Chapter 3 (Assignment 1 is out of 50 marks.

Final Grade will be converted to represent 10% of

overall grade):
1. Exercise 3-2, Job Order Costing Documents (6 marks): Q1 - 3 marks; Q2 - 3 marks

Measuring Direct Materials Cost

1) Materials requisition form (materials reaquisition number 870)
2) Materials requisition form (materials reaquisition number 873)
This form will show the type and quantity of materials (titanium blanks and nibs) that are
required to be released from the storeroom for the Job ES34 and show that the cost of these
materials would be assigned to Job ES34.
Measuring Direct Labour Cost
3) Time ticket for Harry Tumer, Job ES34
4) Time ticket for Mary Gonzales, Job ES34
Time ticket is a form that traces an employee activity to the specific job, Job ES34 (for direct
labour).
5) Job Cost Sheet for Job ES34
This form traces the direct materials, direct labour and overhead costs to the specific job, Job
ES34
2
1) Materials requisition form (materials reaquisition number 870)
870
Date
Materials reaquisition number
ES34
Job number to be charged
Department
Description
Titanium blanks

Quantity
8

Unit Cost
#

2) Materials requisition form (materials reaquisition number 873)

873
Date
Materials reaquisition number
ES34
Job number to be charged

5-Mar

Total Cost
$200.00
$200.00

8-Mar

Department
Description
Nibs

Quantity
8

Unit Cost
$ 9.20

Total Cost
$ 73.60
$ 73.60

3) Time ticket for Harry Tumer, Job ES34

Date
Employee
Started
9.00 am
Totals

9-Mar
Harry Tumer
Ended
Time Completed
12.15 pm
3.15
3.15

Rate
Amount Job Number
$
18.00 $ 56.70
ES34
$ 56.70

4) Time ticket for Mary Gonzales, Job ES34

Date
Employee
Started
2.15 pm
Totals

21-Mar
Mary Gonzales
Ended
4.30 pm

Time Completed
2.15
2.15

Rate
Amount Job Number
$
19.00 $ 40.85
ES34
$ 40.85

5) Job Cost Sheet for Job ES34

ES34

Job number to be charged

Direct Materials
Req. No. Amount
870 $ 200.00
873 $ 73.60
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total cost
Unit cost

Ticket

Direct Labor
Hours
3.15
2.15

Amount
#
#

Hours

$
$

273.60
97.55

$
$

371.15 *
46.39 *

Manufacturing Overhead
Rate
Amount

*Assuming there is no manufacturing overhead and other direct materials and labor costs

2. Ex 3-14, Departmental Overhead Rates (10 marks): Q1 - 4marks; Q2 - 5marks; Q3 - 1mark

1
Predetermined overhead rate =

Estimated total manufacturing overhead cost

Estimated total units in the allocation base

Estimated total manufacturing overhead cost

Estimated total units in the allocation base
Predetermined overhead rate =

Stamping
Assembly
$ 2,550,000 $ 4,000,000
300,000
125,000
$
8.50 $
32.00

2
Overhead applied to a
particular job

Predetermined
overhead rate

Amount of the allocation

base incurred by the job

Actual units in the allocation base for Job 407

Overhead applied to Job 407

Stamping
Assembly
450
100
$
3,825.00 $
3,200.00

Total overhead applied to Job 407 =

7,025.00

3
Different factors cause overhead cost for different departments. If the stamping department bases its
overhead rate on direct labour cost while it is actually driven by machine-hours, then the cost
allocation would not be accurate.

The cost associated with the machines is much higher for the stamping department, than the cost
associated with the direct labour. Mashines substitute the direct labour, decreases the need for direct
workers. At the same time, the introduction of machines increases the need for highly skilled
professionals (indirect workers), who have the qualification to mantain and operate these machines.
If the company used plantwide overhead rate based on direct labour cost, then the overhead cost
would be underestimated for the stamping department and overestimated for the assembly
department.

3. Exercise 3-15, Applying Overhead; T- Accounts; Journal Entries (10 marks): Q1 - 2 marks, Q2 - 4 marks,
Q3 - 2 marks, Q4 - 2 marks

1
Overhead costs are applied on the basis of machine-hours
Estimated total manufacturing overhead cost
Estimated total machine hours
Predetermined overhead rate =

Predetermined overhead rate =

$ 170,000
85,000 machine hours

Estimated total manufacturing overhead cost

Estimated total units in the allocation base
$ 170,000.00
85,000

2.00

2
Actual machine hours
80,000
The amount of overhead cost that would be applied to Work in Process for the year:
80,000*2=
160,000

(Utilities)
(Insurance)
(Maintenance)
(Indirect materials)
(Indirect labour)
(Depreciation)

Manufacturing
Overhead
14,000 160,000
9,000
33,000
7,000
65,000
40,000
8,000

(Direct materials)
(Direct labour)
(Overhead)

Work in
Process
530,000
85,000
160,000
775,000

3
The amount of underapplied overhead for the year is:

(Utilities)
(Insurance)
(Maintenance)
(Indirect materials)
(Indirect labour)
(Depreciation)

8,000

Manufacturing
Overhead
14,000 160,000
9,000
33,000
7,000
65,000
40,000
8,000

A journal entry to close out the Manufacturing Overhead account to Cost of Goods Sold:
Date

Description
Cost of Goods Sold
Manufacturing Overhead

Dr
8,000

Cr
8,000

The calculation of predetermined overhead rate is based on estimates received at the beginning of the
period when the actual numbers are unknown.
The actual overhead cost was about 1% less than the estimated overhead while the actual machine hours
were about 6% less than the estimated machine hours. That is why the overhead was underapplied for the
year.
80,000 / 85,000 =
168,000 / 170,000 =

94.12%
98.82%

100% - 94% = 6%
100% - 99% = 1%

Why the decrease in overhead is not proportional to the decrease in machine hours? This may happen
because the fixed cost does not depend on the number of machine hours, it is constant. It is also possible
that some actual costs were higher than it was planned at the estimation phase.

4. Problem 3-18, Journal Entries, T-Accounts; Cost Flows (Parts 1., 2. & 3. only - 24 marks):
Q1 - 17 marks, Q2 - 5 marks, Q3 - 2 marks

1
Overhead costs are applied on the basis of machine-hours
Estimated total manufacturing overhead cost
Estimated total machine hours
Predetermined overhead rate =

Predetermined overhead rate =

Date

Description
Raw materials
Accounts Payable
a.

$153,000
36,000 machine hours

Estimated total manufacturing overhead cost

Estimated total units in the allocation base
$153,000
36,000

=
Dr
200,000

4.25
Cr
200,000

Work in Progress
Manufacturing Overhead
Raw materials
b.
Work in Process
Manufacturing Overhead
Administrative salaries expense
Sales salaries expense
Salaries Payable
c.
Manufacturing Overhead
Accounts Payable
d.
Manufacturing Overhead
Insurance Expense
Prepaid Insurance
e.
Advertising expense
Accounts Payable
f.
Manufacturing Overhead
Depreciation Expense
Accumulated Depreciation
g.
Work in Process
Manufacturing Overhead
h.
Finished Goods
Work in Process
i.
Accounts Receivable
Sales
Cost of Goods Sold
Finished Goods
j.

152,000
38,000
190,000
160,000
27,000
80,000
36,000
303,000
42,000
42,000
9,000
1,000
10,000
50,000
50,000
51,000
9,000
60,000
170,000
170,000

= 40,000 X 4.25

480,000
480,000
700,000
700,000
475,000
475,000

2 The company's inventory: raw materials , work in process , and finished goods.

(b)
(c)
(d)
(e)
(g)

Manufacturing
Overhead
38,000 170,000 (h)
27,000
42,000
9,000
51,000
3,000

(Balance)
(a)

Raw Materials
16,000
190,000 (b)
200,000
26,000

(Balance)
(b)
(c)
(h)

Work in Process
10,000
480,000 (i)
152,000
160,000
170,000
12,000

(j)

Cost of
Goods Sold
475,000
475,000

(Balance)
(i)

3
The amount of overapplied overhead for the year is:

Finished Goods
30,000
475,000 (j)
480,000
35,000

3,000

A journal entry to close out the Manufacturing Overhead account to Cost of Goods Sold:
Date

Description
Manufacturing Overhead
Cost of Goods Sold

Dr
3,000

Cr
3,000

4
Ravsten Company
Income Statement
Year Ended
Sales
Cost of Goods Sold
Gross Profit/ (Loss)
Operating Expenses
Sales salaries expense
Administrative salaries expense
Insurance Expense
Advertising expense
Depreciation Expense
Net Operating Income

* Cost of Goods Sold = 475,000 - 3,000 =

$ 700,000
472,000 *
228,000
36,000
80,000
1,000
50,000
9,000

472,000

176,000
52,000