UNIVERSITY OF THE WEST INDIES

Mona School of Business & Management

ACCT 1003 - Intro. To Cost & Management Accounting
Worksheet # 4: Job Order Costing
Lecture/Tutorial Questions
Question 1
Peterson Corporation Company uses a job costing system and had the following data available for
the current period.
(i) Purchased materials on account $70,000
(ii) Materials requisitioned ( includes $6,500 of indirect material) $54,500
(iii) Manufacturing wages incurred $75,000
(iv) Assigned manufacturing wages, 85% direct labour, 15% indirect labour
(v) Depreciation of factory equipment $13,500
(vi) Other manufacturing overhead incurred $45,900
(vii) Manufacturing overhead applied (as a % of direct labour cost) 130%
(viii) Cost of goods completed $165,000
(ix) Cost of goods sold (on account) at a mark-up of 45% $130,000

(a) State the journal entries necessary to record the above transactions.
(b) As your final journal entry, dispose of any overhead variance as a direct write-off to COGS
(c) What is balance on the Cost of Goods Sold account after the adjustment
(d) Determine the gross profit earned for the period.

Question 2
Craftsman manufactures customized household furnishings. The company uses a perpetual
inventory system and has a highly labour intensive production process, so it assigns
manufacturing overhead based on direct labour cost.
Craftsman predetermined overhead application rate for 2012 was computed from the following
data:

Total estimated factory overhead $480,000

Total estimated direct labour cost $800,000
The following events occurred during May 2012.
i) Purchased materials on account, $405,000
ii) Incurred manufacturing wages of $111,600
iii) Requisitioned direct materials and used direct labour in manufacturing

Direct Materials Direct Labour

$ $
Job 101 41,320 14,800
Job 102 56,800 28,700
Job 103 62,100 19,200
Job 104 66,000 21,000

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 iv) Issued indirect materials to production, $6,600
v) Charged indirect manufacturing wages to production, $27,900
vi) Other manufacturing overhead costs incurred on units 101 to 104 amounted to $29,800
vii) Allocated overheads to jobs at the predetermined rate
viii) Units completed: 101, 103 & 104
ix) Sold units 101 & 104 (billed customers at a mark-up of 45% on cost)

Required:

(a) Compute Craftsman’s predetermined manufacturing overhead rate for 2012.

(b) State the journal entries necessary to record the above transactions in the general journal.
(c) Calculate the manufacturing overhead variance for Craftsman and state the journal entries
necessary to dispose of the variance.
(d) What is balance on the Cost of Goods Sold account after the adjustment
(e) Open T-accounts for Work in Process Inventory and Finished Goods Inventory. Post the
appropriate entries to these accounts, identifying each entry by number. Determine the
ending balances, assuming that the beginning balances were zero.

Question 3

The Solomon Company uses a job costing system at its Dover, Delaware plant. The plant has a
machining department. Its job costing system has two direct cost categories (direct materials and
direct manufacturing labour) and two manufacturing overhead cost pools (the machining
department, allocated using machine hours and the finishing department, allocated using
manufacturing labour costs). The 2002 budget for the plant is:

Machining Dept. Finishing Dept.

Manufacturing Overhead $10,000,000 $8,000,000
Direct manufacturing labour cost $ 900,000 $4,000,000
Direct manufacturing labour hours 30,000 160,000
Machine hours 200,000 33,000

(a) What is the budgeted overhead rate that should be used in the machining department? In
the finishing department?
(b) During the month of January, the cost record for job 431 shows the following:

Machining Dept. Finishing Dept.

Direct material used $14,000 $3,000

Direct manufacturing labour costs $ 600 $1,250
Direct manufacturing labour hours 30 50
Machine hours 130 10

What is the total manufacturing overhead allocated to job 431?

(c) Assuming that job 431 consisted of 20 units of product, what is the unit product cost?
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(d) Balances at the end of 2002 are as follows:

Machining Dept. Finishing

Dept.
Manufacturing overhead incurred $11,200,000 $7,900,000
Direct manufacturing labour costs $ 950,000 $4,100,000
Machine Hours 220,000 32,000

Compute the manufacturing overhead variance for each department and for the Dover
plant as a whole.

Question 4
 The following activities took place in the work in process inventory during April:

Beginning Balance $15,000

Direct materials used 120,000
 Indirect material issued to production was $20,000
 Total manufacturing labour incurred in April was $162,500, 75% of this amount represented
direct labour.
 Other manufacturing overhead costs incurred for April amounted to $130,000.
 The predetermined manufacturing overhead rate is 120% of direct labour cost.
 Two jobs were completed with total costs of $120,000 & $85,000 respectively. They were
sold on account for $260,000 & $150,000 respectively.
Required:
(a) Record the journal entries:
1) For direct materials used in April
2) For indirect material issued to production in April
3) For total manufacturing labour incurred in April
4) To assign manufacturing labour to the appropriate accounts
5) For other manufacturing overhead incurred
6) For manufacturing overhead allocated for April
7) To move the completed jobs into finished goods inventory
8) To sell the two completed jobs on account
9) To dispose of the manufacturing overhead variance

(b) Compute the balance in work in process inventory on April 30.

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Practice Questions
(The following question is to be used for self study session)

Question 1
WIP Inventory A/C
September 1 Bal. 20,000
Direct Materials Used 30,000
Direct Labour assigned to jobs 32,000
Manufacturing Overhead allocated to jobs 16,000

Completed production not yet recorded consists of Jobs 142 and 143, with total costs of $40,000
and $38,000 respectively.

Required:

i) Calculate the cost of the work in process at September 30.

ii) Prepare the journal entry for production completed in September.
iii) Prepare the journal entry to record the sale (on credit) of Job 143 for $45,000. Assume a
perpetual inventory system.
iv) What is the gross profit on Job 143? What other costs must this gross profit cover?

Question 2

Bluebird Design, Inc. is a Web site design and consulting firm. The firm uses a job cost system, in
which each client is a different “job”. Bluebird Design traces direct labour, licensing costs and
travel costs directly to each job (client). It allocates indirect costs to jobs based on a pre-
determined indirect cost allocation rate, computed as a percentage of direct labour costs.

At the beginning of 2009 costs, managing partner Judi Jacquin prepared the following budget:
Direct labour hours (professional)……………... 6,250 hours
Direct labour costs (professional)……………... $1,000,000
Support staff salaries…………………………... 120,000
Computer leases……………………………….. 45,000
Office supplies…………………………………. 25,000
Office rent……………………………………... 60,000

In November 2009, Bluebird Design served several clients. Records for two clients appear here:
Food Coop Mesilla
Chocolates
Direct labour hours……………... 750 hours 50 hours
Licensing costs …………………. $2,000 $150
Travel costs …………………….. $14,000 -

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 Required:
i) Compute Bluebird Design’s predetermined indirect cost allocation rate for 2009.
ii) Compute Bluebird Design’s rate per direct labour hour.
iii) Compute the total cost for each job.
iv) If Jacquin wants to earn profits equal to 20% of sales revenue, what total fee should she
charge each of these two clients?
v) Why does Bluebird Design assign costs to jobs?

Question 3
Yu Technology Co. manufactures CDs and DVDs for computer software and entertainment
companies. Yu uses job order costing and has a perpetual inventory system.

On November 2, Yu began production of 5,000 DVDs, Job 423, for Cheetah Pictures for $1.10
each. Yu promised to deliver the DVDs to Cheetah by November 5. Yu incurred the following
costs:

Date Labour Time Record No. Description Amount

11-2 655 10 hours @ $20 $200
11-3 656 20 hours @ $15 $300

Date Material Requisition No. Description Amount

11-2 63 31 lbs polycarbonate plastic @ $11 $341
11-2 64 25 lbs acrylic plastic @ $28 700
11-3 74 3 lbs refined aluminum @ $48 144

Yu Technology allocates manufacturing overhead to jobs based on the relation between

estimated overhead of $540,000 and estimated direct labour costs of $450,000. Job 423 was
completed and shipped on November 3.

Required:

i) Calculate the predetermined overhead rate.

ii)Calculate the overhead allocated.
Prepare a job cost record for Job 423.
iii)
iv)Journalize in summary form the requisition of direct materials and the assignment of
direct labour and manufacturing overhead to Job 423.
v) Journalize completion of the job and the sale of the 5,000 DVDs.

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