Exam 5: Job Costing

Star Company's accountants estimate total overhead for each month will be $64,000. They will allocate overhead on the basis of direct labour cost. During the current month, three jobs were worked on: Job 745 Job 746 Direct material \ 36,000 \ 56,000 \ 24,000 Direct labour \ 56,000 \ 72,000 \ 40,000 Job 745 was completed and sold, Job 746 was completed and Job 747 is still in process. Budgeted direct labour cost for the month was $160,000 and actual overhead was $65,800. Assuming overhead was $2,000 overapplied and that this amount is considered material, the final adjusted balance of finished goods inventory is:

Which of the following statements regarding overhead allocation is true?

To develop a cost allocation rate for overhead, normal costing uses:

A "job" refers to a group of individual overhead costs that are accumulated for a particular purpose.

Potential loss of reputation and market share are opportunity costs of spoilage and rework.

Overhead allocation is the process of tracing costs to products or services.

Direct costs are subject to less uncertainty than indirect costs in a job costing system, but managers still exercise judgment regarding direct cost tracing.

How is spoilage typically identified?

Spoilage has implications for: I. Quality II. Behaviour III. Reputation

Kelita's Kar Kare Kompany had the following cost and inventory data for the month: Costs incurred for the month: Direct labour \ 6,900 Indirect labour 1,500 Direct materials purchased 4,500 Factory utilities 2,200 Factory amortization 3,000 Factory supervision 1,200 Inventories: Ending Beginning Direct materials \ 1,500 \ 1,800 Work in process 4,500 4,050 Finished goods 6,000 5,250 What were the direct materials available for the month?

Raw Material 9/1 12,000 Work in Process Inventory 9/1 4,500 Work in Process Inventory 9/1 4,500 Overhead Cost Control 14,800 Accounts Payable 8,000 9/30 • The overhead is allocated to jobs using an estimated rate applied to direct labour hours. The budget for the year called for $180,000 of overhead cost and 60,000 direct labour hours. • Accounts payable is used for materials only. The balance on 9/1 was $6,000. September's payments were $40,000. • September 1 finished goods inventory was $11,000. • Cost of jobs completed in September was $89,000. • On September 30 there was a single job unfinished, consisting of $1,800 (300 hours) of direct labour and $2,600 of direct material. • 5,200 direct hours were worked during September. All workers earn the same rate of pay. • All actual overhead costs incurred have been recorded. Over- or underapplied overhead for September was:

Spoilage, rework, and scrap are irrelevant in job costing systems.

Job costing is used in manufacturing for the following products:

For which costing system is overhead allocated on the basis of the actual direct labour hours worked?

When goods are customized, all costs are easily traced to individual cost objects.

Managers use judgment in job costing systems to decide:

Raw Material 9/1 12,000 Work in Process Inventory 9/1 4,500 Work in Process Inventory 9/1 4,500 Overhead Cost Control 14,800 Accounts Payable 8,000 9/30 • The overhead is allocated to jobs using an estimated rate applied to direct labour hours. The budget for the year called for $180,000 of overhead cost and 60,000 direct labour hours. • Accounts payable is used for materials only. The balance on 9/1 was $6,000. September's payments were $40,000. • September 1 finished goods inventory was $11,000. • Cost of jobs completed in September was $89,000. • On September 30 there was a single job unfinished, consisting of $1,800 (300 hours) of direct labour and $2,600 of direct material. • 5,200 direct hours were worked during September. All workers earn the same rate of pay. • All actual overhead costs incurred have been recorded. Materials purchased in September were:

A costing system that charges jobs with actual direct costs and uses an estimated overhead allocation rate is called a(n):

The quarterly income statement for Largent is as follows: Sales \1 ,600 Less variable expenses: Direct materials \ 280 Direct labour 300 Manufacturing overhead 60 Administrative expenses 30 Selling expenses 70 740 Contribution margin 860 Less fixed expenses: Manufacturing overhead \ 180 Administrative expenses 440 Selling expenses 100 720,000 Income before taxes \1 40 What total amount represents the product costs?

Following are the budgeted costs for a manufacturing plant producing custom products: Materials (70\% direct and 30\% indirect) \ 15,000 Labour (60\% direct and 40\% indirect) 12,000 Supervision 5,000 Amortization 10,000 Utilities 4,860 Total \4 6,860 The company uses a normal costing system and overhead is allocated on the basis of direct labour cost. If actual direct labour cost was $7,500, the overhead allocated was: