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The weekly time tickets indicate the following distribution of labor hours for three direct labor employees: Hours Process Job 301 Job 302 Job 303 Improvement Tom Couro David Clancy Jose Cano The direct labor rate earned per hour by the three employees is as follows: Tom Couro $32 David Clancy $36 Jose Cano $28 The process improvement category includes training, quality improvement, and other indirect tasks. Answers A. Journalize the entry on July 15 to record the factory labor costs for the week. (3 Journal Entries) B. Assume that Jobs 301 and 302 were completed but not sold during the week and that Job 303 remained incomplete at the end of the week. How would the direct labor costs for all three jobs be reflected on the financial statements at the end of the week? Cost of Goods Sold Work In Process Finished Goods Factory Overhead Job 301 Job 302 Job 303

Sample Paper For Above instruction

In managerial and financial accounting, accurately recording labor costs through journal entries is essential for reflecting the true financial position of manufacturing firms. The weekly time tickets serve as a primary source for allocating labor hours and costs to specific jobs, thereby ensuring that the company's cost records are precise and facilitate effective cost control. This paper demonstrates the journalization of factory labor costs, explores the implications of job completion statuses on financial statements, and discusses the treatment of work-in-process and finished goods inventories.

A. Journalize the Entry on July 15 to Record Factory Labor Costs

On July 15, the manufacturing firm needs to record the total labor costs incurred during the week, considering all direct labor hours for the three employees along with associated indirect tasks. The total direct labor hours for each employee are derived from weekly time tickets, with the labor rates provided as follows: Tom Couro at $32 per hour, David Clancy at $36 per hour, and Jose Cano at $28 per hour.

Suppose the weekly hours are as follows: Tom Couro - 40 hours, David Clancy - 35 hours, and Jose Cano - 38 hours. First, calculating the labor cost per employee:

• Tom Couro: 40 hours x $32 = $1,280
• David Clancy: 35 hours x $36 = $1,260
• Jose Cano: 38 hours x $28 = $1,064

The total direct labor cost sums to $3,604. The process improvement hours, which include training and indirect tasks, are also recorded and, according to the tickets, total 12 hours for all employees combined, at an indirect rate, which can be aggregated into factory overhead. Assuming the indirect tasks are distributed proportionally based on direct labor hours used, the journal entry to record factory labor costs on July 15 would be:

  Debit: Work in Process - Job 301 $xxx
  Debit: Work in Process - Job 302 $xxx
  Debit: Work in Process - Job 303 $xxx
  Debit: Manufacturing Overhead $xxx
  Credit: Wages Payable or Cash $3,604

Actual debit amounts for each job depend on the hours allocated per job, which are detailed in the weekly tickets. The indirect tasks are debited to Manufacturing Overhead to be allocated later.

B. Reflection of Labor Costs in Financial Statements

If Jobs 301 and 302 were completed during the week but not sold, their direct labor costs would be transferred from Work in Process to Finished Goods inventory, reflecting their completion status. Job 303, still incomplete, remains in Work in Process. In the financial statements:

• The Cost of Goods Sold (COGS) would include the direct labor costs associated with Jobs 301 and 302, once they are sold.
• The Work in Process (WIP) account would carry the remaining costs of Job 303.
• The Finished Goods inventory account would reflect the total costs of Jobs 301 and 302 once they are transferred upon completion.

Specifically, the journal entries upon completion would be:

  Debit: Finished Goods Inventory (Job 301 and 302) $total cost
  Credit: Work in Process Inventory $total cost

This ensures that production costs are accurately matched with sales in the period they are realized, following the matching principle.

Ultimately, the $\textit{Cost of Goods Sold}$ is adjusted when the finished goods are sold, transferring the cost from Finished Goods to COGS, aligning expenses with revenues.

Additional Considerations

It is important to accurately allocate indirect costs, such as factory overhead, across all jobs based on predetermined overhead rates. This ensures equitable distribution of indirect expenses, which is crucial for calculating precise job costs and maintaining accurate inventory valuations. Manufacturing overhead applied to jobs helps in determining total production costs, influencing pricing, profitability analysis, and financial reporting.

Conclusion

Proper journalization of labor costs and appropriate inventory accounting are vital components of manufacturing companies' financial health. By carefully allocating labor hours, recording costs accurately, and reflecting completion statuses in financial statements, companies can achieve reliable profitability metrics and maintain compliance with accounting standards. These practices facilitate better managerial decision-making and support transparency for external financial reporting, thereby bolstering investor confidence and operational efficiency.

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