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Chapter 3
Job-Order Costing
Solutions to Questions
3-1 By definition, manufacturing overhead
3-2 The first step is to estimate the total
amount of the allocation base (the denominator)
base. The third step is to use the cost formula
Y
job, direct labor costs traced to the job, and
manager’s salary cannot be traced to a particular
product or job, but rather are incurred as a result
of overall production activities. In addition, some
applied to jobs, the company must wait until the
seasonal factors or variations in output. For this
3-6 The measure of activity used as the allo-
cation base should drive the overhead cost; that
is, the allocation base should cause the overhead
3-7 Assigning manufacturing overhead costs
3-8 The Manufacturing Overhead account is
3-9 Underapplied overhead occurs when the
actual overhead cost exceeds the amount of
closing out the amount to Cost of Goods Sold or
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
2 Managerial Accounting, 15th edition
3-10 Manufacturing overhead may be un-
derapplied for several reasons. Control over over-
3-11 Underapplied overhead implies that not
enough overhead was assigned to jobs during the
partment may have its own predetermine over-
head rate and its own allocation base. Some
companies use multiple overhead rates rather
3-13 When automated equipment replaces
direct labor, overhead increases and direct labor
The Foundational 15
1. The estimated total manufacturing overhead cost is computed as fol-
lows:
Y = $10,000 + ($1.00 per DLH)(2,000 DLHs)
Estimated fixed manufacturing overhead ..................
$10,000
Estimated variable manufacturing overhead:
$1.00 per DLH × 2,000 DLHs ................................
2,000
Estimated total manufacturing overhead cost ............
$12,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead (a) ....
$12,000
Estimated total direct labor hours (DLHs) (b) .
2,000
DLHs
Predetermined overhead rate (a) ÷ (b) ...........
$6.00
per DLH
2. The manufacturing overhead applied to Jobs P and Q is computed as
follows:
Job P
Job Q
Actual direct labor hours worked (a) ...............
1,400
500
Predetermined overhead rate per DLH (b) .......
$6.00
$6.00
Manufacturing overhead applied (a) × (b) .......
$8,400
$3,000
3. The direct labor hourly wage rate can be computed by focusing on ei-
ther Job P or Job Q as follows:
Job P
Job Q
Direct labor cost (a) .......................................
$21,000
$7,500
Actual direct labor hours worked (b) ...............
1,400
500
Direct labor hourly wage rate (a) ÷ (b) ...........
$15.00
$15.00
The Foundational 15
4. Job P’s unit product cost and Job Q’s assigned manufacturing costs are
computed as follows:
Total manufacturing cost assigned to Job P:
Direct materials ................................
$13,000
Direct labor ......................................
21,000
Manufacturing overhead applied
($6 per DLH × 1,400 DLHs) ...........
8,400
Total manufacturing cost ..................
$42,400
Unit product cost for Job P:
Total manufacturing cost (a) .............
$42,400
Number of units in the job (b) ...........
20
Unit product cost (a) ÷ (b) ................
$2,120
Total manufacturing cost assigned to Job Q:
Direct materials ................................
$ 8,000
Direct labor ......................................
7,500
Manufacturing overhead applied
($6 per DLH × 500 DLHs) ..............
3,000
Total manufacturing cost ..................
$18,500
5. The journal entries are recorded as follows:
Raw Materials .......................
22,000
Accounts Payable ..........
22,000
Work in Process ....................
21,000
Raw Materials ...............
21,000
6. The journal entry is recorded as follows:
Work in Process ....................
28,500
Wages Payable .............
28,500
The Foundational 15
7. The journal entry is recorded as follows:
Work in Process ................................
11,400
Manufacturing Overhead ......................
11,400
8. The Schedule of Cost of Goods Manufactured is as follows:
Direct materials:
Raw materials inventory, beginning ...............
$ 0
Add: Purchases of raw materials ...................
22,000
Total raw materials available ........................
22,000
Deduct: Raw materials inventory, ending .......
1,000
Raw materials used in production ..................
$21,000
Direct labor ......................................................
28,500
Manufacturing overhead applied to work in
process inventory ...........................................
11,400
Total manufacturing costs ................................
60,900
Add: Beginning work in process inventory ..........
0
60,900
Deduct: Ending work in process inventory..........
18,500
Cost of goods manufactured .............................
$42,400
9. The journal entry is recorded as follows:
The Foundational 15
11. The Schedule of Cost of Goods Sold is as follows:
Finished goods inventory, beginning ..................
$ 0
Add: Cost of goods manufactured .....................
42,400
Cost of goods available for sale .........................
42,400
Deduct: Finished goods inventory, ending ..........
0
Unadjusted cost of goods sold ...........................
$42,400
12. The journal entry is recorded as follows:
Cost of Goods Sold ................................
42,400
Finished Goods ................................
42,400
13. The amount of underapplied overhead is computed as follows:
Actual direct labor-hours (a) ......................
1,900
Predetermined overhead rate (b) ...............
$6.00
Manufacturing overhead applied (a) × (b) ..
$11,400
Actual manufacturing overhead ..................
$12,500
Deduct: Manufacturing overhead applied ....
11,400
Underapplied overhead ..............................
$ 1,100
14. The journal entry is recorded as follows:
Cost of Goods Sold ................................
1,100
Manufacturing Overhead ......................
1,100
15. The income statement is as follows:
Sales ..............................................................
$60,000
Cost of goods sold ($42,400 + $1,100) .............
43,500
Gross margin ...................................................
16,500
Selling and administrative expenses ..................
14,000
Net operating income ......................................
$ 2,500
Exercise 3-1 (10 minutes)
The estimated total manufacturing overhead cost is computed as follows:
Y = $94,000 + ($2.00 per DLH)(20,000 DLHs)
Estimated fixed manufacturing overhead ..................
$ 94,000
Estimated variable manufacturing overhead: $2.00
per DLH × 20,000 DLHs ........................................
40,000
Estimated total manufacturing overhead cost ............
$134,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ..........
$134,000
÷ Estimated total direct labor hours (DLHs) ......
20,000
DLHs
= Predetermined overhead rate .......................
$6.70
per DLH
Exercise 3-3 (10 minutes)
1. Total direct labor-hours required for Job A-500:
Direct labor cost (a) .....................................
$108
Direct labor wage rate per hour (b) ..............
$12
Total direct labor hours (a) ÷ (b) ..................
9
Total manufacturing cost assigned to Job A-500:
Direct materials .......................................................
$230
Direct labor .............................................................
108
Manufacturing overhead applied ($14 per DLH × 9
DLHs) ...................................................................
126
Total manufacturing cost ..........................................
$464
2. Unit product cost for Job A-500:
Total manufacturing cost (a) ........................
$464
Number of units in the job (b) ......................
40
Unit product cost (a) ÷ (b) ...........................
$11.60
Exercise 3-4 (15 minutes)
a.
Raw Materials ....................
80,000
Accounts Payable ..........
80,000
b.
Work in Process .................
62,000
Manufacturing Overhead.....
9,000
Raw Materials ...............
71,000
c.
Work in Process .................
101,000
Manufacturing Overhead.....
11,000
Wages Payable .............
112,000
d.
Manufacturing Overhead.....
175,000
Various Accounts ..........
175,000
