0

Journal Entries and Ledger Accounts Covering Cost Accounting Cycle. During November, these transactions took place in the Sanger Manufacturing Company:

(a) Materials purchased on account, $35,600.

(b) Materials issued during the month as follows: to fill requisitions on job orders, $25,250; supplies issued to the factory, $1,300.

(c) Materials issued to complete defective units, $200.

(d) Freight paid for materials received, $850. (Freight is not added to unit costs on materials inventory cards.)

(e) Materials returned to the vendor during the month, $225.

(f) Scrap materials received in the storeroom were set up at a value of $175, and credit was given to Factory Overhead Control for that amount. A separate general ledger account, Scrap Materials, is used.)

(g) Materials returned to the storeroom during the month as follows: from job orders, $1,090; from supplies issued to the factory, $175.

(h) Total payroll for the month was as follows:

Recorded and then paid liability for net pay to workers, $41,503.

Withheld for federal income tax, $7,780.

Withheld for hospitalization plan, $950.

Withheld for FICA tax, $2,367.

(i) Taxes were recorded for the employer's FICA tax. State unemployment insurance for the Sanger Manufacturing Company is 1.5% of total payroll, and the federal unemployment insurance rate is .5%. These taxes were charged to Factory Overhead Control.

(j) The payroll was distributed as follows: direct labor, $40,200; indirect labor, balance of payroll,

(k) Depreciation for the month: buildings, $3,000; machinery, $4,800.

(1) Property taxes accrued during the month, $750; insurance expired with a credit to the prepaid account, $850.

(m) Factory overhead is charged to production at a rate of $ 1 .40 per direct labor hour. Records show 19,200 direct labor hours used during the month.

(n) Close out the over- or underapplied factory overhead to Cost of Goods Sold.

(o) Cost of goods completed during the month, $81,750.

(p) Goods costing $75,500 were sold on account during the month at a sales price of $90,000.

Required: (1) Journal entries to record these transactions. Indicate the subsidiary records to which the entries would also be posted.

(2) Ledger accounts for Work in Process, Factory Overhead Control, Materials, and Finished Goods. The November 1 balances were: Work in Process, $9,750; Materials, $6,180; Finished Goods, $5,660.

(3) What is the effect of closing over- or underapplied overhead to Cost of Goods Sold?

Q11

Ledger Accounts Covering Cost Accounting Cycle and Job Cost Accumulation. The following is information regarding the operations for March of the Goodfield Products Company:

The books show these account balances as of March 1

Raw Materials	$ 65,000	Over- or Underapplied
Work in Process	292,621	Factory Overhead	$12,300 (cr.)
Finished Goods	78,830

The work in process account is supported by these job order cost sheets;

		Direct	Direct	Direct
Job No.	Item	Materials	Labor	Labor	Total
204	80,000 Balloons	$ 15,230	$ 21,430	$ 21,430	$ 50,460
205	5,000 Life Rafts	40,450	55,240	55,240	118,060
206	10,000 Life Belts	60,875	43,860	43,860	124,101
		$116,555	$120,530	$120,530	$292,621

During March these transactions occurred:

(a) Purchase of raw materials, $42,300.

(b) Purchase of special materials for new Job No. 207, $5,800.

(c) Job No. 207 calls for 4,000 life jackets.

(d) Payroll data for March:

Job No.	Amount	Amount
204	$13,422	$13,422
205	14,630	14,630
206	14,075	14,075
207	12,948	12,948

Indirect labor cost, $9,480; factory superintendence, $1,500. Payroll deductions: FICA tax, 6%; federal income tax, 12%.

(e) Employer's payroll taxes: FICA, 6%; state unemployment insurance, 1.6%; federal unemployment insurance, .5%. These taxes were charged to Factory Overhead Control.

(f) Raw materials issued
Job No. 204	$ 9,480
Job No. 205	11,320
Job No. 206	10,490
Job No. 207	16,640(excluding special purchases of $5,800 which are also issued at this time)

(g) Other factory overhead incurred or accrued

Insurance on factory	S 830	Coal expense	$1,810
Taxes on real estate	2,345	Power	3,390
Depreciation machinery.	4,780	Repairs and maintenance	2,240
Depr. factory building	2,840	Indirect supplies	1,910
Light	1,260

(h) Factory overhead is applied at the rate of $1.15 per direct labor hour,

(i) Shipped and billed Job No. 204 at a contract price of $97,500.

Required: (1) Ledger accounts, inserting beginning balances and entering transactions for March. (Factory overhead is to be posted to the control account only with a credit to Various Credits.)

(2) In itemized form, the total cost of each job at the end of March.

(3) The amount remaining in the over- or underapplied factory overhead account.

Q13

General and Subsidiary Ledger Accounts Covering Cost Cycle Using Job Order Cost Accumulation. The Leyden Company makes two types of storage batteries: Dependable Senior and Dependable Junior. General and subsidiary ledger balances as of May 1 were

	Debit	Credit
Cash.	$ 35,000
Accounts Receivable	25,000
Raw Materials	35,000
Work in Process	15,000
Finished Goods	25,000
Factory Equipment	20,000
Accumulated Depreciation Factory Equipment	4,000
Accounts Payable	46,000
Capital Stock	80,000
Retained Earnings.	25,000
Total	$155,000	$155,000

Raw materials
Cases	$17,500
Zinc	12,000
Fluid	5,500
Total	$35,000

Finished goods inventory:
Dependable Senior	$15,000
Dependable Junior	10,000
Total	$25,000

	Dependable Senior	Dependable Junior
	Job Order #84	Job Order #85
Work in process inventory	for Stock	for Stock
Materials	$5,000	$4,000
Labor	2,500	1,500
Factory overhead	1,250	750
Total	$8,750	$6,250

The figures in the subsidiary ledgers are expressed in dollars only. The company buys cases, zinc, and fluid but assembles the batteries,

(a) Summary of accounts payable register:

Raw materials purchases:

Cases	$10,000
Zinc	5,000
Fluid	5,000	$20,000
Payroll		18,000
Factory overhead	3,000
Marketing expenses	20,000
Administrative expenses	10,000
Financial expenses	4,000
		$75,000

(b) Summary of materials requisitions

	Total	Job Order #84	Job Order #85
Cases	$21,000	$11,000	$10,000
Zinc	16,000	8,000	8,000
Fluid	8,000	5,000	3,000
	$45,000	$24,000	$21,000

(c) Payroll analysis
Direct labor:
Job Order #84	$7,000
Job Order #85	7,500	$14,500
Indirect labor	3,500
		$18,000

(d) The overhead rate is 50% of direct labor cost. Charge the two orders.

(e) Job #84 is finished.
(f) Summary of sales on account:
	Sales Price	Cost Price
Dependable Senior	$ 80,000	$ 45,000
Dependable Junior	22,000	8,000
Total	$102,000	$ 53,000
(g) Summary of cash transactions:
Received on account	$11 8,000
Paid creditors and other liabilities	105,000
(h) Depreciation on factory equipment is $1,250.

Required: (1) The posting of all transactions to ledger accounts to record the above data.

(2) The amount of over- or underapplied factory overhead -transferring the balances to the cost of goods sold account.

(3) The checking of the control account balances with the balances of the related subsidiary ledger balances.

(4) A trial balance.

Q14

Job Order Costing; General and Factory Ledger. On December 31, 19A, after closing, the ledgers of the Palmer-Travis Company contained these accounts and balances:

Cash	$47,000	Accounts Payable	$ 59,375
Accounts Receivable...	50,000	Capital Stock	100,000
Materials*	22,000	Retained Earnings	34,925
Work in Process*	7,500	Factory Ledger	62,000
Finished Goods*	32,500	General Ledger*	62,000
Machinery	35,300

* Maintained in the factory ledger.

Details of the three inventories are

:

Materials inventory: Material A - 2,000 units @ $5.00	$10,000
Material B - 4,000 units @ 3.00	12,000
Total	$22,000
Finished goods inventory: Item X - 1,000 units @ $12.50	$12,500
Item Y - 2,000 units @ 10.00	20,000
Total	$32,500

Work in process inventory:
Direct materials:
500 units of A @ $5.00	$2,500
200 units of B @ 3.00	600
Direct labor:
500 hours @ $4.00	2,000
200 hours @5.00	1,000
Factory overhead applied at the rate of
$2.00 /hour	1.000	400
Total	$5,500	$2,000

During January, 19B, these transactions were completed:

(a) Purchases on account: Material A, 10,000 units @. $5.20; Material B, 12,000 units @ $3.75; indirect materials amounting to $17,520.

(b) Payroll totaling $110,000 was paid. $20,000 of the total payroll was for marketing and administrative salaries. Payroll deductions consisted of $15,500 for federal income tax withheld and 6% for PICA tax.

(c) Payroll to be distributed as follows: Job No. 101, 5 000 direct labor hours @

$4 00- Job No 102, 8,000 direct labor hours (a $5,00; Job No. 103 6,000 direct' labor hours (g, $3.00; indirect labor, $12,000; "marketing and administrative salaries, $20,000. Employer's payroll taxes are: PICA tax, 6%, state unemployment insurance tax, 2.7%; federal unemployment insurance tax, .5%.

(d) Materials were issued on a fifo basis as follows: Material A 10,000 units (charged to Job No. 101); Material B, 12,000 units (charged to Job No. 02)

Material A, 1,000 units, and Material B, 2,500 units (charged to Job No 103).

(Note: Transactions to be taken in consecutive order.) Indirect materials amounting to $7,520 were issued.

(e) Factory overhead was applied to Jobs No. 101, 102, and 103 based on a rate of $2 per direct labor hour.

(f) Jobs No. 101 and 102 were completed and sold on account for $120,000 and $135,000, respectively.

(g) After allowing a 5% cash discount, a net amount of $247,000 was collected on accounts receivable.

(h) Marketing and administrative expenses paid during the month amounted to $15 000 Miscellaneous factory overhead accountmg to $10,800 was paid and transferred to the factory. Depreciation on machinery was $2,000.

(i) Payments on account, other than payrolls paid, amounted to $85,000.

(j) Over- or underapplied factory overhead is to be closed to the cost of goods sold account.

Required: (1) Trial balances of the general ledger and of the factory ledger as of January 1, 19B.

(2) Open general ledger and factory ledger accounts from the January 1

trial balances and record the balances.

(3) Journalize the January transactions.

(4) Post the January transactions to the general ledger, factory ledger, and subsidiary ledgers for materials, work in process, finished goods, and factory overhead incurred.

(5) Trial balances of the general ledger and the factory ledger as of January 31, 19B, reconciling control accounts with subsidiary ledgers. '

(6) A statement of cost of goods sold for January, 19B.

Q15

Job Lot Costing; Factory Ledger; Income Statement. The manufacturing process of the Pepper Products Company consists of assembling its product from parts supplied by four prime contractors. These parts are accepted by the Pepper Products Company only when they prove acceptable for use in the finished product.

The company pays its direct labor on a piecework basis, pays only tor completed units which prove to be acceptable upon inspection. Although the company does not employ a cost accounting system it normally schedules production in lots of 100 units each. Thus, at the end of a month some lots may still be in process. These lots may have all the necessary materials already issued, or only a portion of the materials may have been issued. Any direct labor costs incurred for these lots will be restricted to the labor for units already completed and accepted by inspection but not transferred to finished goods.

On September 30, 19-, the trial balance appeared as follows:

Assets (including a petty cash fund of $400 maintained at the plant)	$133,700
Liabilities	$ 20,000
Capital Stock	100,000
Retained Earnings	40,000
Materials	53,200
Direct Labor	18,900
Factory Overhead	12,400
Marketing Expenses	8,000
Administrative Expenses	4,000
Sales		70,200
Total	$230,200	$230,200

Of the completed lots for September, one lot of 100 units is in the storeroom; and the remaining lots were sold to the National Mail Order Company under a contract which called for the purchaser to pay a price equal to cost (including a reasonable allowance for normal overhead) plus a markup equal to 30% of cost. This contract accounted for all of the company's sales in September. Since the Pepper Products Company has no cost accounting system, the National Mail Order Company cost accountant made an analysis of the Pepper Products Company's records and developed these figures pertinent to the contract:

	Unit Cost	Basis of Calculation
Direct materials cost	$60	Cost to company of all components
Direct labor cost	30	Total piece rate per completed unit
Factory overhead	18	Percentage of prime cost

The Pepper Products Company now seeks to establish a cost accounting system for its plant. Since the home office and the plant are separated by a distance of 100 miles, the company also desires to maintain the cost accounts at the plant and the financial accounts on the books of the home office.

An inventory of materials on September 30 totals $12,100.

Required: Assuming the calculations of the cost accountant of the National Mail Order Company to be correct, prepare: (a) Entries both on the books of the home office and on the books of the plant to change the company's accounts to reflect the use of a job-lot accounting system as desired by the management. (Assume that no inventories were on hand on September 1, 19-, and that the company closes its books on August 31, the end of its fiscal year.)

(b) An income statement for September. (Applied factory overhead is closed to the actual overhead account at the end of the fiscal year.)

Q16

Determination of Cost. The president of the Nola Cola Bottling Company has heard rumblings of dissatisfaction among the board of directors about the relatively low net earnings of the company. Several directors are not satisfied with the accounting reports being issued.

They believe, it appears, that the shipping and delivery expenses are reasonable, that advertising is in line, and that administrative expenses, although possibly somewhat above normal, are not out of control. Their primary criticism seems leveled at manufacturing costs.

Consequently, a meeting of the board of directors has been called in order to examine critically the accounting system in use for determining manufacturing

costs; that is, in essence, the cost of a Nola Cola bottle ready for delivery as it comes from the last operation of the bottling process. Sensing some of the problems involved, the president has adopted a recognized technique of executive strategy; before having the controller explain the accounting system in use, the president has decided to ask for an opinion as to what items should be included in the proper determination of the cost of a bottle of Nola Cola. For example, the president believes there is mutual agreement that such items as syrup, water, carbonation, and bottle caps are properly part of manufacturing costs.

Required: A list of other items that should be included, and to what extent.

Q17

Improving a Cost Information and Accumulation System. An examination of costing methods and procedures in the Zodiac Printing Company reveals the following:

(a) Costing formulas and ratios prepared a long time ago are still being used by estimators even though prices for materials have increased, overhead is higher, and new machinery has been installed.

(b) An estimator in the production department and a cost clerk in the cost department prepare estimates independently from one another, resulting in widely divergent cost figures.

(c) A profit per individual job or order can never be determined.

(d) Each job or order is sold with a definite markup. Yet instead of a profit of $100,000 as the president hoped for, the chief accountant prepared an income statement showing only a $48,000 profit.

(e) Determining departmental efficiency and control over expenses is not possible.

Required: A statement outlining: (a) possible causes of the existing condition and (b) possible steps to remedy the situation.

Q18

Revising a Cost Information and Accumulation System. The Ackerman Thread Company produces a standardized, high-quality cotton thread. Recently the firm accepted the offer of a large distributor to produce small lots of high-quality thread with special characteristics at a relatively high margin of profit. Heretofore, controls on costs were maintained by processes because of the standardized nature of the product. It is now believed that the old system is no longer satisfactory because a knowledge of the profitability of each job lot is needed.

In order to produce these small lots, skilled workers in several of the departments have been assigned to work on the special orders; in some instances, even special locations for this type of work have been established. However, in some phases of the production processes the special threads are processed in the same way and by the same workers and facilities as the present, regular line.

Required: (1) Adjustments that are advisable in the present system and the reasons for them.

(2) Problems which the company may face because of these adjustments.

Q19

Installing a Cost Information and Accumulation System. A textile manufacturer asks your advice concerning the advisability of installing a cost system. He explains briefly that he manufactures many different cloths, starting with scoured wool that passes through the following processes before becoming finished cloth: picking and blending, carding, spinning, weaving, finishing, and dyeing. The company's salesmen take orders considerably in advance of the actual production of the cloth, using samples produced during a special period set aside each season for the manufacture of samples. Competition is keen and the profit margin is low. Financing is received through bank loans.

Required: (1) The principal advantages of installing a cost system.

(2) The principal additions or alterations necessary to operate a cost system. (The present accounting system is designed for the purpose of preparing annual financial statements.)

(3) An explanation of how matters can be arranged in order to find the cost of the principal stages of manufacture, such as carding, spinning, weaving, etc. (The carding machines operate three shifts per day; the spinning machines, two shifts; and the weaving machines, one shift.)