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Practice Problem 1

Newton Manufacturers uses a job order costing system. The following information was available for Newton during the current year:

Beginning inventory, raw materials	$0
Beginning inventory, work in process	$0
Beginning inventory, finished goods	$0
-	-
Purchases of raw materials	$45,000
-	-
Materials used in production during year:	-
Direct materials, Job 1	$11,000
Direct materials, Job 2	$13,000
Direct materials, Job 3	$7,000
Indirect materials	$2,500
-	-
Wages during the year:
Direct labor, Job 1	$21,000
Direct labor, Job 2	$23,000
Direct labor, Job 3	$13,000
-	-
Factory overhead applied (85% of direct labor costs)	-
Actual factory overhead	$49,000*
-	-
There was no shrinkage during the year.	-
-	-
Sales for year	$110,000

* Note: The $2,500 in indirect material is included in the $49,000 above.

Other information:

Jobs 1 and 2 were completed during the year
Job 1 was sold during the current year

Required:

Prepare the ledger accounts (t-accounts) for
- raw materials inventory,
- factory overhead,
- work in process inventory,
- finished goods inventory, and
- cost of goods sold.
Calculate the following:
- ending inventory, raw materials;
- ending inventory, work in process; and
- ending inventory, finished goods.
Calculate gross profit.

Solution

Figure 11.6 Solution Practice Problem 1 - T-accounts

Requirement 2

ending inventory, raw materials = $11,500
ending inventory, work in process = $31,050
ending inventory, finished goods = $55,550

Requirement 3

gross profit = sales - cost of goods sold
gross profit = $110,000 - $50,400
gross profit = $59,600

The ending inventory for raw materials inventory, work in process inventory, and finished goods inventory equals the ending balance in the ledger accounts. A physical inventory was completed to verify the actual inventory on hand for the year; this inventory found that there was no loss due to shrinkage.

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