Chapter 3 Job Costing
Chapter 3
Job Costing
Quick Check Questions
Answers:
(5-10 min.) S3-6
Note: The predetermined manufacturing overhead rates shown below are from the solutions to S3–5.
Req. 1
Total manufacturing
overhead allocated
=
Actual use of cost allocation base × Predetermined manufacturing overhead
rate
=
62,550 hours × $25 per direct labor hour
=
$1,563,750
Req. 2
Total manufacturing
overhead allocated
=
Actual use of cost allocation base × Predetermined manufacturing overhead
rate
=
$1,245,000 × 125%
=
$1,556,250
Req. 3
Total manufacturing
overhead allocated
=
Actual use of cost allocation base × Predetermined manufacturing overhead
rate
=
38,000 machine hours × $40 per machine hour
=
$1,520,000
Req. 4
The total amount of manufacturing overhead allocated during the year is dependent upon two factors: the allocation
base used and the actual manufacturing overhead for the year.
As a result, a company could either overallocate or underallocate manufacturing overhead, depending on the
allocation base used and the actual manufacturing overhead for the year.
Note: Student answers may vary.
(5-10 min.) S3–7
Note: The allocated manufacturing overhead amounts shown below were from the solutions to S3-6
Req. 1
Manufacturing Overhead
(Actual)
(Allocated)
1,550,000
1,563,750
13,750
Manufacturing overhead is overallocated by $13,750.
Req. 2
Manufacturing Overhead
(Actual)
(Allocated)
1,550,000
1,556,250
6,250
Manufacturing overhead is overallocated by $6,250.
Managerial Accounting 4e Solutions Manual
Req. 3
Manufacturing Overhead
(Actual)
(Allocated)
1,550,000
1,520,000
30,000
Manufacturing overhead is underallocated by $30,000.
Req. 4
In this company’s particular case, using direct labor hours as an allocation base resulted in overcosting the jobs by
$13,750. Using direct labor cost as an allocation was the best option, causing jobs to be slightly overcosted by $6,250
during the year. Using machine hours led to the least accurate allocation: Jobs were undercosted by a total of $30,000.
(5-10 min.) S3–8
Req. 1
Predetermined manufacturing
overhead rate
=
$1,890,000
$2,160,000 of direct labor cost
=
87.50% of direct labor cost
Req. 2
Total manufacturing overhead allocated
=
Actual use of cost allocation base × Predetermined
manufacturing overhead rate
=
$2,300,000 × 87.50%
=
$2,012,500
Req. 3
Manufacturing Overhead
(Actual)
(Allocated)
1,760,000
2,012,500
252,500
Manufacturing overhead is overallocated by $252,500.
(5 min.) S3-9
Req. 1
Direct materials
$40
Labor (2 hours × $29)
58
Shop overhead (2 hours × $22)
44
Cost to J&B Appliance
$142
Req. 2
Direct materials
$40
Labor (2 hours × $76)
152
Price to charge customer
$192
Chapter 3 Job Costing
(5-10 min.) S3–10
1. Managers use a predetermined manufacturing overhead rate so that they can get timely information on the
2. Each situation has its drawbacks. An undercosted job could lead to actual losses or lower profits than
(5-10 min.) S3-11
Journal Entry
DATE
ACCOUNTS
POST.
REF.
DEBIT
CREDIT
Raw Materials Inventory
68,100
Accounts Payable
68,100
To record purchase of materials.
Work in Process Inventorya
63,000
Manufacturing Overheadb
500
Raw Materials Inventory
63,500
To record use of materials.
Bal.
Purchased
Bal.
Managerial Accounting 4e Solutions Manual
(5 min.) S3–13
Req. 1
Hourly direct labor cost rate
=
$192,000 per year
2,400 hours per year
=
$80 per hour
Req. 2
Client 367: 15 hours × $80 / hour = $1,200
Req. 3
Indirect cost
allocation rate
=
$840,000
28,000 direct labor hours
=
$30.00 per direct labor hour
Req. 4
Chapter 3 Job Costing
(5 min.) S3–14
1.
Anita does not disclose to her employer, Collins
Company, that her brother is the owner of a
company that is bidding on a major contract with
Collins Company. Anita is on the committee that
evaluates the bids and makes a recommendation
about which bid to select.
Integrity – Mitigate actual conflicts of
interest, regularly communicate with
business associates to avoid apparent
conflicts of interest. Advise all parties of
any potential conflicts.
2.
Damon is asked to do an inventory count of a wide
assortment of parts. Damon does not know how
to distinguish the various parts. He guesses when
he enters the quantity. He does not ask for help
because he does not want to look stupid.
Competence – Recognize and communicate
professional limitations or other constraints
that would preclude responsible judgment
or successful performance of an activity.
3.
Gabriel added in sales commissions to product
cost on the financial statements because it
seemed reasonable to include those costs.
Competence – Perform professional duties
in accordance with relevant laws,
regulations, and technical standards.
4.
At a neighborhood party, Jodi talks about the
upcoming bid her company is making for a county
project. She shares specific cost estimates that are
included in the bid.
Confidentiality – Keep information
confidential except when disclosure is
authorized or legally required.
5.
Jose changed the way that manufacturing
overhead is allocated to divisions on the monthly
internal reports to better reflect resource usage.
However, he did not note the change on any of
the reports nor did he inform any managers of the
change.
Credibility – Disclose all relevant
information that could reasonably be
expected to influence an intended user’s
understanding of the reports, analyses, or
recommendations.
(5-10 min.) S3–15
a. Process costing is used by companies that produce large numbers of identical units through a series of uniform
production steps or processes.
b. The job cost record is used to track and accumulate all of the costs for an individual job.
Managerial Accounting 4e Solutions Manual
Exercises (Group A)
(10 min.) E3-16A
a. Aircraft builder – Job costing
b. Hospital – Job costing
c. Cement plant – Process costing
d. Dentist – Job costing
(10 min.) E3-17A
Materials Requisition
Number: #1250
Date: 9/14
Job: 1102
Part number
Description
Quantity
Unit Cost
Amount
WOCD06
Rough-hewn cedar planks
42
$3.00
$126
SSF0304
Stainless steel fasteners
78
$1.00
78
AS222
Reinforced aluminum screens
22
$2.50
55
Total
$259
Labor Time Record
Employee: Greg Henderson Week: 9/14 – 9/20
Hourly wage rate: $11 Record #: 912
Date
Job number
Start Time
End Time
Hours
Cost
9/14
1102
9:00
2:00
5
$ 55
9/14
1103
2:00
5:00
3
$ 33
9/15 etc.
Labor Time Record
Employee: Andrew Peck Week: 9/14 – 9/20
Hourly wage rate: $7 Record #: 913
Date
Job number
Start Time
End Time
Hours
Cost
9/14
1101
8:00
12:00
4
$ 28
9/14
1102
12:00
4:00
4
$ 28
9/15
1103
8:00
10:00
2
$ 14
9/15 etc.
Chapter 3 Job Costing
Job Cost Record
Job Number: 1102
Customer: Wild Birds, Inc.
Job description: 30 Model 3F (platform bird feeders)
Date Started: Sep. 14 Date Completed: ________
Manufacturing Cost Information:
Cost Summary
Direct Materials
Req. #1250:
$259
Direct Labor
No. #912 (5 hours): $ 55
No. #913 (4 hours): $ 28
$ 83
Manufacturing Overhead
9 hours x $2 per direct labor hour
$ 18
Total Job Cost
$360
Number of units
÷ 30
Cost per Unit
$ 12.00
(10 min.) E3-18A
Req. 1
Calculate the predetermined overhead rate:
Predetermined
=
$67,200
overhead rate
4,200 direct labor hours
=
$16 per direct labor hour
Req. 2
Allocate overhead using the predetermined overhead rate:
Job 101: 180 direct labor hours × $16 per direct labor hour = $2,880
Job 102: 74 direct labor hours × $16 per direct labor hour = $1,184
Req. 3
Next, calculate the total job cost for each job:
Job #101
Job #102
Direct materials
$18,000
$12,000
Direct labor
(180 direct labor hours × $24 per direct labor hour)
(74 direct labor hours × $24 per direct labor hour)
4,320
1,776
Overhead
(calculated in Req. 2)
2,880
1,184
Total job cost
$25,200
$14,960
Managerial Accounting 4e Solutions Manual
(10 min.) E3-19A
Req. 1
Calculate the predetermined overhead rate:
Predetermined
=
$356,400
overhead rate
$648,000 direct labor cost*
=
55% of direct labor cost
(5-10 min.) E3-20A
Req. 1
First, calculate the predetermined overhead rate:
Predetermined manufacturing
=
$586,600
overhead rate
41,900 direct labor hours
=
$14 per direct labor hour
Next, tabulate the total job cost:
Job #309
Direct materials
$14,200
Direct labor
(175 direct labor hours × $22 per direct labor hour)
3,850
Manufacturing overhead
(175 direct labor hours × $14 per direct labor hour)
2,450
Total job cost
$20,500
Req. 2
Job #309
Total manufacturing cost of Job #309
$20,500
22% Mark-up on manufacturing cost
× 122%
Contracted billing price
$25,010
or, alternatively:
Job #309
Total manufacturing cost of Job #309
$20,500
Add 22% Mark-up on manufacturing cost
(22% × $20,500)
+ 4,510
Contracted billing price
$25,010
(10 min.) E3-21A
Req. 1
Virgin materials
120
$ 3.70
$ 444.00
Recycled-content materials
280
$ 2.60
$ 728.00
Direct labor
16
$12.00
$ 192.00
Manufacturing overhead (based on DLH)
16
$6.00
$ 96.00
Total job cost
$1,460.00
Req. 2
Virgin materials
120
Recycled-content materials
280
70% (= 280 / 400)
Total pounds
400
Ludlow Plastics meets the 60% recycled-content requirement.
Managerial Accounting 4e Solutions Manual
(15 min.) E3-22A
Req. 1
Job Cost Record for Job 310
Direct Materials:
Total
Lumber: 47 units at $8.00 per unit
$376
Padding: 13 yards at $19 per yard
$247
Upholstery fabric: 28 yards at $27 per yard
$756
Total direct materials
$1,379
Direct Labor:
Joe Hume: 11 hours at $9 per hour
$ 99
Charles Roche: 16 hours at $13 per hour
$208
Total direct labor
$ 307
Manufacturing Overhead Allocated:
$8 per Direct Labor Hour × 27 direct labor hours [=(11 + 16)]
$ 216
Total job cost
$1,902
Req. 2
Sales price per unit
$ 750.00
Job cost per unit ($1,902 / 8 recliners)
(237.75)
Gross profit per unit
$ 512.25
Chapter 3 Job Costing
(10 min.) E3-23A
Req. 1
First, calculate the predetermined overhead rate:
Predetermined manufacturing
=
$369,260
overhead rate
9,980 direct labor hours
=
$37 per direct labor hour
Next, tabulate the total job cost:
Direct materials
$ 25,300
Direct labor
(1,700 direct labor hours × $12 per direct labor hour)
20,400
Manufacturing overhead
(1,700 direct labor hours × $37 per direct labor hour)
62,900
Total job cost
$108,600
Then, compute bid price:
Total manufacturing cost of job
$108,600
31% Markup on manufacturing cost
× 131%
Bid price
$142,266
– or, alternatively:
–
Total manufacturing cost of job
$108,600
Add 31% mark-up on manufacturing cost
(31% × $108,600)
+ 33,666
Bid price
$142,266
Req. 2
First, calculate the predetermined overhead rate:
Predetermined manufacturing
=
$369,260
overhead rate
18,463 machine hours
=
$20 per machine hour
Managerial Accounting 4e Solutions Manual
(continued) E3-23A
Next, tabulate the total job cost:
Direct materials
$25,300
Direct labor
(1,700 direct labor hours × $12 per direct labor hour)
20,400
Manufacturing overhead
(1,980 machine hours × $20 per machine hour)
39,600
Total job cost
$85,300
Total manufacturing cost of job
$ 85,300
31% Markup on manufacturing cost
× 131%
Bid price
$111,743
– or, alternatively:
Total manufacturing cost of job
$ 85,300
Add 31% Markup on manufacturing cost
(31% × $85,300)
+ 26,443
Bid price
$111,743
Req. 3
Whether or not Rosa wins the bid will depend on the allocation base the company chose to use during the year. Rosa’s
bid price will be $142,266 if the company uses direct labor hours as the allocation base. In this case, the company will
probably lose the job to Mauzy Recycling, since their bid was only $125,000. However, Rosa will probably win the bid if
machine hours are used as the allocation base. Using machine hours as an allocation base results in a bid price of
$111,743.
Note: Student answers may vary.
(15-20 min.) E3-24A
Req. 1
Predetermined manufacturing overhead rate
=
$620,000
77,500 machine hours
=
$8 per machine hour
Req. 2
Allocated manufacturing overhead
=
54,000 actual machine hours
×
$8 per machine hour
=
$432,000
(10-15 min.) E3-25A
Req. 1
Journal Entry
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Manufacturing Overhead
$430,000
Accumulated Depreciation — plant and equipment
400,000
Property Tax Payable
20,500
Wages Payable
9,500
Req. 2
Note: Predetermined overhead rate $8
per MH
=
$620,000
77,500 machine hours
Journal Entry
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Work in Process Inventory
432,000
Manufacturing Overhead (54,000 x $8 per MH)
432,000
Allocated
Journal Entry
DATE
Managerial Accounting 4e Solutions Manual
(10 min.) E3-26A
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
a.
Raw Materials Inventory
195,000
Accounts Payable
195,000
b.
Work in Process Inventory
167,000
Manufacturing Overhead
27,000
Raw Materials Inventory
194,000
c.
Work in Process Inventory
215,000
Manufacturing Overhead
45,000
Wages Payable
260,000
d.
Manufacturing Overhead
26,000
Accum. Depreciation
17,000
Utilities Payable (or A/P)
9,000
e.
Work in Process Inventory
87,000
Manufacturing Overhead
87,000
f.
Website Expense
3,000
Accounts Payable
3,000
Req. 2
During January, actual manufacturing overhead costs totaled $98,000 ($27,000 + $45,000 + $26,000). By the end of
January, a total of $87,000 had been allocated to jobs. Therefore, manufacturing overhead had been underallocated by
$11,000.
Chapter 3 Job Costing
Copyright © 2015 Pearson Education, Inc.
3-17
(10 min.) E3-27A
1.
Direct materials used…………………
$ 30,000
2.
Indirect materials used………………
$ 3,500
3.
Direct labor………………………………
$ 64,500
4.
Indirect labor…………………………….
$ 13,500
5.
Cost of goods manufactured…………
$ 125,500
6.
Cost of goods sold……………………
$ 114,000
7.
Actual manufacturing overhead
$ 59,000
8.
Allocated manufacturing overhead….
$ 42,000
9.
Predetermined manufacturing
overhead rate, as a % of direct
labor cost; $42,000 /$ 64,500…………
65%
10.
Manufacturing overhead is
($59,000 actual − $42,000 allocated) = $ 17,000
Underallocated
Chapter 3 Job Costing
(10 min.) E3-29A
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
a.
Raw Materials Inventory
205,000
Accounts Payable
205,000
b.
Work in Process Inventory
146,000
Manufacturing Overhead
28,000
Raw Materials Inventory
174,000
c.
Work in Process Inventory
200,000
Manufacturing Overhead
10,000
Wages Payable
210,000
d.
Manufacturing Overhead
30,000
Accum. Depreciation
16,000
Utilities Payable (or A/P)
14,000
e.
Work in Process Inventory
56,000
Manufacturing Overhead
56,000
Req. 2
During January, actual manufacturing overhead costs totaled $68,000, while only $56,000 had been allocated to jobs.
Therefore, by the end of January, manufacturing overhead had been underallocated by $12,000.
Note: T-account not required.
Manufacturing Overhead
(Actual)
(Allocated)
(2) 28,000
(3) 10,000
(4) 30,000
(5) 56,000
12,000
Copyright © 2015 Pearson Education, Inc.
3-20
(10 min.) E3-30B
a. Medical practice of six doctors and four physician assistants – Job costing
b. Soft drink bottler – Process costing
c. Movie studio – Job costing
(10 min.) E3-31B
Materials Requisition
Number: 1250
Date: 9/14
Job: 1102
Part number
Description
Quantity
Unit Cost
Amount
WOCD06
Rough-hewn cedar planks
40
$2.50
$ 100
SSF0304
Stainless steel fasteners
82
$1.00
82
AS222
Reinforced aluminum screens
26
$1.50
39
Total
$221
Labor Time Record
Employee: Greg Henderson Week: 9/14 – 9/20
Hourly wage rate: $11 Record #: 912
Date
Job number
Start Time
End Time
Hours
Cost
9/14
1102
9:00
1:00
4
$ 44
9/14
1103
1:00
5:00
4
$ 44
9/15 etc.
Labor Time Record
Employee: Andrew Peck Week: 9/14 – 9/20
Hourly wage rate: $7 Record #: 913
Date
Job number
Start Time
End Time
Hours
Cost
9/14
1101
9:00
12:00
3
$ 21
9/14
1102
12:00
5:00
5
$ 35
9/15
1103
9:00
11:00
2
$ 14
9/15 etc.