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101. Amy and Jay Golden have worked for five years in a firm specializing in restoration of
historical buildings. Amy has focused on interior reconditioning and Jay on architectural and
structural design. They have specialized in residential structures for the past two years, and are
thinking of forming their own residential restoration firm. They plan to do all the structural and
decorative design, and subcontract the actual construction and decorative work. One of their
concerns is to have an accounting system in place when they begin their business. You have
been asked to assist them by answering the following questions.
Required:
(1) Since we have a very basic service-type firm, can a simple accounting system be developed?
(2) What kinds of information does the accounting system need to collect?
102. LM Company listed the following data for 2016:
Budgeted factory overhead $1,143,800
Budgeted direct labor hours 86,000
Budgeted machine hours 28,595
Actual factory overhead 1,101,770
Actual direct labor hours 87,200
Actual machine hours 28,300
Required:
(1) Assuming KLM applied overhead based on direct labor hours, calculate the company's
predetermined overhead rate for 2016.
(2) Assuming KLM applied overhead based on machine hours, calculate the company's
predetermined overhead rate for 2016.
(3) If overhead is applied based on direct labor hours, calculate the overapplied/underapplied
overhead.
(4) If overhead is applied based on machine hours, calculate the overapplied/underapplied
overhead.
103. Catlett Company manufactures products to customer specifications. A job costing system
is used to accumulate production costs. Factory overhead cost was applied at 120% of direct
labor cost. Selected data concerning operations of the company are presented below.
Direct Materials Inventory, Beginning $88,000
Direct Materials Inventory, Ending 75,000
Direct Materials Purchases 395,000
Direct Labor 300,000
Finished Goods Inventory, Beginning 137,000
Finished Goods Inventory, Ending 130,000
Actual Factory Overhead 322,000
Work-in-Process Inventory, Beginning 72,000
Work-in-Process Inventory, Ending 55,000
Required:
Prepare a statement of cost of goods manufactured and a statement of cost of goods sold for
the year ended December 31, 20XX.
104. Which method of accumulating product costs, job costing or process costing, would be
more appropriate in each of the following situations:
1. A physicians' clinic
2. A manufacturer of ready-mix cement
3. A custom equipment manufacturing
4. A print shop
5. A chemical manufacturer
6. An automobile repair shop
7. A professional services firm
8. A food processing company
9. A consulting firm
10. An oil refinery
105. Horton Company uses a job costing system, and factory overhead is applied on the basis
of machine hours. At the beginning of the year, management estimated that the company would
incur $1,050,000 of factory overhead costs and use 70,000 machine hours.
Horton Company recorded the following events during the month of March.
(a) Purchased 200,000 pounds of materials on account. The cost was $4.00 per pound.
(b) Issued 150,000 pounds of materials to production, of which 20,000 pounds were used as
indirect materials. Assume all materials are at $4 per pound.
(c) Incurred $250,000 of direct labor costs and $50,000 of indirect labor costs.
(d) Recorded depreciation on equipment for the month, $18,000.
(e) Recorded $4,000 of insurance costs for the manufacturing property.
(f) Paid $8,000 cash for utilities and other miscellaneous items for the manufacturing plant.
(g) Completed job M11 costing $17,000 and job M12 costing $80,000 during the month and
transferred them to Finished Goods inventory account.
(h) Shipped job M12 to the customer during the month. The job was invoiced at 40 percent
above cost.
(i) Used 10,000 machine hours during March.
Required:
(1) Compute Horton Company's predetermined overhead rate for the year.
(2) Prepare journal entries to record the events that occurred during March.
(3) Compute the amount of overapplied or underapplied overhead and prepare a journal entry to
close overapplied or underapplied overhead into cost of goods sold on March 31.
106. Harrison allocates factory overhead on the basis of direct labor cost. The overhead rates
for the year are 50% for Department A and 100% for Department B. Harrison started and
completed job M15 during May. The costs of job M15 are summarized below.
Department A Department B
Direct materials ? $150,000
Direct labor $500,000 ?
Factory overhead ? $200,000
The total manufacturing costs assigned to job M15 during May were $1,400,000.
Required:
Calculate the missing (?) costs (Department A direct materials and factory overhead and
Department B direct labor).
107. Warren Company uses a predetermined overhead rate. Overhead for the next twelve
months is estimated to be $480,000. Jackson applies overhead as a percentage of direct labor
cost. Direct labor costs are estimated to be $400,000 for the next year. During the year actual
direct labor costs amounted to $520,000 and the actual overhead was $605,000.
Required:
(1) Calculate the over/under-applied overhead for the year.
(2) Prepare the journal entries to close the accounts, assuming that the over/under-applied
overhead is closed to cost of goods sold.
108. Powell Company uses a job costing system. During the month of May, Powell spent most
of its time on job A50, which was started late in April. Following is cost information for job A50,
other May costs, and relevant annual estimates.
Materials issued:
80% for Direct Use on job A50 and
20% for Indirect Use through May
$6,000
Labor:
Direct Labor for job A50
(300 DLH @ $20 per DLH)
6,000
Indirect Labor for May 310
Other May Costs:
Depreciation (30% Factory and 70% Administrative) 1,000
Other (70% Factory and 30% Administrative) 700
Overhead Cost Driver: Direct Labor Hours (DLH)
Estimated Annual Overhead 21,000
Estimated Annual DLH 3,000
Markup-as a percent of cost 40%
Required:
(1) What is the overhead to be applied for May to job A50 upon completion on May 15?
(2) What are total manufacturing costs for May for job A50?
(3) Prepare the journal entry when job A50 is completed on May 15, assuming that the May 1
work-in-process inventory for job A50 was $600.
(4) What is the profit on job A50 when it is sold on May 15?
(5) Calculate the under- or over-applied overhead for May.
109. Rivera Company manufactured two products, A and B, during April. For purposes of
product costing, an overhead rate of $2.00 per direct-labor hour was used, based on budgeted
annual factory overhead of $500,000 and 250,000 budgeted annual direct-labor hours, as follows:
Budgeted
Overhead Budgeted
Hours
Department 1 $300,000 200,000
Department 2 200,000 50,000
$500,000 250,000
The number of labor hours required to manufacture each of these products was:
Product A Product B
In Department 1 3 1
In Department 2 1 3
Total 4 4
During April, production units for products A and B were 1,000 and 3,000, respectively.
Required:
(1) Using a plantwide overhead rate, what are total overhead costs assigned to products A and
B, respectively?
(2) Using departmental overhead rates, what are total overhead costs assigned to products A
and B, respectively?
(3) Assume that materials and labor costs per unit of Product B are $10 and that the selling price
is established by adding 40% of total costs to cover profit and selling and administrative
expenses. What difference in selling price would result from the use of departmental overhead
rates?
110. Riverside Company manufactures two sizes of T-shirts, medium and large. Both sizes go
through cutting, assembling and finishing departments. The company uses operation costing.
Riverside Company's conversion costs applied to products for the month of June were: Cutting
Department $60,000, Assembling Department $60,000, and Finishing Department $30,000. June
had no beginning or ending work-in-process inventory.
The quantities and direct materials costs for June follow:
Job No. Size Quantity Direct Materials
601 Medium 10,000 $50,000
602 Large 20,000 110,000
Each T-shirt, regardless of size, required the same cutting, assembling and finishing operations.
Required:
(1) Compute both unit cost and total cost for each shirt size produced in June.
(2) Prepare journal entries to record direct materials and conversion costs incurred in the three
departments, and the finished goods costs for both shirt sizes.
111. Chen Textile Company's Job A had normal spoilage with the estimated disposal selling
price of $500 in March attributable to this particular job; its job B had normal spoilage with the
estimated cost of $300 from the general production process failure and abnormal spoilage of
$100. The company also incurred scrap due to a specific job and sold it for $60 cash. It also sold
the scrap common to all jobs for $110 cash in March.
Required:
(1) Prepare the necessary journal entries to record normal and abnormal spoilage costs.
(2) Prepare the necessary journal entries to record both types of scrap sold.
