4-21
4-22
4-26 (45 min.) Job costing, journal entries.
Donald Transport assembles prestige manufactured homes. Its job- costing system has two
direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool
(manufacturing overhead allocated at a budgeted $31 per machine-hour in 2014). The following
data (in millions) show operation costs for 2014:
Materials Control, beginning balance, January 1, 2014 $ 18
Work-in-Process Control, beginning balance, January 1, 2014 9
Finished Goods Control, beginning balance, January 1, 2014 10
Materials and supplies purchased on credit 154
Direct materials used 152
Indirect materials (supplies) issued to various production departments 19
Direct manufacturing labor 96
Indirect manufacturing labor incurred by various production departments 34
Depreciation on plant and manufacturing equipment 28
Miscellaneous manufacturing overhead incurred (ordinarily would be detailed as 13
repairs, utilities, etc., with a corresponding credit to various liability accounts)
Manufacturing overhead allocated, 3,000,000 actual machine-hours ?
Cost of goods manufactured 298
Revenues 410
Cost of goods sold 294
Required:
1. Prepare an overview diagram of Donald Transport’s job-costing system.
2. Prepare journal entries. Number your entries. Explanations for each entry may be omitted.
Post to T-accounts. What is the ending balance of Work-in-Process Control?
3. Show the journal entry for disposing of under- or overallocated manufacturing overhead
directly as a year-end writeoff to Cost of Goods Sold. Post the entry to T-accounts.
4. How did Donald Transport perform in 2014?
SOLUTION
4-24
4-25
4-26
4-27 (15 min.) Job costing, unit cost, ending work in progress.
Rafael Company produces pipes for concert-quality organs. Each job is unique. In April 2013, it
completed all outstanding orders, and then, in May 2013, it worked on only two jobs, M1 and
M2:
Direct manufacturing labor is paid at the rate of $26 per hour. Manufacturing overhead costs are
allocated at a budgeted rate of $20 per direct manufacturing labor-hour. Only Job M1 was
completed in May.
Required:
1. Calculate the total cost for Job M1.
2. 1,100 pipes were produced for Job M1. Calculate the cost per pipe.
3. Prepare the journal entry transferring Job M1 to finished goods.
4. What is the ending balance in the Work-in-Process Control account?
SOLUTION
4-27
4-28 (20−30 min.) Job costing; actual, normal, and variation from normal costing.
Cheney & Partners, a Quebec-based public accounting partnership, specializes in audit services.
Its job-costing system has a single direct-cost category (professional labor) and a single indirect–
cost pool (audit support, which contains all costs of the Audit Support Department). Audit
support costs are allocated to individual jobs using actual professional labor-hours. Cheney &
Partners employs 10 professionals to perform audit services.
Budgeted and actual amounts for 2014 are as follows:
Required:
1. Compute the direct-cost rate and the indirect-cost rate per professional labor-hour for 2014
under actual costing, (b) normal costing, and (c) the variation from normal costing that uses
budgeted rates for direct costs.
2. Which job-costing system would you recommend Cheney & Partners use? Explain.
3. Cheney’s 2014 audit of Pierre & Co. was budgeted to take 170 hours of professional labor
time. The actual professional labor time spent on the audit was 185 hours. Compute the cost
of the Pierre & Co. audit using (a) actual costing, (b) normal costing, and (c) the variation
from normal costing that uses budgeted rates for direct costs. Explain any differences in the
job cost.
4-28
SOLUTION
4-29
4-30
4-29 (20−30 min.) Job costing; actual, normal, and variation from normal costing.
Creative Solutions designs Web pages for clients in the education sector. The company’s job–
costing system has a single direct cost category (Web-designing labor) and a single indirect cost
pool composed of all overhead costs. Overhead costs are allocated to individual jobs based on
direct labor-hours. The company employs six Web designers. Budgeted and actual information
regarding Creative Solutions follows:
Budget for 2014:
Direct labor costs $273,000
Direct labor-hours 10,500
Overhead costs $157,500
Actual results for 2014:
Direct labor costs $285,000
Direct labor-hours 11,400
Overhead costs $159,600
Required:
1. Compute the direct cost rate and the indirect cost rate per Web-designing labor-hour for 2014
under (a) actual costing, (b) normal costing, and (c) the variation from normal costing that
uses budgeted rates for direct costs.
2. Which method would you suggest Creative Solutions use? Explain.
3. Creative Solutions’ Web design for Greenville Day School was budgeted to take 86 direct
labor-hours. The actual time spent on the project was 79 hours. Compute the cost of the
Greenville Day School job using (a) actual costing, (b) normal costing, and (c) the variation
from normal costing that uses budgeted rates for direct cost.
SOLUTION
4-31
4-32
4-30 (30 min.) Proration of overhead.
The Ride-On–Wave Company (ROW) produces a line of non-motorized boats. ROW uses a
normal-costing system and allocates manufacturing overhead using direct manufacturing labor
cost. The following data are for 2014:
Budgeted manufacturing overhead cost $125,000
Budgeted direct manufacturing labor cost $250,000
Actual manufacturing overhead cost $117,000
Actual direct manufacturing labor cost $228,000
Inventory balances on December 31, 2014, were as follows:
Required:
1. Calculate the manufacturing overhead allocation rate.
2. Compute the amount of under- or overallocated manufacturing overhead.
3. Calculate the ending balances in work in process, finished goods, and cost of goods sold if
under- or overallocated manufacturing overhead is as follows:
a. Written off to cost of goods sold
b. Prorated based on ending balances (before proration) in each of the three accounts
c. Prorated based on the overhead allocated in 2014 in the ending balances (before
proration) in each of the three accounts
4. Which method would you choose? Justify your answer.
SOLUTION
2014 direct manufacturing
Account
Ending balance
labor cost in ending balance
Work in process
$ 50,700
$ 20,520
Finished goods
245,050
59,280
Cost of goods sold
549,250
148,200
4-33
4-34
4-31 (20−30 min) Job costing, accounting for manufacturing overhead, budgeted rates.
The Pisano Company uses a job-costing system at its Dover, Delaware, plant. The plant has a
machining department and a finishing department. Pisano uses normal costing with two direct-
cost categories (direct materials and direct manufacturing labor) and two manufacturing
overhead cost pools (the machining department with machine– hours as the allocation base and
the finishing department with direct manufacturing labor costs as the allocation base). The 2014
budget for the plant is as follows:
Machining Department
Finishing Department
Manufacturing overhead costs
$9,065,000
$8,181,000
Direct manufacturing labor costs
$ 970,000
$4,050,000
Direct manufacturing labor-hours
36,000
155,000
Machine-hours
185,000
37,000
Required:
1. Prepare an overview diagram of Pisano’s job-costing system.
2. What is the budgeted manufacturing overhead rate in the machining department? In the
finishing department?
3. During the month of January, the job-cost record for Job 431 shows the following:
Machining Department
Finishing Department
Direct materials used
$13,000
$ 5,000
Direct manufacturing labor costs
$ 900
$ 1,250
Direct manufacturing labor-hours
20
70
Machine-hours
140
20
Compute the total manufacturing overhead cost allocated to Job 431.
4. Assuming that Job 431 consisted of 300 units of product, what is the cost per unit?
5. Amounts at the end of 2014 are as follows:
Machining Department
Finishing Department
Manufacturing overhead incurred
$10,000,000
$7,982,000
Direct manufacturing labor costs
$ 1,030,000
$4,100,000
Machine-hours
200,000
34,000
Compute the under- or overallocated manufacturing overhead for each department and for
the Dover plant as a whole.
6. Why might Pisano use two different manufacturing overhead cost pools in its job-costing
system?
4-35
SOLUTION
4-36
4-32 (15−20 min.) Service industry, job costing, law firm.
Kidman & Associates is a law firm specializing in labor relations and employee-related work. It
employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The
average budgeted total compensation per professional for 2014 is $97,500. Each professional is
budgeted to have 1,500 billable hours to clients in 2014. All professionals work for clients to
their maximum 1,500 billable hours available. All professional labor costs are included in a
single direct-cost category and are traced to jobs on a per-hour basis. All costs of Kidman &
Associates other than professional labor costs are included in a single indirect-cost pool (legal
support) and are allocated to jobs using professional labor-hours as the allocation base. The
budgeted level of indirect costs in 2014 is $2,475,000.
Required:
1. Prepare an overview diagram of Kidman’s job-costing system.
2. Compute the 2014 budgeted direct-cost rate per hour of professional labor.
3. Compute the 2014 budgeted indirect-cost rate per hour of professional labor.
4. Kidman & Associates is considering bidding on two jobs:
a. Litigation work for Richardson, Inc., which requires 120 budgeted hours of professional
labor
b. Labor contract work for Punch, Inc., which requires 160 budgeted hours of professional
labor
Prepare a cost estimate for each job.
SOLUTION
4-38
4-39
4-33 (25–30 min.) Service industry, job costing, two direct- and indirect-cost categories,
law firm (continuation of 4-32).
Kidman has just completed a review of its job-costing system. This review included a detailed
analysis of how past jobs used the firm’s resources and interviews with personnel about what
factors drive the level of indirect costs. Management concluded that a system with two direct-
cost categories (professional partner labor and professional associate labor) and two indirect-cost
categories (general support and secretarial support) would yield more accurate job costs.
Budgeted information for 2014 related to the two direct-cost categories is as follows:
Professional Partner Labor Professional Associate Labor
Number of professionals
5
25
Hours of billable time per professional
1,500 per year
1,500 per year
Total compensation (average per
$210,000
$75,000
professional)
Budgeted information for 2014 relating to the two indirect-cost categories is as follows:
Required:
1. Compute the 2014 budgeted direct-cost rates for (a) professional partners and (b)
professional associates.
2. Compute the 2014 budgeted indirect-cost rates for (a) general support and (b) secretarial
support.
3. Compute the budgeted costs for the Richardson and Punch jobs, given the following
information:
Richardson, Inc.
Punch, Inc.
Professional partners
48 hours
32 hours
Professional associates
72 hours
128 hours
4. Comment on the results in requirement 3. Why are the job costs different from those
computed in Problem 4-32?
5. Would you recommend Kidman & Associates use the job-costing system in Problem 4-32 or
the job-costing system in this problem? Explain.
General Support
Secretarial Support
Total costs
$2,025,000
$450,000
Cost-allocation
Professional labor-hours
Partner labor-hours
4-40
SOLUTION