Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 29

Show Flow of Costs to Jobs

Kim’s Asphalt does driveway and parking lot resurfacing work for large commercial clients as well as small residential clients. An inventory of materials and equipment is on hand at all times so that work can start as quickly as possible. Special equipment is ordered as required. On May 1, the Materials and Equipment Inventory account had a balance of $24,000. The Work-in-Process Inventory account is maintained to record costs of work not yet complete. There were two such jobs on May 1 with the following costs:

	Job 27	Job 33
	Highlands Mall	Pine Ridge Estates
Materials and equipment	$10,250	$35,000
Direct labor	9,000	17,500
Overhead (applied)	2,700	5,250

Overhead has been applied at 30 percent of the costs of direct labor.

During May, Kim’s Asphalt started two new jobs. Additional work was carried out on Jobs 27 and 33, with the latter completed and billed to Pine Ridge Estates. Details on the costs incurred on jobs during May follow:

Job	27	33	34	35
Materials and equipment	$2,000	$3,200	$4,600	$2,000
Direct labor (wages payable)	3,000	4,500	5,900	1,600

Other May Events

1. Received $12,500 payment on Job 24 delivered to customer in April.

2. Purchased materials and equipment for $9,400.

3. Billed Pine Ridge Estates $87,500 and received payment for $50,000 of that amount.

4. Determined that payroll for indirect labor personnel totaled $650.

5. Issued supplies and incidental materials for current jobs costing $155.

6. Recorded overhead and advertising costs for the operation as follows (all cash except e quipment depreciation):

Property taxes	$550
Storage area rental	675
Truck and delivery cost	320
Advertising and promotion campaign	600
Inspections	200
Telephone and other miscellaneous	325
Equipment depreciation	45

Required

a. Prepare journal entries to record the flow of costs for operations during May.

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b. Calculate the amount of over- or underapplied overhead for the month. This amount is debited or credited to Cost of Goods Sold.

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c. Determine inventory balances for Materials and Equipment Inventory and Work-in-Process Inventory.

Step 1 of 3

a.

Journal Entries:

	Description	Debit $	Credit $
	Material and Equipment Inventory	$9,400
	Accounts Payable		$9,400
	Purchased material and equipment
	Work-in-Process (Job 27)	$2,000
	Work-in-Process (Job 33)	$3,200
	Work-in-Process (Job 34)	$4,600
	Work-in-Process (Job 35)	$2,000
	Material and Equipment Inventory		$11,800
	Transferred material to Work-in- process
	Work-in-Process (Job 27)	$3,000
	Work-in-Process (Job 33)	$4,500
	Work-in-Process (Job 34)	$5,900
	Work-in-Process (Job 35)	$1,600
	Wages payable		$15,000
	Direct labor cost charged to various jobs
	Work-in-Process (Job 27)	$ 900
	Work-in-Process (Job 33)	$1,350
	Work-in-Process (Job 34)	$1,770
	Work-in-Process (Job 35)	$480
	Applied Manufacturing Overhead		$4,500
	Overheads applied to various jobs at the rate of 30% of direct Labor
	Manufacturing Overhead Control	$ 650
	Wages payable		$ 650
	Indirect labor cost incurred
	Manufacturing Overhead Control	$ 155
	Material and Equipment Inventory		$ 155
	Supplies and incidental material issued
	Manufacturing Overhead Control	$ 3,570
	Cash		$ 3,120
	Accumulated Depreciation		$ 450
	Overhead and advertising costs recorded
	Cost of goods Sold	$ 66,800
	Work-in-Process(Job 33)		$ 66,800
	Completed job 33 and billed to client