Exam 7: Job Costing

Nexus Corporation uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. Last year, the company's estimated manufacturing overhead was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was:

Mirror Lake Corporation recorded the following transactions for the just completed month: 1. $60,000 in raw materials were purchased on account. 2. $51,000 in raw materials were requisitioned for use in production. Of this amount, $42,000 was for direct materials and the remainder was for indirect materials. 3. Total labor wages of $92,000 were incurred and paid. Of this amount, $81,000 was for direct labor and the remainder was for indirect labor. 4. Additional manufacturing overhead cost of $155,000 were incurred. All were on account. Required: Record the above transactions in journal entries.

How does job costing for a service organization differ from job costing for a manufacturer?

Describe two alternative approaches to the handling of over- or underapplied overhead.

Which of the following is not a difference between job costing for service firms and job costing for manufacturing companies?

Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold?

It is possible that the total cost of a job started in April and completed in May will not include:

In a traditional job costing system, the use of indirect labor in the production department increases: (CPA adapted)

Music Master Components produces parts for concert hall sound systems. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Music Master expects only two clients (Client 1 and Client 2). The work done for Client 1 will all be done under fixed-price contracts while the work done for Client 2 will all be done under cost-plus contracts. Manufacturing overhead for year 2 is estimated to be $10 million. Other budgeted data for year 2 include: Client 1 Client 2 Machine Hours (thousands) 4,000 4,000 Direct Labor Costs ( \0 00's) \ 5,000 \ 15,000 Required: a. Compute the predetermined rate assuming that Music Master Components uses machine-hours to apply overhead. b. Compute the predetermined rate assuming that Music Master Components uses direct labor cost to apply overhead. c. Which allocation base will provide a higher income for Music Master Components? d. Is it ethical to choose an allocation method based on which one leads to higher income for the firm?

The journal entry to write-off an insignificant overapplied overhead balance at the end of an accounting period for a service firm is: A Applied Manufacturing Overhead Cost of Services Billed Manufacturing Overhead Control B. Applied Manufacturing Overhead Cost of Services Billed Manufacturing Overhead Control C. Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Services Billed Manufacturing Overhead Control D. Applied Manufacturing Overhead Work-In-Process Inventory Finished Goods Inventory Cost of Services Billed Manufacturing Overhead Control

Hsu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor-hours for the upcoming year at 32,000 labor-hours. The estimated variable manufacturing overhead was $7.17 per labor-hour and the estimated total fixed manufacturing overhead was $584,320. The actual labor-hours for the year turned out to be 33,300 labor-hours. Required: Compute the company's predetermined overhead rate for the recently completed year.

The predetermined overhead rate is computed by dividing the estimated manufacturing overhead costs by the estimated activity of the allocation base.

Travis Company's records show that overhead was overapplied by $10,000 last year. This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was overapplied by such a large amount, the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true?

Reyes Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. - How much is the over- or underapplied overhead?

Which of the following accounts is debited when direct labor is recorded?

Melbourne Consultants works for only two clients: a large for-profit corporation and a small environmental not-for-profit agency. The fee charged for work is based on cost. In deciding how to allocate overhead, the CFO of Melbourne Consultants decides to use the base that allocates the most cost to the large corporation. Is this ethical?

Which of the following approaches allocates overhead by multiplying a predetermined overhead rate × actual activity?

The following selected data were taken from the records of the Fisher Foil Company. The company uses a job costing system to account for its manufacturing costs. Fisher's fiscal year runs from January 1 to December 31; manufacturing overhead is closed out only at the end of the fiscal year. The following information relates to August operations. (1) Jobs in process on August 1. Job No Materials Labor Overhead W12 \ 800 \ 1,200 ?? 13 1,000 1,620 ?? (2) Jobs completed during August: W12, X13, Y14. (3) Material requisitions and labor time tickets indicated the following: Material Job No. Requisitions Time Tickets W12 \ 610 \ 760 X13 370 1,420 Y14 2,780 3,100 Z15 4,050 1,080 General use 390 540 (4) Jobs sold during August: W12, X13. (5) Fisher applies overhead to production based upon labor costs. (6) Selected account balances on August 1 were: Overhead \ 1,400 Overapplied Materials 5,175 Work in process 9,555 Firished goods -0- (7) Various overhead incurred (excluding indirect materials and indirect labor) during August, $13,500. (8) Materials (direct and indirect) purchased during August, $10,905. Required: (a) What is the balance in the Materials Inventory account on August 31? (b) Is the manufacturing overhead account over- or underapplied on August 31? By how much? (c) Compute the cost of goods manufactured for August. (d) Compute the cost of goods sold for August. (e) What is the balance of the Work-in-Process Inventory account on August 31?

Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account.