CHAPTER JOB ORDER COSTING MULTIPLE CHOICE Which of the following costing methods of valuation are acceptable in a job order costing system? a b c d Actual Material Cost yes yes no yes ANSWER: Actual Labor Cost no yes yes yes Predetermined Overhead Cost yes no yes yes EASY Which of the following costing systems allows management to quickly recognize materials, labs, and overhead variances and take measures to correct them? a b c d Actual Cost System yes yes no no ANSWER: d Standard Material Cost yes no yes yes d Normal Cost System yes no yes no EASY In a normal cost system, debits to Work in Process Inventory would not be made for a b c d actual overhead applied overhead actual direct material actual direct labor ANSWER: a EASY 5–1 5–2 Chapter Which of the following are drawbacks to applying actual overhead to production? a b c d A delay occurs in assigning costs to jobs or products Fluctuations in quantities produced during a period could cause varying per-unit charges for fixed overhead Seasonality of overhead costs may cause distortions in job or product costs All of the above ANSWER: b c d EASY Job Order Costing homogeneous products and large quantities homogeneous products and small quantities heterogeneous products and large quantities heterogeneous products and small quantities ANSWER: d Process Costing heterogeneous products and small quantities heterogeneous products and large quantities homogeneous products and small quantities homogeneous products and large quantities EASY A credit to Work in Process Inventory represents a b c d work still in process raw material put into production the application of overhead to production the transfer of completed items to Finished Goods Inventory ANSWER: d Job order costing and process costing have which of the following characteristics? a Job Order Costing d EASY Additional accounts that comprise the balance of a single general account is a a b c d worksheet journal subsidiary ledger book of original entry ANSWER: c EASY Chapter Job Order Costing In a job order costing system, the dollar amount of the entry that debits Finished Goods Inventory and credits Work in Process Inventory is the sum of the costs charged to all jobs a b c d started in process during the period in process during the period completed and sold during the period completed during the period ANSWER: EASY cost of goods manufactured in the year ending Work in Process Inventory total manufacturing costs to account for cost of goods available for sale ANSWER: c EASY Which of the following would be least likely to be supported by subsidiary accounts or ledgers in a company that employs a job order costing system? a b c d Work in Process Inventory Raw Material Inventory Accounts Payable Supplies Inventory ANSWER: 11 d Total manufacturing costs for the year plus beginning Work in Process Inventory cost equals a b c d 10 5–3 d EASY A journal entry includes a debit to Work in Process Inventory and a credit to Raw Material Inventory The explanation for this would be that a b c d indirect material was placed into production raw material was purchased on account direct material was placed into production direct labor was utilized for production ANSWER: c EASY 5–4 12 Chapter The source document that records the amount of raw material that has been requested by production is the a b c d job order cost sheet bill of lading interoffice memo material requisition ANSWER: 13 EASY job number quantity required unit cost purchase order number ANSWER: d EASY Which of the following statements about job order cost sheets is true? a b c d All job order cost sheets serve as the general ledger control account for Work in Process Inventory Job order cost sheets can serve as subsidiary ledger information for both Work in Process Inventory and Finished Goods Inventory If material requisition forms are used, job order cost sheets not need to be maintained Job order cost sheets show costs for direct material and direct labor, but not for manufacturing overhead since it is an applied amount ANSWER: 15 d A material requisition form should show all of the following information except a b c d 14 Job Order Costing b EASY Clyde Jenkins is an auditor for the General Accounting Office Clyde is investigating invoices sent by Proper Paper Products charging the Army $30 per roll for toilet paper Proper Paper uses a job order costing system Where should Clyde look to find total production costs related to the toilet paper? a b c d material requisition form bill of materials sales invoice job order cost sheet ANSWER: d EASY Chapter 16 Job Order Costing The primary accounting document in a job order costing system is a(n) a b c d bill of materials job order cost sheet employee time sheet materials requisition ANSWER: 17 EASY Finished Goods Inventory Raw Material Inventory Work in Process Inventory Supplies Inventory ANSWER: c EASY The provides management with an historical summation of total costs for a given product a b c d job order cost sheet employee time sheet material requisition form bill of lading ANSWER: 19 b The cost sheets for incomplete jobs at the end of the period comprise the subsidiary ledger for a b c d 18 5–5 a EASY Which of the following journal entries records the accrual of the cost of indirect labor used in production? a b c d debit Work in Process Inventory, credit Wages Payable debit Work in Process Inventory, credit Manufacturing Overhead debit Manufacturing Overhead, credit Work in Process Inventory debit Manufacturing Overhead, credit Wages Payable ANSWER: d EASY 5–6 20 Chapter In job order costing, payroll taxes paid by the employer for factory employees are commonly accounted for as a b c d direct labor cost manufacturing overhead cost indirect labor cost administrative cost ANSWER: 21 EASY the insurance company sent the company a refund of its policy premium overhead for insurance was applied to production insurance for production equipment expired insurance was paid on production equipment ANSWER: c EASY The journal entry to apply overhead to production includes a credit to Manufacturing Overhead control and a debit to a b c d Finished Goods Inventory Work in Process Inventory Cost of Goods Sold Raw Material Inventory ANSWER: 23 b The logical explanation for an entry that includes a debit to Manufacturing Overhead control and a credit to Prepaid Insurance is a b c d 22 Job Order Costing b EASY Production overhead does not include the costs of a b c d factory depreciation and supplies factory employees’ cafeteria departments production line workers the maintenance department for the factory ANSWER: c EASY Chapter 24 Job Order Costing In a job order costing system, the use of indirect material would usually be reflected in the general ledger as an increase in a b c d stores control work in process control manufacturing overhead applied manufacturing overhead control ANSWER: 25 EASY rates are applied within a range of 35 to 60 percent of direct labor is performed at the beginning of the period rates fluctuate during the period with changes in production quantities rates are calculated by dividing budgeted overhead by a budgeted quantity of some cost driver ANSWER: d EASY A credit to the Manufacturing Overhead control account represents the a b c d actual cost of overhead incurred actual cost of overhead paid this period amount of overhead applied to production amount of indirect material and labor used during the period ANSWER: 27 d Manufacturing overhead application a b c d 26 5–7 c EASY The journal entry to record the incurrence and payment of overhead costs for factory insurance requires a debit to a b c d Cash and a credit to Manufacturing Overhead Manufacturing Overhead and a credit to Accounts Payable Manufacturing Overhead and a credit to Cash Work in Process Inventory and a credit to Cash ANSWER: c EASY 5–8 28 Chapter The source document that records the amount of time an employee worked on a job and his/her pay rate is the a b c d job order cost sheet employee time sheet interoffice memo labor requisition form ANSWER: 29 EASY at the end of a period as jobs are completed at the end of a period or as jobs are completed, whichever is earlier at the end of a period or as jobs are completed, whichever is later ANSWER: c EASY In a job order costing system, the subsidiary ledger for Finished Goods Inventory is comprised of a b c d all job order cost sheets job order cost sheets for all uncompleted jobs job order cost sheets for all completed jobs not yet sold job order cost sheets for all ordered, uncompleted, and completed jobs ANSWER: 31 b Overhead is applied to jobs in a job order costing system a b c d 30 Job Order Costing c EASY Underapplied overhead resulting from unanticipated and immaterial price increases for overhead items should be written off by a b c d decreasing Cost of Goods Sold increasing Cost of Goods Sold decreasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods Inventory increasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods Inventory ANSWER: b EASY Chapter 32 Job Order Costing Overapplied overhead would result if a b c d the plant were operated at less than normal capacity overhead costs incurred were less than costs charged to production overhead costs incurred were unreasonably small in relation to units produced overhead costs incurred were greater than costs charged to production ANSWER: 33 EASY transfer of completed items to Finished Goods Inventory costs of items sold selling price of items sold the cost of goods manufactured ANSWER: b EASY In a perpetual inventory system, a transaction that requires two journal entries (or one compound entry) is needed when a b c d raw materials are purchased on account goods are sold for either cash or on account goods are finished and transferred out of Work in Process Inventory overhead is applied to Work in Process Inventory ANSWER: 35 b Debits to Cost of Goods Sold typically represent the a b c d 34 5–9 b EASY Which of the following organizations would be most likely to use a job order costing system? a b c d the loan department of a bank the check clearing department of a bank a manufacturer of processed cheese food a manufacturer of video cassette tapes ANSWER: a MEDIUM 5–10 36 Chapter Which of the following organizations would most likely not use a job order costing system? a b c d Avondale Shipbuilders Pickle and Weymann, Attorneys-at-Law Atlantic City Saltwater Taffy Century City Construction Company ANSWER: 37 EASY standards cannot be used an average cost per unit within a job cannot be computed costs are accumulated by departments and averaged among all jobs overhead is typically assigned to jobs on the basis of some cost driver ANSWER: d EASY When job order costing is used, the primary focal point of cost accumulation is the a b c d department supervisor item job ANSWER: 39 c In a job order costing system, a b c d 38 Job Order Costing d EASY What is the best cost accumulation procedure to use when many batches, each differing as to product specifications, are produced? a b c d job order process actual standard ANSWER: a EASY 5–28 Chapter Job Order Costing Use the following information for questions 7–10 Glass Co uses a job order costing system and develops its predetermined overhead rate based on machine hours The company has two jobs in process at the end of the cycle, Jobs #17 and #19 Budgeted overhead Budgeted machine hours Raw material Labor cost $100,300 85,000 $ 63,000 $ 50,000 What is the overhead application rate? ANSWER: $100,300 ÷ 85,000= $1.18 per MH EASY What amount of overhead is charged to Jobs #17 and #19? Machine hours are split between Jobs #17 and #19—65 percent and 35 percent, respectively Actual machine hours equal budgeted machine hours ANSWER: OH Applied = MH Cost × POHR #17 85,000 × 65%= 55,250 × $1.18 = $65,195 #19 85,000 × 35%= 29,750 × $1.18 = $35,105 EASY Fifty-four percent of raw material belongs to Job #17 and 38 percent belongs to Job #19, and the balance is considered indirect material What amount of raw material used was allocated to overhead as indirect material? ANSWER: 54% + 38% = 92%; this means that 8% is indirect or $5,040 (.08 × $63,000) EASY 10 Labor cost was split 25 percent and 70 percent, respectively, between Jobs #17 and #19 for direct labor The remainder was indirect labor cost What are the total costs of Jobs #17 and #19? ANSWER: DM MEDIUM $ 34,020 DL MOH Job #17 $23,940 12,500 65,195 $111,715 Job #19 35,000 35,105 $94,045 Chapter 11 Job Order Costing 5–29 Can standard costing be used in job order costing? If so, what conditions must exist? If not, explain why ANSWER: Yes Firms that use job order costing can also base their costs on standards Each job must be fairly similar to each other job Standards may be used for the prices of material and labor if the jobs use basically the same kind of material and labor If jobs are homogeneous enough, standards can also be used for materials and labor quantities Some companies may choose to only use price standards, others only quantity standards, and others may use both price and quantity standards MEDIUM 5–30 12 Chapter Job Order Costing ABC Company manufactures custom-built conveyor systems for factory and commercial operations Lisa French is the cost accountant for ABC and she is in the process of educating a new employee, Julie English, about the job order costing system that ABC uses (The system is based on normal costs; overhead is applied based on direct labor cost and rounded to the next whole dollar.) Lisa gathers the following job order cost records for May: Job No Materials 667 669 670 671 672 Direct Labor $ 5,901 18,312 406 51,405 9,615 Direct Applied OH $1,730 1,810 500 9,500 550 Total Cost $ 1,990 2,082 575 10,925 633 $ 9,621 22,204 1,481 71,830 10,798 To explain the missing job number, Lisa informed Julie that Job #668 had been completed in April She also told her that Job #667 was the only job in process at the beginning of May At that time, the job had been assigned $4,300 for direct material and $900 for direct labor At the end of May, Job #671 had not been completed; all others had Lisa asked Julie several questions to determine whether she understood the job order system Required: Help Julie answer the following questions: a What is the predetermined overhead rate used by ABC Company? b What was the total cost of beginning Work in Process inventory? c What was total prime cost incurred for the month of May? d What was cost of goods manufactured for May? Chapter Job Order Costing 5–31 ANSWER: a Use any job started in May: Rate = MOH DL COST b DM DL FOH c Prime Cost =DM + DL JOB $670 $575 = 115%/DL Cost $500 $4,300 900 1,035 ($900 × 115%) $6,235 DM = $85,639 – 4,300 = $81,339 DL = 14,090 – 900 = 13,190 $94,529 d EASY COGM = $9,621 + 22,204 + 1,481 + 10,798 = $44,104 5–32 13 Chapter Job Order Costing James Co uses a job order costing system and has the following information for the first week of June 2002: Direct labor and direct materials used: Job No 498 506 507 508 509 511 512 Total Direct Material $1,500 960 415 345 652 308 835 $5,015 Direct Labor Hours 116 16 18 42 24 10 30 256 The direct labor wage rate is $4 per hour The overhead rate is $5 per direct labor hour Actual overhead costs for the week, $1,480 Jobs completed: Nos 498, 506, and 509 The factory had no work in process at the beginning of the week Required: a Prepare a summary that will show the total cost assigned to each job b Compute the amount of overhead over- or underapplied during the week c Calculate the cost of the work in process at the end of the week Chapter Job Order Costing 5–33 ANSWER: a Job No 498 506 507 508 509 511 512 b Actual MOH Applied MOH Underapplied $1,480 1,280 $ 200 c JOB 507 508 511 512 Ending WIP $ 577 723 398 1,105 $2,803 EASY DM $1,500 960 415 345 652 308 835 $5,015 DL $ 464 64 72 168 96 40 120 $1,024 OH $ 580 80 90 210 120 50 150 $1,280 Total $2,544 1,104 577 723 868 398 1,105 $7,319 5–34 14 Chapter Job Order Costing The Watson Tool Corporation, which commenced operations on August 1, employs a job order costing system Overhead is charged at a normal rate of $2.50 per direct labor hour The actual operations for the month of August are summarized as follows: a Purchases of raw material, 25,000 pieces @ $1.20/piece b Material and labor costs charged to production: Job No 101 102 103 104 105 c Units 10,000 8,800 16,000 8,000 20,000 Material $4,000 3,600 7,000 3,200 8,000 Direct labor cost $6,000 5,400 9,000 4,800 3,600 Direct labor hours 3,000 2,700 4,500 2,400 1,800 Actual overhead costs incurred: Variable Fixed $18,500 15,000 d Completed jobs: 101, 102, 103, and 104 e Sales—$105,000 All units produced on Jobs 101, 102, and 103 were sold Required: Compute the following balances on August 31: a Material inventory b Work in process inventory c Finished goods inventory d Cost of goods sold e Under- or overapplied overhead Chapter Job Order Costing ANSWER: a $30,000 – ($4,000 + $3,600 + $7,000 + $3,200 + $8,000) = $4,200 b Job #105 $8,000 + $3,600 + ($1,800 × 2.50) = $16,100 c Job #104 $3,200 + $4,800 + ($2,400 × 2.50) = $14,000 d Job #101 $4,000 + $6,000 + ($3,000 × 2.50) = $17,500 102 $3,600 + $5,400 + ($2,700 × 2.50) = 15,750 103 $7,000 + $9,000 + ($4,500 × 2.50) 27,250 $60,500 e Applied 14,400 × $2.50 = $36,000 Actual 33,500 Overapplied $ 2,500 MEDIUM 5–35 5–36 15 Chapter Job Order Costing You are asked to bring the following incomplete accounts of Ticker Printing Inc up to date through January 31, 2001 Consider the data that appear in the T-accounts as well as additional information given in items (a) through (i) Ticker’s job order costing system has two direct cost categories (direct material and direct manufacturing labor) and one indirect cost pool (manufacturing overhead, which is allocated using direct manufacturing labor costs) Materials Inventory Control 12/31/2000 Balance 15,000 Work in Process Inventory Control Wages Payable Control 1/31/2001 Balance 3,000 Manufacturing Department Overhead Control January 2001 Charges 57,000 Manufacturing Overhead Control Finished Goods Inventory Control Cost of Goods Sold 12/31/2000 Balance 20,000 Additional Information: a Manufacturing department overhead is allocated using a budgeted rate set every December Management forecasts next year’s overhead and next year’s direct manufacturing labor costs The budget for 2001 is $400,000 of direct manufacturing labor and $600,000 of manufacturing overhead b The only job unfinished on January 31, 2001 is No 419, on which direct manufacturing labor costs are $2,000 (125 direct manufacturing labor hours) and direct material costs are $8,000 c Total material placed into production during January is $90,000 d Cost of goods completed during January is $180,000 e Material inventory as of January 31, 2001 is $20,000 f Finished goods inventory as of January 31, 2001 is $15,000 g All plant workers earn the same wage rate Direct manufacturing labor hours for January totals 2,500 Other labor and supervision totals $10,000 h The gross plant payroll on January paydays totals $52,000 Ignore withholdings All personnel are paid on a weekly basis i All “actual” manufacturing department overhead incurred during January has already been posted Chapter Job Order Costing 5–37 Required: a Material purchased during January b Cost of Goods Sold during January c Direct Manufacturing Labor Costs incurred during January d Manufacturing Overhead Allocated during January e Balance, Wages Payable Control, December 31, 2000 f Balance, Work in Process Inventory Control, January 31, 2001 g Balance, Work in Process Inventory Control, December 31, 2000 h Balance, Finished Goods Inventory Control, January 31, 2001 i Manufacturing Overhead underapplied or overapplied for January ANSWER a $15,000 + Purchases – $20,000 = $90,000 Purchases = $95,000 b $20,000 + $180,000 – $15,000 = $185,000 c DL = $2,000 = $16/HR × 2,500 HRS = $40,000 125 d $600,000 = 150% DL cost × $40,000 = $60,000 $400,000 e BEGIN + $50,000 – $52,000 = $3,000 f $2,000 + ($2,000 × 150%) + $8,000 = $13,000 g BEGIN + $90,000 + $40,000 + $60,000 – $180,000 = $13,000 h $20,000 + $180,000 – $185,000 = END = $15,000 i APPLIED $60,000 ACTUAL 57,000 $ 3,000 overapplied DIFFICULT BEGIN = $5,000 BEGIN = $3,000 5–38 16 Chapter Job Order Costing The Smith Company manufactures special purpose machines to order On 1/1/2001 there were two jobs in process, 405 and 406 The following costs were applied to them in 2000: Job No Direct material Direct labor Overhead Total 405 $ 5,000 4,000 4,400 $13,400 406 $ 8,000 3,000 3,300 $14,300 During January of 2001, the following transactions took place: * * Raw material costing $40,000 was purchased on account Jobs #407, 408, and 409 were started and the following costs were applied to them: Direct materials Direct labor * * * * * * * 407 $3,000 5,000 JOB 408 $10,000 6,000 409 $ 7,000 4,000 Job $405 and Job #406 were completed after incurring additional direct labor costs of $2,000 and $4,000, respectively Wages paid to production employees during January totaled $25,000 Depreciation for the month of January totaled $10,000 Utilities bills in the amount of $10,000 were paid for December 2000 operations Utilities bills totaling $12,000 were received for January operations Supplies costing $2,000 were used Miscellaneous overhead expenses totaled $24,000 for January Actual overhead is applied to individual jobs at the end of each month using a rate based on actual direct labor costs Required: a Determine the January 2001 overhead rate b Determine the cost of each job c Prepare a statement of cost of goods manufactured Chapter Job Order Costing 5–39 ANSWER: a MOH $4,000 + $10,000 + $12,000 + $2,000 + $24,000 = $52,000 = $2.4762/dl cost $21,000 dl cost b DM DC MOH BB c Beg WIP + DM + DL + MOH – End WIP MEDIUM JOB #405 — $ 2,000 4,952 13,400 $20,352 JOB #406 — $ 4,000 9,905 14,300 $28,205 $27,700 20,000 21,000 52,000 72,143 $48,557 JOB #407 $ 3,000 5,000 12,381 — $20,381 JOB #408 $10,000 6,000 14,857 — $30,857 JOB #409 $ 1,000 4,000 9,905 — $20,905 = $ 20,000 = 21,000 = 52,000 = 27,700 $120,700 5–40 17 Chapter Job Order Costing Fred Company employs a job order costing system Only three jobs—Job #105, Job #106, and Job #107—were worked on during November and December Job #105 was completed December 10; the other two jobs were still in production on December 31, the end of the company’s operating year Job cost sheets on the three jobs follow: Job #105 Job Cost Sheet Job #106 Job #107 November costs incurred: Direct material Direct labor Manufacturing overhead $16,500 13,000 20,800 $ 9,300 7,000 11,200 December cost incurred: Direct materials Direct labor Manufacturing overhead — 4,000 ? 8,200 6,000 ? $ — — — 21,300 10,000 ? The following additional information is available: a Manufacturing overhead is assigned to jobs on the basis of direct labor cost b Balances in the inventory accounts at November 30 were as follows: Raw Material Work in Process Finished Goods $40,000 ? 85,000 Chapter Job Order Costing 5–41 Required: a Prepare T-accounts for Raw Material, Work in Process Inventory, Finished Goods Inventory, and Manufacturing Overhead Control Enter the November 30 inventory balances given previously; in the case of Work in Process Inventory, compute the November 30 balance and enter it into the Work in Process Inventory T-account b Prepare journal entries for December as follows: Prepare an entry to record the issue of materials into production and post the entry to appropriate T-accounts (In the case of direct material, it is not necessary to make a separate entry for each job.) Indirect materials used during December totaled $4,000 Prepare an entry to record the incurrence of labor cost and post the entry to appropriate T-accounts (In the case of direct labor, it is not necessary to make a separate entry for each job.) Indirect labor cost totaled $8,000 for December Prepare an entry to record the incurrence of $19,000 in various actual manufacturing overhead costs for December (credit Accounts Payable) c What apparent predetermined overhead rate does the company use to assign overhead cost to jobs? Using this rate, prepare a journal entry to record the application of overhead cost to jobs for December (it is not necessary to make a separate entry for each job) Post this entry to appropriate T-accounts d As stated earlier, Job #105 was completed during December Prepare a journal entry to show the transfer of this job off of the production line and into the finished good warehouse Post the entry to appropriate T-accounts e Determine the balance at December 31 in the Work in Process inventory account How much of this balance consists of the cost of Job #106? Job #107? 5–42 Chapter Job Order Costing ANSWER: a RM Inventory BB 40,000 31,500 b c WIP Inventory BB 77,800 29,500 60,700 20,000 32,000 98,600 WIP INV MOH RM INV WIP INV MOH CONTROL PAYROLL MOH CONTROL A/P e 29,500 4,000 33,500 20,000 8,000 28,000 19,000 19,000 160%/DL COST × $20,000 = $32,000 WIP INV 32,000 MOH CONTROL d FG Inventory BB 85,000 60,700 FG INV 60,700 WIP INV 106 = $51,300 WIP INV BB DM DC FOH MEDIUM 32,000 60,700 98,600 < 107 = $47,300 JOB #105 $50,300 4,000 6,400 $60,700 JOB #106 $27,500 8,200 6,000 9,600 $51,300 JOB #107 — $21,300 10,000 16,000 $47,300 MOH Control 4,000 8,000 32,000 19,000 ... identified with specific costs during the production process MEDIUM Discuss actual costing, normal costing, and standard costing ANSWER: Actual costing, normal costing, or standard costing may be used... direct labor cost and a predetermined overhead application rate to cost products Standard costing establishes “norms” for direct material and direct labor quantities and/ or costs and uses a predetermined... order costing or process costing system Actual costing assigns the actual cost of all direct material, direct labor, and overhead to the units produced Normal costing uses actual direct material and