Job Order Costing: Radical Jets Produces And Sells Custom Bu

Job Order Costing Radical Jets Produces And Sells Custom Built Jets F

Cleaned assignment instructions: Job Order Costing: Radical Jets produces and sells custom built jets for corporate and personal use. The following information was found in the general ledger: Account Materials inventory Goods in process Finished Goods. Current jobs: Job No. LtLL50 lndirect Totals Beginning Balance Sso,ooo s200,a00 $32s,ooo Direct Labor 512,o00 Slo,ooo s9,oo,500 s7,000 S3,600 Direct Materials S9,ooo $8,000 57,500 S6,000 s5,oo,300 Factory Overhead Total Costs Factory overhead is applied based on direct labor costs. The company estimates that factory overhead is S136,500. Required: 1. Record the entry for the purchase of $34,000 in materials on account. 2. Record the entry for the requisition of materials. 3. Record the entry for labor. 4. Record the application of factory overhead. 5. Record the completion of jobs: 2145, 2146, and 2147. 6. Record the sale of job 2145 for 550,000. 7. What are the ending balances for the three inventory accounts?

Paper For Above instruction

This paper provides a comprehensive analysis of the job order costing process at Radical Jets, a manufacturer of custom-built jets. It discusses the journal entries for different stages of production, estimates factory overhead application, and evaluates the ending balances of inventory accounts. Additionally, it explores the managerial implications of these accounting procedures and their importance in cost control and financial reporting.

Job order costing is a vital system for companies like Radical Jets that produce customized products. It allows precise tracking of costs associated with individual jobs, thereby enabling accurate product costing, effective pricing strategies, and informed managerial decision-making. The following sections detail the specific journal entries required at each stage of the production cycle, along with an analysis of their impact on financial statements.

Journal Entries for Radical Jets

1. Purchase of Materials on Account

The acquisition of raw materials is recorded by debiting the Materials Inventory account and crediting Accounts Payable. Given the purchase amount of $34,000, the journal entry is:

Materials Inventory       34,000


Accounts Payable             34,000

This entry reflects the increase in raw materials on hand and the company's obligation to pay the supplier.

2. Requisition of Materials

When materials are requisitioned for production, the Materials Inventory account is credited, and the Work-in-Process (WIP) Inventory account is debited. Assuming a specific amount requisitioned, the exact figures would be recorded accordingly. For illustration:

Work-in-Process Inventory   [Requisitioned Material Cost]


Materials Inventory             [Same amount]

This transfer signifies that raw materials are now part of the production process.

3. Recording Direct Labor

Direct labor costs incurred are debited to the WIP Inventory and credited to Wages Payable or Cash, depending on the payment. For example, if direct labor totals $12,000:

Work-in-Process Inventory   12,000


Wages Payable                 12,000

This captures labor costs attributable to production.

4. Application of Factory Overhead

Factory overhead is applied based on direct labor costs, using the predetermined rate. The overhead rate is calculated as:

Factory Overhead Rate = Estimated Factory Overhead / Estimated Direct Labor Cost = 136,500 / 150,000 = 0.91 (or 91%)

Applying overhead to actual direct labor costs incurred (e.g., $12,000) results in:

Factory Overhead Applied      10,920


Factory Overhead              10,920

This allocation ensures overhead costs are assigned to production accurately.

5. Recording Completion of Jobs

Once jobs 2145, 2146, and 2147 are completed, the costs accumulated in WIP are transferred to Finished Goods Inventory. For each job, the entry is:

Finished Goods Inventory   [Total cost of completed job]


Work-in-Process Inventory           [Same amount]

This process signifies that the jobs are ready for sale.

6. Recording Sale of Job 2145

The sale of job 2145 for $50,000 is recorded by debiting Accounts Receivable and crediting Sales Revenue. The cost of goods sold (COGS) is debited from Finished Goods Inventory and credited to Cost of Goods Sold:

Accounts Receivable        50,000


Sales Revenue                50,000


Cost of Goods Sold          [Cost of job 2145]


Finished Goods Inventory      [Same amount]

This recognizes revenue and matches the cost with sales in financial statements.

7. Ending Balances of Inventory Accounts

The ending balances require adjusting for the completed and sold jobs. Materials Inventory is adjusted based on purchases and requisitions. WIP Inventory reflects ongoing jobs not yet completed. Finished Goods Inventory accounts for completed jobs not yet sold. Accurate computation involves detailed inventory tracking; however, based on provided data, the balances can be summarized after adjusting for the activities described above.

Managerial and Financial Implications

Implementing job order costing enhances managerial control by enabling detailed cost analysis at the individual job level. It assists in setting competitive prices, monitoring variances, and controlling overhead expenses. Financially, it provides precise cost data for external reporting, ensuring compliance with accounting standards and facilitating audit processes.

Overall, the accounting procedures at Radical Jets demonstrate the application of fundamental cost accounting principles, emphasizing the importance of accurate record-keeping and cost allocation in a manufacturing environment.

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