1. Job-order costing accumulates costs by jobs, and process costing accumulates costs by
processes. Job-order costing is suitable for operations that produce custom-made products that
receive different doses of manufacturing costs. Process costing, on the other hand, is suitable
for operations that produce homogeneous products that receive equal amounts of manufacturing
costs in each process.
4. Actual overhead rates are rarely used because managers cannot wait until the end of the year
to obtain product costs. Information on product costs is needed as the year unfolds for planning,
control, and decision making.
5. Overhead is assigned to production using the predetermined rate. The predetermined overhead
rate is equal to estimated overhead divided by estimated activity level. The predetermined
overhead rate is multiplied by the actual activity level or the cost driver on which the rate is based.
8. Unless all your jobs (lawns) are the same size and require the same services, you will need to
use a job-order costing system. At a minimum, you will need job-order cost sheets for each
customer. You will need labor time tickets to record the amount of time spent on each job, both
to cost the job and to pay the individual doing the work. A materials requisition form may be
5JOB-ORDER COSTING
DISCUSSION QUESTIONS
5-1
CHAPTER 5 Job-Order Costing
9. Multiple overhead rates often produce a more accurate assignment of overhead costs to jobs.
This can be true if the departments through which products pass have different amounts of
10. Materials requisition forms serve as the source document for posting materials usage and costs
to individual jobs. Time tickets serve a similar function for labor. Predetermined overhead rates
are used to assign overhead costs to individual jobs.
11. Because the overhead rate is based on direct labor cost, the amount of overhead applied will
increase. As a result, the total cost of each job will go up.
14. Because advertising expense is a period expense, it has no effect on overhead—either applied or
actual. Therefore, changes in advertising expense cannot affect manufacturing cost or cost of
goods sold.
15. A departmental overhead rate application can be easily converted to a plantwide rate. First, the
estimated overhead for all departments is totaled, and a single plantwide driver is chosen. The
plantwide overhead rate is simply the estimated plantwide overhead divided by the plantwide
CHAPTER 5 Job-Order Costing
18. The identification and use of causal factors ensures that support department costs are accurately
19. a. Number of employees
b. Square footage
20. The direct method allocates the direct costs of each support department directly to the producing
departments. No consideration is given to the fact that other support departments may use support
services. The sequential method allocates support department costs sequentially. First, the costs
5-3
CHAPTER 5 Job-Order Costing
5-1. d
5-2. c
5-11. c
5-12. e
5-13. d
MULTIPLE-CHOICE QUESTIONS
5-4
CHAPTER 5 Job-Order Costing
5-14. c
5-15. b
5-5
CHAPTER 5 Job-Order Costing
CE 5-22
1. Predetermined Overhead Rate =
CE 5-23
CE 5-24
1. Cutting Department Overhead Rate = $240,000/150,000 mhrs
= $1.60 per machine hour
CORNERSTONE EXERCISES
Estimated Direct Labor Cost
Estimated Overhead
CHAPTER 5 Job-Order Costing
CE 5-25
1. Predetermined Plantwide Overhead Rate = $590,000/131,200 DLH
= $4.50 per direct labor hour*
* Rounded
CE 5-26
1. Since the predetermined overhead rate is not given, it must be calculated from
BWIP amounts using either Job 44 or Job 45. Using Job 44,
2. Job 45 Job 46 Job 47
Beginning balance, June 1
…
$ 6,450 $ 0 $ 0
3. By the end of June, Jobs 44, 45, and 47 have been transferred out of Work in
Process. Thus, the ending balance in Work in Process consists of Job 46.
Work in process, June 30……
…
$3,285
4. One job, Job 45, was sold during June.
Cost of goods sold…………………
…
$24,120
$ 7,080
Job 44
CHAPTER 5 Job-Order Costing
CE 5-27
1. Allocation ratios for S1 based on number of employees:
Cutting = 63/(63 + 147) = 0.30
2.
Allocate: S1 S2 Cutting Sewing
…
CE 5-28
1. Allocation ratios for S1 based on number of employees:
S2 = 30/(30 + 63 + 147) = 0.1250
2. Support Departments Producing Departments
Allocate: S1 S2 Cutting Sewing
Direct costs…………………
…
$ 180,000 $ 150,000 $122,000 $ 90,500
Support Departments Producing Departments
5-8
CHAPTER 5 Job-Order Costing
E 5-29
a. Hospital services—job order
b. Custom cabinet making—job order
c. Toy manufacturing—process
E 5-30
a. Auto manufacturing—a shop that builds autos from scratch (the way Rolls Royce
used to build cars, or a car that can be built from kits) would use job-order costing.
Large automobile manufacturers use process costing. (While the customer may
EXERCISES
5-9
CHAPTER 5 Job-Order Costing
E 5-31
E 5-32
1. Predetermined Overhead Rate = $486,400/95,000 DLH
= $5.12 per direct labor hour
E 5-33
1. Assembly Department Overhead Rate = $338,000/130,000 DLH
= $2.60 per direct labor hour
3. Assembly Testing
Department Department
Actual overhead…………………………
…
$29,850 $58,000
5-10
CHAPTER 5 Job-Order Costing
E 5-34
2. Direct Materials = 3 × Direct Labor
Prime Cost = Direct Materials + Direct Labor
3. Applied Overhead = Direct Labor × Overhead Rate
E 5-35
1. Materials requisition form
E 5-36
1. Job 93 Direct Labor Hours = $2,160/$18 = 120 DLH
2. August applied overhead for:
Job 93 = 120 DLH × $8 = $960
3. Job 93 Job 94 Job 95 Job 96
Beginning balance……
…
$ 8,750 $ 7,300 $ 0 $ 0
4. Work in Process, August 31, consists of unfinished jobs:
Job 94……………………
…
$19,600
…
…
CHAPTER 5 Job-Order Costing
E 5-36 (Continued)
5. Price of Job 93 = $12,820 + (0.40 × $12,820) = $17,948
6. Jagjit could treat the acquisition and use of the bulldozer as a separate department
and create a departmental overhead rate for it based on the hours used. That is, the
E 5-37
Job 877 Job 878 Job 879 Job 880
1. Beginning balance…………
…
$18,640 $ 0 $ 0 $ 0
2. Applied overhead in October for:
Job 877 = $14,800 × 0.80 = $11,840
3. Work in Process, October 31:
Job 878*…………………………………………………………
…
$21,300
E 5-38
1. Balance in Work in Process (all incomplete jobs):
Job 303……………………………………………………………
…
$ 780
Job 306……………………………………………………………
…
350
…
…
…
CHAPTER 5 Job-Order Costing
E 5-38 (Continued)
2. Balance in Finished Goods (all jobs completed but not sold):
Beginning balance (Job 300)………………………………
…
$ 300
Job 301…………………………………………………………
…
1,600
E 5-39
1. Job 106 Job 107 Job 108
Balance, July 1……………………………… $21,310 $ 6,250 $ 0
2. Work in Process, July 31 = Job 107 = $35,550
3. Finished Goods:
Beginning balance……………………………………………
…
$ 49,000
…
5. Sales [$81,360 + (0.30 × $81,360)]…………………………
…
$105,768
Cost of goods sold………………………………………….
…
81,360
Gross margin………………………………………………
…
$ 24,408
Less:
…
…
CHAPTER 5 Job-Order Costing
E 5-40
Job 213:
1. Number of Units =
4. Overhead Applied, Department 2 = 25 machine hours × $8
= $200
Job 214:
1. Price per Unit =
= $4,375/350 units
=
Unit Cost
Total Manufacturing Cost
Total Sales Revenue
Number of Units
$12.50
5-14
CHAPTER 5 Job-Order Costing
E 5-40 (Continued)
4. Unit Cost =
= $3,073/350 units
=
Job 217:
1. Machine Hours, Department 2 =
Job 225:
1. Number of Units =
= $1,150/$5 = 230 units
Total Sales Revenue
Price per Unit
Overhead Applied, Department 2
Overhead Rate
Number of Units
Total Manufacturing Cost
$8.78
5-15
CHAPTER 5 Job-Order Costing
E 5-41
1. Direct materials……………………………..……………………
…
$12,000
Direct labor:
2. Unit Cost = $27,960/1,000 units = $27.96
3. Direct materials…………………………………………………
…
$12,000
Direct labor:
…
E 5-42
1. Job 39 Job 40 Job 41 Job 42 Job 43
Balance, April 1 $ 540 $3,400 $2,990 $ 0 $ 0
Direct materials 700 560 375 3,500 6,900
3.
Sales [$22,814 + (0.30 × $22,814)]……..………..……….………………….…
…
$29,658
Income Statement
For the Month Ended April 30
Ensign Landscape Design
CHAPTER 5 Job-Order Costing
E 5-43
1.
Credit
a. Raw Materials
Accounts Payable 29,670
e. Work in Process
Overhead Control 8,640
Total Direct Labor Hours = $32,400/$18 = 1,800 DLH
Applied Overhead = 1,800 DLH × $4.80 = $8,640
2. Job 58 Job 59 Job 60
Direct materials………………………………
…
$ 9,200 $ 8,900 $ 6,400
3. Raw Materials:
Beginning balance…………………………… $ 2,300
29,670
8,640
Journal
Account & ExplanationDate Debit