Job Order Costing System Exercises and Problems
- Exercise 1– Cost accumulation Procedure Determination
- Exercise 2– Job order cost sheet
- Exercise 3– Job order costing-T Accounts and Journal Entries
- Exercise 4– Job Order Cycle Entries
- Exercise 5– Journal entries, T Accounts, Over and Under applied overhead Income Statement
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 |
Solution:
- 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.Required:
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Solution:
1.
Forge Machine Works |
|||||||||
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 | ||||||||
——– | ———- | ———- | |||||||
$2,342 ===== |
$2,138 ====== |
$1,120 ====== |
2.
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 |
——- | |
$7,840 ===== |
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.
Required:
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Solution:
T Accounts
*$1,400 + $900 + ($900 × 150%)
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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 | |||
Labor: | ||||
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. |
Required:
Journal entries, with detail for the respective job orders and factory overhead subsidiary records, to to record the following transactions for the January:
- Purchase of materials on account.
- Labor paid.
- Labor cost distribution.
- Materials issued.
- Depreciation for the month.
- Acquisition of other overhead costs on credit.
- Overhead applied to production.
- Jobs completed and transferred to finished goods.
- Sales revenue.
- Cost of goods sold.
Solution:
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 |
3,500 |
|||
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 |
14,500 |
|||
7 | Work in process |
20,000 |
||
Job1 | 5,000 | |||
Job2 | 8,000 | |||
Job3 | 7,000 | |||
Factory overhead control (or applied FOH) |
20,000 |
|||
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 |
$20,000 $15,000 $30,000 |
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
- Raw materials were purchased on account, $410,000.
- Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials).
- 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.
- Sales travel costs were $17,000.
- Utility costs in the factory were $43,000.
- Advertising costs were $180,000.
- Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
- Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).
- 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.
- Goods costing $9,00,000 to manufacture according to their job cost sheets were completed during the year.
- 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.
Required:
- Prepare journal entries to record the preceding transactions.
- Post the entries in (1) above to T-accounts (don’t forget to enter the beginning balances in the inventory accounts).
- 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).
- Prepare an income statement for the year.
Solution:
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
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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
HOGLE COMPANY |
||
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 | |
====== |
You may also be interested in other useful articles from “job order costing system” chapter:
- Measuring Direct Materials Cost in Job Order Costing System
- Measuring Direct Labor Cost in Job Order Costing System
- Application of Manufacturing Overhead
- Job Order Costing System – The Flow of Costs
- Multiple Predetermined Overhead Rates
- Under-applied overhead and over-applied overhead calculation
- Disposition of any balance remaining in the manufacturing overhead account at the end of a period
- Predetermined Overhead Rate and Capacity
- Recording Non-manufacturing Costs
- Recording Cost of Goods Manufactured and Sold
- Job Order Costing in Services Companies
- Use of Information Technology in Job Order Costing
- Advantages and Disadvantages of Job Order Costing System
- Job Order Costing Discussion Questions and Answers
- Job Order Costing Exercises
- Case Studies
Other Related Accounting Articles:
- Recording Cost of Goods Manufactured and Sold in Job Order Costing
- Job Order Costing Questions and Answers
- Disposition of Underapplied or Overapplied Overhead Balances
- Job Order Costing – The Flow of Cost
- Recording Non-manufacturing Costs in a Job Order Costing System
- Over-applied and Underapplied Overhead
- Application of Manufacturing Overhead Cost in Job Order Costing
- Job Order Costing System
- Job Order Costing in Service Companies
- Measuring Direct Materials Cost in Job Order Costing System
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Hello, thanks so much for providing these exercises. I enjoyed completing them.
For your information, Exercise 5 contains a couple of errors.
Journal Entry #3 cites administrative salaries at $20,000.00, but in the Solutions section, administrative salaries are posted in the journal at $200,000.00.
The T account for Work in Process in the Solutions carries an opening balance of $20,000.00, but the balance given in the actual question is $15,000. You give the final balance for the Work in Process T account as $30,000.00. That sum could only be arrived at with a $15,000.00 balance.
These are small issues in an otherwise great series of exercises, and I hope you find my comment helpful.
how we can prepare manufacturing statement to the above question?