COST ACCOUNTING

PRODUCT COSTING – JOB ORDER COSTING

THEORIES

1. Which of thee following statements concerning the comparison among actual

costing, normal costing and standard costing is correct?
a. Actual costing system values manufactured products with the actual material
costs, actual direct labor costs, and actual manufacturing overhead costs.
b. Normal costing systems values manufactured products with the actual material
cost, actual direct labor costs and manufacturing overhead based on a
predetermined manufacturing overhead rate with possible over/under applied
application of factory overhead to be closed to costs of goods sold only if
insignificant or to be closed prorated to cost of goods sold, work in process
and finished goods inventory if significant.
c. Standard costing system values manufactured goods with predetermined material
cost, predetermined labor cost, and a predetermined manufacturing overhead
costs with the possible over/under applied of factory overhead to be closed
to costs of goods sold only if insignificant or to be closed prorated to cost
of goods sold, work in process and finished goods inventory if significant.
d. All of the above

2. When shall the job order costing be used instead of process costing?
a. When the production process performs standardized or uniform procedures
b. When the company performs a very long production runs
c. When the company intends to use it for billing customers
d. When the company produces low-value and homogeneous products

3. When shall the process costing to be used instead of job order costing?
a. When the production process performs standardized or uniform procedures
b. When the company performs a very short production runs that is based on
customer specifications
c. When the company intends to us it for billing customers
d. When the company produces high – value and heterogenous products

4. Which of the following statements concerning in a job – order costing is

correct?
a. If the scrap is significant, the realizable value of the scrap is
recognized as revenue at the time it is sold
b. If the scrap is insignificant but traceable to the job that yielded the
scrap, the net realizable value of the scrap shall be recorded as a
deduction from cost of that specific job
c. If the scrap is insignificant but common to all jobs, the net realizable
of scrap shall be credited to manufacturing overhead control
d. If the scrap is significant the net realizable value shall be capitalized
as inventory of scrap with credit going to specific job if traceable to a
particular job or manufacturing control if common to all jobs
e. All of the above

5. Which of the following statements concerning rework costs in a job – order

costing is correct?
a. If the normal rework cost is attributable to a specific job, it shall be
capitalized to that particular job
b. If the normal rework cost is common to all jobs, it shall be debited to
manufacturing overhead control
c. If the rework is abnormal, it shall be recorded as period cost or expense
d. All of the above
 6. Which of the following statement concerning spoilage in a job-order costing
is correct?
a. The cost of abnormal spoilage is recorded as period cost or expense.
b. When normal spoilage occurs because of the specification of a particular
job, cost of normal loss shall be capitalized to that specific job reduced
by the current disposal value / net realizable value of the spoiled units
c. When normal spoilage is a characteristic of a given production cycle, the
cost of normal loss is not charged to a specific job but will be closed to
manufacturing overhead control account
d. All of the above

PROBLEMS

1. Product costing Inc. is employing normal costing for its job orders. The
overhead is applied using an overhead rate application. The following
information relates to LMS Inc. for the year ended December 31, 2020

JOB JOB JOB

Actual Normal Standard
Job in process, January 1, 2020
Direct Materials 40,000 30,000 0
Direct Labor 60,000 40,000 0
Factory Overhead 30,000 20,000 0
Cost Added during 2020
Direct Materials 20,000 10,000 100,000
Direct Labor 100,000 200,000 400,000
Factory Overhead ? ? ?

Additional information:

a. Actual overhead for the year 2020 amounted to 350,000

b. Jobs Actual and Normal were completed and transferred to finished goods
during the year 2020
c. Jobs actual was sold during year 2020
d. The gross profit rate is 20% based on cost

Required:
a. Provided the relevant journal entries for year 2020
b. What is the total manufacturing cost for 2020?
c. What is the cost of goods manufactured for 2020?
d. What is the cost of goods sold for 2020?
e. What is the gross profit for 2020?
f. What are the cost of work in process on December 31, 2020 and the cost of
finished goods on December 31, 2020, respectively?

2. REQUIRED LMS Inc. employs normal costing for its production. The following
data are provided during the current year

Net purchases of raw materials during the year 500,000

Total labor costs during the year 800,000
Depreciation of factory assets during the year 100,000
Utilities on the factory during the year 300,000

Beginning Ending
Raw materials inventory 200,000 300,000
Work in process inventory 500,000 200,000
Finished goods inventory 600,000 300,000
 Additional information:
a. The entity uses a single account for its direct material and indirect
materials. Indirect material is one fourth of the total materials used
b. The indirect labor is 1/7 of the total labor cost
c. The overhead application rate is 80% of direct labor costs
d. Any over or under application of overhead is considered material.

Required:
a. Relevant journal entries for the year
b. What is the total manufacturing cost during the current year?
c. What is the cost of goods manufactured during the current year?
d. What is the over/under application of overhead?

3. LMS FOR THE WIN Inc. applies factory overhead as follows:

Department Per Machine hour

Fabricating 10
Spreading 20
Packaging 30
Actual machine hours are:
Fabricating – 2,000 hours
Spreading – 1,500 hours
Packaging – 3,000 hours

The following additional data are provided:

a. The actual factory overhead expense for the period is 100,000
b. The ending balances of the inventories and cost of goods sold after the
application of overhead are as follows:
Raw materials 200,000
Work in Process 100,000
Finished goods 400,000
Cost of goods sold 500,000
c. The over/under applied overhead during the period is considered material
if at least 30% of actual factory overhead

Required: What is the adjusted cost of goods sold after closing the
under/over application of factory overhead?

4. For the year ended December 31, 2020, LMS PARA SA KINABUKASAN Inc. incurred
the following costs on Job LMS for manufacturing 500 units:

Original cost accumulation:

Direct materials 500,000
Direct labor 400,000
Factory overhead 100,000

Direct cost of reworking 100 units:

Direct material 100,000
Direct labor 200,000

Required:
a. What is the cost per unit of Job Order LMS if the rework cost were
attributable to the exacting specification of Job Order LMS?
b. What is the cost per unit of Job Order LMS if the rework cost were
attributable to internal failure?
5. THE BEST LMS Inc. has completed JOB LMS, containing 1,100 shoes, during 2020
at the following unit costs
Direct Materials 2,000
Direct Labor 1,000
Factory overhead (including allowance of 300 for spoiled work) 1,300

Final inspection of JOB LMS disclosed 100 spoiled shoes which were sold to LMS
department for 200,000

Required:
a. What is the unit cost of the good shoes produced on JOB LMS if spoilage loss
is charged to all production?
b. What is the unit cost of the goods shoes produced on JOB LMS if spoilage loss
is charged to specific JOB LMS?