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Chapter 07 - Job Costing

Chapter
Job
Costing
Solutions to Review Questions
7-1.
Companies using a job order cost system are likely to be performing services or
manufacturing products according to specific customer orders and product specifications.
Construction contractors, manufacturers of special equipment, aircraft manufacturers,
CPA firms, attorneys, and hospitals all employ job order cost systems.
7-2.
There are two primary reasons that cost allocation bases using direct labor are common.
First, direct labor historically was the most important resource used in manufacturing.
Second, direct labor usage is already recorded for products, meaning no additional record
keeping is required.
7-3.
The Manufacturing Overhead account is used to accumulate the actual manufacturing
overhead costs as they are incurred. Manufacturing Overhead Applied represents the
estimate of overhead that is used as a basis for computing work in process and other
inventory costs. The applied account is used to facilitate recordkeeping during the period.
7-4.
A materials requisition is used to document the authorization for issuances of materials
from the storeroom while the source document (or receiving slip) is used to indicate
quantities and descriptions of materials purchased and received. A time card or time
record is used to record labor time for the product or service.
7-5.
The job costing procedure is basically the same in both types of organizations, except that
service firms use less direct materials. Also, service firms typically do not show inventories
on their balance sheets, and use a Cost of Services Billed account rather than Cost of
Goods Sold.

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Chapter 07 - Job Costing

7-6.
The costs of a product using normal costing are:
Actual direct materials cost.
Actual direct labor cost.
Applied overhead, which is calculated as: Predetermined overhead rate x actual allocation
base.
7-7.
Mega has choices to make about the allocation base and the cost pools used to
accumulate the overhead. This does not mean Mega can choose to do whatever it wants.
The government has a set of contracting rules and an audit agency to enforce the rules.
However, some interpretation is always required when classifying costs.

Solutions to Critical Analysis and Discussion Questions


7-8.
Actual costing requires knowing the actual costs of overhead as well as the actual direct
cost for a job. By the time the actual overhead is known, the information is not timely for
decision-making. In addition, actual costing requires allocations of many overhead costs to
jobs, so it is only the total costs that are actual, not the job costs.
7-9.
If materials costs are not properly assigned to jobs, management may later be misled in
estimating the actual costs to complete future, similar jobs. Thus, profit planning may be in
error. Profitable jobs may be rejected because errors in cost assignments have made the
jobs look unprofitable or less profitable. If the company prepares bids on jobs, the bids
may be in error if they are based on the wrong costs.
7-10.
The allocation of overhead matters because decisions are made about individual products.
Different allocations result in different reported product costs.
7-11.
Answers will vary. Expect the managers in small construction firms to base their estimates
on their own experience, not a formal model.

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Chapter 07 - Job Costing

7-12.
Answers will vary.
7-13.
They would most likely use job costing since their jobs are typically easily identifiable and
relatively unique.
7-14.
Yes, a trial is a job for costing purposes.

7-15.
Answers will vary. The steps might include:
a. Measure the area of the walls;
b. Multiply the area by the amount (fractions of a gallon) of paint required per square foot;
c. Determine the number of coats of paint required;
d. Multiply the amount of paint in step b by the number of coats in step c;
e. Determine the costs of miscellaneous supplies (drop cloths, paint brushes, etc.);
f. Estimate the labor time for painting by multiplying the area in step a by the amount of
time per square foot;
g. Multiply the time estimate in step f by the number of coats from step c;
h. Multiply the time in step g by the cost of labor per hour;
i. Estimate the time required for miscellaneous tasks (preparation, cleanup, etc.);
j. Multiply the time from step i by the cost per hour;
k. Add the cost of your time (supervision, quality check).
7-16.
Answers will vary. Common responses are (labor) time, materials cost, wall area, and so
on.
7-17.
Answers will vary. In general, the answer is that this is not ethical. Although the correct
allocation basis is subjective, it is difficult to justify the choice by the outcome. There
might be other reasons, such as more valuable employees or other resources are used
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Chapter 07 - Job Costing

on jobs for the larger company or that the larger company, being more complex, requires
more overhead resources.
However, the larger company might require fewer resources, because of economies of
scale.

Solutions to Exercises
718. (30 min.)Assigning Costs to Jobs: Pawnee Workshops.
a.
1. Materials Inventory............................................................
Accounts Payable..........................................................
2. Manufacturing Overhead Control......................................
Materials Inventory.........................................................
3. Materials Inventory............................................................
Accounts Payable..........................................................
4. Accounts Payable..............................................................
Cash...............................................................................
5. Work-in-ProcessDirect Materials...................................
Materials Inventory.........................................................
6. Work-in-ProcessDirect Labor.........................................
Wages Payable..............................................................
7. Manufacturing Overhead Control......................................
Cash...............................................................................
8. Work-In-Process Overhead ($20,000 x 125%)..............
Applied Manufacturing Overhead...............................
9. Manufacturing Overhead Control......................................
Accumulated DepreciationProperty, Plant, and
Equipment.................................................................

16,000
16,000
800
800
11,200
11,200
16,000
16,000
13,600
13,600
20,000
20,000
21,200
21,200
25,000
25,000
10,000
10,000

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Chapter 07 - Job Costing

7-18. (continued)
b.
Materials Inventory
Balance 10/1
1.
3.
Balance 10/31

29,640
16,000
11,200
42,440 *

800 2. Ind. materials


13,600 5. Direct materials

*$42,440 = $29,640 + $16,000 + $11,200 $800 $13,600


Work-in-process inventory
Balance 10/1
5. Direct materials
6. Direct labor
8. Overhead applied
Balance 10/31

6,600
13,600
20,000
25,000
17,080

48,120 Per Finished


Goods T-account

Manufacturing Overhead Control


2.
7.
9.

800
21,200
10,000

Applied Manufacturing Overhead


25,000 8.
Accounts Payable
4.

16,000

Cash

16,000 1.
11,200 3.
16,000 4.
21,200 7.

Wages Payable

20,000 6.

7-18. (continued)

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Chapter 07 - Job Costing

Accumulated Depreciation
Property, Plant, and Equipment
10,000 9.
Finished Goods Inventory
Balance 10/1
Goods completed
Balance 10/31

33,200
48,120 *
28,640

52,680 Transfer to Cost

of Goods Sold

*$48,120 = $52,680 + $28,640 $33,200


Cost of Goods Sold
Balance 10/31

52,680

719. (20 min.)Assigning Costs to Jobs: Fast Wheels, Inc.


a.
1. Materials Inventory............................................................
Accounts Payable..........................................................
2. Manufacturing Overhead Control......................................
Materials Inventory.........................................................
3. Materials Inventory............................................................
Accounts Payable..........................................................
4. Accounts Payable..............................................................
Cash...............................................................................
5. Work-in-ProcessDirect Materials...................................
Materials Inventory.........................................................
6. Work-in-ProcessDirect Labor.........................................
Wages Payable..............................................................
7. Manufacturing Overhead Control......................................
Cash...............................................................................
8. Work-In-ProcessOverhead ($25,000 x 125%)...............
Applied Manufacturing Overhead.................................
9. Manufacturing Overhead Control......................................
Accumulated DepreciationProperty, Plant, and
Equipment.................................................................

20,000
20,000
1,000
1,000
25,000
25,000
20,000
20,000
30,000
30,000
25,000
25,000
21,500
21,500
31,250
31,250
5,000
5,000

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Chapter 07 - Job Costing

7-19. (continued)
b.
Materials Inventory
Balance 6/1
1.
3.
Balance 6/30

9,000
20,000
25,000
23,000 *

1,000 2. Ind. materials


30,000 5. Direct materials

*$23,000 = $9,000 + $20,000 + $25,000 $1,000 $30,000


Work-in-process inventory
Balance 6/1
5. Direct materials
6. Direct labor
8. Overhead applied
Balance 6/30

16,500
30,000
25,000
31,250
58,250

44,500 Per Finished


Goods T-account

Manufacturing Overhead Control


2.
7.
9.

1,000
21,500
5,000

Applied Manufacturing Overhead


31,250 8.
Accounts Payable
4.

20,000

Cash

20,000 1.
25,000 3.
20,000 4.
21,500 7.

Wages Payable

25,000 6.

7-19. (continued)

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Chapter 07 - Job Costing

Accumulated Depreciation
Property, Plant, and Equipment
5,000 9.
Finished Goods Inventory
Balance 6/1
Goods completed
Balance 6/30

65,000
44,500 *
36,500

73,000 Transfer to Cost

of Goods Sold

*$44,500 = $36,500 + $73,000 $65,000


Cost of Goods Sold
Balance 6/30

73,000

720. (20 min.)Assigning Costs to Jobs: Tarnsdale Fabricators.


a.
1. Materials Inventory............................................................
Accounts Payable..........................................................
2. Work-in-ProcessDirect Materials...................................
Materials Inventory.........................................................
3. Manufacturing Overhead Control......................................
Materials Inventory.........................................................
4. Accounts Payable..............................................................
Cash...............................................................................
5. Materials Inventory............................................................
Work-in-ProcessDirect Materials...............................
6. Work-in-ProcessDirect Labor.........................................
Cash...............................................................................
7. Manufacturing Overhead Control......................................
Accounts Payable..........................................................
8. Manufacturing Overhead Control......................................
Accumulated DepreciationPlant.................................
9. Work-In-ProcessOverhead ($31,000 x 93%)*...............
Applied Manufacturing Overhead.................................

17,000
17,000
16,800
16,800
1,200
1,200
17,000
17,000
2,200
2,200
31,000
31,000
17,200
17,200
35,000
35,000
28,830
28,830

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Chapter 07 - Job Costing

* The predetermined rate is 93% (= $403,620 $434,000).7-20. (continued)


b.
Materials Inventory

Balance 1/1
1.
5.
Balance 1/31

11,400 *
17,000
2,200
12,600

16,800 2. Direct materials


1,200 3. Indirect materials

* Beginning Balance = Ending Balance Additions + Uses


$11,400 = $12,600 $17,000 $2,200 + $16,800 + $1,200
Work-in-process inventory
Balance 1/1 15,070*
2. Direct materials 16,800
6. Direct labor 31,000
9. Overhead applied 28,830
Balance 1/31 10,500

2,200 5.
79,000 Transferred to

Finished Goods

*$15,070 = $10,500 $16,800 $31,000 $28,830


+ $2,200 + $79,000
Manufacturing Overhead Control
3.
7.
8.

1,200
17,200
35,000

Applied Manufacturing Overhead


28,830 9.
Accounts Payable
4.

17,000

Cash

17,000 1.
17,200 7.
17,000 4.
31,000 6.

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Chapter 07 - Job Costing

7-20. (continued)
Accumulated Depreciation
Property, Plant, and Equipment
35,000 8.
Finished Goods Inventory
Balance 1/1
Goods completed
Balance 1/31

2,600
79,000 *
7,100

74,500 Transfer to Cost

of Goods Sold

*$79,000 = $7,100 + $74,500 $2,600


Cost of Goods Sold
Balance 1/31

74,500

7-21. (25 min.)Assigning Costs to Jobs: Cardinals, Inc.


a. $96,000, the credit side of the Materials Inventory account.
b. $72,000.
Direct labor..........................................................
$90,000
Labor rate............................................................
$30 per hour
Direct labor-hours................................................
$90,000 $30 = 3,000 hours
Manufacturing overhead applied.........................
3,000 x $24 = $72,000
c. $180,000, the debit addition to the Finished Goods Inventory account.
d. $138,000.
BB + TI TO = EB
EB = $60,000 + ($96,000 + $90,000 + $72,000) $180,000
EB = $138,000

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Chapter 07 - Job Costing

e. $6,000 (underapplied) = $78,000 $72,000.


f. $96,000.
$270,000
Sales....................................................................
$126,000
Cost of Goods Solda...........................................
48,000
174,000
S&A costs............................................................
$96,000
Operating profit....................................................
a

The credit from Finished Goods Inventory for $120,000 plus $6,000 underapplied
overhead.

(25 min.)Assigning Costs to Jobs: Blake Corporation.

a. $447,000, the debit side of the Materials Inventory account.


b. $10,000 overapplied (the difference between overhead control and overhead applied).
c. $25/direct-labor hour (= $250,000 Applied 10,000 [= $350,000 $35] Direct Labor
Hours).
d. $822,000, the debit addition to the Finished Goods Inventory account.
e.

f.

BB = EB TI + TO
BB = $400,000 ($402,000 + $350,000 + $250,000) + $822,000
BB = $220,000
$1,020,000
Sales....................................................................
$809,000
Cost of Goods Solda...........................................
222,000
1,031,000
S&A costs............................................................
($11,000)
Operating profit....................................................

The credit from Finished Goods Inventory for $819,000 minus $10,000 overapplied
overhead.

7-22. (25 min.)Assigning Costs to Jobs: Pine Ridge Corporation.


a. $190,000, the credit side of the Materials Inventory account.
b. $5,000 underapplied (= $155,000 Control $150,000 Applied).
c.

80% (= $150,000 Applied $187,500 Direct Labor Cost).

d. $345,000, the debit addition to the Finished Goods Inventory account.

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Chapter 07 - Job Costing

e.

f.

BB + TI TO = EB
EB = $100,000 + ($190,000 + $187,500 + $150,000) $345,000
EB = $282,500
$600,000
Sales....................................................................
$256,000
Cost of Goods Solda...........................................
105,000
361,000
S&A costs............................................................
$239,000
Operating profit....................................................

The credit from Finished Goods Inventory for $251,000 plus $5,000 underapplied
overhead.

723. (10 min.)Predetermined Overhead Rates: Tappan, Inc.


Direct material used............................................
Direct labor..........................................................
Manufacturing overhead applied.........................
Total manufacturing cost during the year............

$700,000c
800,000b
500,000a
$2,000,000

Supporting Computations
a Applied

manufacturing overhead:
$500,000 = 25% x total manufacturing cost (25% x $2,000,000).

b Direct

labor: 62.5% of direct labor equals $500,000, so direct labor was


$800,000 (= $500,000 62.5%).

c Direct

material used equals total manufacturing cost less direct labor and manufacturing
overhead applied [$2,000,000 ($800,000 + $500,000) = $700,000].

7-24. (15 min.)Predetermined Overhead Rates: Mark Corp.


a.
Application rate:
Job 301:
Job 302:
Job 303:

$90,000
= 45% of direct labor
$200,000

$50,000 x .45 =
75,000 x .45 =
100,000 x .45 =

$22,500
33,750
45,000
$101,250

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Chapter 07 - Job Costing

b. $97,000 $101,250 = $4,250 overapplied manufacturing overhead.


7-25. (10 Min.) Prorate Under- or Overapplied Overhead: Mark Corp.
First, determine the percentage of overhead applied is in each account:
Applied
Overhead
$10,125
Work in process inventory..........
30,375
Finished goods...........................
60,750
Cost of goods sold......................
$101,250
Total........................................

% of Total
Applied

10%
30
60
100%

(= $10,125 $101,250)
(= $30,375 $101,250)
(= $60,750 $101,250)

Second, allocate the overapplied overhead to each account and record as follows:
Applied manufacturing overhead....................................
Work-in-process inventory (10% x $4,250)....
Finished goods inventory (30% x $4,250)......
Cost of good sold (60% x $4,250)..................

Manufacturing overhead control....................

$101,250
425
1,275
2,550
$97,000

7-26. (15 min.)Predetermined Overhead Rates: Aspen Company.


a.
Application rate:

$625,000
= 125% of direct labor
$500,000

Job 2-1:.............
$195,000 x 1.25 =
Job 2-2:.............
325,000 x 1.25 =
Job 2-3:.............
130,000 x 1.25 =

$243,750
406,250
162,500
$812,500

b. $825,000 $812,500 = $12,500 underapplied manufacturing overhead.

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Chapter 07 - Job Costing

7-27. (10 Min.) Prorate Over- or Underapplied Overhead: Aspen Company.


First, determine the percentage of overhead applied in each account:

Work in process inventory (Job 2-3). . .


Finished goods (Job 2-2)....................
Cost of goods sold (Job 2-1)...............
Total.................................................

Applied
Overhead
$162,500
406,250
243,750
$812,500

% of
Total
Applied
20%
50
30
100%

(= $162,500 $812,500)
(= $406,250 $812,500)
(= $243,750 $812,500)

Second, allocate the overapplied overhead to each account and record as follows:
Applied manufacturing overhead....................................
Work-in-process inventory (20% x $12,500)...................
Finished goods inventory (50% x $12,500)....................
Cost of good sold (30% x $12,500)................................

Manufacturing overhead control..............

$812,500
2,500
6,250
3,750
$825,000

7-28. (20 min.)Applying Overhead Using a Predetermined Rate: Marys


Landscaping.
Since Job No. 3318 is the only job in the account, the ending balance of the account must
equal the total cost of the job. We can find the accounts ending balance using the basic
cost equation:
BB + TI TO = EB
EB = $12,500 + ($81,000 + $54,000 + $43,200) $162,000
EB = $28,700
We are told that direct labor for Job No. 3318 is $3,375 and that overhead is applied at a
rate of 80% of direct labor cost. So,
Factory overhead = 80% x $3,375
= $2,700
To solve for direct materials we set up the cost equation,
Total cost
= direct materials + direct labor + factory overhead
$28,700
= direct materials + $3,375 + $2,700
Direct materials = $28,700 $3,375 $2,700
Direct materials = $22,625

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Chapter 07 - Job Costing

7-29. (10 min.)Applying Overhead Using a Predetermined Rate: Turco Products.


The ending balance in Work in Process can be determined from the following T-acocunt:
Work-in-process inventory
Balance 9/1
Direct materials
Direct labor
Overhead applied
Balance 9/30

70,200
421,200
262,600
315,120
237,120* *

832,000 To Finished Goods Inventory

* $237,120 = $70,200 + $421,200 + $262,600 + $315,120 $832,000


$237,120 = Materials + Direct Labor + Applied overhead for job 9-27;
Materials = $237,120 $35,100 ($35,100 x 120%)
= $159,900.
7-30. (10 min.)Calculating Over- or Underapplied Overhead: Tonys Textiles.
Application rate:

$210,000
35,000 hours

= $6.00 per machine hour

Overhead applied = 38,500 hours x $ 6.00 = $231,000


Overhead incurred = $227,500
Overapplied overhead = $227,500 $231,000 = $3,500
7-31. (25 min.)Job Costing in a Service Organization: Arthurs Olde Consulting
Corporation.
a. Beginning of month
Direct
Labor

Applied
Total
Overhead
(@60%)
$23,040
+
$13,824 =
$36,864
SY-400.................................................................
15,120 +
$9,072 =
$24,192
SY-403.................................................................

During month

Additional
Direct
Labor

Additional
Beginning
Applied
Total
Overhead
(@60%)
$36,864 +
$25,200 +
$15,120 =
SY-400.................................................................

Total

$24,192 +
$72,000 +
$43,200 =
SY-403.................................................................

$139,392

$77,184

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Chapter 07 - Job Costing

b.

Direct
Labor

Applied
Overhead
Total
(@60%)
$51,120*
SY-404.................................................................
+ $30,672 = $81,792

*$51,120 = $148,320 $25,200 $72,000


c. Overhead applied during month:
$ 15,120
SY-400.................................................................
43,200
SY-403.................................................................
30,672
SY-404.................................................................
$88,992
Total.....................................................................

Under- or overapplied amount = $88,992 applied $90,000 actual = $1,008 underapplied.


7-32. (30 min.)Job Costing In A Service Organization: RCMP.
a.

Wages Payable
600,000a

Work in Process
600,000a 672,000c
72,000b

Cost of
Services Billed
672,000c 12,000d

Service Overhead Control Applied Service O.H.


60,000 60,000d
72,000d 72,000b
a$200

per hour x 900 hours for Alberta Company, and $200 per hour x 2,100 hours for
Ontario Corp.
b$24

per hour x 900 hours for Alberta Company, and $24 per hour x 2,100 hours for
Ontario Corp.
cSum

of work done during August, all billed to clients.

dClosing

actual)

b.

entry to record overapplied overhead of $12,000 (= $72,000 applied $60,000

Royal Consulting and Mediation Practice


Income Statement
For the Month Ended August 31
7-16

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Chapter 07 - Job Costing

Sales revenue......................................................
$672,000
Cost of services billed.........................................
Subtract: Overapplied service overhead............. 12,000
Gross margin.......................................................
Marketing and administration..............................
Operating profit....................................................
a$1,200,000

$1,200,000 a
660,000
$540,000
240,000
$300,000

= 3,000 hours x $400

7-33. (30 min.)Job Costing In A Service Organization: AB.


a.

Wages Payable
220,000a

Work in Process
220,000a 264,000c
44,000b

Cost of
Services Billed
264,000c 2,000d

Service Overhead Control Applied Service O.H.


42,000 42,000d
44,000d 44,000b
a$200

per hour x 440 hours for Massive Airframes, and $200 per hour x 660 hours for
Gigantic Drydocks.
b$40

per hour x 440 hours for Massive Airframes, and $40 per hour x 660 hours for
Gigantic Drydocks Corp.
cSum

of work done during March, all billed to clients.

dClosing

actual).

entry to record overapplied overhead of $2,000 (= $44,000 applied $42,000

b.

Allocation Busters
Income Statement
For the Month Ended March 31
Sales revenue......................................................
$264,000
Cost of services billed.........................................
Subtract: Overapplied service overhead............. 2,000
Gross margin.......................................................
Marketing and administration..............................
Operating profit....................................................

a$550,000

$550,000 a
262,000
$288,000
200,000
$88,000

= 1,100 hours x $500


7-17

2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

7-34. (30 min.)Job Costing In A Service Organization: TechMaster.


a.

Wages Payable
65,625a

Work in Process
65,625a 105,000c
39,375b

Cost of
Services Billed
105,000c 4,375d

Service Overhead Control Applied Service O.H.


35,000 35,000d
39,375d 39,375b
a$75

per hour x 875 hours.

b$45

per hour x 875 hours.

cSum

of work done during August, all billed to clients.

dClosing

actual).

entry to record overapplied overhead of $4,375 (= $39,375 applied $35,000

b.

TechMaster
Income Statement
For the Month Ended August 31
Sales revenue......................................................
$105,000
Cost of services billed.........................................
Subtract: Overapplied service overhead............. 4,375
Gross margin.......................................................
Marketing and administration..............................
Operating profit....................................................

a$175,000

$175,000 a
100,625
$74,375
55,000
$19,375

= 875 hours x $200

7-18
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

Solutions to Problems
7-35. (15 min.)Estimate Machine-Hours Worked From Overhead Data: Sydney
Corp.
With $80,000 in fixed costs expected and 20,000 machine hours expected, the
application rate for the fixed costs was $4.00 per machine hour (= $80,000 20,000
hours).
Overhead applied = Budgeted overhead + Overapplied overhead
= $80,000 + $11,000 = $91,000.
= Machine hours worked x $4 per machine hour.
Machine hours worked = $91,000 $4 = 22,750 machine hours.
7-36. (25 min.)Estimate Hours Worked From Overhead Data: Valley Corp.
60,450 direct labor-hours were worked. With $234,000 in fixed costs expected and 58,500
direct-labor-hours expected, the application rate for the fixed costs was $4.00 per direct
labor-hour. If the underapplied overhead, all due to production volume, is $3,900, then 975
fewer than expected direct labor-hours were worked ($3,900 $4 per hour). Consequently,
57,525 (= 58,500 975) direct labor-hours were worked.
Also, see T accounts below:
Manufacturing Overhead Control
234,000
(given as actual =
expected)

Applied Manufacturing Overhead


230,100
(= $4 x Actual
hours worked)

From these accounts, we solve for actual hours worked:


Actual hours worked = $230,100 $4 = 57,525 hours worked.

7-19
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

7-37. (40 min.)Assigning CostsMissing Data.


(a) $100,000, the other side of the credit to the Accounts PayableMaterials Suppliers
account.
(b) $94,000, From the Materials Inventory account,
$8,000 + $100,000 $4,300 $9,700 = $94,000.
(c) $121,000 = $162,000 + $119,500 $124,300 $36,200.
(d) $180,500, the charge to Work-in-process inventory that is not due to direct materials or
direct labor.
(e) From the Work-in-Process Inventory account:
$400,100 = $22,300 + $180,500 + $121,000 + $94,000 $17,700.
(f) $402,800 from the Cost of Goods account.
(g) $11,500 = $14,200 + $400,100 (from e) $402,800 (from f).
(h) $31,600 (charged to Manufacturing Overhead Control) = $235,700 $204,100.
(i) $3,200 (charged to Manufacturing Overhead Control) = $24,300 $21,100.

7-20
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

738. (50 min.)Assigning CostsMissing Data.


Materials Inventory
Balance 11/1
45,400 (a) 86,200 Direct materials
Purchases
113,600 (a) 16,400 Indirect materials
Balance 11/30

56,400

Work-in-Process Inventory
(given)
(b)
(b)
(d)
(h)

Balance 11/1
Direct materials
Direct labor
Overhead applied
Balance 11/30
Proration
Balance 11/30

32,600
86,200
176,000
264,000
184,400
6,270
190,670

374,400 (d)

Finished Goods Inventory


Balance 11/1
(d)
(h)

Balance 11/30
Proration
Balance 11/30

129,600
374,400
101,000
3,762
104,762

(c) 403,000

Cost of Goods Sold


(c)
(h)

Proration

403,000
15,048

Manufacturing Overhead Control


(a)
(e)
(f)
(g)

(h)

16,400
26,000
48,200
198,480

289,080 (h)

Applied Manufacturing Overhead


(given) 264,000
264,000

7-21
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

7-39. (continued)
Wages Payable
176,000
(b)
26,000
(e)
Sales Revenue
(given) 725,400
(a)From the work in process account, we obtain the $86,200 in direct materials issued.
The beginning balance equals the ending balance of $56,400 minus the increase of
$11,000 equals $45,400. The unaccounted balance represents indirect materials and is
determined as:
$45,400 + $113,600 $56,400 $86,200 (debit to work in process)
= $16,400
(b)Let X = Direct labor costs
Overhead applied = 150% X
$264,000 = 150% X
X = $176,000
(c)Let X = Cost of goods sold
Sales = 180% X
$725,400 = 180% X
X = $403,000
(d)Finished goods BB = Finished Goods EB + $28,600
BB = 101,000 + 28,600
BB = $129,600
Finished goods EB + Cost of goods sold
Finished Goods BB
= $101,000 + $403,000 $129,600
= $374,400

Cost of goods manufactured =

Work in process EB = $32,600 + $86,200 + $176,000 + $264,000 $374,400


= $184,400
(e) Indirect labor = Total credits to Wages Payable Direct labor
= $202,000 $176,000
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Chapter 07 - Job Costing

= $26,000
7-39. (continued)
(f) Charge factory depreciation to manufacturing overhead.
(g) Charge overhead to manufacturing overhead.
(h) Proration to:
Work-in-process
(25% x $25,080)
Finished goods
(15% x $25,080)
Cost of goods sold (60% x $25,080)

$6,270
3,762
15,048
$25,080

7-39. (40 min.)Analysis Of Overhead Using A Predetermined Rate: Kansas


Company.
a.
$1,908,000
$10.60 per DLH.
= $10.60 per DLH
180,000
b.

$475,500.

$162,000
Beginning balance...............................................
135,000
Direct materials....................................................
84,000 *
Direct labor..........................................................
94,500 **
Overhead applied................................................
$475,500

*The wage rate for direct labor is $8.00 per hour. $8.00 x 10,500 hours = $84,000.
**$9.00 x 10,500 direct labor-hours.
c.

$54,000 (= $9.00 x 6,000 direct labor-hours)

d.

$229,500 (= $9.00 x 25,500 direct labor-hours)

e.

$220,500.

$18,000
Supplies...............................................................
51,000
Indirect labor wages............................................
108,000
Supervisory salaries............................................
19,500
Factory facilities...................................................
24,000
Factory equipment costs.....................................
$220,500

7-23
2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

f.

Credit it to cost of goods sold. The amount is clearly not material (0.1% of cost of
goods sold), so it is not worth the effort involved in prorating.
Overapplied Overhead................
Cost of Goods Sold.....................
Work-in-Process Inventory..........
Finished Goods Inventory...........

$0
2,937,000*
114,000
246,000

*$2,940,000 $3,000
If it were material, then the proper answer would be to prorate it between work-inprocess inventory, finished goods inventory, and cost of goods sold.
7-40. (40 min.)Analysis Of Overhead Using A Predetermined Rate: UCD
Company.
a.
$980,000
$49 per DLH.
= $49 per DLH
20,000
b.

$890,300.

$91,300
Beginning balance...............................................
281,000
Direct materials....................................................
168,000 *
Direct labor..........................................................
350,000 **
Overhead applied................................................
$890,300

*The wage rate for direct labor is $24.00 per hour. $24.00 x 7,000 hours = $168,000.
**$50.00 x 7,000 direct labor-hours.
c.

$92,500 (= $50.00 x 1,850 direct labor-hours)

d.
e.

$595,000 (= $50.00 x 11,900 direct labor-hours)


$76,700
$344,500.
Supplies...............................................................
63,000
Indirect labor wages............................................
128,000
Supervisory salaries............................................
36,900
Factory facilities...................................................
39,900
Factory equipment costs.....................................
$344,500

f.

In this case, the underapplied overhead is relatively large (it is greater than 10% of
cost of goods sold, so the company might consider it material and decide to prorate
it. (The decision depends, at least in part, on the how the resulting information will
be used and who would be using it.) Without more detailed information on the direct
labor (or applied overhead), we will allocate the underapplied overhead based on
account balances. The share would be 70% (= $28 million $40 million for cost of
goods sold), 10% (= $4 million $40 million for Work-In-Process Inventory), and
7-24
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

20% (= $8 million $40 million for cost of goods sold) for Finished Goods
Inventory. This yields:
Underapplied Overhead..............
Cost of Goods Sold.....................
Work-in-Process Inventory..........
Finished Goods Inventory...........

$0
$30,100,000*
4,300,000**
8,600,000***

*$28,000,000 + (70% x $3,000,000)


**$4,000,000 + (10% x $3,000,000)
***$8,000,000 + (20% x $3,000,000)
7-41. (30 min.)Finding Missing Date: BackupsRntUs
a. February 29: Ending Work-in-process inventory:
only one job is remaining in ending Work-in-process inventory.
$15,600
Direct Materials....................................................
10,800 ($36 per hour x 300 hours)
Direct Labor.........................................................
5,400 ($18 per hour x 300 hours)
Manufacturing Overhead.....................................
Total Cost of Ending Work in
$31,800
Process Inventory ...........................................

b. Direct materials purchased during February:


Since the accounts payable account is used only for direct material purchases, the
months purchases can be determined from analyzing the accounts payable account:
Beginning Balance + Transfers In Transfers Out = Ending Balance
$36,000
+ Transfers In
$252,000
=
$54,000
Transfers In = $270,000
c. Actual manufacturing overhead incurred during February:
$18 per hour x 5,200 total direct labor-hours = $93,600
d. Cost of goods sold during February:
Beginning Finished
Cost of Goods
+
Goods Inventory
Manufactured
$108,000 +

$564,000

$672,000

$66,000
$606,000

Cost of
Ending Finished
=
Goods Sold
Goods Inventory
Cost of

=
$66,000
Goods Sold
= Cost of Goods Sold
= Cost of Goods Sold

7-25
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 07 - Job Costing

7-42. (30 min.)Cost AccumulationService: Youth Athletic Services.


T-accounts (Not requiredsee next page for income statement)
Wages, Salaries,
and Accounts
Managing Direct
Training Direct
Officiating
Payable
Labor Cost
Labor Cost
Direct Labor Cost
4,800
(= $15 x
320)

9,600

Managing
Direct Overhead
Cost
950
200
375

1,200
(= $15 x 80)

Officiating Direct
Overhead Cost
875
300
1,000

1,875
(= $15 x
125)

Training Direct
Overhead Cost

Dispute
Resolution
Direct Labor Cos
1,350
(= $15 x 90)

Dispute
Resolution Direct
Overhead Cost

700
250
150

5,060

7-26
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

10
200
50

7-43. (continued)

Income Statement
Youth Athletic Services
Income Statement
For Month Ending July 31
Managing

Revenue..............................................................
Cost of Services:
Labora..............................................................
Direct Overheadb.............................................
Indirect Overheadc...........................................
Total costs of services..................................
Department margin.............................................
Less other costs:
Unassigned labor costs (idle time)d.................
Unassigned overhead indirect costse..............
Marketing and administrative costsf................
Operating profit....................................................
aAmounts

$6,950
$4,800
1,525
384
$6,709
$ 241

Dispute
Resolution

Total

Officiating

Training
$3,000

$1,000

$18,850

$1,200
2,175
96
$3,471
$4,429

$1,875
1,100
150
$3,125
$(125)

$1,350
260
108
$1,718
$(718)

$15,023
$3,827

$7,900

375
30
6,075
$(2,653)

equal $15 per hour times direct labor-hours according to the problem (managing, $15 x 320 hours; etc.)

bAmounts

equal the sum of direct overhead items given in the problem.


Total cost
$768
cRate =
=
= $1.20 per hour. For managing, $1.20 x 320 hours = $384, etc.
Total hours
640 hours worked
(including idle time)

d$375 = $15 x 25 hours


e$30 = $768 $384 $96 $150 $108 = $1.20 x
fSum of marketing and administrative costs ($3,000

25 hours.
+ $2,250 + $600 + $225)

7-43.(continued)
Only Managing and Officiating are clearly profitable. Training is losing a small amount of money. The problem is in Dispute
Resolution where the revenue is less than the direct labor. The company should reconsider the pricing policy for Dispute
Resolution or consider dropping the service. The company should also consider the role of Mayes assistant considering the
salary and the revenues.
7-43. (25 min.)Job CostsService Company: Bay Accountants.
a.

Unassigned
Costs (not
required)

Martys Marina

State Prison
System

(= 2,000 x $160)

(= 600 x $160)

(= 1,000 x $160)
$60,000

$24,000

(= 2,000 x $60)

(= 600 x $60)

(= 1,000 x $60)

(= 400 x $60)

$170,000
$51,000
Margin.............................................................................

$85,000

Lake Lumber

$320,000
$96,000
Revenue.........................................................................
$120,000
$36,000
Labor...............................................................................
$30,000
$9,000
Overheada......................................................................

a$30,000

$160,000

$15,000

6,000

Total

$576,000
240,000
60,000

= (2,000 4,000) x $60,000; $9,000 = (600 4,000) x $60,000; and so on.

7-28
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duplicated, forwarded, distributed, or posted on a website, in whole or part.

7-44. (continued)
b.

Bay Accountants
Income Statement
For Month Ending January 31
Revenue from clients.............................................
Less cost of services to clients:
Labor..................................................................
Overhead...........................................................
Total cost of services to clients......................
Gross margin.........................................................
Less other costs:
Labor..................................................................
Overhead...........................................................
Marketing and administrative costs...................
Total other costs.............................................
Operating profit......................................................

$576,000
$216,000
54,000
270,000
$306,000
$24,000
6,000
40,000
70,000
$236,000

744. (50 min.)Job Costs In A Service Company: Petes Patios.


Materials Inventory
Balance 9/1 (given)
11,040
192
Indirect Materials
Purchases (given)
1,392
3,768
Requisition
Balance 9/30

8,472

Work-in-Process Inventory
7,270 Job PP-24
19,616 Job PP-30

(a) Balance 9/1


(b) Job PP-24
(d) Job PP-30
(f) New Job(s)

9,510
4,080
13,296
10,872

Balance 9/30

10,872

Finished Goods Inventory


Balance 1/1 ($4,704 +
$1,896)
(c) Job PP-24
(e) Job PP-30

6,600
7,270
19,616

Balance 9/30

26,886

6,600

Sold

a. Direct Materials + Direct Labor + Applied Overhead

(c)
(e)

= $2,038 + $1,280 + $768 + $3,360 + [50% ($768 + $3,360)]


= $9,510.
b. To complete Job PP-24:
$2,720 Direct Labor + ($2,720 x 50%) Applied Overhead
= $4,080.
c. Transfer to Finished Goods: Job PP-24 Beginning Inventory Cost + Current Cost
= $3,190 + $2,720 + 50%($2,720)
= $7,270.
d. To complete Job PP-30: $1,296 Materials + $8,000 Direct Labor + (50% x $8,000)
Applied Overhead
= $1,296 + $8,000 + $4,000
= $13,296.
e. Transfer of Job PP-30: Beginning Inventory Cost + Current Cost
= [$1,280 + $3,360 + 50%($3,360)] + [$1,296 + $8,000 + 50%($8,000)]
= $19,616
7-45. (continued)
f. New Job Cost = Current Charges to WIP less Current Charges for Jobs PP-24 and
PP-30:
= Current Materials + Direct Labor + Overhead Job PP-24 Current Cost
Job PP-30 Current Cost
= $3,768 + $16,320 + $50%($16,320) $4,080(b)* $13,296(d)*
= $10,872
*These letters refer to solution parts b and d above.

7-45. (55 min.)Tracing Costs In A Job Company: Dungan Cabinetry


a. (1)

Materials Inventory.........................................................
Accounts Payable.......................................................
(2) Manufacturing Overhead...............................................
Materials Inventory.....................................................
(3) Accounts Payable..........................................................
Cash...........................................................................
(4) Work in ProcessDirect Materials................................
Materials Inventory.....................................................
(5) Payroll............................................................................
Payroll Taxes Payable................................................
Cash...........................................................................
(6) Payroll............................................................................
Fringe Benefits Payable.............................................
(7) Work in Process (60% x $63,000).................................
Manufacturing Overhead (30% x $63,000)....................
Administrative and Marketing Costs (10% x $63,000)...
Payroll ($21,000 + $42,000).......................................
(8) Manufacturing Overhead...............................................
Cash...........................................................................
(9) Work in ProcessOverhead ($37,800 x 175%)............
Applied Manufacturing Overhead.............................
(10) Manufacturing Overhead Control...................................
Accumulated DepreciationProperty, Plant, and
Equipment............................................................

53,700
53,700
1,500
1,500
53,700
53,700
25,500
25,500
42,000
13,500
28,500
21,000
21,000
37,800
18,900
6,300
63,000
32,400
32,400
66,150

66,150

17,250
17,250

7-46. (continued)
b.
Balance 1/1
(1)
Balance 1/31
a$82,275

Materials Inventory
1,500 (2)
55,575
25,500 (4)
53,700
82,275 a

= $55,575 + $53,700 $1,500 $25,500.

Work-in-Process Inventory
12,375
86,325 Per Finished Goods
Balance 1/1
25,500
(4) Direct Materials
T-account
37,800
(7) Direct Labor
(9) Overhead Applied 66,150
55,500 b
Balance 1/31
b$55,500

= $12,375 + $25,500 + $37,800 + $66,150 $86,325.


Manufacturing Overhead Control
(2) 1,500
(7) 18,900
(8) 32,400
(10) 17,250
Applied Manufacturing Overhead
66,150 (9)

(3)

Accounts Payable
53,700
53,700 (1)

7-46. (continued)
Cash
53,700 (3)
28,500 (5)
32,400 (8)
Payroll
42,000
21,000
63,000 (7)

(5)
(6)

Payroll Taxes Payable


13,500 (5)

Fringe Benefits Payable


21,000 (6)

Administrative and Marketing Costs


6,300

(7)

Accumulated DepreciationProperty, Plant, and Equipment


17,250 (10)

Balance 1/1
Goods Completed
Balance 1/31
a$86,325

Finished Goods
62,250
86,325 a 98,775
49,800

= $98,775 + $49,800 $62,250.

Balance 1/31

Cost of Goods Sold


98,775

Cost of Goods Sold

7-46.

(50 min.)Cost Flows Through Accounts: Brighton Services

a. T accounts.
Materials Inventory

137,200 (1a)
93,000 (1b)
94,000 (1c)

Wages Payable

490,000 (2a)
312,400 (2b)
197,600 (2c)

Variable Manufacturing Overhead


(Actual)
(Applied)
62,000
29,900 (3a)
27,500 (3b)
4,600 (3c)
Fixed Manufacturing Overhead
(Actual)
(Applied)
209,200
104,000 (4a)
88,200 (4b)
17,000 (4c)
(1)
(2)
(3)
(4)

Work-in-Process Inventory
324,200
761,100
1,000,000
521,100
62,000
209,200

(1) = the sum of the amounts (1a) + (1b) + (1c)


(2) = the sum of the amounts (2a) + (2b) + (2c)
(3) = the sum of the amounts (3a) + (3b) + (3c)
(4) = the sum of the amounts (4a) + (4b) + (4c)
a761,100

= 137,200 + 490,000 + 29,900 + 104,000

b521,100

= 93,000 + 312,400 + 27,500 + 88,200

(a)
(b)

7-47. (continued)

(a)
(b)

Finished Goods Inventory


761,100
521,100
1,282,200
Cost of Goods Sold
1,282,200

b. Total Direct Labor Costs = $4,000,000.


Total Direct labor-hours =

$4,000,000
$20 per Hour

= 200,000 hours.

Variable Manufacturing Overhead = .30 x $1,040,000 = $312,000.


$312,000
200,000
= $1.56 per Direct Labor-Hour.

Predetermined Variable Overhead Rate =

Fixed Manufacturing Overhead = 0.70 x $1,040,000 = $728,000


$728,000
Predetermined Fixed Overhead Rate
=
200,000
= $3.64 per Direct Labor-Hour.

7-47. (continued)
c. T accounts

Materials Inventory

137,200 (1a)
93,000 (1b)
94,000 (1c)

Wages Payable

490,000 (2a)
312,400 (2b)
197,600 (2c)

Variable Manufacturing Overhead*

Overapplied (5)

(Actual)
62,000
16,000

(Applied)
38,220 (3a)
24,367 (3b)
15,413 (3c)

Fixed Manufacturing Overhead*


(Actual)
209,200

(Applied)
89,180
56,857
35,963
27,200

(4a)
(4b)
(4c)
(5) Underapplied

*These can be divided into two accounts, one for actual and one for applied. We put
them in one account to save space.

(1)
(2)
(3)
(4)

Work-in-Process Inventory
324,200
754,600 (a)
1,000,000
486,624 (b)
78,000
182,000

(1) = the sum of the amounts (1a) + (1b) + (1c)


(2) = the sum of the amounts (2a) + (2b) + (2c)
(3) = the sum of the amounts (3a) + (3b) + (3c)
(4) = the sum of the amounts (4a) + (4b) + (4c)

7-47. (continued)

(a)
(b)

Finished Goods Inventory


754,600
486,624

1,241,224

Cost of Goods Sold


1,241,224

Under-or Over-Applied Overhead


(5)
27,200
16,000 (5)

d.

Actual
$1,400,000
Sales Revenue....................................................
(1,282,200)
Less Cost of Goods Sold....................................
$117,800
Gross Margin.......................................................
Less:

(Under-) Overapplied Overhead.........................


Marketing and Administrative Costs...................(112,000)
$ 5,800
Operating Profit (Loss)........................................

Normal
$1,400,000
(1,241,224)
$158,776
(11,200)
(112,000)
$35,576

7-47. (60 min.)Show Flow Of Costs To Jobs: Kims Asphalt.


a. 1. Payment received on account
Cash.........................................................................................
Accounts receivable..............................................................
2. Inventory purchase
Materials and equipment inventory..........................................
Accounts payable..................................................................
3. Billing
Accounts receivable.................................................................
Sales revenue.......................................................................
Cash.........................................................................................
Accounts receivable..............................................................
4. Indirect labor
Manufacturing overheadIndirect labor..................................
Wages payable.....................................................................
5. Indirect materials issued
Manufacturing Overhead..........................................................
Materials and equipment inventory.......................................
6. Overhead and advertising
Manufacturing Overhead [$550 + $675 + $320 + $200 + $325
+ $450].....................................................................................
Selling costsAdvertising........................................................
Cash......................................................................................
Accumulated Depreciation....................................................
7. Charges to Work in Process
Work in processmaterials and equipment
[$3,000 + $4,800 + $4,600 + $2,900]...................................
Work in processdirect labor
[$4,500 + $6,750 + $5,900 + $1,600]...................................
Work in processoverhead applied [30% x $18,750].............
Materials inventory................................................................
Wages payable.....................................................................
Overhead applied.................................................................
8. Transfer of Job 33
Cost of installations completed and sold..................................
Work in processmaterials and equipment [$52,500 +
$4,800].......................................................................
Work in processdirect labor [$26,250 + $6,750]...............
Work in processoverhead applied [30% x $33,000].........
Note: No finished goods inventory account is required.

12,500
12,500
9,400
9,400
130,000
130,000
75,000
75,000
650
650
155
155

2,520
600
2,670
450

15,300
18,750
5,625
15,300
18,750
5,625
100,200
57,300
33,000
9,900

7-48. (continued)
b. Overhead analysis:
$5,625
Applied (Entry 7)..............................................
Incurred
$650
Entry 4..........................................................
155
Entry 5..........................................................
2,520
Entry 6..........................................................
3,325
$2,300
Overapplied.........................................................

c.Inventory balances
Balance 5/1
(2)
Balance 5/31

Materials and Equipment Inventory


36,000
15,300 (7)
9,400
155 (5)

Balance 5/1
Current charges (7)
Balance 5/31

(8)
Balance 5/31

29,945

Work-in-process inventory
119,550 *
39,675
59,025

100,200 (8) Job 33

Cost of Goods Sold**


100,200
2,300 Overapplied

overhead

97,900

*Job 27 + Job 33 = $32,925 + $86,625


**Not required.

7-48. (70 min.)Reconstruct Missing Data: Toledo Farm Implements.


This is a challenging problem. We put the work in process account for May on the
board for the "big picture," then solve for each item in the account as follows:
Work-in-Process

(a) Balance, beginning


(b) Direct materials

172,400
140,628

(c) Direct labor


(e) Overhead applied
Balance, ending

135,400
66,600

107,000 Transferred to

(d)

408,028 Disaster loss

(f)

finished goods

The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a)Given
(b) Direct materials= Beginning inventory + Purchases Ending inventory Indirect
materials
= $98,000a + $132,800* $86,000a $4,172 (from paper scrap)
= $140,628
*Purchases

( c) Direct labor

= Accounts payable, ending + Cash payments Accounts payable,


beginning
= $100,200a + $75,800a $43,200a
= $132,800
= Payroll Indirect labor
= $164,800a $29,400a
= $135,400

(d) Cost transferred to finished goods inventory = Finished goods, ending + Cost of
goods sold Finished goods, beginning
= $75,000a + ($793,200a $697,200a) $64,000a
= $107,000

7-49. (continued)
(e) Overhead applied = Ending manufacturing overhead beginning
manufacturing overhead + overapplied overhead
= $434,000a $369,800a + $2,400a
= $66,600
(f) Loss = $172,400a + $140,628 + $135,400 + $66,600 $107,000
= $408,028
Note: The insurance company may dispute paying the $2,400 overapplied overhead.
aGiven

in problem

7-49. (70 min.)Find Missing Data: IYF Corporation.


The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a) Beginning inventory + Transfers in = Ending inventory + Transfers Out
Beginning inventory = Ending inventory + Transfers Out Transfers in
=$3,000 + $45,000 $37,000
=$11,000
(b) $8,000. Because any over- or underapplied is written off to Cost of Goods Sold, the
difference between the Cost of Goods Sold journal entry ($45,000) and the Cost of
Goods Sold amount on the income statement ($45,400) must be the amount of
underapplied overhead. Underapplied overhead is 5% of overhead applied for June, so
total overhead applied is $8,000 (= $400 5%)
(c) Overhead rate

= 80% (= $8,000 $10,000)

(d) Overhead incurred= Overhead applied + Underapplied overhead


= $8,000 + $400
= $8,400
(e) $3,000.
Work in process beginning + Manufacturing costs
= Work in process ending + Transfers to Finished Goods Inventory.
But, Work in process ending = 2 x Work in process beginning.
Therefore, Work in process beginning + Manufacturing costs
= 2 x Work in process beginning + Transfers to finished goods
and,

Work in process beginning = Manufacturing costs Transfers to finished goods.


We know the amount of direct labor, but not the amount of direct materials
transferred into production. For this, we use the inventory equation for direct
materials.
Direct materials beginning + Purchases = Direct materials ending + Transfers out
Direct materials ending = Direct materials beginning $7,000, so
Transfers out = $15,000 + $7,000 = $22,000.
Work in process beginning = $22,000 (direct materials) + $10,000 (direct labor) +
$8,000 (applied manufacturing overhead) $37,000 (transferred out) = $3,000.
(f) $6,000 (= 2 x $3,000 work in process beginning).

7-50. (70 min.)Find Missing Data: NIC Enterprises.


The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a) Beginning inventory + Transfers in = Ending inventory + Transfers Out
Ending inventory
= Beginning inventory + Transfers in Transfers Out
=$148,000 + $1,520,000 $1,460,000
=$208,000
(b) $500,000. Because any over- or underapplied is written off to Cost of Goods Sold,
the difference between the Cost of Goods Sold journal entry ($1,460,000) and the Cost
of Goods Sold amount on the income statement (the difference between revenues and
gross profit or, $1,450,000) must be the amount of overapplied overhead. Overapplied
overhead is 2% of overhead applied for September, so total overhead applied is
$500,000 (= $10,000 2%)

(c) Overhead rate

= 625% (= $500,000 $80,000)

(d) Overhead incurred= Overhead applied Underapplied overhead


= $500,000 $10,000
= $490,000

(e) $568,000.
Work in process beginning + Manufacturing costs
= Work in process ending + Transfers to Finished Goods Inventory.
But, Work in process ending = 1.25 x Work in process beginning.
Therefore, Work in process beginning + Manufacturing costs
goods
and,

= 1.25 x Work in process beginning + Transfers to finished

0.25 x Work in process beginning


= Manufacturing costs Transfers to finished goods.
We know the amount of direct labor, but not the amount of direct materials
transferred into production. For this, we use the inventory equation for direct
materials.
Direct materials beginning + Purchases = Direct materials ending + Transfers out
Direct materials ending = Direct materials beginning $25,000, so
Transfers out = $1,057,000 + $25,000 = $1,082,000.
0.25 x Work in process beginning = $1,082,000 (direct materials) + $80,000 (direct
labor) + $500,000 (applied manufacturing overhead) $1,520,000 (transferred out)
So, Work in process beginning = $142,000 0.25 = $568,000.
(f) $710,000 (= 1.25 x $568,000 work in process beginning).

7-51. (45 min.)Incomplete DataJob Costing: Chelsea Household


Renovations.
The following information should be included (in summary) in a report to management.

Cash or Accounts Payable


18,400 *

M*
L*
O3
6/1
L1
O4
6/30

Wages Payable
128,000 *

M5
L6
O7
6/30

Overhead
Actual
Applied
64,000 9
80,000 *

M*
L*
O8
6/30

Note: See footnotes on next page.

Work-in-Process
Job No. 61
8,000
38,400
19,200
65,600

8,000
76,800
38,400

M*
L
O2

Cost of Goods Sold


Job No. 61
8,000
76,800
38,400
123,200 *

38,400
19,200
0

Job No. 62
12,000
48,000
24,000
0

12,000
48,000
24,000

Job No. 63
6,400
41,600
20,800
68,800

M
L
O

Job No. 62
12,000
48,000
24,000
84,000

Underapplied Overhead
16,00010

7-52. (continued)
M refers to direct materials
L refers to direct labor
O refers to manufacturing overhead
*Numbers given in the problem
1Labor

to complete job is $76,800 since the beginning inventory was 50% complete
2Applied overhead = $123,200 $8,000 $76,800
= $38,400
Applied overhead

$38,400
$76,800
= 50%
of direct labor dollars
=

3Overhead

in beginning inventory = 0.50 x $38,400


= $19,200

4Overhead

applied in June = 0.50 x $38,400


= $19,200

5Materials

6Labor

for Job No. 62 = Purchases materials for Job No. 63


= $18,400 $6,400
= $12,000

for Job No. 62

= Total direct labor costs Labor for Job No. 61 Labor


for Job No. 63
= $128,000 $38,400 $41,600
= $48,000

7Overhead

for Job No. 62 = 0.50 x $48,000


= $24,000

8Overhead

for Job No. 63 = 0.50 x $41,600


= $20,800

7-52. (continued)
9Applied

Overhead = $19,200 + $24,000 + $20,800


= $64,000

10Underapplied

overhead

= Actual Applied
= $80,000 $64,000
= $16,000

7-52. (25 min.) Job Costing and Ethics: Old Port Shipyards.
(This problem is based on actual experience.)
a.
Overhead cost..................
Direct labor-hours.............
Predetermined rate...........
(Overhead Hours).........

Olde Town
$20,000,000
200,000
$100 per hour
(= $20,000,000
200,000)

Newton
$80,000,000
200,000
$400 per hour
(= $80,000,000
200,000)

b. The supervisor recognizes that if the government audit agency allows the overhead
rates to be calculated on a location-specific basis, it will be better for Old Port to do
the work at Newton, because the overhead, which will be part of the cost charged,
will be higher than if it is done at Olde Town.
c. The question is whether there is a functional difference in the two dry docks, so that
the work is actually different. If there is not a functional difference or another valid
reason for separating the costs, there might be an ethical issue.
7-53. (25 min.) Job Costing and Ethics: Price and Waters.
a. Chuck should refuse to charge the U.S. Department of Defense for work for
General Motors.
b. The fact that the consulting firm is being reimbursed for the government job and not
the General Motors job gives the manager an incentive to try and shift costs to the
government job. (If both jobs were fixed price, the total profits would remain the
same regardless of the assignment of the costs.)
7-54. (25 min.) Job Costing and Ethics: Global Partners.
a. Because the choice is between direct labor hours and direct labor cost, the
circumstance that would cause a difference is if different direct labor employees

were paid different amounts. If all are paid the same rate, the two bases will give the
same result.
b. In general, the result of the cost allocation is a weak justification for the choice of
the base, especially when it means differences in prices charged. If employees are
randomly assigned to jobs, hours is probably the better choice, because it avoids
the distortion of direct labor rates, which are irrelevant for resource usage (given the
random assignment). If different skill sets are required, allocating based on direct
labor costs is probably better, because the labor rates will reflect the skill
requirements.

Solutions to Integrative Case

7-55. (75 min.) Cost Estimation, Estimating Overhead Rates, Job Costing, and
Decision-Making: OLeary Corporation.
This problem relates overhead allocation to cost estimation and decision making. It
uses some of the methods of Chapters 4 and 5.
a. $965,400 (Work-in-Process Inventory) and $637,500 (Finished Goods Inventory).
Job MC-275 is the only job in process. It has accumulated the following costs:
Direct materials.................. $495,000 (Given)
Direct labor.........................

54,400 (= $17 x 3,200 hours)

Manufacturing overhead....

416,000 (= $130 x 3,200 hours)


$965,400

Job MC-270 is the only job in finished goods. It has accumulated the following
costs:
Direct materials.................. $270,000 (Given)
Direct labor.........................

42,500 (= $17 x 2,500 hours)

Manufacturing overhead....

325,000 (= $130 x 2,500 hours)


$637,500

b. $1,069,500.
The predetermined overhead rate in year 3 is $140 per direct labor-hour. OLeary
uses the actual rate from the previous year and $140 = $7,560,000 54,000
hours).
Beginning costs ................ $965,400 (From requirement (a))
Additional direct material. . .
Additional direct labor........

57,000 (given)
5,100 (= $17 x 300 hours)

Manufacturing overhead....

42,000 (= $140 x 300 hours)


$1,069,50
0

c. $1,240,000 overapplied.
Overhead applied
Overhead incurred
Overapplied overhead

$10,360,000 (= $140 x 74,000 hours)


9,120,000 (Given)
$1,240,000

7-56. (continued)
d. A variety of allocations can be used. Because we know how many direct labor hours
are in each account from year 3, we will use this basis. Direct labor hours are the
basis for applying overhead. If this were unknown, we could use total account
balances. First, determine the number of direct labor-hours used in year 3 in each
account.
Direct labor hours, year 3

74,000 (Given)

In work in process, end of year 3

7,40
0

(6,100 in MC-397 + 1,300 in


MC-399)

In finished goods, end of year 3

4,44
0

11,840 (1,740 in MC-389 + 2,700 in


MC-390)

In cost of goods, year 3

62,160 (74,000 11,840)

The allocation is then based on the relative amounts in each account:


Account

Percentage

Work in process

10% (= 7,400 74,000)

Finished goods

6 (= 4,440 74,000)

Cost of sales

84 (= 62,160 74,000)

Allocation
$124,000 (= .10 x $1,240,000)
74,400 (= .06 x $1,240,000)
1,041,600 (= .84 x $1,240,000)
$1,240,00
0

Allocate Overapplied Overhead


Overhead applied..................................................................... 1,240,000
Work in process....................................................................
Finished goods.....................................................................
Cost of sales.........................................................................

124,000
74,400
1,041,600

7-56. (continued)
e. $567,500.
This is a special order problem similar to those discussed in Chapter 4. The
minimum bid would be the variable cost of the job, ignoring strategic or other
considerations. The variable cost of the job (ignoring sales and administrative costs
as instructed in the problem) consists of direct material, direct labor, and variable
manufacturing overhead.
To estimate the variable portion of overhead, we can use the high-low method
discussed in Chapter 5. The high and low years are year 3 and year 4, respectively.
(Note that these are also the most recent years, so they might also be the most
relevant for the estimation.)
Applying the high-low method:
$9,120,000 $7,560,000
74,000 54,000

$1,560,000
20,000
= $78 per direct labor-hour

Total overhead (Year 3)...................................


Total variable overhead (74,000 x $78)...........
Total fixed overhead.........................................

$9,120,000
(5,772,000)
$3,348,000

The variable cost of the special job can be estimated as follows:


Direct materials...................................
$ 92,500 (Given)
Direct labor..........................................
85,000 (= $17 x 5,000 hours)
r
Variable manufacturing overhead.......
390,000 (= $78 x 5,000 hours)
d
Total................................................
$567,500