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

Exercise 27

Tracing Costs in a Job Company

The following transactions occurred in January at Dungan Cabinetry, a furniture maker that uses job costing:

1. Purchased $53,700 in materials on account.

2. Issued $1,500 in supplies from the materials inventory to the production department.

3. Paid for the materials purchased in (1).

4. Issued $25,500 in direct materials to the production department.

5. Incurred wage costs of $42,000, which were debited to Payroll, a temporary account. Of this amount, $13,500 was withheld for payroll taxes and credited to Payroll Taxes Payable. The remaining $28,500 was paid in cash to the employees. See transactions (6) and (7) for additional information about Payroll.

6. Recognized $21,000 in fringe benefit costs, incurred as a result of the wages paid in (5). This $21,000 was debited to Payroll and credited to Fringe Benefits Payable.

7. Analyzed the Payroll account and determined that 60 percent represented direct labor; 30 percent, indirect manufacturing labor; and 10 percent, administrative and marketing costs.

8. Paid for utilities, power, equipment maintenance, and other miscellaneous items for the manufacturing plant totaling $32,400.

9. Applied overhead on the basis of 175 percent of direct labor costs.

10. Recognized depreciation of $17,250 on manufacturing property, plant, and equipment.

Required

a. Prepare journal entries to record these transactions.

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b. The following balances appeared in the accounts of Dungan Cabinetry:

	Beginning	Ending
Materials Inventory	$55,575	—
Work-In-Process Inventory	12,375	—
Finished Goods Inventory	62,250	$49,800
Cost of Goods Sold	—	98,775

Prepare T-accounts to show the flow of costs during the period.

Step 1 of 24

Ledger (T-Accounts):

It is an account which is used to post the transactions which were previously recorded using the journal entries. The shape of the account reflects T so called T account. The left hand side of the account is posted with all the debit transactions and the right hand side is posted with all the credit transactions. The T accounts are used in both cost and financial accounting. In cost accounting, the transactions relating to recording costs of manufacturing of finished goods are posted in T accounts. In financial accounting, T accounts are used to record the financial transactions for the accounting period.