Job Order Costing JNU

System Design:  Job Order Cost ing Costing

DEPARTMENT OF ACCOUNTING & INFORMATION SYSTEM DEPARTMENT FACULTY OF BUSINESS STUDIES  JAGANNATH UNIVERSITY  UNIVERSITY 

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 Job-Order  Job-Order Costi Costing ng

 JOB- ORDER ORDER COSTING COSTING Table of Contents: Page Numbe r

 JOB-ORDER  JOB-ORDER ENVIRONM ENVIRONMENT ENT

Unit cost information is needed for: 1. the financial reporting requirements of costing inventory inventory and determining income, and 2. decision decision making, making, such such as product pricing. pricing. ρ

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Different cost information is needed for different purposes.

 Two cost cost assignme assignment nt systems systems are: 1. job-orde job-orderr costi costing, ng, and 2. proce process ss cost costin ing. g.  Job-Order  Job-Order Production Production and Costing ρ

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A job-order  job-order costing costing system system accumulates manufacturing costs by job.

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Such Such a syst system em is used used when when sepa separat rate e jobs jobs are ident identifi ifiab able le,, such such as a furni furnitu ture re manufacturer.

Unit costs in a job-order system are calculated by dividing the total manufacturing cost of  the job by the number of units produced in the job. Process Production and Costing ρ

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A process-costing used where where simila similarr or homogen homogeneou eous s units units are mass process-costing system is used produced, such as the manufacture of paint or bricks.

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In a proce process ss-c -cos osti ting ng syst system em,, produc producti tion on costs costs are accu accumu mula late ted d by proce process ss or by department for a given period of time.

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Unit costs are calculated by dividing the processing department’s costs by the output for the period.

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A comparison of job-order and process costing follows: Job-Order Costing

Process Costing

1. Wide variety of distinct products

1. Homogenous products

2. Costs accumulated by job

2. Costs accumulated by process or department

3. Unit cost is computed by dividing total job costs by the units produced.

3. Unit cost is computed by dividing process costs of the period by the units produced in the period.

 Job-Order  Job-Order Costi Costing ng Calculating Unit Cost with Job-Order Costing

Using a normal costing system, the total cost of a job is calculated using:  actual costs for direct materials ρ



actual costs for direct labor



a predetermined rate to apply overhead

Overhead can be assigned using:  a single, unit-level activity driver, or ρ



multiple activity drivers.

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Unit-level systems can be used effectively whenever one of three conditions is met: (1) the nonuni nonunit-l t-leve evell overhea overhead d is a small small percent percentage age of the total total overhea overhead, d, (2) the products produced in the job environment have the same overhead consumption ratios, or (3) the cost of using both unit-level and nonunit-level drivers exceeds the benefits.

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A job-order  job-order cost cost sheet is used to accumulate the manufacturing costs (direct materials, direct labor, and overhead) associated with a job.

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 The job-order job-order cost sheets sheets are the the subsidiary subsidiary ledgers ledgers to the Work-inWork-in-Proces Process s account. account.

THE FLOW OF COSTS THROUGH THE ACCOUNTS  Accounting  Account ing for Mater ials

 The materia materials ls accoun accountt is used used to to account account for: for: 1. purchases purchases of material materials s and supplie supplies, s, and 2. issuance issuance of materials materials to production. production. ρ

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 The entry entry to record the purchas purchase e of materials materials would would be: Debit: Raw Materials Credit: Accounts Payable

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 The materials source document document used to record record direct direct materials requisitio requisition n form is the source materials on the job-cost sheet. Materials requisition forms are used to make requests for materials from inventory.

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 The entry entry to record the issuanc issuance e of direct materials materials for for use in production production would be: Debit: Work in Process Credit: Raw Materials

Indirect materials are included in manufacturing overhead and assigned to jobs using the predetermined overhead rate. Accounting for Direct Labor Cost ρ

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Time tickets indicate the direct labor time worked on each job. Information on the time tickets are used to post direct labor costs to the job-order cost sheet for individual jobs.

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Indi Indire rect ct labo laborr cost costs s are are incl includ uded ed in over overhe head ad and and assi assign gned ed to jobs jobs usin using g the the predetermined overhead rate.

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 The entry entry to record direct labor costs would be: Debit: Work in Process Credit: Wages Payable

 The job-order cost sheets are updated updated to indicate indicate the direct labor costs associated associated with each job. Accounting for Overhead ρ

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Overhead is applied to specific jobs using a predetermined overhead rate established at the beginning of the period.

 Job-Order  Job-Order Costi Costing ng ABC and Job-Order Costing

ABC establishes activity-based overhead rates by estimating: 1. a budgeted budgeted cost cost for each each activity activity pool, and and 2. expected expected demand for the activity activity driver for each pool. Examples Examples of activity drivers drivers include direct labor hours, machine hours, purchase orders, etc. ρ

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Activity-based rates are calculated as follows: Activity- based based rate =

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Budgeted cost for activity pool Expected demand for activity driver 

Overhead is assigned to specific jobs by multiplying the activity-based rate by the actual activity for the specific job. Applied overhead = Activity-based rate × Activity for job

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 The summar summary y entry entry to record total overhead overhead applied applied would be: Debit: Work in Process Credit: Overhead Control

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Overhe Overhead ad applied applied to specif specific ic jobs would be recorde recorded d on the job-cost job-cost sheet sheet for the particular job.

Applying Overhead Using Functional Approaches

Overhead can also be applied using:  a plantwide rate (usually based on direct labor hours) ρ



departmental rates (usually based on unit-level drivers, such as direct labor hours or machine hours)

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 The predeter predetermined mined overhead overhead rate rate is calculated calculated as follows: follows: Predetermined Predetermined overhead overhead rate =

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Budgeted overhead costs Budgeted activity

Overhead is assigned or applied to each job by multiplying the activity for that particular  job by the predetermined predetermined rate. For example, example, if a firm selected selected direct labor hours as the activity, overhead would be applied by multiplying the number of hours worked on the particular job by the predetermined rate. Applied overhead = Predetermined overhead rate × Actual activity

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Differences between functional and activity-based costing are summarized at the top of  page 78.

 Job-Order  Job-Order Costi Costing ng

Overhead Application

Functional Approaches

Activity-Based Costing

One Plantwide

Departmental

Activity-Based

Overhead Rate

Overhead Rates

Rates

Overhead rates:

one overhead rate using a unit-level driver

different overhead rates for different departments

multiple activity-based overhead rates

Examples of drivers:

direct labor hours

machine hours direct labor hours

machine hours direct labor hours purchase orders setups material moves, etc.

Predetermi ned overhead rate:

Estimated plant total overhead ÷ Estimated total activity

Estimated departmental overhead ÷ Total activity for department estimated

Estimated overhead cost of activity pool ÷ Activity driver for pool

Applied overhead:

Predetermined overhead rate × Activity for job

Predetermined overhead rate × Activity for job

Activity-based rate × Activity for job

Accounting for Actual Overhead Costs ρ

Actual overhead costs are recorded in the Overhead Control account.

Actual overhead costs include: 1. indirect indirect materi materials als 2. indirect labor, overtime overtime premium, premium, and idle idle time 3. invoices received from outside suppliers for utilities, rent, repairs, property property taxes, etc. The entry to record these costs would be: ρ

Debit: Overhead Control Credit: Accounts Payable 4. internal transfers transfers of costs, such as depreciation depreciation and and the expiration of prepaid insurance. insurance.  The entry entry to record such items would be: Debit: Overhead Control Credit: Accumulated Depreciation—Building Credit: Accumulated Depreciation—Equipment Credit: Prepaid Insurance Overhead Actu Actual al ove overh rhea ead d cost costs s Appl Applie ied d over overhe head ad

(Debit)

(Credit)

Work in Process

 Job-Order  Job-Order Costi Costing ng Applied overhead

 Job-Order  Job-Order Costi Costing ng Overhead Variance ρ

 The overhea overhead d variance variance is the difference difference between between actual actual overhead overhead and and applied applied overhead. overhead.

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Under-applied overhead results when applied overhead is less than actual overhead for the period.

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Over-applied overhead results when applied overhead exceeds actual overhead for the period.

If immaterial, under-applied or over-applied overhead may be treated as an adjustment to cost of goods sold. Accounting for Finished Goods ρ

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When a job is completed, the cost of the job is transferred from the Work-in-Process account to the Finished Goods account. The entry to record the transfer would be: Debit: Finished Goods Credit: Work in Process

At the end of the period, the Work-in-Process account will have a balance only if there is uncompleted work in the factory. Accounting for Cost of Goods Sold ρ

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As goods are sold, the associated costs are transferred from the Finished Goods account to the Cost of Goods Sold account. The entry to record the transfer would be: Debit: Cost of Goods Sold Credit: Finished Goods

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 The entry entry to record the sale sale would would be: Debit: Accounts Receivable Credit: Sales Revenue

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If the overhead variance is immaterial, it is treated as an adjustment to cost of goods sold at the end of the year. The entry to close over-applied overhead to cost of goods sold would be: Debit: Cost of Goods Sold Credit: Overhead Control

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Normal cost of goods sold is the amount of cost of goods sold before adjustment for an overhead variance.

Adjusted cost of goods sold is normal cost of goods sold after adjustment for an overhead variance. Summary of Manufacturing Cost Flows ρ

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 The diagram diagram at the the top of page 80 summariz summarizes es the the flow of manufact manufacturing uring costs.

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Beca Becaus use e Co Cost st of Goods Goods Sold is an expe expens nse, e, it appe appears ars on the the comp compan any’ y’s s incom income e statement.

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Raw Materials, Work in Process, and Finished Goods would appear in the current assets section of the company’s co mpany’s balance sheet.

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Work in Process would also appear in the schedule of cost of goods manufactured, while Finished Finished Goods would also appear in the cost of goods sold section of the income statement.

 Job-Order  Job-Order Costi Costing ng Raw Materials

Purchases

Issues Work in Process

Finished Goods

Cost of Goods Sold

Wages Payable

Direct materials Direct labor Direct labor

Goods completed

Completed goods

Goods sold

Goods sold

Applied overhead Overhead Control

Actual Applied overhead overhead Overapplied overhead  To close close out out over-applie over-applied d overhead overhead to Cost Cost of Goods Goods Sold Sold

Accounting for Nonmanufacturing Costs ρ

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Selling and general administrative costs (nonmanufacturing costs) are considered period costs and are not assigned to the product.  The entry entry to record selling selling and general general administ administrative rative costs would be: Debit: Selling Expense Control Debit: Administrative Expense Control Credit: Accounts Payable Credit: Wages Payable Credit: Accumulated Depreciation

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Selling and administrative expenses appear on the income statement. s tatement.

 Job-Order  Job-Order Costi Costing ng KEY TERMS TEST Test your recall of the key terms as follows. Try to recall as many key terms as  possible without assistance. assistance. If you need assistance, refer to the list of key terms at  the end of this section. 1. A document or record used to accumulate manufacturing costs for a job is a(n) _________ _________ _________ _________ _________. _________. 2. A document used to record the cost of direct materials issued to each job is a(n)  ______________  ______________ ______________ _______________ _ _________. _________. 3. A cost accumulation method that accumulates costs by process or department is a(n) _____________-_____________ _____________. 4. A(n) ________-_________ ____________ ____________ accumulates manufacturing costs by job. 5. A document used to identify the cost of direct labor for a job is a(n) _________ ___________.

Normal al cost cost of good goods s sold sold adju adjust sted ed to incl includ ude e an over overhe head ad vari varian ance ce is call called ed 6. Norm  _____________  _____________ _________ _________ ______ _________ _________ _________. _________. __________-______-________ ____________ ____ _________ is a collection collection of open job-order cost sheets sheets 7. A(n) __________-______or job-order cost records. amount calculated calculated using per-unit per-unit normal cost is called 8.  The cost of goods sold amount  _____________  _____________ _________ _________ ______ _________ _________ _________. _________. 9. A ________ is one distinct unit or set of units.

adjusted cost of goods sold  job  job-order  job-order cost sheet  job-order  job-order costing costing system system materials requisition form

KEY TERMS: normal cost of goods sold process-costing system time ticket work-in-process file

⇒ Compare your answers with those at the end of the chapter. Review any key

terms missed.

CHAPTER QUIZ Circle the single best answer. 1. Material requisitions are used for recording: (a) materials purchased; (b) materials issued and used in production; (c) materials on hand in the storeroom; (d) none of the above

department ent that that is equipm equipment ent intens intensive ive would would most most likely likely use a predete predetermi rmined ned 2. A departm departmental overhead rate based on which of the following cost drivers: (a) machine hours; (b) direct labor hours; (c) direct labor cost; (d) units of direct material used overhead costs of a given period might appear appear in all of the following following accounts accounts 3.  The overhead except: (a) Raw Materials; (b) Work in Process; (c) Finished Goods; (d) Cost of Goods Sold 4. A job-order cost system associates costs with particular jobs: (a) true; (b) false

job-orde rderr cost cost syst system em is espe especi cial ally ly appro appropri priat ate e for situ situat atio ions ns where where basi basica call lly y 5. A job-o homogeneous units flow through production on a fairly continuous basis: (a) true; (b) false indicate the the direct direct labor labor time time worked worked on each job: (a) (a) true; true; (b) false 6. Time tickets indicate Work-in-Process cess account account will will have have a balance balance only if there there is uncomplet uncompleted ed work in the the 7. The Work-in-Pro factory: (a) true; (b) false 8. Finished Goods is an expense account: (a) true; (b) false 9. Raw Materials, Work in Process, and Cost of Goods Sold would appear in the assets section of the balance sheet: (a) true; (b) false

 Job-Order  Job-Order Costi Costing ng Most firms use actual costing because it provides product cost information on a 10. timely basis: (a) true; (b) false A single, unit-level driver usually results in a more accurate cost assignment for 11. overhead than activity-based costing: (a) true; (b) false Use the following information to answer Questions 12 through 14:

Estimated overhead $320,000 Actual overhead costs incurred $344,400 Estimated direct labor hours 40,000 Actual direct labor hours worked 42,000  The predet predeterm ermine ined d overhe overhead ad rate for applyi applying ng overhe overhead ad would would be: (a) $7.62 $7.62;; 12. (b) $8.00; (c) $8.20; (d) $8.61 If the predetermined overhead rate is used to apply overhead, applied overhead 13. would be: (a) $321,000; (b) $328,000; (c) $336,000; (d) $344,400  The amount amount of the overhead overhead variance variance would be: (a) $24,400 $24,400 overapplied; overapplied; 14. (b) $24,400 underapplied; (c) $8,400 overapplied; (d) $8,400 underapplied ⇒ Compare your answers with those at the end of the chapter. Review any

questions missed. PRACTICE TEST PROBLEM 1 Strief Industries identified the following budgeted overhead activities and drivers: Activity Pools Activity Drivers

Machin Mach inin ing g.... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... Setu Setup ps..... .......... .......... ...... ........ .......... ...... .... .... .... .... Purch rchasing.... ...... .... .... .... .... .... .... .... .... .... .... .... ....

$80, $80,00 000 0 $15, 15,000 $10, 10,000

Data associated with Job 786 follows: Direc Directt mate materi rial als s....... ........... ........ ........ ........ ........ ...... .. Direc Directt labo labor. r.... ...... ...... ...... ...... ...... ...... ....... ........ ........ ...... .. Machine hours.. rs.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Number of se setups........................... Purchase orders.............. ...... ...... ...... ...... ......

$1,00 $1,000 0 $3,50 $3,500 0 300 300 50 20

Machi achin ne hour hours s.... ...... .... .... .... .... .... .... .... .... .... .... .. 10,0 10,000 00 Number of se setups ups..... ...... ........ ...... .... .... .... .... 5,000 Purch rchase ord orders.. rs.... .... .... .... .... .... .... .... .... .... .... 2,000

PROBLEM 1 (Continued) Instructions: Calculate a unit-level overhead rate based on machine hours. h ours. 1. a.

b.

2. a.

b.

What is the total cost of Job 786 using this rate?

Calculate activity-based overhead rates.

What is the total cost of Job 786 using the three activity rates?

3. Which method of overhead application (activity-based rates or one plantwide rate) is more accurate? accurate?

85

 Job-Order  Job-Order Costi Costing ng PROBLEM 2  The Paine Paine Company Company uses uses a predetermined predetermined overhead overhead rate rate to apply overhead overhead to production. production. The The rate is based on direct labor hours. Estimates for the year 2004 are given below:

Esti Estima mate ted d over overhe head ad.. .... .... .... .... ..... ...... ...... ...... ..... Est Estimated dire direc ct labor hou hours.. rs.... .... .... .... ..

$500 $500,0 ,000 00 50,0 0,000

During 2004, the Paine Company used 60,000 direct labor hours. At the end of 2004, the Paine Company records revealed the following information: Raw Raw mat mate erial rials s inv inven ento tory ry.. .... ..... ..... .... .... ..... ... Work Wo rk--in-p in-pro roce cess ss inv invento entory ry.. .... .... .... .... .... .... .. Fini Finish shed ed good goods s inv invento entory ry.. .... ..... ..... .... .... .... .. Cost Co st of good goods s sold sold.. .... .... .... .... .... .... .... .... .... ..... ...... ... Over Overh head ead.... ...... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ..... .... ..

$ 40,000 100, 100,00 000 0 200, 200,00 000 0 700, 700,00 000 0 510, 510,00 000 0

Instructions: 1. Calculate the predetermined overhead rate for 2004.

2. Determine the amount of underapplied or overapplied overhead for 2004.

overapplied overhead is treated as an adjustment adjustment to cost of goods sold, 3. If underapplied or overapplied determine the cost of goods sold amount that would appear on the company’s income statement.

 Job-Order  Job-Order Costi Costing ng PROBLEM 3 Getz, Inc., has two producing pr oducing departments: Assembly and Finishing. The company has been using a plantwide predetermined overhead rate based on direct labor cost.  The followin following g estimates estimates were made for the current year: Assembly Finishing Total

Overhead............................. Direct labor cost................... Machine ho hours......................

$240,000 $300,000 15,000

$160,000 $500,000 10,000

$400,000 $800,000 25,000

Instructions: 1. Calculate a plantwide predetermined overhead rate for the current year based on direct labor cost.

Calculate ate separat separate e depart departmen mental tal overhe overhead ad rates rates based based upon direct direct labor labor cost for 2. Calcul Assembly and machine hours for Finishing.

 Job-Order  Job-Order Costi Costing ng PROBLEM 4 Cornell Industries uses a job-order costing system and applies overhead on the basis of direct labor hours. At the beginning of 2004, management estimated that 200,000 direct labor hours would be worked and $600,000 of overhead costs would be incurred. During the year, the company actually worked 220,000 direct labor hours and incurred the following production costs:

Indirec Indirectt labor labor.... ......... .......... .......... ......... ......... .......... .......... ............ ....... Indir Indirec ectt mate materia rials ls... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ .... Insu Insura ranc nce e.... ...... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ..... .. Utili Utiliti ties es... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Repa Re pair irs s and and main mainte tena nanc nce e.... ...... .... .... .... .... .... ..... ...... ...... ..... Depre Depreci ciat atio ion. n.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Direc Directt mate materi rial als s used used in produ product ctio ion. n.... ........ ....... .. Direc Directt labor labor... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ....

$140,00 $140,000 0 100,0 100,000 00 50,0 50,000 00 90,00 90,000 0 80,0 80,000 00 180,0 180,000 00 540,0 540,000 00 700,0 700,000 00

Instructions: 1. Calculate the predetermined overhead application rate for 2004.

2. Determine the amount of overhead applied to work in process during 2004.

 Job-Order  Job-Order Costi Costing ng PROBLEM 4 (Continued) 3. Determine the amount of underapplied or overapplied overhead for the year.

4. If goods with a cost of $1,500,000 were completed and transferred to finished goods during 2004, determine the cost of goods in process at the end of the period.

5. Prepare the journal entry to close underapplied or overapplied overhead to cost of goods sold.

 Job-Order  Job-Order Costi Costing ng PROBLEM 5 Voellenger, Incorporated, uses a job-order costing system and a predetermined overhead rate based on machine hours. At the beginning of the year, Voellenger estimated overhead for the year would be $50,000 and 8,000 machine hours would be used.  The followin following g information information pertains pertains to December December of the current current year: year:  Job No. No. 77 Job No. No. 79 Job No. No. 73 Totals

Work in process, December 1.............. December production activity: Materials requisitioned................... Direct labor costs........................... Machine hours.....................................

$6,000

$2,500

$1,500

$10,000

$1,200 $1,000 300

$800 $400 200

$650 $250 100

$2,650 $1,650 600

Actual overhead costs incurred in December were $5,000, of which $1,000 was depreciation on the factory building and $500 was depreciation on the production equipment. Instructions: 1. Compute the predetermined overhead rate.

2. Prepare the journal entries to record the activity for the month of December.

 Job-Order  Job-Order Costi Costing ng PROBLEM 5 (Continued) 3. Determine the cost associated with each job.

4. If Job No. 77 was completed during December, what is the balance of the Work-in-Process account at December 31?

5. If there was no balance in the Overhead Control account on December 1, what is the balance at December 31?

6. Prepare the journal entry to close underapplied or overapplied overhead to cost of goods sold.

 Job-Order  Job-Order Costi Costing ng PROBLEM 6  Thompson  Thompson Industries Industries uses a job-order job-order costing system system and and a predeter predetermined mined overhead overhead rate based on direct labor cost. Estimated overhead for 2004 was $540,000 and estimated direct labor costs were $900,000. On January 1, 2004, the company had the following inventories:

Raw materia rials..... ...... .... .... .... .... .... .... .... .... .... .... .... Work in process (Job No. 96)...... Finished goods...........................

$ –0– 16,000 –0 –

 The followin following g information information pertains pertains to the company company’s ’s activiti activities es for for the month of January January 2004: a. Purchased $150,000 of materials on account. Nos. 97 97 and 98 were started during the month. month. b.  Job Nos. c. Materials requisitioned for production totaled $144,000, of which $6,000 was for indirect materials.  Job No. No. 96....................... 96....................... ...........  Job No. No. 97....................... 97....................... ...........  Job No. No. 98....................... 98....................... ...........

$46,000 70,000 22,000

d. Factory payroll for the month totaled $100,000, of which $15,000 was for indirect labor.  The direct direct labor labor was was distribut distributed ed as follows:

 Job No. No. 96....................... 96....................... ...........  Job No. No. 97....................... 97....................... ...........  Job No. No. 98....................... 98....................... ...........

$20,000 35,000 30,000

company made adjusting adjusting entries at the end of January January to record the following following e.  The company expenses: Dep Depreci reciat atio ion n.... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... $5,0 $5,000 00 Expired red in insurance....................... 1,000 f. Other manufacturing costs not yet paid totaled $30,650. g. Overhead was applied using the predetermined overhead rate based upon direct labor cost. Nos. 96 and 97 97 were completed completed during the month. month. h.  Job Nos. account during the month at a selling selling price of 120% of  i.  Job No. 96 was sold on account manufacturing cost. Instructions:

Prepare e journa journall entrie entries s to record record the manufa manufactu cturin ring g activi activitie ties s of the 1. (Appendix) Prepar company for January and post to job-cost sheets, where appropriate.

 Job-Order  Job-Order Costi Costing ng PROBLEM 6 (Continued) Use this page to continue your answer.

 Job-Order  Job-Order Costi Costing ng PROBLEM 6 (Continued) Prepare T accounts accounts for Raw Materials, Materials, Manufac Manufacturi turing ng Overhead Overhead Control, Work in 2. Prepare Process, Finish Finished ed Goods, Goods, and Cost Cost of Goods Goods Sold. Sold. Enter Enter beginn beginning ing balanc balances, es, where appropriate, and post the transactions for January.

3. (Appendix (Appendix)) Prepare Prepare the journal journal entry to dispose dispose of the underappl underapplied ied or overapplied overapplied overhead overhead if the underapplied or overapplied overhead is immaterial.

 Job-Order  Job-Order Costi Costing ng PROBLEM 7 AEU Industries uses a job-order costing system. There are two production departments: Machining and Assembly. A predetermined overhead rate is used in each department. depar tment.  The Machini Machining ng Departm Department ent bases bases its rate on machine machine hours, and the the Assembl Assembly y Departmen Departmentt bases its rate on direct labor hours.  The company company made the followin following g estimates estimates at the the beginning beginning of the current year: Machining Assembly

Machine hours...................... Direct labor hours................. Overhead cost......................

20,000 7,000 $200,000

15,000 40,000 $800,000

 The followin following g information information was availa available ble for Job No. 12-5, which was started and comple completed ted during December.  JOB NO. NO. 12-5 Machining Assembly Direct materials.................... Direct labor cost................... Direct labor hours................. Machine hours......................

$2,000 $1,200 30 150

$ – 0– $5,500 200 50

Instructions: 1. Calculate the predetermined overhead rate used by each producing department.

2. Compute the total cost of Job No. 12-5.

 Job-Order  Job-Order Costi Costing ng ANSWERS KEY TERMS TEST  job-order cost sheet 1.  job-order 2. materials requisition form 3. process-costing system  job-order costing costing system system 4.  job-order 5. time ticket CHAPTER QUIZ 1. b 2. a 3. a True 4. a b False Process costing 5. would be appropriate for situations where basically homogeneous units flow through production on a fairly continuous basis. True 6. a True 7. a b False Of the six 8. control accounts, Cost of Goods Sold is the only expense account. Finished Goods is an inventory account that would appear in the current assets section of the balance sheet. b False  The three three 9. inventory accounts are Raw Materials, Work in Process, and Finished Goods. Cost of goods sold appears on the income statement. b False Most firms do 10. not use actual costing because actual costs cannot be determined until the end of the period. b False Multiple activity 11. drivers used in activity-based costing usually result in a more accurate cost assignment than a single, unit-level driver. b $320,000/40,000 = 12. $8.00 c $8 × 42,000 = 13. $336,000 d $344,400 – $336,000 14. = $8,400 underapplied

6. 7. 8. 9.

adjusted cost of goods sold work-in-process file normal cost of goods sold  job

PRACTICE TEST PROBLEM 1 1. a .

Unit-level overhead rate: =

Total overhead costs  Activity

=

($80,0 ($80,000 00 + $15,00 $15,000 0 + $10,00 $10,000) 0) 10,000 machine hours

=

$105,000 10,000 machine hours

= $10.50 $10.50 per machine hour  hour 

b.

 Job 786 total cost: Direct materials Direct labor Overhead (300 machine hours × $10.50)

$1,000 3,500 3,150 $7,650

2. a .

Activity-based overhead rates: Mach Ma chin ining ing rate: rate: $80, $80,00 000/ 0/10 10,0 ,000 00 mach machin ine e hours hours = $8 per per mach machin ine e

hour Setup rate: $15,000/5 $15,000/5,000 ,000 setups setups = $3 per per setup Purchas Purchasing ing rate: rate: $10,00 $10,000/2 0/2,00 ,000 0 purch purchase ase orders orders = $5 per purchas purchase e order b.

 Job 786 total cost: Direct materials Direct labor Overhead (300 machine hours × $8.00) Setups (50 setups × $3.00) Purchasing (20 purchase orders × $5.00)

$1,000 3,500 2,400 150 100 $7,150

3. Activity-based rates PROBLEM 2 1. Predetermined overhead rate: =

Estimated total overhead Estimated total activity

=

$500,000 50,000 direct labor hours

= $10 per direct labor labor hour 

2. Overapplied overhead for 2004: Overhead Control Actual ov overhead Applied ov overhead

$510,000

$600,000 (60,000 DLH × $10) $ 90,000 overapplied

3. Adjusted cost of goods sold: Cost of goods sold Overapplied overhead Adjusted cost of goods sold

Since overhead was overapplied, cost of goods sold is reduced.

$700,000) (90,000) (90,000) $610,000)

 Job order Costing Costing PROBLEM 3 1.

Plantwid Plantwide e rate =

Overhead Direct labor cost $400,000 = $800,000

= 50% of direct direct labor cost cost

2. Departmental rates: Overhead Direct labor cost $240,000 = $300,000

 Assembly  Assembly application rate =

= 80% of direct direct labor cost cost Finishing application rate =

Overhead Machine hours $160,000 = 10,000 hours

= $16 per per machine hour  hour 

PROBLEM 4 1.

Predetermined overhead rate rate = =

Estimated overhead Estimated activity

$600,000 200,000 direct labor hours

= $3.00 per direct direct labor hour  hour 

2. Overhead applied to work in process during 2004: = Actual activity × Predetermined rate = 220,000 direct labor hours × $3 per direct labor hour = $660,000 3. Overapplied overhead for 2004: Overhead Control (Actual costs) (Applied)

Indirect labor $140,000 Indirect ma materials 100,000 Insurance 50,000 Utilities 90,000 Repairs and maintenance80,000 Depreciation 180,000 Over Overh head ead app applied lied Overapplied 4.

Direct materials Direct labor Overhead applied Ending balance

$66 $660,00 0,000 0 $ 20,000

Work in Process $540,000 700,000 660,000 Goods Goods complet completed ed $1,500 $1,500,00 ,000 0 $400,000

5.  Journal entry to close overapplied overapplied overhea overhead d to Cost Cost of of Goods Sold: Manu Ma nufa fact cturi uring ng Overh Overhea ead d Co Cont ntro rol. l..... ........ ........ ......... ....... 20,0 20,000 00 Cost Co st of Good Goods s Sold Sold.. ..... ..... ..... ...... ....... ....... ...... ...... ...... ...... ..... .. 20,0 20,000 00 Since overhead was overapplied, Cost of Goods Sold is reduced by $20,000.

 Job order Costing Costing PROBLEM 5 1.

$50,000 8,000 machine hours = $6.25 per machine machine hour 

Predetermined Predetermined overhead overhead rate =

2.  Journal entries to record record the activity for the month of December December:: Entry to record issuance of direct materials for production: Work Wo rk in Proc Proces ess s...... ......... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... 2,65 2,650 0 Raw Raw Ma Mate teria rials ls.... ........ ........ ........ ........ ........ ........ ........ .......... .......... .... 2,650 2,650 Entry to record direct labor used in production: Work Wo rk in Proc Proces ess s...... ......... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... 1,65 1,650 0 Wage Wa ges s Paya Payable ble... ....... ........ ........ ....... ....... ........ ......... ........... ......... ... 1,650 1,650 Entry to record actual overhead costs incurred during December: Overh Overhea ead d Co Cont ntro rol.. l...... ........ ........ ........ ........ ........ ........ ........ .......... ........ .. 5,000 5,000 Acco Accoun unts ts Paya Payabl ble e..... ........ ...... ..... ..... ...... ...... ...... ...... ...... ...... ..... .. 3,50 3,500 0 Accu Accumu mula late ted d Depr Deprec ecia iati tion on—Bu —Buil ildi ding ng... ....... .... 1,00 1,000 0 Accu Accumu mula late ted d Depr Deprec ecia iati tion on—Eq —Equi uipm pmen entt... 500 500 Entry to record overhead applied during December: Work in Proces Process.. s.......... .......................................... .................................. 3,750* 3,750* Over Overhe head ad Co Cont ntro rol. l.... ..... ..... ...... ..... ..... ...... ...... ...... ...... ...... ...... ..... 3,75 3,750 0

*($6.25 × 600) 3.

Job No. 77

Work in proc Work rocess ess, De December 1....... .......... ... December production activity: ..........................................Materials ..................................................650 ......................................Direct labor ..................................................250 Overhead: .............$6.25 × 300 machine hours .............$6.25 × 200 machine hours ............ ...... .......$6.25 .$6.25 × 100 machine machine hours .............................................. 625 .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. ...........................................$10,075

 Job No. 73 $ 6,000

$2,500

Job No. 79

$1,500

1,200

800

1,000

400

1,875 1,250 Tota Totals ls $4,950

$3,025

4. If Job No. 77 was completed during December, Work in Process at December 31 would have a balance of $7,975. (The Job No. 79 balance would be $4,950, and the Job No. 73 balance would be $3,025.) 5. The balance in the Overhead Control account at December 31 could be calculated as follows: Overhead Control (Actual costs) (Applied)

Underapplied

$5,000 $1,250

$3,750

6.  Journal entry to close underapplied underapplied overhead overhead to cost cost of goods goods sold: sold: Cost Co st of Goods Goods Sold Sold.... ........ ........ ........ ........ ........ .......... ............ .......... .... 1,250 1,250 Manu Ma nufa fact ctur urin ing g Overh Overhea ead d Contr Control ol... ...... ...... ....... .... 1,25 1,250 0 Since overhead was underapplied, Cost of Goods Sold is increased by the entry. PROBLEM 6 1.  Journal entries to record record manufacturi manufacturing ng activities activities for January: January: a. Purchased materials on account: Raw Ma Mate teria rials ls.... ........ ........ ........ ........ .......... ............. ............. ............ ........ .. 150, 150,00 000 0 Acco Accoun unts ts Payab Payable le.... ........ ........ ......... ........... ............ ............ ........ 150, 150,00 000 0

 Job order Costing Costing

No entry required. Materials requisitioned for production: Work Wo rk in Proce Process ss.... ....... ....... .......... ............ ............ ............ ............ ......... ... 138, 138,00 000 0 Overh Overhea ead d Co Cont ntro rol.. l...... ........ ........ ........ ........ ........ ........ ........ .......... ........ .. 6,000 6,000 Raw Raw Ma Mate teria rials ls.... ........ ........ ........ ........ ........ ........ ........ .......... .......... .... 144, 144,00 000 0 d. Factory payroll for January: Work Wo rk in Proce Process ss.... ....... ....... .......... ............ ............ ............ ............ ......... ... 85,0 85,000 00 Overh Overhea ead d Co Cont ntro rol.. l...... ........ ........ ........ ........ ........ ........ ........ .......... ........ .. 15,0 15,000 00 Wage Wa ges s Paya Payable ble... ....... ........ ........ ....... ....... ........ ......... ........... ......... ... 100, 100,00 000 0 e. Expenses recorded with adjusting entries: Overh Overhea ead d Co Cont ntro rol.. l...... ........ ........ ........ ........ ........ ........ ........ .......... ........ .. 6,000 6,000 Accu Accumu mulat lated ed Depre Depreci ciat atio ion. n..... ........ ........ ........ ......... ....... 5,000 5,000 Prepa Prepaid id Insura Insuranc nce. e..... ........ ........ ........ ........ ........ ........ .......... ........ 1,000 1,000 f. Other manufacturing costs not yet paid: Overh Overhea ead d Co Cont ntro rol.. l...... ........ ........ ........ ........ ........ ........ ........ .......... ........ .. 30,6 30,650 50 Acco Accoun unts ts Payab Payable le.... ........ ........ ......... ........... ............ ............ ........ 30,6 30,650 50 g. Overhead applied using a predetermined overhead rate:

b. c.

Predetermined Predetermined overhead overhead rate =

=

Estimated total overhead Estimated total direct labor cost

$540,000 $900,000

= 60% of direct direct labor cost cost

Entry to apply manufacturing overhead in January: Work in Process............................................51,000* Overh Overhea ead d Co Cont ntrol rol.... ........ ........ ........ .......... ............ ............ ........ .. 51,0 51,000 00 *(60% × $85,000) h.  Job Nos. 96 and 97 were completed completed and transferred transferred to finished goods. (See the  job-order  job-order cost sheets on page page 100 for how how the amount amounts s were determined.) determined.) Finished Goods.............................................220,000* Work Wo rk in Proce Process ss.... ........ ........ ........ ........ ........ ........ .......... ........... ..... 220, 220,00 000 0 *(Job No. 96 at $94,000 and Job No. 97 at $126,000) i.  Job No. No. 96 was sold during the month. month. (See the job-ord job-order er cost cost sheets sheets below for how how the amount was determined.) Cost Co st of Goods Goods Sold Sold.... ........ ........ ........ ........ ........ .......... ............ .......... .... 94,0 94,000 00 Finis Finishe hed d Good Goods. s..... ........ ........ ........ ........ ........ ........ .......... ........... ..... 94,0 94,000 00 Accounts Accounts Receivable..................... Receivable..................... ............ ...... ..........112,800 ....112,800* * Sales Sales Reven Revenue ue... ....... ....... ....... ........ ........ ........ ........ ........ .......... ........ 112, 112,80 800 0 *($94,000 × 120%)  Job No. 96 96 Balance Balance........ ........ ...... .... .. $16,00 $16,000 0

Job No. 97 97 Balance..............$ Balance.............. $

–0–

1

2

DM....... DM............... ............... ....... 46,00 46,000 01 DL........ DL................ ............... ....... 20,00 20,000 01 OH...................... 12,0001  Total.......  Total............. ............ ...... $94,000 $94,000

DM........ DM...................... .............. 70,000 70,0002 DL........ DL................ ............... ....... 35,000 35,0002 OH...................... 21,0002  Total.......  Total............. ............ ...... $126,00 $126,00 02

1 1

($20,000 × 60%) 2 ($35,000 × 60%) 3 ($30,000 × 60%)

Job No. 98 98 Balance.............. $

–0– 3

DM........ DM...................... .............. 22,000 22,0003 DL........ DL................ ............... ....... 30,000 30,0003 OH...................... 18,0003  Total.......  Total............ ........... ........ $70,000 $70,000 3

 Job order Costing Costing 2.  T accounts accounts for for the inventory inventory accounts, accounts, Cost Cost of of Goods Goods Sold, and Overhead Overhead Control: Control: Raw Materials

$150,000 $144,000

Work in Process

Finished Goods

Bal. $ 16,000 DM 138,000 DL 85,0 85,000 00 OH 51,000 51,000 $220,000

$220,000 $94,000

$ 6,0 6, 000

Cost of Goods Sold

$126,000

$ 70,0 0, 000

$94,000 $94,000

Overhead Control

(Actual costs) Indirect ma materials $ 6,000 Indi ndirec rect lab labor 15,00 ,000 Depreciation and insurance 6,000 Other costs 30,650

(Applied)

Overhead applied $51,000 Under Underap appli plied ed $ 6,65 6,650 0 3. Underapplied overhead is closed to Cost of Goods Sold: Cost Co st of Goods Goods Sold Sold.... ........ ........ ........ ........ ........ .......... ............ .......... .... 6,650 6,650 Manu Ma nufa fact ctur urin ing g Overh Overhea ead d Contr Control ol... ...... ...... ....... .... 6,65 6,650 0 PROBLEM 7 1.

Machining overhead rate =

Estimated overhead $200,000 = = $10 per machine machine hour  hour  Estimated machine hours 20,000 machine hours

 Assembly predetermined predetermined overhead rate =

2.

Estimated overhead $800,000 = = $20 per per DLH DLH Estimated DLH 40,000 DLH

JOB NO. 12-5

Direct materials —Machining Direct labor —Machining Direct labor —Assembly Overhead—Machining ($10 × 150 machine hours) Overhead—Assembly ($20 × 200 direct labor hours)  Total $14,200

Exercise Q. No.1. Simmons Company has the following estimated costs for next year: Direct materials $ 1,20,000 Direct labor 4,40,000 Sales commissions 6,00,000 Salary of production supervisor 2,80,000 Indirect materials 40,000 Advertising expense 88,000

$ 2,000 1,200 5,500 1,500 4,000

 Job order Costing Costing

Rent on factory equipment

1,28,000

Simmons estimates that 80,000 direct labors and 1, 28,000 machine hours will be worked during the year. If overhead is applied on the basis of machine hours, what will be the overhead rate per hour? Q. No.2.

Houghton Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $4, 00,000 and direct labor hours would be 40,000. The actual figures for the year were $4, 40,000 for manufacturing overhead and 42,000 direct labor hours. What will the cost records for the year show?

Q. No.3.

Kasper Company’s predetermined overhead rate is based on direct labor hours. At the beginning of the current year, the company estimated that its manufacturing overhead would total $2, 20,0 20,000 00 duri during ng the the year year.. Duri During ng the the year year,, the the comp compan any y incu incurr rred ed $2, $2, 00,0 00,000 00 in actu actual al manufacturing overhead costs. The Manufacturing Overhead account showed that overhead was over-applied by $8,000 during the year. If the predetermined overhead rate was $10.00 per direct labor hour, how many hours were worked during the year? Q. No.4.

Under Horton Company's job-order costing system, manufacturing overhead is applied to Work in Proces Process s inven invento tory ry using using a predet predeterm ermin ined ed overh overhea ead d rate. rate. Durin During g July, July, Horto Horton’s n’s transactions included the following: Direct labor cost incurred Direct materials issued to production Indirect materials issued to production Manufacturing overhead cost applied Manufacturing overhead cost incurred

$2,14,000 360,000 32,000 452,000 500,000

Horton Company had no beginning or ending inventories in July. What was the cost of goods manufactured for July?

Q. No.5.

Hoyt Company has the following estimated costs for next year: Direct materials

$30,000

Direct labor

110,000

Sales commissions

150,000

Salary of production supervisor

70,000

Indirect materials

10,000

Advertising expense

22,000

Rent on factory equipment

32,000

Hoyt estimates that 20,000 direct labor and 32,000 machine hours will be worked during the year. If overhead is applied on the basis of machine hours, the overhead rate per hour will be:

 Job order Costing Costing Q. No.6.

Glenn Company's predetermined overhead rate is based on direct labor costs. The company's Work in Process inventory account has a balance of $1,200, which relates to the one job that was not complete at the end of an accounting period. The related job cost sheet includes total charges of $200 for direct materials and $500 for direct labor. The company's predetermined overhead rate, as a percentage of direct labor costs, must be:

Q. No.7.

Penn Company uses a predetermined overhead rate based on direct labor hours to apply manu manufa fact cturi uring ng overh overhea ead d to jobs. jobs. At the the begin beginni ning ng of the the year, year, the the comp compan any y esti estima mate ted d manufacturing overhead would be $100,000 and direct labor hours would be 10,000. The actual figures for the year were $110,000 for manufacturing overhead and 10,500 direct labor hours.  The cost cost records records for for the year year will show: show:

Q. No.8.

Seri Company's predetermined overhead rate is based on direct labor hours. At the beginning of  the current year, the company estimated that its manufacturing overhead would total $220,000 during the year. During the year, the company incurred $200,000 in actual manufacturing overhead costs. The Manufacturing Overhead account showed that overhead was over-applied by $8,000 during the year. If the predetermined overhead rate was $20.00 per direct labor hour, how many hours were worked during the year?

Q. No.9.

Serit Company's predetermined overhead rate is based on direct labor hours. At the beginning of  the current year, the company estimated that its manufacturing overhead would total $220,000 during the year. During the year, the company incurred $200,000 in actual manufacturing overhead costs. The Manufacturing Overhead account showed that overhead was overapplied by $8,000 during the year. If the predetermined overhead rate was $20.00 per direct labor hour, how many hours were worked during the year?

Q. No.10.

Artsy Sportswear manufactures a specialty line of silk-screened T-shirts. The company uses a  job-order  job-order costing costing system. system. During May, the following following costs costs were incurred on Job PS4: direct materials $27,400 and direct labor $9,600. In addition, selling and shipping costs of $14,000 were incurred on the job. Manufacturing overhead was applied at the rate of $25 per machinehour and Job PS4 required 160 machine-hours. If Job PS4 consisted of 5,000 shirts, the cost of  goods sold per shirt was: Q. No.11.

Under Eastern Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. During May, Eastern's transactions included the following: Direct labor cost incurred

$214,000

Direct materials issued to production

180,000

 Job order Costing Costing

Indirect materials issued to production

16,000

Manufacturing overhead cost applied

226,000

Manufacturing overhead cost incurred

250,000

Eastern Company had no beginning or ending inventories in May. What was the cost of goods manufactured for May? Q. No.12.

Drake Company is a Manufacturing firm that uses the Job order costing system. On January 1, the beginning of its fiscal year, the company’s inventory balances were as follows: Raw material $40,000 Work in Process 30,000 Finished goods 60,000  The company applies overhead overhead costs to jobs on the basis of direct labor hours worked. For current year, the comp compan any y estim estimat ated ed that that it would would work work 1, 50,00 50,000 0 direc directt labo laborr hours hours and and incur incur $9, $9, 00,00 00,000 0 in manufacturing overhead costs. The following transactions were recorded for the year: (a) (a) Raw Raw mat mater eria iall wer were e pur purch chas ased ed on acco accoun untt $8, $8,20 20,0 ,000 00 (b) Raw Mat Materi erial al were were requis requisiti ition oned ed for for use in produc producti tion on $7,6 $7,60, 0,00 000( 0( $7,2 $7,20, 0,00 000 0 direct direct mate materia riall and $40,000 indirect material) following costs were incurred for employee employee services: services: Direct labor $1, 50,000; indirect labor, (c)  The following $2, 20,000, Sales commission $1, 80,000; and administrative salaries $4, 00,000. Travel costs were recorded for the year $34,000. (40% relates to the factory operation and rest of  (d) relates to the selling and administrative activities.) Utility costs were recoded for the year $86,000(60% relates to the factory operation and 40% (e) relates to the selling and administrative activities.) Depreciation was recorded for the year$7, 00,000 (70% relates to the factory operation and 30% (f) relates to the selling and administrative activities.) (g) Insura Insuranc nce e expens expenses es were were expire expired d during during the year year$2 $20, 0,00 000. 0. (80% (80% relat relates es to the fact factory ory opera operati tion on and 20% relates to the selling and administrative activities. (h) Advertising costs were $3, 60,000. (i) Manufacturing overhead costs was applied to production. Due greater than expected demand for its products. The company worked 1, 40,000 direct labor hours during the year. (j) Goods costing $18, 00,000 to manufacture according to their job sheets were completed during the year. (k) Goods were sold on account to customers during the year at a total selling price of $30, 00,000.  The goods goods cost cost $17, $17, 40,000 40,000 to manufacture manufacture according according to their job job cost sheets. sheets. Required: 1. Prep Prepar are e jou journ rnal al entr entrie ies s to to reco record rd the the pre prece cedi ding ng tran transa sact ctio ions ns.. 2. Post Post the the ent entri ries es in (1) abo above to T –acc –accou ount nts. s. 3. Is manu manufac factu turin ring g overh overhea ead d under under appli applied ed or or over over app applie lied d for for the the year? year? Prepa Prepare re a Jour Journa nall entry entry to close any balance in the manufacturing overhead account to Cost of goods sold account, Do not allocate the balance between ending inventories and cost of goods sold. 4. Prep repare are an an In Incom come st statem ateme ent fo for th the ye year. Q. No.13.

Alamedas Alamedas Products Company Company is a Manufacturing Manufacturing firm that uses the Job order costing system. On January 1, the beginning of its fiscal year, the company’s inventory balances were as follows: Raw material $32,000 Work in Process 20,000 Finished goods 48,000 During the year, the following transactions were recorded for the year:

 Job order Costing Costing

(l) (l) Raw Raw mate materi rial al we were re purc purcha hase sed d on acco accoun untt $1,7 $1,70, 0,00 000 0 (m) (m) Raw Raw Mater Materia iall were were issue issued d for the stor storer eroo oom m for use use in prod produc ucti tion on $1,8 $1,80, 0,00 000( 0( 80% 80% of dire direct ct material and $20% for indirect material) (n) Employee’s salaries and wages were accrued as follows: Direct labor $2, 00,000; indirect labor, $82,000, Selling and administrative salaries $90,000. (o) (o) Utili Utility ty cost costs s were were incur incurred red for for the the facto factory ry we were re $65, $65,00 000. 0. Advertising costs were $1, 00,000. (p) (q) Prepai Prepaid d insuran insurance ce expe expens nses es were were expire expired d during during the the year $20, $20,00 000. 0. (90% (90% relat relates es to the the factor factory y operation and 10% relates to the selling and administrative activities). (r) Depre Depreci ciat atio ion n was reco recorde rded d for the the year year $1,80 $1,80,0 ,000 00 (85 (85% % relat relates es to the the fact factory ory ope operat ratio ion n and 15% 15% relates to the selling and administrative activities.) (s) Manufacturing overhead was applied to jobs at the rate of 175% of the direct labor cost. (t) Goods Goods cost costing ing $7,00, $7,00,00 000 0 to to manuf manufact acture ure accordin according g to their their job job cost cost shee sheets ts were were transfe transferred rred to the the finished goods warehouse. Sale for the year totaled $10, 00,000. The total cost to manufacture these goods according to their (u)  job cost cost sheet was $7, $7, 20,000. 20,000. Required: 1. Prep Prepar are e jou journ rnal al entr entrie ies s to to reco record rd the the pre prece cedi ding ng tran transa sact ctio ions ns.. 2. Post Post the the entri entries es in (1) (1) above above to T –acc –accou ount nts s for Raw Raw Mate Materi rial al,, work work in proc proces ess, s, Fini Finish shed ed good goods, s, Manufacturing Overhead and Cost of goods sold. Post the appropriate part of your journal entries to those  T-accounts.  T-accounts. Compute Compute the ending balance in each account. account. 3. Is manu manufac factu turin ring g overh overhea ead d under under appli applied ed or or over over app applie lied d for for the the year? year? Prepa Prepare re a Jour Journa nall entry entry to close any balance in the manufacturing overhead account to Cost of goods sold account, Do not allocate the balance between ending inventories and cost of goods sold. 4. Prep repare are an In Incom come stat statem eme ent for for th the ye year

Q. No.14. Agora Products Incorporation, manufacturer’s goods to customers orders and uses a job-order costing system. A beginning of the year trial balance for the company is given below: Cash $35,00 0 Accounts Receivable 1,27,00 0 Raw Materials 10,000 Work in Process 44,000 Finished goods 75,000 Prepaid insurance 9,000 Plant and Equipment 4,00,000 Accumulated depreciation 1,10,000 Accounts payable 86,000 Salaries and wages payable 9,000 Capital stock 3,75,000 Retained Earnings 1,20,000  Total 7,00,000 7,00,000 7,00,000 7,00,000  The company company applies manufacturin manufacturing g overhead overhead costs to jobs on the basis of direct materials materials cost. cost. The follo followin wing g esti estima mate tes s we were re made made at the the begin beginnin ning g of the the year year for for purpo purpose ses s of  computing computing a predetermined predetermined overhead rate; manufacturing manufacturing overhead cost $5, 10,000 and the direct materials cost $3, 40,000. Summarized transactions of the company for the year are given below: Raw material were purchased on account $4,00,000 (a) Raw Material were requisitioned for use in production $3,70,000( $3,20,000 direct (b) material and $50,000 indirect material) Salary and wages costs were incurred as follows: (c) Direct labor -----------------------------------------------$76 -----------------------------------------------$76,000; ,000; Indirect labor---------------------la bor------------------------------------------------------------------- $1, 30,000, Selling and administrative salaries----------------------- $1,10,000. Maintenance costs incurred in the factory $81,000. (d)  Travel costs incurred by salespeop salespeople, le, $43,000 $43,000.. (e)

 Job order Costing Costing

Prepaid insurance on the factory expired during the year, $7,000. Utility costs incurred, $70,000 (90% related to the factory operations and 10% related to selling and administration activities. Property taxes incurred on the factory building, $9,000. (h) Advertising costs incurred $2, 00,000. (i) Rental costs incurred on special factory equipment $1, 20,000. (j) Depreciation was recorded for the year$50,000 (80% relates to the factory assets and (k) 20% relates to the selling and administrative assets) Manufacturing overhead costs applied to jobs, $-------------------? (l) Costs of goods manufactured for the year, $8, 90,000. (m) Sales for the year totaled $14, 00,000 (all on account). The costs of goods sold totaled (n) $9, 30,000. Collection on account from customers during the year $13, 50,000. (o) Cash Cash payme payment nts s made made durin during g the the year, year, to acco accoun unts ts payab payable le $9, $9, 70,00 70,000; 0; and to (p) employees $3, 00,000. Required: Prepare journal entries to record the year’s transactions. (1) Prepare a schedule of cost of goods manufactured. (2) Is manufacturing overhead under applied or over applied for the year? (3) Prepare a Journal entry to close any balance in the manufacturing overhead account to (4) Cost of films sold account. Prepare a schedule of cost of goods sold. (5) Prepare an Income statement for the year. (6)  Job 412 was one of the many jobs started and completed completed during the year. The job (7) required $18,000 in direct materials and $2,000 in direct labor cost. If the job contained 400 units and the company billed the job at 125% of the unit product cost on the job cost sheet, what price per unit would have been charged to customers? (f) (g)