Job Costing

_________________ Costing: batch or unique or

specialized services/jobs.

Examples:

_________________ Costing: production of identical

units through a series of production steps or
processes.

Examples:
Job Costing for Manufacturing
Products
Materials Work in Process Finished Goods

Wages Payable Overhead Cost of Goods Sold

Thom Routh manufactures custom teakwood patio furniture.
Journalize the following transactions. Then explain each
journal entry in terms of what got increased and what got
decreased.

1) Purchased raw materials on account, $135,000

2) Materials costing $130,000 were requisitioned for

production. Of this total, $30,000 were indirect materials.
3) Labor time records show that direct labor of $22,000 and
indirect labor of $5,000 were incurred (but not yet paid).
Seattle Creations reports the following labor-related
transactions at its plant in Seattle, WA:

Plant Janitor’s wages 550


Furnace Operator’s wages 940

Glass Blower’s wages 77,000

Journalize the entry for the incurrence and assignment of

these wages:
Boston Enterprises produces LCD touch screen products and
began operations on January 30. The company reports the following
information at December 31. Using this information, label ALL
numbers, draw connecting arrows, and calculate ending balances
(there are no beginning inventory balances).

Materials Work in Process Finished Goods

29,500
60,000 126,000 115,000
51,000 32,000 52,500 126,000

Wages Payable Overhead Cost of Goods Sold

2,500
71,000 11,000 115,000
52,500
37,000 2,000
 Job Costing for Manufacturing
Products
Evergreen Furniture manufactures wood patio furniture. The company reports the
following costs for June:

Wood $ 260,000

Nails, glue, and stain 21,000

Depreciation on saws 4,500

Indirect manufacturing labor 41,000

Depreciation on delivery truck 2,100

Assembly-line workers’ wages 59,000

What is the balance in the Manufacturing Overhead account?

 Allocating Overhead:
Computing the Overhead Rate
Predetermined manufacturing overhead rate =

Total ________________ manufacturing overhead costs 


Total ________________ quantity of the overhead allocation base

__________________ : primary cost driver (causes the OH cost)

Examples: Direct labor hours


Direct labor costs

Machine hours

Why use estimated number versus actual number?

 Allocating Overhead: Allocate
Overhead to Jobs
Allocated Overhead =

Overhead Work in Process

Actual Applied
Indirect Materials
Indirect Labor DM
Depreciation, Plant DL
Utilities, Plant OH
Insurance, Plant
Property Taxes, Plant
Job 404 includes direct material costs of $500 and direct labor costs
of $400. Estimated overhead costs are $125,000 and the estimated
total direct labor costs for the year are $250,000 (OH is allocated
based on direct labor costs). What is the total cost assigned to Job
404?
Patel Foundry uses a predetermined OH rate to allocate OH to
individual jobs, based on the machine hours required. At the
beginning of the year, the company expected to incur the following:
Overhead costs $ 730,000
Direct labor costs 1,450,000
Machine hours 66,000

At the end of the year, the company had actually incurred:

Direct labor costs $ 1,250,000
Depreciation on manufacturing property,
plant, and equipment 440,000
Property taxes on plant 18,000

Sales Salaries 30,000

Delivery drivers’ wages 22,500
Plant janitor’s wages 9,000

Machine hours 58,000 hours

Complete the following:


1) Compute Patel’s predetermined OH rate
2) Record the summary journal entry for allocating OH

3) Post the manufacturing OH transactions to the OH t-

account. Is manufacturing OH under-allocated or over-
allocated? By how much?
Completing the Sale ie w
ng R e v
ounti
nc ia l Acc
Fina
September production generated the following activity in Cougar Chassis Company’s Work in Process
inventory account:

Completed production, not yet recorded, consists of Jobs 42

Work in Process and 43, with total costs of $40,000 and $38,000 respectively.

9/1 20,000
Compute the cost of Work in Process at September 30.
DM 30,000
DL 32,000
Prepare the journal entry for production completed in
OH 16,000 September.

Prepare the journal entry to record the sale (on credit) of Job 43 for $45,000. Also make the cost of
goods sold entry.

What is the gross profit of Job 43? What other costs must this gross profit cover?
Adjusting Underallocated OH

OH Cost of Goods Sold

Actual Applied/
Allocated
Adjusting Overallocated OH

OH Cost of Goods Sold

Actual Applied/
Allocated
Jerry James uses a predetermined manufacturing overhead rate to allocate overhead to individual
jobs, based on machine hours required. At the beginning of the year, the company expected to incur
the following:

Overhead costs $ 600,000


Direct labor costs 1,500,000

Machine hours 60,000
At the end of the year, the company had actually incurred:

Direct labor costs $ 1,210,000


Depreciation on manufacturing

property, plant, equipment 480,000

Property taxes on plant 20,000

Sales Salaries 25,000

Delivery drivers’ wages 15,000

Plant janitors’ wages 10,000

Machine hours 55,000 hours

Compute James’ predetermined manufacturing overhead rate:

Record the summary journal entry for allocating manufacturing overhead.

Post the manufacturing overhead transactions to the Overhead t-account. Is overhead under-/over-
allocated and by how much?

Close any balance in the Overhead account to Cost of Goods Sold. Does this increase or decrease
Cost of Goods Sold?
Routh Realtors, a real estate consulting firm, specializes in advising companies on potential new plant
sites. The company uses a job costing system with a predetermined indirect cost allocation rate,
computed as a percentage of direct labor costs. At the beginning of the year, managing partner Thom
Routh prepared the following budget for the year:
Direct Labor hours 17,000 hours

Direct Labor costs $ 2,550,000

Office Rent 300,000

Support Staff Salaries 900,000

Utilities 330,000

Blease Manufacturing, Inc. is inviting several consultants to bid for work. Thom Routh estimates that
this job will require about 220 direct labor hours.

Compute Routh Realtors’:

a) hourly direct labor cost rate

b) indirect cost allocation rate

Compute the predicted cost of the Blease manufacturing job

If Routh wants to earn a profit that equals 50% of the job’s cost, how much should he bid for the
Blease manufacturing job?
Regal Wood manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct
labor are traced directly to the products. Manufacturing overhead costs are allocated based on
machine hours. Data for the year follow:
Budget Actual
Machine hours 26,000 hours 32,500 hours
Maintenance labor (repairs to equipment) 14,000 28,500
Plant supervisor’s salary 43,000 49,000
Screw, nails, and glue 25,000 45,000
Plant utilities 47,000 97,850
Freight-out 37,000 44,500
Depreciation on plant and equipment 85,000 83,000
Advertising expense 43,000 55,000

1) Compute the predetermined overhead rate

Regal Wood manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct
labor are traced directly to the products. Manufacturing overhead costs are allocated based on
machine hours. Data for the year follow:
Budget Actual
Machine hours 26,000 hours 32,500 hours
Maintenance labor (repairs to equipment) 14,000 28,500
Plant supervisor’s salary 43,000 49,000
Screw, nails, and glue 25,000 45,000
Plant utilities 47,000 97,850
Freight-out 37,000 44,500
Depreciation on plant and equipment 85,000 83,000
Advertising expense 43,000 55,000

2) Post actual and allocated OH to the OH t-account and compute the ending balance
OH
Regal Wood manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct
labor are traced directly to the products. Manufacturing overhead costs are allocated based on
machine hours. Data for the year follow:
Budget Actual
Machine hours 26,000 hours 32,500 hours
Maintenance labor (repairs to equipment) 14,000 28,500
Plant supervisor’s salary 43,000 49,000
Screw, nails, and glue 25,000 45,000
Plant utilities 47,000 97,850
Freight-out 37,000 44,500
Depreciation on plant and equipment 85,000 83,000
Advertising expense 43,000 55,000

3) Close the under-/over-allocated overhead to CGS