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Exam 5: Systems Design: Job-Order Costing

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Question 1

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Harrell Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.At the beginning of the year,the company estimated its total manufacturing overhead cost at $400,000 and its direct labour hours at 100,000 hours.The actual overhead cost incurred during the year was $350,000 and the actual direct labour hours incurred on jobs during the year was 90,000 hours.What would be the manufacturing overhead for the year?

A) $10,000 underapplied.
B) $10,000 overapplied.
C) $50,000 underapplied.
D) $50,000 overapplied.

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B

Question 2

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X Company reported the following actual cost data for the year: $\begin{array}{|l|r|}\hline \text { Purchase of raw materials (all direct) } & \$ 266,000 \\\hline \text { Direct labour cost } & 160,000 \\\hline \text { Manufacturing overhead costs } & 246,000\\\hline \text { Change in inventories: } & \\\hline \text { Decrease in raw materials } &\$ 10,000 \\\hline \text { Decrease in work in process } & 8,000\\\hline \text { Decrease in finished goods } & 16,000\\\hline\end{array}$ X Company used a 150% predetermined overhead rate based on direct labour cost.The rate was based on annual estimated overhead cost and direct labour cost of $252,000 and $168,000,respectively. Required: a.Calculate the cost of goods manufactured. b.What was the cost of goods sold before adjusting for any under or overapplied overhead? c.By how much was manufacturing overhead cost under or overapplied? d.Prepare a summary journal entry to close any under or overapplied manufacturing overhead cost to cost of goods sold.Is such an entry appropriate in this situation? Why or why not? e.Analyze the under or overapplied manufacturing overhead costs calculated in part c above into two separate components: amount due to incorrect estimate of the annual manufacturing overhead costs and an amount due to incorrect estimate of the annual direct labour cost.

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a.
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The Collins Company uses a job-order costing system and applies manufacturing overhead cost to jobs on the basis of the cost of materials used in production.At the beginning of the most recent year,the following estimates were made as a basis for computing the predetermined overhead rate for the year: Manufacturing overhead cost: $200,000 Direct materials cost: $160,000 The following transactions took place during the year (all purchases and services were acquired on account): a.)Raw materials purchased: $86,000. b.)Raw materials requisitioned for use in production (all direct materials): $98,000. c.)Utility costs incurred in the factory: $15,000. d.)Salaries and wages incurred as follows: Direct labour: $175,000 Indirect labour: $70,000 Administrative salaries: $125,000 e.)Maintenance costs incurred in the factory: $15,000. f.)Advertising costs incurred: $89,000. g.)Depreciation recorded for the year: $80,000,of which 80% relates to factory assets and the remainder relates to selling and administrative assets. h.)Rental cost incurred on buildings: $70,000 (75% of the space is occupied by the factory,and 25% is occupied by sales and administration). i.)Miscellaneous selling and administrative costs incurred: $11,000. j.)Manufacturing overhead cost was applied to jobs as per company policy. k.)Cost of goods manufactured for the year: $500,000. l.)Sales for the year (all on account): $1,000,000.These goods cost $600,000 to manufacture. Required: Prepare journal entries to record the information above.Key your entries by the letters a through l.

(Appendix 5A)Basing predetermined overhead rate on capacity will almost certainly result in overapplied overhead.

Bakerston Company is a manufacturing firm that uses job-order costing.The company's inventory balances at the beginning and end of the year were as follows: $\begin{array}{|l|r|r|}\hline \text { Balance } & \text { Begiming Balance } & \text { Ending Balance } \\\hline \text { Raw materials } & \$ 14,000 & \$ 22,000 \\\hline \text { Work in process } & 27,000 & 9,000 \\\hline \text { Finished goods } & 62,000 & 77,000 \\\hline\end{array}$ The company applies overhead to jobs using a predetermined overhead rate based on machine hours.At the beginning of the year,the company estimated that it would work 33,000 machine hours and incur $231,000 in manufacturing overhead cost.The following transactions were recorded for the year: a.)Raw materials purchased: $315,000. b.)Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000 indirect). c.)The following employee costs were incurred: Direct labour: $377,000 Indirect labour: $96,000 Administrative salaries: $172,000 d.)Selling costs: $147,000. e.)Factory utility costs: $10,000. f.)Depreciation for the year: $127,000,of which $120,000 is related to factory operations and $7,000 is related to selling and administrative activities. g.)Manufacturing overhead was applied to jobs.The actual level of activity for the year was 34,000 machine hours. h.)Sales for the year: $1,253,000. Required: a.Prepare a schedule of cost of goods manufactured in good form. b.Was the manufacturing overhead under- or overapplied? By how much? c.Prepare an income statement for the year in good form.The company closes out any under- or overapplied overhead to Cost of Goods Sold.

What was the amount of direct materials used during November if $20,000 in raw materials were purchased during the month,all raw materials are direct,and if the inventories were as follows? $\begin{array}{|l|r|r|}\hline & \text { Balance November 1 } & \text { Balance November 30 } \\\hline \text { Raw materials } & \$ 4,000 & \$ 3,000 \\\hline \text { Work in process } & \$ 12,000 & \$ 15,000 \\\hline \text { Finished goods } & \$ 24,000 & \$ 27,000 \\\hline\end{array}$

Mallet Company has only Job 844 in process on March 1 of the current year. The job has been charged with $2,000 of direct material cost, $2,500 of direct labour cost, and $1,750 of manufacturing overhead cost. The company assigns overhead cost to jobs at a predetermined rate of 70% of direct labour cost. Any under- or overapplied overhead cost is closed out to Cost of Goods Sold at the end of the month. During March, the following activity and amounts were recorded by the company: Raw materials (all direct materials) : $\begin{array}{|l|r|}\hline \text { Purchased during the month } & \$ 29,500 \\\hline \text { Used in production } & \$ 30,500 \\\hline\end{array}$ Labour: $\begin{array}{|l|r|}\hline \begin{array}{l}\text { Direct labour hours worked during the } \\\text { month }\end{array} & 2,500 \\\hline \text { Direct labour cost incurred } & \$ 26,500 \\\hline \text { Indirect labour costs incurred } & \$ 5,500 \\\hline \begin{array}{l}\text { Manufacturing overhead costs incurred } \\\text { (total) }\end{array} & \$ 18,500 \\\hline\end{array}$ Inventories: $\begin{array}{|l|r|}\hline \text { Raw materials (all direct) March 31 } & \$ 7,500 \\\hline \text { Work in process, March 31 } & \$ 14,500 \\\hline\end{array}$ Work in Process inventory contains $\$ 5,500$ of direct labour cost. -What was the March 1 balance in the Raw Materials inventory?

Y Company reported the following actual costs data for the year: $\begin{array} { | l | r | } \hline \text { Purchase of raw materials (all direct) } & \$ 200,000 \\\hline \text { Direct labour (average hourly rate of } \$ 20 ) & 320,000 \\\hline \text { Marufacturing overhead costs } & 100,000 \\\hline \text { Change in inventories: } & \\\hline \text { Increase in raw materials } & \$ 20,000\\\hline \text { Increase in work in process } & 16,000 \\\hline \text { Increase in finished goods } & 32,000\\\hline\end{array}$ Y Company used a predetermined overhead rate based on direct labour hours.Estimated annual manufacturing overhead cost and direct labour hours were $150,000 and 20,000,respectively. Required: a.What was the pre-determined manufacturing overhead rate? b.Calculate the cost of goods manufactured. c.What was the cost of goods sold before adjusting for any under or overapplied overhead? d.By how much was manufacturing overhead cost under or overapplied? e.Prepare a summary journal entry to close any under or overapplied manufacturing overhead cost to cost of goods sold.Is such an entry appropriate in this situation? Why or why not? f.Analyze the under or overapplied manufacturing overhead costs calculated in part c above into two separate components: amount due to incorrect estimate of the annual manufacturing overhead costs and an amount due to incorrect estimate of the annual direct labour cost.

Dotsero Technology,Inc.,has a job-order costing system.The company uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs.The predetermined overhead rate in Department A is based on machine hours,and the rate in Department B is based on direct materials cost.At the beginning of the most recent year,the company's management made the following estimates for the year: $\begin{array}{|l|r|r|}\hline &{\text { Department }} \\\hline & \mathbf{A} & \mathbf{B} \\\hline \text { Machine-hours } & 70,000 & 19,000 \\\hline \text { Direct labour-hours } & 30,000 & 60,000 \\\hline \text { Direct materials cost } & \$ 195,000 & \$ 282,000 \\\hline \text { Direct labour cost } & \$ 260,000 & \$ 520,000 \\\hline \begin{array}{l}\text { Manufacturing overhead } \\\text { cost }\end{array} & \$ 420,000 & \$ 705,000 \\\hline\end{array}$ Job 243 entered into production on April 1 and was completed on May 12.The company's cost records show the following information about the job: $\begin{array}{|l|r|r|}\hline & {\text { Department }} \\\hline & \mathbf{A} & \mathbf{B} \\\hline \text { Machine-hours } & 250 & 60 \\\hline \text { Direct labour-hours } & 70 & 120 \\\hline \text { Direct materials cost } & \$ 840 & \$ 1,100 \\\hline \text { Direct labour cost } & \$ 610 & \$ 880 \\\hline\end{array}$ At the end of the year,the records of Dotsero showed the following actual cost and operating data for all jobs worked on during the year: $\begin{array}{|l|r|r|}\hline &{\text { Department }} \\\hline & \text { A } & \text { B } \\\hline \text { Machine-hours } & 61,000 & 20,000 \\\hline \text { Direct labour-hours } & 28,000 & 66,000 \\\hline \text { Direct materials cost } & \$ 156,000 & \$ 284,000 \\\hline \begin{array}{l}\text { Manufacturing overhead } \\\text { cost }\end{array} & \$ 385,000 & \$ 705,000 \\\hline\end{array}$ Required: a.)Compute the predetermined overhead rates for Department A and Department B. b.)Compute the total overhead cost applied to Job 243. c.)Compute the amount of underapplied or overapplied overhead in each department at the end of the current year.

Dowan Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.During the year,Dowan Company incurred $156,600 in actual manufacturing overhead cost.The Manufacturing Overhead account showed that overhead was underapplied by $12,600 for the year.If the predetermined overhead rate is $6.00 per direct labour-hour,how many hours did the company work during the year?

The predetermined overhead rate is computed by dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base

The Samuelson Company uses a job-order costing system.The following data were recorded for June: $\begin{array}{|l|r|r|r|}\hline & &{\text { Added During June }} \\\hline \text { Job Number } & \begin{array}{r}\text { Work in Process } \\\text { Inventory, June 1 }\end{array} & \text { Direct Materials } & \text { Direct Labour } \\\hline 475 & \$ 1,000 & \$ 400 & \$ 200 \\\hline 476 & 900 & 600 & 800 \\\hline 477 & 800 & 900 & 1,400 \\\hline 478 & 600 & 1,000 & 1,900 \\\hline\end{array}$ Overhead is charged to production at 70% of the direct materials cost.Jobs 475,477,and 478 have been delivered to the customer.What was Samuelson's Work in Process inventory balance for Job 476 on June 30?

The Milo Company's records for May contain the following information: $\begin{array}{|l|r|}\hline \text { Actual direct labour hours } & 9,000 \text { hours } \\\hline \text { Actual direct labour cost } & \$ 47,000 \\\hline \text { Direct material purchased } & \$ 16,000 \\\hline \text { Direct material used } & \$ 14,000 \\\hline \text { Cost of goods sold } & \$ 100,000 \\\hline \text { Overapplied overhead } & \$ 5,000 \\\hline\end{array}$ Ending inventories: $\begin{array}{|l|r|}\hline \text { Raw materials } & \$ 30,000 \\\hline \text { Work in process } & 50,000 \\\hline \text { Finished goods } & 70,000 \\\hline\end{array}$ The company uses a predetermined overhead rate of $\$ 5.00$ per direct labour hour to apply manufacturing overhead to jobs. -What was the total cost added to Work in Process during May?

For the current year,Paxman Company incurred $150,000 in actual manufacturing overhead cost.The Manufacturing Overhead account showed that overhead was overapplied in the amount of $6,000 for the year.If the predetermined overhead rate was $8.00 per direct labour hour,how many hours were worked during the year?

At the beginning of the year,manufacturing overhead for the year was estimated to be $250,860.At the end of the year,actual direct labor-hours for the year were 20,800 hours,the actual manufacturing overhead for the year was $245,860,and manufacturing overhead for the year was underapplied by $10,820.The predetermined overhead rate is based on direct labour-hours. Required: What must have been the estimated direct labor-hours at the beginning of the year used in setting the predetermined overhead rate?

Summit Company has provided the following inventory balances and manufacturing cost data for the month of January: $\begin{array}{|l|r|r|}\hline \text { Inventories: } & \text { January 1 } & \text { January 31 } \\\hline \text { Direct materials } & \$ 30,000 & \$ 40,000 \\\hline \text { Work in process } & 15,000 & 20,000 \\\hline \text { Finished goods } & 65,000 & 50,000 \\\hline\end{array}$ $\begin{array} { | l | r | } \hline & \text { Month of January } \\\hline \text { Cost of goods manufactured } & \$ 515,000 \\\hline \text { Manufacturing overhead applied } & 150,000 \\\hline \text { Direct materials used } & 190,000 \\\hline \text { Actual manufacturing overhead } & 144,000 \\\hline\end{array}$ Under Summit's job-order costing system, any over- or underapplied overhead is closed out to the Cost of Goods Sold account at the end of the calendar year (that is, December 31) . -How much direct labour cost was incurred during January?

When a job is completed and transferred to the finished goods warehouse the journal entry to record this is debit Cost of Goods Sold and credit Work in Process Inventory.

Simplex Company has the following estimated costs for next year: $\begin{array}{|l|r|}\hline \text { Direct materials } & \$ 15,000 \\\hline \text { Direct labour } & 55,000 \\\hline \text { Sales commissions } & 75,000 \\\hline \text { Salary of production supervisor } & 35,000 \\\hline \text { Indirect materials } & 5,000 \\\hline \text { Advertising expenses } & 11,000 \\\hline \text { Rent on factory equipment } & 16,000 \\\hline\end{array}$ Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year.If overhead is applied on the basis of machine hours,what will be the overhead rate per hour?

Summit Company has provided the following inventory balances and manufacturing cost data for the month of January: $\begin{array}{|l|r|r|}\hline \text { Inventories: } & \text { January 1 } & \text { January 31 } \\\hline \text { Direct materials } & \$ 30,000 & \$ 40,000 \\\hline \text { Work in process } & 15,000 & 20,000 \\\hline \text { Finished goods } & 65,000 & 50,000 \\\hline\end{array}$ $\begin{array} { | l | r | } \hline & \text { Month of January } \\\hline \text { Cost of goods manufactured } & \$ 515,000 \\\hline \text { Manufacturing overhead applied } & 150,000 \\\hline \text { Direct materials used } & 190,000 \\\hline \text { Actual manufacturing overhead } & 144,000 \\\hline\end{array}$ Under Summit's job-order costing system, any over- or underapplied overhead is closed out to the Cost of Goods Sold account at the end of the calendar year (that is, December 31) . -What was the total amount of direct material purchases during January?

A public accounting firm would have cost elements involving direct labour and overhead but not raw materials.