PROBLEM

1. Prepare the necessary journal entries from the following information for Anderson
Company, which uses a perpetual inventory system.

a. Purchased raw material on account, $56,700.

b. Requisitioned raw material for production as follows: direct material-80 percent of
purchases; indirect material-15 percent of purchases.
c. Direct labor wages of $33,100 are accrued as are indirect labor wages of $12,500.
d. Overhead incurred and paid for is $66,900.
e. Overhead is applied to production based on 110 percent of direct labor cost.
f. Goods costing $97,600 were completed during the period.
g. Goods costing $51,320 were sold on account for $77,600.

ANS:

a. Raw Material Inventory 56,700

Accounts Payable 56,700

b. Work in Process Inventory 45,360

Manufacturing Overhead 8,505

Raw Material Inventory 53,865

c. Work in Process Inventory 33,100

Manufacturing Overhead 12,500

Wages Payable 45,600

d. Manufacturing Overhead 66,900

Cash 66,900

e. Work in Process Inventory 36,410

Manufacturing Overhead 36,410

f. Finished Goods Inventory 97,600

Work in Process Inventory 97,600

g. Cost of Goods Sold 51,320

Finished Goods Inventory 51,320

Accounts Receivable 77,600

Sales 77,600
2. Richards Company employs a job order costing system. Only three jobs-Job #205, Job #206,
and Job #207-were worked on during January and February. Job #205 was completed February 10; the
other two jobs were still in production on February 28, the end of the company's operating year. Job
cost sheets on the three jobs follow:

Job Cost Sheet

Job #205 Job #206 Job #207

January costs incurred:
Direct material $16,500 $ 9,300 $

Direct labor 13,000 7,000

Manufacturing overhead 20,800 11,200

February costs incurred:

Direct materials 8,200 21,300

Direct labor 4,000 6,000 10,000

Manufacturing overhead ? ? ?

The following additional information is available:

a. Manufacturing overhead is assigned to jobs on the basis of direct labor cost.

b. Balances in the inventory accounts at January 31 were as follows:

Raw Material $40,000

Work in Process ?

Finished Goods 85,000

Required:
a. Prepare T-accounts for Raw Material, Work in Process Inventory, Finished Goods
Inventory, and Manufacturing Overhead Control. Enter the January 31 inventory
balances given previously; in the case of Work in Process Inventory, compute the
January 31 balance and enter it into the Work in Process Inventory T-account.

b. Prepare journal entries for February as follows:

1. Prepare an entry to record the issue of materials into production and post the entry to
appropriate T-accounts. (In the case of direct material, it is not necessary to make a
separate entry for each job.) Indirect materials used during February totaled $4,000.

2. Prepare an entry to record the incurrence of labor cost and post the entry to appropriate T-
accounts. (In the case of direct labor, it is not necessary to make a separate entry for each
job.) Indirect labor cost totaled $8,000 for February.

3. Prepare an entry to record the incurrence of $19,000 in various actual manufacturing

overhead costs for February (credit Accounts Payable).
c. What apparent predetermined overhead rate does the company use to assign
overhead cost to jobs? Using this rate, prepare a journal entry to record the
application of overhead cost to jobs for February (it is not necessary to make a
separate entry for each job). Post this entry to appropriate T-accounts.

d. As stated earlier, Job #205 was completed during February. Prepare a journal entry
to show the transfer of this job off of the production line and into the finished good
warehouse. Post the entry to appropriate T-accounts.

e. Determine the balance at February 28 in the Work in Process inventory account.

How much of this balance consists of the cost of Job #206? Job #207?

ANS:
a.

Raw Materials Work in Process

Inventory Inventory

BB 40,000 BB 77,800

29,500 60,700

31,500 20,000

32,000

98,600

Finished Goods Manufacturing

Inventory Overhead Control

BB 85,000 4,000

60,700 8,000 32,000

19,000

b. 1. Work in Process Inventory 29,500

Manufacturing Overhead 4,000

Control
 Raw Materials Inventory 33,500

2. Work in Process Inventory 20,000

Manufacturing Overhead 8,000

Control
Payroll 28,000

3. Manufacturing Overhead 19,000

Control
Accounts Payable 19,000

c. 160%/DL COST$20,000 = $32,000

Work in Process Inventory 32,000

Manufacturing Overhead Control 32,000

d. Finished Goods Inventory 60,700

Work in Process Inventory 60,700

e. WIP INV 98,600

Job 206 = $51,300 Job 207 = $47,300

JOB #205 JOB #206 JOB #207

Beg WIP $50,300 $27,500 -

Direct Mat 0 8,200 $21,300

Direct Labor 4,000 6,000 10,000

Factory Overhead 6,400 9,600 16,000

$60,700 $51,300 $47,300

DIF: Moderate OBJ: 4-4

 3. The Pittman Company manufactures special purpose machines to order. On January 1,
there were two jobs in process, #705 and #706. The following costs were applied to these jobs in the
prior year:

Job No.
705 706
Direct material $ 5,000 $ 8,000

Direct labor 4,000 3,000

Overhead 4,400 3,300

Total $13,400 $14,300

During January, the following transactions took place:

* Raw material costing $40,000 was purchased on account.

* Jobs #707, #708, and #709 were started and the following costs were applied to
them:

JOB

707 708 709

Direct materials $3,000 $10,000 $7,000

Direct labor 5,000 6,000 4,000

* Job #705 and Job #706 were completed after incurring additional direct labor costs
of $2,000 and $4,000, respectively
* Wages paid to production employees during January totaled $25,000.
* Depreciation for the month of January totaled $10,000.
* Utilities bills in the amount of $10,000 were paid for operations during December.
* Utilities bills totaling $12,000 were received for January operations.
* Supplies costing $2,000 were used.
* Miscellaneous overhead expenses totaled $24,000 for January.

Actual overhead is applied to individual jobs at the end of each month using a rate based on actual
direct labor costs.

Required:
a. Determine the January overhead rate.

b. Determine the cost of each job.

c. Prepare a statement of cost of goods manufactured.

ANS:

a. MOH $4,000 + $10,000 + $12,000 + $2,000 + $24,000 = $52,000 = $2.4762/dl cost

$21,000 dl cost

b. JOB JOB JOB JOB JOB

#705 #706 #707 #708 #709
DM - - $ 3,000 $10,000 $ 1,000 = $ 20,000

DL $ 2,000 $ 4,000 5,000 6,000 4,000 = 21,000

MOH 4,952 9,905 12,381 14,857 9,905 = 52,000

Beg WIP 13,400 14,300 - - - = 27,700

$20,352 $28,205 $20,381 $30,857 $20,905 $120,700

c. Beg WIP $27,700

+ DM 20,000

+ DL 21,000

+ MOH 52,000

- End WIP 72,143

$48,557

DIF: Moderate OBJ: 4-4

 4. The Western Corporation, began operations on October 1. It employs a job order
costing system. Overhead is charged at a normal rate of $2.50 per direct labor hour. The actual
operations for the month of October are summarized as follows:

a. Purchases of raw material, 25,000 pieces @ $1.20/piece.

b. Material and labor costs charged to production:

Direct Direct
Job No. Units Material labor cost labor hours
101 10,000 $4,000 $6,000 3,000
102 8,800 3,600 5,400 2,700
103 16,000 7,000 9,000 4,500
104 8,000 3,200 4,800 2,400
105 20,000 8,000 3,600 1,800

c. Actual overhead costs incurred:

Variable $18,500

Fixed 15,000

d. Completed jobs: 101, 102, 103, and 104

e. Sales-$105,000. All units produced on Jobs 101, 102, and 103 were sold.

Required: Compute the following balances on October 31:

a. Material inventory

b. Work in process inventory

c. Finished goods inventory

d. Cost of goods sold

e. Under- or overapplied overhead

ANS:

a. $30,000 - ($4,000 + $3,600 + $7,000 + $3,200 + $8,000) = $4,200

b. Job #105 $8,000 + $3,600 + ($1,8002.50) = $16,100

c. Job #104 $3,200 + $4,800 + ($2,4002.50) = $14,000

d. Job # 101 $4,000 + $6,000 + ($3,0002.50) = $17,500

102 $3,600 + $5,400 + ($2,7002.50) = 15,750

103 $7,000 + $9,000 + ($4,5002.50) = 27,250

$60,500

e. Applied 14,400$2.50 = $36,000

Actual 33,500

Overapplied $ 2,500

DIF: Moderate OBJ: 4-4

Steel Company.

Steel Company uses a job order costing system and develops its predetermined overhead rate based on
machine hours. The company has two jobs in process at the end of the cycle, Jobs #177 and #179.

Budgeted overhead $100,300

Budgeted machine hours 85,000

Raw material $ 63,000

Labor cost $ 50,000

5. Refer to Steel Company. What amount of overhead is charged to Jobs #177 and #179?
Machine hours are split between Jobs #177 and #179-65 percent and 35 percent, respectively. Actual
machine hours equal budgeted machine hours.
ANS:
OH Applied = MH CostPOHR
Job #177: 85,000 MH 65%= 55,250$1.18 = $65,195
Job #179: 85,000 MH35%= 29,750$1.18 = $35,105

DIF: Easy OBJ: 4-4

6. Refer to Steel Company. Fifty-four percent of raw material belongs to Job 17 and 38
percent belongs to Job 179, and the balance is considered indirect material. What amount of raw
material used was allocated to overhead as indirect material?

ANS:
54% + 38% = 92%; this means that 8% is indirect or $5,040
(.08$63,000).

DIF: Easy OBJ: 4-4

7. Refer to Steel Co. Labor cost was split 25 percent and 70 percent, respectively,
between Jobs #177 and #179 for direct labor. The remainder was indirect labor cost. What are the total
costs of Jobs #177 and #179?

ANS:

Job #177 Job #179

DM $ 34,020 $23,940

DL 12,500 35,000

MOH 65,195 35,105

$111,715 $94,045

DIF: Moderate OBJ: 4-4

 8. Sanderson Company manufactures custom-built conveyor systems for factory and
commercial operations. Erin Smith is the cost accountant for Sanderson and she is in the process of
educating a new employee, Heather Fontenot about the job order costing system that Sanderson uses.
(The system is based on normal costs; overhead is applied based on direct labor cost and rounded to
the next whole dollar.) Lisa gathers the following job order cost records for July:

Direct Direct Total

Job No. Materials Labor Applied OH Cost
667 $ 5,901 $1,730 $ 1,990 $ 9,621
669 18,312 1,810 2,082 22,204
670 406 500 575 1,481
671 51,405 9,500 10,925 71,830
672 9,615 550 633 10,798

To explain the missing job number, Erin informed Heather that Job #668 had been completed in June.
She also told her that Job #667 was the only job in process at the beginning of July. At that time, the
job had been assigned $4,300 for direct material and $900 for direct labor. At the end of July, Job #671
had not been completed; all others had. Erin asked Heather several questions to determine whether she
understood the job order system.

Required: Help Heather answer the following questions:

a. What is the predetermined overhead rate used by ABC Company?

b. What was the total cost of beginning Work in Process inventory?

c. What was total prime cost incurred for the month of July?

d. What was cost of goods manufactured for July?

ANS:

a. Use any job started in July:

Rate = MOH JOB $670 $575 = 115%/DL Cost

DL COST $500
b. DM $4,300

DL 900

FOH 1,035 ($900115%)

$6,235

c. Prime Cost =DM + DL

DM = $85,639 - 4,300 = $81,339

DL = 14,090 - 900 = 13,190

$94,529

d. COGM = $9,621 + 22,204 + 1,481 + 10,798 = $44,104

DIF: Easy OBJ: 4-4

 9. Perry Company uses a job order costing system and has the following information for
the first week of June:

1. Direct labor and direct materials used:

Job No. Direct Material Direct Labor Hours

498 $1,500 116
506 960 16
507 415 18
508 345 42
509 652 24
511 308 10
512 835 30
Total $5,015 256

2. The direct labor wage rate is $4 per hour.

3. The overhead rate is $5 per direct labor hour.

4. Actual overhead costs for the week, $1,480.

5. Jobs completed: Nos. 498, 506, and 509.

6. The factory had no work in process at the beginning of the week.

Required:
a. Prepare a summary that will show the total cost assigned to each job.

b. Compute the amount of overhead over- or underapplied during the week.

c. Calculate the cost of the work in process at the end of the week.
ANS:
a. Job No. DM DL OH Total
498 $1,500 $ 464 $ 580 $2,544

506 960 64 80 1,104

507 415 72 90 577

508 345 168 210 723

509 652 96 120 868

511 308 40 50 398

512 835 120 150 1,105

$5,015 $1,024 $1,280 $7,319

b. Actual MOH $1,480

Applied MOH 1,280

Underapplied $ 200

c. JOB 507 $ 577

508 723

511 398

512 1,105

Ending WIP $2,803

DIF: Easy OBJ: 4-4

10. You are asked to bring the following incomplete accounts of Andrepont Printing, Inc.
up to date through January 31,20X5. Consider the data that appear in the T-accounts as well as
additional information given in items (a) through (i).

Andreponts job order costing system has two direct cost categories (direct material and direct
manufacturing labor) and one indirect cost pool (manufacturing overhead, which is allocated using
direct manufacturing labor costs).

Materials Inventory Control Wages Payable Control

12/31/20X4 1/31/20X5
Balance 15,000 Balance 3,000
 Manufacturing Department
Work in Process Inventory Control Overhead Control

January 20X5
Charges 57,000

Manufacturing Overhead Control

Finished Goods Inventory Control Cost of Goods Sold

12/31/20X4
Balance 20,000

Additional Information:
a. Manufacturing department overhead is allocated using a budgeted rate set every
December. Management forecasts next year's overhead and next year's direct
manufacturing labor costs. The budget for 20X5 is $400,000 of direct
manufacturing labor and $600,000 of manufacturing overhead.
b. The only job unfinished on January 31, 20X5 is No. 419, on which direct
manufacturing labor costs are $2,000 (125 direct manufacturing labor hours) and
direct material costs are $8,000.
c. Total material placed into production during January is $90,000.
d. Cost of goods completed during January is $180,000.
e. Material inventory as of January 31, 20X5 is $20,000.
f. Finished goods inventory as of January 31, 20X5 is $15,000.
g. All plant workers earn the same wage rate. Direct manufacturing labor hours for
January totals 2,500. Other labor and supervision totals $10,000.
h. The gross plant payroll on January paydays totals $52,000. Ignore withholdings.
All personnel are paid on a weekly basis.
i. All "actual" manufacturing department overhead incurred during January has
already been posted.

Required:
a. Material purchased during January
b. Cost of Goods Sold during January
c. Direct Manufacturing Labor Costs incurred during January
d. Manufacturing Overhead Allocated during January
e. Balance, Wages Payable Control, December 31, 20X4
f. Balance, Work in Process Inventory Control, January 31, 20X5
g. Balance, Work in Process Inventory Control, December 31, 20X4
h. Balance, Finished Goods Inventory Control, January 31, 20X5
i. Manufacturing Overhead underapplied or overapplied for January

ANS:

a. $15,000 + Purchases - $20,000 = $90,000. Purchases = $95,000

b. $20,000 + $180,000 - $15,000 = $185,000

c. DL = $2,000 = $16/HR2,500 HRS = $40,000

125

d. $600,000 = 150% DL cost$40,000 = $60,000

$400,000

e. BEGIN + $50,000 - $52,000 = $3,000 BEGIN = $5,000

f. $2,000 + ($2,000150%) + $8,000 = $13,000

g. BEGIN + $90,000 + $40,000 + $60,000 - $180,000 = $13,000 BEGIN = $3,000

h. $20,000 + $180,000 - $185,000 = END = $15,000

i. APPLIED $60,000
 ACTUAL 57,000
$ 3,000 overapplied

DIF: Moderate OBJ: 4-4

 11. Beauty Company manufactures picture frames of all sizes and shapes and uses a job
order costing system. There is always some spoilage in each production run. The following costs relate
to the current run:

Estimated overhead (exclusive of spoilage) $160,000

Spoilage (estimated) $ 25,000

Sales value of spoiled frames $ 11,500

Labor hours 100,000

The actual cost of a spoiled picture frame is $7.00. During the year 170 frames are considered spoiled.
Each spoiled frame can be sold for $4. The spoilage is considered a part of all jobs.

a. Labor hours are used to determine the predetermined overhead rate. What is the
predetermined overhead rate per direct labor hour?
b. Prepare the journal entry needed to record the spoilage.
c. Prepare the journal entry if the spoilage relates only to Job #12 rather than being a part of all
production runs.

ANS:

a. $160,000 + $25,000 - $11,500 = $173,500

$173,500/100,000 = $1.735 per DLH
b. Disposal Value of Spoiled Work 680

Manufacturing Overhead 510

Work in Process Inventory 1,190

c. Disposal Value of Spoiled Work 680

Work in Process Inventory-Job #12 680

DIF: Moderate OBJ: 4-8