Job Costing - Journal Entries & Examples - YouTube

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Greetings everyone and welcome to our second video on job costing and in this

video we're going to be focusing mainly our discussion on journal entries and

journalizing our transactions in a job costing system. So let's just jump right

in and here we have Tom Ruth manufactures custom teak wood patio

furniture. We need to journalize the following transactions and then

explain each journal entry in terms of what it got increased and what got

decreased. So the first one is we purchase raw materials on account. Now

this actually shouldn't be anything new to us from our financial accounting

class. We know we purchase materials on account, we know what should get credited

and we know what should get debited. In this case our materials are going up,

materials we know now as an inventory account and if they go up that means we

debit our materials account and it says that we are purchasing them on account.

Meaning we're not paying for it right now. So we're not paying we're not paying

cash, so we're not crediting cash and we're purchasing it on account,

meaning our liability account is going up. So we would debit our materials

account for the $135,000 and credit accounts payable. Now in #2, we have

materials that are costing $130,000 for

requisitioned for production. Now requisition simply means that the work

in process department is saying we need some more materials down here. So they're

requisitioning them and of that total 130,000, 30,000 of those were indirect

materials. So that must mean that a $100,000 of those 130,000 is direct

material. So now we have to remember that or where direct materials go and where

indirect materials go from our prior discussion of the flow of those costs. So

we know if we look back at our map of how those cost flow, when materials are

used, they come out of our materials account with a credit, so our materials are

going down. The direct materials go directly into process. So they are

debited into work in process and the indirect materials are debited to overhead

and if you look back at the map that we drew in the prior video, you can see

exactly what's happening here with this journal entry.

Okay so we're debiting work in process for the direct portion of these

materials. We're debiting overhead for the indirect portion of these materials

and crediting materials for the total because all of our materials are housed

in our materials t-account. So let's move to labor now. Here we have labor time

records. They show that direct labor of $22,000 and indirect labor of $5,000

were incurred, but not yet paid that means cash is not being

affected here. So we're going to credit our wages payable for the total amount

as we saw in our map that we drew in the prior video. So for the total amount of

$27,000 we're going to credit wages payable. We also

have to remember that direct portion of labor goes directly into process with a

debit to work in process and the indirect portion is going to move down

into overhead with a debit to our overhead account. Okay so the process

here is to keep that map in your mind that we drew in the prior video. Debiting

work in process for the direct cost and debiting overhead for the indirect cost.

So now I'd like for you to try one. Here we have Seattle Creations, they report

the following labor related transactions at its plant in Seattle, Washington. So we

have our plant janitor wages, our furnace operator wages, and our glass blower wages.

We need to journalize the entry for the incurrence and assignment of these wages.

Now that's one compound entry that you just saw in the prior slide. One compound

entry for all of this labor. So press pause on your player, see if you can

figure out what goes into work in process, what goes into overhead, and what

your crediting that wages payable account for and then come back and we'll

look at it together. Okay so let's see how you did.

Let's go through each one of these first of all and determine what we think is

direct labor and what might be indirect labor. So we have plant janitors wages. So

as we've discussed before, anytime you see the word plant, you know that that is

overhead. Okay so this would be considered indirect labor. The plant

janitor is very very important, it keeps the

floor clean for the for the direct labor to be able to create a product. So we

know that it's very very important, but it's indirect labor, they don't

actually put the product together. Now the furnace operators wages. Very very

important because we are obviously blowing glass sculptures here. So we're

creating glass sculptures, so keeping the furnace hot is very very important, but

they don't actually put the product together. They don't actually create

these glass sculptures. You can also see that this is not direct labor by

looking at the cost. Look at the difference in the glassblower wages and

the furnace operator wages is significantly different there, how

significantly different they are. That is one signal that this is probably

indirect labor, but the fact that a furnace operator simply keeps the

furnace hot and doesn't actually create the glass sculptures, that in addition

makes them indirect labor. So the only direct labor we have in this list is

the glassblower wages. So that $77,000 is the only amount that would go directly

into work in process. The other two labor accounts would go into overhead.

So we would have a debit to work in process of 77,000, a debit to overhead for the

plant janitor and the furnace operator wages and we would credit wages payable

for the entire amount of all of our labor that we have incurred. So in this

problem we're going to be looking specifically at our overhead T account

and determining what our balance is and overhead prior to application of

overhead to production. So here we have Evergreen Furniture. They manufacture

wood patio furniture. The company reports the following cost for June. So we have

our wood, our nails, glue, and stain depreciation, indirect manufacturing

labor, depreciation on delivery truck and assembly line workers wages and again we

want to to figure out what it would be the balance and that overhead account

prior to applying overhead into process or into production. So moving it to the

work in process T account. So again I'd like for you to attempt if

you could label each one of these in this list and determine what is direct

materials, what's indirect materials, what's labor, what's other overhead, etc.

and determine what might end up in that overhead t-account and then we'll come

back and see if you did it correctly and we'll work it

through together. Okay so let's look at this list of things you've done here

and figure out what each one of them might be included as. So we're creating

wood patio furniture. So wood, you can see the cost of that wood, is probably a

direct material. So would not end up in the overhead t-account.

Nails, glue, and stain, small cost of the product not a huge prime cost there so

that's probably an indirect material. So that would be considered part of

overhead. Depreciation on the saws. Well saw is used to saw the wood. So that's

part of the manufacturing process. So that would be considered other overhead

even though it doesn't have the word plant or factory on it, it's still part

of manufacturing because it's the saws used to cut the wood. Indirect labor,

obviously that's one of the three main components of overhead: being indirect

materials, indirect labor, and other overheads. So that would obviously be

considered part of overhead. Depreciation on the delivery truck. Now that has to do

with selling. Selling an admin. So that's actually a period cost. So that wouldn't

be included as part of a product cost at all. Assembly line workers wages, again

that's a big cost you can see that there. That's probably direct labor. So that

would not be included as part of overhead. So now we need to draw our

overhead t-account recalling that on the left hand side or the debit side of our

overhead t-account is the actual overhead which is what we're computing

here in this case, and the right hand side, the credit side of the overhead

account is the applied overhead or allocated overhead, which we'll talk

about later. Alright so if you draw that t-account and we have our list there of

what gets counted as overhead and what gets counted as other things. So we look

at our overhead t-account and we can see the actual and the applied and we know

that the actual is made up of indirect materials, indirect labor, and other

overhead and as you can see them in red up above we input them into our overhead

t-account and we find that the actual overhead or the balance and overhead

prior to applying overhead to production, calculating that applied amount, the

actual overhead is $66,500. Now what we will do

in the future is we will calculate that applied amount. That is the amount that

goes into work in process and we will compare that applied amount with the

actual amount of 66,500 and come up with our under or over applied overhead. Don't

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