CHAPTER 5

JOB ORDER COSTING

MULTIPLE CHOICE

1. Which of the following costing methods of valuation are acceptable in a job order costing
system?

Actual Standard Actual Predetermined

Material Material Labor Overhead
Cost Cost Cost Cost
a. yes yes no yes
b. yes no yes no
c. no yes yes yes
d. yes yes yes yes

ANSWER: d EASY

2. Which of the following costing systems allows management to quickly recognize

materials, labs, and overhead variances and take measures to correct them?

Actual Cost System Normal Cost System

a. yes yes
b. yes no
c. no yes
d. no no

ANSWER: d EASY

3. In a normal cost system, debits to Work in Process Inventory would not be made for

a. actual overhead.
b. applied overhead.
c. actual direct material.
d. actual direct labor.

ANSWER: a EASY

5–1
5–2 Chapter 5 Job Order Costing

4. Which of the following are drawbacks to applying actual overhead to production?

a. A delay occurs in assigning costs to jobs or products.

b. Fluctuations in quantities produced during a period could cause varying per-
unit charges for fixed overhead.
c. Seasonality of overhead costs may cause distortions in job or product costs.
d. All of the above.

ANSWER: d EASY

5. Job order costing and process costing have which of the following characteristics?

Job Order Costing Process Costing

a. homogeneous products heterogeneous products
and large quantities and small quantities
b. homogeneous products heterogeneous products
and small quantities and large quantities
c. heterogeneous products homogeneous products
and large quantities and small quantities
d. heterogeneous products homogeneous products
and small quantities and large quantities

ANSWER: d EASY

6. A credit to Work in Process Inventory represents

a. work still in process.

b. raw material put into production.
c. the application of overhead to production.
d. the transfer of completed items to Finished Goods Inventory.

ANSWER: d EASY

7. Additional accounts that comprise the balance of a single general account is a

a. worksheet.
b. journal.
c. subsidiary ledger.
d. book of original entry.

ANSWER: c EASY
8. In a job order costing system, the dollar amount of the entry that debits Finished Goods
Inventory and credits Work in Process Inventory is the sum of the costs charged to all
jobs

a. started in process during the period.

b. in process during the period.
c. completed and sold during the period.
d. completed during the period.

ANSWER: d EASY

9. Total manufacturing costs for the year plus beginning Work in Process Inventory cost
equals

a. cost of goods manufactured in the year.

b. ending Work in Process Inventory.
c. total manufacturing costs to account for.
d. cost of goods available for sale.

ANSWER: c EASY

10. Which of the following would be least likely to be supported by subsidiary accounts
or ledgers in a company that employs a job order costing system?

a. Work in Process Inventory

b. Raw Material Inventory
c. Accounts Payable
d. Supplies Inventory

ANSWER: d EASY

11. A journal entry includes a debit to Work in Process Inventory and a credit to Raw
Material Inventory. The explanation for this would be that

a. indirect material was placed into production.

b. raw material was purchased on account.
c. direct material was placed into production.
d. direct labor was utilized for production.

ANSWER: c EASY
12. The source document that records the amount of raw material that has been requested by
production is the

a. job order cost sheet.

b. bill of lading.
c. interoffice memo.
d. material requisition.

ANSWER: d EASY

13. A material requisition form should show all of the following information except

a. job number.
b. quantity required.
c. unit cost.
d. purchase order number.

ANSWER: d EASY

14. Which of the following statements about job order cost sheets is true?

a. All job order cost sheets serve as the general ledger control account for Work
in Process Inventory.
b. Job order cost sheets can serve as subsidiary ledger information for both Work
in Process Inventory and Finished Goods Inventory.
c. If material requisition forms are used, job order cost sheets do not need to
be maintained.
d. Job order cost sheets show costs for direct material and direct labor, but not for
manufacturing overhead since it is an applied amount.

ANSWER: b EASY

15. Clyde Jenkins is an auditor for the General Accounting Office. Clyde is investigating
invoices sent by Proper Paper Products charging the Army $30 per roll for toilet
paper. Proper Paper uses a job order costing system. Where should Clyde look to find
total production costs related to the toilet paper?

a. material requisition form

b. bill of materials
c. sales invoice
d. job order cost sheet

ANSWER: d EASY
16. The primary accounting document in a job order costing system is a(n)

a. bill of materials.
b. job order cost sheet.
c. employee time sheet.
d. materials requisition.

ANSWER: b EASY

17. The cost sheets for incomplete jobs at the end of the period comprise the subsidiary
ledger for

a. Finished Goods Inventory.

b. Raw Material Inventory.
c. Work in Process Inventory.
d. Supplies Inventory.

ANSWER: c EASY

18. The provides management with an historical summation of total costs for a
given product.

a. job order cost sheet

b. employee time sheet
c. material requisition form
d. bill of lading

ANSWER: a EASY

19. Which of the following journal entries records the accrual of the cost of indirect labor
used in production?

a. debit Work in Process Inventory, credit Wages Payable

b. debit Work in Process Inventory, credit Manufacturing Overhead
c. debit Manufacturing Overhead, credit Work in Process Inventory
d. debit Manufacturing Overhead, credit Wages

Payable ANSWER: d EASY

20. In job order costing, payroll taxes paid by the employer for factory employees
are commonly accounted for as

a. direct labor cost.

b. manufacturing overhead cost.
c. indirect labor cost.
d. administrative cost.

ANSWER: b EASY

21. The logical explanation for an entry that includes a debit to Manufacturing
Overhead control and a credit to Prepaid Insurance is

a. the insurance company sent the company a refund of its policy premium.
b. overhead for insurance was applied to production.
c. insurance for production equipment expired.
d. insurance was paid on production equipment.

ANSWER: c EASY

22. The journal entry to apply overhead to production includes a credit to

Manufacturing Overhead control and a debit to

a. Finished Goods Inventory.

b. Work in Process Inventory.
c. Cost of Goods Sold.
d. Raw Material Inventory.

ANSWER: b EASY

23. Production overhead does not include the costs of

a. factory depreciation and supplies.

b. factory employees’ cafeteria departments.
c. production line workers.
d. the maintenance department for the factory.

ANSWER: c EASY
24. In a job order costing system, the use of indirect material would usually be reflected in
the general ledger as an increase in

a. stores control.
b. work in process control.
c. manufacturing overhead applied.
d. manufacturing overhead control.

ANSWER: d EASY

25. Manufacturing overhead application

a. rates are applied within a range of 35 to 60 percent of direct labor.

b. is performed at the beginning of the period.
c. rates fluctuate during the period with changes in production quantities.
d. rates are calculated by dividing budgeted overhead by a budgeted quantity of
some cost driver.

ANSWER: d EASY

26. A credit to the Manufacturing Overhead control account represents the

a. actual cost of overhead incurred.

b. actual cost of overhead paid this period.
c. amount of overhead applied to production.
d. amount of indirect material and labor used during the period.

ANSWER: c EASY

27. The journal entry to record the incurrence and payment of overhead costs for
factory insurance requires a debit to

a. Cash and a credit to Manufacturing Overhead.

b. Manufacturing Overhead and a credit to Accounts Payable.
c. Manufacturing Overhead and a credit to Cash.
d. Work in Process Inventory and a credit to Cash.

ANSWER: c EASY
28. The source document that records the amount of time an employee worked on a job and
his/her pay rate is the

a. job order cost sheet.

b. employee time sheet.
c. interoffice memo.
d. labor requisition form.

ANSWER: b EASY

29. Overhead is applied to jobs in a job order costing system

a. at the end of a period.

b. as jobs are completed.
c. at the end of a period or as jobs are completed, whichever is earlier.
d. at the end of a period or as jobs are completed, whichever is later.

ANSWER: c EASY

30. In a job order costing system, the subsidiary ledger for Finished Goods Inventory
is comprised of

a. all job order cost sheets.

b. job order cost sheets for all uncompleted jobs.
c. job order cost sheets for all completed jobs not yet sold.
d. job order cost sheets for all ordered, uncompleted, and completed jobs.

ANSWER: c EASY

31. Underapplied overhead resulting from unanticipated and immaterial price increases
for overhead items should be written off by

a. decreasing Cost of Goods Sold.

b. increasing Cost of Goods Sold.
c. decreasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods
Inventory.
d. increasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods
Inventory.

ANSWER: b EASY
32. Overapplied overhead would result if

a. the plant were operated at less than normal capacity.

b. overhead costs incurred were less than costs charged to production.
c. overhead costs incurred were unreasonably small in relation to units produced.
d. overhead costs incurred were greater than costs charged to production.

ANSWER: b EASY

33. Debits to Cost of Goods Sold typically represent the

a. transfer of completed items to Finished Goods Inventory.

b. costs of items sold.
c. selling price of items sold.
d. the cost of goods manufactured.

ANSWER: b EASY

34. In a perpetual inventory system, a transaction that requires two journal entries (or one
compound entry) is needed when

a. raw materials are purchased on account.

b. goods are sold for either cash or on account.
c. goods are finished and transferred out of Work in Process Inventory.
d. overhead is applied to Work in Process Inventory.

ANSWER: b EASY

35. Which of the following organizations would be most likely to use a job order costing
system?

a. the loan department of a bank

b. the check clearing department of a bank
c. a manufacturer of processed cheese food
d. a manufacturer of video cassette tapes

ANSWER: a MEDIUM
36. Which of the following organizations would most likely not use a job order costing
system?

a. Avondale Shipbuilders
b. Pickle and Weymann, Attorneys-at-Law
c. Atlantic City Saltwater Taffy
d. Century City Construction

Company ANSWER: c EASY

37. In a job order costing system,

a. standards cannot be used.

b. an average cost per unit within a job cannot be computed.
c. costs are accumulated by departments and averaged among all jobs.
d. overhead is typically assigned to jobs on the basis of some cost driver.

ANSWER: d EASY

38. When job order costing is used, the primary focal point of cost accumulation is the

a. department.
b. supervisor.
c. item.
d. job.

ANSWER: d EASY

39. What is the best cost accumulation procedure to use when many batches, each differing as
to product specifications, are produced?

a. job order
b. process
c. actual
d. standard

ANSWER: a EASY
40. Which of the following could not be used in job order costing?

a. standards
b. an average cost per unit for all jobs
c. normal costing
d. overhead allocation based on the job’s direct labor

hours ANSWER: b EASY

41. Product costing is not concerned with cost

a. assignment.
b. origination.
c. identification.
d. measurement.

ANSWER: b EASY

42. Which of the following statements is false?

a. While the use of standard costing is acceptable for job order costing
systems, actual cost records should still be maintained.
b. It is normally more time-consuming for a company to use standard costs in a
job order costing system.
c. Standards can be used in a job order costing system, if the company
usually produces items that are similar in nature.
d. Standard costs may be used for material, labor, or both material and labor in a
job order costing environment.

ANSWER: b EASY
43. C Co. uses a job order costing system. During April 2001, the following costs appeared in
the Work in Process Inventory account:

Beginning balance $ 24,000

Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
Cost of goods manufactured 185,000

C Co. applies overhead on the basis of direct labor cost. There was only one job left in
WIP Inventory at the end of April which contained $5,600 of overhead. What amount of
direct material was included in this job?

a. $4,400
b. $4,480
c. $6,920
d. $8,000

ANSWER: a MEDIUM

44. Q Co. is a print shop that produces jobs to customer specifications. During January 2001,
Job #1253 was worked on and the following information is available:

Direct material used $2,500

Direct labor hours worked 15
Machine time used 6
Direct labor rate per hour $7
Overhead application rate per
hour of machine time $18

What was the total cost of Job #1253 for January?

a. $3,025
b. $2,812
c. $2,770
d. $2,713

ANSWER: d EASY
Use the following information for questions 45–47.

Ark Co. uses a job order costing system. At the beginning of January, the company had 2 jobs in
process with the following costs:

Direct Material Direct Labor Overhead

Job #456 $3,400 $510 $255
Job #461 1,100 289 ?

Ark pays its workers $8.50 per hour and applies overhead on a direct labor hour basis.

45. What is the overhead application rate per direct labor hour?

a. $0.50
b. $2.00
c. $4.25
d. $30.00

ANSWER: c EASY

46. How much overhead was included in the cost of Job #461 at the beginning of January?

a. $144.50
b. $153.00
c. $2,200.00
d. $2,456.50

ANSWER: a EASY

47. During January, Ark employees worked on Job #479. At the end of the month, $714 of
overhead had been applied to this job. Total Work in Process Inventory at the end of
the month was $6,800 and all other jobs had a total cost of $3,981. What amount of
direct material is included in Job #479?

a. $677
b. $1,391
c. $2,142
d. $4,658

ANSWER: a MEDIUM
48. Black Corp. manufactures products on a job order basis. The job cost sheet for Job #329
shows the following for March:

Direct material $5,000

Direct labor (100 hours @ $7.25) $725
Machine hours incurred 40
Predetermined overhead rate per
machine hour $26

At the end of March, what total cost appears on the job cost sheet for Job #329?

a. $5,725
b. $5,765
c. $6,765
d. $8,325

ANSWER: c EASY

49. Products at Green Manufacturing are sent through two production departments:
Fabricating and Finishing. Overhead is applied to products in the Fabricating Dept. based
on 150 percent of direct labor cost and $18 per machine hour in Finishing. The following
information is available about Job #639:

Fabricating Finishing
Direct material $1,590 $580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
Overhead applied 429 ?

What is the total cost of Job #639?

a. $2,647
b. $3,005
c. $3,093
d. $3,203

ANSWER: d MEDIUM
50. Carolina Co. applies overhead to jobs at the rate of 40 percent of direct labor cost. Direct
material of $1,250 and direct labor of $1,400 were expended on Job #44 during June. At
May 31, the balance of Job #44 was $2,800. The June 30th balance is

a. $3,210.
b. $4,760.
c. $5,450.
d. $6,010.

ANSWER: d EASY

Use the following information for questions 51–56.

Adams Co. uses a job order costing system and the following information is available from its
records. The company has 3 jobs in process: #5, #8, and #12.

Raw material used $120,000

Direct labor per hour $8.50
Overhead applied based on
direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent, and
25 percent; the balance of the requisitions was considered indirect. Direct labor hours per job are
2,500; 3,100; and 4,200; respectively. Indirect labor is $33,000. Other actual overhead costs
totaled $36,000.

51. What is the prime cost of Job

#5? a. $42,250
b. $57,250
c. $73,250
d. $82,750

ANSWER: b MEDIUM

52. What is the total amount of overhead applied to Job #8?

a. $18,250
b. $26,350
c. $30,000
d. $31,620

ANSWER: d MEDIUM
53. What is the total amount of actual overhead?

a. $36,000
b. $69,000
c. $93,000
d. $99,960

ANSWER: c MEDIUM

54. How much overhead is applied to Work in Process?

a. $69,000
b. $99,960
c. $132,960
d. $144,000

ANSWER: b MEDIUM

55. If Job #12 is completed and transferred, what is the balance in Work in Process
Inventory at the end of the period if overhead is applied at the end of the period?

a. $96,700
b. $99,020
c. $170,720
d. $139,540

ANSWER: c DIFFICULT

56. Assume the balance in Work in Process Inventory was $18,500 on June 1 and $25,297
on June 30. The balance on June 30 represents one job that contains direct material of
$11,250. How many direct labor hours have been worked on this job (rounded to the
nearest hour)?

a. 751
b. 1,324
c. 1,653
d. 2,976

ANSWER: a MEDIUM
Use the following information for questions 57–60.

The following information pertains to XYZ Co. for September 2001.

Direct Material Direct Labor Overhead

Job #123 $3,200 $4,500 ?
Job #125 ? 5,000 ?
Job #201 5,670 ? $5,550

XYZ Co. applies overhead for Job #123 at 140 percent of direct labor cost and at 150 percent of
direct labor cost for Jobs #125 and #201. The total cost of Jobs #123 and #125 is identical.

57. What amount of overhead is applied to Job #123?

a. $4,800
b. $5,550
c. $6,300
d. $7,500

ANSWER: c EASY

58. What amount of overhead is applied to Job #125?

a. $8,325
b. $7,500
c. $7,000
d. $5,000

ANSWER: b EASY

59. What is the amount of direct material for to Job

#125? a. $1,950
b. $1,500
c. $3,700
d. $7,500

ANSWER: b MEDIUM
60. Assume that Jobs #123 and #201 are incomplete at the end of September. What is the
balance in Work in Process Inventory at that time?

a. $18,920
b. $22,620
c. $28,920
d. $30,120

ANSWER: c MEDIUM

Use the following information for questions 61–63.

Baker Co. has two departments (Processing and Packaging) and uses a job order costing system.
Baker applies overhead in Processing based on machine hours and on direct labor cost in
Packaging. The following information is available for July:

Processing Packaging
Machine hours 2,500 1,000
Direct labor cost $44,500 $23,000
Applied overhead $55,000 $51,750

61. What is the overhead application rate per machine hour for Processing?

a. $22.00
b. $1.24
c. $17.80
d. $0.81

ANSWER: a EASY

62. What is the overhead application rate for

Packaging? a. $23.00
b. $51.75
c. $2.25
d. $0.44

ANSWER: c EASY
63. Which of the following conclusions would be reasonable to draw from the Baker
Co.’s overhead application system?

a. The Processing Department has many unskilled workers.

b. The Processing Department is highly automated.
c. The Packaging Department is more cost-efficient than the Processing Department.
d. The Packaging Department would be a good candidate for downsizing.

ANSWER: b EASY

Use the following information for questions 64 and 65.

Zew Co. has a job order costing system and an overhead application rate of 120 percent of direct
labor cost. Job #33 is charged with direct material of $12,000 and overhead of $7,200. Job #34
has direct material of $2,000 and direct labor of $9,000.

64. What amount of direct labor cost has been charged to Job

#33? a. $6,000
b. $8,640
c. $7,200
d. $14,400

ANSWER: a EASY

65. What is the total cost of Job #34?

a. $30,200
b. $21,800
c. $11,000
d. $10,800

ANSWER: b EASY
Use the following information for questions 66 and 67.

Kool Co. uses a job order costing system. Assume that Job #101 is the only one in process. The
following information is available:

Budgeted direct labor hours 65,000 Budgeted machine hours 9,000

Budgeted overhead $350,000 Direct material $110,500
Direct labor cost $70,000

66. What is the overhead application rate if Kool uses a predetermined overhead
application rate based on direct labor hours (rounded to the nearest whole dollar)?

a. $0.20
b. $5.00
c. $5.38
d. $38.89

ANSWER: c EASY

67. What is the total cost of Job #101 assuming that overhead is applied at the rate of 135
percent of direct labor cost (rounded to the nearest whole dollar)?

a. $192,650
b. $268,250
c. $275,000
d. $329,675

ANSWER: c EASY

68. At the end of the last fiscal year, Baehr Company had the following account balances:

Overapplied overhead $ 6,000

Cost of Goods Sold $980,000
Work in Process Inventory $ 38,000
Finished Goods Inventory $ 82,000

If the most common treatment of assigning overapplied overhead was used, the final
balance in Cost of Goods Sold would have been

a. $985,340.
b. $974,660.
c. $974,000.
d. $986,000.

ANSWER: c EASY
69. Carley Products has no Work in Process or Finished Goods inventories at the close of
business on December 31, 2000. The balances of Carley’s accounts as of December 31,
2001, are as follows:

Cost of goods sold $2,040,000

Selling & administrative expenses 900,000
Sales 3,600,000
Manufacturing overhead control 700,000
Manufacturing overhead applied 648,000

Carley Products’ pretax income for 2001

is a. $608,000.
b. $660,000.
c. $712,000.
d. undeterminable from the information given.

ANSWER: a MEDIUM

70. The trend in job order costing is to

a. eliminate the data entry function for the accounting system.

b. automate the data collection and data entry functions.
c. use accounting software to change the focal point of the job order system.
d. create an Intranet to share information between competitors.

ANSWER: b EASY

71. As data input functions are automated, Intranet data becomes more

a. complicated to access.
b. manufacturing, but not accounting, oriented.
c. real-time accessible.
d. expensive to install, but easier to use.

ANSWER: c EASY

72. Software manufacturing modules are

a. available from major middle-market vendors.

b. available only for companies using process costing systems.
c. not commonly available for middle-market production firms.
d. not commonly available for integration with traditional accounting systems.

ANSWER: a MEDIUM
73. The use of standard material or labor costs in job order costing

a. is similar to the use of predetermined overhead rates in a normal costing system.

b. will keep actual costs of jobs from fluctuating due to changes in component costs.
c. is appropriate for any company making a units to customer specification.
d. all of the above.

ANSWER: a EASY

74. After the completion of production, standard and actual costs are compared to
determine the of the production process.

a. effectiveness
b. complexity
c. homogeneity
d. efficiency

ANSWER: d EASY

75. A company producing which of the following would be most likely to use a price
standard for material?

a. furniture
b. NFL-logo jackets
c. picture frames
d. none of the above

ANSWER: b MEDIUM

76. A company producing which of the following would be most likely to use a time
standard for labor?

a. mattresses
b. picture frames
c. floral arrangements
d. stained-glass windows

ANSWER: a MEDIUM
77. A service organization would be most likely to use a predetermined overhead rate
based on

a. machine hours.
b. standard material cost.
c. direct labor.
d. number of complaints.

ANSWER: c EASY

78. By knowing specific job costs, managers are better able to

a. estimate costs of future jobs.

b. establish realistic job selling prices.
c. evaluate job performance.
d. all of the above.

ANSWER: d EASY

79. As product variety increases,

a. job order costing becomes less useful.

b. production lot sizes decrease.
c. standard costs in job order costing systems cannot be used.
d. all of the above.

ANSWER: b MEDIUM

80. A job order costing system is likely to provide better

(1) inventory valuations for financial statements.

(2) control over inventory.
(3) information about ability to accept additional production work.

(1) (2) (3)

a. yes no no
b. no yes yes
c. no no no
d. yes yes yes

ANSWER: d DIFFICULT
81. In a production environment that manufactures goods to customer specifications, a job
order costing system

a. can be used only if standard costs are used for materials and labor.
b. will provide reasonable product cost information only when all jobs
utilize approximately the same quantities of material and labor.
c. may be maintained using either actual or predetermined overhead rates.
d. emphasizes that large customers create the most costs even though they also
provide the most revenues.

ANSWER: c DIFFICULT

82. Kauai Mfg. Co. produces beach chairs. Chair frames are all the same size, but can be
made from plastic, wood, or aluminum. Regardless of frame choice, the same sailcloth is
used for the seat on all chairs. Kauai has set a standard for sailcloth of $9.90 per square
yard and each chair requires 1 square yard of material. Kauai produced 500 plastic chairs,
100 wooden chairs, and 250 aluminum chairs during June. The total cost for 1,000 square
yards of sailcloth during the month was $10,000. At the end of the month, 50 square yards
of sailcloth remained in inventory. The unfavorable material price variance for sailcloth
purchases for the month was

a. $100.
b. $495.
c. $1,090.
d. $1,585.

ANSWER: a MEDIUM

83. Use the information from #13. Assuming that there was no sailcloth in inventory at the
beginning of June, the unfavorable material quantity variance for the month was

a. $495.
b. $500.
c. $990.
d. $1,000.

ANSWER: c MEDIUM
84. Use the information from #13. Kauai Mfg. Co. could set a standard cost for which of
the following?

Frame Predetermined Labor

cost OH rate rate
a. yes yes yes
b. no no no
c. yes no no
d. no yes yes

ANSWER: d DIFFICULT

SHORT ANSWER/PROBLEMS

1. Compare and contrast job order and process costing systems.

ANSWER: Job order costing is characterized by the production of small quantities

of heterogeneous distinct or unique items. Items are produced according to customer
specifications and, at a minimum, direct material and direct labor costs can be traced to
specific jobs. Process costing is characterized by the production of large quantities of
homogeneous (alike or similar in nature) items. Specific items cannot be identified with
specific costs during the production process.

MEDIUM

2. Discuss actual costing, normal costing, and standard costing.

ANSWER: Actual costing, normal costing, or standard costing may be used in either
a job order costing or process costing system. Actual costing assigns the actual cost of all
direct material, direct labor, and overhead to the units produced. Normal costing uses
actual direct material and direct labor cost and a predetermined overhead application rate
to cost products. Standard costing establishes “norms” for direct material and direct labor
quantities and/or costs and uses a predetermined (standard) overhead rate for the
application of overhead to determine product cost.

MEDIUM
3. What is a “job” as defined in a job order costing system?

ANSWER: A job is a single unit or a group of like items that is produced to customer
specifications. A job is separately identifiable from other jobs. Each job is treated as a
cost object, and costs (typically actual direct material, actual direct labor, and overhead
applied using a predetermined rate) are attached to each job as it flows through the
production process.

MEDIUM

4. What information should be contained in a subsidiary ledger for Work in

Process Inventory in a job order costing system?

ANSWER: The Work in Process Inventory subsidiary ledger should contain

information on all incomplete jobs. This information will include the amount of direct
material and direct labor costs in production, as well as the amount of overhead applied
to each job. The subsidiary ledger for Work in Process Inventory is composed of all job
cost sheets for uncompleted jobs and substantiates the balance in the general ledger Work
in Process Inventory control account.

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5. Discuss the basic forms used in a job order costing system.

ANSWER: The forms used in a job order costing system include (1) a job order cost
sheet which records all the financial and significant production data (actual or standard,
and possibly budgeted) relating to a particular job; (2) a material requisition form which
records the costs and quantities of material that has been requisitioned for a particular
job; and (3) an employee time sheet which records the jobs worked on by an employee
and the amount of time spent on each job.

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6. Prepare the necessary journal entries from the following information for TriCo, which
uses a perpetual inventory system.

a. Purchased raw material on account, $56,700.

b. Requisitioned raw material for production as follows: direct material—80 percent
of purchases; indirect material—15 percent of purchases.
c. Direct labor wages of $33,100 are accrued as are indirect labor wages of $12,500.
d. Overhead incurred and paid for is $66,900.
e. Overhead is applied to production based on 110 percent of direct labor cost.
f. Goods costing $97,600 were completed during the period.
g. Goods costing $51,320 were sold on account for $77,600.

ANSWER:

a. Raw Material Inventory 56,700

A/P 56,700
b. WIP Inventory 45,360
MOH 8,505
Raw Material Inventory 53,865
c. WIP Inventory 33,100
MOH 12,500
Wages Payable 45,600
d. MOH 66,900
Cash 66,900
e. WIP Inventory 36,410
MOH 36,410
f. FG Inventory 97,600
WIP Inventory 97,600
g. CGS 51,320
FG Inventory 51,320
A/R 77,600
Sales 77,600

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Use the following information for questions 7–10.

Glass Co. uses a job order costing system and develops its predetermined overhead rate based on
machine hours. The company has two jobs in process at the end of the cycle, Jobs #17 and #19.

Budgeted overhead $100,300

Budgeted machine hours 85,000
Raw material $ 63,000
Labor cost $ 50,000

7. What is the overhead application rate?

ANSWER: $100,300  85,000= $1.18 per MH

EASY

8. What amount of overhead is charged to Jobs #17 and #19? Machine hours are split
between Jobs #17 and #19—65 percent and 35 percent, respectively. Actual
machine hours equal budgeted machine hours.

ANSWER: OH Applied = MH Cost × POHR

#17 85,000 × 65%= 55,250 × $1.18 = $65,195
#19 85,000 × 35%= 29,750 × $1.18 = $35,105

EASY

9. Fifty-four percent of raw material belongs to Job #17 and 38 percent belongs to Job
#19, and the balance is considered indirect material. What amount of raw material used
was allocated to overhead as indirect material?

ANSWER: 54% + 38% = 92%; this means that 8% is indirect or $5,040

(.08 × $63,000).

EASY

10. Labor cost was split 25 percent and 70 percent, respectively, between Jobs #17 and #19
for direct labor. The remainder was indirect labor cost. What are the total costs of Jobs
#17 and #19?

ANSWER: Job #17 Job #19

DM $ 34,020 $23,940
DL 12,500 35,000
MOH 65,195 35,105
$111,715 $94,045

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11. Can standard costing be used in job order costing? If so, what conditions must exist?
If not, explain why.

ANSWER: Yes. Firms that use job order costing can also base their costs on
standards. Each job must be fairly similar to each other job. Standards may be used for
the prices of material and labor if the jobs use basically the same kind of material and
labor. If jobs are homogeneous enough, standards can also be used for materials and labor
quantities. Some companies may choose to only use price standards, others only quantity
standards, and others may use both price and quantity standards.

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12. ABC Company manufactures custom-built conveyor systems for factory and commercial
operations. Lisa French is the cost accountant for ABC and she is in the process of
educating a new employee, Julie English, about the job order costing system that ABC
uses. (The system is based on normal costs; overhead is applied based on direct labor
cost and rounded to the next whole dollar.) Lisa gathers the following job order cost
records for May:

Direct Direct Total

Job No. Materials Labor Applied OH Cost
667 $ 5,901 $1,730 $ 1,990 $ 9,621
669 18,312 1,810 2,082 22,204
670 406 500 575 1,481
671 51,405 9,500 10,925 71,830
672 9,615 550 633 10,798

To explain the missing job number, Lisa informed Julie that Job #668 had been
completed in April. She also told her that Job #667 was the only job in process at the
beginning of May. At that time, the job had been assigned $4,300 for direct material and
$900 for direct labor. At the end of May, Job #671 had not been completed; all others
had. Lisa asked Julie several questions to determine whether she understood the job order
system.

Required: Help Julie answer the following questions:

a. What is the predetermined overhead rate used by ABC Company?

b. What was the total cost of beginning Work in Process inventory?

c. What was total prime cost incurred for the month of May?

d. What was cost of goods manufactured for May?

ANSWER:

a. Use any job started in May:

Rate = MOH JOB $670 $575 = 115%/DL

Cost DL COST $500

b. DM $4,300
DL 900
FOH 1,035 ($900 × 115%)
$6,235

c. Prime Cost =DM + DL

DM = $85,639 – 4,300 = $81,339

DL = 14,090 – 900 = 13,190
$94,529

d. COGM = $9,621 + 22,204 + 1,481 + 10,798 = $44,104

EASY
13. James Co. uses a job order costing system and has the following information for the first
week of June 2002:

1. Direct labor and direct materials used:

Job No. Direct Material Direct Labor Hours

498 $1,500 116
506 960 16
507 415 18
508 345 42
509 652 24
511 308 10
512 835 30
Total $5,015 256

2. The direct labor wage rate is $4 per hour.

3. The overhead rate is $5 per direct labor hour.

4. Actual overhead costs for the week, $1,480.

5. Jobs completed: Nos. 498, 506, and 509.

6. The factory had no work in process at the beginning of the week.

Required:

a. Prepare a summary that will show the total cost assigned to each job.

b. Compute the amount of overhead over- or underapplied during the week.

c. Calculate the cost of the work in process at the end of the week.
ANSWER:

a. Job No. DM DL OH Total

498 $1,500 $ 464 $ 580 $2,544
506 960 64 80 1,104
507 415 72 90 577
508 345 168 210 723
509 652 96 120 868
511 308 40 50 398
512 835 120 150 1,105
$5,015 $1,024 $1,280 $7,319

b. Actual MOH $1,480

Applied MOH 1,280
Underapplied $ 200

c. JOB 507 $ 577

508 723
511 398
512 1,105
Ending WIP $2,803

EASY
14. The Watson Tool Corporation, which commenced operations on August 1, employs a job
order costing system. Overhead is charged at a normal rate of $2.50 per direct labor hour.
The actual operations for the month of August are summarized as follows:

a. Purchases of raw material, 25,000 pieces @ $1.20/piece.

b. Material and labor costs charged to production:

Direct Direct
Job No. Units Material labor cost labor hours
101 10,000 $4,000 $6,000 3,000
102 8,800 3,600 5,400 2,700
103 16,000 7,000 9,000 4,500
104 8,000 3,200 4,800 2,400
105 20,000 8,000 3,600 1,800

c. Actual overhead costs incurred:

Variable $18,500
Fixed 15,000

d. Completed jobs: 101, 102, 103, and 104

e. Sales—$105,000. All units produced on Jobs 101, 102, and 103 were sold.

Required: Compute the following balances on August 31:

a. Material inventory

b. Work in process inventory

c. Finished goods inventory

d. Cost of goods sold

e. Under- or overapplied overhead

ANSWER:

a. $30,000 – ($4,000 + $3,600 + $7,000 + $3,200 + $8,000) = $4,200

b. Job #105 $8,000 + $3,600 + ($1,800 × 2.50) = $16,100

c. Job #104 $3,200 + $4,800 + ($2,400 × 2.50) = $14,000

d. Job # 101 $4,000 + $6,000 + ($3,000 × 2.50) = $17,500

102 $3,600 + $5,400 + ($2,700 × 2.50) = 15,750
103 $7,000 + $9,000 + ($4,500 × 2.50) 27,250
$60,500

e. Applied 14,400 × $2.50 = $36,000

Actual 33,500
Overapplied $ 2,500

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15. You are asked to bring the following incomplete accounts of Ticker Printing Inc. up to
date through January 31, 2001. Consider the data that appear in the T-accounts as well as
additional information given in items (a) through (i).

Ticker’s job order costing system has two direct cost categories (direct material and direct
manufacturing labor) and one indirect cost pool (manufacturing overhead, which is
allocated using direct manufacturing labor costs).

Materials Inventory Control Wages Payable Control

12/31/2000 1/31/2001
Balance 15,000 Balance 3,000

Manufacturing Department
Work in Process Inventory Control Overhead Control
January 2001
Charges
57,000

Manufacturing Overhead Control

Finished Goods Inventory Control Cost of Goods Sold

12/31/2000
Balance 20,000

Additional Information:
a. Manufacturing department overhead is allocated using a budgeted rate set
every December. Management forecasts next year’s overhead and next year’s
direct manufacturing labor costs. The budget for 2001 is $400,000 of direct
manufacturing labor and $600,000 of manufacturing overhead.
b. The only job unfinished on January 31, 2001 is No. 419, on which direct
manufacturing labor costs are $2,000 (125 direct manufacturing labor hours) and
direct material costs are $8,000.
c. Total material placed into production during January is $90,000.
d. Cost of goods completed during January is $180,000.
e. Material inventory as of January 31, 2001 is $20,000.
f. Finished goods inventory as of January 31, 2001 is $15,000.
g. All plant workers earn the same wage rate. Direct manufacturing labor hours for
January totals 2,500. Other labor and supervision totals $10,000.
h. The gross plant payroll on January paydays totals $52,000. Ignore withholdings.
All personnel are paid on a weekly basis.
i. All “actual” manufacturing department overhead incurred during January
has already been posted.
Required:
a. Material purchased during January
b. Cost of Goods Sold during January
c. Direct Manufacturing Labor Costs incurred during January
d. Manufacturing Overhead Allocated during January
e. Balance, Wages Payable Control, December 31, 2000
f. Balance, Work in Process Inventory Control, January 31, 2001
g. Balance, Work in Process Inventory Control, December 31, 2000
h. Balance, Finished Goods Inventory Control, January 31, 2001
i. Manufacturing Overhead underapplied or overapplied for

January ANSWER

a. $15,000 + Purchases – $20,000 = $90,000. Purchases = $95,000

b. $20,000 + $180,000 – $15,000 = $185,000

c. DL = $2,000 = $16/HR × 2,500 HRS = $40,000

125

d. $600,000 = 150% DL cost × $40,000 = $60,000

$400,000

e. BEGIN + $50,000 – $52,000 = $3,000 BEGIN = $5,000

f. $2,000 + ($2,000 × 150%) + $8,000 = $13,000

g. BEGIN + $90,000 + $40,000 + $60,000 – $180,000 = $13,000 BEGIN = $3,000

h. $20,000 + $180,000 – $185,000 = END = $15,000

i. APPLIED $60,000
ACTUAL 57,000
$ 3,000 overapplied

DIFFICULT
16. The Smith Company manufactures special purpose machines to order. On 1/1/2001 there
were two jobs in process, 405 and 406. The following costs were applied to them in
2000:

Job No.
405 406
Direct material $ 5,000 $ 8,000
Direct labor 4,000 3,000
Overhead 4,400 3,300
Total $13,400 $14,300

During January of 2001, the following transactions took place:

* Raw material costing $40,000 was purchased on account.

* Jobs #407, 408, and 409 were started and the following costs were applied to
them:

JOB
407 408 409
Direct materials $3,000 $10,000 $ 7,000
Direct labor 5,000 6,000 4,000

* Job $405 and Job #406 were completed after incurring additional direct labor
costs of $2,000 and $4,000, respectively
* Wages paid to production employees during January totaled $25,000.
* Depreciation for the month of January totaled $10,000.
* Utilities bills in the amount of $10,000 were paid for December 2000 operations.
* Utilities bills totaling $12,000 were received for January operations.
* Supplies costing $2,000 were used.
* Miscellaneous overhead expenses totaled $24,000 for January.

Actual overhead is applied to individual jobs at the end of each month using a rate based
on actual direct labor costs.

Required:

a. Determine the January 2001 overhead rate.

b. Determine the cost of each job.

c. Prepare a statement of cost of goods manufactured.

ANSWER:

a. MOH $4,000 + $10,000 + $12,000 + $2,000 + $24,000 = $52,000 = $2.4762/dl cost

$21,000 dl cost

b. JOB JOB JOB JOB JOB

#405 #406 #407 #408 #409
DM — — $ 3,000 $10,000 $ 1,000 = $ 20,000
DC $ 2,000 $ 4,000 5,000 6,000 4,000 = 21,000
MOH 4,952 9,905 12,381 14,857 9,905 = 52,000
BB 13,400 14,300 — — — = 27,700
$20,352 $28,205 $20,381 $30,857 $20,905 $120,700

c. Beg WIP $27,700

+ DM 20,000
+ DL 21,000
+ MOH 52,000
– End WIP 72,143
$48,557

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17. Fred Company employs a job order costing system. Only three jobs—Job #105, Job #106,
and Job #107—were worked on during November and December. Job #105 was
completed December 10; the other two jobs were still in production on December 31, the
end of the company’s operating year. Job cost sheets on the three jobs follow:

Job Cost Sheet

Job #105 Job #106 Job #107
November costs incurred:
Direct material $16,500 $ 9,300 $ —
Direct labor 13,000 7,000 —
Manufacturing overhead 20,800 11,200 —

December cost incurred:

Direct materials — 8,200 21,300
Direct labor 4,000 6,000 10,000
Manufacturing overhead ? ? ?

The following additional information is available:

a. Manufacturing overhead is assigned to jobs on the basis of direct labor cost.

b. Balances in the inventory accounts at November 30 were as follows:

Raw Material $40,000

Work in Process ?
Finished Goods 85,000
Required:

a. Prepare T-accounts for Raw Material, Work in Process Inventory, Finished Goods
Inventory, and Manufacturing Overhead Control. Enter the November 30
inventory balances given previously; in the case of Work in Process Inventory,
compute the November 30 balance and enter it into the Work in Process
Inventory T-account.

b. Prepare journal entries for December as follows:

1. Prepare an entry to record the issue of materials into production and post
the entry to appropriate T-accounts. (In the case of direct material, it is not
necessary to make a separate entry for each job.) Indirect materials used
during December totaled $4,000.

2. Prepare an entry to record the incurrence of labor cost and post the entry
to appropriate T-accounts. (In the case of direct labor, it is not necessary
to make a separate entry for each job.) Indirect labor cost totaled $8,000
for December.

3. Prepare an entry to record the incurrence of $19,000 in various actual

manufacturing overhead costs for December (credit Accounts Payable).

c. What apparent predetermined overhead rate does the company use to assign
overhead cost to jobs? Using this rate, prepare a journal entry to record the
application of overhead cost to jobs for December (it is not necessary to make a
separate entry for each job). Post this entry to appropriate T-accounts.

d. As stated earlier, Job #105 was completed during December. Prepare a journal
entry to show the transfer of this job off of the production line and into the
finished good warehouse. Post the entry to appropriate T-accounts.

e. Determine the balance at December 31 in the Work in Process inventory account.

How much of this balance consists of the cost of Job #106? Job #107?
ANSWER:

a. RM Inventory WIP Inventory FG Inventory MOH Control

BB 40,000 BB 77,800 BB 85,000 4,000
29,500 60,700 60,700 8,000 32,000
31,500 20,000 19,000
32,000
98,600

b. 1. WIP INV 29,500

MOH 4,000
RM INV 33,500

2. WIP INV 20,000

MOH CONTROL 8,000
PAYROLL 28,000

3. MOH CONTROL 19,000

A/P 19,000

c. 160%/DL COST × $20,000 =

$32,000 WIP INV 32,000

MOH CONTROL 32,000

d. FG INV 60,700
WIP INV 60,700
106 = $51,300

e. WIP INV 98,600 <

107 = $47,300

JOB #105 JOB #106 JOB #107

BB $50,300 $27,500 —
DM 0 8,200 $21,300
DC 4,000 6,000 10,000
FOH 6,400 9,600 16,000
$60,700 $51,300 $47,300

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