Chapter 5 - Joc SM

104 Chapter 5
CHAPTER 5
JOB ORDER COSTING
QUESTIONS
1. The two choices for cost accumulation are the job order and process costing
systems. A company should use job order costing when it is necessary and
possible to trace costs to products made for individual customers, and when the
products made for one customer are very different from those made for other
customers.
A process costing system is appropriate for production environments that make
homogeneous products, usually in large quantities, in batch or continuous flow
systems.
2. The three valuation methods are actual, normal, and standard costing. In actual
costing, the actual amounts of material, labor, and overhead costs are assigned to
production. In normal costing, the actual amounts of material and labor are
assigned to production; however, overhead is applied to products using a
predetermined overhead rate (rather than using the actual amount).
In standard costing, standard (or “expected norm”) amounts are established for
material, labor, and overhead costs and/or quantities and are charged to production
rather than the actual costs. The standard for overhead is the predetermined rate
(or rates) for the company. Actual costs are accumulated in a standard costing
system so that they may be compared with standard costs to determined favorable
and unfavorable variances.
3. The principal documents are job order cost sheets, material requisition forms,
and employee time sheets. A job order cost sheet provides all details for a specific
job and is used to track the actual costs of direct material and direct labor, and
either actual or applied manufacturing overhead associated with a particular job;
such amounts may be compared to budgeted costs. Material requisition forms are
used to initiate the removal of the material from inventory for use in a particular
job. Employee time sheets are used to track the time worked by individual
employees to specific jobs.
4. Job order costing information allows managers to better estimate the costs of
producing products and of serving specific customers. This information can be
used to manage costs, identify which customers generate the most profitable
business, and set prices for products and services.
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105 Chapter 5
5. If normal spoilage is generally anticipated on all jobs in a job order costing
system, the estimated overhead used in setting the predetermined overhead rate
should include an amount for the net cost of the spoilage. This treatment allows
the cost of normal spoilage to be spread over all jobs produced. In contrast, if
spoilage is related to a single job, the cost of that spoilage should be assigned to
the job that gave rise to the spoilage.
6. Normal spoilage refers to an expected reduction in production quantity based
on a company’s production technology, quality of material and labor used, and
production practices. The level of such a loss may be established from
management or engineering; given cost/benefit analysis, management has
generally concluded that a certain level of defects is less expensive than trying to
prevent all defects from occurring. Because normal spoilage is expected, an
estimate for the loss is generally included in the development of the predetermined
overhead rate.
Alternatively, abnormal spoilage refers to a loss level above that which is

normally expected. Such losses are more likely to be preventable and, thus, need
to be brought to management’s attention by showing the amount of the loss as a
period cost.
7. When standards are used in a job order costing system, cost and quantity
standards may not be able to be determined for material and labor. Standards can
only be used if elements of the jobs produced have some common characteristics.
Thus, if many jobs use the same direct material, a price standard might be
developed for that material. However, the jobs may use very different quantities of
that material, and thus, no quantity standard can be developed. Alternatively, a
company may pay the same wage rate to all workers performing tasks in a specific
department and all jobs flow through that department; in such a case, a labor wage
standard can be determined but possibly not a labor hour quantity standard.
8. In a standard costing system, variances identify the areas of efficiency and
inefficiency in production operations. Managers, using the concept of
management by exception, focus their attention on the significant variances and
attempt to determine causes of those variances (both favorable and unfavorable).
Additionally, managers will look for interactions between or among the variances.
By concentrating on the significant variances, managers are able to isolate the
aspects of operations that are “out of control” and try to correct the causes.
Chapter 5 106
EXERCISES
9. a. job order
b. job order
c. process
d. job order
e. job order
f. job order
g. job order
h. process
i. job order
j. process
k. job order
l. process
m. process
n. job order
o. job order
p. job order
q. process
10. Two characteristics of the proposal are critical in

advising London about a costing system: the expected high sales volume and the
repetitive nature of production implied by that high sales volume. These
characteristics indicate that London’s best choice would be to use a process
costing system and standard cost valuations. Standard costing would benefit
London because it would help identify inefficiencies in production operations and
help her identify ways to reduce production costs.
The homogeneous nature of the product makes the use of job order costing
unnecessary (its higher cost is not justified).
11. Each student will have a different answer, depending on the particular yacht
selected. Some will discuss the yacht’s size; others will discuss the interior
finishes; others will discuss the navigation equipment. The $23.9 million
Richmond Lady Hull #5 2008 (http://richmondyachts.com/pdf/142RICHMOND
LADYBOATSHOWPRICE.pdf) provides numerous features upon which
students can focus.
12. a. Employee time card
b. Work in Process Inventory Control or Finished Goods
Inventory
c. Raw Material Inventory
107 Chapter 5
d. Job order cost sheet
e. Manufacturing Overhead Control
f. Job order cost sheet
g. Raw Material Inventory
h. Finished Goods Inventory or Cost of Goods Sold
i. Manufacturing Overhead Control
j. Work in Process Inventory Control
13. a. The direct material charge of $658,000 is higher than the estimate by $158,000.
Assuming that there were no errors in the estimated and actual amounts, then
either the price paid for the material or the quantity of material used was
substantially higher than expected. To begin the validation process, details of
the original estimate to identify prices and quantities of material for this job
would need to be examined.
The starting point to validate the material prices and quantities purchased is to
examine vendor invoices billed to Quindo. These invoices will validate
material purchase quantities and prices paid by Quindo. Additionally, material
requisition forms should be examined to validate the quantity of material
actually used in production. Next, an examination of the material cost (material
quantity multiplied by material price) on the job order cost sheet should
reconcile to the quantity of material shown on the material requisition forms.
b. The direct labor charge of $625,000 is higher than the
estimate by $225,000. Assuming that there were no errors in the estimated and
actual amounts, then either the hourly rate paid to or the number of hours
worked by employees was substantially higher than expected. To begin the
validation process, details of the original estimate to identify rates and hours for
labor on this job would need to be examined.
The starting point to validate the labor rates and hours worked is to examine
employee time sheets (or other labor accumulation documents). The time sheets
will validate which employees worked on the job and for what period of time.
A discussion with the payroll manager should help ascertain the actual or
average wage rates paid to employees. Possibly some of Quindo’s employees
who were listed as working on the job should be interviewed to determine the
accuracy of the time sheets.
c. The predetermined overhead rate could have been

manipulated to a higher rate by using a lower denominator level of activity than
was appropriate. Additionally, inappropriate costs (such as period costs in
Chapter 5 108
addition to product overhead costs) could have been included in the numerator.
A large estimate for spoilage and defect costs might also have been included in
the numerator when, in fact, such costs rarely occur at Quindo Industries.
d. The company’s behavior is at best questionable. Given
that the difference between actual and estimated direct material cost was likely
known at the point of purchase, Quindo should have notified Salem Corp.
immediately of the excessive increase in cost. Similar notification should have
been provided when it was seen that direct labor and machine times were
higher than expected.
14. a. Raw Material Inventory 204,000
Accounts Payable 204,000
Work in Process Inventory—#4263 163,800
Manufacturing Overhead 12,460
Raw Material Inventory 178,130
Cash (3,720  $15) 55,800
Cash ($18,000 + $7,200 + $9,500) 34,700
Accumulated Depreciation 21,500
Wages Payable 12,500
b. RM Inventory = $4,300 + $204,000  $163,800  $12,460  $1,870 = $30,170
c. Because the company worked only on Job #4263 until
the end of April, all costs in beginning WIP for other jobs are still in that
account at the end of the month.
Beginning WIP $11,400
Less costs associated with Job #4263 (800)
Costs associated with other jobs $10,600
Costs for Job #4264 ($1,870 + $1,800 + $2,160)
5,830
Ending WIP $16,430
109 Chapter 5
d. CGM = Beginning WIP + Current period costs – Ending WIP
= $11,400 + $163,800 + $1,870 + $55,800 + $66,960  $16,430
= $283,400
Unit cost = $283,400 ÷ 10,000 = $28.34
e. Applied OH – Actual OH = $66,960  ($12,460 + $68,700) = $14,200

underapplied
15. a. OH rate = $134,400 ÷ $96,000 = 140% of direct labor
b. Ending WIP balance:
DM $37,725
DL 18,100
OH ($18,100  1.40)
25,340
Ending balance $81,165
c. CGM = Beg. WIP + Current costs – Cost of jobs
completed
= $0 + $138,600 + $96,000 + $134,400  $81,165
= $287,835
WIP—Job #217 44,800
WIP—Job #218 7,200
WIP—other jobs 53,600
Direct Material Inventory 105,600
WIP—Job #217 10,400
WIP—Job #218 14,000
Cash (or Wages Payable) 44,000
Various accounts 220,000
WIP—Job #217 51,480
WIP—Job #218 69,300
(Actual rate per DL$ = $44,000  $4.95)
Chapter 5 110
Finished Goods Inventory 117,880
WIP Inventory—Job #217 117,880
($11,200 + $44,800 + $10,400 + $51,480
= $117,880)
Cash 159,138
Sales 159,138
($117,880 × 1.35 = $159,138)
Cost of Goods Sold 117,880
b. Ending WIP = Beg. WIP + Current costs – Cost of Job
#217 completed
= $16,800 + $105,600 + $44,000 + $217,800  $117,880
= $266,320
Ending balance in Job #218 = $5,600 + $7,200 + $14,000 + $69,300
= $96,100
17. a. OH rate = $127,680 ÷ 7,600 = $16.80 per DLH
b. Average DL rate = $159,600 ÷ 7,600 = $21 per DLH
c. 15,200  ($21.00 + $16.80) = 15,200  $37.80 = $574,560
DL & OH $916,650  $574,560 = $342,090 DM in beginning WIP
d. If workers on the job in ending WIP are assumed to be paid the average DL
rate, then the ending WIP balance is:
DM $ 73,250
DL (2,850  $21) 59,850
OH (2,850  $16.80)
47,880
e. CGM = Beg. WIP + Current period costs – End. WIP
= $916,650 + $589,670 + $159,600 + $127,680  $180,980
= $1,612,620
18. a. CGS is the amount credited to Finished Goods Inventory for the year.
CGS = $1,890,000
b. Beg. FG + CGM – End. FG = CGS
111 Chapter 5
$90,000 + CGM  $57,000 = $1,890,000
CGM + $33,000 = $1,890,000
CGM = $1,857,000
c. Applied OH = $395,000 × 1.40 = $553,000
d. Beg. WIP + DM used + DL + OH – End. WIP = CGM
$56,000 + DM + $395,000 + $553,000  $27,640 = $1,857,000
DM + $976,360 = $1,857,000
DM = $880,640
e. Beg. DM + P – DM used = End. DM
$24,600 + P  $880,640 = $4,100
P  $856,040 = $4,100
P = $860,140
19. a. CGS = 0.75  Sales = 0.75($1,598,000) = $1,198,500
b. Beg. FG + CGM – End. FG = CGS
$68,900 + CGM  $165,600 = $1,198,500
CGM  $96,700 = $1,198,500
CGM = $1,295,200
c. Job B325: Applied OH = 85% of DL$ = 0.85(128  $12.90) = 0.85  $1,651.20
= $1,403.52
Job Q428: Applied OH = 85% of DL$ = 0.85(240  $12.90) = 0.85 
$3,096.00 = $2,631.60
d. Job B325 Q428
DM $21,980.00 $14,700.00
DL 1,651.20 3,096.00
OH 1,403.52 2,631.60
$25,034.72 $20,427.60
e. CGM = Beg. WIP + DM used + DL + OH – End. WIP
$1,295,200 = $14,600 + DM used + $12.90(25,760) + 0.85($12.90  25,760)
– ($25,034.72 + $20,427.60)
$1,295,200 = $14,600 + DM used + $332,304 + $282,458.40  $45,462.32
$1,295,200 = $583,900.08 + DM used
DM used = $711,299.92
Beg. DM + Purchases  DM used = End. DM
$19,500 + $843,276  $711,299.92 = End. DM
End. DM (destroyed) = $151,476.08
Chapter 5 112
20. a. Case #1 Case #2 Case #3 Case #4

DM $ 480 $ 8,800 $ 3,700 $ 850
DL ($190 per hour) 7,600 17,100 13,300 2,850
OH ($150 per court hour) 1,800

9,750 18,000

6,000
Totals $9,880 $35,650 $35,000 $9,700
b. DM $10,100
DL (174  $190) 33,060
OH (72  $150) 10,800

Total cost $53,960
Markup (45%) 24,282

Total billed to client $78,242
21. a. Overhead rate = Budgeted OH ÷ Budgeted DL$
$4.25 = $1,275,000 ÷ Budgeted DL$
Budgeted DL cost = $1,275,000 ÷ $4.25
Budgeted DL cost = $300,000
Overhead rate = $1,275,000 ÷ $300,000 = $4.25 per DL$
b. Work in Process Inventory 96,475
($22,700  $4.25 = $96,475)
c. $4.25  3,900 = $16,575
d. Beginning balance $18,350
Direct material 29,600
Direct labor 3,900
Manufacturing overhead 16,575

22. a. Direct material $2,850
Direct labor ($800 ÷ $20 = 40 DLHs) 800
Applied overhead ($17  40) 680
Total cost of Job #920 $4,330
b. BI of WIP [$8,250 + $500 + ($17  25)] $ 9,175
Direct material $21,650
Direct labor ($6,300 ÷ $20 = 315 DLHs) 6,300
Applied overhead ($17  315) 5,355
33,305
113 Chapter 5
$42,480
EI of WIP
(4,330)
Cost of goods manufactured $38,150
c. Actual overhead $ 5,054
Applied overhead (5,355)

Overapplied OH $ 301
23. a. Mixing: $480,000 ÷ 60,000 = $8 per MH
Paving: $700,000 ÷ 28,000 = $25 per DLH
b. Mixing (290 MHs  $8) $ 2,320
Paving (340 DLHs  $25) 8,500
Total overhead applied $10,820
c. ($480,000 + $700,000) ÷ (60,000 + 12,000) = $1,180,000 ÷ 72,000 = $16.39
$16.39  334 = $5,474.26 applied to Job #220
A plantwide rate would not have been indicative of the actual cost of each job
because the Mixing department is very machineintensive while the Paving
department is very laborintensive.
24. a. Department 1 = $465,000 ÷ 30,000 MHs = $15.50 per MH
Department 2 = $380,600 ÷ 22,000 DLHs = $17.30 per DLH
b. Raw Material Inventory 346,000
Work in Process Inventory—Job #462 19,000
Work in Process Inventory—other jobs 321,000
Work in Process Inventory—Job #462 275
Cash (285  $11) 3,135
Overhead Control (2,400  $15.50) 37,200
Cash (1,430  $18) 25,740
Chapter 5 114
Work in Process Inventory—Job #462 346
Overhead Control (180  $17.30) 3,114
Finished Goods Inventory—Job #462 27,425
($19,000 + $275 + $4,960 + $2,844 + $346)
Accounts Receivable—Power 32,910
Sales ($27,425  1.20) 32,910
Finished Goods Inventory—Job #462 27,425
c. Cost per unit = $27,425 ÷ 500 = $54.85
Selling price per unit = $65.82
Raw material = $19,000 ÷ 500 = $38
d. Total RM issued $340,000
Total units (500 + 20,000) ÷ 20,500
RM cost per unit $ 16.59 (rounded)
Total cost per unit = $54.85  $38.00 + $16.59 = $33.44
Selling price per unit = $33.44  1.2 = $40.13 (rounded)
Sales without error $ 32,910
Sales with error (500  $40.13) (20,065)
Total “savings” of the error $ 12,845
25. a. Currently, Bonivo has no data on the actual cost of building any of the
computers being configured. Consequently, the company is unable to determine
the actual profit (loss) generated on any sales transaction. The job order costing
system would allow Bonivo to better understand what factors drive costs in the
firm, measure the profit on sales transactions, and identify ways to better
manage costs and revenues.
b. A pricing policy that ignores the costs of direct labor
and overhead (in addition to marketing and administrative costs) is flawed.
Only if DL and OH are strictly proportional to direct material could their costs
not be considered in determining the price and profit of each computer.
115 Chapter 5
However, in this case, these costs are likely a major portion of the cost of
building a madetoorder computer.
26. a. Secretary ($4,800 ÷ 160 hrs.  35 hrs.) $ 1,050

Copies (1,450 pages  $0.06 per page) 87
Phone calls 145
Overhead ($9,600 ÷ 160 hrs.  35 hrs.) 2,100
Attorney’s time ($190  95 hrs.)
18,050
Total charges $21,432
This means Conroe would be charging $21,432 ÷ 95 = $225.60 or $230 per
hour (rounded).
Total bill to Olivgra = 95 hours  $230 = $21,850
b. Direct costs ($87 + $145 + $18,050) $18,282
Allocated secretarial costs 1,050
Allocated overhead 2,100
Margin [($18,282 + $2,100) × 0.40] 8,153
Total billing $29,585
c. A flat charge per hour would be more likely to be

acceptable to clients because such a charge is more understandable than being
charged an hourly rate plus a charge for the time that is not really being spent
on their cases.
27. Each student will have a different answer, but the memo should address the
following issue: Budgeted cost is far below each job’s actual cost, which indicates
that the company is not using past job information as a basis for either controlling
costs or increasing future bid prices. By not using available historical information
to adjust operations, the company is accepting marginal jobs. Although each job
generated a positive gross margin, the actual gross margin is only a small fraction of
the budgeted gross margin. It is important that a company learn from past mistakes.
28. a. Some of the companies that have been found to engage in this practice are

Family Dollar, Pep Boys, Taco Bell, ToysRUs, and Walmart.
b. It is easier to doctor the records now than in the past
because records are computerized and managers generally have access to the
files. Previously, managers would have had to conspire with payroll clerks or
accountants to change paper or punchcard records.
c. Each student will have a different answer. However,

most students will probably indicate that store managers making such changes
Chapter 5 116
would be fired (short run). For the long run, ethics training would probably be
recommended and possibly a change in the way store managers’ bonuses are
computed.
29. a. Manufacturing Overhead 1,150
Raw Material Inventory 250
Wages Payable 900
b. WIP—Job #BA468 1,150
Wages Payable 900
Given that the rework costs were not necessary to the completion of the job,
San Angelo Corp. should probably not charge its markup percentage on the
$1,150 of rework costs unless the customer had already been informed that such
charges might be charged and the customer had agreed to such charges.
c. Loss on Abnormal Rework 1,150
Wages Payable 900
30. a. Predetermined OH rate = $1,421,000 ÷ 145,000 = $9.80 per MH
Direct labor 21,800
Overhead (325 × $9.80) 3,185
Total cost $72,485
Perunit cost = $72,485 ÷ 1,500 = $48.32 (rounded)
b. The $750 rework cost is included in Manufacturing

Overhead Control.
c. Total original cost $72,485
Cost of new 30 units 1,390
Less sale of defective units (240)
Total cost of Job #876 $73,635
31. a. The estimated cost of the spoilage should be included in calculating the
predetermined overhead rate. This approach spreads the cost of spoilage across
all good units produced.
b. The cost of this spoilage should be charged to the specific
job. Since there is no salvage value for the spoilage, no journal entry would be
117 Chapter 5
necessary as the cost of the spoiled units would be included in the prior charges
to the job for direct materials, direct labor, and manufacturing overhead.
c. In this case, the spoilage is unexpected and the net cost

should be recorded as a loss of the period in which it occurred. Any salvage
value associated with the spoilage will reduce the amount of the loss. To record
the transaction, work in process (and the specific job’s job order cost sheet)
should be credited for the cost of the spoilage and the expected, net salvage of
the spoilage should be debited (Disposal value of defective work). A loss
account (e.g., Loss from Abnormal Spoilage) should be debited to balance the
transaction.
32. A standard costing system is most appropriate in production settings in which

activities are repetitive. That criterion is met in the case of Latamore Industries.
Development of such standards requires that reliable expectations about input cost
amounts and quantities be determined for the more routine aspects of client
services. Once the standards are developed, actual costs and input quantities can
be compared against the standards to better understand the causes of cost
variability across the contracts. Better identification and understanding of the
causes of variances will allow managers to manage costs more effectively and
price company services more appropriately.
33. MPV = Actual cost for paper purchased – Standard cost for paper purchased
= ($0.032  980,000) – ($0.036  980,000) = $31,360  $35,280
= $3,920.
Since actual cost was less than standard, the variance is favorable.
MQV = Actual cost for paper used – Standard cost for paper that should have
been used = ($0.036  980,000) – ($0.036  984,000) = $35,280  $35,424
= $144.
Since actual paper usage was less than the standard allowed, the variance is
favorable.
34. a. Total payroll = 9,000 × $9.65 = $86,850
b. LRV = Actual payroll – Standard cost for actual hours worked = $86,850 –
($9.85 × 9,000) = $86,850  $88,650 = $1,800.
Since direct labor employees were paid less than the standard rate, the variance
is favorable.
c. LQV = Standard cost for actual hours worked – Standard cost for standard
Chapter 5 118
hours allowed for production = $88,650 – ($9.85  8,600) = $88,650 
$84,710 = $3,940.
Since the number of hours worked was greater than the standard hours allowed,
the variance is unfavorable.
d. One concern would be the reason the company was paying its workers less than
the standard rate per hour. The other concern would be that the workers,
recognizing that they were being paid less than the standard, chose to work
more slowly than they normally would, to compensate (relative to total wages)
for the reduced wage. If this situation is the case, the company would have been
better off paying the standard rate because the actual payroll was ($86,850 
$84,710) or $2,140 greater than the standard would have been.
119 Chapter 5
PROBLEMS
35. Raw Material Inventory 790,000

Work in Process Inventory 570,000
Work in Process Inventory ($794,000  0.55) 436,700
Finished Goods Inventory 1,046,000
Work in Process Inventory 1,046,000
Cost of Goods Sold 1,046,000
Cash 1,342,000
Sales 1,342,000
36. a. $82,000  8,000 DLHs = $10.25 per DLH
b. Direct Material Inventory 90,000
Cash 75,600
($2,000 + $90,000  $3,500)
Chapter 5 120
CGM = BWIP + DM + DL + OH – EWIP
CGM = $10,500 + $88,500 + $75,600 + $82,000 –
$7,750 = $248,850
Accounts Receivable 350,400
Sales 350,400
c. Beginning FG $ 6,500
CGM 248,850
CGS (243,700)
Ending FG $ 11,650
37. a. 9/1 Raw Material Inventory 1,940,000
Accounts Payable 1,940,000
9/4 Work in Process Inventory 1,846,800

Raw Material Inventory 1,900,000
Issuances made to jobs as follows:
#75, $289,600; #78, $252,600;
#82, $992,200; #86, $312,400
9/15 Work in Process Inventory 665,600
Cash 757,000
Labor charged to jobs as follows:
#75, $84,600; #78, $267,200;
#82, $203,000; #86, $110,800

Overhead applied to jobs as follows:
#75, $120,750; #78, $329,000;
#82, $253,750; #86, $128,500
9/15 Finished Goods Inventory 1,081,350

Work in Process Inventory
($586,400 + $289,600 + $84,600 + $120,750) 1,081,350
Accounts Receivable 1,405,755
121 Chapter 5
Sales ($1,081,350  1.3) 1,405,755
9/20 Manufacturing Overhead 110,200

Cash 307,000
9/24 Raw Material Inventory 624,000


Issuances made to jobs as follows:
#78, $154,800; #82, $212,600; #86, $349,000
9/30 Manufacturing Overhead 1,206,800

Accumulated Depreciation 809,000
Prepaid Insurance 165,400
Taxes & Licenses Payable 232,400
Cash 714,400
Labor charged to jobs as follows:
#78, $177,400; #82, $228,400;
#86, $243,600

To apply overhead to jobs as follows:
#78, $111,750; #82, $170,625;
#86, $124,750
b. Raw Material Inventory
Bal. 332,400 9/4 1,900,000
9/1 1,940,000 9/25 772,200
9/24 624,000
Bal. 224,200
Work in Process Inventory
Bal. 1,512,600 9/15 1,081,350
9/4 1,846,800
9/15 665,600
Chapter 5 122
9/15 832,000
9/25 716,400
9/30 649,400
9/30 407,125
Bal. 5,548,575
Cost of Goods Sold
Bal. 4,864,000
#75 1,081,350
Bal. 5,945,350
Job #75
Bal. 586,400 1,081,350
DM 289,600
DL 84,600
OH 120,750
Bal. 0
Job #78
Bal. 266,600
DM 252,600
DL 267,200
OH 329,000
DM 154,800
DL 177,400
OH 111,750
Bal. 1,559,350
Job #82
Bal. 659,600
DM 992,200
DL 203,000
OH 253,750
DM 212,600
DL 228,400
OH 170,625
Bal. 2,720,175
Job #86
DM 312,400
DL 110,800
OH 128,500
123 Chapter 5
DM 349,000
DL 243,600
OH 124,750
Bal. 1,269,050
c. Schedule of Job Cost Records
September 30, 2013
Job #78 $1,559,350
Job #82 2,720,175
Job #86 1,269,050

Total $5,548,575
d. Actual overhead for September
9/4 $ 53,200
9/15 91,400
9/20 110,200
9/25 55,800
9/30 1,206,800
9/30 65,000 $ 1,582,400
Applied overhead for September
9/15 $ 832,000
9/30 407,125
(1,239,125)
Underapplied overhead $ 343,275
Cash 542,000
Wages/Salaries Payable (or Cash) 656,800
To record DL for jobs (Job #247, $17,400;
#251, $8,800; #253, $21,000;
#254, $136,600; #255, $145,000;
#256, $94,600; and #257, $179,400)
To record DM for jobs (Job #247, $12,400;
#251, $6,200; #253, $16,800; #254, $105,200;
Chapter 5 124
#255, $119,800;#256, $72,800;
and #257, $133,200)
To record OH costs other than
indirect labor and indirect
materials ($244,400  $54,000  $76,000)
To apply OH at a rate of $0.40 per DL$
(Job #247, $6,960; #251, $3,520; #253, $8,400;
#254, $54,640; #255, $58,000;
#256, $37,840; and #257, $71,760)
Work in Process Inventory 1,779,040
(See schedule below.)
Cash 2,264,774
Sales 2,264,774
Schedule of Completed Jobs
Job Direct Material Direct Labor Applied OH Total
247 $ 89,600 $108,800 $ 43,520 $ 241,920
251 182,800 218,600 87,440 488,840
253 162,200 190,600 76,240 429,040
254 105,200 136,600 54,640 296,440
255 119,800
145,000
58,000 322,800
Totals $659,600 $799,600 $319,840 $1,779,040
Job Direct Material Direct Labor Applied OH Total

256 $ 72,800 $ 94,600 $ 37,840 $205,240
257 133,200
179,400 71,760 384,360

Totals $206,000 $ 274,000 $109,600 $589,600
c. Actual overhead $ 244,400
Applied overhead
(241,120)
Underapplied overhead $ 3,280
Unadjusted cost of jobs completed 1,779,040

Adjusted cost of jobs completed $1,782,320
125 Chapter 5
39. a. Aluminum Steel Other Total

BI $ 8,300 $ 12,800 $ 5,800 $ 26,900
Purchases
98,300 26,500 23,550 148,350
Available $106,600 $ 39,300 $ 29,350 $ 175,250
Issuances
(58,700) (34,200)
(25,900)
(118,800)
EI $ 47,900 $ 5,100 $ 3,450 $ 56,450
b. Direct material $ 620
Direct labor (8 × $15) 120
Overhead (16 × $30) 480
Total $1,220
c. WIP—beginning* $ 6,230
Direct material (total issuances) 118,800
Direct labor (680 × $15) 10,200
Overhead (1,200 × $30)
36,000
Total manufacturing costs $171,230
WIP—ending
(1,220)
Cost of goods manufactured $170,010
FG—beginning
23,800
Cost of goods available for sale $193,810
FG—ending
(0)
Cost of goods sold $193,810
*Job # Material Labor OH Total

411 $1,900 $ 540 $1,500 $3,940
412
1,240 150 900 2,290

$3,140 $ 690 $2,400 $6,230
40. a. Using any of the jobs, one can determine that the relationship between direct
labor and applied overhead is that overhead is 115 percent of direct labor cost.
For example, using job #67: $15,916 ÷ $13,840 = 1.15.
b. Direct material $25,800
Direct labor 7,200
Applied overhead 8,280
Total $41,280
c. Total direct material $ 513,834
Less direct material in BI
(25,800) $ 488,034
Chapter 5 126
Total direct labor $ 93,720
Less direct labor in BI
(7,200) 86,520
Total direct cost added during May $ 574,554
d. Work in process—beginning $ 41,280
Costs added during May:
Direct material $ 488,034
Direct labor 86,520
Applied overhead ($86,520 × 1.15) 99,498
674,052
$ 715,332
Work in process—ending
[$308,430 + $57,000 + ($57,000 × 1.15)] (430,980)
Cost of goods manufactured $ 284,352
41. a. Fabrication: $1,560,000  104,000 MHs = $15 per MH
Assembly: $1,760,000 ÷ 320,000 DLHs = $5.50 per DLH
b. Job #2296: Fabrication (900 hours @ $12) $10,800

Assembly (850 hours @ $10) 8,500
Total DL $19,300
Job #2297: Fabrication (460 hours @ $12) $ 5,520

Assembly (400 hours @ $10) 4,000
Total DL $ 9,520
c. Job #2296: Fabrication (1,800 hours @ $15) $27,000

Assembly (850 hours @ $5.50) 4,675
Total OH applied $31,675
Job #2297: Fabrication (900 hours @ $15) $13,500

Assembly (400 hours @ $5.50) 2,200
Total OH applied $15,700
d. Job #2296 Job #2297
Direct material $118,500 $147,200
Direct labor 19,300 9,520
Overhead 31,675 15,700
Total $169,475 $172,420
e. Fabrication: Applied (103,200 × $15) $ 1,548,000

Actual
(1,528,000)
Overapplied $ 20,000
Assembly: Applied (324,000 × $5.50) $ 1,782,000

Actual
(1,790,000)
127 Chapter 5
Underapplied $ (8,000)
The company has overapplied overhead of $12,000 for the year.
42. a. Job Cost Sheet—Job #515
Customer Name and Address: Description of Job: Prepare site,
City of Gulf Shores, Alabama build and install a pedestrian
overpass in Gulf Shores: see bid
specifications for details
Contract Agreement Date: 5/13
Scheduled Starting Date: 7/13
Agreed Upon Completion Date: 12/15/13
Contract Price: $3,300,000
Actual Completion Date:___
Special Instructions: None
Direct Material (Est. $1,240,000)
Date Source Cost
2013 July 31 Summary of material req. $121,800
Direct Labor (Est. $670,000) Overhead (Est. $402,000)
Date Source Cost Date Source Cost
2013 July 31 Summary 2013 July 31 Journal
of time entry of
sheets for 7/31/13 $105,024
direct labor $175,040
Summary (as of 7/31/13)
Actual Budget Under (Over)
Direct material $121,800 $1,240,000
Direct labor 175,040 670,000
Overhead 105,024
402,000
Totals $401,864 $2,312,000
b. Work in Process—Job #515 121,800
Work in Process—other jobs 457,500
Work in Process—Job #515 175,040
Chapter 5 128
Salaries and Wages Expense 39,600
Salaries and Wages Payable 679,400
Depreciation Expense 7,800
Accumulated Depr.—Const. Assets 26,400
Accumulated Depr.—Office Assets 7,800
Sales Promotion Expense 11,100
Advertising Expense 6,600
Cash 6,600
Supplies Inventory 18,600
Miscellaneous Expense 10,200
Utilities Expense 1,800
Utilities Payable 7,200
Accounts Receivable 1,224,000
Sales 1,224,000
c. Work in Process—beginning $ 871,800
Production costs:
Direct labor 584,000
Applied overhead
350,400
1,513,700
$ 2,385,500
129 Chapter 5
Work in process—ending (1,556,500)
d. Birmingham Contractors
Income Statement
For the Month Ended July 31, 2013
Revenues from completed projects $1,224,000
Less cost of goods sold (829,000)
Gross margin on completed jobs $ 395,000
Nonproduction expenses:
Salaries and wages expense $39,600
Depreciation expense 7,800
Utilities expense 1,800
Sales promotion expense 11,100
Advertising expense 6,600
Miscellaneous expense 10,200
(77,100)
Income before income taxes $ 317,900
Income taxes (40%) (127,160)
Net income $ 190,740
43. a. Job #2019:
Design ($81,600 × 30%) $24,480
Production (720 × $15) 10,800
Installation ($10,080 × 90%) 9,072
Job #2020:
Design ($69,360 × 30%) $20,808
Production (2,400 × $15) 36,000
Installation ($11,520 × 90%) 10,368

Job #2021:
Design ($73,440 × 30%) $22,032
Production (960 × $15) 14,400
Installation ($15,200 × 90%) 13,680

Chapter 5 130
Design Production Installation

Actual $105,600 $ 60,000 $ 31,200
Applied
(67,320)
(61,200)
(33,120)
(Over)/underapplied $ 38,280 $ (1,200) $ (1,920)
Actual OH for company $ 196,800
Applied OH for company (161,640)
Total company underapplied OH $ 35,160
b. Work in Process (Design)—Job #2019 9,600
Work in Process (Design)—Job #2020 8,200
Work in Process (Prod.)—Job #2019 116,400
Work in Process (Inst.)—Job #2019 10,400
131 Chapter 5
c. Job #2019:
Overhead 44,352
Total cost $306,432
Job #2020:
Overhead 67,176
Total cost $521,456
Job #2021:
Overhead 50,112
Total cost $420,352
44. a. Reliant: $5,580 ÷ $45 = 124 DLHs worked
Dumas: $18,000 ÷ $45 = 400 DLHs worked
Omaha: $28,350 ÷ $45 = 630 DLHs worked
Reliant: 124 DLHs × $58 = $7,192 OH applied
Dumas: 400 DLHs × $58 = $23,200 OH applied
Omaha: 630 DLHs × $58 = $36,540 OH applied
Reliant Dumas Omaha

Direct material $ 7,800 $14,200 $19,800
Direct labor 5,580 18,000 28,350
Overhead 7,192 23,200
36,540

Total cost $20,572 $55,400 $84,690
b. Reliant: $20,572 ÷ 3 = $6,857 per ad
Dumas: $55,400 ÷ 10 = $5,540 per ad
Omaha: $84,690 ÷ 8 = $10,586 per ad
Chapter 5 132
c. Sales (21 ads × $8,600) $ 180,600
Costs:
Direct material $ 41,800
Direct labor 51,930
Applied overhead 66,932
Overapplied overhead
(16,932)
(143,730)
Net income $ 36,870
d. Sales: Reliant ($20,572 × 1.3) $ 26,743.60
Dumas ($55,400 × 1.3) 72,020.00
Omaha ($84,690 × 1.3) 110,097.00 $ 208,860.60
Costs:
Direct material $ 41,800.00
Direct labor 51,930.00
Applied overhead 66,932.00
Overapplied overhead (16,932.00) (143,730.00)
Net income $ 65,130.60
Income using a costplus basis is substantially higher than that which is

obtained using a flat rate selling price. Dumas Manufacturing will be more
pleased with the system; rather than paying a rate of $8,600 per ad, Dumas
would be paying $7,202. On the other hand, Reliant’s and Omaha’s costs per ad
would increase from $8,600 per ad to $8,915 and $13,762, respectively.
Ads shouldn’t be billed at a flat rate because some may take much longer to
develop than others. The eight ads for Omaha took 630 hours to develop, or
about 79 hours each. In contrast, the three ads for Reliant were developed in
124 hours (41 hours each) and the ten ads for Dumas were developed in only
400 hours (40 hours each).
Another possibility for LeBlanc is to bill based on a standard charge per labor
hour—especially if clients tend to change their minds after the ad development
process begins.
45. a Oct. 1 Raw Material Inventory 1,150,000

1 Work in Process—P 650,000

Manufacturing Overhead—P 500,000
5 Manufacturing Overhead—C 25,000

133 Chapter 5
8 Manufacturing Overhead—P 5,000

Cash 5,000
15 No entry needed.

Cash 60,000
24 Raw Material Inventory 1,485,000


Work in Process—P 45,000
Cash 66,120
Accumulated Depr.—P 15,200
Work in Process—C 16,300
Cash 26,200
Accumulated Depr.—C 8,750
31 Accounts Payable 2,635,000

Cash 2,635,000

Manufacturing Overhead—P
(6,000 MHs × $25) 150,000
Oct. 31 Work in Process—C 26,895

Manufacturing Overhead—C
($16,300 × 1.65) 26,895
Nov. 1 Manufacturing Overhead—C 5,000

Cash 5,000

Manufacturing Overhead—P 175,000

Cash 5,000
15 Work in Process—C 200,000

Manufacturing Overhead—C 225,000
Chapter 5 134
18 No entry needed.
24 No entry needed.
29 No entry needed.

Work in Process—P 115,000
Cash 153,850
Accumulated Depr.—P 15,200

Cash 159,800
Accumulated Depr.—C 18,350

Manufacturing Overhead—P
(3,950 × $25) 98,750
30 Work in Process—C 221,595

Manufacturing Overhead—C
($134,300 × 1.65) 221,595
Nov. 30 Completed Projects Inventory 2,482,840

Work in Process—P 1,883,750
30 Accounts Receivable 3,450,000

Construction Revenue 3,450,000
30 Cost of Contracts Sold 2,482,840

Completed Projects Inventory 2,482,840
b.
Raw Material Precast Overhead—P Construction Overhead—C
1,150,000 1,150,000 500,000 150,000 25,000 26,895
1,485,000 1,000,000 5,000 98,750 60,000 221,595
425,000 36,320 18,650
175,000 5,000
5,000 225,000
135 Chapter 5
54,050 43,850
Bal. 60,000 Bal. 526,620 Bal. 129,010
WIP—Precast
650,000 1,883,750
45,000
150,000
825,000
115,000
98,750
Bal. 0
WIP—Construction
16,300 599,090
26,895
200,000
134,300
221,595
Bal. 0
Completed Projects Inv.
2,482,840 2,482,840
Bal. 0
Cost of Contracts Sold
2,482,840
Bal. 2,482,840
c. (bottom section of job cost sheet)
Precast Department
DM (Est. $1,550,000) DL (Est. $220,000) OH (Est. $275,000)

Date Amount Date Amount Date Amount
Oct. 1 $ 650,000 Oct. 31 $ 45,000 Oct. 31 $150,000
Nov. 4 825,000 Nov. 30 115,000
Nov. 30 98,750
$1,475,000 $160,000 $248,750
Construction Department
DM (Est. $350,000) DL (Est. $130,000) OH (Est. $214,500)

Date Amount Date Amount Date Amount
Nov. 15 $200,000 Oct. 31 $ 16,300 Oct. 31 $ 26,895
Nov. 30 134,300
Nov. 30 221,595

Chapter 5 136
$150,600 $248,490
d. Lincoln Construction Company does not seem to
have a good estimation system in place for its bid process, especially in its Precast
Department. The company may be losing a significant number of bids because of
inflated cost estimates.
46. a. A job order costing system is appropriate in any environment in which costs can
be readily identified with specific products, batches, contracts, or projects. For
adopting this system there should be a justification on a costbenefit basis to
trace costs to those specific products, batches, contracts, or projects.
b. The only job remaining in WIP at 5/31 is DRS114:
DRS114 balance, 4/30 $1,570,000
May additions:
Raw material $124,000
Purchased parts 87,000
Overhead (19,500 hrs. @ $7.50*) 146,250
557,750
WIP balance, 5/31 $2,127,750
*OH rate = $4,500,000 ÷ 600,000 hrs. = $7.50 per hour
c. FG inventory of playpens, 4/30 19,400
Units completed in May 15,000
Units available 34,400
Units shipped in May (21,000)
FG inventory, 5/31 13,400
Since Pip Squeaks uses the FIFO inventory method, all units remaining in FG
inventory were completed in May.
Work in process inventory, 4/30 $420,000
May additions:
Raw material $ 3,000
Purchased parts 10,800
Direct labor 43,200
Overhead (4,400  $7.50) 33,000
90,000
Total cost $510,000
Unit cost = $510,000 ÷ 15,000 units completed = $34 per unit FG inventory =
$34  13,400 = $455,600
d. If the amount of overapplied or underapplied OH is not
137 Chapter 5
material or the result of an error in the OH application rate, the amount is

normally charged directly to CGS. If the amount is significant, the amount
should be prorated over the relevant accounts (i.e., WIP, FG, and CGS).
(CMA adapted)
Chapter 5 138
47. a., b. Applied OH rate = $302,400 ÷ 100,800 = $3 per DLH
Add ending work in process:
Two jobs open have DM of $ 4,800
Two jobs open have DL of 9,000
Two jobs open have applied OH of
($3 × 2,144) 6,432 20,232
Total costs accounted for $116,232
Less beginning work in process
(15,400)
Cost of production inputs $100,832
Less: Direct labor $36,400
Applied OH ($3.00 × 8,800) 26,400

(62,800)
Cost of direct material used $ 38,032
Cost of indirect material issued
11,600
Total cost of raw material used $ 49,632
c. Beginning raw material $ 9,600
Raw material purchased
56,000
Total raw material available $ 65,600
Raw material issued
(49,632)
Ending raw material $ 15,968
d. Overhead applied ($3 × 8,800) $ 26,400
Actual overhead charges:
Indirect labor $10,800
Indirect material 11,600
All other 5,000 (27,400)

Underapplied overhead in April $ (1,000)
e. Beginning finished goods $ 16,800
Add cost of goods manufactured
96,000
Cost of goods available $112,800
Less ending finished goods
(13,200)
Cost of goods sold $ 99,600
48. a. Profit on the fixedprice contracts is constrained by the contract price. Profit
can only be increased if ways are found to reduce costs. One way that costs can
be reduced is to shift them to other contracts. This is a particularly effective
strategy if the costs that are shifted to another contract can be recouped under
the terms of that other contract. By shifting some costs of the fixedprice
contracts to the costplus contracts, the profit on the fixedprice contracts rises,
139 Chapter 5
and the shifted costs can be recovered under the terms of the costplus
contracts. Further, this strategy may have the effect of increasing costs under
the costplus contracts if those contracts determine profit as a percentage of
total costs.
b. This type of cost shifting is dishonest and unethical. It
has the effect of increasing the total prices of costplus contracts, and if those
contracts are government related, those prices are typically borne by taxpayers.
In a sense it is a way for the stockholders and managers of the defense
contractors to steal from the taxpayers. It is difficult to imagine a setting in
which this process could be labeled ethical.
49. a. No solution provided; each student will have a different answer.
b. The company is utilizing the benefits of automation to
reduce the costs of handling so many parts. By standardizing processes, the
company can assemble a messenger bag with a diverse set of parts in an amount
of time that is similar to that required for massproduced ones. Accordingly,
although the company is probably paying, on average, more for parts on custom
messenger bags than massproduced ones; it is holding the line on direct labor
and production overhead. By holding costs down for labor and overhead, the
total cost of the custom produced messenger bags is not significantly higher
than that of the mass produced messenger bags.
c. Quality as viewed from the perspective of the consumer
should be much higher with the custommade messenger bags because
customers are able to specify the various parts desired. By getting the exact
combination of parts desired, the customers will perceive the quality of the
product to be very high relative to the premium in price they pay over the mass
produced messenger bags.
d. The answer is mostly revealed in (c). By containing

costs to levels close to those of massproduced messenger bags, but allowing
the customer to choose the parts desired, a substantial gross profit can be
achieved. The higher gross profit reflects the customers’ willingness to pay a
premium for the exact combination of parts desired, even though the company’s
costs are not significantly greater than those incurred to mass produce
messenger bags.
50. a. It is likely that the least popular thoughts and opinions would not be heard on
campus. Students would naturally support those ideas and positions that were
consistent with their own ethics, philosophies, and self interests. As a
consequence, the overall diversity of ideas would probably decline.
Chapter 5 140
b. Assuming diversity of opinions ultimately benefits all
students, the University of Wisconsin is possibly supporting diversity with the
only means available—student dollars. However, this approach may not be
ethical because it forces students to support opinions, beliefs, and ideas that
may violate their personal ethics. Although the Supreme Court of the United
States will ultimately determine whether this is a legal practice, each individual
student can reach his/her own conclusion as to whether the practice is ethical.
51. a. Overhead other than spoilage $600,000

Estimated spoilage cost $ 50,000
Less salvage value
(20,000) 30,000
Adjusted estimated overhead cost $630,000
POR = $630,000 ÷ 40,000 = $15.75 per DLH
b. Disposal value of chemical 496
52. a. Predetermined rate = $925,000 ÷ 100,000 = $9.25 per MH
b. Total cost of direct material $687,100
Total cost of direct labor 157,750
Applied OH (3,080 × $9.25) 28,490
Total cost of Job B316 $873,340
c. The rework cost is debited to the manufacturing overhead account since the
company uses a predetermined rate that includes rework costs to apply
overhead.
d. Predetermined rate = $850,000 ÷ 100,000 = $8.50 per MH
Total cost of direct material $687,100
Applied OH (3,080 × $8.50)
26,180
e. Total cost of direct material $687,100
Applied OH (3,080 × $8.50) 26,180
141 Chapter 5
Rework cost ($75,500 × 0.20) 15,100
Sale of reworked pipe (200 × $3.50)
(700)
53. a. Actual DM cost $ 11,600,000

Standard DM cost ($56,000 × 200) (11,200,000)
Material price variance $ 400,000 U
Actual DL cost $ 6,957,600
Standard DL cost ($34,400 × 200)
(6,880,000)
Direct labor rate variance $ 77,600 U
Actual OH cost $ 14,800,000
Standard OH cost ($76,000 × 200)
(15,200,000)
OH variance $ (400,000) F
b. Material:
$11,600,000 ÷ 6,000,000 = $1.93 (rounded) actual cost per lb. vs. $2.00
standard cost per lb.; $0.07 × 6,000,000 = $420,000 F price variance
6,000,000 lbs. used vs. (28,000 × 200) standard = 6,000,000 – 5,600,000 =
400,000 lbs. more than standard; 400,000 × $2 = $800,000 U quantity variance
The primary cause of the unfavorable material variance is excess usage.
54. a. DM cost $18.00
DL cost [$20  (12 ÷ 60)] 4.00
Total standard prime cost $22.00
b. Job #918
DM cost ($18 × 1,200) $21,600
DL cost ($4 × 1,200) 4,800
Total standard direct cost $26,400
Job #2002
DM cost ($18 × 2,000) $36,000
DL cost ($4 × 2,000) 8,000
Total standard direct cost $44,000
c. Job #918 Standard Actual Variance

DM $21,600 $23,525 $1,925 U
DL
4,800 4,840 40 U
Total $26,400 $28,365 $1,965 U
Chapter 5 142
Job #2002
DM $36,000 $37,440 $1,440 U
DL 8,000 7,850
150 F
Total $44,000 $45,290 $1,290 U
d. By computing variances for each job, managers become aware of any trends in
costs. If costs are aggregated across jobs, any trends may be obscured.

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104 Chapter 5

JOB ORDER COSTING

Alternatively, abnormal spoilage refers to a loss level above that which is

10. Two characteristics of the proposal are critical in

c. The predetermined overhead rate could have been

e. Applied OH – Actual OH = $66,960  ($12,460 + $68,700) = $14,200

20. a. Case #1 Case #2 Case #3 Case #4

26. a. Secretary ($4,800 ÷ 160 hrs.  35 hrs.) $ 1,050

c. A flat charge per hour would be more likely to be

28. a. Some of the companies that have been found to engage in this practice are

c. Each student will have a different answer. However,

b. The $750 rework cost is included in Manufacturing

c. In this case, the spoilage is unexpected and the net cost

32. A standard costing system is most appropriate in production settings in which

35. Raw Material Inventory 790,000

9/4 Work in Process Inventory 1,846,800

9/15 Work in Process Inventory 832,000

9/15 Finished Goods Inventory 1,081,350

9/20 Manufacturing Overhead 110,200

9/24 Raw Material Inventory 624,000

9/25 Work in Process Inventory 716,400

9/30 Manufacturing Overhead 1,206,800

9/30 Work in Process Inventory 407,125

Job Direct Material Direct Labor Applied OH Total

39. a. Aluminum Steel Other Total

*Job # Material Labor OH Total

b. Job #2296: Fabrication (900 hours @ $12) $10,800

Job #2297: Fabrication (460 hours @ $12) $ 5,520

c. Job #2296: Fabrication (1,800 hours @ $15) $27,000

Job #2297: Fabrication (900 hours @ $15) $13,500

e. Fabrication: Applied (103,200 × $15) $ 1,548,000

Assembly: Applied (324,000 × $5.50) $ 1,782,000

Design Production Installation

Reliant Dumas Omaha

Income using a cost­plus basis is substantially higher than that which is

45. a Oct. 1 Raw Material Inventory 1,150,000

1 Work in Process—P 650,000

5 Manufacturing Overhead—C 25,000

8 Manufacturing Overhead—P 5,000

20 Manufacturing Overhead—C 60,000

24 Raw Material Inventory 1,485,000

31 Manufacturing Overhead—P 36,320

31 Accounts Payable 2,635,000

31 Work in Process—P 150,000

Oct. 31 Work in Process—C 26,895

Nov. 1 Manufacturing Overhead—C 5,000

4 Work in Process—P 825,000

8 Manufacturing Overhead—P 5,000

15 Work in Process—C 200,000

30 Manufacturing Overhead—P 54,050

30 Manufacturing Overhead—C 43,850

30 Work in Process—P 98,750

30 Work in Process—C 221,595

Nov. 30 Completed Projects Inventory 2,482,840

30 Accounts Receivable 3,450,000

30 Cost of Contracts Sold 2,482,840

DM (Est. $1,550,000) DL (Est. $220,000) OH (Est. $275,000)

Income using a costplus basis is substantially higher than that which is