Fundamentals of Cost Accounting 4th Edition Lanen Solutions Manual Download

Chapter 07 - Job Costing
Fundamentals of Cost Accounting 4th Edition Lanen
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Chapter 7
Job Costing
Solutions to Review Questions
7-1.
Companies using a job order cost system are likely to be performing services or
manufacturing products according to specific customer orders and product specifications.
Construction contractors, manufacturers of special equipment, aircraft manufacturers,
CPA firms, attorneys, and hospitals all employ job order cost systems.
7-2.
There are two primary reasons that cost allocation bases using direct labor are common.
First, direct labor historically was the most important resource used in manufacturing.
Second, direct labor usage is already recorded for products, meaning no additional record
keeping is required.
7-3.
The Manufacturing Overhead account is used to accumulate the actual manufacturing
overhead costs as they are incurred. Manufacturing Overhead Applied represents the
estimate of overhead that is used as a basis for computing work in process and other
inventory costs. The applied account is used to facilitate recordkeeping during the period.
7-4.
A materials requisition is used to document the authorization for issuances of materials
from the storeroom while the source document (or receiving slip) is used to indicate
7-1
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quantities and descriptions of materials purchased and received. A time card or time
record is used to record labor time for the product or service.
7-5.
The job costing procedure is basically the same in both types of organizations, except that
service firms use less direct materials. Also, service firms typically do not show inventories
on their balance sheets, and use a Cost of Services Billed account rather than Cost of
Goods Sold.
7-2
7-6.
The costs of a product using normal costing are:
 Actual direct materials cost.
 Actual direct labor cost.
 Applied overhead, which is calculated as: Predetermined overhead rate x actual
allocation base.
7-7.
Mega has choices to make about the allocation base and the cost pools used to
accumulate the overhead. This does not mean Mega can choose to do whatever it wants.
The government has a set of contracting rules and an audit agency to enforce the rules.
However, some interpretation is always required when classifying costs.
Solutions to Critical Analysis and Discussion Questions
7-8.
Actual costing requires knowing the actual costs of overhead as well as the actual direct
cost for a job. By the time the actual overhead is known, the information is not timely for
decision-making. In addition, actual costing requires allocations of many overhead costs to
jobs, so it is only the total costs that are actual, not the job costs.
7-9.
If materials costs are not properly assigned to jobs, management may later be misled in
estimating the actual costs to complete future, similar jobs. Thus, profit planning may be in
error. Profitable jobs may be rejected because errors in cost assignments have made the
jobs look unprofitable or less profitable. If the company prepares bids on jobs, the bids
may be in error if they are based on the wrong costs.
7-10.
The allocation of overhead matters because decisions are made about individual
products. Different allocations result in different reported product costs.
7-11.
Answers will vary. Expect the managers in small construction firms to base their estimates
on their own experience, not a formal model.
7-3
7-12.
Answers will vary.
7-13.
They would most likely use job costing since their jobs are typically easily identifiable and
relatively unique.
7-14.
Yes, a trial is a job for costing purposes.
7-15.
Answers will vary. The steps might include:
a. Measure the area of the walls;
b. Multiply the area by the amount (fractions of a gallon) of paint required per square foot;
c. Determine the number of coats of paint required;
d. Multiply the amount of paint in step b by the number of coats in step c;
e. Determine the costs of miscellaneous supplies (drop cloths, paint brushes, etc.);
f. Estimate the labor time for painting by multiplying the area in step a by the amount of
time per square foot;
g. Multiply the time estimate in step f by the number of coats from step c;
h. Multiply the time in step g by the cost of labor per hour;
i. Estimate the time required for miscellaneous tasks (preparation, cleanup, etc.);
j. Multiply the time from step i by the cost per hour;
k. Add the cost of your time (supervision, quality check).
7-16.
Answers will vary. Common responses are (labor) time, materials cost, wall area, and so
on.
7-17.
Answers will vary. In general, the answer is that this is not ethical. Although the “correct”
allocation basis is subjective, it is difficult to justify the choice by the outcome. There
might be other reasons, such as more valuable employees or other resources are used
7-4
on jobs for the larger company or that the larger company, being more complex, requires
more overhead resources.
However, the larger company might require fewer resources, because of economies of
scale.
Solutions to Exercises
7-18. (30 min.) Assigning Costs to Jobs: Pawnee Workshops.

a.
1. Materials Inventory .......................................................... 16,000

Accounts Payable ........................................................ 16,000
2. Manufacturing Overhead Control ..................................... 800
Materials Inventory ....................................................... 800
4. Accounts Payable ............................................................ 16,000
Cash ............................................................................. 16,000
5. Work-in-Process—Direct Materials .................................. 13,600
Materials Inventory ....................................................... 13,600
6. Work-in-Process—Direct Labor ....................................... 20,000
Wages Payable ............................................................ 20,000
7. Manufacturing Overhead Control ..................................... 21,200
Cash ............................................................................. 21,200
8. Work-In-Process— Overhead ($20,000 x 125%)............. 25,000
Applied Manufacturing Overhead .............................. 25,000
Accumulated Depreciation—Property, Plant, and
Equipment................................................................ 10,000
7-5
7-18. (continued)
b.
Materials Inventory
Balance 10/1 29,640 800 2. Ind. materials
1. 16,000 13,600 5. Direct materials
3. 11,200
Balance 10/31 42,440 *
*$42,440 = $29,640 + $16,000 + $11,200 – $800 – $13,600
Work-in-process inventory
Balance 10/1 6,600
5. Direct materials 13,600 48,120 Per Finished
6. Direct labor 20,000 Goods T-account
8. Overhead 25,000
applied
Balance 10/31 17,080
Manufacturing Overhead Control

2. 800
7. 21,200
9. 10,000
Applied Manufacturing Overhead

25,000 8.
Accounts Payable
4. 16,000 16,000 1.
11,200 3.
Cash
16,000 4.
21,200 7.
Wages Payable
20,000 6.
7-6
7-18. (continued)
Accumulated Depreciation—
Property, Plant, and Equipment
10,000 9.
Finished Goods Inventory

Balance 10/1 33,200
Goods completed 48,120 * 52,680 Transfer to Cost
Balance 10/31 28,640 of Goods Sold
*$48,120 = $52,680 + $28,640 – $33,200
Cost of Goods Sold

Balance 10/31 52,680
7-19. (20 min.) Assigning Costs to Jobs: Fast Wheels, Inc.

a.

Cash ............................................................................. 20,000
Wages Payable ............................................................ 25,000
Cash ............................................................................. 21,500
8. Work-In-Process—Overhead ($25,000 x 125%).............. 31,250
Applied Manufacturing Overhead ................................ 31,250
Equipment................................................................ 5,000
7-7
7-19. (continued)
b.
Materials Inventory
Balance 6/1 9,000 1,000 2. Ind. materials
3. 25,000
Balance 6/30 23,000 *
*$23,000 = $9,000 + $20,000 + $25,000 – $1,000 – $30,000
Balance 6/1 16,500
5. Direct materials 30,000 44,500 Per Finished
6. Direct labor 25,000 Goods T-account
8. Overhead 31,250
applied
Balance 6/30 58,250

2. 1,000
7. 21,500
9. 5,000

31,250 8.
Accounts Payable
4. 20,000 20,000 1.
25,000 3.
Cash
20,000 4.
21,500 7.
Wages Payable
25,000 6.
7-8
7-19. (continued)
5,000 9.

Balance 6/1 65,000
*$44,500 = $36,500 + $73,000 – $65,000
Cost of Goods Sold

Balance 6/30 73,000
7-20. (20 min.) Assigning Costs to Jobs: Tarnsdale Fabricators.

a.

Cash ............................................................................. 17,000
Work-in-Process—Direct Materials ............................. 2,200
Cash ............................................................................. 31,000
Accumulated Depreciation—Plant................................ 35,000
9. Work-In-Process—Overhead ($31,000 x 93%)* .............. 28,830
Applied Manufacturing Overhead ................................ 28,830
* The predetermined rate is 93% (= $403,620 ÷ $434,000).
7-9
7-20. (continued)
b.
Materials Inventory
Balance 1/1 11,400 *
5. 2,200 1,200 3. Indirect materials
Balance 1/31 12,600
* Beginning Balance = Ending Balance – Additions + Uses
$11,400 = $12,600 – $17,000 – $2,200 + $16,800 + $1,200
Balance 1/1 15,070*
2. Direct materials 16,800 2,200 5.
6. Direct labor 31,000 79,000 Transferred to
9. Overhead 28,830 Finished Goods
applied
Balance 1/31 10,500
*$15,070 = $10,500 – $16,800 – $31,000 – $28,830
+ $2,200 + $79,000

3. 1,200
7. 17,200
8. 35,000

28,830 9.
Accounts Payable
4. 17,000 17,000 1.
17,200 7.
Cash
17,000 4.
31,000 6.
7-10
7-20. (continued)
35,000 8.

Balance 1/1 2,600
*$79,000 = $7,100 + $74,500 – $2,600
Cost of Goods Sold

Balance 1/31 74,500
7-21. (25 min.) Assigning Costs to Jobs: Cardinals, Inc.

a. $96,000, the credit side of the Materials Inventory account.
b. $72,000.
Direct labor ........................................................
$90,000
Labor rate ..........................................................
$30 per hour
$90,000  $30 = 3,000 hours
Direct labor-hours ..............................................
Manufacturing overhead applied........................ 3,000 x $24 = $72,000
c. $180,000, the debit addition to the Finished Goods Inventory account.
d. $138,000.
BB + TI – TO = EB
EB = $60,000 + ($96,000 + $90,000 + $72,000) – $180,000
EB = $138,000
7-11
e. $6,000 (underapplied) = $78,000 – $72,000.

f. $96,000.
Sales ..................................................................
$270,000
a
Cost of Goods Sold ...........................................
$126,000
S&A costs ...........................................................
48,000 174,000
Operating profit...................................................
$96,000
a The credit from Finished Goods Inventory for $120,000 plus $6,000 underapplied
overhead.
7-22. (25 min.) Assigning Costs to Jobs: Blake Corporation.

a. $447,000, the debit side of the Materials Inventory account.
b. $10,000 overapplied (the difference between overhead control and overhead applied).
c. $25/direct-labor hour (= $250,000 Applied ÷ 10,000 [= $350,000 ÷ $35] Direct Labor
Hours).
d. $822,000, the debit addition to the Finished Goods Inventory account.
e.
BB = EB – TI + TO
BB = $400,000 – ($402,000 + $350,000 + $250,000) + $822,000
BB = $220,000
f.
Sales ..................................................................
$1,020,000
a
Cost of Goods Sold ...........................................
$809,000
S&A costs ...........................................................
222,000 1,031,000
Operating profit...................................................
($11,000)
a The credit from Finished Goods Inventory for $819,000 minus $10,000 overapplied
overhead.
7-23. (25 min.) Assigning Costs to Jobs: Pine Ridge Corporation.

a. $190,000, the credit side of the Materials Inventory account.
b. $5,000 underapplied (= $155,000 Control – $150,000 Applied).
c. 80% (= $150,000 Applied ÷ $187,500 Direct Labor Cost).
d. $345,000, the debit addition to the Finished Goods Inventory account.
7-12
e.
BB + TI – TO = EB
EB = $100,000 + ($190,000 + $187,500 + $150,000) – $345,000
EB = $282,500
f.
Sales ..................................................................
$600,000
a
Cost of Goods Sold ..........................................
$256,000
S&A costs ..........................................................
105,000 361,000
Operating profit ..................................................
$239,000
a The credit from Finished Goods Inventory for $251,000 plus $5,000 underapplied
overhead.
7-24. (10 min.) Predetermined Overhead Rates: Tappan, Inc.
Direct material used ........................................... $700,000c

Direct labor ......................................................... 800,000b
Manufacturing overhead applied ........................ 500,000a
Total manufacturing cost during the year ........... $2,000,000
Supporting Computations
a Applied manufacturing overhead:
$500,000 = 25% x total manufacturing cost (25% x $2,000,000).
b Direct labor: 62.5% of direct labor equals $500,000, so direct labor was
$800,000 (= $500,000  62.5%).
c Direct material used equals total manufacturing cost less direct labor and manufacturing
overhead applied [$2,000,000 – ($800,000 + $500,000) = $700,000].
7-25. (15 min.) Predetermined Overhead Rates: Mark Corp.

a.
Application rate: $90,000 = 45% of direct labor

$200,000
Job 301: $50,000 x .45 = $22,500

Job 302: 75,000 x .45 = 33,750
Job 303: 100,000 x .45 = 45,000
$101,250
7-13
b. $97,000 – $101,250 = $4,250 overapplied manufacturing overhead.
7-26. (10 Min.) Prorate Under- or Overapplied Overhead: Mark Corp.

First, determine the percentage of overhead applied is in each account:
Applied % of Total
Overhead Applied
Work in process inventory.......... $10,125 10% (= $10,125 ÷ $101,250)
Finished goods .......................... 30,375 30 (= $30,375 ÷ $101,250)
Cost of goods sold ..................... 60,750 60 (= $60,750 ÷ $101,250)
Total ....................................... $101,250 100%
Second, allocate the overapplied overhead to each account and record as follows:
Applied manufacturing overhead ................................... $101,250

Work-in-process inventory (10% x $4,250).... 425
Finished goods inventory (30% x $4,250) ..... 1,275
Cost of good sold (60% x $4,250) ................. 2,550
Manufacturing overhead control ................... $97,000
7-27. (15 min.) Predetermined Overhead Rates: Aspen Company.

a.
Application rate: $625,000 = 125% of direct labor

$500,000
Job 2-1: ............

$195,000 x 1.25 = $243,750
Job 2-2: ............
325,000 x 1.25 = 406,250
Job 2-3: ............
130,000 x 1.25 = 162,500
$812,500
b. $825,000 – $812,500 = $12,500 underapplied manufacturing overhead.
7-14
7-28. (10 Min.) Prorate Over- or Underapplied Overhead: Aspen Company.

First, determine the percentage of overhead applied in each account:
% of
Applied Total
Overhead Applied
Work in process inventory (Job 2-3) ... $162,500 20% (= $162,500 ÷ $812,500)
Finished goods (Job 2-2).................... 406,250 50 (= $406,250 ÷ $812,500)
Cost of goods sold (Job 2-1) .............. 243,750 30 (= $243,750 ÷ $812,500)
Total ............................................... $812,500 100%
Second, allocate the overapplied overhead to each account and record as follows:
Applied manufacturing overhead .................................. $812,500

Work-in-process inventory (20% x $12,500) ................. 2,500
Finished goods inventory (50% x $12,500) ................... 6,250
Cost of good sold (30% x $12,500)............................... 3,750
Manufacturing overhead control ............. $825,000
7-29. (20 min.) Applying Overhead Using a Predetermined Rate: Mary’s

Landscaping.
Since Job No. 3318 is the only job in the account, the ending balance of the account must
equal the total cost of the job. We can find the account’s ending balance using the basic
cost equation:
BB + TI – TO = EB
EB = $12,500 + ($81,000 + $54,000 + $43,200) – $162,000
EB = $28,700
We are told that direct labor for Job No. 3318 is $3,375 and that overhead is applied at a
rate of 80% of direct labor cost. So,
Factory overhead = 80% x $3,375
= $2,700
To solve for direct materials we set up the cost equation,
Total cost = direct materials + direct labor + factory overhead
$28,700 = direct materials + $3,375 + $2,700
Direct materials = $28,700 – $3,375 – $2,700
Direct materials = $22,625
7-15
7-30. (10 min.) Applying Overhead Using a Predetermined Rate: Turco Products.
The ending balance in Work in Process can be determined from the following T-acocunt:
Balance 9/1 70,200
Direct materials 421,200 832,000 To Finished Goods Inventory
Direct labor 262,600
Overhead applied 315,120
Balance 9/30 237,120* *
* $237,120 = $70,200 + $421,200 + $262,600 + $315,120 – $832,000
$237,120 = Materials + Direct Labor + Applied overhead for job 9-27;
Materials = $237,120 – $35,100 – ($35,100 x 120%)
= $159,900.
7-31. (10 min.) Calculating Over- or Underapplied Overhead: Tony’s Textiles.
$210,000
Application rate: = $6.00 per machine hour
35,000 hours
Overhead applied = 38,500 hours x $ 6.00 = $231,000
Overhead incurred = $227,500
Overapplied overhead = $227,500 – $231,000 = $3,500
7-32. (25 min.) Job Costing in a Service Organization: Arthur’s Olde Consulting
Corporation.
a. Beginning of month
Direct Applied Total
Labor Overhead
(@60%)
SY-400 ...............................................................
$23,040 + $13,824 = $36,864
SY-403 ...............................................................
15,120 + $9,072 = $24,192
During month
Additional Additional
Beginning Direct Applied
Total Labor Overhead Total
(@60%)
SY-400 ...............................................................
$36,864 + $25,200 + $15,120 = $77,184
SY-403 ...............................................................
$24,192 + $72,000 + $43,200 = $139,392
7-16
b.
Direct Applied
Labor Overhead Total
(@60%)
SY-404 ...............................................................
$51,120* + $30,672 = $81,792
*$51,120 = $148,320 – $25,200 – $72,000
c. Overhead applied during month:
SY-400 ...............................................................
$ 15,120
SY-403 ...............................................................
43,200
SY-404 ...............................................................
30,672
Total...................................................................
$88,992
Under- or overapplied amount = $88,992 applied – $90,000 actual = $1,008 underapplied.
7-33. (30 min.) Job Costing In A Service Organization: RCMP.
a. Cost of
Wages Payable Work in Process Services Billed
600,000a 600,000a 672,000c 672,000c 12,000d
72,000b
Service Overhead Control Applied Service O.H.

60,000 60,000d 72,000d 72,000b
a$200 per hour x 900 hours for Alberta Company, and $200 per hour x 2,100 hours for
Ontario Corp.
b$24 per hour x 900 hours for Alberta Company, and $24 per hour x 2,100 hours for
Ontario Corp.
cSum of work done during August, all billed to clients.
dClosing entry to record overapplied overhead of $12,000 (= $72,000 applied – $60,000
actual)
b. Royal Consulting and Mediation Practice

Income Statement
For the Month Ended August 31
7-17
Sales revenue .................................................... $1,200,000 a

Cost of services billed ........................................
$672,000
Subtract: Overapplied service overhead ............12,000 660,000
Gross margin ...................................................... $540,000
Marketing and administration ............................. 240,000
Operating profit................................................... $300,000
a$1,200,000 = 3,000 hours x $400
7-34. (30 min.) Job Costing In A Service Organization: AB.
a. Cost of
220,000a 220,000a 264,000c 264,000c 2,000d
44,000b

42,000 42,000d 44,000d 44,000b
a$200 per hour x 440 hours for Massive Airframes, and $200 per hour x 660 hours for
Gigantic Drydocks.
b$40 per hour x 440 hours for Massive Airframes, and $40 per hour x 660 hours for
Gigantic Drydocks Corp.
cSum of work done during March, all billed to clients.
actual).
b. Allocation Busters
Income Statement
For the Month Ended March 31
Sales revenue .................................................... $550,000 a
$264,000
Subtract: Overapplied service overhead ............ 2,000 262,000
Gross margin ...................................................... $288,000
Operating profit................................................... $88,000
a$550,000 = 1,100 hours x $500
7-18
7-35. (30 min.) Job Costing In A Service Organization: TechMaster.
a. Cost of
65,625a 65,625a 105,000c 105,000c 4,375d
39,375b

35,000 35,000d 39,375d 39,375b
a$75 per hour x 875 hours.

b$45 per hour x 875 hours.
cSum of work done during August, all billed to clients.
actual).
b. TechMaster
Income Statement
For the Month Ended August 31
Sales revenue .................................................... $175,000 a
$105,000
Subtract: Overapplied service overhead ............ 4,375 100,625
Gross margin ..................................................... $74,375
Operating profit .................................................. $19,375
a$175,000 = 875 hours x $200
7-19
Solutions to Problems
7-36. (15 min.) Estimate Machine-Hours Worked From Overhead Data: Sydney
Corp.
With $80,000 in fixed costs expected and 20,000 machine hours expected, the
application rate for the fixed costs was $4.00 per machine hour (= $80,000 ÷ 20,000
hours).
Overhead applied = Budgeted overhead + Overapplied overhead
= $80,000 + $11,000 = $91,000.
= Machine hours worked x $4 per machine hour.
Machine hours worked = $91,000 ÷ $4 = 22,750 machine hours.
7-37. (25 min.) Estimate Hours Worked From Overhead Data: Valley Corp.
60,450 direct labor-hours were worked. With $234,000 in fixed costs expected and 58,500
direct-labor-hours expected, the application rate for the fixed costs was $4.00 per direct
labor-hour. If the underapplied overhead, all due to production volume, is $3,900, then 975
fewer than expected direct labor-hours were worked ($3,900 ÷ $4 per hour).
Consequently, 57,525 (= 58,500 – 975) direct labor-hours were worked.
Also, see T accounts below:
Manufacturing Overhead Control Applied Manufacturing Overhead

234,000 230,100
(given as actual = (= $4 x Actual
expected) hours worked)
From these accounts, we solve for actual hours worked:

Actual hours worked = $230,100 ÷ $4 = 57,525 hours worked.
7-20
7-38. (40 min.) Assigning Costs—Missing Data.

(a) $100,000, the other side of the credit to the Accounts Payable—Materials Suppliers
account.
(b) $94,000, From the Materials Inventory account,
$8,000 + $100,000 – $4,300 – $9,700 = $94,000.
(c) $121,000 = $162,000 + $119,500 – $124,300 – $36,200.
(d) $180,500, the charge to Work-in-process inventory that is not due to direct materials or
direct labor.
(e) From the Work-in-Process Inventory account:
$400,100 = $22,300 + $180,500 + $121,000 + $94,000 – $17,700.

(f) $402,800 from the Cost of Goods account.
(g) $11,500 = $14,200 + $400,100 (from e) – $402,800 (from f).
(h) $31,600 (charged to Manufacturing Overhead Control) = $235,700 – $204,100.
(i) $3,200 (charged to Manufacturing Overhead Control) = $24,300 – $21,100.
7-21
7-39. (50 min.) Assigning Costs—Missing Data.

Materials Inventory
Balance 11/1 45,400 (a) 86,200 Direct materials
Purchases 113,600 (a) 16,400 Indirect materials
Balance 11/30 56,400
Work-in-Process Inventory
Balance 11/1 32,600
(given) Direct materials 86,200
(b) Direct labor 176,000 374,400 (d)
(b) Overhead applied 264,000
(d) Balance 11/30 184,400
(h) Proration 6,270
Balance 11/30 190,670

Balance 11/1 129,600
(d) 374,400 (c) 403,000
Balance 11/30 101,000
(h) Proration 3,762
Balance 11/30 104,762
Cost of Goods Sold

(c) 403,000
(h) Proration 15,048

(a) 16,400
(e) 26,000
(f) 48,200
(g) 198,480 289,080 (h)

(given) 264,000
(h) 264,000
7-22
7-39. (continued)
Wages Payable
(b) 176,000
(e) 26,000
Sales Revenue
(given) 725,400
(a) From the work in process account, we obtain the $86,200 in direct materials issued.
The beginning balance equals the ending balance of $56,400 minus the increase of
$11,000 equals $45,400. The unaccounted balance represents indirect materials and is
determined as:
$45,400 + $113,600 – $56,400 – $86,200 (debit to work in process)
= $16,400
(b) Let X = Direct labor costs

Overhead applied = 150% X
$264,000 = 150% X
X = $176,000
(c) Let X = Cost of goods sold

Sales = 180% X
$725,400 = 180% X
X = $403,000
(d) Finished goods BB = Finished Goods EB + $28,600

BB = 101,000 + 28,600
BB = $129,600
Finished goods EB + Cost of goods sold –

Cost of goods manufactured =
Finished Goods BB
= $101,000 + $403,000 – $129,600
= $374,400
Work in process EB = $32,600 + $86,200 + $176,000 + $264,000 – $374,400

= $184,400
(e) Indirect labor = Total credits to Wages Payable – Direct labor

= $202,000 – $176,000
7-23
= $26,000
7-39. (continued)
(f) Charge factory depreciation to manufacturing overhead.
(g) Charge overhead to manufacturing overhead.
(h) Proration to:

Work-in-process (25% x $25,080) $ 6,270
Finished goods (15% x $25,080) 3,762
Cost of goods sold (60% x $25,080) 15,048
$25,080
7-40. (40 min.) Analysis Of Overhead Using A Predetermined Rate: Kansas

Company.
a. $1,908,000
$10.60 per DLH. = $10.60 per DLH
180,000
b. $475,500. Beginning balance .............................................

$162,000
Direct materials ..................................................
135,000
Direct labor.........................................................
84,000 *
Overhead applied ...............................................
94,500 **
$475,500
*The wage rate for direct labor is $8.00 per hour. $8.00 x 10,500 hours = $84,000.
**$9.00 x 10,500 direct labor-hours.
c. $54,000 (= $9.00 x 6,000 direct labor-hours)
d. $229,500 (= $9.00 x 25,500 direct labor-hours)
e. $220,500. Supplies .............................................................

$ 18,000
Indirect labor wages ...........................................
51,000
Supervisory salaries ...........................................
108,000
Factory facilities .................................................
19,500
Factory equipment costs ....................................
24,000
$220,500
7-24
f. Credit it to cost of goods sold. The amount is clearly not material (0.1% of cost of
goods sold), so it is not worth the effort involved in prorating.
Overapplied Overhead................ $0
Cost of Goods Sold..................... 2,937,000*
Work-in-Process Inventory ......... 114,000
Finished Goods Inventory ........... 246,000
*$2,940,000 – $3,000
If it were material, then the proper answer would be to prorate it between work-in-
process inventory, finished goods inventory, and cost of goods sold.
7-41. (40 min.) Analysis Of Overhead Using A Predetermined Rate: UCD

Company.
a. $980,000
$49 per DLH. = $49 per DLH
20,000
b. $890,300. Beginning balance ..............................................

$91,300
Direct materials ..................................................
281,000
Direct labor .........................................................
168,000 *
Overhead applied ...............................................
350,000 **
$890,300
*The wage rate for direct labor is $24.00 per hour. $24.00 x 7,000 hours = $168,000.
**$50.00 x 7,000 direct labor-hours.
c. $92,500 (= $50.00 x 1,850 direct labor-hours)
d. $595,000 (= $50.00 x 11,900 direct labor-hours)

e. $344,500. Supplies .............................................................
$ 76,700
Indirect labor wages ..........................................
63,000
Supervisory salaries ..........................................
128,000
Factory facilities .................................................
36,900
Factory equipment costs....................................
39,900
$344,500
f. In this case, the underapplied overhead is relatively large (it is greater than 10% of
cost of goods sold, so the company might consider it material and decide to prorate
it. (The decision depends, at least in part, on the how the resulting information will
be used and who would be using it.) Without more detailed information on the direct
labor (or applied overhead), we will allocate the underapplied overhead based on
account balances. The share would be 70% (= $28 million ÷ $40 million for cost of
goods sold), 10% (= $4 million ÷ $40 million for Work-In-Process Inventory), and
7-25
20% (= $8 million ÷ $40 million for cost of goods sold) for Finished Goods
Inventory. This yields:
Underapplied Overhead ............. $0

Cost of Goods Sold .................... $30,100,000*
Work-in-Process Inventory ......... 4,300,000**
Finished Goods Inventory .......... 8,600,000***
*$28,000,000 + (70% x $3,000,000)
**$4,000,000 + (10% x $3,000,000)
***$8,000,000 + (20% x $3,000,000)
7-42. (30 min.) Finding Missing Date: BackupsRntUs
a. February 29: Ending Work-in-process inventory:

—only one job is remaining in ending Work-in-process inventory.
Direct Materials ..................................................

$15,600
Direct Labor ........................................................
10,800 ($36 per hour x 300 hours)
Manufacturing Overhead ....................................
5,400 ($18 per hour x 300 hours)
Total Cost of Ending Work in
Process Inventory ..........................................
$31,800
b. Direct materials purchased during February:

Since the accounts payable account is used only for direct material purchases, the
month’s purchases can be determined from analyzing the accounts payable account:
Beginning Balance + Transfers In – Transfers Out = Ending Balance
$36,000 + Transfers In – $252,000 = $54,000
Transfers In = $270,000
c. Actual manufacturing overhead incurred during February:
$18 per hour x 5,200 total direct labor-hours = $93,600
d. Cost of goods sold during February:

Beginning Finished Cost of Goods Cost of Ending Finished
+ – =
Goods Inventory Manufactured Goods Sold Goods Inventory
Cost of
$ 108,000 + $564,000 – = $66,000
Goods Sold
$672,000 – $ 66,000 = Cost of Goods Sold
$606,000 = Cost of Goods Sold
7-26
7-43. (30 min.) Cost Accumulation—Service: Youth Athletic Services.

T-accounts (Not required—see next page for income statement)
Wages, Salaries,
and Accounts Managing Direct Officiating Training Direct Dispute Unassigned
Payable Labor Cost Direct Labor Cost Labor Cost Resolution Labor Cost
Direct Labor Cost
4,800 1,200 1,875 1,350 375
(= $15 x (= $15 x (= $15 x (= $15 x (= $15 x
320) 80) 125) 90) 25)
9,600 Dispute
Managing Officiating Direct Training Direct Resolution Direct
Direct Overhead Overhead Cost Overhead Cost Overhead Cost
Cost
950 875 700 10
200 300 250 200
375 1,000 150 50
5,060
7-27
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
7-43. (continued)
Income Statement
Youth Athletic Services
Income Statement
For Month Ending July 31
Dispute
Managing Officiating Training Resolution Total
Revenue ............................................................. $6,950 $7,900 $3,000 $1,000 $18,850
Cost of Services:
Labora............................................................. $4,800 $1,200 $1,875 $1,350
Direct Overheadb ............................................ 1,525 2,175 1,100 260
Indirect Overheadc.......................................... 384 96 150 108
Total costs of services................................. $6,709 $3,471 $3,125 $1,718 $15,023
Department margin ............................................ $ 241 $4,429 $(125) $(718) $ 3,827
Less other costs:
Unassigned labor costs (idle time)d ................ 375
Unassigned overhead indirect costse ............. 30
Marketing and administrative costsf................ 6,075
Operating profit .................................................. $ (2,653)
aAmounts equal $15 per hour times direct labor-hours according to the problem (managing, $15 x 320 hours; etc.)
bAmounts equal the sum of direct overhead items given in the problem.
cRate =
Total cost $768
= = $1.20 per hour. For managing, $1.20 x 320 hours = $384, etc.
Total hours 640 hours worked
(including idle time)
d$375 = $15 x 25 hours
e$30 = $768 – $384 – $96 – $150 – $108 = $1.20 x 25 hours.
fSum of marketing and administrative costs ($3,000 + $2,250 + $600 + $225)
©The McGraw-Hill Companies, Inc., 2013

28 Fundamentals of Cost Accounting
7-43. (continued)
Only Managing and Officiating are clearly profitable. Training is losing a small amount of money. The problem is in “Dispute
Resolution” where the revenue is less than the direct labor. The company should reconsider the pricing policy for “Dispute
Resolution” or consider dropping the service. The company should also consider the role of Mayes’ assistant considering the
salary and the revenues.
7-44. (25 min.) Job Costs—Service Company: Bay Accountants.
a. Unassigned
State Prison Costs (not
Lake Lumber Marty’s Marina System required) Total
Revenue ..........................................................................
$320,000 $96,000 $160,000 $576,000
(= 2,000 x $160) (= 600 x $160) (= 1,000 x $160)
Labor ................................................................................
$120,000 $ 36,000 $60,000 $24,000 240,000
(= 2,000 x $60) (= 600 x $60) (= 1,000 x $60) (= 400 x $60)
Overheada ......................................................................
$30,000 $ 9,000 $ 15,000 6,000 60,000
Margin ..............................................................................
$170,000 $51,000 $85,000
a$30,000 = (2,000 ÷ 4,000) x $60,000; $9,000 = (600 ÷ 4,000) x $60,000; and so on.
7-29
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
7-44. (continued)
b.
Bay Accountants
Income Statement
For Month Ending January 31
Revenue from clients ........................................... $576,000

Less cost of services to clients:
Labor................................................................ $216,000
Overhead ......................................................... 54,000
Total cost of services to clients .................... 270,000
Gross margin ....................................................... $306,000
Less other costs:
Labor................................................................ $24,000
Overhead ......................................................... 6,000
Marketing and administrative costs .................. 40,000
Total other costs ........................................... 70,000
Operating profit.................................................... $ 236,000
7-45. (50 min.) Job Costs In A Service Company: Pete’s Patios.

Materials Inventory
Balance 9/1 (given) 11,040 192 Indirect Materials
Purchases (given) 1,392 3,768 Requisition
Balance 9/30 8,472
(a) Balance 9/1 9,510 7,270 Job PP-24 (c)
(b) Job PP-24 4,080 19,616 Job PP-30 (e)
(d) Job PP-30 13,296
(f) New Job(s) 10,872
Balance 9/30 10,872

Balance 1/1 ($4,704 + 6,600
$1,896)
(c) Job PP-24 7,270 6,600 Sold
(e) Job PP-30 19,616
7-30
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Balance 9/30 26,886

a. Direct Materials + Direct Labor + Applied Overhead
= $2,038 + $1,280 + $768 + $3,360 + [50%  ($768 + $3,360)]
= $9,510.
b. To complete Job PP-24:

$2,720 Direct Labor + ($2,720 x 50%) Applied Overhead
= $4,080.
c. Transfer to Finished Goods: Job PP-24 Beginning Inventory Cost + Current Cost
= $3,190 + $2,720 + 50%($2,720)
= $7,270.
d. To complete Job PP-30: $1,296 Materials + $8,000 Direct Labor + (50% x $8,000)
Applied Overhead
= $1,296 + $8,000 + $4,000
= $13,296.
e. Transfer of Job PP-30: Beginning Inventory Cost + Current Cost

= [$1,280 + $3,360 + 50%($3,360)] + [$1,296 + $8,000 + 50%($8,000)]
= $19,616
7-45. (continued)
f. New Job Cost = Current Charges to WIP less Current Charges for Jobs PP-24 and
PP-30:
= Current Materials + Direct Labor + Overhead – Job PP-24 Current Cost
– Job PP-30 Current Cost
= $3,768 + $16,320 + $50%($16,320) – $4,080(b)* – $13,296(d)*
= $10,872
*These letters refer to solution parts b and d above.
7-31
whole or part.
7-46. (55 min.) Tracing Costs In A Job Company: Dungan Cabinetry
a. (1) Materials Inventory ....................................................... 53,700

Accounts Payable ..................................................... 53,700
(2) Manufacturing Overhead .............................................. 1,500
Materials Inventory.................................................... 1,500
(3) Accounts Payable ......................................................... 53,700
Cash ......................................................................... 53,700
(4) Work in Process—Direct Materials ............................... 25,500
Materials Inventory.................................................... 25,500
(5) Payroll .......................................................................... 42,000
Payroll Taxes Payable .............................................. 13,500
Cash ......................................................................... 28,500
(6) Payroll .......................................................................... 21,000
Fringe Benefits Payable ............................................ 21,000
(7) Work in Process (60% x $63,000) ................................ 37,800
Manufacturing Overhead (30% x $63,000) ................... 18,900
Administrative and Marketing Costs (10% x $63,000) .. 6,300
Payroll ($21,000 + $42,000)...................................... 63,000
(8) Manufacturing Overhead .............................................. 32,400
Cash ......................................................................... 32,400
(9) Work in Process—Overhead ($37,800 x 175%) ........... 66,150
Applied Manufacturing Overhead............................. 66,150
(10) Manufacturing Overhead Control.................................. 17,250
Equipment .......................................................... 17,250
7-32
whole or part.
7-46. (continued)
b. Materials Inventory
Balance 1/1 55,575 1,500 (2)
(1) 53,700 25,500 (4)
Balance 1/31 82,275 a
a$82,275 = $55,575 + $53,700 – $1,500 – $25,500.
Balance 1/1 12,375 86,325 Per Finished Goods
(4) Direct Materials 25,500 T-account
(7) Direct Labor 37,800
(9) Overhead Applied 66,150
Balance 1/31 55,500 b
b$55,500 = $12,375 + $25,500 + $37,800 + $66,150 – $86,325.

(2) 1,500
(7) 18,900
(8) 32,400
(10) 17,250

66,150 (9)
Accounts Payable
(3) 53,700 53,700 (1)
7-33
whole or part.
7-46. (continued)
Cash
53,700 (3)
28,500 (5)
32,400 (8)
Payroll
(5) 42,000
(6) 21,000 63,000 (7)
Payroll Taxes Payable

13,500 (5)
Fringe Benefits Payable

21,000 (6)
Administrative and Marketing Costs

(7) 6,300
Accumulated Depreciation—Property, Plant, and Equipment

17,250 (10)
Finished Goods
Balance 1/1 62,250
Goods Completed 86,325 a 98,775 Cost of Goods Sold
Balance 1/31 49,800
a$86,325 = $98,775 + $49,800 – $62,250.
Cost of Goods Sold

Balance 1/31 98,775
7-34
whole or part.
7-47. (50 min.) Cost Flows Through Accounts: Brighton Services
a. T accounts.
Materials Inventory
137,200 (1a)
93,000 (1b)
94,000 (1c)
Wages Payable
490,000 (2a)
312,400 (2b)
197,600 (2c)
Variable Manufacturing Overhead

(Actual) (Applied)
62,000 29,900 (3a)
27,500 (3b)
4,600 (3c)
Fixed Manufacturing Overhead

(Actual) (Applied)
209,200 104,000 (4a)
88,200 (4b)
17,000 (4c)
(1) 324,200 761,100 (a)
(2) 1,000,000 521,100 (b)
(3) 62,000
(4) 209,200
(1) = the sum of the amounts (1a) + (1b) + (1c)

a761,100 = 137,200 + 490,000 + 29,900 + 104,000
b521,100 = 93,000 + 312,400 + 27,500 + 88,200
7-35
whole or part.
7-47. (continued)

(a) 761,100
(b) 521,100 1,282,200
Cost of Goods Sold

1,282,200
b. Total Direct Labor Costs = $4,000,000.

$4,000,000
Total Direct labor-hours = = 200,000 hours.
$20 per Hour
Variable Manufacturing Overhead = .30 x $1,040,000 = $312,000.
$312,000
Predetermined Variable Overhead Rate =
200,000
= $1.56 per Direct Labor-Hour.
Fixed Manufacturing Overhead = 0.70 x $1,040,000 = $728,000

$728,000
Predetermined Fixed Overhead Rate =
200,000
= $3.64 per Direct Labor-Hour.
7-36
whole or part.
7-47. (continued)
c. T accounts
Materials Inventory
137,200 (1a)
93,000 (1b)
94,000 (1c)
Wages Payable
490,000 (2a)
312,400 (2b)
197,600 (2c)
Variable Manufacturing Overhead*

(Actual) (Applied)
62,000 38,220 (3a)
Overapplied (5) 16,000 24,367 (3b)
15,413 (3c)
Fixed Manufacturing Overhead*

(Actual) (Applied)
209,200 89,180 (4a)
56,857 (4b)
35,963 (4c)
27,200 (5) Underapplied
*These can be divided into two accounts, one for “actual” and one for “applied.” We put
them in one account to save space.
(1) 324,200 754,600 (a)
(2) 1,000,000 486,624 (b)
(3) 78,000
(4) 182,000
7-37
whole or part.
7-47. (continued)

(a) 754,600
(b) 486,624 1,241,224
Cost of Goods Sold

1,241,224
Under-or Over-Applied Overhead

(5) 27,200 16,000 (5)
d. Actual Normal
Sales Revenue ...................................................

$1,400,000 $1,400,000
Less Cost of Goods Sold ....................................(1,282,200) (1,241,224)
Gross Margin ......................................................
$ 117,800 $ 158,776
Less:
(Under-) Overapplied Overhead ........................ — (11,200)
Marketing and Administrative Costs .................. (112,000) (112,000)
Operating Profit (Loss) .......................................
$ 5,800 $ 35,576
7-38
whole or part.
7-48. (60 min.) Show Flow Of Costs To Jobs: Kim’s Asphalt.

a. 1. Payment received on account
Cash........................................................................................ 12,500
Accounts receivable ............................................................ 12,500
2. Inventory purchase
Materials and equipment inventory ......................................... 9,400
Accounts payable ................................................................ 9,400
3. Billing
Accounts receivable ................................................................ 130,000
Sales revenue ..................................................................... 130,000
Cash........................................................................................ 75,000
Accounts receivable ............................................................ 75,000
4. Indirect labor
Manufacturing overhead—Indirect labor ................................. 650
Wages payable .................................................................... 650
5. Indirect materials issued
Manufacturing Overhead......................................................... 155
Materials and equipment inventory ...................................... 155
6. Overhead and advertising
Manufacturing Overhead [$550 + $675 + $320 + $200 + $325
+ $450] .................................................................................... 2,520
Selling costs—Advertising....................................................... 600
Cash .................................................................................... 2,670
Accumulated Depreciation ................................................... 450
7. Charges to Work in Process
Work in process—materials and equipment
[$3,000 + $4,800 + $4,600 + $2,900] .................................. 15,300
Work in process—direct labor
[$4,500 + $6,750 + $5,900 + $1,600] .................................. 18,750
Work in process—overhead applied [30% x $18,750] ............ 5,625
Materials inventory .............................................................. 15,300
Wages payable .................................................................... 18,750
Overhead applied ................................................................ 5,625
8. Transfer of Job 33
Cost of installations completed and sold ................................. 100,200
Work in process—materials and equipment [$52,500 +
$4,800] ..................................................................... 57,300
Work in process—direct labor [$26,250 + $6,750] .............. 33,000
Work in process—overhead applied [30% x $33,000]......... 9,900
7-39
whole or part.
Note: No finished goods inventory account is required.
7-48. (continued)
b. Overhead analysis:
Applied (Entry 7) .............................................
$5,625
Incurred
Entry 4 .........................................................
$650
Entry 5 .........................................................
155
Entry 6 .........................................................
2,520
3,325
Overapplied ........................................................
$ 2,300
c. Inventory balances
Materials and Equipment Inventory

Balance 5/1 36,000 15,300 (7)
(2) 9,400 155 (5)
Balance 5/31 29,945
Balance 5/1 119,550 *
Current charges (7) 39,675 100,200 (8) Job 33
Balance 5/31 59,025
Cost of Goods Sold**

(8) 100,200
2,300 Overapplied
overhead
Balance 5/31 97,900
*Job 27 + Job 33 = $32,925 + $86,625

**Not required.
7-40
whole or part.
7-49. (70 min.) Reconstruct Missing Data: Toledo Farm Implements.

This is a challenging problem. We put the work in process account for May on the
board for the "big picture," then solve for each item in the account as follows:
Work-in-Process
(a) Balance, beginning 172,400
(b) Direct materials 140,628 107,000 Transferred to (d)
finished goods
(c) Direct labor 135,400 408,028 Disaster loss (f)
(e) Overhead applied 66,600
Balance, ending –0–
The calculations are shown below. We usually present these using both T-accounts
and the following formulas.
(a) Given
(b) Direct materials = Beginning inventory + Purchases – Ending inventory – Indirect

materials
= $98,000a + $132,800* – $86,000a – $4,172 (from paper scrap)
= $140,628
*Purchases = Accounts payable, ending + Cash payments – Accounts

payable, beginning
= $100,200a + $75,800a – $43,200a
= $132,800
( c) Direct labor = Payroll – Indirect labor

= $164,800a – $29,400a
= $135,400
(d) Cost transferred to finished goods inventory = Finished goods, ending + Cost of
goods sold – Finished goods, beginning
= $75,000a + ($793,200a – $697,200a) – $64,000a
= $107,000
7-41
whole or part.
7-49. (continued)
(e) Overhead applied = Ending manufacturing overhead – beginning

manufacturing overhead + overapplied overhead
= $434,000a – $369,800a + $2,400a
= $66,600
(f) Loss = $172,400a + $140,628 + $135,400 + $66,600 – $107,000

= $408,028
Note: The insurance company may dispute paying the $2,400 overapplied overhead.
aGiven in problem
7-50. (70 min.) Find Missing Data: IYF Corporation.

(a) Beginning inventory + Transfers in = Ending inventory + Transfers Out
Beginning inventory = Ending inventory + Transfers Out – Transfers in
=$3,000 + $45,000 – $37,000
=$11,000
(b) $8,000. Because any over- or underapplied is written off to Cost of Goods Sold, the
difference between the Cost of Goods Sold journal entry ($45,000) and the Cost of
Goods Sold amount on the income statement ($45,400) must be the amount of
underapplied overhead. Underapplied overhead is 5% of overhead applied for June, so
total overhead applied is $8,000 (= $400 ÷ 5%)
(c) Overhead rate = 80% (= $8,000 ÷ $10,000)
(d) Overhead incurred = Overhead applied + Underapplied overhead

= $8,000 + $400
= $8,400
(e) $3,000.
Work in process beginning + Manufacturing costs
= Work in process ending + Transfers to Finished Goods Inventory.
But, Work in process ending = 2 x Work in process beginning.

Therefore, Work in process beginning + Manufacturing costs
= 2 x Work in process beginning + Transfers to finished goods
7-42
whole or part.
and,
7-43
whole or part.
Work in process beginning = Manufacturing costs – Transfers to finished goods.
We know the amount of direct labor, but not the amount of direct materials
transferred into production. For this, we use the inventory equation for direct
materials.
Direct materials beginning + Purchases = Direct materials ending + Transfers out
Direct materials ending = Direct materials beginning – $7,000, so
Transfers out = $15,000 + $7,000 = $22,000.
Work in process beginning = $22,000 (direct materials) + $10,000 (direct labor) +
$8,000 (applied manufacturing overhead) – $37,000 (transferred out) = $3,000.
(f) $6,000 (= 2 x $3,000 work in process beginning).
7-51. (70 min.) Find Missing Data: NIC Enterprises.

(a) Beginning inventory + Transfers in = Ending inventory + Transfers Out
Ending inventory = Beginning inventory + Transfers in – Transfers Out
=$148,000 + $1,520,000 – $1,460,000
=$208,000
(b) $500,000. Because any over- or underapplied is written off to Cost of Goods Sold,
the difference between the Cost of Goods Sold journal entry ($1,460,000) and the Cost
of Goods Sold amount on the income statement (the difference between revenues and
gross profit or, $1,450,000) must be the amount of overapplied overhead. Overapplied
overhead is 2% of overhead applied for September, so total overhead applied is
$500,000 (= $10,000 ÷ 2%)
7-44
whole or part.
(c) Overhead rate = 625% (= $500,000 ÷ $80,000)
(d) Overhead incurred = Overhead applied – Underapplied overhead

= $500,000 – $10,000
= $490,000
(e) $568,000.
Work in process beginning + Manufacturing costs
= Work in process ending + Transfers to Finished Goods Inventory.
But, Work in process ending = 1.25 x Work in process beginning.

Therefore, Work in process beginning + Manufacturing costs
= 1.25 x Work in process beginning + Transfers to finished

goods
and,
0.25 x Work in process beginning

= Manufacturing costs – Transfers to finished goods.
We know the amount of direct labor, but not the amount of direct materials
transferred into production. For this, we use the inventory equation for direct
materials.
Direct materials beginning + Purchases = Direct materials ending + Transfers out
Direct materials ending = Direct materials beginning – $25,000, so
Transfers out = $1,057,000 + $25,000 = $1,082,000.
0.25 x Work in process beginning = $1,082,000 (direct materials) + $80,000 (direct
labor) + $500,000 (applied manufacturing overhead) – $1,520,000 (transferred out)
So, Work in process beginning = $142,000 ÷ 0.25 = $568,000.
(f) $710,000 (= 1.25 x $568,000 work in process beginning).
7-45
whole or part.
7-52. (45 min.) Incomplete Data—Job Costing: Chelsea Household

Renovations.
The following information should be included (in summary) in a report to management.
Work-in-Process Cost of Goods Sold

Cash or Accounts Payable Job No. 61 Job No. 61
18,400 * M* 8,000 8,000 M* 8,000
L* 38,400 76,800 L 76,800
O3 19,200 38,400 O2 38,400
6/1 65,600 123,200 *
L1 38,400
O4 19,200
6/30 0
Wages Payable Job No. 62 Job No. 62

128,000 * M5 12,000 12,000 M 12,000
L 6 48,000 48,000 L 48,000
O 7 24,000 24,000 O 24,000
6/30 0 84,000
Overhead Job No. 63 Underapplied Overhead

Actual Applied M* 6,400 16,00010
80,000 * 64,000 9 L* 41,600
O8 20,800
6/30 68,800
Note: See footnotes on next page.
7-46
whole or part.
7-52. (continued)
M refers to direct materials
L refers to direct labor
O refers to manufacturing overhead
*Numbers given in the problem
1Labor to complete job is $76,800 since the beginning inventory was 50% complete
2Applied overhead = $123,200 – $8,000 – $76,800
= $38,400
$38,400
Applied overhead =
$76,800
= 50% of direct labor dollars
3Overhead in beginning inventory = 0.50 x $38,400

= $19,200
4Overhead applied in June = 0.50 x $38,400

= $19,200
5Materials for Job No. 62 = Purchases – materials for Job No. 63

= $18,400 – $6,400
= $12,000
6Labor for Job No. 62 = Total direct labor costs – Labor for Job No. 61 – Labor
for Job No. 63
= $128,000 – $38,400 – $41,600
= $48,000
7Overhead for Job No. 62 = 0.50 x $48,000

= $24,000
8Overhead for Job No. 63 = 0.50 x $41,600

= $20,800
7-47
whole or part.
7-52. (continued)
9Applied Overhead = $19,200 + $24,000 + $20,800

= $64,000
10Underapplied overhead = Actual – Applied

= $80,000 – $64,000
= $16,000
7-53. (25 min.) Job Costing and Ethics: Old Port Shipyards.
(This problem is based on actual experience.)
a.
Olde Town Newton
Overhead cost ................. $20,000,000 $80,000,000
Direct labor-hours ............ 200,000 200,000
Predetermined rate.......... $100 per hour $400 per hour
(Overhead ÷ Hours)......... (= $20,000,000 ÷ (= $80,000,000 ÷
200,000) 200,000)
b. The supervisor recognizes that if the government audit agency allows the overhead
rates to be calculated on a location-specific basis, it will be better for Old Port to do
the work at Newton, because the overhead, which will be part of the cost charged,
will be higher than if it is done at Olde Town.
c. The question is whether there is a functional difference in the two dry docks, so that
the work is actually different. If there is not a functional difference or another valid
reason for separating the costs, there might be an ethical issue.
7-54. (25 min.) Job Costing and Ethics: Price and Waters.
a. Chuck should refuse to charge the U.S. Department of Defense for work for
General Motors.
b. The fact that the consulting firm is being reimbursed for the government job and not
the General Motors job gives the manager an incentive to try and shift costs to the
government job. (If both jobs were fixed price, the total profits would remain the
same regardless of the assignment of the costs.)
7-55. (25 min.) Job Costing and Ethics: Global Partners.
a. Because the choice is between direct labor hours and direct labor cost, the
circumstance that would cause a difference is if different direct labor employees
7-48
whole or part.
were paid different amounts. If all are paid the same rate, the two bases will give the
same result.
b. In general, the result of the cost allocation is a weak justification for the choice of
the base, especially when it means differences in prices charged. If employees are
randomly assigned to jobs, hours is probably the better choice, because it avoids
the distortion of direct labor rates, which are irrelevant for resource usage (given
the random assignment). If different skill sets are required, allocating based on
direct labor costs is probably better, because the labor rates will reflect the skill
requirements.
Solutions to Integrative Case
7-56. (75 min.) Cost Estimation, Estimating Overhead Rates, Job Costing, and
Decision-Making: O’Leary Corporation.
This problem relates overhead allocation to cost estimation and decision making. It
uses some of the methods of Chapters 4 and 5.
a. $965,400 (Work-in-Process Inventory) and $637,500 (Finished Goods Inventory).
Job MC-275 is the only job in process. It has accumulated the following costs:
Direct materials ................. $495,000 (Given)
Direct labor ........................ 54,400 (= $17 x 3,200 hours)
Manufacturing overhead.... 416,000 (= $130 x 3,200 hours)
$965,400
Job MC-270 is the only job in finished goods. It has accumulated the following
costs:
Direct materials ................. $270,000 (Given)
Direct labor ........................ 42,500 (= $17 x 2,500 hours)
Manufacturing overhead.... 325,000 (= $130 x 2,500 hours)
$637,500
b. $1,069,500.
The predetermined overhead rate in year 3 is $140 per direct labor-hour. O’Leary
uses the actual rate from the previous year and $140 = $7,560,000 ÷ 54,000
hours).
Beginning costs ................ $965,400 (From requirement (a))
Additional direct material ... 57,000 (given)
Additional direct labor ........ 5,100 (= $17 x 300 hours)
7-49
whole or part.
Manufacturing overhead.... 42,000 (= $140 x 300 hours)

$1,069,500
c. $1,240,000 overapplied.
Overhead applied $10,360,000 (= $140 x 74,000 hours)
Overhead incurred 9,120,000 (Given)
Overapplied overhead $1,240,000
7-56. (continued)
d. A variety of allocations can be used. Because we know how many direct labor hours
are in each account from year 3, we will use this basis. Direct labor hours are the
basis for applying overhead. If this were unknown, we could use total account
balances. First, determine the number of direct labor-hours used in year 3 in each
account.
Direct labor hours, year 3 74,000 (Given)
In work in process, end of year 3 7,400 (6,100 in MC-397 + 1,300 in
MC-399)
In finished goods, end of year 3 4,440 11,840 (1,740 in MC-389 + 2,700 in
MC-390)
In cost of goods, year 3 62,160 (74,000 – 11,840)
The allocation is then based on the relative amounts in each account:

Account Percentage Allocation
Work in process 10% (= 7,400 ÷ 74,000) $124,000 (= .10 x $1,240,000)
Finished goods 6 (= 4,440 ÷ 74,000) 74,400 (= .06 x $1,240,000)
Cost of sales 84 (= 62,160 ÷ 74,000) 1,041,600 (= .84 x $1,240,000)
$1,240,000
Allocate Overapplied Overhead

Overhead applied .................................................................... 1,240,000
Work in process ................................................................... 124,000
Finished goods .................................................................... 74,400
Cost of sales ........................................................................ 1,041,600
7-50
whole or part.
7-56. (continued)
e. $567,500.
This is a special order problem similar to those discussed in Chapter 4. The
minimum bid would be the variable cost of the job, ignoring strategic or other
considerations. The variable cost of the job (ignoring sales and administrative costs
as instructed in the problem) consists of direct material, direct labor, and variable
manufacturing overhead.
To estimate the variable portion of overhead, we can use the high-low method
discussed in Chapter 5. The high and low years are year 3 and year 4, respectively.
(Note that these are also the most recent years, so they might also be the most
relevant for the estimation.)
Applying the high-low method:
$9,120,000 – $7,560,000 = $1,560,000

74,000 – 54,000 20,000
= $78 per direct labor-hour
Total overhead (Year 3) ................................. $9,120,000

Total variable overhead (74,000 x $78) ......... (5,772,000)
Total fixed overhead ...................................... $3,348,000
The variable cost of the special job can be estimated as follows:

Direct materials .................................. $ 92,500 (Given)
Direct labor......................................... r 85,000 (= $17 x 5,000 hours)
Variable manufacturing overhead ...... d 390,000 (= $78 x 5,000 hours)
Total .............................................. $567,500
7-51
whole or part.

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Chapter 07 - Job Costing

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Solutions to Review Questions

Solutions to Critical Analysis and Discussion Questions

7-18. (30 min.) Assigning Costs to Jobs: Pawnee Workshops.

1. Materials Inventory .......................................................... 16,000

Manufacturing Overhead Control

Applied Manufacturing Overhead

Finished Goods Inventory

Cost of Goods Sold

7-19. (20 min.) Assigning Costs to Jobs: Fast Wheels, Inc.

1. Materials Inventory .......................................................... 20,000

Manufacturing Overhead Control

Applied Manufacturing Overhead

Finished Goods Inventory

Cost of Goods Sold

7-20. (20 min.) Assigning Costs to Jobs: Tarnsdale Fabricators.

1. Materials Inventory .......................................................... 17,000

Manufacturing Overhead Control

Applied Manufacturing Overhead

Finished Goods Inventory

Cost of Goods Sold

7-21. (25 min.) Assigning Costs to Jobs: Cardinals, Inc.

e. $6,000 (underapplied) = $78,000 – $72,000.

7-22. (25 min.) Assigning Costs to Jobs: Blake Corporation.

7-23. (25 min.) Assigning Costs to Jobs: Pine Ridge Corporation.

7-24. (10 min.) Predetermined Overhead Rates: Tappan, Inc.

Direct material used ........................................... $700,000c

7-25. (15 min.) Predetermined Overhead Rates: Mark Corp.

Application rate: $90,000 = 45% of direct labor

Job 301: $50,000 x .45 = $22,500

b. $97,000 – $101,250 = $4,250 overapplied manufacturing overhead.

7-26. (10 Min.) Prorate Under- or Overapplied Overhead: Mark Corp.

Applied manufacturing overhead ................................... $101,250

7-27. (15 min.) Predetermined Overhead Rates: Aspen Company.

Application rate: $625,000 = 125% of direct labor

Job 2-1: ............

7-28. (10 Min.) Prorate Over- or Underapplied Overhead: Aspen Company.

Applied manufacturing overhead .................................. $812,500

7-29. (20 min.) Applying Overhead Using a Predetermined Rate: Mary’s

7-31. (10 min.) Calculating Over- or Underapplied Overhead: Tony’s Textiles.

c. Overhead applied during month:

Under- or overapplied amount = $88,992 applied – $90,000 actual = $1,008 underapplied.

7-33. (30 min.) Job Costing In A Service Organization: RCMP.

Service Overhead Control Applied Service O.H.

b. Royal Consulting and Mediation Practice

Sales revenue .................................................... $1,200,000 a

7-34. (30 min.) Job Costing In A Service Organization: AB.

Service Overhead Control Applied Service O.H.

7-35. (30 min.) Job Costing In A Service Organization: TechMaster.

Service Overhead Control Applied Service O.H.

a$75 per hour x 875 hours.

Manufacturing Overhead Control Applied Manufacturing Overhead

From these accounts, we solve for actual hours worked:

7-38. (40 min.) Assigning Costs—Missing Data.

$400,100 = $22,300 + $180,500 + $121,000 + $94,000 – $17,700.

7-39. (50 min.) Assigning Costs—Missing Data.

Finished Goods Inventory

Cost of Goods Sold

Manufacturing Overhead Control

Applied Manufacturing Overhead

(b) Let X = Direct labor costs