Practice Exams Chapter 3

1. (LO 1,2) When is job-orer costin! t"pica##" $se b" a compan"% &o' oes it i((er
(rom process costin!% What oc$ments are t"pica##" $se in a job-orer s"stem%
Solution:
)ob-orer s"stems are t"pica##" $se b" companies pro$cin! non-simi#ar (i.e. i((erent)
items e*er" perio. +n a process cost s"stem, on the other han, the compan" t"pica##"
pro$ces the same items, an th$s can sprea the costs o( the entire pro$ction process
o*er the $nits *er" easi#". +( $sin! a job-orer s"stem, the costs (or each job (or
pro$ction orer) m$st be capt$re separate#", an the oc$ments o(ten $se to recor
each job,s costs t"pica##" inc#$e a bi## o( materia#s, pro$ction orer, materia#s
re-$isition (orm, job cost sheets, an time tic.ets (or other so$rce o( in(ormation on the
irect an inirect #abor re#ate to the job). /an$(act$rin! o*erhea is a##ocate to the
job $sin! preetermine o*erhea rates 'hich are entere on the job cost sheet.
2. (LO3) 0immons Compan" has the (o##o'in! estimate costs (or next "ear1
2irect materia#s 3 45,555
2irect #abor 225,555
0a#es commissions 355,555
0a#ar" o( pro$ction s$per*isor 165,555
+nirect materia#s 25,555
7*ertisin! expense 66,555
8ent on (actor" e-$ipment 46,555
0immons estimates that 65,555 irect #abor an 46,555 machine ho$rs 'i## be 'or.e
$rin! the "ear. +( o*erhea is app#ie on the basis o( machine ho$rs, 'hat 'i## be the
o*erhea rate per ho$r%

Solution:
0a#ar" o( pro$ction s$per*isor 3165,555
+nirect materia#s 25,555
8ent on (actor" e-$ipment 46,555
Estimate man$(act$rin! o*erhea costs 226,555
Estimate machine ho$rs 46,555
Preetermine o*erhea rate 33.95 per /&
(:O;E1 2irect materia#s an irect #abor are pro$ct costs b$t are not a part o(
man$(act$rin! o*erhea costs, 'hich on#" inc#$e inirect (actor" costs. 0a#es
commissions an a*ertisin! expenses 'o$# be consiere a part o( se##in! an
aministrati*e expenses, an are th$s perio rather than pro$ct costs.)
3. (LO 3, 9, <) &o$!hton Compan" $ses a preetermine o*erhea rate base on irect #abor
ho$rs to app#" man$(act$rin! o*erhea to jobs. 7t the be!innin! o( the "ear, the compan"
estimate man$(act$rin! o*erhea 'o$# be 3255,555 an irect #abor ho$rs 'o$# be
25,555. ;he act$a# (i!$res (or the "ear 'ere 3225,555 (or man$(act$rin! o*erhea an
21,555 irect #abor ho$rs. What 'i## the cost recors (or the "ear sho' (or assi!ne
o*erhea, an the amo$nt o( o*er- or $ner-app#ie o*erhea%
Solution:
=irst, ca#c$#ate the preetermine o*erhea rate (base on irect #abor ho$rs here)1
Estimate o*erhea costs Estimate irect #abor ho$rs > Preetermine rate
3255,555 25,555 irect #abor ho$rs > 315.55?irect #abor ho$r
;hen, etermine the amo$nt o( man$(act$rin! o*erhea assi!ne $rin! the perio1
Preetermine o*erhea rate x 7ct$a# irect #abor ho$rs > O*erhea assi!ne
315.55?irect #abor ho$r x 21,555 irect #abor ho$rs > 3215,555
=ina##", compare the act$a# man$(act$rin! o*erhea costs to the amo$nt assi!ne, an
ecie 'hether it is o*er- or $nerapp#ie1
7ct$a# 3225,555
7ssi!ne 215,555
@a#ance ($nerapp#ie) 3 15,555
6. (LO 9, <) Aasper Compan",s preetermine o*erhea rate is base on irect #abor
ho$rs. 7t the be!innin! o( the c$rrent "ear, the compan" estimate that its man$(act$rin!
o*erhea 'o$# tota# 3665,555 $rin! the "ear. 2$rin! the "ear, the compan" inc$rre
3655,555 in act$a# man$(act$rin! o*erhea costs. ;he /an$(act$rin! O*erhea acco$nt
sho'e that o*erhea 'as o*erapp#ie b" 314,555 $rin! the "ear. +( the preetermine
o*erhea rate 'as 325.55 per irect #abor ho$r, ho' man" ho$rs 'ere 'or.e $rin! the
"ear%

Solution:
=irst, etermine the amo$nt o( o*erhea app#ie to pro$ction b" re(erence to the
in(ormation abo$t the /an$(act$rin! O*erhea acco$nt1
7ct$a# o*erhea 7mo$nt app#ie to pro$ction > 7mo$nt o*er- ($ner)app#ie
3655,555 7mo$nt app#ie to pro$ction > 314,555
7mo$nt assi!ne to pro$ction > 33<6,555
;hen, so#*e (or the irect #abor ho$rs here (the acti*it" base (or the o*erhea rate)1
Preetermine o*erhea rate x 2irect #abor ho$rs > /an$(act$rin! o*erhea app#ie
325.55?irect #abor ho$r x 7ct$a# irect #abor ho$rs > 33<6,555 ((rom abo*e)
7ct$a# irect #abor ho$rs > 1B,255
9. (LO 4) Cner &orton Compan"Ds job-orer costin! s"stem, man$(act$rin! o*erhea is
app#ie to Wor. in Process in*entor" $sin! a preetermine o*erhea rate. 2$rin! )$#",
&orton,s transactions inc#$e the (o##o'in!1
2irect #abor cost inc$rre 362<,555
2irect materia#s iss$e to pro$ction 345,555
+nirect materia#s iss$e to pro$ction 32,555
/an$(act$rin! o*erhea cost app#ie 692,555
/an$(act$rin! o*erhea cost inc$rre 955,555
a.) &orton Compan" ha no be!innin! or enin! in*entories in )$#". What 'as the cost o(
!oos man$(act$re (or )$#"% b.) What 'as the amo$nt o( cost o( !oos so# (or )$#"%

Solution:
a.)
Wor. in process, be!innin! o( perio (5)
2irect materia#s iss$e to pro$ction 3 345,555
2irect #abor cost inc$rre 62<,555
/an$(act$rin! o*erhea cost app#ie 692,555
;ota# man$(act$rin! costs 31,265,555
Less1 'or. in process, en o( perio (5)
Cost o( !oos man$(act$re 31,265,555
b.) 0ince there are no be!innin! or enin! in*entories, the cost o( !oos so# 'o$#
be the cost o( !oos man$(act$re 31,265,555, p#$s the $nerapp#ie o*erhea costs o(
36<,555, (or a tota# o( 31,2<<,555.
4. (LO 6,E) ;a.in! the in(ormation (rom -$estion n$mber 9 abo*e, prepare the necessar"
jo$rna# entries to recor the (#o' o( costs (or the month o( )$#". 0ho' the (#o' o( costs in
;-acco$nts a(ter preparin! the jo$rna# entries.
Solution:
a. Wor. in Process FFFFFFFF345,555
/an$(act$rin! O*erheaFFFF. 32,555
8a' /ateria#sFFFFFFFF. 3B2,555
;o iss$e irect an inirect materia#s to pro$ction.
b. Wor. in ProcessFFFFFFFF.62<,555
0a#aries an Wa!es Pa"ab#eFF.. 62<,555
;o recor irect #abor inc$rre in pro$ction.
c. Wor. in ProcessFFFFFFFF692,555
/an$(act$rin! O*erheaFFF..692,555
;o recor app#ication o( man$(act$rin! o*erhea to pro$ction $rin! )$#".
. Cost o( !oos so# (CG0)FFFF.. 6<,555
/an$(act$rin! O*erheaFFF. 6<,555
;o recor $nerapp#ie man$(act$rin! o*erhea to cost o( !oos so# (or )$#".
(3955,555 - 3692,555)
;-7cco$nts1
8a' /ateria#s Wor.-in-Process /an$(act$rin! O*erhea
a. 3B2,555 a. 345,555 a. 32,555 c. 692,555
b. 62<,555 . 6<,555
c. 692,555
0a#aries?Wa!es Pa"ab#e CG0
b.62<,555 . 6<,555
E. (LO B 7ppenix) +( the &o$!hton Compan" in -$estion H3 abo*e $ses their capacit"
(or 29,555 irect #abor ho$rs *ers$s the estimate irect #abor ho$rs to comp$te the
preetermine o*erhea rate, 'hat 'o$# the rate be% 7mo$nt o( o*er- or $ner-app#ie
o*erhea%
Solution:
3255,555 29,555 irect #abor ho$rs > 3<.55?irect #abor ho$r
O*erhea app#ie1
Preetermine o*erhea rate x 7ct$a# irect #abor ho$rs > O*erhea assi!ne
3<.55?irect #abor ho$r x 21,555 irect #abor ho$rs > 314<,555
7ct$a# o*erhea 3225,555 min$s app#ie o*erhea 314<,555 > 392,555 $nerapp#ie
o*erhea (or the "ear.