Law Firm Accounts Manufacturing Firm Accounts

Acct 349 version 3 chapter 2,3

Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2005). Managerial accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons.

E2-11 job cost related accounts for the law firm of Chan, King, and Lou and their manufacturing equivalents:

Law Firm Accounts Manufacturing Firm Accounts Supplies Raw Materials Direct Attorney Cost Direct Labor Operating Overhead Manufacturing Overhead Work in Process Work in Process Cost of Completed Work Cost of Goods Sold

Cost data for the month of March follow. 1. Purchased supplies on account $1,500. 2. Issued supplies $1,200 (60% direct and 40% indirect). 3. Time cards for the month indicated labor costs of $75,000 (80% direct and 20% indirect). 4. Operating overhead costs incurred for cash totaled $40,000. 5. Operating overhead is applied at a rate of 90% of direct attorney cost. 6. Work completed totaled $100,000.

Instructions (a) Journalize the transactions for March. Omit explanations. (b) Determine the balance of the Work in Process account. Use a T account.

E2-12 E2-12 Armando Ortiz and Associates, a C.P.A. firm, uses job order costing to capture the costs of its audit jobs. There were no audit jobs in process at the beginning of November.

Listed below are data concerning the three audit jobs conducted during November.

Hernandez Navarro Vallejo direct materials $600 $400 $200 Auditor labor costs $5,400 $6,600 $3,375

Auditor hours 72 88 45

Overhead costs are applied to jobs on the basis of auditor hours, and the predetermined overhead rate is $50 per auditor hour. The Hernandez job is the only incomplete job at the end of

November. Actual overhead for the month was $11,000.

Instructions

(a) Determine the cost of each job.

(b) Indicate the balance of the Work in Process account at the end of November.

(c) Calculate the ending balance of the Manufacturing Overhead account for November.

P2-2B For the year ended December 31, 2005, the job cost sheets of Amend Company contained the following da job # Explanation direct Materials direct Labor manufactured Overhead total Costs

7640 Balance 1/1 $25,000 $24,000 $28,800 $ 77,800 Current year’s costs 30,000 36,000 43,200 109,200

7641 Balance 1/1 11,000 18,000 21,600 50,600 Current year’s costs 40,000 48,000 57,600 145,600

7642 Current year’s costs 48,000 50,000 60,000 158,000

Other data: 1. Raw materials inventory totaled $15,000 on January 1. During the year, $140,000 of raw materials was purchased on account. 2. Finished goods on January 1 consisted of Job No. 7638 for $87,000 and Job No. 7639 for $92,000. 3. Job No. 7640 and Job No. 7641 were completed during the year. 4. Job Nos. 7638, 7639, and 7641 were sold on account for $530,000. 5. Manufacturing overhead incurred on account totaled $115,000. 6. Other manufacturing overhead consisted of indirect materials $14,000, indirect labor $20,000, and depreciation on factory machinery $8,000. Instructions (a) Prove the agreement of Work in Process Inventory with job cost sheets pertaining to unfinished work. Hint: Use a single T account for Work in Process Inventory. Calculate each of the following, then post each to the T account: (1) beginning balance, (2) Direct materials, (3) direct labor, (4) manufacturing overhead, and (5) completed jobs. (b) Prepare the adjusting entry for manufacturing overhead, assuming the balance is allocated entirely to Cost of Goods Sold. (c) Determine the gross profit to be reported for 2005.

BYP 2-5 You are the management accountant for Clemente Manufacturing. Your company does custom carpentry work and uses a job order cost accounting system. Clemente Job Order Cost Accounting

PARLEX COMPANY Notes to the Financial Statements The Company’s products are manufactured on a job order basis to customers’ specifications. Customers submit requests for quotations on each job, and the Company prepares bids based on its own cost estimates. The Company attempts to reflect the impact of changing costs when establishing prices. However, during the past several years, the market conditions for flexible circuits and the resulting price sensitivity haven’t always allowed this to transpire. Although still not satisfactory, the Company was able to reduce the cost of products sold as a percentage of sales to 85% this year versus 87% that was experienced in the two immediately preceding years. Management continues to focus on improving operational efficiency and further reducing costs. Broadening Your Perspective sends detailed job cost sheets to its customers, along with an invoice. The job cost sheets show the date materials were used, the dollar cost of materials, and the hours and cost of labor. A predetermined overhead application rate is used, and the total overhead applied is also listed. Cindy Stein is a customer who recently had custom cabinets installed. Along with her check in payment for the work done, she included a letter. She thanked the company for including the detailed cost information but questioned why overhead was estimated. She stated that she would be interested in knowing exactly what costs were included in overhead, and she thought that other customers would, too. Instructions Prepare a letter to Ms. Stein (address: 123 Cedar Lane, Altoona, Kansas 66651) and tell her why you did not send her information on exact costs of overhead included in her job. Respond to her suggestion that you provide this information. E3-4 The Cutting Department of Behan Manufacturing has the following production and cost data for July.

Production Costs 1. Transferred out 9,000 units. Beginning work in process $ –0– 2. Started 1,000 units that are 40% Materials 45,000 complete as to conversion Labor 14,940 costs and 100% complete as Manufacturing overhead 18,900 to materials at July 31.

Materials are entered at the beginning of the process. Instructions (a) Determine the equivalent units of production for (1) materials and (2) conversion costs. (b) Compute unit costs and prepare a cost reconciliation schedule.