EXERCISE ON JOB COSTING

Melody Sdn Bhd manufactures musical instruments for use in classical musics. The
company uses a job costing system in which manufacturing overhead is applied on the
basis of direct labour hours. The company’s budgeted total manufacturing overhead is
RM3,538,080 and budgeted total direct labor hours is 70,200. At the beginning of July,
the company had one job in process, i.e. job number FD23 (RM73,000) and is also
working on another two new jobs: Job FD21 and FD22. Following are the information on
direct material used, direct labour incurred and labour hours consumed.

Job numbers Direct material Direct labour Labour hours

(RM) (RM)
FD21 35,000 54,000 1,700
FD22 15,000 7,600 500
FD23 - 20,500 650

Other relevant events occurred in the third quarter of the year included the following:

 Depreciation of factory building and equipment amounted to RM24,000

 Indirect labor costs of RM55,700
 Indirect material used of RM47,000
 Other factory overhead costs of RM33,500

On 30 September, job number FD23 was completed and sold on credit with 20% profit
margin.

Required:

a) Calculate the company’s predetermined overhead rate.

b) Prepare journal entries for the third quarter to record the following (use summary
entries where appropriate by combining individual job data).
(i) Issue of direct material to production and direct labour incurred.
(ii) Manufacturing overhead incurred during the quarter.
(iii) Application of manufacturing overhead to production.
(iv) Completion of job number FD23.
(v) Sale of job number FD23.
c) Determine the cost of jobs still in production as at 30 September.
d) Calculate the overapplied or underapplied overhead for the quarter and prepare
a journal entry to close this balance into cost of goods sold.