Exercises: Job Order Costing

Q1: Lamonda Corp. uses a job order cost system. On April 1, the accounts had the following
balances:

Raw Materials Inventory Work in Process Inventory Finished Goods Inventory

Bal. 25,000 Bal. 55,000 Bal. 60,000

136,000 122,000 94,000 375,000

131,000
402,000

39,000 81,850 33,000

Manufacturing Overhead Cost of Goods Sold

28,000 402,000
24,000 176,850
26,000
30,000
24,000

overapplied
44,850

Sales Revenue Non-Manufacturing

Expenses

500,000 44,000
15,000

The following transactions occurred during April:

a. Purchased materials on account at a cost of $136,000. DM= 122000-28000=
94000
b. Requisitioned materials at a cost of $122,000, of which $28,000 was for general factory use.
c. Recorded factory labor of $155,000, of which $24,000 was indirect. DL= 155,000-24,000
d. Incurred other costs =131,000
 Selling expense $44,000
Factory utilities $26,000
Administrative expenses $15,000
Factory rent $30,000
Factory depreciation $24,000

e. Applied overhead at a rate equal to 135 percent of direct labor cost. 131000 x 135%=
f. Completed jobs costing $375,000. 176,850
g. Sold jobs costing $402,000.
h. Recorded sales revenue of $500,000.

Required:
1. Post the April transactions to the T-accounts. (Note: Some transactions will affect other
accounts not shown; e.g., Cash, Accounts Payable, Accumulated Depreciation. You do not need
to show the offsetting debit or credit to those accounts.)
2. Compute the balance in the accounts at the end of April.
3. Compute over- or underapplied manufacturing overhead. If the balance in the Manufacturing
Overhead account is closed directly to Cost of Goods Sold, will Cost of Goods Sold increase or
decrease? decrease COGS
4. Prepare Lamonda’s cost of goods manufactured report for April.

Lamonda Corp.
Cost of Goods Manufactured Report
For the Month of April

Beginning raw materials inventory $ 25,000

Plus: Raw material purchases 136,000
28,000
Less: Indirect materials 39,000
Less: Ending raw materials inventory
Direct materials used 94,000
131,000
Direct labor
Manufacturing overhead applied 167,850
Total current manufacturing costs 401,850

Plus: Beginning WIP inventory 55,000

Less: Ending WIP inventory 81,850

COGS manfactured 375,000

5. Prepare Lamonda’s April income statement. Include any adjustment to Cost of Goods
Sold needed to dispose of over- or underapplied manufacturing overhead.

Lamonda Corp.
Income Statement
For the Month of April

Sales revenue $500,000

Cost of goods sold
Beginning finished goods inventory 60,000

Plus: Cost of goods manufactured 375,000

33,000
Less Ending finished goods inventory
402,000
Unadjusted Cost of goods sold 44,850

Less: Overapplied manufacturing overhead

Adjusted Cost of Goods Sold 357,150

Gross profit 142,850

Selling and administrative expenses
59,000
Net Income from Operations
83,850
Q2. Marsha Design is an interior design and consulting firm. The firm uses a job order cost
system in which each client represents an individual job. Marsha Design traces direct labor and
travel costs to each job (client). It assigns indirect costs to clients at a predetermined overhead
rate based on direct labor hours. At the beginning of the year, the managing partner, Marsha
Cain, prepared the following budget:

Direct labor hours(professional) 5,000 estimated activity

Direct labor costs(professional) 500,000
Support staff salaries 50,000
Office rent 55,000
Office supplies 20,000
Total expected indirect costs $125,000 etimated overhead

Later that same year, in March, Marsha Design served several clients. Records for two clients
appear below:
Oliverio McComb
Direct labor cost(professional) $4,000 $3,000
Travel costs 500 100
Direct labor hours 40 hours 30 hours

Required:
1. Compute Marsha Design’s predetermined overhead rate for the current year.
2. Compute the total cost of serving the clients listed.
3. Assume that Marsha charges clients $250 per hour for interior design services. How much
gross profit would she earn on each of the clients above, ignoring any difference between actual
and applied overhead?