Problem 1

Vertical Company uses a job-order costing system and the following information is available from its records. The
company has three jobs in process: #1, #2, and #3.

Raw material used P260,000

Direct labor per hour P19.00
Overhead applied based on direct labor cost 125%

Of the raw materials used, total of 85% were traceable to the specific jobs (Job #1: 25%; Job #2: 30%;
Job #3: 30%) and the balance of the requisitions was considered indirect. Direct labor hours per job are 2,800; 3,300;
and 4,000; respectively. Indirect labor is P90,000. Other actual overhead costs totaled
P100,000.
1. Assuming all of the jobs were completed and the company used actual costing, what is the total cost of goods
manufactured?
Answer: 641,900
2. Assuming only Jobs No. 2 and 3 were completed and sold, what is the cost of goods sold at year end?
Answer: 468,075
3. What is the under (DR) or over (CR) applied overhead?
Answer: 10,875 CR

Problem 1 - Solution: Various Accounts 229,000

Question #1
Total raw material used 260,000 To apply the actual OH to production:
X 85% WIP 229,000
Direct materials 221,000 MOH 229,000

WIP 221,000 WIP 641,900

RMInv 221,000 RMInv 221,000
Payroll 191,900
Total raw material used 260,000 MOH 229,000
X 15%
Indirect materials 39,000 FG 641,900
Indirect Labor 90,000 WIP 641,900
Other actual OH 100,000
Manufacturing OH 229,000 Direct materials 221,000
Direct Labor 191,900
Total direct labor hours Manufacturing OH 229,000
(2,800 + 3,300 + 4,000) 10,100 Total manufacturing cost 641,900
X 19.00
Direct labor 191,900
WIP, beg 0
WIP 191,900 Total manufacturing cost 641,900
Payroll 191,900 WIP, end ( 0)
Cost of goods manufactured 641,900
To record the actual OH:
MOH 229,000
 Manufacturing OH 229,000

Question #2 Total direct labor hours

Beginning inventory cost (2,800 + 3,300 + 4,000) 10,100
(DM, DL, MOH) xx X 19.00
Direct materials xx Direct labor 191,900
Direct Labor xx X 125%
Manufacturing OH xx OH Applied 239,875
Total cost of a specific job xxx
Manufacturing Overhead Control .

229,000 239,875 (Over-applied)

10,875 CR

WIP, end Assumption: We will use the situation in question #2.

DM Job #2: (260,000 x 30%) = 78,000
DM Job #3: (260,000 x 30%) = 78,000 IMMATERIAL:
Cost of goods sold 468,075
DL Job #2: (3,300 x 19) = 62,700 Over-applied OH (10,875)
DL Job #3: (4,000 x 19) = 76,000 Adjusted cost of goods sold 457,200

OH Applied, Job #2: (62,700 x 125%) = 78,375 MATERIAL:

OH Applied, Job #3: (76,000 x 125%) = 95,000 WIP, end 184,700
FG, end 0
DM Job #1: (260,000 x 25%) = 65,000 Cost of goods sold 468,075
DL Job #1: (2,800 x 19) = 53,200 Total 652,775
OH Applied, Job #1: (53,200 x 125%) = 66,500
Cost of goods sold 468,075
Question #3 Over-applied OH
Total raw material used 260,000 (10,875 x (468,075/652,775)) (7,798)
X 15% Adjusted cost of goods sold 460,277
Indirect materials 39,000
Indirect Labor 90,000
Other actual OH 100,000
Problem 2
Mercedes Manufacturing was a company engaging in manufacturing car parts. During this year, Mercedes
Manufacturing made 30,000 units of clutch kits. However after further inspection, it was determined that 4% of the
units made were spoiled. These spoiled units can be sold at P150 each.

The following were the total cost of the 30,000 clutch kits:
Direct materials P2,760,000
Direct labor (P140 per direct labor hour) P840,000
Applied overhead
(300 per direct labor hour inclusive of P50 allowance for spoiled work) P1,800,000

1. Assume that the spoiled goods were due to internal failure, what is the cost transferred to finish goods at the end
of the year?
Answer: 5,184,000
2. Assume that the spoiled goods were due to exacting specifications, what is the cost per good unit at the end of the
year?
Answer: 170.83

Problem 2 - Solution: Spoiled goods

Question #1 (Due to internal failure) Spoiled goods inventory 180,000
Direct Materials 2,760,000 MOH 36,000
Direct Labor (6,000 DLHrs) 840,000 WIP 216,000
MOH (Include P50 allowance) 1,800,000
Total initial Cost 5,400,000 FG 5,184,000
Divided by (units) 30,000 WIP 5,184,000
Initial cost per unit 180
Total Initial Cost
WIP 5,400,000 5,400,000
RMI 2,760,000
Payroll 840,000
MOH 1,800,000 Cost of good units Cost of spoiled
5,184,000 216,000
NRV of spoiled goods
(30,000 x 4%) x 150 180,000
Cost of spoiled goods NRV Loss
(30,000 x 4%) x 180 (216,000) 180,000 36,000
Loss (36,000) Cost of good units:
(28,800 x 180) = 5,184,000
Total initial cost 5,400,000
Cost of spoiled (216,000) Question #2 (Due to exacting specifications)
Total cost transferred to FG 5,184,000 Direct Materials 2,760,000
Good units (30,000 – 1,200) ÷ 28,800 Direct Labor (6,000 DLHrs) 840,000
Cost per good unit 180 MOH (6,000 x 250) 1,500,000
Total initial Cost 5,100,000
Divided by (units) 30,000 WIP 180,000
Initial cost per unit 170
WIP 5,100,000 FG 4,920,000
RMI 2,760,000 WIP 4,920,000
Payroll 840,000
MOH 1,500,000 Total Initial Cost
5,100,000
NRV of spoiled goods
(30,000 x 4%) x 150 180,000
Cost of spoiled goods Cost of good units Cost of spoiled
(30,000 x 4%) x 170 (204,000) 4,896,000 204,000
Loss (24,000)

Total initial cost 5,100,000 NRV Loss

NRV of spoiled goods (180,000) 180,000 24,000
Total cost transferred to FG 4,920,000
Good units (30,000 – 1,200) ÷ 28,800 Initial cost of good units:
Cost per good unit 170.83 (28,800 x 170) = 4,896,000
Loss + 24,000
Cost of goods per unit 4,920,000
Spoiled goods inventory 180,000

Problem 3
KW Inc. manufactured coil over springs for cars. During this year, KW Inc. manufactured 200 units
coil over springs. After final inspection, it was determined that 15 units were defective. The cost per
unit to rework the defective units were the following: P100 for direct materials, P160 for direct labor
and the appropriate factory overhead rate.

The following were the unit cost for the 200 coil over springs:

Direct materials P800

Direct labor P350
Applied overhead 160% of direct labor cost
(150% in case defective units were charged to specific order)

1. Assume that the defective goods were charged to all jobs, what is the cost transferred to finish goods at the end of
the year?
Answer: 342,000
2. Assume that the defective goods were due to specific job, what is the unit cost of each good unit at the end of the
year?
Answer: 1,712.50
Problem 3 - Solution: Defective goods
Question #1 (Charge to all jobs) Question #2 (Due to specific job)
Direct Materials(800 x 200) 160,000 Direct Materials(800 x 200) 160,000
Direct Labor (350 x 200) 70,000 Direct Labor (350 x 200) 70,000
MOH (70,000 x 160%) 112,000 MOH (70,000 x 150%) 105,000
Total initial Cost 342,000 Total initial Cost 335,000
Divided by (units) 200 Divided by (units) 200
Initial cost per unit 1,710 Initial cost per unit 1,675

WIP 342,000 WIP 335,000

RMI 160,000 RMI 160,000
Payroll 70,000 Payroll 70,000
MOH 112,000 MOH 105,000

Direct Materials(100 x 15) 1,500 Direct Materials(100 x 15) 1,500

Direct Labor (160 x 15) 2,400 Direct Labor (160 x 15) 2,400
MOH (2,400 x 160%) 3,840 MOH (2,400 x 150%) 3,600
Rework Cost 7,740 Rework Cost 7,500

Total initial cost 342,000 Total initial cost 335,000

Good units ÷ 200 Rework cost 7,500
Cost per good unit 1,710 Total cost transferred to FG 342,500
Good units ÷ 200
WIP 342,000 Cost per good unit 1,712.50
RMI 160,000
Payroll 70,000 WIP 335,000
MOH 112,000 RMI 160,000
Payroll 70,000
MOH 7,740 MOH 105,000
RMI 1,500
Payroll 2,400 WIP 7,500
MOH 3,840 RMI 1,500
Payroll 2,400
MOH 3,600

FG 342,500
WIP 342,500
Problem 4
RWB was a company specializing in aftermarket bodykits for cars. During the year RWB produced 1,500 units of body
kits. After final inspection, it was determined that 150 units were spoiled and 50 units were defective, but can be
reworked. The following were the cost of the 1,500 units of body kits produced:

Direct materials P4,650,000

Direct labor P1,200,000
Applied overhead (based on direct labor cost) P2,400,000

The spoiled units can be sold for P1,200 each and the unit cost for reworking each defective unit were P1,200 for direct
materials, P500 for direct labor and the appropriate applied overhead.
1. Assume that the spoiled and defective goods were charged to all jobs, what is the unit cost of each good unit
at the end of the year?
Answer: 5,500.00
2. Assume that the spoiled and defective goods were exacting specification, what is the unit cost of each good
unit at the end of the year?
Answer: 6,077.78

Problem 3 - Solution: Spoiled and Defective goods (2,400,000/1,200,000) = 200% of DL Cost

Question #1 (Charge to all jobs)
Direct Materials 4,650,000 Total initial cost 8,250,000
Direct Labor 1,200,000 Cost of spoiled (825,000)
MOH 2,400,000 Total cost transferred to FG 7,425,000
Total initial Cost 8,250,000 Good units (1,500 – 150) ÷ 1,350
Divided by (units) 1,500 Cost per good unit 5,500
Initial cost per unit 5,500
Journal Entry for Spoiled goods:
WIP 8,250,000 WIP 8,250,000
RMI 4,650,000 RMI 4,650,000
Payroll 1,200,000 Payroll 1,200,000
MOH 2,400,000 MOH 2,400,000

NRV of spoiled goods Spoiled goods inventory 180,000

(1,200 x 150) 180,000 MOH 645,000
Cost of spoiled goods WIP 825,000
(5,500 x 150) (825,000)
Loss (645,000) Journal Entry for Rework Cost:
MOH 135,000
Direct Materials(1,200 x 50) 60,000 RMI 60,000
Direct Labor (500 x 50) 25,000 Payroll 25,000
MOH (25,000 x 200%) 50,000 MOH 50,000
Rework Cost 135,000
FG 7,425,000
Predetermined OH Rate: WIP 7,425,000
Question #2 (Due to exacting specification)
Direct Materials 4,650,000 Total initial cost 8,250,000
Direct Labor 1,200,000 NRV of spoiled goods (180,000)
MOH 2,400,000 Rework Cost 135,000
Total initial Cost 8,250,000 Total cost transferred to FG 8,205,000
Divided by (units) 1,500 Good units (1,500 – 150) ÷ 1,350
Initial cost per unit 5,500 Cost per good unit 6,077.78

WIP 8,250,000 Journal Entry for Spoiled goods:

RMI 4,650,000 WIP 8,250,000
Payroll 1,200,000 RMI 4,650,000
MOH 2,400,000 Payroll 1,200,000
MOH 2,400,000
NRV of spoiled goods
(1,200 x 150) 180,000 Spoiled goods inventory 180,000
Cost of spoiled goods WIP 180,000
(5,500 x 150) (825,000)
Loss (645,000) Journal Entry for Rework Cost:
WIP 135,000
Direct Materials(1,200 x 50) 60,000 RMI 60,000
Direct Labor (500 x 50) 25,000 Payroll 25,000
MOH (25,000 x 200%) 50,000 MOH 50,000
Rework Cost 135,000
FG 8,205,000
Predetermined OH Rate: WIP 8,205,000
(2,400,000/1,200,000) = 200% of DL Cost