test bank chapter 3 job order costing

Chapter Systems Design: Job-Order Costing True/False T Easy Job-order costing would be more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications F Easy Job-order costing is used in manufacturing companies and process costing is used in service firms F Easy In a job-order costing system, costs are traced to departments and then allocated to units of product using an average process F Medium Normally a job cost sheet is not prepared for a job until after the job has been completed F Easy Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job F Medium In order to improve the accuracy of unit costs, most companies recompute the predetermined overhead rate each month T Medium The following journal entry would be made to apply overhead cost to jobs in a job-order costing system: Work in Process XXX Manufacturing Overhead XXX T Easy When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the amount of actual direct labor-hours incurred on the job F Medium When completed goods are sold the transaction is recorded as a debit to Cost of Goods Sold and a credit to Work in Process 10 F Hard The most common accounting treatment of underapplied manufacturing overhead is to transfer it to the Manufacturing Overhead control account 11 F Medium In job-order costing, the Work in Process inventory account contains the actual costs of direct labor, direct materials, and manufacturing overhead incurred on partially completed jobs 12 T Easy Nonmanufacturing costs are expensed as incurred, rather than going into the Work in Process account 13 F A credit balance in the Manufacturing Overhead account at the end of the year means that overhead was underapplied Managerial Accounting, 9/e 50 Medium 14 T Easy Indirect materials are not charged to a specific job but rather are included in manufacturing overhead 15 T Easy The labor time ticket contains a detailed summary of the direct and the indirect labor hours of an employee Multiple Choice 16 B Easy Which of the following companies would be most likely to use a joborder costing system rather than a process costing system? a fast food restaurant b shipbuilding c crude oil refining d candy making 17 B Easy CMA adapted The computation of unit product costs involves an averaging process in: 18 A Easy Work in Process is a control account supported by detailed cost data contained in: a job cost sheets b the Manufacturing Overhead account c the Finished Goods inventory account d purchase requisitions 19 D Medium In job-order costing, all of the following statements are correct with respect to labor time and cost except: a time tickets are kept by employees showing the amount of work on specific jobs b the job cost sheet for a job will contain all direct labor charges to that particular job c labor cost that can be traced to a job only with a great deal of effort is treated as part of manufacturing overhead d a machine operator performing routine annual maintenance work on a piece of equipment would charge the maintenance time to a specific job 20 A Medium In a job order cost system, the journal entry to record the application of overhead cost to jobs would include: a a credit to the Manufacturing Overhead account b a credit to the Work in Process inventory account c a debit to Cost of Goods Sold d a debit to the Manufacturing Overhead account 21 C Medium In a job-order cost system, the use of indirect materials would usually be recorded as a debit to: a Raw Materials b Work in Process c Manufacturing Overhead d Finished Goods a b c d Job-order costing Yes Yes No No Managerial Accounting, 9/e Process costing No Yes Yes No 51 22 A Easy CPA adapted In a job order cost system, the use of direct materials previously purchased usually is recorded as a debit to: a Work in Process inventory b Finished Goods inventory c Manufacturing Overhead d Raw Materials inventory 23 D Easy In a job-order cost system, direct labor costs usually are recorded initially with a debit to: a Manufacturing Overhead b Finished Goods inventory c Direct Labor Expense d Work in Process 24 A Medium If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit balance in the Manufacturing Overhead account at the end of any period means that: a more overhead cost has been charged to jobs than has been incurred during the period b more overhead cost has been incurred during the period than has been charged to jobs c the amount of overhead cost charged to jobs is greater than the estimated cost for the period d the amount of overhead cost charged to jobs is less than the estimated overhead cost for the period Managerial Accounting, 9/e 52 25 D Medium In a job order cost system, the amount of overhead cost that has been applied to a job that remains incomplete at the end of a period: a is deducted on the Income Statement as overapplied overhead b is closed to Cost of Goods Sold c is transferred to Finished Goods at the end of the period d is part of the ending balance of the Work in Process inventory account 26 B Hard The Work in Process inventory account of a manufacturing company shows a balance of P2,400 at the end of an accounting period The job cost sheets of the two uncompleted jobs show charges of P400 and P200 for direct materials, and charges of P300 and P500 for direct labor From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of: a 80% b 125% c 300% d 240% 27 C Medium Freeman Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs At the beginning of the year, the company estimated manufacturing overhead would be P150,000 and direct labor hours would be 10,000 The actual figures for the year were P186,000 for manufacturing overhead and 12,000 direct labor hours The cost records for the year will show: a overapplied overhead of P30,000 b underapplied overhead of P30,000 c underapplied overhead of P6,000 d overapplied overhead of P6,000 28 B Medium Harrell Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs At the beginning of the year the company estimated its total manufacturing overhead cost at P400,000 and its direct labor-hours at 100,000 hours The actual overhead cost incurred during the year was P350,000 and the actual direct labor hours incurred on jobs during the year was 90,000 hours The manufacturing overhead for the year would be: a P10,000 underapplied b P10,000 overapplied c P50,000 underapplied d P50,000 overapplied Managerial Accounting, 9/e 53 29 A Hard For the current year, Paxman Company incurred P150,000 in actual manufacturing overhead cost The Manufacturing Overhead account showed that overhead was overapplied in the amount of P6,000 for the year If the predetermined overhead rate was P8.00 per direct labor hour, how many hours were worked during the year? a 19,500 hours b 18,000 hours c 18,750 hours d 17,750 hours 30 B Medium CPA adapted Carlo Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs The company estimated manufacturing overhead at P255,000 for the year and direct labor-hours at 100,000 hours Actual manufacturing overhead costs incurred during the year totaled P270,000 Actual direct labor hours were 105,000 What was the overapplied or underapplied overhead for the year? a P2,250 overapplied b P2,250 underapplied c P15,000 overapplied d P15,000 underapplied 31 D Medium Sawyer Manufacturing Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs Last year, the company worked 57,000 actual direct labor hours and incurred P345,000 of actual manufacturing overhead cost The Company had estimated that it would work 55,000 direct labor hours during the year and incur P330,000 of manufacturing overhead cost The company's manufacturing overhead cost for the year was: a overapplied by P15,000 b underapplied by P15,000 c overapplied by P3,000 d underapplied by P3,000 32 D Easy The Watts Company uses manufacturing overhead based on labor cost in beginning of the year, predetermined overhead rates to apply to jobs The predetermined overhead rate is Dept A and on machine hours in Dept B At the the company made the following estimates: Dept A Dept B Direct labor cost P30,000 P40,000 Manufacturing overhead 60,000 50,000 Direct labor hours 6,000 8,000 Machine hours 2,000 10,000 What predetermined overhead rates would be used in Dept A and Dept B, respectively? a 50% and P8.00 b 50% and P5.00 c P15 and 110% d 200% and P5.00 Managerial Accounting, 9/e 54 33 C Easy Compton Company uses a predetermined to production orders on a labor cost machine hours basis in Department B recently completed year, the company Direct labor cost Factory overhead Direct labor hours Machine hours overhead rate in applying overhead basis in Department A and on a At the beginning of the most made the following estimates: Dept A P56,000 67,200 8,000 4,000 Dept B P33,000 45,000 9,000 15,000 What predetermined overhead rate would be used in Department A and Department B, respectively? a 83% and P5 b 83% and P3 c 120% and P3 d 83% and P3 34 C Medium Kelsh Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs The company has provided the following estimated costs for next year: Direct materials Direct labor Sales commissions Salary of production supervisor Indirect materials Advertising expense Rent on factory equipment P10,000 30,000 40,000 20,000 4,000 8,000 10,000 Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours will be worked during the year The predetermined overhead rate per hour will be: a P6.80 b P6.40 c P3.40 d P8.20 Managerial Accounting, 9/e 55 35 D Medium Simplex Company has the following estimated costs for next year: Direct materials Direct labor Sales commissions Salary of production supervisor Indirect materials Advertising expense Rent on factory equipment P15,000 55,000 75,000 35,000 5,000 11,000 16,000 Simplex estimates that 10,000 direct labor and 16,000 machine hours will be worked during the year If overhead is applied on the basis of machine hours, the overhead rate per hour will be: a P8.56 b P7.63 c P6.94 d P3.50 36 A Medium CR Company has the following estimated costs for the next year: Direct materials Direct labor Rent on factory building Sales salaries Depreciation on factory equipment Indirect labor Production supervisor’s salary P 4,000 20,000 15,000 25,000 8,000 10,000 12,000 CR Company estimates that 20,000 labor hours will be worked during the year If overhead is applied on the basis of direct labor hours, the overhead rate per hour will be: a P2.25 b P3.25 c P3.45 d P4.70 37 D Medium Lucy Sportswear manufactures a specialty line of T-shirts The company uses a job-order costing system During March, the following costs were incurred on Job ICU2: direct materials P13,700 and direct labor P4,800 In addition, selling and shipping costs of P7,000 were incurred on the job Manufacturing overhead was applied a the rate of P25 per machine-hour and Job ICU2 required 800 machine-hours If Job ICU2 consisted of 7,000 shirts, the Cost of Goods Sold per shirt was: a P6.50 b P6.00 c P5.70 d P5.50 Managerial Accounting, 9/e 56 38 B Hard CPA adapted Lucas Co has a job order cost system For the month of April, the following debits (credits) appeared in the Work in Process account: April 30 30 30 30 Balance P 24,000 Direct materials 80,000 Direct labor 60,000 Manufacturing overhead 54,000 To finished goods (200,000) Lucas applies overhead at a predetermined rate of 90% of direct labor cost Job No 100, the only job still in process at the end of April, has been charged with manufacturing overhead of P4,500 The amount of direct materials charged to Job No 100 was: a P18,000 b P8,500 c P5,000 d P4,500 39 C Hard CPA adapted Worrell Corporation has a job-order cost system The following debits (credits) appeared in the Work in Process account for the month of March: March March March March March 1, balance 31, direct materials 31, direct labor 31, manufacturing overhead applied 31, to finished goods P 12,000 40,000 30,000 27,000 (100,000) Worrell applies overhead at a predetermined rate of 90% of direct labor cost Job No 232, the only job still in process at the end of March, has been charged with manufacturing overhead of P2,250 What was the amount of direct materials charged to Job No 232? a P2,250 b P2,500 c P4,250 d P9,000 Managerial Accounting, 9/e 57 40 D Medium The Samuelson Company uses a job-order cost system The following data were recorded for June: Job Number 475 476 477 478 June Work in Process Inventory P1,000 P 900 P 800 P 600 Added During June Direct Direct Materials Labor P 400 P 200 P 600 P 800 P 900 P1,400 P 1,100 P1,900 Overhead is charged to production at 70% of the direct materials cost Jobs 475, 477, and 478 have been delivered to the customer Samuelson’s Work in Process inventory balance on June 30 was: a P6,450 b P2,860 c P2,300 d P2,720 41 B Easy Beaver Company used a predetermined overhead rate last year of P2 per direct labor hour, based on an estimate of 25,000 direct labor hours to be worked during the year Actual costs and activity during the year were: Actual manufacturing overhead cost incurred Actual direct labor hours worked P47,000 24,000 The under- or overapplied overhead last year was: a P1,000 underapplied b P1,000 overapplied c P3,000 overapplied d P2,000 underapplied 42 B Hard Dowan Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs Last year Dowan Company incurred P156,600 in actual manufacturing overhead cost The Manufacturing Overhead account showed that overhead was underapplied by P12,600 for the year If the predetermined overhead rate is P6.00 per direct labor hour, how many hours did the company work during the year? a 26,000 hours b 24,000 hours c 28,200 hours d 25,000 hours Managerial Accounting, 9/e 58 43 D Medium Paul Company completed of direct labor and activity used a predetermined overhead rate during the year just P3.50 per direct labor hour, based on an estimate of 22,000 hours to be worked during the year Actual overhead cost during the year were: Actual manufacturing overhead cost incurred Actual direct labor hours worked P90,000 25,000 The under- or overapplied overhead for the year would be: a P13,000 underapplied b P10,500 overapplied c P2,500 overapplied d P2,500 underapplied 44 A Medium Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost If Job 107 shows P10,000 of manufacturing overhead applied, how much was the direct labor cost on the job? a P8,000 b P12,500 c P11,250 d P10,000 45 C Medium Knowlton Company applies overhead to completed jobs on the basis of 70% of direct labor cost If Job 501 shows P21,000 of manufacturing overhead applied, the direct labor cost on the job was: a P14,700 b P21,000 c P30,000 d P27,300 46 A Hard The balance in White Company's Work in Process inventory account was P15,000 on August and P18,000 on August 31 The company incurred P30,000 in direct labor cost during August and requisitioned P25,000 in raw materials (all direct material) If the sum of the debits to the Manufacturing Overhead account total P28,000 for the month, and if the sum of the credits totaled P30,000, then: a Finished Goods was debited for P82,000 during the month b Finished Goods was credited for P83,000 during the month c Manufacturing Overhead was underapplied by P2,000 at the end of the month d Finished Goods was debited for P85,000 during the month Managerial Accounting, 9/e 59 Refer To: 3-12 a b c d P19,500 P22,000 P28,500 P31,000 Essay 88 Medium Parker Company uses a job order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labor-hours Last year manufacturing overhead and direct labor-hours were estimated at P50,000 and 20,000 hours, respectively, for the year In June, Job #461 was completed Materials costs on the job totaled P4,000 and labor costs totaled P1,500 at P5 per hour At the end of the year, it was determined that the company worked 24,000 direct labor hours for the year and incurred P54,000 in actual manufacturing overhead costs Required: a Job #461 contained 100 units Determine the unit cost that would appear on the job cost sheet b Determine the under- or overapplied overhead for the year Answer: a Direct materials Direct labor Overhead (300* x P2.50**) Total Unit cost P4,000 1,500 750 P6,250 P62.50 * P1,500 ÷ P5.00/DLH = 300 DLH ** P50,000 ÷ 20,000 DLH = P2.50/DLH b Actual overhead Cost P54,000 Overhead applied: 24,000 DLH x P2.50 60,000 Overapplied overhead (P 6,000) Managerial Accounting, 9/e 71 89 Hard Gilford, Inc., uses a job order costing system Costs going through the company's work in process account during June are given below Manufacturing overhead is applied to production using a predetermined overhead rate based on direct labor cost Work in Process _ Balance -0- | 95,000 Transferred out Direct materials 20,000 | Direct labor 30,000 | Manufacturing Overhead 60,000 | Balance 15,000 | Only Job 105 was still in process at the end of the month This job had been charged with P3,000 in direct materials cost Required: a Complete the following job order cost card for Job 105: Direct materials Direct labor Manufacturing overhead Total cost at June 30 P 3,000 _ _ _ b Determine the total amount of materials cost charged to jobs during the month completed Answer: a Since only Job 105 was in process at the end of the month, all of the P15,000 balance in the Work in Process account must apply to it Total cost in Work in Process (all Job 105) Less materials cost in Job 105 Direct labor and manufacturing overhead cost P15,000 3,000 P12,000 From the Work in Process T-account, it appears that manufacturing overhead is being applied at 200% of direct labor cost Let X X + 2.00X 3X X = = = = Direct labor cost P12,000 P12,000 P 4,000 Thus, direct labor cost in Job 105 is P4,000, and manufacturing overhead cost is 200% x P4,000 = P8,000 Therefore, Direct materials Direct labor Manufacturing overhead Total cost at June 30 Managerial Accounting, 9/e P 3,000 4,000 8,000 P15,000 72 b Since P20,000 in materials cost was charged to Work in Process, and since only P3,000 in materials cost applies to Job 105, the difference of P17,000 represents the cost charged to completed jobs during the month 90 Easy Stan Wilson, a newly hired worker at Superior Molding, was puzzled by the job cost sheets attached to the jobs he worked on He understood the materials and labor cost entries these represent the actual costs of materials he requisitioned for the job and the cost of the labor hours he recorded for the job However, he did not understand the entry for Manufacturing Overhead This entry was made at the end of the day by the accountants and he had no idea where this number came from He asked the company's controller, Mary Donner, but the only part of the explanation he understood was that the overhead entries not represent actual overhead costs Required: Explain to Stan what the Manufacturing Overhead entries on the job cost sheet mean Answer: The Manufacturing Overhead entries on the job cost sheet are arrived at by applying a predetermined overhead rate to the base, which is most likely direct labor-hours This number does not represent actual overhead costs There are several reasons for this First, by definition, it is difficult or impossible to trace overhead costs to particular jobs Therefore, actual overhead costs cannot really be traced to the jobs Stan works on Even so, an "actual" rate could be used instead of a predetermined rate for spreading overhead costs among jobs However, most companies choose to use a predetermined rate since actual rates tend to fluctuate and cannot be determined until the close of the accounting period 91 Medium Bakerston Company is a manufacturing firm that uses job-order costing The company's inventory balances were as follows at the beginning and end of the year: Beginning Balance Raw materials P14,000 Work in process 27,000 Finished goods 62,000 Ending Balance P22,000 9,000 77,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours At the beginning of the year, the company estimated that it would work 33,000 machine-hours and incur P231,000 in manufacturing overhead cost The following transactions were recorded for the year: • Raw materials were purchased, P315,000 • Raw materials were requisitioned for used in production, P307,000 (P281,000 direct and P26,000 indirect) • The following employee costs were incurred: direct labor, P377,000; indirect labor, P96,000; and administrative salaries, P172,000 • Selling costs, P147,000 • Factory utility costs, P10,000 • Depreciation for the year was P127,000 of which P120,000 Managerial Accounting, 9/e 73 is related to factory operations and P7,000 is related to selling and administrative activities • Manufacturing overhead was applied to jobs The actual level of activity for the year was 34,000 machine-hours • Sales for the year totaled P1,253,000 Required: a Prepare a schedule of cost of goods manufactured in good form b Was the overhead under- or overapplied? By how much? c Prepare an income statement for the year in good form The company closes any under- or overapplied overhead to Cost of Goods Sold Answer: a Schedule of cost of goods manufactured Estimated total manufacturing overhead(a) P231,000 Estimated total machine-hours (b) 33,000 Predetermined overhead rate (a) ÷ (b) P7.00 Actual total machine-hours (a) 34,000 Predetermined overhead rate (b) P7.00 Overhead applied (a) X (b) P238,000 Direct materials: Raw materials inventory, beginning P Add: purchases of raw materials Total raw materials available Deduct: raw materials inventory, ending Raw materials used in production Less: indirect materials Direct materials Direct labor Manufacturing overhead applied Total manufacturing costs Add: Beginning work in process inventory Deduct: Ending work in process inventory Cost of goods manufactured P 14,000 315,000 329,000 22,000 307,000 26,000 281,000 377,000 238,000 896,000 27,000 923,000 9,000 914,000 b Overhead under- or overapplied Actual manufacturing overhead cost incurred: Indirect materials P 26,000 Indirect labor 96,000 Factory utilities 10,000 Factory depreciation 120,000 Manufacturing overhead cost incurred 252,000 Manufacturing overhead applied 238,000 Underapplied overhead P 14,000 c Income Statement Beginning finished goods inventory .P Cost of goods manufactured Managerial Accounting, 9/e 62,000 914,000 74 Goods available for sale Ending finished goods inventory Unadjusted cost of goods sold Add: underapplied overhead Adjusted cost of goods sold P Sales Cost of goods sold (adjusted) Gross margin Less selling and administrative expenses: Administrative salaries P Selling costs Depreciation 976,000 77,000 899,000 14,000 913,000 P1,253,000 913,000 340,000 172,000 147,000 7,000 326,000 Net income 92 Medium P 14,000 Allenton Company is a manufacturing firm that uses job-order costing At the beginning of the year, the company's inventory balances were as follows: Raw materials Work in process Finished goods P 26,000 47,000 133,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours At the beginning of the year, the company estimated that it would work 31,000 machine-hours and incur P248,000 in manufacturing overhead cost The following transactions were recorded for the year: a Raw materials were purchased, P411,000 b Raw materials were requisitioned for used in production, P409,000 (P388,000 direct and P21,000 indirect) c The following employee costs were incurred: direct labor, P145,000; indirect labor, P61,000; and administrative salaries, P190,000 d Selling costs, P148,000 e Factory utility costs, P12,000 f Depreciation for the year was P121,000 of which P114,000 is related to factory operations and P7,000 is related to selling and administrative activities g Manufacturing overhead was applied to jobs The actual level activity for the year was 29,000 machine-hours h The cost of goods manufactured for the year was P783,000 i Sales for the year totaled P1,107,000 and the costs on the cost sheets of the goods that were sold totaled P768,000 j The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold of job Required: Prepare the appropriate journal entry for each of the items above (a through j.) You can assume that all transactions with employees, customers, and suppliers were conducted in cash Answer: a Raw Materials Inventory Cash b Work in Process Inventory Manufacturing Overhead Managerial Accounting, 9/e 411,000 411,000 388,000 21,000 75 Raw Materials Inventory c d e f g h i j 409,000 Work in Process Inventory Manufacturing Overhead Administrative Salary Expense Cash 145,000 61,000 190,000 Selling Expenses Cash 148,000 Manufacturing Overhead Cash 12,000 Manufacturing Overhead Depreciation Expense Accumulated Depreciation 114,000 7,000 Work in Process Manufacturing Overhead 232,000 Finished Goods Work in Process 783,000 396,000 148,000 12,000 121,000 232,000 783,000 Cash 1,107,000 Sales Cost of Goods Sold 768,000 Finished Goods Manufacturing Overhead Cost of Goods Sold Managerial Accounting, 9/e 1,107,000 768,000 24,000 24,000 76 93 Medium The Collins Company uses a job-order cost system and applies manufacturing overhead cost to jobs on the basis of the cost of materials used in production At the beginning of the most recent year, the following estimates were made as a basis for computing the predetermined overhead rate for the year: manufacturing overhead cost, P200,000; direct materials cost, P160,000 The following transactions took place during the year (all purchases and services were acquired on account): a Raw materials purchased, P86,000 b Raw materials requisitioned for use in production (all direct materials), P98,000 c Utility costs incurred in the factory, P15,000 d Salaries and wages incurred as follows: Direct labor P175,000 Indirect labor P70,000 Selling and administrative salaries P125,000 e Maintenance costs incurred in the factory, P15,000 f Advertising costs incurred, P89,000 g Depreciation recorded for the year, P80,000 (80% relates to factory assets and the remainder relates to selling and administrative assets) h Rental cost incurred on buildings, P70,000, (75% of the space is occupied by the factory, and 25% is occupied by sales and administration) i Miscellaneous selling and administrative costs incurred, P11,000 j Manufacturing overhead cost was applied to jobs as per company policy k Cost of goods manufactured for the year, P500,000 l Sales for the year (all on account) totaled P1,000,000 These goods cost P600,000 to manufacture Required: Prepare journal entries to record the information above Key your entries by the letters a through l Answer: a Raw Materials Accounts Payable 86,000 b Work in Process Raw Materials 98,000 c Manufacturing Overhead Accounts Payable 15,000 d Work in Process Manufacturing Overhead Salaries Expense Salaries and Wages Payable 175,000 Managerial Accounting, 9/e 86,000 98,000 15,000 70,000 125,000 370,000 77 94 Hard e Manufacturing Overhead Accounts Payable 15,000 f Advertising Expense Accounts Payable 89,000 g Manufacturing Overhead Depreciation Expense Accumulated Depreciation 64,000 16,000 h Manufacturing Overhead Rent Expense Accounts Payable 52,500 17,500 i Miscellaneous Expense Accounts Payable 11,000 j Work in Process Manufacturing Overhead ((P200,000/P160,000) x P98,000)) 122,500 k Finished Goods Work in Process 500,000 l Accounts Receivable Sales 1,000,000 Cost of Goods Sold Finished Goods 600,000 15,000 89,000 80,000 70,000 11,000 122,500 500,000 1,000,000 600,000 Carver Test Systems manufactures automated testing equipment The company uses a job-order costing system and applies overhead on the basis of machine-hours At the beginning of the year, estimated manufacturing overhead was P1,960,000 and the estimated machine-hours was 98,000 Data regarding several jobs at Carver are presented below Job Number XJ-107 ST-211 XD-108 SL-205 RX-115 Beginning Balance P118,600 121,450 21,800 34,350 - Direct Materials P 4,000 2,500 86,400 71,800 18,990 Direct Labor P 8,400 12,160 36,650 32,175 21,845 Machine Hours 150 300 3,100 2,700 1,400 By the end of the first month (January), all jobs but RX-115 were completed, and all completed jobs had been delivered to customers except for SL-205 Required: What was the balance in Finished Goods inventory at the end of January? Answer: The Finished Goods inventory consists only of job SL-205 The balance Managerial Accounting, 9/e 78 in the account is computed as follows: Beginning balance, job SL-205 P 34,350 November charges to job SL-205 Direct materials 71,800 Direct labor 32,175 Manufacturing overhead applied* 54,000 Ending balance, job SL-205 P192,325 * Predetermined overhead rate = P1,960,000 ÷ 98,000 MH = P20 per MH Overhead applied = 2,700 machine-hours X P20 per MH = P54,000 95 Medium Dotsero Technology, Inc., has a job-order costing system The company uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct materials cost At the beginning of the most recent year, the company’s management made the following estimates for the year: Machine-hours Direct labor-hours Direct materials cost Direct labor cost Manufacturing overhead cost Department A B 70,000 19,000 30,000 60,000 P195,000 P282,000 P260,000 P520,000 P420,000 P705,000 Job 243 entered into production an April and was completed on May 12 The company’s cost records show the following information about the job: Machine-hours Direct labor-hours Direct materials cost Direct labor cost Department A B 250 60 70 120 P840 P1,100 P610 P880 At the end of the year, the records of Dotsero showed the following actual cost and operating data for all jobs worked on during the year: Machine-hours Direct labor-hours Direct materials cost Manufacturing overhead cost Department A B 61,000 20,000 28,000 66,000 P156,000 P284,000 P385,000 P705,000 Required: a Compute the predetermined overhead rates for Department A and Department B b Compute the total overhead cost applied to Job 243 c Compute the amount of underapplied or overapplied overhead in Managerial Accounting, 9/e each 79 department at the end of the current year Answer: a Department A predetermined overhead rate: Estimated overhead cost/Estimated machine-hours = P420,000/70,000 = P6.00 Department B predetermined overhead rate: Estimated overhead cost/Estimated direct materials cost = P705,000/P282,000 = 250% of direct materials cost b Overhead applied to Job 243: Department A: 250 x P6.00 = Department B: P1,100 x 2.5 = c 96 Medium P1,500 P2,750 P4,250 Department A Manufacturing overhead incurred P385,000 Manufacturing overhead applied: 61,000 X P6.00 = 366,000 P284,000 X 250% = Underapplied (overapplied) overhead P 19,000 Department B P705,000 710,000 P (5,000) Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours The following estimates were used in preparing the predetermined overhead rate for the most recent year: Machine hours Manufacturing overhead cost 95,000 P1,710,000 During the most recent year, a severe recession in the company’s industry cause the curtailment of production and a buildup of inventory in the company’s warehouses The company’s cost records revealed the following actual cost and operating data for the year: Machine hours Manufacturing overhead cost 75,000 P1,687,500 Amount of applied overhead in inventories at year-end: Work in process P 337,500 Finished goods 253,125 Amount of applied overhead in cost of goods sold for the year 759,375 Required: a Compute the company’s predetermined overhead rate for the and the amount of under- or overapplied overhead for the year year b Determine the difference between net income for the year if under- or overapplied overhead is allocated to the appropriate accounts rather than closed directly to Cost of Goods Sold the Managerial Accounting, 9/e 80 Answer: The company’s predetermined overhead rate for the year is: P1,710,000/95,000 = P18 per machine hour The amount of under-/overapplied overhead is: Actual overhead Applied overhead (P18 X 75,000) Underapplied overhead P1,687,500 1,350,000 P 337,500 Allocation of underapplied overhead: Overhead applied in work in process Overhead applied in finished goods Overhead applied in cost of goods sold Total overhead applied P 337,500 253,125 759,375 P1,350,000 25.00% 18.75% 56.25% 100.00% P 84,375 63,281 189,844 P337,500 The entire amount of underapplied overhead P337,500 is added to Cost of Goods Sold where no allocation occurs Allocation results in only P189,844 being added to Cost of Goods Sold Net income would be higher under allocation by P337,500 - P189,844 = P147,650 Managerial Accounting, 9/e 81 97 Medium The following cost data relate to the manufacturing activities of the Kamas Company during the most recent year: Manufacturing overhead costs incurred during the year: Property taxes Utilities, factory Indirect labor Depreciation, factory Insurance, factory Total actual costs P 1,600 2,600 5,100 13,000 2,500 P24,800 Other costs incurred during the year: Purchases of raw materials Direct labor cost P15,000 22,000 Inventories: Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending P 5,000 4,400 3,500 4,500 The company uses a predetermined overhead rate to charge overhead cost to production The rate for the year just completed was P4.00 per machine-hour; a total of 6,000 machine-hours were recorded for the year Required: a Compute the amount of under- or overapplied overhead cost for year just ended b Prepare a schedule of cost of goods manufactured for the the year Answer: a Actual total manufacturing overhead cost P24,800 Manufacturing overhead applied: 6,000 x P4.00 = 24,000 Underapplied manufacturing overhead P 800 b Kamas Company Schedule of Cost of Goods Manufactured For the Year Just Ended Direct materials: Raw materials, beginning P 5,000 Add purchases of raw materials 15,000 Raw materials available for use 20,000 Deduct raw materials inventory, ending 4,400 Managerial Accounting, 9/e 82 Raw materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add beginning work in process 15,600 22,000 24,000 61,600 3,500 65,100 Deduct ending work in process 4,500 Cost of goods manufactured P60,600 Managerial Accounting, 9/e 83 98 Hard Arthur Manufacturing Company produces a single product The controller has asked your help in preparing a schedule of cost of goods manufactured for the month just ended The following information is available: Eleven thousand units were sold at P22 per unit Thirteen thousand units requiring one unit each of raw were produced materials Raw materials inventory at the beginning of the month was units at P4 each 1,100 During the month, two purchases of raw materials were made: Purchase #1: 7,000 units at P5 each Purchase #2: 6,000 units at P5.50 each The company uses the first-in, first-out method of raw materials inventories determining The work in process inventories were: Beginning of the month: End of the month: 1,500 units valued at P17,000 1,500 units valued at P19,000 Direct labor cost was P110,000 Overhead is applied to production on the basis of 65% of direct labor cost Required: Prepare a schedule of cost of goods manufactured for the month Managerial Accounting, 9/e 84 Answer: Arthur Manufacturing Company Schedule of Cost of Goods Manufactured For the Year Just Ended Raw materials used: Beginning raw materials inventory Purchases Raw materials available Ending raw materials inventory Raw materials used Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Work in process, beginning Deduct: Work in process, ending Cost of goods manufactured P 4,400 68,000 72,400 6,050 66,350 110,000 71,500 247,850 17,000 264,850 19,000 P245,850 Computations: Raw materials: Beginning: 1,100 @ P4 Purchases: 7,000 @ P5 P35,000 6,000 @ P5.50 33,000 Ending: 1,100 @ P5.50 Raw materials used P 4,400 68,000 (6,050) P69,350 Units: 1,100 + 7,000 + 6,000 – 13,000 = 1,100 units in ending inventory Factory overhead applied to work in process: P110,000 x 0.65 = P71,500 Managerial Accounting, 9/e 85