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Chapter 17: 17-2TI (page 916)

Question: Record the following journal entries for Smith Company:

6. Purchased raw materials on account, \(10,000.

7. Used \)6,000 in direct materials and \(500 in indirect materials in production.

8. Incurred \)8,000 in labor costs, of which 80% was direct labor.

Short Answer

Expert verified

Answer

Date

Particulars

Debit ($)

Credit ($)

6.

Raw material inventory

10,000

Account payable

10,000

7.

Work-in-progress inventory (direct material)

6,000

Manufacturing overheads (indirect material)

500

Raw material inventory

6,500

8.

Work-in-rocess inventory (direct labor)

(8,000 x 80%)

6,400

Manufacturing overheads (indirect labor)

1,600

Wages payable

8,000

Step by step solution

01

Raw material

Raw material means the input used by an organization to produce or manufacture the products. It is also called as the inventory. It is classified as the direct material and the indirect material.

02

Labor cost

Labor cost is defined as the total expenditure incurred by the employers for the employment of the employes. It is classified as the direct labot cot and the indirect labor cost.

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Most popular questions from this chapter

Give the journal entry for direct and indirect labor costs incurred. Explain how this transaction affects the accounting equation.

Meadow Construction, Inc. is a home builder in Arizona. Meadow uses a job order costing system in which each house is a job. Because it constructs houses, the company uses an account titled Construction Overhead. The company applies overhead based on estimated direct labor costs. For the year, it estimated construction overhead of \(1,150,000 and total direct labor costs of \)5,750,000. The following events occurred during August:

a. Purchased materials on account, \(450,000.

b. Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned.

Direct material

Direct Labor

House 402

\)52,000

\(47,000

House 403

67,000

36,000

House 404

63,000

54,000

House 405

88,000

52,000

c. The company incurred total wages of \)240,000. Use the data from Item b to

assign the wages. Wages are not yet paid.

d. Depreciation of construction equipment, \(6,300.

e. Other overhead costs incurred: Equipment rentals paid in cash, \)40,000; Worker liability insurance expired, \(5,000.

f. Allocated overhead to jobs.

g. Houses completed: 402, 404.

h. House sold on account: 404 for \)250,000.

Requirements

1. Calculate Meadow鈥檚 predetermined overhead allocation rate for the year.

2. Prepare journal entries to record the events in the general journal.

3. Open T-accounts for Work-in-Process Inventory and Finished Goods Inventory.

Post the appropriate entries to these accounts, identifying each entry by letter.

Determine the ending account balances, assuming that the beginning balances

were zero.

4. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work-in-Process Inventory account.

5. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory.

6. Compute gross profit on the house that was sold. What costs must gross profit

cover for Meadow Construction?

For the following accounts, indicate what causes the account to increase and decrease. The first account is completed as an example.

Account

Is increased by:

Is decreased by:

Raw material inventory

Material purchased

Material used

Work in process inventory

Finished goods inventory

Cost of goods sold

Question: Match the following terms to their definitions.

a. A record used to assign direct labor cost to specific jobs. 1. Job

b. A document that requests the transfer of materials to 2. Job cost order

the production floor.

c. A document that shows the direct materials, direct labor, 3. Job order costing

and manufacturing overhead costs for an individual job.

d. An accounting system that accumulates costs by process. 4. Labor time record

e. The production of a unique product or specialized service 5. Material requisition

f. Used by companies that manufacture unique products or 6. Process costing system

provide specialized services

Goldenrod Company makes artificial flowers and reports the following data for the month:

Purchases of materials, on account

$51,000

Materials requisition:

Direct material

42,300

Indirect materials

500

Labor incurred (not yet paid):

Direct labor

20,300

Indirect labor

1,340

Journalize the entries relating to materials and labor.
See all solutions

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