FIFO method of Accounting

Koushirou Incorporated manufactures special made to order construction equipment. It has three production departments (Cutting, Tooling, and Assembly) and two service departments (Janitorial and Maintenance). In any production department, the job in process is wholly completed before the next job is started. The company operates on a calendar year.
The company uses job order costing since each job is unique. Job names are assigned using a two letter code for the company combined with the number of units contracted for. Before beginning, notice Exhibit 1 and 2 included in this company information:
Exhibit 1 shows a post-closing trial balance as of December 31, 2019
Exhibit 2 shows subsidiary ledgers for the Finished Goods, Work in Process, and Materials accounts. The company uses the FIFO method of Accounting for all inventory.
Task #1: The company uses departmental overhead rates. Cutting and Tooling use machine hours. Assembly uses direct labor hours. In December of the year just completed, the company estimated the new year’s overhead related activity as follows:
Cutting Tooling Assembly Total
Machine hours 30,000 25,000 7,500 62,500
Direct Labor Hours 3,000 4,000 15,000 22,000
Estimated Annual O/H $195,000 $100,000 $150,000 $445,000
Task #1 – calculate the predetermined overhead rates to be used during the year and make note of them. Then continue on to the next task.
Task #2: In January of the new year, the company purchased the following Miscellaneous factory supplies and materials:
Material Amount Date
Factory Supplies $5,000 1-Jan 5,000
Material A 150 @ $16.9 7-Jan 2,535
Material B 400 @ $12 12-Jan 4,800
Material C 150 @ $65 18-Jan 9,750
Material D 900 @ $72 18-Jan 64,800
Material E 500 @ $18 25-Jan 9,000
95,885
Task #2 – for simplicity’s sake for this fake company, do one journal entry to record the full amount of the purchases. Remember to review your Trial Balance as of Dec 31 for an idea of what account titles you have to use. Assume purchases are paid for in the month following the purchase.
Task #3: In January, in addition to $1,500 of Misc Factory Supplies, the following materials were issued to the factory:
5-Jan 10-Jan 15-Jan 20-Jan
In Units Job XY200 Job AP5000 Job QE3000 Job ME2000
Material A 25 100 50
Material B 25 100 200 300
Material C 200 50
Material D 30 300 400 300
Material E 300 400
Task #3 – Looking at both the purchases on the prior page and the materials issued above, update the Materials Inventory Worksheet, focusing on one material at a time and paying attention to when the material was purchased and used. Using the summary at the bottom of that worksheet, create one Journal Entry to summarize all materials issued to the factory for the entire month. Remember indirect materials are not WIP.

Update the Job Cost Sheets for Materials (round to the nearest cent)

Task #4: An analysis of Time Cards for the employees showed the following hours
Job XY200 Job AP5000 Job QE3000 Job ME2000 per hr
Line Worker #1 210 180 250 200 $15.00
Line Worker #2 100 300 400 $25.00
Line Worker #3 300 500 $35.00
Factory Supervisor (equal time to 3 Producing Departments) $6,000
Factory Janitorial Staff $3,000
Factory Maintenance Staff $5,000
Administrative $12,000
Assume FICA rates are 6.2% + 1.45% = 7.65% and Employee Income Tax Withholding is at 10% of wages. Assume FUTA and SUTA rates of 4% and 1% respectively on the first $10,000 of wages.
Task #4 – Record the Journal Entries for wages. Then, record any payroll taxes due.

Update the Job Cost Sheets for labor (round to the nearest cent)

Task #5: Other miscellaneous activity includes:
a) Paid Utilities on the factory building of $10,000.00
b) Paid Selling and administrative expenses of $5,000.00
c) Paid FICA, FUTA, SUTA, and Federal Income Taxes withheld as of the end of last year.
d) Monthly depreciation on plant assets were calculated. On an annual basis, the company writes off (rounded to the nearest dollar):
5 percent – Factory buildings
20 percent – Machinery and Equipment
20 percent – Office Equipment
e) Adjust the balance of the prepaid insurance account, which represents a two-year premium for a fire insurance policy covering the factory building and machinery. It was paid on the last day of the preceding month and became effective on January 1. (Round your journal entry to the nearest dollar.)
Task #5 – Record the journal entry for letters a thru e above.
Task #6: Post all above journal entries. Review the balance of the Factory Overhead Account. See Exhibit 4 for detail of that account by department.

To better evaluate how well overhead costs were controlled, record a journal entry to empty out the general Overhead Control Account and create 5 new ones (one for each department…e.g. Overhead Control – Cutting).

Task #7: Calculate the applied overhead for each job. See exhibit 3 for breakdown of machine and labor hours by job. Record the journal entry. Update the Job Cost Sheets.
Task #8: Overhead expenses of the support departments are allocated to the producing departments using the sequential method, with the higher dollar support department being allocated first. Janitorial services are allocated based on square footage of each department, and Maintenance services are split equally.

Calculate the allocation and record the journal entry. Round all dollars allocated to the nearest cent and all percentages to 4 decimal places.

Task #9: Jobs TG1000, RW3000, and XY200 were delivered to customers during the month, sales terms n/15. Sale price is 30% markup over cost. Job AP5000 was finished during the month.
Task #10: $250,000 in cash is received from customers on account during the month.
Task #11: $120,000 in various Accounts Payables were paid during the month.
Task #12: Create a Balance Sheet, Income Statement, and Statement of Goods Manufactured, and Cost of Goods Sold. For purposes of these financial statements, create a reclassing journal entry to roll all the various Overhead Control accounts into one Over/Under Applied Overhead account that will appear on the Balance Sheet (Other Asset if it is a Debit, Other Liability if it is a Credit). Note that if this was the final Balance Sheet for the year we would actually close the account and not show it at all.
Exhibit 1
Koushirou Incorporated
Post-Closing Trial Balance
December 31, 2019
Debit Credit
Cash 122,500
Accounts Receivable 121,700
Finished Goods 108,750
Work in Process 103,600
Materials 117,000
Prepaid Insurance 104,320
Factory Building 164,000
Accumulated Depr – Factory Building 122,500
Machinery and Equipment 138,000
Accumulated Depr – Machinery and Equip 116,000
Office Equipment 110,500
Accumulated Depr – Office Equipment 107,500
Accounts Payable 102,500
FICA Tax Payable 7,500
FUTA Payable 500
SUTA Payable 100
Employee Income Tax Payable 10,000
Capital Stock 75,000
Retained Earnings 548,770
1,090,370 1,090,370
Exhibit 2
Account: Finished Goods
Job TG1000 Job RW3000 Total
Direct Materials $10,000 $30,000 $40,000
Direct Labor $15,000 $37,750 $52,750
Factory Overhead $4,000 $12,000 $16,000
$29,000 $79,750 $108,750
Account: Work in Process
Job XY200 Job AP5000 Total
Direct Materials $9,000 $40,000 $49,000
Direct Labor $6,000 $19,200 $25,200
Factory Overhead $5,400 $24,000 $29,400
$20,400 $83,200 $103,600
Account: Materials
Description Units Unit Cost Total
Material A 120 $15.25 $1,830.00
Material A 150 $15.35 $2,302.50
Material B 100 $10.00 $1,000.00
Material B 150 $9.95 $1,492.50
Material B 200 $9.90 $1,980.00
Material C 105 $50.00 $5,250.00
Material C 125 $52.00 $6,500.00
Material D 1100 $75.00 $82,500.00
Material E 800 $15.18 $12,144.00
$114,999.00
Misc Factory Supplies $2,001.00
$117,000.00
Exhibit 3
Actual Machine and Labor hours – by Job and Department
Cutting Tooling Assembly
Machine hours
JOB XY200 200 1,400 275
JOB AP5000 600 600 100
JOB QE3000 500 400 75
JOB ME2000 600 300 50
Total 1,900 2,700 500
Direct Labor Hours Total
JOB XY200 210 210
JOB AP5000 70 100 110 280
JOB QE3000 210 130 510 850
JOB ME2000 1,100 1100
Total 490 230 1720 2440
Exhibit 4
Factory Overhead – by Department
Producing Departments Service Departments
Cutting Tooling Assembly Janitorial Maintenance Total
Supplies $450.00 $300.00 $280.00 $175.00 $295.00 $1,500.00
Indirect Labor $2,000.00 $2,000.00 $2,000.00 $3,000.00 $5,000.00 $14,000.00
Payroll Taxes $1,324.39 $621.65 $4,648.86 $229.50 $1,082.50 $7,906.90
Miscellaneous $3,000.00 $2,750.00 $2,500.00 $750.00 $1,000.00 $10,000.00
Depreciation $863.00 $1,190.00 $600.00 $180.00 $150.00 $2,983.00
Insurance $1,805.00 $892.00 $1,425.00 $125.00 $100.00 $4,347.00
$9,442.39 $7,753.65 $11,453.86 $4,459.50 $7,627.50 $40,736.90
check figure
square feet 7,530 5,000 10,000 1,000 2,000
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