Study Guide Questions – Job Order Costing

1. Which of the following organizations would be most likely to use a job order costing system?
a. the loan department of a bank
b. the check clearing department of a bank
c. a manufacturer of processed cheese food
d. a manufacturer of video cassette tapes

2. Which of the following could not be used in job order costing?

a. standards
b. an average cost per unit for all jobs
c. normal costing
d. overhead allocation based on the job's direct labor hours

3. In a job order costing system,

a. standards cannot be used.
b. an average cost per unit within a job cannot be computed.
c. costs are accumulated by departments and averaged among all jobs.
d. overhead is typically assigned to jobs on the basis of some cost driver.

4. Which of the following costing methods of valuation are acceptable in a job order costing system?

Actual Standard Actual Predetermined

Material Material Labor Overhead
Cost Cost Cost Cost

a. yes yes no yes

b. yes no yes no
c. no yes yes yes
d. yes yes yes yes

5. The primary accounting document in a job order costing system is a(n)

a. bill of materials.
b. job order cost sheet.
c. employee time sheet.
d. materials requisition.

6. Which of the following are drawbacks to applying actual overhead to production?

a. A delay occurs in assigning costs to jobs or products.
b. Fluctuations in quantities produced during a period could cause varying per-unit charges for fixed
overhead.
c. Seasonality of overhead costs may cause distortions in job or product costs.
d. all answers are correct.

7. Which of the following journal entries records the accrual of the cost of indirect labor used in
production?
a. debit Work in Process Inventory, credit Wages Payable
b. debit Work in Process Inventory, credit Manufacturing Overhead
c. debit Manufacturing Overhead, credit Work in Process Inventory
d. debit Manufacturing Overhead, credit Wages Payable
8. A credit to Work in Process Inventory represents
a. work still in process.
b. raw material put into production.
c. the application of overhead to production.
d. the transfer of completed items to Finished Goods Inventory.

9. Total manufacturing costs for the year plus beginning Work in Process Inventory cost equals
a. cost of goods manufactured in the year.
b. ending Work in Process Inventory.
c. total manufacturing costs to account for.
d. cost of goods available for sale.

10. A journal entry includes a debit to Work in Process Inventory and a credit to Raw Material
Inventory. The explanation for this would be that
a. indirect material was placed into production.
b. raw material was purchased on account.
c. direct material was placed into production.
d. direct labor was used for production.

11. Quest Co. is a print shop that produces jobs to customer specifications. During January 20X6, Job
#3051 was worked on and the following information is available:

Direct material used $2,500

Direct labor hours worked 15
Machine time used 6
Direct labor rate per hour $7
Overhead application rate per hour of machine time $18

What was the total cost of Job #3051 for January?

12. Alpha Co. uses a job order costing system. At the beginning of January, the company had two
jobs in process with the following costs:

Direct Material Direct Labor Overhead

Job #456 $3,400 $510 $255
Job #461 1,100 289 ?

Alpha pays its workers $8.50 per hour and applies overhead on a direct labor hour basis. Refer to
Alpha Company. What is the overhead application rate per direct labor hour?

13. Refer to Alpha Company. How much overhead was included in the cost of Job #461 at the
beginning of January?

14. Refer to Alpha Company. During January, Alpha’s employees worked on Job #649. At the end of
the month, $714 of overhead had been applied to this job. Total Work in Process at the end of
the month was $6,800 and all other jobs had a total cost of $3,981. What amount of direct material
is included in Job #649?
15. Virginia Company applies overhead to jobs at the rate of 40 percent of direct labor cost. Direct
material of $1,250 and direct labor of $1,400 were expended on Job #145 during June. On May
31, the balance of Job #145 was $2,800. The balance on June 30 is:
16. 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. 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?

17. 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)?

18. The following information pertains to Beta Company for September 20X4.
Direct Materials Direct Labor Overhead
Job #323 $3,200 $4,500 ?
Job #325 ? $5,000 ?
Job #401 $5,670 ? $5,550

Beta Company applies overhead for Job #323 at 140 percent of direct labor cost and at 150
percent of direct labor cost for Jobs #325 and #401. The total cost of Jobs #323 and #325 is
identical. What is the amount of direct materials for Job #325?

19. Refer to Beta Co. Assume that Jobs #323 and #401 are incomplete at the end of September.
What is the balance in Work in Process Inventory at that time?

20. Cherokee Company applies factory overhead on the basis of direct labor hours. Budget and actual
data for direct labor and overhead for the year are as follows:
Budget Actual
Direct labor hours 600,000 650,000
Factory overhead costs $720,000 $760,000

The factory overhead for Cherokee for the year is overapplied/underapplied by _______

21. At the end of the fiscal year, Roberts Company had the following balances:
Cost of Goods Sold $980,000
Work in Process Inventory 38,000
Finished Goods Inventory 82,000
Actual Direct Labor Cost 120,000
Budgeted Factory Overhead 100,000
Actual Factory Overhead 90,000
Roberts applies overhead at 80% of direct labor and assign over or underapplied overhead to cost
of goods sold. How much will be the adjusted balance of cost of goods sold?
22. Strong Products has no Work in Process or Finished Goods Inventory at the close of the business
on December 31, 2024. Its balances are as follows:
Cost of goods sold – unadjusted $2,040,000
Selling and administrative expenses 900,000
Sales 3,600,000
Manufacturing overhead control 700,000
Manufacturing overhead applied 648,000

Pretax income for 2024 is _____.

ANSWERS AND SOLUTIONS:

1. A
2. B
3. D
4. D
5. B
6. D
7. D
8. D
9. C
10. C
11.
Direct materials $2,500
Direct labor (15 hours * $7/hour) 105
Factory overhead (6 machine hours * $18/hour) 108
Total cost of Job 3051 $2,713

12. Direct labor hour used ($510/$8.50) 60 DLH

Overhead application rate ($255/60 DLH) $4.25

13. Direct labor hour used ($289/$8.50) 34 DLH

Overhead application rate $4.25
Applied overhead to Job 461 $144.50

14. Total Work-in-Process $6,800

Less: Cost of other jobs in work in process 3,981
Cost of Job 649 $2,819
Less: Overhead ( 714)
Labor (168 DLH * $8.50) (1,428)
Direct materials of Job 649 $ 677

DLH for Job 649 ($714/4.25) 168 DLH

Alternatively, you can compute the application rate to be 50% of direct labor ($4.25/$8.50) or
you may use data regarding Job 456 ($255/510). Therefore you can compute the labor cost
for Job 649 using the formula, Overhead/Application Rate ($714/50% = $1,428).

15. WIP, June 1 $2,800

Add: Direct Materials 1,250
Direct labor 1,400
 Factory Overhead ($1,400*40%) 560
WIP, June 30 $6,010

16. Since Job #13 was already completed, only two jobs remain on process at the end of the period:
Job #6 and Job #9.

Job #6:
Direct Materials ($120,000 * 30%) $36,000
Direct Labor (2,500 DLH * $8.50) 21,250
Factory Overhead ($21,250 * 120%) 25,500
Total Cost of Job #6 $82,750

Job #9:
Direct Materials ($120,000 * 25%) $30,000
Direct Labor (3,100 DLH * $8.50) 26,350
Factory Overhead ($26,350 * 120%) 31,620
Total Cost of Job #6 $87,970

Total Work in Process, end ($82,750 + $87,970) $170,720

17. WIP, June 30 $25,297

Less: Direct Materials in WIP 11,250
Conversion cost in WIP $14,047

Separate Direct Labor and Factory Overhead:

Let x = Direct Labor
Let 1.2x = Factory Overhead

x + 1.2x = 14,047
2.2x = 14,047
X = $6,385

Now, we have the total direct labor cost of $6,385 in the WIP. To compute direct labor hours
used:
Total Direct labor cost $6,385
Divided by: Rate per direct labor hour 8.50
Direct Labor Hours 751 DLH

18. Since job #323 and #325 are identical, you may compute first for the cost of Job #323,
Direct Materials $3,200
Direct Labor 4,500
Factory Overhead (4,500*140%) 6,300
Total Cost of Job #323 $14,900

Total Cost of Job #325 $14,000

Less: Overhead ($5,000 * 150%) 7,500
Direct Labor 5,000
Direct Materials in Job #325 $1,500

19. Job #323:

Direct Materials $3,200
 Direct Labor 4,500
Factory Overhead (4,500*140%) 6,300
Total Cost of Job #6 $14,000

Job #401:
Direct Materials $5,670
Direct Labor ($5,550/1.50) 3,700
Factory Overhead 5,550
Total Cost of Job #6 $14,920

Total Work in Process, end ($14,000+ $14,920) $28,920

20. Overapplied/Underapplied = Applied – Actual

= $780,000 - $760,000
Overapplied = $40,000

Applied Overhead = Predetermined rate * Direct labor hours

= ($720,000/600,000 DLH) * 650,000 DLH
= $1.20 * 650,000 DLH
= $780,000

21. Overapplied/Underapplied = Applied – Actual

= ($120,000 * 80%) - $90,000
= $96,000 - $90,000
Overapplied = $6,000

Adjusted Cost of Goods Sold = Cost of Goods Sold – Overapplied Overhead

= $980,000 - $6,000
= $974,000

22. Sales $3,600,000

Less: Cost of Goods Sold 2,040,000
Factory Overhead underapplied (648,000-700,000) 52,000 2,092,000
Less: Selling and Admin Expense 900,000
Pretax Income $ 608,000