Job Order Costing System Exercises and Problems:

• Exercise 1--Cost accumulation Procedure Determination
• Exercise 2--Job order cost sheet
• Exercise 3--Job order costing-T Accounts and Journal Entries
• Exercise 4--Job Order Cycle Entries
• Exercise 5--Journal entries, T Accounts, Over and Under applied overhead Income Statement

• Exercise 1--Cost accumulation procedure determination:

  Classify these industries with respect to the type of cost accumulation procedure generally used--job order costing or process costing.
  

  a. Meat	k. Pianos
  b. Sugar	l. Linoleum
  c. Steel	m. Leather
  d. Breakfast cereal	n. Nylon
  e. Paper boxes	o. Baby foods
  f. Wooden furniture	p. Locomotives
  g. Toys and novelties	q. Office machines equipment
  h. Coke	r. Luggage
  i. Cooking utensils	s. Paint
  j. Caskets	t. Tires and tubes

  Solution:

• Job order cost procedure: (e), (f), (g), (i), (j), (k), (p), (q), (r)
• Process costing procedure: (a), (b), (c), (d), (h), (l), (m), (n), (o), (s), (t)

Exercise 2--Job order cost sheet:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available:

Direct Materials			Direct Labor
9/14 Issued	$ 1,200	Week of Sep. 20	180 hrs @ $6.20/hr
9/20 Issued	662	Week of Sep. 26	140 hrs @ $7.30/hr
9/22 Issued	480
Factory overhead applied at the rate of $3.50 per direct labor hour. Required: The appropriate information on a job cost sheet. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.

Solution:

1.

Forge Machine Works Job Order Cost Sheet--Job 642
Direct materials		Direct labor				Applied factory overhead
Date Issued	Amount	Date (Week of)	Hours	Rate	Cost	Date (Week of)	Hours	Rate	Cost
9/14	$1,200	9/20	180	$6.20	$1,116	9/20	180	$3.50	$630
9/20	662	9/26	140	7.30	1,022	9/26	140	3.50	490
9/22	480
	--------				----------				----------
	$2,342 =====				$2,138 ======				$1,120 ======

2.
Sales Price of job 642, contracted with a markup of 40% of cost:

Direct materials	$2,342
Direct labor	2,138
Applied factory overhead	1,120
Total factory cost	$5,600
Markup 40% of cost	2,240
	-------
	$7,840 =====

Exercise 3--Job order costing:

The Cambridge Company uses job order costing. At the beginning of the May, two jobs were in process:

		Job 369	Job372
	Materials	$ 2,000	$ 700
	Direct labor	1,000	300
	Applied factory overhead	1,500	450
There was no inventory of finished goods on May1. During the month, Jobs 373, 374, 375, 376, 378, and 379 were started. Materials requisitions for May totaled $13,000, direct labor cost, $10,000, and actual factory overhead, $16,000. Factory overhead is applied at a rate of 150% of direct labor cost. The only job still in process at the end of May is No. 379, with costs of $1,400 for materials and $900 for direct labor. Job 376, the only finished job on hand at the end of May, has a total cost of $2,000. Required: T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied factory overhead. General journal entries to record: a. Cost of goods manufactured b. Cost of goods sold c. Closing of over or underapplied factory overhead to cost of goods sold.

Solution:

T Accounts

Work in Process May1 Balance No. 369            4,500 No. 372            1,450Materials        13,000 Direct labor     10,000 Factory O/H     15,000                          43,950 May31 Balance: No. 379            3,650* Finished goods            40,300 *$1,400 + $900 + ($900 × 150%) Factory Overhead Control                       16,000                        15,000                        1,000                          16,000

Finished Goods From Work in Process      40,300 May31 Balance: No.376                     2,000 Cost of goods sod   38,300 Cost of Goods sold From finished goods                   38,300Underapplied Overhead               1,000                                39,300   Applied Factory Overhead                                15,000                            15,000

General journal entries to record:

Cost of goods manufactured:	Dr	Cr
Finished goods	40,300
Work in process		40,300
Cost of goods sold:
Cost of goods sold	38,300
Finished goods		38,300
Closing of underapplied factory overhead to cost of goods sold:
Cost of goods sold	1,000
Factory overhead control		1,000

Exercise 4--Job Order Cycle Entries:

Beaver, inc. provided the following data for January, 19B:

Materials and supplies:
Inventory, January 1, 19B				$10,000
Purchases on account				30,000
Labor:
Accrued, January 1, 19B				3,000
Paid during January (ignore payroll taxes)				25,000
Factory overhead costs:
Supplies (issued from materials)				1,500
Indirect labor				3,500
Depreciation				1,000
Other factory overhead costs (all from outside suppliers on account)				14,500
Work in process:
	Job1	Job2	Job3	Total
Work in process January 1, 19B	$ 1,000	--	--	$ 1,000
Job costs during January, 19B:
Direct materials	4,000	$6,000	$5,000	15,000
Direct labor	5,000	8,000	7,000	20,000
Applied factory overhead	5,000	8,000	7,000	20,000
Job 1 started in December, 19A, finished during January, and sold to a customer for $21,000 cash
Job 2 started in January, not yet finished.
Job 3 started in January, finished during January, and now in the finished goods inventory awaiting customer's disposition
Finished goods inventory January 1, 19B.

Required:
Journal entries, with detail for the respective job orders and factory overhead subsidiary records, to to record the following transactions for the January:

1. Purchase of materials on account.
2. Labor paid.
3. Labor cost distribution.
4. Materials issued.
5. Depreciation for the month.
6. Acquisition of other overhead costs on credit.
7. Overhead applied to production.
8. Jobs completed and transferred to finished goods.
9. Sales revenue.
10. Cost of goods sold.

Solution:

Journal Entries:

		Subsidiary Record	Debit	Credit
1	Materials		30,000
	Accounts payable			30,000
2	Accrued payroll		25,000
	Cash			25,000
3.	Factory overhead control		3,500
	Indirect labor	3,500
	Work in process (WIP)		20,000
	Job1	5,000
	Job2	8,000
	Job3	7,000
	Payroll			23,500
4.	Work in process		15,000
	Job1	4,000
	Job2	6,000
	Job3	5,000
	Factory overhead control		1,500
	Supplies	1,500
	Materials			16,500
5	Factory overhead control		1,000
	Depreciation	1,000
	Accumulated Depreciation			1,000
6	Factory overhead control		14,500
	Other factory overhead costs	14,500
	Accounts payable			14,500
7	Work in process		20,000
	Job1	5,000
	Job2	8,000
	Job3	7,000
	Factory overhead control (or applied FOH)			20,000
8	Finished goods		34,000
	Work in process (WIP)			34,000
	Job1	15,000
	Job3	19,000
9	Cash		21,000
	Sales			21,000
10	Cost of goods sold		15,000
	Finished goods			15,000

Exercise 5 Job Order Costing--Journal Entries, T Accounts, Income Statement

Hogle Company is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:

Raw materials Work in process Finished Goods

$20,000 $15,000 $30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year

1. Raw materials were purchased on account, $410,000.
2. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials).
3. The following costs were incurred for employee services: direct labor, $75,000; indirect labor, $110,000; sales commission, $90,000; and administrative salaries, $20,000.
4. Sales travel costs were $17,000.
5. Utility costs in the factory were $43,000.
6. Advertising costs were $180,000.
7. Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
8. Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).
9. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.
10. Goods costing $9,00,000 to manufacture according to their job cost sheets were completed during the year.
11. Goods were sold on account to customers during the year at a total selling price of $1,500,000. The goods cost $870,000 to manufacture according to their job cost sheets.

Required:

1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts).
3. Is manufacturing overhead underapplied or overapplied for the year? Prepare journal entry to close any balance in the manufacturing overhead account to cost of goods sold (COGS). Do not allocate the balance between ending inventories and cost of goods sold (COGS).
4. Prepare an income statement for the year.

Solution:

1: Journal Entries

1	Raw materials		410,000
		Accounts payable		410,000
2	Work in process		360,000
	Manufacturing overhead		20,000
		Raw materials		380,000
3	Work in process		75,000
	Manufacturing overhead		110,000
	Sales commission expense		90,000
	Administrative salaries expense		200,000
		Salaries and wages payable		475,000
4	Sales travel expense		17,000
		Accounts payable		17,000
5	Manufacturing overhead		43,000
		Accounts payable		43,000
6	Advertising expense		180,000
		Accounts payable		180,000
7	Manufacturing overhead		280,000
	Depreciation expense		70,000
		Accumulated depreciation		350,000
8	Manufacturing overhead		7,000
	Insurance expense		3,000
		Prepaid insurance		10,000
9*	Work in process		480,000
		Manufacturing overhead		480,000
10	Finished Goods		900,000
		Work in process		900,000
11	Accounts Receivable		1,500,000
		Sales		1,500,000
	Cost of goods sold		870,000
		Finished goods		870,000

*The predetermined overhead rate for the year would be computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base

= $450,000 / 75,000 machine-hours

= $6 per machine-hour

Based on the 80,000 machine-hours actually worked during the year, the company would have applied $480,000 in overhead cost to production: 80,000 machine-hours × $6 per machine-hour = $480,000.
2: T Accounts

Accounts Receivable 11      1,500,000       Finished Goods Bal.       30,000 10        900,000 (11)        870,000     Accounts Payable   (1)         410,000 (4)           17,000 (5)           43,000 (6)         180,000     Sales   (11)     1,500,000     Sales Commissions Expenses (3)           90,000       Advertising expense (6)         180,000

Raw Materials Bal.       20,000 (1)        410,000 (2)          380,000 Bal.       50,000       Prepaid Insurance   (8)            10,000     Salaries and Wages Payable   (3)         475,000     Cost of goods sold (11)        870,000       Administrative Salary Expense (3)         200,000       Depreciation Expenses (7)           70,000

Work in Process Bal.     20,000 (2)     360,000 (3)       75,000 (9)     480,000   (10)    900,000 Bal.      30,000   Accumulated Depreciation   (7)      350,000     Manufacturing Overhead (2)       20,000 (3)     110,000 (5)       43,000 (7)     280,000 (8)         7,000 (9)      480,000            460,000            480,000   Bal.        20,000     Insurance Expense (8)         3,000       Sales Travel Expense (4)       17,000

3: Under or Overapplied manufacturing overhead:
Manufacturing overhead is overapplied for the year. The entry to close it out to cost of goods sold is as follows:

Manufacturing overhead		20,000
	Cost of goods sold		20,000

4: Income Statement

HOGLE COMPANY Income Statement For the Year Ended December 31
Sales		$1,500,000
Less cost of goods sold ($870,000 - $20,000 overapplied O/H		850,000
		--------------
Gross margin		650,000
Less selling and administrative expenses:
Commission expense	$90,000
Administrative salaries expense	200,000
Sales travel expense	17,000
Advertising expense	180,000
Depreciation expense	70,000
Insurance expense	3,000	560,000
	------------	-------------
Net operating income		$90,000
		======

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