Job Order Costing is an important topic in accounting. In most of the manufacturing sectors such as textile industry, all jobs are accounted for using this costing method. In large companies such as textile sectors, orders from customers are received from time to time. So, the management wants to know how much it is earning from a specific job. There comes the role of this system of cost accounting. The journal entries in job order are written below to help you understand the transfer of materials, labors and factory overheads to work in process (WIP). This WIP is then transferred to finished goods.
So, in order to get familiarized with this method, we are sharing the below exercises so that even in exams and in practical life, you can handle the situation easily.
Job Order Costing Problems and Solutions
Problem # 1
| Work in Process – Inventory | |||
| Balance Oct. 1, | 7,200 | Transferred to | |
| Direct material | 12,000 | finished goods | 30,000 |
| Direct labor | 9,000 | inventory account | 9,000 |
| Factory overhead | 10,800 | Balance Oct. 31 | |
| 39,000 | 39,000 |
Factory overhead is applied as a percentage of Direct labor of direct labor charged to goods in process at October 31, estimated to be Rs.3,000. 75% of the goods finished during October are sold for cash Rs.27,000 and the remaining 25% finished goods are sold on credit Rs.9,500
REQUIRED
a) Factory overhead percentage on direct labor cost
b) Factory overhead applied and direct material used on good still in process at October 31.
c) General journal entries to record:
i)Manufacturing costs charged to production during October
ii)Transfer of production to finished goods warehouse during October
iii) Cash sales
iv) Credit sales
SOLUTION
(a) Factory overhead Rate = Factory overhead / Direct Labor x 100
Factory overhead Rate = 10,800 / 9000 x 100 = 120 %
| Direct Material (9000 – 6600) | 3400 |
| Direct Labor | 3000 |
| Factory overhead (3000 x 120/100) | 3600 |
| Goods in process at end | 9,000 |
| No. | Particulars | Folio #. | Debit | Credit |
| 1 | Work in process | 31,800 | ||
| Raw Material | 12000 | |||
| Accrued Payroll | 9000 | |||
| Factory overhead | 10800 | |||
| To record the manufacturing cost | ||||
| 2 | Finished goods | 30000 | ||
| Work in process | 30000 | |||
| Goods completed and transferred to warehouse | ||||
| 3 | Cost of goods sold | 30000 | ||
| Finished goods | 30000 | |||
| To record the Cost of goods sold | ||||
| 4 | Cash | 27000 | ||
| Salaries To record the cash sales | 27000 | |||
| 5 | Accounts receivable | 9,500 | ||
| Sales | 9,500 | |||
| To record the sales on account |
Problem # 2
A Manufacturing Company job cost records yielded the below data. The company has perpetual inventory system in place for inventory management:
| Job No. | Date | Total Cost of Job at June 30 | Total Manufacturing Costs Added in July | ||
| Started | Finished | Sold | – | ||
| 1 | May 26 | June 07 | June 09 | Rs.700 | |
| 2 | June 03 | June 12 | June 13 | 1,700 | – |
| 3 | June 03 | June 30 | July 01 | 2,400 | — |
| 4 | June 17 | July 24 | July 27 | 200 | Rs. 500 |
| 5 | June 29 | July 29 | August 03 | 400 | 1,600 |
| 6 | July 08 | July 12 | July 14 | – | 800 |
| 7 | July 23 | August 06 | August 09 | — | 300 |
| 8 | July 30 | August 22 | August 26 | — | 2,900 |
You are required to calculate cost of:
(a) Work in process inventory at June 30 and July 31.
(b) Finished goods inventory at June 30 and July 31.
(c) Cost of goods sold for June and July.
(2) Make summary Journal entries to record the transfer of
completed units from work in process to finished goods for
June and July.
(3) Record the sale of Job 4 for Rs. 850.
| a (i) | Job No. | |
| 4 | 200 | |
| 5 | 400 | |
| 600 |
Work in Process (WIP) July 31 Stock/ Inventory
| a (ii) | Job No. | |
| 7 | 300 | |
| 8 | 2900 | |
| 3200 |
(b) Finished goods FG Jan 30 Stock/ Inventory
| (i) | Job No. | |
| 3 | 2400 | |
| 2400 |
Finished Goods July 31
| (ii) | Job No. | |
| 5 (400 + 1600) | 2000 | |
| 2000 |
Cost of goods sold (COGS) June
| Job No. | |
| 1 | 700 |
| 2 | 1700 |
| Total | 2400 |
Cost of goods sold (COGS) M/o July
| Job No. | |
| 3 | 2400 |
| 4 (200 + 500) | 700 |
| 6 | 800 |
| Total | 3900 |
Journal Entries
| Date | Particulars | Folio | Dr. | Cr. |
| Jun | Finished goods (Job 3) Work in Process (Job 3) (To record goods completed in June) | 2,400 | 2,400 | |
| July | Finished goods (Job 5) Work in Process (Job 5) (To record goods completed in July) | 2,000 | 2,000 | |
| Cost of goods sold (Job 4) Finished goods (To record cost of goods sold) | 700 | 700 | ||
| A/c Receivable (Job 4) Sales (To record sales of Job 4) | 850 | 850 |