Job Order Costing

Reis Corporation is a manufacturing firm that uses a job-order cost system. The company makes casual apparel, and applies overhead to jobs on the basis of direct labor hours because the process is very labor-intensive. For the current year, the company estimated it would have 25,000 direct labor hours and incur $210,000 in overhead costs.

During the year, Reis had the following transactions:

T1: Reis purchased $65,000 of raw materials (cloth, buttons, thread) on account.

T2: Reis placed $50,000 of raw materials into production. $10,000 of the materials were buttons and thread and, thus, considered indirect. The remaining materials were considered direct materials. 60% of the materials were used by Job 1 (shirts) and 40% of the materials were used by Job 2 (pants).

T3: Reis incurred the following costs for employee services (there is no previous accounting for these wages and salaries, which are still owed to employees): Assembly-line workers wages -- $130,000; Factory supervisors salary -- $20,000; Salaries of sales representatives who deal with stores that sell the clothing -- $55,000. The wages were split between the jobs, with 65% related to Job 1, and 35% related to Job 2.

T4: Reis incurred electricity and other utilities costs in the factory totaling $42,000. There is no previous accounting for these costs, and the bill is still owed to the utility company.

T5: Reis applied overhead to production. The company recorded 23,000 direct labor hours for the jobs in process. 65% of the direct labor hours were used for Job 1 and 35% were used for Job 2.

T6: Reis finished both jobs and transferred the shirts and pants to the finished goods warehouse.

T7: Reis sold both jobs for 50% above cost. The sale was on credit.

Adjusting entry: Reis recorded $120,000 in depreciation for the year ($45,000 relates to sewing machines, $60,000 relates to the factory building, and $15,000 relates to delivery trucks).

Complete the following:

1. Make journal entries to record these transactions (please label them clearly as T1, T2, etc., and indicate decreases with a parentheses) and the adjusting entry for depreciation. For any transactions requiring calculations, please clearly show your calculation (including your predetermined overhead rate). Note that in Part 2 below, I will ask you to indicate which entries also would be recorded on the job cost sheets.

2. Indicate the amounts that would be tracked on Reis Companys job cost sheets for Job 1 (shirts) and Job 2 (pants). Please split these amounts across the jobs appropriately, and clearly label each number with its category (i.e., as it would show up on the job cost sheet).

3. Make the one closing entry that is necessary to deal with under-or overapplied overhead (i.e., a difference between applied and actual overhead). You do not need to make any further closing entries. Please clearly indicate how you determined the amount in your journal entry (i.e., the calculation and related pieces).