ACC 204: Introduction to Manufacturing Cycle; Job Order Costing

Sample Problems:

Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw
material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on
hand. Raw material used during the month was
a. $26,400.
b. $34,100.
c. $37,300.
d. $29,600.
ANS: A
Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used
$4,500 + 29,600 - 7,700 = X
X = $26,400

DIF: Easy OBJ: 2-4

Putnam Company manufacturers computer stands. What is the beginning balance of Finished Goods
Inventory if Cost of Goods Sold is $107,000; the ending balance of Finished Goods Inventory is $20,000;
and Cost of Goods Manufactured is $50,000 less than Cost of Goods Sold?
a. $70,000
b. $77,000
c. $157,000
d. $127,000
ANS: A
Beg Fin Goods Invy + Cost of Goods Manufactured - Ending Fin Goods Invy = COGS
X + $57,000 - $20,000 = $107,000

X = $70,000

The following miscellaneous data has been collected for a manufacturing company for the most recent year-end:

Inventories: Beginning Ending

Raw material $50,000 $55,000
Work in process 40,000 45,000
Finished goods 60,000 50,000
Costs recorded during the year:
Purchases of raw material $195,000
Direct labor 150,000
Cost of goods sold 595,000

Required: Prepare a cost of goods manufactured statement showing how all unknown amounts were
determined.

ANS:

BEGIN WIP $ 40,000

+ DM (1) 190,000
 + DC 150,000
+ OH ? = $250,000
- END WIP (45000)
= COGM (2) $585,000

(1) BEG RM $ 50,000

+ PURCHASE 195,000
- END RM
(55,000)
= DM $190,000

(2) BEGIN FG $ 60,000

+ COGM ? = $585,000
- END FG (50,000)
= COGS $595,000

DIF: Moderate OBJ: 2-5

The following information was taken from the records of the Enterprise Corporation for the month of July.
(There were no inventories of work in process or finished goods on July 1.)

Units Cost
Sales during month 8,000 $ ?
Manufacturing costs for month:
Direct material 32,000
Direct labor 20,000
Overhead costs applied 15,000
Overhead costs under-applied 800
Inventories, July 31:
Work in process 1,000 ?
Finished goods 2,000 ?

Indirect manufacturing costs are applied on a direct labor cost basis. The under-applied balance is due to
seasonal variations and will be carried forward. The following cost estimates have been submitted for the
work in process inventory of July 31: material, $3,000; direct labor, $2,000.

Required:

a. Determine the number of units that were completed and transferred to finished goods during
the month.
b. Complete the estimate of the cost of work in process on July 31.
c. Prepare a manufacturing statement for the month.
d. Determine the cost of each unit completed during the month.
e. Determine the total amount debited to the Overhead Control accounts during the month.

ANS:

a. 8,000 SOLD + 2,000 ENDING FG = 10,000 UNITS

b. DM $3,000
 DC 2,000
OH 1,500 $15,000 x $2,000
$6,500 $20,000
c. DM $32,000
DL 20,000
OH 15,000
- END WIP (6,500)
= COGM $60,500
d. COGM/COMPLETE UNITS = $ 60,500 = $6.05/UNIT
10,000 UNITS
e. OH APPLIED $15,000
+ OH UNDERAPPLIED 800
ACTUAL OH $15,800

DIF: Moderate OBJ: 2-5

The Magnolia Forest Corporation had the following account balances:

Raw Material Manufacturing Overhead

Bal. 1/1 30,000 Credits ? Debits 385,000 Credits ?

Debits 420,000

Bal. 12/31 60,000

Work in Process Factory Wages Payable

Bal. 1/1 70,000 Credits 810,000 Debits 179,000 Bal.1/1 10,000

Direct material 320,000 Credits 175,000
110,000
Overhead 400,000 Bal. 6,000
12/31
Bal. 12/31 ?

Finished Goods Cost of Goods Sold

Bal. 1/1 40,000 Credits Debits ?

?
Debits ?

Bal. 12/31 130,000

Required:
a. What was the cost of raw material put into production during the year?
b. How much of the material from question 1 consisted of indirect material?
c. How much of the factory labor cost for the year consisted of indirect labor?
d. What was the cost of goods manufactured for the year?
e. What was the cost of goods sold for the year (before considering under- or overapplied
overhead)?
 f. If overhead is applied to production on the basis of direct material, what rate was in effect
during the year?
g. Was manufacturing overhead under- or overapplied? By how much?
h. Compute the ending balance in the Work in Process Inventory account. Assume that this
balance consists entirely of goods started during the year. If $32,000 of this balance is direct
material cost, how much of it is direct labor cost? Manufacturing overhead cost?

ANS:

a. $30,000 + $420,000 - $60,000 = $390,000

b. $390,000 - $320,000 DM = $70,000
c. $175,000 - $110,000 DL = $65,000
d. $810,000
e. $40,000 + $810,000 - $130,000 = $720,000
f. $400,000/$320,000 = 125% DM Cost
g. OH Actual $385,000
OH Applied 400,000
OH Overapplied $ 15,000
h. Beginning WIP $ 70,000 DM $32000
+ DM 320,000 DL (To Balance) 18,000
+ DC 110,000 FOH (1) 40,000
+ OH 400,000 End WIP $90,000
- Ending WIP (90000)
= COGM $810,000 (1) $32,000 x 125% = $40,000

DIF: Moderate OBJ: 2-5

Furman Tailors has gathered information on utility costs for the past year. The controller has decided that
utilities are a function of the hours worked during the month. The following information is available and
representative of the company’s utility costs:

Hours worked Utility cost incurred

Low point 1,300 $ 903
High point 1,680 1,074

If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using the high-low
method should be
a. $947.
b. $954.
c. $959.
d. $976.
ANS: C
Variable portion:

Fixed Portion
903 - 0.45 ( 1,300) = $318
 Y = $318 + $0.45(1,425) = $959

DIF: Moderate OBJ: 3-4

Reno Corporation uses a predetermined overhead application rate of $.30 per direct labor hour. During the year it
incurred $345,000 dollars of actual overhead, but it planned to incur $360,000 of overhead. The company
applied $363,000 of overhead during the year. How many direct labor hours did the company plan to
incur?
a. 1,150,000
b. 1,190,000
c. 1,200,000
d. 1,210,000
ANS: C
$360,000 / .30 = 1,200,000 direct labor
hours

DIF: Easy OBJ: 3-4

Birmingham Machine Works had the following data regarding monthly power costs:

Month Machine hours Power cost

Jun 300 $680
Jul 600 720
Aug 400 695
Sept. 200 640

Assume that management expects 500 machine hours in October. Using the high-low method, calculate
October’s power cost using machine hours as the basis for prediction.
a. $700
b. $705
c. $710
d. $1,320
ANS: A
Variable portion:

Fixed portion:

$640 - (200 *$0 .20) = $600

$600 + (500*$0.20) = $700

DIF: Easy OBJ: 3-4

Gary Corporation has developed the following flexible budget formula for monthly overhead:

For output of less than 200,000 units: $36,600 + $.80(units)

For output of 200,000 units or more: $43,000 + $.80(units)

How much overhead should Gary expect if the firm plans to produce 200,000 units?
a. $52,600
b. $59,000
c. $196,600
d. $203,000
ANS: D
$43,000 + $0.80(200,000) = $43,000 + $160,000 =
$203,000

DIF: Easy OBJ: 3-5

Zenith Corporation

The records of Zenith Corporation revealed the following data for the current year.

Work in Process $ 73,150

Finished Goods 115,000
Cost of Goods Sold 133,650
Direct Labor 111,600
Direct Material 84,200

Refer to Zenith Corporation. Assume, for this question only, actual overhead is $98,700 and applied overhead is
$93,250. Manufacturing overhead is:
a. overapplied by $12,900.
b. underapplied by $18,350.
c. overapplied by $5,450.
d. underapplied by $5,450.
ANS: D
$98,700 - $93,250 = $5,450 underapplied

DIF: Easy OBJ: 3-2

Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $10,000 and that this amount is
immaterial. What is the balance in Cost of Goods Sold after the underapplied overhead is closed?
a. $133,650
b. $123,650
c. $143,650
d. $137,803
ANS: C

COGS + Underapplied Overhead = Adjusted COGS

$133,650 + $ 10,000 = $143,650

 DIF: Easy OBJ: 3-2

Hume Corporation has the following data for the current year:

Direct Labor $220,000

Direct Material 137,800
Actual Overhead 320,000
Applied Overhead 395,000
Raw Material 51,394
Work in Process 101,926
Finished Goods 111,192
Cost of Goods Sold 250,182

What is the amount of under- or overapplied overhead? Prepare the necessary journal entry to dispose of
under- or overapplied overhead.

ANS:

Applied Overhead $395,000

Actual Overhead 320,000
$ 75,000 overapplied

WIP $101,926/$463,300=.22 x $75,000 = $16,500

FG $111,192/$463,300=.24 x $75,000 = $18,000
CGS $250,182/$463,300=.54 x $75,000 = $40,500

Manufacturing Overhead $75,000

Work in Process $16,500
Finished Goods 18,000
Cost of Goods Sold 40,500

DIF: Moderate OBJ: 3-2

The McAlister Co. has the following information available regarding costs and revenues for two recent months.
Selling price is $20.

March April
Sales revenue $60,000 $100,000
Cost of goods sold -36,000 - 60,000
Gross profit $24,000 $ 40,000
Less other expenses:
Advertising $ 600 $ 600
Utilities 4,200 5,600
Salaries and commissions 3,200 4,000
Supplies (bags, cleaning supplies etc.) 320 400
Depreciation 2,300 2,300
 Administrative costs 1,900 1,900
Total -12,520 -14,800
Net income $11,480 $25,200

Required:

a. Identify each of the company's expenses (including cost of goods sold) as being either
variable, fixed, or mixed.
b. By use of the high-low method, separate each mixed expense into variable and fixed
elements. State the cost formula for each mixed expense.
c. What is the total cost equation?
d. Estimate total cost if sales = $75,000.

ANS:

a. Cost April May Behavior

COGS 36,000/60,000=60% 60,000/100,000=60% V
Advertising 600 600 F
Utilities 4,200/60,000= 7% 5,600/100,000=5.6% M
Salaries, Etc. 4,000/100,000=4% M
3,200/60,000=5.3%
Supplies 320/60,000 .53% 400/100,000=.4% M
Depreciation 2,300 2,300 F
Administration 1,900 1,900 F

b. Utilities $1,400 = 3.5% Sales

$40,000

FC = $4,200 - (3.5% x 60,000) = $2,100

Salaries $800/$40,000 = 2% Sales

FC = $3,200 - (2% x 60,000) = $2,000

Supplies $80/$40,000 = .2% sales

FC = $320 - (.2% x $60,000) = $200

c. Total FC = $600 + $2,300 + $1,900 + $2,100 + $2,000 + $200 = $9,100

Total VC = 60% + 3.5% + 2% + .2% = 65.7% sales
TC = $9,100 + 65.7% sales

d. TC = $9100 + (65.7% x $75,000) = $58,375

DIF: Moderate OBJ: 3-4

Products at Redd Manufacturing are sent through two production departments: Fabricating and Finishing.
Overhead is applied to products in the Fabricating Department based on 150 percent of direct labor cost
and $18 per machine hour in Finishing. The following information is available about Job #297:

Fabricating Finishing
Direct material $1,590 $580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
Overhead applied 429 ?

What is the total cost of Job #297?

a. $2,647
b. $3,005
c. $3,093
d. $3,203
ANS: D
Direct Labor Fabricating $429/1.50 = $286
Applied Overhead Finishing 15 hrs * $18 =
$270
Fabricating Finishing
Direct material $ 1,590 $ 580
Direct labor cost 286 48
Overhead applied 429 270
Total Costs 2,305 898 $ 3,203

DIF: Moderate OBJ: 4-4

Jackson Company.

Jackson Company uses a job order costing system and the following information is available from its
records. The company has three jobs in process: #6, #9, and #13.

Raw material used $120,000

Direct labor per hour $8.50
Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent, and 25
percent; the balance of the requisitions was considered indirect. Direct labor hours per job are 2,500;
3,100; and 4,200; respectively. Indirect labor is $33,000. Other actual overhead costs totaled $36,000.

Refer to Jackson Company. What is the prime cost of Job #6?

a. $42,250
b. $57,250
c. $73,250
d. $82,750
ANS: B
Direct Materials (120,000 * 30%) $ 36,000
Direct Labor (2500 * $8.50) 21,250

Total Prime Costs $ 57,250

DIF: Moderate OBJ: 4-4

Refer to Jackson Company. What is the total amount of overhead applied to Job #9?
a. $18,250
b. $26,350
c. $30,000
d. $31,620
ANS: D
Direct Labor Hours Direct Labor Rate OH Application Rate Total
3100 $8.50 120% $31,620

DIF: Moderate OBJ: 4-4

Refer to Jackson Company. What is the total amount of actual overhead?

a. $36,000
b. $69,000
c. $93,000
d. $99,960
ANS: C

Indirect Materials ($120,000 * 20%) $ 24,000

Indirect Labor 33,000
Other Overhead Costs 36,000
Total Prime Costs $ 93,000

DIF: Moderate OBJ: 4-4

Refer to Jackson Company. How much overhead is applied to Work in Process?

a. $ 69,000
b. $ 99,960
c. $132,960
d. $144,000
ANS: B

Direct Labor Hours 6 2500

9 3100
13 4200 9,800
Direct Labor Rate $ 8.50
Overhead Application Rate 120%
Total Overhead Applied $ 99,960
 Refer to Jackson Company. If Job #13 is completed and transferred, what is the balance in Work
in Process Inventory at the end of the period if overhead is applied at the end of the period?
a. $ 96,700
b. $ 99,020
c. $139,540
d. $170,720
ANS: D

Step 1: Determine Total Cost of Job 13

DM: $120,000 * .25 $ 30,000
DL: 4,200 * 8.50 35,700
FOH: 35,700 * 120% 42,840 108,540

Step 2: Compute Total Cost of Job 6

DM: $120,000 * .30 $ 36,000
DL: 2,500 * 8.50 21,250
FOH: 21,250 * 120% 25,500 82,750
Step 2: Compute Total Cost of Job 9
DM: $120,000 * .25 $ 30,000
DL: 3,100 * 8.50 26,350
FOH: 26,350 * 120% 31,620
87,970
Total Costs of Jobs 6 and 9 170,720

DIF: Difficult OBJ: 4-4

Refer to Jackson Company. Assume the balance in Work in Process Inventory was $18,500 on
June 1 and $25,297 on June 30. The balance on June 30 represents one job that contains direct material of
$11,250. How many direct labor hours have been worked on this job (rounded to the nearest hour)?
a. 751
b. 1,324
c. 1,653
d. 2,976
ANS: A

Step 1: Determine DL and FOH

WIP at June 30: $ 25,297
Less DM in WIP 11,250 14,047

Step 2: Separate DL and FOH

Let x = DL; 1.2x = FOH
x + 1.2x = 14,047
2.2x = 14,047
x = $6,385
 Step 3: Compute DL Hours
$6,385 ÷ 8.50 751 hours

DIF: Moderate OBJ: 4-4

Strong Products has no Work in Process or Finished Goods inventories at the close of business on December 31,
20X4. The balances of Strong Products’ accounts as of December 31, 20X4, are as follows:

Cost of goods sold--unadjusted $2,040,000

Selling & administrative expenses 900,000
Sales 3,600,000
Manufacturing overhead control 700,000
Manufacturing overhead applied 648,000

Pretax income for 20X4 is:

a. $608,000.
b. $660,000.
c. $712,000.
d. undeterminable from the information given.
ANS: A

Sales $ 3,600,000
Cost of Goods Sold 2,040,000
Factory Overhead Underapplied (700,000-648,000) 52,000 (2,092,000)
Selling, General and Administrative Expenses (900,000)
Pretax Income $ 608,000

DIF: Moderate OBJ: 4-4

Richards Company employs a job order costing system. Only three jobs-Job #205, Job #206, and Job #207-were
worked on during January and February. Job #205 was completed February 10; the other two jobs were
still in production on February 28, the end of the company's operating year. Job cost sheets on the three
jobs follow:

Job Cost Sheet

Job #205 Job #206 Job #207
January costs incurred:
Direct material $16,500 $ 9,300 $ —
Direct labor 13,000 7,000 —
Manufacturing overhead 20,800 11,200 —

February costs incurred:

Direct materials — 8,200 21,300
Direct labor 4,000 6,000 10,000
Manufacturing overhead ? ? ?
The following additional information is available:

a. Manufacturing overhead is assigned to jobs on the basis of direct labor cost.

b. Balances in the inventory accounts at January 31 were as follows:

Raw Material $40,000

Work in Process ?
Finished Goods 85,000

Required:
a. Prepare T-accounts for Raw Material, Work in Process Inventory, Finished Goods
Inventory, and Manufacturing Overhead Control. Enter the January 31 inventory
balances given previously; in the case of Work in Process Inventory, compute the
January 31 balance and enter it into the Work in Process Inventory T-account.

b. Prepare journal entries for February as follows:

1. Prepare an entry to record the issue of materials into production and post the entry to
appropriate T-accounts. (In the case of direct material, it is not necessary to make a
separate entry for each job.) Indirect materials used during February totaled $4,000.

2. Prepare an entry to record the incurrence of labor cost and post the entry to appropriate T-
accounts. (In the case of direct labor, it is not necessary to make a separate entry for each
job.) Indirect labor cost totaled $8,000 for February.

3. Prepare an entry to record the incurrence of $19,000 in various actual manufacturing

overhead costs for February (credit Accounts Payable).

c. What apparent predetermined overhead rate does the company use to assign
overhead cost to jobs? Using this rate, prepare a journal entry to record the
application of overhead cost to jobs for February (it is not necessary to make a
separate entry for each job). Post this entry to appropriate T-accounts.

d. As stated earlier, Job #205 was completed during February. Prepare a journal entry
to show the transfer of this job off of the production line and into the finished good
warehouse. Post the entry to appropriate T-accounts.

e. Determine the balance at February 28 in the Work in Process inventory account.

How much of this balance consists of the cost of Job #206? Job #207?

ANS:
a.

Raw Materials Work in Process

Inventory Inventory
BB 40,000 BB 77,800
29,500 60,700
31,500 20,000
32,000
98,600
 Finished Goods Manufacturing
Inventory Overhead Control
BB 85,000 4,000
60,700 8,000 32,000
19,000

b. 1. Work in Process Inventory 29,500

Manufacturing Overhead 4,000
Control
Raw Materials Inventory 33,500

2. Work in Process Inventory 20,000

Manufacturing Overhead 8,000
Control
Payroll 28,000

3. Manufacturing Overhead 19,000

Control
Accounts Payable 19,000

c. 160%/DL COST × $20,000 = $32,000

Work in Process Inventory 32,000

Manufacturing Overhead Control 32,000

d. Finished Goods Inventory 60,700

Work in Process Inventory 60,700

e. WIP INV 98,600

Job 206 =
Job 207 = $47,300
$51,300

JOB #205 JOB #206 JOB #207

Beg WIP $50,300 $27,500 -
Direct Mat 0 8,200 $21,300
Direct Labor 4,000 6,000 10,000
Factory Overhead 6,400 9,600 16,000
$60,700 $51,300 $47,300

DIF: Moderate OBJ: 4-4

Sanderson Company manufactures custom-built conveyor systems for factory and commercial operations. Erin
Smith is the cost accountant for Sanderson and she is in the process of educating a new employee,
Heather Fontenot about the job order costing system that Sanderson uses. (The system is based on normal
costs; overhead is applied based on direct labor cost and rounded to the next whole dollar.) Lisa gathers
the following job order cost records for July:

Direct Direct Total

Job No. Materials Labor Applied OH Cost
667 $ 5,901 $1,730 $ 1,990 $ 9,621
669 18,312 1,810 2,082 22,204
670 406 500 575 1,481
671 51,405 9,500 10,925 71,830
672 9,615 550 633 10,798

To explain the missing job number, Erin informed Heather that Job #668 had been completed in June. She
also told her that Job #667 was the only job in process at the beginning of July. At that time, the job had
been assigned $4,300 for direct material and $900 for direct labor. At the end of July, Job #671 had not
been completed; all others had. Erin asked Heather several questions to determine whether she understood
the job order system.

Required: Help Heather answer the following questions:

a. What is the predetermined overhead rate used by ABC Company?

b. What was the total cost of beginning Work in Process inventory?

c. What was total prime cost incurred for the month of July?

d. What was cost of goods manufactured for July?

ANS:

a. Use any job started in July:

Rate = MOH JOB $670 $575 = 115%/DL Cost

DL COST $500

b. DM $4,300
DL 900
FOH 1,035 ($900 × 115%)
$6,235

c. Prime Cost =DM + DL

DM = $85,639 - 4,300 = $81,339

DL = 14,090 - 900 = 13,190
$94,529

d. COGM = $9,621 + 22,204 + 1,481 + 10,798 = $44,104

DIF: Easy OBJ: 4-4