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1/1/201
7
25,00
0
630,00
0
1/1/201
7
280,00
0
2,900,00
0
1/1/201
7
320,00
0
2,930,00
0
650,00
0
Dir. Man.Lbr 880,00
0
2,900,00
0
12/31/201
7
45,00
0
Dir. Matls. 630,00
0
12/31/201
7
290,00
0
OH Alloc. 1,408,00
0
12/31/201
7
298,00
0
Direct Materials Control Work-in-Process Control Finished Goods Control
WIP Control 298,00
0
$
8.5% ×$108,000
= $ 9,180
Fin. Goods Control 290,00
0
8.2% × 108,00
0
= 8,85
6
Cost of Goods Sold 2,930,00
0
83.3% × 108,00
0
= 89,96
4
3,518,00
0
$ 100% $108,000
SOLUTION
(25-30 min.) Job costing, ethics.
1.
2. Overhead overallocated = Manufacturing overhead allocated – Manufacturing overhead control
3.
a. If the overallocated overhead is closed out to cost of goods sold, COGS decreases by $108,000:
$2,930,000 − $108,000 = $2,822,000
b. If the overallocated overhead is prorated to work in process control, finished goods control,
and cost of goods sold based on ending balances before proration, cost of goods sold will be
adjusted as follows: Proration of
Account $108,000 of
Ending Balance Balance Overallocated Overallocated
Before Proration as a Percent Manufacturing Manufacturing
12/31/2017 of Total Overhead Overhead
(1) (2)=(1)/3,518,000 (3) (4) = (3)×$108,000
$108,000 overallocated overhead × 83.3% = $89,964 is subtracted from COGS
4. While technically the $18,036 difference in adjusted cost of goods sold may have been
Further, Underwood may have been planning for this all along, when he increased the overhead
allocation rate for 2017. The ethical issue is that he may have planned for an overallocation of
4-46 Job costing—service industry. Market Pulse performs market research for consumer
product companies across the country. The company conducts telephone surveys and gathers
consumers together in focus groups to review foods, cleaning products, and toiletries. Market
Pulse uses a normal-costing system with one direct-cost pool, labor, and one indirect-cost pool,
general overhead. General overhead is allocated to each job based on 150% of direct labor cost.
Actual overhead equaled allocated overhead as of April 30, 2017. Actual overhead in May was
$122,000. All costs incurred during the planning stage for a market research job and during the
job are gathered in a balance sheet account called “Jobs in Progress (JIP).” When a job is
completed, the costs are transferred to an income statement account called “Cost of Completed
Jobs (CCJ).” Following is cost information for May 2017:
As of May 1, there were two jobs in progress: Cococrunch Candy Bars, and Brite Toothpaste.
The jobs for Verde Organic Salsa and Sparkle Dish Liquid were started during May. The jobs for
Cococrunch Candy Bars and Sparkle Dish Liquid were completed during May.
Required:
1. Calculate JIP at the end of May.
2. Calculate CCJ for May.
3. Calculate under- or overallocated overhead at the end of May.
4. Calculate the ending balances in JIP and CCJ if the under- or overallocated overhead amount
is as follows:
a. Written off to CCJ
b. Prorated based on the ending balances (before proration) in JIP and CCJ
c. Prorated based on the overhead allocated in May in the ending balances of JIP and CCJ
(before proration)
5. Which method would you choose? Explain. Would your choice depend on whether overhead
cost is underallocated or overallocated? Explain.
SOLUTION
(35 min.) Job costing—service industry.
1. Jobs in Process (JIP) May 31, 2017
Brand
Beginning
JIP
Balance
(1)
Direct
Labor Cost
in May
(2)
May Overhead
Allocated
(3) = 150% ×
(2)
Total
(4)
Brite Toothpaste $10,000 $34,000 $51,000 $ 95,000
2. Cost of Jobs Completed (CCJ) in May 2017
Brand
Beginning
JIP
Balance
(1)
Direct
Labor Cost
in May
(2)
May Overhead
Allocated
(3) = 150% × (2)
Total
(4)
Cococrunch Candy Bars $45,000 $16,000 $24,000 $85,000
3. Overhead allocated = $84,600 + $32,400 = $117,000
4a. Underallocated overhead is written off to CCJ
JIP inventory remains unchanged.
Account
May 31, 2017
Balance
(Before Proration)
(1)
Underallocated
Overhead of
$5,000 written
off to Cost of
Completed Jobs
(CCG)
(2)
May 31, 2017
Balance
(After
Proration)
(3) = (1) + (2)
JIP $151,000 $ 0 $151,000
4b. Underallocated overhead prorated based on ending balances (before proration) in JIP and
CCJ
Account
May 31, 2017
Balance
(Before
Proration)
(1)
Account Balance as
a Percent of Total
In JIP and CCJ
(2) = (1) ÷ $250,000
Proration of $5,000
Underallocated
Overhead
(3) = (2)
´
$5,000
May 31, 2017
Balance
(After Proration)
(4) = (1) + (3)
JIP
$ 151,000 0.604
0.604
´
$5,000 = $3,020
$154,020
4c. Underallocated overhead prorated based on May overhead in ending balances
Account
May 31, 2017
Balance
(Before
Proration)
(1)
Overhead
Allocated in
May Included
in May 31, 2017
Balance
(2)
Overhead Allocated
in May Included
in May 31, 2017 as
a Percent of Total
(3) = (2) ÷ $117,000
Proration of $5,000
Underallocated
Overhead
(4) = (3)
´
$5,000
May 31, 2017
Balance
(After Proration)
(5) = (1) + (4)
JIP
0.723
´
$5,000 = $3,615
CCJ
0.277
´
$5,000 = 1,385
5. I would choose the method in 4c (proration based on overhead allocated) because this
Of course, the method chosen affects reported operating income. In the case of
Despite the tax considerations, I would choose proration based on overhead allocated
because it best represents Market Pulse’s performance during a period. I would use the simpler
Try It 4-1 Solution
The solution assumes that Donna Corporation allocates manufacturing overhead costs in its
normal costing system based on direct manufacturing labor-hours.
Budgeted indirect Budgeted annual manufacturing overhead costs
cost rate Budgeted annual quantity of the cost-allocation base
=
Budgeted indirect $960,000
cost rate 32,000 hours
Total manufacturing costs of the 32 Berndale Drive job equals:
Direct manufacturing costs
Try It 4-2 Solution
The solution assumes that Donna Corporation allocates manufacturing overhead costs in its
costing system based on direct manufacturing labor-hours. Although Donna uses a
normal-costing system to manage costs throughout the year, the problem asks you to calculate
actual costs using actual costing at the end of the year. The point of the problem is to illustrate
that companies that use normal costing also use actual costing at the end of the year to evaluate
how well their normal costing systems are working. As the chapter discussion indicates,
companies rarely use actual costing as their main costing system.
Actual manufacturing Actual annual manufacturing overhead costs
overhead rate Actual annual quantity of the cost-allocation base
$992,000
31, 000 direct manufacturing labor-hours
$32 per direct manufacturing
=
=
= labor-hour
Manufacturing overhead costs Actual manufacturing Actual quantity of direct
allocated to 32 Berndale Drive job overhead rate manufacturing labor-hours
$32 per direct manuf. 160 direct manufacturi
labor-hour
= ´
= ´ ng
labor-hours
$5,120=
The cost of the job under actual costing is:
Direct manufacturing costs
Try It 4-3 Solution
The solution assumes that Donna Corporation allocates manufacturing overhead costs in its
normal costing system based on direct manufacturing labor-hours.
Budgeted indirect Budgeted manufacturing overhead costs
cost rate Budgeted annual quantity of the cost-allocation base
=
Budgeted indirect $960,000
cost rate 32,000 hours
(a) Usage of direct materials, $60,000, and indirect materials, $3,000 during April 2017
Work-in-Process Control 60,000
(b) Manufacturing payroll for April 2017: direct labor, $54,000 paid in cash
(c) Other manufacturing overhead costs incurred during April 2017, $76,000, consisting of
■ Supervision and engineering salaries, $50,000 (paid in cash);
■ Plant utilities and repairs $10,000 (paid in cash); and
■ Plant depreciation, $16,000
(d) Allocation of manufacturing overhead to jobs = Budgeted manufacturing overhead rate ×
(e) The sum of all individual jobs completed and transferred to finished goods in April 2017 is
$180,000
(f) Cost of goods sold in April 2017, $175,000
Try It 4-4 Solution
Budgeted indirect Budgeted manufacturing overhead costs
cost rate Budgeted annual quantity of the cost-allocation base
=
Budgeted indirect $960,000
cost rate 32,000 hours
Manufacturing overhead allocated during the year =
Underallocated manufacturing overhead = Actual manufacturing overhead costs – Budgeted
Account
Account
Balance
(Before
Proration
)
(1)
Manufacturing
Overhead in
Each Account
Balance
Allocated in the
Current Year
(Before
Proration)
(2)
Manufacturing
Overhead in
Each Account
Balance
Allocated in the
Current Year as
Percent of Total
(3)=(2)÷$960,00
0
Proration of $62,000
of Underallocated
Manufacturing
Overhead
(4)=(3)×$62,000
Account
Balance
(After
Proration)
(5)=(1)+(4)
Work-in-proce
ss control
$
40,000 $ 14,400 1.5
%0.015 × $62,000 = $ 930 $ 40,930
Finished
60,00
