Chapter 5

[CE5.1]

1.PredeterminedOverheadRate

Budgeted(estimated)totaloverhead=$260,000=$0.52perDLCost
Budgeted(estimated)totalactivity(DLCost) $500,000*(or52%ofDLCost)
*BudgetedDLcost=BudgetedDLHAveragewagerate=20,000DLHs$25=$500,000

2.SimpleJobOrderCostSheet

Job39 Job40 Job41 Job42.
Beg.Bal. $23,700 $34,600 $17,000 $0
DM 18,900 21,400 8,350 12,000
DL 10,000 18,500 3,000 2,900
MOHApplied 5,200* 9,620** 1,560*** 1,508****
TotalCost $57,800 $84,120 $29,910 $16,408
*
$0.52$10,000=$5,200
**
$0.52$18,500=$9,620
***
$0.52$3,000=$1,560
****
$0.52$2,900=$1,508

3.PredeterminedOverheadRateIfExpectedDirectLaborRate=$20

Budgeted(estimated)totaloverhead=$260,000=$0.65perDLCost
Budgeted(estimated)totalactivity(DLCost) $400,000*(or65%ofDLCost)
*
BudgetedDLcost=BudgetedDLHExpecteddirectlaborrate=20,000DLHs$20=$400,000

Theappliedoverheadcostsforalljobswouldbeincreasedsincethenew
overheadrateishigherthanbefore.

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[CE5.2]

1.EndingBalanceinWIPInventoryasofJune30

TheWIPInventorywouldincludeonlyunfinishedjobs,andJobs41&42
remainunfinishedattheendofthemonth.Thus,
TheendingbalanceofWIPInventory=TotalcostofJobs41&42
=$29,910+$16,408
=$46,318

2.EndingBalanceinF/GInventoryasofJune30

TheF/GInventorywouldincludefinishedbutunsoldjobs,andJob40was
theonlyjobthatwasfinishedbutnotsoldyetbytheendofthemonth.Thus,
TheendingbalanceofF/GInventory=TotalcostofJob40=$84,120

3.COGSforJune

TheCOGSaccountwouldonlyincludesoldjobs,andJob39wastheonlyjob
thatwassoldduringthemonth.Thus,
TheCOGSamount=TotalcostofJob39=$57,800

4.PriceChargedforJob39

ThesellingpriceofJob39=CostofJob391.3(or130%)=$57,8001.3=$75,140

5.EndingBalancesinF/GInventory&COGSIfJob40WasSold

IfthecustomerforJob40wasabletopayforitbyJune30,theendingbalancein
F/GInventorywouldbezero(0),andCOGSwouldconsistofJobs39and40.
Therefore,theCOGSamountwouldhavebeen$141,920(=$57,800+$84,120).

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[E5.7]

1. EcoScapeshouldusejobordercostingbecauseeachinstallationisunique
andmadetoaspecificorderfromcustomers,andtherebyhavinga
differentcostfromeachother.Materialstobeusedmaydifferfromjobto
job,asmaydirectlaborand/ormanufacturingoverhead.

2.
1)Predeterminedoverheadrate:
Estimatedtotaloverheadcost=$50,400=$7.50perDLH
Estimatedtotalactivity(DLH)6,720DLH

2)Averageactualwagerate:
ActualDLCostActual#ofDLH=$66,4956,045hrs.=$11perDLH

3)Totalcostofaninstallationthattakes$3,500ofDMand20DLH
DM $3,500
DL(=$11perDLH20DLH) 220
MOH(=$7.50perDLH20DLH) 150
TotalCost $3,870

3. EcoScapemayhavedifficultyusinganactualcostingsystem.Thecompany
needstoknowthecostofeachinstallationasitiscompleted.Ifthe
companyusesanactualoverheadratetoapplyoverheadcosts,thenit
needstostopitscostingworkatsomepointandwaituntiltheendofthe
periodbecausetheactualoverheadratecanbedeterminedonlyatthat
time.Sinceactualoverheadisincurredunevenlythroughouttheyearand
certainoverheadbillsarriveaftertheneedforunitproductcostsoccurs,
overheadmustbeappliedtoproductionusingapredetermined(budgeted)
overheadrateratherthananactualoverheadrate.

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[E5.11]
Abetterwaytoanswerthequestionsofthisproblemwouldbeprepareajob
ordercostsheetforeachgivenjob,sothetotalmanufacturingcostaccumulated
ineachindividualjobcanbeeasilydeterminedfromthissubsidiarydocument.
Belowisthesimplifiedjobordercostsheetpreparedforeachgivenjob.
<JobOrderCostSheets>
Job78 Job79 Job80
Beg.Bal.
DM $1,560 $990 $2,400
DL 3,000 3,000 3,300
MOHApplied 1,848* 1,680** 3,360***
TotalCost $6,408 $5,670 $9,060
*
$8.4220DLH=$1,848
**
$8.4200DLH=$1,680
***
$8.4400DLH=$3,360

1.PerUnitCostofJobs78&79
Job78:$6,408200units=$32.04perunit
Job79:$5,670180units=$31.50perunit

2.EndingBalanceinWIPInventory
TheWIPInventorywouldincludeonlyunfinishedjobsandJob80wasthe
onlyjobthatwasstillinprogressattheendofthemonth.Thus,
TheendingbalanceofWIPInventory=TotalcostofJob80=$9,060

3.JournalEntries
CompletionofJobs78&79:
FinishedGoods 12,078(=$6,408+5,670)
WorkInProcess 12,078
SaleofJob79:
CostofGoodsSold 5,670
FinishedGoods 5,670
Cash(orAccountsReceivable) 7,938(=1.4$5,670)
Sales 7,938

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[E5.12]

1.PredeterminedOverheadRatebasedonDLCost
AppliedOverhead=PredeterminedOverheadRateActualActivity(DLCost
inthisparticularcase)
PredeterminedOverheadRate=AppliedOverheadActualActivity(DLCost)
Thus,usingtheinformationabouttheappliedoverheadonJob114,the
predeterminedoverheadratecanbeinferredasfollows(anyofthe3jobscanbe
usedforthiscalculationsincetheoverheadrateshouldbethesameacrossall3jobs):
Predeterminedoverheadrate=$1,170$1,800DLCost=0.65perDLCost
(or65%ofDLCost)

2.EndingBalance(i.e.,TotalManufacturingCost)forEachJobasofApril30
Job114 Job115 Job116
Beg.Bal. $5,3811) $5,2142) $10,7453)
DM 16,500 12,200 5,000
DL 1,8004) 3,0805) 1,4406)
AppliedOH 1,1707) 2,0028) 9369)
Total $24,851 $22,496 $18,121
1) 6)
$2,411+$1,800+$1,170=$5,381 80DLHs$18perDLH=$1,440
2) 7)
$2,640+$1,560+$1,014=$5,214 $0.65perDLCost$1,800=$1,170
3) 8)
$3,650+$4,300+$2,795=$10,745 $0.65perDLCost$3,080=$2,002
4) 9)
150DLHs$12perDLH=$1,800 $0.65perDLCost$1,440=$936
5)
220DLHs$14perDLH=$3,080

3.EndingBalanceofWIPInventoryasofApril30
JobsstillremaininginWIPInventoryonApril30=Jobs114&116
Thus,theendingbalanceofWIPInventory=$24,851+$18,121=$42,972

4.COGSforApril
JobsoldduringApril=Job115
Thus,COGS=$22,496

5.PriceoftheJobSold
CostofthejobsoldduringApril(i.e.,Job115)=$22,496
Thus,thesellingpriceofthejobsold=$22,4961.25(or125%)=$28,120
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[E5.13]

1.JournalEntriesforApriltransactions

a. RawMaterials 29,000
AccountsPayable 29,000
b. WorkInProcess 33,700(=$16,500+$12,200+$5,000)
RawMaterials 33,700
c. WorkInProcess 6,320(=$1,800+$3,080+$1,440)
WagesPayable 6,320
d. WorkInProcess 4,108(=$1,170+$2,002+$936)
ManufacturingOverhead 4,108
e. ManufacturingOverhead 4,415
VariousAccounts 4,415
f. FinishedGoods 22,496
WorkInProcess 22,496
g. CostofGoodsSold 22,496
FinishedGoods 22,496
AccountsReceivable 28,120(=1.25$22,496)
SalesRevenue 28,120

2.EndingBalanceofEachInventoryaccountasofApril30

RawMaterials WorkInProcess
Beg.Bal.12,730 (b)33,700 Beg.Bal.21,340(f) 22,496
(a) 29,000 (b)33,700
8,030 (c) 6,320
(d) 4,108
42,972

FinishedGoods
Beg.Bal.8,700 (g)22,496
(f) 22,496
8,700

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[E5.14]

1.PredeterminedOverheadRatebasedonDLCost
AppliedOverhead=PredeterminedOverheadRateActualActivity(DLCost)
PredeterminedOverheadRate=AppliedOverheadActualActivity(DLCost)
Thus,usingtheinformationabouttheappliedoverheadonJob70,thepredetermined
overheadratecanbeinferredasfollows(anyofthe3jobscanbeusedforthis
calculationsincetheoverheadrateshouldbethesameacrossall3jobs):
Predeterminedoverheadrate=$1,425$1,900DLCost=0.75perDLCost
(or75%ofDLCost)

2.EndingBalance(i.e.,TotalManufacturingCost)forEachJobasofAugust31
Job70 Job71 Job72 Job73Job74Job75Job76
Beg.Bal. $4,9251) $4,2752) $2,4253)
DM 800 1,235 3,550 $5,000$300 $560$80
DL 1,000 1,400 2,200 1,800600 860172
AppliedOH 7504) 1,0505) 1,6506) 1,3507)4508) 6459)12910)
Total $7,475 $7,960 $9,825 $8,150$1,350 $2,065$381
1) 6)
$1,600+$1,900+$1,425=$4,925 $2,2000.75=$1,650
2) 7)
$2,000+$1,300+$975=$4,275 $1,8000.75=$1,350
3) 8)
$850+$900+$675=$2,425 $6000.75=$450
4) 9)
$1,0000.75=$750 $8600.75=$645
5)
$1,4000.75=$1,050 10)$1720.75=$129

3.EndingBalanceofWIPasofAugust31
JobsstillremaininginWIPonAugust31=Jobs71,74&76
Thus,theendingbalanceofWIP=$7,960+$1,350+$381=$9,691

4.COGSforAugust
JobsoldduringAugust=Jobs72&75
Thus,COGS=$9,825+$2,065=$11,890

5.SalesRevenueforAugust
TotalcostofthejobssoldduringAugust(i.e.,Jobs72&75)=$11,890
Thus,salesrevenue=$11,8901.20(or120%)=$14,268

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[E5.19]
1.JournalEntries
a. RawMaterials 113,300(=$98,500+$14,800)
AccountsPayable 113,300
b. WorkInProcess 82,500
ManufacturingOverhead 8,800
RawMaterials 91,300
c. WorkInProcess 67,000
ManufacturingOverhead 18,750
WagesPayable 85,750
d. ManufacturingOverhead 46,200
VariousPayables 46,200
e. WorkInProcess 73,700(=1.1$67,000)
ManufacturingOverhead 73,700
f. FinishedGoods 230,000
WorkInProcess 230,000
g. CostofGoodsSold 215,000
FinishedGoods 215,000
AccountsReceivable 301,000(=1.4$215,000)
SalesRevenue 301,000
h. CostofGoodsSold 50*
ManufacturingOverhead 50
*
Actualoverheadincurred=$8,800(IDM)+$18,750(IDL)+$46,200(Other)=$73,750
Actualoverhead $73,750
Appliedoverhead 73,700
Underappliedvariance $50

2.TaccountforOverheadControl
1)Beforeoverheadvarianceisclosed 2)Afteroverheadvarianceisclosed
ManufacturingOverhead ManufacturingOverhead
(b) 8,800 (e)73,700 (b)8,800 (e)73,700
(c) 18,750 (c) 18,750
(d) 46,200 (d)46,200
*
50 50 (h) 50
*
Underappliedoverheadvariance 0

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3.TaccountforWIPInventory
WorkInProcess
Beg.Bal. 10,000(f) 230,000
(b) 82,500
(c) 67,000
(e) 73,700*
3,200

*
NoactualoverheadcostswereassignedtoWorkInProcessbecausethe
companydoesnotuseanactualcostingsystembutusesanormal
costingsystem(i.e.,applyingoverheadwithapredeterminedoverhead
rate).TheamountassignedtoWorkInProcesswastheapplied
overheadof$73,700whichwasbasedontheestimatedoverheadcost
andactivityinformationavailableatthebeginningoftheperiod.

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[P5.26]

1.JournalEntriestoRecordTransactions
a. RawMaterials 60,100
AccountsPayable 60,100
b. WorkInProcess 50,000
ManufacturingOverhead 8,800
RawMaterials 58,800
c. WorkInProcess 75,000
ManufacturingOverhead 36,000
AdministrativeExpense 28,000
SellingExpense 19,000
Salaries/WagesPayable 158,000
d. ManufacturingOverhead 10,400
AccumulatedDepreciation 10,400
e. ManufacturingOverhead 1,450
TaxesPayable 1,450
f. ManufacturingOverhead 6,200
PrepaidInsurance 6,200
g. ManufacturingOverhead 5,500
UtilitiesPayable(orCash) 5,500
h. SellingExpense 7,900
Cash 7,900
i. AdministrativeExpense 800
SellingExpense 1,650
AccumulatedDepreciation 2,450
j. AdministrativeExpense 750
AccountsPayable 750
k. WIP(=$184,000DLH) 72,000
ManufacturingOverhead 72,000
l. FinishedGoods 160,000
WorkInProcess 160,000

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2.TAccountsforMaterials,Overhead,WIP,&F/G

RawMaterials
Beg.Bal. 7,500 (b) 58,800
(a) 60,100
8,800

ManufacturingOverhead
(b) 8,800 (k) 72,000
(c) 36,000
(d) 10,400
(e) 1,450
(f) 6,200
(g) 5,500
3,650
Overappliedvariance

WorkInProcess
Beg.Bal. 37,000 (l) 160,000
(b) 50,000
(c) 75,000
(k) 72,000
74,000

FinishedGoods
Beg.Bal. 50,000
(l) 160,000
210,000

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3.StatementofCOGM

DMused $50,000
DLincurred 75,000
MOHapplied: IDM 8,800
IDL 36,000
Dep.,Plant&Euip.10,400
PropertyTaxes 1,450
Insurance 6,200
Utilities,Factory 5,500
$68,350
Add:OHVariance 3,650*
72,000
TotalMC $197,000
+Beg.WIP 37,000
End.WIP (74,000)
COGM $160,000

*
Inanormaljobordercosting,overheadisappliedtojobsbasedonthe
predetermined(estimated)overheadrate.Accordingly,thedifference
betweenactualoverheadandappliedoverhead(i.e.,theoverapplied
variance=$3,650)mustbeaddedheretocomputethecostofgoods
manufacturedunderthenormaljobordercosting.

4.
ClosingEntrytoDisposeofEntireOverheadVariancetoCOGS
MOH 3,650
COGS 3,650

Asshowninthejournalentryabove,COGSwilldecreaseby$3,650.

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 Chapter 4
[CE4.2]
1.OverheadVariance&ClosingEntry
MOH
ActualOverhead $470,000
AppliedOverhead 500,000 ActualApplied
OverappliedVariance $30,000 $470,000$500,000

ManufacturingOverhead 30,000
CostofGoodsSold 30,000 Overapplied
Variance
2.AllocationofMaterialOverheadVariance
ProrationRates:
WIP :100,000/500,000=20%
F/G :200,000/500,000=40%
COGS:200,000/500,000=40%
ClosingEntry:
ManufacturingOverhead 30,000
WorkInProcess(20%$30,000) 6,000
FinishedGoods(40%$30,000) 12,000
CostofGoodsSold(40%$30,000)12,000
AdjustedEndingBalancesofWIP,F/G&COGS:
Unadjusted Allocated Adjusted
Account Balance OverheadVar. Balance
WorkInProcess $100,000 $6,000* $94,000
FinishedGoods 200,000 12,000* 188,000
CostofGoodsSold 200,000 12,000* 188,000
*
Subtractedfromtheunadjustedbalanceofeachaccount.

3.ClosingEntriesforOppositeCase(i.e.,UnderappliedVariance)
CostofGoodsSold 30,000
ManufacturingOverhead 30,000
WorkInProcess(20%$30,000) 6,000
FinishedGoods(40%$30,000) 12,000
CostofGoodsSold(40%$30,000)12,000
ManufacturingOverhead 30,000

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[E4.12]

1.PredeterminedOverheadRate:
EstimatedTotalMOH=$5,700,000=$15.20perMH
EstimatedTotalMH375,000MH

2.OverheadVariance:
AppliedOverheadAmount:
PredeterminedOverheadRateActualMH
=$15.20perMH382,500MH
=$5,814,000
ComparisonofActualOverhead&AppliedOverhead
ActualOverhead $5,730,000
AppliedOverhead 5,814,000
OverappliedVariance $84,000

3.JournalEntrytoDisposeofImmaterialOverheadVariance
MOH 84,000
COGS 84,000

4.JournalEntrytoDisposeofMaterialOverheadVariance

ProrationRatesforOverheadVarianceAllocation
WIP :576,000/3,000,000 =19.2%
F/G :624,000/3,000,000 =20.8%
COGS:1,800,000/3,000,000 =60%

ClosingEntrytoDisposeofOverheadVariance
MOH 84,000
WIP(19.2%$84,000) 16,128
F/G(20.8%$84,000) 17,472
COGS(60%$84,000) 50,400

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