Chapter 3 Job Order Costing

1
Chapter 3 Job Order Costing
EXERCISES
E-1
Req. (1)
Rate of Factory overhead to direct Labor cost = Factory Over Head Cost x 100
Direct Labor Cost
= 640,000 x 100
800,000
= 80%
Req. (2)
Cost of direct material included in work in process ending inventory:
Work in process ending inventory = Rs. 140,000
Direct Material Rs. 50,000

Direct Labor 50,000
Factory overhead 40,000
(50,000 x 80%) _______
Rs. 140,000
E-2
Req.
Amount of direct labor and factory overhead in finished good.
Finished goods = Rs. 176,000
Direct material Rs. 40,000

Direct labor 80,000
Rs. 176,000
Working:
Rate of factory overhead = 224,000 x 100

320,000
= 70%
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 1

2
E- 2 (cont.)
Factory overhead = 20,000+80,000+124,000 = Rs. 224,000
Total finished good = Direct Material + Direct Labor + Factory overhead

176,000 = 40,000 + direct labor + Factory overhead
136,000 = direct labor + factory overhead
Factory overhead rate = 70%
136,000 (170%) = 100% + 70%
Direct labor = 136,000 x 100 = Rs. 80,000

170
Factory overhead = 136,000 -- 80,000 = Rs. 56,000

3
E. 3
Televans company
Cost of goods sold statement
For the year ended ………
Direct Material Rs. Rs.

Opening inventory 75,000
Add:
Material purchased (req. 1) ? 336,000
Cost of material available for use 411,000
Less:
Ending inventory 85,000
Cost of material Used 326,000
Add:
Direct Labor Cost (req. 2) ? 225,000
Prime Cost 551,000
Add:
Total manufacturing cost 686,000
Work in process:
Add:
Cost of good to be manufactured 766,000
Less:
Cost of goods manufactured (req. 3) ? 736,000

Finished goods:
Add:
Cost of goods available for sale 826,000
Less:
Cost of goods sold ? 716,000

4
E- 4
(1) Estimated Cost to produce:
Direct material $13,000

Direct labor 15,000
F.O.H Applied:
Moulding department (2.70 x 1,000) 2,700
Decorating department (15,000 – 9,000 = 6,000 x 35%) 2,100 4,800
Total Cost $32,800
(2) Prime cost = 13,000 + 15,000 = $28,000
(3) Conversion cost = 15,000 + 4,800 = $19,800
(4) Bid Price = 32,800 + (32,800 x 45%)

= $ 47,560
E- 5
Hansford Inc.
Income Statement
For the year ended September 30,--------
Net sales $182,000

Less: cost of goods sold 114,200
Gross Profit 67,800
Less: Operating Expenses
Marketing expenses $ 14,100

Administrative Expenses 22,900 37,000
Net Income $ 30,800

5
E- 5 (cont.)
Hansford Inc.
For the year ended September 30, ………
Direct Material $ $
Add:
Material purchased 108,900
Less:
Add:
Direct Labor Cost 30,000
Prime Cost 71,900
Add:
Factory overhead (30,000 x 150%) 45,000
Work in process:
Add:
Less:
Cost of goods manufactured 113,500

Finished goods:
Add:
Less:
Cost of goods sold at normal 111,000
Add: Under Applied F.O.H 3,200
Cost of goods sold at actual 114,200
Under/over applied F.O.H
Actual F.O.H $48,200

F.O.H Applied $ 45,000

6
Under Applied F.O.H 3,200
E–6
Req. 1
Wadsworth machine works
Job order cost sheet
Job – 909
Direct material Direct Labor F.O.H Applied
Date Amount date hours rate Cost date hours rate cost
14/9 $600 20/9 90 $6.20 $558 20/9 90 $5 $450

20/9 331 26/9 70 7.30 511 26/9 70 5 350
22/9 200
$1131 $1,069 $800
Req. 2.
Sales Price = cost + Profit

= 3,000 + (3,000 x 40%)
= $3,000 + 1,200
= $4,200
Working:
Cost = 1,131+1,069+800
= $3,000
E–7
Job cost sheet
Job no. 36 37 38 total
Opening $36,000 18,000 ----- $54,000
Material 44,000 34,000 32,000 110,000

Labor 40,000 48,000 42,000 130,000
F.O.H 24,000 28,800 25,200 78,000
Total $144,000 $128,800 $99,200
W-I-P ending (job 38) = $99,200
Finished goods (job 36+job 37) = 144,000 + 128,800 = $272,800

7
E – 7 (cont.)
Dr. W-I-P Cr.

Balance b/d $54,000 finished goods $272,800
Material 110,000
Labor 130,000
F.O.H 78,000 Balance c/d 99,200
372,000 372,000
Dr. Finished Goods Cr.

W-I-P $272,800 cost of goods sold $272,800
Dr. Cost of goods sold Cr.

Finished goods $272,800 balance c/d $272,800
Journal Entries
(a) W-I-P $110,000

Material $110,000
(b) W-I-P 130,000

Payroll 130,000
(c) W-I-P 78,000

F.O.H Applied 78,000
(d) Finished goods 272,800

W-I-P 272,800

8
E–8
Job cost sheet
Job no. 97 98 99 total
Opening $96,000 ------ ----- $96,000
Material 60,000 30,000 40,000 130,000

Labor 120,000 70,000 80,000 270,000
F.O.H 60,000 35,000 40,000 135,000
Total $336,000 $135,000 $160,000
W-I-P ending (job 99) = $160,000
Finished goods (job 97 + job 98) = 336,000 + 135,000 = $471,000
Cost of goods sold (job 97) = $336,000
Dr. W-I-P Cr.

Balance b/d $96,000 finished goods $471,000
Material 130,000
Labor 270,000
F.O.H 135,000 Balance c/d 160,000
631,000 631,000
Dr. Finished Goods Cr.

W-I-P $471,000 cost of goods sold $336,000
_______ Balance c/d 135,000

471,000 471,000
Dr. Cost of goods sold Cr.

Finished goods $336,000 balance c/d $336,000

9
E – 8 (cont.)
Journal Entries
(a) W-I-P $130,000

Material $130,000
(b) W-I-P 270,000

Payroll 270,000
(c) W-I-P 135,000

(d) Finished goods 471,000

W-I-P 471,000
(e) Cost of goods sold 336,000

Finished goods 336,000

10
E–9
Thornton Manf. Co.
For the month ended December 31, ……
Direct Material $ $
Add:
Material purchased ? 95,000
Cost of material available for use ? 100,000
Less:
Cost of material Used ? 90,000
Add:
Direct Labor Cost (120,000 x 100/75) ? 160,000
Prime Cost 250,000
Add:
Factory overhead Applied (520,000 – 400,000) ? 120,000
Total manufacturing cost ? 370,000
Work in process:
Add:
Less:
Cost of goods manufactured ? 390,000
Finished goods:
Add:
Cost of goods available for sale ? 433,000
Less:
Cost of goods sold at normal (975,000 – 600,000) ? 375,000 (assumed normal)
Less: Over Applied F.O.H 3,000
Cost of goods sold at actual ? 372,000

11
Under/over applied F.O.H
Actual F.O.H (492,000 – 375,000) $ 117,000

F.O.H Applied (520,000 – 400,000) $ 120,000
Over Applied F.O.H 3,000
E – 9 (cont.)
Journal Entries for December month
Req. 1.
(1) Material $95,000

Account payable $90,000
(2) W-I-P 95,000

Material 95,000
(3) W-I-P 160,000

Payroll 160,000
(4) W-I-P 120,000

(5) Finished goods 390,000

W-I-P 390,000
(6) Cost of goods sold (normal) 375,000

Finished goods 375,000
Req. 2.
(1) F.O.H Applied 120,000

F.O.H Control 120,000
(2) F.O.H Control 3,000

Cost of goods sold 3,000

12
PROBLEMS
P-1
(1) Total cost of work put into process
Direct material $ $
Add:
Purchases 58,000
Less:
Closing inventory 18,000
Cost of material used 60,000
Add: Direct labor cost
Grinding department (8,000 x 5.60) 44,800

Machining department (4,600 x 6) 27,600 72,400
Add: F.O.H Applied
Grinding department (8,000 x 6) 48,000

Machining department (4,600 x 8) 36,800 84,800
Total cost put into process $ 217,200
Req. 2 Cost of goods manufactured
Total cost put into process 217,200

Add:
Opening W.I.P 15,000
Cost of goods to be manufactured 232,200
Less:
Closing W.I.P 17,600
Cost of goods manufactured $ 214,600

13
Req. 3 Cost of goods sold

Add:
Opening finished goods 22,000
Less:
Closing finished goods 19,000
Cost of goods sold $ 219,600
Req. 4
Conversion cost = 72,400 + 84,800 = $157,200
P-1 (cont.)
Req. 5
Material purchased = $ 58,000
P-2
Req. 1 Direct Material
$
Add:
Purchases 50,000
Cost of material available 60,000
Less:
Closing inventory 25,000
Cost of material used $ 35,000
Req. 2
F.O.H Applied = 25,000 x 3 = $75,000
Req. 3
Ending W.I.P $
Direct material 5,000
Direct labor (3,000 x 4) 12,000
Factory overhead (3,000 x 3) 9,000
$ 26,000
Req. 4
Cost of goods manufactured $

14
Direct material 35,000

Direct labor 100,000
Add:
Opening W.I.P 50,000
Less:
Closing W.I.P 26,000
Cost of goods manufactured $ 234,000
P – 2 (cont.)
Req. 5
Cost of goods sold before disposition of under applied F.O.H
$
Add:
Opening finished goods 70,000
Less:
Closing finished goods 60,000
Req. 6
Indirect labor = Payroll – Direct Labor
= 150,000 – 100,000 = $50,000
Working:
Dr. Accrued payroll account Cr.
Cash $140,000 balance b/d $10,000
Balance c/d 20,000 payroll 150,000

160,000 160,000
Req. 7
Misc. F.O.H = F.O.H Applied + Under Applied F.O.H
= 75,000 + 5,000
= $80,000
REQ. 8
Account Payable Nov. 1.

15
Dr. Account Payable Account Cr.
Cash $55,000 balance b/d $20,000
Balance c/d 15,000 material 50,000

70,000 70,000
Important note:
In this question point “d” direct labor hours are missed printing, so we assume 3,000 direct
labor hours for solving this question.
P–3
Req. 1
Columbus Co.
For the year ended Oct. 30 …
Direct Material $ $
Add:
Less:
Add:
Prime Cost 48,400
Add:
Work in process:
Add:
Less:
Finished goods:
Add:
Less:

16

Cost of goods sold 76,030
Working:
Number of units in closing inventory
2,800 + 20,400 – 20,700 = 2,500
Unit cost = 75,480/20,400 = $ 3.7/unit
P – 3 (cont.)
Req. 2
Columbus co
Income statement
For the month of Oct. ….
$ $
Sales 144,900
Less: sales return 1,300
Net sales 143,600
Less: cost of goods sold (as per schedule) 76,030
Gross profit 67,570
Less: operating expenses
Marketing expenses (25,050 + 30 + 16) 25,096
Admin expenses (19,700 + 20 + 24) 19,744 44,840
Net Income $ 22,730
Req. 3
Actual F.O.H $
Paid F.O.H 20,100

Indirect material 3,950
F.O.H (75% of manufacturing) 150 + 800 950
Indirect labor 4,400
Total $29,400
Less:

17

Under applied F.O.H $ 1,950
P–4
Req. 1
Morrisvile Co.
Balance sheet
As on 31, Dec. 19B
Assets $ Liabilities $
Fixed Assets Fixed Liabilities

Property & equipments 26,000 Capital Stock 30,000
(30,000 – 4,000) Retained Earnings (w) $10,000
Add: Net Income 5,000 15,000
Current Assets current Liabilities
Account Receivables 10,000 current liabilities 17,500
Finished goods $6,000
Less: reduce (33.333%) 2,000 4,000
W.I.P 2,000
Less: Reduce (50%) 1,000 1,000
Material 4,000
Less: Reduce (50%) 2,000 2,000
Cash (balancing figure) 19,000
______ ______
$ 62,500 $ 62,500
Working:
Opening Retained Earning = opening assets – opening liabilities
= 57,500 – 17,500 – 30,000 = $ 10,000

18
Req. 2
Morrisivile co
Income statement
For the month of Dec. ….
$ $
Sales 60,000
Less: cost of goods sold (as per schedule) 40,000
Gross profit 20,000
Less: operating expenses
Marketing expenses (60,000 x 10%) 6,000
Admin expenses (60,000 x 15%) 9,000 15,000
Net Income $ 5,000
P – 4 (cont.)
Morrisivile Co.
For the year ended Dec. 31 …
Direct Material $ $
Add:
Less:
Add:
Prime Cost 26,000
Add:
Factory overhead Applied 9,000
Work in process:
Add:
Less:
Finished goods:
Add:
19

Less:
Add:
Under applied F.O.H 2,000
Cost of goods sold at actual $ 40,000
P – 5, 6, 7, 8, 9 (refer to 7th edition solutions manual of the same book)
Managerial Accounting 12e Garrison Noreen Brewer (USA version)
Review Problem: Job-Order Costing

Hogle Corporation is a manufacturer that uses job-order costing. On January 1, the
beginning of its fiscal year, the company’s inventory balances were as follows:
20
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:
a. Raw materials were purchased on account, $410,000.

b. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct
materials and $20,000 indirect materials).
c. The following costs were accrued for employee services: direct labor, $75,000;
indirect labor, $110,000; sales commissions, $90,000; and administrative salaries,
$200,000.
d. Sales travel costs were $17,000.
e. Utility costs in the factory were $43,000.
f. Advertising costs were $180,000.
g. Depreciation was recorded for the year, $350,000 (80% relates to factory
operations, and 20% relates to selling and administrative activities).
h. Insurance expired during the year, $10,000 (70% relates to factory operations, and
the remaining 30% relates to selling and administrative activities).
i. 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.
j. Goods costing $900,000 to manufacture according to their job cost sheets were
completed during the year.
k. Goods were sold on account to customers during the year for a total 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 under applied or over applied for the year? Prepare a
journal entry to close any balance in the Manufacturing Overhead account to Cost of
Goods Sold. Do not allocate the balance between ending inventories and Cost of
Goods Sold.
4. Prepare an income statement for the year.
Solution to Review Problem
Req. 1

Chapter 3 Job Order Costing

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Chapter 3 Job Order Costing

Cost of direct material included in work in process ending inventory:

Work in process ending inventory = Rs. 140,000

Direct Material Rs. 50,000

Amount of direct labor and factory overhead in finished good.

Finished goods = Rs. 176,000

Direct material Rs. 40,000

Rate of factory overhead = 224,000 x 100

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 1

Factory overhead = 20,000+80,000+124,000 = Rs. 224,000

Total finished good = Direct Material + Direct Labor + Factory overhead

136,000 = direct labor + factory overhead

Factory overhead rate = 70%

136,000 (170%) = 100% + 70%

Direct labor = 136,000 x 100 = Rs. 80,000

Factory overhead = 136,000 -- 80,000 = Rs. 56,000

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 2

Direct Material Rs. Rs.

Cost of goods manufactured (req. 3) ? 736,000

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 3

(1) Estimated Cost to produce:

Direct material $13,000

(2) Prime cost = 13,000 + 15,000 = $28,000

(3) Conversion cost = 15,000 + 4,800 = $19,800

(4) Bid Price = 32,800 + (32,800 x 45%)

Net sales $182,000

Marketing expenses $ 14,100

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 4

Cost of goods manufactured 113,500

Under/over applied F.O.H

Actual F.O.H $48,200

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 5

Under Applied F.O.H 3,200

14/9 $600 20/9 90 $6.20 $558 20/9 90 $5 $450

Sales Price = cost + Profit

Job no. 36 37 38 total

Opening $36,000 18,000 ----- $54,000

Material 44,000 34,000 32,000 110,000

W-I-P ending (job 38) = $99,200

Finished goods (job 36+job 37) = 144,000 + 128,800 = $272,800

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 6

Dr. W-I-P Cr.

Dr. Finished Goods Cr.

Dr. Cost of goods sold Cr.

(a) W-I-P $110,000

(b) W-I-P 130,000

(c) W-I-P 78,000

(d) Finished goods 272,800

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 7

Job no. 97 98 99 total

Opening $96,000 ------ ----- $96,000

Material 60,000 30,000 40,000 130,000

W-I-P ending (job 99) = $160,000

Finished goods (job 97 + job 98) = 336,000 + 135,000 = $471,000

Cost of goods sold (job 97) = $336,000

Dr. W-I-P Cr.

Dr. Finished Goods Cr.

_______ Balance c/d 135,000

Dr. Cost of goods sold Cr.

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf 8

(a) W-I-P $130,000

(b) W-I-P 270,000

(c) W-I-P 135,000