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7
Job Costing
Solutions to Review Questions
7-1.
Companies using a job order cost system are likely to be performing services or
7-2.
There are two primary reasons that cost allocation bases using direct labor are common.
7-3.
The Manufacturing Overhead account is used to accumulate the actual manufacturing
7-4.
A materials requisition is used to document the authorization for issuances of materials
7-5.
The job costing procedure is basically the same in both types of organizations, except that
7-6
The costs of a product using normal costing are:
7-7.
Mega has choices to make about the allocation base and the cost pools used to
7-8.
Improprieties in job costing are generally caused by one or more of the following: (1)
7-9.
Solutions to Critical Analysis and Discussion Questions
7-10.
Actual costing requires knowing the actual costs of overhead as well as the actual direct
7-11.
If materials costs are not properly assigned to jobs, management may later be misled in
7-12.
The allocation of overhead matters because decisions are made about individual
7-14.
Answers will vary.
7-15.
7-16.
7-17.
7-18.
Answers will vary. The steps might include:
7-19.
Answers will vary. Common responses are (labor) time, materials cost, wall area, and so
on.
7-20.
Answers will vary. In general, the answer is that this is not ethical. Although the “correct”
Solutions to Exercises
7-21. (30 min.) Assigning Costs to Jobs: Steve’s Cabinets.
a.
1.
Materials Inventory ..........................................................
80,000
Accounts Payable ........................................................
80,000
7-21. (continued)
b.
Materials Inventory
Balance 4/1
148,200
4,000
(2) Ind. materials
Manufacturing Overhead Control
(2)
4,000
Applied Manufacturing Overhead
7-21. (continued)
Accumulated Depreciation—
Property, Plant, and Equipment
Finished Goods Inventory
Balance 4/1
166,000
7-22. (20 min.) Assigning Costs to Jobs: Sunset Products.
a.
1.
Materials Inventory ...........................................................
30,000
Accounts Payable .........................................................
30,000
2.
Manufacturing Overhead Control .....................................
1,500
Materials Inventory .......................................................
1,500
7-22. (continued)
b.
Materials Inventory
Balance 3/1
13,500
1,500
(2) Ind. materials
Work-in-process inventory
Balance 3/1
24,750
(5) Direct materials
45,000
77,250
Per Finished
7-22. (continued)
Accumulated Depreciation—
Property, Plant, and Equipment
7,500
(9)
7-23. (20 min.) Assigning Costs to Jobs: Forest Components.
a.
1.
Materials Inventory ..........................................................
119,000
Accounts Payable ........................................................
119,000
2.
Work-in-Process—Direct Materials ..................................
117,600
Materials Inventory .......................................................
117,600
7-23. (continued)
b.
Materials Inventory
Balance 7/1
79,800
*
Work-in-process inventory
Balance 7/1
105,490*
(2) Direct materials
117,600
15,400
(5)
Applied Manufacturing Overhead
Accounts Payable
7-23. (continued)
Accumulated Depreciation—
Property, Plant, and Equipment
Finished Goods Inventory
7-24. (25 min.) Assigning Costs to Jobs: Cardinals, Inc.
7-25. (25 min.) Assigning Costs to Jobs: Blake Corporation.
e.
7-26. (25 min.) Assigning Costs to Jobs: Pine Ridge Corporation.
7-27. (10 min.) Predetermined Overhead Rates: Dixboro Company.
Direct material used ...........................................
$5,500,000c
7-28. (15 min.) Predetermined Overhead Rates: Southern Rim Parts.
a.
7-29. (10 Min.) Prorate Under- or Overapplied Overhead: Southern Rim Parts.
First, determine the percentage of overhead applied is in each account:
Applied
Overhead
% of Total
Applied
7-30. (15 min.) Predetermined Overhead Rates: Aspen Company.
a.
7-31. (10 Min.) Prorate Over- or Underapplied Overhead: Aspen Company.
First, determine the percentage of overhead applied in each account:
Applied
Overhead
% of
Total
Applied
Work in process inventory (Job 2-3) ..
$162,500
20%
(= $162,500 ÷ $812,500)
7-32. (20 min.) Applying Overhead Using a Predetermined Rate: Mary’s
Landscaping.
Since Job No. 3318 is the only job in the account, the ending balance of the account must
equal the total cost of the job. We can find the account’s ending balance using the basic
cost equation:
BB + TI – TO = EB
7-33. (10 min.) Applying Overhead Using a Predetermined Rate: Turco Products.
The ending balance in Work in Process can be determined from the following T-acocunt:
Work-in-process inventory
Balance 9/1
70,200
Direct materials
421,200
832,000
To Finished Goods Inventory
7-34. (10 min.) Calculating Over- or Underapplied Overhead: Tom’s Tool & Die.
Application rate:
$714,000
= $10.50 per machine hour
68,000 hours
7-35. (20 min.) Predetermined Overhead Rates: Ethical Issues: Marine
Components.
a.
c. Using direct-labor cost as the base for applying overhead will lead to higher income for
7-36. (20 min.) Predetermined Overhead Rates: Ethical Issues: Marine
Components.
a.
c. Using machine hours as the base for applying overhead will lead to higher income for
7-37. (20 min.) Job Costing in a Service Organization: Arthur’s Olde Consulting
Corporation.
a. Beginning of month
Direct
Labor
Applied
Overhead
(@60%)
Total
b.
Direct
Labor
Applied
Overhead
Total
c. Overhead applied during month:
SY-400 ...............................................................
$ 15,120
7-38. (30 min.) Job Costing In A Service Organization: RCMP.
a.
Wages Payable
Work in Process
Cost of
Services Billed
Service Overhead Control
Applied Service O.H.
60,000
60,000d
72,000d
72,000b
b.
Royal Consulting and Mediation Practice
Income Statement
For the Month Ended August 31
Sales revenue ....................................................
$1,200,000
a
7-39. (30 min.) Job Costing In A Service Organization: Allocation Busters.
a.
Wages Payable
Work in Process
Cost of
Services Billed
b.
Allocation Busters
Income Statement
For the Month Ended March 31
Sales revenue ....................................................
$550,000
a
7-40. (30 min.) Job Costing In A Service Organization: TechMaster.
a.
Wages Payable
Work in Process
Cost of
Services Billed
b.
TechMaster
Income Statement
For the Month Ended August 31
Sales revenue ....................................................
$175,000
a
Solutions to Problems
7-41. (15 min.) Estimate Machine-Hours Worked From Overhead Data: Melbourne
Company.
With $320,000 in fixed costs expected and 40,000 machine hours expected, the
application rate for the fixed costs was $8.00 per machine hour (= $320,000 ÷ 40,000
hours).
7-42. (25 min.) Estimate Hours Worked From Overhead Data: Capitol, Inc.
115,050 direct labor-hours were worked. With $702,000 in fixed costs expected and
117,000 direct-labor-hours expected, the application rate for the fixed costs was $6.00 per
7-43. (40 min.) Assigning Costs—Missing Data.
7-44. (50 min.) Assigning Costs—Missing Data.
Materials Inventory
Balance 11/1
45,400
(a)
86,200
Direct materials
Work-in-Process Inventory
Balance 11/1
32,600
Finished Goods Inventory
Balance 11/1
129,600
Cost of Goods Sold
Manufacturing Overhead Control
(a)
16,400
7-44. (continued)
Wages Payable
Sales Revenue
(a) From the work in process account, we obtain the $86,200 in direct materials issued.
The beginning balance equals the ending balance of $56,400 minus the increase of
$11,000 equals $45,400. The unaccounted balance represents indirect materials and is
determined as:
(b) Let X = Direct labor costs
7-44. (continued)
7-45. (40 min.) Analysis Of Overhead Using A Predetermined Rate: Kansas
Company.
f. Credit it to cost of goods sold. The amount is clearly not material (0.1% of cost of
goods sold), so it is not worth the effort involved in prorating.
Overapplied Overhead ................
$0
7-46. (40 min.) Analysis Of Overhead Using A Predetermined Rate: Script
Company.
*The wage rate for direct labor is $48.00 per hour. $48.00 x 8,400 hours = $403,200.
**$100.00 x 8,400 direct labor-hours.
e.
$826,800.
Supplies .............................................................
$ 184,080
f. In this case, the underapplied overhead is relatively large (it is greater than 10% of
cost of goods sold, so the company might consider it material and decide to prorate
7-47. (30 min.) Finding Missing Date: BackupsRntUs
a. March 31: Ending Work-in-process inventory:
—only one job is remaining in ending Work-in-process inventory.
b. Direct materials purchased during March:
Since the accounts payable account is used only for direct material purchases, the
month’s purchases can be determined from analyzing the accounts payable account:
d. Cost of goods sold during March:
Beginning Finished
Goods Inventory
+
Cost of Goods
Manufactured
–
Cost of
Goods Sold
=
Ending Finished
Goods Inventory
Cost of
7-48. (30 min.) Cost Accumulation—Service: Youth Athletic Services.
T-accounts (Not required—see next page for income statement)
Wages, Salaries,
and Accounts
Payable
Managing Direct
Labor Cost
Officiating
Direct Labor Cost
Training Direct
Labor Cost
Dispute
Resolution
Direct Labor Cost
Unassigned
Labor Cost
4,800
1,200
1,875
1,350
375
7-48. (continued)
Income Statement
Youth Athletic Services
Income Statement
For Month Ending July 31
Managing
Officiating
Training
Dispute
Resolution
Total
Revenue .............................................................
$6,950
$7,900
$3,000
$1,000
$18,850
Cost of Services:
7-48. (continued)
7-49. (25 min.) Job Costs—Service Company: UP Payroll Services.
a.
Dune Motors
Jake’s Charters
Mission Hospital
Unassigned
Costs (not
required)
Total
Revenue ..........................................................................
$384,000
$115,200
$192,000
$691,200
7-49. (continued)
b.
UP Payroll Services
Income Statement
For Month Ending July 31
Revenue from clients ...........................................
$691,200
Less cost of services to clients:
7-50. (50 min.) Job Costs In A Service Company: Pete’s Patios.
Materials Inventory
Balance 9/1 (given)
11,040
192
Indirect Materials
Finished Goods Inventory
Balance 1/1 ($4,704 +
6,600
7-50. (continued)
f.
New Job Cost = Current Charges to WIP less Current Charges for Jobs PP-24 and
PP-30:
=
Current Materials + Direct Labor + Overhead – Job PP-24 Current Cost
7-51. (55 min.) Tracing Costs In A Job Company: Apex Manufacturing.
a.
(1)
Materials Inventory .......................................................
75,180
Accounts Payable .....................................................
75,180
Fringe Benefits Payable ............................................
29,400
(7)
Work in Process (60% x $88,200) ................................
52,920
7-51. (continued)
b.
Materials Inventory
Balance 1/1
77,805
2,100
(2)
Manufacturing Overhead Control
(2)
2,100
(7)
26,460
7-51. (continued)
Cash
75,180
(3)
Payroll
Administrative and Marketing Costs
Accumulated Depreciation—Property, Plant, and Equipment
Finished Goods
Balance 1/1
87,150
7-52. (50 min.) Cost Flows Through Accounts: Brighton Services
a. T accounts.
Materials Inventory
137,200
(1a)
Wages Payable
490,000
(2a)
7-52. (continued)
Finished Goods Inventory
b. Total Direct Labor Costs = $4,000,000.
7-52. (continued)
c. T accounts
Materials Inventory
137,200
(1a)
Wages Payable
490,000
(2a)
Variable Manufacturing Overhead*
(Actual)
(Applied)
62,000
38,220
(3a)**
7-52. (continued)
Work-in-Process Inventory
(1)
324,200
754,600
(a)
(1) = the sum of the amounts (1a) + (1b) + (1c)
Finished Goods Inventory
d.
Actual
Normal
Sales Revenue ...................................................
$1,400,000
$1,400,000
7-53. (60 min.) Show Flow Of Costs To Jobs: Kim’s Asphalt.
a.
1.
Payment received on account
Cash ........................................................................................
12,500
Accounts receivable ............................................................
12,500
Accounts receivable ............................................................
75,000
4.
Indirect labor
Manufacturing overhead—Indirect labor .................................
650
Wages payable ....................................................................
650
5.
Indirect materials issued
Manufacturing Overhead .........................................................
155
Materials and equipment inventory ......................................
155
7-53. (continued)
b.
Overhead analysis:
Applied (Entry 7) .............................................
$5,625
Incurred
c. Inventory balances
Materials and Equipment Inventory
Balance 5/1
36,000
15,300
(7)
Work-in-process inventory
Balance 5/1
119,550
*
7-54. (70 min.) Reconstruct Missing Data: Toledo Farm Implements.
This is a challenging problem. We put the work in process account for May on the
board for the "big picture," then solve for each item in the account as follows:
Work-in-Process
(a)
Balance, beginning
172,400
(b)
Direct materials
140,628
107,000
Transferred to
finished goods
(d)
(c)
Direct labor
135,400
408,028
Disaster loss
(f)
(e)
Overhead applied
66,600
Balance, ending
–0–
The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a) Given
(b)
Direct materials
=
Beginning inventory + Purchases – Ending inventory – Indirect
materials
7-54. (continued)
(e)
Overhead applied
=
Ending manufacturing overhead – beginning
7-55. (70 min.) Find Missing Data: IYF Corporation.
The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a)
Beginning inventory + Transfers in = Ending inventory + Transfers Out
(e) $3,000.
and,
7-56. (70 min.) Find Missing Data: NIC Enterprises.
The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a)
Beginning inventory + Transfers in = Ending inventory + Transfers Out
Ending inventory
=
Beginning inventory + Transfers in – Transfers Out
=
$148,000 + $1,520,000 – $1,460,000
=
$208,000
Work in process beginning + Manufacturing costs
= Work in process ending + Transfers to Finished Goods Inventory.
7-57. (45 min.) Incomplete Data—Job Costing: Chelsea Household
Renovations.
The following information should be included (in summary) in a report to management.
Work-in-Process
Cost of Goods Sold
Cash or Accounts Payable
Job No. 61
Job No. 61
18,400
*
M*
8,000
8,000
M*
8,000
Wages Payable
Job No. 62
Job No. 62
128,000
*
M5
12,000
12,000
M
12,000
Overhead
Job No. 63
Underapplied Overhead
Actual
Applied
M*
6,400
16,00010
7-57. (continued)
M refers to direct materials
1Labor to complete job is $76,800 since the beginning inventory was 50% complete
2Applied overhead
=
$123,200 – $8,000 – $76,800
5Materials for Job No. 62
=
Purchases – materials for Job No. 63
=
$18,400 – $6,400
=
$12,000
7-57. (continued)
7-58. (25 min.) Job Costing and Ethics: Old Port Shipyards.
(This problem is based on actual experience.)
a.
Olde Town
Newton
Overhead cost .................
$20,000,000
$80,000,000
Direct labor-hours ............
200,000
200,000
7-59. (25 min.) Job Costing and Ethics: Price and Waters.
7-60. (25 min.) Job Costing and Ethics: Global Partners.
a. Because the choice is between direct labor hours and direct labor cost, the
Solutions to Integrative Case
7-61. (75 min.) Cost Estimation, Estimating Overhead Rates, Job Costing, and
Decision-Making: O’Leary Corporation.
This problem relates overhead allocation to cost estimation and decision making. It
uses some of the methods of Chapters 4 and 5.
a. $965,400 (Work-in-Process Inventory) and $637,500 (Finished Goods Inventory).
Job MC-275 is the only job in process. It has accumulated the following costs:
Direct materials .................
$495,000
(Given)
Job MC-270 is the only job in finished goods. It has accumulated the following
costs:
b. $1,069,500.
The predetermined overhead rate in year 3 is $140 per direct labor-hour. O’Leary
uses the actual rate from the previous year and $140 = $7,560,000 ÷ 54,000
hours).
Beginning costs ................
$965,400
(From requirement (a))
c. $1,240,000 overapplied.
Overhead applied
$10,360,000
(= $140 x 74,000 hours)
7-61. (continued)
d. A variety of allocations can be used. Because we know how many direct labor hours
are in each account from year 3, we will use this basis. Direct labor hours are the
basis for applying overhead. If this were unknown, we could use total account
balances. First, determine the number of direct labor-hours used in year 3 in each
account.
The allocation is then based on the relative amounts in each account:
Account
Percentage
Allocation
Work in process
10% (= 7,400 ÷ 74,000)
$124,000
(= .10 x $1,240,000)
7-61. (continued)
e. $567,500.
This is a special order problem similar to those discussed in Chapter 4. The
minimum bid would be the variable cost of the job, ignoring strategic or other
considerations. The variable cost of the job (ignoring sales and administrative costs
as instructed in the problem) consists of direct material, direct labor, and variable
manufacturing overhead.
Applying the high-low method:
$9,120,000 – $7,560,000
=
$1,560,000
74,000 – 54,000
20,000
