Question

King Company produces variations of its product, a megatron, in response to custom orders from its customers. On June 1, the company had no inventories of work in process or finished goods but held the following raw materials.

Material M 120 units @ \(200	\)24,000
Material R 80 units @ \(160	12,800
Paint 44 units @ \)72	3,168
Total cost	\(39,968

On June 3, the company began working on two Megatron: Job 450 for Encinitas Company and Job 451 for Fargo, Inc.

Required

Using Exhibit 15.3 as a guide, prepare job cost sheets for Jobs 450 and 451. Using Exhibit 15.5 as a guide, prepare materials ledger cards for Material M, Material R, and paint. Enter the beginning raw materials inventory dollar amounts for each of these materials on their respective ledger cards. Then, follow instructions in this list of activities.

1. Purchased raw materials on credit and recorded the following information from receiving reports and invoices.

Receiving Report No. 20, Material M, 150 units at \)200 each

Receiving Report No. 21, Material R, 70 units at \(160 each.

Instructions: Record these purchases with a single journal entry. Enter the receiving report information on the materials ledger cards.

1. Requisitioned the following raw materials for production.

Requisition No. 223, for Job 450, 80 units of Material M.

Requisition No. 224, for Job 450, 60 units of Material R.

Requisition No. 225, for Job 451, 40 units of Material M.

Requisition No. 226, for Job 451, 30 units of Material R.

Requisition No. 227, for 12 units of paint.

Instructions: Enter amounts for direct materials requisitions on the materials ledger cards and the job cost sheets. Enter the indirect materials amount on the materials ledger card. Do not record a journal entry at this time.

1. Received the following employee time tickets for work in June.

Time tickets Nos. 1 to 10 for direct labor on Job 450, \)40,000.

Time tickets Nos. 11 to 20 for direct labor on Job 451, \(32,000.

Time tickets Nos. 21 to 24 for equipment repairs, \)12,000.

Instructions: Record direct labor from the time tickets on the job cost sheets. Do not record a journal entry at this time.

d. Paid cash for the following items during the month: factory payroll, \(84,000, and miscellaneous overhead items, \)36,800. Use the time tickets to record the total direct and indirect labor costs. Instructions: Record these payments with journal entries.

e. Finished Job 450 and transferred it to the warehouse. The company assigns overhead to each job with a predetermined overhead rate equal to 70% of direct labor cost. Instructions: Enter the applied overhead on the cost sheet for Job 450, fill in the cost summary section of the cost sheet, and then mark the cost sheet “Finished.” Prepare a journal entry to record the job’s completion and its transfer to Finished Goods.

f. Delivered Job 450 and accepted the customer’s promise to pay $290,000 within 30 days. Instructions: Prepare journal entries to record the sale of Job 450 and the cost of goods sold.

g. Applied overhead cost to Job 451 based on the job’s direct labor used to date. Instructions: Enter overhead on the job cost sheet but do not make a journal entry at this time.

h. Recorded the total direct and indirect materials costs as reported on all the requisitions for the month. Instructions: Prepare a journal entry to record these.

i. Recorded the total overhead costs applied to jobs. Instructions: Prepare a journal entry to record the allocation of these overhead costs.

j. Compute the balance in the Factory Overhead account as of the end of June.

Short answer

1. Journal entry will report the purchase of raw material inventory of $41,200.
2. Material M has a remaining balance of $30,000, material R $9,600, and paint $2304.
3. Direct labor incurred in Job 450: $40,000 and 451: $32,000.
4. Both sides of the journal total$120,800.
5. Cost transferred to finished goods inventory$93,600.
6. Both sides of the journal total$383,600.
7. Overhead cost of$22,400 is allocated to job 451.
8. Both sides of the journal total$39,264.
9. Overhead costs of$50,400 are allocated to the work-in-process inventory.
10. Factory overhead are overapplied by$736.

Step-by-step solution

Definition of Material Ledger Card

A material ledger card can be defined as a document recording the flow of material from the warehouse to the production facility. It reports transactions such as the purchase of raw material and the transfer of the raw material to the production process.

Opening balance in the material ledger and job cost sheet

Job 450 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost

Job 451 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost

Material ledger card:

Material M
Date	Received	Issued	Balance
Receiving Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1	Balance	120	$200	$24,000

Material R
Date	Received	Issued	Balance
Report Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1		80	$160	12,800

Paint
Date	Received	Issued	Balance
Receiving Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1	Balance	44	$72	$3,168

Entry for purchase of raw material in the journal and material ledger

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
	Raw material inventory	$41,200
	Account payable$\left(\$30,000+\$11,200\right)$		$41,200

Material ledger card:

Material M
Date	Received	Issued	Balance
Receiving Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1	Balance	120	$200	$24,000
	20	150	$200	$30,000

Material R
Date	Received	Issued	Balance
Report Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1		80	$160	12,800
	21	70	$160	$11,200

Direct material requisition in the material ledger and cost sheet

Material ledger card:

Material M
Date	Received	Issued	Balance
Receiving Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1	Balance	120	$200	$24,000	223	80	$200	$16,000	150	$200	$30,000
	20	150	$200	$30,000	225	40	$200	$8,000
		270	$200	$54,000		120	$200	$24,000	$150	$200	$30,000

Material R
Date	Received	Issued	Balance
Report Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1		80	$160	12,800	224	60	$160	$9,600	60	$160	$9,600
	21	70	$160	$11,200	226	30	$160	$4,800
		150	$160	$24,000		90	$160	$14,400	60	$160	$9,600

Paint
Date	Received	Issued	Balance
Receiving Number	Units	Unit price	Total price	Requisition number	Units	Units price	Total price	Units	Unit price	Total price
1	Balance	44	$72	$3,168	227	12	$72	$864	32	$72	$2,30 4

Cost sheet:

Job 450 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost
	223 (80 units of material M @ $200)	$16,000
	224 (60 units of material R @ $160)	9,600
		$25,600

Job 451 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost
	225 (40 units of material M @ $200)	$8,000
	226 (30 units of material R @ $160)	4,800
		$12,800

Direct labor on the cost sheet

Job 450 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost
	223 (80 units of material M @ $200)	$16,000		1 to 10	$40,000
	224 (60 units of material R @ $160)	9,600
		$25,600			$40,000

Job 451 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost
	225 (40 units of material M @ $200)	$8,000		11 to 20	$32,000
	226 (30 units of material R @ $160)	4,800
		$12,800			$32,000

Journal entries for payment of expenses

Date	Accounts and Explanation	Debit $	Credit $
	Work-in-process – inventory	$72,000
	Factory overhead	$12,000
	Cash		$84,000
	Factory overhead	$36,800
	Cash		$36,800
		$120,800	$120,800

Finishing Job 450 by allocating overhead of 70% of direct labor and its journal entry

Job 450 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost
	223 (80 units of material M @ $200)	$16,000		1 to 10	$40,000		70% of direct labor	$28,000
	224 (60 units of material R @ $160)	9,600
		$25,600			$40,000			$28,000

Journal entry:

Date	Accounts and Explanation	Debit $	Credit $
	Finished goods inventory$\left(\$25,600+\$40,000+\$28,000\right)$	$93,600
	Work-in-process inventory		$93,600

Journal entries for sale of Job 450 and its cost of goods sold

Date	Accounts and Explanation	Debit $	Credit $
	Accounts receivable	$290,000
	Sales		$290,000
	Cost of goods sold	$93,600
	Finished goods inventory		$93,600
		$383,600	$383,600

Finishing Job 451 by allocating overhead on the basis of direct labor used

Job 451 cost sheet
Direct material	Direct labor	Overhead
Date	Reacquisition	Cost	Date	Ticket time	Cost	Date	Rate	Cost
	225 (40 units of material M @ $200)	$8,000		11 to 20	$32,000		70%	$22,400
	226 (30 units of material R @ $160)	4,800
		$12,800			$32,000			$22,400

Journal entry for direct and indirect material for all the requisitions during the month

Date	Accounts and Explanation	Debit $	Credit $
	Work-in-process – inventory$\left(\$25,600+\$12,800\right)$	$38,400
	Factory overhead	$864
	Raw material inventory		$39,264
		$39,264	$39,264

Journal entry for recording total overhead cost allocation

Date	Accounts and Explanation	Debit $	Credit $
	Work-in-process inventory$\$22,400+\$28,000$$\left(\$22,400+\$28,000\right)$	$50,400
	Factory overhead cost		$50,400

Computing balance in the factory overhead

Particular	Amount $
Miscellaneous expenses	$36,800
Indirect material	864
Indirect labor	12,000
Total factory overheads	$49,664
Less: Applied overheads	(50,400)
Ending balance (overapplied)	$736