Almeda Products, Inc., uses a job-order costing system. The company's inventory balances on April 1, the start of its fiscal year, were as follows:
During the year, the following transactions were completed: a. Raw materials were purchased on account, 170,000 . b. Raw materials were issued from the storeroom for use in production, 180,000(80% direct and 20% indirect). c. Employee salaries and wages were accrued as follows: direct labor, 200,000 ; indirect labor, 82,000 ; and selling and administrative salaries, 90,000 . d. Utility costs were incurred in the factory, 65,000 . e. Advertising costs were incurred, 100,000 . f. Prepaid insurance expired during the year, 20,000(90% related to factory operations, and 10% related to selling and administrative activities). g. Depreciation was recorded, 180,000(85% related to factory assets, and 15% related to selling and administrative assets). h. Manufacturing overhead was applied to jobs at the rate of 175% of direct labor cost. i. Goods that cost 700,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. j. Sales for the year totaled 1,000,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was 720,000 .
(c) Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close this balance to Cost of Goods Sold.

Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
Cost of goods sold (COGS) includes all of the costs and expenses directly related to the production of goods.
COGS excludes indirect costs such as overhead and sales & marketing.
COGS is deducted from revenues (sales) in order to calculate gross profit and gross margin. Higher COGS results in lower margins.
The value of COGS will change depending on the accounting standards used in the calculation.
COGS differs from operating expenses (OPEX) in that OPEX includes expenditures that are not directly tied to the production of goods or services.

1)Journal Entry

Date Accounts & Description Debit Credit

a) Raw Materials $170,000

Accounts Payable $170,000

b) Work in Process ($180,000 x 80%) $144,000

Manufacturing Overhead ($180,000 x 20%) $36,000

Raw materials $180,000

c) Work in Process $200,000

Manufacturing Overhead $82,000

Salary Expense $90,000

Salaries and Wages Payable $372,000

d) Manufacturing Overhead $65,000

Accounts Payable $65,000

e) Advertising Expense $100,000

Accounts Payable. $100,000

f) Manufacturing Overhead(20000 x 90%) $18,000

Insurance Expense (20000 x 10%) $2,000

Prepaid Insurance $20,000

g) Manufacturing Overhead(180,000 x 85%) $153,000

Depreciation Expense (180000 x 15%) $27,000

Accumulated Depreciation $180,000

h) Work in Process $350,000

Manufacturing Overhead $350,000

$200,000 actual direct labor cost × 175%

i) Finished Goods $700,000

Work in Process $700,000

j) Accounts Receivable $1,000,000

Sales $1,000,000

Cost of Goods Sold $720,000

Finished Goods $720,000

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