Riggs Manufacturing Company completed Job #221 on February 28 and there were no jobs in

process in the plant. Prior to February, the pre-determined overhead application rate for March
was computed from the following data
Total budgeted overheads
Total estimated direct labour hours
$40,000
5,000
The factory has one production department and applies factory overheads on the basis of direct
labour hours.
Three jobs were started during the month and postings were made daily to the job cost sheets
from the materials requisition and time cards. The following schedule shows the jobs and
amounts posted to the job sheets.
During the month of August, the cost record for Job #400 shows the following:

Job # Date Started Direct Material Direct Labour Direct Labour Hrs
$$$
222 March 1 7,500 15,000 2,400
223 March 15 15,000 22,500 2,850
224 March 25 4,000 10,500 1,950
The Manufacturing overhead control account was debited during the month for actual overhead
expenses of $65,000.
On March 11, Job # 222 was completed and delivered to the customer at a mark-up of 40% on
manufacturing cost.
On March 24th, Job # 223 was completed and transferred to finished goods.
On March 31st, Job #224 was still in process.
Any overhead variance is closed out to Cost of Sales,
Required:
a) Calculate Riggs overhead application rate. (2 marks)
40000/5000= $8 per direct labor hour
b) Calculate the production cost for each job, clearly showing the
manufacturing overhead allocated to each of the three (3) units. (6marks)

Job

Direct Material

Direct labor

Overhead

Total

222
223
224

7,500
15,000
4,000

15,000
22,500
10,500

2,400x8=19200
2,850x8=22800
1,950x8=15600

41700
60300
30100

c) Using total figures, state the journal entries necessary to record the above transactions in the
General Journal. (10 marks)
WIP Job #222

Dr41700

Material

Cr7500

Payroll

Cr15000

FOH control

Cr19200

WIP Job #223

Dr60300

Material

Cr15000

Payroll

Cr22500

FOH control

Cr22800

WIP Job #224

Dr30100

Material

Cr4000

Payroll

Cr10500

FOH control

Cr15600

Finished Goods

Dr102000

WIP Job 222

Cr41700

WIP Job 223

Cr60300

Account Receivable
Sales

Dr58380
Cr58380

41700x1.4
Cost of goods sold

Dr41700

Finished Goods

Cr41700

d) Show the journal entry necessary to dispose of this variance. Does your entry increase or
decrease Cost of Goods Sold? (2 marks)
Cost of goods sold
Dr7400
FOH control

Cr7400

65000-57600
It will increase cost of goods sold by $7400.
PART (ii) (30 marks)
Hewitt Electronics makes CD players by way of three consecutive processes: Assembly,
Programming & Packing. Inspection takes place during the processing operation, at which point
bad CD players are separated from good CD players and sold as scrap at $40 each.
The following data relates to the Programming Department for the month of June. During June,
20,000 units valued at $515,000 were transferred from the Assembly Department to the
Programming Department.
Other costs incurred during the month were:
Direct Materials Added $323,000
Direct Labour $258,000
Manufacturing Overhead $241,200
Normal losses are estimated to be 5% of the units transferred in from Assembly.
At inspection, 3,000 CD players were rejected as scrap. These units had reached the following
degree of completion:
Transfer from Assembly 100%
Direct material added 80%
Conversion costs 50%
Work-in-progress at the end of June was 4,000 CD players and had
reached the following degree of completion:
Transfer from Assembly 100%
Materials added 60%
Conversion costs 40%
There were no incomplete units in the Programming Department at the beginning of the period.
Materials added and conversion costs are incurred evenly throughout the process.

Required:
a) Complete the template given to determine the equivalent units for direct materials (From A
Assem
bly
Completed

Material

Conversion

13000

13000

13000

Closing
WIP

4000

2400

1600

Abnormal
loss

2000

1600

1000

19000

17000

15600

ssembly & Materials added) and conversion costs. (8 marks)

b) Compute the cost per univalent unit for direct materials and conversion costs.(3 marks)

Direct Materials
Conversion cost 258000+241200/15600

= $323,000/17000 = $19 per unit

=499200/15600 = $32 per unit

It is assumed that cost of scrap of normal loss has already been deducted from manufacturing
overhead of $241200.
c) Compute:
a. The total cost of the CD players completed and transferred out to the Packing Department.
51 x 13000 +515000/19000x13000 = $1015368
b. Cost of the unexpected losses
Assembly
D.M
CC
Total

54211
30400
32000
116611

c. Cost of ending work in process inventory in the Programming Department.(4 marks)

Assembly
D.M
CC
Total

108421
45600
51200
205221

d) Prepare the Work in Process Inventory Programming Department T-account, clearly

showing the ending balance. (4 marks)
WIP Programming
Packing
1015368
Abnormal
los116611
Closing WIP
205221

Assembly515000
Material 323000
Labor
258000
FOH
241200
1337200

1337200

e) State the journal entries to record the assignment of direct materials and direct labour and the
allocation of manufacturing overhead to the process during June. Also give the journal entry to
record the cost of the units completed and transferred out to the Packing Department.
(6 marks)
Debit
WIP
Programming

822200
32300
0
25800
0
24120
0

Material
Payroll
FOH control
WIP Packing
WIP
Programming

Credit

1015368
10153
68

f) What is the manufacturers true loss? (2 marks)

116611 2000x40 = 36611
g) Chico Angel is the owner of a small furniture manufacturing company that makes furniture
based of customers orders. After consulting with his friend Joe, who is an accounting student, he
decided to prepare quotes for customers using process costing; his friend Joe disagrees with his
choice and recommended that he uses job costing. With whose choice do you agree? Explain.
(3marks)
When goods are made according to customer specification, the job order costing should be used;
the process costing is used where the homogenous nature products are produced in bulk quantity.
When the goods are made for different customers and they are different in nature, the material,
labor and overheads used are different from each other therefore it is not possible to use process
costing.