Classify these industries with respect to the type of cost accumulation procedure

generally used–job order costing or process costing.

a. Meat k. Pianos

b. Sugar l. Linoleum

c. Steel m. Leather

d. Breakfast cereal n. Nylon

e. Paper boxes o. Baby foods

f. Wooden furniture p. Locomotives

g. Toys and novelties q. Office machines equipment

h. Coke r. Luggage

i. Cooking utensils s. Paint

j. Caskets t. Tires and tubes

SOLUTION:
 Job order cost procedure: (e), (f), (g), (i), (j), (k), (p), (q), (r)
 Process costing procedure: (a), (b), (c), (d), (h), (l), (m), (n), (o), (s), (t)
EXERCISE 2–JOB ORDER COST SHEET:
Forge Machine Works collects its cost data by the job order cost accumulation
procedure. For Job 642, the following data are available:
Direct Materials Direct Labor

9/14 $ Week of Sep.

Issued 1,200 20 180 hrs @ $6.20/hr

9/20 Week of Sep.

Issued 662 26 140 hrs @ $7.30/hr

9/22
Issued 480

Factory overhead applied at the rate of $3.50 per direct labor hour.Required:
1. The appropriate information on a job cost sheet.
2. The sales price of the job, assuming that it was contracted with a markup of
40% of cost.

SOLUTION:
1.

Forge Machine Works

Job Order Cost Sheet–Job 642

Direct materials Direct labor Applied factory overhead

Date Date
Date (Week (Week
Issued Amount of) Hours Rate Cost of) Hours Rate Cost

9/14 $1,200 9/20 180 $6.20 $1,116 9/20 180 $3.50 $630

9/20 662 9/26 140 7.30 1,022 9/26 140 3.50 490

9/22 480

——– ———- ———-

$2,342 $2,138 $1,120

===== ====== ======

2.
Sales Price of job 642, contracted with a markup of 40% of cost:
Direct materials $2,342

Direct labor 2,138

Applied factory overhead 1,120

Total factory cost $5,600

Markup 40% of cost 2,240

——-

$7,840
=====

EXERCISE 3–JOB ORDER COSTING:

The Cambridge Company uses job order costing. At the beginning of the May, two jobs
were in process:
Job
369 Job372

$
Materials 2,000 $ 700

Direct labor 1,000 300

Applied factory overhead 1,500 450

 There was no inventory of finished goods on May1. During the month, Jobs
373, 374, 375, 376, 378, and 379 were started.Materials requisitions for May
totaled $13,000, direct labor cost, $10,000, and actual factory overhead,
$16,000. Factory overhead is applied at a rate of 150% of direct labor cost. The
only job still in process at the end of May is No. 379, with costs of $1,400 for
materials and $900 for direct labor. Job 376, the only finished job on hand at
the end of May, has a total cost of $2,000.
Required:
1. T accounts for work in process, finished goods, cost of goods sold, factory
overhead control, and applied factory overhead.
2. General journal entries to record:
a. Cost of goods manufactured
b. Cost of goods sold
c. Closing of over or underapplied factory overhead to cost of goods sold.

SOLUTION:
T Accounts
Finished Goods

From
Work in
Process 40,300May31 Cost of
Balance: goods
No.376 2,000 sod 38,300

Work in Process

Cost of Goods sold

From finished
May1 Balance goods 38,300Underapplied
No. 369 4,500 Overhead 1,000
No.
39,300
372 1,450Materials 13,0
00Direct labor 10,000Factory
O/H 15,000
43,950May31 Balance: Finished
goods 40
No. 379 3,650* ,300 Applied Factory Overhead

*$1,400 + $900 + ($900 × 150%)

Factory Overhead Control 1 1
5,000 5,000
15,000
16, 1,000
000 16,000

General journal entries to record:

Cost of goods manufactured: Dr Cr

Finished goods 40,300

 Work in process 40,300

Cost of goods sold:

Cost of goods sold 38,300

Finished goods 38,300

Closing of underapplied factory overhead to cost of goods

sold:

Cost of goods sold 1,000

Factory overhead control 1,000

EXERCISE 4–JOB ORDER CYCLE ENTRIES:

Beaver, inc. provided the following data for January, 19B:
Materials and supplies:

Inventory, January 1, 19B $10,000

Purchases on account 30,000

Labor:

Accrued, January 1, 19B 3,000

Paid during January (ignore payroll taxes) 25,000

Factory overhead costs:

Supplies (issued from materials) 1,500

Indirect labor 3,500

Depreciation 1,000

Other factory overhead costs (all from outside suppliers on

account) 14,500

Work in process:

Job1 Job2 Job3 Total

Work in process January 1, $

19B 1,000 — — $ 1,000

Job costs during January,

19B:
 Direct materials 4,000 $6,000 $5,000 15,000

Direct labor 5,000 8,000 7,000 20,000

Applied factory overhead 5,000 8,000 7,000 20,000

Job 1 started in December, 19A, finished during January, and sold to a customer
for $21,000 cash

Job 2 started in January, not yet finished.

Job 3 started in January, finished during January, and now in the finished goods
inventory awaiting customer’s disposition

Finished goods inventory January 1, 19B.

Required:
Journal entries, with detail for the respective job orders and factory overhead subsidiary
records, to to record the following transactions for the January:
1. Purchase of materials on account.
2. Labor paid.
3. Labor cost distribution.
4. Materials issued.
5. Depreciation for the month.
6. Acquisition of other overhead costs on credit.
7. Overhead applied to production.
8. Jobs completed and transferred to finished goods.
9. Sales revenue.
10. Cost of goods sold.
SOLUTION:
Journal Entries:
Subsidiary
Record Debit Credit

1 Materials 30,000

Accounts payable 30,000

2 Accrued payroll 25,000

Cash 25,000

3. Factory overhead control 3,500

Indirect labor 3,500

Work in process (WIP) 20,000

 Job1 5,000

Job2 8,000

Job3 7,000

Payroll 23,500

4. Work in process 15,000

Job1 4,000

Job2 6,000

Job3 5,000

Factory overhead control 1,500

Supplies 1,500

Materials 16,500

5 Factory overhead control 1,000

Depreciation 1,000

Accumulated Depreciation 1,000

6 Factory overhead control 14,500

Other factory overhead costs 14,500

Accounts payable 14,500

7 Work in process 20,000

Job1 5,000

Job2 8,000

Job3 7,000

Factory overhead control (or

applied FOH) 20,000

8 Finished goods 34,000

Work in process (WIP) 34,000

Job1 15,000

Job3 19,000
 9 Cash 21,000

Sales 21,000

10 Cost of goods sold 15,000

Finished goods 15,000

EXERCISE 5 JOB ORDER COSTING–JOURNAL ENTRIES, T

ACCOUNTS, INCOME STATEMENT
Hogle Company is a manufacturing firm that uses job order costing system. On January
1, the beginning of its fiscal year, the company’s inventory balances were as follows:
Raw materials $20,000
Work in process $15,000
Finished Goods $30,000
The company applies overhead cost to jobs on the basis of machine-hours worked. For
the current year, the company estimated that it would work 75,000 machine-hours and
incur $450,000 in manufacturing overhead cost. The following transactions were
recorded for the year
1. Raw materials were purchased on account, $410,000.
2. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct
materials and $20,000 indirect materials).
3. The following costs were incurred for employee services: direct labor, $75,000;
indirect labor, $110,000; sales commission, $90,000; and administrative salaries,
$20,000.
4. Sales travel costs were $17,000.
5. Utility costs in the factory were $43,000.
6. Advertising costs were $180,000.
7. Depreciation was recorded for the year, 350,000 (80% relates to factory operations,
and 20% relates to selling and administrative activities).
8. Insurance expired during the year, $10,000 (70% relates to factory operations, and
30% relates to selling and administrative activities).
9. Manufacturing overhead was applied to production. Due to greater than expected
demand for its products, the company worked 80,000 machine-hours during the
year.
10. Goods costing $9,00,000 to manufacture according to their job cost sheets were
completed during the year.
11. Goods were sold on account to customers during the year at a total selling price of
$1,500,000. The goods cost $870,000 to manufacture according to their job cost
sheets.
Required:
1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don’t forget to enter the beginning
balances in the inventory accounts).
3. Is manufacturing overhead underapplied or overapplied for the year? Prepare
journal entry to close any balance in the manufacturing overhead account to cost of
goods sold (COGS). Do not allocate the balance between ending inventories and
cost of goods sold (COGS).
4. Prepare an income statement for the year.
SOLUTION:
1: Journal Entries
1 Raw materials 410,000

Accounts payable 410,000

2 Work in process 360,000

Manufacturing overhead 20,000

Raw materials 380,000

3 Work in process 75,000

Manufacturing overhead 110,000

Sales commission expense 90,000

Administrative salaries expense 200,000

Salaries and wages payable 475,000

 4 Sales travel expense 17,000

Accounts payable 17,000

5 Manufacturing overhead 43,000

Accounts payable 43,000

6 Advertising expense 180,000

Accounts payable 180,000

7 Manufacturing overhead 280,000

Depreciation expense 70,000

Accumulated depreciation 350,000

8 Manufacturing overhead 7,000

Insurance expense 3,000

Prepaid insurance 10,000

9* Work in process 480,000

Manufacturing overhead 480,000

10 Finished Goods 900,000

Work in process 900,000

11 Accounts Receivable 1,500,000

Sales 1,500,000

Cost of goods sold 870,000

Finished goods 870,000

*The predetermined overhead rate for the year would be computed as follows:
Predetermined overhead rate = Estimated total manufacturing overhead cost /
Estimated total units in the allocation base
= $450,000 / 75,000 machine-hours
= $6 per machine-hour
Based on the 80,000 machine-hours actually worked during the year, the company
would have applied $480,000 in overhead cost to production: 80,000 machine-
hours × $6 per machine-hour = $480,000.
2: T Accounts
 Work in Process

Bal. 20,
Raw Materials
000
(2) 360,
Accounts Receivable Bal. 2 000
0,000 (3) 75,
(1) 41 (2) 3 000
0,000 80,000 (9) 480, (10) 900
000 ,000
11 1,500,000
Bal. 5
0,000 Bal. 30,
000

Finished Goods Accumulated Depreciation

Bal. 3 Prepaid Insurance

0,000
10 90 (11) 87
0,000 0,000 (7) 350,000

(8) 10,000

Accounts Payable Manufacturing Overhead

Salaries and Wages (2) 20,

Payable 000
(1) 410,000 (3) 110,
(4) 17,000 000
(5) 43,000 (5) 43,
(6) 180,000 000
(3) 475,000
(7) 280,
000
(8) 7, (9) 480,
000 000
Sales
Cost of goods sold
460 480,
,000 000

(11) 1,500,000
(11) 870,000
Bal. 2
0,000

Sales Commissions
Expenses Administrative Salary
Expense
Insurance Expense

(3) 90,000 (3) 200,000

(8) 3,000

Advertising expense Depreciation Expenses

Sales Travel Expense

(6) 180,000 (7) 70,000 (4) 17,000

3: Under or Overapplied manufacturing overhead:

Manufacturing overhead is overapplied for the year. The entry to close it out to cost of
goods sold is as follows:
Manufacturing
overhead 20,000
Cost of goods
sold 20,000