4
JOB-ORDER CHAPTER COSTING
DISCUSSION QUESTIONS
1. Job-order costing accumulates costs by
jobs, and process costing accumulates costs
by processes. Job-order costing is suitable
for operations that produce custom-made
products that receive different doses of manufacturing costs. Process costing, on the
other hand, is suitable for operations that
produce homogeneous products that receive
equal doses of manufacturing costs in each
process.
7. Overapplied overhead means that the applied overhead is more than the actual overhead. As a result, the unadjusted cost of
goods is too large (because too much overhead has been applied). So, cost of goods
sold will decrease by the amount of overap plied overhead.
8. Unless all your jobs (lawns) are the same
size and require the same services, you will
need to use a job-order costing system. At
minimum, you will need job-order cost
sheets for each customer. You will need
labor time tickets to record the amount of
time spent on each job, both to cost the job
and to pay the individual doing the work. A
materials requisition form may be needed if
fertilizer or weed control products are used
(alternatively, it may be possible to just list
the amount of product used directly on the
job-order cost sheet). The more complicated
your business becomes (e.g., mowing, trimming, fertilizing, trimming shrubbery, planting shrubs and trees), the more source documents will be needed to keep track of time,
materials, and use of capital equipment
(e.g., trimmers, brush hogs). Basically, as
the business grows, the need for more formal accounting and source documentation
grows.
2. Job-order costing is appropriate for many
service firms. The key factor is that differing
amounts of resources must be used for dif ferent jobs. Examples of service firms that
use job-order costing are law firms, accounting firms, dental offices, automobile repair,
and architectural firms. The key point is that
the costs of each job are unique to the job
and must be tracked by job.
3. Normal costing defines product cost as the
sum of actual direct materials, actual direct
labor, and applied overhead. The difference
between actual costing and normal costing
lies in the treatment of overhead. Actual
costing uses actual overhead; normal costing uses applied overhead.
4. Actual overhead rates are rarely used because managers cannot wait until the end of
the year to obtain product costs. Information
on product costs is needed as the year un folds for planning, control, and decision
making.
9. Multiple overhead rates often produce a
more accurate assignment of overhead
costs to jobs. This can be true if the departments through which products pass have
different amounts of overhead and if the
various products spend differing amounts of
time in the departments. For example, a
company may have two departments, but
some products only go through one department. It would be more accurate to assign
less overhead cost to the products using
only one department. This can be easily accomplished using departmental overhead
rates.
5. Overhead is assigned to production using
the predetermined rate. The predetermined
overhead rate is equal to estimated overhead divided by estimated activity level. The
predetermined overhead rate is multiplied by
the actual activity level or the cost driver on
which the rate is based.
6. Underapplied overhead means that the applied overhead is less than the actual overhead. As a result, the unadjusted cost of
goods is too small (because too little overhead has been applied). So, cost of goods
sold will increase by the amount of underapplied overhead.
10.
91
91
Materials requisition forms serve as the
source document for posting materials usage and costs to individual jobs. Time or
work tickets serve a similar function for
labor. Predetermined overhead rates are
used to assign overhead costs to individual
jobs.
11.
Because the overhead rate is based on direct labor cost, the amount of overhead applied will increase. As a result, the total cost
of each job will go up.
12.
cost of the individual job with the price
charged, the firm can determine the profit attributable to each job. Then, the firm can decide whether the profit is sufficient to continue offering the product or service under the
current terms.
The overhead variance is the difference
between applied overhead and actual overhead. Typically, that variance is relatively
small, and it is closed to Cost of Goods
Sold. If overhead is underapplied, the variance is added to Cost of Goods Sold. If
overhead is overapplied, the variance is
subtracted from Cost of Goods Sold.
13.
14.
15.
The cost of a job is often strongly related to
the price charged. Logically enough, the
higher the cost of the job, the higher the
price charged to the customer. This relationship makes sense not only to the business
but also to the customer. By comparing the
92
Because advertising expense is a period expense, it has no effect on overheadeither
applied or actual. Therefore, changes in advertising expense cannot affect manufacturing cost or cost of goods sold.
A departmental overhead rate application
can be easily converted to a plantwide rate.
First, the estimated overhead for all departments is totaled, and a single plantwide
driver is chosen. The plantwide overhead
rate is simply the estimated plantwide overhead divided by the plantwide driver. When
overhead is applied, the predetermined
plantwide rate is multiplied by the actual
amount of driver used in the factory.
MULTIPLE-CHOICE EXERCISES
41
b
42
b
43
d
44
e
45
b
46
a
47
a
48
c
49
a
410
b
411
b
412
d
413
d
Direct materials
Direct labor
Applied overhead ($5 1,000)
Total job cost
Number of units
Unit cost
414
$ 7,500
10,000
5,000
$ 22,500
500
$
45
c
93
EXERCISES
Exercise 415
a. Paint manufacturingprocess
b. Auto manufacturingprocess
c. Toy manufacturingprocess
d. Custom cabinet makingjob order
e. Airplane manufacturing (e.g., 767s)job order
f. Personal computer assemblyprocess
g. Furniture makingprocess
h. Custom furniture makingjob order
i. Dental servicesjob order
j. Hospital servicesjob order
k. Paper manufacturingprocess
l. Auto repairjob order
m. Architectural servicesjob order
n. Landscape design servicesjob order
o. Light bulb manufacturingprocess
Exercise 416
a. Auto manufacturinga shop that builds autos from scratch (the way Rolls
Royce used to build cars, or a car that can be built from kits) would use job-or der costing. Large automobile manufacturers use process costing. (While the
customer may think the car is being built to order when selected among op tions, actually, the manufacturer waits until enough of the same orders are re ceived to build a run of virtually identical cars.)
b. Dental servicesbasic dental services use job-order costing, but denturists
(who make only dentures) can use process costing. (It is important to recognize that while the dentures themselves are uniquely shaped to fit each pa tient, the costs involved do not differ from patient to patient.)
c. Auto repaira general automobile repair shop uses job-order costing.
However, a shop devoted to only one type of service or repair (e.g., oil change)
can use process costing yet price the cost of the number of quarts of oil used
for each customer.
94
Exercise 416
(Concluded)
d. Costume makinga small tailor shop would use job-order costing. However, a
large costume manufacturer that sews a certain number of costume designs
would use process costing.
Exercise 417
1. Predetermined overhead rate = $450,000/90,000 = $5 per direct labor hour
2. Applied overhead = $5 7,300 = $36,500
Exercise 418
1. Predetermined overhead rate = $270,000/90,000 = $3 per direct labor hour
2. Applied overhead = $3 8,150 = $24,450
Exercise 419
1. Applied overhead = $3 102,600
= $307,800
Actual overhead
Applied overhead
Underapplied overhead
$308,000
307,800
$
200
2. Adjusted Cost of Goods Sold = $235,670 + $200 = $235,870
Exercise 420
1. Assembly department overhead rate = $620,000/155,000
= $4 per direct labor hour
Testing department overhead rate = $180,000/120,000
= $1.50 per machine hour
2. Assembly department applied overhead = $4 13,000 = $52,000
Testing department applied overhead = $1.50 13,050 = $19,575
95
Exercise 420
(Concluded)
3.
Assembly Department
Actual overhead....................
Applied overhead..................
Overhead variance...........
Testing Department
$53,000
52,000
$ 1,000
Assembly department has underapplied overhead of $1,000.
Testing department has overapplied overhead of $4,075.
Exercise 421
1. Job 17:
Beginning balance
Direct materials
Direct labor
Applied overhead
Total cost
$100
250
300
210
$860
2. Unit cost = $860/5 = $172
Exercise 422
1. Materials requisition form
2. Labor time ticket
3. Mileage log
4. Job-order cost sheet
Exercise 423
1. Job 214 direct labor hours = $1,800/$10 = 180
Job 215 direct labor hours = $4,000/$10 = 400
Job 216 direct labor hours = $150/$10 = 15
Job 217 direct labor hours = $800/$10 = 80
2. August applied overhead for:
Job 214 = 180 $16 = $2,880
Job 215 = 400 $16 = $6,400
Job 216 = 15 $16 = $240
Job 217 = 80 $16 = $1,280
96
$15,500
19,575
($ 4,075)
Exercise 423
(Concluded)
3.
Job 214
Beginning balance
Direct materials
Direct labor
Applied overhead
Total
Job 215
Job 216
Job 217
$13,400
2,200
1,800
2,880
$20,280
$ 9,670
9,000
4,000
6,400
$29,070
$1,500
150
240
$1,890
$3,450
800
1,280
$5,530
Exercise 424
1. Work in Process, August 31, consists of unfinished jobs:
Job 215
Job 216
Job 217
Total
$29,070
1,890
5,530
$36,490
2. Price of Job 214 = $20,280 + 0.30($20,280) = $26,364
Exercise 425
1.
Job 877
Beginning balance
Direct materials
Direct labor
Job 878
Job 879
Job 880
$20,520
13,960
13,800
$ 7,000
10,000
$ 350
1,500
$4,800
4,000
2. Applied overhead in October for:
Job 877 = $13,800 0.85 = $11,730
Job 878 = $10,000 0.85 = $8,500
Job 879 = $1,500 0.85 = $1,275
Job 880 = $4,000 0.85 = $3,400
3. Work in Process, October 31:
Job 877
Job 879
Job 880
Total
$60,010
3,125
12,200
$75,335
4. Cost of Job 878 = $7,000 + $10,000 + $8,500 = $25,500
Price of Job 878 = $25,500 + 0.5($25,500) = $38,250
97
Exercise 426
1. Balance in Work in Process (all incomplete jobs):
Job 303
Job 306
Job 308
Job 309
Job 310
Total
$ 500
230
700
915
103
$2,448
2. Balance in Finished Goods (all jobs completed but not sold):
Beginning balance
Job 301
Job 304
Job 305
Total
3. Cost of Goods Sold
$
0
450
670
800
$1,920
= Job 302 + Job 307
= $300 + $150 = $450
Exercise 427
1.
Job 37
Job 39
$12,450
6,900
10,000
4,000
$33,350
Balance, July 1
Direct materials
Direct labor
Applied overhead
Total
Job 38
$ 7,900
8,500
3,000
$19,400
$15,350
23,000
20,000
$58,350
2. Work in Process, July 31 = Job 38 = $19,400
3. Finished Goods:
Beginning balance
Job 39 (transferred in)
Job 35 (sold)
Ending balance, July 31
4. Cost of Goods Sold
$ 49,000
58,350
(19,000)
$ 88,350
= Job 35 + Job 37
= $19,000 + $33,350
= $52,350
98
Exercise 428
Sales [$52,350 + (0.4 $52,350)]...............................
Cost of goods sold* ...................................................
Gross margin..........................................................
Less:
Variable marketing (0.1 $73,290)......................
Fixed marketing.....................................................
Administrative expense........................................
Operating income........................................................
$73,290
52,350
$20,940
$7,329
2,000
3,500
12,829
$ 8,111
*Cost of goods sold is computed in Exercise 4-27.
Exercise 429
Job 213:
1. Number of units = Total manufacturing cost/Unit cost
= $855/$8.55
= 100
2. Total sales revenue
= Price per unit Number of units
= $12 100
= $1,200
3. Direct labor hours, Department 1 = Overhead applied, Department 1/$6
= $90/$6
= 15
Direct labor cost, Department 1 = 15 direct labor hours $10 = $150
4. Overhead applied, Department 2
= 25 machine hours $8
= $200
Job 214:
1. Price per unit
= Total sales revenue/Number of units
= $4,375/350
= $12.50
2. Direct labor hours, Department 1 = Direct labor cost, Department 1/$10
= $700/$10
= 70
Overhead applied, Department 1
= Direct labor hours, Department 1 $6
= 70 $6
= $420
99
Exercise 429
(Concluded)
3. Material used in production
= Total manufacturing cost Direct labor cost,
Department 1 Direct labor cost, Department
2 Overhead applied, Department 1 Overhead applied, Department 2
= $3,073 $700 $100 $420 $400
= $1,453
4. Unit cost = Total manufacturing cost/Number of units
= $3,073/350
= $8.78
Job 217:
1. Machine hours, Department 2 = Overhead applied, Department 2/Overhead rate
= $160/$8
= 20
2. Total manufacturing cost = Unit cost Number of units
= $9.87 400
= $3,948
3. Direct labor cost, Department 2 = Total manufacturing cost Material used
in production Direct labor cost, Department 1 Overhead applied, Department 1
Overhead applied, Department 2
= $3,948 $488 $2,000 $1,200 $160
= $100
Job 225:
1. Number of units = Total sales revenue/Price per unit
= $1,150/$5 = 230
2. Unit cost = Total manufacturing cost/Number of units
= $575/230
= $2.50
3. Machine hours, Department 2 = Overhead applied, Department 2/$8
= $0/$8
=0
100
Exercise 430
1. Direct materials......................................................
Direct labor:
Department A....................................................
Department B....................................................
Overhead ($10 6,000 DLH)................................
Total manufacturing costs..............................
$ 20,000
$30,000
6,000
36,000
60,000
$116,000
2. Unit cost = $116,000/10,000 = $11.60
Exercise 431
1. Direct materials......................................................
Direct labor:
Department A....................................................
Department B....................................................
Overhead:
Department A ($2 5,000)..............................
Department B ($10 1,200)............................
Total manufacturing costs....................................
$20,000
$30,000
6,000
36,000
10,000
12,000
$78,000
2. Unit cost = $78,000/10,000 = $7.80
Exercise 432
1.
Job 68
Balance, April 1
Direct materials
Direct labor
Applied overhead
Total cost
Job 69
Job 70
Job 71
Job 72
$ 540
700
500
600
$2,340
$1,230
560
600
720
$3,110
$ 990
75
90
108
$1,263
$3,500
2,500
3,000
$9,000
$2,750
2,000
2,400
$7,150
2. Ending balance in Work in Process = Job 68 + Job 71
= $2,340 + $9,000
= $11,340
Cost of Goods Sold for April = Job 69 + Job 70 + Job 72
= $3,110 + $1,263 + $7,150
= $11,523
101
Exercise 432
(Concluded)
3.
Greenthumb Landscape Design
Income Statement
For the Month Ended April 30
Sales [$11,523 + 0.40($11,523)]..................................................
Cost of goods sold......................................................................
Gross margin..........................................................................
Less: Operating expenses..........................................................
Operating income...................................................................
$16,132
11,523
$ 4,609
3,670
$ 939
Exercise 433
1. a. Raw Materials.........................................................
Accounts Payable.............................................
23,175
b. Work in Process.....................................................
Raw Materials....................................................
19,000
c. Work in Process.....................................................
Wages Payable.................................................
22,500
d. Overhead Control...................................................
Various Payables..............................................
15,500
e. Work in Process.....................................................
Overhead Control.............................................
12,000
23,175
19,000
22,500
15,500
12,000
Total direct labor hours = ($22,500/$15) = 1,500
Applied overhead = 1,500 $8 = $12,000
f. Finished Goods......................................................
Work in Process...............................................
42,900
g. Cost of Goods Sold...............................................
Finished Goods................................................
47,300
Accounts Receivable.............................................
Sales Revenue..................................................
61,490
102
42,900
47,300
61,490
Exercise 433
(Concluded)
2.
Job 62
3. Raw Materials:
Beginning balance
Purchases
Direct materials
Ending balance
Job 64
$ 8,200
10,500
5,600
$24,300
Direct materials
Direct labor
Applied overhead
Total cost
Job 63
$ 7,100
7,500
4,000
$18,600
$ 3,700
4,500
2,400
$10,600
$ 5,170
23,175
(19,000)
$ 9,345
4. Work in Process:
Beginning balance.................................................
Direct materials......................................................
Direct labor.............................................................
Applied overhead...................................................
Jobs completed:
Job 62................................................................
Job 63................................................................
Ending balance......................................................
5. Finished Goods:
Beginning balance.................................................
Jobs in:
Job transferred 62................................................................
Job 63................................................................
Jobs sold:
Job 58................................................................
Job 62................................................................
Ending balance......................................................
103
103
$
$24,300
18,600
0
19,000
22,500
12,000
(42,900)
$ 10,600
$ 23,000
$24,300
18,600
$23,000
24,300
42,900
(47,300)
$ 18,600
PROBLEMS
Problem 4-34
1. Overhead rate = $450,000/40,000 = $11.25/per DLH
2.
Job 60
Balance, July 1
Direct materials
Direct labor
Applied overhead
Total cost
Job 61
Job 62
Job 63
Job 64
$ 32,450
26,000
40,000
28,125
$126,575
$ 40,770
37,900
38,500
27,000
$144,170
$ 29,090
25,350
43,000
29,250
$126,690
$
0
11,000
20,900
13,500
$45,400
$
0
13,560
18,000
12,375
$43,935
3. Ending balance in Work in Process = Job 61 + Job 63 + Job 64
= $144,170 + $45,400 + $43,935
= $233,505
4. Cost of Goods Sold
= Job 60 + Job 62
= $126,575 + $126,690 = $253,265
Problem 435
1. Cost of Reliance job:
Professional time (65 hours @ $100)
Mileage (430 miles @ $0.40)
Photographs
Total
$6,500
172
80
$6,752
2. Overhead is included in the rate for professional time. This is easier for pro fessionals than to calculate a separate overhead rate and charge it to clients.
In effect, Spade Millhone charges a conversion cost rate, not a labor rate, to its
clients.
104
Problem 435
(Concluded)
3.
Scott Spade Mileage Log
Date
Client
Beginning
Mileage
Ending
Mileage
7/8
Reliance
56,780
56,835
Ofc. to claimant #1,
to Dr. Phony, to
claimant #2, to ofc.
55
7/9
Reliance
56,835
56,903
Ofc. to claimant #3,
to claimant #4, to ofc.
68
7/10
Murphy
56,903
57,078
Ofc. to witness #3,
to client, to ofc.
175
7/11
Reliance
57,078
57,290
Ofc. to claimant #2,
to claimant #4, to ofc.
212
Destination
Total
Miles
Kris Millhone Mileage Log
Date
Client
Beginning
Mileage
Ending
Mileage
7/9
Reliance
42,004
42,049
Ofc. to courthouse,
to other ins. co.
source, to ofc.
45
7/10
Reliance
42,049
42,099
Ofc. to witness #1,
to source #2, to ofc.
50
7/10
Boren
42,099
42,155
Ofc. to witness #8,
to courthouse, to
police, to ofc.
56
Destination
Total
Miles
Note: Separate mileage logs are kept by Scott Spade and Kris Millhone. Then,
relevant amounts are transferred to cost sheets (or folders) for each client.
105
Problem 436
1. Overhead rate = $420/$350 = 1.20 times direct labor dollars
(This rate was calculated using information from Job 35; however, Jobs 36
and 37 would give the same answer.)
2.
Beginning WIP
Direct materials
Direct labor
Applied overhead
Total
Job 35
$ 870
400
300
360
$1,930
Job 36
$1,880
150
200
240
$2,470
Job 37
$3,090
260
150
180
$3,680
Job 38
$ 0
800
650
780
$2,230
Job 39
$ 0
760
700
840
$2,300
Note:This is just one way of setting up the job-order cost sheets. You might
prefer to keep the details on the materials, labor, and overhead in beginning
inventory costs.
3. Since Jobs 37 and 38 were completed, the others must still be in process.
Therefore, the ending balance in Work in Process is the sum of the costs of
Jobs 35, 36, and 39.
Job 35
Job 36
Job 39
Ending WIP
$1,930
2,470
2,300
$6,700
Cost of Goods Sold = Job 37 + Job 38 = $3,680 + $2,230 = $5,910
4.
Brandt Company
Income Statement
For the Month Ended January 31
Sales(1.5 $5,910)....................................................................
Cost of goods sold......................................................................
Gross margin..........................................................................
Marketing and administrative expenses...................................
Operating income...................................................................
106
$8,865
5,910
$2,955
1,200
$1,755
Problem 437
1. OH rate = $72,000/36,000 = $2 per machine hour
2. Department A:$50,000/20,000 = $2.50 per machine hour
Department B:$22,000/16,000 = $1.375 per machine hour
3.
Job 73
Job 74
Plantwide:
70 $2 = $140
70 $2 = $140
Departmental:
20 $2.50
50 $1.375
$50.00
68.75
$118.75
50 $2.50
20 $1.375
$125.00
27.50
$152.50
Department A appears to be more overhead intensive, so jobs spending more
time in Department A ought to receive more overhead. Thus, departmental
rates provide more accuracy.
4. Plantwide rate:
$90,000/36,000 = $2.50
Department B:
$40,000/16,000 = $2.50
Job 73
Job 74
Plantwide:
70 $2.50 = $175
70 $2.50 = $175
Departmental:
20 $2.50
50 $2.50
$50
125
$175
50 $2.50
20 $2.50
$125
50
$175
Assuming that machine hours is a good cost driver, the departmental rates reveal that overhead consumption is the same in each department. In this case,
there is no need for departmental rates, and a plantwide rate is sufficient.
107
Problem 438
1. Overhead rate = $90,000/10,000 = $9 per machine hour
Direct materials...........................................................
Direct labor...................................................................
Overhead($9 200 machine hours)........................
Total manufacturing cost......................................
Plus 30% markup.........................................................
Bid price..................................................................
Job 1
$4,500
1,000
1,800
$7,300
2,190
$9,490
Job 2
$8,600
2,000
1,800
$12,400
3,720
$16,120
2. Department 1 overhead rate = $40,000/5,000 = $8 per machine hour
Department 2 overhead rate = $25,000/5,000 = $5 per DLH
Department 3 overhead rate = $25,000/2,000 = $12.50 per machine hour
Direct materials...........................................................
Direct labor...................................................................
Overhead:
Department 1 ($8 50);($8 30).......................
Department 2($5 60);($5 20)......................
Department 3($12.50 110);($12.50 165)....
Total manufacturing cost...........................................
Plus 30% markup.........................................................
Bid price..................................................................
108
Job 1
$4,500
1,000
Job 2
$8,600
2,000
400
300
1,375
$7,575
2,273
$9,848
240
100
2,063
$13,003
3,901
$16,904
Problem 439
1. Job 64:
Direct materials
Direct labor
Overhead($12 410)
Total cost
$ 1,240
6,150
4,920
$12,310
Unit cost = $12,310/50 = $246.20
2. Ending Work in Process
= Cost of Job 65
= $985 + $8,745 + ($12 583) = $16,726
3. Finished Goods...........................................................
Work in Process.....................................................
12,310
Cost of Goods Sold.....................................................
Finished Goods......................................................
12,310
Accounts Receivable..................................................
Sales Revenue........................................................
(160% $12,310 = $19,696)
19,696
12,310
12,310
19,696
Problem 440
1. a. Raw Materials.........................................................
Accounts Payable.............................................
3,000
b. Work in Process.....................................................
Raw Materials....................................................
1,700
c. Work in Process[$8 (50 + 100)].......................
Wages Payable.................................................
1,200
d. Work in Process($7.50 150)............................
Overhead Control.............................................
1,125
e. Overhead Control...................................................
Cash...................................................................
1,230
2.
Job 443
Direct materials
Direct labor
Applied overhead
Total
3,000
1,700
1,200
1,125
Job 444
Direct materials
Direct labor
Applied overhead
Total
$ 500
400
375
$1,275
109
1,230
$1,200
800
750
$2,750
Problem 440
(Concluded)
f. Finished Goods......................................................
Work in Process...............................................
g. Cost of Goods Sold...............................................
Finished Goods................................................
2,000
Accounts Receivable.............................................
Sales..................................................................
3.
1,275
2,500
1,275
2,000
2,500
Kearney Company
Schedule of Cost of Goods Manufactured
For the Month Ended April 30
Direct materials:
Beginning raw materials inventory................
Purchases of raw materials.............................
Total raw materials available.....................
Ending raw materials.......................................
Raw materials used..........................................
Direct labor.............................................................
Overhead.................................................................
Less:Underapplied overhead..............................
Overhead applied...................................................
Current manufacturing costs..........................
Add:Beginning work in process.........................
Total manufacturing costs..............................
Less:Ending work in process.............................
Cost of goods manufactured..........................
$1,400
3,000
$4,400
2,700
$1,700
1,200
$1,230
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Problem 441
1. Applied overhead = Direct labor cost Overhead rate
$140,000 = $80,000 Overhead rate
Overhead rate = 1.75, or 175% of direct labor cost
2. Applied overhead
Actual overhead
Overapplied overhead
$140,000
138,500
$ 1,500
110
110
1,125
$4,025
0
$4,025
2,750
$1,275
Problem 441
(Concluded)
3. Direct materials............................................................................
Direct labor...................................................................................
Overhead applied.........................................................................
Add:Beginning WIP...................................................................
Less:Ending WIP........................................................................
Cost of goods manufactured................................................
4. Overhead Control........................................................
Cost of Goods Sold...............................................
$ 40,000
80,000
140,000
$260,000
17,000
(32,000)
$245,000
1,500
1,500
Adjusted Cost of Goods Sold:
$210,000
(1,500)
$208,500
5. Direct materials($32,000 $10,000 $17,500)........................
Direct labor(1,000 $10)..........................................................
Overhead applied(175% $10,000).........................................
Ending work in process.........................................................
$ 4,500
10,000
17,500
$32,000
Problem 442
1. Overhead rate = $180,000/15,000 = $12 per direct labor hour
2. Direct materials............................................................................
Direct labor...................................................................................
Applied overhead.........................................................................
Total cost.................................................................................
$ 2,340
3,600
4,320*
$10,260
*$4,320 = $12 ($3,600/$10)
3. Overhead Control........................................................
Lease Payable........................................................
Accumulated Depreciation...................................
Wages Payable.......................................................
Utilities Payable.....................................................
Other Payables.......................................................
185,000
Work in Process($12 15,400)................................
Overhead Control...................................................
184,800
111
5,000
20,000
100,000
15,000
45,000
184,800
Problem 442
(Concluded)
4. Actual overhead...........................................................................
Applied overhead.........................................................................
Underapplied overhead.........................................................
$185,000
184,800
$
200
5. Normal cost of goods sold.........................................................
Add:Underapplied overhead.....................................................
Adjusted cost of goods sold.................................................
$700,000
200
$700,200
Problem 443
1. a. Raw Materials.........................................................
Accounts Payable.............................................
42,630
b. Work in Process.....................................................
Raw Materials....................................................
27,000
c. Work in Process.....................................................
Wages Payable.................................................
26,320
d. Overhead Control...................................................
Cash...................................................................
19,950
e. Work in Process.....................................................
Overhead Control.............................................
18,800
2. Job 703:
Beginning balance, WIP
Direct materials
Direct labor
Overhead applied
Total
$10,000
12,500
10,920
7,800
$41,220
Job 704:
Direct materials
Direct labor
Overhead applied
Total
$14,500
15,400
11,000
$40,900
112
42,630
27,000
26,320
19,950
18,800
Problem 443
(Concluded)
3. f. Finished Goods......................................................
Work in Process...............................................
41,220
h. Cost of Goods Sold...............................................
Finished Goods................................................
6,240
Accounts Receivable.............................................
Sales..................................................................
8,112
41,220
6,240
8,112
4. a. Raw Materials:
Beginning balance
Add:Purchases
Less:Materials requisitioned
Ending balance
b. Work in Process:
Beginning balance
Add: Materials requisitioned
Direct labor
Overhead applied
Less:Jobs completed
Ending balance
c. Finished Goods:
Beginning balance
Add:Jobs completed
Less:Jobs sold
Ending balance
$ 6,070
42,630
(27,000)
$ 21,700
$ 10,000
27,000
26,320
18,800
(41,220)
$ 40,900
$ 6,240
41,220
(6,240)
$ 41,220
Problem 444
1.
Jans Job
Materials..................................................................
Direct labor.............................................................
Applied overhead
0.20 ($50 + $60).............................................
0.20 ($75 + $120)...........................................
Total.........................................................................
$ 50
60
Eds Job
$ 75
120
22
$132
39
$234
2. Since Jans job is more like the jobs Steve is used to doing, her costs are
likely to be more accurate. Clearly, Steve is unsure just how to cost Eds job. If
he expects to get more use from the tools he buys for Eds job, then he can
absorb them into his overhead rate. If not, perhaps they should be added to
the cost of Eds job as a part of materials.
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113
CASES
Case 445
1. Mrs. Lucky wont like being charged more for one job when the same number
and type of announcements were produced in each job.
2. May:Actual rate = $20,000/500 = $40 per hour
Overhead assigned:$40 5 = $200
June and July:Actual rate = $20,000/250 = $80 per hour
Overhead assigned:$80 5 = $400
3. Predetermined rate = $240,000/(500 12) = $40 per hour
Cost and price of each job:
Direct materials
Direct labor
Overhead(5 $40)
Total cost
Plus 25% markup
Price
$250.00
25.00
200.00
$475.00
118.75
$593.75
Using a predetermined rate will avoid the nonuniform production problem revealed in the first two requirements and result in a more accurate application of overhead and fairer costing of the summer jobs.
Case 446
1. The solution proposed by Doug is not ethical. Although maintaining the cur rent plantwide rate is probably not illegal, its continuation has only one pur pose: to extract extra profits from government business. Doug knows that the
plantwide rate is not accurately assigning overhead costs to the various jobs
and is willing to alter the assignments on an unofficial basis for purposes of
bidding on private-sector jobs. Fundamentally, ethical behavior is concerned
with choosing right over wrong. To knowingly overcharge the government for
future business certainly seems wrong. To continue overpricing with the
knowledge that the new overhead rates would more than make up for any lost
profits from the government sector (through more competitive bidding in the
private sector) is a clear indication of greed. While managers have an obliga tion to maximize profits, this obligation must be within ethical boundaries.
2. Tonya should first determine whether or not Gunderson has a corporate code
of conduct. She can pursue the avenues suggested by the code. For example,
if Tonya cannot persuade Doug to refrain from implementing his scheme, she
could present her objections to Dougs immediate supervisor. If a resolution
cannot be realized at this level, then Tonya should go to the next higher management level. If no resolution is possible after appealing to all higher levels,
then resignation may be the only remaining option.
114