Exercise 1--Cost accumulation procedure determination:

Classify these industries with respect to the type of cost accumulation procedure generally used--job order costing or process
costing.
a. Meat
b. Sugar
c. Steel
d. Breakfast cereal
e. Paper boxes
f. Wooden furniture
g. Toys and novelties
h. Coke
i. Cooking utensils
j. Caskets

k. Pianos
l. Linoleum
m. Leather
n. Nylon
o. Baby foods
p. Locomotives
q. Office machines equipment
r. Luggage
s. Paint
t. Tires and tubes

Solution:

Job order cost procedure: (e), (f), (g), (i), (j), (k), (p), (q), (r)
Process costing procedure: (a), (b), (c), (d), (h), (l), (m), (n), (o), (s), (t)

Exercise 2--Job order cost sheet:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are
available:
Direct Materials
9/14 Issued
$ 1,200Week of Sep. 20
9/20 Issued
662Week of Sep. 26
9/22 Issued
480
Factory overhead applied at the rate of $3.50 per direct labor hour.

Direct Labor
180 hrs @ $6.20/hr
140 hrs @ $7.30/hr

Required:

1. The appropriate information on a job cost sheet.

2. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.

Solution:
1.

Direct materials
Date Issued Amount
9/14
$1,200
9/20
662
9/22
480
--------

Forge Machine Works

Job Order Cost Sheet--Job 642
Direct labor
Applied factory overhead
Date (Week of) Hours Rate
Cost Date (Week of) Hours
Rate
Cost
9/20
180 $6.20 $1,116
9/20
180
$3.50
$630
9/26
140
7.30
1,022
9/26
140
3.50
490
----------

----------

$2,342
=====

$2,138
======

$1,120
======

2.
Sales Price of job 642, contracted with a markup of 40% of cost:
Direct materials
Direct labor
Applied factory overhead

$2,342
2,138
1,120

Total factory cost

Markup 40% of cost

$5,600
2,240
------$7,840
=====

Exercise 3--Job order costing:

The Cambridge Company uses job order costing. At the beginning of the May, two jobs were in process:
Job 369
Job372
Materials
$ 2,000
$ 700
Direct labor
1,000
300
Applied factory overhead
1,500
450
There was no inventory of finished goods on May1. During the month, Jobs 373, 374, 375, 376, 378, and 379 were
started.
Materials requisitions for May totaled $13,000, direct labor cost, $10,000, and actual factory overhead, $16,000. Factory
overhead is applied at a rate of 150% of direct labor cost. The only job still in process at the end of May is No. 379, with
costs of $1,400 for materials and $900 for direct labor. Job 376, the only finished job on hand at the end of May, has a
total cost of $2,000.
Required:
1. T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied
factory overhead.

2. General journal entries to record:

a. Cost of goods manufactured
b. Cost of goods sold
c. Closing of over or underapplied factory overhead to cost of goods sold.

Solution:
T Accounts

May1 Balance
No. 369
4,500
No. 372
1,450
Materials

13,000

Direct labor

10,000

Factory O/H

15,000
43,950

Work in Process
Finished
goods

40,300

Finished Goods
Cost of goods sod 38,300

From
Work in Process

40,300

May31 Balance:
No.376

2,000

Cost of Goods sold

From finished
goods

May31 Balance:
No. 379
3,650*

Underapplied
Overhead

38,300

1,000
39,300

*$1,400 + $900 + ($900 150%)

Factory Overhead Control
16,000

15,000
1,000
16,000

Applied Factory Overhead

15,000

15,000

General journal entries to record:

Cost of goods manufactured:
Finished goods
Work in process
Cost of goods sold:
Cost of goods sold
Finished goods
Closing of underapplied factory overhead to cost of goods sold:
Cost of goods sold
Factory overhead control

Dr
40,300

Cr
40,300

38,300
38,300
1,000
1,000

Exercise 4--Job Order Cycle Entries:

Beaver, inc. provided the following data for January, 19B:
Materials and supplies:
Inventory, January 1, 19B
Purchases on account
Labor:
Accrued, January 1, 19B
Paid during January (ignore payroll taxes)
Factory overhead costs:
Supplies (issued from materials)
Indirect labor
Depreciation
Other factory overhead costs (all from outside suppliers on account)
Work in process:

$10,000
30,000
3,000
25,000
1,500
3,500
1,000
14,500

Work in process January 1, 19B

Job1

Job2

Job3

Total

$ 1,000

--

--

$ 1,000

4,000
5,000
5,000

$6,000
8,000
8,000

$5,000
7,000
7,000

15,000
20,000
20,000

Job costs during January, 19B:

Direct materials
Direct labor
Applied factory overhead

Job 1 started in December, 19A, finished during January, and sold to a customer for $21,000 cash
Job 2 started in January, not yet finished.
Job 3 started in January, finished during January, and now in the finished goods inventory awaiting customer's
disposition
Finished goods inventory January 1, 19B.
Required:
Journal entries, with detail for the respective job orders and factory overhead subsidiary records, to to record the following
transactions for the January:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Purchase of materials on account.

Labor paid.
Labor cost distribution.
Materials issued.
Depreciation for the month.
Acquisition of other overhead costs on credit.
Overhead applied to production.
Jobs completed and transferred to finished goods.
Sales revenue.
Cost of goods sold.

Solution:
Journal Entries:
Subsidiary
Record
1 Materials

Debit
30,000

Accounts payable

30,000

2 Accrued payroll

25,000

Cash

25,000

3. Factory overhead control

Indirect labor

3,500
3,500

Work in process (WIP)

20,000

Job1

5,000

Job2

8,000

Job3

7,000

Payroll

23,500

4. Work in process
Job1

Credit

15,000
4,000

Job2

6,000

Job3

5,000

Factory overhead control

1,500

Supplies

1,500

Materials

16,500

5 Factory overhead control

1,000

Depreciation

1,000

Accumulated Depreciation

1,000

6 Factory overhead control

14,500

Other factory overhead costs

14,500

Accounts payable

14,500

7 Work in process

20,000

Job1

5,000

Job2

8,000

Job3

7,000

Factory overhead control (or applied FOH)

20,000

8 Finished goods

34,000

Work in process (WIP)

34,000

Job1

15,000

Job3

19,000

9 Cash

21,000
Sales

21,000

10Cost of goods sold

15,000

Finished goods

15,000

Exercise 5 Job Order Costing--Journal Entries, T Accounts, Income

Statement
Hogle Company is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year, the
company's inventory balances were as follows:
Raw materials
Work in process
Finished Goods

$20,000
$15,000
$30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company
estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following
transactions were recorded for the year
1. Raw materials were purchased on account, $410,000.
2. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect
materials).
3. The following costs were incurred for employee services: direct labor, $75,000; indirect labor, $110,000; sales
commission, $90,000; and administrative salaries, $20,000.
4. Sales travel costs were $17,000.

5. Utility costs in the factory were $43,000.

6. Advertising costs were $180,000.
7. Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and
administrative activities).
8. Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and
administrative activities).
9. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the
company worked 80,000 machine-hours during the year.
10. Goods costing $9,00,000 to manufacture according to their job cost sheets were completed during the year.
11. Goods were sold on account to customers during the year at a total selling price of $1,500,000. The goods cost
$870,000 to manufacture according to their job cost sheets.
Required:
1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts).
3. Is manufacturing overhead underapplied or overapplied for the year? Prepare journal entry to close any balance in the
manufacturing overhead account to cost of goods sold (COGS). Do not allocate the balance between ending
inventories and cost of goods sold (COGS).
4. Prepare an income statement for the year.

Solution:
1: Journal Entries
1
2

4
5
6
7

9*

Raw materials
Accounts payable
Work in process
Manufacturing overhead
Raw materials
Work in process
Manufacturing overhead
Sales commission expense
Administrative salaries expense
Salaries and wages payable
Sales travel expense
Accounts payable
Manufacturing overhead
Accounts payable
Advertising expense
Accounts payable
Manufacturing overhead
Depreciation expense
Accumulated depreciation
Manufacturing overhead
Insurance expense
Prepaid insurance
Work in process

410,000
410,000
360,000
20,000
380,000
75,000
110,000
90,000
200,000
475,000
17,000
17,000
43,000
43,000
180,000
180,000
280,000
70,000
350,000
7,000
3,000
10,000
480,000

10
11

Manufacturing overhead
Finished Goods
Work in process
Accounts Receivable
Sales
Cost of goods sold
Finished goods

480,000
900,000
900,000
1,500,000
1,500,000
870,000
870,000

*The predetermined overhead rate for the year would be computed as follows:
Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base
= $450,000 / 75,000 machine-hours
= $6 per machine-hour
Based on the 80,000 machine-hours actually worked during the year, the company would have applied $480,000 in overhead
cost to production: 80,000 machine-hours $6 per machine-hour = $480,000.
2: T Accounts
11

Bal.
10

Accounts Receivable
1,500,000

30,000
900,000

Bal.
(1)

20,000
410,000

Bal.

50,000

Raw Materials
(2)
380,000

Bal.

Finished Goods
(11)
870,000

Prepaid Insurance
(8)

Accounts Payable
(1)
410,000
(4)
17,000
(5)
43,000
(6)
180,000

Sales
(11)

1,500,000

30,000
Accumulated Depreciation
(7)
350,000

10,000

Salaries and Wages Payable

(3)
475,000

Work in Process
(10) 900,000

Bal. 20,000
(2) 360,000
(3)
75,000
(9) 480,000

(2)
(3)
(5)
(7)
(8)

Manufacturing Overhead
20,000
(9)
480,000
110,000
43,000
280,000
7,000

Cost of goods sold

(11)

460,000

870,000

480,000
Bal.

(3)

Sales Commissions Expenses

90,000

(3)

Administrative Salary Expense

200,000

Insurance Expense
(8)

Advertising expense
(6)

180,000

(7)

Depreciation Expenses
70,000
(4)

3: Under or Overapplied manufacturing overhead:

20,000

3,000

Sales Travel Expense

17,000

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

20,000
20,000

4: Income Statement
HOGLE COMPANY
Income Statement
For the Year Ended December 31
Sales
Less cost of goods sold ($870,000 - $20,000 overapplied O/H
Gross margin
Less selling and administrative expenses:
Commission expense
Administrative salaries expense
Sales travel expense
Advertising expense
Depreciation expense
Insurance expense
Net operating income

$1,500,000
850,000
-------------650,000
$90,000
200,000
17,000
180,000
70,000
3,000
------------

560,000
------------$90,000
======