Exercise 1--Cost accumulation procedure determination:

Classify these industries with respect to the type of cost accumulation procedure generally used--job order costingor process costing. a. Meat b. Sugar c. Steel d. Breakfast cereal e. Paper boxes f. Wooden furniture g. Toys and novelties h. Coke i.Cooking utensils j. Caskets k. Pianos l. Linoleum m. Leather n. Nylon o. Baby foods p. Locomotives q. Office machines equipment r. Luggage s. Paint 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 $ 1,200Week of Sep. 20 180 hrs @ $6.20/hr 9/20 Issued 662Week 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:

1. The appropriate information on ajob cost sheet. 2. 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 labor Applied factory overhead Date (Week of) Hours Rate Cost Date (Week of) Hours Rate Cost 9/20 180 $6.20 $1,116 9/20 180 $3.50 $630 9/26 140 7.30 1,022 9/26 140 3.50 490

Direct materials Date Issued Amount 9/14 $1,200 9/20 662 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 Direct labor Applied factory overhead Total factory cost Markup 40% of cost $2,342 2,138 1,120 $5,600 2,240 ------$7,840 =====

Exercise 3--Job order costing:

The Cambridge Company usesjob 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:

1. T accounts for work in process, finished goods, cost of goods sold, factory overhead control,
and applied factory overhead.

2. 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

May1 Balance No. 369 4,500 No. 372 1,450 Materials Direct labor Factory O/H 13,000 10,000 15,000 43,950

Work in Process Finished goods

40,300

From Work in Process May31 Balance: No.376

Finished Goods Cost of goods sod 38,300 40,300

2,000

Cost of Goods sold From finished goods Underapplied Overhead 38,300

May31 Balance: No. 379 3,650*

1,000 39,300

*$1,400 + $900 + ($900 150%)

Factory Overhead Control 16,000 15,000 1,000 16,000 Applied Factory Overhead 15,000 15,000

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

Exercise 4--Job Order Cycle Entries:

Beaver, inc. provided the following data for January, 19B: Materials and supplies: Inventory, January 1, 19B Purchases on account Labor: Accrued, January 1, 19B Paid during January (ignorepayroll taxes) Factory overhead costs: Supplies (issued from materials) Indirect labor Depreciation

$10,000 30,000 3,000 25,000 1,500 3,500 1,000

Other factory overhead costs (all from outside suppliers on account) Work in process: Job1 Work in process January 1, 19B Job costs during January, 19B: Direct materials Direct labor Applied factory overhead 4,000 5,000 5,000 $6,000 8,000 8,000 $5,000 7,000 7,000 $ 1,000 Job2 -Job3 --

14,500 Total $ 1,000

15,000 20,000 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 costdistribution. 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 1 Materials Accounts payable 2 Accrued payroll Cash 3. Factory overhead control Indirect labor Work in process (WIP) Job1 Job2 5,000 8,000 3,500 20,000 3,500 25,000 25,000 Debit 30,000 30,000 Credit

Job3 Payroll 4. Work in process Job1 Job2 Job3 Factory overhead control Supplies Materials 5 Factory overhead control Depreciation Accumulated Depreciation 6 Factory overhead control Other factory overhead costs Accounts payable 7 Work in process Job1 Job2 Job3 Factory overhead control (or applied FOH) 8 Finished goods Work in process (WIP) Job1 Job3 9 Cash Sales 10Cost of goods sold Finished goods

7,000 23,500 15,000 4,000 6,000 5,000 1,500 1,500 16,500 1,000 1,000 1,000 14,500 14,500 14,500 20,000 5,000 8,000 7,000 20,000 34,000 34,000 15,000 19,000 21,000 21,000 15,000 15,000

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

Hogle Company is a manufacturing firm that uses job ordercosting 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 foremployee services: direct labor, $75,000; indirect labor, $110,000; salescommission, $90,000; and administrative salaries, $20,000. 4. Sales travel costs were $17,000. 5. Utility costsin the factory were $43,000. 6. Advertisingcosts 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 theirjob costsheets 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 theirjob costsheets. Required:

1. 2. 3. 4.

Prepare journal entries to record the preceding transactions. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts). 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). Prepare anincome statementfor the year.

Solution:
1: Journal Entries 1 2 Raw materials Accounts payable Work in process Manufacturing overhead Raw materials Work in process Manufacturing overhead Salescommissionexpense Administrative salaries expense Salaries and wages payable Sales travel expense Accounts payable Manufacturing overhead Accounts payable 410,000 410,000 360,000 20,000 380,000 75,000 110,000 90,000 200,000 475,000 17,000 17,000 43,000 43,000

4 5

Advertisingexpense Accounts payable 7 Manufacturing overhead Depreciation expense Accumulated depreciation 8 Manufacturing overhead Insurance expense Prepaid insurance 9* Work in process Manufacturing overhead 10 Finished Goods Work in process 11 Accounts Receivable Sales Cost of goods sold Finished goods

180,000 180,000 280,000 70,000 350,000 7,000 3,000 10,000 480,000 480,000 900,000 900,000 1,500,000 1,500,000 870,000 870,000

*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

11

Accounts Receivable 1,500,000

Bal. (1) Bal.

Raw Materials 20,000 (2) 410,000 50,000

380,000

Work in Process Bal. 20,000 (10) 900,000 (2) 360,000 (3) 75,000 (9) 480,000 Bal. 30,000 Accumulated Depreciation (7) 350,000

Bal. 10

Finished Goods 30,000 (11) 870,000 900,000 Accounts Payable (1) 410,000 (4) 17,000 (5) 43,000 (6) 180,000

Prepaid Insurance (8) 10,000

Salaries and Wages Payable (3) 475,000

Sales (11)

(2) (3) (5) (7) (8)

Manufacturing Overhead 20,000 (9) 480,000 110,000 43,000 280,000 7,000 460,000 Bal. 480,000 20,000

1,500,000 (11)

Cost of goods sold 870,000

(3)

Sales Commissions Expenses 90,000 (3)

Administrative Salary Expense 200,000 (8)

Insurance Expense 3,000

(6)

Advertising expense 180,000

(7)

Depreciation Expenses 70,000 (4)

Sales Travel Expense 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 Cost of goods sold 4: Income Statement HOGLE COMPANY Income Statement For the Year Ended December 31 Sales Less cost of goods sold ($870,000 - $20,000 overapplied O/H Gross margin Less selling and administrative expenses: Commission expense Administrative salaries expense Sales travel expense Advertising expense $1,500,000 850,000 -------------650,000 $90,000 200,000 17,000 180,000 20,000 20,000

Depreciation expense Insurance expense Net operating income

70,000 3,000 ------------

560,000 ------------$90,000

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A Purchased raw materials B Direct material requisition to be used on jobs C Direct labor payroll based on time ticket D Indirect materials used E Indirect labor payroll F Other overhead costs incurred G Overhead applied to jobs (direct labor dollars 80% predetermined overhead rate) H Transfer completed jobs to finished goods inventory I Transferred sold jobs to cost of goods sold J Paid wages

The journal entries that follow support the transactions in Figure 5 . Job Order Cost System Journal Entries General Journal Date Account Title and Description Ref. Debit Credit 20X0 Dec. 31 Raw Materials Inventory (A) Accounts Payable Purchased raw materials on credit (B) Work-in-Process Inventory Raw Materials Inventory Raw materials used in jobs 100102 (C) Work-in-Process Inventory 21,000 16,500 16,500 15,000 15,000

Wages Payable Direct labor incurred jobs 100102 (D) Factory Overhead-Indirect Materials Raw Materials Inventory Indirect materials requisitioned (E) Factory Overhead-Indirect Labor Wages Payable Indirect labor incurred Factory Overhead-Factory Rent * (F) Factory Overhead-Factory Utilities *

21,000

5,700 5,700

10,000 10,000

1,200 2,500 Accounts Payable Overhead costs incurred 3,700

(G)

Work-in-Process Inventory Factory Overhead Applied overhead for jobs 100102

16,800 16,800

(H)

Finished Goods Inventory

45,200

Work-in-Process Inventory Transfer completed jobs 100 & 101 (I) Cost of Goods Sold Finished Goods Inventory
** Transfer delivered jobs 99 & 100

45,200

35,500 35,500

Journal Entries:
(1) Raw Materials Accounts Payable (2) Work in process Manufacturing overhead Raw materials (3) Work in process Manufacturing overhead Salaries and wages (4) Manufacturing overhead Accounts payable (5) Manufacturing overhead Property taxes payable Prepaid insurance 20,000 13,000 7,000 Dr. Cr. Cr. 40,000 40,000 Dr. Cr. 60,000 15,000 75,000 Dr. Dr. Cr. 50,000 2,000 52,000 Dr. Dr. Cr. 60,000 60,000 Dr. Cr.

(6) Work in process Manufacturing overhead (7) Work in process Manufacturing overhead (8) Salaries expenses Salaries and wages payable (9) Depreciation expense Accumulated depreciation (10) Advertising expense Other selling and administrative expense Accounts payable (11) Finished goods Work in process (12) Accounts receivable Sales (13) Cost of goods sold Finished goods 118,500 118,500 225,000 225,000 158,000 158,000 Dr. Cr. 42,000 8,000 50,000 Dr Dr. Cr. 7,000 7,000 Dr. Cr. 30,000 30,000 Dr. Cr. 90,000 90,000 Dr. Cr. 18,000 18,000

T Accounts:
Accounts Receivable xx (1) Accounts Payable xx 60,000 Capital Stock xx

(12) 225,000

(4) (10)

40,000 50,000

Prepaid Insurance xx (5) 7,000

Salaries and Wages Payable xx 75,000 30,000

Retained Earnings xx

(3) (8)

Raw Materials Bal. (1) Bal. 7,000 60,000 15,000 (20) 52,000

Property Taxes Payable xx 13,000

Sales (12) 225,000

(5)

Cost of Goods Sold Work in Process Bal. (2) (3) (7) Bal. 30,000 50,000 60,000 90,000 72,000 (11) 158,000 Salaries expenses (8) 30,000 Depreciation expenses 7,000 (13) 118500

(9)

Finished Goods Bal. 10,000 (11) 158,000 (13) 118,500

Advertising Expenses (10) 42,000

Bal.

49,000 Other Selling and Administrative expenses (10) 8,000

Accumulated Depreciation xx 18,000 7,000

(6) (9)

(2) (3) (4) (5) (6)

Manufacturing Overhead 2000 (7) 90,000 15,000 40,000 20,000 18,000 5,000

Bal.

Explanation of entries: (1) Raw materials purchased. (2) Direct and indirect materials issued into production. (8) Administrative salaries expenses incurred. (3) Direct and indirect factory labor cost incurred. (4) Utilities and other factory costs incurred. (5) Property taxes and insurance incurred on the factory. (6) Depreciation recorded on the factory assets. (7) Overhead cost applied to work in process. (9) Depreciation recorded on office equipment. (10) Advertising and other expenses incurred (11) COGM transferred into finished goods.

(12) sale of job 1 recorded. (13) Cost of goods sold recorded for job 1.

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