COST ACCOUNTING

Job Order Costing

1. The following data were taken from the records of Subscribe to SirBradFitt
Company:

08/31/2020 09/30/2020
Inventories:
Raw materials P ? P 50,000
Work in process P 80,000 P 95,000
Finished goods P 60,000 P 78,000

o Raw materials purchased amount to P46,000

o Factory overhead amount to P63,000 which is 75% of direct labor cost
o Selling and administrative expenses amount to P25,000which is 8% of sales
o Net income for September 2020, P40,000

Compute for the following:

1. Total manufacturing cost
2. Cost of goods manufactured
3. Cost of goods sold
4. Raw materials, Aug. 31
2. BSBAA Company uses job order costing. At the beginning of August, two jobs
were in process.
Job 769 Job 772
Materials P80,000 P28,000
Direct Labor P40,000 P12,000
Applied factory overhead P60,000 P18,000

o There was no inventory of finished goods on August 1.

o During the month of August, Job 773, 774, 776, 778 and 779 were started.
o Materials requisitions for August totaled P520,000 direct labor cost, P400,000
and actual factory overhead, P640,000.
o The only job still in process at the end of August is Job 779, with costs of
P56,000 materials and P36,000 for direct labor.
o Job 776, the only finished job on hand at the end of August has a total cost of
P80,000

QUESTIONS:

1. The cost of goods sold at normal is:

a. P1,572,000
b. P1,532,000
c. P1,600,000
d. P1,652,000

2. The cost of goods sold at actual is:

a. P1,572,000
b. P1,532,000
c. P1,600,000
d. P1,652,000
PRACTICE QUESTIONS

Theory

1. A major purpose of cost accounting is to

a. Classify all costs as operating or nonoperating
b. Measure, record, and report period costs
c. Measure, record, and report product costs
d. Provide information to stockholders for investment decisions

Answer: c

The major purpose of cost accounting is to determine the cost of the products. Managers will use the
information about unit cost to make decisions such as setting selling prices.

2. The two basic types of cost accounting systems are

a. Job order and job accumulation systems
b. Process cost and batch systems
c. Job order and batch systems
d. Job order and process cost systems

Answer: d

The two basic types of cost accounting systems are job order and process costing systems. Job order is used
for manufacturing products that are unique and distinct, whereas process costing is used for manufacturing
products that are similar and homogeneous.

3. An important feature of a job order cost system is that each job

a. Has its own distinguishing characteristics
b. Must be completed before a new job is accepted
c. Must be similar to previous jobs completed
d. Consists of one unit of output

Answer: a

In job order costing, each job is unique and distinguishable from other jobs.

4. Which of the following would be accounted for using a job order cost system?
a. The production of personal computers
b. The production of automobiles
c. The construction of a new campus building
d. The refining of petroleum

Answer: c

Because the construction of a new campus building is unique and distinct, job order costing is the
appropriate system to use. Process costing system is more appropriate for the other choices.
5. The flow of costs in a job order cost system
a. Measures product costs for a set time period
b. Involves accumulating manufacturing costs incurred and assigning the accumulated costs to work
done
c. Generally follows a LIFO cost flow assumption
d. Cannot be measured until all jobs are complete

Answer: b

In job order costing, the flow of costs involves accumulating manufacturing costs (direct materials, direct
labor, and overhead) and assigning them to work in process (WIP), finished goods (FG) and cost of goods
sold (COGS).

6. The job cost sheet

a. Contains only direct costs such as direct materials and direct labor
b. Is discarded after production is completed on a particular job
c. Summarizes all costs charged to a particular job
d. Is useful only in process costing

Answer: c

The job cost sheet is the principal accounting record used in assigning costs to jobs. The job cost sheet
summarizes the direct materials used, direct labor and overhead incurred for each job.

7. Which one of the following should be equal to the balance of the work in process inventory account at
the end of the period?
a. The sum of the costs shown on the job cost sheets of unfinished jobs
b. The total of manufacturing overhead applied to work in process for the period
c. The total of the amounts transferred from raw materials for the current period
d. The total manufacturing costs for the period

Answer: a

The balance of the WIP account is the sum of the costs shown on the job cost sheets of unfinished jobs. The
balance of the FG account is the sum of the costs shown on the job cost sheets of completed jobs.

8. In a job-order costing system, the application of manufacturing overhead would be recorded as a debit
to
a. Finished Goods inventory
b. Work in Process inventory
c. Raw Materials inventory
d. Cost of Goods Sold

Answer: b

The entry to record the application of overhead to a job involves a debit to WIP and credit to OH – applied.
9. In a job-order costing system, the incurrence of actual overhead costs would usually be recorded as a
debit to
a. Finished Goods
b. Work in Process
c. Overhead Control
d. Cost of Goods Sold

Answer: c

The entry to record the incurrence of actual overhead costs involves a debit to OH – control and credit to
various accounts (insurance, utilities, depreciation, etc.). The entry does not affect the WIP account.

10. When a job is completed and all costs have been accumulated on a job cost sheet, the journal entry
that should be made is

a. Finished Goods Inventory

Direct Materials
Direct Labor
Manufacturing Overhead

b. Work In Process Inventory

Direct Materials
Direct Labor
Manufacturing Overhead

c. Raw Materials Inventory

Work In Process Inventory

d. Finished Goods Inventory

Work In Process Inventory

Answer: d

When a job is completed, the entry involves a debit to FG and credit to WIP. Upon sale, the entry involves
a debit to COGS and credit to FG.

11. A good description of “cost of goods manufactured” is the recorded cost of the
a. Units started and completed during the period
b. Work done on all units during the period
c. Units completed during the period
d. Work done this period on units completed this period

Answer: c

The cost of goods manufactured represents the cost of units completed during the period. Cost of goods
manufactured plus beginning FG minus ending FB equals cost of goods sold.
Problems

Use the following information for the next four (4) questions:

The information below has been taken from the cost records of Pinnacle Company for the past year:

Raw materials used in production ........................................................ P326,000

Total manufacturing costs charged to jobs during the year (includes
raw materials, direct labor, and manufacturing overhead applied
at the rate of 60% of direct labor cost)............................................. P686,000
Cost of goods available for sale ............................................................ P826,000
Selling and administrative expenses..................................................... P25,000

Inventories
Beginning Ending
Raw Materials ....................... P75,000 P85,000
Work in Process .................... P80,000 P30,000
Finished Goods ..................... P90,000 P110,000

1. The cost of raw materials purchased during the year amounted to:
a. P411,000
b. P360,000
c. P316,000
d. P336,000

Answer: d

Direct materials:
Raw materials inventory, beginning .............................. P 75,000
Add purchases of raw materials (work back) ............. 336,000
Total raw materials available ......................................... 411,000
Deduct raw materials inventory, ending ....................... 85,000
Raw materials used in production ................................. P326,000

2. Direct labor costs charged to production during the year amounted to

a. P135,000
b. P225,000
c. P360,000
d. P216,000

Answer: b

Total manufacturing costs .............................................................. P686,000

Less: Raw materials used ................................................................ 326,000
Direct labor and manufacturing overhead combined .................... P360,000

Since the manufacturing overhead is applied at the rate of 60% of the direct labor cost, the direct labor
cost charged to production is P225,000 (direct labor cost = P360,000 ÷ 160%).
3. The Cost of Goods Manufactured during the year was
a. P636,000
b. P766,000
c. P736,000
d. P716,000

Answer: c

Total manufacturing costs ......................................................... P686,000

Add: Work in process, beginning ............................................... 80,000
766,000
Deduct: Work in process, ending ............................................... 30,000
Cost of goods manufactured...................................................... P736,000

4. The Cost of Goods Sold for the year (before disposition of any overhead underapplied or overapplied)
was:
a. P736,000
b. P716,000
c. P691,000
d. P801,000

Answer: b

Finished goods inventory, beginning ......................................... P 90,000

Add: Cost of goods manufactured.............................................. 736,000
Goods available for sale ............................................................. 826,000
Deduct: Finished goods inventory, ending ................................. 110,000
Cost of goods sold ...................................................................... P716,000
Use the following information for the next three (3) questions:

Mr. Accounting Corporation, which applies manufacturing overhead on the basis of machine-hours, has
provided the following data for its most recent year of operations.

Estimated manufacturing overhead ................ P157,050

Estimated machine-hours ................................ 4,500
Actual manufacturing overhead ...................... P156,000
Actual machine-hours ...................................... 4,580

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the
year for the purpose of computing the company's predetermined overhead rate for the year.

5. The predetermined overhead rate is closest to

a. P34.06
b. P34.90
c. P34.67
d. P35.52

Answer: b

Estimated total manufacturing overhead P157,050

÷ Estimated total machine-hours (MHs) 4,500 MHs
= Predetermined overhead rate P34.90 per MH

6. The applied manufacturing overhead for the year is closest to:

a. P162,682
b. P155,995
c. P158,789
d. P159,842

Answer: d

Applied manufacturing Predetermined Actual machine-

= ×
overhead overhead rate hours
Applied manufacturing overhead = P34.90 × 4,580
= P159,842

7. The overhead for the year was

a. P2,792 underapplied
b. P3,842 overapplied
c. P2,792 overapplied
d. P3,842 underapplied

Answer: b

Actual manufacturing overhead ................... P156,000

Applied manufacturing overhead ................. 159,842
Overapplied manufacturing overhead.......... (P 3,842)