Reference no: EM131005770

Part 1 Background:

1. CSW is working on two customer special-orders for Super-uPong launchers, a robotic training device, during the month of March 2015 for customers who want to improve their table tennis skills: Job J570 for wholesale customer "Sports Limited" and Job K520 for retail sports store customer "Balls and More". Additionally, CSW also works on other custom jobs that require the use of job order costing system during March 2015. Using a job cost system to produce these orders, the following events occurred during March 2015. CSW has a December 31 fiscal year-end and closes their general ledger on a monthly basis.

2. Two customers, wholesale and retail store company "Sports Limited" and "Balls 4U", respectively, request special orders for Super-uPong products on March 1, 2015. Job cost sheets were started on this date. Sports Limited (Job J570) ordered 300 units of the Super-uPong model with extra spin and advanced oscillation (model Super-uPong-XSAO) and a job cost sheet for Job J570 was set up. Balls 4U ordered 80 units of Super-uPong pro advanced model (model Super-uPong-ProAdv) and a job cost sheet for Job K520 was set up. Both jobs were requested to be completed and shipped by April 2 by their respective customers.

3. To begin these jobs, raw material was requisitioned from the company's inventory on March 2 for $55,061; on March 8 for $51,059; and on March 14 for $53,459. In each instance, 55% of these direct materials were required for Job J570 and the rest (i.e., 45%) for Job K520. No indirect material was needed.

4. Ninety (90) time tickets were turned in for these two jobs each of three days' work for a total amount of 720 hours of work. All direct laborers were paid $16 per hour. The time tickets were dated March 3, March 10, and March 16. On each of those days, 240 labor hours were spent on these jobs, 55% of direct labor costs was attributed to Job J570 and the rest (45%) to Job K520.

5. CSW uses the traditional overhead costing method based on factory direct labor hours worked. The expected factory direct labor hours utilized for the year is 50,000 hours, and the anticipated annual factory overhead costs are $2,500,000 for the year. Actual direct labor hours worked for each of these jobs can be calculated based on information provided in Part C transaction #4. Both of these special orders were completed on March 16, producing 300 units of Super-uPong- XS-AO model for Job J570 and 80 units of Super-uPong- ProAdv for Job K520. These completed products were transferred into finished goods inventory to begin shipping to their respective customers.

6. Additional job order activities during this period of time included the following:

Mar. 1 Purchased raw materials from Fortune Supply Company on account for $53,200

Mar. 2 Issued $40,000 of direct materials from the company's inventory to jobs other than J570 and K520 and issued $3,000 indirect materials.

Mar. 12 Paid CSW's factory salaries and wages in cash in the amount of $65,000.

Mar. 13 Paid the factory's electric bill in cash for $9,000.

Mar. 18 Transferred $50,000 of costs from other completed jobs to finished goods.

Mar. 21 Paid cash for the factory's water bill of $12,000 for CSW's factory.

Mar. 31 Made adjusting entries for the factory that included accrued property taxes of $12,000, prepaid insurance of $8,800, and accumulated depreciation of $16,000. Payment will be made next week.

Part 1 Questions:

Questions should be answered based on the background information / transactions provided above and any additional information provided in the questions below.

1. RECORD ANSWER TO THIS QUESTION ON THE GENERAL JOURNAL. Based on transactions outlined in Part C background under transactions 2, 3 and 4, post to the general journal all relevant manufacturing costs (i.e., DM, DL and MO costs) relating to the two special jobs, Jobs J570 and K520. These manufacturing costs have transpired over several days and your entries should reflect these dates. Create summary journal entries (i.e., J570 and K520 should not be journalized as separate entries) for each cost element and for each date (i.e., for DM for date XX/YY, you should pick up total DM cost provided for that date for both jobs in the transaction background detail (i.e., before you allocated the costs to the special jobs).

Your description should indicate that the entry is for DM costs used for these 2 special jobs. Use the same technique to create journal entries for DL and MO costs for the two special jobs, by picking up the total labor cost from background transaction details before allocating to their respective job cost sheets and by applying predetermined overhead rate to the total labor hours used for both jobs.

In using good accounting form, journal entries should be placed in chronological order and should be place in the correct order they were processed (i.e., for each of the 3 groups of transactions, the 1st journal entry should for be DM used on the jobs, the 2nd entry should be for DL used to build the material on the jobs and the 3rd entry should be for MO applied to those jobs. Round predetermined overhead to the 2nd decimal, when necessary, and the amount applied to each job should be rounded to the nearest cent.) This method should be completed for each day(s) work and for each cost element.

You should have nine journal entries in total relating to these special jobs. Manufacturing overhead is based on labor hours so it should take its lead when factory labor is utilized. [HINT: you will later need to add additional journal entries between some of these entries in order to maintain proper chronological order.

This will occur when you journalize additional costs from Part C background transaction #5 (Part C.Q.5.) so be prepared to edit your original journal entry order; preparing your journal entries using the soft copy MS Word document provided makes this process easier by allowing you to add additional journal entry lines wherever needed.] On your Main Team Project document, reference "General Journal document" for your answer to questions that are answered in the general journal (i.e., for Part C Q.1., Part C.Q.5 and Part C.Q.6.c.) to signify the location of your answer. All of these answers will be journalized in the separate general journal. Place the label Part CQ.1. at the beginning of this General Journal (right before the first entry date) signifying your answers for Part C.Q.1. follows).

2. RECORD ANSWER TO THIS QUESTION ON JOB COST SHEETS. Create job cost sheets for the two special jobs, Jobs J570 and K520, based on preliminary information provided in Part C background, transaction 1. You should have two Job Cost Sheets as each job requires a separate Job Cost Sheet. Post to each Job Cost Sheet the date the job was started, the products/model being ordered by the customer, the customer name and job number, and quantity ordered (i.e., # of units), the date needed.

3. RECORD ANSWER TO THIS QUESTION ON JOB COST SHEETS. Based on the journal entries you created for your special jobs, Jobs J570 and K520, in Part C Q1, and the information provided in Part C background transactions 1 through 4 relating to the allocation for the various cost elements to the two special jobs, post these individual costs (DM, DL, and MO costs) to Jobs J570 and K520 using their respective Job Cost Sheets. Note the amounts and dates these costs were incurred. You should have posted nine cost entries in total to each job cost sheet. Unlike the journal entries, these costs must be properly allocated between the two job cost sheets.

4. RECORD ANSWER TO THIS QUESTION ON JOB COST SHEETS. Both jobs have been finished and are ready to be moved to finished goods inventory. After completing Q.2. and Q.3. above, complete the job cost sheets by performing the following for each of the two job cost sheets:

A. Determine and post totals on each job cost sheet for each of the 3 manufacturing costs in the space provided at the bottom of each cost element column (i.e., post totals for each cost element in the yellow space at the bottom of each element column to obtain total DM, DL and MO). Additionally, post these three total cost elements in their respective Cost Summary area on the right lower portion of each job cost sheet.

B. Calculate and post the total manufacturing cost to the Cost Summary area of each Job Cost Sheet for each of the two special jobs. Additionally, determine the unit product costs for each job and post it to your Cost Summary area. For Part C.Q.4.c., round your calculated total unit costs to the nearest cent (i.e., $XXX.XX). Show your work.

C. Determine the total manufacturing cost for both jobs (i.e., add the total manufacturing costs for both jobs together) and review the amount journalized for the complete special jobs in the general journal (Part.C.Q.1.). Since the amount you just calculated represents the amount that should be journalized for the completed special jobs, correct any errors noted or create the entry for the finished special jobs' summary journal entry. Place entry in date order, using the date the job was completed as the posting date. On the Main Team Project document, reference "Job Cost Sheet documents" to signify the location of your answer when answering Part C.Q.2., Part C.Q.3. and Part C.Q.4 (i.e., place under solution below).

5. RECORD ANSWER TO THIS QUESTION ON THE GENERAL JOURNAL. Journalize in the general journal all other costs that occurred during this same period of time (i.e., other production costs incurred during March other than these two special jobs). These costs were not related to special Jobs J570 and K520. These costs have not yet been posted to any Job Cost Sheet or journal entry. This other information will be found in Transaction 5 of Part C background. Use the same General Journal Document that you used to record the journal entries for the two special jobs. Record all entries chronologically. [Note: This means you will need to insert these additional entries between entries you already posted in Part C.Q.2. and Part C.Q.3. above in order to place entries in correct date order as required by good accounting form.] Use proper debit and credit accounting format, indenting entries as needed and placing them in proper debit and credit columns. Include explanations for all entries. Place the label Part C Q.5. opposite the answer to Part C Question 5 in the general journal. (Label will be slightly above entry since date will be opposite start of entry). Reference "General Journal" under Solution below.

6. RECORD ANSWER TO THIS QUESTION immediately following question for PARTS 6.A. AND 6.B. but place your answer on the GENERAL JOURNAL for Part 6.C. Perform the following:

A. Determine the following:
i. Determine whether Manufacturing Overhead has a Debit or Credit balance after incurring $2,500,000 manufacturing costs and applying $2,800,000 manufacturing overhead.
ii. Determine whether overhead has been under- or over- applied based on the above example. Do NOT take into account any other information provided for the company in this section. Just answer the question asked in this question assuming no other information is relevant.

B. Illustrate the transactions provided in Part C.Q.6.A.i. as a T account for manufacturing overhead to show manufacturing overhead incurred and applied. Show whether it has a Debit or Credit balance by showing the balance on the proper Debit or Credit side of the T account.
C. Create the adjusting entry that would correct the overhead issue cited in this problem. Place this adjusting entry below all other entries on the general journal. Date the journal entry 3/31/15 and place the following label opposite the journal entry Part C Q.6.C. (Label will be slightly above entry since date will be opposite start of entry). Reference under Solution C below "General Journal" to indicate answer can be found in the general journal

7. Record answers to the following questions immediately following question

A. Explain the meaning of overapplied and underapplied overhead by writing1-2 sentences each describing the meaning of these two terms.

B. Explain whether a company would make a profit on this product if costs are underapplied. Why or why not?

i. Would this type of product more likely have a higher or lower price than their competitors? Explain your reasoning in 1-2 sentences.

ii. Would customers likely buy this product based on this new price? Explain.

C. Explain whether a company would likely make a profit on this product if costs are over-applied. Why or why not?

i. Would this type of product more likely have a higher or lower price than their competitors? Explain your reasoning in 1-2 sentences.

ii. Would customers likely buy this product based on this new price? Explain.

D. Explain the type(s) of cost(s) that are posted to debit side of manufacturing overhead. Conversely, explain the type(s) of cost(s) posted to the credit side of manufacturing overhead.

 

8. Record answer to the following questions on your renamed Main Team Project Document. CSW uses direct labor hours (DLH) for their cost driver for their overhead for building orange fluorescent TT balls, one of the "regular" products.

This product primarily utilizes machines to make these products with little intervention from laborers. Is DLH the best cost driver to use for TT balls? Why or why not? What is likely to happen by using this cost driver for this product?

(HINT: speak in terms of customer demand for product - customer would be more or less likely to purchase- and price/cost of product - product would have higher or lower price than competitors).