Chapter 14

# Chapter 14 - CHAPTER 14 JOB COSTING SOLUTIONS 14.2 A...

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C HAPTER 14 J OB C OSTING S OLUTIONS 14.2 A job-costing system accumulates and analyzes costs separately for each product or small batches of products. Examples of firms that use job-costing systems include law firms and firms that build custom houses. 14.3 A process-costing system accumulates and analyzes costs by each process (or a department) rather than by each job. Examples of firms that use process-costing systems include steel mills and paper companies. 14.4 Direct materials and direct labor are traced, and overhead is allocated. 14.5 Work in process inventory is the inventory of unfinished products at the start of a period. Cost of goods manufactured is the cost of items finished and transferred from work in process inventory to finished goods inventory. Cost of goods sold is the cost of products sold in a period. It is the cost of items transferred from finished goods inventory to the income statement. 14.8 A normal-costing system is a job-costing system that uses a predetermined overhead rate. 14.26 We can use the inventory equation for the WIP account to answer the question. Beginning WIP + (materials + labor + applied overhead) = COGM + Ending WIP. We know the items on the left hand side. But, we need to calculate Ending WIP, which will be the costs charged to job 232. Direct materials \$4,250 Direct labor \$2,500 Mfg. overhead \$3,750 \$2,500 × \$1.50 per labor \$ Ending WIP \$10,500 (We use the total amounts charged to WIP to calculate the overhead rate as \$36,000 applied overhead /\$24,000 labor \$ = \$1.50 per labor dollar.) Thus, we have:

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COGM = \$22,500 + (25,000+24,000 + 36,000) - \$10,500 = \$97,000 . 14.27 The expected fixed overhead is \$500,000 out of a total overhead amount of \$1,200,000. Thus, the remaining \$700,000 constitutes variable overhead. Given the expected activity of 10,000 machine hours, we have: Variable overhead rate = hour. machine per 70 \$ 000 , 10 000 , 700 \$ = Fixed overhead rate = hour. machine per 50 \$ 000 , 10 000 , 500 \$ = Total overhead rate = hour. machine per 120 \$ 000 , 10 000 , 200 , 1 \$ = a. We compute the inventoriable cost of the job as: Job cost = Cost of direct materials + cost of direct labor + allocated overhead. Referring to the solution from part [a], we calculated the total overhead rate to be \$120 per machine hour. Therefore, the cost of this job under the job-costing system is: Job cost = \$5,000 + \$8,000 + (\$120 per hour × 40 hours) = \$17,800. Price = \$22,250 = \$17,800 × 1.25 (for the 25% mark up). 14.29 Since overhead was overapplied, then the products’ cost for the period should decrease. Because Ace uses the proration method, we should allocate the overapplied overhead among the WIP, FG and COGS accounts. The WIP account will decrease by
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Chapter 14 - CHAPTER 14 JOB COSTING SOLUTIONS 14.2 A...

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