136 Cost Accounting QUESTIONS mulated in a j 1. When is job-order costing appropriate, and how are costs accul job order cost system? re costs accumulated in a N When is process costing appropriate, and how 4! Process cost system? Oi i 7 ‘ ing? How is cost accounting related to financial accounting? > Distinguish between cost of goods sold and cost of goods manufactured. wv What is a job cost sheet and why is it useful? 6. What are the primary cost-accumulation T accounts used in a job: system? -order costing 7. What document is used to support the transfer of direct materials from materials inventory to work in process? Sad In what way does the accounting treatment of direct materials and direct labor costs differ from that of factory overhead? ~° What documents constitute the supporting subsidiary ledger for work in process when using a job-order costing system? 10. What are the two entries typically required at the time finished units are sold?Chapter 5 Job Order Costing 137 E OR F. 1. ‘ALSE Product costs are hi the manager, A company producing furniture would probably use job-order cost system. Both job-order and process costing systems utilize averaging concepts in computing unit costs. Most factory overhead costs are direct costs and therefore can be easily identified with specific jobs. The predetermined overhead rate is computed using estimates of cost and activity. The cost of indirect materials used in production is added to the MFG. OH account rather than added directly'to Work in Process. Actual manufacturing overhead costs are charged directly to the Work in Process account as the costs are incurred. Selling and administrative expenses should be added to the Manufacturing Overhead Account. If more overhead is applied to Work in Process than is actually incurred, then overhead will be overapplied. All of the raw materials purchased during a period are included in the cost of goods manufactured figure.” Any balance in the Work in Process account at the end of a period should be closed to Cost of Goods Sold. Ifa job is not completed at year end, then no overhead cost should be applied to that job. Once production is completed, the job cost sheet can be discarded. In a job order cost system, depreciation of factory equipment should be charged directly to the Work in Process account. The cost sheet is the support document for materials. ‘A job order cost system identifies costs with a particular job rather than a set time period. Manufacturing costs are generally incurred in one period and recorded in a subsequent period. A job order cost system is most appropriate when a large volume of uniform products are produced. Job order cost sheets constitute the subsidiary ledger of the control account Work in Process inventory. When raw materials are purchased, the Work in Process Inventory account is debited. ‘ical figures and therefore are of little use toCost Accounting | 138 TIPLE CHOICE 1. Under the job-cost system, a. Purchases b. Work in Process Control c. Factory Overhead Control d. None of the above “ed t0: 2. Under the job-cost system, issues of direot materials are debited to: a. Factory overhead Control | b. Work in Process Control ¢. Materials Control d. None of the above 3. In job-order costing, what journal entry she stockroom of direct materials previously issu particular job? a. debit Materials and credit Factory Over! b, debit Materials and credit Work in Process C. debit Purchase Returns and credit Work in Pi d. debit Work in Process and credit Materials 4, Under a job-order costing system, the peso amount transfer of inventory from work in process to finis costs charged to all jobs: a. started in process during the period b. in process during the period c. completed and sold during the period d. completed during the period 5. Ina job-order costing system, indirect labor used should be debited to: a. Payroll liability b. Work in Process Control ¢. Finished Goods Control d. Factory Overhead Control purchases of direct mats ry should be made for the return to the ‘ed to production for use on a head rocess of the entry involved in the hed goods is the sum of theChapter 5 Job Order Costing 139 6. Which of the following is the basic do i cu cost ofeach order in job order costing iment that is used to accumulate the a. Invoice b. Purchase order c. Requisition sheet d, Job Cost sheet . What is the best cost accumulation procedure to use when many batches, each differing as to product specification, are produced? a. Joborder b. Process c. . Actual d. Standard .. The most common treatment of under-or overapplied overhead is to close it to: a. Work in process b. Retained Earnings ¢. Cost of Goods sold d. Finished goods . It’s two o’clock in the morning and you’ve been studying job-order costing for the past three hours. You drift off to sleep and in your first dream you visit JOB-ORDER COSTING LAND. You are a direct labor peso and are traveling through a giant ledger. By the time you finish your journey, which accounts will you travel through and in what order? a. Work in process, Cost of goods manufactured, Finished goods, and Cost of goods sold. b. Direct labor, Work in process, Finished goods, and Cost of goods sold. ¢. Work in process, Finished goods, and Cost of goods sold. d. Manufacturing overhead, Work in process, Cost of goods manufactured, and Finished goods. €. Direct labor, Work in process, Finished goods, Cost of goods manufactured, and Cost of goods sold. 7140 Cost Accounting 10.Which of the following production operations would be most likely to employ a job order system of cost accounting? @. Toy manufacturing b. Shipbuilding C. Crud oil refining d. Candy manufacturing 11. Someone told Marco de Santos, president of D’Santos Company, that under- or over-applied manufacturing overhead can be allocated to three accounts. What are those three accounts: a. Raw materials, Manufacturing overhead and Direct labor. b. Raw materials, Finished goods, and Cost of goods sold. ©. Cost of goods sold, Work in process, and Finished goods. . Cost of goods sold, Work in process, and Raw materials. 12. Which of the following statements are False? 1, A manufacturing company can use direct labor hours as an overhead base in one department and machine hours as an overhead base in another. 11. A debit balance in the work in process account indicates that not all goods completed during the period were sold. 111, The predetermined OH rate is computed by dividing estimated units in the overhead base by budgeted or estimated manufacturing overhead costs. a. lonly b. 11 only c. Land 11 only d. 11nd 111 only 13. What accounts would be debited and credited when the direct materials are purchased on account? Debited a. Work in process Direct materials b. Direct materials Work in process Cc. Materials Accounts payable d, Work in process Accounts payableChapter 5 Job Order Costing 141 14. What accounts would be debit : a «laborers are recorded? e debited and credited when the wages for indirect Debited Credited @. Factory overhead ~ Wages payable b. Factory overhead Payroll c. Payroll Accrued payroll d. Work in process Payroll 15. Which of the following statements pertaining to job-order costing are TRUE? 1, The issuance of indirect materials from the storeroom is recorded on job- cost sheets. 11. Overapplied factory overhead can be properly disposed off with a debit to cost of goods sold and a credit to factory overhead, 111.Both an overstated forecast of overhead and an understated forecast of units of the overhead base can cause overhead to be overapplied. a. lonly b. 1 only c. Ll only d. i] and 111 only 16. A material requisition form normally does not contain which of the following? a. Vendor’s name b. Quantity requisitioned c. Unit cost d. Job number 17. A job order cost sheet normally does not contain which of the following? a. Direct materials b. Direct labor c. Actual factory overhead d. Applied factory overhead142 Cost Accounting Kes. deductions paid by the 18. In ajob ord i ta J ler costing system, payroll soounted £07 8S employer for factory employees are normally a a. direct labor b. factory overhead ¢. indirect labor d. administrative cost 19. Overhead applied was P120,000, while actual overhead was P124,000. Which of the following is always true of the above? a. Direct labor activity was overestimated b. Overhead was under applied by P4,000 c. Overhead was over applied by P4,000 d. The difference must be reported as a loss. 20. Which of the following is not a characteristic of, job costing? a. Each job is distinguishable from other jobs. b. Identical units are produced on an ongoing basis. ¢. It is not possible to compare actual costs with estimated costs. d. Job cost data are used for setting prices and bidding prices. 21. Under a job order costing system, the cost of direct materials, direct labor and factory overhead must first flow through the a. Finished goods account b. Cost of goods sold account c¢. Work in process account d. Cost of goods manufactured account 22. The unit cost of a product, under job order costing, can be determined only a. At the end of the manufacturing process b. Upon completion of a job. c. At the end of the month .d. At the pont of timeChapter 5 Job Order Costing 143 23. When a job is completed and all : costs have bi j cost sheet, the journal entry that should be made. ee a.Finished Goods Inventory , Direct materials Direct labor Factory overhead b. Work in Process Inventory Direct materials Direct labor Factory overhead c.Raw Materials Inventory Work in Process Inventory d.Finished Goods Inventory Work in Process Inventory 24. Cost of raw materials are debited to Raw Materials Inventory when a. the materials are ordered b. the materials are received ¢. materials are put into production ' d. the bill for the materials are paid 25. Under an effective system of internal control, the authorization for issuing materials is made a. orally b. ona pre-numbered materials requisition slip c. by the accounting department d. by anyone on theCost Accounting 144 Problem 1 . | of the current year. The Alexis Company had the following inventories 9 Aug. santo Finished goods "37,000 Work in process 44,000 Materials . The work in process account controls two js 40k 4obs02 Materials P6000 P a Labor 5,000 ” 4,000 4,800 Factory overhead ‘ pisooo © —-«B.22,000 The following information pertains to August operations: 1) Materials purchased on account, P56,000. 2) Materials issued for production, P50,000. Of t indirect materials; the difference was distribute: to Job 402; and P19,000 to Job 403 3) Materials retumed to the warehouse from the factory, P1, was for indirect materials, the balance from Job 403. 4) Materials returned to vendors, P2,000. , 5) Payroll after deducting P6,050 for withholding taxes, P3,200 for SSS Premiums, P750 for Medicare, and P2,400 for Pag-ibig, was P65,600. The payroll due the employees was paid during the month. 6) ‘The payroll was distributed as follows: P20,800 to Job 401; P25,000 to Job 402, P21,000 to Job 403 and the balance represents indirect labor. 7) The share of the employer for payroll was recorded — P4,000 for SSS Premiums, P750 for Medicare Contributions, and P2,400 for Pag-ibig Funds. 8) Factory overhead, other than any previously mentioned, amounted to P30,000. Included in this figure were P6,000 for deprecation of factory building and equipment, and P 1,900 for expired insurance on the factory. The remaining overhead was unpaid at the end of August. 9) Factory overead was applied to production at the rate of 80% of direct labor cost. ° 10) Jobs 401 703 402 were completed and transferred to the finished goods his amount, P6,000 was for d: P11,000 to Job 401; P14,000 600, of which P600Chapter S/ Job Order Costing 1 ; ) Job oe \vas shipped and billed at a gross profit of 40% of the cost . 12) Cash collections from accounts receivable during August were P70,000. Requirements for Problem | 1. Journal entries to record the above transactions. 2. job order cost sheets. 3. Cost of goods sold statement. Problem 2 145 On December 31, 2019, after closing, the ledgers of Golden Shower Company contained these accounts and balances: Cash Accounts Receivable Finished Goods Work in Process Materials Machinery Accounts Payable Common Stock Retained Earnings Details of the three inventories are: Finished goods inventory: Item A - 2,000 units at P 12.50 Item B - 4,000 units at P 10.00 Pp 94,000 100,000 65,000 15,000 44,000 70,600 118,750 200,000 69,850 Total Work in process inventory: Job 101 Job 102 Direct materials: 1,000 units atP 5.00 P 5,000 400 units at P 3,00 P 1,200 Direct labor: . 1,000 hours at P 4.00 4,000 400 hours at P 5.00 2,000 Factory overhead: ‘Applied at P 2.00/hour __2,000 300 Total P1L.000 P4000 Materials inventory: Material X - 4,000 units at P 5,00 P 20,000 Material Y - 8,000 units at P 3.00 ____24,000 Total F-~d.000