Reference no: EM13862868
Olduvai Inc. uses a job-order costing system. During the month of May, the following transactions occurred:
a. Purchased materials on account for $23,975.
b. Requisitioned materials totaling $18,000 for use in production. Of the total, $8,100 was for Job 58, $7,500 for Job 59, and the remainder for Job 60.
c. Incurred direct labor for the month of $19,138, with an average wage of $14 per hour. Job 58 used 715 hours; Job 59, 401 hours; and Job 60, 251 hours.
d. Incurred and paid actual overhead of $15,200 (credit Various Payables).
e. Charged overhead to production at the rate of $7 per direct labor hour.
f. Completed and transferred Jobs 58 and 59 to Finished Goods.
g. Sold Job 57 (see beginning balance of Finished Goods) and Job 58 to their respective clients on account for a price of cost plus 40%.
Required:
1. Prepare the journal entries for Transactions (a) through (g). Round your answers to the nearest whole dollar.
2. Materials, work in process and finished goods are asset accounts, and increase with debits. Cost of goods sold is an expense account which increases with debits. Payables are liabilities and increase with credits. Materials requisitioned for work in process decrease the Materials account and increase the WIP account. Labor is recorded in work in process account with credit to wages payable (to be paid to employees with next paycheck-allocation of labor costs does not mean actual payment to employees).
Record actual overhead costs with a credit to 'various payables'. (NOTE-There is really no such account, but for ease it will be used in this problem).
Record transfer of two completed jobs with credit to work in process and debit to finished goods accounts.
Record sale of two jobs in finished goods with credit and debit to cost of goods sold. Record sales revenue with credit to sales and debit to accounts receivable. Be sure to apply markup on cost to obtain sales.
3. Prepare brief job-order cost sheets for Jobs 58, 59, and 60.
4. Set up a column for each job. Record direct materials, direct labor and applied overhead. The total of the three jobs equals the balance in the work in process account before the jobs completed are transferred out.
5. Calculate the ending balance of Raw Materials.
6. Calculate the ending balance of Work in Process.
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