CHAPTER 17
CHAPTER 19job order costING
EYE OPENERS1.Product cost information is used by managers to (1)
establish product prices, (2) control operations, and (3) develop
financial statements.
2.a.Job order cost system and process cost system.
b.The job order cost system provides a separate record of each
quantity of product that passes through the factory.
c.Process cost systems accumulate costs for each department or
process within a factory.
3.Job order costing is used by firms that sell custom goods and
services to customers. The job order system is frequently
associated with firms that will produce a product or service
specifically to a customer order.
4.No. A job order cost system is not appropriate because workers
could not physically differentiate between the products being
worked on in different orders.
5.Work in Process6.Materials should not be issued by the
storekeeper without a properly authorized materials requisition.
Both the storekeeper and the recipient of the materials should
initial the materials requisition when the materials are issued to
indicate release of the proper amount of materials from the
storeroom.
7.a.Purchase invoice or receiving report
b.Materials requisition
8.A job cost sheet is the subsidiary ledger to the work in
process control account. The cost of materials, labor, and overhead
are listed on the job cost sheet for each job. A summary of all the
job cost sheets during an accounting period is the basis for
journal entries to the control accounts.
9.a.The clock card is a means of recording the hours spent by
employees in the factory. The time ticket is a means of recording
the time the employee spends on a specific job or, in cases of
indirect labor (factory overhead), the department in which the time
was spent.
b.The total time reported on an employees time tickets for a
payroll period is compared with the time reported on the employees
clock cards as an internal check on the accuracy of payroll
disbursements.
10.The sources of the debits to Work in Process are:
a.Summary of the materials requisitions for direct
materials.
b.Summary of the time tickets for direct labor.
c.Data obtained when applying the predetermined factory overhead
rate for factory overhead.
11.The use of a predetermined factory overhead rate in job order
cost accounting assists management in pricing jobs. By estimating
the cost of direct materials and direct labor based on past
experience and by applying the factory overhead rate, the cost of a
job can be estimated. The predetermined rate also permits the
determination of the cost of a job shortly after it is finished,
which enables management to adjust future pricing policies to
achieve the best combination of revenue and expense.
12.a.The predetermined factory overhead rate is determined by
dividing the bud-geted factory overhead for the forth-coming year
by an estimated activity base, one that will equitably apply the
factory overhead costs to the goods manufactured.
b.Direct labor cost, direct labor hours, and machine hours.
13.a.(1)If the amount of factory overhead applied is greater
than the actual factory overhead, factory overhead is
overapplied.
(2)If the amount of actual factory overhead is greater than the
amount applied, factory overhead is underapplied.
b.Underapplied
c.Deferred credit
14.The simplest satisfactory procedure for disposing of a
relatively minor balance in the factory overhead account is to
transfer it to Cost of Goods Sold.
15.a.Materials
b.Work in Process
c.Finished Goods16.Job cost information can be used to identify
trends in unit costs over time for like products. Comparative job
cost sheets for like products can be used to investigate possible
reasons for cost changes. This information can help managers
identify changes in efficiency, methods, procedures, and prices
used in the manufacturing process.
17.Job order cost accumulation would be most appropriate for
professional service firms that provide extended, project-type
services for clients. Examples would be architectural, consulting,
advertising, or legal services. Job cost sheets would accumulate
all direct costs of servicing the client. Such costs would include
labor, materials, travel, and subcontracted services. In addition,
overhead would be applied using a predetermined overhead rate. The
costs accumulated by the job cost sheet would be treated as work in
process (a current asset) until the service is completed. Once
completed, the cost would be transferred to the cost of services on
the income statement.
PRACTICE EXERCISEsPE 191A
May9Materials
324,000
Accounts Payable
324,000
$324,000 = 54,000 $6.May21Work in Process
254,000*
Materials
254,000
*Job 70$110,000 = 22,000 $5
Job 71 144,000 = 24,000 $6
Total$254,000PE 191B
June2Materials
32,000
Accounts Payable
32,000
$32,000 = 4,000 $8.June12Work in Process
13,600*
Materials
13,600
*Job 30$ 7,200 = 1,200 $6
Job 32
6,400 = 800 $8
Total$13,600PE 192A
Work in Process
420,000*
Wages Payable
420,000
*Job 70
$180,000 = 10,000 hours $18
Job 71
240,000 = 12,000 hours $20
Total$420,000PE 192B
Work in Process
37,400*
Wages Payable
37,400
*Job 30$19,200 = 1,200 hours $16
Job 32 18,200 = 1,300 hours $14
Total$37,400PE 193A
Factory Overhead
140,000
Materials
24,500
Wages Payable
64,500
Utilities Payable
5,800
Accumulated Depreciation
45,200
PE 193B
Factory Overhead
24,000
Materials
6,000
Wages Payable
7,600
Utilities Payable
3,200
Accumulated Depreciation
7,200
PE 194A
a.$2.40 = $600,000/250,000 direct labor hours
b.Job 70$24,000 = 10,000 hours $2.40 per hour
Job 71 28,800 = 12,000 hours $2.40 per hour
Total$52,800c.Work in Process
52,800
Factory Overhead
52,800
PE 194B
a.$8.00 = $200,000/25,000 direct labor hours
b.Job 30$ 9,600 = 1,200 hours $8.00 per hour
Job 32 10,400 = 1,300 hours $8.00 per hour
Total$20,000c.Work in Process
20,000
Factory Overhead
20,000
PE 195A
a.
Job 70
Job 71
Direct materials
$110,000$144,000
Direct labor
180,000240,000
Factory overhead
24,000
28,800
Total costs
$314,000$412,800b.Job 70$39.25 = $314,000/8,000 units
Job 71$41.28 = $412,800/10,000 units
PE 195B
a.
Job 30
Job 32
Direct materials
$ 7,200$ 6,400
Direct labor
19,20018,200
Factory overhead
9,600
10,400
Total costs
$36,000$35,000b.Job 30$22.50 = $36,000/1,600 units
Job 32$20.00 = $35,000/1,750 units
PE 196A
$665,000 = $140,000 + (35,000 $15.00)**Cost per unit of goods
produced during the year = $15.00 = $900,000/60,000 units
PE 196B
$71,000 = $14,000 + (9,500 $6.00)**Cost per unit of goods
produced during the year = $6.00 = $120,000/20,000 units
EXERCISES
Ex. 191a.Materials requisitioned for use (both direct and
indirect).
b.Factory labor used (both direct and indirect).
c.Application of factory overhead costs to jobs.
d.Jobs completed.
e.Cost of goods sold.
Ex. 192a.
Cost of goods sold:
Sales
$1,200,000
Less gross profit
320,000Cost of goods sold
$880,000
b.
Direct materials cost:
Materials purchased
$610,000
Less:Indirect materials
$45,000
Materials inventory
45,000
90,000Direct materials cost
$520,000
c.
Direct labor cost:
Total manufacturing costs for the period
$1,325,000
Less:Direct materials cost
$520,000
Factory overhead
175,000*
695,000Direct labor cost
$630,000*$110,000 + $45,000 + $20,000
Ex. 193a.
RECEIVEDISSUEDBALANCE
ReceivingReportNumberQuantityUnitPriceMaterialsRequi-sitionNumberQuantityAmountDateQuantityAmountUnitPrice
May 1300$2,400$ 8.00
24210$10.00May 23002,4008.00
2102,10010.00
101340$2,800*May 61701,70010.00
3014012.00May 121701,70010.00
1401,68012.00
1142002,060**May 211101,32012.00
*May 6 issuance300 at $8.00$2,400
40 at $10.00
400
$2,800
**May 21 issuance170 at $10.00$1,700
30 at $12.00
360
$2,060
b.Ending wire cable balance:
110 at $12.00
$1,320c.Work in Process ($2,800 + $2,060)
4,860
Materials
4,860
d.Comparing quantities on hand as reported in the materials
ledger with predetermined order points enables management to order
materials before a lack of materials causes idle time. Also, the
subsidiary ledger can include columns for recording quantities
ordered, so that management can have easy access to information
about materials on order.
Ex. 194Work in Process
98,600Factory Overhead
1,450
Materials
100,050Ex. 195a.Materials
658,000
Accounts Payable
658,000
b.Work in Process
653,500
Factory Overhead
13,000
Materials
666,500
c.
Polyester
FabricFillingLumberGlue
Balance, June 1
$25,000$7,500$56,000$2,400
June purchases
126,000175,000345,00012,000
Less: June requisitions
(117,500)
(158,000)
(378,000)
(13,000)Balance, June 30
$33,500$24,500$23,000$1,400Ex. 196Work in Process
24,275Factory Overhead
11,200
Wages Payable
35,475Ex. 197a.Work in Process
2,224.00
Factory Overhead
176.00
Wages Payable
2,400.00
Supporting Calculations:
Labor Costs (Hourly Rate Hours)
Direct
Labor
Hourly
(sum ofIndirect
RateJob 201Job 202Job 203job costs)Labor
John Washington$20.00$400.00$200.00$140.00$740.00$60.00
George Jefferson22.00220.00330.00286.00
836.00
44.00
Thomas Adams18.00216.00252.00180.00
648.00
72.00
$2,224.00$176.00b.The direct labor costs in the completed jobs
would become part of finished goods inventory. The direct labor
costs in Job 203 would remain part of work in process
inventory.
Ex. 198a.Work in Process
9,000
Factory Overhead
1,900
Wages Payable
10,900b.Work in Process
15,000
Factory Overhead
15,000
$9,000/$15 per hour = 600 hours
600 hours $25 per hour = $15,000Ex. 199a.Factory 1: $23.75 per
machine hour ($475,000/20,000 machine hours)
b.Factory 2: $40.00 per direct labor hour ($600,000/15,000
direct labor hours)
c.Factory 1:
Work in Process
37,050
Factory Overhead
37,050
($23.75 1,560)
Factory 2:
Work in Process
54,000
Factory Overhead
54,000
($40.00 1,350)
d.Factory 1$950 debit (underapplied) ($37,050 $38,000)
Factory 2$2,000 credit (overapplied) ($54,000 $52,000)
Ex. 1910The estimated shop overhead is determined as
follows:
Shop and repair equipment depreciation
$45,000
Shop supervisor salaries
125,800Shop property tax
22,600Shop supplies
16,600
Total shop overhead
$210,000The engine parts and shop labor are direct to the jobs
and are not included in the shop overhead rate. The advertising and
administrative expenses are selling and administrative expenses
that are not included in the shop overhead but are treated as
period expenses.
Ex. 1910Concluded
The estimated activity base is determined by dividing the shop
direct labor cost by the direct labor rate, as follows:
= 40,000 hours
The predetermined shop overhead rate is:
= $5.25 per direct labor hour
Ex. 1911a.Estimated annual operating room overhead: $492,000
Estimated operating room activity base, number of operating room
hours:
Hours per day
8
Days per week
6
Weeks per year (net of maintenance weeks)
50
Estimated annual operating room hours
2,400
Predetermined surgical overhead rate:
= $205 per hour
b.Gretchen Keltons procedure:
Number of surgical room hours
6
Predetermined surgical room overhead rate
$205
Procedure overhead
$1,230c.Actual hours used in November
192
Predetermined surgical room overhead rate
$205
Surgical room overhead applied, November
$39,360
Actual surgical room overhead incurred, November
38,500
Overapplied surgical room overhead (credit balance)
$860Ex. 1912a.Finished Goods
306,000
Work in Process
306,000
b.Cost of unfinished jobs at January 31:
Balance in Work in Process at January 1
$14,200
Add:Direct materials
115,400
Direct labor
124,500
Factory overhead
65,400$319,500
Less:Jobs finished during January
306,000
Balance in Work in Process at January 31
$13,500
Ex. 1913a.Work in Process
39,100
Factory Overhead
1,200
Materials
40,300b.Work in Process
13,150
Factory Overhead
14,500
Wages Payable
27,650
c.Work in Process
10,520
Factory Overhead
10,520
Predetermined overhead rate:$3,800/$4,750 = 80% or
$1,960/$2,450 = 80%
Direct labor cost Predetermined factory overhead rate:
$13,150 80% = $10,520d.Finished Goods
31,160*
Work in Process
31,160
*$20,950 + $10,210
Ex. 1914a.SALSA INC.Income Statement
For the Month Ended May 31, 2010Revenues
$870,000
Cost of goods sold
485,000Gross profit
$385,000
Selling expenses
$210,000
Administrative expenses
75,400
285,400Income from operations
$99,600
b.Materials inventory:
Purchased materials
$244,000
Less: Materials used in production
210,000
Materials inventory, May 31
$34,000
Work in process inventory:
Materials used in production
$210,000
Direct labor
180,000
Factory overhead (75% $180,000)
135,000
Additions to work in process
$525,000
Less: Transferred to finished goods
510,000
Work in process inventory, May 31
$15,000
Finished goods inventory:
Transferred to finished goods
$510,000
Less: Cost of goods sold
485,000
Finished goods inventory, May 31
$25,000
Ex. 1915a.
Unit
DateJob No.QuantityProductAmountCost
Jan. 21240Alpha
$ 6,000$25
Jan. 15221,100Beta
8,8008
Feb. 338800Beta
8,00010
Mar. 756400Alpha
8,80022
Mar. 24651,500Gamma6,0004
May 19741,750Gamma10,5006
June 1287350Alpha
6,30018
Aug. 18922,200Gamma19,8009
Sept. 2100600Beta
4,8008
Nov. 14110500Alpha
7,00014
Dec. 121162,000Gamma24,00012Alpha Unit Costs
Ex. 1915Concluded
Beta Unit Costs
Gamma Unit Costs
As can be seen, the unit costs behave differently for each
product. Gamma has increasing unit costs during the year, Beta is
steady, and Alpha has decreasing unit costs during the year.
b.Management should want to determine why Gamma costs are
increasing and why Alpha costs are decreasing. This information can
be determined from the job cost sheets for each job. By comparing
the cost sheets from job to job (for a particular product),
management can isolate the cause of the cost changes. The cost
sheets will show how materials, labor, and overhead are consumed
across the production process for each job. This information can
isolate the problem or opportunity areas.
Ex. 1916a.The first item to note is that the cost did not go up
due to any increases in the cost of labor or materials. Rather, the
cost of the plaques increased because Job 212 used more labor and
materials per unit than did Job 201. Specifically, Job 201 required
exactly the same number of backboards and brass plates as the
number of actual plaques shipped. However, Job 212 required six
more backboards and brass plates than the number actually shipped
(48 vs. 42). In addition, the labor hours for Job 201 were as
follows:
Engraving:(60 units 20 min. per unit)/60 min. = 20 hours
Assembly:(60 units 10 min. per unit)/60 min. = 10 hours
These are the labor hours to be expected for 60 plaques.
However, the labor hours expected for Job 212 were:
Engraving:(42 units 20 min. per unit)/60 min. = 14 hours
Assembly:(42 units 10 min. per unit)/60 min. = 7 hours
Job 212s 42 labor hours are 21 more (42 hrs. 21 hrs.) than
should have been expected for a job of 42 plaques [(42 30 min.)/60
min. = 21 hrs.]. As a result, the additional hours of labor cost,
applied factory overhead, and direct materials cost cause the unit
cost of Job 212 to increase.
b.Apparently, the engraving and assembly work is becoming
sloppy. Job 212 required 48 engraved brass plates in order to get
42 with acceptable quality. It is likely that the engraver is not
being careful in correctly spelling the names. The names should be
supplied to the engraver using large typewritten fonts so that it
is easy to read the names. The engraver should be instructed to be
careful in engraving the names. The assembly operation also needs
some improvement. It took 48 assembly operations to properly
assemble 42 plaques. It may be that the plates are assembled
off-register (crooked) to the backboard. This could be improved by
using a fixture to properly align the plate to the backboard.
Alternatively, its possible misengraved plaques were assembled to
backboards and needed to be disassembled, reengraved, and
reassembled to new backboards.
Ex. 1917a.
June4Work in Process (600 hrs. $200)
120,000
Salaries Payable
120,000
8Work in Process
21,000
Cash
21,000
12Work in Process (300 hrs. $260)
78,000
Salaries Payable
78,000
16Work in Process
64,000
Consultant Fees Payable
64,000
24Work in Process (900 $55)
49,500
Office Overhead
49,500
30Office Overhead
35,000
Cash
35,000
30Office Overhead
12,000
Supplies
12,000
30Salaries Payable
180,000
Cash
180,000
30Accounts Receivable
380,000
Fees Earned
380,000
30Cost of Services
332,500
Work in Process
332,500*
*$120,000 + $21,000 + $78,000 + $64,000 + $49,500b.Office
overhead incurred ($35,000 + $12,000)
$47,000
Office overhead applied
49,500
Overapplied overhead
$(2,500)
c.Fees earned
$380,000
Cost of services
330,000*
Gross profit
$50,000
*$332,500 $2,500. Assumes the over- or underapplied office
overhead is closed to cost of services annually.
Note to Instructors: The consultant fees and travel costs can be
directly assigned to the case and thus are not treated as office
overhead. Costs such as secretarial and administrative salaries and
supplies would be part of office overhead incurred.
Ex. 1918a.Work in Process
316,000
Salaries Payable
316,000
b.Work in Process
631,000
Accounts Payable
631,000
c.Work in Process (50% $631,000)
315,500
Agency Overhead
315,500
d.Cost of Services
777,500
Work in Process
777,500
Cost of completed jobs, $777,500:
ClintonPryor
Bank
Airlines
June 1 balance
$80,000$24,000
June costs:
Direct labor
56,00025,000
Media
210,000185,000
Overhead
105,000
92,500
Total costs
$451,000$326,500
PROBLEMS
Prob. 191A
a.Materials
350,000
Accounts Payable
350,000
b.Work in Process
240,000
Factory Overhead
35,000
Materials
275,000
c.Work in Process
279,000
Factory Overhead
45,500
Wages Payable
324,500
d.Factory Overhead
128,600
Selling Expenses
116,400
Administrative Expenses
72,500
Accounts Payable
317,500
e.Factory Overhead
14,500
Selling Expenses
12,300
Administrative Expenses
8,900
Prepaid Expenses
35,700
f.Depreciation ExpenseOffice Building
42,000
Depreciation ExpenseOffice Equipment
21,500
Factory Overhead
14,500
Accumulated DepreciationFixed Assets
78,000
g.Work in Process
256,400
Factory Overhead
256,400
h.Finished Goods
726,500
Work in Process
726,500
i.Cost of Goods Sold
715,000
Finished Goods
715,000
Prob. 192A
1.a.Materials
23,400
Accounts Payable
23,400
b.Work in Process
39,575
Factory Overhead
4,110
Materials
21,515
Wages Payable
22,170
c.Factory Overhead
4,500
Accounts Payable
4,500
d.Factory Overhead
1,560
Accumulated DepreciationMachinery
and Equipment
1,560
e.Work in Process
10,000
Factory Overhead (200 hours $50)
10,000
f.Finished Goods
27,285
Work in Process
27,285
Computation of cost of jobs finished:
DirectDirectFactory
JobMaterialsLaborOverheadTotal
No. 201$2,350$2,200$ 900$5,450
No. 2022,8752,9701,500
7,345
No. 2031,9001,4901,200
4,590
No. 2054,1004,1501,650
9,900
Total
$27,285
g.Accounts Receivable
27,240
Sales
27,240
Cost of Goods Sold
17,385
Finished Goods
17,385
Computation of cost of jobs sold:
Job
No. 201
$5,450
No. 202
7,345
No. 203
4,590
Total
$17,385
Prob. 192AConcluded2.
Work in ProcessFinished Goods
(b)39,575(f)27,285(f)27,285(g)17,385
(e)
10,000
Bal. 22,290Bal. 9,900
3.Schedule of unfinished jobs:
DirectDirectFactory
JobMaterialsLaborOverheadTotal
No. 204
$6,450$5,460$3,750$15,660
No. 206
2,9802,6501,000 6,630
Balance of Work in
Process, April 30
$22,290
4.Schedule of completed jobs:
DirectDirectFactory
JobMaterialsLaborOverheadTotal
Finished Goods, April 30
(Job 205)
$4,100$4,150$1,650$9,900Prob. 193A
1. and 2.
JOB ORDER COST SHEET
CustomerQueen Mercury
DateMay 10, 2010
Address10 Rhapsody Lane
Date wantedJune 12, 2010
Lake Forest
Date completedJune 8, 2010
ItemReupholster couch and chair
Job. No.
10-206
ESTIMATE
Direct MaterialsDirect LaborSummary
AmountAmountAmount
40 meters at $12480.0024 hours at $15360.00Direct materials
480.00
Direct labor 360.00
Factory overhead 180.00
Total480.00Total360.00Total cost1,020.00
ACTUAL
Direct MaterialsDirect LaborSummary
Mat.
Req.
No.Descrip-
tionAmountTime
Ticket
No.Descrip-
tionAmountItemAmount
21024
meters
at $12288.00H2518 hours
at $14.50261.00Direct materials
Direct labor 540.00
391.50
21221
meters
at $12252.00H349 hours
at $14.50130.50Factory overhead 195.75
Total540.00Total391.50Total cost1,127.25
Comments:
The direct materials cost exceeded the estimate by $60 because 5
meters of materials were spoiled. The direct labor cost exceeded
the estimate by $31.50 because an additional 3 hours of labor were
used by an inexperienced employee that worked for $0.50/hr.
less.
Prob. 194A
1.Supporting calculations:
Job No.Quan-tityJuly 1Work
inProcessDirectMaterialsDirectLaborFactoryOverheadTotalCostUnitCostUnitsSoldCost
ofGoodsSold
No. 21 200$6,000$20,000
$15,000$24,000$65,000$325.00160$52,000
No. 22 40016,00034,000 26,00041,600117,600$294.0032094,080
No. 23 20014,000 8,00012,80034,80000
No. 24 25030,000 25,00040,00095,000$380.0021079,800
No. 25 18022,000 17,50028,00067,500$375.0015056,250
No. 26
140
8,000
4,500
7,200
19,70000
Total
1,370$22,000$128,000
$96,000$153,600$399,600$282,130
A.$144,000. Materials applied to production in July + indirect
materials.
($128,000 + $16,000)
B.$22,000. From table above and problem.
C.$128,000. From table above.
D.$96,000. From table above.
E.$153,600. ($96,000 1.6) and from table above.
F.$345,100. ($65,000 + $117,600 + $95,000 + $67,500)
G.$282,130. From table above.
H.$24,000. Wages incurred less direct labor applied to
production in July.
($120,000 $96,000)
2.July balances:
Materials$ 6,000($30,000 + $120,000 $144,000)
Work in Process$54,500*($34,800 + $19,700, Job 23 and Job
26)
Finished Goods$62,970**($345,100 $282,130)
Factory Overhead$ 3,400 Dr.underapplied ($22,000 + $24,000 +
$16,000
+ $95,000 $153,600)
*or ($22,000 + $128,000 + $96,000 + $153,600 $345,100)
**
Units in
UnitTotal
Job No.Inventory
Cost
Cost
Job 2140
$325$13,000
Job 2280
29423,520
Job 2440
38015,200
Job 2530
375
11,250
Total
$62,970Prob. 195A
1.
DIGITAL TUNES INC.
Income Statement
For the Year Ended December 31, 2010
Sales
$13,600,000
Cost of goods sold
3,187,500
Gross profit
$10,412,500
Selling expenses:
Media campaign
$4,000,000
Promotional materials
1,700,000
Shipping expenses
212,500
Total selling expenses
$5,912,500
Administrative expenses:
Legal expenses
1,200,000
Total operating expenses
7,112,500
Income from operations
$3,300,000
Supporting calculations:
Sales:850,000 units $16 = $13,600,000
Cost of goods sold:850,000 units $3.75 = $3,187,500
Manufacturing cost per unit (CD):
Direct materials:
Blank CD
$1.80
Jewel case
0.60
Song lyric insert
0.60
Total direct materials
$3.00
Direct labor
0.25
Factory overhead
0.50*
Total manufacturing cost per CD
$3.75
*$1,200/2,400 CDs per hour
Promotional materials:42,500 stores $40 = $1,700,000
Shipping expenses:850,000 units $0.25 = $212,500
2.Finished Goods balance, December 31, 2010:
(1,000,000 units 850,000 units) $3.75 = $562,500
Work in Process, December 31, 2010:
25,000 units ($3.00 + $0.50) = $87,500
The materials and copying have already been applied to the
25,000 units.
Only the direct assembly labor has yet to be applied for these
units.
Prob. 191Ba.Materials
450,000
Accounts Payable
450,000
b.Work in Process
420,500
Factory Overhead
4,500
Materials
425,000
c.Work in Process
290,000
Factory Overhead
95,000
Wages Payable
385,000
d.Factory Overhead
125,400
Selling Expenses
87,500
Administrative Expenses
56,400
Accounts Payable
269,300
e.Factory Overhead
12,500
Selling Expenses
14,500
Administrative Expenses
8,500
Prepaid Expenses
35,500
f.Factory Overhead
25,300
Depreciation ExpenseOffice Equipment
31,600
Depreciation ExpenseStore Equipment
7,600
Accumulated DepreciationFixed Assets
64,500
g.Work in Process
261,500
Factory Overhead
261,500
h.Finished Goods
965,000
Work in Process
965,000
i.Cost of Goods Sold
952,400
Finished Goods
952,400
Prob. 192B1.a.Materials
68,000
Accounts Payable
68,000
b.Work in Process
123,250
Factory Overhead
13,700
Materials
66,000
Wages Payable
70,950
c.Factory Overhead
2,750
Accounts Payable
2,750
d.Factory Overhead
1,870
Accumulated DepreciationMachinery
and Equipment
1,870
e.Work in Process
17,250
Factory Overhead (690 hours $25)
17,250
f.Finished Goods
80,575
Work in Process
80,575
Computation of cost of jobs finished:
DirectDirectFactory
JobMaterialsLaborOverheadTotal
No. 401$ 9,200$ 9,250$2,700
$21,150
No. 40211,00013,4002,75027,150
No. 4036,4005,0002,15013,550
No. 4058,6007,4002,725
18,725
Total
$80,575
g.Accounts Receivable
82,800
Sales
82,800
Cost of Goods Sold
67,025
Finished Goods
67,025
Computation of cost of jobs sold:
Job
No. 401
$21,150
No. 402
27,150
No. 405
18,725
Total
$67,025Prob. 192BConcluded
2.
Work in ProcessFinished Goods
(b)123,250(f)80,575(f)80,575(g)67,025
(e)
17,250
Bal. 59,925
Bal. 13,550
3.Schedule of unfinished jobs:
DirectDirectFactory
JobMaterialsLaborOverheadTotal
No. 404
$18,200$17,400$4,000
$39,600
No. 406
8,5008,9002,925
20,325
Balance of Work in
Process, May 31
$59,9254.Schedule of completed jobs:
DirectDirectFactory
JobMaterialsLaborOverheadTotal
Finished Goods, May 31
(Job 403)
$6,400$5,000$2,150$13,550Prob. 193B1. and 2.
JOB ORDER COST SHEET
CustomerTed Austin
DateJune 1, 2010
Address409 Patterson St.
Date wantedAug. 5, 2010
Vienna
Date completedAug. 2, 2010
ItemReupholster couch and chairs
Job. No.
10110
ESTIMATE
Direct MaterialsDirect LaborSummary
AmountAmountAmount
24 meters at $14336.0014 hours at $18252.00Direct
materials336.00
Direct labor252.00
Factory overhead189.00
Total336.00Total252.00Total cost777.00
ACTUAL
Direct MaterialsDirect LaborSummary
Mat.
Req.
No.Descrip-
tionAmountTime
Ticket
No.Descrip-
tionAmountItemAmount
21010 meters
at $14140.00H166 hours
at $18108.00Direct materials
Direct labor 364.00
288.00
21216 meters
at $14224.00H2110 hours
at $18180.00Factory overhead 216.00
Total364.00Total288.00Total cost868.00
Comments:
The direct materials cost exceeded the estimate by $28 because 2
meters of materials were spoiled. The direct labor cost exceeded
the estimate by $36 because an additional 2 hours of labor were
used by an inexperienced employee.
Prob. 194B1.Supporting calculations:
Job No.Quan-tityAug. 1Work
inProcessDirectMaterialsDirectLaborFactoryOverheadTotalCostUnitCostUnitsSoldCost
ofGoodsSold
No. 101 100$8,000$25,000
$18,000$9,000$60,000$600.0080$48,000
No. 102 12514,00032,000 22,00011,00079,000$632.0011069,520
No. 103 15040,000 34,00017,00091,000
00
No. 104 12520,000 12,5006,25038,750$310.0011535,650
No. 105 20036,000 20,00010,00066,000$330.0016052,800
No. 106
100
18,000
9,600
4,800
32,40000
Total
800$22,000$171,000
$116,100$58,050$367,150$205,970
A.$175,500. Materials applied to production in August + indirect
materials.
($171,000 + $4,500)
B.$22,000. From table above and problem.
C.$171,000. From table above.
D.$116,100. From table above.
E.$58,050. ($116,100 0.50) and from table above.
F.$243,750. ($60,000 + $79,000 + $38,750 + $66,000)
G.$205,970. From table above.
H.$3,900. Wages incurred less direct labor applied to production
in August.
($120,000 $116,100)
2.August 31 balances:
Materials$ 6,500($32,000 + $150,000 $175,500)
Work in Process$123,400*($91,000 + $32,400, Job 103 and Job
106)
Finished Goods$ 37,780**($243,750 $205,970)
Factory Overhead$ 9,850 Dr.underapplied ($8,000 + $3,900 +
$4,500
+ $51,500 $58,050)
*or ($22,000 + $171,000 + $116,100 + $58,050 $243,750)
**
Units in
UnitTotal
Job No.Inventory
Cost
Cost
Job 10120
$600$12,000
Job 10215
6329,480
Job 10410
3103,100
Job 10540
330
13,200
Total
$37,780Prob. 195B1.
MY WAY SOFTWARE INC.Income Statement
For the Year Ended December 31, 2010
Sales
$8,000,000
Cost of goods sold
1,620,000
Gross profit
$6,380,000
Selling expenses:
Advertising expenses
$1,380,000
Salespersons commissions
1,200,000
Advertising design
1,400,000
Total selling expenses
3,980,000
Income from operations
$2,400,000
Supporting calculations:
Sales:80,000 units $100 = $8,000,000
Cost of goods sold:80,000 units $20.25 = $1,620,000
Manufacturing cost per unit:
Direct materials:
Blank CD
$2.50
Packaging
4.00
Manual
12.00
Total direct materials
$18.50
Direct labor
0.50
Factory overhead cost
1.25*
Total manufacturing cost per CD
$20.25
*$2,500/2,000 CDs per hour
Salespersons commissions: $8,000,000 15% = $1,200,000
2.Finished Goods balance, December 31, 2010:
(100,000 units 80,000 units) $20.25 = $405,000
Work in Process, December 31, 2010:
4,000 units ($18.50 + $1.25) = $79,000
The materials and copying have already been applied to the 4,000
units.
Only the direct assembly labor has yet to be applied for these
units.
SPECIAL ACTIVITIES
Activity 191Two or three trends seem apparent. Starting with the
most obvious:
a.There appears to be a strong Friday effect. The unit cost on
Friday increases dramatically, then falls on Monday. Apparently,
the workforce is preparing early for the weekend.
b.There also appears to be a general increasing trend in the
unit cost. Every Friday effect is larger than the previous Friday.
Much the same can be said about the other days of the week.
c.Its hard to tell, but there may also be a within week trend.
The unit cost appears to increase gradually from Monday through
Thursday, before jumping on Friday. At the very least, Mondays are
the best operating days, while Fridays are the worst.
A number of further pieces of information should be
requested.
a.First, it would be good to verify these trends with some other
products. This trend is probably not product-related but related
generally to the day of the week. This would mean that the trend
should be apparent in the other products.
b.The data should be sorted by shift and by employee. Its
possible that the effect is stronger on one shift than on another
or that just a few employees are responsible for the effect. It may
not be prevalent in the general population of workers.
c.The FridayMonday phenomenon is likely related to the
workforce, but the same cannot be said about the larger increasing
trend over the four weeks. It could be caused by any number of
factors. A good first look would be to isolate materials costs to
see if these are contributors. How much of the effect is labor and
how much is material should be verified. Its possible that the
general increase in cost over time is the result of loss of machine
tolerances. Thus, more and more material is being required to
produce a unit of product.
d.Has there been any significant change in supervisors or
crucial employees that may explain this effect?
e.Have prices increased gradually for the raw materials?
Activity 1921.The unit costs are influenced by both the price
and quantity of inputs. On the price side, the cost of steel has
dropped from $750 to $740 per ton. This is apparently the result of
the purchasing managers decision to reduce the cost of raw
materials by going to a new vendor. No other input prices change.
Some of the input quantities changed for the worse.
Specifically:
Job 110 Job 130
Steel input per unit of product
3.0 tons3.50 tons
Foundry labor per unit of product
11 hours12.50 hours
Welding labor per unit of product
16 hours17.50 hours
These numbers were determined by dividing the number of units
produced by the total input quantities to discover the inputs per
unit. The inputs for the components and shipping labor were
unchanged between the two jobs.
2.A possible reason for this deterioration in performance is
related to the purchasing managers decision to change vendors in
order to secure a lower price per ton. The new vendor is apparently
delivering a lower quality steel product to the company. As a
result, the foundry operation is having to spend more time forming
the steel parts. Moreover, the increased steel tons per unit is
likely to be caused by scrapping some of the formed parts. The
scrapped parts would need to be replaced by additional steel
inputs, which would have the effect of increasing the number of
tons required to make a unit of product. The welding operators are
also apparently having difficulty welding the lower quality steel
parts. As a result, longer welding time is required to assemble a
completed unit.
Overall, management has learned that the drive for lower raw
materials prices was a poor decision. The overall net result was
higher costs from the additional waste caused by lower quality
steel.
Activity 193
1.The engineer is concerned that direct labor is not related to
overhead consumption because direct labor is a small part of the
cost structure. Apparently, the company has replaced labor with
expensive machine technology and support. This, of course,
represents more factory overhead. Just because the direct labor is
designed out of the product will not mean that this overhead will
magically disappear. More likely, the direct labor hours will be
replaced by machine-related factory overhead. Thus, the factory
overhead goes up while the activity base (direct labor) goes down.
Hence, the factory overhead rate will go up.
2.Since each direct labor hour now has $2,500 of factory
overhead, small mistakes in the direct labor time estimates can
have a large impact on the estimated cost of a product. This is
very critical. If the company underestimates the direct labor
content by a small amount, it will underbid and win the job.
Unfortunately, the job will turn out to have less profitability
than expected because the price is smaller than it should be. If
the company overestimates the labor time, it will overbid the job.
Thus, it will lose out to competitors who bid more accurately. This
puts the company into a lose-lose situation when such small labor
time errors have such large dollar impacts on the final cost
estimate.
3.The engineers concern is valid. The company should consider
replacing its direct labor time activity base with one that more
accurately reflects its present resources. If the company is now
highly automated, then machine hours may be a much more reasonable
activity base.Activity 1941.Jack should record the debits for
factory wages as a debit to Work in Process. The factory wages are
product costs that must be accumulated in the cost of producing the
product. Eventually, these wage costs will become part of finished
goods inventory and cost of goods sold when the gift items are
sold. Likewise, the depreciation should be recorded as a debit to
Factory Overhead. The overhead is then applied to production work
in process. Like the wages, the depreciation will also eventually
become part of the finished goods inventory and cost of goods sold
when the gift items are sold. Thus, both the wages and depreciation
will end up on the income statement as cost of goods sold, not as
individual expenses. The reason is because the accountant wants to
match revenues and costs. Costs that are accumulated in the
manufacture of products do not become expenses until the items are
sold. Until that time, the costs are capitalized as inventory. If
these costs were expensed immediately, the income for the firm
would be understated for the period to the extent that there were
any increases in the work in process or finished goods
inventories.
2.Duke would not be concerned about immediately expensing
administrative wages and depreciation because the benefits received
from these costs are not product costs. Instead, these costs
benefit a period of time. Thus, these costs should be expensed for
the period.
Activity 195
1.Direct labor cost:
Total actual overhead, 20062010
$3,500,000
Total direct labor cost, 20062010
$14,000,000
Predetermined overhead rate ($3,500,000/$14,000,000)
25.0% of direct labor cost
Machine hours:
Total actual overhead, 20062010
$3,500,000
Total machine hours, 20062010
500,000 hours
Predetermined overhead rate($3,500,000/500,000 hours)
$7.00 per machine hour
2.
2010
2009
2008
Direct
Direct
Direct
LaborMachineLaborMachineLaborMachine
Cost
Hours
Cost
Hours
Cost
Hours
Actual overhead
$710,000$710,000$860,000$860,000$680,000$680,000
Applied overhead
705,000
714,000
862,500
854,000
675,000
686,000
(Over-) underapplied
overhead
$5,000$(4,000)$(2,500)$6,000$5,000$(6,000)
2007
2006
Direct
Direct
LaborMachineLaborMachine
Cost
Hours
Cost
Hours
Actual overhead
$640,000$640,000$610,000$610,000
Applied overhead
645,000
644,000
612,500
602,000
(Over-) underapplied
overhead
$(5,000)$(4,000)$(2,500)$8,000Activity 195Concluded
3.The best predetermined overhead rate is 25% of direct labor
cost. Although the total overhead applied for each rate developed
in part (1) is the same over the entire 5-year period (as a result
of the method by which the predetermined overhead rates were
developed), the predetermined overhead rate based on direct labor
cost yields the least fluctuations in the amounts of over- or
underapplied overhead considered on a year-by-year basis. With the
rate based on direct labor cost, the over- or underapplied overhead
ranges from $5,000 overapplied to $5,000 underapplied. This
fluctuation in the over- or underapplied overhead compares
favorably with the fluctuation resulting from using the current
overhead base of direct materials ($6,000 overapplied to $5,000
underapplied over the past five years). For the machine-hour base,
the over- or underapplied overhead ranges from $6,000 overapplied
to $8,000 underapplied. Job Number
Job Number
PAGE 35
_1270279239.unknown
_1274252043.xls
_1274253617.xls
_1270279291.unknown
_1270280436.xls
_1270279209.unknown