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JOB COSTING AND OVERHEAD - Harper College, Study notes of Cost Accounting

The J & M Plastics Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. Estimated and actual data ...

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JOB COSTING AND OVERHEAD
Key Topics to Know
Differences and similarities between job order and process costing
Key document is the Job Cost Sheet
Flow of product costs through inventory accounts to cost of goods sold
o Raw materials
o Work in process including manufacturing overhead
o Finished goods
o Cost of goods sold
Flow of overhead costs:
o How to compute predetermined overhead rates
o Use of the Overhead account
o How to apply overhead costs to production
o How to compute over and under applied overhead
o How to close it to the appropriate account
o How to account for the under or over applied amount on the schedule of
cost of goods sold.
Flow of product costs and overhead costs through the three inventory accounts
and overhead account into cost of goods sold.
Journal entries required in a Job Order Cost system.
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JOB COSTING AND OVERHEAD

Key Topics to Know

 Differences and similarities between job order and process costing  Key document is the Job Cost Sheet  Flow of product costs through inventory accounts to cost of goods sold o Raw materials o Work in process including manufacturing overhead o Finished goods o Cost of goods sold  Flow of overhead costs: o How to compute predetermined overhead rates o Use of the Overhead account o How to apply overhead costs to production o How to compute over and under applied overhead o How to close it to the appropriate account o How to account for the under or over applied amount on the schedule of cost of goods sold.  Flow of product costs and overhead costs through the three inventory accounts and overhead account into cost of goods sold.  Journal entries required in a Job Order Cost system.

Problems

Problem #

The J & M Plastics Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for the last year are as follows: Estimated Actual Direct labor hours 500,000 480, Manufacturing overhead $1,000,000 $965,

Required: a) Compute the predetermined overhead rate for the year b) Calculate the overhead applied for the year. c) What is the amount of over-applied or under-applied overhead? d) Journalize the entry to close the balance in overhead to COGS

Problem #

Dapper Corporation had one job in process on May 1. The job had been charged with $3,400 of direct materials, $4,640 of direct labor, and $9,200 of manufacturing overhead cost. The company assigns overhead cost to jobs using the predetermined overhead rate of $23.00 per direct labor-hour. During May, the following activity was recorded:

Raw materials (all direct materials): Beginning balance $8, Purchased during the month $42, Used in production $48, Labor: Direct labor-hours worked 2, Direct labor cost incurred $25, Actual manufacturing overhead costs incurred

Inventories: Raw materials, May 30? Work in process, May 30 $32,

Work in process inventory on May 30 contains $7,540 of direct labor cost. Raw materials consist solely of items that are classified as direct materials.

Required: Compute the cost of goods manufactured for May.

would have been charged to the customer?

Problem #

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:

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 $248,000 in manufacturing overhead cost. The following transactions were recorded for the year:

a. Raw materials were purchased, $411,000. b. Raw materials were requisitioned for use in production, $409,000 ($388,000 direct and $21,000 indirect). c. The following employee costs were incurred: direct labor, $145,000; indirect labor, $61,000; and administrative salaries, $190,000. d. Selling costs, $148,000. e. Factory utility costs, $12,000. f. Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities. g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 29,000 machine-hours. h. The cost of goods manufactured for the year was $783,000. i. Sales for the year totaled $1,107,000 and the costs on the job cost sheets of the goods that were sold totaled $768,000. j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.

Required: Prepare the appropriate journal entry for each of the items above (a. through j.) assuming that all transactions with employees, customers, and suppliers were conducted in cash.

Multiple Choice Questions

1. When units are completed, the cost associated with the job is debited to which

account? a) Raw Materials Inventory b) Work in Process Inventory c) Finished Goods Inventory d) Cost of Goods Sold

2. Which of the following would be used to apply manufacturing overhead to

production for the period? a) Raw Materials Inventory would be debited b) Work in Process Inventory would be debited c) Manufacturing Overhead would be debited d) Work in Process Inventory would be credited

3. If a company uses a predetermined overhead rate, which of the following

statements is correct? a) Manufacturing Overhead will be debited for estimated overhead b) Manufacturing Overhead will be credited for estimated overhead c) Manufacturing Overhead will be debited for actual overhead d) Manufacturing Overhead will be credited for actual overhead

4. Mantilla Inc. estimated manufacturing overhead to be $200,000 for the year

along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, and actual labor hours were 21,000. The journal entry to close the balance in the Manufacturing Overhead account would include which of the following? a) Cost of Goods Sold would be credited for $15, b) Cost of Goods Sold would be credited for $5, c) Cost of Goods Sold would be debited for $5, d) Cost of Goods Sold would be debited for $15,

5. Cost of goods sold is the amount of cost transferred

a) From of Finished Goods Inventory and into Cost of Goods Sold. b) From of Work in Process Inventory and into Cost of Goods Sold. c) From of Work in Process Inventory and into Manufacturing Overhead. d) From of Work in Process Inventory and into Finished Goods Inventory.

Cost of goods manufactured 525, Cost of goods sold (unadjusted) 544,

What was the beginning Finished Goods Inventory balance on 1/1? a) $49, b) $65, c) $50, d) $69,

9. Hibshman^ Corporation bases its predetermined overhead rate on the estimated

machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 10,000 machine-hours. The estimated variable manufacturing overhead was $6.82 per machine-hour and the estimated total fixed manufacturing overhead was $230,200. The predetermined overhead rate for the recently completed year was closest to: a) $29. b) $23. c) $23. d) $6.

10. CR Corporation has the following estimated costs for the next year:

Direct materials $4, Direct labor $20, Rent on factory building $15, Sales salaries $25, Depreciation on factory equipment $8, Indirect labor $10, Production supervisor’s salary $12,

CR Corporation 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) $2. b) $3. c) $3. d) $4.

11. Sirmons Corporation bases its predetermined overhead rate on the estimated

labor-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the labor-hours for the upcoming year at 70,000 labor-hours. The estimated variable manufacturing overhead was $9.93 per labor-hour and the estimated total fixed manufacturing overhead was $1,649,200. The actual labor-hours for the year turned out to be 74,000 labor-hours. The predetermined overhead rate for the recently completed year was closest to: a) $32. b) $9. c) $33. d) $23.

12. Cribb^ Corporation uses direct labor-hours in its predetermined overhead rate.

At the beginning of the year, the estimated direct labor-hours were 17, hours and the total estimated manufacturing overhead was $341,890. At the end of the year, actual direct labor-hours for the year were 16,700 hours and the actual manufacturing overhead for the year was $336,890. Overhead at the end of the year was: a) $22,920 underapplied b) $17,920 overapplied c) $17,920 underapplied d) $22,920 overapplied

13. The following data^ have been recorded for recently completed Job 323 on its

job cost sheet. Direct materials cost was $2,260. A total of 37 direct labor- hours and 141 machine-hours were worked on the job. The direct labor wage rate is $13 per labor-hour. The Corporation applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost for the job on its job cost sheet would be: a) $3, b) $2, c) $2, d) $4,

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year. The applied manufacturing overhead for the year is closest to: a) 136, b) $138, c) $136, d) $137,

17. Meyers Corporation had the following inventory balances at the beginning and

end of November:

November 1 November 30 Raw Materials $17,000 $20, Finished Goods $50,000 $44, Work in Process $9,000 $11,

During November, $39,000 in raw materials (all direct materials) were drawn from inventory and used in production. The predetermined overhead rate was $8 per direct labor-hour, and direct labor workers were paid $10 per hour. A total of 300 hours of direct labor time had been expended on the jobs in the beginning Work in Process inventory account. The ending Work in Process inventory account contained $4,700 of direct materials cost. The Corporation incurred $28,000 of actual manufacturing overhead cost during the month and applied $26,400 in manufacturing overhead cost. The raw materials purchased during November totaled: a) $42, b) $45, c) $36, d) $39,

18. On March 1,^ Metevier Corporation had $37,000 of raw materials on hand.

During the month, the company purchased an additional $62,000 of raw materials. During March, $69,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $6,000. The journal entry to record the requisition from the storeroom would include a: a) debit to Work in Process of $69, b) debit to Work in Process of $63, c) debit to Raw Materials of $69, d) credit to Manufacturing Overhead of $6,

19. Chelm Music Corporation manufactures violins, violas, cellos, and fiddles and

uses a job-order costing system. What is one of the accounts that Chelm should credit when goods are sold? a) Finished goods b) Work in Process c) Cost of Goods Sold d) Manufacturing Overhead

20. During February, Irving Corporation incurred $65,000 of actual Manufacturing

Overhead costs. During the same period, the Manufacturing Overhead applied to Work in Process was $60,000. The journal entry to record the incurrence of the actual Manufacturing Overhead costs would include a: a) debit to Manufacturing Overhead of $65, b) credit to Manufacturing Overhead of $65, c) credit to Work in Process of $60, d) debit to Work in Process of $60,

21. Echo Corporation uses a job-order costing system^ and applies overhead to jobs

using a predetermined overhead rate. During the year the company's Finished Goods inventory account was debited for $360,000 and credited for $338,800. The ending balance in the Finished Goods inventory account was $36,600. At the end of the year, manufacturing overhead was overapplied by $15,900. The balance in the Finished Goods inventory account at the beginning of the year was: a) $15, b) $15, c) $21, d) $36,

a) Predetermined Overhead Rate: $360,000/900 = $400 per direct labor hour

b) Manufacturing OH 90,000 390, 63, 54, 76, 102, 5,000 overapplied c)

Raw Materials Work in Process Finished Goods 30,000 185,000 21,000 60, 185,000 770,000 770,000 800, 200,000 230, 390,

45,000 56,000 30,

d) Manufacturing overhead 5, Cost of goods sold 5,

e) Cost of manufacturing Job 412: Direct materials $8, Direct labor 39 dlh x $235.90 = 9, Manufacturing overhead 39 dlh x $400.00 = 15, Total Cost $32, Units produced 4 Cost per unit $8, Markup % 60% Markup 4, Selling price Cost + markup = $13,

Solutions to Multiple Choice Questions

1. C

2. B

3. C

4. C

5. A

6. D

7. D

8. A

9. A

10. A

11. C

12. C

13. D

14. C

15. B

16. B

17. A

18. B

19. A

20. A

21. B