Work4Me Managerial Accounting Simulations. Problem Two

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1 Work4Me Managerial Accounting Simulations 1 st Web-Based Edition Problem Two Job-Order Costing Elmwood Manufacturing, Incorporated Page 1

2 INTRODUCTION Elmwood Manufacturing, Incorporated operates in a job-order costing environment employing just-in-time (JIT) inventory practices. Materials are ordered and production begins only when there is a confirmed sales order. Upon receipt of direct material, the material is placed into production and the cost is charged directly to the Raw and In-Process Inventory account (there is no Direct Material Inventory account or Raw Material Inventory account). The Raw and In-Process Inventory account serves as a combination of the Raw Materials and Work-in-Process accounts. Purchases of direct materials will require additional data entry recording the quantity of the specific item(s) being purchased and the specific Job to which they are to be charged. This information will be an automatic part of each journal entry where direct material is involved. This maintains a constant updated record of the quantity of all direct material charged to Raw and In-Process Inventory and the individual Job Cards (or Job Sheets). Upon completion of each job, the total manufacturing cost of the job is charged to the Finished Goods Inventory account and credited to the Raw and In-Process Inventory account. When the product is delivered to the customer (usually within one day of product completion), the sale is recorded as a debit to the Cash account (or the Accounts Receivable account) and a credit to the Custom Fencing and Gate Sales account. Features: All direct materials will be purchased on account and debited to the Raw and In-Process Inventory account and credited the Accounts Payable account. There is no Direct Material Inventory account. When direct labor is recorded, Manufacturing Overhead will be automatically recorded and posted at an application rate of 80% of the direct labor cost. The direct labor and manufacturing overhead costs will be automatically recorded and posted to the appropriate Job Cost card (sheet). Manufacturing overhead transactions will include indirect materials, indirect labor, factory utilities, and depreciation expense for the factory and factory equipment. Ordinarily, allocation of other expenses, such as rent, telephone, and insurance, between the manufacturing function and general or administrative function would occur. These allocations were eliminated for the sake of brevity. The under- or over-applied manufacturing overhead account balance is closed to the Cost of Goods Sold account at the end of the period. Page 2

3 The Finished Goods Inventory account is debited and the Raw and In-Process Inventory account is credited upon completion of each job. Sales are recorded as a debit to the Cash account (or the Accounts Receivable account) and a credit to the Custom Fencing and Gate Sales account. A debit to the Cost of Goods Sold and credit to Finished Goods for the cost of the job will be automatically recorded and posted when the sale entry is recorded. Except for transactions affecting sales, receivables, and payables, financial transactions are not required for this problem. ************************* Before recording the transactions, you must first print a Trial Balance and a Chart of Accounts 1. From the Menu Bar, select Problems 2. Select Problem 2 Job-Order Costing 3. From the Menu Bar, select Journals/Ledgers/Statements 4. Select General Ledger 5. Print the Trial Balance ($712,641.25) 6. From the Menu Bar, select Journals/Ledgers/Statements 7. Select Chart of Accounts 8. Print the Chart of Accounts It is good practice to write the journal entries in the right-hand margin of this manual where the information is given for each transaction. This notation will reduce the amount of time you spend at the computer. ************************* RECORD THE MONTHLY TRANSACTIONS In the Date column, enter each transaction as TRAN. Transaction 1 Issued check numbered for $550 to a law firm for professional services received. The invoice number for this service billing is LF667. Page 3

4 Carefully Follow Instructions 1-8: 1. At the date prompt, for Transaction 1, enter 01 for day and press the Tab key. Do not use the Enter Key. When entering any part of the transaction, you may back up and reenter the information by using the backspace key. If the date has been entered incorrectly reenter the date. 2. At the account prompt, type 629 and press the Tab key. To record the debit to Professional Services Expense enter in the debit amount column. Do not use dollar signs or commas. If the account or amount is incorrect, click on the appropriate item and reenter. Tab to the next position. 3. At the account prompt, type 101 and press the Tab key. Tab to the credit column and enter as the credit to Cash. 4. Click on the Verify Journal button. The equality of debits and credits will be automatically verified. If any part of the journal entry is incorrect at this point, click on the Clear Screen button and reenter the transaction. 5. At the check number prompt enter check number and press the Tab key. 6. At the Invoice prompt enter LF667 as the invoice number. The alphabet letters may be entered in upper or lower case for all documents. 7. Check the entry carefully. If you wish to make a correction to the invoice number, click on the invoice entry box and enter the correct number. If the entry is correct, click on the Verify Documents button. This verification only tests for complete 5-character entries, where required; it does not guarantee the correctness of the numbers entered. This verification is required before the entry can be posted. 8. Click on the Post Entry button. The entry will be recorded in the General Journal and posted to the General Ledger. ************************* Using the CV key combination for balancing and verifying the journal entry; a time-saving option that may be used when journalizing transactions! ************************* Page 4

5 Transactions continued Transaction 2 A new welding machine (Shop Equipment) was purchased on account from a local vendor. The list price of the unit is $5,400. Invoice Number: SE At the date prompt, enter 02 for the transaction-day. 2. Enter account number 135 (Shop Equipment), and the account number and title will automatically be entered in the account title column of the general journal. Tab to the Debit column and enter Do not use $ signs or commas. Tab to the next row. 3. Enter number 201 (Accounts Payable). Tab to the credit amount column, and type CV (for copy and verify). The correct balancing credit amount of $5, will automatically be entered in the credit amount column. This feature may be used for both simple entries (one debit account and one credit account), and for compound journal entries at the last account credited. The CV combination eliminates clicking on Verify Journal after each entry and automatically provides an in balance journal entry. 4. At the Invoice prompt enter SE325 as the invoice number. 5. When all of the data displayed is correct, click on Verify Documents, then click on Post Entry. Transaction 3 Record the direct labor of $4,800 to the Raw and In-Process Inventory Account (115) and Salaries and Wages Payable (209). Invoice Number: DIRLB. Job Number: 30 Transaction 4: You will not need to record the debit to the Cost of Goods Sold or the credit to the Finished Goods Inventory accounts for Transaction 4. When you post an entry to Raw and In-Process Inventory and Salaries and Wages Payable, the Raw and In-Process Inventory account will be debited and the Manufactured Overhead account will be credited, automatically. Click on Journals/Ledgers/Statements and select General Journal. View the General Journal entries for Transaction 3 and Transaction 4. Click on Data Entry and continue entering the transactions. Page 5

6 Transactions continued Transaction 5 Direct materials were purchased to begin Job 31. The purchase invoice (M5638) totals $21,500, net. The materials were received today, Elmwood Manufacturing uses a JIT inventory system and charges direct materials directly to Raw and In-Process Inventory and the applicable job. 1. Debit Raw and In-Process Inventory (115) and credit Accounts Payable (201) for the net amount of the direct materials. Use the CV key combination at the second row credit column. 2. Enter the 5-digit invoice number (M5638) and enter 31 at the Job Number prompt. 6. Click on Post Entry. 3. Click on Verify Documents. Transaction 6 Purchased indirect materials on account and charged the items to Manufacturing Overhead (185). The net invoice cost is $536. Invoice Number: INMAT (for indirect materials). Remember to use the CV combination after tabbing to the last credit dollar column of the entry. Page 6

7 Transactions continued Transaction 7 Record the transfer of completed Job 30 to Finished Goods Inventory. 1. Move the pointer to Journals/Ledgers/Statements and select Raw and In-Process Inventory. An analysis of the Raw and In-Process Inventory account will appear on the screen. Note the total cost assigned to Job Move the pointer to Job Card, select Job 30, and click on Show Job Card. The details of Job 30 will appear in the analysis screen. 3. Make a marginal note of the cost (or Print Job 30), which should be $15, Return to the Data Entry Screen. Debit the Finished Goods Inventory account (117) and credit the Raw and In-Process Inventory account (115) for $15,615. Invoice Number: TRANS (for transfer). Job Number: 30. Click on Verify Documents, then click on Post Entry. Transaction 8 JOB 29 was delivered and a cashier s check for $8, was received at the delivery site. Record the cash-sale entry. At the Invoice Number: E3145. Job Number: 29. Transaction 9: You will not need to record the debit to the Cost of Goods Sold or the credit to the Finished Goods Inventory accounts for Transaction 8. When you post a Sales entry, the Cost of Goods Sold account will be debited and the Finished Goods Inventory account will be credited for the cost of the Job, automatically. Transaction 10 A check for $36,485 was received as payment in full on a customer s account. Invoice Number: E3120. Page 7

8 Transactions continued Transaction 11 Direct materials were purchased on account. The invoice price of $2,346 is net of discount. The materials are for Job 32. Invoice Number: D6458. Job Number: 32. Transaction 12 Record the direct labor time tickets totaling for $4,512 for JOB 31. Invoice Number: DRLAB. Job Number: 31. Transaction 13: You will not need to record Transaction 13. The Raw and In-Process Inventory account will be debited and the Manufactured Overhead account will be credited, automatically. Transaction 14 Record the direct labor time tickets totaling $4,360 for Job 32. Invoice Number: DRLAB. Job Number: 32. Transaction 15: You will not need to record Transaction 15. The Raw and In-Process Inventory account will be debited and the Manufactured Overhead account will be credited, automatically. Transaction 16 Record the transfer of completed Job 31 to the Finished Goods Inventory account (117) and out of Raw and In-Process Inventory (115). See Transaction 6 entry for instructions on determining the amount of the transfer. Invoice Number: TRANS. Transaction 17 Job 30 was delivered to the job site, today. The sales invoice lists the sales price for the job at $24,810. The customer paid with a check upon delivery. Invoice Number: E3147. Transaction 18: You will not need to record Transaction 18. The Cost of Goods Sold account will be debited and the Finished Goods Inventory account will be credited, automatically. Page 8

9 Transactions continued Transaction 19 Job 31 was delivered to the job site. The sales invoice lists the sales price for the job at $44,300. The customer paid with a certified check upon delivery. Invoice Number: E3148. Transaction 20: You will not need to record Transaction 20. The Cost of Goods Sold account will be debited and the Finished Goods Inventory account will be credited, automatically. Transaction 21 Materials costing $8,650 were purchased on account for JOB 32. Invoice Number: M5788. Job Number: 32. Transaction 22 Record the direct-labor time tickets totaling $1,475 for Job 32. Invoice Number: DRLAB. Job Number: 32. Transaction 23: You will not need to record Transaction 23. The Raw and In-Process Inventory account will be debited and the Manufactured Overhead account will be credited, automatically. Transaction 24 Indirect materials costing $1,350 were purchased on account. Invoice Number: INMAT. * Page 9

10 Check Point: Now that you have completed entering the first twenty-four transactions, it is time to check the accuracy of your work. A. Move the pointer to Journals/Ledgers/Statements, select General Ledger, then Print the Trial Balance. B. Move the pointer to Check Figures and click. C. Print the Check Figures for Problem 2 Job-Order Costing Transaction: 24. D. Check your account balances against the correct totals shown in the Check Figures E. If you have any incorrect check figures, see Correcting Journal Entries at the end of this Manual. F. If your check figures are correct, continue recording Transactions 25 to 33. TRANSACTIONS Transaction 25 Record accrued indirect labor of $3,500 (factory supervisor and maintenance personnel) for period ended Transaction 18. Invoice Number: INLAB. Transaction 26 Check for $21,500 was issued to pay an account payable. Invoice number: M5638. Transaction 27 Indirect materials costing $1, were purchased on account. Invoice Number: INMAT. Page 10

11 Transactions continued Transaction 28 Record the accrued utilities expense of $1,300. Utility costs are charged to Manufacturing Overhead (185) and Utilities Payable (212). Invoice Number: UTILI. Transaction 29 Record the accrued estimated property tax (211) of $560 on the factory assets. Invoice Number: PRTAX. Transaction 30 Record the monthly depreciation on Shop Equipment of $1,250. Invoice Number: DEPRE. Transaction 31 Record the monthly depreciation on the Shipping Facility of $600. Invoice Number: DEPRE. Transaction 32 Record the monthly depreciation on the Factory of $1,400. Invoice Number: DEPRE. Page 11

12 Transactions continued Transaction 33 Record the closing of the Manufacturing Overhead account. 1) Print the Manufacturing Overhead account (185). 2) If the balance of the Manufacturing Overhead account is not between a credit balance of $100 and $400, review all of your entries involving overhead, and direct labor. The accountant for Elmwood Manufacturing has decided that any over- or under-applied balance in the Manufacturing Overhead account will be insignificant and should be closed to the Cost of Goods Sold account (501). 3) Record the closing entry for the Manufacturing Overhead account. 4) Invoice Number: CLOSE. ************************* You have completed the recordings for the month of Transactions. ************************* A. Move the pointer to Journals/Ledgers/Statements, select General Ledger, then Print the Trial Balance. B. Move the pointer to Check Figures and click. C. Print the Check Figures for Problem 2 Job-Order Costing Transaction: 33. D. Check your account balances against the correct totals shown in the Check Figures E. If you have any incorrect check figures, see Correcting Journal Entries at the end of this Manual. F. Move the pointer to Journals/Ledgers/Statements, then select Raw and In-Process Inventory. Print the Raw and In-Process Status Report. The correct amount of the Raw and In-Process inventory job cards, as shown in the status report and the Trial Balance should be $21, Page 12

13 ************************* Prepare for the Examination on Problem 2 Job-Order Costing To gather the necessary information to complete the final evaluation questions, PRINT ALL of the documents listed in instructions Print the Raw and In-Process Status Report. 2. Print the following inventory job cards (sheets): JOB 29 JOB 31 JOB 32 JOB Print the following additional General Ledger accounts: 115: Raw and In-Process Inventory 185: Manufacturing Overhead 401: Custom Fence and Gate Sales 501: Cost of Goods Sold Exit the Elmwood Manufacturing, Inc. accounting program. Using all of your printed documents, carefully answer the Evaluation questions. The questions and several of the end-ofthe-quarter documents may be collected by your instructor. The Correct Net Income for Elmwood Manufacturing, Incorporated is between $49, and $49, Validate the net income (use your trial balance) against this range. ************************* Complete the Examination on Problem 2 Job-Order Costing ************************* Page 13

14 MANAGERIAL WORK4ME PROBLEM 2 JOB-ORDER COSTING NAME CLASS DAY AND TIME DATE 1. Questions 1 to 8 refer to the Trial Balance and General Ledger Accounts. What is the cash balance? $ 2. What is the book value of the Factory? $ 3. What is the total of the current liabilities? $ 4. What is the current ratio for Elmwood Manufacturing, Incorporated? 5. The Gross Profit from Sales is what percent of Sales? % 6. Office Salaries and Wages Expense is what percent of Sales? % 7. What is the dollar amount of gross profit on sales? $ 8. Questions 8 to 15 refer to the Raw and In-Process Inventory account and the Job Card Status Report and the Job Card Sheets. How many Jobs are in process at the end of the quarter? 9. What is the gross profit on JOB 29? $ 10. If direct labor rates had been increased by 10%, what would have been the total direct labor cost on JOB 31? $ 11. On what Transaction was JOB 31 completed? 12. What is the dollar amount of direct materials used in JOB 32? $ 13. What is the dollar amount of overhead charged to JOB 32? $ 14. What sales price would result in a gross profit of $10,800 for JOB 32? $ 15. What percent of the cost of JOB 32 is direct labor? % Page 14

15 Correcting Journal Entries 1. Move the pointer to Journals/Ledgers/Statements, select General Journal then Print the journal. 2. Find journal entries errors by comparing the journal entries to the transactions shown in the Manual. 2. Reverse every incorrect entry using the original Transaction Number. 3. Record the transaction(s) correctly, using the original Transaction Number. 4. Print the Trial Balance 5. Move the pointer to Check Figures and click. 6. Print the Check Figures. 7. Verify for correct balances. 8. If incorrect balances exist, repeat Steps 1 to 7. Page 15