Exam 3: Systems Design: Job-Order Costing

Mallet Company has only Job 844 in process on March 1 of the current year. The job has 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 under- or overapplied overhead cost is closed out 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 $\quad$$\quad$$\quad$$\$ 29,500$ Used in production $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\$ 30,500$ Labour: Direct labour hours worked during the month 2,500 Direct labour cost incurred \ 26,500 Indirect labour costs incurred \ 5,500 Manufacturing overhead costs incurred (total) $\quad$$\quad$$\quad$$\$ 18,500$ Inventories: Raw materials (all direct) March 31 $\quad$$\quad$$\quad$$\$ 7,500$ Work in Process, March 31 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\$ 14,500$ Work in Process inventory contains $5,500 of direct labour cost. -What was the March 1 balance in the Raw Materials inventory?

The following data are for Potras Company: Beginning Ending Finished goods inventory \ 30,000 \ 40,000 Work-in-process inventory \ 20,000 \ 13,000 Raw materials inventory \ 21,000 \ 26,000 Purchases of raw materials \ 71,000 Factory depreciation \ 5,000 Other factory costs \ 10,000 Direct labour \ 27,000 Indirect labour \ 6,000 Selling expense \ 12,000 Over- or underapplied overhead -0- -What is the cost of raw materials used in production?

The following journal entries (without dollar data) were taken from the accounting records of Case Company. Case Company has a job-order costing system and applies overhead to jobs using a predetermined overhead rate. 1. Work in Process Manufacturing Overhead Wages Payable 2. Salary Expense Wages Payable 3. Manufacturing Overhead Accumulated Amortization 4. Work in Process Raw Materials 5. Work in Process Manufacturing Overhead 6. Manufacturing Overhead Raw Materials 7. Finished Goods Work in Process 8. Raw Materials Accounts Payable -Which entry records the purchase of raw materials?

A public accounting firm employs 10 full-time professionals who provide services to clients.All professional labour compensation is traced directly to clients on a per professional labour-hour basis.Any other costs are included in a single indirect-cost pool (same as overhead)and allocated to individual clients according to billable professional labour-hours. Operating costs and data for the year included the following: Estimated Actual Overhead (indirect) costs \ 1,000,000 \ 1,200,000 Number of billable professional labour-hours 40,000 50,000 Total professional compensation 750,000 750,000 Required: a. By how much, if any, was the overhead cost underapplied or overapplied? b. Prepare a summary journal entry to close any underapplied or overapplied overhead cost to a Cost of Services Provided account. c. Explain qualitatively and quantitatively (in as much detail as possible) the source(s) of any underapplied or overapplied overhead cost.

The following cost data relate to the manufacturing activities of the Kamas Company during the most recent year: $\text { Manufacturing overhead costs incurred during the year: }$ Property taxes \ 1,600 Utilities, factory 2,600 Indirect labour 5,100 Depreciation, factory 13,000 Insurance, factory 2,500 Total actual costs \ 24,800 ---- Other costs incurred during the year: Purchases of raw materials \ 15,000 Direct labour cost 22,000 Inventories: Raw materials, beginning \ 5,000 Raw materials, ending 4,400 Work in process, beginning 3,500 Work in process, ending 4,500 The company uses a predetermined overhead rate to charge overhead cost to production. The rate for the year just completed was $4.00 per machine hour; a total of 6,000 machine hours were recorded for the year. Required: a. Compute the amount of under- or overapplied overhead cost for the year just ended. b. Prepare a schedule of cost of goods manufactured for the year.

Stan Wilson,a newly hired worker at Superior Moulding,was puzzled by the job cost sheets attached to the jobs he worked on.He understood the materials and labour cost entries; these entries represent the actual costs of materials he requisitioned for the job and the cost of the labour hours he recorded for the job.However,he did not understand the entry for Manufacturing Overhead.This entry was made at the end of the day by the accountants,and he had no idea where this number came from.He asked the company's controller,Mary Donner,but the only part of the explanation he understood was that the overhead entries do not represent actual overhead costs. Required: Explain to Stan what the Manufacturing Overhead entries on the job cost sheet mean.

Summit Company has provided the following inventory balances and manufacturing cost data for the month of January: Inventories: January 1 January 31 Direct materials \ 30,000 \ 40,000 Work in process \ 15,000 \ 20,000 Finished goods \ 65,000 \ 50,000 Month of January Cost of goods manufactured \ 515,000 Manufacturing overhead \ 150,000 applied Dircot materials used \ 190,000 Actual manufacturing overhead \ 144,000 Under Summit's job-order costing system, any over- or underapplied overhead is closed out to the Cost of Goods Sold account at the end of the calendar year (that is, December 31). -What was the total amount of direct material purchases during January?

At the beginning of the current year CR Company estimated the following costs: 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 CR Company estimated 20,000 labour hours to be worked during the year.Actual labour hours worked were 22,000 hours.If overhead is applied on the basis of direct labour hours,what will be the overhead applied for the year?

The following data are for Potras Company: Beginning Ending Finished goods inventory \ 30,000 \ 40,000 Work-in-process inventory \ 20,000 \ 13,000 Raw materials inventory \ 21,000 \ 26,000 Purchases of raw materials \ 71,000 Factory depreciation \ 5,000 Other factory costs \ 10,000 Direct labour \ 27,000 Indirect labour \ 6,000 Selling expense \ 12,000 Over- or underapplied overhead -0- -What is the cost of goods sold?

The Bus Company uses a job-order costing system. The following information was recorded for September: Added During September Iob Number September 1 Inventory Direct Materials Direct I.abour 1 \ 1,000 \ 300 \ 200 2 \ 1,400 \ 250 \ 300 3 \ 500 \ 1,500 \ 150 4 \ 750 \ 4,000 \ 400 The direct labour wage rate is $10 per hour. Overhead is applied at the rate of $5 per direct labour hour. Jobs 1, 2, and 3 have been completed and transferred to finished goods. Job 2 has been delivered to the customer. -What is the ending Work in Process inventory?

Allenton Company is a manufacturing firm that uses job-order costing.At the beginning of the year,the company's inventory balances were as follows: Raw materials \ 26,000 Work in process \ 47,000 Finished goods \ 133,000 The company applies overhead to jobs using a predetermined overhead rate based on machine hours. At the beginning of the year, the company estimated that it would work 31,000 machine hours and incur $248,000 in manufacturing overhead cost. The following transactions were recorded for the year: a.) Raw materials purchased: $411,000. b.) Raw materials requisitioned for use in production: $409,000 ($388,000 direct and $21,000 indirect). c.) The following employee costs were incurred: Direct materials Indireet labour: Administrative salaries: \ 145,000 \ 61,000 \ 190,000 d.) Selling costs: $148,000. e.) Factory utility costs: $12,000. f.) Depreciation for the year: $121,000, of which $114,000 is related to factory operations and $7,000 is related to selling and administrative activities. g.) Manufacturing overhead was applied to jobs. The actual level of activity for the year was 29,000 machine hours. h.) Cost of goods manufactured for the year: $783,000. i.) Sales for the year: $1,107,000; the costs on the job cost sheets of the goods that were sold: $768,000. j.) The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold. Required: Prepare the appropriate journal entry for each of the items above (a. through j.). You can assume that all transactions with employees, customers, and suppliers were conducted in cash.

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Raw Materials }$ Beg Bal 4,000 20,000 (2) (1) 18,000 $\quad$$\quad$$\quad$$\quad$$\quad$$\text { Work in Process }$ Beg Bal 8,000 50,000 (7) (2) 12,000 (4) 15,000 (6) 28,000 $\quad$$\text { Manufacturing Overhead }$ (2) 8,000 28,000 (6) (3) 12,000 (4) 5,000 (5) 4,000 $\text { Cost of Goods Sold }$ At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold. -What is the indirect labour cost?

Sai Company uses a job order cost system and applies manufacturing overhead costs to jobs using a predetermined overhead rate based on direct labour-hours. The following data were extracted from the company's accounting records for Year 6 Estimated Actual Manufacturing overhead costs \ 50,000 \ 54,000 Direct labour-hours 20,000 hours 24,000 hours Job #461 was completed during the year and the following costs had been incurred on that job: Direct materials \ 50,000 Direct labour \ 1,500 (at \ 5.00 per direct labour hour) -How much of any underapplied or overapplied overhead would have been due to the fact that the estimated overhead allocation base was different from the actual?

When a job is completed and transferred to the finished goods warehouse the journal entry to record this is debit Cost of Goods Sold and credit Work in Process Inventory.

Y Company reported the following actual costs data for the year: Purchase of raw materials (all direct) \ 200,000 Direct labour (average hourly rate of \ 20) 320,000 Manufacturing overhead costs 100,000 Change in inventories: Increase in raw materials \ 20,000 Increase in work in process 16,000 Increase in finished goods 32,000 Y Company used a predetermined overhead rate based on direct labour hours. Estimated annual manufacturing overhead cost and direct labour hours were $150,000 and 20,000, respectively. Required: a. What was the pre-determined manufacturing overhead rate? b. Calculate the cost of goods manufactured. c. What was the cost of goods sold before adjusting for any under or overapplied overhead? d. By how much was manufacturing overhead cost under or overapplied? e. Prepare a summary journal entry to close any under or overapplied manufacturing overhead cost to cost of goods sold. Is such an entry appropriate in this situation? Why or why not? f. Analyze the under or overapplied manufacturing overhead costs calculated in part c above into two separate components: amount due to incorrect estimate of the annual manufacturing overhead costs and an amount due to incorrect estimate of the annual direct labour cost.

In a job-order costing system,direct labour costs usually are recorded initially with a debit to which of the following accounts?

Beaver Company used a predetermined overhead rate last year of $2 per direct labour hour based on an estimate of 25,000 direct labour hours to be worked during the year.Actual costs and activity during the year were: Actual manufacturing overhead cost incurred $\quad$ $\quad$ $\quad$ $ 47,000 Actual direct labour hours worked $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 24,000 What was the under- or overapplied overhead last year?

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

During the year just completed,Paul Company used a predetermined overhead rate 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 manufacturing overhead cost incurred $\quad$ $\quad$ $\quad$ $ 90,000 Actual direct labour hours worked $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 25,000 What was the under- or overapplied overhead for the year?

Job-order costing is more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications.