Job Order Costing System Exercises and Problems


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:

  1. The appropriate information on a job cost sheet.
  2. 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:

  1. T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied factory overhead.
  2. 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            1,450
Materials        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      40,300
May31 Balance:
No.376                    
2,000
Cost of goods sod   38,300

 

Cost of Goods sold

From finished
goods                   38,300
Underapplied
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
======

You may also be interested in other useful articles from “job order costing system” chapter:

  1. Measuring Direct Materials Cost in Job Order Costing System
  2. Measuring Direct Labor Cost in Job Order Costing System
  3. Application of Manufacturing Overhead
  4. Job Order Costing System – The Flow of Costs
  5. Multiple Predetermined Overhead Rates
  6. Under-applied overhead and over-applied overhead calculation
  7. Disposition of any balance remaining in the manufacturing overhead account at the end of a period
  8. Predetermined Overhead Rate and Capacity
  9. Recording Non-manufacturing Costs
  10. Recording Cost of Goods Manufactured and Sold
  11. Job Order Costing in Services Companies
  12. Use of Information Technology in Job Order Costing
  13. Advantages and Disadvantages of Job Order Costing System
  14. Job Order Costing Discussion Questions and Answers
  15. Job Order Costing Exercises
  16. Case Studies

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