Exam 3: Systems Design: Job-Order Costing

(Appendix 3A)Basing predetermined overhead rate on capacity will almost certainly result in overapplied overhead.

Under Lamprey Company's job-order costing system,manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate.During January,Lamprey's transactions included the following: Direct materials issued to production \ 90,000 Indirect matcrials issued to production \ 8,000 Manufacturing overhead cost incurred \ 125,000 Manufacturing overhead cost applied \ 113,000 Direct labour cost incurred \ 107,000 Lamprey Company had no beginning or ending inventories.What was the cost of goods manufactured for January?

Which of the following companies is most likely to use a job-order costing system rather than a process costing system?

In order to improve the accuracy of unit costs,most companies recalculate the predetermined overhead rate each month.

Kanuck Company applies overhead to completed jobs on the basis of $0.70 per machine hour.If Job 501 shows $28,000 of manufacturing overhead applied,how many machine hours were used for the job?

Dotsero Technology, Inc., has a job-order costing system. The company uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs. The predetermined overhead rate in Department A is based on machine hours, and the rate in Department B is based on direct materials cost. At the beginning of the most recent year, the company's management made the following estimates for the year: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\underline { \text { Department } }$ A B Machine-hours 70,000 19,000 Direct labour-hours 30,000 60,000 Direct materials cost \ 195,000 \ 282,000 Direct labour cost \ 260,000 \ 520,000 Manufacturing overhead cost \ 420,000 \ 705,000 Job 243 entered into production on April 1 and was completed on May 12. The company's cost records show the following information about the job: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\underline { \text { Department } }$ A B Machine-hours 250 60 Direct labour-hours 70 120 Direct materials cost \ 840 \ 1,100 Direct labour cost \ 610 \ 880 At the end of the year, the records of Dotsero showed the following actual cost and operating data for all jobs worked on during the year: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\underline { \text { Department } }$ A B Machine-hours 61,000 20,000 Direct labour-hours 28,000 66,000 Direct materials cost \ 156,000 \ 284,000 Manufacturing overhead cost \ 385,000 \ 705,000 Required: a.) Compute the predetermined overhead rates for Department A and Department B. b.) Compute the total overhead cost applied to Job 243. c.) Compute the amount of underapplied or overapplied overhead in each department at the end of the current year.

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Raw Materials }$ Beg Bal 4,000 20,000 (2) (1) 18,000 $\quad$$\quad$$\quad$$\quad$$\quad$$\text { Work in Process }$ Beg Bal 8,000 50,000 (7) (2) 12,000 (4) 15,000 (6) 28,000 $\quad$$\text { Manufacturing Overhead }$ (2) 8,000 28,000 (6) (3) 12,000 (4) 5,000 (5) 4,000 $\text { Cost of Goods Sold }$ At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold. -What is the cost of direct materials used?

Lucy Sportswear manufactures a specialty line of T-shirts.The company uses a job-order costing system.During March,the following costs were incurred on Job ICU2: Direct materials: $\quad$$\quad$$\$ 13,700$ Direct labour: $\quad$$\quad$$\quad$$\$ 4,800$ In addition,selling and shipping costs of $7,000 were incurred on the job.Manufacturing overhead was applied at the rate of $25 per machine hour,and Job ICU2 required 800 machine hours.If Job ICU2 consisted of 7,000 shirts,what was the Cost of Goods Sold per shirt?

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Raw Materials }$ Beg Bal 4,000 20,000 (2) (1) 18,000 $\quad$$\quad$$\quad$$\quad$$\quad$$\text { Work in Process }$ Beg Bal 8,000 50,000 (7) (2) 12,000 (4) 15,000 (6) 28,000 $\quad$$\text { Manufacturing Overhead }$ (2) 8,000 28,000 (6) (3) 12,000 (4) 5,000 (5) 4,000 $\text { Cost of Goods Sold }$ At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold. -What is the cost of goods manufactured?

The following data are for Potras Company: Beginning Ending Finished goods inventory \ 30,000 \ 40,000 Work-in-process inventory \ 20,000 \ 13,000 Raw materials inventory \ 21,000 \ 26,000 Purchases of raw materials \ 71,000 Factory depreciation \ 5,000 Other factory costs \ 10,000 Direct labour \ 27,000 Indirect labour \ 6,000 Selling expense \ 12,000 Over- or underapplied overhead -0- -What is the cost of goods manufactured?

In a normal job-order costing system,the journal entry to record the application of overhead cost to jobs includes which of the following?

The Bus Company uses a job-order costing system. The following information was recorded for September: Added During September Iob Number September 1 Inventory Direct Materials Direct I.abour 1 \ 1,000 \ 300 \ 200 2 \ 1,400 \ 250 \ 300 3 \ 500 \ 1,500 \ 150 4 \ 750 \ 4,000 \ 400 The direct labour wage rate is $10 per hour. Overhead is applied at the rate of $5 per direct labour hour. Jobs 1, 2, and 3 have been completed and transferred to finished goods. Job 2 has been delivered to the customer. -What is the cost of goods sold for September (before disposition of any under- or overapplied overhead)?

In a normal job-order costing system,the use of indirect materials would usually be recorded as a debit to which account?

The Tse Manufacturing Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes out any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company's Finished Goods inventory account was debited for $125,000 and credited for $110,000. The ending balance in the Finished Goods inventory account was $28,000. At the end of the year, manufacturing overhead was overapplied by $4,500. -Which of the following cost elements is generally absent in professional service organizations such as public accounting firms?

Arthur Manufacturing Company produces a single product.The controller has asked for your help in preparing a schedule of cost of goods manufactured for the month just ended.The following information is available: 1.)Eleven thousand units were sold at $22 per unit. 2.)Thirteen thousand units requiring one unit each of raw materials were produced. 3.)Raw materials inventory at the beginning of the month was 1,100 units at $4 each. 4.)During the month,two purchases of raw materials were made: Purchase #1: 7,000 units at $5.00 each Purchase #2: 6,000 units at $5.50 each 5.)The company uses the first-in,first-out method of determining raw materials inventories. 6.)The work-in-process inventories were: Beginning of the month: 1,500 units valued at \ 17,000 End of the month: 1,500 units valued at \ 19,000 7.)Direct labour cost was $110,000. 8.) Overhead is applied to production on the basis of 65% of direct labour cost. Required: Prepare a schedule of cost of goods manufactured for the month.

Which of the following statements is true if a company applies overhead to jobs on the basis of a predetermined overhead rate and reports a credit balance in the Manufacturing Overhead account at the end of any period?

The following journal entries (without dollar data) were taken from the accounting records of Case Company. Case Company has a job-order costing system and applies overhead to jobs using a predetermined overhead rate. 1. Work in Process Manufacturing Overhead Wages Payable 2. Salary Expense Wages Payable 3. Manufacturing Overhead Accumulated Amortization 4. Work in Process Raw Materials 5. Work in Process Manufacturing Overhead 6. Manufacturing Overhead Raw Materials 7. Finished Goods Work in Process 8. Raw Materials Accounts Payable -Which entry records amortization on manufacturing equipment?

The Milo Company's records for May contain the following information: Actual direct labour hours 9,000 hours Actual direct labour cost \ 47,000 Direct material purchased \ 16,000 Direct material used \ 14,000 Cost of goods sold \ 100,000 Overapplied overhead \ 5,000 Ending inventories: Raw materials Work in proeess Finished goods \ 30,000 \ 50,000 \ 70,000 The company uses a predetermined overhead rate of $5.00 per direct labour hour to apply manufacturing overhead to jobs. -What was the actual overhead cost incurred during the month?

Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours.The following estimates were used in preparing the predetermined overhead rate for the most recent year: Machine hours 95,000 Manufacturing overhead cost \ 1,710,000 During the most recent year, a severe recession in the company's industry caused the curtailment of production and a buildup of inventory in the company's warehouses. The company's cost records revealed the following actual cost and operating data for the year: Machine hours 75,000 Manufacturing overhead cost \ 1,687,500 $\text { Amount of applied overhead in inventories at year-end: }$ Work in process \ 337,500 Finished goods 253,125 $\text { Amount of applied overhead in }$ $\text { cost of goods sold for the year } 759.375$ Required: (a.) Compute the company's predetermined overhead rate for the year and the amount of under- or overapplied overhead for the year. (b.) Determine the difference between net income for the year if the under- or overapplied overhead is allocated to the appropriate accounts rather than closed out directly to Cost of Goods Sold.

Raw materials can be direct materials,but NOT all direct materials need to be raw materials.