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Chapter 4
Job Costing, Process Costing, and Operations Costing
Concept Questions
1. (LO 1—The uses of product costs)
Product cost information is used to help managers make pricing decisions but
2. (LO 1—Job and process costing)
Job order costing is a system that tracks costs for each job produced by a
3. (LO 2—Job costing)
4. (LO 2—Job cost sheet)
A job cost sheet is highly customizable, but generally includes the following basic
5. (LO 3 and 4—Overhead in a traditional manufacturing environment)
Overhead is difficult to track primarily because it is indirect in nature. Generally,
6. (LO 4 and 5—Cost driver)
Managers should look to find a cause-and-effect relationship between overhead
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7. (LO 4—Predetermined overhead rate)
A normalized or predetermined overhead rate should be used when a company
8. (LO 5—Treatment of overapplied overhead)
The manager has two options: to adjust cost of goods sold or to adjust work-in–
9. (LO 6—Equivalent units of production)
10. (LO 7—FIFO method)
The FIFO method is conceptually superior to the weighted average method,
however, the weighted average method will provide similar cost calculations
from last period in the calculation of equivalent units and unit costs.
Exercises
1. (LO 1—Job vs. process costing)
a. job order
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2. (LO 2—Job costing)
In the absence of either beginning or ending WIP, the cost of goods
3. (LO 3—Job costing)
Total manufacturing costs are the sum of direct materials used, direct labor, and
manufacturing overhead. Direct materials used are equal to $20,000, as shown
4. (LO 3 and 4—Overhead costs, cost pools, cost drivers)
a. false
5. (LO 4—Predetermined overhead rate and applied overhead)
A. $41.73 per pen
The predetermined overhead rate is calculated by dividing the estimated
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6. (LO 4 and 5—Predetermined overhead rate and applied overhead)
A.
Predetermined overhead rate × Actual hours = Overhead applied
Overhead applied = Actual overhead costs – Underapplied amount
Therefore, Overhead applied = $88,750 – $4,750 = $84,000
Predetermined overhead rate × 8,400 hours = $84,000
Predetermined overhead rate = $10/hour
B.
3 direct labor hours × $10/hour = $30
7. (LO 6 and 7—Process costing: FIFO method)
Note to Instructors: The following two parts of this solution comprise Step #1,
as explained in the appendix.
A.
Calculation of units completed:
B.
8. (LO 6 and 7—Process costing: Weighted average method)
A.
Calculation of units completed:
The units completed would still be 18,000 bags
of chips. However, under the weighted
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B.
All units completed are considered to have been
9. (LO 8—Service department cost allocation)
A.
Service Departments
Producing Departments
Service
Dept. 1
Service
Dept. 2
Producing 1
Producing 2
Departmental costs
before allocation
$ 63,000
$ 42,000
$200,000
$100,000
Allocation:
Allocation:
Departmental costs
* The allocation of costs from Service Dept.1 is based on the number of
transactions processed. Accordingly, 14,000/30,000, or 46.67 percent, of the
B.
Service Departments
Producing Departments
Service
Dept. 1
Service
Dept. 2
Producing 1
Producing 2
Departmental costs
before allocation
$ 63,000
$ 42,000
$200,000
$100,000
Allocation:
Allocation:
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* The allocation of costs from Service Dept. 1 is based on the number of
transactions processed. Accordingly, 12,000/42,000, or 28.57 percent, of the
Problems
10. (LO 2, 3, and 4—Job costing: Supply the missing data)
A. The direct labor cost per hour is $8 ($40/5 knitting hours for January 23 or
$24/3 hours for January 25).
11. (LO 2, 3, 4, and 5—Comprehensive job costing)
A.
Direct materials used = $153,500
Direct Material Inventory
Beginning Balance
DM purchased
$153,500 DM used
Ending Balance
Beginning DM + DM purchases – Ending DM = DM used
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B. Cost of Goods Manufactured (CGM) = $563,500
Work-in-Process
Finished Goods
Beg. Bal.
$ 44,000
Beg. Bal.
$ 24,150
DM used
MOH
$563,500 (CGM)
$564,650 (CGS)
End. Bal.
$ 43,500
End. Bal.
C. The initial balance in cost of goods sold (CGS) = $564,650 (see above)
Manufacturing Overhead
Actual
Applied
× $7.75 per direct labor hour)
12. (LO 6 and 7—Comprehensive process costing: FIFO method)
A.
Beginning units
5,000
Add: units started
Less: ending units
Units completed in March
B.
Units completed in March
Less: beginning units
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Calculation of equivalent units completed in March:
Beginning WIP (5,000 × 20%)
Started & completed (see above)
90,000 units
Ending WIP (10,000 × 40%)
Total equivalent units completed during March
95,000 equiv. units
C.
Calculation of cost per equivalent unit
Current period costs
÷ Total equivalent units
D.
Calculation of cost of ending WIP inventory:
Equivalent units in ending inventory × Cost per equivalent unit
4,000 equivalent units in ending inventory × $12.50 = $50,000
E.
Calculation of cost of goods manufactured:
Beginning work-in-process
$ 60,000
Add: Current period costs
Less: Ending work-in–process (from part “D”)
Cost of goods manufactured
Costs in beginning work-in-process
Add: Cost to finish beginning work-in-process
($12.50 × 1,000 eus)
current period ($12.50 × 90,000 units)
Cost of goods manufactured
13. (LO 6 and 7—Comprehensive process costing: Weighted average method)
A.
Beginning units
5,000
Add: Units started
Less: Ending units
Chapter 4: Job Costing, Process Costing, and Operations Costing
B.
Calculation of equivalent units competed in December:
Started & completed in December
95,000 units
Ending WIP (10,000 × 50%)
Total equivalent units completed during Dec.
C.
Calculation of cost per equivalent unit
Costs in beginning work-in-process
Add: Current period costs
Total costs
Cost per equivalent unit
D.
Calculation of cost of ending WIP inventory:
Equivalent units in ending inventory × Cost per equivalent unit
5,000 equivalent units in ending inventory × $12.00 = $60,000
E.
Calculation of cost of goods manufactured:
Beginning work-in-process
$ 140,000
Add: Current period costs
Less: Ending work-in–process (from part “D”)
Cost of goods manufactured