Cost Accounting 2

4 Year
th

Lecture 7
Chapter (1) :
 Example
Ahmed Company makes pianos and uses a job order cost
system to record and distribute costs. Work is completed in one
department, Production. The following information relates to
Job 491 which is the production of 52 high-quality pianos:

1-On June 14, the purchasing department bought for cash

£ 30,000 direct materials and $ 5000 indirect materials.

2-On June 17, $ 20,000 direct materials and $ 3,000 indirect

materials were requisitioned.

3-The following labour costs were accounted for on June 20:

160 hours of direct labour were paid $ 15 per hour. Supervisors
and repair personnel costs amounted to $ 700.
4-Additional factory overhead incurred by the production
department:
Utility costs ................................................... $1,000
Depreciation on factory machinery................... $1,200
Miscellaneous factory expenses..................... $600
5-Factory overhead is applied on the basis of 150% of direct labour
dollars.
6-Two pianos were considered to be normal spoilage and two
pianos were considered abnormal spoilage on June 22. The salvage
value of the spoiled units is $ 100.(allocated to specific jobs)

7-On June 23, three pianos were considered to be defective. Normal

rework costs amounted to:.(allocated to specific jobs)
Direct materials.................... $ 800
Direct labour...................... ..$ 600
Applied FOH........................150% of direct labour rework costs
8- On June 23, cash received from the sale of scrap materials was
$ 300. In addition, the cost of disposing of waste materials was
$ 100. .(allocated to specific jobs)

9- The Job was completed on June 25. The units were transferred
to finished goods inventory upon completion.

10- On June 28, the units were sold at a markup of 30% of cost
Use the above data to answer the following series of questions:
1. What is the amount of materials costs used in job 491:
A. 35000 B.20000 C.23000 D. another answer
2. What the amount of direct labor cost used in job 491:
A. 3100 B.2400 C.700 D. another answer
3. What the amount of factory overhead applied to job 491:
A. 6300 B.3600 C. 1050 D. another answer
4. What is the cost of reworking defective units:
A. 2300 B.1400 C. 1200 D. another answer
5. At the completion of the job 491, the balance of work in process
inventory job-491 a/c equal:
A. 25400 B. 26900 C. 28400 D. another answer
6. At the completion of the job 491, the balance of work in process
inventory job-491 a/c is credited to:
A. Finished goods inventory B. factory overhead control
C. work in process inventory D. another answer
7. When the job 491 sold, the required journal entry to record this
transaction may includes in the debit side the following except:
A. Finished goods inventory B. cash C. cost of goods sold
D. another answer
 Spoiled Units
Wellgoes Company put 1,331 units into production for job 3. Spoilage

costs were $40 per unit. Only, 1,300 good units are produced and the rest

are spoiled, with a salvage value of $6 each. Spoilage of 20 units was

anticipated.(Normal)

Required: Prepare the journal entries necessary to record the above

information, assuming that the normal spoilage costs were:

A. Allocated to all jobs (included in the factory overhead application rate).

B. Allocated to specific jobs (not included in the factory overhead application

rate).
• Defective Units
Cosmo Company placed 16,500 units into production for job 16. Normal
defective units for this job are estimated to be 100 units. The actual defective
units were 250. The total cost to rework the defective units is as follows:
Direct materials ……………………….. $300
Direct labor ………………………….. 450
Applied Factory overhead
(30% of direct labor)…………………… 135
Total …………………..... $885
Required: prepare the journal entries necessary to record the above
information, assuming that the normal rework costs were:
A. Allocated to all jobs (included in the factory overhead application rate).
B. Allocated to specific jobs (not included in the factory overhead application
rate.
Thanks