Accounting entries for a job costing

system

XY Limited commenced trading on 1 February with fully paid issued share capital
of 500 000, Fixed Assets of 275 000 and Cash at Bank of 225 000. By the end of
April, the following transactions had taken place:
1. Purchases on credit from suppliers amounted to 572 500 of which 525 000
was raw materials and 47 500 was for items classified as production overhead.
2. Wages incurred for all staff were 675 000, represented by cash paid 500 000
and wage deductions of 175 000 in respect of income tax etc.
3. Payments were made by cheque for the following overhead costs:

Question IM 4.1
Intermediate:
Integrated cost
accounting

Production
Selling
Administration
4.
5.

20 000
40 000
25 000

Issues of raw materials were 180 000 to Department A, 192 500 to Department
B and 65 000 for production overhead items.
Wages incurred were analysed to functions as follows:

Work in progress Department A

Work in progress Department B
Production overhead
Selling overhead
Administration overhead

6.
7.

8.

300 000
260 000
42 500
47 500
25 000

675 000

Production overhead absorbed in the period by Department A was 110 000

and by Department B 120 000.
The production facilities, when not in use, were patrolled by guards from a
security firm and 26 000 was owing for this service. 39 000 was also owed to a
firm of management consultants which advises on production procedures;
invoices for these two services are to be entered into the accounts.
The cost of finished goods completed was

Direct labour
Direct materials
Production overhead

Department A

Department B

290 000
175 000
105 000

570 000

255 000
185 000
115 000

555 000

9. Sales on credit were 870 000 and the cost of those sales was 700 000.
10. Depreciation of productive plant and equipment was 15 000.
ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

15

11. Cash received from debtors totalled 520 000.

12. Payments to creditors were 150 000.
You are required
(a) to open the ledger accounts at the commencement of the trading period;
(b) using integrated accounting, to record the transactions for the three months
ended 30 April;
(c) to prepare, in vertical format, for presentation to management,
(i) a profit statement for the period;
(ii) the balance sheet at 30 April.
(20 marks)
CIMA Stage 2 Cost Accounting

Question IM 4.2
Intermediate:
Interlocking
accounts

AZ Limited has separate cost and financial accounting systems interlocked by control accounts in the two ledgers. From the cost accounts, the following information
was available for the period:
()
Cost of finished goods produced
Cost of goods sold
Direct materials issued
Direct wages
Production overheads
(as per the financial accounts)
Direct material purchases

512 050
493 460
197 750
85 480
208 220
216 590

In the cost accounts, additional depreciation of 12 500 per period is charged and
production overheads are absorbed at 250% of wages.
The various account balances at the beginning of the period were:
()
Stores control
Work in progress control
Finished goods control

54 250
89 100
42 075

Required:
(a) Prepare the following control accounts in the cost ledger, showing clearly the
double entries between the accounts, and the closing balances:
Stores control
Work in progress control
Finished goods control
Production overhead control
(10 marks)
(b) Explain the meaning of the balance on the production overhead control
account.
(2 marks)
(c) When separate ledgers are maintained, the differing treatment of certain items
may cause variations to arise between costing and financial profits. Examples
of such items include stock valuations, notional expenses, and non-costing
items charged in the financial accounts. Briefly explain the above three
examples and state why they may give rise to profit differences.
(3 marks)
(Total 15 marks)
CIMA Stage 1 Cost Accounting

16

ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

(a) Describe briefly three major differences between:

(i) financial accounting, and
(ii) cost and management accounting.
(b) Below are incomplete cost accounts for a period:

(6 marks)

Stores ledger
control account
(000)
Opening balance
Financial ledger control a/c

Financial ledger control a/c

Financial ledger control a/c

Opening balance

Question IM 4.3
Intermediate:
Preparation of
interlocking
accounts from
incomplete
information

176.0
224.2
Production wages
control account
(000)
196.0
Production overhead
control account
(000)
119.3
Job ledger
control account
(000)
114.9

The balances at the end of the period were:

(000)
Stores ledger
Jobs ledger

169.5
153.0

During the period 64 500 kilos of direct material were issued from stores at a
weighted average price of 3.20 per kilo. The balance of materials issued from
stores represented indirect materials.
75% of the production wages are classified as direct. Average gross wages of
direct workers was 5.00 per hour. Production overheads are absorbed at a predetermined rate of 6.50 per direct labour hour.
Required:
Complete the cost accounts for the period.

(8 marks)
(Total 14 marks)
ACCA Foundation Paper 3

On 30 October 2002 the following were among the balances in the cost ledger of a
company manufacturing a single product (Product X) in a single process operation:
Dr
Raw Material Control Account
Manufacturing Overhead Control Account
Finished Goods Account

Cr

Question IM 4.4
Integrated
accounts and
stores pricing

87 460
5 123
148 352

The raw material ledger comprised the following balances at 30 October 2002:
Direct materials:
Material A:
Material B:
Indirect materials:

18 760 kg
4 242 kg

ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

52 715
29 994
4 751
17

12 160 kg of Product X were in finished goods stock on 30 October 2002.

During November 1999 the following occurred:
(i) Raw materials purchased on credit:
Material A:
34 220 kg at 2.85/kg
Material B:
34 520 kg at 7.10/kg
Indirect:
7221
(ii) Raw materials issued from stock:
Material A:
35 176 kg
Material B:
13 364 kg
Indirect:
6917
Direct materials are issued at weighted average prices (calculated at the end of each
month to three decimal places of ).
(iii) Wages incurred:
Direct
186 743 (23 900 hours)
Indirect
74 887
(iv) Other manufacturing overhead costs totalled 112 194. Manufacturing overheads are absorbed at a predetermined rate of 8.00 per direct labour hour.
Any over/under absorbed overhead at the end of November should be left as a
balance on the manufacturing overhead control account.
(v) 45 937 kg of Product X were manufactured. There was no work-in-progress at
the beginning or end of the period. A normal loss of 5% of input is expected.
(vi) 43 210 kg of Product X were sold. A monthly weighted average cost per kg (to
three decimal places of ) is used to determine the production cost of sales.
Required:
(a) Prepare the following cost accounts for the month of November 2002.
Raw Material Control Account
Manufacturing Overhead Control Account
Work-in-Progress Account
Finished Goods Account
All entries to the accounts should be rounded to the nearest whole . Clearly show
any workings supporting your answer.
(16 marks)
(b) Explain the concept of equivalent units and its relevance in a process costing
system.
(4 marks)
(Total 20 marks)
ACCA Management Information Paper 3

Question IM 4.5
Intermediate:
Labour cost
accounting and
recording of
journal entries

(a) Identify the costs to a business arising from labour turnover.

(5 marks)
(b) A company operates a factory which employed 40 direct workers throughout
the four-week period just ended. Direct employees were paid at a basic rate of
4.00 per hour for a 38-hour week. Total hours of the direct workers in the
four-week period were 6528. Overtime, which is paid at a premium of 35%, is
worked in order to meet general production requirements. Employee
deductions total 30% of gross wages. 188 hours of direct workers time were
registered as idle.
Required:
Prepare journal entries to account for the labour costs of direct workers for the
period.
(7 marks)
(Total 12 marks)
ACCA Foundation Stage Paper 3

18

ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

One of the production departments in A Ltds factory employs 52 direct operatives

and 9 indirect operatives. Basic hourly rates of pay are 4.80 and 3.90 respectively.
Overtime, which is worked regularly to meet general production requirements, is
paid at a premium of 30% over basic rate.
The following further information is provided for the period just ended:
Hours worked:
Direct operatives:
Total hours worked
25 520 hours
Overtime hours worked
2 120 hours
Indirect operatives:
Total hours worked
4 430 hours
Overtime hours worked
380 hours
Production:
Product 1, 36 000 units in 7 200 hours
Product 2, 116 000 units in 11 600 hours
Product 3, 52 800 units in 4 400 hours
Non-productive time:
2 320 hours
Wages paid (net of tax and employees National Insurance):
Direct operatives
97 955
Indirect operatives
13 859

Question IM 4.6
Intermediate:
Preparation of the
wages control
account plus an
evaluation of the
impact of a
proposed
piecework system

The senior management of A Ltd are considering the introduction of a piecework

payment scheme into the factory. Following work study analysis, expected productivities and proposed piecework rates for the direct operatives, in the production
department referred to above, have been determined as follows:

Product 1
Product 2
Product 3

Productivity
(output per hour)

Piecework rate
(per unit)

66 units
12 units
14.4 units

1.00
0.50
0.40

Non-productive time is expected to remain at 10% of productive time, and would

be paid at 3.50 per hour.
Required:
(a) Prepare the production departments wages control account for the period in A
Ltds integrated accounting system. (Ignore employers National Insurance.)
(9 marks)
(b) Examine the effect of the proposed piecework payment scheme on direct
labour and overhead costs.
(11 marks)
(Total 20 marks)
ACCA Cost and Management Accounting 1

ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

19

Question IM 4.7
Intermediate:
Contract costing

Thornfield Ltd is a building contractor. During its financial year to 30 June 2000, it
commenced three major contracts. Information relating to these contracts as at
30 June 2000 was as follows:

Date contract commenced

Contract price
Expenditure to 30 June 2000:
Materials and subcontract work
Direct wages
General expenses
Position at 30 June 2000
Materials on hand at cost
Accrued expenses
Value of work certified
Estimated cost of work
completed but not certified
Plant and machinery allocated
to contracts

Contract 1

Contract 2

Contract 3

1 July 1999

1 January 2000

1 April 2000

()

()

()

210 000

215 000

190 000

44 000
80 000
3 000

41 000
74 500
1 800

15 000
12 000
700

3 000
700
150 000

3 000
600
110 000

1 500
600
20 000

4 000

6 000

9 000

16 000

12 000

8 000

The plant and machinery allocated to the contracts was installed on the dates the
contracts commenced. The plant and machinery is expected to have a working life
of four years in the case of contracts 1 and 3 and three years in the case of contract
2, and is to be depreciated on a straight line basis assuming nil residual values.
Since the last certificate of work was certified on contract number 1, faulty work
has been discovered which is expected to cost 10 000 to rectify. No rectification
work has been commenced prior to 30 June 2000.
In addition to expending directly attributable to contracts, recoverable central
overheads are estimated to amount to 2% of the cost of direct wages.
Thornfield Ltd has an accounting policy of taking two thirds of the profit attributable to the value of work certified on a contract, once the contract is one third
completed. Anticipated losses on contracts are provided in full.
Progress claims equal to 80% of the value of work certified have been invoiced to
customers.
You are required to:
(a) prepare contract accounts for each contract for the year to 30 June 2000,
calculating any attributable profit or loss on each contract;
(12 marks)
(b) calculate the amount to be included in the balance sheet of Thornfield Ltd as
on 30 June 2000 in respect of these contracts.
(4 marks)
(Total 16 marks)
ICAEW Accounting Techniques

20

ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

(a) PZ plc undertakes work to repair, maintain and construct roads. When a customer requests the company to do work PZ plc supplies a fixed price to the
customer and allocates a works order number to the customers request. This
works order number is used as a reference number on material requisitions
and timesheets to enable the costs of doing the work to be collected.
PZ plcs financial year ends on 30 April. At the end of April 2000 the data
shown against four of PZ plcs works orders were:
Works order number
Date started
Estimated completion date
Direct labour costs
Direct material costs
Selling price
Estimated direct costs
to complete orders:
Direct labour
Direct materials
Independent valuation of work
done up to 30 April 2000

488
1/3/99
31/5/00
(000)
105
86
450

517
1/2/00
30/7/00
(000)
10
7
135

518
14/3/00
31/5/00
(000)
5
4
18

519
18/3/00
15/5/00
(000)
2
2
9

40
10

60
15

2
1

2
1

350

30

15

Question IM 4.8
Intermediate:
Contract costing

Overhead costs are allocated to works orders at the rate of 40% of direct labour
costs.
It is company policy not to recognize profit on long-term contracts until they are
at least 50% complete.
Required:
(i) State, with reasons, whether they above works orders should be
accounted for using contract costing or job costing.
(4 marks)
(ii) Based on your classification at (i) above, prepare a statement showing
clearly the profit to be recognized and balance sheet work in progress valuation of each of the above works orders in respect of the financial year
ended 30 April 2000.
(10 marks)
(iii) Comment critically on the policy of attributing overhead costs to works
orders on the basis of direct labour cost.
(6 marks)
(b) Explain the main features of process costing. Describe what determines the
choice between using process costing or specific order costing in a
manufacturing organization.
(10 marks)
(Total 30 marks)
CIMA Operational Cost Accounting Stage 2

ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

21