Exam 12: Job-Order, process, and Hybrid Costing Systems

Milton Company makes T-shirts.The shirts move through two departments during the production process.First,fabric is cut in the Cutting Department.The fabric pieces are then transferred to the Sewing Department where the shirts are assembled.The shirts are then sold to retail chains such as Wal-Mart and K-Mart.The following transactions apply to the company's operations during the current accounting period,which is its first year of operations: (a)Issued stock to shareholders for cash,$90,000. (b)Purchased $30,000 of direct raw materials. (c)Direct materials issued to the Cutting and Sewing Departments,$10,000 and $2,000,respectively. (d)Paid labor cost of $24,400.Direct labor usage for the Cutting and Assembly Departments was $14,000 and $8,000,respectively.Indirect labor costs amounted to $2,400. (e)Paid other overhead costs,$4,000. (f)Applied overhead to production in both departments using the predetermined overhead rate of $0.30 per direct labor dollar. (g)Transferred $21,000 of inventory from the Cutting Department to the Sewing Department. (h)Transferred $30,400 of inventory from the Sewing Department to finished goods. (i)Sold inventory costing $16,000 for $25,000 cash. (j)Paid selling and administrative expenses,$5,000. (k)Disposed of any underapplied or overapplied overhead. Assume that all transactions are for cash unless otherwise stated. Required: 1)Record the transactions in the T-accounts provided. 2)Prepare a schedule of cost of goods manufactured and sold. 3)Compute the amount of gross margin that will be reported on the firm's year-end income statement.

Job-order and process costing systems are two different costing systems that a company chooses between based on the preference of management.

All of the following are asset exchange events except:

Describe how accumulation of costs in a job-order costing system parallels the manufacturing process.

In process costing systems,product costs flow through the same accounts as in a job-order costing system.

Brown Company engaged in the following transactions during May.Indicate whether each is an asset source (AS),asset use (AU),or asset exchange (AE)transaction. Purchased raw materials for cash,$42,000 Used raw materials to begin jobs,$28,400 Paid wages of production employees,$18,000 Applied overhead at rate of $1.25 per direct labor dollar Completed job that had cost $32,000 Sold goods for $44,000 cash The goods referred to in the transaction above had cost $29,500 to complete

Indicate whether each of the following statements is true or false. A work ticket is used to keep track of an employee's time for a given time period,as well as the amount of time spent on individual jobs.______ When a job is finished,the job cost sheet shows all the costs associated with the job.______ Use of a predetermined overhead rate is needed for a company using a process costing system but not for a company using a job-order costing system.______ A company using a job-order costing system generally would maintain three inventory accounts: Raw Materials Inventory,Work in Process Inventory,and Manufacturing Overhead.______ Applying overhead to products is an asset exchange transaction.______

Job-order costing systems are used by many service businesses; process costing systems are not applicable to service businesses.

Select the incorrect statement regarding cost flows through a job-order costing system.

O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products.O'Hare Company sold Job #132 for $8,200 cash.The job cost sheet for that job reported total manufacturing costs of $5,900.The recognition of this event on the financial statements would include a(n):

Needham Company uses a job-order costing system.During the month of September,the company worked on three jobs.The job-order cost sheets for the three jobs contained the following information at the end of September: Job A Job B Job C Beginning Balances \ 4,000 \ 3,000 \ 6,000 Direct Materials 1,000 1,600 2,000 Direct Labor 2,400 4,600 1,800 The company applies overhead at 120% of direct labor cost. The total cost of Job A at the end of September was:

Maynard Manufacturing Company uses a job-order costing system in its two departments,Machining and Assembly.Overhead is allocated in the Machining Department on the basis of machine hours,while in the Assembly Department overhead is allocated on the basis of direct labor cost.The following budget data are provided: Machining Assembly Department Department Marnufacturing overhead \ 500,000 \ 1,075,000 Direct labor cost 350,000 500,000 Machine hours 100,000 10,000 Direct labor hours 50,000 150,000 The following information is provided for a job (Job No.510)recently completed by the company: Machining Department Assembly Department Marnfacturing overhead \ 25,000 \ 37,500 Direct labor cost 10,000 12,500 Machine hours 5,000 1,000 Direct labor hours 2,000 3,000 Required: 1)Compute the two departmental overhead rates. 2)Compute the cost of Job No.510. 3)Assume that the company decides to use a single overhead rate for the two departments,calculated by adding their overhead costs and using direct labor hours as the allocation base.What would the overhead rate be,and how much manufacturing overhead cost would be assigned to Job No.510? (Do not round your intermediate calculation.)

Which of the following items is provided on a work ticket?

All of the following are source documents used in job-order costing systems except:

Preston Manufacturing is working on two housing projects.Overhead is applied on the basis of direct labor hours.At the beginning of the year,the company estimated that overhead would be $64,000 and 10,000 direct labor hours would be worked.Both projects were started and completed in the current accounting period.The following transactions were completed during the period: (a)Used $10,000 of direct material on Project I and $6,800 of direct material on Project II. (b)Labor costs for the two jobs amounted to the following: Project I,$24,000 (2,000 hours); Project II,$44,000 (6,000 hours). (c)Project II was sold during the period for $120,000. The amount of estimated overhead applied to Work in Process Inventory for the period equals: (Do not round intermediate calculation.)

The source document used to record the amount of time worked by an employee on a job is called the:

Frank Company experienced an event that affected its financial statements as indicated below: Assets = Liabilities + Equity Revenue - Expense = Net income 5,000 = / + 5,000 5,000 - / = 5,000 Which of the following transactions caused the indicated effects?

Why is calculating the cost of services provided to customers important for a service business?

Mertz Group is a consulting firm specializing in mergers and acquisitions.In addition to the three partners,the firm employs nine consultants who work directly with clients.The average budgeted compensation for the twelve professionals is $65,000.Each consultant is budgeted at 1,600 billable hours per year.All professional labor costs are included in a single direct cost pool and are traced to jobs on a per-hour basis.All nonprofessional labor costs are included in a single overhead cost pool and are allocated to jobs using professional labor hours as the allocation base.Budgeted overhead costs total $600,000.During the period,the firm worked on the following jobs: (a)The Smith account: Consultants booked 100 hours (b)The Davis account: Consultants booked 175 hours. Required: 1)Compute the budgeted direct cost rate per hour of professional labor.(Round your answer to three decimal places.) 2)Compute the budgeted overhead cost rate per hour of professional labor. 3)Compute the cost assigned to each job. 4)Compute the fee to be charged to each client,assuming the company uses a cost-plus pricing approach and marks up cost by 20%.