Question

Chapter 17 review

2.) What types of companies use job order costing systems?

4.) What is the purpose of a job cost record?

6.) A job was started on May 15, completed on June 27, and delivered to the customer on July 6. In which accounts would the costs be recorded on the financial statements dated May 31, June 30, and July 31?

8.) What is the purpose of the raw materials subsidiary ledger? How is it related to the general ledger?

10.) Give the journal entry for direct and indirect labor costs incurred. Explain how this transaction affects the accounting equation.

12.) What is the predetermined overhead allocation rate?

14.) How is manufacturing overhead allocated to jobs?

16.) Explain the journal entry for the allocation of overhead. What accounts are affected? Are they increased or decreased?

18.) Why does the sale of a completion job require two journal entries? What are they?

20.) If a company incurred $5,250 in actual overhead costs and allocated $5,575 to jobs, was the overhead account for overallocated or underallocated? By how much?

22.) Explain the terms accumulate, assign, allocate, and adjust as they apply to job order costing.

24.) How is the predetermined overhead allocation rate used by service companies?

Answer 1

2.The way job order costing is used can often vary depending on the specific business using this system. Below are examples of different types of companies using job order costing systems to track inventory and how the process differs.

Retail companies

Law firms and accounting businesses

Medical services

Film studios

Construction companies

4. Purpose of Job cost record:

Job cost record is a cost sheet . It includes direct material cost , direct labor costs and overhead costs for an individual job

It helps tracking those costs , it shows total cost incurred for an job or order

Would a company use a job cost sheet?

Well, because job cost sheets explain where expenses occurred, and therefore, customers are able to easily understand what they paid for. Every time a cost is incurred, it is recorded on the sheet.

A job cost sheet is also a great tool for companies that make bids for jobs. Some businesses have to submit a bid, or cost estimate, to a hiring company that describes for how much they can complete a job.

For instance, if an airport is looking for a company to remove snow during the winter months, snow removal companies would decide how much it would cost them to remove the snow and then place a bid for the contract. When a company is chosen to remove the snow, that company can then use a job cost sheet to compare what they contracted to complete the job with what it actually cost them.

6. The job will be posted in work in progress a/c as the job is not yet completed and the job started but not ended.

May 31 : job costs will be shown as work in process inventory in the Balance Sheet

June 30 : the job cost shown as finished goods inventory in the balance sheet

July 31 : the job cost will shown as COGS in the income statement .

8. Raw Material Subsidiary Ledger : It is a consolidated statement shows purchase , issue , and balance of raw material for a particular period
Helps un tracking of the raw material inventory information . It helps in better control of the raw material usage in the production

The use of raw materials subsidiary ledger allows for better control of inventory as it helps track the quantity and cost of each type of material used in production. A subsidiary ledger contains the details of a general ledger account and the sum of the accounts in the subsidiary ledger equals the balance in the general ledger account.

10. This transaction increases assets (Work-in-Process Inventory), increases liabilities (Wages Payable), and decreases equity (Manufacturing Overhead).

Direct Labor cost : refers to the payment of wages to the workers who are involved in the process of production.

it debit WIP inventory and credits the wages payable

Indirect Labor Cost : refers to payment of wages to the workers who do not directly contribute to the process of production --> transfer to manufactured OH

It debit the manufactured OH and credits wages payable account

12. Predetermined Manufacturin overhead rate= Estimated Manufacturing OH cost / Estimated quantity of OH allocation base rate which is used for the allocation of manuf. OH to work in process inventory .

Formula: Estimated OH Cost / Allocation Base

14.

Step 1- Add up total overhead

Step 2-Compute the overhead allocation rate by dividing total overhead by the number of direct labor hours.

Step 3-Apply overhead by multiplying the overhead allocation rate by the number of direct labor hours needed to make each job.

16. WIP Inventory increased/ Debit and Manufacturing OH decrease / Credit

18. 1st Step: recording SR

AC Rev. Debit / SR Credit

2nd Step. : Transferring the cost of a completed job to cost of goods sold .

- when a job is completed . the cost of transferred to FG Inventory. While selling the goods the cost will be transferred to FG inventory to COGS account

COGS Debit / FG inventor y Credit

20. Overallocated OH occurs when actual manufacturin overhead costs are less than allocated manufacturing costs . This is caused by the gat that overhead is allocated using a predetermines oh

So overheads are Overallocated

Subtract them.

22.

-Accumulate : assembling of the various cost incurred. Cost incurred for a specific job are accumulated to cal the total cost of the job.

-Assign : direct tracing of costs to the job. Direct costs incurred are assigned to the job for the cal of the total cost of the job

-Allocate: refers to the distribution of various indirect costs to the job. All indirect costs or manuf. oh cost are allocated particular job for the cal of the total cost of the job

-Adjust : adjustment of the manufactured oh at the end of the period . The under applied or over applied oh cost is adjusted at the end of a particular period.

Under or Over applied OH : different bw actual and applied oh

Under applied or Oh cost : If the actual oh incurred is more than the oh applied during a particular period , then it is case of under applied of OH cost

Over applied of OH cost: If the actual oh incurred is less than the over head applied during a particular period , then it is a case of over applied of overhead cost

24. Predetermined OH rate: rate used for allocation of manuf. OH to WIP inventory.

Formula : Predetermined OH rate = Estimated OH Cost / Allocation base

Use of predetermined Overhead rate by service organization: to allocate indirect costs to the individual job

it helps cal total cost of the individual job

indirect costs are allocated to jobs using the predetermined oh allocation rate