BUSI 294

Review Questions

Job-Order Costing

Question 1

Columbia Industries produces mouldings used mainly in household renovations. Because most jobs are
unique, the company uses a job-order costing system. On January 1st, the inventory account balances
were as follows:

Raw materials $20,000

Work-in-process 8,000
Finished goods 16,000

The company applies overhead based on machine-hours. For the current fiscal year, the company
estimated overhead to be $396,000 and it estimated the plant would operate 90,000 machine-hours.
During the year the following transactions were completed:

1. Raw materials purchased on account: $320,000

2. Raw materials were requisitioned for use in production: $280,000. Indirect materials account
for 10% of the total amount requisitioned.
3. The cost for employee services for the year were as follows:

Direct labour $180,000

Indirect labour 80,000
Sales & administrative salaries 100,000
Sales commissions 40,000

4. Insurance expense for the year: $36,000. Sales and administration were allocated 15% of the
cost with the remainder allocated to manufacturing
5. Utility costs for the year: $40,000. 80% of this cost was for manufacturing and the remainder
was for sales and administration.
6. Advertising costs for the year were $50,000.
7. Depreciation was recorded as follows:

Manufacturing $40,000
Sales and administration 10,000

8. Manufacturing overhead was applied to jobs: ?. The company recorded 49,000 machines during
the year.
9. The ending inventory in the work-in-process inventory account was $54,000
10. Goods that cost $600,000 to manufacture (according to the job-cost reports) were sold.
11. Sales for the year totaled $1,100,000.
12. Other operating expenses totaled $120,000.
Required:

1. Prepare a schedule of the cost of goods manufactured

2. Prepare a schedule of cost of goods sold
3. Prepare an income statement for the year.

Question 2

Manitoba Manufacturing Company operates a job-order costing system and applies overhead cost to
jobs based on direct labour cost. In computing the pre-determined rate for the current year, the
company estimated overhead at $756,000 and direct labour cost at $504,000. The company has
provided the following information:

Beginning Ending
Raw materials inventory $42,000 $32,000
Work-in-process inventory $88,000 $80,000
Finished goods inventory $136,000 $120,000

The following actual cost were incurred:

Purchase of raw materials (all direct) $266,000

Direct labour cost $480,000
Manufacturing overhead costs $736,000

Required:

1. Compute the pre-determined overhead rate

2. Compute the amount of over-applied or under-applied overhead for the year.
3. Prepare a schedule of the cost of goods sold
4. Job 12-60 was started and completed during the year. What price would have been charged to
the customer if the job required $6,400 of direct materials and $8,400 of direct labour cost and
the company priced the job at 40% above its full manufacturing cost?
5. Direct labour made up $16,000 of the $80,000 in ending work-in-process inventory. How much
material cost and applied manufacturing cost would be included in ending work-in-process
inventory?

Question 3

Alberta Manufacturing Inc. uses a job-order costing system and applies overhead based on direct
material cost. At the beginning of the year, the estimated cost of manufacturing overhead was
$496,000 and the estimated direct material cost was $310,000. The following transactions took place
during the year:
 1. Raw materials were acquired: $284,000
2. Raw materials were requisitioned for use in production: $300,000 (all materials were direct)
3. Utility cost for manufacturing: $24,000
4. Salary and wage costs:

Direct labour $432,000

Indirect labour 180,000
Sales & administrative salaries 290,000

5. Maintenance costs used in manufacturing: $30,000

6. Advertising cost: $260,000
7. Depreciation was recorded as follows:

Manufacturing $90,000
Sales and administration 10,000

8. Rental cost was incurred on the buildings: $180,000. 80% of the space is occupied by the
manufacturing department.
9. Other operating (non-manufacturing) costs for the year: $34,000
10. Sales for the year totalled $2,000,000. The gross margin, before adjusting for over or under-
applied overhead is 40%,
11. Cost of goods manufactured for the year: $1,180,000
12. The beginning inventory balances for the year were as follows:

Raw materials $36,000

Work-in-process 48,000
Finished goods 70,000

Required:

1. Prepare a schedule of the cost of goods manufactured

2. Prepare an income statement for the year.
3. Job 9-01 was one of many jobs that was started and completed during the year. The job
required $7,200 in direct material cost and 800 direct labour hours (at an average rate of $20.00
per hour). If the job contained 500 units and the company would like to sell the units at 70%
above the full manufacturing cost per unit, what is the unit selling price?
Question 4

Ontario Industries makes custom office furniture and uses a job-order costing system. The compony
manufactures the furniture in two departments: assembly and finishing. The pre-determined rate in the
Assembly department is calculated using direct material costs and the pre-determined rate in the
Finishing department is calculated using direct labour hours. At the beginning of the year, the following
estimates were determined:

Assembly Finishing
Machine hours 80,000 21,000
Direct labour hours 35,000 65,000
Direct material costs $285,000 $600,000
Direct labour cost $420,000 $530,000
Manufacturing overhead cost $624,000 $1,080,000

Job 5-01 was started on May 1st and finished on June 10th. The following information is available about
the job:

Assembly Finishing
Machine hours 350 70
Direct labour hours 80 130
Direct material costs $1,880 $2,400
Direct labour cost $1,420 $1,960

Required:

1. Compute the pre-determined overhead rate used during the year for both departments
2. Compute the total overhead cost applied to Job 5-01.
3. What would be the total cost recorded on Job 5-01? if the job contained 25 units, what would
be the unit manufacturing cost?
4. At the end of the year, the company had recorded the following actual cost and operating data
for all jobs worked on during the year:

Assembly Finishing
Machine hours 73,000 24,000
Direct labour hours 30,000 68,000
Direct material costs $247,500 $630,000
Manufacturing overhead $585,000 $1,110,000

What was the amount of under or over-applied overhead in each department for the year?