Quan and Lisa were not only best friends, they were coworkers-coworkers who were very passionate about...

 

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Quan and Lisa were not only best friends, they were coworkers-coworkers who were very passionate about their jobs and their company! The Job Shop, the clever name of the company where they work, produces and sells several different styles of reading glasses. Today, on The Job Shop floor, Quan and Lisa are discussing the styles of readers that are currently in production. Quan: You see this job over here, Lisa? This job (#AA110) was started last month, but now it's finally ready to ship. I heard that most of the order is already sold, in fact. Lisa: Really? I heard something similar about the job on the other side of the plant (#AA111). That is, I heard most of it is already sold, too. But, because that job just started at the beginning of this month, I bet it'll be more profitable because it didn't have to sit in processing as long. Quan: Lisa, I don't think that's how this works. Remember our manager telling us that we need to keep our machine hours down to a minimum? The reason is because we use machine hours to bud- get and apply our MOH costs to our products. If the job is just sitting there, waiting for the next processing step to be completed, it is not using machine hours, so more MOH costs shouldn't be applied because hours are not being used. Quan is correct in that only one job (#AA110) is still in process on January 1, 2025. The job cost sheet for Job #AA110 shows that $5,400 of direct material had been used on the job in 2024. Direct labor used on the job in 2024 was $1,050, and MOH applied to the job in 2024 was $3,450. Lisa is also correct as Job #AA111 was started in January. But two other jobs were freshly started in January, too: #AA112, #AA113. Material cost, labor cost, and machine hour usage for January is as follows. Direct Materials Direct Labor Machine Job # Requisitioned Cost Incurred Hours Worked AA110 $ 300 $ 800 6,700 80 AA111 1,500 260 AA112 4,900 900 150 AA113 3,100 500 110 During 2025, The Job Shop expects to incur $260,000 of MOH and expects to work 10,400 machine hours. MOH cost incurred during January is as follows. • $13,600 of depreciation on plant and equipment. • $500 of insurance on the plant. • $3,100 of utilities. • $3,700 of indirect labor. The Job Shop had paid for the insurance in 2024, while the utilities and labor will be paid in February 2025. Other information: • Job #AA110, which was completed during January, consists of 40 units. • Job #AA111, which was also completed during January, consists of 70 units. • Jobs #AA112 and #AA113 were not completed during January. • The Job Shop sells units for 140% of their manufacturing costs. a. Help Quan and Lisa better understand the profitability of these jobs by preparing journal entries to record the following events. 1. Use of direct materials during January. 2. The direct labor costs incurred for the month. 3. Application of MOH for January. 4. Actual MOH costs incurred for January. 5. Completion of Jobs #AA110 and #AA111. 6. A credit sale of 30 units from Job #AA110 and 40 units from Job #AA111. b. How profitable were jobs #AA110 and #AA111 in terms of gross margin and gross margin percentage? How much can the company's selling, general, and administrative expenses be if The Job Shop hopes to earn an operating income percentage of 10%? c. What is The Job Shop's under- or overapplied MOH on January 31, 2025? Do you think Quan and Lisa should be concerned about the size of this difference? Why or why not? d. What was the balance of The Job Shop's WIP Inventory account on January 1, 2025? What types of costs are included in this beginning balance? From which job(s) did these costs originate? e. What was the balance of The Job Shop's WIP Inventory account on January 31, 2025? With which job(s) are these costs associated? f. Suppose both Lisa and Quan are your colleagues. Explain to Lisa whether it appears that the carryover of Job #AA110 from the prior year into the current period caused it to be more costly. Further, review with her how the application of MOH works, and what happens to a job when it is only partially com- plete at the end of an accounting period (such as the end of the month). Quan and Lisa were not only best friends, they were coworkers-coworkers who were very passionate about their jobs and their company! The Job Shop, the clever name of the company where they work, produces and sells several different styles of reading glasses. Today, on The Job Shop floor, Quan and Lisa are discussing the styles of readers that are currently in production. Quan: You see this job over here, Lisa? This job (#AA110) was started last month, but now it's finally ready to ship. I heard that most of the order is already sold, in fact. Lisa: Really? I heard something similar about the job on the other side of the plant (#AA111). That is, I heard most of it is already sold, too. But, because that job just started at the beginning of this month, I bet it'll be more profitable because it didn't have to sit in processing as long. Quan: Lisa, I don't think that's how this works. Remember our manager telling us that we need to keep our machine hours down to a minimum? The reason is because we use machine hours to bud- get and apply our MOH costs to our products. If the job is just sitting there, waiting for the next processing step to be completed, it is not using machine hours, so more MOH costs shouldn't be applied because hours are not being used. Quan is correct in that only one job (#AA110) is still in process on January 1, 2025. The job cost sheet for Job #AA110 shows that $5,400 of direct material had been used on the job in 2024. Direct labor used on the job in 2024 was $1,050, and MOH applied to the job in 2024 was $3,450. Lisa is also correct as Job #AA111 was started in January. But two other jobs were freshly started in January, too: #AA112, #AA113. Material cost, labor cost, and machine hour usage for January is as follows. Direct Materials Direct Labor Machine Job # Requisitioned Cost Incurred Hours Worked AA110 $ 300 $ 800 6,700 80 AA111 1,500 260 AA112 4,900 900 150 AA113 3,100 500 110 During 2025, The Job Shop expects to incur $260,000 of MOH and expects to work 10,400 machine hours. MOH cost incurred during January is as follows. • $13,600 of depreciation on plant and equipment. • $500 of insurance on the plant. • $3,100 of utilities. • $3,700 of indirect labor. The Job Shop had paid for the insurance in 2024, while the utilities and labor will be paid in February 2025. Other information: • Job #AA110, which was completed during January, consists of 40 units. • Job #AA111, which was also completed during January, consists of 70 units. • Jobs #AA112 and #AA113 were not completed during January. • The Job Shop sells units for 140% of their manufacturing costs. a. Help Quan and Lisa better understand the profitability of these jobs by preparing journal entries to record the following events. 1. Use of direct materials during January. 2. The direct labor costs incurred for the month. 3. Application of MOH for January. 4. Actual MOH costs incurred for January. 5. Completion of Jobs #AA110 and #AA111. 6. A credit sale of 30 units from Job #AA110 and 40 units from Job #AA111. b. How profitable were jobs #AA110 and #AA111 in terms of gross margin and gross margin percentage? How much can the company's selling, general, and administrative expenses be if The Job Shop hopes to earn an operating income percentage of 10%? c. What is The Job Shop's under- or overapplied MOH on January 31, 2025? Do you think Quan and Lisa should be concerned about the size of this difference? Why or why not? d. What was the balance of The Job Shop's WIP Inventory account on January 1, 2025? What types of costs are included in this beginning balance? From which job(s) did these costs originate? e. What was the balance of The Job Shop's WIP Inventory account on January 31, 2025? With which job(s) are these costs associated? f. Suppose both Lisa and Quan are your colleagues. Explain to Lisa whether it appears that the carryover of Job #AA110 from the prior year into the current period caused it to be more costly. Further, review with her how the application of MOH works, and what happens to a job when it is only partially com- plete at the end of an accounting period (such as the end of the month).