Illustration: Job Order Cost Flow

Sunny Day Manufacturing Company has just started operation on July 1, 2014. The following are the
transactions that transpired during the month of July:
1. Purchased materials worth P350,000 on account.
2. Accepted three job orders from different customers and assigned Job No. 700-A, 700-B and 700-C.
3. Materials in the amount of P200,000 requisitioned and issued. 30% for Job 700-A, 25% for Job 700-
B, and 35% for Job 700-C. The balance represents indirect materials.
4. Payroll for the month totaled P357,200. Analysis of the payroll shows:
Job 700-A 8,840 hours P 88,400
Job 700-B 11,650 hours 116,500
Job 700-C 11,980 hours 119,800
Indirect labor 32,500
5. The following overhead were incurred during the month in addition to indirect materials and indirect
labor:
Maintenance of factory equipment P 10,000
Utilities (power, light & water) 25,000
Depreciation of factory plant & equipment 15,000
Insurance expired 8,000
Miscellaneous factory expenses 5,000

6. The company’s policy is to apply overhead to each job at the rate of P3.50 per direct labor hour.
Any overhead variance is closed to cost of goods sold.
7. Job Nos. 700-A and 700-B are completed and billed the customers at cost plus 40% mark-up.

Required:
1. Journal entries to record the transactions for the month.
2. Prepare T-Accounts for Raw Materials, Work in Process, Finished Goods, Manufacturing Overhead
and Cost of Goods Sold accounts.

1) RM 350,000
A/P 350,000

2) No entry
3) WIP 180,000
700-A: 60,000
700-B: 50,000
700-C: 70,000
FOH-control 20,000
RM 200,000
4) WIP 324,700
700-A: 88,400
700-B: 116,500
700-C: 119,800
FOH-control 32,500
Accrued payroll 357,200

5) FOH-control 63,000
Cash or A/P (10+25+5) 40,000
Acc dep 15,000
Prep ins 8,000
 6) WIP 113,645
700-A: 3.5 x 8,840 = 30,940
700-B: 3.5 x 11,650 = 40,775
700-C: 3.5 x 11,980 = 41,930
FOH-applied 113,645

700-A 700-B 700-C TOTAL

DM 60,000 50,000 70,000 180,000
DL 88,400 116,500 119,800 324,700
FOH-applied 30,940 40,775 41,930 113,645
TOTAL 179,340 207,275 231,730 618,345
COGS COGS WIP, end

FG, end = 0
WIP, end = 231,730
COGS = 386,615

7) FG (700-A + 700-B) 386,615

WIP 386,615
COGS 386,615
FG 386,615
A/R (386,615 x 140%) 541,261
Sales 541,261

2) RM, end = 0 + 350,000 – 200,000 = 150,000

WIP, end = 0 + 180,000 + 324,700 + 113,645 - 386,615 = 231,730
FG, end = 0+ 386,615 - 386,615 = 0
COGS = 386,615

Disposition of FOH Variance:

Actual FOH 115,500

Applied FOH 113,645
Underapplied 1,855

COGS 1,855
Over/under-applied FOH 1,855
COGS-normal 386,615
Under-applied FOH 1,855
COGS-actual 388,470