Job Costing Versus Process Costing.

 Indicate whether each of the

firms listed in the following would use job costing or process costing. Score out
of 100:

1 Oil refinery Process Costing Unlocked Work Area

2 Builder of pools Job Costing
3 Cereal producer Process Costing
4 Legal firm Job Costing
5 Upholstery repair shop Job Costing
6 Sport drink producer Process Costing
7 Toner cartridge producer Process Costing
8 Landscape design firm Job Costing
9 Custom home builder Job Costing
10 Dairy farm Process Costing
11 Surgical unit of hospital Job Costing
12 Candy bar producer Process Costing
13 Auto body repair shop Job Costing
14 Producer of basketballs Process Costing
Unlocked Work Area
Recording Purchase and Transfer of Raw Materials in T-Accounts. The following transactions occurred during the month of
October:

5-Oct Raw materials totaling $15,000 were purchased on account.

8-Oct Direct materials totaling $6,000 were placed in production.
10-Oct Indirect materials totaling $1,000 were placed in production.

Required:
1. Set up T-accounts for raw materials inventory, work-in-process inventory, manufacturing overhead, and accounts payable.

2. Use the T-accounts established in part 1 to record the transactions for October.

1 Raw Materials WIP

Debit Credit Debit Credit
5-Oct 15,000 6,000 8-Oct 8-Oct 6,000
1,000 10-Oct

15,000 7,000 6,000 -

Balance 8,000 Balance 6,000

Date Account Debit Credit

2 5-Oct Raw Materials 15,000
Accounts Payable 15,000

8-Oct WIP 6,000

Raw Materials 6,000

10-Oct Overhead 1,000

Raw Materials 1,000
 Note: In T-accounts, the balance will auto
calculate, and ONLY the balance will turn green as
ed during the month of self correcting, not the individual entries.

Enter dates and $$ into Taccounts, like this:

Raw Materials
Debit Credit
05/10 $$ amt $$ amt 05/10
, and accounts payable.

P Overhead Accounts Payable

Credit Debit Credit Debit
1,000

1,000 - -
Balance 1,000

Unlocked Work Area

Accounts Payable
Credit
15,000 5-Oct

15,000 Tie?
15,000 Balance -
Work-in-Process Inventory Journal Entries. The balance in Reid Company’s work-in-process
inventory account was $300,000 at the beginning of March. Manufacturing costs for the month
are as follows:

Direct materials 40,000

Direct labor 70,000
Manufacturing overhead applied 200,000
Cost of goods manufactured 290,000

Required:
1. Prepare separate journal entries to record the following items.
a. Direct materials placed in production for the month
b. Direct labor used during the month, assuming employees will be paid next
month
c. Manufacturing overhead applied for the month
d. Transfer of cost of goods manufactured to finished goods
2. Prepare a T-account for Work-in-process inventory and include the beginning balance for
March. Post the appropriate items from the journal entries in part a to this account, and
calculate the ending balance in work-in-process inventory.

Date (Letter) Account Debit Credit

1-Mar Work In Process 40,000 Work in
Raw Materials 40,000 Debit
Beg. Bal
Work In Process 70,000
Wages Payable 70,000

Work In Process 200,000

Manufacturing Overhead 200,000
Balance
Finished Goods 290,000
Work In Process 290,000
 Note: In T-accounts, the balance will auto calculate, and
ONLY the balance will turn green as self correcting, not
the individual entries.

Enter transaction ID and $$ into Taccounts, like this:

Raw Materials
Debit Credit
a, b, … $$ amt $$ amt a, b, …

Work in Process Unlocked Work Area

Debit Credit
300,000 290,000
40,000
70,000
200,000

610,000 290,000
320,000
rk Area
Cost of Goods Sold Journal Entries. The balance in Blue Oak Company’s finished Note: In T-accounts, the ba
goods inventory account was $25,000 at the beginning of September. Cost of goods and ONLY the balance will t
manufactured for the month totaled $17,000, and cost of goods sold totaled correcting, not the individua
$14,000.

Required: Enter transaction ID and $$ into T

1. Prepare separate journal entries to record the following items. Raw Ma
a. Cost of goods manufactured for the month Debit
b. Cost of goods sold for the month a, b, …
2. Prepare a T-account for finished goods inventory and include the beginning
balance for September. Post the appropriate items from the journal entries in
part a to this account, and calculate the ending balance in finished goods inventory.

Date (Letter) Account Debit Credit

1-Sep Finished Goods 17,000 Finished Goods
Work in Process 17,000 Debit
Beg. Bal 25,000
Cost of Goods Sold 14,000 17,000
Finished Goods 14,000

42,000
Balance 28,000
ote: In T-accounts, the balance will auto calculate,
nd ONLY the balance will turn green as self
orrecting, not the individual entries.

nter transaction ID and $$ into Taccounts, like this:

Raw Materials
Debit Credit
$$ amt $$ amt a, b, …

Finished Goods Unlocked Work Area

Credit
14,000

14,000
Manufacturing Overhead Allocation Base and Calculating the Cost of Jobs. Pyramid Company expects
to incur $3,000,000 in manufacturing overhead costs this year. During the year, it expects to use
40,000 direct labor hours at a cost of $600,000 and 80,000 machine hours.

Required:
1. Prepare a predetermined overhead rate based on direct labor hours, direct labor cost, and machine
hours.

2. Why might Pyramid Company prefer to use machine hours to allocate manufacturing overhead?

3. Using each of the predetermined overhead rates calculated in part a and the data that follows for
job 128, determine the cost of job 128.

Direct materials 6,000

Direct labor 4,000 200 @ 15 per hour
100 @ 10 per hour
Machine time 700 hours

#1
DLH = Estimated OH Costs 3,000,000
PDOH 75.00
Estimated DLH 40,000

DL$ = Estimated OH Costs 3,000,000

PDOH 5.00
Estimated DL$ 600,000

MH = Estimated OH Costs 3,000,000

PDOH 37.50
Estimated MH 80,000

#2 The most common allocation bases for manufacturing overhead include machines
hours and direct labor hours. The company may prefer to use the machine hours as
allocation base inf machine hours are direclty used in manufacturing overhead
activities and it provides the most appropriate allocation of manufacturing overhead.

#3 [PDOH x Amt of Driver used = OH Applied]

Based on:
DLH Direct Materials 6,000
Direct Labor 4,000
Overhead Applied 22,500
Total Job Cost 32,500

DL$ Direct Materials 6,000

 Direct Labor 4,000
Overhead Applied 20,000
Total Job Cost 30,000

MH Direct Materials 6,000

Direct Labor 4,000
Overhead Applied 26,250
Total Job Cost 36,250
Unlocked Work Area
Actual and Applied Manufacturing Overhead. Marine Products, Inc., incurred the following actual overhead costs for the
month of June.

Indirect materials 20,000

Indirect labor 18,000
Rent 3,000
Equipment depreciation 6,500

Overhead is applied based on a predetermined rate of $12 per machine hour, and 5,100 machine hours were used during
June.

Required:
1. Prepare a journal entry to record actual overhead costs for June. Assume that labor costs will be paid next month and that
rent was prepaid.

2. Prepare a journal entry to record manufacturing overhead applied to jobs during June.
3. Create a T-account for manufacturing overhead, post the appropriate information from parts 1 and 2 to this account, and
calculate the ending balance.

4. Is manufacturing overhead overapplied or underapplied? Using the balance in the manufacturing overhead account
calculated in part 3, prepare the journal entry to close manufacturing overhead to cost of goods sold.

#1 & #2 #3
Date (Number) Account Debit Credit
1-Jun Manufacturing Overhead 47,500 Manufacturing Overhead
Raw Materials 20,000 Debit
Wages Payable 18,000 1-Jun
Prepaid Rent 3,000
Accumulated Depreciation 6,500

Work in Process 61,200

Manufacturing Overhead 61,200
Balance

#4 Over Applied

Manufacturing Overhead 13,700

Cost of Goods Sold 13,700
actual overhead costs for the Note: In T-accounts, the balance will auto calculate,
and ONLY the balance will turn green as self
correcting, not the individual entries.

Enter transaction ID and $$ into Taccounts, like this:

Raw Materials
Debit Credit
1, 2, … $$ amt $$ amt 1, 2, …

chine hours were used during

will be paid next month and that

arts 1 and 2 to this account, and

acturing overhead account

oods sold.

Manufacturing Overhead Unlocked Work Area

Debit Credit
20,000 61,200
18,000
3,000
6,500

47,500 61,200
(13,700)
Calculating the Cost of Jobs, Making Journal Entries, and Preparing an Income Statement. Racing Bikes, Inc.,
produces custom bicycles for professional racers. Each bike is built to customer specifications. During July, its first
month of operations, Racing Bikes began production of four customer orders—jobs 1 through 4. The following
transactions occurred during July.

1. Purchased bike parts totaling $14,400

2. Processed material requisitions for the following items:

3. Processed timesheets showing the following:

PDOH Job: 1 2 3 4
30 DLH 30 25 28 15
4. Applied overhead using a predetermined rate of $30 per direct labor hour
5. Completed and transferred to finished goods jobs 1, 2, and 3
6. Delivered jobs 1 and 2 to customers, billing them $6,000 for job 1 and $3,500 for job 2 (Hint: Two entries
are required—one for the cost of the goods and another for the revenue.)

Required:
1. Calculate the production costs incurred in July for each of the four jobs.
2. Make the appropriate journal entry for each transaction described previously (1through 6). Assume all payments
will be made next month.
3. How much gross profit did Racing Bikes, Inc., earn from the sale of job 2?
4. Assume selling costs totaled $1,000 and that general and administrative costs totaled $2,200. Prepare an income
statement for Racing Bikes for the month of July. (Assume there is no adjustment to cost of goods sold for
underapplied or overapplied overhead.)

#1 Job
1 2 3 4
Direct Materials 2,800 1,250 1,550 780
Direct Labor 500 430 465 210
 Overhead Applied 900 750 840 450
Total Cost of job 4,200 2,430 2,855 1,440

#2
Raw Materials 14,400
Accounts Payable 14,400

Work in Process
Manufacturing Overhead
Raw Materials

Work in Process

#3 Job 2:

#4 Racing Bikes
Income Statement
For Month Ended July 31, 2012
 ing Bikes, Inc.,
During July, its first
4. The following

###

b 2 (Hint: Two entries

Assume all payments

0. Prepare an income
ods sold for

Unlocked Work Area

Closing Manufacturing Overhead: Two Approaches. Olympia Company incurred actual manufacturing overhead costs of $630
during the year ended December 31, 2012. A total of $570,000 in overhead was applied to jobs. At December 31, 2012, work-
process inventory totals $200,000, and finished goods inventory totals $400,000. Cost of goods sold before adjustments totals
$1,400,000 for the year.

WIP 200,000
F. Goods 400,000
COGS 1,400,000
Required:
1. Is overhead underapplied or overapplied?
2. Create the journal entry to close the manufacturing overhead account, assuming the balance is immaterial.
3. Create the journal entry to close the manufacturing overhead account, assuming the amount is material.

#1 Manufacturing Overhead
Debit Credit

- -
Balance -

Overhead is: Under Applied

#2
Cost of Goods Sold
Manufacturing Overhead

#3
Work in Process
Finished Goods
Cost of Goods Sold
Manufacturing Overhead
** Debits to above accounts are NOT rounded - to get green you must use a formula
manufacturing overhead costs of $630,000
o jobs. At December 31, 2012, work-in-
goods sold before adjustments totals

alance is immaterial.
mount is material.

erhead
Credit
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Computing Product Costs Using Activity-Based Costing. Stillwater Company identified the following activities, estimated costs
each activity, and identified cost drivers for each activity for this coming year. (These are the first three steps of activity-based
costing.)

The company produces three products, Z1, Z2, and Z3. Information about these products for the month of January follows:

Actual cost driver activity levels for the month of January are as follows:

Required:
1. Using the estimates for the year, compute the predetermined overhead rate for each activity (this is step 4 of the activity-
based costing process).
2. Using the activity rates calculated in requirement 1 and the actual cost driver activity levels shown for January, allocate
overhead to the three products for the month of January (this is step 5 of the activity-based costing process).

3. For each product, calculate the overhead cost per unit for the month of January. Round results to the nearest cent.
4. For each product, calculate the product cost per unit for the month of January. Round results to the nearest cent.

ABC
Step 1. Identify costly activities required to complete products.
Step 2. Assign overhead costs to the activities identified in step 1.
Step 3. Identify the cost driver for each activity.
Step 4. Calculate a predetermined overhead rate for each activity.
Step 5. Allocate overhead costs to products. #1

Estimated
Activity Pools Cost Pools Driver OH Rate
Driver Activity
Ordering Parts 400,000 Purchase requisitions 5,000
Tracking Inventory of parts 560,000 # of parts purchased 80,000
Running machines 350,000 Machine hours 7,000
Inspecting finished products 200,000 Inspection hours 1,000
1,510,000
Units Produced
#3 Overhead Cost per Unit
Direct materials

#4 Total Unit Cost

Unlocked Work Area

ollowing activities, estimated costs for
e first three steps of activity-based

or the month of January follows:

tivity (this is step 4 of the activity-

els shown for January, allocate

d costing process).

esults to the nearest cent.

sults to the nearest cent.
 #2
Z1 Z2 Z3
Applied Applied Applied
Driver Used Driver Used Driver Used
Overhed Overhed Overhed

Units Produced 700

Overhead Cost per Unit 87.14
Direct materials 200.00
Direct Labor 70.00
Total Unit Cost
Journal Entry to Apply Overhead. Caspian Company is deciding which of three approaches it should use to apply overhead to
Information for each approach is provided in the following.
One plantwide rate. The predetermined overhead rate is 150 percent of direct labor cost.
Department rates. The Machining department uses a rate of $55 per machine hour, and the Assembly department us
direct labor hour.
Activity-based costing rates. Three activities were identified and rates were calculated for each activity.
Purchase requisitions 15 per requisition processed
Production setup 50 per setup
Quality control 70 per inspection

Required:
1. Direct labor costs for the year totaled $80,000. Using the plantwide method, calculate the amount of overhead applied to p
the appropriate journal entry.

2. During the year, the Machining department used 1,000 machine hours, and the Assembly department used 1,200 direct lab
department method, calculate the amount of overhead applied to products and make the appropriate journal entry.

3. During the year, 900 purchase requisitions were processed, 1,300 production setups were performed, and 400 products we
the activity-based costing approach, calculate the amount of overhead applied to products, and make the appropriate journal

[PDOH x Amt of Driver used = OH Applied]

#1
x =

#2
x =
x =

#3
x =
x =
x =

Unlocked Wo
 es it should use to apply overhead to products.

abor cost.
our, and the Assembly department uses a rate of $35 per

ulated for each activity.

the amount of overhead applied to products and make

mbly department used 1,200 direct labor hours. Using the

he appropriate journal entry.

were performed, and 400 products were inspected. Using

cts, and make the appropriate journal entry.

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Activity-Based Costing Versus Traditional Approach, Activity-Based Management. Quality Furniture, Inc., produces a wood d
that sells for $500 and a wood table that sells for $900. Last year, total overhead costs of $6,000,000 were allocated based on
direct labor costs. Direct labor costs totaled $2,000,000 last year, and Quality Furniture produced 15,000 desks and 5,000 tabl
Total direct labor and direct materials costs by product for last year were as follows:

Desk Table Total

Direct materials 1,575,000 950,000
Direct labor 1,200,000 800,000 2,000,000
Sales price 500 900
Total OH 6,000,000
Units produced 15,000 5,000

The management of Quality Furniture would like to use activity-based costing to allocate overhead rather than one plantwide
based on direct labor costs. The following estimates are for the activities and related cost drivers identified as having the great
impact on overhead costs.

Required:
1. Calculate the direct materials cost per unit and direct labor cost per unit for each product.
2.   a. Using the plantwide allocation method, calculate the predetermined overhead rate and determine the overhead cost
to the desk and table products.
b. Using the plantwide allocation method, calculate the product cost per unit for the desk and table products. Round res
nearest cent.
3.   a. Using the activity-based costing allocation method, calculate the predetermined overhead rate for each activity. (Hint
step 3 in the activity-based costing process have already been done for you; this is step 4.)

b. Using the activity-based costing allocation method, allocate overhead to each product. (Hint: This is step 5 in the activ
process.) Determine the overhead cost per unit. Round results to the nearest cent.

c. What is the product cost per unit for the desk and table products?

4. Calculate the per unit profit for each product using the plantwide approach and the activity-based costing approach. How m
did the per unit profit change when moving from one approach to the other?
#1 Materials & Labor Cost per Unit
Desk Table
Direct materials
Direct Labor

#2.a Estimated OH Costs

PDOH = = =
Estimated DL$

Desk Table

#2.b Desk Table

#3 ABC

Estimated
Activity Pools Cost Pools Driver Driver
Activity

Purchase orders 800,000 # of purchase orders 1,000

Machine setups 1,600,000 # of setups 500
Machine maintenance 2,400,000 Machine hours 60,000
Quality inspections 1,200,000 # of inspections 20,000
6,000,000

Overhead Cost per

#3.c

#4 Plantwide:
Desk Table

ABC:
Desk Table
ure, Inc., produces a wood desk
00 were allocated based on
15,000 desks and 5,000 tables.

d rather than one plantwide rate

dentified as having the greatest

etermine the overhead cost per unit allocated

nd table products. Round results to the

d rate for each activity. (Hint: Step 1 through

int: This is step 5 in the activity-based costing

ed costing approach. How much

Unlocked Work Area

 #3.a #3.b
Desk Table

Driver Applied Driver Applied

OH Rate
Used Overhed Used Overhed

Units Produced
Overhead Cost per Unit
Direct materials
Direct Labor
Total Unit Cost

Unlocked Work Area

Allocating Service Department Costs. Szabo Industries has two production departments (Finishing and Painting) and three serv
departments (Maintenance, Computer Support, and Personnel). Service department costs are allocated to production departm
the direct method. Maintenance allocates costs totaling $3,000,000 based on the square footage of space occupied by each p
department. Computer Support allocates costs totaling $4,000,000 based on hours of computer support used by each producti
department. Personnel allocates costs totaling $2,500,000 based on number of employees in each production department. Inf
for each production department follows.

Required:
1. Calculate the service department costs allocated to each production department.
2. Why do companies allocate service department costs to production departments?

Direct Method
Cost
Computer
Maintenance Personnel Finishing
Support
Maintenance
Square Footage 10,000
Allocation %
Allocated $
Computer Support
Hours of computer support
Allocation %
Allocated $
Personnel
Number of employees
Allocation %
Allocated $

Totals for Production Departments

2. Why do companies allocate service department costs to production departments?

hing and Painting) and three service
allocated to production departments using
age of space occupied by each production
er support used by each production
each production department. Information

Unlocked Work Area

Painting

30,000 40,000