Exam 19: Job Order Cost Accounting

Service firms, unlike manufacturing firms, should only use actual costs when determining a selling price for their services.

Sail Away takes special orders to manufacture sail boats for high end customers. Complete the job cost sheets for Sail Away for September based on the following information. Prepare journal entries to record the transactions as well as post to the job cost sheets. a. Purchased raw materials on credit, $145,000. b. Materials requisitions: Job 240, $48,000; Job 241, $36,000; Job 242, $42,000; indirect materials were $12,000. c. Paid $130,000 for factory wages. d. Time tickets used to charge labor to jobs: Job 240, $40,000; Job 241, $30,000; Job 242, $35,000, indirect labor is $25,000. e. The company incurred the following additional overhead costs: depreciation of factory building, $70,000; depreciation of factory equipment, $60,000; expired factory insurance, $10,000; utilities and maintenance cost of $20,000 were paid in cash. f. Applied overhead to all three jobs. The predetermined overhead rate is 190% of direct labor cost. g. Transferred jobs 240 and 242 to Finished Goods Inventory. h. Sold job 240 for $300,000 for cash. i. Closed the under- or over-applied overhead account balance.

Under a job order cost accounting system, individual jobs are always charged with actual overhead costs when they are transferred to finished goods.

A source document that an employee uses to report how much time was spent working on a job or on overhead activities and that is used to determine the amount of direct labor to charge to the job or to determine the amount of indirect labor to charge to factory overhead is called a:

The predetermined overhead allocation rate for Forsythe, Inc., is based on estimated direct labor costs of $400,000 and estimated factory overhead of $500,000. Actual costs incurred were: (a) Calculate the predetermined overhead rate and calculate the overhead applied during the year. (b) Determine the amount of over- or underapplied overhead and prepare the journal entry to eliminate the over- or underapplied overhead assuming that it is not material in amount.

The production of one unit of Product BBB used $17.50 of direct materials and $21.00 of direct labor. The unit sold for $56.00 and was assigned overhead at a rate of 30% of labor costs. What is the gross profit per unit on its sale?

A source document that an employee uses to record the number of hours at work and that is used to determine the total labor cost for each pay period is a:

The amount by which overhead incurred during a period exceeds the overhead applied to jobs is:

In a job order cost accounting system, any immaterial underapplied overhead at the end of the period can be charged entirely to Cost of Goods Sold.

A company's job order cost accounting system applies overhead based on direct labor cost. The company's estimated production costs for were: direct labor, $57,600; direct materials, $76,800; and factory overhead, $9,600. Calculate the company's overhead allocation rate.

The job order cost sheets used by Garza Company revealed the following: Job No. 125 was completed during May and Jobs No. 124 and 125 were shipped to customers in May. What was the company's cost of goods sold for May and the goods in process inventory on May 31?

Using the following accounts and an overhead rate of 90% of direct labor cost, determine the amount of applied overhead.

Medlar Corp. maintains a Web-based general ledger. Overhead is applied on the basis of direct labor costs. Its bookkeeper accidentally deleted most of the entries that had been recorded for January. A printout of the general ledger (in T-account form) showed the following: A review of the prior year's financial statements, the current year's budget, and January's source documents produced the following information: (1) Accounts Payable is used for raw material purchases only. January purchases were $49,000. (2) Factory overhead costs for January were $17,000 none of which is indirect materials. (3) The January 1 balance for finished goods inventory was $10,000. (4) There was a single job in process at January 31 with a cost of $2,000 for direct materials and $1,500 for direct labor. (5) Total cost of goods manufactured for January was $90,000. (6) All direct laborers earn the same rate ($13/hour). During January, 2,500 direct labor hours were worked. (7) The predetermined overhead allocation rate is based on direct labor costs. Budgeted (expected) overhead for the year is $195,000 and budgeted (expected) direct labor is $390,000. Fill in the missing amounts a through o above in the T-accounts above.

Overapplied or underapplied overhead should be removed from the Factory Overhead account at the end of each accounting period.

A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing $20,000?

Docksider Boats uses a job order cost accounting system. During one month Docksider purchased $153,000 of raw materials on credit; issued materials to production of $164,000 of which $24,000 were indirect. Docksider incurred a factory payroll of $95,000, paid in cash, of which $25,000 is classified as indirect labor. Docksider uses a predetermined overhead application rate of 170% of direct labor cost. The journal entry to record the allocation of factory payroll to production is:

Dina Corp. uses a job order cost accounting system. Four jobs were started during the current year. The following is a record of the costs incurred: Actual overhead costs were $55,800. The predetermined overhead allocation rate is $2.40 per direct labor hour. During the year, Jobs 1010, 1012, and 1013 were completed. Also, Jobs 1010 and 1013 were sold for $387,000. Assuming that this is Dina's first year of operations: (a) Make the necessary journal entries to charge the costs to the jobs started and to record the completion and sale of finished jobs. (b) Calculate the balance in the Goods in Process Inventory, Finished Goods Inventory, and Factory Overhead accounts. Does the Factory Overhead account balance indicate an over- or under applied overhead?

Plumley Ad Agency contracted with a company to prepare an ad campaign. Plumley uses a job order costing system. Plumley estimates that the job will take 145 designer hours at $90 per hour and 85 staff hours at $45 per hour. Plumley uses two overhead rates in applying overhead to jobs: Designer-related at $100 per designer hour and staff-related at $50 per staff hour. Determine the total estimated cost for this job.

When a job is finished, its job cost sheet is completed and moved from the file of jobs in process to the file of finished jobs that are yet to be delivered to customers.

Explain how a service firm, such as an advertising agency, might use job order costing.