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4.7: Summary

  • Page ID
    10426
  • Section Summaries 

     

    4.1 Distinguish between Job Order Costing and Process Costing

    • Job order costing (JOC) is the optimal costing method for producing custom goods or when it is easy to identify the cost directly with the product.
    • A JOC system assigns costs to each individual job as the costs are incurred, so that at all points in the manufacturing process, the costs assigned to that particular job are known.

    4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing

    • Direct materials are requested on a materials requisition form and recorded on the job cost sheet when transferred from raw materials inventory to the work in process inventory.
    • Time tickets are used to accumulate the labor associated with particular jobs and assigned to those jobs on the job cost sheet.
    • Manufacturing overhead costs are accumulated in the manufacturing overhead account and assigned to the individual jobs using the predetermined overhead rate.

    4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts

    • Materials used in production include the beginning raw materials inventory and purchases, less the ending inventory. This amount is the amount added to the work in process inventory.
    • The cost of goods manufactured includes the beginning work in process inventory, the materials used in production, the direct labor assigned to each job, and the manufacturing overhead costs assigned, less the costs remaining in the work in process inventory. This amount is transferred to the finished goods inventory.
    • The cost of goods sold include the beginning finished goods inventory and the cost of goods manufactured during the period, less the ending inventory.
    • When the job is completed, the costs are transferred from the work in process inventory to the finished goods inventory.
    • When the jobs are sold, the costs are transferred from the finished goods inventory to the cost of goods sold.

    4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production

    • Expenses are recognized when they have a direct relationship with the associated revenue, when there is a systematic and rational method to allocate them, or immediately when there is no expected benefit.
    • The estimated activity base is typically direct labor dollars or direct labor hours, and is based on an allocation base that increases or decreases as overhead increases or decreases.
    • The predetermined overhead rate is the estimated overhead divided by the activity base.

    4.5 Compute the Cost of a Job Using Job Order Costing

    • Costs from the materials requisition sheet and time tickets are recorded on the job cost sheet.
    • Overhead is allocated from the manufacturing overhead account to the individual jobs and recorded on the job cost sheet.
    • Each job has its own job cost sheet, showing the materials, labor, and overhead for each job.

    4.6 Determine and Dispose of Underapplied or Overapplied Overhead

    • Overhead is allocated to individual jobs based on the estimated overhead costs for the year and may be overapplied or underapplied for the year.
    • Overhead is underapplied when not all of the costs accumulated in the manufacturing overhead account are applied during the year.
    • Overhead is overapplied when more overhead is applied to the jobs than was actually incurred.
    • The amount of overhead overapplied or underapplied is adjusted into the cost of goods sold account.

    4.7 Prepare Journal Entries for a Job Order Cost System

    • Job cost sheets record the material, labor, and overhead costs for each job, whereas journal entries actually transfer the costs into the work in process inventory, the finished goods inventory, and cost of goods sold.

    4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment

    • Job order costing can be used in nonmanufacturing companies and with the same techniques, even though there are not any inventory accounts.

     

    Key Terms

     

    conversion costs
    total of labor and overhead for a product; the costs that “convert” the direct material into the finished product
    cost driver
    activity that is the reason for the increase or decrease of another cost; examples include labor hours incurred, labor costs paid, amounts of materials used in production, units produced, machine hours, or any other activity that has a cause-and-effect relationship with incurred costs
    cost of goods manufactured
    manufacturing costs incurred less the ending work in process inventory
    cost of goods sold
    expense account that houses all costs associated with getting a product ready for sale
    direct labor
    labor directly related to the manufacturing of the product or the production of a service
    direct materials
    materials used in the manufacturing process that can be traced directly to the product
    estimated activity base
    total amount of the activity for the year
    expense recognition principle
    (also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated
    indirect labor
    labor not directly involved in the active conversion of materials into finished products or the provision of services
    indirect materials
    materials used in production but not efficiently traceable to a specific unit of production
    job cost sheet
    document created for each job that includes all material, labor, and overhead costs for that job
    job order costing
    information system that traces the individual costs directly to the final product and not to production departments
    loss leader
    product sold at a price that is often less than the cost of producing it in order to entice customers to buy accessories that are necessary for its use
    manufacturing costs
    total of all costs expended in the manufacturing process; generally consists of direct material, direct labor, and manufacturing overhead
    manufacturing overhead
    costs incurred in the production process that are not economically feasible to measure as direct material or direct labor costs; examples include indirect material, indirect labor, utilities, and depreciation
    materials requisition form
    form showing which specific raw materials and costs are transferred from raw materials inventory to work in process inventory
    operating overhead
    overhead account used for service industries
    overapplied overhead
    situation when the overhead applied to the individual jobs is greater than the actual overhead; when overhead is overapplied, the manufacturing overhead has a credit balance
    period costs
    typically related to a particular time period instead of attached to the production of an asset; treated as an expense in the period incurred (examples include many sales and administrative expenses)
    prime costs
    direct material expenses and direct labor costs
    time ticket
    document used to record the particular job worked on by each employee
    underapplied overhead
    situation when the overhead applied to the individual jobs is less than the actual overhead; when overhead is underapplied, the manufacturing overhead has a debit balance

     

    Multiple Choice

     

    1

    LO 4.1Which 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.
    2

    LO 4.1A 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
    3

    LO 4.1Which of the following is a prime cost?

    1. indirect materials
    2. direct labor
    3. administrative expenses
    4. factory depreciation expenses
    4

    LO 4.1Which of the following is a conversion cost?

    1. raw materials
    2. direct materials
    3. administrative expenses
    4. factory depreciation expenses
    5

    LO 4.1During 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
    6

    LO 4.2Which 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
    7

    LO 4.2Which 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
    8

    LO 4.2Which 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
    9

    LO 4.2Which 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
    10

    LO 4.4Assigning 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
    11

    LO 4.4In 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
    12

    LO 4.7In 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
    13

    LO 4.7In 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
    14

    LO 4.7In 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
    15

    LO 4.7In 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
    16

    LO 4.7In 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
    17

    LO 4.8The activity base for service industries is most likely to be ________.

    1. machine hours
    2. administrative salaries
    3. direct labor cost
    4. direct labor hours

     

    Questions

     

    1

    LO 4.1A 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?

    2

    LO 4.1Burnham 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?

    3

    LO 4.1Choco’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?

    4

    LO 4.1How do job order costing and process costing differ with respect to recording direct materials and direct labor?

    5

    LO 4.1Why are product costs assigned to the product and period costs immediately expensed?

    6

    LO 4.3Is the cost of goods manufactured the same as the cost of goods sold?

    7

    LO 4.3From 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
    8

    LO 4.4How is the predetermined overhead rate determined?

    9

    LO 4.4How is the predetermined overhead rate applied?

    10

    LO 4.5Why are the overhead costs first accumulated in the manufacturing overhead account instead of in the work in process inventory account?

    11

    LO 4.6Why is the manufacturing overhead account debited as expenses are recognized and then credited when overhead is applied?

    12

    LO 4.7Match 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
    13

    LO 4.8When compared to manufacturing companies, service industries do not generally use ________ as a component of product cost.

     

    Exercise Set A

     

    EA1

    LO 4.1Little 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
    EA2

    LO 4.2Table 4.3 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.

    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      

    Table4.3

    EA3

    LO 4.2Burnham 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?
    EA4

    LO 4.3Marzoni’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?

    EA5

    LO 4.3Sterling’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.
    EA6

    LO 4.3Logo 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?

    EA7

    LO 4.4A 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
    EA8

    LO 4.4Job 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?

    EA9

    LO 4.4A 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?
    EA10

    LO 4.5K 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.

    EA11

    LO 4.7A 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?

    EA12

    LO 4.7During 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.
    EA13

    LO 4.7Job 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.
    EA14

    LO 4.7A 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.
    EA15

    LO 4.7A 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

     

    EB1

    LO 4.1Abuah 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
    EB2

    LO 4.2Choco’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?
    EB3

    LO 4.2The 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.

    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      

    Table4.4

    EB4

    LO 4.3Masonry’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?

    EB5

    LO 4.3Steinway’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.
    EB6

    LO 4.3Langston’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?

    EB7

    LO 4.4A 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
    EB8

    LO 4.4Job 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?

    EB9

    LO 4.4A 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?
    EB10

    LO 4.5Inez 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?

    EB11

    LO 4.6A 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?

    EB12

    LO 4.7A 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?

    EB13

    LO 4.7During 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.
    EB14

    LO 4.7Job 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.
    EB15

    LO 4.7A 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.
    EB16

    LO 4.7A 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

     

    PA1

    LO 4.1For 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
    PA2

    LO 4.4York 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?
    PA3

    LO 4.4Pocono 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.

    PA4

    LO 4.5Job 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?

    PA5

    LO 4.5Complete 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.
    PA6

    LO 4.5During 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.

    PA7

    LO 4.5Freeman 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.

    PA8

    LO 4.6Coop’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?

    PA9

    LO 4.6Mountain 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?
    PA10

    LO 4.6The 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?
    PA11

    LO 4.6When 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.
    PA12

    LO 4.7The 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
    PA13

    LO 4.7The 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.
    PA14

    LO 4.8A 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

     

    PB1

    LO 4.1For 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
    PB2

    LO 4.4Rulers 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?
    PB3

    LO 4.4Event 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.

    PB4

    LO 4.5Summary 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?

    PB5

    LO 4.5Complete 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.
    PB6

    LO 4.5During 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.

    PB7

    LO 4.5Freeman 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.

    PB8

    LO 4.6Queen 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?

    PB9

    LO 4.6Mountain 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?
    PB10

    LO 4.6The 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?
    PB11

    LO 4.6When 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.
    PB12

    LO 4.7The 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
    PB13

    LO 4.7The 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.
    PB14

    LO 4.8A 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

     

    TP1

    LO 4.1Can a company use both job order costing and process costing? Why or why not?

    TP2

    LO 4.4If 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?

    TP3

    LO 4.5What are the similarities in calculating the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold?

    TP4

    LO 4.6If 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?

    TP5

    LO 4.7How 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?

    TP6

    LO 4.8How is a job order cost system used in a service industry?