Job Order Costing
Theodore Structures uses a job costing system to cost its products, in which manufacturing overhead is applied on the basis of direct labour hours. On January 1, 2015, Job No. 25 was the only job in process. The costs incurred prior to January 1 on this job were: direct materials $10,000, direct labour $6,000, and manufacturing overhead $9,000. As of January 1, Job No. 24 had been completed at a cost of $42,000 and was part of finished goods inventory. There was a $5,000 balance in the Raw Materials Inventory account.
During the month of January, Theodore Structures began production on Jobs 26 and 27, and completed Jobs 25 and 26. Jobs 24 and 25 were sold on credit during the month for $63,000 and $74,000 respectively.
The following additional events occurred during the month.
1. The firm purchased on credit: 9,000 metres of raw material for $45,000.
2. The following raw materials were transferred to production (requisitioned):
a. Job number 25: 2,000 metres of raw material at $6 per metre (Requisition number 210)
b. Job number 26: 4,000 metres of raw material for $20,000 (Requisition number 211)
c. Job number 27: 5,000 metres of material for $15,000 (Requisition number 212)
3. Time sheets showed the following use of labour:
a. Job number 25: 150 hours of direct labour @ $20 per hour.
b. Job number 26: 600 hours of direct labour @ $20 per hour.
c. Job number 27: 360 hours of direct labour @ $25 per hour.
c. Indirect labour: maintenance and supervision, $6,000.
Manufacturing overhead is applied to production based on actual direct labour hours used each month.
4. 1000 litres of indirect material were requisitioned and issued to production (Requisition number 213) at a cost of $10,000.
5. Depreciation on the production building and equipment for January was $12,000.
6. The month’s $5,000 utilities bill for production was received and paid (show both entries).
7. The January council rates and property taxes bill for the production building of $3,000 was received.
8. Depreciation on Theodore’s administration office equipment amounted to $6,000.
1. Calculate Theodore’s predetermined overhead rate for 2015 assuming Theodore estimates total manufacturing overhead costs of $450,000, direct labour costs of $300,000 and direct labour hours of 15,000 for the year.
2. Open and complete job cost sheets for job numbers 25, 26 and 27 using the template provided over the page, and submit with your assignment (one job cost sheet per job). Tip: Don’t forget to calculate and include the relevant overhead cost for each job. Where you don’t have information to complete certain fields, you can leave blank. Remember, these sheets summarise the TOTAL cost of each job.
3. Provide journal entries (properly presented and including explanations) to record all of the events of January, including the completion and sale of relevant jobs.
4. Set up a Manufacturing Overhead Control ledger account for the company, complete the relevant entries for January, balance and close off the account on 31 January (assume the opening balance on 1 January is $0). What is the under or over-applied overhead for January? Close off the amount to COGS with a journal entry.
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