Chapter (1) Job Order Costing

Topics
1 - Describe cost systems and the flow of costs in a job order system.
2 - Use a job cost sheet to assign costs to work in process.
3 - Demonstrate how to determine and use the predetermined overhead rate.
4 - Prepare entries for manufacturing and service jobs completed and sold.
5 - Distinguish between under- and overapplied manufacturing overhead.

1. Describe cost systems and the flow of costs in a job order system

What is the definition of “Cost Accounting”?

- Cost Accounting → Is the subfield of accounting that Measures, Records, and report
information about costs of product.

Job Order Cost System Vs. Process Cost System

Process Cost System

Process Cost System Used when a large (Mass) volume of similar products are manufactured.

Example (1): Chips Production

Example (2): Soft Drinks

 Job Order System

- Each job generally uses different amounts of resources.

Job Order System - Costs are assigned to each job or batch.
- Measures costs for each job completed – not for set time periods.
Examples →
- Legal Services. - Film and Video Production Companies.
- Event Planning. - jewelry makers.

Example (1): Custom Tailoring

and Fashion Designers

‫ترزي دياب‬
Job (1) Finished
Customer (A)
Manufacturing Sold
Job (2) Finished
Customer (B)
Manufacturing Sold
Job (3) Finished
Customer (C)
Manufacturing Sold

Example (2): Construction

Job (1) Finished

Manufacturing Sold

Job (2) Finished

Manufacturing Sold
 Job Order Cost Flow

- The flow of costs → the physical flow of the materials as they are converted into finished goods.

- Manufacturing costs are assigned to the Work in Process (WIP) Inventory account.
- Cost of completed jobs is transferred to the Finished Goods Inventory account.
- When units are sold, the cost is transferred to the Cost of Goods Sold account.
- Selling and administrative costs → Period Costs.

Important Terminologies

Control Account Temporary Account

- is a general ledger account - also known as nominal accounts or income statement
that summarizes the detailed accounts, are a group of accounts in accounting used to
transactions of one or more track revenues, expenses, gains, and losses over a specific
subsidiary accounts accounting period, usually a fiscal year.

Flow of Documents
 1) Job Cost Sheet
- Job Cost Sheet → Used to record costs chargeable to specific jobs. Each entry to Work in Process
inventory must be accompanied by a corresponding posting to one or more job cost sheets.

Materials requisition slip Time Tickets

- Materials requisition slip → Written - Time Tickets → Time tickets are prepared
authorization for issuing raw materials (Direct - when the work is performed
and indirect materials)
 Job Order Cost Flow
Phase (1) Before the Production Phase (2) During the Production
Phase (3)
Accumulating Manufacturing Costs Assigning manufacturing costs to WIP During the
1) To(During the
Record the Production)
use of materials
Production
1) To Record Purchase the Raw (Direct) materials.

Requisition
Materials

Slip
Explanation / Account Title Dr. Cr. Explanation / Account Title Dr. Cr.
Raw Material inventory (Control Account) X Work in process (Direct Materials) X
Accounts Payable Or Cash X MOH (Indirect Materials) X
Raw Material inventory XX

2) To Record the Factory (Direct) Labor 2) To charge the factory labor to WIP

Tickets
Time
Explanation / Account Title Dr. Cr. Explanation / Account Title Dr. Cr.
Factory Labor (Temporary Account) XX Work in process (Direct Labor) X
Factory Wages Payable X MOH (Indirect Labor) X
Payroll Taxes Payable X Factory Labor XX

Factory Labor Costs → Consists of three costs:

- Gross earnings of factory workers,
- Employer payroll taxes on these earnings, and
- Fringe benefits (such as sick pay, pensions, and
vacation pay) incurred by the employer.
Phase (4)
3) To Record Manufacturing Overhead 3) To charge MOH to WIP
During the
Explanation / Account Title Dr. Cr. Explanation / Account Title Dr. Cr. Production
Manufacturing Overhead (Control Account) XXXX Work in process X
Utilities Payable X MOH X
Prepaid insurance X
Accounts Payable X Predetermined Overhead Rate
Accumulated Depreciation X
- The purpose of the POHR is to estimate how much
MOH → Examples: overhead cost should be assigned to each unit of a
- Property taxes, depreciation, insurance, and repairs product or to each job based on a chosen cost allocation
related to the manufacturing process. base.
- Indirect Material. - Established at the beginning of the year.
- Indirect Labor. Calculations of Predetermined Overhead Rate
- Predetermined OH = Estimated OH Costs / Estimated
Activity (Allocation) Base.
- MOH (Applied) = Predetermined OH X Actual (USED)
Activity
 Examples on Phase (1): Accumulating Manufacturing Costs

Example (1): Wallace Company, which makes custom electronic sensors for corporate safety
applications and security applications.
- Wallace Company purchases 2,000 lithium batteries (Stock No. AA2746) at $5 per unit
($10,000) and 800 electronic modules (Stock No. AA2850) at $40 per unit ($32,000) for a total
cost of $42,000 ($10,000 + $32,000).
- Wallace incurs $32,000 of factory labor costs. Of that amount, $27,000 relates to wages
payable and $5,000 relates to payroll taxes payable in February.
- Factory utilities of $2,200 are payable, prepaid factory insurance of $1,800 has expired, and
depreciation on the factory building is $3,500.
Required: Prepare journal entries for each type of manufacturing cost.

Date Explanation / Account Title Dr. Cr.

Raw Material inventory 42,000
Accounts Payable 42,000
Factory Labor 32,000
Factory Wages Payable 27,000
Payroll Taxes Payable 5000
Manufacturing Overhead 7,500
Utilities Payable 2,200
Prepaid insurance 1,800
Accumulated Depreciation 3,500

Example (2): During the current month, KRT Company incurs the following manufacturing costs:
- Raw material purchases of $4,200 on account.
- Factory labor of $18,000. Of that amount, $15,000 relates to wages payable and $3,000 relates
to payroll taxes payable.
- Factory utilities of $2,200 are payable, prepaid factory insurance of $1,800 has expired, and
depreciation on the factory building is $3,500.
Required: Prepare journal entries for each type of manufacturing cost.

Date Explanation / Account Title Dr. Cr.

Raw Material inventory 4, 200 4, 200
Accounts Payable
Factory Labor 18,000
Factory Wages Payable 15,000
Payroll Taxes Payable 3000
Manufacturing Overhead 7,500
Utilities Payable 2,200
Prepaid insurance 1,800
Accumulated Depreciation 3,500
 Examples on Phase (2): Assigning manufacturing costs to WIP

Example (1): Wallace Company, which makes custom electronic sensors for corporate safety
applications and security applications.
- Wallace uses $24,000 of direct materials and $6,000 of indirect materials in January.
- The time tickets are later sent to the payroll department, which applies the employee’s hourly
wage rate and computes the total labor cost. If the $32,000 total factory labor cost consists
of $28,000 of direct labor and $4,000 of indirect labor.
- Wallace Company uses direct labor cost as the activity base. Assuming that the company
expects annual overhead costs to be $280,000 and direct labor costs for the year to be
$350,000
Required: Prepare the three summary entries to record the assignment of costs to Work in
Process from the data on the job cost sheets.

Explanation / Account Title Dr. Cr.

Work in Process Inventory 24,000
Manufacturing Overhead 6000
Raw Materials Inventory 30,000
Work in Process Inventory 28,000
Manufacturing Overhead 4000
Factory Labor 32,000

Work in Process Inventory 22,400

Manufacturing Overhead 22,400
Calculations of Predetermined Overhead Rate Then MOH
- Predetermined OH = $250,000 / $350,000 = 80%
- MOH (Applied) = $28,000 x 80% = $22,400

Example (2): D Company is working on two job orders. The job cost sheets show the following:
Direct materials—Job 120 $6,000; Job 121 $3,600
Direct labor—Job 120 $4,000; Job 121 $2,000
Manufacturing overhead—Job 120 $5,000; Job 121 $2,500
Required: Prepare the three summary entries to record the assignment of costs to Work in
Process from the data on the job cost sheets.

Explanation / Account Title Dr. Cr.

Work in Process Inventory 9,600
Raw Materials Inventory 9,600
Work in Process Inventory 6,000
Factory Labor 6,000
Work in Process Inventory 7,500
Manufacturing Overhead 7,500
Examples on Phase (3) and Phase (4)

Given Not calculated.

2. Distinguish between under - and overapplied manufacturing
overhead.

Warm-up Problems
\
 Problems Part

A. Brief Exercises

BE (1): During the first year of operations, Shapiro Tool accumulated the following
manufacturing costs:
• Raw materials purchased on account $12,000
• Factory labor accrued 6,000
• Incurred manufacturing overhead on account 4,000
Instructions
Prepare separate journal entries for each manufacturing cost.

BE (2): Lando Company reported the following amounts for 2016:

Raw materials purchased $83,000 Ending work in process inventory $ 6,300
Beginning raw materials inventory 5,200 Manufacturing overhead costs applied 36,000
Ending raw materials inventory 4,500 Beginning work in process inventory 6,100
Instructions
Calculate the cost of materials used in production

How to Calculate “cost of materials used”

Beginning Raw Materials 5,200
+ Materials Purchased 83,000
(-) Ending Raw Materials (4500)
= Direct Materials Used $83,700

BE (3): Builder Bug Company allocates overhead at $9 per direct labor hour. Job A45 required 4
boxes of direct materials at a cost of $30 per box and took employees 20 hours to complete.
Employees earn $15 per hour.
Instructions
Compute the total cost of Job A45.

How to Calculate “Cost of Job A45”

Direct Materials Used (4 Boxes X $30) 120
+ Direct Labor (20 Hours X $15) 300
+ MOH (20 Hours x $9) 180
= Total cost of Job A45 $600
BE (4): Colby Company estimates that annual manufacturing overhead costs will be $600,000.
Estimated annual operating activity bases are: direct labor cost $460,000, direct labor hours
40,000 and machine hours 80,000. The actual manufacturing overhead cost for the year was
$601,000 and the actual direct labor cost for the year was $456,000. Actual direct labor hours
totaled 39,800 and machine hours totaled 79,000. Colby applies overhead based on direct labor
hours.
Instructions
Compute the predetermined overhead rate and determine the amount of manufacturing
overhead. applied. Determine if overhead is over-or underapplied and the amount.

Calculations of Predetermined Overhead Rate Then MOH

- Predetermined OH = $600,000 / 40,000 = $15 per direct labor hour
- MOH (Applied) = 39,800 x $15 = $597,000
- Underapplied = $597,000 - $601,000 = $4,000

BE (5): Martin Company applies manufacturing overhead based on direct labor hours.
Information concerning manufacturing overhead and labor for the year follows:
- Actual manufacturing overhead $150,000
- Estimated manufacturing overhead $145,000
- Direct labor hours incurred 4,800
- Direct labor hours estimated 5,000
Instructions
Compute the predetermined overhead rate.

Calculations of Predetermined Overhead Rate

- Predetermined OH = $145,000 / 5,000 = $29 per direct labor hour

BE (6): The manufacturing operations of Bryant, Inc. had the following balances for the month
of January:

Bryant transferred $290,000 of completed goods out of work in process during January
Instructions
Compute the cost of goods sold.

How to Calculate “Cost of Goods Sold”

Beginning Finished Goods 14,000
+ Cost of Goods Manufactured 290,000
(+) Ending Finished Goods (16,000)
= Cost of Goods Sold $288,000
BE (7): The following amounts were reported by Burke Company before adjusting its immaterial
overapplied manufacturing overhead of $8,000.
- Raw Materials Inventory $ 40,000
- Finished Goods Inventory 60,000
- Work in Process Inventory 100,000
- Cost of Goods Sold 730,000
Instructions
Compute what amount Burke will report as cost of goods sold after it disposes of its overapplied
overhead.

cost of goods sold = $730,000 – $8,000 = $722,000

BE (8): During 2016, Arb Company incurred the following direct labor costs: January $20,000 and
February $30,000. Arb uses a predetermined overhead rate of 120% of direct labor cost. Estimated
Overhead applied:
overhead for the 2 months, respectively, totaled $19,500 and $35,700. Actual overhead for the 2
January: 120% × $20,000 = $24,000
months, respectively,
February: totaled
120% × $30,000 $25,000 and $33,500.
= $36,000
Over- or
Instructions underapplied:
January: $24,000 – $25,000 = $1,000 underapplied
Determine
February: if overhead
$36,000 is over-
– $33,500 or underapplied
= $2,500 overapplied for each of the two months and the respective
amounts.
Downloaded

- Overhead applied:
January: 120% × $20,000 = $24,000
February: 120% × $30,000 = $36,000
- Over- or underapplied:
January: $24,000 – $25,000 = $1,000 underapplied
February: $36,000 – $33,500 = $2,500 overapplied

BE (9): At December 31, Ding Company reported the following balances in its accounts:
- Cost of Goods Sold $210,000
- Finished Goods Inventory 30,000
The company’s balance in its Manufacturing Overhead account at the same date was a debit of
$2,800.
Instructions
Prepare the entry to adjust the over- or underapplied overhead amount at December 31.
 B. Exercises

Ex (1): Finn Manufacturing Company uses a job order cost accounting system and keeps perpetual
inventory records. Prepare journal entries to record the following transactions during the month
of June.
June 1 Purchased raw materials for $20,000 on account.
8 Raw materials requisitioned by production:
Direct materials $8,000
Indirect materials 1,000
15 Paid factory utilities, $2,100 and repairs for factory equipment, $8,000.
25 Incurred $108,000 of factory labor.
25 Time tickets indicated the following:
Direct Labor (7,000 hrs × $12 per hr) = $84,000
Indirect Labor (3,000 hrs × $8 per hr) = 24,000
$108,000
25 Applied manufacturing overhead to production based on a predetermined overhead
rate of $7 per direct labor hour worked.
28 Goods costing $18,000 were completed in the factory and were transferred to finished
goods.
30 Goods costing $15,000 were sold for $20,000 on account.
 -

Ex (2): Sardin Company begins the month of March with $17,000 of work in process costs from
Job 324. Information from job cost sheets shows the following additional costs assigned during
March, April, and May of 2013:

Job 324 was completed in March. Jobs 325 and 327 were completed in May, and Job 326 was
completed in April. Jobs are sold during the month after completion. Total revenue for jobs sold
during the 3-month period is $145,000.
Instructions
Calculate the balances of the work in process and finished goods inventory accounts at the end
of May.

Prepare the entry to adjust the over- or underapplied overhead amount at December 31.

Ex (3): The gross earnings of factory workers for Dinkel Company during the month of January
are $400,000. The employer's payroll taxes for the factory payroll are $80,000. Of the total
accumulated cost of factory labor, 75% is related to direct labor and 25% is attributable to indirect
labor.
Instructions
(a) Prepare the entry to record the factory labor costs for the month of January.
(b) Prepare the entry to assign factory labor to production.
(c)Prepare the entry to assign manufacturing overhead to production, assuming the
predetermined overhead rate is 125% of direct labor cost.
Ex (4): Foster Manufacturing uses a job order cost accounting system. On April 1, the company has
Work in Process Inventory of $7,600 and two jobs in process: Job No. 221, $3,600, and Job No.
222, $4,000. During April, a summary of source documents reveals the following:

Foster applies manufacturing overhead to jobs at an overhead rate of 70% of direct labor cost.
Job No. 221 is completed during the month.
Instructions
(a) Prepare summary journal entries to record the raw materials requisitioned, factory labor
used, the assignment of manufacturing overhead to jobs, and the completion of Job No. 221.
(b) Calculate the balance of the Work in Process Inventory account at April 30.
Ex (5): Manufacturing cost data for Dolan Company, which uses a job order cost system, are
presented below:

Instructions
Indicate the missing amount for each letter. Assume that overhead is applied on the basis of
direct labor cost and that the rate is the same for both cases.

Ex (6): Fort Corporation had the following transactions during its first month of operations:
1. Purchased raw materials on account, $85,000.
2. Raw Materials of $30,000 were requisitioned to the factory. An analysis of the materials
requisition slips indicated that $6,000 was classified as indirect materials.
3. Factory labor costs incurred were $175,000 of which $145,000 pertained to factory wages
payable and $30,000 pertained to employer payroll taxes payable.
4. Time tickets indicated that $145,000 was direct labor and $30,000 was indirect labor.
5. Overhead costs incurred on account were $198,000.
6. Manufacturing overhead was applied at the rate of 150% of direct labor cost.
7. Goods costing $115,000 are still incomplete at the end of the month; the other goods were
completed and transferred to finished goods.
8. Finished goods costing $100,000 to manufacture were sold on account for $130,000
Instructions
Journalize the above transactions for Fort Corporation.
Ex (7): A job order cost sheet for Fugate Company is shown below.

Instructions
(a) Answer the following questions.
(1) What is the predetermined manufacturing overhead rate?
(2) What are the total cost and the unit cost of the completed job?
(b) Prepare the entry to record the completion of the job.
Ex (8): Watson Manufacturing Company employs a job order cost accounting system and keeps
perpetual inventory records. The following transactions occurred in the first month of
operations:

Instructions
(a) Prepare journal entries to record the above transactions.
(b) Answer the following questions:
1. How much manufacturing overhead was applied to Job 103 during the month?
2. Compute the unit cost of Jobs 101 and 103.
3. What is the balance in Work In Process Inventory at the end of the month?
4. Determine if manufacturing overhead was under- or overapplied during the month. How
much?
Ex (9): A job order cost sheet for Rayn Company is shown below.
Ex (10): Graham Manufacturing is a small manufacturer that uses machine-hours as its activity
base for assigned overhead costs to jobs. The company estimated the following amounts for
2017 for the company and for Job 62:

Instructions
(a) Compute the predetermined overhead rate.
(b) Compute the total manufacturing costs for Job 62.
(c) How much overhead is over or underapplied for the year for the company? State amount
and whether it is over- or underapplied.
(d) If Graham Manufacturing sells Job 62 for $14,000, compute the gross profit.

Ex (11): Builder Bug Company allocates manufacturing overhead at $9 per direct labor hour. Job
A45 required 4 boxes of direct materials at a cost of $30 per box and took employees 14 hours
to complete. Employees earn $15 per hour.
Instructions
Compute the total cost of Job A45.
Ex (12): Job cost sheets for Howard Manufacturing are as follows:

Instructions
(a) Answer the following questions.
1. What was the balance in Work in Process Inventory on July 1 if these were the only
unfinished jobs?
2. What was the predetermined overhead rate in June if overhead was applied on the basis
of direct labor cost?
3. If July is the start of a new fiscal year and the overhead rate is 20% higher than in the
preceding year, how much overhead should be applied to Job 210 in July?
4. Assuming Job 210 is complete, what is the total and unit cost of the job?
5. Assuming Job 211 is the only unfinished job at July 31, what is the balance in Work in
Process Inventory on this date?
(b) Journalize the summary entries to record the assignment of costs to the jobs in July.
Ex (13): Garner Company begins operations on July 1, 2017. Information from job cost sheets
shows the following:

Job 102 was completed in July. Job 100 was completed in August, and Jobs 101 and 103 were
completed in September. Each job was sold for 60% above its cost in the month following
completion.
Instructions
(a) Compute the balance in Work in Process Inventory at the end of July.
(b) Compute the balance in Finished Goods Inventory at the end of September.
(c) Compute the gross profit for August.
Ex (14): The accounting records of Roland Manufacturing Company include the following
information:

Instructions
Answer the following questions:
1. What is the total of the debits to Work in Process Inventory during the year?
2. What is the amount transferred to Finished Goods Inventory during the year?
3. What is the cost of goods sold?

Ex (15): Grant Marwick and Associates, a CPA firm, uses job order costing to capture the costs of
its audit jobs. There were no audit jobs in process at the beginning of November. Listed below
are data concerning the three audit jobs conducted during November.

Overhead costs are applied to jobs on the basis of auditor hours, and the predetermined
overhead rate is $50 per auditor hour. The Rondelli job is the only incomplete job at the end of
November. Actual overhead for the month was $10,500.
Instructions
(a) Determine the cost of each job.
(b) Indicate the balance of the Work in Process account at the end of November.
(c) Calculate the ending balance of the Manufacturing Overhead account for November.
Ex (16): Gallagher Company applies manufacturing overhead to jobs on the basis of machine
hours used. Overhead costs are expected to total $425,000 for the year, and machine usage is
estimated at 125,000 hours. For the year, $450,000 of overhead costs are incurred and 130,000
hours are used.
Instructions
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of under - or overapplied overhead at December 31?
(c) Assuming the under - or overapplied overhead for the year is not allocated to inventory
accounts, prepare the adjusting entry to assign the amount to cost of goods sold

Ex (17): Fancy Decorating uses a job order costing system to collect the costs of its interior
decorating business. Each client's consultation is treated as a separate job. Overhead is applied
to each job based on the number of decorator hours incurred. Listed below are data for the
current year.

The company uses Operating Overhead in place of Manufacturing Overhead

Instructions
(a) Compute the predetermined overhead rate.
(b) Prepare the entry to apply the overhead for the year.
(c) Determine whether the overhead was under - or overapplied and by how much.
Ex (18): Edwards Company applies manufacturing overhead to jobs on the basis of machine hours
used. Overhead costs are expected to total $1,800,000 for the year, and machine usage is
estimated at 200,000 hours.
In January, $186,000 of overhead costs are incurred and 22,000 machine hours are used. For the
remainder of the year, $1,940,000 of additional overhead costs are incurred and 214,000
additional machine hours are worked.
Instructions
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of over- or underapplied overhead at January 31?
(c) What is the amount of over- or underapplied overhead at December 31?
Ex (19): The following inventory information is available for Ricci Manufacturing Corporation
for the year ended December 31, 2017:

In addition, the following transactions occurred in 2017:

1. Raw materials purchased on account, $75,000.
2. Incurred factory labor, $80,000, all is direct labor. (Credit Factory Wages Payable).
3. Incurred the following overhead costs during the year: Utilities $6,800, Depreciation on
manufacturing machinery $8,000, Manufacturing machinery repairs $9,200, Factory insurance
$9,000 (Credit Accounts Payable and Accumulated Depreciation).
4. Assigned $80,000 of factory labor to jobs.
5. Applied $36,000 of overhead to jobs.
Instructions
(a) Journalize the above transactions.
(b) Reproduce the manufacturing cost and inventory accounts. Use T-accounts.
(c) From an analysis of the accounts, compute the following:
1. Raw materials used.
2. Completed jobs transferred to finished goods.
3. Cost of goods sold.
4. Under- or overapplied overhead.
Ex (20): Martin Company applies manufacturing overhead based on direct labor hours.
Information concerning manufacturing overhead and labor for the year follows:

Instructions
Compute (a) the predetermined overhead rate and (b) the amount of applied manufacturing
overhead.

Ex (21): Landis Company uses a job order cost system in each of its two manufacturing
departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in
Department A and machine hours in Department B. In establishing the predetermined overhead
rates for 2017, the following estimates were made for the year:

Instructions
(a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing cost assigned to jobs in January in each department.
(c) Compute the balance in the Manufacturing Overhead account at the end of January and
indicate whether overhead is over- or underapplied.
Ex (22): Klinger Company estimates that annual manufacturing overhead costs will be $4,800,000
for 2017. The actual overhead costs at the end of 2017 are $4,980,000. Activity base information
for 2017 follows:

Instructions
(a) Compute the predetermined overhead rate for each activity base.
(b) Compute the amount of overhead applied in 2017 for each activity base.
(c) Compute the amount of under- or overapplied overhead for 2017 for each activity base.
Ex (23): Jensen Manufacturing Company makes specialty tools. In January, Jensen incurs
manufacturing costs of $13,000,000 for direct materials, direct labor, and overhead. 20% of the
total costs represents overhead applied. The overhead rate is $1 for every $2 of direct labor costs
incurred. Inventory balances were:

Instructions
(a) Determine the cost of raw materials purchased in January.
(b) Prepare a cost of goods manufactured schedule for January 2017.
(c) Compute the cost of goods sold for January.
Ex (24): The following information is available for Marks Company at December 31, 2017:

Instructions
(a) Prepare a condensed cost of goods manufactured schedule.
(b) Prepare an income statement for the year through gross profit.
Ex (25): Enos Printing Corp. uses a job order cost system. The following data summarize the
operations related to the first quarter’s production.
1. Materials purchased on account $192,000, and factory wages incurred $87,300.
2. Materials requisitioned and factory labor used by job:

3. Manufacturing overhead costs incurred on account $49,500.

4. Depreciation on factory equipment $14,550.
5. Depreciation on the company’s office building was $14,300.
6. Manufacturing overhead rate is 90% of direct labor cost.
7. Jobs completed during the quarter: A20, A21, and A23.
Instructions
Prepare entries to record the operations summarized above. Prepare a schedule showing the
individual cost elements and total cost for each job in item 7.

Instructions
(a) Prepare a condensed cost of goods manufactured schedule.
(b) Prepare an income statement for the year through gross profit.
Ex (26): Tierney Company begins operations on April 1. Information from job cost sheets
shows the following.

Job 12 was completed in April. Job 10 was completed in May. Jobs 11 and 13 were completed in
June. Each job was sold for 25% above its cost in the month following completion.
Instructions
a. What is the balance in Work in Process Inventory at the end of each month?
b. What is the balance in Finished Goods Inventory at the end of each month?
c. What is the gross profit for May, June, and July?
Ex (27): Phillips Corporation’s fiscal year ends on November 30. The following accounts are
found in its job order cost accounting system for the first month of the new fiscal year.

Other data:
1. On December 1, two jobs were in process: Job No. 154 and Job No. 155. These jobs had combined direct
materials costs of $9,750 and direct labor costs of $15,000. Overhead was applied at a rate that was 75%
of direct labor cost.
2. During December, Job Nos. 156, 157, and 158 were started. On December 31, Job No. 158 was
Unfinished. This job had charges for direct materials $3,800 and direct labor $4,800, plus manufacturing
overhead. All jobs, except for Job No. 158, were completed in December.
3. On December 1, Job No. 153 was in the finished goods warehouse. It had a total cost of $5,000. On
December 31, Job No. 157 was the only job finished that was not sold. It had a cost of $4,000.
4. Manufacturing overhead was $1,470 underapplied in December.
Instructions
List the letters (a) through (m) and indicate the amount pertaining to each letter.
(Use the following information to answer from 1 to 2)
The following budget data are available for Happy Company:
1- If factory overhead is to be applied based on direct labor dollars, the predetermined overhead
rate is
A. 199%
B. 196%
C. $14.92
D. $15.65
Answer → A
2- If factory overhead is to be applied based on direct labor hours as the cost allocation base for
the predetermined overhead rate, the amount of overhead applied into production is
A. $180,000
B. $181,000
C. $172,500
D. $184,000
Answer → C
3- Scooby Company has applied $567,988 of overhead into production on Jobs in the Work in Process
account. Actual overhead at the end of the year is $575,000. What is the adjustment for over or
underapplied overhead?
A. $7012 Overapplied, increase Cost of Goods Sold
B. $7012 Underapplied, increase Cost of Goods Sold
C. $7012 Overapplied, decrease Cost of Goods Sold
D. $7012 Underapplied, decrease Cost of Goods Sold
Answer → B
(Use the following information to answer from 4 to 8) Zeke Company is a manufacturing
company that has worked on several production jobs during the 1st quarter of the year. Below is a
list of all the jobs for the quarter:

4- What is the ending balance of Work in Process for Zeke Company as of the end of the 1st quarter?
A. $0
B. $456
C. $3,208
D. $2,752
Answer → B
5- What is the ending balance of Finished Goods for Zeke Company as of the end of the 1st quarter?
A. $456
B. $1,067
C. $1,685
D. $2,752
Answer → B
6- What is the ending balance of Cost of Goods sold for Zeke Company as of the end of the 1st
quarter?
A. $456
B. $2,685
C. $1,685
D. $685
Answer → C
7- What is Sales for Zeke Company as of the end of the 1st quarter?
A. $1,685
B. $2,685
C. $1,000
D. $685
Answer → B
8- What is Sales for Zeke Company as of the end of the 1st quarter?
A. $1,685
B. $2,685
C. $1,000
D. $685
Answer → B
9. The Thomlin Company forecasts that total overhead for the current year will be $15,000,000 and
that total machine hours will be 300,000 hours. Year to date, the actual overhead is $16,000,000 and
the actual machine hours are 330,000 hours. If the Thomlin Company uses a predetermined overhead
rate based on machine hours for applying overhead, what is that overhead rate?
A. $48 per machine hour
B. $53 per machine hour
C. $45 per machine hour
D. $50 per machine hour
Answer → D
10. The Thomlin Company forecasts that total overhead for the current year will be $15,000,000 and
that total machine hours will be 300,000 hours. Year to date, the actual overhead is $16,000,000 and
the actual machine hours are 330,000 hours. If the Thomlin Company uses a predetermined overhead
rate based on machine hours for applying overhead, as of this point in time (year to date) the
overhead is over/under applied by
A. $1,000,000 overapplied
B. $1,000,000 underapplied
C. $500,000 overapplied
D. $500,000 underapplied
Answer → C
11. At the end of the year, overhead applied was $35,000,000. Actual overhead was $34,300,000.
Closing over/under applied overhead into cost of goods sold would cause net income to:
A. Increase by $700,000
B. Decrease by $700,000
C. Remain constant
D. Decrease by $300,000
Answer → A
12.Poobah Manufacturers Inc. has estimated total factory overhead costs of $95,000 and 10,000
direct labor hours for the current fiscal year. If job number 117 incurred 2,300 direct labor hours, the
work in process account will be debited and factory overhead will be credited for:
A. $21,850
B. $2,300
C. $95,000
D. cannot be determined
Answer → A
13. Materials purchased on account during the month amounted to $180,000. Materials requisitioned
and placed in production totaled $165,000. From the following, select the entry to record the
transaction on the day the materials were bought.

14. Materials purchased on account during the month amounted to $180,000. Materials requisitioned
and placed in production totaled $165,000. From the following, select the entry to record the
transaction on the day the materials were requisitioned by the production department

15. During the period, labor costs incurred on account amounted to $275,000 including $200,000 for
production orders and $75,000 for general factory use. In addition, factory overhead charged to
production was $32,000. From the following, select the entry to record the direct labor costs.
16. During the period, labor costs incurred on account amounted to $275,000 including $200,000 for
production orders and $75,000 for general factory use. In addition, factory overhead applied to
production was $32,000. From the following, select the entry to record the factory overhead applied
to production.

17. The cost of production of completed and finished goods during the period amounted to $450,000,
and the finished products shipped to customers had total production costs of $357,000. From the
following, select the entry to record the transfer of costs from work in process to finished goods.

18. The cost of production of completed and finished goods during the period amounted to $450,000,
and the finished products shipped to customers had total production costs of $357,000. From the
following, select the entry to record the transfer of costs from finished goods to cost of goods sold.

19. A manufacturing company applies factory overhead based on direct labor hours. At the beginning
of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would
be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were
36,000. What is the amount of overapplied or underapplied manufacturing overhead at the end of
the year?
A. $6,000 overapplied.
B. $6,000 underapplied.
C. $54,800 overapplied.
D. $54,800 underapplied.
Answer → C
20. A manufacturing company applies factory overhead based on direct labor hours. At the beginning
of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would
be 30,000. Actual manufacturing overhead costs incurred were $377,200, and actual direct labor
hours were 36,000. What is the predetermined overhead rate per direct labor hour?
A. $12.00
B. $10.00
C. $12.57
D. $10.48
Answer → A
(Use the following information to answer from 21 to 22) Selected accounts with some amounts
omitted are as follows

21.If the balance of Work in Process at August 31 is $220,000, what was the amount debited to Work
in Process for direct materials in August?
A. $390,000
B. $170,000
C. $525,000
D. $580,000
Answer → A
21.If the balance of Work in Process at August 31 is $220,000, what was the amount debited to Work
in Process for factory overhead in August, assuming a factory overhead rate of 30% of direct labor
costs?
A. $135,000
B. $10,000
C. $120,000
D. $70,000
Answer → A
(Use the following information to answer from 23 to 25) Acheson Corporation, which applies
manufacturing overhead on the basis of machine-hours, has provided the following data for its most
recent year of operations.
23. The predetermined overhead rate is closest to:
A) $34.06
B) $34.90
C) $34.67
D) $35.52
Ans: B
24. The applied manufacturing overhead for the year is closest to:
A) $162,682
B) $155,995
C) $158,789
D) $159,842
Ans: D
25. The overhead for the year was:
A) $2,792 underapplied
B) $3,842 overapplied
C) $2,792 overapplied
D) $3,842 underapplied
Ans: B
(Use the following information to answer from 26 to 28) Baka Corporation applies
manufacturing overhead on the basis of direct labor-hours. At the beginning of the most
recent year, the company based its predetermined overhead rate on total estimated
overhead of $239,700 and 4,700 estimated direct labor-hours. Actual manufacturing
overhead for the year amounted to $242,000 and actual direct labor-hours were 4,600.
26. The predetermined overhead rate for the year was closest to:
A) $52.61
B) $49.91
C) $51.00
D) $51.49
Ans: C
27. The applied manufacturing overhead for the year was closest to:
A) $229,586
B) $234,600
C) $242,00
D) $236,854
Ans: B
28. The overhead for the year was:
A) $5,100 underapplied
B) $7,400 underapplied
C) $5,100 overapplied
D) $7,400 overapplied
Ans: B
 Chapter (3) Activity Based Costing

Introduction

Direct Material
Can be Traced
Direct Labor
Overheads Allocated
▪ The problem here is how to allocate Overhead:

Meaning of over-costing and under-costing

▪ Over-costing: a product consumes a low level of resources but is allocated high costs per
unit.
▪ Under-costing: a product consumes a high level of resources but is allocated low costs per
unit.
A B C D Total Average
Main Meal 11 20 15 14 60 15
Dessert 0 8 4 4 16 8
Drinks 4 14 8 6 32 4
TOTAL 15 42 27 24 108 27
▪ If the $108 total restaurant bill is divided evenly, $27 is the average cost per diner.

A More Over costing

B Less Under costing
C Accurately costed --
D More Over costing

Methods of Allocating Overhead

1.Traditional Method → only one Allocation Base

Ex (1): A company estimates that it`s overheads cost is $2,385,000 and estimates that 39,750
Labor-Hours (Allocation base).
Required: Allocate overhead costs using Traditional Costing Method

▪ Overhead allocation rate (Predetermined OH Rate) = Estimated overhead / Estimated

Allocation Base
▪ POHR = $2,385,000 / 39,750 =$60 per labor hour
Ex (2): Atlas Company produces two produces Two products:
A B
Units 25,000 units 5000 units
Direct Labor Hour 1 Hour / unit 1 Hour / unit
Total DLH 25000 5000
DM per unit 40 30
DL per unit 12 12
Expected annual manufacturing overhead costs $900,000.
Required: Allocate overhead costs using Traditional Costing Method and calculate cost per unit
1. Overhead allocation rate (Predetermined OH Rate) = Estimated overhead / Estimated
Allocation Base
POHR = $900,000 / 25,000 + 5000 =$30 per labor hour
2. Cost per unit:

2.Activity Based Costing

ABC method is a costing system that make refining for the company`s costing system
Activity anything that causes a cost
Cost pool set of activities
Cost driver Allocation base

How to solve any problem (ABC)

Activity (1) Cost Pool (2) Cost Driver (3) OH Rate (4)
2/3
OH Rate = Cost pool / Cost
X X X
driver
Ex (1): Mertens Company provides the following ABC costing information:

1) How much of the account inquiry cost will be assigned to Department A?

A) $40,000
B) $200,000
C) $80,000
D) None of these answers are correct.
Answer: A
2) How much of the account billing cost will be assigned to Department B?
A) $14,000
B) $140,000
C) $7,000
D) None of these answers are correct.
Answer: C
3) How much of account verification costs will be assigned to Department A?
A) $15,000
B) $18,750
C) $75,000
D) $5,000
Answer: B
4) How much of correspondence costs will be assigned to Department B?
A) $800
B) $6,250
C) $25,000
D) $10,000
Answer: D
5) How much of the total costs will be assigned to Department A?
A) $79,000
B) $40,000
C) $112,000
D) $440,000
Answer: A
 Activity (1) Cost Pool (2) Cost Driver (3) OH Rate (4)
2/3
Account inquiry hours $200,000 10,000 20
Account billing lines 140,000 4,000,000 0.035
Account verification accounts 75,000 40,000 1.875
Correspondence letters 25,000 4,000 6.25

Ex (2):
Ex (3):
Ex (3):
1.

Answer → A
2.

Answer → C
3.

Answer → A
MCQs Part