Chapter 3

Job-Order Costing

Exercise 3-1 (10 minutes)

The estimated total manufacturing overhead cost is computed as

follows:

Y = $94,000 + ($2.00 per DLH)(20,000 DLHs)

Estimated fixed manufacturing overhead $ 94,000

Estimated variable manufacturing overhead:
$2.00 per DLH × 20,000 DLHs 40,000
Estimated total manufacturing overhead cost $134,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead $134,000

÷ Estimated total direct labor hours
(DLHs) 20,000 DLHs
= Predetermined overhead rate $6.70 per DLH

Exercise 3-2 (10 minutes)

Actual direct labor-hours 10,800

× Predetermined overhead rate $23.40
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 1

= Manufacturing overhead applied $252,720

Exercise 3-3 (10 minutes)

1. Total direct labor-hours required for Job A-500:

Direct labor cost (a) $108

Direct labor wage rate per hour (b) $12
Total direct labor hours (a) ÷ (b) 9

Total manufacturing cost assigned to Job A-500:

Direct materials $230

Direct labor 108
Manufacturing overhead applied ($14 per DLH
× 9 DLHs) 126
Total manufacturing cost $464
2. Unit product cost for Job A-500:

Total manufacturing cost (a) $464

Number of units in the job (b) 40
Unit product cost (a) ÷ (b) $11.6
0

Exercise 3-6 (20 minutes)

1 Cost of Goods Manufactured
.

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

2 Managerial Accounting, 15th Edition

 Direct materials:
Raw materials inventory, beginning $12,00
0
Add: Purchases of raw materials 30,000
Total raw materials available 42,000
Deduct: Raw materials inventory,
ending 18,000
Raw materials used in production 24,000
Less indirect materials included in $ 19,00
manufacturing overhead 5,000 0
Direct labor 58,000
Manufacturing overhead applied to work in 87,00
process inventory 0
Total manufacturing costs 164,00
0
Add: Beginning work in process inventory 56,00
0
220,00
0
Deduct: Ending work in process inventory 65,00
0
Cost of goods manufactured $155,0
00

2 Cost of Goods Sold

.
Finished goods inventory, beginning $ 35,00
0

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 3

 Add: Cost of goods manufactured 155,00
0
Goods available for sale 190,00
0
Deduct: Finished goods inventory, ending 42,00
0
Unadjusted cost of goods sold 148,00
0
Add: Underapplied overhead 4,00
0
Adjusted cost of goods sold $152,0
00
Exercise 3-8 (10 minutes)

Direct material $10,000

Direct labor 12,000
Manufacturing overhead:
$12,000 × 125% 15,000
Total manufacturing cost $37,000
Unit product cost:
$37,000 ÷ 1,000 units $37

Exercise 3-10 (10 minutes)

Yes, overhead should be applied to value the Work in Process

inventory at year-end.

Because $6,000 of overhead was applied to Job V on the basis of

$8,000 of direct labor cost, the company’s predetermined
overhead rate must be 75% of direct labor cost.

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

4 Managerial Accounting, 15th Edition

Job W direct labor cost (a) $4,000
Predetermined overhead rate (b) 0.75
Manufacturing overhead applied to Job W (a) × (b) $3,000

Exercise 3-11 (30 minutes)

1. Mason Company’s schedule of cost of goods manufactured is

as follows:

Direct materials:
Beginning raw materials inventory $ 7,000
Add: Purchases of raw materials 118,000
Raw materials available for use 125,000
Deduct: Ending raw materials inventory 15,000
Raw materials used in production $110,00
0
Direct labor 70,000
Manufacturing overhead 90,000
Total manufacturing costs 270,000
Add: Beginning work in process inventory 10,000
280,000
Deduct: Ending work in process inventory 5,000
Cost of goods manufactured $275,00
0

2. Mason Company’s schedule of cost of goods sold is as follows:

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 5

 Beginning finished goods inventory $ 20,000
Add: Cost of goods manufactured 275,000
Goods available for sale 295,000
Deduct: Ending finished goods inven- 35,000
tory
Unadjusted cost of goods sold $260,00
0
Deduct: Overapplied overhead $10,000
Adjusted cost of goods sold $250,00
0

3.
Mason Company
Income Statement

$524,00
Sales 0
Cost of goods sold ($260,000 – $10,000) 250,000
Gross margin 274,000
Selling and administrative expenses:
$140,00
Selling expenses 0
203,00
Administrative expense 63,000 0
$ 71,00
Net operating income 0
Exercise 3-12 (15 minutes)

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

6 Managerial Accounting, 15th Edition

 $473,00
1. Actual manufacturing overhead costs 0
Manufacturing overhead cost applied: 485,00
19,400 MH × $25 per MH 0
$
Overapplied overhead cost 12,000

2. Direct materials:
Raw materials inventory, beginning $ 20,000
Add purchases of raw materials 400,000
Raw materials available for use 420,000
Deduct raw materials inventory,
ending 30,000
Raw materials used in production 390,000
$375,00
Less indirect materials 15,000 0
Direct labor 60,000
Manufacturing overhead cost applied
to work in process 485,000
Total manufacturing costs 920,000
Add: Work in process, beginning 40,000
960,000
Deduct: Work in process, ending 70,000
$890,00
Cost of goods manufactured 0

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 7

Exercise 3-13 (30 minutes)

1. Units Manufactur-
ing Over-
Produced head
High activity level (First quar- 80,000 $300,000
ter)
Low activity level (Third quar- 20,000 180,000
ter)
Change 60,000 $120,000

Variable cost = Change in cost ÷ Change in activity

= $120,000 ÷ 60,000 units

= $2.00 per unit produced

$300,00
Total overhead cost (First quarter) 0
Variable cost element ($2.00 per unit × 80,000 160,00
units) 0
$140,00
Fixed cost element 0

These fixed and variable cost estimates can be used to esti-

mate the total manufacturing overhead cost for the fourth
quarter as follows:

Y = $140,000 + ($2.00 per unit)(60,000 units)

Estimated fixed manufacturing overhead $140,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

8 Managerial Accounting, 15th Edition

 Estimated variable manufacturing overhead 120,00
$2.00 per unit × 60,000 units 0
Estimated total manufacturing overhead cost $260,000

Total manufacturing cost and unit product cost:

Direct materials $180,000
Direct labor 96,000
Manufacturing overhead 260,000
Total manufacturing costs $536,000
÷ Number of units to be produced 60,000
= Unit product cost (rounded) $8.93

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 9

Exercise 3-13 (continued)

2. The fixed portion of the manufacturing overhead cost is

causing the unit product costs to fluctuate. The unit product
cost increases as the level of production decreases because the
fixed overhead is spread over fewer units.

3. The unit product cost can be stabilized by using a

predetermined overhead rate that is based on expected
activity for the entire year. The cost formula created in
requirement 1 can be adapted to compute the annual
predetermined overhead rate. The annual fixed manufacturing
overhead is $560,000 ($140,000 per quarter × 4 quarters). The
variable manufacturing overhead per unit is $2.00. The cost
formula is as follows:

Y = $560,000 + $2.00 per unit × 200,000 units

Estimated fixed manufacturing overhead $560,000

Estimated variable manufacturing overhead
$2.00 per unit × 200,000 units 400,000
Estimated total manufacturing overhead cost $960,000

The annual predetermined overhead rate is computed as

follows:

Estimated total manufacturing over- $960,00

head 0
÷ Estimated total units produced 200,000
= Predetermined overhead rate $4.80 per unit

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

10 Managerial Accounting, 15th Edition

 Using a predetermined overhead rate of $4.80 per unit, the unit
product costs would stabilize as shown below:

Quarter
First Second Third Fourth
$240,00 $120,00 $ $180,00
Direct materials 0 0 60,000 0
Direct labor 128,000 64,000 32,000 96,000
Manufacturing over-
head:
at $4.80 per unit, 384,000 192,000 96,000 288,000
$752,00 $376,00 $188,00 $564,00
Total cost 0 0 0 0
Number of units pro-
duced 80,000 40,000 20,000 60,000
Unit product cost $9.40 $9.40 $9.40 $9.40

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 11

Exercise 3-14 (20 minutes)

1. The estimated total manufacturing overhead cost is computed

as follows:

Y = $650,000 + ($3.00 per MH)(100,000 MHs)

Estimated fixed manufacturing overhead $650,000

Estimated variable manufacturing overhead:
$3.00 per MH × 100,000 MHs 300,000
Estimated total manufacturing overhead cost $950,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing over- $950,000

head
÷ Estimated total machine-hours 100,000 MHs
(MHs)
= Predetermined overhead rate $9.50 per MH

2. Total manufacturing cost assigned to Job 400:

Direct materials $ 450

Direct labor 210
Manufacturing overhead applied ($9.50 per
MH × 40 MHs) 380
Total manufacturing cost $1,040

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

12 Managerial Accounting, 15th Edition

3. Computing underapplied/overapplied overhead:

Actual manufacturing overhead $1,350,0

(a) 00
Actual machine-hours 146,000
× Predetermined overhead rate $9.5
0
= Manufacturing overhead applied $1,387,0
(b) 00
Overapplied overhead (a) – (b) $ (37,00
0)

The closing entry would decrease cost of goods sold by $37,000

and increase net operating income by $37,000.

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 13

Exercise 3-15 (15 minutes)

1. Cutting Department:

The estimated total manufacturing overhead cost in the Cutting

Department is computed as follows:

Y = $264,000 + ($2.00 per MH)(48,000 MH)

Estimated fixed manufacturing overhead $264,000

Estimated variable manufacturing overhead
$2.00 per MH × 48,000 MHs 96,000
Estimated total manufacturing overhead cost $360,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing over- $360,00

head 0
÷ Estimated total machine-hours 48,000 MHs
= Predetermined overhead rate $7.50 per MH

Finishing Department:

The estimated total manufacturing overhead cost in the

Finishing Department is computed as follows:

Y = $366,000 + ($4.00 per DLH)(30,000 DLH)

Estimated fixed manufacturing overhead $366,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

14 Managerial Accounting, 15th Edition

 Estimated variable manufacturing overhead 120,00
$4.00 per DLH × 30,000 DLHs 0
Estimated total manufacturing overhead cost $486,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing over- $486,00

head 0
÷ Estimated total direct labor-hours 30,000 DLHs
= Predetermined overhead rate $16.20 per DLH

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 15

Exercise 3-15 (continued)

2. Total manufacturing cost assigned to Job

203:
Direct materials ($500 + $310) $810
Direct labor ($70 + $150) 220
Cutting Department (80 MHs × $7.50 per
MH) $600
Finishing Department (20 DLH × $16.20
per DLH) 324 924
Total manufacturing cost $1,954

3. Yes; if some jobs require a large amount of machine time and a

small amount of labor time, they would be charged
substantially less overhead cost if a plantwide rate based on
direct labor hours were used. It appears, for example, that this
would be true of Job 203 which required considerable machine
time to complete, but required a relatively small amount of
labor hours.

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

16 Managerial Accounting, 15th Edition

Problem 3-22 (30 minutes)

1. The predetermined overhead rate was:

Y = $795,000 + $1.40 per hour × 75,000 hours

Estimated fixed manufacturing overhead $795,000

Estimated variable manufacturing overhead
$1.40 per computer hour × 75,000 hours 105,000
Estimated total manufacturing overhead cost $900,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing over- $900,000

head
÷ Estimated total computer hours 75,000 hours
= Predetermined overhead rate $12.00 per
hour

2. Actual manufacturing overhead cost $850,000

Manufacturing overhead cost applied to
Work in Process during the year: 60,000
actual MHs × $12 per MH 720,000
Underapplied overhead cost $130,000

3. Cost of Goods Sold 130,000

Manufacturing Overhead 130,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 17

4. The underapplied balance would be allocated using the
following percentages:

Overhead applied during the year

in:
Work in process $ 36,000 5%
Finished goods 180,000 25 %
Cost of goods sold 504,000 70 %
Total $720,000 100 %

The entry to record the allocation of the underapplied overhead

would be:

Work in Process (5% × $130,000) 6,500

Finished Goods (25% × $130,000) 32,500
Cost of Goods Sold (70% ×
$130,000) 91,000
Manufacturing Overhead 130,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

18 Managerial Accounting, 15th Edition

Problem 3-22 (continued)

5. Comparing the two methods:

Cost of goods sold if the underapplied over-

head is closed directly to cost of goods sold
($1,400,000 + $130,000) $1,530,000
Cost of goods sold if the underapplied over-
head is allocated among the accounts
($1,400,000 + $91,000) 1,491,000
Difference in cost of goods sold $ 39,000

Thus, net operating income will be $39,000 greater if the under-

applied overhead is allocated rather than closed directly to cost of
goods sold.

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 19

Problem 3-23 (30 minutes)

Schedule of cost of goods manufactured:

Direct materials:
Raw materials inventory, beginning* $
40,000
Add: Purchases of raw materials* 290,000
Raw materials available for use 330,000
Deduct: Raw materials inventory, 10,000
ending*
Raw materials used in production $320,00
0
Direct labor 78,000
Manufacturing overhead applied* 285,000
Total manufacturing costs* 683,000
Add: Work in process inventory, begin- 42,000
ning
725,000
Deduct: Work in process inventory, 35,000
ending*
Cost of goods manufactured $690,00
0

Schedule of cost of goods sold:

Finished goods inventory, beginning* $

50,000
Add: Cost of goods manufactured 690,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

20 Managerial Accounting, 15th Edition

 Cost of goods available for sale* 740,000
Deduct: Finished goods inventory, end- 80,000
ing
Unadjusted cost of goods sold* 660,000
Deduct: Overapplied overhead 15,000
Adjusted cost of goods sold $645,00
0

Income statement:

$915,00
Sales 0
Cost of goods sold ($660,000 – 645,00
$15,000) 0

Gross margin 270,000

Selling and administrative expenses:

$140,00
Selling expenses* 0
240,00
Administrative expense* 100,000 0
$ 30,00
Net operating income* 0

* Given in the problem

Problem 3-24 (30 minutes)

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 21

1. Molding Department:

The estimated total manufacturing overhead cost in the

Molding Department is computed as follows:

Y = $497,000 + $1.50 per MH × 70,000 MH

Estimated fixed manufacturing overhead $497,000

Estimated variable manufacturing overhead: 105,00
$1.50 per MH × 70,000 MHs 0
Estimated total manufacturing overhead cost $602,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing over- $602,00

head 0
÷ Estimated total machine-hours 70,000 MHs
= Predetermined overhead rate $8.60 per
MH

Painting Department:

The estimated total manufacturing overhead cost in the

Painting Department is computed as follows:

Y = $615,000 + $2.00 per DLH × 60,000 DLH

Estimated fixed manufacturing overhead $615,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

22 Managerial Accounting, 15th Edition

 Estimated variable manufacturing overhead:
$2.00 per DLH × 60,000 DLHs 120,000
Estimated total manufacturing overhead cost $735,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing over- $735,00

head 0
÷ Estimated total DLHs 60,000 DLHs
= Predetermined overhead rate $12.25 per
DLH

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 23

Problem 3-24 (continued)

2. Molding Department overhead applied:

110 machine-hours × $8.60 per ma-
chine-hour $ 946
Painting Department overhead applied:
84 direct labor-hours × $12.25 per DLH 1,029
Total overhead cost $1,975

3. Total cost of Job 205:

Molding Painting
Dept. Dept. Total
Direct materials $ 470 $ 332 $ 802
Direct labor 325 588 913
Manufacturing overhead ap-
plied 946 1,029 1,975
Total cost $1,741 $1,949 $3,690

Unit product cost for Job 205:

Total manufacturing cost $3,690
÷ Number of units in the job 50 units
= Unit product cost $73.80 per unit

4. Molding Painting
Dept. Dept.
Manufacturing overhead incurred $570,000 $750,000
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

24 Managerial Accounting, 15th Edition

 Manufacturing overhead applied:
65,000 MHs × $8.60 per MH 559,000
62,000 direct labor-hours ×
$12.25 per direct labor-hour 759,500
Underapplied (or overapplied) over-
head $ 11,000 $ (9,500)

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 25

Problem 3-25 (60 minutes)

1. a.

b. Before the underapplied or overapplied overhead can be

computed, we must determine the amount of direct
materials used in production for the year.

Raw materials inventory, beginning $ 20,000

Add, Purchases of raw materials 510,000
Raw materials available 530,000
Deduct: Raw materials inventory, ending 80,000
Raw materials used in production $450,000

Actual manufacturing overhead costs:

Indirect labor $170,000
Property taxes 48,000
Depreciation of equipment 260,000
Maintenance 95,000
Insurance 7,000
Rent, building 180,000
Total actual costs 760,000
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

26 Managerial Accounting, 15th Edition

 Applied manufacturing overhead costs:
$450,000 × 160% 720,000
Underapplied overhead $ 40,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 27

Problem 3-25 (continued)

2. Gitano Products
Schedule of Cost of Goods Manufactured

Direct materials:
$
Raw materials inventory, beginning 20,000
Add purchases of raw materials 510,000
Total raw materials available 530,000
Deduct raw materials inventory, ending 80,000
$ 450,00
Raw materials used in production 0
Direct labor 90,000
Manufacturing overhead applied to work
in process 720,000
Total manufacturing costs 1,260,000
Add: Work in process, beginning 150,000
1,410,000
Deduct: Work in process, ending 70,000
$1,340,00
Cost of goods manufactured 0

3. Unadjusted cost of goods sold:

Finished goods inventory, beginning $ 260,000
Add: Cost of goods manufactured 1,340,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

28 Managerial Accounting, 15th Edition

 Goods available for sale 1,600,000
Deduct: Finished goods inventory, ending 400,000
$1,200,00
Unadjusted cost of goods sold 0

The underapplied overhead can either be closed out to Cost of

Goods Sold or allocated between Work in Process, Finished
Goods, and Cost of Goods Sold based on the overhead applied
during the year in the ending balance in each of these
accounts.

4. Direct materials $ 8,500

Direct labor 2,700
Overhead applied ($8,500 × 160%) 13,600
Total manufacturing cost $24,800

$24,800 × 125% = $31,000 price to the customer

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

Solutions Manual, Appendix 3B 29

Problem 3-25 (continued)

5. The amount of overhead cost in Work in Process was:

$24,000 direct materials cost × 160% = $38,400

The amount of direct labor cost in Work in Process is:

Total ending work in process $70,000

Deduct: Direct materials $24,000
Manufacturing overhead 38,400 62,400
Direct labor cost $ 7,600

The completed schedule of costs in Work in Process was:

Direct materials $24,000

Direct labor 7,600
Manufacturing overhead 38,400
Work in process inventory $70,000

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.

30 Managerial Accounting, 15th Edition