Koushirou Incorporated manufactures special made to order construction equipment. It has three production departments (Cutting, Tooling, and Assembly) and two service departments (Janitorial and Maintenance). In any production department, the job in process is wholly completed before the next job is started. The company operates on a calendar year.

The company uses job order costing since each job is unique. Job names are assigned using a two letter code for the company combined with the number of units contracted for. Before beginning, notice Exhibit 1 and 2 included in this company information:

Exhibit 1 shows a post-closing trial balance as of December 31, 2019

Exhibit 2 shows subsidiary ledgers for the Finished Goods, Work in Process, and Materials accounts. The company uses the FIFO method of Accounting for all inventory.

Task #1: The company uses departmental overhead rates. Cutting and Tooling use machine hours. Assembly uses direct labor hours. In December of the year just completed, the company estimated the new year’s overhead related activity as follows:

Cutting

Tooling

Assembly

Total

Machine hours

30,000

25,000

7,500

62,500

Direct Labor Hours

3,000

4,000

15,000

22,000

Estimated Annual O/H

$195,000

$100,000

$150,000

$445,000

Task #1 – calculate the predetermined overhead rates to be used during the year and make note of them. Then continue on to the next task.

Task #2: In January of the new year, the company purchased the following Miscellaneous factory supplies and materials:

Material

Amount

Date

Factory Supplies

$5,000

1-Jan

5,000

Material A

150 @ $16.9

7-Jan

2,535

Material B

400 @ $12

12-Jan

4,800

Material C

150 @ $65

18-Jan

9,750

Material D

900 @ $72

18-Jan

64,800

Material E

500 @ $18

25-Jan

9,000

95,885

Task #2 – for simplicity’s sake for this fake company, do one journal entry to record the full amount of the purchases. Remember to review your Trial Balance as of Dec 31 for an idea of what account titles you have to use. Assume purchases are paid for in the month following the purchase.

Task #3: In January, in addition to $1,500 of Misc Factory Supplies, the following materials were issued to the factory:

5-Jan

10-Jan

15-Jan

20-Jan

In Units

Job XY200

Job AP5000

Job QE3000

Job ME2000

Material A

25

100

50

Material B

25

100

200

300

Material C

200

50

Material D

30

300

400

300

Material E

300

400

Task #3 – Looking at both the purchases on the prior page and the materials issued above, update the Materials Inventory Worksheet, focusing on one material at a time and paying attention to when the material was purchased and used. Using the summary at the bottom of that worksheet, create one Journal Entry to summarize all materials issued to the factory for the entire month. Remember indirect materials are not WIP.

Update the Job Cost Sheets for Materials (round to the nearest cent)

Task #4: An analysis of Time Cards for the employees showed the following hours

Job XY200

Job AP5000

Job QE3000

Job ME2000

per hr

Line Worker #1

210

180

250

200

$15.00

Line Worker #2

100

300

400

$25.00

Line Worker #3

300

500

$35.00

Factory Supervisor (equal time to 3 Producing Departments)

$6,000

Factory Janitorial Staff

$3,000

Factory Maintenance Staff

$5,000

Administrative

$12,000

Assume FICA rates are 6.2% + 1.45% = 7.65% and Employee Income Tax Withholding is at 10% of wages. Assume FUTA and SUTA rates of 4% and 1% respectively on the first $10,000 of wages.

Task #4 – Record the Journal Entries for wages. Then, record any payroll taxes due.

Update the Job Cost Sheets for labor (round to the nearest cent)

Task #5: Other miscellaneous activity includes:

a)

Paid Utilities on the factory building of

$10,000.00

b)

Paid Selling and administrative expenses of

$5,000.00

c)

Paid FICA, FUTA, SUTA, and Federal Income Taxes withheld as of the end of last year.

d)

Monthly depreciation on plant assets were calculated. On an annual basis, the company writes off (rounded to the nearest dollar):

5 percent – Factory buildings

20 percent – Machinery and Equipment

20 percent – Office Equipment

e)

Adjust the balance of the prepaid insurance account, which represents a two-year premium for a fire insurance policy covering the factory building and machinery. It was paid on the last day of the preceding month and became effective on January 1. (Round your journal entry to the nearest dollar.)

Task #5 – Record the journal entry for letters a thru e above.

Task #6: Post all above journal entries. Review the balance of the Factory Overhead Account. See Exhibit 4 for detail of that account by department.

To better evaluate how well overhead costs were controlled, record a journal entry to empty out the general Overhead Control Account and create 5 new ones (one for each department…e.g. Overhead Control – Cutting).

Task #7: Calculate the applied overhead for each job. See exhibit 3 for breakdown of machine and labor hours by job. Record the journal entry. Update the Job Cost Sheets.

Task #8: Overhead expenses of the support departments are allocated to the producing departments using the sequential method, with the higher dollar support department being allocated first. Janitorial services are allocated based on square footage of each department, and Maintenance services are split equally.

Calculate the allocation and record the journal entry. Round all dollars allocated to the nearest cent and all percentages to 4 decimal places.

Task #9: Jobs TG1000, RW3000, and XY200 were delivered to customers during the month, sales terms n/15. Sale price is 30% markup over cost. Job AP5000 was finished during the month.

Task #10: $250,000 in cash is received from customers on account during the month.

Task #11: $120,000 in various Accounts Payables were paid during the month.

Task #12: Create a Balance Sheet, Income Statement, and Statement of Goods Manufactured, and Cost of Goods Sold. For purposes of these financial statements, create a reclassing journal entry to roll all the various Overhead Control accounts into one Over/Under Applied Overhead account that will appear on the Balance Sheet (Other Asset if it is a Debit, Other Liability if it is a Credit). Note that if this was the final Balance Sheet for the year we would actually close the account and not show it at all.

Exhibit 1

Koushirou Incorporated

Post-Closing Trial Balance

December 31, 2019

Debit

Credit

Cash

122,500

Accounts Receivable

121,700

Finished Goods

108,750

Work in Process

103,600

Materials

117,000

Prepaid Insurance

104,320

Factory Building

164,000

Accumulated Depr – Factory Building

122,500

Machinery and Equipment

138,000

Accumulated Depr – Machinery and Equip

116,000

Office Equipment

110,500

Accumulated Depr – Office Equipment

107,500

Accounts Payable

102,500

FICA Tax Payable

7,500

FUTA Payable

500

SUTA Payable

100

Employee Income Tax Payable

10,000

Capital Stock

75,000

Retained Earnings

548,770

1,090,370

1,090,370

Exhibit 2

Account: Finished Goods

Job TG1000

Job RW3000

Total

Direct Materials

$10,000

$30,000

$40,000

Direct Labor

$15,000

$37,750

$52,750

Factory Overhead

$4,000

$12,000

$16,000

$29,000

$79,750

$108,750

Account: Work in Process

Job XY200

Job AP5000

Total

Direct Materials

$9,000

$40,000

$49,000

Direct Labor

$6,000

$19,200

$25,200

Factory Overhead

$5,400

$24,000

$29,400

$20,400

$83,200

$103,600

Account: Materials

Description

Units

Unit Cost

Total

Material A

120

$15.25

$1,830.00

Material A

150

$15.35

$2,302.50

Material B

100

$10.00

$1,000.00

Material B

150

$9.95

$1,492.50

Material B

200

$9.90

$1,980.00

Material C

105

$50.00

$5,250.00

Material C

125

$52.00

$6,500.00

Material D

1100

$75.00

$82,500.00

Material E

800

$15.18

$12,144.00

$114,999.00

Misc Factory Supplies

$2,001.00

$117,000.00

Exhibit 3

Actual Machine and Labor hours – by Job and Department

Cutting

Tooling

Assembly

Machine hours

JOB XY200

200

1,400

275

JOB AP5000

600

600

100

JOB QE3000

500

400

75

JOB ME2000

600

300

50

Total

1,900

2,700

500

Direct Labor Hours

Total

JOB XY200

210

–

–

210

JOB AP5000

70

100

110

280

JOB QE3000

210

130

510

850

JOB ME2000

–

–

1,100

1100

Total

490

230

1720

2440

Exhibit 4

Factory Overhead – by Department

Producing Departments

Service Departments

Cutting

Tooling

Assembly

Janitorial

Maintenance

Total

Supplies

$450.00

$300.00

$280.00

$175.00

$295.00

$1,500.00

Indirect Labor

$2,000.00

$2,000.00

$2,000.00

$3,000.00

$5,000.00

$14,000.00

Payroll Taxes

$1,324.39

$621.65

$4,648.86

$229.50

$1,082.50

$7,906.90

Miscellaneous

$3,000.00

$2,750.00

$2,500.00

$750.00

$1,000.00

$10,000.00

Depreciation

$863.00

$1,190.00

$600.00

$180.00

$150.00

$2,983.00

Insurance

$1,805.00

$892.00

$1,425.00

$125.00

$100.00

$4,347.00

$9,442.39

$7,753.65

$11,453.86

$4,459.50

$7,627.50

$40,736.90

check figure

square feet

7,530

5,000

10,000

1,000

2,000