Exam 7: Job Costing

The management of Satellite Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year.The company's controller has provided an example to illustrate how this new system would work.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 13,000 machine-hours.In addition,capacity is 16,000 machine-hours and the actual activity for the year is 12,900 machine-hours.All of the manufacturing overhead is fixed and is $29,120 per year.For simplicity,it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.Required: a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.b.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

The Falcon Company does not maintain backup documents for its computer files.In June,some of the current data were lost,and you have been asked to help reconstruct the data.The following beginning balances on June 1 are known: Reviewing old documents and interviewing selected employees have generated the following additional information: The production superintendent's job cost sheets indicated that materials of $2,600 were included in the June 30 Work-in-Process Inventory.Also,300 direct labor-hours had been paid at $6.00 per hour for the jobs in process on June 30.The Accounts Payable account is only for direct material purchases.The clerk remembers clearly that the balance in the Accounts Payable on June 30 was $8,000.An analysis of canceled checks indicated payments of $40,000 were made to suppliers during June.Payroll records indicate that 5,200 direct labor-hours were recorded for June.It was verified that there were no variations in pay rates among employees during June.Records at the warehouse indicate that the Finished Goods Inventory totaled $16,000 on June 30.Another record kept manually indicates that the Cost of Goods Sold in June totaled $84,000.The predetermined overhead rate was based on an estimated 60,000 direct labor-hours for the year and an estimated $180,000 in manufacturing overhead costs.What is the amount of direct materials purchased during June? Direct Materials Inventory \ 12,000 Work-ir-Process Inventory 4,500 Finished Goods Inventory 11,000 Manufacturing Overhead Control 16,500 Accounts Payable 6,000

Dickerson Corporation has provided the following data for the month of April: Imuentories: Beginning Encing Raw materials \ 21,000 \ 35,000 Work-ir-Process \ 17,000 \ 19,000 Finished goods \ 46,000 \ 38,000 Additional information: Raw materials purchases Direct labor cost Manufacturing overhead cost incurred Indirect materials included in manufacturing overhead cost incurred Manufacturing owerhead cost applied to Work-in- Process \ 76,000 \ 81,000 \ 42,000 \ 6,000 \ 44,000 Required: Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form.

Reyes Corporation applies overhead using a normal costing approach based upon machine-hours.Budgeted factory overhead was $266,400,budgeted machine-hours were 18,500.Actual factory overhead was $287,920,actual machine-hours were 19,050.How much is the over- or underapplied overhead?

What are characteristics of companies that are likely to use a job cost system?

Complex jobs that take multiple time periods and require the work of many different departments,divisions,or subcontractors are called:

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?

If a company multiplies its predetermined overhead rate by the actual activity level of its allocation base,it is using:

The actual manufacturing overhead incurred at Liberty Industries during May was $59,000,while the manufacturing overhead applied to Work-in-Process was $74,000.The company's Cost of Goods Sold was $289,000 prior to closing out its Manufacturing Overhead account.The company closes out its Manufacturing Overhead account to Cost of Goods Sold.Which of the following statements is true?

In the context of job costing,what are projects? What additional costing issues are there with projects?

Cherry Company is a manufacturing firm that uses job-order costing.The company's inventory balances were as follows at the beginning and end of the year: Beginning Balance Enoing Balance Raw materials \ 11,000 \ 15,000 Work-ir-Process \ 32,000 \ 14,000 Finished goods \ 108,000 \ 123,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours.At the beginning of the year,the company estimated that it would work 17,000 machine-hours and incur $272,000 in manufacturing overhead cost.The following transactions were recorded for the year: • Raw materials were purchased,$416,000.• Raw materials were requisitioned for use in production,$412,000 ($376,000 direct and $36,000 indirect).• The following employee costs were incurred: direct labor,$330,000;indirect labor,$69,000;and administrative salaries,$157,000.• Selling costs,$113,000.• Factory utility costs,$29,000.• Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7,000 is related to selling,general,and administrative activities.• Manufacturing overhead was applied to jobs.The actual level of activity for the year was 15,000 machine-hours.• Sales for the year totaled $1,282,000.Required: a.Prepare a schedule of cost of goods manufactured in good form.b.Was the overhead underapplied or overapplied? By how much? c.Prepare an income statement for the year in good form.The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Northface Company applies overhead based upon labor-hours.Budgeted factory overhead was $910,000 and budgeted labor-hours were 32,500.Actual factory overhead was $893,675 and actual labor-hours were 31,560.Required: a.Compute the overhead application rate.b.Compute the amount of overhead applied to production.c.Determine the amount of over- or underapplied overhead.

Townley Inc.has provided the following data for the month of February.There were no beginning inventories;consequently,the direct materials,direct labor,and manufacturing overhead applied listed below are all for the current month. Wotk-in- Process Finshed Goods Cost of Goods Sold Total Direct materials \ 7,570 \ 19,200 \ 36,280 \ 62,060 Direct labor 8,810 24,000 44,100 76,910 Manutacturing overhead applied 8,320 15,600 28,080 52,000 Total \ 24,700 \ 58,800 \ 107,460 \ 190,960 Manufacturing overhead for the month was overapplied by $3,000.The company allocates any underapplied or overapplied overhead among Work-in-Process,finished goods,and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. Required: Provide the journal entry that would record the allocation of underapplied or overapplied among Work-in-Process,finished goods,and cost of goods sold.

Faucette Corporation has provided the following data concerning manufacturing overhead for January: The company's Cost of Goods Sold was $369,000 prior to closing out its Manufacturing Overhead account.The company closes out its Manufacturing Overhead account to Cost of Goods Sold.Which of the following statements is true? Actual manufacturing overhead incurred Manutacturing ou'erhead applied to Work-in- Process $\mid$ \begin{tabular} { l } $\$ 52,000$ \\ $\$ 75,000$ \\ \hline \end{tabular}

Santos Company is a manufacturing firm that uses job-order costing.At the beginning of the year,the company's inventory balances were as follows: Raw materials \ 24,000 Work-ir-Process \ 73,000 Finished goods \ 27,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours.At the beginning of the year,the company estimated that it would work 45,000 machine-hours and incur $180,000 in manufacturing overhead cost.The following transactions were recorded for the year: a.Raw materials were purchased,$416,000.b.Raw materials were requisitioned for use in production,$420,000 ($380,000 direct and $40,000 indirect).c.The following employee costs were incurred: direct labor,$414,000;indirect labor,$60,000;and administrative salaries,$212,000.d.Selling costs,$141,000.e.Factory utility costs,$20,000.f.Depreciation for the year was $81,000 of which $73,000 is related to factory operations and $8,000 is related to selling,general,and administrative activities.g.Manufacturing overhead was applied to jobs.The actual level of activity for the year was 48,000 machine-hours.h.The cost of goods manufactured for the year was $1,004,000.i.Sales for the year totaled $1,416,000 and the costs on the job cost sheets of the goods that were sold totaled $989,000.j.The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.Required: Prepare the appropriate journal entry for each of the items above (a.through j. ).You can assume that all transactions with employees,customers,and suppliers were conducted in cash.

The following selected data were taken from the books of the Fisher Foil Company.The company uses job costing to account for manufacturing costs.The data relate to June operations.A)Materials and supplies were requisitioned from the stores clerk as follows: Job 405,material X,$7,000.Job 406,material X,$3,000;material Y,$6,000.Job 407,material X,$7,000;material Y,$3,200.For general factory use: materials A,B,and C,$2,300.B)Time tickets for the month were chargeable as follows: Job 405 \ 11,000 300 Job 406 14,000 360 Job 407 8,000 190 Indirect labor 3,700 C)Other information: Beginning work-in-process,June 1,$-0- Factory paychecks for $36,700 were issued during the month.Various factory overhead charges of $19,400 were incurred on account.Depreciation of factory equipment for the month was $5,400.Factory overhead was applied to jobs at the rate of $35.00 per direct labor hour.Job orders completed during the month: Job 405 and Job 406.Selling and administrative costs were $2,100.Factory overhead is closed out only at the end of the year.Required: (a)Determine the ending work-in-process balance on June 30.(b)Determine the cost of goods manufactured for June.(c)Is factory overhead over- or underapplied for June? What is the monthly value?

Halston Manufacturing uses actual costing.The following events took place during the current year: (1)Purchased $95,000 in direct materials.(2)Incurred labor costs as follows: (a)direct,$56,000 and (b)indirect,$13,600.(3)Other manufacturing overhead was $107,000,excluding indirect labor.(4)Transferred 80% of the materials to the manufacturing assembly line.(5)Completed 65% of the Work-in-Process during the year.(6)Sold 85% of the completed goods.(7)There were no beginning inventories.Required: (a)Determine the ending Direct Materials Inventory balance.(b)Determine the ending Work-in-Process Inventory balance.(c)Determine the ending Finished Goods Inventory balance.(d)Determine the Cost of Goods Manufactured.

The management of Philly Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year.The company's controller has provided an example to illustrate how this new system would work.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 37,000 machine-hours.In addition,capacity is 46,000 machine-hours and the actual activity for the year is 36,900 machine-hours.All of the manufacturing overhead is fixed and is $697,820 per year.For simplicity,it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.Required: a.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.b.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

Which of the following isnot a characteristic of job costing?

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 overhead would be applied to production?