Revised Summer 2015

JOB COSTING AND OVERHEAD

Key Topics to Know

 Differences and similarities between job order and process costing
 Key document is the Job Cost Sheet
 Flow of product costs through inventory accounts to cost of goods sold
o Raw materials
o Work in process including manufacturing overhead
o Finished goods
o Cost of goods sold
 Flow of overhead costs:
o How to compute predetermined overhead rates
o Use of the Overhead account
o How to apply overhead costs to production
o How to compute over and under applied overhead
o How to close it to the appropriate account
o How to account for the under or over applied amount on the schedule of
cost of goods sold.
 Flow of product costs and overhead costs through the three inventory accounts
and overhead account into cost of goods sold.
 Journal entries required in a Job Order Cost system.

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Problems
Problem #1

The J & M Plastics Company uses a predetermined overhead rate based on direct labor
hours to apply manufacturing overhead to jobs. Estimated and actual data for direct
labor and manufacturing overhead for the last year are as follows:
Estimated Actual
Direct labor hours 500,000 480,000
Manufacturing overhead $1,000,000 $965,000

Required: a) Compute the predetermined overhead rate for the year

b) Calculate the overhead applied for the year.
c) What is the amount of over-applied or under-applied overhead?
d) Journalize the entry to close the balance in overhead to COGS

Problem #2

Dapper Corporation had one job in process on May 1. The job had been charged with
$3,400 of direct materials, $4,640 of direct labor, and $9,200 of manufacturing overhead
cost. The company assigns overhead cost to jobs using the predetermined overhead rate
of $23.00 per direct labor-hour.
 During May, the following activity was recorded:
 


Raw materials (all direct materials):

Beginning balance $8,500
Purchased during the month $42,000
Used in production $48,500
Labor:
Direct labor-hours worked 2,200
Direct labor cost incurred $25,520
Actual manufacturing overhead
$52,800
costs incurred
Inventories:
Raw materials, May 30 ?
Work in process, May 30 $32,190

Work in process inventory on May 30 contains $7,540 of direct labor cost. Raw materials
consist solely of items that are classified as direct materials.

Required: Compute the cost of goods manufactured for May.

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Problem #3

The Jordan Company uses a job order costing system and applies overhead cost to jobs
on the basis of direct labor hours. The following estimates were made for the purpose of
computing the predetermined overhead rate: manufacturing overhead cost of $360,000
and direct labor hours of 900. The following transactions took place during the year:
a. Raw materials purchased, $200,000.
b. Raw materials used in production (all direct materials), $185,000.
c. Salary and wages incurred:
Direct labor (975 hours) 230,000
Indirect labor 90,000
Selling & administrative salaries 110,000
d. Utility costs incurred, $70,000 (90% related to factory operations, remainder to
selling & administrative)
e. Maintenance costs were incurred in the factory, $54,000.
f. Advertising costs were incurred, $136,000.
g. Depreciation was recorded for the year, $95,000 (80% related to factory
equipment, remainder to selling & adm equip.)
h. Rental costs incurred on the buildings, $120,000 (85% related to factory
operations, remainder to selling & adm.)
i. Manufacturing overhead was applied to jobs
j. Cost of goods manufactured for the year, $770,000.
k. Sales on account for the year totaled $1,200,000 with a cost to produce of
$800,000.
l. The balances in the inventory accounts at the beginning of the year were:
Raw materials 30,000
Work in process 21,000
Finished goods 60,000

Required: a) Prepare the journal entries to record the information given above.
b) Prepare T-accounts for Raw Materials, Work in Process, Finished
Goods and Manufacturing Overhead. Post the relevant journal
entries above to each T-account. Determine the ending balance in
each account.
c) What is the amount of over or under-applied overhead?
d) Journalize the entry to transfer the ending in the overhead
account to cost of goods sold.
e) Job 412 was one of the many jobs started and completed during
the year. The job required $8,000 in direct materials and 39 hours
of direct labor time at a total direct labor cost of $9,200. The job
contained only four units. If the company bills at a price 60%
above the unit cost on the job cost sheet, what price per unit
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would have been charged to the customer?

Problem #4

Allenton Company is a manufacturing firm that uses job-order costing. At the beginning
of the year, the company's inventory balances were as follows:

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
31,000 machine-hours and incur $248,000 in manufacturing overhead cost. The
following transactions were recorded for the year:

a. Raw materials were purchased, $411,000.

b. Raw materials were requisitioned for use in production, $409,000 ($388,000 direct
and $21,000 indirect).
c. The following employee costs were incurred: direct labor, $145,000; indirect labor,
$61,000; and administrative salaries, $190,000.
d. Selling costs, $148,000.
e. Factory utility costs, $12,000.
f. Depreciation for the year was $121,000 of which $114,000 is related to factory
operations and $7,000 is related to selling, general, and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year
was 29,000 machine-hours.
h. The cost of goods manufactured for the year was $783,000.
i. Sales for the year totaled $1,107,000 and the costs on the job cost sheets of the
goods that were sold totaled $768,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods
Sold.

Required: Prepare the appropriate journal entry for each of the items above
(a. through j.) assuming that all transactions with employees,
customers, and suppliers were conducted in cash.

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Multiple Choice Questions

1. When units are completed, the cost associated with the job is debited to which
account?
a) Raw Materials Inventory
b) Work in Process Inventory
c) Finished Goods Inventory
d) Cost of Goods Sold

2. Which of the following would be used to apply manufacturing overhead to

production for the period?
a) Raw Materials Inventory would be debited
b) Work in Process Inventory would be debited
c) Manufacturing Overhead would be debited
d) Work in Process Inventory would be credited

3. If a company uses a predetermined overhead rate, which of the following

statements is correct?
a) Manufacturing Overhead will be debited for estimated overhead
b) Manufacturing Overhead will be credited for estimated overhead
c) Manufacturing Overhead will be debited for actual overhead
d) Manufacturing Overhead will be credited for actual overhead

4. Mantilla Inc. estimated manufacturing overhead to be $200,000 for the year

along with 20,000 direct labor hours. Actual manufacturing overhead was
$215,000, and actual labor hours were 21,000. The journal entry to close the
balance in the Manufacturing Overhead account would include which of the
following?
a) Cost of Goods Sold would be credited for $15,000
b) Cost of Goods Sold would be credited for $5,000
c) Cost of Goods Sold would be debited for $5,000
d) Cost of Goods Sold would be debited for $15,000

5. Cost of goods sold is the amount of cost transferred

a) From of Finished Goods Inventory and into Cost of Goods Sold.
b) From of Work in Process Inventory and into Cost of Goods Sold.
c) From of Work in Process Inventory and into Manufacturing Overhead.
d) From of Work in Process Inventory and into Finished Goods Inventory.

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6. Arthur Company provided the following information for the year:

Direct materials used 110,000

Direct labor used (5,000 hours) 150,000
Manufacturing overhead incurred 166,000

The predetermined overhead rate was $35 per direct labor hour for the year.
Assuming the ending balance in Work in Process Inventory is $17,000, what
was cost of goods manufactured?
a) $260,000
b) $426,000
c) $435,000
d) $418,000

7. Jackson Company had the following information for the year:

Direct materials used 190,000

Direct labor used (5,000 hours) 245,000
Manufacturing overhead incurred 273,000

Jackson Company calculated a predetermined overhead rate using estimated

overhead of $320,000 and 8000 estimated direct labor hours. Finished Goods
Inventory had a balance of $9,000 at the end of the year. What was adjusted
cost of goods sold?
a) $715,000
b) $708,000
c) $706,000
d) $699,000

8. Homer Inc. had the following information for the preceding year:

Beginning Ending
balance balance
Raw materials 0 0
Work in process ?? 35,000
Finished goods ?? 30,000

The following additional information is available for the year:

Direct materials used 200,000

Direct labor 150,000
Manufacturing overhead applied 160,000

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Cost of goods manufactured 525,000
Cost of goods sold (unadjusted) 544,000

What was the beginning Finished Goods Inventory balance on 1/1?

a) $49,000
b) $65,000
c) $50,000
d) $69,000

9. Hibshman Corporation bases its predetermined overhead rate on the estimated

machine-hours for the upcoming year. At the beginning of the most recently
completed year, the Corporation estimated the machine-hours for the
upcoming year at 10,000 machine-hours. The estimated variable
manufacturing overhead was $6.82 per machine-hour and the estimated total
fixed manufacturing overhead was $230,200. The predetermined overhead
rate for the recently completed year was closest to:
a) $29.84
b) $23.15
c) $23.02
d) $6.82

10. CR Corporation has the following estimated costs for the next year:


Direct materials $4,000

Direct labor $20,000
Rent on factory building $15,000
Sales salaries $25,000
Depreciation on factory equipment $8,000
Indirect labor $10,000
Production supervisor’s salary $12,000

CR Corporation estimates that 20,000 labor-hours will be worked during the

year. If overhead is applied on the basis of direct labor-hours, the overhead
rate per hour will be:
a) $2.25
b) $3.25
c) $3.45
d) $4.70

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11. Sirmons Corporation bases its predetermined overhead rate on the estimated
labor-hours for the upcoming year. At the beginning of the most recently
completed year, the Corporation estimated the labor-hours for the upcoming
year at 70,000 labor-hours. The estimated variable manufacturing overhead
was $9.93 per labor-hour and the estimated total fixed manufacturing
overhead was $1,649,200. The actual labor-hours for the year turned out to be
74,000 labor-hours. The predetermined overhead rate for the recently
completed year was closest to:
a) $32.22
b) $9.93
c) $33.49
d) $23.56

12. Cribb Corporation uses direct labor-hours in its predetermined overhead rate.
At the beginning of the year, the estimated direct labor-hours were 17,900
hours and the total estimated manufacturing overhead was $341,890. At the
end of the year, actual direct labor-hours for the year were 16,700 hours and
the actual manufacturing overhead for the year was $336,890. Overhead at
the end of the year was:
a) $22,920 underapplied
b) $17,920 overapplied
c) $17,920 underapplied
d) $22,920 overapplied

13. The following data have been recorded for recently completed Job 323 on its
job cost sheet. Direct materials cost was $2,260. A total of 37 direct labor-
hours and 141 machine-hours were worked on the job. The direct labor wage
rate is $13 per labor-hour. The Corporation applies manufacturing overhead on
the basis of machine-hours. The predetermined overhead rate is $14 per
machine-hour. The total cost for the job on its job cost sheet would be:
a) $3,259
b) $2,741
c) $2,287
d) $4,715

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14. Smallwood Corporation has provided the following data concerning

manufacturing overhead for January:
 


Actual manufacturing overhead incurred $64,000

Manufacturing overhead applied to Work in Process $59,000

Cost of Goods Sold was $223,000 prior to closing out its Manufacturing
Overhead account. The Corporation closes out its Manufacturing Overhead
account to Cost of Goods Sold. Which of the following statements is true?
a) Manufacturing overhead for the month was overapplied by $5,000; Cost of
Goods Sold after closing out the Manufacturing Overhead account is
$228,000
b) Manufacturing overhead for the month was underapplied by $5,000; Cost of
Goods Sold after closing out the Manufacturing Overhead account is
$218,000
c) Manufacturing overhead for the month was underapplied by $5,000; Cost of
Goods Sold after closing out the Manufacturing Overhead account is
$228,000
d) Manufacturing overhead for the month was overapplied by $5,000; Cost of
Goods Sold after closing out the Manufacturing Overhead account is
$218,000

15. Caber Corporation applies manufacturing overhead on the basis of machine-

hours. At the beginning of the year, total estimated overhead was $60,600.
Actual manufacturing overhead for the year was $59,000 and actual machine-
hours were 5,900. The predetermined overhead rate for the year was $10.10
per machine-hour.
 Overhead for the year was:
a) $1,010 underapplied
b) $590 overapplied
c) $1,010 overapplied
d) $590 underapplied

16. Acton Corporation, which applies manufacturing overhead on the basis of

machine-hours, has provided the following data for its most recent year of
operations.

Estimated manufacturing overhead $139,080

Estimated machine-hours 3,800
Actual manufacturing overhead $137,000
Actual machine-hours 3,780



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The estimates of the manufacturing overhead and of machine-hours were
made at the beginning of the year for the purpose of computing the company's
predetermined overhead rate for the year.
 The applied manufacturing
overhead for the year is closest to:
a) 136,269
b) $138,348
c) $136,987
d) $137,630

17. Meyers Corporation had the following inventory balances at the beginning and
end of November:

November 1 November 30
Raw Materials $17,000 $20,000
Finished Goods $50,000 $44,000
Work in Process $9,000 $11,000

During November, $39,000 in raw materials (all direct materials) were drawn
from inventory and used in production. The predetermined overhead rate was
$8 per direct labor-hour, and direct labor workers were paid $10 per hour. A
total of 300 hours of direct labor time had been expended on the jobs in the
beginning Work in Process inventory account. The ending Work in Process
inventory account contained $4,700 of direct materials cost. The Corporation
incurred $28,000 of actual manufacturing overhead cost during the month and
applied $26,400 in manufacturing overhead cost.
 
 The raw materials purchased
during November totaled:
a) $42,000
b) $45,000
c) $36,000
d) $39,000

18. On March 1, Metevier Corporation had $37,000 of raw materials on hand.

During the month, the company purchased an additional $62,000 of raw
materials. During March, $69,000 of raw materials were requisitioned from the
storeroom for use in production. These raw materials included both direct and
indirect materials. The indirect materials totaled $6,000.
 
 The journal entry to
record the requisition from the storeroom would include a:
a) debit to Work in Process of $69,000
b) debit to Work in Process of $63,000
c) debit to Raw Materials of $69,000
d) credit to Manufacturing Overhead of $6,000

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19. Chelm Music Corporation manufactures violins, violas, cellos, and fiddles and
uses a job-order costing system.
 What is one of the accounts that Chelm should
credit when goods are sold?
a) Finished goods
b) Work in Process
c) Cost of Goods Sold
d) Manufacturing Overhead

20. During February, Irving Corporation incurred $65,000 of actual Manufacturing

Overhead costs. During the same period, the Manufacturing Overhead applied
to Work in Process was $60,000.
 The journal entry to record the incurrence of
the actual Manufacturing Overhead costs would include a:
a) debit to Manufacturing Overhead of $65,000
b) credit to Manufacturing Overhead of $65,000
c) credit to Work in Process of $60,000
d) debit to Work in Process of $60,000

21. Echo Corporation uses a job-order costing system and applies overhead to jobs
using a predetermined overhead rate. During the year the company's Finished
Goods inventory account was debited for $360,000 and credited for $338,800.
The ending balance in the Finished Goods inventory account was $36,600. At
the end of the year, manufacturing overhead was overapplied by $15,900.
 The
balance in the Finished Goods inventory account at the beginning of the year
was:
a) $15,900
b) $15,400
c) $21,200
d) $36,600

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Solutions to Problems
Problem #1

a) Predetermined overhead rate $1,000,000/500,000 dlh = $2.00 per dlh

b) Overhead applied 480,000 dlh * $2.00 = $960,000
c) Under-applied overhead $965,000 – 960,000 = $5,000
d) Cost of Goods sold 5,000
Manufacturing overhead 5,000

Problem #2

Direct materials $3,400

Direct labor 4.640
Manufacturing overhead 9,200
Beginning work in process $17,240

Direct materials used in production $48,500

Direct labor 25,520
Manufacturing overhead ($23.00

 50,600
per direct labor-hour x 2,200 dlh)
Total manufacturing costs 124,620
Add: Beginning work in process 17,240
141,860
Deduct: Ending work in process 32,190
Cost of goods manufactured $109,670

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Problem #3

a) Predetermined Overhead Rate: $360,000/900 = $400 per direct labor hour

Actual direct labor rate: $230,000/975 = $235.90 per direct labor hour

a. Raw materials inventory 200,000

Accounts payable 200,000
b. Work in process 185,000
Raw materials inventory 185,000
c. Work in process 230,000
Manufacturing overhead 90,000
Salary & Wage Expense 110,000
Wages payable 430,000
d. Manufacturing overhead 63,000
Utilities Expense 7,000
Accounts payable 70,000
e. Manufacturing overhead 54,000
Accounts payable 54,000
f. Advertising Expense 136,000
Accounts payable 136,000
g. Manufacturing overhead 76,000
Depreciation Expense 19,000
Accumulated depreciation 95,000
h. Manufacturing overhead 102,000
Rent Expense 18,000
Accounts payable 120,000
i. Work in process 390,000
Manufacturing overhead 390,000
(975 dlh x $400/dlh = 390,000)
j. Finished goods inventory 770,000
Work in process 770,000
k. Accounts receivable 1,200,000
Sales 1,200,000
Cost of goods sold 800,000
Finished goods inventory 800,000

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b)
Manufacturing OH
90,000 390,000
63,000
54,000
76,000
102,000
5,000 overapplied c)

Raw Materials Work in Process Finished Goods

30,000 185,000 21,000 60,000
185,000 770,000 770,000 800,000
200,000 230,000
390,000

45,000 56,000 30,000

d) Manufacturing overhead 5,000

Cost of goods sold 5,000

e)
Cost of manufacturing Job 412:
Direct materials $8,000
Direct labor 39 dlh x $235.90 = 9,200
Manufacturing overhead 39 dlh x $400.00 = 15,600
Total Cost $32,800
Units produced 4
Cost per unit $8,200
Markup % 60%
Markup 4,920
Selling price Cost + markup = $13,120

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Problem #4

Predetermined Overhead Rate: $248,000/31,000 = $8 per machine hour

a) Raw materials inventory 411,000

Cash 411,000
b) Work in process 388,000
Manufacturing overhead 21,000
Raw materials inventory 409,000
c) Work in process 145,000
Manufacturing overhead 61,000
Administrative salary expense 190,000
Cash 396,000
d) Selling expanses 148,000
Cash 148,000
e) Manufacturing overhead 12,000
Cash 12,000
f) Manufacturing overhead 114,000
Depreciation Expense 7,000
Accumulated depreciation 121,000
g) Work in process 232,000
Manufacturing overhead 232,000
$8 per mh x 29,000 mh = $232,000
h) Finished goods inventory 783,000
Work in process 783,000
Cash 1,107,000
Sales 1,107,000
Cost of goods sold 768,000
Finished goods inventory 768,000
i) Manufacturing overhead 24,000
Cost of goods sold 24,000
Overapplied overhead:
208,000 incurred – 232,000 applied =
24,000 overapplied

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Solutions to Multiple Choice Questions

1. C
2. B
3. C
4. C
5. A
6. D
7. D
8. A
9. A
10. A
11. C
12. C
13. D
14. C
15. B
16. B
17. A
18. B
19. A
20. A
21. B

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