Problems of Job Order Costing System

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

Problems of Job order Costing System Q.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 account Balance June 1, 1993 8,000 Transferred to finished Direct materials 20,000 Goods Inventory account ? Direct Labour 12,000 Balance June 30, 1993 8,500 Manufacturing overhead incurred on account 14,000 Total 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

1

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

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

Margoob And Company Gernal journal For the mounth of june 31-1993 No 1

2

PARTICULERS Good in Process Raw material

P.R DEBIT 46,400

20,000

Accrued payroll

12,000

Factory overhead applied

14,400

( To record the manufacturing cost ) Finished goods

45,900

Goods in process ( To record the completed )

3

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

45,900 41,310 41,310

Finished good (To record the cost of good sold )

4

Account Receivable

50,000

Sale ( To record sate on account )

5

Factory Overhead

50,000

14,000

Account Payable ( To record the actual overhead )

6

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

2

CREDIT

14,000

400 400

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

Goods In Process ______________________________________________________________________ / / Balance 8,000// / Transferred to finished 45,900 Direct material 20,000 / Direct Labour 12,000 / Overhead Applied 14,400 / balance june 30-1993 8,500 / ______ / _______ 54, 4000/ / 54, 4000 Total _______ / ______ / 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 account Balance, June 1 Rs. 8,300 Raw Materials 12,000 Direct labour 9,000 Factory overhead (applied to jobs as percentage of direct cost) 11,700 Rs. 41,000 Credit to account Transferred to Finished goods inventory account 32,000 Balance, 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

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

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 Less : Direct Labour Cost FOH Applied ( 2,400 x 130 % )

Cost of raw material ( balancing figure )

4

9,000 2,400 3,120

(5,520)

3,480

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

M/S Sheikh & Son General & journal For the month of June- 30 1996

Dat e 1

PARTICULERS Work in process Material Payroll FOH applied

P. R

DEBIT

CREDIT

32,700 12,000 9,000 11,700

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

2

Finished Good

32,000

Work In process

32,000

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

3

Cost Of Good Sold

28,800

Finished Goods

28,800

(To record The Cost of Good Sold )

4

Accounts Receivable Sale ( To record Sale on Account )

5

46,500 46,500

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

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/= 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 Company General Journal For the Month of March Date

PARTICULERS

a)

Material

P. R

DEBIT

CREDIT

59,700

Account Payable

59,700

(To record Purchase Of raw Material on Account )

b)

W.I.P

56,200

Material

56,200

To record direct material )

c)

W.I.P

30,000 Payroll

(To record Direct Labour )

6

30,000

COST AND MANAGMENT ACCOUNTING ASSIGMENT

d)

Accrued Payroll

Prepared By,Aasim Shakeel (A) 26,300

Bank To record the payment of direct labour)

e)

F.O.H

26,300

34,900 Account Payable

34,900

To record Incurred cost of FOH f)

W.I.P

36,000 FOH Applied

36,000

To record The Applied FOH ) g

Finished Good

116,000

W.I P

116,000

Transfer Of WIP into Finished good) h

Cost Of good Sold

94,000

Finished Good ( 116,000-22,000)

94,000

To record cost of good sold ) i)

Account Receivable Sale To record sale on account )

7

128,000 128,000

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

Problems of Manufacturing Accounting Q.1: Maroof Manufacturing Company showed beginning and ending inventories balances for 1992: Inventory accounts 1992 Dec. 31 1992 Jan. 1 Material Rs. 30,000 Rs. 26,000 Goods in process 9,000 12,000 Finished goods 35,000 39,000 The amount debited and credited during the year to the accounts used in recording manufacturing costs are summarized below: Account Debit Entries Credit Entries Merchandise Inventory 200,000 19,8000 Direct Labour 60,000 68,000 Manufacturing overhead 85,000 85,000 Goods 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 Less: Raw material purchase

26,000 200,000 -----------226,000 30,000 ------------

Raw material available for use Less: Raw material ending inventory Raw material used 3- Direct labour payroll paid Rs

4- Direct labour used in production

196,000 -----------60,000

68,000

5- Direct labour wages Balance at end labour used Less: Payroll paid Labour wages balance at end

8

68,000 60,000 ----------8,000 -----------

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

6- Factory Overhead rate = factory overhead ----------------------- X 100 Direct labour = 85,000 ------------ X 100 68, 000

Factory Overhead rate = 125 %

Manufacturing Cost 7- Direct material

196,000

Direct labour

68,000

Factory Overhead

85,000 ---------349,000 ------------

Manufacturing cost

-----------------------------------------------------------------------------------------------------------------------Q.2: The Accounting Records of Alladen Mfg. Co. include the following information relating to the year ended December 31, 1996. December 31 January 1 Materials inventory 60,000 47,500 Goods in Process Inventory 18,750 20,000 Finished goods inventory Jan. 1 (5,000 units) 108,000 95,000 Raw Materials purchases 142,500 Direct Labour cost 97,500 Factory 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.

9

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

A--) SOLUTION Aladdin Manufacturing Co Cost Of Good Manufacturing For the period ended December 31. 1996 Raw material used Material inventory Add: Raw material purchase Less:

Raw material available for use Material inventory

47,500 142,000 ---------190,000 60,000 ------------

Raw material used Direct labour Factory overhead Add:

Manufacturing cost Good in Process Jun 1

Less:

Total cost of good in process Goods in process dec 31

COST OF GOOD MANUFACTURED

130,000 97,000 221,250 ------------448,750 20,000 --------------468,750 18,750 ----------------450,000 ------------------

Working for unit Total cost unit manufactured 450,000 Total unit manufactured 22,500 Per 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 27,500 Less Finished Good Sold 20,000 Finished 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 95,000 Add: Cost of good Manufactured 450,000 ------------Finished Good Available for sale 545,000 Less: Finishing Good December 31 ( 7,500 x 20 ) 150,000 -----------Cost of good sold 395,000 -------------

10

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

Q.3: The following balance have been taken from the general ledger for Fano Manufacturing Company: Raw Materials Inventory (1-12-91) 37,950 Raw Materials Purchases 1,89,600 Raw Materials Returns 8,800 Carriage Inwards 15,700 Direct Labour 2,54,400 Indirect Labour 59,250 Depreciation (Machinery) 30,850 Heat, Light and Power 25,400 Factory Rent & Taxes 31,450 Factory Repair Expense 19,350 Foreman’s Salary 24,500 Raw Materials Inventory (31-12-91) 57,500 Word in Process Inventory (1-12-91) 53,400 The 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 Depreciation (Machinery) Heat, Light and Power Factory Rent & Taxes Factory Repair Expense Foreman’s Salary Total factory overhead Factory overhead rate = Factory Overhead ------------------------ X 100 Direct Labour = 190,800 ------------ x 100 254, 400 Factory overhead rate = 75 %

11

59,250 30,850 25,400 31,450 19,350 24,500 ----------190,800 -------------

COST AND MANAGMENT ACCOUNTING ASSIGMENT

B)

Prepared By,Aasim Shakeel (A)

Good In Process Ending Inventory

Raw Material Direct Labour Factory overhead ( 24,800 x 75/ 100 ) Total Goods in Process at end

31,800 24,800 18,600 ---------75,200 -----------

C) FANO MANUFACTURING CO COST OF GOODS MANUFACTURED FOR THE PERIAD ENDEND DEC---31—1991 Raw material inventory ( 1-12-91) Add: raw material Purchase Add: Carriage inward Less: Raw material return Net purchase : Raw material available for use Less: Law material inventory Raw material Used Direct labour Factory Overhead Manufacturing Cost Add: Good In Process Inventory ( 01-12- 91 ) Total goods in Process Goods In Prosess ( 31-12-91) COST OF GOOD MANUFACTURED

12

37,950 189,600 15,700 205,300 8,800 ---------196,500 -----------234,450 57,500 -----------176,950 254,400 190,800 -----------622,150 75,200 -----------675,550 75,200 ----------600,350 -------------

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

Problems of Standard Accounting Q.1: 1996.

The Accountant for Syntax Inc. have developed the following information manufactured in June Materials Standard : Actual Direct Labour Standard Actual Factory Overhead Standard : Actual Factory Overhead Standard

80,000 ounces at Rs. 0.30 per ounce. : 88,000 ounces at Rs. 0.29 per ounce. : :

4,000 ounces at Rs. 10.00 per ounce. 3,600 ounces at Rs. 10.40 per ounce.

4,000 ounces at Rs. 10.00 per ounce. : 3,600 ounces at Rs. 10,40 per ounce. :

Rs. 9,000 fixed cost and Rs. 5,000 variable cost for 10,000 units normal monthly volume. Actual : Rs. 9,000 fixed cost and Rs. 4,600 variable cost for 8,000 units actually produced 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) Estimated FOH cost for actual output

13,600 ( 13,000)

Controllable Variance ( Unfavorable )

600

13

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

WORKING FOR ESTIMATED FOH Fixed assest FOH cost 8,000 unit x ( 5,000 / 10,000

9,000

Add Variable cost ( actual output x x Variable FOH Rate

4,000

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 = Volume variance ( unfavorable )

( 11,200) 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: Material Labour Overhead

Standard 5,000 kgs. 5,000 hours Rs. 2.80 per Actual 900 kgs. @ 5,200 kgs. Rs. 14,900.

@ Rs. @ Rs. Labour hour

1.60. 3.60

Material Rs. 1.90 Labour @ Rs. 1.90 Overhead 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.

SOLUTION 1- 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

14

= Standard cost – actual cost 14,000 - 14,900

COST AND MANAGMENT ACCOUNTING ASSIGMENT

Prepared By,Aasim Shakeel (A)

900

DATE 1-

PARTICULERS

RIAZ MANUFACTURING COMPANY GENERAL JOURNAL FOR TE MOUNTH OF SEPTEMBER P.R

Good in Process Material price Variance

DEBIT

CREDIT

8,000 1,470

Material Quantity Variance Raw material

160 6,310

To record the Material used and variance 2-

Goods In Process Labour Efficiency Variance Labour wages Variance

18,000 720 520

Accrued Payroll 19,240 To record the Payroll And Variances 3-

Goods in process Overhead Variance Applied

14,000 900

Factory overhead applied

14,900

To record Overhead and variance

DATE 1-

RIAZ MANUFACTURING COMPANY CLOSING ENTRIES FOR TE MOUNTH OF SEPTEMBER PARTICULES P,R DEBIT Material quantity variance 160 Cost of good sold 3,450 Material Price Variance Labour efficiency Variance Labour wages Variance Overhead variance To record Close Various variance into cost of good sold

15

CREDIT 1,470 720 520 900

COST AND MANAGMENT ACCOUNTING ASSIGMENT

16

Prepared By,Aasim Shakeel (A)