EX 19-1 Transactions in a job order cost system Five selected transactions for the current month are indicated by letters in the following T accounts in a job order cost accounting system:
Materials (Describe each of the five transactions Answer: a. Materials requisitioned for use (both direct and indirect). b. Factory labor used (both direct and indirect). c. Application of factory overhead costs to jobs. d. Jobs completed. e. Goods sold.
EX 19-2 Cost flow relationships The following information is available for the first month of operations of Icahn Inc., a manufacturer of art and craft items:
Factory overhead was applied during the year. Using the above information, determine the following missing amounts: a. Cost of goods sold b. Direct materials cost c. Direct labor cost
Answer:
a. Cost of goods sold:
EX 19-3 Cost of materials issuances under the FIFO method An incomplete subsidiary ledger of wire cable for July is as follows:
July 21 a. Complete the materials issuances and balances for the wire cable subsidiary ledger under FIFO. b. Determine the balance of wire cable at the end of July. c. Journalize the summary entry to transfer materials to work in process. d. Explain how the materials ledger might be used as an aid in maintaining inventory quantities on hand. Answer:
a.
EX 19-4 Entry for issuing materials
Materials issued for the current month are as follows:
Journalize the entry to record the issuance of materials. Answer:
EX 19-5 Entries for materials European Designs Company manufactures furniture. European Designs uses a job order cost system. Balances on May 1 from the materials ledger are as follows:
The glue is not a significant cost, so it is treated as indirect materials (factory overhead). a. Journalize the entry to record the purchase of materials in May. b. Journalize the entry to record the requisition of materials in May. c. Determine the May 31 balances that would be shown in the materials ledger accounts. Answer:
EX 19-6 Entry for factory labor costs A summary of the time tickets for the current month follows:
Job No. Amount Job No. Amount 23,200 215 20,000
Journalize the entry to record the factory labor costs. Answer:
EX 19-7 Entry for factory labor costs
The weekly time tickets indicate the following distribution of labor hours for three direct labor employees:
Hours The process improvement category includes training, quality improvement, and other indirect tasks. a. Journalize the entry to record the factory labor costs for the week. b. Assume that Jobs 501 and 502 were completed but not sold during the week and that Job 503 remained incomplete at the end of the week. How would the direct labor costs for all three jobs be reflected on the financial statements at the end of the week? Answer:
a.
Work in Process 3,815
EX 19-8 Entries for direct labor and factory overhead VOC Industries Inc. manufactures recreational vehicles. VOC uses a job order cost system. The time tickets from May jobs are summarized below.
Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $20 per direct labor hour. The direct labor rate is $40 per hour. a. Journalize the entry to record the factory labor costs. b. Journalize the entry to apply factory overhead to production for May. Answer:
a.
EX 19-9 Factory overhead rates, entries, and account balance Almer Company operates two factories. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine hours are as follows:
a. Determine the factory overhead rate for Factory 1. b. Determine the factory overhead rate for Factory 2.
c. Journalize the entries to apply factory overhead to production in each factory for July. d. Determine the balances of the factory overhead accounts for each factory as of July 31, and indicate whether the amounts represent overapplied or underapplied factory overhead. Answer:
a. Factory 1: $24.00 per machine hour ($1,008,000 ÷ 42,000 machine hours)
EX 19-10 Predetermined factory overhead rate
Amoruso Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows:
Engine parts $ 980,000 The average shop direct labor rate is $25 per hour. Determine the predetermined shop overhead rate per direct labor hour.
Answer:
EX 19-11 Predetermined factory overhead rate Reithofer Medical Center has a single operating room that is used by local physicians to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and includes the direct materials costs (drugs and medical devices), physician surgical time, and operating room overhead. On January 1 of the current year, the annual operating room overhead is estimated to be:
The overhead costs will be assigned to procedures, based on the number of surgical room hours. Reithofer Medical Center expects to use the operating room an average of eight hours per day, seven days per week. In addition, the operating room will be shut down four weeks per year for general repairs. a. Determine the predetermined operating room overhead rate for the year. b. Wayne Lawrence had a four-hour procedure on January 15. How much operating room overhead would be charged to his procedure, using the rate determined in part (a)? c. During January, the operating room was used 232 hours. The actual overhead costs incurred for January were $65,500. Determine the overhead under- or overapplied for the period.
Answer:
a.
EX 19-12 Entry for jobs completed; cost of unfinished jobs The following account appears in the ledger prior to recognizing the jobs completed in June:
Work in Process a. Journalize the entry to record the jobs completed. b. Determine the cost of the unfinished jobs at June 30. Answer:
a. Finished Goods* 753,000
EX 19-13 Entries for factory costs and jobs completed Law Publishing Inc. began printing operations on January 1. Jobs 401 and 402 were completed during the month, and all costs applicable to them were recorded on the related cost sheets. Jobs 403 and 404 are still in process at the end of the month, and all applicable costs except factory overhead have been recorded on the related cost sheets. In addition to the materials and labor charged directly to the jobs, $2,000 of indirect materials and $9,000 of indirect labor were used during the month. The cost sheets for the four jobs entering production during the month are as follows, in summary form:
Job 401 Job 40 Journalize the summary entry to record each of the following operations for January (one entry for each operation): a. Direct and indirect materials used. b. Direct and indirect labor used. c. Factory overhead applied to all four jobs (a single overhead rate is used based on direct labor cost). d. Completion of Jobs 401 and 402.
Answer:
EX 19-14 Financial statements of a manufacturing firm
The following events took place for Kirchhoff Inc. during April 2014, the first month of operations as a producer of road bikes: • Purchased $320,000 of materials. • Used $275,000 of direct materials in production. • Incurred $236,250 of direct labor wages. • Applied factory overhead at a rate of 80% of direct labor cost. • Transferred $670,000 of work in process to finished goods. • Sold goods with a cost of $635,000. • Sold goods for $1,125,000. • Incurred $275,000 of selling expenses. • Incurred $100,000 of administrative expenses. a. Prepare the April income statement for Kirchhoff. Assume that Kirchhoff uses the perpetual inventory method. b. Determine the inventory balances at the end of the first month of operations.
Answer:
EX 19-15 Decision making with job order costs
Alvarez Manufacturing Inc. is a job shop. The management of Alvarez Manufacturing Inc. uses the cost information from the job sheets to assess cost performance. Information on the total cost, product type, and quantity of items produced is as follows:
a. Develop a graph for each product (three graphs), with Job Number (in date order) on the horizontal axis and Unit Cost on the vertical axis. Use this information to determine Alvarez Manufacturing Inc.’s cost performance over time for the three products.
b. What additional information would you require in order to investigate Alvarez Manufacturing Inc.’s cost performance more precisely? Answer:
a. Unit May 19 58 2,550 SLK 31,875
EX 19-16 Decision making with job order costs Raneri Trophies Inc. uses a job order cost system for determining the cost to manufacture award products (plaques and trophies). Among the company’s products is an engraved plaque that is awarded to participants who complete a training program at a local business. The company sells the plaques to the local business for $80 each.
Each plaque has a brass plate engraved with the name of the participant. Engraving requires approximately 30 minutes per name. Improperly engraved names must be redone. The plate is screwed to a walnut backboard. This assembly takes approximately 15 minutes per unit. Improper assembly must be redone using a new walnut backboard. During the first half of the year, Raneri had two separate plaque orders. The job cost sheets for the two separate jobs indicated the following information:
a. Why did the cost per plaque increase from $60 to $68? b. What improvements would you recommend for Raneri Trophies Inc.? Answer: a. The first item to note is that the cost did not go up due to any increases in the cost of labor or materials. Rather, the cost of the plaques increased because Job 105 used more labor and materials per unit than did Job 101. Specifically, Job 101 required exactly the same number of backboards and brass plates as the number of actual plaques shipped. However, Job 105 required four more backboards and brass plates than the number actually shipped (34 vs. 30). This is illustrated as follows:
Job 101:
Job 105:Difference 1.0 hour Job 105’s 25.5 labor hours are 3.0 more (25.5 hrs. – 22.5 hrs.) than should have been expected for a job of 30 plaques [(30 × 45 min.)/60 min. = 22.5 hrs.]. As a result, the additional hours of labor cost, applied factory overhead, and direct materials cost cause the unit cost of Job 105 to increase. b. Apparently, the engraving and assembly work is becoming sloppy. Job 105 required 34 engraved brass plates in order to get 30 with acceptable quality. It is likely that the engraver is not being careful in correctly spelling the names. The names should be supplied to the engraver, using large typewritten
fonts, so that it is easy to read the names. The engraver should be instructed to be careful in engraving the names. The assembly operation also needs some improvement. It took 34 assembly operations to properly assemble 30 plaques. It may be that the plates are assembled off-register (crooked) to the backboard. This could be improved by using a fixture to properly align the plate to the backboard. Alternatively, it’s possible misengraved plaques were assembled to backboards and needed to be disassembled, reengraved, and reassembled to new backboards.
