You Work For Thunderduck Custom Tables Inc. This Is The Firs

You Work For Thunderduck Custom Tables Inc This Is the First Month O

You work for Thunderduck Custom Tables Inc. This is the first month of operations. The company designs and manufactures specialty tables. Each table is specially customized for the customer. You are required to calculate manufacturing overhead, record journal entries for various transactions, prepare schedules of cost of goods manufactured and sold, and produce financial statements based on the company's first month of business activities, which include raw material purchases, job order costing, overhead application, and sales. Specific details about costs, transactions, and job details are provided to guide the process.

Paper For Above instruction

Thunderduck Custom Tables Inc., a manufacturer of custom-designed tables, embarked on its inaugural month of operations. The company's focus on creating highly personalized tables requires meticulous cost tracking and allocation, especially given its no-nail, no-screw, no-glue manufacturing process. This paper details the comprehensive process of establishing cost accounting procedures, recording transactions, and preparing financial statements reflecting the business activities during this first month.

To accurately account for manufacturing costs, the first step involved calculating the predetermined overhead rate, which is essential for applying manufacturing overhead to jobs efficiently. The estimated total manufacturing overhead expenses for the month totaled $6,000, with a forecast of 12 direct labor hours (DLH). The calculation of the predetermined overhead rate (POHR) is as follows:

POHR = Estimated Manufacturing Overhead / Estimated Direct Labor Hours

POHR = $6,000 / 12 DLH = $500 per DLH

This rate allows the applying of overhead to jobs based on actual direct labor hours incurred in production.

Job Orders and Cost Accumulation

Two specific jobs were initiated: Job #1 involved manufacturing a table with a tabletop and four legs, and Job #2 was a modification of Job #1 with an added drawer. Both jobs are tracked through individual cost sheets, capturing direct materials, direct labor, and applied overhead, which exemplifies the job order costing system in practice.

Inventory and Transaction Recording

During December, various transactions impacted the company's accounts, including raw material purchases, requisitions, labor costs, manufacturing overhead accruals, and sales. Each transaction was journalized using appropriate accounts such as Accounts Receivable, Raw Materials, Work in Process, Finished Goods, Manufacturing Overhead, Cost of Goods Sold, and related expense accounts, ensuring full traceability and accurate cost accumulation.

Transaction Entries

For example, raw materials purchased on December 1st for $24,000 were recorded as a debit to Raw Materials and a credit to Accounts Payable. The requisitioning of materials for each job was accounted for by decreasing Raw Materials and increasing Work in Process, with journal entries reflecting the direct material consignment to each specific job.

Labor costs incurred for Job #1 included two hours each for three employees at $30 per hour, totaling $180, recorded as a debit to Work in Process and a credit to Salaries and Wages Payable. Supervisory salaries, depreciation, rent, advertising, and other overhead costs were accrued and allocated appropriately according to their nature and the company's costing procedures.

Manufacturing Overhead Application and Job Completion

Manufacturing overhead was applied based on the predetermined overhead rate and actual direct labor hours. For Job #1, based on the hours worked, the applied overhead was calculated and journalized, with the total cost accumulated on the job sheet, culminating in the transfer of completed jobs to Finished Goods upon project completion.

Sales and Cost Recognition

The sale of the completed table was recorded by debiting Accounts Receivable and crediting Sales Revenue. The cost of goods sold was calculated from the cost sheet of Job #1, and the sale entry reflected proper matching of revenues and expenses, leading to the determination of gross profit.

Financial Statements and Cost Analysis

Subsequent schedules of Cost of Goods Manufactured and Cost of Goods Sold were prepared, following standard formats, to summarize the flow of costs through inventory accounts. An income statement in traditional format was constructed, showcasing revenues, COGS, gross profit, operating expenses, and net income.

Analysis of Manufacturing Overhead and Cost Variances

Given the actual manufacturing overhead incurred and the applied amount, the over- or under-applied overhead was determined, adjusting related costs accordingly. The analysis extended to calculating the ending balances of raw materials, work in process, and finished goods inventories, considering all transactions settled during the month.

Cost Calculation and Cost Behavior

The detailed cost analysis included determining the prime cost (direct materials plus direct labor), conversion cost (direct labor plus applied overhead), and total product cost for each job. Variable and fixed costs were distinguished, with the period costs comprising administrative and selling expenses. The contribution margin for Job #1 was calculated by subtracting fixed costs from relevant revenues.

Additional Cost Estimations

In hypothetical scenarios, such as increasing the order volume for Job #1, the relevant fixed manufacturing overhead was extrapolated within the relevant range to estimate the total fixed overhead cost for larger production quantities, facilitating capacity and cost management decisions.

Conclusion

Overall, the first month of operations provided a comprehensive view of cost management, inventory control, and financial reporting principles in a custom manufacturing environment. Applying job order costing systematically enabled accurate cost tracking, necessary for pricing, profitability analysis, and strategic planning in a bespoke manufacturing setting.

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