Question 2

Fine Arts Company manufactures handcrafted wooden jewellery boxes. The company uses a job costing system, and manufacturing overhead is applied on the basis of direct labour hours. Estimated manufacturing overhead for the current year is $120,000. The company employs 5 carpenters, who are regarded as direct labour. Each of these employees is expected to work 2000 hours during the year.

At the beginning of September the inventory balances were as follows.

A?‚· Raw materials: 2500 metres of wood at $11 per metre, $27,500.

A?‚· Work in process: job number JB606, $1,850, consisting of direct material $250, direct labour $1,000, and manufacturing overhead, $600.

A?‚· Finished goods; job number JB1505, $6000.

The following events occurred during September:

(1) Company purchased 1,500 meters of wood at $11 per metre.

(2) Following raw materials were transferred to production:

A?‚· Job number JB606: 500 metres of wood.

A?‚· Job number JB707: 2,500 metres of wood.

(3) Five litres of glue were purchased in September and issued to production. The glue cost $10 per litre. Glue is treated as an indirect material.

(4) Depreciation on the factory equipment for September was $4,000.

(5) The month’s 4200 electricity bill for the manufacturing plant was paid in cash.

(6) Time sheets showed the following use of labour:

A?‚· Job number JB606: 50 hours of direct labour.

A?‚· Job number JB707: 350 hours of direct labour.

A?‚· The carpenters (direct labour) earn $20 per hour.

(7) The September council rates bill for the manufacturing plant of $455 was received but not yet paid in cash.

(8) The company employs labourers who perform various tasks such as material handling and shop clean-up. Their wages for September amounted to $1250.

(9) Job number JB606, which was started in July, was finished in September. Job number JB707 was incomplete at the end of September. Job number JB505 was sold in September for $7,500.


(a) Provide journal entries to record the event previously listed for September. (5 marks)

(b) Post journal entries to the following accounts and determine closing balances. (3 marks)

(i) Raw material, (ii) Work in process, and (iii) Finished goods

(c) Prepare job-order cost sheet for job number JB606 showing all costs through July – 30 September.