Comprehensive Review Problem—Job-Order Costs This problem is intended to provide a summary of general-ledger and subsidiary-ledger relationships for factory costs under a job-order cost system. The facts are unrealistic because, in order to save student time, the tremendous detail and number of accounts in a real situation are not reproduced here. However the solving of this problem should provide the student with a comprehensive view of the basic ledger framework.

Assume that the Mafco Company has been in business in Hong Kong for many years. The company rents its factory building. It also uses a joborder cost system because it has a wide variety of products that receives varying attention and effort in the two factory departments. Machining and Assembly.

Mafco has the following trial balance as of December 31, 19_0.

Cash $ 15,000 Accounts receivable 40,000 Stores control 29,600 Work-in-process control 4,000 Finished-goods control 20,000 Unexpired insurance 12,000 Office equipment 15,000 Accumulated depreciation—Office equipment $ 5,000 Factory equipment 950,000 Accumulated depreciation—Factory equipment 220,000 Accounts payable 23,000 Accrued payroll 1,000 Accrued utilities 2,000 Accrued property taxes 3,000 Capital stock 100,000 Retained earnings 731,600 $1,085,600 $1,085,600 DETAIL ON SUBSIDIARY RECORDS AS OF DECEMBER 31, 19_0 Stores:
CODE QUANTITY UNIT COST AMOUNT A 5,000 $2.00 $10,000 B 10,000 1.50 15,000 C 400 8.00 3,200 Supplies Various — 1,400 $29,600 Work in Process:
JOB-ORDER DIRECT DIRECT FACTORY NUMBER DEPARTMENT MATERIALS LABOR OVERHEAD TOTAL 100 Machining $1,800 $800 $900 $3,500 Assembly 200 200 100 500 $4,000 Finished goods:
STOCK NO. REFERENCE QUANTITY UNIT COST AMOUNT X-1 Job 97 100 $80 $ 8,000 X-2 Job 99 1,000 12 12,000 $20,000 The following factory-overhead Vear Obl:
budget has been prepared for the coming FACTORY OVERHEAD BUDGET FOR YEAR ENDING DECEMBER 31, 19_1 Factory overhead:
Controllable:
Supplies Indirect labor Utilities Repairs Miscellaneous Uncontrollable:
Insurance Depreciation Rent Property taxes Supervision Total factory overhead Machining $ 14,400 22,800 30,000 24,000 22,800 $114,000 $ 7,200 114,000 24,000 4,200 14,400 $163,800 $277,800 Assembly $ 5,400 16,800 9,000 6,000 12,000 $ 49,200 $ 2,400 14,400 16,800 1,200 19,200 $ 54,000 $103,200 Total $ 19,800 39,600 39,000 30,000 34,800 $163,200 $ 9,600 128,400 40,800 5,400 33,600 $217,800 $381,000 This budget has been prepared after careful consideration of the sales outlook for the coming year. The production schedules are geared to the forecast sales pattern.
In order to cost jobs as they are worked on, a predetermined overhead rate is computed as follows:

YEAR 191 Machining Assembly Factory overhead $277,800 $103,200 Machine-hours 69,450 Direct-labor cost =i $206,400 Rate per machine-hour $ 4.00 Rate per direct-labor dollar 50%
These overhead rates will be used throughout the year to cost various jobs as they are worked on by each department. All overhead will be applied to all jobs worked on during the year in proportion to the machine-hour or directlabor cost factor devoted to each job. If management predictions are accurate, total overhead applied to the year’s jobs through the use of predetermined rates should be equal to the total overhead costs actually incurred.
January data:
1. Purchases for stores (credit Accounts Payable):
QUANTITY UNIT COST JANUARY A 7,500 $2.00 $15,000 B 14,000 1.50 21,000 C 2,125 8.00 17,000 Supplies 2,000 $55,000 2. Returns (debit Accounts Payable): 50 units of Material B.
3. The direct-material requisitions were summarized, and the following data were shown on a material-usage report. These reports were submitted weekly to department foremen, although monthly data are shown here.
MACHINING DEPARTMENT Direct-Material Usage For the Month Ending January 31, 191 Requisition Type Job Order Quantity Unit Cost Amount M89 B 101 1,500 $1.50 $ 2,250 M90 A 102 3,000 2.00 6,000 M91 A 103 1,000 2.00 2,000 M92 B 103 1,000 1.50 1,500 M93 B 102 3,000 1.50 4,500 M94 B 101 200 1.50 300 M95 A 104 2,000 2.00 4,000 $20,550 ASSEMBLY DEPARTMENT Direct-Material Usage For the Month Ending January 31, 191 Requisition Type Job Order Quantity Unit Cost Amount A301 C 100 5 $8.00 $ 40 A302 Cc 103 200 8.00 1,600 A303 Cc 101 800 8.00 6,400 A304 Cc 102 1,500 8.00 12,000 A305 Cc 103 20 8.00 160 $20,200 4. Asummary of payroll costs incurred follows. Compare with item (g) below. Payments (settlements) are independent of recognition of cost incurrence. In other words, costs may be summarized monthly while settlements are made weekly.
LABOR HOURS COST Work Job Ticket* Order Machining Assembly Machining Assembly Total ML480 101 20 $ 50 $ $ 50 ML481 101 1,500 3,750 3,750 ML482 103 1,000 2,500 2,500 ML483 102 1,200 3,000 3,000 ML484 104 500 1,250 1,250 ML485 103 100 250 250 AL 60 100 20 40 40 AL 61 102 7,000 14,000 14,000 AL 62 101 500 1,000 1,000 AL63 103 1,000 2,000 2,000 AL 64 102 ae 200 400 400 Total direct labor 4,320 8,720 $10,800 $17,440 $28,240 Indirect labor 2,000 1,500 3,500 Supervision 1,200 1,600 2,800 Total factory labor $14,000 $20,540 $34,540 Selling and administrative wages 6,000 Total payroll costs $40,540 *In practice, there would be many more of these. Often they are recapitulated daily and posted to each job in groups rather than as individual tickets.
5. Apply overhead to jobs. Rates as calculated when overhead budget was prepared: Machining, $4.00 per machine-hour; Assembly, 50 percent of direct-labor cost. See data for entry 6 to obtain machine-hours worked.
6. Production and sales data:
JANUARY MACHINE-HOURS UNITS FINISHED UNITS SOLD WORKED IN JOB COMPLETED FINISHED STOCK NO. SOLD FOR MACHINING DEPT.
97 100 19_0 X-1 100 $ 9,000 98 _ = — _ —
99 1000 19_0 X-2 1000 16,000 100 50 Janie. Oel X-1 20 1,800 101 1750 Vanilicadoed X-2 900 14,400 3,000 102 1000 Jan. 19, 191 X-3 950 55,000 2,000 103 100 Vans Onmoml X-4 50 6,500 150 104 Unfinished 800 $102,700 5,950 7. Gross payroll paid in cash during month, $39,000.
8. The following additional overhead costs were incurred during January:

DEPARTMENT Selling General-Ledger and Account To Be Item Total Machining Assembly Administrative Credited Supplies requisitioned $ 2,000 $ 1,500 $ .400 $ 100 ?
Utilities (cost recognized on basis of usage estimates for month .
rather than on basis of invoices, which may cover other dates than a current fas calendar month) 4,000 2,700 800 500 Accrued Utilities Payable Repairs by outsiders (parts and labor) 3,000 2,350 600 50 Accounts Payable Miscellaneous 3,000 2,000 900 100 Accounts Payable Insurance 1,000 600 200 200 {:
Depreciation on equipment 11,000 9,500 1,200 300 2 Rent 4,000 2,000 1,400 600 Accounts Payable Property taxes 500 350 100 50 Accrued Property Taxes $28,500 $21,000 $5,600 $1,900 required Pom . Utility bills received, $2,900 (dr. Accrued Utilities).
. Utility bills paid, $2,525 (dr. Accounts Payable).
. Other selling and administrative expenses, $15,000 (cr. Accounts Payable).
. Payments on accounts payable, other than the $2,525 in (10), $65,300.
. Collections on accounts receivable, $99,000.
. Enter beginning balances in general-ledger T-accounts.
. Draw up stores cards, job-cost sheets, and finished-goods stock cards. Be sure to put in “reference” columns so that appropriate requisitions and work tickets, as well as dollar amounts, may be entered in the subsidiary ledger. A sample stores card and job-cost sheet appear on page 119.
Finished-stock cards would be similar in design to stores cards.
The factory-overhead cost sheets have columns for: date, reference, supplies, indirect labor, utilities, repairs, miscellaneous, insurance, depreciation on equipment, rent, property taxes, and supervision.
Post beginning balances to subsidiary records.
. Journalize and post entries for January.
. Prepare a trial balance as of January 31, 19_1. Also prepare schedules of subsidiary-ledger balances.
. Prepare an income statement for January and a balance sheet as of January 31, 19_1. Underapplied overhead is treated as a balance-sheet item on interim financial statements.
. Prepare factory-overhead performance reports for January, one for Machining and one for Assembly. Show actual overhead, budgeted overhead, and vari- ances. Assume arbitrarily that budget figures for January are one-twelfth of those shown in the annual overhead budget.

7. Assume that operations continue for the remainder of 19_1. Certain balances at December 31, 19_1 follow:
Stores $ 30,000 Work in process 10,000 Finished goods - *‘ 30,000 Cost of sales 960,000 Factory-overhead control 400,000 Factory overhead applied $385,000 Prepare journal entries to close the factory-overhead accounts, assuming that:

a. Underapplied overhead is treated as a direct adjustment of Cost of Sales.

b. Underapplied overhead is spread over appropriate accounts in proportion to their unadjusted ending balances.