Chapter 2: Job Order Costing

Given: Cost of goods manufactured of $410,000, beginning finished goods inventory of $110,000, and ending finished goods inventory of $125,000, calculate unadjusted cost of goods sold.

$395,000: $110,000 + $410,000 - $125,000 = $395,000.

Murphy Manufacturing estimated $100,000 in manufacturing overhead and 5,000 direct labor hours for 2016. Actual overhead for the year was $120,000 and 7,500 actual direct labor-hours were used. How much overhead was applied to a job completed during 2016 that used 200 direct labor-hours?

$4,000: The predetermined overhead rate = $100,000/5,000 direct labor-hours = $20 per direct labor-hour. The overhead applied to the job = $20 per direct labor-hours × 200 direct labor-hours = $4,000.

Jonas Corporation used $20,000 of direct materials, incurred $40,000 of direct labor cost, and applied $30,000 of manufacturing overhead to jobs this period. No jobs were incomplete at the beginning of the period, but at the end of the period, jobs with a total cost of $25,000 were unfinished. What was the cost of goods manufactured for this period?

$65,000: ($20,000 + $40,000 + $30,000) + $0 - $25,000 = $65,000

Raw materials inventory was $27,000 at the beginning of the year and $25,000 at the end of the year. During the year, $100,000 in raw materials were purchased, including $28,000 of indirect materials that were put into manufacturing overhead during the period. Calculate the cost of direct materials used during the period.

$74,000

Costs of partially completed units are accounted for in ______.

work in process

Carlisle, Inc. had Sales revenue of $500,000, Unadjusted cost of goods sold of $395,000, Underapplied manufacturing overhead of $5,000, and Selling and administrative expenses of $50,000. Calculate gross profit.

$100,000: Gross profit = $500,000 - ($395,000 + $5,000) = $100,000; Selling & administrative costs are not included in gross profit.

A company's calculated predetermined overhead rate is $90 per direct labor hour. If a job requires 4 direct labor hours, ______.

$360 is assigned to the job to cover indirect costs

Given the following, calculate total current manufacturing costs: Direct materials cost: $62,000 Direct labor cost: $78,000 Manufacturing overhead applied: $46,000 Actual manufacturing overhead: $51,000 Beginning Work in process inventory: $32,000 Ending Work in process inventory: $35,000

$62,000 + $78,000 + $46,000 = $186,000. Total manufacturing costs is calculated using applied, not actual overhead.

What of the following may be credited in the journal entry to record the purchase of materials?

Accounts Payable

Which methods can be used to dispose of underapplied or overapplied manufacturing overhead?

Allocate it to Work in Process, Finished Goods, and Cost of Goods Sold Make a direct adjustment to Cost of Goods Sold

Which of the following companies would be most likely to use operations costing?

An automobile manufacturer

In a service firm, salaries of administrative personnel, rent and utilities, and nonbillable employee time are ______.

Assigned to client or account using an allocation base

Which of the following items are included on a cost of goods manufactured report?

Beginning and ending work in process inventory Beginning and ending raw materials inventory Applied manufacturing overhead

What two accounts are involved when underapplied or overapplied overhead is disposed of?

Cost of Goods Sold and Manufacturing Overhead

Milton Corporation sold goods costing $50,000 for $75,000. Journal entries to be made include an entry debiting ______.

Cost of Goods Sold for $50,000 and an entry debiting Accounts Receivable for $75,000

Raw materials inventory was $27,000 at the beginning of the year and $25,000 at the end of the year. During the year, $100,000 in raw materials were purchased. The purchases included $28,000 of indirect materials that were put into manufacturing overhead during the period. Calculate the cost of direct materials used during the period.

Cost of direct materials = Beginning Inventory + Purchases - Indirect Materials - Ending Inventory ($27,000 + $100,000 - $28,000 - $25,000 = $74,000)

The journal entry to record depreciation on office equipment debits ______.

Depreciation Expense and credits Accumulated Depreciation

True or false: A predetermined overhead rate of $50 per direct labor hour means that the total cost of direct labor and indirect cost equals $50 per hour.

False

True or false: At the end of the accounting period, a balance in the Manufacturing Overhead account always means that overhead was underapplied.

False

True or false: Job-order costing can only be used in manufacturing firms.

False

True or false: The cost of each individual unit is tracked to products under both job order and process costing.

False

When goods are sold on account, what accounts are credited?

Finished Goods Inventory and Sales Revenue

Which of the following statements are true?

Raw materials inventory represents the cost of materials not yet used in production. When materials are purchased they are recorded in the Raw materials inventory account.

Which of the following is not a manufacturing cost category?

Selling & administrative costs

Which of the following would NOT be part of direct labor cost?

Supervisor salaries

Which of the following would not be considered a job in a service firm that uses job-order costing?

The tax department in an accounting firm

True or false: Service industries use cost information to determine the profitability of different types of clients.

True

A journal entry debiting Salaries expense and crediting Salaries and wages payable could record ______.

administrative salaries

The first step in assigning manufacturing overhead is to determine the __ __ or cost driver

allocation base

The journal entry to record general selling and administrative costs is debit ______.

an expense account and credit Cash or a payable

The cost of goods manufactured report includes ______ manufacturing overhead costs. actual applied

applied

Labor costs ______.

are recorded in basically the same way as material costs may be direct or indirect

Applied manufacturing overhead costs are credited to the Manufacturing Overhead account ______.

as the costs are applied to jobs

The basic formula for process costing is ______.

average unit cost = total manufacturing cost/total units produced

Predetermined overhead rates are ______.

based on some secondary allocation measure

When is the predetermined overhead rate calculated?

before the period begins

The most common driver used to assign costs in a service firm is ______.

billable hours

Finished goods ______.

consists of completed, unsold goods

Job-order costing would most likely be used in a(n) ______.

construction company

The total cost transferred out of Work in Process inventory into Finished Goods inventory is ______.

cost of goods manufactured

When goods are sold to customers, ______.

costs are transferred from Finished Goods to Cost of Goods Sold

When overhead is underapplied, a _____ must be made to the Manufacturing overhead account to eliminate the balance.

credit

Actual manufacturing overhead costs are accumulated on the ______ side of the Manufacturing Overhead account and applied costs are shown on the ______ side.

debit, credit

The first step in assigning manufacturing overhead costs using a predetermined overhead rate is to ______.

determine the cost driver

Underapplied or overapplied overhead is the ______.

difference between overhead applied to jobs and actual overhead

Categories of manufacturing costs include ______.

direct labor direct materials manufacturing overhead

Major inputs such as lumber and fixtures that can be easily traced to a specific job are called __ __

direct materials

When materials are requisitioned into production, ______.

direct materials are recorded on the job cost sheet direct materials are recorded in Work in Process

A journal entry that involves Manufacturing overhead and Cost of goods sold is recorded to ______.

dispose of underapplied or overapplied overhead

Costs are transferred from raw materials inventory to ______.

either work in process or manufacturing overhead

To calculate direct materials on the schedule of cost of goods manufactured, add purchases to beginning raw materials inventory and subtract ______.

ending raw materials inventory and indirect materials used

To calculate a predetermined overhead rate, divide estimated total manufacturing overhead by the ______.

estimated total cost driver

When a job is completed, which account is debited?

finished goods inventory

A predetermined overhead rate of $20 per direct labor hours means that ______.

for each direct labor hour, $20 is added to cover indirect costs

A journal entry debiting Cost of Goods sold and crediting Finished Goods Inventory is made when _____.

goods are sold

Select all that apply Manufacturing overhead costs ______.

include some materials and labor must be manufacturing costs are indirect costs

Process costing ______.

is used for mass production is used for homogeneous products

The costs incurred for each unique product, project, or service are recorded on a document called a(n) __ __ sheet

job cost

The cost of goods __ is the sum of all amounts transferred from Work in process to Finished goods during a period.

manufactured

Actual manufacturing overhead consists of all ______.

manufacturing costs other than direct labor and direct materials

Gross profit minus selling and administrative expenses equals ______.

net operating income

Ending Work in Process Inventory represents the cost of goods ______.

not yet completed

A blend of process and job order costing is called__ costing

operations

If the Manufacturing Overhead account has a credit balance at the end of the period that indicates that overhead was ______ and Cost of Goods Sold must be ______.

overapplied, decreased

The predetermined overhead rate is multiplied by the actual cost driver usage for a job to calculate the __ job

overhead applied to

Nonmanufacturing costs incurred during a period are treated as ______.

period expenses

A journal entry that debits Work in Process and Manufacturing Overhead and credits Raw Materials Inventory records ______.

putting materials into production

All materials that will be used in future production are first recorded in the __ __ Inventory account.

raw materials

When materials are purchased they are first recorded in the ______ account.

raw materials inventory

The balance of work in process inventory may be calculated by ______.

summing the costs of all jobs in process

Nonmanufacturing costs increase ______.

the Selling, General & Administrative expense accounts

A journal entry that debits Work in Process inventory and credits Manufacturing Overhead is recording ______.

the application of manufacturing overhead costs

Overhead costs are debited to Work in Process when ______.

they are applied to jobs

A direct labor__ __ is a document used to record how long workers spend on each job and task.

time ticket

In a service firm, salaries of administrative personnel, rent and utilities, and nonbillable employee time are ______.

treated like manufacturing overhead

True or false: Job cost sheets serve as a subsidiary ledger to the overall Work in Process Inventory account.

true

True or false: The Manufacturing Overhead account is a temporary account used to accumulate actual and applied overhead costs.

true

If there is a debit balance in Manufacturing Overhead after overhead has been applied to all jobs it means overhead was

underapplied

Cost of goods manufactured is the ______.

value of all jobs transferred from Work in Process to Finished Goods

Raw materials inventory was $5,000 at the beginning of the year and $12,000 at the end of the year. During the year, a total of $27,000 in raw materials were purchased, including $4,000 of indirect materials that were put into manufacturing overhead during the period. Calculate the cost of direct materials used during the period.

$16,000

Luver Corporation's Gross profit is $100,000, Cost of goods sold equals $70,000, and Selling and administrative expenses total $45,000. Calculate the net operating income (loss).

$55,000

What document specifies the type and quantity of direct materials used on a specific job?

Materials requisition form

Which of the following would most likely NOT be classified as a direct material?

Nails and screws

The journal entry to record the purchase of materials debits ______.

Raw Materials Inventory

When a job is completed, which account is credited?

Work in process Inventory

Which account(s) are debited in the journal entry to record manufacturing labor costs?

Work in process inventory and Manufacturing overhead

A direct labor time ticket includes the ______.

amount of time spent on each job job numbers of jobs worked on

Materials requisition forms are used to ______.

control the flow of materials from inventory into production record the cost of raw materials in the accounting system

When calculating a predetermined overhead rate, the ideal allocation base should be a(n) __ __

cost driver

The formula for a predetermined overhead rate is ______.

estimated total manufacturing overhead cost / estimated total cost driver

Ideally an allocation base should ______.

explain or influence the amount of overhead incurred

An allocation base is a(n) ______.

measure of activity used to assign overhead costs to products and services

If there is a credit balance in the Manufacturing Overhead account after overhead have been applied to all jobs it means overhead was__

overapplied

The difference between overhead applied to jobs and actual overhead is ______.

overapplied or underapplied overhead

The predetermined overhead rate is multiplied by the actual cost driver usage for a job to calculate the ______ the job.

overhead applied to

Net operating income is calculated by subtracting ______ from ______.

selling and administrative expenses; gross profit

In a job-order costing system costs flow first to ______.

the inventory accounts and then to cost of goods sold

When actual manufacturing overhead costs are incurred, ______.

the manufacturing overhead cost is debited

A cost driver is ______.

a measure that explains or influences the amount of manufacturing overhead cost incurred

Calculate total current manufacturing costs given the following: Direct materials cost: $62,000 Direct labor cost: $78,000 Manufacturing overhead applied: $46,000 Actual manufacturing overhead: $51,000 Beginning Work in process inventory: $32,000 Ending Work in process inventory: $35,000

$186,000

Direct materials used for the period cost $66,000; Direct labor cost $80,000; Applied overhead was $60,000; Actual overhead was $50,000; Beginning work in process inventory was $27,000; and Ending work in process inventory was $25,000. Calculate the cost of goods manufactured.

$208,000: $27,000 + ($66,000 + $80,000 + $60,000) - $25,000 = $208,000

Given: Cost of goods manufactured of $234,000, beginning finished goods inventory of $18,000, and ending finished goods inventory of $24,000, calculate unadjusted cost of goods sold.

$228,000: $18,000 + $234,000 - $24,000 = $228,000

Given the following, calculate total current manufacturing costs: Direct materials: $40,000; Direct labor: $100,000 Manufacturing overhead applied: $120,000 Beginning Work in process inventory: $30,000 Ending Work in process inventory: $12,000

$260,000: Total manufacturing costs = $40,000 + $100,000 + $120,000 = $260,000

A company was assessed property taxes of $1,000 on its manufacturing facility. The journal entry to record this is debit ______.

Manufacturing Overhead $1,000 and credit Property Taxes Payable $1,000

What is the formula for applying overhead to a specific job?

Predetermined overhead rate × the actual cost driver usage for the specific job

Which account is debited when manufacturing overhead is applied?

Work in Process Inventory

A company incurs $10,000 in direct labor costs and $8,000 in indirect labor costs. The journal entry to record this transaction is debit ______.

Work in Process Inventory $10,000 and Manufacturing Overhead $8,000 and credit Wages Payable $18,000

What accounts are debited in a journal entry that records putting both direct and indirect materials into production?

Work in process and Manufacturing overhead

As jobs are worked on the Work in Process account accumulates ______.

actual direct materials and direct labor costs and applied overhead costs

The work in process account accumulates ______.

actual direct materials, actual direct labor, and applied overhead costs

Overhead is overapplied if ______.

actual overhead is less than applied overhead

Overhead is underapplied if ______.

actual overhead is more than applied overhead

At the end of the reporting period, any differences between actual and applied manufacturing overhead may be ______.

adjusted directly to Cost of Goods Sold (COGS) adjusted to Work in Process, Finished Goods, and COGS

If the Manufacturing Overhead account has a ______ balance at the end of the period that indicates that overhead was underapplied and Cost of Goods Sold must be ______.

debit, increased

When a job is completed, its costs are transferred into ______.

finished goods

Job order costing requires a good record-keeping system that uses __documents that trace direct costs to specific jobs.

source

The job cost sheet serves as a(n) __ __to the overall Work in Process Inventory account.

subsidiary ledger

Given the following, compute the cost of goods manufactured. Direct material cost: $40,000 Direct labor cost: $100,000 Applied overhead: $120,000 Beginning work in process inventory: $30,000 Ending work in process inventory: $12,000

$278,000

Gemini had Sales of $50,000, Unadjusted Cost of goods sold of $23,000, Overapplied Manufacturing Overhead of $3,000, and Selling and administrative expenses of $25,000. Calculate gross profit.

$30,000: Because manufacturing overhead is overapplied, it reduces cost of goods sold to $20,000 ($23,000 - $3,000). Thus gross profit is $50,000 - $20,000 or $30,000.

The most common method for disposing of the balance in Manufacturing Overhead is ______.

adjusting Cost of Goods Sold

The major difference between job order and process costing is ______.

whether the products produced are similar or different

Raw materials inventory was $5,000 at the beginning of the year and $12,000 at the end of the year. During the year, a total of $27,000 in raw materials were purchased. The purchases included $4,000 of indirect materials that were put into manufacturing overhead during the period. Calculate the cost of direct materials used during the period.

Cost of direct materials = Beginning Inventory + Purchases - Indirect Materials - Ending Inventory ($5,000 + $27,000 - $12,000 - $4,000 = $16,000)

When a job is completed, its costs are transferred out of ______.

work in process

The journal entry to record $20,000 in depreciation on factory equipment is debit ______.

Manufacturing Overhead $20,000 and credit Accumulated Depreciation $20,000