Chapter 2 Job-Order Costing For Manufacturing And Service .
Full file at https://FratStock.euChapter 2Job-Order Costing for Manufacturing and Service CompaniesQUESTIONS1. Manufacturing costs include all costs associated with the production of goods.Examples of manufacturing costs are: labor costs of workers directly involved withmanufacturing goods, cost of all materials directly traced to products, indirectfactory labor, indirect materials used in production, depreciation of productionequipment, and depreciation of the manufacturing facility.Nonmanufacturing costs are all costs that are not associated with the production ofgoods. These typically include selling costs and general and administrative costs.2. Product costs are assigned to goods produced. Product costs are assigned toinventory and become an expense when inventory is sold. Period costs are notassigned to goods produced. Period costs are identified with accounting periodsand are expensed in the period incurred.3. Two common types of product costing systems are (1) job-order costing systemsand (2) process costing systems.Job-order costing systems are generally used by companies that produceindividual products or batches of unique products. Companies that use job-ordercosting systems include custom home builders, airplane manufacturers, and shipbuilding companies.Process costing systems are used by companies that produce large numbers ofidentical items passing through uniform and continuous production operations.Process costing tends to be used by beverage companies and producers ofchemicals, paints, and plastics.4. A job cost sheet is a form that is used to accumulate the cost of producing a job.The job cost sheet contains information on direct materials, direct labor, andmanufacturing overhead related to a particular job.5. Actual overhead is not known until the end of the accounting period. If managersused actual overhead rates to apply overhead to jobs, they would have to wait untilthe end of the period to determine the cost of jobs. In order to make timelydecisions, managers need to know the cost of jobs before the end of theaccounting period.
Full file at https://FratStock.eu2-2Jiambalvo Managerial Accounting6. An important characteristic of a good overhead allocation base is that it should bestrongly related to overhead cost. Assume that setup costs are classified asmanufacturing overhead. The number of setups that a job requires would be abetter allocation base for setup costs than would the number of direct labor hoursworked on that job. Number of setups is more closely related to setup costs than isthe number of direct labor hours and, therefore, number of setups is a betterallocation base.7. In highly automated companies where direct labor cost is a small part of totalmanufacturing costs, it is unlikely that overhead costs vary with direct labor.Further, in such companies, predetermined overhead rates based on direct labormay be quite large. Thus, even a small change in labor (the allocation base) couldhave a large effect on the overhead cost allocated to a job.Companies that are capital-intensive should consider using machine hours as anallocation base (or better still, they should consider the use of an activity-basedcosting system, which is discussed in more detail in Chapter 6).8. It is necessary to apportion over- or underapplied overhead among Work inProcess Inventory, Finished Goods Inventory, and Cost of Goods Sold accounts ifthe amount in the Manufacturing Overhead account is material whether a debit orcredit balance. This assumes that the balances in Work in Process and FinishedGoods are relatively large. If a company used a just-in-time systems and thesebalances were quite small, then it would be reasonable to just close over- orunderapplied overhead to Cost of Goods Sold.9. An unexpected increase in production would typically result in overhead beingoverapplied. Overhead is applied using a predetermined rate which equalsestimated total overhead cost (including variable and fixed overhead) divided bythe estimated level of the allocation base. Overhead applied equals thepredetermined rate times the actual use of the allocation base. An unexpectedincrease in production means that the fixed component of the predeterminedoverhead rate will be multiplied by a larger number than anticipated. Thus, morefixed overhead will be applied than the company is likely to incur.10. As companies move to computer-controlled manufacturing systems and greater use ofrobotics, direct labor will likely decrease (due to decreased need for workers) andmanufacturing overhead will likely increase (due to higher depreciation costsassociated with the computer-controlled systems).
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing Practices2-3EXERCISESE1. [LO 4] Managers at Company A will perceive that overhead cost allocated to jobsincreases with the amount of direct labor used. If they are evaluated on how well theycontrol the cost of jobs, they will try to cut back on labor, which not only reduces laborcosts but also overhead allocated to jobs they supervise. Following similar logic,managers at Company B will cut back on machine time and managers at Company Cwill make a special effort to control material costs (by reducing waste, searching forlower prices, etc). Note that the measure of performance (reduction in job costs)combined with the approach to allocating overhead drives managers to focus ondifferent factors—this is a good example of “You get what you measure!”E2. [LO 5, 7] If over- or underapplied overhead is large, we typically allocate it to Work inProcess, Finished Goods and Cost of Goods Sold based on the relative balances inthese accounts. However, if a company uses JIT, the balances in Work in Processand Finished Goods are likely to be quite small compared to the balance in Cost ofGoods Sold. Thus, there will be only a small difference between assigning all of theover- or underapplied overhead to cost of goods sold versus apportioning it among thethree accounts based on their relative balances.E3. [LO 4, 5] The predetermined overhead rate at Precision Custom Molds is 100 perdirect labor hour ( 20,000,000 200,000). Given Job 525 has 25 direct labor hours, 2,500 of overhead would be applied to it ( 100 x 25).E4. [LO 3]a. Pb. Pc. Jd. Je. Pf. JE5. [LO 1, 2]a.b.c.d.YNYYe.f.g.h.NYYN
Full file at https://FratStock.eu2-4Jiambalvo Managerial AccountingE6. [LO 2, 4] Note that direct materials are charged to Work in Process Inventorywhile indirect materials are charged to Manufacturing Overhead.Work in Process Inventory200,000Raw Materials InventoryManufacturing OverheadRaw Materials Inventory200,00010,00010,000E7. [LO 2, 4] Note that direct materials are charged to Work in Process Inventorywhile indirect materials are charged to Manufacturing Overhead.Work in Process InventoryRaw Materials Inventory(250 350 400 500 1,500)1,500Manufacturing OverheadRaw Materials Inventory1001,500100E8. [LO 2, 4] Note that direct labor is charged to Work in Process Inventory whileindirect labor is charged to Manufacturing Overhead.Work in Process InventoryWages Payable70,000Manufacturing OverheadWages Payable50,00070,00050,000
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing PracticesE9. [LO 2, 4]a.b.Job No. 201110 hrs. 10/hr90 hrs. 21/hr.40 hrs. 12/hr.Total 1,1001,890480 3,470Job No. 20250 hrs. 20/hr. 1,000Job No. 20370 hrs. 18/hr. 1,260Labor Report for the month of February (by 1109040240Rate10.0021.0012.00Cost Total labor chargesWork in Process InventoryWages Payable 5,7305,7305,730E10. [LO 5](1)Predetermined overhead allocation rate based on direct labor hours: 900,000 60,000 DLH 15 per direct labor hour(2)Predetermined overhead allocation rate based on direct labor costs: 900,000 1,800,000 0.50 per dollar of direct labor(3)Predetermined overhead allocation rate based on machine hours: 900,000 30,000 machine hours 30 per machine hour2-5
Full file at https://FratStock.eu2-6Jiambalvo Managerial AccountingE11. [LO 4, 5, 6]a. The use of predetermined overhead rates makes it possible to cost jobsimmediately after they are completed. If a company used an actual overheadrate, then job costs would not be available until the end of the accounting period.If Franklin Computer Repair charges customers based on actual job cost, itwould be detrimental to customer service and company cash flows to have towait until the end of the accounting period to bill customers.b. The overhead rate is: 500,000 800,000 0.625 per dollar of technician wages.Total job cost 200 100 ( 100 x 0.625) 362.50E12. [LO 4, 5]a. Predetermined overhead rates:Allocation baseDirect labor hoursPredetermined Overhead Rate 1,000,000 40,000 DLH 25 per direct labor hourDirect labor cost 1,000,000 625,000 1.60 per dollar of direct labor costMachine hours 1,000,000 20,000 MH 50 per machine hourDirect material cost 1,000,000 800,000 1.25 per dollar of direct materialb. Cost of Job No. 253 using different allocation bases:CostDirect MaterialsDirect laborManufacturing Overhead*TotalDLH 3,0001,8003,750 8,550*Overhead rates in “a” above x actual activity.DL cost 3,0001,8002,880 7,680MH 3,0001,8007,500 12,300DM cost 3,0001,8003,750 8,550
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing Practices2-7E13. [LO 2, 4, 5]a. Overhead applied is equal to 3 100,000 of direct labor 300,000.Work in Process Inventory 300,000Manufacturing Overhead 300,000b. Actual overhead is 260,000Manufacturing Overhead260,000Raw Materials InventoryWages PayableUtilities PayableAccumulated DepreciationRepairs Payable40,00080,00025,00060,00055,000E14. [LO 5, 7]a. Overhead applied is 300,000 while actual overhead is 260,000. Thus,Manufacturing Overhead has a 40,000 credit balance. The journal entry to closethe account to Cost of Goods Sold is:Manufacturing OverheadCost of Goods Sold40,00040,000b. Closing the balance in Manufacturing Overhead leads to product costs that areconsistent with actual overhead costs rather than estimated overhead costs.c. Because Star Plastics uses a just-in-time inventory system, the balances in Workin Process and Finished Goods are likely to be quite small compared to Cost ofGoods Sold. Thus, there is not likely to be a significant difference betweencharging the entire amount of overapplied overhead to Cost of Goods Soldversus apportioning it among Work in Process, Finished Goods and Cost ofGoods Sold.E15. [LO 4, 5]Cost Summary: Job 325Direct MaterialDirect Labor (250 hours x 16/hour)Manufacturing Overhead:( 25 per direct labor hour x 250 hours)Total 10,0004,0006,250 20,250
Full file at https://FratStock.eu2-8Jiambalvo Managerial AccountingE16. [LO 4, 5, 6]Estimated overhead 210,000 which is allocated based on cost of attorney andparaprofessional time.Budgeted salaries: (5 100,000) (9 x 50,000) 950,000Predetermined overhead rate 210,000 950,000 0.22 per dollar ofattorney and paraprofessional time.If client services require 45,000 in salaries, then indirect costs assigned are: 45,000 0.22 9,900.E17. [LO 5] Since the Manufacturing Overhead account has an ending credit balance(before adjustment), manufacturing overhead for the period is overapplied. Theproblem states that the balance is material—this suggests that we prorate thebalance among Work in Process Inventory, Finished Goods Inventory, and Costof Goods Sold.AccountsBalanceWork in Process Inventory 500,000Finished Goods Inventory600,000Cost of Goods Sold900,000Total 2,000,000Manufacturing OverheadWork in Process InventoryFinished Goods InventoryCost of Goods Sold% ofTotal253045TotalOverapplied 90,00090,00090,000Adjustment 22,50027,00040,500 90,00090,00022,50027,00040,500E18. [LO 7] Examples of negative events that would require a company holdinginventory are as follows:1. Strikes at a supplier would interrupt delivery of critical materials.2. Unanticipated machine break-downs would interrupt production.3. Natural disasters or terrorist attacks would interrupt the delivery of materials.E19. [LO 4] Estimated manufacturing overhead was 2,000,000 and eighty percentwas fixed. When the sequence of material movements was changed and 30,000of machine hours were saved, 1,600,000 (80% of 2,000,000) would remainunchanged. If variable manufacturing overhead is approximately 4 per hour( 400,000 100,000) the new variable portion would be 280,000 ( 4 x (100,000– 30,000)) which would make the total overhead about 1,880,000. The savingsis only 120,000 or 4 per hour, much less than 20 per hour.
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing Practices2-9E20. Student answers will vary. See below for possible ideas.One concept is the calculation of cost of goods manufactured and cost of goodssold. This concept is very important to someone who is an accountant for amanufacturing company. Accountants will need accurate information aboutdirect materials, direct labor, and manufacturing overhead in determining the costof manufactured products. From there, accountants can calculate the company’scost of goods sold. It is important for these numbers to be calculated correctlysince an overstatement of cost of goods sold will lead to an understatement ofnet income and vice versa. Accountants have a responsibility to gather correctinformation and communicate this information to others who rely on it. Thus,accountants must make sure that accurate cost records are kept throughout eachyear.
Full file at https://FratStock.eu2-10 Jiambalvo Managerial AccountingPROBLEMSP1. [LO 3]a.Satterfield’s Custom GlassSchedule of Cost of Goods ManufacturedFor the Year Ended December 31, 2017Beginning balance in work in process inventoryAdd current manufacturing costs:Direct material 2,500,000Direct labor3,000,000Manufacturing overhead1,700,000TotalLess ending balance in work in process inventoryCost of goods manufacturedb. 210,0007,200,0007,410,000300,000 7,110,000Satterfield’s Custom GlassIncome StatementFor the Year Ended December 31, 2017SalesLess cost of goods sold:Beginning finished goods inventoryAdd cost of goods manufacturedCost of goods available for saleLess ending finished goods inventoryGross profitLess nonmanufacturing expenses:Selling & admin. expensesNet income (loss) 8,500,000 1,350,000( 60,000)
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing PracticesP2. [LO 3]a.Terra Cotta DesignsSchedule of Cost of Goods ManufacturedFor the Year Ended December 31, 2017Beginning balance in work in process inventoryAdd current manufacturing costs:Direct material:Beginning balance 450,000Purchases1,500,000Ending balance(200,000) 1,750,000Direct labor2,500,000Manufacturing Overhead650,000TotalLess ending balance in work in process inventoryCost of goods manufacturedb. 650,0004,900,0005,550,000350,000 5,200,000Terra Cotta DesignsIncome StatementFor the Year Ended December 31, 2017SalesLess cost of goods sold:Beginning finished goods inventoryAdd cost of goods manufacturedCost of goods available for saleLess ending finished goods inventoryGross profitLess nonmanufacturing expenses:Selling expensesGeneral & admin. expensesNet income 7,000,000 0,0001,400,0001,350,000 50,0002-11
Full file at https://FratStock.eu2-12 Jiambalvo Managerial AccountingP3. [LO 4]a. Cost of Jobs:Direct materialsDirect laborMfg. overheadTotal1005 6501,6002,880* 5,13010061007 850 1,5502,0003,3003,6005,940 6,450 10,7901008 6501,4002,520 4,570* 1,600 x 180%b.Raw Material InventoryAccounts Payable(To record purchase of steel)Raw Material InventoryCash(To record purchase of supplies)5,5005,5002,4002,400Work in Process Inventory4,500Manufacturing Overhead1,000Raw Material Inventory(To record materials used in production)Work in Process InventoryManufacturing OverheadWages Payable(To record labor)5,5009,9006,50016,400Work in Process Inventory17,820Manufacturing Overhead(To record overhead applied to production)17,820Finished Goods Inventory26,940Work in Process Inventory(To record cost of jobs completed)26,940Accounts Receivable40,410Cost of Goods Sold26,940SalesFinished Goods Inventory(To record the sale of finished goods)40,41026,9401009 4509001,620 2,9701010 3507001,260 2,310
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing PracticesP4. [LO 2, 3, 4]a.The beginning balance in Work in Process is 14,500:Job 258 5,000Job 2596,000Job 2603,500Total 14,500The ending balance in Work in Process Inventory is 8,400:Job 345 2,500Job 3465,900Total 8,400b.The beginning balance in Finished Goods Inventory is 9,000:Job 257 9,000The ending balance in Finished Goods Inventory is 11,700:Job 341 1,500Job 3423,300Job 3432,400Job 3444,500Total 11,700c.Cost of goods sold is determined as follows:Beginning balance in work in process inventoryAdd current manufacturing costs:Direct material 750,000Direct labor1,650,000Manufacturing overhead2,150,000TotalLess ending balance in work in process inventoryCost of goods manufacturedBeginning finished goods inventoryAdd cost of goods manufacturedCost of goods available for saleLess ending finished goods inventoryCost of goods sold 14,5004,550,0004,564,5008,400 4,556,100 9,0004,556,1004,565,10011,700 4,553,400Job 257 through Job 340 likely relate to the balance of Cost of Goods Sold.2-13
Full file at https://FratStock.eu2-14 Jiambalvo Managerial AccountingP5. [LO 4, 5]a. Predetermined overhead rate based on labor hours: 12,000,000 300,000 hours 40 per labor hourOverhead assigned to the model K25 shoe based on labor hours: 40 x 11,000 hours 440,000Predetermined overhead rate based on labor cost: 12,000,000 4,800,000 2.50 per labor dollarOverhead assigned to the model K25 shoe based on labor cost: 2.50 x 165,000 412,500b. Direct labor cost is the preferred allocation base because workers paid a higherrate work on more complex jobs, and more complex jobs lead to moreoverhead cost.P6. [LO 4, 5]a. Predetermined overhead rate based on direct labor cost: 200,000 300,000 labor cost 0.67 per labor dollarPredetermined overhead rate based on direct labor hours: 200,000 25,000 hours 8.00 per labor hourPredetermined overhead rate based on machine hours: 200,000 8,000 machine hours 25 per machine hourb.Overhead based on labor costJob 9823Job 9824Direct material 1,000 2,000Direct labor1,4001,400Mfg. overhead938938Total 3,338 4,338
Full file at https://FratStock.euChapter 2 Job-Order Costing and Modern Manufacturing PracticesMaterialLaborOverhead*Total2-15Overhead based on labor hoursJob 9823Job 9824 1,000 2,0001,4001,4001,2001,040 3,600 4,440*Actual direct labor hours x 8Overhead based on machine hoursJob 9823Job 9824Material 1,000 2,000Labor1,4001,400Overhead*3,2506,750Total 5,650 10,150*Actual machine hours x 25c. Given that depreciation on equipment accounts for 75 percent of appliedoverhead costs, an allocation based on machine hours seems reasonable.However, users of the job cost information should keep in mind that the appliedoverhead portion of job cost is not an incremental cost.P7. [LO 5]a.Net Income, if over-applied overhead is immaterial and assigned to Cost of GoodsSold.OH applied .75 x 700,000 Actual OH 525,000450,000 75,000Therefore, overhead was over-applied by 75,000SalesCGS ( 1,000,000 - 75,000)Gross ProfitSelling & Admin. ExpensesNet Income 2,500,000925,0001,575,0001,000,000 575,000
Full file at https://FratStock.eu2-16 Jiambalvo Managerial Accountingb.Net Income, if over applied overhead is material and prorated among appropriateaccounts.BalanceWIP Inventory 80,000FG Inventory48,000COGS1,000,000Total 1
Jiambalvo Managerial Accounting 2-4 E6. [LO 2, 4] Note that direct materials are charged to Work in Process Inventory while indirect materials are charged to Manufacturing Overhead. Work in Process Inventory 200,000 Raw Materials Inventory 200,000 Manufacturing Overhead 10,000 Raw Materials Inventory 10,000 E7.
costing system and is examined in detail in Chapter 6. A comparison of job-order costing and process costing is given in Exhibit 5-1. Production Costs in Job-Order Costing While the variety of product-costing definitions discussed in Chapter 2 applies to both job-order and process costing
costing is a system in which actual costs incurred in the past are ascertained. b. Pre-determined costs / standard cost: Standard costing is not a method of costing like job order on process costing. It is a special technique control costs and can be used in conjunction with any other system like job costing, process costing or marginal costing .
Topic 6 – The job costing system 207 Study unit 13: The job costing system 208 1 Introduction 208 2 Costing systems 208 3 Description of job costing 209 4 The flow of documents in a job costing system 209 5 Manufacturing cost flow through ledger accounts using the job costing system 209 6 Summary 213 Self-assessment Activity 213
4. There are two basic types of cost accounting systems: job order costing and periodic costing. Answer: False Blooms: Remember AACSB: Communication AICPA BB: Industry AICPA FN: Measurement Difficulty: 1 Easy Learning Objective: 02-C1 Topic: Job Order Costing 5. There are two basic types of cost accounting systems: job order costing and process
The Job Costing workflow is represented by the following diagram: Job Costing Integration The Job Costing module integrates with Exo Business as follows: . Providing an overview of the Job Costing structure (see page 10), including job status and .
The process of setting up Job Costing, includes the following steps: Detailing . configuration changes to the MYOB EXO Business system (see page 3) to prepare for the use of Job Costing. Installation and licensing (see page 6) of your Job Costing module Providing an overview of the Job Costing structure (see page 9), including job status and .
The process of setting up Job Costing, includes the following steps: Detailing configuration changes to the MYOB EXO Business system (see page 3) to prepare for the use of Job Costing. Installation and licensing (see page 6) of your Job Costing module Providing an overview of the Job Costing structure (see page 9), including job .
2. Use a single plantwide factory overhead rate for product costing. 3. Use multiple production department factory overhead rates for product costing. 4. Use activity-based costing for product costing. 5. Use activity-based costing to allocate selling and administrative expenses to products. 6. Use activity-based costing in a service business .
