CHAPTER12:INTRODUCTIONTOPRODUCTCOSTING

MultipleChoice
b1.Thethreemajorcomponentsofmanufacturingcostare
a.materials,workinprocess,andfinishedgoods.
b.materials,labor,andmanufacturingoverhead.
c.materials,labor,andfinishedgoods.
d.materials,labor,andproductioncosts.
a2.ApredeterminedoverheadrateCANNOTbeused
a.ifacompanydoesnotbudgetitsoverheadcosts.
b.byacompanythatusesjobordercosting.
c.inamultipleproductcompany.
d.byahighlyautomatedcompanywherelaborisaminorpartofproductcost.
a3.Assigningoverheadtojobsusingapredeterminedoverheadrateiscalled
a.applying.
b.budgeting.
c.productcosting.
d.jobordercosting.
d4.Predeterminedoverheadratesarebasedonactivitymeasuredby
a.numberofjobs.
b.unitsofsales.
c.unitsofproduction.
d.unitsofaninputfactor.
b5.Absorptioncostingisrequired
a.forfinancialaccountingpurposesonly.
b.forfinancialaccountingandtaxpurposes.
c.forfinancialandmanagerialaccountingpurposes.
d.formanagerialaccountingpurposesonly.
a6.Bothactualandnormalcosting
a.includematerial,labor,andoverheadinproductcost.
b.requirepredeterminedoverheadrates.
c.arelikelytoresultinoverorunderabsorptionofoverhead.
d.willshowafavorablevolumevarianceifproductionisgreaterthanbudgeted.
b7.Anadvantageofnormalcostingoveractualcostingisthat
a.thecompanycancomputetheexactcostofaunitofproduct.
b.unitcostsarenotaffectedbymonthlyfluctuationsinproductionactivity.
c.controloverfixedcostsisimproved.
d.thecompanyneednotforecastthelevelofproductiveactivityfortheyear.
d8.Anunfavorablevolumevariancesignifiesthat
a.costcontrolwaspoor.
b.saleswerelessthanbudgeted.
c.productionwaslessthansales.
d.productionwaslessthanthelevelusedtosetthefixedoverheadapplicationrate.
b9.Theprincipalreasonforusingmorethanoneratetoapplyoverheadis
a.tokeeptheindividualrateslow.
b.thatoverheadcostsaredrivenbymorethanoneactivity.
c.thatsuchratesrecognizetheseasonalnatureofsomecosts.
d.tosimplifyrecordkeeping.
a10.Activitybasedoverheadratesaremoreusefulthanasingleplantwiderateif
a.overheadcostsaredrivenbyseveralactivities.
b.directlaborcostvariessignificantlyfromdepartmenttodepartment.
c.allproductsrequireaboutthesameamountsofallactivities.
d.manufacturingoverheadcostsarenearlyallfixed.
c11.Actualcostingandnormalcostingdifferintreating
a.materialscost.
b.directlaborcost.
c.overheadcost.
d.alloftheabove.
d12.WhichcompanyisLEASTlikelytousejobordercosting?
a.Furnituremaker.
b.Printer.
c.Constructioncompany.
d.Flourmaker.
d13.Acostpoolis
a.allcostsofaproductiondepartment.
b.thematerialandlaborcostusedonaparticularjob.
c.overappliedorunderappliedoverheadcosts.
d.agroupofoverheadcostsdrivenbythesameactivity.
c14.Eachgroupofoverheadcostsshouldbeappliedbasedon
a.directlaborhoursorcost.
b.unitsproduced.
c.whateveractivitydrivesthosespecificoverheadcosts.
d.machinetime.

70
70

d15.APOORreasontouseactivitybasedoverheadratesisthat
a.somedepartmentsarelaborintensive,somearemachineintensive.
b.significantamountsofoverheadaredrivenbydifferentfactors.
c.ratescalculatedforsomedepartmentsaremuchhigherthanforotherdepartments.
d.alljobsrequireaboutthesameamountsofcostdrivingactivities.
a16.XYZhadan$8,000unfavorablevolumevariance,a$11,500unfavorablevariableoverheadspendingvariance,
and$1,500totalunderappliedoverhead.Thefixedoverheadbudgetvariancewas
a.$18,000favorable.
b.$21,000favorable.
c.$17,500unfavorable.
d.$21,000unfavorable.
d17.Machinehoursusedtosetthepredeterminedoverheadratewere25,000,actualhourswere24,000,and
overheadappliedwas$60,000.Budgetedoverheadfortheyearwas
a.$57,600.
b.$59,000.
c.$60,000.
d.$62,500.
c18.Thethreeinventoryaccountsinamanufacturingcompanyare
a.Materials,Labor,andManufacturingOverhead.
b.Materials,Labor,andFinishedGoods.
c.Materials,WorkinProcess,andFinishedGoods.
d.Materials,FinishedGoods,andInventorySold.
a19.Apredeterminedoverheadrateiscalculatedusing
a.budgetedoverheadcostandbudgetedactivity.
b.actualoverheadcostandactualactivity.
c.budgetedoverheadcostandbudgeteddirectlaborhours.
d.budgetedoverheadcostandbudgeteddirectlaborcost.
d20.Undernormalcosting,incomecanbe
a.lowerthanunderactualcosting.
b.higherthanunderactualcosting.
c.thesameasunderactualcosting.
d.anyoftheabove.
a21.Thenumeratorincomputingapredeterminedoverheadrateis
a.budgetedmanufacturingoverheadcost.
b.actualmanufacturingoverheadcost.
c.budgetedactivity.
d.fixedmanufacturingoverhead.
c22.Thedenominatorincalculatingapredeterminedoverheadrateis
a.budgetedmanufacturingoverheadcost.
b.actualmanufacturingoverheadcost.
c.budgetedactivity.
d.actualactivity.
c23.Inafactoryoperatedlargelybyrobots,thebestbasisforapplyingoverheadisprobably
a.directlaborhours.
b.directlaborcost.
c.machinehours.
d.rawmaterialuse.
a24.Spoonerappliesoverheadbasedondirectlaborcost.Ithadbudgetedmanufacturingoverheadof$50,000and
budgeteddirectlaborof$25,000.Actualoverheadwas$52,500,actuallaborcostwas$27,000.Overhead
was
a.overappliedby$1,500.
b.overappliedby$2,000.
c.overappliedby$2,500.
d.underappliedby$2,000.
c25.Haywardappliesoverheadat$5permachinehour.DuringMarchitworked10,000hoursandoverapplied
overheadby$3,000.Actualoverheadwas
a.$53,000.
b.$50,000.
c.$47,000.
d.noneoftheabove.
b26.Auroraappliesoverheadat$9perdirectlaborhourofwhich$4isvariableoverhead.Budgeteddirect
laborhourswere80,000.Budgetedfixedoverheadwas
a.$320,000
b.$400,000.
c.$720,000.
d.noneoftheabove.
a27.Whichisagoodreasontouseseparateoverheadrates?
a.Somedepartmentsarelaborintensive,somearemachineintensive.
b.Laborratesvaryconsiderablyamongdepartments.
c.Theresultingoverheadratesareallaboutthesame.
d.Alljobsrequireaboutthesamepercentageoftimeinalldepartments.
c28.Incontrasttoacompanythatusesasingleoverheadrate,onethatusesactivitybasedcosting
a.willhavehigherproductcoststhanoneusingasingleoverheadrate.
b.cannotcomputebudgetvariances.
c.willincuradditionalcostsforrecordkeeping.

71
71

d.musthaveapreponderanceoffixedoverheadcosts.
a29.Whichofthefollowingisasignofpoorcostcontrol?
a.Ahighunfavorablebudgetvariance.
b.Ahighunfavorablevolumevariance.
c.Highunderappliedoverhead.
d.Highoverappliedoverhead.

c30.HoytCompanyappliesoverheadat$4perdirectlaborhour.InMarchHoytincurredoverheadof$96,000.
Underappliedoverheadwas$4,000.HowmanydirectlaborhoursdidHoytwork?
a.25,000
b.24,000
c.23,000
d.22,000
d31.Acompanyusingactivitybasedoverheadrates
a.willusuallyhavehigherbudgetvariancesthanoneusingasinglerate.
b.willusuallyhavehighervolumevariancesthanoneusingasinglerate.
c.cannotcomputefixedandvariablecomponentsofoverheadcost.
d.shouldhavebetterinformationforplanningandcontrolthanoneusingasinglerate.
a32.Dalyhada$9,000favorablevolumevariance,a$7,500unfavorablevariableoverheadspendingvariance,and
$6,000totaloverappliedoverhead.Thefixedoverheadbudgetvariancewas
a.$4,500favorable.
b.$8,000favorable.
c.$4,500unfavorable.
d.$8,000unfavorable.
d33.Acmehada$6,000favorablefixedoverheadbudgetvariance,a$2,500unfavorablevariableoverhead
spendingvariance,and$1,000totaloverappliedoverhead.Thevolumevariancewas
a.$4,500overapplied.
b.$4,500underapplied.
c.$2,500overapplied.
d.$2,500underapplied.
b34.Waldorfhada$10,000unfavorablefixedoverheadbudgetvariance,a$6,000unfavorablevariableoverhead
spendingvariance,anda$2,000favorablevolumevariance.Thetotaloverheadwas
a.$14,000overapplied.
b.$14,000underapplied.
c.$18,000overapplied.
d.$18,000underapplied.
a35.Baconhada$18,000unfavorablevolumevariance,a$5,000unfavorablefixedoverheadbudgetvariance,and
$12,000totalunderappliedoverhead.Thevariableoverheadspendingvariancewas
a.$11,000favorable.
b.$1,000favorable.
c.$11,000unfavorable.
d.$23,000unfavorable.
d36.GonzalezCompanyusestheequation$520,000+$2perdirectlaborhourtobudgetmanufacturingoverhead.
Gonzalezhasbudgeted150,000directlaborhoursfortheyear.Actualresultswere150,000directlabor
hoursand$817,500totalmanufacturingoverhead.Thetotaloverheadappliedfortheyearis
a.$300,000.
b.$520,000.
c.$817,500.
d.$820,000.
a37.GonzalezCompanyusestheequation$520,000+$2perdirectlaborhourtobudgetmanufacturingoverhead.
Gonzalezhasbudgeted150,000directlaborhoursfortheyear.Actualresultswere150,000directlabor
hoursand$817,500totalmanufacturingoverhead.Thetotaloverheadvariancefortheyearis
a.$2,500favorable.
b.$12,500favorable.
c.$2,500unfavorable.
d.someothernumber.
c38.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhourtobudgetmanufacturingoverhead.
Bondshasbudgeted125,000directlaborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.Thetotaloverheadvariancefortheyear
is
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
a39.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhourtobudgetmanufacturingoverhead.
Bondshasbudgeted125,000directlaborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.Thevariableoverheadspendingvariance
fortheyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
b40.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhourtobudgetmanufacturingoverhead.
Bondshasbudgeted125,000directlaborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.Thefixedoverheadbudgetvariancefor

72
72

theyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
d41.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhourtobudgetmanufacturingoverhead.
Bondshasbudgeted125,000directlaborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.Thefixedoverheadvolumevariancefor
theyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
a42.Machinehoursusedtosetthepredeterminedoverheadratewere80,000,actualhourswere90,000,and
overheadappliedwas$117,000.Budgetedoverheadfortheyearwas
a.$104,000.
b.$117,000.
c.$131,625.
d.someothernumber.
a43.CookeCompanyusestheequation$450,000+$1.50perdirectlaborhourtobudgetmanufacturingoverhead.
Cookehasbudgeted150,000directlaborhoursfortheyear.Actualresultswere156,000directlabor
hoursand$697,500totalmanufacturingoverhead.Thetotaloverheadvariancefortheyearis
a.$4,500favorable.
b.$18,000favorable.
c.$4,500unfavorable.
d.$18,000unfavorable.
b44.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhourtobudgetmanufacturingoverhead.
Antayahasbudgeted75,000directlaborhoursfortheyear.Actualresultswere81,000directlabor
hours,$388,000fixedoverhead,and$98,600variableoverhead.Thetotaloverheadvariancefortheyear
is
a.$2,700.
b.$10,700.
c.$22,000.
d.$30,000.
a45.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhourtobudgetmanufacturingoverhead.
Antayahasbudgeted75,000directlaborhoursfortheyear.Actualresultswere81,000directlabor
hours,$388,000fixedoverhead,and$98,600variableoverhead.Thevariableoverheadspendingvariance
fortheyearis
a.$2,700.
b.$10,700.
c.$22,000.
d.$30,000.
c46.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhourtobudgetmanufacturingoverhead.
Antayahasbudgeted75,000directlaborhoursfortheyear.Actualresultswere81,000directlabor
hours,$388,000fixedoverhead,and$98,600variableoverhead.Thefixedoverheadbudgetvarianceforthe
yearis
a.$2,700.
b.$10,700.
c.$22,000.
d.$30,000.
d47.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhourtobudgetmanufacturingoverhead.
Antayahasbudgeted75,000directlaborhoursfortheyear.Actualresultswere81,000directlabor
hours,$388,000fixedoverhead,and$98,600variableoverhead.Thefixedoverheadvolumevarianceforthe
yearis
a.$1,400.
b.$13,000.
c.$15,600.
d.$30,000.
a48.Machinehoursusedtosetthepredeterminedoverheadratewere68,000,actualhourswere64,000,and
budgetedoverheadwas$142,800.Overheadappliedfortheyearwas
a.$134,400.
b.$136,500.
c.$142,800.
d.$151,725.
a49.Rhodahada$2,000favorablevolumevariance,a$7,000unfavorablevariableoverheadspendingvariance,
and$3,000totalunderappliedoverhead.Thefixedoverheadbudgetvariancewas
a.$1,000favorable.
b.$8,000favorable.
c.$2,000unfavorable.
d.$8,000unfavorable.
b50.KatrinaInc.hada$30,000favorablefixedoverheadbudgetvariance,a$44,000unfavorablevariable
overheadspendingvariance,and$44,000totalunderappliedoverhead.Thevolumevariancewas
a.$30,000overapplied.
b.$30,000underapplied.
c.$58,000overapplied.
d.$58,000underapplied.
TrueFalse

73
73

T1.Amajoradvantageofnormalcostingoveractualcostingisthatitsmoothesoutfluctuationsinunit
costs.
F2.Normalcostingincomesarelessthanactualcostingincomes.
T3.Thetermoverappliedoverheadisnotusedwithactualcosting.
T4.Aseasonalbusinessusingnormalcostingexpectshighoverappliedandunderappliedoverheadduring
individualmonthsoftheyear.
F5.Underappliedoverheadindicatesinefficientoperations.
F6.Activitybasedoverheadratesgivehighercoststhandoesasingle,plantwiderate.
F7.Acostpoolconsistsofallofthecostsofaparticulardepartment.
T8.AbsorptioncostingisrequiredbyGAAPforexternalfinancialreporting.
F9.Variablecostingandfullcostingarethesamething.
T10.Overheadvariancesdonotexistwhenactualcostingisused.
Problems
1.

GagneCompanyusesthefollowingequationtobudgetmanufacturingoverhead.
Manufacturingoverhead=$600,000+$2perdirectlaborhour

Gagnehasbudgeted300,000directlaborhoursfortheyear.Actualresultswere320,000directlaborhours
and$1,249,000totalmanufacturingoverhead.

a.
Findthepredeterminedoverheadrate.
b.

Findtotaloverheadappliedfortheyear.

c.

Compute(overappliedunderapplied)overheadandcirclethecorrectdirection.

d.

Findtheoverheadbudgetvarianceandstatewhetherfavorableorunfavorable.

e.

Computethevolumevarianceandstatewhetherfavorableorunfavorable

SOLUTION:
a.$4($600,000/300,000+$2variable)
b.$1,280,000($4x320,000)
c.$31,000overapplied($1,280,000$1,249,000)
d.$9,000unfavorable{$1,249,000[($2x320,000)+$600,000]}
e.$40,000favorable($1,240,000budgeted$1,280,000applied)
2.GomezCompanyusesjobordercosting.Dataareasfollows:

JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$1,600,000$1,450,000$50,000$100,000
Directlabor$1,250,000$900,000$100,000$250,000

Gomezappliesoverheadtojobsat$0.80perdirectlabordollar.Totaloverheadcostincurredwas$950,000.
Therewerenobeginninginventories.
a.

Whatiscostofgoodssoldusingnormalcosting?

b.

Findtheendinginventoryofworkinprocessusingnormalcosting.

c.

Findtheamountofoverhead(overappliedunderapplied)andcirclethecorrectdirection.

d.

Gomeztreatsoverappliedorunderappliedoverheadasanadjustmenttocostofgoodssold.Computetotal
costofgoodssold.

SOLUTION:
a.$3,070,000[$1,450,000+$900,000+($0.80x$900,000)]
b.$230,000[$50,000+$100,000+($0.80x$100,000)]
c.$50,000overapplied[($1,250,000x$0.80)$950,000]
d.$3,020,000($3,070,000normalminus$50,000overappliedOH)
3.

AntigoCompanyusesjobordercosting.DatarelatedtoMarchareasfollows:
JobAJobBJobC

Materialcost$3,900$4,700$5,200

74
74

Directlaborcost$4,000$6,000$4,000
Machinehours300500300

Antigoappliesoverheadtojobsat$8permachinehour.TotaloverheadcostincurredinMarchwas$8,400.
Therewerenobeginninginventories.JobAwasincompleteattheendofMarch,JobBwassoldfor$28,000,
andJobCwasinfinishedgoodsinventory.Sellingandadministrativeexpenseswere$2,100.

a.

Computetheendinginventoryofworkinprocess.

b.

Computetheendinginventoryoffinishedgoods.

c.

d.
e.

Overheadwas(overappliedunderapplied)by?Circlethecorrectdirection.
Computethenormalcostofgoodssold.
Prepareanincomestatementshowingunderappliedoroverappliedoverheadasanadjustmenttonormalcost
ofsales.

SOLUTION:
a.

$10,300(CostofjobA,below)

b.

$11,600(CostofjobC,below)
JobAJobBJobC

Materialcost$3,900$4,700$5,200
Directlaborcost4,0006,0004,000
Appliedoverheadat$82,4004,0002,400

Totalcosts$10,300$14,700$11,600
=====================

c.

$400overapplied

Actualoverhead$8,400
Appliedoverhead($2,400+$4,000+$2,400)8,600

Overappliedoverhead$400
======
d. $14,700(CostofjobB,seeabove)
e.

4.

Sales$28,000
Normalcostofsales$14,700
Lessoverappliedoverhead40014,300

Grossmargin$13,700
Sellingandadministrativeexpenses2,100

Income$11,600
=======
BrunoCompanyusesthefollowingequationtobudgetmanufacturingoverhead.
Manufacturingoverhead=$200,000+$3perdirectlaborhour

Brunohasbudgeted100,000directlaborhoursfortheyear.Actualresultswere90,000directlaborhours
and$457,000totalmanufacturingoverhead.
a.

Findthepredeterminedoverheadrate.

b.

Findtotaloverheadappliedfortheyear.

c.

Compute(overappliedunderapplied)overheadandcirclethecorrectdirection.

d.

Findtheoverheadbudgetvarianceandstatewhetherfavorableorunfavorable.

e.
Computethevolumevarianceandstatewhetherfavorableorunfavorable
SOLUTION:
a.$5($200,000/100,000+$3variable)
b.$450,000($5x90,000)
c.$7,000underapplied($450,000$457,000)
d.$13,000favorable{$457,000[($3x90,000)+$200,000]}
e.$20,000unfavorable($470,000budgeted$450,000applied)
5.HurleyCompanyusesjobordercosting.Dataareasfollows:

JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$2,050,000$1,500,000$200,000$350,000
Directlabor$2,250,000$1,650,000$160,000$440,000

Hurleyappliesoverheadtojobsat$0.60perdirectlabordollar.Totaloverheadcostincurredwas
$1,460,000.Therewerenobeginninginventories.

75
75

a.

Whatiscostofgoodssoldusingnormalcosting?

b.

Findtheendinginventoryofworkinprocessusingnormalcosting.

c.

Findtheamountofoverhead(overappliedunderapplied)andcirclethecorrectdirection.

d.

Hurleytreatsoverappliedorunderappliedoverheadasanadjustmenttocostofgoodssold.Computetotal
costofgoodssold.

SOLUTION:
a.$4,140,000[$1,500,000+$1,650,000+($0.60x$1,650,000)]
b.$456,000[$200,000+$160,000+($0.60x$160,000)]

c.$110,000underapplied[($2,250,000x$0.60)$1,460,000]
d.$4,250,000($4,140,000normalplus$110,000underappliedOH)
6.

AcmeCompanyusesjobordercosting.DatarelatedtoAugustareasfollows:
JobAJobBJobC

Materialcost$3,900$4,700$5,400
Directlaborcost$4,000$7,000$4,000
Machinehours400700500

Acmeappliesoverheadtojobsat$10.00permachinehour.TotaloverheadcostincurredinAugustwas
$16,700.Therewerenobeginninginventories.JobAwasincompleteattheendofAugust,JobBwassoldfor
$34,000,andJobCwasinfinishedgoodsinventory.Sellingandadministrativeexpenseswere$3,500.

a.

Computetheendinginventoryofworkinprocess.

b.

Computetheendinginventoryoffinishedgoods.

c.

d.

Overheadwas(overappliedunderapplied)by?Circlethecorrectdirection.

e.

Prepareanincomestatementshowingunderappliedoroverappliedoverheadasanadjustmenttonormalcost
ofsales.

Computethenormalcostofgoodssold.

SOLUTION:
a.

$11,900(CostofjobA,below)

b.

$14,400(CostofjobC,below)
JobAJobBJobC

Materialcost$3,900$4,700$5,400
Directlaborcost4,0007,0004,000
Appliedoverheadat$104,0007,0004,000

Totalcosts$11,900$18,700$14,400
=====================

c.

$700underapplied

Actualoverhead$16,700
Appliedoverhead($4,000+$7,000+$4,000)16,000

Underappliedoverhead$700
=======
d.

$18,700(CostofjobB,seeabove)

e.
Sales$34,000
Normalcostofsales$18,700
Plusunderappliedoverhead70019,400

Grossmargin$14,600
Sellingandadministrativeexpenses3,500

Income$11,100
=======
7.DarlingtonCompanyusesjobordercosting.Dataareasfollows:
JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$3,200,000$2,700,000$200,000$300,000
Directlabor$1,500,000$1,000,000$100,000$400,000

Darlingtonusesactualcostingtoassignoverheadbasedondirectlabor.Totaloverheadcostincurredwas
$2,700,000.Therewerenobeginninginventories.

76
76

a.

Whatiscostofgoodssold?

b.

Findtheendinginventoryofworkinprocess.

c.

Findtheendingfinishedgoodsinventoryvalue.

SOLUTION:
a.$5,500,000[$2,700,000+$1,000,000+($1,000,000/$1,500,000x
$2,700,000)]
b.$480,000[$200,000+$100,000+($100,000/$1,500,000x$2,700,000)]

c.$1,420,000[$300,000+$400,000+($400,000/$1,500,000x$2,700,000)]
8.

BeloitCompanyusesjobordercosting.DatarelatedtoSeptemberareasfollows:
JobAJobBJobC

Materialcost$4,400$3,400$4,200
Directlaborcost$3,000$6,000$2,000

Beloitusesactualcostingtoapplyoverheadtojobsbasedondirectlaborcost.Totaloverheadcost
incurredinSeptemberwas$14,300.Therewerenobeginninginventories.JobAwasincompleteattheendof
September,JobBwassoldfor$22,000,andJobCwasinfinishedgoodsinventory.Sellingandadministrative
expenseswere$3,800.

a.

Computetheendinginventoryofworkinprocess.

b.

Computetheendinginventoryoffinishedgoods.

c.

d.

Overheadwas(overappliedunderapplied)by?Circlethecorrectdirection.

e.

Prepareanincomestatementshowingunderappliedoroverappliedoverheadasanadjustmenttocostof
sales.

Computecostofgoodssold.

SOLUTION:
a.

$11,300(CostofjobA,below)

b.

$8,800(CostofjobC,below)
JobAJobBJobC

Materialcost$4,400$3,400$4,200
Directlaborcost3,0006,0002,000
Appliedoverhead3,9007,8002,600

Totalcosts$11,300$17,200$8,800
====================

c.

neither;actualoverheadisapplied

Actualoverhead$14,300
Appliedoverhead($3,900+$7,800+$2,600)14,300

Underappliedoverhead$0
=======
d.

$17,200(CostofjobB,seeabove)

e.
Sales$22,000
Costofsales17,200

Grossmargin$4,800
Sellingandadministrativeexpenses3,800

Income$1,000
=======
9.AshlandCompanyusesjobordercosting.Dataareasfollows:

JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$1,450,000$800,000$300,000$350,000
Directlabor$1,650,000$850,000$260,000$540,000

Ashlandappliesoverheadtojobsat$0.70perdirectlabordollar.Totaloverheadcostincurredwas
$1,070,000.Therewerenobeginninginventories.
a.

Whatiscostofgoodssoldusingnormalcosting?

b.

Findtheendinginventoryofworkinprocessusingnormalcosting.

77
77

c.

Findtheamountofoverhead(overappliedunderapplied)andcirclethecorrectdirection.

d.

Ashlandtreatsoverappliedorunderappliedoverheadasanadjustmenttocostofgoodssold.Computetotal
costofgoodssold.
SOLUTION:
a.$2,245,000[$800,000+$850,000+($0.70x$850,000)]
b.$742,000[$300,000+$260,000+($0.70x$260,000)]
c.$85,000overapplied[($1,650,000x$0.70)$1,070,000]
d.$2,160,000($2,245,000normalless$85,000overappliedOH)
10.HayesCompanyusesjobordercosting.DatarelatedtoMayareasfollows:
JobAJobBJobC

Materialcost$3,900$5,700$4,400
Directlaborcost$2,000$4,000$3,000
Machinehours1,0007001,400

Hayesappliesoverheadtojobsat$8permachinehour.TotaloverheadcostincurredinMaywas$24,650.
Therewerenobeginninginventories.JobAwasincompleteattheendofMay,JobBwassoldfor$30,000,and
JobCwasinfinishedgoodsinventory.Sellingandadministrativeexpenseswere$3,900.

a.
Computetheendinginventoryofworkinprocess.
b.

Computetheendinginventoryoffinishedgoods.

c.

d.

Overheadwas(overappliedunderapplied)by?Circlethecorrectdirection.

e.

Prepareanincomestatementshowingunderappliedoroverappliedoverheadasanadjustmenttonormalcost
ofsales.

Computethenormalcostofgoodssold.

SOLUTION:
a.

$13,900(CostofjobA,below)

b.

$18,600(CostofjobC,below)
JobAJobBJobC

Materialcost$3,900$5,700$4,400
Directlaborcost2,0004,0003,000
Appliedoverheadat$88,0005,60011,200

Totalcosts$13,900$15,300$18,600
=====================

c.

$150overapplied

Actualoverhead$24,650
Appliedoverhead($8,000+$5,600+$11,200)24,800

Overappliedoverhead$150
=======
d.

$15,300(CostofjobB,seeabove)

e.
Sales$30,000
Normalcostofsales$15,300
Lessoverappliedoverhead15015,150

Grossmargin$14,850
Sellingandadministrativeexpenses3,900

Income$10,950
=======

78
78