countin; 126 Cost Aci ig End of the year: Factory Overhead Applied ah Cost of Goods Sold a xx Factory Overhead Control The variance is computed as follows: Actual factory overhead KX Less: Applied factory overhead xxx Variance XAx . If actual is bigger than applied, the variance is called under-applied en overhead (unfavorable), and this is taken as an addition to the Cost of Goods Sold in the statement. If applied is bigger than actual, the variance 1s called over- applied factory overhead (favorable) and this is taken as deduction from the Cost of Goods Sold in the statement. Whatever method of closing the control and applied account is used, the statement is always adjusted for the under- applied/(over-applied) on the statement, For purposes of preparing the Cost of Goods Sold statement, factory overhead applied is used because this is the amount charged to the work in process account. As stated above, the Cost of Goods Sold will be adjusted for the variance only at the end of the year. If the Cost of Goods Sold is stated in the problem, then it must be taken as normal, prior to the adjustment for the variance. Work in process - controlling account used to record the flow of the elements of cost through the factory during a given period. 7 WORK IN PROCESS 1. Cost of beginning inventory 2. Cost of direct materials issued to production at the same time crediting materials Cost of direct labor applied to 1. Cost of materials, labor, and factory overhead applied to jobs completed during the period at the same time debiting finished goods, w production during the period at the | 2. Cost of direct materials retumed to same time crediting the payroll account 4. Amount of overhead applied to production. at the same time crediting applied overhead. the warehouse at the same time debiting materials.Chapter'5 Job Order Costing 7 ™ eve rieced ee need fo accumulate during the month the total cost used, and factory overhead applied. The aly paieeton a 1 cost sheet should equal the amounts debited to ehe work i P responding jobs ie ¢ month. As jobs are completed, the cost sheets for the hs por rE ah are totaled and the amount is now transferred to the finished goods account. The journal entry to record the cost of the jobs completed is: Finished goods Xxx Work in process xxx When the finished goods are delivered to customers, the sales and the cost of goods sold are recorded as follows: Accounts receivable voxx Sales soar Cost of goods sold vox Finished goods XXXX If a job is delivered directly to a customer, the entries to record the completion of the job and the delivery to the customer may be merged into one as follows: Cost of goods sold voxxe Work in process xox Finished goods - a controlling account used to record the flow of the cost of goods completed and transferred to the finished goods storeroom during the period. FINISHED GOODS 1 Cost of inventory at the beginning | '- Cost of finished goods sold during the period at same time debiting cost of Id. 2. Factory cost of job order completed goods sold at the same time crediting work in process. 3. Cost of goods returned by the customer at the same time crediting cost of goods sold.8 Cost Accounting ost of finished goods Jate the ¢ Cost of goods sold - an account used to accumu disposed through sale to customers. D - rt 1. Cost of finished goods disposed | 1. Cost of in o Sine cob, through sale to customers at the same customers at ds account. 7 time crediting finished goods. the finished goo 2. Adjustment of over-applied factory 2. Adjustment for under-applied factory | 2.. overhead. overhead 3. Balance of the account at the end of the period at the same time debiting income summary. ILLUSTRATIVE PROBLEM: The Northern Consolidated Company has the following balances as of January 1, 2019. Materials P 4,900 Work in process 4,600 Finished goods 6,000 Accrued factory payroll 200 Details of the three inventories are: Finished goods Commodity x - 2,000 units at P 3.00 P6,000 Work in process - Job No. 101 Materials: A -200 units at P 5.00 P 1,000 B - 175 units at P 4,00 700 P 1,700 Direct labor: 290 hours at P 5.00 * 1,450 Factory overhead - applied at 100% of direct labor cost 1,450. 4,600Chapter 5 Job Order Costing 129 Materials Material A - 600 units at P 5.00 P= 3,000 Material B - 350 units at P 4.00 1,400 Indirect materials __500 P4900 ‘The transactions for the month of January, 2019 are as follows: 1. Purchases for the month of January - Material A - 600 units at P5.50; Material B - 800 units at P5.00; Indirect materials - P700. . Materials requisitioned and issued on a fifo basis amounted to P 7,000. Material A, 200 units (charged to Job 101); Material A, 600 units and Material B, 225 units (charged to Job 102; Material B, 425 units (charged to Job 103). Indirect materials amounted to P 1,000. . Material B returned to vendors, 70 units at P 5.00 . Payroll during January amounted to P 10,300, of which P 2,000 is for Job 101; P 4,000 is for Job 102; P 2,000 for Job 103, and P 2,300 is indirect labor. Deductions are as follows: SSS Premiums - P 412 Medicare Contributions - . 225 Withholding taxes . 1,050 Factory overhead is applied on the basis of 100% of direct labor cost. Jobs completed during the month - Job 101 for 3,000 units of Commodity X and Job 102 for 5,000 units of Commodity Y. Sales during January on FIFO basis - 4,000 units of Commodity X at P 6.00 per unit and 4,000 units of Commodity Y at P 4.00 per unit. Cash collection from customers P 35,000. . Recorded the following liabilities: Factory overhead, P 4,800; Selling expenses, P 2,100; General expenses, P 1,500. 10, Paid accounts - P 9,500; payroll - P 8,500.Cost Accounting 130 Requirements: . 1. Journal entries to record the above transactions. 2. Job Order Cost Sheets. 3. Stock cards for materials and finished goods. 4. Cost of goods sold statement for the month of January. Journal entries: 8,000 1. Materials i 8,000 Accounts Payable 7 Materials purchased computed as follows: Mat. A - 600 units at P5.50- P3,300 Mat, B - 800 units at-P 5.00 - 4.008 ’ Indirect materials 100 8,000 2. Work in process 7,000 Factory Overhead Control 1,000 Materials 8,000 Materials issued to production. Job 101 Mat. A - 200 units at P 5.00 - 1,000 Job 102 . Mat. A - 400 units at P 5.00 - 2,000 200 units at P 5.50 - 1,100 ‘Mat. B - 225 at P 4.00 900 4,000 Job 103 Mat: B- 125 units at P4.00- 500 300 units at P 5.00 - 1.500 2,000 3. Accounts Payable Bono 350 Materials " 350 Materials returned to vendors, 4, Payroll «SSS Premium Payable 20.309 Medicare Contributions Payable $22 Withholding Taxes Payable 225 Accrued Factory Payroll 1,050 Payroll forthe month, 8,663Chapter 5 Job Order Costing 131 Work in process Factory overhead Control 5,000 Payroll 7309 9.300 Classification of payroll. , 5. May Process 5 8,000 ‘actory Overhead Applied 8,000 Factory overhead applied to production. 6. Finished goods . 21,000 Work in Process 21,600 Cost of jobs completed computed as follows: Job 101 Job 102 Materials- P 2,700 P 4,000 Labor 3,450 4,000 Overhead- 3,450 4,000 P_9,600 P_12,000 1. Accounts Receivable 40,000 Sales 40,000 Sales computed as follows: X - 4,000 at P 6.00 - P 24,000 Y - 4,000 at P 4,00- 16,000 Cost of goods sold 22,000 Finished Goods 22,000 Cost of units sold for the month: X - 2,000 at P 3.00 - P 6,000 2,000 at P 3.20- 6,400 ¥ 74,000 at P2.40- 9,600 8. Cash 35,000 Accounts Receivable 35,000 Collection of accounts. 9. Factory Overhead Control 4,800 Selling Expense Control 2,100 General Expense Control 1,500 ‘Accounts Payable 8,400Cost Accounting 132 500 10, Accounts Payable : 500 Acari Factory Payroll i 18,000 "as Materiais Work in PSs —— 1 600 VI4,900. | 2). 8,000 1 4608 §) , 8,000 | 3) 350 2 70 131 4,550 3 8.000 1/31 6,000 Finished Goods Cost of Goods Sold 16,000 | 7) 22,000 7) 22,000 8) 21,600 © 1/31 5,600 lied Factory OH Control Factory OH App! 2) 1,000 5) 8,000 4) 2,300 . 9) 4,800 STOCKCARDS MATERIAL A Received Issued Balance 600 at 5.00 P 3,000 11600 at P5.50 P 3,000 600 at P5.00 3,000 600 atP5.50_ 3,300 2) 600 at P5.00 3,000 200 at P5.50__1,100_ | 400atPS.50_ 2,200 MATERIAL B Received Issued Balance 1350 at P4.00 P 1,400 1)800 at PS.00 4,000 350 at P4.00 1,400 800 atP5.00 4,000 2)350 at P4.00 1,400 300 at P5.00___1,500__| 500 at P5.00 2,500 3Y(70) at P5.00 (350) [ 430 at P5.00___2,150Chapter 5 Job Order Costing 133 | INDIRECT M. = IATERIALS Received Issued Balance EE 500 700 1,200. 1,000 200 : COMMODITY X Received Issued Balance 2,000 at P3.00_P 6,000 6)3,000 at P3.20 9,600 2,000 at P3.00 6,000 L 3,000 at P320_—9,600 72,000 at P3.00 6,000 2,000 at, P3.20 6,400 1,000 at P3.20 3,200 COMMODITY Y [Received Issued Balance 6)5,000 atP2.40_ 12,000 5,000 et P2.40_12,000 [74,000 at P2.40 9,600 COST SHEETS Job 101 Materials Overhead Wi . Vv 1,450 A-200 at P5.00 P 1,000 B-175 at P4.00 700 2) 5) 2,000 A-200 at P5.00__1,000Cost Accounting 134 Job 102 Overhead Materials Labor 4 5 5 zor 5) 000 A-400 at P5.00 2,000 200 at P5.50 1,100 B-225 at P4.00 - 900 4,000 4,000 _ Job 103 Materials Labor D D 2,000 | 5) 2,000 B-125 at P4,00 500 -300 at PS.00 1,500 NORTHERN CONSOLIDATED COMPANY : Cost of Goods Sold Statement for the month ended January 31, 2019 Direct materials: Materials, January 1 Purchases Less: Purchase returns Total available for use Less: Materials, January 31 Indirect Materials Direct labor Factory overhead Total manufacturing cost Add: Work in process, January 1 Cost of goods put into process Less: Work in process, January 31 Cost of goods manufactured Add: Finished goods, January | “Total goods available for sale Less: Finished goods, January 31 ” Cost of goods sold - normal Add: Underapplied factory overhead Cost of goods sold - actual P 4,900 _ P 8,000 7,650 12,550 350 4,550 ——1.000 7,000 8,000 8,000 23,000 4,600 27,600 6,000 21,600 6,000 27,600 5,600 22,000 100 5,550Chapter S Job Order Costing 135 Theander applied factory overhead is computed as follows: Actual factory overhead i P Less: Applied factory overhead nH Underapplied factory overhead Pp 100 The closing of the Factory Overhead Control account and the Factory Overhead Applied account maybe done on a monthly basis or an annual basis. Whatever method is used, the statement is always adjusted for the underapplied (unfavorable) or the overapplied (favorable) factory overhead. Underapplied factory overhead is considered unfavorable because the effect is an increase in the cost of goods sold, thereby decreasing the gross profit. On the other hand, the overapplied overhead is considered favorable because the effect is a decrease of the cost of goods sold thereby increasing the gross profit. If the closing is done on a monthly basis a special account, Under-and Overapplied Factory Overhead, will accumulate the differences period-to-period. At the end of the calendar or fiscal year, the balance of the under-and overapplied account will be closed to Cost of Goods Sold or allocated on a pro-rata basis to Work in Process, Finished Goods and Cost of Goods Sold. The remaining balance should be pro-rated if the amount of the balance would materially distort net income if it were charged entirely to Cost of Goods Sold. If a small balance remains in the Under-and Overapplied Factory Overhead at year-end, it may be closed directly to Cost of Goods sold because it will not materially affect net income.