FIFO method of Accounting

Koushirou Incorporated manufactures special made to 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 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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