Job Order Costing

5/20/2018 Job Order Costing

1/48

JOB ORDER COST ACCOUNTING

TRUE-FALSE STATEMENTS

1. Cost accounting is primarily concerned with accumulating information about product costs.

2. A job order cost system is most appropriate when a large volume of uniform products areproduced.

3. A process cost accounting system is appropriate for homogeneous products that arecontinuously mass produced.

4. The perpetual inventory method cannot be used in a job order cost system.

. A job order cost system and a process cost system are two alternative methods forvaluing inventories.

!. A job order cost system identifies costs with a particular job rather than with a set timeperiod.

". A company may use either a job order cost system or a process cost system# but not both.

$. %aw &aterials 'nventory# (actory )abor# and &anufacturing *verhead are all controlaccounts in the general ledger when a job order cost accounting system is used.

+. Accumulating and assigning manufacturing costs are two important activities in a job ordercost system.

1,. %ecording the ac-uisition of raw materials is a part of accumulating manufacturing costs.

11. &anufacturing costs are generally incurred in one period and recorded in a subse-uentperiod.

12. The urchases account is credited for all raw materials purchase returns and allowances.

13. The stores ledger cards are the subsidiary ledger for %aw &aterials 'nventory controlaccount in the general ledger.

14. /hen raw materials are purchased# the /or0 in rocess 'nventory account is debited.

1. (actory labor should be assigned to selling and administrative epenses on aproportionate basis.

1!. (ringe benefits and payroll taes associated with factory wor0ers should be accumulatedas a part of (actory )abor.

1". ob order cost sheets constitute the subsidiary ledger of the control account /or0 'nrocess 'nventory.


2/48

ob *rder Cost Accounting

1$. 'n a job order cost system# each entry to the /or0 'n rocess 'nventory account should beaccompanied by a posting to one or more job cost sheets.

1+. irect materials re-uisitioned from the storeroom should be charged to the /or0 'nrocess 'nventory account and the job cost sheets for the individual jobs on which thematerial was used.

2,. &anufacturing overhead is the only product cost that can be assigned to jobs as soon asthe costs are incurred.

21. There should be a separate job cost sheet for each job.

22. Actual manufacturing overhead costs are assigned to each job by tracing each overheadcost to a specific job.

23. The formula for the predetermined overhead rate is estimated annual overhead costsdivided by an estimated activity base.

24. Actual manufacturing overhead costs should be charged to the /or0 in rocess 'nventoryaccount as they are incurred.

2. A good system of internal control re-uires that the job order cost sheet be destroyed assoon as the job is complete.

2!. (inished oods 'nventory is charged for the cost of jobs completed during a period.

2". /hen goods are sold# the Cost of oods 5old account is debited and the /or0 in rocess'nventory account is credited.

2$. Total manufacturing costs for a period consists of the costs of direct material used# thecost of direct labor incurred# and the manufacturing overhead applied during the period.

2+. *verapplied overhead means that actual manufacturing overhead costs were greater thanthe manufacturing overhead costs applied to jobs.

3,. 'f monthly financial statements are prepared# underapplied overhead is shown as aprepaid epense on the balance sheet.

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

1. T !. T 11. ( 1!. T 21. T 2!. T2. ( ". ( 12. ( 1". T 22. ( 2". (3. T $. ( 13. T 1$. T 23. T 2$. T4. ( +. T 14. ( 1+. T 24. ( 2+. (. T 1,. T 1. ( 2,. ( 2. ( 3,. T

-


3/48

ob *rder Cost Accounting-!


4/48

Test Ban" #or Mana$er%al A&&ount%n$' Se&on( E(%t%on

MULTIPLE CHOICE QUESTIONS31. A major purpose of cost accounting is to

a. classify all costs as operating or nonoperating.b. measure# record# and report period costs.c. provide information to stoc0holders for investment decisions.

d. measure# record# and report product costs.

32. The two basic types of cost accounting systems area. job order and job accumulation systems.b. job order and process cost systems.c. process cost and batch systems.d. job order and batch systems.

33. A process cost system would most li0ely be used by a company that ma0esa. motion pictures.b. repairs to automobiles.c. brea0fast cereal.d. college graduation announcements.

34. /hich of the following would be accounted for using a job order cost system6a. The production of personal computersb. The production of automobilesc. The refining of petroleumd. The construction of a new campus building

3. rocess costing is used whena. the production process is continuous.b. production is aimed at filling a specific customer order.c. heterogeneous products are involved.d. costs are to be assigned to specific jobs.

3!. rocess costing is not used whena. homogeneous goods are being produced.b. large volumes are produced.c. jobs have distinguishing characteristics.d. a series of connected manufacturing processes is necessary.

3". An important feature of a job order cost system is that each joba. must be similar to previous jobs completed.b. has its own distinguishing characteristics.c. must be completed before a new job is accepted.d. consists of one unit of output.

3$. The flow of costs in a job order cost systema. involves accumulating manufacturing costs incurred and assigning the accumulated

costs to wor0 done.b. cannot be measured until all jobs are complete.c. measures product costs for a set time period.d. generally follows a )'(* cost flow assumption.

-)


5/48


3+. 'n a job order cost accounting system# the %aw &aterials 'nventory account isa. an epense.b. a control account.c. not used.d. a period cost.

4,. /hen a job is completed and all costs have been accumulated on a job cost sheet# thejournal entry that should be made isa. (inished oods 'nventory

irect &aterialsirect )abor&anufacturing *verhead

b. /or0 'n rocess 'nventoryirect &aterialsirect )abor&anufacturing *verhead

c. %aw &aterials 'nventory/or0 'n rocess 'nventory

d. (inished oods 'nventory/or0 'n rocess 'nventory

41. The two major steps in the flow of costs area. allocating and assigning.b. ac-uiring and accumulating.c. accumulating and assigning.d. accumulating and amorti7ing.

42. The %aw &aterials 'nventory account isa. a subsidiary account.b. debited for invoice costs and freight costs chargeable to the purchaser.c. debited for purchase discounts ta0en.d. debited for purchase returns and allowances.

43. %ecords of individual items of raw materials would not be maintaineda. electronically.b. manually.c. on stores ledger cards.d. in the %aw &aterials 'nventory account.

44. Cost of raw materials are debited to %aw &aterials 'nventory when thea. materials are ordered.b. materials are received.c. materials are put into production.d. the bill for the materials is paid.

4. %aw &aterials 'nventory records are also referred to asa. the %aw &aterials control account.b. the stores ledger cards.c. the purchases journal.d. periodic inventory records.

-*


6/48


4!. After all postings have been completed# the sum of the balances in the raw materialssubsidiary ledger should e-ual thea. balance in the %aw &aterials 'nventory control account.b. cost of materials charged to /or0 in rocess 'nventory.c. cost of materials purchased.d. cost of the materials placed into production.

4". (actory labor costsa. are accumulated in a control account.b. do not include pension costs.c. include vacation pay.d. are based on wor0ers net pay.

4$. (actory )abor is a8n9a. epense account.b. control account.c. subsidiary account.d. manufacturing cost clearing account.

4+. :line &anufacturing has the following labor costs;

(actory


7/48


3. The entry to record the ac-uisition of raw materials on account isa. /or0 in rocess 'nventory

Accounts ayable

b. &anufacturing *verhead%aw &aterials 'nventory

Accounts ayablec. Accounts ayable

%aw &aterials 'nventory

d. %aw &aterials 'nventoryAccounts ayable

4. ob cost sheets constitute the subsidiary ledger for thea. (inished oods 'nventory account.b. Cost of oods 5old account.c. /or0 'n rocess 'nventory account.d. Cost of oods &anufactured account.

. A materials re-uisition slip showed that direct materials re-uested were =3,#,,, andindirect materials re-uested were =!#,,,. The entry to record the transfer of materialsfrom the storeroom isa. /or0 'n rocess 'nventory .................................................. 3,#,,,

%aw &aterials 'nventory ............................................. 3,#,,,

b. irect &aterials ................................................................... 3,#,,,'ndirect &aterials ................................................................ !#,,,

/or0 in rocess 'nventory ......................................... 3!#,,,

c. &anufacturing *verhead .................................................... 3!#,,,%aw &aterials 'nventory ............................................. 3!#,,,

d. /or0 'n rocess 'nventory .................................................. 3,#,,,&anufacturing *verhead .................................................... !#,,,

%aw &aterials 'nventory ............................................. 3!#,,,

!. The job cost sheet does not showa. costs chargeable to a specific job.b. the total costs of a completed job.c. the unit cost of a completed job.d. the cost of goods sold.

". @nder an effective system of internal control# the authori7ation for issuing materials ismadea. orally.b. on a prenumbered materials re-uisition slip.c. by the accounting department.d. by anyone on the production line.

$. A copy of the materials re-uisition slipa. is routed to the treasurers office for payment.b. becomes the subsidiary ledger for the /or0 in rocess 'nventory.c. can be used as a subsidiary ledger for %aw &aterials 'nventory.d. is retained by the storeroom# and the original is sent to accounting.

-,


8/48


+. &aterials re-uisition slips are costeda. by production supervisors.b. by factory personnel who wor0 on the production line.c. after the goods have been sold.d. using any of the inventory costing methods.

!,. ostings to control accounts in a costing system are madea. monthly.b. daily.c. annually.d. semiBannually.

!1. /hich of the following shows entries only to control accounts6a. (actory )abor

/ages ayable

b. /or0 in rocess(actory )abor

%aw &aterials 'nventory/ages ayable

c. /or0 in rocess&anufacturing *verhead

%aw &aterials 'nventory

d. (actory )abor%aw &aterials 'nventory

Accounts ayable /ages ayable

!2. A time tic0et does not indicate thea. employees name.

b. account to be charged.c. number of personal eemptions claimed by the employee.d. job number.

!3. Time tic0ets should be approved bya. the audit committee.b. coBwor0ers.c. the employees supervisor.d. the payroll department.

!4. 'f the entry to assign factory labor shows only a debit to /or0 'n rocess 'nventory# thenall labor costs were

a. direct labor.b. indirect labor.c. overtime related.d. regular hours.

!. The principal accounting record used in assigning costs to jobs isa. a job cost sheet.b. the cost of goods manufactured schedule.c. the &anufacturing *verhead Control account.d. the stores ledger cards.

-


9/48


!!. The following information is available for completed ob >o. 4,2; irect materials#=2,#,,, direct labor# =3,#,,, manufacturing overhead applied# =1#,,, units produced##,,, units units sold# 4#,,, units. The cost of the finished goods on hand from this job isa. =1,#,,,.b. =!#,,,.c. =13#,,,.d. =2#,,,.

!". The labor costs that have been identified as indirect labor should be charged toa. manufacturing overhead.b. direct labor.c. the individual jobs wor0ed on.d. salary epense.

!$. &anufacturing overhead is applied to each joba. at the time when the overhead cost is incurred.b. by means of a predetermined overhead rate.c. at the end of the year when actual costs are 0nown.d. only if the overhead costs can be directly traced to that job.

!+. The predetermined overhead rate is based on the relationship betweena. estimated annual costs and actual activity.b. estimated annual costs and epected annual activity.c. actual monthly costs and actual annual activity.d. estimated monthly costs and actual monthly activity.

",. The predetermined overhead rate isa. determined on a moving average basis throughout the year.b. not calculated until actual overhead costs are incurred.c. determined at the beginning of the year.d. determined at the end of the current year.

"1. 'n calculating a predetermined overhead rate# a recent trend in automated manufacturingoperations is to choose an activity base related toa. direct labor hours.b. indirect labor dollars.c. machine hours.d. raw material dollars.

"2. 'f annual overhead costs are epected to be =!,,#,,, and direct labor costs are epectedto be =1#,,,#,,,# thena. =1.!" is the predetermined overhead rate.b. for every dollar of manufacturing overhead# !, cents of direct labor will be assigned.c. for every dollar of direct labor# !, cents of manufacturing overhead will be assigned.d. a predetermined overhead rate cannot be determined.

"3. *verhead application is recorded with aa. credit to /or0 in rocess 'nventory.b. credit to &anufacturing *verhead.c. debit to &anufacturing *verhead.d. credit to job cost sheets.

-


10/48


"4. At the beginning of the year# &onroe Company estimates annual overhead costs to be=!,,#,,, and that 3,,#,,, machine hours will be operated. @sing machine hours as abase# the amount of overhead applied during the year if actual machine hours for the yearwas 31#,,, hours isa. =1"#,,.b. ="1#42+.c. =31#,,,.d. =!3,#,,,.

". The predetermined overhead rate may be computed using all of the following activitybases excepta. direct labor costs.b. direct labor hours.c. machine hours.d. indirect labor costs.

"!. Distorically# the activity base used in computing the predetermined overhead rate hasbeena. machine hours.b. direct labor costs.c. direct labor hours.d. direct labor costs or direct labor hours.

"". At the end of each month# the sum of the costs shown on the job cost sheets should e-ualthe balance ina. Cost of oods 5old.b. (inished oods 'nventory.c. &anufacturing *verhead.d. /or0 in rocess 'nventory.

"$. ?ach of the following costs can be assigned to specific jobs on the basis of actual costsincurred excepta. direct materials.b. direct labor.c. manufacturing overhead.d. All of these costs can be assigned based on actual costs.

"+. The predetermined overhead rate is computed usinga. actual overhead costs.b. applied overhead costs.c. estimated overhead costs.d. predetermined overhead costs.

$,. 'n determining total manufacturing costs on the cost of goods manufactured schedule#a. beginning wor0 in process inventory should have a 7ero balance.b. actual manufacturing overhead costs appear as a deduction.c. manufacturing overhead applied is added to direct materials and direct labor.d. ending wor0 in process inventory is deducted from beginning wor0 in process

inventory.

-/0


11/48


@se the following information for -uestions $1E$2.

Fec0er Company developed the following data for the current year;

Feginning wor0 in process inventory = !,#,,,irect materials used 3!#,,,

Actual overhead "2#,,,*verhead applied 4#,,,Cost of goods manufactured !!#,,,Total manufacturing costs 1$,#,,,

$1. Fec0er Companys direct labor cost for the year isa. =1$#,,,.b. =+,#,,,.c. =4#,,,.d. ="2#,,,.

$2. Fec0er Companys ending wor0 in process inventory is

a. =1"4#,,,.b. =12,#,,,.c. =114#,,,.d. =4#,,,.

$3. %eich &anufacturing Company developed the following data;

Feginning wor0 in process inventory = +,#,,,irect materials used ",#,,,

Actual overhead 11,#,,,*verhead applied $,#,,,Cost of goods manufactured 12,#,,,

?nding wor0 in process 2,,#,,,

%eich &anufacturing Companys total manufacturing costs for the period area. =24,#,,,.b. =23,#,,,.c. =1$,#,,,.d. cannot be determined from the data provided.

$4. /hich of the following is not used in assigning manufacturing costs to wor0 in processinventory6a. Actual manufacturing overheadb. Time tic0ets

c. &aterials re-uisitionsd. redetermined overhead rate

$. *n the cost of goods manufactured schedule# the cost of goods manufactured agrees withthea. balance of (inished oods 'nventory at the end of the period.b. total debits to /or0 in rocess 'nventory during the period.c. amount transferred from /or0 in rocess 'nventory to (inished oods during the

period.d. debits to Cost of oods 5old during the period.

-//


12/48


$!. annon Company had the following information at ecember 31;

(inished goods inventory# anuary 1 =2,#,,,(inished goods inventory# ecember 31 !,#,,,

'f the cost of goods manufactured during the year amounted to =$4,#,,, and annual saleswere =1#1,,#,,,# the amount of gross profit for the year isa. =2!,#,,,.b. =$,,#,,,.c. =3,,#,,,.d. =22,#,,,.

$". /inter Company incurred direct materials costs of =,,#,,, during the year. &anufacturBing overhead applied was =+,#,,, and is applied at the rate of !,G of direct labor costs./inter CompanyHs total manufacturing costs for the year werea. ="4,#,,,.b. =!44#,,,.c. =+,#,,,.d. =+44#,,,.

$$. Cost of goods sold is obtained froma. analysis of all the control accounts in the cost system.b. the finished goods inventory records.c. the wor0 in process inventory records.d. the %aw &aterials 'nventory control account.

$+. 'n a job order cost system# a credit to &anufacturing *verhead will be accompanied by adebit toa. Cost of oods &anufactured.b. (inished oods 'nventory.c. /or0 in rocess 'nventory.d. %aw &aterials 'nventory.

+,. ebits to /or0 in rocess 'nventory are accompanied by a credit to all but one of thefollowing accounts;a. %aw &aterials 'nventory.b. (actory )abor.c. &anufacturing *verhead.d. Cost of oods 5old.

+1. /hich of the following is not viewed as part of accumulating manufacturing costs in a joborder cost system6a. Cost of goods sold is recogni7ed

b. %aw materials are purchasedc. (actory labor is incurredd. &anufacturing overhead is incurred

+2. /hich of the following is not viewed as part of assigning manufacturing costs in a joborder cost system6a. &anufacturing overhead is appliedb. %aw materials are usedc. &anufacturing overhead is incurredd. Completed goods are recogni7ed

-/


13/48


+3. The entry to recogni7e cost of goods sold includes a credit toa. Cost of oods 5old.b. (inished oods 'nventory.c. 5ales.d. /or0 in rocess 'nventory.

+4. Total manufacturing costs includea. actual overhead costs.b. applied overhead costs.c. budgeted overhead costs.d. estimated overhead costs.

+. /hen monthly financial statements are prepared# underapplied overhead will appear asa. unearned revenue.b. a current asset.c. I*ther %evenues and ains#I on the income statement.d. a reduction to cost of goods sold.

+!. 'f manufacturing overhead has been underapplied during the year# the adjusting entry atthe end of the year will show aa. debit to &anufacturing *verhead.b. credit to Cost of oods 5old.c. debit to /or0 in rocess 'nventory.d. debit to Cost of oods 5old.

+". 'f manufacturing overhead has been overapplied during the year# the adjusting entry at theend of the year will show aa. debit to &anufacturing *verhead.b. credit to (inished oods 'nventoryc. debit to Cost of oods 5old.d. credit to /or0 in rocess 'nventory.

+$. The eistence of underB or overapplied overhead at the end of the montha. is epected to be offset in future months.b. indicates that an error has been made.c. re-uires a retroactive adjustment to the cost of all jobs completed.d. is written off as a bad estimate epense.

++. Conceptually# any underB or overapplied overhead at the end of the year should beallocated among all of the following ecepta. cost of goods sold.b. ending wor0 in process inventory.c. ending raw materials inventory.d. ending finished goods inventory.

1,,. 'f at the end of the year# &anufacturing *verhead has been overapplied# it means thata. actual overhead costs were greater than the overhead assigned to jobs.b. actual overhead costs were less than the overhead assigned to jobs.c. overhead has not been applied to jobs still in process.d. cost of goods will have to be increased by the amount of the overapplied overhead.

-/!


14/48


1,1. 'f the &anufacturing *verhead account has a debit balance at the end of a period# itmeans thata. actual overhead costs were less than overhead costs applied to jobs.b. actual overhead costs were greater than overhead costs applied to jobs.c. actual overhead costs were e-ual to overhead costs applied to jobs.d. no jobs have been completed.

1,2. 'f the manufacturing overhead costs applied to jobs wor0ed on were greater than theactual manufacturing costs incurred during a period# overhead is said to bea. underapplied.b. overapplied.c. in error.d. prepaid.

1,3. At the end of the year# any balance in the &anufacturing *verhead account is generallyeliminated by adjustinga. /or0 'n rocess 'nventory.b. (inished oods 'nventory.c. Cost of oods 5old.d. %aw &aterials 'nventory.

1,4. 'f &anufacturing *verhead has a credit balance at the end of the period# thena. overhead has been underapplied.b. the overhead assigned to /or0 in rocess 'nventory is less than the overhead

incurred.c. overhead has been overapplied.d. management must ta0e corrective action.

1,. The &anufacturing *verhead account shows debits of =2,#,,,# =24#,,,# and =2$#,,,and one credit for ="!#,,,. Fased on this information# manufacturing overhead

a. has been overapplied.b. has been underapplied.c. has not been applied.d. shows a 7ero balance.

1,!. /hen monthly financial statements are prepared# a difference between actual overheadand overhead applied will appear ona. the balance sheet.b. the income statement.c. the statement of stoc0holders e-uity.d. none of the financial statements.

1,". /hen monthly financial statements are prepared# overapplied overhead will appear asa. unearned revenue.b. a current asset.c. a loss on the income statement under I*ther ?penses and )osses.Id. miscellaneous epense.

1,$. *verapplied overhead means that the overhead assigned to wor0 in process isa. less than the actual overhead.b. less than the estimated overhead costs.c. greater than the overhead incurred.d. greater than the estimated overhead costs.

-/)


15/48


1,+. A credit balance in the &anufacturing *verhead account at the end of the period indicatesthata. actual overhead was greater than estimated overhead costs.b. overhead was underapplied.c. actual overhead was less than estimated overhead costs.d. actual overhead was less than applied overhead.

11,. @nderapplied overhead isa. reported as unearned revenue in the balance sheet.b. added to the &anufacturing *verhead account.c. added to Cost of oods 5old.d. credited to Cost of oods 5old.

Answers to Mult%1le C2o%&e 3uest%ons

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

31. d 43. d . d !". a "+. c +1. a 1,3. c32. b 44. b !. d !$. b $,. c +2. c 1,4. c33. c 4. b ". b !+. b $1. b +3. b 1,. a34. d 4!. a $. d ",. c $2. a +4. b 1,!. a3. a 4". c +. d "1. c $3. b +. b 1,". a3!. c 4$. d !,. a "2. c $4. a +!. d 1,$. c3". b 4+. a !1. c "3. b $. c +". a 1,+. d3$. a ,. c !2. c "4. d $!. c +$. a 11,. c3+. b 1. b !3. c ". d $". a ++. c4,. d 2. d !4. a "!. d $$. b 1,,. b41. c 3. d !. a "". d $+. c 1,1. b

42. b 4. c !!. c "$. c +,. d 1,2. b

-/*


16/48


Exercises

E4. ///

A selected list of accounts used by 5loan &anufacturing Company follows;

CodeA CashF Accounts %eceivableC %aw &aterials 'nventory /or0 'n rocess 'nventory? (inished oods 'nventory( Accounts ayable (actory )abor D &anufacturing *verhead' Cost of oods 5old 5ales

5loan &anufacturing Company uses a job order system and maintains perpetual inventoryrecords.

Instru&t%onslace the appropriate code letter in the columns indicating the appropriate account8s9 to bedebited and credited for the transactions listed below.


17/48



18/48


irect )abor 84#,,, hrs J =12 per hr9 K =4$#,,,'ndirect )abor 83#,,, hrs J =$ per hr9 K 24#,,,

="2#,,,

E4. // 8cont.9

2 Applied manufacturing overhead to production based on a predetermined overheadrate of =+ per direct labor hour wor0ed.

2$ oods costing =1$#,,, were completed in the factory and were transferred to finishedgoods.

3, oods costing =1#,,, were sold for =2#,,, on account.

Solut%on // 81!E23 min.9

une 1 %aw &aterials 'nventory ..................................................... 2#,,,Accounts ayable ...................................................... 2#,,,

8urchase of raw materials on account9

$ /or0 'n rocess 'nventory .................................................. !#,,,&anufacturing *verhead .................................................... 1#,,,

%aw &aterials 'nventory ............................................. "#,,,8To record materials used9

1 &anufacturing *verhead .................................................... #1,,Cash .......................................................................... #1,,

8To record payment of factory utilities and repairs9

2 (actory )abor ...................................................................... "2#,,,(actory /ages ayable ............................................. "2#,,,

8To record factory labor costs9

2 /or0 'n rocess 'nventory .................................................. 4$#,,,&anufacturing *verhead .................................................... 24#,,,

(actory )abor ............................................................. "2#,,,8To assign factory labor to production9

2 /or0 'n rocess 'nventory .................................................. 3!#,,,&anufacturing *verhead ............................................ 3!#,,,

8To apply manufacturing overhead to production9

2$ (inished oods 'nventory ................................................... 1$#,,,/or0 'n rocess 'nventory ......................................... 1$#,,,

8To record completion of production9

3, Accounts %eceivable .......................................................... 2#,,,Cost of oods 5old ............................................................. 1#,,,

5ales .......................................................................... 2#,,,(inished oods 'nventory .......................................... 1#,,,

8To record sales of finished goods and its cost9

-/


19/48

ob *rder Cost Accounting-/


20/48


Ex. 1135elected accounts of :osar &anufacturing Company at year end appear below;

%A/ &AT?%'A)5 '>L?>T*%M /*%: '> %*C?55 '>L?>T*%M

8a9 4,#,,, 8d9 3,#,,, 8d9 3,#,,, 8g9 1,#,,,

8e9 ",#,,,8f9 +,#,,,

('>'5D? **5 '>L?>T*%MC*5T *( **5 5*)

8g9 1,#,,, 8h9 12,#,,, 8h9 12,#,,,

(ACT*%M )AF*%&A>@(ACT@%'> *L?%D?A

8b9 11,#,,, 8e9 +#,,, 8c9 "#,,, 8f9 +,#,,,8e9 2#,,,

Instru&t%ons?plain the probable transaction that too0 place for each of the items identified by letters in theaccounts. (or eample;

8a9 %aw materials costing =4,#,,, were purchased.

Solut%on //! 8+E14 min.9

8a9 %aw materials costing =4,#,,, were purchased.8b9 (actory labor costs incurred amounted to =11,#,,,.

8c9 Actual manufacturing overhead costs incurred were ="#,,,.8d9 irect materials re-uisitioned for production amounted to =3,#,,,.8e9 (actory labor used consisted of;

irect labor =",#,,,'ndirect labor 2#,,,

8f9 &anufacturing overhead applied to production was =+,#,,,.8g9 Completed goods costing =1,#,,, were transferred to finished goods inventory.8h9 (inished goods costing =12,#,,, were sold.

E4. //)

The gross earnings of factory wor0ers for in0el Company during the month of anuary are=1,,#,,,. The employers payroll taes for the factory payroll are =12#,,,. *f the total accumuBlated cost of factory labor# "G is related to direct labor and 2G is attributable to indirect labor.

Instru&t%ons8a9 repare the entry to record the factory labor costs for the month of anuary.8b9 repare the entry to assign factory labor to production.8c9 repare the entry to assign manufacturing overhead to production# assuming the

predetermined overhead rate is 12G of direct labor cost.

-0


21/48


Solut%on //) 8$E12 min.9

8a9 (actory )abor .............................................................................. 112#,,,

(actory /ages ayable ...................................................... 1,,#,,,ayroll Taes ayable ......................................................... 12#,,,

8b9 /or0 in rocess 'nventory ........................................................... $4#,,,&anufacturing *verhead ............................................................. 2$#,,,

(actory )abor ...................................................................... 112#,,,8=112#,,, J "G K =$4#,,,9

8c9 /or0 in rocess 'nventory ........................................................... 1,#,,,&anufacturing *verhead .................................................... 1,#,,,

8=$4#,,, J 12G K =1,#,,,9

E4. //*

Futler &anufacturing uses a job order cost accounting system. *n April 1# the company has /or0in rocess 'nventory of ="#!,, and two jobs in process; ob >o. 221# =3#!,,# and ob >o. 222#=4#,,,. uring April# a summary of source documents reveals the following;

(or&aterials %e-uisition 5lips )abor Time Tic0ets

ob >o. 221 =1#2,, =2#!,,222 1#",, 1#2,,

223 2#4,, 2#+,,224 2#1,, 2#$,,

eneral use !,, 4,,Totals =$#,,, =+#+,,

Futler applies manufacturing overhead to jobs at an overhead rate of !,G of direct labor cost.ob >o. 221 is completed during the month.

Instru&t%ons8a9 repare summary journal entries to record the raw materials re-uisitioned# factory labor

used# the assignment of manufacturing overhead to jobs# and the completion of ob >o.221.

8b9 Calculate the balance of the /or0 in rocess 'nventory account at April 3,.

Solut%on //* 81,E1 min.9

8a9 April 3, /or0 in rocess 'nventory ............................................ "#4,,&anufacturing *verhead ............................................... !,,

%aw &aterials 'nventory ....................................... $#,,,

-/


22/48


/or0 in rocess 'nventory ............................................ +#,,&anufacturing *verhead ............................................... 4,,

(actory )abor ....................................................... +#+,,

-


23/48


Solution 115 (cont.)/or0 in rocess 'nventory ............................................ #",,

&anufacturing *verhead ...................................... #",,8=+#,, J !,G K =#",,9

(inished oods 'nventory ............................................. $#+!,/or0 in rocess 'nventory .................................... $#+!,8=3#!,, N =1#2,, N =2#!,, N =1#!, K =$#+!,9

8b9 /or0 in rocess 'nventory# April 3, K =21#24,

ob >o. 222 = "#!2, 8=4#,,, N =1#",, N =1#2,, N ="2,9ob >o. 223 "#,4, 8=2#4,, N =2#+,, N =1#"4,9ob >o. 224 !#$, 8=2#1,, N =2#$,, N =1#!$,9

=21#24,

E4. //+

&anufacturing cost data for olan Company# which uses a job order cost system# are presentedbelow;

Case A Case Firect &aterials @sed 8a9 =1,3#,,,irect )abor = ",#,,, 14,#,,,&anufacturing *verhead Applied !3#,,, 8d9Total &anufacturing Costs 24,#,,, 8e9/or0 in rocess# 1O1O,2 8b9 4#,,,Total Cost of /or0 in rocess 3,,#,,, 8f9/or0 in rocess# 12O31O,2 8c9 4,#,,,

Cost of oods &anufactured 2,#,,, 8g9

Instru&t%ons'ndicate the missing amount for each letter. Assume that overhead is applied on the basis ofdirect labor cost and that the rate is the same for both cases.

Solut%on //+ 8+E12 min.9

Case A8a9 N =",#,,, N =!3#,,, K =24,#,,,

8a9 K =1,"#,,,

=24,#,,, N 8b9 K =3,,#,,,8b9 K =!,#,,,

=3,,#,,, E 8c9 K =2,#,,,8c9 K =+#,,,

-!


24/48

Test Ban" #or Mana$er%al A&&ount%n$' Se&on( E(%t%on-)


25/48


Solution 11 (cont.)Case F P>ote that the overhead rate from Case A is +,G 8=!3#,,, Q =",#,,,9R

=14,#,,, J +,G K 8d98d9 K =12!#,,,

=1,3#,,, N =14,#,,, N =12!#,,, K 8e98e9 K =3!+#,,,

=3!+#,,, N =4#,,, K 8f98f9 K =414#,,,

=414#,,, E =4,#,,, K 8g98g9 K =3"4#,,,

E4. //,

ray Corporation had the following transactions during its first month of operations;

1. urchased raw materials on account# =$#,,,.

2. %aw materials of =3,#,,, were re-uisitioned to the factory. An analysis of the materialsre-uisition slips indicated that =!#,,, was classified as indirect materials.

3. (actory labor costs incurred were =+#,,, of which =$4#,,, pertained to factory wagespayable and =11#,,, pertained to employer payroll taes payable.

4. Time tic0ets indicated that =$,#,,, was direct labor and =1#,,, was indirect labor.

. *verhead costs incurred on account were =+!#,,,.

!. &anufacturing overhead was applied at the rate of 1,G of direct labor cost.

". oods costing =11#,,, are still incomplete at the end of the month the other goods werecompleted and transferred to finished goods.

$. (inished goods costing =+,#,,, to manufacture were sold on account for =12,#,,,.

Instru&t%onsournali7e the above transactions for ray Corporation.

Solut%on //, 812E1" min.91. %aw &aterials 'nventory ................................................................. $#,,,

Accounts ayable .................................................................. $#,,,

2. /or0 in rocess 'nventory .............................................................. 24#,,,&anufacturing *verhead ................................................................ !#,,,

%aw &aterials 'nventory . ....................................................... 3,#,,,

3. (actory )abor ................................................................................. +#,,,(actory /ages ayable ......................................................... $4#,,,

-*


26/48


ayroll Taes ayable ........................................................... 11#,,,

Solut%on //, 8cont.9

4. /or0 in rocess 'nventory .............................................................. $,#,,,

&anufacturing *verhead ................................................................ 1#,,,(actory )abor ........................................ +#,,,

. &anufacturing *verhead ................................................................ +!#,,,Accounts ayable .................................................................. +!#,,,

!. /or0 in rocess 'nventory .............................................................. 12,#,,,&anufacturing *verhead ....................................................... 12,#,,,

8=$,#,,, J 1,G K =12,#,,,9

". (inished oods 'nventory ............................................................... 1,+#,,,/or0 in rocess 'nventory ..................................................... 1,+#,,,

8=24#,,, N =$,#,,, N =12,#,,, K =224#,,,98=224#,,, E =11#,,, K =1,+#,,,9

$. Accounts %eceivable ...................................................................... 12,#,,,5ales ..................................................................................... 12,#,,,

Cost of oods 5old ........................................................................ +,#,,,(inished oods 'nventory ...................................................... +,#,,,

E4. ///atson &anufacturing Company employs a job order cost accounting system and 0eepsperpetual inventory records. The following transactions occurred in the first month of operations;

1. irect materials re-uisitioned during the month;ob 1,1 =22#,,,ob 1,2 1!#,,,ob 1,3 24#,,,

=!2#,,,

2. irect labor incurred and charged to jobs during the month was;ob 1,1 =3,#,,,

ob 1,2 2!#,,,ob 1,3 2,#,,,

="!#,,,

3. &anufacturing overhead was applied to jobs wor0ed on using a predetermined overhead ratebased on "G of direct labor costs.

4. Actual manufacturing overhead costs incurred during the month amounted to =!!#,,,.

-+


27/48


. ob 1,1 consisting of 1#,,, units and ob 1,3 consisting of 2,, units were completed duringthe month.

-,


28/48


Ex. 11! (cont.)Instru&t%ons8a9 repare journal entries to record the above transactions.8b9 Answer the following;

1. Dow much manufacturing overhead was applied to ob 1,3 during the month6

2. Compute the unit cost of obs 1,1 and 1,3.3. /hat is the balance in /or0 'n rocess 'nventory at the end of the month64. etermine if manufacturing overhead was underB or overapplied during the month. Dow

much6

Solut%on // 81E2, min.9

8a9 1. /or0 in rocess 'nventory ...................................................... !2#,,,%aw &aterials 'nventory ................................................. !2#,,,

2. /or0 in rocess 'nventory ...................................................... "!#,,,

(actory )abor ................................................................. "!#,,,

3. /or0 in rocess 'nventory ...................................................... "#,,,&anufacturing *verhead ................................................ "#,,,

4. &anufacturing *verhead ......................................................... !!#,,,Cash# ayables# etc. ....................................................... !!#,,,

. (inished oods 'nventory ....................................................... 133#,,/or0 in rocess 'nventory .............................................. 133#,,

Pob 1,1 ="4#,, ob 1,3 =+#,,,


29/48


E4. //

The following inventory information is available for %icci &anufacturing Corporation for the yearended ecember 31# 2,,2;

Feginning ?nding'nventories;

%aw materials =1"#,,, =1+#,,,/or0 in process +#,,, 14#,,,(inished goods 11#,,, $#,,,

Total =3"#,,, =41#,,,

'n addition# the following transactions occurred in 2,,2;1. %aw materials purchased on account# ="#,,,.2. 'ncurred factory labor# =$,#,,,# all is direct labor. 8Credit (actory /ages ayable9.3. 'ncurred the following overhead costs during the year; @tilities =!#$,,# epreciation on

manufacturing machinery =$#,,,# &anufacturing machinery repairs =!#2,,# (actory insurance

=+#,,, 8Credit Accounts ayable and Accumulated epreciation9.4. Assigned =$,#,,, of factory labor to jobs.. Applied =32#,,, of overhead to jobs.

Instru&t%ons8a9 ournali7e the above transactions.8b9 %eproduce the manufacturing cost and inventory accounts. @se TBaccounts.8c9 (rom an analysis of the accounts# compute the following;

1. %aw materials used.2. Completed jobs transferred to finished goods.3. Cost of goods sold.4. @nderB or overapplied overhead.

Solut%on // 81!E22 min.9

8a9 1. %aw &aterials 'nventory .......................................................... "#,,,Accounts ayable ........................................................... "#,,,

2. (actory )abor .......................................................................... $,#,,,(actory /ages ayable .................................................. $,#,,,

3. &anufacturing *verhead ......................................................... 3,#,,,Accounts ayable ........................................................... 22#,,,

Accumulated epreciation .............................................. $#,,,4. /or0 in rocess 'nventory ...................................................... $,#,,,

(actory )abor ................................................................. $,#,,,

. /or0 in rocess 'nventory ...................................................... 32#,,,&anufacturing *verhead ................................................ 32#,,,

8b9%aw &aterials 'nventory /or0 in rocess 'nventory

Fal. 1"#,,, Fal. +#,,,

-


30/48


819 "#,,, 849 $,#,,,Fal. 1+#,,, 89 32#,,,

Fal. 14#,,,

Solut%on // 8cont.9

(inished oods 'nventory (actory )abor Fal. 11#,,, 829 $,#,,, 849 $,#,,,

$#,,,

&anufacturing *verhead Cost of oods 5old

839 3,#,,, 89 32#,,,

8c9 1. %aw materials used K =1"#,,, N ="#,,, E =1+#,,, K ="3#,,,.

2. Completed jobs transferred to finished goods K /O debits=+#,,, N =112#,,, E =14#,,, K =1,"#,,,.

3. Cost of goods sold K =11#,,, N =1,"#,,, E =$#,,, K =11,#,,,.

4. *verhead overapplied K =2#,,, 8credit balance in &anufacturing *verhead9.

E4. /0

ob cost sheets for Doward &anufacturing are as follows;

ob >o 21, Suantity 1#,,

&anufacturing ate irect &aterials irect )abor *verheaduly 1 "#,,, $#,,, 12#,,,

$ "#$,,1, 1,#,,,1 !#,,2 1#,,,

ob >o 211 Suantity 1#2,,

&anufacturing ate irect &aterials irect )abor *verheaduly 1 4#,,, !#,,, +#,,,

1, +#,,,1 $#,,,2, "#,,,2" 12#,,,

-!0


31/48


Ex. 1"# (cont.)Instru&t%ons8a9 Answer the following -uestions;

1. /hat was the balance in /or0 in rocess 'nventory on uly 1 if these were the onlyunfinished jobs6

2. /hat was the predetermined overhead rate in une if overhead was applied on the basisof direct labor cost6

3. 'f uly is the start of a new fiscal year and the overhead rate is 2,G higher than in thepreceding year# how much overhead should be applied to ob 21, in uly6

4. Assuming ob 21, is complete# what is the total and unit cost of the job6

. Assuming ob 211 is the only unfinished job at uly 31# what is the balance in /or0 inrocess 'nventory on this date6

8b9 ournali7e the summary entries to record the assignment of costs to the jobs in uly.8Note:&a0e one entry in total for each manufacturing cost element.9

Solut%on /0 81E2, min.9

8a9 1. ob 21, < ="#,,, N =$#,,, N =12#,,, K =2"#,,,ob 211 < =4#,,, N =!#,,, N =+#,,, K 1+#,,,

=4!#,,,

2. &anufacturing overhead rate K 1,G of direct labor cost 8=12#,,, Q =$#,,,or =+#,,, Q =!#,,,9

3. uly overhead rate K 1,G J 12,G K 1$,G*verhead applied in uly K =2#,,, J 1$,G K =4#,,,

4. irect materials = 21#3,,irect labor 33#,,,&anufacturing overhead 8=12#,,, N =4#,,,9 "#,,,Total cost =111#3,,

@nit cost 8=111#3,, Q 1#,,9 ="4.2,

. irect materials =2,#,,,irect labor 2!#,,,

&anufacturing overhead 8=+#,,, N =3!#,,,9 4#,,,Total cost of wor0 in process =+1#,,,

8b9 /or0 in rocess 'nventory............................................................. 3,#3,,%aw &aterials 'nventory........................................................ 3,#3,,

/or0 in rocess 'nventory............................................................. 4#,,,(actory )abor........................................................................ 4#,,,

/or0 in rocess 'nventory............................................................. $1#,,,&anufacturing *verhead....................................................... $1#,,,

-!/


32/48


E4. //

arner Company begins operations on uly 1# 2,,2. 'nformation from job cost sheets shows thefollowing;

&anufacturing Costs Assigned

ob >o. uly August 5eptember

1,, =12#,,, =$#$,,1,1 "#$,, +#",, =12#,,,1,2 #,,,1,3 11#$,, !#,,,1,4 #$,, "#,,,

ob 1,2 was completed in uly. ob 1,, was completed in August# and obs 1,1 and 1,3 were

completed in 5eptember. ?ach job was sold for !,G above its cost in the month following

completion.

Instru&t%ons

8a9 Compute the balance in /or0 in rocess 'nventory at the end of uly.8b9 Compute the balance in (inished oods 'nventory at the end of 5eptember.8c9 Compute the gross profit for August.

Solut%on // 81,E13 min.9

8a9 /or0 in rocess 'nventoryuly ob 1,, =12#,,,

ob 1,1 "#$,,

Falance# uly 31 =1+#$,,

8b9 (inished oods 'nventoryob 1,1 =2+#,,ob 1,3 1"#$,,

Falance# 5ept. 3, =4"#3,,

8c9 ross rofit&onth ob >umber 5ales C*5 ross rofit

August 1,2 =$#,,, =#,,, =3#,,,

E4. /

The accounting records of %oland &anufacturing Company include the following information;

ec. 31 an. 1/or0 in process inventory = 2,#,,, = ,#,,,(inished goods inventory 12,#,,, 14,#,,,irect materials used 3,#,,,irect labor 1!,#,,,5elling epenses 12#,,,

-!


33/48


&anufacturing overhead is applied at a rate of 1,G of direct labor cost.

-!!


34/48


Ex. 1"" (cont.)Instru&t%ons

Answer the following -uestions;1. /hat are the total of the debits to /or0 in rocess 'nventory during the year62. /hat is the amount transferred to (inished oods 'nventory during the year6

3. /hat is the cost of goods sold6

Solut%on / 81,E14 min.9

1. irect &aterials = 3,#,,,irect )abor 1!,#,,,&anufacturing *verhead Applied 8=1!,#,,, J 1,G9 24,#,,,

Total debits =",#,,,

2. /*%: '> %*C?55 '>L?>T*%M

Falance ,#,,, Transferred to(rom 819 ",#,,, (inished oods "$,#,,,Falance 2,#,,,

3. ('>'5D? **5 '>L?>T*%M

Falance 14,#,,, Cost of oods 5old $,,#,,,(rom /' 8see 29 "$,#,,,Falance 12,#,,,

E4. /!

5toll &anufacturing# 'nc. uses a job order costing system. The company uses predeterminedoverhead rates in applying manufacturing overhead to individual jobs. The predeterminedoverhead rate in epartment is based on direct labor hours# the rate in epartment M is basedon machine hours# and the rate in epartment U is based on direct labor cost. At the beginning ofthe most recent year# members of 5tolls management team made the following estimates for theyear; epartment

M Uirect labor hours $,#,,, 2!#,,, !,#,,,&achine hours ,#,,, $#,,, 23#,,,

irect labor cost =4,,#,,, =1,#,,, =$,,#,,,irect materials =2,,#,,, = 2!#,,, = 42#,,,&anufacturing overhead =!,#,,, =34,#,,, =24,#,,,

a. Compute the predetermined overhead rates for epartments # M# and U.

-!)


35/48


Ex. 1"3 (cont.)b. 5toll &anufacturings records show the following information for ob V!$4# which was

entered into production on anuary 1" and completed on &arch ".

epartment M U

irect labor hours 42, 4 3"&achine hours 2,, 12, 12irect labor cost =2#4,, =1#,$, =1#3+,irect materials = $42 =1#2!, =2#,!

Compute the total manufacturing overhead applied to ob V!$4.

c. *n ecember 31# 5toll showed the following actual costs and operating data for all jobswor0ed on during the year;

epartment M U

irect labor hours "!#,,, 2$#+2, !3#,,,

&achine hours 4#,,, $"#2,, 21#,,,irect labor cost =3+#2,, =13$#,,, =$1#,,,irect materials =21#+,, = 24#3$, = 3+#,$,&anufacturing overhead =4,#,,, =34#,,, =24#,,,

Compute the amount of underB or overapplied overhead in each department at the end of theyear and indicate whether it is underB or overapplied.

Solut%on /! 81E2, min.9

a. redetermined overhead rates for epartments # M# and U;

epartment < =!,#,,, Q $,#,,, direct labor hours K =" per direct labor hourepartment M < =34,#,,, Q $#,,, machine hours K =4 per machine hourepartment U < =24,#,,, Q =$,,#,,, direct labor cost K 3,G of direct labor cost

b. epartment < 42, direct labor hours J =" per direct labor hour K =2#+4,epartment M< 12, machine hours J =4 per machine hour K 4$,epartment U < =1#3+, direct labor cost J 3,G K 41"

Total overhead applied to ob V!$4 K =3#$3"c. epartment < "!#,,, )D J =" K =32#,,,

compared to actual overhead =4,#,,, E =$#,,, underapplied

epartment M < $"#2,, &D J =4 K =34$#$,,compared to actual overhead =34#,,, E =3#$,, overapplied

epartment U < =$1#,,, )C J 3,G K =244#,,compared to actual overhead =24#,,, E =+#,, underapplied

-!*


36/48


E4. /)

&r. . . igg# ''' is the sole owner of a bric0 company that manufactures custom bric0s used inupscale homes. >o two customers have the same type of bric0s. The bric0s go through threeprocesses; miing# shaping# and firing. The company uses a job order cost system and computesa predetermined overhead rate in each department. The miing department bases its rate on

direct materials# the shaping department bases its rate on machine hours# and the firingdepartment bases its rate on direct labor hours. At the beginning of the year# the company madethe following estimates;

epartment&iing 5haping (iring

irect labor hours $,#,,, 4#,,, !,#,,,&achine hours 3,#,,, ",#,,, 21#,,,irect materials =3,,#,,, = 4,#,,, =1#,,,&anufacturing overhead =1,#,,, =14,#,,, ="#,,,

a. Compute the predetermined overhead rate to be used in each department during theupcoming year.

b. Assume the overhead rates that you computed in a. above are in effect. Compute the totaloverhead cost to be assigned to r. 5nouts order


37/48


Ex. 1"5)andis Company uses a job order cost system in each of its two manufacturing departments.&anufacturing overhead is applied to jobs on the basis of direct labor cost in epartment A andmachine hours in epartment F.

'n establishing the predetermined overhead rates for 2,,2# the following estimates were made forthe year; epartment

A F

&anufacturing overhead =2#1,,#,,, =1#!,,#,,,irect labor cost 1#2,,#,,, 1#2,,#,,,irect labor hours 1,,#,,, 1,,#,,,&achine hours 2,,#,,, 4,,#,,,

uring anuary# the job cost sheet showed the following costs and production data;

epartment

A F

irect materials used =1+#,,, =12$#,,,irect labor cost 1,,#,,, 11,#,,,&anufacturing overhead incurred 1$,#,,, 13#,,,irect labor hours $#,,, $#4,,&achine hours 1!#,,, 34#,,,

Instru&t%ons8a9 Compute the predetermined overhead rate for each department.8b9 Compute the total manufacturing cost assigned to jobs in anuary in each department.8c9 Compute the balance in the &anufacturing *verhead account at the end of anuary and

indicate whether overhead is overB or underapplied.

Solut%on /* 81E2, min.9

8a9 redetermined overhead rates;

epartment A 8using direct labor cost9; =2#1,,#,,, Q =1#2,,#,,, K 1"G

epartment F 8using machine hours9; =1#!,,#,,, Q 4,,#,,, K =4 per machine hour

8b9 Total manufacturing costs by department;epartment A;

irect materials =1+#,,,

irect labor cost 1,,#,,,&anufacturing overhead applied 8=1,,#,,, J 1"G9 1"#,,,Total manufacturing costs =4",#,,,

epartment F;irect materials =12$#,,,irect labor cost 11,#,,,

&anufacturing overhead applied 834#,,, hrs. J =49 13!#,,,Total manufacturing costs =3"4#,,,

-!,


38/48

Test Ban" #or Mana$er%al A&&ount%n$' Se&on( E(%t%on-!


39/48


Solution 1"5 (cont.)8c9 &A>@(ACT@%'> *L?%D?A

ept. A 1$,#,,, ept. A 1"#,,,ept. F 13#,,, ept. F 13!#,,,

31#,,, 311#,,,

Fal. @nderapplied 4#,,,

E4. /+

?dwards Company applies manufacturing overhead to jobs on the basis of machine hours used.*verhead costs are epected to total =+,,#,,, for the year# and machine usage is estimated at2,,#,,, hours.

'n anuary# =+3#,,, of overhead costs are incurred and 22#,,, machine hours are used. (or the

remainder of the year# =+"4#,,, of additional overhead costs are incurred and 214#,,, additionalmachine hours are wor0ed.

Instru&t%ons8a9 Compute the manufacturing overhead rate for the year.8b9 /hat is the amount of overB or underapplied overhead at anuary 316 Dow should this

amount be reported in the financial statements prepared on anuary 3168c9 /hat is the amount of overB or underapplied overhead at ecember 316

Solut%on /+ 811E14 min.9

8a9 =4., per machine hour 8=+,,#,,, Q 2,,#,,,9

8b9 'ncurred =+3#,,,Applied 8=4., J 22#,,,9 ++#,,,*verapplied overhead = !#,,,

This amount should be reported as an unearned revenue in the current liability section ofthe anuary 31 balance sheet.

8c9 'ncurred 8=+3#,,, N =+"4#,,,9 =1#,!"#,,,Applied 8=4., J 23!#,,,9 1#,!2#,,,

@nderapplied overhead = #,,,

E4. /,

:linger Company estimates that annual manufacturing overhead costs will be =1#$,,#,,, for2,,2. The actual overhead costs at the end of 2,,2 are =1#"+,#,,,. Activity base information for2,,2 follows;

Activity Fase ?stimated Actual

-!


40/48


irect )abor Cost =2#,,,#,,, =2#1,,#,,,irect )abor Dours 1$,#,,, 1+,#,,,&achine Dours 2,,#,,, 1+2#,,,

E4. /, 8cont.9

Instru&t%ons8a9 Compute the predetermined overhead rate for each activity base.8b9 Compute the amount of overhead applied in 2,,2 for each activity base.8c9 Compute the amount of underB or overapplied overhead for 2,,2 for each activity base.

Solut%on /, 812E1! min.9

8a9 redetermined *verhead rate as a G of direct labor cost;=1#$,,#,,, Q =2#,,,#,,, K +,G

redetermined *verhead rate per hour of direct labor;=1#$,,#,,, Q 1$,#,,, K =1,.,, per hour

redetermined *verhead rate per machine hour used;=1#$,,#,,, Q 2,,#,,, K =+.,, per machine hour

8b9 *verhead applied as a G of direct labor cost; 8c9 *verB or @nderapplied *verhead=2#1,,#,,, J .+, K =1#$+,#,,, 8=1#$+,#,,, E =1#"+,#,,, K

=1,,#,,, *verapplied9*verhead applied per hour of direct labor;1+,#,,, J =1,.,, K =1#+,,#,,, =1#+,,#,,, E =1#"+,#,,, K

=11,#,,, *verapplied9

*verhead applied per machine hour used;1+2#,,, J =+.,, K =1#"2$#,,, 8=1#"2$#,,, E =1#"+,#,,, K

=!2#,,, @nderapplied9

E4. /

@ric0 &anufacturing Company ma0es specialty tools. 'n anuary# @ric0 incurs manufacturingcosts of =12#,,,#,,, for direct materials# direct labor# and overhead. 2G of the total costsrepresents overhead applied. The overhead rate is =1 for every =2 of direct labor costs incurred.'nventory balances were;

anuary 1 anuary 31 %aw materials =4,,#,,, =!,,#,,, /or0 in process !,,#,,, $,,#,,, (inished goods 4,,#,,, ,,#,,,

At the end of anuary# there was =1#,,, of overapplied overhead.

Instru&t%ons8a9 etermine the cost of raw materials purchased in anuary.8b9 repare a cost of goods manufactured schedule for anuary 2,,2.8c9 Compute the cost of goods sold for anuary.

-)0


41/48

ob *rder Cost Accounting-)/


42/48


Solution 1"! (15$"# %in.)8a9 *verhead applied 8=12#,,,#,,, J 2G9 K =3#,,,#,,,

irect labor used 8=2 J =3#,,,#,,,9 K =!#,,,#,,,irect materials used 8=12#,,,#,,, E =+#,,,#,,,9 K =3#,,,#,,,

?nding raw materials inventory = !,,#,,,irect materials used 3#,,,#,,,3#!,,#,,,

)ess; Feginning raw materials inventory 4,,#,,,%aw materials purchases =3#2,,#,,,

8b9 @%'C: &A>@(ACT@%'> C*&A>MCost of oods &anufactured 5chedule(or the &onth ?nded anuary 31# 2,,2


43/48


Solut%on / 814E1$ min.9

8a9 DA>5*> C*&A>MCost of oods &anufactured 5chedule

(or the Mear ?nded ecember 31# 2,,2

/or0 in process# anuary 1 = !#,,,irect material used = ",#,,,irect labor ,#,,,&anufacturing overhead applied 1,,#,,,

Total manufacturing costs 22,#,,,Total cost of wor0 in process 22!#,,,)ess; /or0 in process# ecember 31 $#,,,Cost of goods manufactured =21$#,,,

8b9

DA>5*> C*&A>M8artial9 'ncome 5tatement

(or the Mear ?nded ecember 31# 2,,2

5ales =3,#,,,Cost of oods 5old

(inished oods# anuary 1 = 14#,,,Cost of goods manufactured 21$#,,,Cost of goods available for sale 232#,,,(inished oods# ecember 31 1,#,,,Cost of goods sold 222#,,,

ross profit =12$#,,,

-)!


44/48


COMPLETION ST&TEMENTS

13,. Cost accounting involves the measuring# recording# and reporting of WWWWWWWWWWWWWW

costs.

131. There are two basic types of cost accounting systems; 819WWWWWWWWWWWWWWWWWW system#

and 829WWWWWWWWWWWWWWWWWW system.

132. A WWWWWWWWWWWWWW cost system is appropriate when homogeneous products are

continuously produced# whereas a WWWWWWWWWWWWWW cost system would be more

appropriate if the product is customBmade.

133. 'n a job order system# raw materials purchased are charged to the WWWWWWWWWWWWWW

account.

134. *f these three accounts %aw &aterials 'nventory# (actory )abor# and &anufacturing

*verhead# WWWWWWWWWWWWWW is not a control account.

13. 'f =3,#,,, direct materials are re-uisitioned for a job and ="#,,, of indirect materials are

re-uisitioned for general use# the debit to /or0 'n rocess 'nventory should be for

=WWWWWWWWWWWWWW.

13!. The cost of producing a particular job under a job cost system is accumulated on a record

called a WWWWWWWWWWWWWWWWWWW.

13". &anufacturing overhead is applied to jobs by means of a WWWWWWWWWWWWWWWWWWW rate.

13$. 'f actual manufacturing overhead was greater than the amount of manufacturing overhead

applied to jobs# the &anufacturing *verhead account will have a WWWWWWWWWWW balanceand overhead is said to be WWWWWWWWWWWWWW.

13+. At the end of the year# any balance in the &anufacturing *verhead account should be

eliminated as an adjustment to WWWWWWWWWWWWWWWWWWW.

Answers to Com1let%on Statements

13,. product131. job order cost# process cost132. process# job order133. %aw &aterials 'nventory134. (actory )abor13. 3,#,,,13!. job cost sheet13". predetermined overhead13$. debit# underapplied13+. cost of goods sold

-))


45/48


MATC5ING

14,. &atch the items in the two columns below by entering the appropriate code letter in thespace provided.

A. Cost accounting (. rocess cost system

F. &aterials re-uisition slip . ob cost sheetsC. Time tic0et D. redetermined overhead rate. Cost accounting system '. *verapplied overhead?. ob order cost system . @nderapplied overhead

WWWW 1. @sed to apply manufacturing overhead to jobs.

WWWW 2. &easures# records# and reports product costs.

WWWW 3. /hen actual manufacturing overhead costs are greater than the overhead applied toproducts.

WWWW 4. &anufacturing cost accounts are fully integrated into the general ledger.

WWWW . 5ource document which authori7es issuance of raw materials to production.

WWWW !. Appropriate when products have distinguishing and heterogeneous characteristics.

WWWW ". Constitute a subsidiary ledger for /or0 in rocess 'nventory.

WWWW $. 'ndicates number of hours that employees wor0 and the account to be charged.

WWWW +. Appropriate when products are homogeneous and are produced continuously.

WWWW 1,. /hen actual manufacturing overhead costs are less than the overhead applied toproducts.

Answers to Mat&2%n$

1. D !. ?2. A ".

3. $. C4. +. (. F 1,. '

-)*


46/48


SHO'T&NSE' ESS&* QUESTIONS

S-A E /)/

A job order cost accounting system is fully integrated into the general ledger of a company.'dentify the major general ledger accounts used in a job order cost system. ?plain how

manufacturing costs flow through these accounts so that inventories may be costed and incomedetermined when goods are sold.

Solut%on /)/

/hen a job order cost accounting system is fully integrated into the general ledger of a company#the major general ledger accounts used are %aw &aterials 'nventory# (actory )abor#&anufacturing *verhead# /or0 in rocess 'nventory# and (inished oods 'nventory. Asmanufacturing costs are incurred# they are debited to the %aw &aterials 'nventory# (actory )abor#and &anufacturing *verhead accounts. As materials are used# labor is assigned# or overhead isapplied# the costs are ta0en out of these accounts and debited to /or0 in rocess 'nventory./hen jobs are finished# the costs flow from the /or0 in rocess 'nventory account to the(inished oods 'nventory account# and when jobs are sold# the costs are transferred to Cost ofoods 5old from (inished oods 'nventory.

S-A E /)

&anufacturing overhead items are indirect product costs that cannot be traced to individualproducts. ?plain how manufacturing overhead costs are accumulated and how they areassigned to products in a job order cost system.

Solut%on /)

As manufacturing overhead costs are incurred# they are debited to the &anufacturing *verheadaccount. As jobs move through the factory# manufacturing overhead costs are applied to specific

jobs using the predetermined overhead rate. This rate is computed prior to the beginning of theyear by dividing estimated annual overhead costs by epected annual operating activity8generally epressed as direct labor hours# direct labor cost# or machine hours9. The overhead isapplied by determining how much activity was epended on a particular job 8for eample# directlabor hours9# and applying the rate to that activity.

S-A E /)! 8?thics9

eople Carrier 5ystems# 'nc. 8C59 modifies vans that seat 1E2, people by adding additionalsafety features or wheelchair ramps. &ost of its customers are cities and counties# who use thevans to transport school children# the elderly# or the handicapped. The company has speciali7edin a noBfrills approach# emphasi7ing safety# high -uality# and low cost. The companys presidentwas -uoted as saying# I)et the other guys ma0e a van pretty. /e get people where they need togo


47/48


The company obtains jobs by being the lowest bidder in a sealed bidding process. %ecently# thecompany was solicited to submit a bid for a topB1, college# for a van to be used by its athleticteam. 5ome speciali7ed items were re-uired# such as the schools logo on the outside of the van#and the vinyl seats had to be covered in school colors. The company submitted a bid# and wasvery surprised to obtain it.

S-A E /)! 8cont.9

/hen the job was being prepared# the job manager pointed out that several etra costs couldresult in this job showing a loss. The boss# an ardent supporter of sports in general and this teamin particular# told the manager to just record the standard labor and overhead cost for this job. Desays that they could use the present rate for speciali7ed jobs# and increase the overheadapplication rate 8used in submitting bids9 by G for future routine jobs. IAfter all#I he says#Inobody else comes close to our price anyway. This could start a whole new line of business forus.I

Re6u%re(7

1. /ho are the sta0eholders in the decision to increase overhead for routine jobs6

2. 's the decision to subsidi7e special jobs by increasing the overhead rate on routine jobsethical6 Friefly eplain.

Solut%on /)!

1. The sta0eholders include;

The employees and managers of C5

Customers who purchase standard vans

Customers who purchase sports vans

5hareholders of C5

2. The decision could be considered ethical# if the company clearly understands that it isallowing the customers of the standard vans to cover some of the costs of the specialty ones.This might not be a bad decision# especially if the specialty business is only a small fraction ofthe total business.

The company might be compromising its own best interests# however# if it arbitrarily damagesrelationships with eisting customers in order to gain others. 't seems undeniable thatestablished customers are preferable to untested ones. Thus# the decision# while probablyethical# may not be a good decision.

S-A E /)) 8Communication9

Fridal Treasures# 'nc. ma0es customi7ed wedding gowns. The customer selects a pattern for thebasic gown# and then selects fabric and trim. *nce the design and the materials have beenagreed upon# a 5tatement of ?stimated Cost is signed by the company and by the customer.

*verhead is applied based on the number of days a gown is in process. @sually# five gowns arebeing wor0ed on at a time. Therefore# each gown is charged 1O of a daily estimated overheadamount.

-),


48/48


Customer %uth (inneys wedding dress too0 four days to complete. Dowever# after the first threedays had elapsed# iane )ange# a movie personality# suddenly decided to get married# andordered a very lavish gown. All other wor0 was suspended# and the wor0 on &s. (inneys dresswas delayed si days. The final day of its construction was on the tenth day after it had beenbegun.

Re6u%re(7Mou are the accounting manager for Fridal Treasures. /rite a memo to the billing department.'nstruct them as to the appropriate number of overhead days to charge to &s. (inneys account.

Solut%on /))

T*; Filling epartment

(%*&; &. )ong# Accounting &anager

%?; *verhead billing# (inney account

As you 0now# our standard procedure in billing overhead is to simply multiply ourdaily overhead rate by the number of days the gown was in our possession.Dowever# for the (inney gown# and any other jobs we suspended for the iane)ange gown# we should not charge for the days the gowns were in our possessionbut not being wor0ed on.

/e should adjust the billing for the iane )ange gown# so that it absorbs the fulldaily cost of overhead# since it actually was the only job wor0ed on during thosesi days. The (inney job should be charged only four days of overhead. *thersuspended jobs should be treated similarly.

lease call if you have -uestions.

8signed9

-)

Documents

Job Order Costing