Job Order Costing

Homework 2
Job Order Costing

You are to complete this assignment by the time class starts on the due date (indicated in the syllabus or during class).  You are free to use resources or talk with classmates, but all work turned in must be your own. You may type or write/scan and upload to Blackboard, but make sure that I can read everything written down. It is your responsibility to make sure that the correct images have been uploaded.

• Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 20,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $94,000 of fixed manufacturing overhead and variable manufacturing overhead of $2.00 per labor-hour for the upcoming year. At the end of the year, Harris incurred $123,900 in actual manufacturing overhead costs and actual total direct labor was 21,000 hours.

1. What is Harris Fabrics’ predetermined overhead rate for the year?

1. How much was total applied manufacturing overhead costs for Harris Fabrics during the year?

• Jarvis Enterprises recorded the following transactions for the just completed month. The company just started operations (meaning it had no beginning inventories).

1. $94,000 in raw materials were purchased for cash
2. $89,000 in raw materials were requisitioned for use in production. Of this amount, $78,000 was for direct materials and the remainder was for indirect materials
3. Total labor wages of $132,000 were incurred and paid. Of this amount, $112,000 was for direct labor and the remainder was for indirect labor.
4. Additional manufacturing overhead costs of $143,000 were incurred and paid.
5. Manufacturing overhead costs of $152,000 were applied to jobs using the company’s predetermined overhead rate and cost allocation base.
6. All of the jobs in progress at the end of the month were completed and shipped to customers.
7. Any underapplied or overapplied overhead for the period was closed out to Work-in-Process, Finished Goods, and Cost of Goods Sold.

1. Make relevant journal entries for each of the seven transactions/adjustments. If you are unsure, I highly recommend using T-Accounts (best way for partial credit).

1. Determine the cost of goods sold for the period (after under- or over-applied adjustments).

Weave Your Web is a web site production company that creates individualized web sites for customers and hence uses a job-order costing system. The company applies web site design overhead to jobs using a predetermined overhead rate based on direct labor cost. The information below has been taken from the cost records of Weave Your Web:

Indirect Materials Used for Design of Web Sites                                                $60                                         Total Design Costs Applied to Production during the calendar month $1,000

Design Overhead Applied                                                                                            $500

Selling and Administrative Expenses                                                                       $300

Inventories:

Raw Materials, January 1                                                                              $100

Raw Materials, January 31                                                                            $120

Work in Process, January 1                                                                          $350

Work in Process, January 31                                                                        $550

Finished Web Sites, January 1                                                                    $200

Finished Web Sites, January 31                                                                  $120

1. Compute the cost of materials purchased during the month. Assume there are no direct materials at Weave Your Web (given web sites aren’t made up of materials).

1. Compute the predetermined overhead rate that was used during the past month.

1. Compute the Cost of Web Sites Designed (not sold) for the past month.

1. Assume Weave Your Web received a utility bill at the design studio for $250 for January. What would be the correct journal entry to record this bill (which will be paid off later)?

1. Assume actual design overhead was $650. Was overhead under or over applied? By how much? Explain how you would adjust Cost of Web Sites Sold (in words, journal entry, T-Account, whatever) by the amount under or over applied, given Weave Your Web only adjusts the Cost of Web Sites Sold account.

Answer the following multiple choice questions. There is only one correct answer for each question.

• Which of the following entries would correctly record the use of direct and indirect labor in production by a manufacturing company, assuming employees are not paid right away?

1. Work in Process (DL) XXX

Manufacturing Overhead (IDL)             XXX

Wages Payable                                 XXX

1. Work in Process (IDL) XXX

Manufacturing Overhead (DL)              XXX

Wages Payable                                 XXX

1. Work in Process (DL) XXX

Wages Payable (IDL)                  XXX

Manufacturing Overhead             XXX

1. Work in Process (IDL) XXX

Manufacturing Overhead (DL)              XXX

Raw Materials                                   XXX

• Which form is NOT needed in costing each job?

1. Materials Requisition Form
2. Employee Time Ticket
3. Overhead Application Form
4. Job Cost Sheet

• How should one account for nonmanufacturing (period) costs?

1. Compute a predetermined rate and apply the period costs using a cost allocation base that sensibly drives period costs
2. Debit manufacturing overhead, credit cash or payable
3. Debit cost of goods sold, credit cash or payable
4. Expense them as they are incurred, credit cash or payable

• Job 54A7 was recently completed. The following data have been recorded:

Direct Materials                                                $4,200

Direct Labor Hours                                           100 labor hours

Direct Labor Wage Rate                 $10 per hour

Machine Hours                                 200 machine hours

Machine Kilowatt Hours                                1,000 kw hours

The company also has this information below:

Actual Manufacturing Overhead               $25,000

Estimated Manufacturing Overhead       $20,000

Estimated Labor Hours                  1,000 labor hours

Estimated Machine Hours                            1,250 machine hours

Estimated Kilowatt Hours                             5,000 kw hours

The Corporation applies manufacturing overhead on the basis of kilowatt hours. The total cost that would be recorded on the job cost sheet for Job 54A7 would be:

1. $4,000
2. $7,200
3. $9,200
4. $10,200