CHAPTER 15A

JOB ORDER COSTING

CHAPTER LEARNING OBJECTIVES

1. Describe cost systems and the flow of costs in job order system. Cost accounting involves the procedures for measuring, recording, and reporting product and service costs. From the data accumulated, companies determine the total cost and the unit cost of each product. The two basic types of cost accounting systems are process cost and job order cost.

In job order costing, companies first accumulate manufacturing costs in three accounts: Raw Materials Inventory, Factory Labor, and Manufacturing Overhead. They then assign the accumulated costs to Work in Process Inventory and eventually to Finished Goods Inventory and Cost of Goods Sold.

2. Use a job cost sheet to assign costs to work in process. A job cost sheet is a form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job. Job cost sheets constitute the subsidiary ledger for the Work in Process Inventory control account.

3. Demonstrate how to determine and use the predetermined overhead rate. The predetermined overhead rate is based on the relationship between estimated annual overhead costs and estimated annual operating activity. This is expressed in terms of a common activity base, such as direct labor cost. Companies use this rate to assign overhead costs to work in process and to specific jobs.

4. Record manufacturing and service jobs completed and sold. When jobs are completed, companies add the cost to Finished Goods Inventory and remove it from Work in Process Inventory. When a job is sold, companies increase Cost of Goods Sold and decrease Finished Goods Inventory for the cost of the goods.

5. Distinguish between under- or overapplied manufacturing overhead. Underapplied manufacturing overhead indicates that the overhead assigned to work in process is less than the overhead incurred. Overapplied overhead indicates that the overhead assigned to work in process is greater than the overhead incurred.

TRUE-FALSE STATEMENTS

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

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

3. A process cost accounting system is appropriate for similar products that are continuously mass produced.

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

5. A job order cost system and a process cost system are two alternative methods for accumulating product costs.

6. A job order cost system identifies costs with a particular job rather than with a set time period.

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

8. Raw Materials Inventory, Factory Labor, and Manufacturing Overhead are all control accounts is a job order cost system.

9. Accumulating and assigning manufacturing costs are two important activities in a job order cost system.

10. Recording the acquisition cost of raw materials is a part of accumulating manufacturing costs.

11. The acquisition of raw materials increases an asset.

12. The Work in Process Inventory account is decreased for all raw materials purchase returns and allowances.

13. When raw materials are received, no effort is made at this point to associate the cost of the materials with specific jobs.

14. When raw materials are purchased, the Work in Process Inventory account is increased.

15. Factory labor should be assigned to selling and administrative expenses on a proportionate basis.

16. Benefits and payroll taxes associated with factory workers should be accumulated as a part of Factory Labor.

17. Job order cost sheets constitute the subsidiary ledger of the control account, Work in Process Inventory.

18. In a job order cost system, each entry to the Work in Process Inventory account should be accompanied by a posting to one or more job cost sheets.

19. Direct materials requisitioned increase the Work in Process Inventory account and the job cost sheets for the individual jobs on which the materials are used.

20. Manufacturing overhead is the only product cost that can be assigned to jobs as soon as the costs are incurred.

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

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

23. The equation for the predetermined overhead rate is estimated annual overhead costs divided by an estimated volume of annual operating activity.

24. Actual manufacturing overhead costs should be recorded in the Work in Process Inventory account as they are incurred.

25. A job order cost sheet be destroyed as soon as the job is complete.

26. Finished Goods Inventory is increased for the cost of jobs completed during a period.

27. When goods are sold, Cost of Goods Sold is increased and Work in Process Inventory account is decreased.

28. Total manufacturing costs for a period consists of the costs of direct materials used, the cost of direct labor incurred, and the manufacturing overhead applied during the period.

29. Overapplied overhead means that actual manufacturing overhead costs were greater than the manufacturing overhead costs applied to jobs.

30. At the end of the year, the amount of the overapplied overhead is recorded as a decrease to Cost of Goods Sold.

31. A cost accounting system consists of manufacturing cost accounts that are fully integrated into the accounting records of a company.

32. The cost of raw materials purchased is recorded as a decrease to Raw Materials Inventory when materials are received.

33. Requisitions for direct materials are recorded daily to the individual job cost sheets.

34. The predetermined overhead rate is based on the relationship between estimated annual overhead costs and estimated volume of annual operating activity expressed in terms of a common activity base.

35. At the end of the year, underapplied overhead is usually recorded as a decrease to Cost of Goods Sold.

Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

36. Which of the following is one of the components of cost accounting?

a. It involves measuring product costs.

b. It involves the determination of company profits.

c. It requires GAAP to be applied.

d. It requires cost minimizing principles.

37. A major purpose of cost accounting is to

a. classify all costs as operating or nonoperating.

b. measure, record, and report period costs.

c. provide information to stockholders for investment decisions.

d. measure, record, and report product costs.

38. The two basic types of cost accounting systems are

a. job order and job accumulation systems.

b. job order and process cost systems.

c. process cost and batch systems.

d. job order and batch systems.

39. A process cost system would most likely be used by a company that makes

a. videos.

b. repairs to automobiles.

c. breakfast cereal.

d. college graduation announcements.

40. Which of the following would be accounted for using a job order cost system?

a. The production of cell phones.

b. The production of automobiles.

c. The refining of petroleum.

d. The construction of a new campus building.

41. Process costing is used when

a. the production process is continuous.

b. production is aimed at filling a specific customer order.

c. dissimilar products are involved.

d. costs are to be assigned to specific jobs.

42. Process costing is not used when

a. similar goods are being produced.

b. large volumes are produced.

c. jobs have distinguishing characteristics.

d. a series of connected manufacturing processes is necessary.

43. An important feature of a job order cost system is that each job

a. must be similar to previous jobs completed.

b. has its own distinguishing characteristics.

c. must be completed before a new job is accepted.

d. consists of one unit of output.

44. As of December 31, 2022, Stand Still Industries had $2,500 of raw materials inventory. At the beginning of 2022, there was $2,000 of materials on hand. During the year, the company purchased $375,000 of materials; however, it paid for only $312,500. How much inventory was requisitioned for use on jobs during 2022?

a. $312,000

b. $374,500

c. $375,500

d. $313,000

45. The flow of costs in a job order cost system

a. involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done.

b. cannot be measured until all jobs are complete.

c. measures product costs for a set time period.

d. generally follows a LIFO cost flow assumption.

46. In a job order cost accounting system, the Raw Materials Inventory account is

a. increased when the Manufacturing Overhead account is decreased.

b. increased for the purchase of direct and indirect materials

c. not used.

d. used to accumulate period costs.

47. When a job is completed and all costs have been accumulated on a job cost sheet, the journal entry that should be made is

a. Increase Finished Goods Inventory and decrease Raw Materials Inventory, Factory Labor, and Manufacturing Overhead.

b. Increase Work in Process Inventory and decrease Raw Materials Inventory, Factory Labor, and Manufacturing Overhead.

c. Increase Raw Materials Inventory and decrease Work in Process Inventory.

d. Increase Finished Goods Inventory and decrease Work in Process Inventory.

48. The two major steps in the flow of costs are

a. allocating and assigning.

b. acquiring and accumulating.

c. accumulating and assigning.

d. accumulating and amortizing.

49. The Raw Materials Inventory account is

a. a subsidiary account.

b. increased for invoice costs and freight costs chargeable to the purchaser.

c. increased for purchase discounts taken.

d. increased for purchase returns and allowances.

50. When raw materials are ordered, the Raw Materials Inventory account

a. is increased if Accounts Payable is decreased.

b. is decreased when the goods are shipped.

c. is increased if the purchase is for direct materials.

d. is not adjusted until the goods are received.

51. The Raw Materials Inventory account is increased for the cost of raw materials when the

a. materials are ordered.

b. materials are received.

c. materials are put into production.

d. bill for the materials is paid.

52. Which of the following is included in factory labor costs?

a. Gross earnings

b. Employer payroll taxes

c. Employee benefits

d. All of these are included

53. All of the following would be recorded in assigning accumulated costs to the Work in Process Inventory except

a. the purchase of raw materials.

b. raw materials are used.

c. overhead is applied.

d. factory labor is used.

54. Factory labor costs

a. are accumulated in a control account.

b. do not include pension costs.

c. include vacation pay.

d. are based on workers’ net pay.

55. Factory Labor

a. is an expense account.

b. is a control account for direct and indirect labor.

c. is a subsidiary account for direct and indirect labor.

d. accumulates the cost of factors labor.

56. Kline Manufacturing has the following labor costs:

Factory—Gross wages $500,000

Factory—Net wages 420,000

Employer Payroll Taxes Payable 50,000

The amount recorded as an increase to Factory Labor will be

a. $550,000.

b. $500,000.

c. $470,000.

d. $450,000.

57. Factory labor costs

a. accumulate in advance of utilization.

b. accumulate in a control account.

c. include sick pay earned by factory workers.

d. accumulate in Factory Labor Expense.

58. Which of the following is not a control account?

a. Work in Process Inventory

b. Finished Goods Inventory

c. Both Work in Process Inventory and Finished Goods Inventory are control accounts.

d. Neither Work in Process Inventory nor Finished Goods Inventory are control accounts.

59. Factory labor is increased for

a. gross wages of direct labor.

b. net wages of factory labor.

c. gross wages and benefits of factory labor.

d. net wages and benefits of factory labor.

60. The acquisition of raw materials will

a. increase Work in Process Inventory.

b. increase Manufacturing Overhead and decrease Raw Materials Inventory.

c. increase Raw Materials Inventory and Manufacturing Overhead.

d. increase Raw Materials Inventory.

61. Which one of the following best describes a job cost sheet?

a. It is a form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job.

b. It is used to track manufacturing overhead costs to specific jobs.

c. It is used by management to understand how direct costs affect profitability.

d. It is a daily form that management uses for tracking worker productivity on which employee raises are based.

62. Job cost sheets constitute the subsidiary ledger for the

a. Finished Goods Inventory account.

b. Cost of Goods Sold account.

c. Work in Process Inventory account.

d. Cost of Goods Manufactured account.

63. A materials requisition slip showed direct materials requisitions of $66,000 and indirect materials requisitions of $9,000. This transaction will

a. Increase Work in Process Inventory $66,000 and decrease Raw Materials Inventory $66,000.

b. Increase Direct Materials $66,000, increase Indirect Materials $9,000, and decrease Work in Process Inventory.

c. Increase Manufacturing Overhead $75,000 and decrease Raw Materials Inventory $75,000.

d. Increase Work in Process Inventory $66,000, increase Manufacturing Overhead $9,000, and decrease Raw Materials Inventory $75,000.

64. A job cost sheet does not show

a. the costs chargeable to a specific job.

b. the total costs of a completed job.

c. the unit cost of a completed job.

d. the cost of goods sold.

65. Under an effective system of internal control, an authorization for issuing materials is made

a. orally.

b. on a prenumbered materials requisition slip.

c. by the accounting department.

d. by anyone on the production line.

66. The materials requisition slip would not include the

a. quantity of materials requisitioned.

b. stock number of the materials requisitioned.

c. cost per unit of the materials requisitioned.

d. name of the supplier for the materials requisitioned.

67. Materials requisition slips are costed

a. by production supervisors.

b. by factory personnel who work on the production line.

c. after the goods have been sold.

d. using any of the inventory costing methods.

68. Transactions are posted to control accounts in a costing system

a. monthly.

b. daily.

c. annually.

d. semi-annually.

69. Which one of the following should be equal to the total of the Work in Process Inventory account at the end of the period?

a. The total of the amounts transferred from raw materials for the current period

b. The sum of the costs shown on the job cost sheets of unfinished jobs

c. The total of manufacturing overhead applied to work in process for the period

d. The total manufacturing costs for the period

70. Which of the following is not included on a time ticket?

a. overtime hours worked by the employee

b. job number

c. materials requisitioned

d. account to be charged

71. A time ticket does not indicate the

a. employee's name.

b. account to be charged.

c. number of personal exemptions claimed by the employee.

d. job number.

72. Which one of the following is a source document that requires a posting to the job cost sheet?

a. Raw materials receiving slips

b. Materials purchase orders

c. Labor time tickets

d. Finished goods shipping documents

73. Time tickets should be approved by

a. the audit committee.

b. co-workers.

c. the employee's supervisor.

d. the payroll department.

74. If the entry to assign factory labor showed only an increase to Work in Process Inventory, then all labor costs were

a. direct labor.

b. indirect labor.

c. overtime related.

d. regular hours.

75. The principal accounting record used in assigning costs to jobs is

a. the job cost sheet.

b. the cost of goods manufactured schedule.

c. the Manufacturing Overhead account.

d. the raw materials requisition form.

76. The following information is available for completed Job No. 402: direct materials, $120,000; direct labor, $180,000; manufacturing overhead applied, $90,000; units produced, 5,000 units; units sold, 4,000 units. The cost of the finished goods on hand from this job is

a. $60,000.

b. $390,000.

c. $78,000.

d. $312,000.

77. Sportly, Inc. completed Job No. B14 during 2022. The job cost sheet listed the following:

Direct materials $110,000

Direct labor $60,000

Manufacturing overhead applied $82,000

Units produced 3,000 units

Units sold 1,800 units

What is the cost of the finished goods on hand from this job?

a. $151,200

b. $126,000

c. $100,800

d. $102,000

78. Madison Inc. uses job order costing for its line of dual zone wine refrigerators. The cost incurred for production during 2022 totaled $18,000 of materials, $9,000 of direct labor costs, and $6,000 of manufacturing overhead applied. The company ships all goods as soon as they are completed which results in no finished goods inventory on hand at the end of any year. Beginning Work in Process Inventory totaled $15,000, and the ending balance is $9,000. During the year, the company completed 25 refrigerators. What is the cost per refrigerator?

a. $1,080

b. $1,560

c. $1,320

d. $1,920

79. As of December 31, 2022, Nilsen Company had $2,000 of raw materials inventory. At the beginning of 2022, there was $1,600 of raw materials on hand. During the year, the company purchased $354,000 of raw materials and paid raw materials invoices totaling $314,000. How much raw materials inventory was requisitioned for use on jobs during 2022?

a. $354,400

b. $352,000

c. $343,600

d. $353,600

80. Cost of goods manufactured equals $85,000 for 2022. Finished Goods Inventory is $2,000 at the beginning of the year and $5,500 at the end of the year. Beginning and ending Work in Process Inventory for 2022 are $4,000 and $5,000, respectively. What is Cost of Goods Sold for the year?

a. $080,500

b. $83,000

c. $81,500

d. $88,500

81. A company estimated its annual overhead costs to be $1,500,000 and its direct labor costs to be $1,000,000. Actual overhead was $1,450,000, and actual labor costs totaled $1,100,000. What is the company’s predetermined overhead rate based on direct labor costs (rounded to the nearest cent)?

a. $1.45

b. $1.32

c. $1.50

d. $1.36

82. Vektek, Inc. considers machine hours to be the best activity base for allocating its manufacturing overhead. At the beginning of the current period, the company estimated annual overhead costs totaling $2,050,000. The company used 1,000 hours of processing on Job No. B12 during the period and incurred manufacturing overhead costs totaling $2,100,000. The estimated machine hours for the year totaled 20,000. How much overhead should be applied to Job No. B12?

a. $2,100

b. $102,500

c. $105,000

d. $2,050

83. Barr Mfg. provided the following information from its accounting records for 2022:

Estimated production 60,000 labor hours

Actual production 56,000 labor hours

Estimated overhead $900,000

Actual overhead $870,000

What is the predetermined overhead rate if Barr bases the rate on direct labor hours (rounded to the nearest cent)?

a.$16.07 per hour

b.$15.00 per hour

c.$14.50 per hour

d.$15.54 per hour

84. Kinney Company applies overhead on the basis of 150% of direct labor cost. Job No. 176 incurs $150,000 of direct materials costs and $180,000 of manufacturing overhead. The total manufacturing costs for Job No. 176 is

a. $330,000.

b. $430,000.

c. $450,000.

d. $405,000.

85. Redman Company manufactures customized desks. The following pertains to Job No. 978:

Direct materials used $15,450

Direct labor hours worked 360

Direct labor rate per hour $15

Machine hours used 300

Predetermined overhead rate per machine hour $22

What is the total manufacturing cost for Job No. 978?

a. $25,650

b. $27,450

c. $28,950

d. $30,750

86. Henson Company applies overhead on the basis of 120% of direct labor cost. Job No. 190 is increased with $140,000 of direct materials costs and $180,000 of manufacturing overhead. The total manufacturing costs for Job No. 190 is

a. $320,000.

b. $488,000.

c. $348,000.

d. $470,000.

87. Norman Company manufactures customized plexiglass shields. The following pertains to Job No. 953:

Direct materials used $22,800

Direct labor hours worked 600

Direct labor rate per hour $16

Machine hours used 400

Predetermined overhead rate per machine hour $30

What is the total manufacturing cost for Job No. 953?

a. $41,200

b. $44,400

c. $47,200

d. $50,400

88. Minton Company provided the following information from its accounting records for 2022:

Estimated production 60,000 direct labor hours

Actual production 56,000 direct labor hours

Estimated overhead $1,800,000

Actual overhead $1,740,000

What is the predetermined overhead rate if Minton Company bases it on direct labor hours (rounded to the nearest cent)?

a. $30.00 per hour

b. $29.00 per hour

c. $32.14 per hour

d. $31.07 per hour

89. Labor costs that have been identified as indirect labor are recorded as

a. manufacturing overhead.

b. direct labor.

c. the individual jobs worked on.

d. salary expense.

90. Manufacturing overhead is applied to each job

a. at the time when the overhead cost is incurred.

b. by means of a predetermined overhead rate.

c. at the end of the year when actual costs are known.

d. only if the overhead costs can be directly traced to that job.

91. The predetermined overhead rate is based on the relationship between

a. estimated annual costs and actual activity.

b. estimated annual costs and estimated annual activity.

c. actual monthly costs and actual annual activity.

d. estimated monthly costs and actual monthly activity.

92. The predetermined overhead rate is

a. determined on a moving average basis throughout the year.

b. not calculated until actual overhead costs are incurred.

c. determined at the beginning of the year.

d. determined at the end of the current year.

93. In calculating a predetermined overhead rate, a recent trend in automated manufacturing operations is to choose an activity base related to

a. direct labor hours.

b. indirect labor dollars.

c. machine hours.

d. raw materials dollars.

94. Annual overhead costs are estimated to be $750,000 and direct labor costs are estimated to be $1,000,000. If the activity base for calculation of the overhead rate is direct labor costs,

a. $1.33 is the predetermined overhead rate.

b. for every dollar of manufacturing overhead, 75 cents of direct labor will be assigned.

c. for every dollar of direct labor, 75 cents of manufacturing overhead will be assigned.

d. a predetermined overhead rate cannot be determined.

95. Overhead application is recorded as a(n)

a. decrease to Work in Process Inventory.

b. decrease to Manufacturing Overhead.

c. increase to Manufacturing Overhead.

d. decrease to job cost sheets.

96. Manufacturing overhead applied plus direct labor incurred and what other item equals total manufacturing costs for the period?

a. Goods available for sale

b. Raw materials purchased

c. Work in process inventory

d. Direct materials used

97. Simmons Inc. applies overhead to production at a predetermined rate of 90% of direct labor cost. Job No. 250, the only job still in process at the end of August, has been charged with manufacturing overhead of $8,100. What was the amount of direct materials added to Job No. 250 if the balance in Work in Process Inventory is $30,000?

a. $ 8,100.

b. $ 9,000.

c. $12,900.

d. $14,610.

98. Spencer Inc. applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 130, the only job still in process at the end of August, has been charged with manufacturing overhead of $6,400. What was the amount of direct materials added to Job No. 130 if the balance in Work in Process Inventory is $20,000?

a. $7,000.

b. $6,400.

c. $5,600.

d. $8,480.

99. For Jacobs Company, the predetermined overhead rate is 70% of direct labor cost. During the month, $600,000 of factory labor was incurred of which $140,000 is indirect labor. Actual overhead incurred was $320,000. The amount of overhead charged to Work in Process Inventory is

a. $322,000

b. $320,000

c. $420,000

d. $460,000

100. Simpson Company applies overhead on the basis of 200% of direct labor cost. Job No. 305 is increased with $180,000 of direct materials costs and $200,000 of manufacturing overhead. The total manufacturing costs for Job No. 305 is

a. $380,000.

b. $480,000.

c. $560,000.

d. $580,000.

101. For Wilton Company, the predetermined overhead rate is 70% of direct labor cost. During the month, $720,000 of Factory Labor was incurred of which $200,000 is indirect labor. Actual overhead incurred was $360,000. The amount of overhead charged to Work in Process Inventory is

a. $364,000.

b. $360,000.

c. $504,000.

d. $520,000.

102. At the beginning of the year, Monroe Company estimates annual overhead costs to be $2,400,000 with a volume of 300,000 machine hours. Using machine hours as a base, the amount of overhead applied during the year if actual volume for the year was 315,000 hours is

a. $2,400,000.

b. $2,285,714.

c. $1,680,000.

d. $2,520,000.

103. Cost of goods sold can be determined from

a. analysis of all the control accounts in the cost system.

b. the Finished Goods Inventory records.

c. the Work in Process Inventory records.

d. the Raw Materials Inventory account.

104. When determining the costs of jobs, how does a company account for indirect materials?

a. They are added to work in process as used.

b. They remain part of the raw materials inventory.

c. They are transferred out of raw materials inventory into manufacturing overhead when used.

d. They are transferred out of raw materials inventory into work in process inventory as used.

105. In a job order cost system, a decrease to Manufacturing Overhead will be accompanied by an increase to

a. Cost of Goods Manufactured.

b. Finished Goods Inventory.

c. Work in Process Inventory.

d. Raw Materials Inventory.

106. During 2022, Tanner Manufacturing estimated Job No. 26 to cost $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Tanner applied overhead based on direct labor cost. Actual production required an overhead cost of $290,000, $550,000 in materials, and $220,000 in labor. All of the goods were completed. What amount was transferred to Finished Goods Inventory for Job No. 26?

a. $1,000,000

b. $1,060,000

c. $1,070,000

d. $1,100,000

107. Increases to Work in Process Inventory are accompanied by decreases to all but which of the following accounts?

a. Raw Materials Inventory

b. Factory Labor

c. Manufacturing Overhead

d. Cost of Goods Sold

108. Which of the following transactions is not part of accumulating manufacturing costs in a job order cost system?

a. Cost of goods sold is recognized.

b. Raw materials are purchased.

c. Factory labor is incurred.

d. Manufacturing overhead is incurred.

109. Which one of the following is not a part of assigning manufacturing costs in a job order cost system?

a. Manufacturing overhead is applied.

b. Raw materials are used.

c. Manufacturing overhead is incurred.

d. Factory labor is incurred.

110. In determining total manufacturing costs on the cost of goods manufactured schedule,

a. beginning Work in Process Inventory should have a zero balance.

b. actual manufacturing overhead costs appear as a deduction.

c. manufacturing overhead applied is added to direct materials and direct labor.

d. ending Work in Process Inventory is deducted from beginning Work in Process Inventory.

111. Gulick Company developed the following data for the current year:

Beginning Work in Process Inventory $240,000

Direct materials used 144,000

Actual overhead 288,000

Overhead applied 216,000

Cost of goods manufactured 264,000

Total manufacturing costs 720,000

Gulick Company's direct labor cost for the year is

a. $72,000.

b. $360,000.

c. $216,000.

d. $288,000.5

112. Gulick Company developed the following data for the current year:

Beginning Work in Process Inventory $240,000

Direct materials used 144,000

Actual overhead 288,000

Overhead applied 216,000

Cost of goods manufactured 264,000

Total manufacturing costs 720,000

Gulick Company's ending Work in Process Inventory is

a. $696,000.

b. $480,000.

c. $456,000.

d. $216,000.

113. Hayward Manufacturing Company developed the following data:

Beginning Work in Process Inventory $900,000

Direct materials used 700,000

Actual overhead 1,100,000

Overhead applied 800,000

Cost of goods manufactured 1,200,000

Ending Work in Process Inventory 1,500,000

Hayward Manufacturing Company's total manufacturing costs for the period is

a. $1,900,000.

b. $1,800,000.

c. $1,300,000.

d. cannot be determined from the data provided.

114. Which of the following is not used in assigning manufacturing costs to Work in Process Inventory?

a. Actual manufacturing overhead

b. Time tickets

c. Materials requisitions

d. Predetermined overhead rate

115. On the cost of goods manufactured schedule, the cost of goods manufactured agrees with the

a. balance of Finished Goods Inventory at the end of the period.

b. total additions to Work in Process Inventory during the period.

c. amount transferred from Work in Process Inventory to Finished Goods Inventory during the period.

d. increases to Cost of Goods Sold during the period.

116. Gannon Company had the following information at December 31:

Finished goods inventory, January 1 $ 50,000

Finished goods inventory, December 31 150,000

If the cost of goods manufactured during the year amounted to $2,200,000 and annual sales were $2,750,000, the amount of gross profit for the year is

a. $550,000.

b. $2,100,000.

c. $650,000.

d. $450,000.

117. Haight Company incurred direct materials costs of $2,500,000 during the year. Manufacturing overhead applied was $450,000 and was applied at the rate of 60% of direct labor costs. Haight Company’s total manufacturing costs for the year was

a. $3,700,000.

b. $3,220,000.

c. $2,950,000.

d. $4,720,000.

118. Greer Company developed the following data for the current year:

Beginning Work in Process Inventory $ 136,000

Direct materials used 208,000

Actual overhead 176,000

Overhead applied 184,000

Cost of goods manufactured 900,000

Total manufacturing costs 856,000

What is Greer Company's direct labor cost for the year?

a. $508,000

b. $600,000

c. $464,000

d. $472,000

119. Greer Company developed the following data for the current year:

Beginning Work in Process Inventory $ 136,000

Direct materials used 208,000

Actual overhead 176,000

Overhead applied 184,000

Cost of goods manufactured 900,000

Total manufacturing costs 856,000

What the ending balance in Greer Company's Work in Process Inventory?

a. $92,000

b. $484,000

c. $84,000

d. $372,000

120. Chomelar Manufacturing Company developed the following data for the current period:

Beginning Work in Process inventory $ 120,000

Direct materials used 720,000

Actual overhead 840,000

Overhead applied 810,000

Cost of goods manufactured 1,920,000

Ending Work in Process Inventory 90,000

What are total manufacturing costs for the period?

a. $2,370,000

b. $1,890,000

c. $1,650,000

d. $1,830,000

121. Barger Company had the following information at December 31:

Finished goods inventory, January 1 $ 90,000

Finished goods inventory, December 31 126,000

If the cost of goods manufactured during the year totaled $1,895,000 and annual sales were $2,994,000, what was the amount of gross profit for the year?

a. $1,099,000

b. $1,009,000

c. $1,063,000

d. $1,135,000

122. Emley Company incurred direct materials costs of $750,000 during the year. Manufacturing overhead applied was $700,000 and was applied based on direct labor costs. The predetermined overhead rate is 70%. What were Emley Company’s total manufacturing costs for the year?

a. $1,940,000

b. $1,750,000

c. $1,450,000

d. $2,450,000

123. During 2022, Durham Manufacturing estimated Job No. 51 to incur $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Durham applied overhead based on direct labor cost. Actual production incurred overhead of $295,000, $570,000 in materials, and $220,000 in labor. All of the goods were completed. What amount was transferred to Finished Goods Inventory?

a. $1,090,000

b. $1,120,000

c. $1,000,000

d. $1,085,000

124. During 2022, Cotte Manufacturing expected Job No. 59 to incur $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Cotte applied overhead based on direct labor cost. Actual production incurred overhead of $295,000, $570,000 in materials, and $220,000 in labor. All of the goods were completed. What is the amount of over- or underapplied overhead for this job?

a. $5,000 underapplied

b. $5,000 overapplied

c. $35,000 underapplied

d. $35,000 overapplied

125. Kimble Company applies overhead on the basis of machine hours. Given the following data, what is the amount of overhead applied and the amount by which it is under- or overapplied for the period?

Estimated annual overhead cost $1,600,000

Actual annual overhead cost $1,575,000

Estimated machine hours 400,000

Actual machine hours 390,000

a. $1,560,000 applied and $15,000 overapplied

b. $1,600,000 applied and $15,000 overapplied

c. $1,560,000 applied and $15,000 underapplied

d. $1,575,000 applied and neither under-nor overapplied

126. Barnes Company applies overhead on the basis of machine hours. Given the following data, what is the amount of overhead applied and the amount by which it is under- or overapplication for the period?

Estimated annual overhead cost $3,000,000

Actual annual overhead cost $2,970,000

Estimated machine hours 300,000

Actual machine hours 295,000

a. $2,950,000 applied and $20,000 overapplied

b. $3,000,000 applied and $20,000 overapplied

c. $2,950,000 applied and $20,000 underapplied

d. $2,970,000 applied and neither under- nor overapplied

127. A company assigned overhead to work in process inventory. At year-end, what does the amount of overapplied overhead mean?

a. The overhead applied to work in process inventory is greater than the estimated overhead costs.

b. The overhead applied to work in process inventory is less than the estimated overhead costs.

c. The overhead applied to work in process inventory is less than the actual overhead incurred.

d. The overhead applied to work in process inventory is greater than the actual overhead incurred.

128. If the Manufacturing Overhead has a positive balance at the end of a period, it means that

a. actual overhead costs were less than overhead applied to jobs.

b. actual overhead costs were greater than overhead applied to jobs.

c. actual overhead costs were equal to overhead applied to jobs.

d. no jobs have been completed.

129. If the manufacturing overhead costs applied to jobs are greater than the actual manufacturing overhead costs incurred during a period, overhead is said to be

a. underapplied.

b. overapplied.

c. in error.

d. prepaid.

130. At the end of the year, any balance in Manufacturing Overhead is generally eliminated by adjusting

a. Work in Process Inventory.

b. Finished Goods Inventory.

c. Cost of Goods Sold.

d. Raw Materials Inventory.

131. If Manufacturing Overhead has a negative balance at the end of the period, then

a. manufacturing overhead has been underapplied.

b. the manufacturing overhead assigned to Work in Process Inventory is less than the manufacturing overhead incurred.

c. manufacturing overhead has been overapplied.

d. management must take corrective action.

132. The Manufacturing Overhead shows additions of $30,000, $24,000, and $28,000 and one deduction for $86,000. Based on this information, manufacturing overhead

a. has been overapplied.

b. has been underapplied.

c. has not been applied.

d. shows a zero balance.

133. If Manufacturing Overhead has a positive balance at the end of the period, then

a. manufacturing overhead has been underapplied.

b. the manufacturing overhead assigned to Work in Process Inventory is more than the manufacturing overhead incurred.

c. manufacturing overhead has been overapplied.

d. management must take corrective action.

134. If actual manufacturing overhead is greater than applied manufacturing overhead, then manufacturing overhead is

a. underapplied.

b. overapplied.

c. reported as a loss on the income statement under "Other Expenses and Losses."

d. considered a miscellaneous expense.

135. If actual manufacturing overhead is less than applied manufacturing overhead, then manufacturing overhead is

a. underapplied.

b. overapplied.

c. reported as a loss on the income statement under "Other Expenses and Losses."

d. considered a miscellaneous expense.

136. If manufacturing overhead has been underapplied during the year, the adjustment at the end of the year will generally include a(n)

a. increase to Manufacturing Overhead.

b. decrease to Cost of Goods Sold.

c. increase to Work in Process Inventory.

d. increase to Cost of Goods Sold.

137. If manufacturing overhead has been overapplied during the year, the adjustment at the end of the year will generally include a(n)

a. increase to Manufacturing Overhead.

b. decrease to Finished Goods Inventory

c. increase to Cost of Goods Sold.

d. decrease to Work in Process Inventory.

138. The existence of under- or overapplied manufacturing overhead at the end of the year

a. typically requires an adjustment to Cost of Goods Sold.

b. indicates that an error has been made.

c. requires a retroactive adjustment to the cost of all jobs completed.

d. is written off as a bad estimate expense.

139. Conceptually, any under- or overapplied overhead at the end of the year should be allocated among all of the following accounts except

a. Cost of Goods Sold.

b. Work in Process Inventory.

c. Raw Materials Inventory.

d. Finished Goods Inventory.

140. If, at the end of the year, manufacturing overhead has been overapplied, it means that

a. actual overhead costs were greater than the overhead assigned to jobs.

b. actual overhead costs were less than the overhead assigned to jobs.

c. overhead has not been applied to jobs still in process.

d. cost of goods will have to be increased by the amount of the overapplied overhead.

141. A process cost system would be used for all of the following except the

a. manufacture of ramen noodles.

b. refining of petroleum.

c. printing of wedding invitations.

d. production of kayaks.

142. In a job order cost system, the purchase of raw materials is recorded by increasing

a. Work in Process Inventory.

b. Work in Process Inventory and Manufacturing Overhead.

c. Raw Materials Inventory.

d. Finished Goods Inventory.

143. In a manufacturing company, the cost of factory labor consists of all of the following except

a. employer payroll taxes.

b. the cost of employee benefits.

c. net earnings of factory workers.

d. gross earnings of factory workers.

144. When direct labor costs are assigned to jobs,

a. Work in Process and Manufacturing Overhead both increase.

b. Factory Labor decreases and Work in Process increases.

c. Manufacturing Overhead increases and Factory Labor decreases.

d. Work in Process and Factory Labor both increase.

145. When the company assigns factory labor costs to jobs, the direct labor cost is added to

a. Direct Labor.

b. Factory Labor.

c. Manufacturing Overhead.

d. Work in Process Inventory.

146. Jinnah Company applies overhead on the basis of 200% of direct labor cost. Job No. 501 is charged with $240,000 of direct materials costs and $320,000 of manufacturing overhead. The total manufacturing costs for Job No. 501 is

a. $560,000.

b. $880,000.

c. $720,000.

d. $800,000.

147. Companies apply manufacturing overhead to work in process on an estimated basis through the use of a(n)

a. actual overhead rate.

b. estimated overhead rate.

c. assigned overhead rate.

d. predetermined overhead rate.

148. Overapplied manufacturing overhead exists when manufacturing overhead assigned to Work in Process Inventory is

a. more than overhead incurred and there is a positive balance in Manufacturing Overhead at the end of a period.

b. less than overhead incurred and there is a positive balance in Manufacturing Overhead at the end of a period.

c. more than overhead incurred and there is a negative balance in Manufacturing Overhead at the end of a period.

d. less than overhead incurred and there is a negative balance in Manufacturing Overhead at the end of a period.

149. Usually, under- or overapplied manufacturing overhead is eliminated with an adjustment to

a. Work in Process Inventory.

b. Finished Goods Inventory.

c. Finished Goods Inventory and Cost of Goods Sold.

d. Cost of Goods Sold.

150. Which of the following statements about under- or overapplied manufacturing overhead is correct?

a. After the adjustment to transfer over- or underapplied overhead to Cost of Goods Sold, Manufacturing Overhead will have a zero balance.

b. When Manufacturing Overhead has a negative balance, overhead is said to be under-applied.

c. At the end of the year, under- or overapplied overhead is not eliminated by adjustment.

d. When annual financial statements are prepared, overapplied overhead is reported in current liabilities.

Answers to Multiple Choice Questions

BRIEF Exercises

BE 151

During the first year of operations, Shapiro Tool accumulated the following manufacturing costs:

Raw materials purchased $12,000

Factory labor incurred 6,000

Manufacturing overhead incurred 4,000

Instructions

Using the grid below, record the above costs. Use (+) to show increases and (–) to show decreases to the accounts.

Ex. 161

The manufacturing operations of Beatly, Inc. had the following balances at the beginning and end of January:

January 1 January 31

Raw Materials Inventory $12,000 $13,000

Work in Process Inventory 21,000 23,000

Finished Goods Inventory 14,000 12,000

Beatly transferred $270,000 of completed goods out of Work in Process Inventory during January.

Instructions

Compute the cost of goods sold for January.

Ex. 162

A selected list of accounts used by Cline Manufacturing Company follows:

Code Code

A Raw Materials Inventory D Factory Labor

B Work in Process Inventory E Manufacturing Overhead

C Finished Goods Inventory F Cost of Goods Sold

Cline Manufacturing Company uses a job order system.

Instructions

Place the appropriate code letter in the columns indicating the appropriate account(s) to be increased and decreased for the transactions listed below.

———————————————————————————————————————————

Account(s) Account(s)

Transactions Increased Decreased

———————————————————————————————————————————

1. Raw materials were purchased.

———————————————————————————————————————————

2. Issued a check to Dixon Machine Shop for

repair work on factory equipment.

———————————————————————————————————————————

3. Direct materials were requisitioned for Job 280.

———————————————————————————————————————————

4. Factory labor was incurred.

———————————————————————————————————————————

5. Assigned direct labor and indirect labor used.

———————————————————————————————————————————

6. The production department requisitioned indirect

materials for use in the factory.

———————————————————————————————————————————

7. Overhead was applied to production based on a

predetermined overhead rate of $8 per labor hour.

———————————————————————————————————————————

8. Goods that were completed were transferred to

finished goods.

———————————————————————————————————————————

9. Goods costing $80,000 were sold.

———————————————————————————————————————————

10. Recorded factory depreciation.

———————————————————————————————————————————

Ex. 163

Finn Manufacturing Company uses a job order cost accounting system and keeps perpetual inventory records. Using the grid below, record the following transactions during the month of June. Use (+) to indicate increases and (–) to indicate decreases.

June 1 Purchased raw materials for $20,000.

8 Raw materials requisitioned by production:

Direct materials $8,000

Indirect materials 1,000

15 Incurred factory utilities, $2,100 and repairs for factory equipment, $8,000.

25 Incurred $108,000 of factory labor.

25 Time tickets indicated the following:

Direct Labor (7,000 hrs × $12 per hr) = $84,000

Indirect Labor (3,000 hrs × $8 per hr) = 24,000

$108,000

25 Applied manufacturing overhead to production based on a predetermined overhead rate of $7 per direct labor hour worked.

28 Goods costing $18,000 were completed in the factory and were transferred to finished goods.

30 Goods costing $15,000 were sold.

Ex. 164

Selected accounts of Kosar Manufacturing Company at year end appear in the grid below:

Instructions

Explain the probable transaction that took place for each of the items identified by letters in the accounts. For example:

(a) Raw materials costing $40,000 were purchased.

Ex. 165

Sardin Company began March with a $17,000 balance in Work in Process Inventory from Job 324. Information from job cost sheets shows the following additional costs assigned during March, April, and May of 2022:

Manufacturing Costs Assigned

Job No. March April May

324 $26,000

325 20,000 $28,000 $15,000

326 41,000 11,000

327 16,000 39,000

328 34,000 51,000

Job 324 was completed in March. Jobs 325 and 327 were completed in May, and Job 326 was completed in April. All of the jobs were sold during the month after completion.

Instructions

Calculate the balances of the Work in Process Inventory and Finished Goods Inventory at the end of May.

Ex. 166

The gross earnings of factory workers for Dinkel Company during the month of January are $480,000. Of the total factory labor cost, 75% is attributable to direct labor and 25% is attributable to indirect labor.

Instructions

Using the grid below:

(a) Record the factory labor costs for the month of January.

(b) Record the assignment of factory labor to production.

(c) Record the application of manufacturing overhead to production, assuming the predetermined overhead rate is 125% of direct labor cost.

Use (+) to indicate increases and (–) to indicate decreases.

Ex. 167

Foster Manufacturing uses a job order cost accounting system. On April 1, the company has Work in Process Inventory of $7,600 and two jobs in process: Job No. 221, $3,600, and Job No. 222, $4,000. During April, a summary of source documents reports the following:

For Materials Requisition Slips Labor Time Tickets

Job No. 221 $1,200 $ 2,100

222 1,700 2,200

223 2,400 2,900

224 2,600 2,800

General use 600 400

Totals $8,500 $10,400

Foster applies manufacturing overhead to jobs at an overhead rate of 70% of direct labor cost. Job No. 221 is completed during the month.

Instructions

(a) Using the grid below:

(1) Enter the beginning Work in Process Inventory balance, prepare summary entries to record the raw materials requisitioned, factory labor used, the assignment of manufacturing overhead to jobs, and the completion of Job No. 221. Use (+) to indicate increases and (–) to indicate decreases.

(2) Calculate the balance of the Work in Process Inventory account at April 30.

(b) Prove the agreement of the Work in Process Inventory account with the job cost sheets.

Ex. 168

Manufacturing cost data for Dolan Company, which uses a job order cost system, are presented below:

Case A Case B

Direct materials used (a) $103,000

Direct labor $ 70,000 150,000

Manufacturing overhead applied 63,000 (d)

Total manufacturing costs 240,000 (e)

Work in Process Inventory, 1/1/22 (b) 45,000

Total cost of work in process 300,000 (f)

Work in Process Inventory, 12/31/22 (c) 40,000

Cost of goods manufactured 205,000 (g)

Instructions

Indicate the missing amount for each letter. Assume that overhead is applied on the basis of direct labor cost and that the rate is the same for both cases.

Ex. 169

Fort Corporation had the following transactions during its first month of operations:

1. Raw materials were purchased for $85,000.

2. Raw Materials of $30,000 were requisitioned to the factory. An analysis of the materials requisition slips indicated that $6,000 was classified as indirect materials.

3. Factory labor costs incurred were $175,000.

4. Time tickets indicated that $145,000 was direct labor and $30,000 was indirect labor.

5. Manufacturing overhead costs incurred were $198,000.

6. Manufacturing overhead was applied at the rate of 150% of direct labor cost.

7. Goods costing $115,000 were still incomplete at the end of the month; the other goods were completed and transferred to finished goods.

8. Finished goods costing $100,000 to manufacture were sold.

Instructions

Using the grid below, record the above transactions for Fort Corporation. Use (+) to indicate increases and (–) to indicate decreases.

Ex. 170

Lando Company reported the following amounts for 2022:

Raw materials purchased $85,000

Beginning raw materials inventory 5,200

Ending raw materials inventory 4,500

Beginning finished goods inventory 7,600

Ending finished goods inventory 8,000

Direct labor used 20,000

Manufacturing overhead costs applied 30,000

Beginning work in process inventory 6,100

Ending work in process inventory 6,300

Instructions

Calculate (a) the cost of materials used in production and (b) total manufacturing costs.

Ex. 171

A job cost sheet of Fugate Company is given below.

Instructions

(1) What is the predetermined manufacturing overhead rate?

(2) What is the total cost and the unit cost of the completed job?

(b) Using the grid below, prepare the entry to record the completion of the job. Use (+) to indicate increases and (–) to indicate decreases.

Ex. 172

At May 31, 2022, the accounts of Kuhlmann Manufacturing Company show the following.

1. May 1 inventories—finished goods $12,600, work in process $14,700, and raw materials $8,200.

2. May 31 inventories—finished goods $8,500, work in process $22,900, and raw materials $7,100.

3. Additions to work in process inventory were: direct materials $77,400, direct labor $50,000, and manufacturing overhead applied $45,000.

4. Sales totaled $225,000.

Instructions

(a) Prepare a condensed cost of goods manufactured schedule.

(b) Prepare an income statement for May through gross profit.

Ex. 173

Watson Manufacturing Company employs a job order cost system and keeps perpetual inventory records. The following transactions occurred in the first month of operations:

1. Direct materials requisitioned during the month:

Job 101 $20,000

Job 102 16,000

Job 103 24,000

$60,000

2. Direct labor incurred and charged to jobs during the month was:

Job 101 $32,000

Job 102 28,000

Job 103 20,000

$80,000

3. Manufacturing overhead was applied to jobs worked on using a predetermined overhead rate based on 75% of direct labor costs.

4. Actual manufacturing overhead costs incurred during the month totaled $66,000.

5. Job 101 consisting of 1,000 units and Job 103 consisting of 200 units were completed during the month.

Instructions

(a) Using the grid below, record the above transactions and determine the ending balance for Work in Process Inventory. Use (+) to indicate increases and (–) to indicate decreases.

(b) Address the following:

1. How much manufacturing overhead was applied to Job 103 during the month?

2. Compute the unit cost of Jobs 101 and 103.

3. Prove the balance in Work in Process Inventory at the end of the month.

4. Determine if manufacturing overhead was under- or overapplied during the month. How much?

Ex. 174

Graham Manufacturing is a small manufacturer that uses machine hours as its activity base for assigned overhead costs to jobs. The company estimated the following amounts for 2022 for the company and had actual results for Job 62:

Company Job 62

Direct materials $60,000 $4,500

Direct labor $25,000 $2,500

Manufacturing overhead costs $72,000

Machine hours 90,000 1,350

During 2022, the actual machine hours totaled 95,000, and actual overhead costs were $71,000.

Ex. 174 (Cont.)

Instructions

(a) Compute the predetermined overhead rate.

(b) Compute the total manufacturing costs for Job 62.

(c) How much overhead is over or underapplied for the year for the company? Compute the amount and specify whether it is over- or underapplied.

(d) Compute the gross profit If Graham Manufacturing sells Job 62 for $14,000.

Ex. 175

The following inventory information is available for Ricci Manufacturing Corporation for the year ended December 31, 2022:

Beginning Ending

Inventories:

Raw materials $17,000 $19,000

Work in process 9,000 14,000

Finished goods 11,000 8,000

Total $37,000 $41,000

The following transactions occurred during 2022:

1. Purchased raw materials, $75,000.

2. Incurred factory labor, $80,000 (all direct labor).

3. Incurred the following overhead costs during the year: utilities $6,800, depreciation on manufacturing machinery $8,000, Manufacturing machinery repairs $9,200, factory insurance $9,000.

4. Assigned $80,000 of factory labor to jobs.

5. Applied $36,000 of manufacturing overhead to jobs.

Instructions

(a) Using the grid below, enter the beginning balances, record the above transactions, and then enter the ending balances. Use (+) to indicate increases and (–) to indicate decreases.

(b) From an analysis of the accounts, compute the following:

1. Raw materials used.

2. Completed jobs transferred to finished goods.

3. Cost of goods sold.

4. Under- or overapplied overhead.

Ex. 175 (Continued)

Ex. 176

Bergman Company allocates manufacturing overhead at $10 per direct labor hour. Job A890 required 3 pounds of direct materials at a cost of $25 per pound. Employees worked 15 hours to complete the job. Employees earn $20 per hour.

Instructions

Compute the total cost of Job 890.

Ex. 177

Job cost sheets for Howard Manufacturing are as follows:

Job No 210 Quantity 1,500

Manufacturing

Date Direct Materials Direct Labor Overhead

July 1 9,000 8,000 12,000

8 8,500

10 10,000

15 5,500

25 20,000

Job No 211 Quantity 1,200

Manufacturing

Date Direct Materials Direct Labor Overhead

July 1 5,000 6,000 9,000

10 9,000

15 8,000

20 7,000

27 12,000

Instructions

1. What was the balance in Work in Process Inventory on July 1 if these were the only unfinished jobs?

2. What was the predetermined overhead rate in June if overhead was applied on the basis of direct labor cost?

3. If July is the start of a new fiscal year and the overhead rate is 30% higher than in the preceding year, how much overhead should be applied to Job 210 in July?

4. Assuming Job 210 is complete, what is the total and unit cost of the job?

5. Assuming Job 211 is the only unfinished job at July 31, what is the balance in Work in Process Inventory on this date?

(b) Using the grid below, record the summary transactions for the assignment of costs to the jobs in July. Use (+) to indicate increases and (–) to indicate decreases. (Note: Make one entry in total for each manufacturing cost element.)

Ex. 177 (Continued)

Ex. 178

Garner Company begins operations on July 1, 2022. Information from job cost sheets shows the following:

Manufacturing Costs Assigned

Job No. July August September

100 $12,000 $8,800

101 10,800 9,700 $12,000

102 5,000

103 11,800 6,000

104 5,800 7,000

Job 102 was completed in July. Job 100 was completed in August, and Jobs 101 and 103 were completed in September. Each job was sold for 60% above its cost in the month following completion.

Instructions

(a) Compute the balance in Work in Process Inventory at the end of July.

(b) Compute the balance in Finished Goods Inventory at the end of September.

(c) Compute the gross profit for August.

Ex. 179

The accounting records of Roland Manufacturing Company include the following information:

Dec. 31 Jan. 1

Work in process inventory $ 20,000 $ 50,000

Finished goods inventory 120,000 150,000

Direct materials used 350,000

Direct labor 160,000

Manufacturing overhead is applied at a rate of 150% of direct labor cost.

Ex. 179 (Cont.)

Instructions

1. What is the total of the additions to Work in Process Inventory during the year?

2. What is the amount transferred to Finished Goods Inventory during the year?

3. What is the cost of goods sold?

Ex. 180

Grant Marwick and Associates, a CPA firm, uses job order costing to capture the costs of its audit jobs. There were no audit jobs in process at the beginning of November. Listed below are data concerning the three audit jobs conducted during November.

Rondelli Preston Lopez

Direct materials $900 $600 $300

Auditor labor costs $5,900 $6,600 $3,700

Auditor hours 66 88 45

Overhead costs are applied to jobs on the basis of auditor hours, and the predetermined overhead rate is $50 per auditor hour. The Rondelli job is the only incomplete job at the end of November. Actual overhead for the month was $10,500.

Instructions

(a) Determine the cost of each job.

(b) Indicate the balance of the Work in Process Inventory account at the end of November.

(c) Calculate the ending balance of the Operating Overhead account for November.

Ex. 181

Gallagher Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $425,000 for the year and machine usage is estimated at 125,000 hours. For the current year, $450,000 of manufacturing overhead costs are incurred and 130,000 hours are used.

Instructions

(a) Compute the predetermined manufacturing overhead rate for the year.

(b) What is the amount of under- or overapplied overhead at December 31?

(c) Assuming the under- or overapplied overhead for the year is not allocated to inventory accounts, indicate what accounts will be affected and how they will be affected (increase or decrease).

Ex. 182

Fancy Decorating uses a job order costing system to collect the costs of its interior decorating business. Each client's consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year.

Estimated overhead $880,000

Actual overhead $910,000

Estimated decorator hours 40,000

Actual decorator hours 41,000

The company uses the account Operating Overhead in place of Manufacturing Overhead.

Ex. 182 (Cont.)

Instructions

(a) Compute the predetermined overhead rate.

(b) Indicate the accounts that will be affected by the application of overhead for the year, the amount, and the direction (increase or decrease).

(c) Determine whether operating overhead was under- or overapplied and by what amount.

Ex. 183

Martin Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for the year follows:

Actual manufacturing overhead $80,000

Estimated manufacturing overhead $75,000

Direct labor hours incurred 4,800

Direct labor hours estimated 5,000

Instructions

Compute (a) the predetermined overhead rate and (b) the amount of applied manufacturing overhead.

Ex. 184

Landis Company uses a job order cost system in each of its two manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and on the basis of machine hours in Department B. In establishing the predetermined overhead rates for 2022, the following estimates were made for the year:

Department

A B

Manufacturing overhead $2,100,000 $1,400,000

Direct labor cost 1,500,000 1,200,000

Direct labor hours 100,000 100,000

Machine hours 200,000 400,000

During January, the job cost sheet showed the following costs and production data:

Department

A B

Direct materials used $195,000 $128,000

Direct labor cost incurred 100,000 110,000

Manufacturing overhead incurred 130,000 135,000

Direct labor hours incurred 8,000 8,400

Machine hours incurred 16,000 34,000

Instructions

(a) Compute the predetermined overhead rate for each department.

(b) Compute the total manufacturing cost assigned to jobs in January in each department.

(c) Compute the balance in the Manufacturing Overhead account at the end of January and indicate whether overhead is over- or underapplied.

Ex. 185

Edwards Company applies manufacturing overhead to jobs on the basis of machine hours used. Manufacturing overhead costs are estimated to total $1,800,000 for the current year and machine usage is estimated at 200,000 hours.

In January, $186,000 of overhead costs are incurred and 22,000 machine hours are used. For the remainder of the year, $1,940,000 of additional overhead costs are incurred and 214,000 additional machine hours are worked.

Instructions

(a) Compute the manufacturing overhead rate for the year.

(b) What is the amount of over- or underapplied overhead at January 31?

(c) What is the amount of over- or underapplied overhead at December 31?

Ex. 186

Klinger Company estimates that annual manufacturing overhead costs will be $4,800,000 for 2022. The actual overhead costs at the end of 2022 are $4,980,000. Activity base information for 2022 follows:

Activity Base Estimated Actual

Direct labor cost $3,000,000 $3,150,000

Direct labor hours 200,000 212,000

Machine hours 150,000 152,000

Instructions

(a) Compute the predetermined overhead rate for each activity base.

(b) Compute the amount of overhead applied in 2022 for each activity base.

(c) Compute the amount of under- or overapplied overhead for 2022 for each activity base.

Ex. 187

Jensen Manufacturing Company makes hair styling tools. In January 2022, Jensen incurs manufacturing costs of $13,000,000 for direct materials, direct labor, and manufacturing overhead. 20% of the total costs represents overhead applied. The overhead rate is $1 for every $2 of direct labor costs incurred. Inventory balances were:

January 1 January 31

Raw materials $300,000 $500,000

Work in process 600,000 400,000

Finished goods 400,000 200,000

At the end of January, there was $1,000 of overapplied overhead.

Instructions

(a) Determine the cost of raw materials purchased in January.

(b) Prepare a cost of goods manufactured schedule for January 2022.

(c) Compute cost of goods sold for January.

Ex. 188

The following information is available for Marks Company at December 31, 2022:

1. Inventory balances Beginning of Year End of Year

Finished Goods $14,000 $10,000

Work in Process 6,000 12,000

Raw Materials 10,300 6,500

2. Additions to Work in Process Inventory during the year were:

Direct materials $90,000

Direct labor 60,000

Manufacturing overhead applied 75,000

3. Sales totaled $310,000 for the year.

Instructions

(a) Prepare a condensed cost of goods manufactured schedule.

(b) Prepare an income statement for the year through gross profit.