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ADM 2341 Chapter Notes - Chapter 2: Direct Labor Cost, Opportunity Cost, Financial Statement

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School
University of Ottawa
Department
Administration
Course
ADM 2341
Professor
Fodil Adjaoud

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Document Summary

Direct material: materials that are integral part of finished product and can be traced to it. Direct labor: factory labor costs that can be traced to individual units of product (touch labor) Manufacturing overhead: all costs except direct labor and direct materials (basically indirect materials and labor, maintenance and repair, heat and light, property tax, depreciation and insurance) only costs associated with operating the production factory included. Direct labor & manufacturing overhead= conversion costs - - direct labor & direct materials = prime costs. Classification of labor cost of manufacturing: idle time not doing nothing is overhead, but idle time waiting for product is direct. Overtime premiums (extra paid to workers who work above job time) go to direct if its job specific (rush order), but for general conditions (peak production needs) go to overhead. Benefits for direct labor goes to direct labor cost but for indirect labor goes to overhead.

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Related Questions

Problem 15-1A Production costs computed and recorded; reports prepared LO C2, P1, P2, P3, P4

[The following information applies to the questions displayed below.]

Marcelino Co.'s March 31 inventory of raw materials is $82,000. Raw materials purchases in April are $580,000, and factory payroll cost in April is $381,000. Overhead costs incurred in April are: indirect materials, $59,000; indirect labor, $25,000; factory rent, $31,000; factory utilities, $24,000; and factory equipment depreciation, $58,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $650,000 cash in April. Costs of the three jobs worked on in April follow.

Job 306 Job 307 Job 308
Balances on March 31
Direct materials $ 28,000 $ 36,000
Direct labor 24,000 15,000
Applied overhead 12,000 7,500
Costs during April
Direct materials 139,000 205,000 $ 100,000
Direct labor 103,000 152,000 101,000
Applied overhead ? ? ?
Status on April 30 Finished (sold) Finished (unsold) In process

rev: 03_15_2018_QC_CS-121813

Problem 15-1A Part 1

Required:
1. Determine the total of each production cost incurred for April (direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including the balances from March 31).

Job 306 Job 307 Job 308 April Total
From March
Direct Materials $28,000 $36,000 $64,000
Direct Labor 24,000 15,000 39,000
Applied overhead 12,000 7,500 19,500
Beginning goods in process
For April
Direct Materials 139,000 205,000 100,000 444,000
Direct Labor 103,000 152,000 101,000 356,000
Applied overhead
Total costs added in April
Total costs (April 30)
Status on April 30 Finished (sold) Finished (unsold) In process
April 30 cost included in:

Problem 15-1A Part 2

  1. Materials purchases (on credit).
  2. Direct materials used in production.
  3. Direct labor paid and assigned to Work in Process Inventory.
  4. Indirect labor paid and assigned to Factory Overhead.
  5. Overhead costs applied to Work in Process Inventory.
  6. Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in cash.)
  7. Transfer of Jobs 306 and 307 to Finished Goods Inventory.
  8. Cost of goods sold for Job 306.
  9. Revenue from the sale of Job 306.
  10. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)

2. Prepare journal entries for the month of April to record the above transactions.

Problem 15-1A Part 3

3. Prepare a schedule of cost of goods manufactured.

MARCELINO COMPANY
Schedule of Cost of Goods Manufactured
For Month Ended April 30
Total manufacturing costs
Total cost of work in process
Cost of goods manufactured
Garcia Manufacturing uses a job order cost system and appliesoverhead to production on the basis of direct labor costs. OnJanuary 1, 2010, Job No. 50 was the only job in process. The costsincurred prior to January 1 on this job were as follows: directmaterials $20,000, direct labor $12,000, and manufacturing overhead$16,000. As of January 1, Job No. 49 had been completed at a costof $90,000 and was part of finished goods inventory. There was a$15,000 balance in the Raw Materials Inventory account.
During the month of January, Garcia Manufacturing began productionon Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50were also sold on account during the month for $122,000 and$158,000, respectively. The following additional events occurredduring the month.

1. Purchased additional raw materials of $90,000 on account.
2. Incurred factory labor costs of $65,000. Of this amount $16,000related to employer payroll taxes.
3. Incurred manufacturing overhead costs as follows: indirectmaterials $17,000; indirect labor $15,000; depreciation expense$19,000, and various other manufacturing overhead costs on account$20,000.
4. Assigned direct materials and direct labor to jobs asfollows.

Job No. Direct Materials Direct Labor
50 $10,000 $ 5,000
51 39,000 25,000
52 30,000 20,000
Prepare the journal entries to record the assignment of directmaterials, direct labor, and manufacturing overhead costs toproduction. In assigning manufacturing overhead costs, use theoverhead rate calculated in first part of question.

Account/Description Debit Credit
Work in process inventory 79,000
Raw materials inventory 79,000
(To assign direct materials to production.)
Work in process inventory 50,000
Factory labor 50,000
(To assign labor to production.)
Work in process inventory ???
Manufacturing overhead ???
(To assign manufacturing overhead to production.)

Pedriani Company uses a job order cost system and applies overhead to production on the basis of direct labor hours. On January 1, 2017, Job No. 25 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $10,000; direct labor $6,000; and manufacturing overhead $9,000. Job No. 23 had been completed at a cost of $42,000 and was part of finished goods inventory. There was a $5,000 balance in the Raw Materials Inventory account.

During the month of January, the company began production on Jobs 26 and 27, and completed Jobs 25 and 26. Jobs 23 and 25 were sold on account during the month for $63,000 and $74,000, respectively. The following additional events occurred during the month.

1. Purchased additional raw materials of $45,000 on account.

2. Incurred factory labor costs of $33,500. Of this amount, $7,500 related to employer

payroll taxes.

3. Incurred manufacturing overhead costs as follows: indirect materials $10,000;

indirect labor $9,500; depreciation expense on equipment $12,000; and various

other manufacturing overhead costs on account $11,000.

4. Assigned direct materials and direct labor to jobs as follows.

Job No.

Direct Materials

Direct Labor

25

$ 5,000

$ 3,000

26

17,000

12,000

27

13,000

9,000

5. The company uses direct labor hours as the activity base to assign overhead. Direct labor hours incurred on each job were as follows: Job No. 25, 200; Job No. 26, 800; and Job No. 27, 600.

Instructions

(a) Calculate the predetermined overhead rate for the year 2017, assuming Pedriani Company estimates total manufacturing overhead costs of $440,000, direct labor costs of $300,000, and direct labor hours of 20,000 for the year.

(b) Open job cost sheets for Jobs 25, 26, and 27. Enter the January 1 balances on the job cost sheet for Job No. 25.

(c) Prepare the journal entries to record the purchase of raw materials, the factory labor costs incurred, and the manufacturing overhead costs incurred during the month of January.

(d) Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in (a). Post all costs to the job cost sheets as necessary.

(e) Job 25, $37,400

Job 26, $46,600

(e) Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or entries) to record the completion of any job(s) during the month.

(f) Prepare the journal entry (or entries) to record the sale of any job(s) during the month.

(g) What is the balance in the Work in Process Inventory account at the end of the month? What does this balance consist of?

(h) What is the amount of over- or underapplied overhead?