Chap 003-System design

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Chapter 3Systems Design: Job-Order Costing

Solutions to Questions

3-1 By defnition, manu acturingoverhead consists o costs that cannot bepractically traced to jobs. There ore, ithese costs are to be assigned to jobs, theymust be allocated rather than traced.

3-2 Job-order costing is used in

situations where many di erent products orservices are produced each period. rocesscosting is used in situations where a single,homogeneous product, such as cement,bric!s, or gasoline, is produced or longperiods.

3-3 The job cost sheet is used to recordall costs that are assigned to a particular

job. These costs include direct materialscosts traced to the job, direct labor coststraced to the job, and manu acturingoverhead costs applied to the job. "hen a

job is completed, the job cost sheet is usedto compute the unit product cost.

3-4 # predetermined overhead rate isused to apply overhead cost to jobs. $t iscomputed be ore a period begins bydividing the period%s estimated totalmanu acturing overhead by the period%sestimated total amount o the allocationbase. Therea ter, overhead cost is appliedto jobs by multiplying the predeterminedoverhead rate by the actual amount o theallocation base that is recorded or each

job.

3-5 # sales order is issued a ter anagreement has been reached with acustomer on &uantities, prices, andshipment dates or goods. The sales orderorms the basis or the production order.

The production order specifes what is to beproduced and orms the basis or the job

cost sheet. The job cost sheet, in turn, isused to summari'e the various productioncosts incurred to complete the job. Thesecosts are entered on the job cost sheetrom materials re&uisition orms, directlabor time tic!ets, and by applyingoverhead.

3- (ome production costs such as aactory manager%s salary cannot be tracedto a particular product or job, but rather areincurred as a result o overall productionactivities. $n addition, some productioncosts such as indirect materials cannot beeasily traced to jobs. $ these costs are tobe assigned to products, they must beallocated to the products.

3-! $ actual manu acturing overheadcost is applied to jobs, the company mustwait until the end o the accounting periodto apply overhead and to cost jobs. $ thecompany computes actual overhead ratesmore re&uently to get around this problem,the rates may )uctuate widely due toseasonal actors or variations in output. *orthis reason, most companies usepredetermined overhead rates to applymanu acturing overhead costs to jobs.

3-" The measure o activity used as theallocation base should drive the overheadcost+ that is, the allocation base shouldcause the overhead cost. $ the allocationbase does not really cause the overhead,then costs will be incorrectly attributed toproducts and jobs and product costs will bedistorted.

3-# #ssigning manu acturing overheadcosts to jobs does not ensure a proft. Theunits produced may not be sold and i they

The c raw-/ill 0ompanies, $nc., 1232. #ll rights reserved.

(olutions anual, 0hapter 4 55


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are sold, they may not be sold at pricessu6cient to cover all costs. $t is a myth thatassigning costs to products or jobs ensuresthat those costs will be recovered. 0osts arerecovered only by selling to customers7notby allocating costs.

3-1$ The anu acturing 8verheadaccount is credited when overhead cost isapplied to "or! in rocess. enerally, theamount o overhead applied will not be thesame as the amount o actual cost incurredbecause the predetermined overhead rateis based on estimates.

3-11 9nderapplied overhead occurs whenthe actual overhead cost e:ceeds theamount o overhead cost applied to "or! inrocess inventory during the period.8verapplied overhead occurs when theactual overhead cost is less than theamount o overhead cost applied to "or! inrocess inventory during the period.9nderapplied or overapplied overhead isdisposed o by either closing out theamount to 0ost o oods (old or byallocating the amount among 0ost o oods(old and ending inventories in proportion tothe applied overhead in each account. Theadjustment or underapplied overheadincreases 0ost o oods (old ;andinventories< whereas the adjustment oroverapplied overhead decreases 0ost ooods (old ;and inventories


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%&er'ise 3-1 ;32 minutesstimated total direct labor hours;GI/s


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%&er'ise 3-4 ;3A minutesstimated total amount o the allocation base

EA4D,222 ED.52 per GI/

=2,222 GI/s

0ompany N

>stimated total manuacturing overhead costredetermined overhead rate >stimated total amount o the allocation base

E43A,222 EC.A2 per /52,222 /s

0ompany Q


EC=2,222 3D2O o direct materials costE422,222 direct materials cost

1. #ctual overhead costs incurred.......................EA42,22

28verhead cost applied to "or! in rocess

ED.52 per hour M 5=,222? actual hours.... .. .. A11,D2

2

9nderapplied overhead cost...........................E

5,C22

?31,222 hours S 4D,222 hours S 42,222 hours 5=,222 hours


(olutions anual, 0hapter 4 =@


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%&er'ise 3-11 ;3A minutesntry ;nnded Gecember 43

(ales o videos...................................... E@1A,2220ost o goods sold ;ED22,222 X E@,C22< A@2,D22ross margin......................................... 44C,C22(elling and administrative e:penses


32D anagerial #ccounting, 34th >dition


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Gepreciation e:pense......................... E 13,222#dvertising e:pense........................... 342,222#dministrative salaries....................... @A,222$nsurance e:pense.............................. 3,C22iscellaneous e:pense....................... =,D22 1AD,222

Fet operating income............................ E 5=,C22




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(roblem 3-22 ;D2 minutes:pense............. D4,222(alaries >:pense............................... @2,222

0ash............................................. C2A,222

d. anu acturing 8verhead.................. 34,222

Kent >:pense.................................... A,2220ash............................................. 3=,222

e. anu acturing 8verhead.................. A5,2220ash............................................. A5,222

. #dvertising >:pense......................... 3C2,2220ash............................................. 3C2,222

g. anu acturing 8verhead.................. ==,222Gepreciation >:pense....................... 31,222

#ccumulated Gepreciation........... 322,222

h. "or! in rocess................................. 1@5,222anu acturing 8verhead.............. 1@5,222


Kmb442,222 3DAO o direct labor costKmb122,222 direct labor cost

Kmb3=2,222 actual direct labor cost M 3DAO Kmb1@5,222


32= anagerial #ccounting, 34th >dition


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anu acturing 8verhead.............................. 5,2220ost o oods (old.................................. 5,222


332 anagerial #ccounting, 34th >dition


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(roblem 3-22 ;continued:pense............................. @2,222

(alaries and "ages ayable....... 451,222

d. anu acturing 8verhead................. DA,222#ccounts ayable....................... DA,222

e. #dvertising >:pense........................ 322,222#ccounts ayable....................... 322,222

. anu acturing 8verhead................. 3=,222$nsurance >:pense.......................... 1,222

repaid $nsurance....................... 12,222

g. anu acturing 8verhead................. 3A4,222Gepreciation >:pense..................... 15,222

#ccumulated Gepreciation......... 3=2,222

h. "or! in rocess............................... 4A2,222anu acturing 8verhead............ 4A2,222 E122,222 actual direct labor cost M 35AO E4A2,222 overheadapplied

i. *inished oods................................ 522,222"or! in rocess.......................... 522,222

j. #ccounts Keceivable....................... 3,222,222(ales.......................................... 3,222,222

0ost o oods (old.......................... 512,222

*inished oods........................... 512,222


331 anagerial #ccounting, 34th >dition


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(roblem 3-23 ;continued:penseBal.

C,122 ;n< C,122 ;g< D22

?5,A22 / M E= per / ED2,222

#dvertising >:pense iscellaneous >:pense;e< C=,222 ;h< @,A22


33D anagerial #ccounting, 34th >dition


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(roblem 3-24 ;continued:pense

(ales

; < 42,222;!dition


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(roblem 3-2 ;continuedstimated total amount o the allocation base

E=22,222 3D2OEA22,222 direct materials cost

b. Be ore the underapplied or overapplied overhead can becomputed, we must determine the amount o directmaterials used in production or the year.

Kaw materials inventory, beginning............. E 12,222#dd, urchases o raw materials................... A32,222Kaw materials available................................ A42,222Geduct Kaw materials inventory, ending..... =2,222Kaw materials used in production................. ECA2,222

#ctual manu acturing overhead costs$ndirect labor.............................................. E352,222roperty ta:es............................................ C=,222Gepreciation o e&uipment......................... 1D2,222aintenance.............................................. @A,222

$nsurance................................................... 5,222Kent, building............................................. 3=2,222

Total actual costs.......................................... 5D2,222#pplied manu acturing overhead costs

ECA2,222 M 3D2O...................................... 512,2229nderapplied overhead................................ E C2,222


31C anagerial #ccounting, 34th >dition


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(roblem 3-2! ;continuedstimated total amount o the allocation base

ED21,222 E=.D2 per machine-hour

52,222 /s

ainting Gepartment predetermined overhead rate


E54A,222 35AO o direct labor costEC12,222 direct labor cost

1. olding Gepartment overhead applied332 machine-hours M E=.D2 permachine-hour........................................... E @CD

ainting Gepartment overhead appliedED=2 direct labor cost M 35AO................. 3,3@2

Total overhead cost....................................... E1,34D

4. Total cost o Job 12A

)oldin$!ept*

+aintin$

!ept* TotalGirect materials..................... E C52 E 441 E =21Girect labor............................ 1@2 D=2 @52anu acturing overhead

applied................................ @CD 3,3@2 1,34D Total cost............................... E3,52D E1,121 E4,@2=

9nit product cost or Job 12A Total cost, E4,@2=

E5=.3D per unitA2 units


31= anagerial #ccounting, 34th >dition


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(roblem 3-2" ;continued:pense.......................... 332,222(alaries and "ages ayable..... C42,222

e. anu acturing 8verhead.............. AC,222#ccounts ayable..................... AC,222

. #dvertising >:pense..................... 34D,222#ccounts ayable..................... 34D,222

g. anu acturing 8verhead.............. 5D,222Gepreciation >:pense................... 3@,222

#ccumulated Gepreciation....... @A,222

h. anu acturing 8verhead.............. 321,222

Kent >:pense................................ 3=,222#ccounts ayable..................... 312,222

i. "or! in rocess............................ 4@2,222anu acturing 8verhead......... 4@2,222


F!r4D2,222 F!rC22 per GI/

@22 GI/s@5A actual GI/ M F!rC22 per GI/ F!r4@2,222




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(roblem 3-31 ;continued:penseBal. D2,222 ;!< =22,222 ; < 34D,222;j< 552,222Bal. 42,222

#ccumulated Gepreciation 9tilities >:pense;g< @A,222 ;c< 5,222

#ccounts ayable (alaries >:pense;a< 122,222 ;d< 332,222;c< 52,222;e< AC,222 Gepreciation >:pense; < 34D,222 ;g< 3@,222;h< 312,222

(alaries W "ages ayable Kent >:pense;d< C42,222 ;h< 3=,222


(olutions anual, 0hapter 4 34@


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(roblem 3-31 ;continueddition


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(roblem 3-31 ;continuedstimated total amount o the allocation base

(r@22,222 31(r per /

5A,222 /s

1. #ctual manu acturing overhead cost.......... ....( r=A2,22

2anu acturing overhead cost applied to

"or! in rocess during the year D2,222actual /s M ( r31 per /..........................

512,222

9nderapplied overhead cost...........................( r342,22

2

4. 0ost o oods (old.............................. 342,222anu acturing 8verhead................ 342,222

C. The underapplied balance would be allocated using theollowing percentages

8verhead applied during the year

in

"or! in process.............................( r 4D,22

2 A O*inished goods.............................. 3=2,222 1A O

0ost o goods sold......................... A2C,22

2 52 O

Total................................................( r512,22

2 322 O

The entry to record the allocation o the underapplied overhead

would be"or! in rocess ;AO M ( r342,222


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(roblem 3-32 ;continuedstimated studio overhead cost ;astimated hours o studio service ;bstimated studio overhead cost at

capacity ;a


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;b


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(roblem 3*-2 ;continued

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Chap 003-System design