# Job Order Costing System Exercises and Problems:

## Exercise 1–Cost accumulation procedure determination:

Classify these industries with respect to the type of cost accumulation procedure generally used–job order costing or process costing.

 a. Meat k. Pianos b. Sugar l. Linoleum c. Steel m. Leather d. Breakfast cereal n. Nylon e. Paper boxes o. Baby foods f. Wooden furniture p. Locomotives g. Toys and novelties q. Office machines equipment h. Coke r. Luggage i. Cooking utensils s. Paint j. Caskets t. Tires and tubes

## Solution:

• Job order cost procedure: (e), (f), (g), (i), (j), (k), (p), (q), (r)
• Process costing procedure: (a), (b), (c), (d), (h), (l), (m), (n), (o), (s), (t)

## Exercise 2–Job order cost sheet:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available:

 Direct Materials Direct Labor 9/14 Issued \$ 1,200 Week of Sep. 20 180 hrs @ \$6.20/hr 9/20 Issued 662 Week of Sep. 26 140 hrs @ \$7.30/hr 9/22 Issued 480 Factory overhead applied at the rate of \$3.50 per direct labor hour.Required: The appropriate information on a job cost sheet. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.

## Solution:

1.

 Forge Machine Works Job Order Cost Sheet–Job 642 Direct materials Direct labor Applied factory overhead Date Issued Amount Date (Week of) Hours Rate Cost Date (Week of) Hours Rate Cost 9/14 \$1,200 9/20 180 \$6.20 \$1,116 9/20 180 \$3.50 \$630 9/20 662 9/26 140 7.30 1,022 9/26 140 3.50 490 9/22 480 ——– ———- ———- \$2,342 ===== \$2,138 ====== \$1,120 ======

2.

Sales Price of job 642, contracted with a markup of 40% of cost:

 Direct materials \$2,342 Direct labor 2,138 Applied factory overhead 1,120 Total factory cost \$5,600 Markup 40% of cost 2,240 ——- \$7,840 =====

## Exercise 3–Job order costing:

The Cambridge Company uses job order costing. At the beginning of the May, two jobs were in process:

 Job 369 Job372 Materials \$ 2,000 \$ 700 Direct labor 1,000 300 Applied factory overhead 1,500 450 There was no inventory of finished goods on May1. During the month, Jobs 373, 374, 375, 376, 378, and 379 were started.Materials requisitions for May totaled \$13,000, direct labor cost, \$10,000, and actual factory overhead, \$16,000. Factory overhead is applied at a rate of 150% of direct labor cost. The only job still in process at the end of May is No. 379, with costs of \$1,400 for materials and \$900 for direct labor. Job 376, the only finished job on hand at the end of May, has a total cost of \$2,000. Required: T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied factory overhead. General journal entries to record: a. Cost of goods manufactured b. Cost of goods sold c. Closing of over or underapplied factory overhead to cost of goods sold.

## Solution:

T Accounts

 Work in Process May1 Balance No. 369            4,500 No. 372            1,450Materials        13,000 Direct labor     10,000 Factory O/H     15,000 43,950 May31 Balance: No. 379            3,650* Finished goods            40,300

*\$1,400 + \$900 + (\$900 × 150%)

 Factory Overhead Control 16,000 15,000                        1,000 16,000
 Finished Goods From Work in Process      40,300May31 Balance: No.376                     2,000 Cost of goods sod   38,300

 Cost of Goods sold From finished goods                   38,300Underapplied Overhead               1,000 39,300

 Applied Factory Overhead 15,000 15,000

General journal entries to record:

 Cost of goods manufactured: Dr Cr Finished goods 40,300 Work in process 40,300 Cost of goods sold: Cost of goods sold 38,300 Finished goods 38,300 Closing of underapplied factory overhead to cost of goods sold: Cost of goods sold 1,000 Factory overhead control 1,000

## Exercise 4–Job Order Cycle Entries:

Beaver, inc. provided the following data for January, 19B:

 Materials and supplies: Inventory, January 1, 19B \$10,000 Purchases on account 30,000 Labor: Accrued, January 1, 19B 3,000 Paid during January (ignore payroll taxes) 25,000 Factory overhead costs: Supplies (issued from materials) 1,500 Indirect labor 3,500 Depreciation 1,000 Other factory overhead costs (all from outside suppliers on account) 14,500 Work in process: Job1 Job2 Job3 Total Work in process January 1, 19B \$ 1,000 — — \$ 1,000 Job costs during January, 19B: Direct materials 4,000 \$6,000 \$5,000 15,000 Direct labor 5,000 8,000 7,000 20,000 Applied factory overhead 5,000 8,000 7,000 20,000 Job 1 started in December, 19A, finished during January, and sold to a customer for \$21,000 cash Job 2 started in January, not yet finished. Job 3 started in January, finished during January, and now in the finished goods inventory awaiting customer’s disposition Finished goods inventory January 1, 19B.

Required:

Journal entries, with detail for the respective job orders and factory overhead subsidiary records, to to record the following transactions for the January:

1. Purchase of materials on account.
2. Labor paid.
3. Labor cost distribution.
4. Materials issued.
5. Depreciation for the month.
6. Acquisition of other overhead costs on credit.
7. Overhead applied to production.
8. Jobs completed and transferred to finished goods.
9. Sales revenue.
10. Cost of goods sold.

## Solution:

Journal Entries:

 Subsidiary Record Debit Credit 1 Materials 30,000 Accounts payable 30,000 2 Accrued payroll 25,000 Cash 25,000 3. Factory overhead control 3,500 Indirect labor 3,500 Work in process (WIP) 20,000 Job1 5,000 Job2 8,000 Job3 7,000 Payroll 23,500 4. Work in process 15,000 Job1 4,000 Job2 6,000 Job3 5,000 Factory overhead control 1,500 Supplies 1,500 Materials 16,500 5 Factory overhead control 1,000 Depreciation 1,000 Accumulated Depreciation 1,000 6 Factory overhead control 14,500 Other factory overhead costs 14,500 Accounts payable 14,500 7 Work in process 20,000 Job1 5,000 Job2 8,000 Job3 7,000 Factory overhead control (or applied FOH) 20,000 8 Finished goods 34,000 Work in process (WIP) 34,000 Job1 15,000 Job3 19,000 9 Cash 21,000 Sales 21,000 10 Cost of goods sold 15,000 Finished goods 15,000

## Exercise 5 Job Order Costing–Journal Entries, T Accounts, Income Statement

Hogle Company is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year, the company’s inventory balances were as follows:

 Raw materials Work in process Finished Goods \$20,000 \$15,000 \$30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur \$450,000 in manufacturing overhead cost. The following transactions were recorded for the year

1. Raw materials were purchased on account, \$410,000.
2. Raw materials were requisitioned for use in production, \$380,000 (\$360,000 direct materials and \$20,000 indirect materials).
3. The following costs were incurred for employee services: direct labor, \$75,000; indirect labor, \$110,000; sales commission, \$90,000; and administrative salaries, \$20,000.
4. Sales travel costs were \$17,000.
5. Utility costs in the factory were \$43,000.
6. Advertising costs were \$180,000.
7. Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
8. Insurance expired during the year, \$10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).
9. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.
10. Goods costing \$9,00,000 to manufacture according to their job cost sheets were completed during the year.
11. Goods were sold on account to customers during the year at a total selling price of \$1,500,000. The goods cost \$870,000 to manufacture according to their job cost sheets.

Required:

1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don’t forget to enter the beginning balances in the inventory accounts).
3. Is manufacturing overhead underapplied or overapplied for the year? Prepare journal entry to close any balance in the manufacturing overhead account to cost of goods sold (COGS). Do not allocate the balance between ending inventories and cost of goods sold (COGS).
4. Prepare an income statement for the year.

## Solution:

1: Journal Entries

 1 Raw materials 410,000 Accounts payable 410,000 2 Work in process 360,000 Manufacturing overhead 20,000 Raw materials 380,000 3 Work in process 75,000 Manufacturing overhead 110,000 Sales commission expense 90,000 Administrative salaries expense 200,000 Salaries and wages payable 475,000 4 Sales travel expense 17,000 Accounts payable 17,000 5 Manufacturing overhead 43,000 Accounts payable 43,000 6 Advertising expense 180,000 Accounts payable 180,000 7 Manufacturing overhead 280,000 Depreciation expense 70,000 Accumulated depreciation 350,000 8 Manufacturing overhead 7,000 Insurance expense 3,000 Prepaid insurance 10,000 9* Work in process 480,000 Manufacturing overhead 480,000 10 Finished Goods 900,000 Work in process 900,000 11 Accounts Receivable 1,500,000 Sales 1,500,000 Cost of goods sold 870,000 Finished goods 870,000

*The predetermined overhead rate for the year would be computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base

= \$450,000 / 75,000 machine-hours

= \$6 per machine-hour

Based on the 80,000 machine-hours actually worked during the year, the company would have applied \$480,000 in overhead cost to production: 80,000 machine-hours × \$6 per machine-hour = \$480,000.

2: T Accounts

 Accounts Receivable 11      1,500,000
 Finished Goods Bal.       30,000 10        900,000 (11)        870,000
 Accounts Payable (1)         410,000 (4)           17,000 (5)           43,000 (6)         180,000
 Sales (11)     1,500,000
 Sales Commissions Expenses (3)           90,000
 Advertising expense (6)         180,000
 Raw Materials Bal.       20,000 (1)        410,000 (2)          380,000 Bal.       50,000
 Prepaid Insurance (8)            10,000
 Salaries and Wages Payable (3)         475,000
 Cost of goods sold (11)        870,000
 Administrative Salary Expense (3)         200,000
 Depreciation Expenses (7)           70,000
 Work in Process Bal.     20,000 (2)     360,000 (3)       75,000 (9)     480,000 (10)    900,000 Bal.      30,000
 Accumulated Depreciation (7)      350,000
 Manufacturing Overhead (2)       20,000 (3)     110,000 (5)       43,000 (7)     280,000 (8)         7,000 (9)      480,000 460,000 480,000 Bal.        20,000
 Insurance Expense (8)         3,000
 Sales Travel Expense (4)       17,000

3: Under or Overapplied manufacturing overhead:

Manufacturing overhead is overapplied for the year. The entry to close it out to cost of goods sold is as follows:

 Manufacturing overhead 20,000 Cost of goods sold 20,000

4: Income Statement

 HOGLE COMPANY Income Statement For the Year Ended December 31 Sales \$1,500,000 Less cost of goods sold (\$870,000 – \$20,000 overapplied O/H 850,000 ————– Gross margin 650,000 Less selling and administrative expenses: Commission expense \$90,000 Administrative salaries expense 200,000 Sales travel expense 17,000 Advertising expense 180,000 Depreciation expense 70,000 Insurance expense 3,000 560,000 ———— ————- Net operating income \$90,000 ======