Job costing, journal entries

The University of Chicago Press is wholly owned by the university. It performs the bulk of its work for other university departments, which pay as though the press were an outside business enterprise. The press also publishes and maintains a stock of books for general sale. The press uses normal costing to cost each job. Its job-costing system has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead, allocated on the basis of direct manufacturing labor costs).
The following data (in thousands) pertain to 2014:

Direct materials and supplies purchased on credit $ 800
Direct materials used 710
Indirect materials issued to various production departments 100
Direct manufacturing labor 1,300
Indirect manufacturing labor incurred by various production departments 900
Depreciation on building and manufacturing equipment 400
Miscellaneous manufacturing overhead* incurred by various production departments
(ordinarily would be detailed as repairs, photocopying, utilities, etc.)
550
Manufacturing overhead allocated at 160% of direct manufacturing labor costs ?
Cost of goods manufactured 4,120
Revenues 8,000
Cost of goods sold (before adjustment for under- or overallocated manufacturing overhead) 4,020
Inventories, December 31, 2013 (not 2014):
Materials Control 100
Work-in-Process Control 60
Finished Goods Control 500

Required:
1. Prepare an overview diagram of the job-costing system at the University of Chicago Press.
2. Prepare journal entries to summarize the 2014 transactions. As your final entry, dispose of the year- end under- or overallocated manufacturing overhead as a writeoff to Cost of Goods Sold. Number your entries. Explanations for each entry may be omitted.
3. Show posted T-accounts for all inventories, Cost of Goods Sold, Manufacturing Overhead Control, and Manufacturing Overhead Allocated.
4. How did the University of Chicago Press perform in 2014?

*The term manufacturing overhead is not used uniformly. Other terms that are often encountered in printing companies include job overhead and shop overhead.

Some instructors may also want to assign Exercise 4-25. It demonstrates the relationships of the general ledger to the underlying subsidiary ledgers and source documents.

1. An overview of the product costing system is:

2. & 3.
This answer assumes COGS given of $4,020 does not include the writeoff of overallocated manufacturing overhead.

2. (1) Materials Control
Accounts Payable Control 800
800
(2) Work-in-Process Control
Materials Control 710
710
(3) Manufacturing Overhead Control
Materials Control 100
100
(4) Work-in-Process Control
Manufacturing Overhead Control
Wages Payable Control 1,300
900

2,200
(5) Manufacturing Overhead Control
Accumulated Depreciation––buildings and
manufacturing equipment 400

400
(6) Manufacturing Overhead Control
Miscellaneous accounts 550

550
(7) Work-in-Process Control
Manufacturing Overhead Allocated
(1.60 ? $1,300 = $2,080) 2,080

2,080
(8) Finished Goods Control
Work-in-Process Control 4,120

4,120
(9) Accounts Receivable Control (or Cash)
Revenues 8,000

8,000
(10) Cost of Goods Sold
Finished Goods Control 4,020

4,020
(11) Manufacturing Overhead Allocated
Manufacturing Overhead Control
Cost of Goods Sold 2,080

1,950
130

3.
Materials Control
Bal. 1/1/2011
(1) Accounts Payable Control (Purchases) 100

800 (2) Work-in-Process Control (Materials used)
(3) Manufacturing Overhead Control (Materials used)
710

100
Bal. 12/31/2011 90
Work-in-Process Control
Bal. 1/1/2011
(2) Materials Control (Direct materials)
(4) Wages Payable Control (Direct
manuf. labor)
(7) Manuf. Overhead Allocated 60

710

1,300

2,080 (8) Finished Goods Control (Goods completed)
4,120
Bal. 12/31/2011 30
Finished Goods Control

Bal. 1/1/2011
(8) WIP Control
(Goods completed) 500

4,120 (10) Cost of Goods Sold 4,020
Bal. 12/31/2011 600
Cost of Goods Sold
(10) Finished Goods Control (Goods sold)

4,020
(11) Manufacturing Overhead Allocated (Adjust for overallocation)

130
Bal. 12/31/2011 3,890
Manufacturing Overhead Control
(3) Materials Control (Indirect materials)
(4) Wages Payable Control (Indirect manuf. labor)
(5) Accum. Deprn. Control (Depreciation)
(6) Accounts Payable Control (Miscellaneous)
100

900

400

550 (11) To close 1,950
Bal. 0
Manufacturing Overhead Allocated
(11) To close 2,080 (7) Work-in-Process Control (Manuf. overhead allocated)
2,080
Bal. 0

4. Gross margin = Revenues Cost of goods sold = $8,000 $3,890 = $4,110. This is a very good profit margin of 51% ($4,110 ÷ $8,000) indicating that University of Chicago Press performed very well in 2014. (Gross margins above 30% are generally considered very good.) It also accurately budgeted for manufacturing overhead costs resulting in a very small overallocation.