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Chapter 2
Job-Order Costing
Solutions to Questions
2-1 By definition, manufacturing overhead
traced.
2-2 The first step is to estimate the total
amount of the allocation base (the denominator)
that will be required for next period’s estimated
level of production. The second step is to esti-
2-3 The job cost sheet is used to record all
costs that are assigned to a particular job. These
2-4 Some production costs such as a factory
manager’s salary cannot be traced to a particular
product or job, but rather are incurred as a result
2-5 If actual manufacturing overhead cost is
applied to jobs, the company must wait until the
seasonal factors or variations in output. For this
2-6 The measure of activity used as the allo-
cation base should drive the overhead cost; that
is, the allocation base should cause the overhead
cost. If the allocation base does not really cause
the overhead, then costs will be incorrectly at-
covered. Costs are recovered only by selling to
customers—not by allocating costs.
head rate is based on estimates.
2-9 Underapplied overhead occurs when the
overapplied overhead is disposed of by closing
out the amount to Cost of Goods Sold. The ad-
2-10 Manufacturing overhead may be un-
derapplied for several reasons. Control over over-
head spending may be poor. Or, some of the
2-11 Underapplied overhead implies that not
enough overhead was assigned to jobs during the
2-12 A plantwide overhead rate is a single
tiple overhead rate system, each production de-
partment may have its own predetermined over-
head rate and its own allocation base. Some
sive.
The Foundational 15
1. The estimated total manufacturing overhead cost is computed as fol-
lows:
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 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:
Finished Goods ................................
42,400
Work in Process ................................
42,400
10. The completed T-account is as follows:
Work in Process
Beg. Bal.
0
(a)
21,000
(b)
28,500
(c)
11,400
(d)
42,400
End. Bal.
18,500
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 2-1 (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 2-2 (10 minutes)
Actual direct labor-hours .............................
10,800
× Predetermined overhead rate ...................
$23.40
= Manufacturing overhead applied ...............
$252,720
Exercise 2-3 (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 2-4 (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
Exercise 2-5 (20 minutes)
Parts 1 and 2.
Cash
Raw Materials
(a)
94,000
(a)
94,000
(b)
89,000
(c)
132,000
Bal.
5,000
(d)
143,000
Work in Process
Finished Goods
(b)
78,000
(f)
342,000
(f)
342,000
(c)
112,000
Bal.
0
(e)
152,000
(f)
342,000
Bal.
0
Manufacturing Overhead
Cost of Goods Sold
(b)
11,000
(e)
152,000
(f)
342,000
(c)
20,000
(g)
22,000
(d)
143,000
(g)
22,000
Bal.
364,000
Bal.
0
Exercise 2-6 (20 minutes)
1.
Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning...............
$12,000
Add: Purchases of raw materials ...................
30,000
Total raw materials available ........................
42,000
Deduct: Raw materials inventory, ending ......
18,000
Raw materials used in production .................
24,000
Less indirect materials included in manufac-
turing overhead .........................................
5,000
$ 19,000
Direct labor ......................................................
58,000
Manufacturing overhead applied to work in pro-
cess inventory ................................................
87,000
Total manufacturing costs .................................
164,000
Add: Beginning work in process inventory..........
56,000
220,000
Deduct: Ending work in process inventory .........
65,000
Cost of goods manufactured .............................
$155,000
2.
Cost of Goods Sold
Finished goods inventory, beginning ..................
$ 35,000
Add: Cost of goods manufactured .....................
155,000
Goods available for sale ....................................
190,000
Deduct: Finished goods inventory, ending..........
42,000
Unadjusted cost of goods sold ..........................
148,000
Add: Underapplied overhead .............................
4,000
Adjusted cost of goods sold ..............................
$152,000
Exercise 2-7 (10 minutes)
1.
Manufacturing overhead incurred (a) .........
$215,000
Actual direct labor-hours ...........................
11,500
× Predetermined overhead rate ................
$18.20
= Manufacturing overhead applied (b) .......
$209,300
Manufacturing overhead underapplied
(a) – (b) ................................................
$5,700
2. Because manufacturing overhead is underapplied, the cost of goods sold
Exercise 2-8 (10 minutes)
Direct material .........................
$10,000
Direct labor .............................
12,000
Manufacturing overhead:
$12,000 × 125% ...................
15,000
Total manufacturing cost ..........
$37,000
Unit product cost:
$37,000 ÷ 1,000 units ...........
$37
Exercise 2-9 (30 minutes)
1.
a.
Raw Materials Inventory ...........................
210,000
Accounts Payable ..................................
210,000
b.
Work in Process .......................................
178,000
Manufacturing Overhead ..........................
12,000
Raw Materials Inventory ........................
190,000
c.
Work in Process .......................................
90,000
Manufacturing Overhead ..........................
110,000
Salaries and Wages Payable ...................
200,000
d.
Manufacturing Overhead ..........................
40,000
Accumulated Depreciation .....................
40,000
e.
Manufacturing Overhead ..........................
70,000
Accounts Payable ..................................
70,000
f.
Work in Process .......................................
240,000
Manufacturing Overhead .......................
240,000
30,000 MH × $8 per MH = $240,000.
g.
Finished Goods ........................................
520,000
Work in Process ....................................
520,000
h.
Cost of Goods Sold ..................................
480,000
Finished Goods .....................................
480,000
Accounts Receivable ................................
600,000
Sales ....................................................
600,000
$480,000 × 1.25 = $600,000.
2.
Manufacturing Overhead
Work in Process
(b)
12,000
(f)
240,000
Bal.
42,000
(g)
520,000
(c)
110,000
(b)
178,000
(d)
40,000
(c)
90,000
(e)
70,000
(f)
240,000
8,000
Bal.
30,000
(Overapplied
overhead)
Exercise 2-10 (10 minutes)
Yes, overhead should be applied to value the Work in Process inventory at
year-end.
Exercise 2-11 (30 minutes)
1. Mason Company’s schedule of cost of goods manufactured is as follows:
Direct materials:
Beginning raw materials inventory ..................
$ 7,000
Add: Purchases of raw materials .....................
118,000
Raw materials available for use .......................
125,000
Deduct: Ending raw materials inventory ..........
15,000
Raw materials used in production ...................
$110,000
Direct labor ......................................................
70,000
Manufacturing overhead ...................................
90,000
Total manufacturing costs .................................
270,000
Add: Beginning work in process inventory ..........
10,000
280,000
Deduct: Ending work in process inventory ..........
5,000
Cost of goods manufactured..............................
$275,000
2. Mason Company’s schedule of cost of goods sold is as follows:
Beginning finished goods inventory .............
$ 20,000
Add: Cost of goods manufactured ...............
275,000
Goods available for sale .............................
295,000
Deduct: Ending finished goods inventory ....
35,000
Unadjusted cost of goods sold ....................
$260,000
Deduct: Overapplied overhead ...................
$10,000
Adjusted cost of goods sold ........................
$250,000
3.
Mason Company
Income Statement
Sales ..............................................................
$524,000
Cost of goods sold ($260,000 – $10,000) ..........
250,000
Gross margin ...................................................
274,000
Selling and administrative expenses:
Selling expenses ...........................................
$140,000
Administrative expense .................................
63,000
203,000
Net operating income ......................................
$ 71,000
Exercise 2-12 (15 minutes)
1.
Actual manufacturing overhead costs ........
$473,000
Manufacturing overhead cost applied:
19,400 MH × $25 per MH .......................
485,000
Overapplied overhead cost ........................
$ 12,000
2.
Direct materials:
Raw materials inventory, beginning ........
$ 20,000
Add purchases of raw materials ..............
400,000
Raw materials available for use ..............
420,000
Deduct raw materials inventory, ending ..
30,000
Raw materials used in production ...........
390,000
Less indirect materials ............................
15,000
$375,000
Direct labor ..............................................
60,000
Manufacturing overhead cost applied to
work in process .....................................
485,000
Total manufacturing costs .........................
920,000
Add: Work in process, beginning ...............
40,000
960,000
Deduct: Work in process, ending ...............
70,000
Cost of goods manufactured .....................
$890,000
Exercise 2-13 (30 minutes)
1.
Units
Produced
Manufacturing
Overhead
High activity level (First quarter) ...
80,000
$300,000
Low activity level (Third quarter) ...
20,000
180,000
Change ........................................
60,000
$120,000
Exercise 2-13 (continued)
2. The fixed portion of the manufacturing overhead cost is causing the unit
er units.
3. The unit product cost can be stabilized by using a predetermined over-
head rate that is based on expected activity for the entire year. The cost
formula created in requirement 1 can be adapted to compute the annual
Estimated fixed manufacturing overhead ..................
$560,000
Estimated variable manufacturing overhead
$2.00 per unit × 200,000 units ..............................
400,000
Estimated total manufacturing overhead cost ............
$960,000
The annual predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ....
$960,000
÷ Estimated total units produced ...............
200,000
= Predetermined overhead rate .................
$4.80
per unit
Using a predetermined overhead rate of $4.80 per unit, the unit product
costs would stabilize as shown below:
Quarter
First
Second
Third
Fourth
Direct materials .................
$240,000
$120,000
$ 60,000
$180,000
Direct labor .......................
128,000
64,000
32,000
96,000
Manufacturing overhead:
at $4.80 per unit, ...........
384,000
192,000
96,000
288,000
Total cost .........................
$752,000
$376,000
$188,000
$564,000
Number of units produced .
80,000
40,000
20,000
60,000
Unit product cost ...............
$9.40
$9.40
$9.40
$9.40
