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Job Order Costing System Exercises and Problems:

Exercise 1--Cost accumulation procedure determination:

Classify these industries with respect to the type of cost accumulation procedure generally used--job order costing or process costing.

a. Meat k. Pianos
b. Sugar l. Linoleum
c. Steel m. Leather
d. Breakfast cereal n. Nylon
e. Paper boxes o. Baby foods
f. Wooden furniture p. Locomotives
g. Toys and novelties q. Office machines equipment
h. Coke r. Luggage
i. Cooking utensils s. Paint
j. Caskets t. Tires and tubes


  • Job order cost procedure: (e), (f), (g), (i), (j), (k), (p), (q), (r)
  • Process costing procedure: (a), (b), (c), (d), (h), (l), (m), (n), (o), (s), (t)

Exercise 2--Job order cost sheet:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available:

Direct Materials

Direct Labor

9/14 Issued $ 1,200 Week of Sep. 20 180 hrs @ $6.20/hr
9/20 Issued 662 Week of Sep. 26 140 hrs @ $7.30/hr
9/22 Issued 480    
Factory overhead applied at the rate of $3.50 per direct labor hour.


  1. The appropriate information on a job cost sheet.
  2. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.



Forge Machine Works
Job Order Cost Sheet--Job 642

Direct materials Direct labor Applied factory overhead
Date Issued Amount Date (Week of) Hours Rate Cost Date (Week of) Hours Rate Cost
9/14 $1,200 9/20 180 $6.20 $1,116 9/20 180 $3.50 $630
9/20 662 9/26 140 7.30 1,022 9/26 140 3.50 490
9/22 480                
  --------       ----------       ----------


Sales Price of job 642, contracted with a markup of 40% of cost:

Direct materials $2,342
Direct labor 2,138
Applied factory overhead 1,120
Total factory cost $5,600
Markup 40% of cost 2,240

Exercise 3--Job order costing:

The Cambridge Company uses job order costing. At the beginning of the May, two jobs were in process:

    Job 369 Job372
Materials $ 2,000 $ 700
  Direct labor 1,000 300
  Applied factory overhead 1,500 450
There was no inventory of finished goods on May1. During the month, Jobs 373, 374, 375, 376, 378, and 379 were started.

Materials requisitions for May totaled $13,000, direct labor cost, $10,000, and actual factory overhead, $16,000. Factory overhead is applied at a rate of 150% of direct labor cost. The only job still in process at the end of May is No. 379, with costs of $1,400 for materials and $900 for direct labor. Job 376, the only finished job on hand at the end of May, has a total cost of $2,000.


  1. T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied factory overhead.
  2. General journal entries to record:
    a. Cost of goods manufactured
    b. Cost of goods sold
    c. Closing of over or underapplied factory overhead to cost of goods sold.


T Accounts

Work in Process

May1 Balance
No. 369            4,500
No. 372            1,450

Materials        13,000

Direct labor     10,000

Factory O/H     15,000

May31 Balance:
No. 379           

goods            40,300

*$1,400 + $900 + ($900 150%)

Factory Overhead Control

                      16,000                        15,000



Finished Goods

Work in Process      40,300

May31 Balance:

Cost of goods sod   38,300


Cost of Goods sold

From finished
goods                   38,300

Overhead               1,000



Applied Factory Overhead

                               15,000                            15,000


General journal entries to record:

Cost of goods manufactured: Dr Cr
Finished goods 40,300
    Work in process 40,300
Cost of goods sold:
Cost of goods sold 38,300
    Finished goods 38,300
Closing of underapplied factory overhead to cost of goods sold:
Cost of goods sold 1,000
    Factory overhead control 1,000

Exercise 4--Job Order Cycle Entries:

Beaver, inc. provided the following data for January, 19B:

Materials and supplies:  
Inventory, January 1, 19B $10,000
Purchases on account 30,000
Accrued, January 1, 19B 3,000
Paid during January (ignore payroll taxes) 25,000
Factory overhead costs:  
Supplies (issued from materials) 1,500
Indirect labor 3,500
Depreciation 1,000
Other factory overhead costs (all from outside suppliers on account) 14,500
Work in process:  
  Job1 Job2 Job3 Total
Work in process January 1, 19B $ 1,000 -- -- $ 1,000
Job costs during January, 19B:        
Direct materials 4,000 $6,000 $5,000 15,000
Direct labor 5,000 8,000 7,000 20,000
Applied factory overhead 5,000 8,000 7,000 20,000
Job 1 started in December, 19A, finished during January, and sold to a customer for $21,000 cash
Job 2 started in January, not yet finished.
Job 3 started in January, finished during January, and now in the finished goods inventory awaiting customer's disposition
Finished goods inventory January 1, 19B.


Journal entries, with detail for the respective job orders and factory overhead subsidiary records, to to record the following transactions for the January:

  1. Purchase of materials on account.
  2. Labor paid.
  3. Labor cost distribution.
  4. Materials issued.
  5. Depreciation for the month.
  6. Acquisition of other overhead costs on credit.
  7. Overhead applied to production.
  8. Jobs completed and transferred to finished goods.
  9. Sales revenue.
  10. Cost of goods sold.


Journal Entries:

    Subsidiary Record Debit Credit
1 Materials   30,000  
           Accounts payable     30,000
2 Accrued payroll   25,000  
           Cash     25,000
3. Factory overhead control   3,500  
         Indirect labor


  Work in process (WIP)   20,000  
        Job1 5,000    
        Job2 8,000    
        Job3 7,000    
            Payroll     23,500
4. Work in process   15,000  
        Job1 4,000    
        Job2 6,000    
        Job3 5,000    
  Factory overhead control   1,500  
        Supplies 1,500    
            Materials     16,500
5 Factory overhead control   1,000  
       Depreciation 1,000    
            Accumulated Depreciation     1,000
6 Factory overhead control   14,500  
        Other factory overhead costs 14,500    
               Accounts payable    


7 Work in process  


         Job1 5,000    
         Job2 8,000    
         Job3 7,000    
            Factory overhead control (or applied FOH)    


8 Finished goods   34,000  
             Work in process (WIP)     34,000
         Job1 15,000    
         Job3 19,000    
9 Cash   21,000  
             Sales     21,000
10 Cost of goods sold   15,000  
             Finished goods     15,000

Exercise 5 Job Order Costing--Journal Entries, T Accounts, Income Statement

Hogle Company is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:

Raw materials
Work in process
Finished Goods

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year

  1. Raw materials were purchased on account, $410,000.
  2. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials).
  3. The following costs were incurred for employee services: direct labor, $75,000; indirect labor, $110,000; sales commission, $90,000; and administrative salaries, $20,000.
  4. Sales travel costs were $17,000.
  5. Utility costs in the factory were $43,000.
  6. Advertising costs were $180,000.
  7. Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
  8. Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).
  9. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.
  10. Goods costing $9,00,000 to manufacture according to their job cost sheets were completed during the year.
  11. Goods were sold on account to customers during the year at a total selling price of $1,500,000. The goods cost $870,000 to manufacture according to their job cost sheets.


  1. Prepare journal entries to record the preceding transactions.
  2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts).
  3. Is manufacturing overhead underapplied or overapplied for the year? Prepare journal entry to close any balance in the manufacturing overhead account to cost of goods sold (COGS). Do not allocate the balance between ending inventories and cost of goods sold (COGS).
  4. Prepare an income statement for the year.


1: Journal Entries

1 Raw materials 410,000  
    Accounts payable   410,000
2 Work in process 360,000  
  Manufacturing overhead 20,000  
    Raw materials   380,000
3 Work in process 75,000  
  Manufacturing overhead 110,000  
  Sales commission expense 90,000  
  Administrative salaries expense 200,000  
    Salaries and wages payable   475,000
4 Sales travel expense 17,000  
    Accounts payable   17,000
5 Manufacturing overhead 43,000  
    Accounts payable   43,000
6 Advertising expense 180,000  
    Accounts payable   180,000
7 Manufacturing overhead 280,000  
  Depreciation expense 70,000  
    Accumulated depreciation   350,000
8 Manufacturing overhead 7,000  
  Insurance expense 3,000  
    Prepaid insurance   10,000
9* Work in process 480,000  
    Manufacturing overhead   480,000
10 Finished Goods 900,000  
    Work in process   900,000
11 Accounts Receivable 1,500,000  
    Sales   1,500,000
  Cost of goods sold 870,000  
    Finished goods   870,000

*The predetermined overhead rate for the year would be computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base

= $450,000 / 75,000 machine-hours

= $6 per machine-hour

Based on the 80,000 machine-hours actually worked during the year, the company would have applied $480,000 in overhead cost to production: 80,000 machine-hours $6 per machine-hour = $480,000.

2: T Accounts

Accounts Receivable

11      1,500,000  

Finished Goods

Bal.       30,000
10        900,000
(11)        870,000

Accounts Payable

  (1)         410,000
(4)           17,000
(5)           43,000
(6)         180,000


  (11)     1,500,000

Sales Commissions Expenses

(3)           90,000  

Advertising expense

(6)         180,000  

Raw Materials

Bal.       20,000
(1)        410,000
(2)          380,000
Bal.       50,000  

Prepaid Insurance

  (8)            10,000

Salaries and Wages Payable

  (3)         475,000

Cost of goods sold

(11)        870,000  

Administrative Salary Expense

(3)         200,000  

Depreciation Expenses

(7)           70,000  

Work in Process

Bal.     20,000
(2)     360,000
(3)       75,000
(9)     480,000  
(10)    900,000
Bal.      30,000  

Accumulated Depreciation

  (7)      350,000

Manufacturing Overhead

(2)       20,000
(3)     110,000
(5)       43,000
(7)     280,000
(8)         7,000
(9)      480,000
           460,000            480,000
  Bal.        20,000

Insurance Expense

(8)         3,000  

Sales Travel Expense

(4)       17,000  

3: Under or Overapplied manufacturing overhead:

Manufacturing overhead is overapplied for the year. The entry to close it out to cost of goods sold is as follows:

Manufacturing overhead 20,000
  Cost of goods sold   20,000

4: Income Statement

Income Statement
For the Year Ended December 31

Sales   $1,500,000
Less cost of goods sold ($870,000 - $20,000 overapplied O/H   850,000
Gross margin   650,000
Less selling and administrative expenses:    
     Commission expense $90,000  
     Administrative salaries expense 200,000  
     Sales travel expense 17,000  
     Advertising expense 180,000  
     Depreciation expense 70,000  
     Insurance expense 3,000 560,000
  ------------ -------------
Net operating income   $90,000
New Page 2

You may also be interested in other useful articles from "job order costing system" chapter:

  1. Measuring Direct Materials Cost in Job Order Costing System
  2. Measuring Direct Labor Cost in Job Order Costing System
  3. Application of Manufacturing Overhead
  4. Job Order Costing System - The Flow of Costs
  5. Multiple Predetermined Overhead Rates
  6. Under-applied overhead and over-applied overhead calculation
  7. Disposition of any balance remaining in the manufacturing overhead account at the end of a period
  8. Predetermined Overhead Rate and Capacity
  9. Recording Non-manufacturing Costs
  10. Recording Cost of Goods Manufactured and Sold
  11. Job Order Costing in Services Companies
  12. Use of Information Technology in Job Order Costing
  13. Advantages and Disadvantages of Job Order Costing System
  14. Job Order Costing Discussion Questions and Answers
  15. Job Order Costing Exercises
  16. Case Studies


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Business and Quality Improvement Programs
Cost Terms, Concepts and Classification
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Process Costing System - Addition of Materials & Beginning Inventory
Controlling and Costing Materials
Materials and Inventory Cost Control
By Products and Joint Products Costing
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