104
CHAPTER 5
JOB ORDER COSTING
QUESTIONS
1. The two choices for cost accumulation are the job order and process costing sys-
systems.
2. The three valuation methods are actual, normal, and standard costing. In actual
costing, the actual amounts of material, labor, and overhead costs are assigned to
In standard costing, standard (or “expected norm”) amounts are established for
material, labor, and overhead costs and/or quantities and are charged to production
and unfavorable variances.
3. The principal documents are job order cost sheets, material requisition forms, and
amounts may be compared to budgeted costs. Material requisition forms are used
to specific jobs.
4. Job order costing information allows managers to better estimate the costs of pro-
and set prices for products and services.
5. If normal spoilage is generally anticipated on all jobs in a job order costing sys-
tem, the estimated overhead used in setting the predetermined overhead rate
Chapter 5 105
6. Normal spoilage refers to an expected reduction in production quantity based on a
company’s production technology, quality of material and labor used, and produc-
generally included in the development of the predetermined overhead rate.
cost.
7. When standards are used in a job order costing system, cost and quantity standards
may not be able to be determined for material and labor. Standards can only be
pay the same wage rate to all workers performing tasks in a specific department
and all jobs flow through that department; in such a case, a labor wage standard
8. In a standard costing system, variances identify the areas of efficiency and ineffi-
ciency in production operations. Managers, using the concept of management by
erations that are “out of control” and try to correct the causes.
106 Chapter 5
EXERCISES
9. a. job order
b. job order
c. process
d. job order
e. job order
f. job order
10. Two characteristics of the proposal are critical in advising London about a costing
system: the expected high sales volume and the repetitive nature of production
implied by that high sales volume. These characteristics indicate that London’s
11. Each student will have a different answer, depending on the particular yacht se-
Hull #5 2008 (http://richmondyachts.com/pdf/142-RICHMOND-LADY-BOAT-
SHOW-PRICE.pdf) provides numerous features upon which students can focus.
12. a. Employee time card
b. Work in Process Inventory Control or Finished Goods Inventory
c. Raw Material Inventory
d. Job order cost sheet
e. Manufacturing Overhead Control
Chapter 5 107
13. a. The direct material charge of $658,000 is higher than the estimate by $158,000.
Assuming that there were no errors in the estimated and actual amounts, then
either the price paid for the material or the quantity of material used was sub-
The starting point to validate the material prices and quantities purchased is to
examine vendor invoices billed to Quindo. These invoices will validate materi-
al purchase quantities and prices paid by Quindo. Additionally, material requi-
b. The direct labor charge of $625,000 is higher than the estimate by $225,000.
Assuming that there were no errors in the estimated and actual amounts, then
The starting point to validate the labor rates and hours worked is to examine
employee time sheets (or other labor accumulation documents). The time sheets
will validate which employees worked on the job and for what period of time.
racy of the time sheets.
c. The predetermined overhead rate could have been manipulated to a higher rate
by using a lower denominator level of activity than was appropriate. Addition-
ally, inappropriate costs (such as period costs in addition to product overhead
d. The company’s behavior is at best questionable. Given that the difference be-
tween actual and estimated direct material cost was likely known at the point of
14. a. Raw Material Inventory
204,000
Accounts Payable
204,000
Work in Process Inventory—#4263
163,800
Work in Process Inventory—#4264
1,870
Manufacturing Overhead
12,460
Raw Material Inventory
178,130
108 Chapter 5
Work in Process Inventory—#4263
54,000
Work in Process Inventory—#4264
1,800
Cash (3,720 $15)
55,800
Manufacturing Overhead
68,700
Cash ($18,000 + $7,200 + $9,500)
34,700
Accumulated Depreciation
21,500
Wages Payable
12,500
Work in Process Inventory—#4263
64,800
Work in Process Inventory—#4264
2,160
Manufacturing Overhead
66,960
month.
Beginning WIP
Less costs associated with Job #4263
Costs associated with other jobs
Costs for Job #4264 ($1,870 + $1,800 + $2,160)
Ending WIP
= $11,400 + $163,800 + $1,870 + $55,800 + $66,960 $16,430
= $283,400
Unit cost = $283,400 ÷ 10,000 = $28.34
derapplied
15. a. OH rate = $134,400 ÷ $96,000 = 140% of direct labor
b. Ending WIP balance:
DM
$37,725
DL
18,100
OH ($18,100 1.40)
25,340
Ending balance
$81,165
= $0 + $138,600 + $96,000 + $134,400 $81,165
= $287,835
16. a. Raw Material Inventory
76,000
Accounts Payable
76,000
WIP—Job #217
44,800
WIP—Job #218
7,200
WIP—other jobs
53,600
Direct Material Inventory
105,600
Chapter 5 109
WIP—Job #217
10,400
WIP—Job #218
14,000
WIP—other jobs
19,600
Cash (or Wages Payable)
44,000
Manufacturing Overhead
220,000
Various accounts
220,000
WIP—Job #217
51,480
WIP—Job #218
69,300
WIP—other jobs
97,020
Manufacturing Overhead
217,800
(Actual rate per DL$ = $44,000 $4.95)
Finished Goods Inventory
117,880
WIP Inventory—Job #217
117,880
($11,200 + $44,800 + $10,400 + $51,480
= $117,880)
Cash
159,138
Sales
159,138
($117,880 × 1.35 = $159,138)
Cost of Goods Sold
117,880
Finished Goods Inventory
117,880
= $16,800 + $105,600 + $44,000 + $217,800 $117,880
= $266,320
Ending balance in Job #218 = $5,600 + $7,200 + $14,000 + $69,300
= $96,100
17. a. OH rate = $127,680 ÷ 7,600 = $16.80 per DLH
c. 15,200 ($21.00 + $16.80) = 15,200 $37.80 = $574,560
DM
$ 73,250
DL (2,850 $21)
59,850
OH (2,850 $16.80)
47,880
Ending balance
$180,980
= $916,650 + $589,670 + $159,600 + $127,680 $180,980
= $1,612,620
110 Chapter 5
18. a. CGS is the amount credited to Finished Goods Inventory for the year.
CGS = $1,890,000
b. Beg. FG + CGM – End. FG = CGS
c. Applied OH = $395,000 × 1.40 = $553,000
$56,000 + DM + $395,000 + $553,000 $27,640 = $1,857,000
$24,600 + P $880,640 = $4,100
19. a. CGS = 0.75 Sales = 0.75($1,598,000) = $1,198,500
b. Beg. FG + CGM – End. FG = CGS
c. Job B325: Applied OH = 85% of DL$ = 0.85(128 $12.90) = 0.85 $1,651.20
$3,096.00 = $2,631.60
d.
Job B325
Q428
DM
$21,980.00
$14,700.00
DL
1,651.20
3,096.00
OH
1,403.52
2,631.60
$25,034.72
$20,427.60
$1,295,200 = $14,600 + DM used + $12.90(25,760) + 0.85($12.90 25,760)
– ($25,034.72 + $20,427.60)
Chapter 5 111
20. a.
Case #1
Case #2
Case #3
Case #4
DM
$ 480
$ 8,800
$ 3,700
$ 850
DL ($190 per hour)
7,600
17,100
13,300
2,850
OH ($150 per court hour)
1,800
9,750
18,000
6,000
Totals
$9,880
$35,650
$35,000
$9,700
b. DM
$10,100
DL (174 $190)
33,060
OH (72 $150)
10,800
Total cost
$53,960
Markup (45%)
24,282
Total billed to client
$78,242
21. a. Overhead rate = Budgeted OH ÷ Budgeted DL$
$4.25 = $1,275,000 ÷ Budgeted DL$
b. Work in Process Inventory 96,475
c. $4.25 3,900 = $16,575
d. Beginning balance
$18,350
Direct material
29,600
Direct labor
3,900
Manufacturing overhead
16,575
Ending balance
$68,425
22. a. Direct material
$2,850
Direct labor ($800 ÷ $20 = 40 DLHs)
800
Applied overhead ($17 40)
680
Total cost of Job #920
$4,330
b. BI of WIP [$8,250 + $500 + ($17 25)]
$ 9,175
Direct material
$21,650
Direct labor ($6,300 ÷ $20 = 315 DLHs)
6,300
Applied overhead ($17 315)
5,355
33,305
$42,480
EI of WIP
(4,330)
Cost of goods manufactured
$38,150
c. Actual overhead
$ 5,054
Applied overhead
(5,355)
Overapplied OH
$ 301
23. a. Mixing: $480,000 ÷ 60,000 = $8 per MH
112 Chapter 5
b. Mixing (290 MHs $8) $ 2,320
c. ($480,000 + $700,000) ÷ (60,000 + 12,000) = $1,180,000 ÷ 72,000 = $16.39
partment is very labor-intensive.
24. a. Department 1 = $465,000 ÷ 30,000 MHs = $15.50 per MH
b. Raw Material Inventory
346,000
Accounts Payable
346,000
Work in Process Inventory—Job #462
19,000
Work in Process Inventory—other jobs
321,000
Raw Material Inventory
340,000
Work in Process Inventory—Job #462
275
Work in Process Inventory—other jobs
2,860
Cash (285 $11)
3,135
Work in Process Inventory—Job #462
4,960
Work in Process Inventory—other jobs
32,240
Overhead Control (2,400 $15.50)
37,200
Work in Process Inventory—Job #462
2,844
Work in Process Inventory—other jobs
22,896
Cash (1,430 $18)
25,740
Work in Process Inventory—Job #462
346
Work in Process Inventory—other jobs
2,768
Overhead Control (180 $17.30)
3,114
Finished Goods Inventory—Job #462
27,425
Work in Process Inventory—Job #462
27,425
($19,000 + $275 + $4,960 + $2,844 + $346)
Accounts Receivable—Power
32,910
Sales ($27,425 1.20)
32,910
Cost of Goods Sold
27,425
Finished Goods Inventory—Job #462
27,425
c. Cost per unit = $27,425 ÷ 500 = $54.85
Chapter 5 113
d. Total RM issued $340,000
Total cost per unit = $54.85 $38.00 + $16.59 = $33.44
Sales without error $ 32,910
25. a. Currently, Bonivo has no data on the actual cost of building any of the comput-
ers being configured. Consequently, the company is unable to determine the ac-
age costs and revenues.
b. A pricing policy that ignores the costs of direct labor and overhead (in addition
26. a.
Secretary ($4,800 ÷ 160 hrs. 35 hrs.)
$ 1,050
Copies (1,450 pages $0.06 per page)
87
Phone calls
145
Overhead ($9,600 ÷ 160 hrs. 35 hrs.)
2,100
Attorney’s time ($190 95 hrs.)
18,050
Total charges
$21,432
hour (rounded).
b.
Direct costs ($87 + $145 + $18,050)
$18,282
Allocated secretarial costs
1,050
Allocated overhead
2,100
Margin [($18,282 + $2,100) × 0.40]
8,153
Total billing
$29,585
27. Each student will have a different answer, but the memo should address the fol-
to adjust operations, the company is accepting marginal jobs. Although each job gen-