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Exam 3: Systems Design: Job-Order Costing

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Question 1

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Reference: 03-07 The following data are for Potras Company: $\begin{array} { | l | l | l | } \hline & \text { Beginning } & \text { Ending } \\\hline \text { Finished goods inventory } & \$ 30,000 & \$ 40,000 \\\hline \text { Work in process inventory } & \$ 20,000 & \$ 13,000 \\\hline \text { Raw materials inventory } & \$ 21,000 & \$ 26,000 \\\hline \text { Purchases of raw materials } & \$ 71,000 & \\\hline \text { Factory depreciation } & \$ 5,000 & \\\hline \text { Other factory costs } & \$ 10,000 & \\\hline \text { Direct labour } & \$ 27,000 & \\\hline \text { Indirect labour } & \$ 6,000 & \\\hline \text { Selling expense } & \$ 12,000 & \\\hline \begin{array} { l } \text { Overapplied or underapplied } \\\text { overhead }\end{array} & - 0 - & \\\hline\end{array}$ -The cost of goods manufactured was?

A) $114,000.
B) $133,000.
C) $138,000.
D) $121,000.

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D

Question 2

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Using the following information: $\begin{array} { | l | l | } \hline \text { Cost of Goods Sold for the year } & \$ 840,000 \\\hline \text { Ending Finished Goods } & \$ 100,000 \\\hline \text { Ending Work in Process } & \$ 60,000 \\\hline \text { Underapplied manufacturing overhead } & \$ 40,000 \\\hline\end{array}$ Assuming underapplied overhead is considered material, using the preferred method, what would be the adjustment to Cost of Goods Sold to close the underapplied overhead?

A) A credit of $33,600.
B) A debit of $40,000.
C) A credit of $40,000.
D) A debit of $33,600.

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Question 3

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Reference: 03-04 The following T accounts are for Stanford Company: $\begin{array}{}\text { Sales Salaries Expense }&\text { Work in Process }\\\begin{array} { l|llll } \hline\text { Beg. Bal. 7,000 }&24,000\quad(2) \\(1) \quad\quad19,000\end{array}&\begin{array} { l|llll } \hline ?\quad\quad(8) &\quad\quad\\?\quad\quad(9) \end{array}\end{array}$ $\begin{array}{lll}\text { Sales Salaries Expense }&\text { Work in Process }\\\begin{array} { l|llll } \hline (4) \quad\quad11,000&\\\\\\\\\end{array}&\begin{array} { l|llll } \hline \text {(4) }\quad\quad11,000&\quad\\(2) \quad\quad15,000\\(4) \quad\quad181,000\\(6) \quad\quad31,000\\\end{array}\end{array}$ $\begin{array}{lll}\text { Accounts Payable }&\text { Manufacturing Overhead }\\\begin{array} { l|llll } \hline \quad\quad\quad\quad&19,000\quad\quad(1) \\&5,000\quad\quad(5) \\\\\\\end{array}&\begin{array} { l|llll } \hline \text {(2) }\quad\quad9,000&31,000\quad\quad(6) \\(3) \quad\quad16,000&\quad\quad\quad\quad?(9) \\(4) \quad\quad8,000\\(5) \quad\quad5,000\\\end{array}\end{array}$ $\begin{array}{lll}\text { Wages \& Salaries Payable }&\text { Finished Goods }\\\begin{array} { l|llll } \hline \quad\quad\quad\quad&7,000 \text { Beg. Bal. }\\&37,000\quad\quad(4) \\\\\\\end{array}&\begin{array} { l|llll } \hline\text { Beg. Bal. 18,000 }&\quad\quad\quad\quad?(8) \\(7) \quad\quad62,000&\quad\quad\quad\quad?\\\text { End. Bal. 15,000 }\\\\\end{array}\end{array}$ $\begin{array}{lll}\text { Accumulated Depreciation-Factory }\\\begin{array} { l|llll } \hline \quad\quad\quad\quad&82,000 \quad \text { Beg. Bal. }\\&16,000\quad\quad(3) \\\\\\\end{array}\end{array}$ -The cost of goods manufactured is?

Worrell Corporation has a job-order costing system. appeared in the Work in Process account for the month of March: $\begin{array} { | l | c | } \hline \text { March 1, balance } & \$ 12,000 \\\hline \text { March 31, direct materials } & 40,000 \\\hline \text { March 31, direct labour } & 30,000 \\\hline \text { March 31, manufacturing overhead applied } & 27,000 \\\hline \text { March 31, to finished goods } & ( 100,000 ) \\\hline\end{array}$ Worrell applies overhead at a predetermined rate of 90% of direct labour cost. Job No. 232, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 232?

Work in Process is a control account supported by detailed cost data contained in:

For the current year, Paxman Company incurred $150,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied in the amount of $6,000 for the year. If the predetermined overhead rate was $8.00 per direct labour hour, how many hours were worked during the year?

Reference: 03-06 The Milo Company's records for May contained the following information: $\begin{array} { | l | l | l | } \hline \text { Actual direct labour-hours } & 9,000 & \text { hours } \\\hline \text { Actual direct labour cost } & \$ 47,000 & \\\hline \text { Direct material purchased } & 16,000 & \\\hline \text { Direct material used } & 14,000 & \\\hline \text { Cost of goods sold } & 100,000 & \\\hline \text { Overapplied overhead } & 5,000 & \\\hline \text { Ending inventories: } & & \\\hline \text { Raw materials } & 30,000 & \\\hline \text { Work in process } & 50,000 & \\\hline \text { Finished goods } & 70,000 & \\\hline\end{array}$ The company uses a predetermined overhead rate of $5.00 per direct labour hour to apply manufacturing overhead to jobs. -The Cost of Goods Manufactured during the year was:

Freeman Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labour hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labour hours. The cost records for the year will show:

Reference: 03-08 The Bus Company uses a job-order costing system. The following information was recorded for September: $\begin{array} { | l | l | l | l | } \hline & &{ \text { Added During September } } \\\hline \text { Job Number } & \begin{array} { l } \text { September 1 } \\\text { Inventory }\end{array} & \begin{array} { l } \text { Direct } \\\text { Materials }\end{array} & \text { Direct Labour } \\\hline 1 & \$ 1,000 & \$ 300 & \$ 200 \\\hline 2 & 1,400 & 250 & 300 \\\hline 3 & 500 & 1,500 & 150 \\\hline 4 & 750 & 4,000 & 400 \\\hline\end{array}$ The direct labour wage rate is $10 per hour. Overhead is applied at the rate of $5 per direct labour-hour. Jobs 1, 2, and 3 have been completed and transferred to finished goods. Job 2 has been delivered to the customer. -The ending Work in Process inventory is?

CR Company has the following estimated costs for the next year: $\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 4,000 \\\hline \text { Direct labour } & 20,000 \\\hline \text { Rent on factory building } & 15,000 \\\hline \text { Sales salaries } & 25,000 \\\hline \text { Depreciation on factory equipment } & 8,000 \\\hline \text { Indirect labour } & 10,000 \\\hline \text { Production supervisor's salary } & 12,000 \\\hline\end{array}$ CR Company estimates that 20,000 labour hours will be worked during the year. If overhead is applied on the basis of direct labour hours, the overhead rate per hour will be?

In order to improve the accuracy of unit costs, most companies recompute the predetermined overhead rate each month.

The Watts Company uses predetermined overhead rates to apply manufacturing overhea? to jobs. The predetermined overhead rate is based on labour cost in Dept. A and on machine hours in Dept. B. At the beginning of the year, the company made the following estimates: $\begin{array} { | l | l | l | } \hline & \text { Dept } A & \text { Dept } B \\\hline \text { Direct labour cost } & \$ 30,000 & \$ 40,000 \\\hline \text { Manufacturing overhead } & 60,000 & 50,000 \\\hline \text { Direct labour hours } & 6,000 & 8,000 \\\hline \text { Machine hours } & 2,000 & 10,000 \\\hline\end{array}$ What predetermined overhead rates would be used in Dept A and Dept B, respectively?

Reference: 03-06 The Milo Company's records for May contained the following information: $\begin{array} { | l | l | l | } \hline \text { Actual direct labour-hours } & 9,000 & \text { hours } \\\hline \text { Actual direct labour cost } & \$ 47,000 & \\\hline \text { Direct material purchased } & 16,000 & \\\hline \text { Direct material used } & 14,000 & \\\hline \text { Cost of goods sold } & 100,000 & \\\hline \text { Overapplied overhead } & 5,000 & \\\hline \text { Ending inventories: } & & \\\hline \text { Raw materials } & 30,000 & \\\hline \text { Work in process } & 50,000 & \\\hline \text { Finished goods } & 70,000 & \\\hline\end{array}$ The company uses a predetermined overhead rate of $5.00 per direct labour hour to apply manufacturing overhead to jobs. -The Cost of Goods Sold for the year (before disposition of any overhead underapplied or overapplied) was:

Simplex Company has the following estimated costs for next year: $\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 15,000 \\\hline \text { Direct labour } & 55,000 \\\hline \text { Sales commissions } & 75,000 \\\hline \text { Salary of production supervisor } & 35,000 \\\hline \text { Indirect materials } & 5,000 \\\hline \text { Advertising expense } & 11,000 \\\hline \text { Rent on factory equipment } & 16,000 \\\hline\end{array}$ Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year. If overhead is applied on the basis of machine hours, the overhead rate per hour will be:

Using the following information: $\begin{array} { | l | l | } \hline \text { Cost of Goods Sold for the year } & \$ 840,000 \\\hline \text { Ending Finished Goods } & \$ 100,000 \\\hline \text { Ending Work in Process } & \$ 60,000 \\\hline \text { Overapplied manufacturing overhead } & \$ 40,000 \\\hline\end{array}$ Assuming overapplied overhead is considered material, using the preferred method, what would be the adjustment to Cost of Goods Sold to close the overapplied overhead?

Reference: 03-09 The following journal entries without dollar data were taken from the accounting records of Case Company. Case company has a job-order costing system and applies overhead to jobs using a predetermined overhead rate. $\begin{array} { | c | l | l | l | } \hline 1 . & \text { Work in Process } & \text { XXX } & \\\hline & \text { Manufacturing Overhead } & \text { XXX } & \\\hline & \text { Wages Payable } & & \text { XXX } \\\hline & & & \\\hline 2 . & \text { Salary Expense } & \text { XXX } & \\\hline & \text { Wages Payable } & & \text { XXX } \\\hline & & & \\\hline 3 . & \text { Manufacturing Overhead } & \text { XXX } & \\\hline & \text { Accumulated Depreciation } & & \text { XXX } \\\hline & & & \\\hline 4 . & \text { Work in Process } & \text { XXX } & \\\hline & \text { Raw Materials } & & \text { XXX } \\\hline & & & \\\hline 5 . & \text { Work in Process } & \text { XXX } & \\\hline & \text { Manufacturing Overhead } & & \text { XXX } \\\hline & & & \\\hline 6 . & \text { Manufacturing Overhead } & \text { XXX } & \\\hline & \text { Raw Materials } & & \text { XXX } \\\hline & & & \\\hline \text { 7. } & \text { Finished Goods } & \text { XXX } & \\\hline & \text { Work in Process } & & \text { XXX } \\\hline & & & \\\hline 8 . & \text { Raw Materials } & \text { XXX } & \\\hline & \text { Accounts Payable } & & \text { XXX } \\\hline\end{array}$ -The entry to record the purchase of raw materials is:

Reference: 03-06 The Milo Company's records for May contained the following information: $\begin{array} { | l | l | l | } \hline \text { Actual direct labour-hours } & 9,000 & \text { hours } \\\hline \text { Actual direct labour cost } & \$ 47,000 & \\\hline \text { Direct material purchased } & 16,000 & \\\hline \text { Direct material used } & 14,000 & \\\hline \text { Cost of goods sold } & 100,000 & \\\hline \text { Overapplied overhead } & 5,000 & \\\hline \text { Ending inventories: } & & \\\hline \text { Raw materials } & 30,000 & \\\hline \text { Work in process } & 50,000 & \\\hline \text { Finished goods } & 70,000 & \\\hline\end{array}$ The company uses a predetermined overhead rate of $5.00 per direct labour hour to apply manufacturing overhead to jobs. -Direct labour costs charged to production during the year amounted to:

In job-order costing, all of the following statements are correct with respect to labour time and cost except:

The entry to transfer the cost of goods manufactured for the period is:

Indirect materials are not charged to a specific job but rather are included in the Manufacturing Overhead account.