UNIVERSITY OF THE WEST INDIES Open Campus

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1 UNIVERSITY OF THE WEST INDIES Open Campus ACCT Intro. To Cost & Management Accounting Worksheet # 4: Job Order Costing Study Questions Potts Company uses a job costing system and had the following data available for 20X6. Direct materials purchased on account Material requisitioned (includes $2,000 of indirect material) Direct labour incurred Other manufacturing overhead incurred Predetermined manufacturing overhead rate (as a percentage of direct labour cost) Cost of goods completed Cost of goods sold $75,000 43,000 75,000 93, % 226, ,000 State the journal entries necessary to record the above transactions. As your final journal entry, dispose of any overhead variance as a direct write-off to COGS. Question 2 Getaway Homes manufactures prefabricated housing unit. The company uses a perpetual inventory system and a job costing system in which each unit is a job. The following events occurred during May. i) Purchased materials on account, $405,000 ii) Incurred manufacturing wages of $111,600. Requisitioned direct materials and used direct labour in manufacturing Unit 13 Unit 14 Unit 15 Unit 16 Direct Materials $41,100 56,800 62,100 66,000 Direct Labour $14,800 28,500 19,200 21,000 iii) Depreciation of manufacturing equipment used on different units, $20,000 iv) Other overhead costs incurred on units 13 through 16 Indirect labour Equipment rentals paid in cash Plant insurance expired $28,100 10,400 6,000 v) Allocated overheads to jobs at the predetermined rate of 60% of direct labour cost vi) Units completed: 13, 15 and 16 vii) Units sold: 13 for $99,000; 16 for $141,

2 (a) (b) (c) (d) (e) Record the preceding events in the general journal. Open T-accounts for Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero. Add the cost of the unfinished unit and show that this is equal to the ending balance on Work in Process Inventory Add the cost of the completed unit that has not yet been sold and show that this equals the ending balance in Finished Goods Inventory. Compute the gross profit on each unit that was sold. What costs must the gross profit cover for Getaway Homes? Online Discussion Questions (Kindly prepare these questions before each online session) WIP Inventory A/C September 1 Bal. 20,000 Direct Materials Used 30,000 Direct Labour assigned to jobs 32,000 Manufacturing Overhead allocated to jobs 16,000 Completed production not yet recorded consists of Jobs 142 and 143, with total costs of $40,000 and $38,000 respectively. i) Calculate the cost of the work in process at September 30. ii) Prepare the journal entry for production completed in September. iii) Prepare the journal entry to record the sale (on credit) of Job 143 for $45,000. Assume a perpetual inventory system. iv) What is the gross profit on Job 143? What other costs must this gross profit cover? Question 2 Yu Technology Co. manufactures CDs and DVDs for computer software and entertainment companies. Yu uses job order costing and has a perpetual inventory system. On November 2, Yu began production of 5,000 DVDs, Job 423, for Cheetah Pictures for $1.10 each. Yu promised to deliver the DVDs to Cheetah by November 5. Yu incurred the following costs: Date Labour Time Record No Description Amount 10 $20 $ $15 $300 Date Material Requisition No Description Amount 31 lbs polycarbonate $11 $ lbs acrylic $ lbs refined $

3 Yu Technology allocates manufacturing overhead to jobs based on the relation between estimated overhead of $540,000 and estimated direct labour costs of $450,000. Job 423 was completed and shipped on November 3. i) Calculate the predetermined overhead rate. ii) Calculate the overhead allocated. iii) Prepare a job cost record for Job 423. iv) Journalize in summary form the requisition of direct materials and the assignment of direct labour and manufacturing overhead to Job 423. v) Journalize completion of the job and the sale of the 5,000 DVDs. Question 3 The Solomon Company uses a job costing system at its Dover, Delaware plant. The plant has a machining department. Its job costing system has two direct cost categories (direct materials and direct manufacturing labour) and two manufacturing overhead cost pools (the machining department, allocated using machine hours and the finishing department, allocated using manufacturing labour costs). The 2002 budget for the plant is: Manufacturing Overhead Direct manufacturing labour cost Direct manufacturing labour hours $10,000,000 $ 900,000 30, ,000 $8,000,000 $4,000, ,000 33,000 (a) (b) What is the budgeted overhead rate that should be used in the machining department? In the finishing department? During the month of January, the cost record for job 431 shows the following: Direct material used Direct manufacturing labour costs Direct manufacturing labour hours $14,000 $ $3,000 $1, What is the total manufacturing overhead allocated to job 431? (c) (d) Assuming that job 431 consisted of 20 units of product, what is the unit product cost? Balances at the end of 2002 are as follows: Manufacturing overhead incurred Direct manufacturing labour costs Machine Hours $11,200,000 $ 950, ,000 $7,900,000 $4,100,000 32,000 Compute the manufacturing overhead variance for each department and for the Dover plant as a whole

4 Question 4 Bluebird Design, Inc. is a Web site design and consulting firm. The firm uses a job cost system, in which each client is a different job. Bluebird Design traces direct labour, licensing costs and travel costs directly to each job (client). It allocates indirect costs to jobs based on a pre-determined indirect cost allocation rate, computed as a percentage of direct labour costs. At the beginning of 2009 costs, managing partner Judi Jacquin prepared the following budget: Direct labour hours (professional)... 6,250 hours Direct labour costs (professional)... $1,000,000 Support staff salaries ,000 Computer leases.. 45,000 Office supplies. 25,000 Office rent... 60,000 In November 2009, Bluebird Design served several clients. Records for two clients appear here: Food Coop Mesilla Chocolates Direct labour hours... Licensing costs. Travel costs hours $2,000 $14, hours $150 - i) Compute Bluebird Design s predetermined indirect cost allocation rate for ii) Compute Bluebird Design s rate per direct labour hour. iii) Compute the total cost for each job. iv) If Jacquin wants to earn profits equal to 20% of sales revenue, what total fee should she charge each of these two clients? v) Why does Bluebird Design assign costs to jobs? - 4 -

5 Practice Question (The following question is to be used for self study session) The Freeman Foundry uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs, based on the machine hours required. At the beginning of 20X6, the company expected to incur the following: Manufacturing overhead costs Direct labour costs $600,000 $1,500,000 75,000 At the end of 20X6, the company had actually incurred: Direct labour costs Depreciation on manufacturing property, plant and equipment Property taxes on plant Sales salaries Delivery drivers wages Plant janitors wages $1,210, ,000 20,000 25,000 15,000 10,000 55,000 hours i) Compute Freeman s predetermined manufacturing overhead rate ii) Record the summary journal entry for allocating manufacturing overhead. iii) Post the manufacturing overhead transactions to the Manufacturing Overhead T- account. Is manufacturing overhead under- or over-allocated? By how much? iv) Close the Manufacturing Overhead account to Cost of Goods Sold. Does your entry increase or decrease cost of goods sold? v) Freeman s accountant found an error in her 20X6 expense records. Depreciation on property, plant and equipment was actually $400,000, not the $480,000 she had originally reported. Unadjusted balances at the end of 20X6 include Finished Goods Inventory Cost of Goods Sold $130, ,000 a) Use a T-account to determine whether manufacturing overhead is underallocated or over-allocated and by how much. b) Record the entry to close out the under-allocated or over-allocated manufacturing overhead. c) What is the adjusted ending balance of Cost of Goods Sold? - 5 -