GOALS AND OBJECTIVES

$$ To develop mastery relating to mechanics of job costing for accumulation

$$ To review the journal entries across the accounting system and costs flows for use with job order costing

$$ To review the use of normal costing system within job order accumulation

$$ To review the preparation of schedules of materials used, cost of goods manufactured and cost of goods sold

$$ To review the preparation of income statement for manufacturer

QUESTIONS TO THINK ABOUT IN PREPARATION FOR CLASS SESSION

$$ What is the main purpose for the use of normal costing for overhead?

$$ How does normal costing relate to the preparation of GAAP financial statements?

$$ Is there a relationship between the numbers on the job$-$cost records and the numbers on the financial statements?

MONTCLAIR CORPORATION

The following transactions occurred and were reported by MONTCLAIR Corporation for the Month of January, $2019$:

a$.$ Purchases $$60,100$ of raw materials, on account.

b$.$ Issued materials to production as follows:

$$ direct materials $$50,000$

$$ indirect materials $$8,800$

c$.$ Payroll for the month was as follows:

$$ direct labor, $$75,000$

$$ indirect labor, $$36,000$

$$ administrative, $$28,000$

$$ sales $$19,000$

d$.$ Depreciation on factory plant and equipment $-$ $$10,400.$

e$.$ Property taxes on the factory accrued during the month $-$ $$1,450.$

f$.$ Insurance on the factory which expired during the period $($prepaid insurance was credited$)-$ $$6,200.$

g$.$ Factory utilities $-$ $$5,500.$

h$.$ Advertising paid with cash $-$ $$7,900.$

i$.$ Depreciation on office equipment, $$800$; Depreciation on sales vehicle, $$1,650.$

j$.$ Accounting fees incurred by not yet paid for the annual tax planning, $$750.$

k$.$ The company uses a normal costing system based on direct labor hours. Before the start of the year, overhead was budgeted at $$972,000.54,000$ direct labor hours were budgeted for the year. While $4,500$ hours were initially planned for the month, according to the time records, only $4,000$ hours were actually used.

l$.$ The cost of jobs completed during the month totaled $$160,000.$

m$.$ The physical inventory count at the end of January revealed finished goods inventories of $$15,000.$

MONTCLAIR had the following inventory balances as of January $1$:

Required:

$1.$ Prepare journal entries to record the above transactions.

$2.$ Set up T$-$accounts for Materials inventory, Work in process, Finished goods, Overhead control and Cost of goods sold. Post all entries necessary to these accounts.

$3.$ Determine the Cost of Goods Manufactured.

$4.$ Indicate whether overhead is over or under applied during the period, and by how much. What do we do to deal with, or dispose of$,$ this amount?

$5.$ Prepare the Statements of Cost of Goods Manufactured and Cost of Goods Sold for the period. $($Note: When preparing the Cost of Goods Manufacturing Statement, use ONE amount for overhead $$ you need NOT list all of the individual overhead items.$)$

$6.$ Show the Inventory section of the Balance Sheet for Montclair as of the end of January.

$7.$ What factors could have caused overhead to be overapplied or underapplied for the period? $($Hint: there are really ONLY $2)$