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4.E: Job Order Costing (Exercises)

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    Multiple Choice

    1. Which of the following product situations is better suited to job order costing than to process costing?
      1. Each product batch is exactly the same as the prior batch.
      2. The costs are easily traced to a specific product.
      3. Costs are accumulated by department.
      4. The value of work in process is based on assigning standard costs.
    Answer:

    b

    1. A job order costing system is most likely used by which of the following?
      1. a pet food manufacturer
      2. a paper manufacturing company
      3. an accounting firm specializing in tax returns
      4. a stereo manufacturing company
    2. Which of the following is a prime cost?
      1. indirect materials
      2. direct labor
      3. administrative expenses
      4. factory depreciation expenses
    Answer:

    b

    1. Which of the following is a conversion cost?
      1. raw materials
      2. direct materials
      3. administrative expenses
      4. factory depreciation expenses
    2. During production, to what are the costs in job order costing applied?
      1. manufacturing overhead
      2. cost of goods sold
      3. each individual product
      4. each individual department
    Answer:

    c

    1. Which document lists the inventory that will be removed from the raw materials inventory?
      1. job cost sheet
      2. purchase order
      3. materials requisition form
      4. receiving document
    2. Which document shows the cost of direct materials, direct labor, and overhead applied for each specific job?
      1. job cost sheet
      2. purchase order
      3. materials requisition form
      4. receiving document
    Answer:

    a

    1. Which document lists the total direct materials used in a specific job?
      1. job cost sheet
      2. purchase order
      3. materials requisition form
      4. receiving document
    2. Which document lists the total direct labor used in a specific job?
      1. job cost sheet
      2. purchase order
      3. employee time ticket
      4. receiving document
    Answer:

    a

    1. Assigning indirect costs to specific jobs is completed by which of the following?
      1. applying the costs to manufacturing overhead
      2. using the predetermined overhead rate
      3. using the manufacturing costs incurred
      4. applying the indirect labor to the work in process inventory
    2. In a job order cost system, which account shows the overhead used by the company?
      1. work in process inventory
      2. finished goods inventory
      3. cost of goods sold
      4. manufacturing overhead
    Answer:

    d

    1. In a job order cost system, raw materials purchased are debited to which account?
      1. raw materials inventory
      2. work in process inventory
      3. finished goods inventory
      4. cost of goods sold
    2. In a job order cost system, overhead applied is debited to which account?
      1. work in process inventory
      2. finished goods inventory
      3. manufacturing overhead
      4. cost of goods sold
    Answer:

    a

    1. In a job order cost system, factory wage expense is debited to which account?
      1. raw materials inventory
      2. work in process inventory
      3. finished goods inventory
      4. cost of goods sold
    2. In a job order cost system, utility expense incurred is debited to which account?
      1. work in process inventory
      2. finished goods inventory
      3. manufacturing overhead
      4. cost of goods sold
    Answer:

    c

    1. In a job order cost system, indirect labor incurred is debited to which account?
      1. work in process inventory
      2. finished goods inventory
      3. manufacturing overhead
      4. cost of goods sold
    2. The activity base for service industries is most likely to be ________.
      1. machine hours
      2. administrative salaries
      3. direct labor cost
      4. direct labor hours
    Answer:

    d

    Questions

    1. A printing company manufactures notebooks of various sizes. The company manufactures \(3,000\) notebooks each day. Should the company use process costing or job order costing?
    Answer:

    The company should use process costing. Since there are many similar items, process costing is a better fit than job order costing.

    1. Burnham Industries incurs these costs for the month:
    A list of costs reads “Direct materials $2,000”, “Direct labor 3,000”, “Factory depreciation expense 3,500”, “Utility expense 750”, “CEO’s salary 4,000”.

    What is the prime cost?

    1. Choco’s Chocolates incurs these costs for the month:
    A list of costs reads “Direct materials $15,000”, “Direct labor 25,000”, “Factory depreciation expense 45,000”, “Utility expense 2000”, “Payroll staff’s salary 15,000”.

    What is the conversion cost?

    Answer:

    The conversion cost is \(\$72,000\): the sum of direct labor, factory depreciation expense, and utility expense.

    1. How do job order costing and process costing differ with respect to recording direct materials and direct labor?
    2. Why are product costs assigned to the product and period costs immediately expensed?
    Answer:

    The expense recognition principle requires that expenses follow the revenue. Product costs are assigned to the product because they are associated with the revenue from the sale of the product. The cost is transferred from inventory to cost of goods sold when the item is sold. This matches the revenue from the sale with the cost of the item being sold. Period costs are expensed when incurred because they are not related to a specific product but are instead related to the time period in which revenue is earned.

    1. Is the cost of goods manufactured the same as the cost of goods sold?
    2. From beginning to end, place these items in the order of the flow of goods.
      1. cost of goods sold
      2. raw materials inventory
      3. finished goods inventory
      4. work in process inventory
    Answer:

    b, d, c, a

    1. How is the predetermined overhead rate determined?
    2. How is the predetermined overhead rate applied?
    Answer:

    Management uses the activity considered to be the cost driver and multiplies that rate by the activity for each specific job. The result is the amount of overhead applied to that specific job.

    1. Why are the overhead costs first accumulated in the manufacturing overhead account instead of in the work in process inventory account?
    2. Why is the manufacturing overhead account debited as expenses are recognized and then credited when overhead is applied?
    Answer:

    Expenses normally have a debit balance, and the manufacturing overhead account is debited when expenses are incurred to recognize the incurrence. When the expenses are allocated to the asset, the work in process inventory, the expense account manufacturing overhead is credited. This is in accordance with the expense recognition principle. The timing of the expense follows the revenue, and when the costs are allocated to inventory, they become a part of the product’s cost and are recognized when the asset is sold.

    1. Match the concept on the left to its correct description.
    a. job order costing i. computes the overhead applied to each job
    b. materials requisition sheet ii. source document indicating the number of hours an employee worked on specific jobs
    c. overapplied overhead iii. source document indicating the raw materials assigned to a specific production job
    d. predetermined overhead rate iv. the cost accounting system used by pet food manufacturers
    e. process costing v. the cost accounting system used by law firms
    f. time ticket vi. the result when the actual overhead is less than the amount assigned to each specific job
    G. underapplied overhead vii. the result when the actual overhead is more than the amount assigned to each specific job
    1. When compared to manufacturing companies, service industries do not generally use ________ as a component of product cost.
    Answer:

    direct materials

    Exercise Set A

    1. Little Things manufactures toys. For each item listed, identify whether it is a product cost, a period cost, or not an expense.
      1. internet provider services
      2. material expense
      3. raw materials inventory
      4. production equipment rental
      5. showroom rental
      6. factory employee salary
      7. Human Resource Director salary
    2. Table 4.E.1 shows a list of expenses involved in the production of custom, professional lacrosse sticks.
      1. For each item listed, state whether the cost should be applied to manufacturing or sales and administration.
      2. If the cost is a manufacturing cost, state whether it is direct materials, direct labor, or manufacturing overhead.
      3. If the cost is a manufacturing overhead cost, state whether it is indirect materials, indirect labor, or another type of manufacturing overhead.
    Table 4.E.1: Expenses Involved in Lacrosse Stick Production
    Lacrosse Stick Production Costs Manufacturing or Sales & Administration Cost? If Manufacturing: Direct Materials, Direct Labor, or Overhead? If Overhead: Indirect Materials, Indirect Labor, or Other?
    Carbon, fiberglass      
    Administrative building rent      
    Accountant salary      
    Factory building depreciation      
    Strings for the pocket      
    Advertising      
    Production supervisor salary      
    Paint for sticks      
    Research and development costs      
    Wages of person who strings the sticks      
    Cutting machine depreciation      
    Human resources salaries      
    Factory maintenance      
    1. Burnham Industries incurs these costs for the month:
    A list of costs reads “Direct materials, $2,000”, “Direct labor, 3,000”, “Factory depreciation expense, 3,500”, “Factory utilities expense, 750”, “CEO’s salary, 4,000”.
    1. What is the prime cost?
    2. What is the conversion cost?
    1. Marzoni’s records show raw materials inventory had a beginning balance of \(\$200\) and an ending balance of \(\$300\). If the cost of materials used during the month was $900, what were the purchases made during the month?
    2. Sterling’s records show the work in process inventory had a beginning balance of \(\$4,000\) and an ending balance of \(\$3,000\). How much direct labor was incurred if the records also show:
    Figure lists Materials used as $1,500, Overhead Applied as 500, and Cost of Goods Manufactured as 7500.
    1. Logo Gear purchased \(\$2,250\) worth of merchandise during the month, and its monthly income statement shows cost of goods sold of \(\$2,000\). What was the beginning inventory if the ending inventory was \(\$1,000\)?
    2. A company estimates its manufacturing overhead will be \(\$750,000\) for the next year. What is the predetermined overhead rate given the following independent allocation bases?
      1. Budgeted direct labor hours: \(60,000\)
      2. Budgeted direct labor expense: \(\$1,500,000\)
      3. Estimated machine hours: \(100,000\)
    3. Job order cost sheets show the following costs assigned to each job:
    Chart showing the Direct Material and Direct Labor for Jobs 13, 14, and 15. Respectively, the dollar figures are: Job 13 7560 and 3760, Job 14 1525 and 3824, Job 15 3290 and 3796.

    The company assigns overhead at \(\$1.25\) for each direct labor dollar spent. What is the total cost for each of the jobs?

    1. A new company started production. Job 10 was completed, and Job 20 remains in production. Here is the information from job cost sheets from their first and only jobs so far:
    A chart for both Jobs 10 and 20 showing the production costs. Job 10’s costs are: Direct Materials $765, Direct Labor 75 hours for labor cost of 1574, Manufacturing Overhead 60, equaling a total cost of $2400. Job 20’s costs are: Direct Materials $145, Direct Labor 113 hours for labor cost of 2373, Manufacturing Overhead 90, equaling a total cost of $2608.

    Using the information provided,

    1. What is the balance in work in process?
    2. What is the balance in the finished goods inventory?
    3. If manufacturing overhead is applied on the basis of direct labor hours, what is the predetermined overhead rate?
    1. K company production was working on Job 1 and Job 2 during the month. Of the \(\$780\) in direct materials, \(\$375\) in materials was requested for Job 1. Direct labor cost, including payroll taxes, are \(\$23\) per hour, and employees worked \(18\) hours on Job 1 and \(29\) hours on Job 2. Overhead is applied at the rate of \(\$20\) per direct labor hours. Prepare job order cost sheets for each job.
    2. A company has the following transactions during the week.
      • Purchase of \(\$1,000\) raw materials inventory
      • Assignment of \(\$500\) of raw materials inventory to Job 5
      • Payroll for \(20\) hours with \(\$1,000\) assigned to Job 5
      • Factory utility bills of \(\$750\)
      • Overhead applied at the rate of \(\$10\) per hour

    What is the cost assigned to Job 5 at the end of the week?

    1. During the month, Job AB2 used specialized machinery for \(450\) hours and incurred \(\$500\) in utilities on account, \(\$300\) in factory depreciation expense, and \(\$100\) in property tax on the factory. Prepare journal entries for the following:
      1. Record the expenses incurred.
      2. Record the allocation of overhead at the predetermined rate of \(\$1.50\) per machine hour.
    2. Job 113 was completed at a cost of \(\$5,000\), and Job 85 was completed at a cost of \(\$3,000\) and sold on account for \(\$4,500\). Prepare journal entries for the following:
      1. Completion of Job 113.
      2. Completion and sale of Job 85.
    3. A company’s individual job sheets show these costs:
    A chart showing costs for Jobs 131, 132, and 133. Direct materials is 4,585, 8723, and 1,575 respectively. Direct labor is 2,385, 2,498, and 2,874, respectively.

    Overhead is applied at \(1.25\) times the direct labor cost. Use the data on the cost sheets to perform these tasks:

    1. Apply overhead to each of the jobs.
    2. Prepare an entry to record the assignment of direct materials to work in process.
    3. Prepare an entry to record the assignment of direct labor to work in process.
    4. Prepare an entry to record the assignment of manufacturing overhead to work in process.
    1. A summary of material requisition slips and time tickets, along with the overhead allocation, show these costs:
    A four column cost chart with the following headings: Job No., Material Requisition Slips, Factory Labor Time Tickets, Overhead Applied. The rows are: 131, 505, 200, 70; 132, 251, 260, 91; 133, 393, 180, 63; 134, 340, 300, 105; Not job specific, 76, 145, 0; Totals 1565, 1,085, 329.
    1. Prepare an entry to record the assignment of direct material to work in process.
    2. Prepare an entry to record the assignment of direct labor to work in process.
    3. Prepare an entry to record the assignment of manufacturing overhead to work in process.

    Exercise Set B

    1. Abuah Goods manufactures clothing. For each item listed, identify whether it is a product cost, a period cost, or not an expense.
      1. pins to keep materials together while garment is being manufactured
      2. real estate taxes on store
      3. advertising expense
      4. product inspector wages
      5. shirts for sale
      6. Chief Financial Officer salary
      7. cost of goods sold
    2. Choco’s Chocolates incurs the following costs for the month:
    A list of costs reads “Direct materials, $15,000”, “Direct labor, 25,000”, “Factory depreciation expense, 45,000”, “Factory utilities expense, 2000”, “Payroll staff’s salary, 15,000”.
    1. What is the prime cost?
    2. What is the conversion cost?
    1. The table shows a list of expenses involved in the production of custom snowboard bindings.
      1. For each item listed, state if the cost is manufacturing or sales and administration.
      2. If the cost is a manufacturing cost, state if it is direct materials, direct labor, or manufacturing overhead.
      3. If the cost is a manufacturing overhead cost, state if it is indirect materials, indirect labor, or another type of manufacturing overhead.
    Table 4.E.2: Snowboard Binding Production Costs
    Snowboard Bindings Production Costs Manufacturing or Sales & Administration Cost? If Manufacturing: Direct Materials, Direct Labor, or Overhead? If Overhead: Indirect Materials, Indirect Labor, or Other?
    Aluminum      
    Factory building rent      
    Fiberglass framework for each pair of bindings      
    Accountant salary      
    Administration building depreciation      
    Straps      
    Advertising      
    Production supervisor salary      
    Glue      
    Research and development costs      
    Inspector wages      
    Metal shaping machine depreciation      
    Human resources salaries      
    Factory repair      
    1. Masonry’s records show the raw materials inventory had purchases of \(\$1,000\) and an ending raw materials inventory balance of \(\$200\). If the cost of materials used during the month was \(\$900\), what was the beginning inventory?
    2. Steinway’s records show their work in process inventory had a beginning balance of \(\$3,000\) and an ending balance of \(\$3,500\). How much overhead was applied if the records also show the following:
    Figure lists Materials used as $2,500, Overhead Applied as 5000, and Cost of Goods Manufactured as 7700.
    1. Langston’s purchased \(\$3,100\) of merchandise during the month, and its monthly income statement shows a cost of goods sold of \(\$3,000\). What was the beginning inventory if the ending inventory was \(\$1,250\)?
    2. A company estimates its manufacturing overhead will be \(\$840,000\) for the next year. What is the predetermined overhead rate given each of the following independent allocation bases?
      1. Budgeted direct labor hours: \(90,615\)
      2. Budgeted direct labor expense: \(\$750,000\)
      3. Estimated machine hours: \(150,000\)
    3. Job order cost sheets show the following costs assigned to each job:
    Chart showing Direct Materials and Direct Labor for three jobs. Respectively, the dollar figures are: Job 131 3,485 and 2,353, Job 132 39,853 and 34,245, and Job 133 2,301 and 2,037. The total direct material is $45,639 and total direct labor is 38,635

    The company assigns overhead at twice the direct labor cost. What is the total cost for each job?

    1. A new company started production. Job 1 was completed, and Job 2 remains in production. Here is the information from the job cost sheets from their first and only jobs so far:
    A chart for both Jobs 1 and 2 showing the production costs. Job 1’s costs are: Direct Materials $375, Direct Labor 231 hours for labor cost of 5,313, Manufacturing Overhead 4,620, equaling a total cost of $10,308. Job 2’s costs are: Direct Materials $405, Direct Labor 85 hours for labor cost of 1,955, Manufacturing Overhead 1,700, equaling a total cost of $4,060.

    Using the information provided,

    1. What is the balance in work in process?
    2. What is the balance in finished goods inventory?
    3. If manufacturing overhead is applied on the basis of direct labor hours, what is the predetermined overhead rate?
    1. Inez has the following information relating to Job AA5. Direct material cost was \(\$200,000\), direct labor was \(\$36,550\), and overhead applied on the basis of direct labor hours was \(\$73,100\). What was the predetermined overhead rate using the labor rate of \(\$17\) per hour?
    2. A company has the following information relating to its production costs:
    A chart of information including: Machine hours 25,000, Direct labor cost $550,000, Indirect labor 45,000, Plant maintenance 259, 300, Plant supervision 90,000, Plant depreciation 150,000, Plant utilities 48,000, Indirect material 5,000.

    Compute the actual and applied overhead using the company’s predetermined overhead rate of \(\$23.92\) per machine hour. Was the overhead overapplied or underapplied, and by how much?

    1. A company has the following transactions during the week.
      • Purchase of \(\$3,000\) raw materials inventory
      • Assignment of \(\$700\) of raw materials inventory to Job 7
      • Payroll for \(10\) hours and \(\$3,000\) is assigned to Job 7
      • Factory depreciation of \(\$1,750\)
      • Overhead applied at the rate of \(\$200\) per hour

    What is the cost assigned to Job 7 at the end of the week?

    1. During the month, Job Arch2 used specialized machinery for \(350\) hours and incurred \(\$700\) in utilities on account, \(\$400\) in factory depreciation expense, and \(\$200\) in property tax on the factory. Prepare journal entries for the following:
      1. Record the expenses incurred.
      2. Record the allocation of overhead at the predetermined rate of \(\$1.50\) per machine hour.
    2. Job 113 was completed at a cost of \(\$7,500\), and Job 85 was completed at a cost of \(\$2,300\) and sold on account for \(\$4,500\). Prepare journal entries for the following:
      1. Completion of Job 113.
      2. Completion and sale of Job 85.
    3. A company’s individual job sheets show these costs:
    A chart showing costs for Jobs 298, 299, and 300. Direct material is 2,228, 23,945, and 4,231 respectively. Direct labor is 2,391, 23,492, and 3,413, respectively. Overhead is ?, ?, and ? respectively. The totals are 8,803, 88,548, and 13,617, respectively.

    Overhead is applied at \(1.75\) times the direct labor cost. Use the data on the cost sheets to perform these tasks:

    1. Apply overhead to each of the jobs.
    2. Prepare an entry to record the assignment of direct material to work in process.
    3. Prepare an entry to record the assignment of direct labor to work in process.
    4. Prepare an entry to record the assignment of manufacturing overhead to work in process.
    1. A summary of materials requisition slips and time tickets, along with the overhead allocation, show these costs:
    A four column cost chart with the following headings: Job No., Material Requisition Slips, Factory Labor Time Tickets, Overhead Applied. The rows are: AAA001, 3,423, 5,004, 1,750; AAA002 4,342, 4,530, 1,568; AAA003 3,431 5,345, 1,813; AAA004 3,421, 2,423, 840; Not specific to one job, 570, 3,353, 0; Totals 15,187, 20,655, 5,971.
    1. Prepare an entry to record the assignment of direct material to work in process.
    2. Prepare an entry to record the assignment of direct labor to work in process.
    3. Prepare an entry to record the assignment of manufacturing overhead to work in process.

    Problem Set A

    1. For each item listed, state whether a job order costing system or process costing system would be best.
      1. cereal
      2. team uniforms
      3. houses
      4. beach chairs
      5. plastic
      6. restaurant-specific pizza boxes
      7. sneakers customized with number and colors
    2. York Company is a machine shop that estimated overhead will be \(\$50,000\), consisting of \(5,000\) hours of direct labor. The cost to make Job 0325 is \(\$70\) in aluminum and two hours of labor at \(\$20\) per hour. During the month, York incurs \(\$50\) in indirect material cost, \(\$150\) in administrative labor, \(\$300\) in utilities, and \(\$250\) in depreciation expense.
      1. What is the predetermined overhead rate if direct labor hours are considered the cost driver?
      2. What is the cost of Job 0325?
      3. What is the overhead incurred during the month?
    3. Pocono Cement Forms expects \(\$900,000\) in overhead during the next year. It does not know whether it should apply overhead on the basis of its anticipated direct labor hours of \(60,000\) or its expected machine hours of \(30,000\). Determine the product cost under each predetermined allocation rate if the last job incurred \(\$1,550\) in direct material cost, \(90\) direct labor hours, and \(75\) machine hours. Wages are paid at \(\$16\) per hour.
    4. Job cost sheets show the following information:
    Six column chart with the headings: Job, January, February, March, Completed, Sold. First line: AA2 $2,500, $1,200, blank, February, Not Sold. Second line: AA4 4,838, blank, blank, January, February. Third line: AA5 blank 3,250, blank, February, March. Fourth line: AA3 blank, 3,409, 2,319, April, Not Sold. Fifth Line Total 7,338, 7,859, 2,319, blank, blank.

    What are the balances in the work in process inventory, finished goods inventory, and cost of goods sold for January, February, and March?

    1. Complete the information in the cost computations shown here:
    Three cost computation charts .Raw Materials chart: Beginning Raw Materials Inventory $342, Minus Purchases 1533 equals Materials available for use ? then subtract Ending Raw Materials Inventory of 321 to get Materials Used in Production ?. Work In Process Inventory chart: Beginning WIP Inventory $932 plus Materials used in production ? plus Direct Labor 1535 plus Overhead Applied ?, equals Manufacturing costs Incurred 22,441. Then subtract Ending WIP Inventory 935 to get Cost of Goods Manufactured ?. Finished Goods Inventory chart: Beginning Finished Goods Inventory of ? plus Cost of Goods Manufactured of ? equals Goods Available for Sale of 25,002. Then subtract Ending Finished Goods Inventory of ? to get Cost of Goods Sold of 21,788.
    1. During the year, a company purchased raw materials of \(\$77,321\), and incurred direct labor costs of \(\$125,900\). Overhead is applied at the rate of \(75\%\) of the direct labor cost. These are the inventory balances:
    Chart showing Beginning and Ending inventory balances. Raw Materials Inventory: 17,433 and 16,428, respectively. Work In Process Inventory: 241,439 and 234,423, respectively. Finished Goods Inventory: 312,842 and 342,384, respectively.

    Compute the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold.

    1. Freeman Furnishings has summarized its data as shown:
    Data chart showing; Depreciation of factory building $100,000 Factory real estate taxes 15,000, Factory utility expenses 85,000, Indirect materials 32,000, Indirect labor 25,000, Direct labor cost 85,000, Direct labor hours incurred 23,500, Estimated direct labor hours 24,000, Raw materials purchased 350,000, Raw materials beginning inventory 30,000, Raw materials ending inventory 28,000, Work in Process beginning inventory 51,000, Work in process ending inventory 67,000, Estimated overhead 270,000.

    Compute the cost of goods manufactured, assuming that the overhead is allocated based on direct labor hours.

    1. Coop’s Stoops estimated its annual overhead to be \(\$85,000\) and based its predetermined overhead rate on \(24,286\) direct labor hours. At the end of the year, actual overhead was \(\$90,000\) and the total direct labor hours were \(24,100\). What is the entry to dispose of the overapplied or underapplied overhead?
    2. Mountain Peaks applies overhead on the basis of machine hours and reports the following information:
    A chart showing Overhead budget $350,000, actual $352,000; Machine hours budget 50,000, 49,000 actual; Direct materials $210,000, and Direct labor $350,000.
    1. What is the predetermined overhead rate?
    2. How much overhead was applied during the year?
    3. Was overhead over- or underapplied, and by what amount?
    4. What is the journal entry to dispose of the over- or underapplied overhead?
    1. The actual overhead for a company is \(\$74,539\). Overhead was based on \(6,000\) direct labor hours and was \(\$2,539\) underapplied for the year.
      1. What is the overhead application rate per direct labor hour?
      2. What is the journal entry to dispose of the underapplied overhead?
    2. When setting its predetermined overhead application rate, Tasty Box Meals estimated its overhead would be \(\$100,000\) and would require \(25,000\) machine hours in the next year. At the end of the year, it found that actual overhead was \(\$102,000\) and required \(26,000\) machine hours.
      1. Determine the predetermined overhead rate.
      2. What is the overhead applied during the year?
      3. Prepare the journal entry to eliminate the underapplied or overapplied overhead.
    3. The following data summarize the operations during the year. Prepare a journal entry for each transaction.
      1. Purchase of raw materials on account: \(\$3,000\)
      2. Raw materials used by Job 1: \(\$500\)
      3. Raw materials used as indirect materials: \(\$100\)
      4. Direct labor for Job 1: \(\$300\)
      5. Indirect labor incurred: \(\$50\)
      6. Factory utilities incurred on account: \(\$700\)
      7. Adjusting entry for factory depreciation: \(\$250\)
      8. Manufacturing overhead applied as percent of direct labor: \(200\%\)
      9. Job 1 is transferred to finished goods
      10. Job 1 is sold: \(\$3,000\)
      11. Manufacturing overhead is overapplied: \(\$100\)
    4. The following events occurred during March for Ajax Company. Prepare a journal entry for each transaction.
      1. Materials were purchased on account for \(\$35,429\).
      2. Materials were requisitioned to begin work on Job C15 in the amount of \(\$25,259\).
      3. Direct labor expense for Job C15 was \(\$24,129\).
      4. Actual overhead was incurred on account of \(\$32,852\).
      5. Factory overhead was charged to Job C15 at the rate of \(200\%\) of direct labor.
      6. Job C15 was transferred to finished goods at \(\$97,646\).
      7. Job C15 was sold on account for \(\$401,000\).
    5. A movie production studio incurred the following costs related to its current movie:
      1. Purchased office supplies on account: \(\$33,000\)
      2. Issued direct supplies: \(\$22,512\)
      3. Issued indirect supplies: \(\$7,535\)
      4. Time tickets showing direct labor: \(\$32,503,230\)
      5. Time tickets showing indirect labor: \(\$574,326\)
      6. Utilities expense on account: \(\$957,323\)
      7. Overhead applied: \(10\%\) of direct labor cost

    Create journal entries for the listed transactions.

    Problem Set B

    1. For each item listed, state whether a job order costing system or process costing system would be best.
      1. television repair
      2. cell phone charge cords
      3. glassware with company logo
      4. dog food
      5. golf balls
      6. hotel signs to welcome guests
      7. highlighters and pens
    2. Rulers Company is a neon sign company that estimated overhead will be \(\$60,000\), consisting of \(1,500\) machine hours. The cost to make Job 416 is \(\$95\) in neon, 15 hours of labor at \(\$13\) per hour, and five machine hours. During the month, it incurs \(\$95\) in indirect material cost, \(\$130\) in administrative labor, \(\$320\) in utilities, and \(\$350\) in depreciation expense.
      1. What is the predetermined overhead rate if machine hours are considered the cost driver?
      2. What is the cost of Job 416?
      3. What is the overhead incurred during the month?
    3. Event Forms expects \(\$120,000\) in overhead during the next year. It doesn’t know whether it should apply overhead on the basis of its anticipated direct labor hours of \(6,000\) or its expected machine hours of \(5,000\). What would be the product cost under each predetermined allocation rate if the last job incurred \(\$3,500\) in direct material cost, \(55\) direct labor hours, and \(55\) machine hours? Wages are paid at \(\$17\) per hour.
    4. Summary information from a company’s job cost sheets shows the following information:
    Chart showing information for 4 jobs: BB3 $3,500 in April, $1,500 in May, completed in May, not sold. BB4 9,231 in April, completed in April, sold in May. BB5 2,540 in May, completed in May, sold in June. BB6 3230 in May, 1434 in June, completed in July, not sold

    What are the balances in the work in process inventory, finished goods inventory, and cost of goods sold for April, May, and June?

    1. Complete the information in the cost computations shown here:
    Three cost computation charts. Raw Materials chart: Beginning Raw Materials Inventory $74,323, Minus Purchases 77,321 equals Materials available for use ? then subtract Ending Raw Materials Inventory of ? to get Materials Used in Production 78,413. Work In Process Inventory chart: Beginning WIP Inventory $253,210 plus Materials used in production ? plus Direct Labor 125,900 plus Overhead Applied 94,425 equals Manufacturing costs Incurred ? . Then subtract Ending WIP Inventory 242,932 to get Cost of Goods Manufactured ?. Finished Goods Inventory chart: Beginning Finished Goods Inventory of 333,149 plus Cost of Goods Manufactured of 309,016 equals Goods Available for Sale of ? . Then subtract Ending Finished Goods Inventory of 354,235 to get Cost of Goods Sold of 287,930.
    1. During the year, a company purchased raw materials of \(\$77,321\) and incurred direct labor costs of \(\$125,900\). Overhead is applied at the rate of \(75\%\) of the direct labor cost. These are the inventory balances:
    Chart showing Beginning and Ending inventory balances: Raw Materials Inventory: 15,394 and 17,432, respectively. Work In Process Inventory: 57,304 and 53,721, respectively. Finished Goods Inventory: 120,432 and 132,432, respectively.

    Compute the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold.

    1. Freeman Furnishings has summarized its data as shown. Direct labor hours will be used as the activity base to allocate overhead:
    Data chart showing: Raw material purchased 320,000, Raw material beginning inventory 15,000, Raw material ending inventory 14,000, Work in Process beginning inventory 35,000, Work in process ending inventory 37,000, Estimated overhead 300,000. Direct labor hours incurred 24,000, Estimated direct labor hours 25,000, Depreciation of factory building $50,000 Factory real estate taxes 7,382 Factory utility expenses 45,000, Indirect materials 20,000, Indirect labor 1,000, Direct labor cost 100,000. Direct labor hours incurred, 24,000. Estimated direct labor hours, 25,000.

    Compute the cost of goods manufactured.

    1. Queen Bee’s Honey, Inc., estimated its annual overhead to be \(\$110,000\) and based its predetermined overhead rate on \(27,500\) direct labor hours. At the end of the year, actual overhead was \(\$106,000\) and the total direct labor hours were \(29,000\). What is the entry to dispose of the overapplied or underapplied overhead?
    2. Mountain Tops applies overhead on the basis of direct labor hours and reports the following information:
    A chart showing Overhead budget $450,000, actual $452,000; Direct labor hour budget 75,000, 77,000 actual; Direct materials $195,000, and Direct labor $333,865
    1. What is the predetermined overhead rate?
    2. How much overhead was applied during the year?
    3. Was overhead overapplied or underapplied, and by what amount?
    4. What is the journal entry to dispose of the overapplied or underapplied overhead?
    1. The actual overhead for a company is \(\$73,175\). Overhead was based on \(4,500\) machine hours and was \(\$3,325\) overapplied for the year.
      1. What is the overhead application rate per direct labor hour?
      2. What is the journal entry to dispose of the underapplied overhead?
    2. When setting its predetermined overhead application rate, Tasty Turtle estimated its overhead would be \(\$75,000\) and manufacturing would require \(25,000\) machine hours in the next year. At the end of the year, it found that actual overhead was \(\$74,000\) and manufacturing required \(24,000\) machine hours.
      1. Determine the predetermined overhead rate.
      2. What is the overhead applied during the year?
      3. Prepare the journal entry to eliminate the under- or overapplied overhead.
    3. The following data summarize the operations during the year. Prepare a journal entry for each transaction.
      1. Purchase of raw materials on account: \(\$1,500\)
      2. Raw materials used by Job 1: \(\$400\)
      3. Raw materials used as indirect materials: \(\$50\)
      4. Direct labor for Job 1: \(\$200\)
      5. Indirect labor incurred for Job 1: \(\$30\)
      6. Factory utilities incurred on account: \(\$500\)
      7. Adjusting entry for factory depreciation: \(\$200\)
      8. Manufacturing overhead applied as percent of direct labor: \(100\%\)
      9. Job 1 is transferred to finished goods
      10. Job 1 is sold: \(\$1,000\)
      11. Manufacturing overhead is underapplied: \(\$100\)
    4. The following events occurred during March for Ajax Company. Prepare a journal entry for each transaction.
      1. Materials were purchased on account for \(\$5,429\).
      2. Materials were requisitioned to begin work on Job C15 in the amount of \(\$2,500\).
      3. Direct labor expense for Job C15 was \(\$4,250\).
      4. Actual overhead was incurred on account for \(\$5,385\).
      5. Factory overhead was charged to Job C15 at the rate of \(200\%\) direct labor.
      6. Job C15 was transferred to finished goods at \(\$15,250\).
      7. Job C15 was sold on account for \(\$28,000\).
    5. A leather repair shop incurred the following expenses while repairing luggage for a major airline.
      1. Time cards showing direct labor: \(\$750\)
      2. Time cards showing indirect labor: \(\$100\)
      3. Purchased repair supplies on account: \(\$1,500\)
      4. Issued indirect supplies: \(\$350\)
      5. Utilities expense on account: \(\$24,000\)
      6. Overhead applied: \(100\%\) of direct labor costs

    Journalize the listed transactions.

    Thought Provokers

    1. Can a company use both job order costing and process costing? Why or why not?
    2. If a job order cost system tracks the direct materials and direct labor, why doesn’t it track the actual overhead used for a specific job?
    3. What are the similarities in calculating the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold?
    4. If a company bases its predetermined overhead rate on \(100,000\) machine hours, and it actually has \(100,000\) machine hours, would there be an underapplied or overapplied overhead?
    5. How do the job cost sheets act as a subsidiary ledger for the work in process inventory if journal entries are not made to the job cost sheets?
    6. How is a job order cost system used in a service industry?

    Contributors and Attributions

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