Job Costing introduction question

Omar security shutters is a company specialising in the production of unique security

shutters
The company uses one set of integrated books for all transactions.
The following details are available for the month of February 2021:

1. The following jobs were incomplete on 1 February 2021, with the following costs
(amongst others): Direct Material Direct Labour
Job AAA R15 000 R20 000
Job BBB R18 000 R25 000

2. The company applies/absorbs manufacturing overheads at a rate of 80% of direct

material cost.

3. Other opening balances on 1 February 2021: Material control R20 000

4. Material purchased during February amounted to R90 000

5. The costs incurred during production for February 2021 were:

Material used Wage cost

Job AAA R10 000 R15 000
Job BBB R15 000 R20 000
Job CCC R18 000 R25 000
Indirect cost R12 000 R10 000

6. Other manufacturing overheads for February 2021 were:

Paid via EFT R10 000

Incurred on credit R4 000
Depreciation on factory machinery R5 000

7. The status of the various jobs at 28 February 2021 were:

Job AAA: Completed and sold (on credit) to customer, A Adams at a mark-up of 20%
on cost.
Job BBB: Completed and placed in the finished goods storeroom, but not yet
invoiced to customer, M Moodley.
Job CCC: Still incomplete.

8. The over or under-applied manufacturing overheads are closed-off to cost of goods

sold.
Required:

a) Prepare a Job Order Cost sheet summary for the month of February 2021.
NB: Clearly indicate the costs of each job and their status

Job order cost sheet Job AAA Job BBB Job CCC
Opening WIP:
Direct material 15 000 18 000
Direct labour 20 000 25 000
Absorbed MOH 12 000 14 400
(15 000 dir mat x (18 000 dir mat x
80%) 80%)
Total opening WIP 47 000 57 400 0
+ Direct material 10 000 15 000 18 000
cost (FEB)
+ Direct labour cost 15 000 20 000 25 000
(FEB)
+ Absorbed MOH 8 000 12 000 14 400
(FEB) (10 000 dir mat x (15 000 dir mat x (18 000 dir mat x
80%) 80%) 80%)
Cost to date 80 000 104 400 57 400
Status Completed and sold Completed, not sold Incomplete (WIP
closing)

b) Record all the transactions in the general journal of Omar security shutters.

General journal Dr Cr
1-3) Opening balances not recorded in the general journal
4) Material control 90 000
Bank/Accounts payable 90 000
5) WIP Job AAA 10 000
WIP Job BBB Direct material 15 000
WIP Job CCC 18 000
MOH control (Indirect material) 12 000
Material control 55 000
WIP Job AAA 15 000
WIP Job BBB Direct wages 20 000
WIP Job CCC 25 000
MOH control (Indirect wages) 10 000
Wages control 70 000
Wages control (NB! Record your wages) 70 000
Wages payable 70 000
WIP Job AAA 8 000
WIP Job BBB absorbed MOH 12 000
WIP Job CCC 14 400
MOH control (total absorbed MOH) 34 400
 6) MOH control (actual MOH) 19 000
Bank 10 000
Accounts payable 4 000
Accumulated depreciation 5 000
7) Finished goods 184 400
WIP Job AAA (Total job cost calculated in job 80 000
order cost sheet)
WIP Job BBB (Total job cost calculated in job 104 400
order cost sheet)
Account receivable 96 000
Sales (Only job AAA was sold. Total job cost of 96 000
job AAA calculated in job order cost sheet = R80 000 + 20%
mark up = R96 000 selling price)
Cost of sales 80 000
Finished goods (Only job AAA was sold. Total job 80 000
cost of job AAA calculated in job order cost sheet = R80 000 =
Cost of sales)
MOH variance = Absorbed MOH (Job AAA 8 000 + Job BBB
12 000 + Job CCC 14 400) – Actual MOH (12 000 ind mat +10
000 ind labour + 10 000 paid EFT + 4 000 on credit + 5 000
depreciation)
Absorbed MOH 34 400 – Actual MOH 41 000 = 6 600 under
absorbed = expense = Increase Cost of sales

Cost of sales 6 600

MOH control 6 600
Refer to Job order cost sheet for calculations
c) Prepare the following accounts in the general ledger of Omar security shutters, for
February 2021:
• Material Control
• Wages control
• Manufacturing overhead control
• WIP for each individual job
• Finished goods
• Cost of sales
Material Control
Balance b/d 20 000 WIP Job AAA 10 000
Bank/Accounts payable 90 000 WIP Job BBB Direct material 15 000
WIP Job CCC 18 000
MOH control (Indirect) 12 000
Balance c/d 55 000
110 000 110 000
Balance b/d 55 000
 Wages Control
RECORD WAGE SPLIT WAGES
Wages payable 70 000 WIP Job AAA 15 000
WIP Job BBB Direct labour 20 000
WIP Job CCC 25 000
MOH control (Indirect) 10 000
70 000 70 000

MOH control
ACTUAL ABSORBED
Material control 12 000 WIP Job AAA 8 000
Wages control 10 000 WIP Job BBB 12 000
Bank 10 000 WIP Job CCC 14 400
Accounts payable 4 000 Cost of sales 6 600
Accumulated depreciation 5 000 (Variance = balancing figure) (41000 Total
actual – 34 400 total absorbed)
41 000 41 000

Total Actual = 41 000 Total Absorbed = 34 400

WIP Job AAA

Balance b/d 47 000 Finished goods 80 000
Material control 10 000
Wages control 15 000
MOH control 8 000
80 000 80 000

WIP Job BBB

Balance b/d 57 400 Finished goods 104 400
Material control 15 000
Wages control 20 000
MOH control 12 000
104 400 104 400

WIP Job CCC

Material control 18 000 Balance c/d 57 400
Wages control 25 000
MOH control 14 400
57 400 57 400
Balance b/d 57 400
 Finished goods
WIP Job AAA 80 000 Cost of sales 80 000
WIP Job BBB 104 400 (Cost of Job AAA that we are selling)
Balance c/d 104 400
(Cost of Job BBB that we finished, but did
not sell yet)
184 400 184 400
Balance b/d 104 400
Cost of Sales
Finished goods 80 000 Profit and loss 86 600
MOH control (variance) 6 600
86 600 86 600

d) Calculate the gross profit of Omar security shutters for February 2021.

Sales (80 000 cost of Job AAA + 20%) 96 000

Cost of sales (NB! After adjusting MOH variance) 86 600
Cost of job AAA sold 80 000
+ under absorbed MOH 6 600
Gross profit 9 400