Product Costing Systems: Answers To Review Questions

CHAPTER 4
PRODUCT COSTING SYSTEMS

ANSWERS TO REVIEW QUESTIONS
4.1
Purpose Current/Future product costs
Short-term decisions: product mix, pricing Future
Longer-term strategic decisions Future
Long-term pricing Future
Plan future product-related costs Future
Control of product costs Current
Reimbursement contracts Current
External reporting (inventory calculation) Current
The information cannot all come from one source. The accounting system may accumulate current and past
product costs but for some decision making and planning, estimates of future costs will need to be generated
outside of the accounting system.
4.2 The statement is incorrect. Product costing systems are applicable to services as they too are products. While
there is no inventory to cost in a service business, service costs can be useful for a range of management
decisions. These decisions include the pricing of services, determining the optimal mix of services to offer,
determining the impact on profits of dropping a service or adding a new service, and controlling costs.
4.3 Managers need cost information to support a range of managerial roles including short-term and strategic
decision making, planning and controlling costs, and sometimes for claiming costs under cost reimbursement
contracts and, while the production environment in small businesses may be less complex than in larger
businesses, these needs may be just as relevant.
Managers in small businesses may need to value their inventory for inclusion in their financial reports. However,
small businesses may be discouraged from implementing a product costing system due to scarce resources. This
attempt to contain costs can mean that, when making operating decisions, they may rely on costing figures
prepared for external reporting purposes. Competitive pricing can result in them underpricing products to the
point that they sell at a loss. To evaluate the profitability of products the small business must add cost items such
as transportation, insurance and customs charges to its purchase or manufacturing costs. When selling price is
dictated by the market it is vital to accurately assess costs and, if profitability is lacking, work on reducing costs
or move to different products or markets.
4.4 This attitude is not reasonable. Product costs may be useful for a range of decisions. Even though the business is
a ‘price taker’, it may well need to consider whether it should be making all of the products in the range, as some
may be unprofitable. A wrong decision may cost the firm more than it would to run a product costing system. A
product costing system may help to control production costs and highlight problems. The firm will need some
product costs at year-end to value inventory, even if it is minimal. Managers often use costs from product
costing systems for planning, controlling costs and claiming costs under cost reimbursement contracts.
Copyright © 2018 McGraw-Hill Education (Australia) Pty Ltd

IRM Langfield-Smith, Thorne, Smith, Andon, Hilton Management Accounting 8e
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4.5 In making long-term decisions about products, such as which products to produce and what price to set,
managers need a complete picture of all the costs associated with the product. In the shorter term, particularly for
existing products, the manager may ignore research and development and design costs, since they have already
been incurred. In this case, the relevant product cost will include the manufacturing, marketing, distribution and
customer service costs associated with the product.
4.6 When direct material, direct labour and manufacturing overhead costs are incurred, they are applied to work in
process inventory by debiting the account. When goods are finished, the costs are removed from the work in
process account with a credit, and are then transferred to finished goods inventory by debiting that account.
Subsequently, when the goods are sold, the finished goods inventory is credited and the costs are added to the
cost of goods sold, with a debit.
4.7 Overapplied or underapplied overhead is caused by errors in estimating the predetermined overhead rate. These
errors can occur in the numerator (budgeted manufacturing overhead), or in the denominator (budgeted level of
the cost driver). It can also be caused by using inappropriate cost drivers to allocate the overheads to products.
Overapplied or underapplied overhead should be closed at year end because month-to-month variations are
likely to average out over the year.
4.8 Manufacturing overhead consists of all costs related to the production process, other than direct materials and
labour. Because these costs are difficult to trace to specific jobs they are estimated and allocated to each job.
This estimate is known as a predetermined overhead rate. Since these costs are indirectly associated with the
product the predetermined rate needs to be applied to the product costs.
4.9 One of the primary purposes of using the predetermined overhead rates is to smooth out the variations that
happen seasonally in overhead costs. Another benefit is to plan for costs of future projects and a predetermined
rate allows managers to budget for them without waiting for the actual costs.
4.10 In Exhibit 4.15, underapplied overhead is deducted from the actual overheads to estimate the amount of
overhead applied to production during the period. As a result of this calculation the total manufacturing cost
reflects the actual material and labour costs, plus applied overhead. These costs form part of the cost of goods
sold manufactured. In the Income Statement, the cost of goods sold expense is then adjusted by adding in the
amount of underapplied overhead, to reflect the part of the actual overhead that has not been recognised in the
manufacturing cost.
4.11 In a job costing system, costs are assigned to batches or job orders of production. Job costing systems are used
by firms that produce relatively small numbers of dissimilar products. Job costing would be used in any situation
where products are produced to customers’ specifications, such as in a dressmaking business, an architectural
firm, or in a panel-beating shop. In a process costing system, production costs are averaged over a large number
of product units. Process costing systems are used by firms that produce large numbers of nearly identical
products, such as paint, beer or bricks.
In job costing situations, the job has specific characteristics that allow it to be identified from the outset, and
direct costs can be traced to the job. In a process costing environment, such as producing paint, each litre of paint
is identical to every other litre and cannot be distinguished. This means that direct costs must be traced to the
production process and then averaged across all units produced.
4.12 The two main steps in process costing are:

 estimating the costs of the production process
 calculating an average cost per unit by dividing the cost of the process by the number of units produced.
Note that in the next chapter where these steps are explained more comprehensively there are four steps.

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4.13 In the ‘Real life’ scenario describing the cost of Australian wine, the Australian winemakers would probably use
either process or a hybrid costing system (a combination of job costing and process costing). There are some
processes (such as de-stemming, crushing, filtering, bottling, labelling and packaging) that are common to
production of all types of wine, but some other processes (such as fermentation, maturation and stabilisation)
would be different for different types of wine (such as red, white sparkling or fortified wine). In addition,
different types of wine use different varieties of grapes (direct materials), which may differ considerably in
purchase price. In other words, the winemaker would use hybrid costing system if they are producing different
types of wine and use process costing if they are producing only wine that undergoes common processes and
uses grape varieties with very similar costs.
4.14 In a hospital like Sydney’s Westmead Hospital, there are number of activities related to the primary care of each
patient. The activities in a hospital are divided into number of cost centres, which include pathology, outpatient
consultancy, wards, operating theatre, laundry and kitchen etc. The job costing process would include costs
related to the patient from any of these cost centres for their direct services. Other non-medical services could
also be recorded in the costing process.
4.15 (a) The job costing sheet is used to summarise the costs of direct material, direct labour and manufacturing
overhead that relates to a particular job.
(b) A material requisition form authorises the transfer of raw material from the warehouse to the production
department, and is used to record the cost of materials for jobs.
(c) A labour timesheet is used to record the amount of time spent on each job.
4.16 (a) Total manufacturing cost is the cost of materials and labour used, and the overhead applied for the period.
(b) Manufacturing costs to account for include the cost of opening inventory for work in process.
(c) Cost of goods manufactured is the total manufacturing cost adjusted for opening and closing inventory.
4.17 Production costs are tracked to each production department for two reasons:
 Department managers are held responsible for cost control, and so the costs for each department must be
identifiable.
 When there are work in process inventories at the end of an accounting period, separate costs are
necessary for each department in order to calculate the value of work in process for that department.
4.18 In process costing, large quantities of identical (or nearly identical) units are produced, so it is neither possible,
nor necessary, to trace costs to each individual unit. Instead, production costs are traced to a process or a
department and the average unit cost is determined by dividing the total process costs by the total number of
units produced. The costs of producing each unit are determined by progressively accumulating the costs for
each process.
4.19 Australian accounting standard AASB 102 has several requirements relating to inventories arising from
production:
The cost of inventories produced is to include the costs of:
 direct materials
 direct labour and on-costs
 sub-contracted work
 a systematic allocation of production overheads.
The balance sheet must disclose separately the accounting policies adopted for measuring inventories, including
work in process and finished goods. Both of these requirements involve costs determined using job costing systems
and process costing systems. The valuing of work in process using process costing is dealt with in Chapter 5.

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4.20 Under AASB 102, the cost of inventories is to exclude the cost of abnormal wastage, storage, administration and
selling cost.
4.21 Proration is appropriate when the amount of underapplied or overapplied overhead is significant. It can also be
argued that proration should be used if a significant proportion of production remains in the inventory. Proration
prevents cost of goods sold from bearing the full impact of applying an inappropriate overhead application rate,
caused by errors in estimating one or both of the elements used in the calculation of the predetermined overhead
rate. Remember that both numerator and denominator in that calculation are budget estimates.

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SOLUTIONS TO EXERCISES
EXERCISE 4.22 (20 minutes) Manufacturing cost flows
1
Raw Materials Inventory
454 000
348 000
106 000
Wages Payable
648 000
Manufacturing Overhead
360 000
Work in Process Inventory

36 000
348 000
648 000
360 000
240 000
1 152 000
Finished Goods Inventory

60 000
240 000
264 000
36 000
Sales Revenue
390 000
Accounts Receivable
390 000
Cost of goods Sold

264 000

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2
Comfy Seats Furniture Pty Ltd
Partial Balance Sheet
as at 31 December
Current assets
Cash XXX
Accounts receivable XXX
Inventory
Raw materials $ 106 000
Work in process 1 152 000
Finished goods 36 000
Comfy Seats Furniture Pty Ltd

Partial Income Statement
for the year ended 31 December
Sales revenue $390 000
Less: Cost of goods sold 264 000
Gross margin $126 000
EXERCISE 4.23 (30 minutes) Job or process costing: film producer

Job-order costing is the appropriate product-costing system for feature film production, because a film is a unique
production. The production process for each film would use labour, material and support activities (i.e. overhead) in
different ways. This would be true of any type of film (e.g., filming on location, filming in the studio, or using
animation).
EXERCISE 4.24 (15 minutes) Job versus process costing

1 A manufacturer of swimming pool chemicals would use process costing, as there are a limited number of
products produced in large quantities in similar production processes. Direct costs can be traced to each
production process and then averaged across all units produced.
2 A manufacturer of custom hot tubs and spas would use job costing, as the custom made hot tubs and spas are
produced to customer specifications and direct costs (direct materials and direct labour) can be traced to each job
easily and economically.
3 A financial planning business would use job costing, as each customer is unique and the direct costs (such as
professional fees and other specific costs) can be traced to each client or job.
4 A producer of plastic plant pots would use process costing, as the different types of plastic pots are produced in
batches in large quantities across similar production processes.
5 An ice-cream producer would use process costing, as the production of each type of ice-cream would be very
similar and involve similar processes.
6 A manufacturer of custom built tool sheds would use job costing, as custom built products are produced to
customers’ specifications and direct costs (direct materials and direct labour) can be traced to each job.
7 A manufacturer of paper clips would use process costing, as different types of paper clips would be very similar
and they would be mass produced using the same processes.
8 An engineering consulting firm would use job costing, as each engineering project is unique and would use
different amounts of resources, which could be traced to each job.

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9 A manufacturer of party balloons would use process costing, as the production of balloons would involve only a
few types of products, produced in large quantities using a number of similar production processes.
10 A manufacturer of custom-built emergency rescue vehicles would use job costing, as custom-built vehicles are
produced to specified customer needs. Direct costs (direct materials and direct labour) will vary and could be
traced to each job.
EXERCISE 4.25 (25 minutes) Job cost sheet: manufacturer

1
Job cost sheet
Job number TB78 Description Teddy bears
Date started 1 April Date completed 15 April
Number of units completed 1000
Direct material
Date Requisition number Quantity Unit price Cost
1 April 101 450 $0.80 $360
5 April 108 600 $0.30 $180
Direct labour
Date Time sheet number Hours Rate Cost
15 April 72 500 $19 $9500
Manufacturing overhead
Date Cost driver Quantity Application rate Cost
15 April Direct labour hours 500 $12 $6000
Cost summary
Cost item Amount
Total direct material $ 540
Total direct labour 9 500
Total manufacturing overhead 6 000
Total cost $16 040
Unit cost $16.04
Delivery summary
Date Units shipped Units remaining in Cost balance
inventory
30 April 700 300 $4812*
* 300 remaining in inventory  $16.04 = $4812
2 Managers may use this information to make pricing decisions, assess product profitability, control product costs,
and to estimate inventory values.

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9
EXERCISE 4.26 (15 minutes) Overapplied or underapplied overhead: manufacturer
1 Predetermined overhead rate = $1 050 000/84 000 hours = $12.50 per hour
2 To calculate actual manufacturing overhead:
Depreciation........................................................................................................................$250 000
Property taxes...................................................................................................................... 21 000
Indirect labour..................................................................................................................... 85 000
Supervisory salaries............................................................................................................ 208 000
Electricity............................................................................................................................ 47 000
Insurance............................................................................................................................. 26 000
Factory rent......................................................................................................................... 291 000
Indirect material:
Beginning inventory, 1 January..................................................................................
$ 60 000
Add: Purchases...........................................................................................................
84 000
Indirect material available for use..............................................................................
$144 000
Deduct: Ending inventory, 31 December...................................................................
80 000
Indirect material used................................................................................................. 64 000
Actual manufacturing overhead..........................................................................................$992 000
Actual Applied
Overapplied
= manufacturing – manufacturing
overhead
overhead overhead
= $992 000 – ($12.50 x 80 000 DLH)

= $992 000 – 1 000 000
= $ 8000 overapplied
3
Manufacturing overhead..................................................................................
8000
Cost of goods sold 8000
4 The overapplied overhead was caused by the misestimated manufacturing overhead rate. The budgeted overhead
costs, $1 050 000, were above the actual costs of $992 000. The overestimation of the manufacturing overhead
costs causes an inflated predetermined rate and overapplication of manufacturing overhead. However, in this
question the actual hours were 80 000 hours, 4000 hours below budget. While overestimation of the labour hours
reduces the predetermined overhead rate, that error was not sufficient to completely reverse the overapplication
caused by overestimating the budgeted manufacturing costs for the period. The outcome is the overapplication of
the manufacturing overhead costs.

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EXERCISE 4.27 (10 minutes) Basic journal entries in job costing: manufacturer
Work in process inventory $5375.00
Direct material inventory $4250.00
Wages payable (25 x $30) 750.00
Manufacturing overhead (25 x $15.00) 375.00
Finished goods inventory $5375.00
Work in process inventory $5375.00
The cost per backpack for job number TK421 is $53.75 ($5375.00/100).
EXERCISE 4.28 (20 minutes) Schedule of cost of goods manufactured

1
Artisan Furniture Ltd
Schedule of Cost of Goods Manufactured
Direct material:
Raw material inventory, 1 January.................................................................
$47 000
Add: Purchases of raw material......................................................................
417 000
Raw material available for use.......................................................................
464 000
Deduct: Raw material inventory, 31 December.............................................
51 700
Raw material used.......................................................................................... $412 300
Direct labour............................................................................................................. 180 000
Manufacturing overhead 378 000*
Total manufacturing costs......................................................................................... 970 300
Add: Work in process inventory, 1 January.............................................................. 61 500
Subtotal..................................................................................................................... 1 031 800
Deduct: Work in process inventory, 31 December **.............................................. 67 650
Cost of goods manufactured..................................................................................... 964 150
*Applied manufacturing overhead is $378 000 ($180 000  210%). Actual manufacturing overhead is also $378 000, so
there is no overapplied or underapplied overhead.
** increase by 10 %
2
Finished goods inventory, 1 January..................................................................................................
$65 000
Add: Cost of goods manufactured......................................................................................................
964 150
Cost of goods available for sale.........................................................................................................
1 029 150
Deduct: Finished goods inventory, 31 December*............................................................................
71 500
Cost of goods sold..............................................................................................................................
$957 650
* increase by 10 %

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3
Raw material inventory, 1 January 43,000

Purchases 417,000
Raw material available for use 460,000
Deduct: Raw material inventory, 31 December 47,300
Direct material used 412,700 409,000

Direct labour 180,000 180,000
Manufacturing overhead* 378,000 378,000
Total manufacturing costs 970,700 967,000
Add: Work in process inventory, 1 January 61,500 61,500
Subtotal 1,032,200 1,028,500
Deduct: Work in process inventory, 31 December 67,650 67,650
Cost of goods manufactured 964,550 960,850
*Applied manufacturing overhead is $378 000 (180 000 x 210%)
Finished goods inventory, 1 January 65,000 65,000

ADD: Cost of goods manufactured 964,550 960,850
Cost of goods available for sale 1,029,550 1,025,850
DEDUCT: Finished goods inventory, 31 December 71,500 71,500
Cost of goods sold 958,050 954,350

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EXERCISE 4.29 (15 minutes) Process costing; no work in process: manufacturer
1
Mixing department costs = $66 300/70 000 = $0.947*
Packing department costs = $17 100/70 000 = $0.244*
Total cost per container = $83 400/70 000 = $1.191*
* corrected to 3 decimal places
2
Dr. Work in process—mixing $66 300
Cr. Raw materials inventory $37 500
Wages payable 18 000
Manufacturing overhead 10 800
Dr. Work in process—packing 66 300

Cr. Work in process—mixing 66 300
Dr. Work in process—packing 17 100

Cr. Raw materials inventory 7 500
Wages payable 6000
Dr. Finished goods $83 400

Cr. Work in process—packing $83 400

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EXERCISE 4.30 (20 minutes) Process costing; no work in process: chemical manufacturer
1 The cost per container is calculated as follows:
Mixing $250 000/150 000 containers = $1.67
Packaging $39 000/150 000 containers = $0.26
Total cost per container $1.93
2 Journal entries:
Dr. Work in process—mixing $250 000
Cr. Raw materials inventory $187 500
Dr. Work in process—packaging 250 000

Cr. Work in process—mixing 250 000
Dr. Work in process—packaging 39 000

Cr. Raw materials inventory 24 000
Wages payable 6 000
Dr. Finished goods $289 000

Cr. Work in process—packaging $289 000
3 Process costing is the correct costing system to use where large quantities of identical units are produced. Where
production takes place in more than one department, the costs are progressively accumulated as production
moves from one department to the next. It is normal to record the costs of each department separately as these
are used for control purposes. Fresh 'n' Kleen is following conventional process costing procedures.

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EXERCISE 4.31 (20 minutes) Proration of underapplied overhead: manufacturer
1 Applied manufacturing overhead $232 000
Actual manufacturing overhead $267 200
Therefore, overhead has been underapplied by $35 200.
2 Calculation of proration amounts:

Account Amount Percentage Calculation of
percentage
Work in process $ 46 400 20% 46 400 ¿ $232
000
Finished goods 81 200 35% 81 200 ¿ $232
000
Cost of goods sold 104 400 45% 104 400 ¿ $232
000
Total $232 000 100%
Account Underapplied  Percentage Amount to be added

Overhead to account
Work in process $35 200  20% $ 7 040
Finished goods 35 200  35% 12 320
Cost of goods sold 35 200  45% 15 840
Journal entry:
Work in process inventory $7 040
Finished goods inventory 12 320
Cost of goods sold 15 840
Manufacturing overhead $35 200
3 If all of the underapplied overhead had been closed to cost of goods sold, rather than being prorated, cost of
goods sold would have been increased by $35 200 instead of $15 840. Thus, profit would have been $19 360
lower under this approach.

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SOLUTIONS TO PROBLEMS
PROBLEM 4.32 (25 minutes) Predetermined overhead rate; journal entries
1 budgeted manufacturing overhead

Predetermined overhead rate 
budgeted machine hours
$2 868 000
  $38.24 per machine hour
75 000
2 Journal entries:
(a) Raw material inventory....................................................... $8 850
Accounts payable.................................................... $8 850
(b) Work in process................................................................... 275

Raw material inventory........................................... 275
(c) Manufacturing overhead..................................................... 40

Manufacturing supplies inventory.......................... 40
(d) Manufacturing overhead..................................................... 1 000

Cash......................................................................... 1 000
(e) Work in process inventory.................................................. 145 000

Wages payable........................................................ 145 000
(f) Selling and administrative expense..................................... 2 500

Prepaid insurance.................................................... 2 500
(g) Raw material inventory....................................................... 6 000

Accounts payable.................................................... 6 000
(h) Accounts payable................................................................ 1 700

Cash......................................................................... 1 700
(i) Manufacturing overhead..................................................... 26 000

Wages payable........................................................ 26 000
(j) Manufacturing overhead..................................................... 22 000

Accumulated depreciation: equipment................... 22 000

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(k) Finished goods inventory.................................................... 2 200
Work in process inventory...................................... 2 200
(l) Work in process inventory.................................................. 310 000*

Manufacturing overhead......................................... 310 000
*Applied manufacturing overhead = 8000 machine hours × $38.75 per hour
(m) Accounts receivable............................................................ 350 000

Sales revenue.......................................................... 350 000
Cost of goods sold............................................................... $139 000

Finished goods inventory........................................ $139 000
PROBLEM 4.33 (35 minutes) Job costing; journal entries
1 Predetermined overhead rate = budgeted overhead ÷ budgeted machine hours

= $850 000 ÷ 17 000
= $50.00 per machine hour
2 (a)
Work in process inventory $83 000*
Raw material inventory $83 000
Work in process inventory $133 800**

Wages payable $133 800
* $22 000 + $45 000 + $16 000 = $83 000
** $35 000 + $23 000 + $65 000 + $10 800 = $133 800
(b)
Accumulated depreciation $35 000
Manufacturing supplies inventory 50 000
Miscellaneous accounts 140 000
(c)
Work in process inventory $220 000*
* (1200 + 700 + 2000 + 500)  $50.00 = $220 000

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(d)
Finished goods inventory $318 500*
Work in process inventory $318 500
* Job 64: $88 000 + $22 000 + $35 000 + (1 200  $50.00) = $205 000
Job 65: $55 500 + $23 000 + (700  $50.00) = $113 500
$318 500 = $205 000 + $113 500
(e)
Accounts receivable $148 200*
Sales revenue $148 200
* $113 500 + $34 700 = $148 200
Cost of goods sold $113 500

Finished goods inventory $113 500
3 Job no. 66 and no. 67 are in production as of 31 March:

Job 66: $45 000 + $65 000 + (2000  $50.00) $210 000
Job 67: $16 000 + $10 800 + (500  $50.00) 51 800
Total $261 800
4 During the first quarter Jobs 64 and 65 were transferred in and Job 65 was sold. Finished goods inventory
therefore increased by $205 000 (i.e. $318 500 − $113 500).
PROBLEM 4.34 (45 minutes) Basic job costing; journal entries; ledger accounts; job cost card
1 Journal entries:
(a) Raw material inventory $33 000
Accounts payable 33 000
(b) Work in process inventory 66 000

Raw material inventory 66 000
Job G60 1000  $11 = 11 000
Job C81 5000  $11 = 55 000
(c) Manufacturing supplies inventory 100
Accounts payable (or cash) 100
Manufacturing overhead 100

Manufacturing supplies inventory 100

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(d) Manufacturing overhead 8 000
Accumulated depreciation: equipment 8 000
(e) Manufacturing overhead 400

Cash 400
(f) Work in process inventory 16 000

Job G60 100  $20 = 2000
Job C81 700  $20 = 14 000
Work in process inventory 9 600

Job G60 100  $12 = 1 200
Job C81 700  $12 = 8 400
$ 240000
Predetermined overhead rate = $(2000)(10 ) = $12 per hour
(g) Manufacturing overhead 910

Council rates payable 910
(h) Manufacturing overhead 2 500

Wages payable 2 500
(i) Finished goods inventory 17 900

Work in process inventory 17 900*
* cost amount derived in requirement
(j) Accounts receivable 15 000

Sales revenue 15 000
Cost of goods sold 12 000

Finished goods inventory $12 000

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2 Ledger accounts
Raw Materials Inventory
Bal. 1/10 55 000 66 000
33 000 22 000 Bal. 31/10 (cf)
88 000 88 000
Bal. 1/11 (bf) 22 000
Work in Process Inventory

Bal. 1/10 G60 3 700
DM G60 11 000
DM C81 55 000
DL G60 2 000
DL C81 14 000
MOH G60 1 200 17 900 G60
MOH C81 8 400 77 400 Bal.. 31/10 (cf)
95 300 95 300
Bal.1/11 (bf) 77 400
Finished Goods Inventory

Bal. 1/10 B50 12 000 12 000 B50
G60 17 900 17 900 Bal. 31/10 (cf)
29 900 29 900
Bal.1/11 (bf) 17 900

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3 Job cost card for Job G60
Job cost sheet
Job number G60 Description Jewellery box
Date started July Date completed October
Number of units completed xxx
Direct material
July – September xxx xxx xxx $500
October xxx 1000 $11 $11 000
Direct labour
July – September xxx xxx xxx $2000
October xxx 100 $20 $2000
July – September Direct labour hours xxx xxx $1200
October Direct labour hours 100 $12 $1200
Cost summary
Cost Item Amount
Total direct material $11 500
Total cost $17 900

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PROBLEM 4.35(30 minutes) Cost of goods manufactured; overapplied or underapplied
overhead; journal entries
1 Cost added to work in process inventory during February:

Direct material $28 000
Direct labour 21 000
Manufacturing overhead* 31 500
Total costs added $80 500
Add: Work in process inventory 18 000
Subtotal 98 500
Less: Work in process inventory, February 28:
Direct material $ 5 600
Direct labour 3 800
Manufacturing overhead* 5 700
Total 15 100
Cost of goods manufactured $83 400
* 150% of direct labour cost.
Underapplied overhead = actual overhead − applied overhead
2
$1 500 = $33 000 − $31 500

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3 Journal entries:
Raw materials inventory 28 000


Manufacturing overhead 31 500*
* 150% of direct labour cost.

Various accounts† 33 000
†The credits to various accounts related to actual manufacturing overhead items were $33 000 in total.
Finished goods inventory 83 400

Work in process inventory** 83 400

**
Work in process inventory
31/1/X2 $18 000
28 000 83 400
21 000
31 500
28/2/X2 15 100

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PROBLEM 4.36 Flow of manufacturing costs; incomplete data
1 The answers to the questions are as follows:

(a) $216 000 (f) $60 000
(b) $19 000 (g) $150 000
(c) $70 000 (h) $40 000
(d) $38 000 (i) $15 000
(e) $80 000 (j) Zero
2 The completed ledger accounts (in bold), along with supporting calculations, follow.
Raw-Material Inventory Accounts Payable

Bal. 1/11 15 000 12 000 Bal. 1/11
70 000 40 000 81 000 70 000
Bal.30/11 45 000 1 000 Bal. 30/11
Work in process Inventory Finished goods Inventory

Bal. 1/11 8 000 Bal. 1/11 35 000
Direct 150 000 150 000 180 000
material 40 000 Bal. 30/11 5 000
Direct
labour 80 000 Cost of Goods Sold
Overhead 60 000 180 000
Bal. 30/11 38 000
Manufacturing Overhead Sales Revenue

60,000 60 000 216 000
Wages Payable Accounts Receivable

1 000 Bal. 1/11 Bal. 1/11 8 000
79 500 80 000 216 000 205 000
1 500 Bal. 30/11 Bal. 30/11 19 000

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Supporting Calculations:
(a) Sales revenue = cost of goods sold x 120%
= $180 000 x 120% = $216 000
(b) Ending balance in accounts receivable = beginning balance + sales revenue

– collections
= $8000 + $216 000 – $205 000
= $19 000
(c) Purchases of raw material = addition to accounts payable

Addition to accounts payable = ending balance + payments – beginning balance
= $1000 + $81 000 – $12 000
= $70 000
(d) 30 November balance in work in = direct + direct + Manufacturing
process inventory material labour overhead
= $20 500 + (500)($20) + (500)($15*)
= $38 000
*Predetermined overhead rate = budgeted overhead

budgeted direct labour hours†
= $2 160 000
144 000
= $15 per direct labour hour
$960 000
†
Budgeted direct-labour hours =
budgeted direct labour cost
= =48 000
direct labour rate $20
(e) Addition to work in process = November credit to

for direct labour wages payable
November credit to = ending balance + payments – beginning balance
wages payable
= $1 500 + $79 500  $1000 = $80 000
(f) November applied overhead = direct labour hours x predetermined overhead rate
= 4000* x $15
= $60 000
*Direct labour hours = addition to work in process for direct labour
direct labour rate
= $80 000
=4 000 hours
$20 per hour

25
(g) Cost of goods completed during = beginning balance in + additions – ending balance in work in
November work in process during process
November
= $8000 + ($40 000 + $80 000 + $60 000) – $38 000

= $150 000
(h) Raw material used in November = November credit to raw material = $40 000 (given)
inventory
(i) October 31 balance in 30 November balance in direct

raw-material inventory raw material inventory material
= + – purchases
used
= $45 000 + $40 000 – $70 000
= $15 000
(j) Overapplied or underapplied overhead = actual overhead – applied overhead

= $60 000 – $60 000 = 0

26
PROBLEM 4.37 (30 minutes) Cost of goods manufactured; prime and conversion costs
1 Galactica Ltd
Schedule of cost of goods manufactured
for the month of June
Direct material:
Raw materials inventory, 1 June $ 34 000g
Add: June purchases of raw material 226 000 g
Raw material available for use 260 000 c
Less: Raw materials inventory, 30 June 52 000 g
Raw materials used $208 000 c

Direct labour 320 000*
Manufacturing overhead applied (50% of direct labour) 160 000*
Total manufacturing costs 688 000 c
Add: Work in process inventory, 1 June 80 000 g
Subtotal 768 000 c
Less Work in process inventory
:
30 June (90%  $80 000) 72 000 c
Cost of goods manufactured $696 000 †
g
These are given, so construct the statement with these inserted first
c
Calculate these in this order: raw material available for use; raw material used; cost of goods manufactured; work in
process inventory at the end; subtotal in the work in process inventory; combined direct labour and overhead applied.
†To calculate cost of goods manufactured:
Cost of goods sold = beginning inventory finished goods + cost of goods manufactured – ending inventory finished goods.
690 000 = 204 000 + cost of goods manufactured – 210 000
Cost of goods manufactured = $696 000
* Work upward from the bottom of the statement, using information available. Direct labour + manufacturing overhead =
total manufacturing costs – direct material cost = $688 000 – $208 000 = $480 000. Since manufacturing overhead = 50% of
direct labour, then manufacturing overhead = $160 000 and direct labour = $320 000.
2
Galactica Ltd
Schedule of prime costs
Raw material:
Beginning inventory $ 34 000
Add: Purchases 226 000
Raw materials available 260 000
Less: Ending inventory 52 000
Raw material used 208 000

27
Total prime cost 528 000
3
Galactica Ltd
Schedule of conversion costs
Direct labour $320 000
Manufacturing overhead applied (50% of direct labour) 160 000
Total conversion cost $480 000
PROBLEM 4-38 (45 minutes) Schedules of cost of goods manufactured and sold; income
statement: manufacturer
1 Industrial Manufacturing Pty Ltd
For the Year Ended 31 December
Direct material:
Raw materials inventory, 1 Jan $ 133 500
Add: Purchases of raw material 1 096 500
Raw material available for use 1 230 000
Less: Raw materials inventory, 31 Dec 88 500
Raw material used $1 141 500
Manufacturing overhead:
Indirect material $ 67 500
Indirect labour 225 000
Depreciation of factory building 187 500
Depreciation of factory equipment 90 000
Electricity for factory 105 000
Council rates 135 000
Insurance on factory and equipment 60 000
Total actual manufacturing overhead 870 000
Less: Underapplied overhead* 3 750
Overhead applied to work in process 866 250
Total manufacturing costs 2 718 750
Add: Work in process inventory, 1 Jan –0–
Subtotal 2 718 750
Less: Work in process inventory, 31 Dec 60 000
Cost of goods manufactured $2 658 750
*The Schedule of Costs of Goods Manufactured lists the manufacturing costs applied to work in process. Therefore, the
underapplied overhead, $3750, must be deducted from total actual overhead to arrive at the amount of overhead applied to
work in process. If there had been overapplied overhead, the balance would have been added to total manufacturing
overhead.

28
The amount of underapplied overhead is found by subtracting the applied manufacturing overhead, $866 250, from the total
actual manufacturing overhead, $870 000.
2
Industrial Manufacturing Pty Ltd
Schedule of Cost of Goods Sold
Finished goods inventory, 1 Jan $ 52 500
Add: Cost of goods manufactured 2 658 750
Cost of goods available for sale 2 711 250
Finished goods inventory, 31 Dec 60 000
Cost of goods sold 2 651 250
Add: Underapplied overhead* 3 750
Cost of goods sold (adjusted for underapplied overhead) $2 655 000
*The company closes underapplied or overapplied overhead into cost of goods sold. Hence the $3 750 balance in
underapplied overhead is added to cost of goods sold for the month.
3
Industrial Manufacturing Pty Ltd
Income Statement
Sales revenue $3 157 500
Less: Cost of goods sold 2 655 000
Gross margin 502 500
Selling and administrative expenses 403 500
Profit before taxes 99 000
Income tax expense 37 500
Net profit $ 61 500
4 (a) The direct material cost would have been larger, probably by (roughly) 20 per cent, because direct material is a
variable cost.
(b) Depreciation is a fixed cost, so it would not have been any larger if the firm’s production volume had
increased.
(c) Only the $45 000 of equipment depreciation would have been included in manufacturing overhead on the
schedule of cost of goods manufactured. The $45 000 of depreciation related to selling and administrative
equipment would have been treated as a period cost and expensed during the year. However, the cost of goods
manufactured would not have been affected. This difference would have been taken up in underapplied or
overapplied overhead.

29
PROBLEM 4.39 (20 minutes) Ethical issues; underapplication of manufacturing overhead:
manufacturer
1 Drawing on the Code of Ethics for Professional Accountants issued by the Professional and Ethical Standards
Board (APESB), outlined in Chapter 1, the appropriateness of Geoff Walker’s three alternative courses of action
is described as follows:
 Follow Grey's directive and do nothing further: this action is inappropriate as Walker has ethical
responsibilities to take further action in accordance with the following principles of the Code: integrity,
professional competence and due care, and professional behaviour.
 Attempt to convince Grey to make the proper adjustments and advise the external auditors of her actions:
This action is appropriate as Walker should discuss this first with Grey to attempt to resolve the issue.
Walker should not advise the external auditor but should ask Grey to do this. If Grey does not agree to do
this then Walker should ask Grey’s superiors to take action. If this does not happen then Walker should
talk to the external auditor.
 Tell the Audit Committee about the problem: this action is not appropriate as a first step because Walker
should approach his immediate superior first.
2 Walker should inform Grey that he is planning to discuss the conflict with Grey's superior. He should pursue
discussions with successively higher levels of management—including the Audit Committee and the Board of
Directors—until the matter is satisfactorily resolved. At the same time, he should seek confidential advice from
an objective adviser to clarify the relevant concepts and obtain an understanding of possible courses of action. If
the ethical conflict still exists after exhausting all levels of internal review, Walker may have no alternative other
than to resign from the business.
PROBLEM 4.40 (30 minutes) Process costing; journal entries: manufacturer

1, 2 & 3
Mixing (1) Bottling (2) Packaging (3)
Departmental costs $237 900 $74 700 $30 600
Output 7500 litres 30 000 filled bottles 30 000 packed bottles
Cost per unit $31.72 per litre (or $7.93 $2.49 per bottle + $7.93 $1.02 per package +
per 250 mls) for mixture = $10.42 per $10.42 per filled bottle =
filled bottle $11.44 per packaged,
filled bottle
4 The table shows that the cost per unit ($11.44) is calculated by dividing the total costs ($343 200) by the total
output (30 000 bottles). This aggregates the production cost for the entire company, whereas in many process
costing businesses (such as Juicy Ltd) products undergo a number of separate processes in different
departments. In this question, the total cost per unit can be separated into the costs for the mixture, the bottling
activity and the packaging. This assists with cost management and information for control in each department.
The departmental managers are held responsible for costs incurred in their departments. This method also
shows that the work in process inventories are absent and the production costs are directly transferred to the
finished goods account.

30
5 Journal entries
Date Details Dr Cr
March 31 Work in process—Mixing $237 900
Raw materials inventory $129 000
Manufacturing overhead control 58 500
March 31 Work in process—Bottling 237 900
Work in process—Mixing 237 900
Transfer of March production costs from Mixing
Department to Bottling Department
March 31 Work in process—Bottling 74 700
March 31 Work in process—Packaging 312 600
Work in process—Bottling 312 600
Transfer of March production costs from Bottling
Department to Packaging Department
March 31 Work in process—Packaging 30 600
March 31 Finished goods inventory 343 200
Work in process—Packaging 343 200
Transfer of March production costs from Packaging
Department to Finished Goods Inventory
6 The approach of keeping separate work in process accounts for each department is preferable to aggregating
production costs for all processes/departments in one work in process account as it gives department production
managers more information for controlling costs.

31
PROBLEM 4.41(30 minutes) (appendix) Proration of overapplied or underapplied overhead:
manufacturer
1
budgeted manufacturing overhead
Predetermined overhead rate =
budgeted machine hours
$300 000
= = $7.5 per machine hour
$40 000
2
machine predetermined
Applied manufacturing overhead =
( )
hours
used

( overhead
rate )
= 5000 hours  $7.5 per hour
= $37 500
3
Overapplied overhead = actual overhead – applied overhead
= $30 000 – $37 500
= $7500
4
5 (a) Calculation of proration amounts:

Account Explanation Amount* Percentage Calculation of percentage
Cost of goods sold Job B81 only $12 000 32% 12 000  37 500
Finished goods Job J76 only 18 000 48% 18 000  37 500
Work in process Job M49 only 7 500 20% 7 500  37 500
Total $37 500 100.0%
* Machine hours used on job  predetermined overhead rate
Account Overapplied overhead  Percentage Amount added to account

Cost of goods sold $7 500  32% $ 2400
Finished goods 7 500  48% 3600
Work in process 7 500  20% 1500
Total $7500
(b) Journal entry:
Work in process inventory 1500
Finished goods inventory 3600

32
SOLUTIONS TO CASES
CASE 4.42 (75 minutes) Comprehensive job costing problem: manufacturer
1
budgeted manufacturing overhead
Predetermined overhead rate =
budgeted direct labour hours
$426 300
= = $21 per direct labour hour
20 300
2
Job cost sheet
Job number T81 Description Trombones
Date started March Date completed March
Number of units completed 76
Direct material
5/3 112 250 $5.00 $1 250
Direct labour
8/3 to 12/3 308 to 312 800 $20 $16 000
8/3 to 12/3 Direct labour hours 800 $21 $16 800
Cost summary
Cost item Amount
Total direct material $1 250
Total cost $34 050
Unit cost $448.0263
Delivery summary

33
Date Units shipped Units remaining in inventory Cost balance
March 38 38 $17 025
3 Journal entries:
(a) Raw material inventory....................................................... $5 000

Accounts payable.................................................... $5 000
(b) Raw material inventory....................................................... 4 000

(c) Work in process inventory.................................................. 11 250*

Raw material inventory........................................... 11 250
* (250  $5.00 per sqm) + (1000 kg  $10 per kg).
Manufacturing overhead**................................................. 100

Manufacturing supplies inventory.......................... 100
** Valve lubricant is an indirect material, so it is considered an overhead cost

(10 litres x $10 per litre)
(d) Work in process inventory.................................................. 34 000

Manufacturing overhead..................................................... 13 000
Wages payable........................................................ 47 000
Work in process inventory.................................................. 35 700*

Manufacturing overhead......................................... 35 700
* Applied manufacturing overhead = 1700 direct labour hours $21 per hour.
(e) Manufacturing overhead..................................................... 12 000

Accumulated depreciation: Building and
equipment............................................................ 12 000
(f) Manufacturing overhead..................................................... 1 200

Cash......................................................................... 1 200
(g) Manufacturing overhead..................................................... 2 100

(h) Manufacturing overhead..................................................... 2 400

Cash......................................................................... 2 400

34
(i) Manufacturing overhead..................................................... 3 100
Prepaid insurance.................................................... 3 100
(j) Selling and administrative expenses................................... 8 000

Cash......................................................................... 8 000
(k) Selling and administrative expenses................................... 4 000

Accumulated depreciation: Buildings and
equipment............................................................. 4 000
(l) Selling and administrative expenses................................... 1 000

Cash......................................................................... 1 000
(m) Finished goods inventory.................................................. 34 050*

Work in process inventory.................................... 34 050
* Cost of Job T81:
Direct material (250  $5.00)............................. $ 1 250
Direct labour (800 $20)................................... 16 000
Manufacturing overhead (800$21)................... 16 800

Total cost........................................................... $34 050
(n) Accounts Receivable......................................................... 26 600*

Sales Revenue......................................................... 26 600
* (76 ¿ 2)  $700 per trombone
Cost of Goods Sold............................................................ $17 025**

Finished Goods Inventory....................................... $17 025
** 17 025 = $34 050 ¿ 2.

35
4 Ledger accounts and posting of journal entries:
Cash Accounts Payable
Bal. 10 000 13 000 Bal
1 200 (f) 5 000 (a)
2 400 (h) 4 000 (b)
8 000 (j) 2 100 (g)
1 000 (l)
Accounts Receivable Wages Payable

Bal. 21 000 8 000 Bal.
(n) 26 600 47 000 (d)
Accumulated Depreciation: Buildings and

Equipment
Prepaid Insurance
Bal. 5 000 102 000 Bal.
3 100 (i) 12 000 (e)
4 000 (k)
Manufacturing Supplies Inventory Manufacturing Overhead

Bal. 500 (c) 100 35 700 (d)
100 (c) (d) 13 000
(e) 12 000
(f) 1 200
(g) 2 100
(h) 2 400
(i) 3 100
Raw Material Inventory Cost of Goods Sold

Bal. 149 000 (n) 17 025
(a) 5 000 11 250 (c)
(b) 4 000
Work in Process Inventory Selling and Administrative Expenses

Bal. 91 000 (j) 8 000
(c) 11 250 34 050 (m) (k) 4 000
(d) 34 000 (l) 1 000
(d) 35 700

36
Finished Goods Inventory Sales Revenue
Bal. 220 000 26 600 (n)
(m) 34 050 17 025 (n)
5
(a) Calculation of actual overhead:
Indirect material (valve lubricant)................................................................ $ 100
Indirect labour............................................................................................... 13 000
Depreciation: factory building and equipment............................................. 12 000
Rent: warehouse............................................................................................ 1 200
Utilities......................................................................................................... 2 100
Property taxes............................................................................................... 2 400
Insurance....................................................................................................... 3 100
Total actual overhead.................................................................................... $33 900
actual manufacturing applied manufacturing
(b) Overapplied overhead = –
overhead overhead
= $33 900 – $35 700*
= $1800 overapplied
* $35 700 = 1700 direct-labour hours  $21 per hour.
(c) Manufacturing Overhead 1800
Cost of Goods Sold.......................................................................... 1800

37
6
Brass Design Ltd

for the month of March
Direct material:
Raw material inventory, 1 March............................................... $149 000
Add: March purchases of raw material....................................... 9 000
Raw material available for use................................................... 158 000
Deduct: Raw material inventory, 31 March............................... 146 750
Raw material used....................................................................... $11 250
Direct labour........................................................................................ 34 000
Indirect material.......................................................................... $100
Indirect labour............................................................................. 13 000
Depreciation on factory building and equipment....................... 12 000
Rent: warehouse.......................................................................... 1 200
Utilities....................................................................................... 2 100
Property taxes............................................................................. 2 400
Insurance..................................................................................... 3 100
Total actual manufacturing overhead.................................. 33 900
Add: overapplied overhead.................................................. $1 800*
Overhead applied to work in process.......................................... 35 700
Total manufacturing costs................................................................... 80 950
Add: Work in process inventory, 1 March.......................................... 91 000
Subtotal 171 950
Deduct: Work in process inventory, 31 March................................... 137 900
Cost of goods manufactured................................................................ $34 050†
* The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to work in process. Therefore, the
overapplied overhead, $1800, must be added to actual overhead to arrive at the amount of overhead applied to work in
process during March.
†
Cost of Job T81, which was completed during March.

38
7
Brass Design Ltd
Schedule of Cost of Goods Sold
Finished goods inventory, 1 March................................................................................... $220 000

Add: Cost of goods manufactured..................................................................................... 34 050
Cost of goods available for sale......................................................................................... 254 050
Deduct: Finished goods inventory, 31 March.................................................................... 237 025
Cost of goods sold.............................................................................................................. 17 025
Deduct: Overapplied overhead*........................................................................................ 1 800
Cost of goods sold (adjusted for overapplied overhead)................................................... $ 15 225
* The company closes underapplied or overapplied overhead into cost of goods sold. Hence the balance in overapplied
overhead is deducted from cost of goods sold for the month.
8
Brass Design Ltd
Income Statement
Sales revenue..................................................................................................................... $26 600

Less: Cost of goods sold.................................................................................................... 15 225
Gross margin...................................................................................................................... 11 375
Selling and administrative expenses.................................................................................. 13 000
Profit (loss)........................................................................................................................ $ (1625)
CASE 4.43 (45 minutes) Interpreting information from a job costing system: manufacturer
1 A job costing system is appropriate where each product, batch of products or order is different and costs can be
readily identified with that specific product, batch, or order.
2 The only job remaining in CompuFurn’s work in process inventory on 31 December is PS812. The dollar value
of PS812 is calculated as follows:
PS812 balance, 30 November $250 000
December additions:
Raw material $124 000
Purchased parts 87 000
Manufacturing overhead (19 500  $5*) 97 500 509 000
Work in process inventory, 31 December $759 000
*Manufacturing overhead rate = $4 500 000
900 000 hours
= $5 per hour

39
3 The dollar value of the chairs remaining in CompuFurn’s finished goods inventory on 31 December is $455 600,
calculated as follows:
Chair units
Finished goods inventory, 30 November 19 400
Units completed in December 15 000
Units available for sale 34 400
Units shipped in December 21 000
Finished goods inventory, 31 December 13 400
Assuming that the units produced first are sold first, all units remaining in finished goods inventory were
completed in December.
Unit costs of chairs completed in December:
Work in process inventory, 30 November $431 000
December additions:
Raw material $ 3 000
Purchased parts 10 800
Manufacturing overhead (4400 hours  $5) 22 000 79 000
Total cost $510 000
total cost $ 510000

Unit cost = units completed = 15000units = $34 per
unit
Value of finished goods inventory on
= Unit cost  quantity
31 December
= $34  13 400
= $455 600
4 Overapplied overhead is $7500, calculated as follows:

Machine hours used:
January – November 830 000
December 49 900
Total 879 900
Applied manufacturing overhead = 879 900 machine hours x $5 per machine hour = $4 399 500
Actual manufacturing overhead:
January – November $4 140 000
December 252 000
$4 392 000
Overapplied overhead = applied overhead – actual overhead
= $4 399 500 – $4 392 000

40
= $7500
5 If the amount of overapplied or underapplied overhead is not significant, the amount is generally treated as a
period cost and closed to cost of goods sold. If the amount is significant, the amount is sometimes prorated over
the relevant accounts, i.e. work-in-process inventory, finished-goods inventory, and cost of goods sold.
CASE 4.44 (50 minutes) Cost flows in a job costing system; schedule of cost of goods
manufactured; automation: manufacturer
1 The manufacturing overhead applied to 30 November is calculated as follows:

Machine hours  predetermined overhead rate = overhead applied
73 000  $45 = $3 285 000
2 The manufacturing overhead applied in December is calculated as follows:

Machine hours  predetermined overhead rate = overhead applied
6000  $45 = $270 000
3 Underapplied manufacturing overhead as at 31 December is calculated as follows:

Actual overhead ($3 300 000 + $288 000)............................................................................
$3 588 000
Applied overhead ($3 285 000 + $270 000)..........................................................................
(3 555 000)
Underapplied overhead..........................................................................................................
$ 33 000
4 The balance in the Finished Goods Inventory account on 31 December is comprised only of Job No. N11-013
and is calculated as follows:
30 November balance for Job No. N11-013........................................................................
$165 000
December direct material.....................................................................................................
12 000
December direct labour........................................................................................................
36 000
45 000
December overhead (1000 $45)........................................................................................
Total finished goods inventory, 31 December.....................................................................
$258 000

41
5 Optic Vision’s Schedule of Cost of Goods Manufactured for the year just completed is constructed as follows:
Optic Vision Pty Ltd

Direct material:
Raw material inventory, 1/1............................................................... $ 315 000
Raw material purchases ($2 895 000 + $294 000)............................ 3 189 000
Raw material available for use........................................................... 3 504 000
Deduct: Indirect material used ($375 000 + $27 000)....................... $402 000
Raw material inventory 31/12.......................................... 255 000 657 000
Raw material used.............................................................................. 2 847 000
Direct labour ($2 535000 + $240 000)................................................... 2 775 000
Indirect material ($375 000 + $27 000)............................................. $402 000
Indirect labour ($1 035 000 + $90 000)............................................. 1 125 000
Utilities ($735 000 + $66 000)........................................................... 801 000
Depreciation ($1 155 000 + $105 000).............................................. 1 260 000
Total actual manufacturing overhead................................................. 3 588 000
Deduct: Underapplied overhead........................................................ 33 000
Overhead applied to work in process*................................................... 3 555 000
Total manufacturing costs...................................................................... 9 177 000
Add: Work in process inventory, 1/1...................................................... 180 000
Subtotal $9 357 000
Deduct: Work in process inventory, 31/12**......................................... 450 600
Cost of goods manufactured................................................................... $8 906 400
* Overhead applied = (73 000 + 6 000) x $45
= 79 000 x $45
= $3 555 000
** Supporting calculations for work in process 31/12:
D12-002 D12-003 Total
Direct material.............................. $113 700 $78 000 $191 700
Direct labour................................. 60 000 50 400 110 400
Applied overhead:
2500 hrs  $45.......................... 112 500 112 500
800 hrs  $45............................ ______ 36 000 36 000
Total................................ $286 200 $164 400 $450 600

42

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CHAPTER 4

PRODUCT COSTING SYSTEMS

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4.12 The two main steps in process costing are:

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Work in Process Inventory

Finished Goods Inventory

Cost of goods Sold

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Comfy Seats Furniture Pty Ltd

EXERCISE 4.23 (30 minutes) Job or process costing: film producer

EXERCISE 4.24 (15 minutes) Job versus process costing

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EXERCISE 4.25 (25 minutes) Job cost sheet: manufacturer

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= $992 000 – ($12.50 x 80 000 DLH)

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EXERCISE 4.28 (20 minutes) Schedule of cost of goods manufactured

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Raw material inventory, 1 January 43,000

Direct material used 412,700 409,000

*Applied manufacturing overhead is $378 000 (180 000 x 210%)

Finished goods inventory, 1 January 65,000 65,000

Cost of goods sold 958,050 954,350

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Dr. Work in process—packing 66 300

Dr. Work in process—packing 17 100

Dr. Finished goods $83 400

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Dr. Work in process—packaging 250 000

Dr. Work in process—packaging 39 000

Dr. Finished goods $289 000

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2 Calculation of proration amounts:

Account Underapplied  Percentage Amount to be added

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1 budgeted manufacturing overhead

(b) Work in process................................................................... 275

(c) Manufacturing overhead..................................................... 40

(d) Manufacturing overhead..................................................... 1 000

(e) Work in process inventory.................................................. 145 000

(f) Selling and administrative expense..................................... 2 500

(g) Raw material inventory....................................................... 6 000

(h) Accounts payable................................................................ 1 700

(i) Manufacturing overhead..................................................... 26 000

(j) Manufacturing overhead..................................................... 22 000

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(l) Work in process inventory.................................................. 310 000*

(m) Accounts receivable............................................................ 350 000

Cost of goods sold............................................................... $139 000

PROBLEM 4.33 (35 minutes) Job costing; journal entries

1 Predetermined overhead rate = budgeted overhead ÷ budgeted machine hours

Work in process inventory $133 800**

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Cost of goods sold $113 500

3 Job no. 66 and no. 67 are in production as of 31 March:

(b) Work in process inventory 66 000

Manufacturing overhead 100

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(e) Manufacturing overhead 400

(f) Work in process inventory 16 000