Exam 3: Systems Design: Job-Order Costing

Jimbob Co. has the following estimated costs for the next year: Direct materials \ 4,000 Direct labour 20,000 Rent on factory building 15,000 Sales salaries 25,000 Depreciation on factory equipment 8,000 Indirect labour 10,000 Production supervisor's salary 12,000 The company estimates that 20,000 labour hours will be worked and 1,000 machine hours incurred during the year. If overhead is applied on the basis of direct labour costs, the overhead rate will be:

Reference: 03-01 Wayne Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate based on direct labour-hours. The company had the following inventories at the beginning and end of March: March 1 March 31 Direct Materials \ 36,000 \ 30,000 Work in Process 18,000 12,000 Finished Goods 54,000 72,000 The following additional data pertain to operations during March: Direct materials purchased \ 84,000 Direct labour cost \ 60,000 Direct labour rate \ 7.50 per direct labour-hour Overhead rate \ 10.00 per direct labour-hour -The Cost of Goods Manufactured for March was:

Dowan Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. Last year Dowan Company incurred $156,600 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was underapplied by $12,600 for the year. If the predetermined overhead rate is $6.00 per direct labour hour, how many hours did the company work during the year?

The most common accounting treatment of underapplied manufacturing overhead is to transfer it to the Manufacturing Overhead control account.

Reference: 03-05 Mallet Company had only Job 844 in process on March 1 of the current year. The job had been charged with $2,000 of direct material cost, $2,500 of direct labour cost, and $1,750 of manufacturing overhead cost. The company assigns overhead cost to jobs at a predetermined rate of 70% of direct labour cost. Any underapplied or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During March, the following activity and amounts were recorded by the company: Raw materials (all direct materials): Purchased during the month \ 29,500 Used in production \ 30,500 Labour: Direct labour hours worked during the month 2,500 Direct labour cost incurred \ 26,500 Indirect labour costs incurred \ 5,500 Manufacturing overhead costs incurred (total) \ 18,500 Inventories: Raw materials (all direct) March 31 \ 7,500 Work in process, March 31 \ 14,500 Work in process inventory contained $5,500 of direct labour cost. -The balance in the March 1 Raw Materials inventory was:

The use of different predetermined overhead rates in departments of larger companies may yield more accurate costing.

Normally a job cost sheet is not prepared for a job until after the job has been completed.

Reference: 03-03 Meyers Company had the following inventory balances at the beginning and end of November: November 1 November 30 Raw Materials \ 17,000 \ 20,000 Finished Goods \ 50,000 \ 44,000 Work in Process \ 9,000 \ 11,000 During November, $39,000 in raw materials (all direct materials) were drawn from inventory and used in production. The company's predetermined overhead rate was $8 per direct labour-hour, and it paid its direct labour workers $10 per hour. A total of 300 hours of direct labour time had been expended on the jobs in the beginning Work in Process inventory account. The ending Work in Process inventory account contained $4,700 of direct materials cost. The Company incurred $28,000 of actual manufacturing overhead cost during the month and applied $26,400 in manufacturing overhead cost. -The direct materials cost in the November 1 Work in Process inventory account totalled:

In a job-order costing system, the use of direct materials previously purchased usually is recorded as a debit to:

Nonmanufacturing costs are expensed as incurred, rather than going into the Work in Process account.

Overhead costs tend to fluctuate with changes in the volume of units produced from period to period.

Reference: 03-11 The Tse Manufacturing Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company's Finished Goods inventory account was debited for $125,000 and credited for $110,000. The ending balance in the Finished Goods inventory account was $28,000. At the end of the year, manufacturing overhead was overapplied by $4,500. -If the estimated manufacturing overhead for the year was $24,000, and the applied overhead was $26,500, the actual manufacturing overhead cost for the year was:

Reference: 03-05 Mallet Company had only Job 844 in process on March 1 of the current year. The job had been charged with $2,000 of direct material cost, $2,500 of direct labour cost, and $1,750 of manufacturing overhead cost. The company assigns overhead cost to jobs at a predetermined rate of 70% of direct labour cost. Any underapplied or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During March, the following activity and amounts were recorded by the company: Raw materials (all direct materials): Purchased during the month \ 29,500 Used in production \ 30,500 Labour: Direct labour hours worked during the month 2,500 Direct labour cost incurred \ 26,500 Indirect labour costs incurred \ 5,500 Manufacturing overhead costs incurred (total) \ 18,500 Inventories: Raw materials (all direct) March 31 \ 7,500 Work in process, March 31 \ 14,500 Work in process inventory contained $5,500 of direct labour cost. -The entry to dispose of the underapplied or overapplied overhead cost for the month would include:

In a job-order costing system, direct labour costs are usually recorded initially with a debit to:

Reference: 03-01 Wayne Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate based on direct labour-hours. The company had the following inventories at the beginning and end of March: March 1 March 31 Direct Materials \ 36,000 \ 30,000 Work in Process 18,000 12,000 Finished Goods 54,000 72,000 The following additional data pertain to operations during March: Direct materials purchased \ 84,000 Direct labour cost \ 60,000 Direct labour rate \ 7.50 per direct labour-hour Overhead rate \ 10.00 per direct labour-hour -During March total debits to Work in Process were:

Sweet Company applies overhead to jobs on the basis of 125% of direct labour cost. If Job 107 shows $10,000 of manufacturing overhead applied, how much was the direct labour cost on the job:

Paul Company used a predetermined overhead rate during the year just completed of $3.50 per direct labour hour, based on an estimate of 22,000 direct labour hours to be worked during the year. Actual overhead cost and activity during the year were: Actual manulacturing overhead cost incurred \ 90,000 Actual direct labour hours worked 25,000 The underapplied or overapplied overhead for the year was:

Reference: 03-06 The Milo Company's records for May contained the following information: Actual direct labour-hours 9,000 hours Actual direct labour cost \ 47,000 Direct material purchased 16,000 Direct material used 14,000 Cost of goods sold 100,000 Overapplied overhead 5,000 Ending inventories: Raw materials 30,000 Work in process 50,000 Finished goods 70,000 The company uses a predetermined overhead rate of $5.00 per direct labour hour to apply manufacturing overhead to jobs. -The actual overhead cost incurred during the month was:

When completed goods are sold the transaction is recorded as a debit to Cost of Goods Sold and a credit to Work in Process.

Sawyer Manufacturing Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. Last year, the company worked 57,000 actual direct labour hours and incurred $345,000 of actual manufacturing overhead cost. The Company had estimated that it would work 55,000 direct labour hours during the year and incur $330,000 of manufacturing overhead cost. The company's manufacturing overhead cost for the year was: