Journal Entries For Lockdown Company And Cost Analysis

Journal Entries for Lock-Down Company and Cost Analysis

The assignment involves preparing journal entries for various manufacturing and business events for Lock-Down Company, which produces security products using a job order cost system. The tasks include recording raw materials purchases, factory payroll, indirect costs, and applying overhead, as well as analyzing costs related to specific jobs and preparing financial statements and reports based on the provided data. The goal is to accurately reflect the company's manufacturing activities, overhead allocation, and inventory management, culminating in preparing financial statements and cost reports for a fiscal period.

Sample Paper For Above instruction

Understanding the comprehensive accounting processes involved in manufacturing companies provides clarity on how costs are accumulated and reported. Lock-Down Company, operating within a job order cost system, exemplifies these principles through its various transactions and activities during May. Accurate journal entries are vital for reflecting the company's financial situation and operational results. This paper explores the recording of manufacturing costs, overhead application, inventory management, and the preparation of financial statements, focusing on journal entries, cost analyses, and managerial reporting for a typical manufacturing firm.

Journal Entries for Lock-Down Company

In May, Lock-Down Company incurred several costs related to raw materials, factory wages, indirect expenses, and overhead application. The initial step involves recording raw materials purchased with cash. The entry debits Raw Materials Inventory and credits Cash:

Debit: Raw Materials Inventory 190,000
Credit: Cash 190,000

This transaction increases raw materials inventory by the purchase amount, paid in cash, aligning with the company's purchasing activities.

The factory payroll paid in cash, comprising direct labor and indirect labor costs, must be split appropriately. The entry to record factory wages includes debiting Factory Payroll Expense and crediting Cash:

Debit: Factory Payroll Expense 415,000
Credit: Cash 415,000

Within this, direct labor costs can be tracked separately by assigning specific amounts to jobs and overhead, but at the entry level, the total wages paid are recorded as operational costs.

Indirect materials and indirect labor are costs related to manufacturing overhead that need to be allocated appropriately. The entries are as follows:

Debit: Factory Overhead (Indirect Materials) 12,000
Credit: Raw Materials Inventory 12,000
Debit: Factory Overhead (Indirect Labor) 75,000
Credit: Factory Payroll Expense 75,000

These transactions reflect the consumption of indirect materials and labor into manufacturing overhead.

Applying factory overhead involves calculating the predetermined overhead rate based on direct labor costs. Given that the rate is 65%, and the direct labor costs are known, overhead applied can be calculated, and the journal entry would debit Work in Process and credit Factory Overhead for the overhead applied amount. The sales transaction, captured in cash, involves debiting Cash and crediting Sales:

Debit: Cash 1,270,000
Credit: Sales 1,270,000

These entries collectively provide a comprehensive recording of Lock-Down's manufacturing activities in May, ensuring accurate cost accumulation and inventory valuation.

Cost Analysis and Job Costing

At Racing Wheels, Inc., cost accumulation involves analyzing job-related expenses. Job 102, 103, and 104 show total costs, including direct materials, direct labor, and overhead. Total costs for each job are derived from initial costs, ongoing expenses, and overhead applied based on direct labor costs. For example, Job 102's costs include initial direct materials of $11,000, direct labor of $3,300, and overhead of $1,551, summing to a total cost of $16,851, which is transferred to finished goods upon completion.

The calculation of overhead rate for June is based on the relationship between overhead costs and direct labor costs. Given total overhead and direct labor, the predetermined overhead rate can be calculated as (Overhead / Direct Labor) x 100%. For instance, if the overhead is $6,580 and direct labor is $14,000 for Job 102, the rate is approximately 47%. This rate helps assign overhead costs accurately to jobs.

The cost of raw materials requisitioned into jobs in June is determined by tracking the specific direct materials used per job based on requisition slips and inventory records. For Job 102, assuming direct materials requisitions totaled $11,000, and similar calculations for other jobs, this provides insight into material utilization per project.

The direct labor costs for June are calculated from labor time tickets and payroll documentation, allocating wages to each job based on hours worked. For example, Job 102's direct labor during June may include $3,300 as initially recorded, with additional wages allocated proportionally based on labor hours.

Applying overhead involves multiplying direct labor costs by the predetermined overhead rate, leading to an overhead allocation for each job. This ensures costs reflect actual resource consumption, facilitating accurate job costing and profitability analysis.

The total transferred costs for completed jobs during June are summed from direct materials, direct labor, and applied overhead. These totals are essential for preparing financial statements and for managerial decision-making regarding production efficiency and cost control.

Overall, detailed job costing, overhead application, and inventory management form the backbone of manufacturing accounting, enabling companies like Lock-Down and Racing Wheels to accurately track costs, assess profitability, and prepare reliable financial reports.

Financial Statement Preparation and Inventory Valuation

The preparation of inventory reports involves calculating the ending balances of raw materials, work in process, and finished goods. For instance, raw materials ending inventory is determined by adding purchases to beginning inventory and subtracting materials used in production. Work in process includes direct materials, labor, and overhead costs allocated to unfinished jobs at period-end. The Finished Goods inventory comprises completed jobs ready for sale.

The income statement summarizes revenues, cost of goods sold, and gross profit, providing key insights into operational performance. For example, gross profit is calculated as sales minus cost of goods sold, which includes costs transferred from work in process and finished goods inventories. A negative net income indicates losses, prompting managerial review of pricing, costs, and operational efficiency.

The balance sheet reflects the company's assets, liabilities, and equity at a specific date. Proper classification and valuation of inventories are crucial. Raw materials are valued at latest cost, work in process includes direct costs of ongoing jobs, and finished goods are valued at production costs. Liabilities such as accounts payable and notes payable are recorded alongside stockholders' equity, including common stock and retained earnings.

Accurate financial reporting supports strategic decision-making, investor relations, and compliance with accounting standards. Understanding the detailed flow of costs from raw materials to finished goods is fundamental to sound financial management in manufacturing companies.

Conclusion

The detailed analysis of journal entries, cost accumulation, overhead application, and financial statements showcases the integral role of managerial and financial accounting in manufacturing operations. Lock-Down Company's activities exemplify how precise record-keeping and cost analysis facilitate effective management, profitability assessment, and financial transparency. Mastery of these processes is essential for accountants and managers aiming to optimize operational efficiency and inform strategic decisions in manufacturing settings.

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