING COMPANYGENERAL JOURNAL

FOR TE MOUNTH OF SEPTEMBERDATE PARTICULERS P.R DEBIT CREDIT

14


1- Good in Process Material price Variance

Material Quantity Variance Raw material

To record the Material used and variance

8,0001,470

1606,310

2- Goods In Process Labour Efficiency Variance Labour wages Variance

Accrued Payroll

To record the Payroll And Variances

18,000720520

19,240

3- Goods in process Overhead Variance Applied

Factory overhead applied

To record Overhead and variance

14,000900

14,900

RIAZ MANUFACTURING COMPANYCLOSING ENTRIES

FOR TE MOUNTH OF SEPTEMBERDATE PARTICULES P,R DEBIT CREDIT

1- Material quantity varianceCost of good sold Material Price Variance Labour efficiency Variance Labour wages Variance Overhead variance To record Close Various variance into cost of good sold

1603,450

1,470720520900

15

problems of job order costing system

Documents

managment accounting assigment

general journal entries

labour usage variance

account receivable sale

material price variance

finished goods inventory

direct labour cost

direct labour