Chapter 5 - Solutions to Cost Accounting Book (Raiborn and Kinney, 2 nd Phil Edition)

45. Accounting for Materials

1. Time of Purchase 790,000
Raw Material Inventory/Materials & Supplies
Accounts Payable 790,000

2. Time of Issue/Used/Requisitioned:
Work in Process Inventory 570,000
Factory Overhead Control/Actual FOH 120,000
Raw Material Inventory/Materials & Supplies 690,000

Accounting for Labor

Labor Incurrence and Distribution (refer to
previous discussion with pro-forma entries) 794,000
Work in Process Inventory
Factory Overhead Control/Actual FOH 80,000
Wages Payable/Accrued Payroll 874,000

Accounting for Factory Overhead

1. Incurrence of FOH:
Fact Overhead Control/Actual FOH(P794,000  0.55) 436,700
Cash, Prepaid Expenses, A/P, Various Credits 436,000

2. Applied to Production:
Work in Process Inventory 436,700
Applied FOH 436,700

Transfer to FG:
Finished Goods Inventory 1,046,000
Work in Process Inventory 1,046,000

Sold Units:
Cost of Goods Sold 1,046,000
Finished Goods Inventory 1,046,000

Cash 1,342,000
Sales 1,342,000

39.
a. Raw Material Inventory 542,000
Cash 542,000
Manufacturing Overhead 54,000
Work in Process Inventory 602,800
Wages/Salaries Payable (or Cash) 656,800
To record DL for jobs (Job #247, $17,400;
 #251, $8,800; #253, $21,000;
#254, $136,600; #255, $145,000;
#256, $94,600; and #257, $179,400)

Manufacturing Overhead 76,000

Work in Process Inventory 466,400
Raw Material Inventory 542,400
To record DM for jobs (Job #247, $12,400;
#251, $6,200; #253, $16,800; #254, $105,200;
#255, $119,800;#256, $72,800;
and #257, $133,200)
Manufacturing Overhead 114,400
Various accounts 114,400
To record OH costs other than
indirect labor and indirect
materials ($244,400  $54,000  $76,000)
Work in Process Inventory 241,120
Manufacturing Overhead 241,120
To apply OH at a rate of $0.40 per DL$
(Job #247, $6,960; #251, $3,520; #253, $8,400;
#254, $54,640; #255, $58,000;
#256, $37,840; and #257, $71,760)
Finished Goods Inventory 1,779,040
Work in Process Inventory 1,779,040
(See schedule below.)
Cash 2,264,774
Sales 2,264,774
Cost of Goods Sold 1,779,040
Finished Goods Inventory 1,779,040
Schedule of Completed Jobs
Job
Direct Material
Direct Labor
Applied OH
Total
247
$ 89,600
$108,800
$ 43,520
$ 241,920
251
 182,800
218,600
87,440
488,840
253
162,200
190,600
76,240
429,040
254
105,200
136,600
54,640
296,440
255
119,800
145,000
58,000
322,800
Totals
$659,600
$799,600
$319,840
$1,779,040

a. Job
Direct Material
Direct Labor
Applied OH
Total

256
$ 72,800
$ 94,600
$ 37,840
$205,240

257
133,200
179,400
71,760
384,360

Totals
$206,000
$ 274,000
 $109,600
$589,600
b. Actual overhead $ 244,400
Applied overhead (241,120)
Underapplied overhead $ 3,280
Unadjusted cost of jobs completed 1,779,040
Adjusted cost of jobs completed $1,782,320

41. a. 9/1 Raw Material Inventory 1,940,000

Accounts Payable 1,940,000
9/4 Work in Process Inventory 1,846,800
Manufacturing Overhead 53,200
Raw Material Inventory 1,900,000
Issuances made to jobs as follows:
#75, $289,600; #78, $252,600;
#82, $992,200; #86, $312,400
9/15 Work in Process Inventory 665,600
Manufacturing Overhead 91,400
Cash 757,000
Labor charged to jobs as follows:
#75, $84,600; #78, $267,200;
#82, $203,000; #86, $110,800
9/15 Work in Process Inventory 832,000
Manufacturing Overhead 832,000
Overhead applied to jobs as follows:
#75, $120,750; #78, $329,000;
#82, $253,750; #86, $128,500
9/15 Finished Goods Inventory 1,081,350
Work in Process Inventory
($586,400 + $289,600 + $84,600 + $120,750) 1,081,350
Accounts Receivable 1,405,755
Sales ($1,081,350  1.3) 1,405,755
Cost of Goods Sold 1,081,350
Finished Goods Inventory 1,081,350
9/20 Manufacturing Overhead 110,200
Accounts Payable 196,800
Cash 307,000
9/24 Raw Material Inventory 624,000
Accounts Payable 624,000
9/25 Work in Process Inventory 716,400
Manufacturing Overhead 55,800
 Raw Material Inventory 772,200
Issuances made to jobs as follows:
#78, $154,800; #82, $212,600; #86, $349,000
9/30 Manufacturing Overhead 1,206,800
Accumulated Depreciation 809,000
Prepaid Insurance 165,400
Taxes & Licenses Payable 232,400
9/30 Work in Process Inventory 649,400
Manufacturing Overhead 65,000
Cash 714,400
Labor charged to jobs as follows:
#78, $177,400; #82, $228,400;
#86, $243,600
9/30 Work in Process Inventory 407,125
Manufacturing Overhead 407,125
To apply overhead to jobs as follows:
#78, $111,750; #82, $170,625;
#86, $124,750
b. Raw Material Inventory
Bal. 332,400 9/4 1,900,000
9/1 1,940,000 9/25 772,200
9/24 624,000
Bal. 224,200
Work in Process Inventory
Bal. 1,512,600 9/15 1,081,350
9/4 1,846,800
9/15 665,600
9/15 832,000
9/25 716,400
9/30 649,400
9/30 407,125
Bal. 5,548,575
Cost of Goods Sold
Bal. 4,864,000
#75 1,081,350
Bal. 5,945,350
Job #75
Bal. 586,400 1,081,350
DM 289,600
DL 84,600
OH 120,750
Bal. 0
 Job #78
Bal. 266,600
DM 252,600
DL 267,200
OH 329,000
DM 154,800
DL 177,400
OH 111,750
Bal. 1,559,350

Job #82
Bal. 659,600
DM 992,200
DL 203,000
OH 253,750
DM 212,600
DL 228,400
OH 170,625
Bal. 2,720,175
Job #86
DM 312,400
DL 110,800
OH 128,500
DM 349,000
DL 243,600
OH 124,750
Bal. 1,269,050
b. Schedule of Job Cost Records
September 30, 2013
Job #78 $1,559,350
Job #82 2,720,175
Job #86 1,269,050
Total $5,548,575
c. Actual overhead for September
9/4 $ 53,200
9/15 91,400
9/20 110,200
9/25 55,800
9/30 1,206,800
9/30 65,000 $ 1,582,400
Applied overhead for September
9/15 $ 832,000
9/30 407,125 (1,239,125)
Underapplied overhead $ 343,275
 37.
a. Aluminum Steel Other Total
BI $ 8,300 $ 12,800 $ 5,800 $ 26,900
Purchases 98,300 26,500 23,550 148,350
Available $106,600 $ 39,300 $ 29,350 $ 175,250
Issuances (58,700) (34,200) (25,900) (118,800)
EI $ 47,900 $ 5,100 $ 3,450 $ 56,450
b. Direct material $ 620
Direct labor (8 × $15) 120
Overhead (16 × $30) 480
Total $1,220
c. WIP—beginning*
$ 6,230

Direct material (total issuances)

118,800

Direct labor (680 × $15)

10,200

Overhead (1,200 × $30)

36,000

Total manufacturing costs

$171,230

WIP—ending
(1,220)

Cost of goods manufactured

$170,010

FG—beginning
23,800

Cost of goods available for sale

$193,810

FG—ending
(0)

Cost of goods sold

 $193,810

*Job #
Material
Labor
OH
Total

411
$1,900
$ 540
$1,500
$3,940

412
1,240
150
900
2,290

$3,140
$ 690
$2,400
$6,230

38 a. Job #2019:
 Design ($81,600 × 30%)
$24,480

Production (720 × $15)

10,800

Installation ($10,080 × 90%)

9,072

Total overhead applied

$44,352

Job #2020:

Design ($69,360 × 30%)

$20,808

Production (2,400 × $15)

36,000

Installation ($11,520 × 90%)

10,368

Total overhead applied

$67,176
Job #2021:

Design ($73,440 × 30%)

$22,032

Production (960 × $15)

14,400

Installation ($15,200 × 90%)

13,680

Total overhead applied

$50,112
40. a. Job Cost Sheet—Job #515
Customer Name and Address: Description of Job: Prepare site,
City of Gulf Shores, Alabama build and install a pedestrian
overpass in Gulf Shores: see bid
specifications for details
Contract Agreement Date: 5/13
Scheduled Starting Date: 7/13
Agreed Upon Completion Date: 12/15/13
Contract Price: $3,300,000
Actual Completion Date:___
Special Instructions: None
Direct Material (Est. $1,240,000)
Date Source Cost
2013 July 31 Summary of material req. $121,800

Direct Labor (Est. $670,000) Overhead (Est. $402,000)

Date Source Cost Date Source Cost
2013 July 31 Summary 2013 July 31 Journal
of time entry of
sheets for 7/31/13 $105,024
direct labor $175,040

Summary (as of 7/31/13)

Actual Budget Under (Over)
Direct material $121,800 $1,240,000
Direct labor 175,040 670,000
Overhead 105,024 402,000
Totals $401,864 $2,312,000
b. Work in Process—Job #515 121,800
Work in Process—other jobs 457,500
Direct Material Inventory 579,300
Work in Process—Job #515 175,040
Work in Process—other jobs 408,960
Manufacturing Overhead 55,800
Salaries and Wages Expense 39,600
Salaries and Wages Payable 679,400

Manufacturing Overhead 26,400

Depreciation Expense 7,800
Accumulated Depr.—Const. Assets 26,400
Accumulated Depr.—Office Assets 7,800

Sales Promotion Expense 11,100

 Accounts Payable 11,100

Advertising Expense 6,600

Cash 6,600

Manufacturing Overhead 18,600

Supplies Inventory 18,600

Miscellaneous Expense 10,200

Accounts Payable 10,200

Utilities Expense 1,800

Manufacturing Overhead 5,400
Utilities Payable 7,200

Work in Process—Job #515 105,024

Work in Process—other jobs 245,376
Manufacturing Overhead 350,400

Accounts Receivable 1,224,000

Sales 1,224,000

Finished Goods Inventory 829,000

Work in Process Inventory 829,000
Cost of Goods Sold 829,000
Finished Goods Inventory 829,000

c. Work in Process—beginning $ 871,800

Production costs:
Direct material $579,300
Direct labor 584,000
Applied overhead 350,400 1,513,700
$ 2,385,500
Work in process—ending (1,556,500)
Cost of goods manufactured $ 829,000

c. Birmingham Contractors
Income Statement
For the Month Ended July 31, 2013
Revenues from completed projects $1,224,000
 Less cost of goods sold (829,000)
Gross margin on completed jobs $ 395,000
Non-production expenses:
Salaries and wages expense $39,600
Depreciation expense 7,800
Utilities expense 1,800
Sales promotion expense 11,100
Advertising expense 6,600
Miscellaneous expense 10,200 (77,100)
Income before income taxes $ 317,900
Income taxes (40%) (127,160)
Net income $ 190,740

Design Production Installation

Actual $105,600 $ 60,000 $ 31,200
Applied (67,320) (61,200) (33,120)
(Over)/underapplied $ 38,280 $ (1,200) $ (1,920)

Actual OH for company $ 196,800

Applied OH for company (161,640)
Total company underapplied OH $ 35,160
b. Work in Process (Design)—Job #2019 9,600
Work in Process (Design)—Job #2020 8,200
Work in Process (Design)—Job #2021 17,600
Raw Material Inventory 35,400
Work in Process (Design)—Job #2019 81,600
Work in Process (Design)—Job #2020 69,360
Work in Process (Design)—Job #2021 73,440
Wages Payable 224,400
Work in Process (Design)—Job #2019 24,480
Work in Process (Design)—Job #2020 20,808
Work in Process (Design)—Job #2021 22,032
Manufacturing Overhead 67,320
Work in Process (Prod.)—Job #2019 116,400
Work in Process (Prod.)—Job #2020 268,800
Work in Process (Prod.)—Job #2021 232,000
Raw Material Inventory 617,200
 Work in Process (Prod.)—Job #2019 34,000
Work in Process (Prod.)—Job #2020 59,600
Work in Process (Prod.)—Job #2021 21,600
Wages Payable 115,200
Work in Process (Prod.)—Job #2019 10,800
Work in Process (Prod.)—Job #2020 36,000
Work in Process (Prod.)—Job #2021 14,400
Manufacturing Overhead 61,200
Work in Process (Inst.)—Job #2019 10,400
Work in Process (Inst.)—Job #2020 36,800
Work in Process (Inst.)—Job #2021 10,400
Raw Material Inventory 57,600
Work in Process (Inst.)—Job #2019 10,080
Work in Process (Inst.)—Job #2020 11,520
Work in Process (Inst.)—Job #2021 15,200
Wages Payable 36,800
Work in Process (Inst.)—Job #2019 9,072
Work in Process (Inst.)—Job #2020 10,368
Work in Process (Inst.)—Job #2021 13,680
Manufacturing Overhead 33,120
c. Job #2019:
Direct material $136,400
Direct labor 125,680
Overhead 44,352
Total cost $306,432
Job #2020:
Direct material $313,800
Direct labor 140,480
Overhead 67,176
Total cost $521,456
Job #2021:
Direct material $260,000
Direct labor 110,240
Overhead 50,112
Total cost $420,352

46. a. A job order costing system is appropriate in any environment in which costs can be readily
identified with specific products, batches, contracts, or projects. For adopting this system
there should be a justification on a cost-benefit basis to trace costs to those specific
products, batches, contracts, or projects.
b The only job remaining in WIP at 5/31 is DRS114:
 .
DRS114 balance, 4/30 $1,570,000
May additions:
Raw material $124,000
Purchased parts 87,000
Direct labor 200,500
Overhead (19,500 hrs. @ $7.50*) 146,250 557,750
WIP balance, 5/31 $2,127,750
*OH rate = $4,500,000 ÷ 600,000 hrs. = $7.50 per hour
c. FG inventory of playpens, 4/30 19,400
Units completed in May 15,000
Units available 34,400
Units shipped in May (21,000)
FG inventory, 5/31 13,400

Since Pip Squeaks uses the FIFO inventory method, all units remaining in FG inventory
were completed in May.
Work in process inventory, 4/30 $420,000
May additions:
Raw material $ 3,000
Purchased parts 10,800
Direct labor 43,200
Overhead (4,400  $7.50) 33,000 90,000
Total cost $510,000
Unit cost = $510,000 ÷ 15,000 units completed = $34 per unit FG inventory = $34 
13,400 = $455,600
d. If the amount of overapplied or underapplied OH is not material or
the result of an error in the OH application rate, the amount is normally charged directly to
CGS. If the amount is significant, the amount should be prorated over the relevant
accounts (i.e., WIP, FG, and CGS).
(CMA adapted)

Accounting for Scrap

Notes on Scrap:
Scrap includes:
1. the filings or excessive trimmings of materials after the manufacturing
operations.
2. defective materials that cannot be returned to vendor or not suitable for
manufacturing operations, and
3. broken parts as a result of an employee error or machine breakdowns that
causes the product in a poor quality condition.

Furthermore, scrap should be treated as:

 1. If the scrap has a salvage value, it should be collected and placed in the
storage and available for sale to scrap dealers or anybody who are willing to
buy.
2. If the scrap is the result if filings, excessive trimmings or materials residue,
and the costs of scrap cannot be determinable then, the scrap,
notwithstanding that they cannot be eliminated in the production, a record of
quality of scrap should be maintained. The purpose is to keep track and
periodically analyze to determine if some of the waste is due to inefficient use
of materials and if not eliminated, at least minimize.
3.
Waste as distinguish to scrap materials refers to any amount of raw
materials left-over from a production process or production cycle for which there
is no further use. Waste is not usually salable at any price and must be discarded.

Accounting for Scrap

The KCO Metal Fabricators, Inc. accumulates a fairly large quantities of metal
shavings and trimmings from the products their produce. At least, once a month,
the scrap metal is sold to a local jobber for further processing. This month’s scrap
sales on account total P10,000.

Required: Give the appropriate entry to record the sale of the scrap for each of the
following alternatives:
1. The scrap sales are viewed as additional revenue.
2. The scrap sales are viewed as a reduction of the cost of goods sold during
the month.
3. The scrap sales are viewed as a reduction of factory overhead control.
4. The scrap sales are traceable to individual jobs and are recorded as a
reduction of cost of the materials on the jobs.
Answer: (Use No. 3 reduction in FOH if problem is silent)
1. AR………………………………………………………………………… 10,000
Scrap Sales or Other Income………………………………….. 10,000
2. AR………………………………………………………………………… 10,000
CGS………………………………………………………………….. 10,000
3. AR………………………………………………………………………… 10,000
Factory Overhead Control…….……………………………….. 10,000
4. AR………………………………………………………………………… 10,000
Work-In-process-Job Order No. …………………………….. 10,000

Notes on Spoiled Goods/Spoilage in Job-Order Costing:

Spoiled goods or spoilage differ from scrap, in the manner that they are either
partially or fully completed unit. For reason of being spoilage, they cannot be
corrected either because it is not technically possible to correct them or it is not
economical to correct them. For instance, a glass molded with different design
cannot be correctable since it will not be technically feasible because by changing it
would distort the original form or by changing the design to its original form would
cost more than the benefit to be derived.

Accounting for Spoilage Goods in Job Order

ROM Company had a production run of 8,000 pairs of shoes during the last week of
June, at the following costs per pair:
 Materials P 500
Labor 400
Factory overhead (includes P70 allowance for spoiled work) ___300
Total P1,200
Final inspection revealed that 600 pairs not meeting quality standards, can be sold
as seconds at P400 a pair.

Required:
1. If the spoilage loss is the result of an internal failure (charged to factory
overhead)/all production.
a. Prepare journal entries to record the above transaction.
b. Determine the cost for each pair of shoes.
2. If the spoilage loss is the result of a change in design imposed by the customer
or due to exacting specifications (charged to production run).
a. Prepare journal entries to record the above transaction.
b. Determine the cost for each pair of shoes.

Solution:
[Link] due to Internal Failure/All Production/Abnormal Spoilage
Expense/Factory Overhead (Abnormal Loss), therefore the
allowance of P70 should be included in the FOH)

2. Spoilage due Exacting Specifications/Customer Imposed

Standards or Charged to Production Run (different from the term
“All Production”, refer to No. 1 above) or to a Particular
Job/Normal Loss means that the allowance of P70 should be
deducted in the FOH.
1. Spoiled Loss is Charged to FOHC 2. Spoiled Loss is Charged to Particular Job
a. Total Cost of 8,000 pairs of shoes:
Work-in-process Work-in-process
(P1,200 x 8,00)…9,600,000 (P1,200 – P70) x 8,000..9,040,000
Materials, P500… 4,000,000 Materials, P500…….. 4,000,000
Payroll, P400…… 3,200,000 Payroll, P400………. 3,200,000
App. FOH, P300.. 2,400,000 App. FOH, P300-P70.. 1,840,000

Spoiled Goods Inventory: 600 pairs. Spoilage Goods Inv., at SV 240,000

S.G. Inv., at SV……….240,000 Work-in-process….. 240,000
FOHC (P1,200-P400)..480,000
WP, P1,200……… 720,000

Transfer to Finished Goods: Finished Goods………… 8,800,000

Finished Goods……… 8,880,000 WP (P9,040,000-240,000) 8,800,000
WP (9,600,000 –
720,000)……….. 8,880,000

b. Cost per pair of shoes (per unit):

P8,880,000 / (8,000 –600) = P1,200. P8,800,000 / 7,400 = P1,189.

Guidance: If the problem did not state anything whether it is chargeable to

Abnormal Spoilage Expense (or FOHC) or Exacting Specifications (particular
job), observed if in a particular problem the allowance for spoilage is
included in the FOH (if included then it should be Due to Internal Failure –
refer to No. 1 discussion above), on the other hand, if excluded then it
should be chargeable to Particular Job (Exacting Specifications – refer to No.
2)

Notes on Rework in Job Order Costing (Process of Reworking):

Rework is the process of correcting defective goods in order to bring them
into a salable condition. A defective unit normally arises when the product itself
lacks materials, labor and factory overhead.
Accounting for Rework Units in Job Order
JJD Machine Shop manufactures jacks and other lifting equipment. One order comes
from EEI, Inc.. for 2,000 jacks, which showed the following costs per unit:

Materials P
40.00
Labor 17.50
Factory overhead 160% of direct labor cost (150% of direct labor
costs in which cost of any defective unit is to be charged to
specific order, or a 10% allowance for reworking defective units)

Final inspection revealed that 150 of the jacks were not properly produced.
Correction of each unit requires P2 for materials, P3 for labor and factory overhead
at the appropriate rate.

Required:
1. Assuming that the defective units is the result of an internal failure (due to
employee error or worn-out machinery)
a. Prepare journal entries to record the above transaction.
b. Determine the cost for each unit of jacks produced.

2. Assuming that the defective units is the result of a change in design or

specifications (charged to particular job)
a. Prepare journal entries to record the above transaction.
b. Determine the cost for each unit of jacks produced.

1. Rework Cost is charged to FOHC 2. Rework Cost is charged to Particular Job

a. Total Cost of 2,000 jacks:
Work-in-process Work-in-process
(P85.5 x 2,000)…….. 171,000 (P83.75 x 2,000)……………167,500
Materials, P40…….. 80,000 Materials, P40…………….. 80,000
Payroll, P17.5……… 35,000 Payroll, P17.5……………… 35,000
App. FOH, P17.5x1.6 App. FOH, P17.5 x 1.5
= P28……………… 56,000 = P26.25………………. 52,500

Rework Cost of 150 jacks: Work-in-process……………… 1,425

FOHC…………………… 1,470 Materials, P2……………… 300
Materials, P2………… 300 Payroll, P3………………… 450
Payroll, P3…………… 450 App. FOH, P3 x 1.5………. 675
App. FOH, P3 x 1.6… 720
 Transfer to Finished Goods: Finished Goods……………….. 168,925
Finished Goods……….. 171,000 WP (P1,167,500+P1,425). 168,925
Work-in-process…… 171,000

b. Cost per jack (per unit):

P171,000 /2,000 jacks = P 85.50 P168,925 /2,000 jacks = P84.46.

Guidance: Same rules and discussions mentioned in Accounting for

Spoilage Goods

Solutions/Answers/Discussions
No. 31: Raiborn and Kinney
a. Note: The term “includes” is an indication that the rework cost should
be charged to FOHC as indicated in the problem instead of
“Abnormal Spoilage Expense”:
Manufacturing Overhead/FOHC 1,150
Raw Material Inventory 250
Wages Payable 900

b. Note: The term “specific to this job” is an indication that the rework
cost should be charged to Work-In-Process account:
WIP—Job #BA468 1,150
Raw Material Inventory 250
Wages Payable 900
Given that the rework costs were not necessary to the completion of the job, San Angelo
Corp. should probably not charge its markup percentage on the P1,150 of rework costs
unless the customer had already been informed that such charges might be charged and the
customer had agreed to such charges.
c. Note: The term “Abnormal” is an indication that the rework cost should
be charged “Loss on Abnormal Spoilage Rework/Expense”:
Loss on Abnormal Rework 1,150
Raw Material Inventory 250
Wages Payable 900

No. 51: Raiborn and Kinney

a. Predetermined rate = P925,000* ÷ 100,000 = P9.25 per MH
*the rework costs was included in the th Budgeted FOH which indicates that the rework cost for
the defective units should be chargeable to FOH

b. Total cost of direct material P687,100

Total cost of direct labor 157,750
Applied OH (3,080 × P9.25) 28,490
Total cost of Job B316 P873,340
c. The rework cost is debited to the manufacturing overhead account since the company
uses a predetermined OH rate which is that includes rework costs to apply overhead.
 Manufacturing Overhead/FOHC 75,500
Various accounts 75,500
d. Predetermined rate = $850,000* ÷ 100,000 = $8.50 per MH
* does not include the “expected/budgeted rework costs” is an indication that it should be
charged to Specific Job or Work-In-Process (refer to Letter |E” for the journal entry
illustration.

Total cost of direct material $687,100

Total cost of direct labor 157,750
Applied OH (3,080 × $8.50) 26,180
Total cost of Job B316 $871,030
e. Work-in-Process-Job #B316 (Specific/Particular Job)
Total cost of direct material $687,100
Total cost of direct labor 157,750
Applied OH (3,080 × $8.50) 26,180
Rework cost ($75,500 × 0.20) 15,100*
Sale of reworked pipe (200 × $3.50) (700)**
Total cost of Job B316 $885,430
* Chargeable to a specific/particular job since the letter (d) it indicates the term “not
include rework costs”, therefore the entry should be:
Work-in-process…………………………26,180
Materials……………………………………
Wages payable/Accrued wages………… } 26, 180
Applied factory overhead………………..
** Letter (e), stated that “rework cost was specifically related to” (means chargeable to
specific/particular job. The entry should be:
Spoiled goods inventory (note)…………. 700
Work-in-process……………………... 700

No. 52: Raiborn and Kinney

Note: The problem states that “includes normal spoilage cost in its
predetermined OH” means that any spoilage cost should be chargeable
to FOHC or Actual FOH.
a. Overhead other than spoilage P600,000
Estimated spoilage cost 50,000
Less salvage value ( 20,000)
Adjusted estimated overhead cost P630,000
Predetermined OH Rate = P630,000 ÷ 40,000 = P15.75 per DLH

FOHC/Actual FOH
600,000 20,000 spoilage
Spoilage cost 50,000

63
0,000
 Or, the entry would be as follows:
Spoiled goods inventory (instead of AR/Cash, since it is estd)…. 20,000
FOHC……………………………………………………………… 30,000
Work-in-process……………………………………………… 50,000

FOHC/Actual FOH
600,000
Spoilage cost 30,000
b. Spoiled
630,000 goods
inventory/Disposal value of chemical……. 496
FOHC / Actual FOH……………………………………… 1,234
Work in Process—Job #788 ………………………… 1,730

Answers to Chapter 5 “Questions” page 171

1. The two choices for cost accumulation are the job order and process costing systems. A
company should use job order costing when it is necessary and possible to trace costs to
products made for individual customers, and when the products made for one customer are
very different from those made for other customers.
A process costing system is appropriate for production environments that make
homogeneous products, usually in large quantities, in batch or continuous flow systems.

2. The three valuation methods are actual, normal, and standard costing. In actual
costing, the actual amounts of material, labor, and overhead costs are assigned to
production. In normal costing, the actual amounts of material and labor are assigned to
production; however, overhead is applied to products using a predetermined overhead rate
(rather than using the actual amount).
In standard costing, standard (or “expected norm”) amounts are established for material,
labor, and overhead costs and/or quantities and are charged to production rather than the
actual costs. The standard for overhead is the predetermined rate (or rates) for the
company. Actual costs are accumulated in a standard costing system so that they may be
compared with standard costs to determined favorable and unfavorable variances.

3. The principal documents are job order cost sheets, material requisition forms, and
employee time sheets. A job order cost sheet provides all details for a specific job and is used
to track the actual costs of direct material and direct labor, and either actual or applied
manufacturing overhead associated with a particular job; such amounts may be compared to
budgeted costs. Material requisition forms are used to initiate the removal of the material
from inventory for use in a particular job. Employee time sheets are used to track the time
worked by individual employees to specific jobs.

4. Job order costing information allows managers to better estimate the costs of
producing products and of serving specific customers. This information can be used to
 manage costs, identify which customers generate the most profitable business, and set prices
for products and services.

Read and understand – relate this to the discussion Notes on Spoilage above (color green)
5. If normal spoilage is generally anticipated on all jobs in a job order costing
system, the estimated overhead used in setting the predetermined overhead rate should
include an amount for the net cost of the spoilage. This treatment allows the cost of normal
spoilage to be spread over all jobs produced. In contrast, if spoilage is related to a single
job, the cost of that spoilage should be assigned to the job that gave rise to the spoilage.

6. Normal spoilage refers to an expected reduction in production quantity based on a

company’s production technology, quality of material and labor used, and production
practices. The level of such a loss may be established from management or engineering;
given cost/benefit analysis, management has generally concluded that a certain level of
defects is less expensive than trying to prevent all defects from occurring. Because normal
spoilage is expected, an estimate for the loss is generally included in the development of the
predetermined overhead rate.
Alternatively, abnormal spoilage refers to a loss level above that which is normally expected.
Such losses are more likely to be preventable and, thus, need to be brought to management’s
attention by showing the amount of the loss as a period cost.