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Exercise 2-1 (Cost Classification)

Classify each of the following firms and determine which cost accounting system they likely use. Answer
JC for Job Order Costing and PC for Process Costing.
1. Production of beverages
2. Production of sugar
3. Company that manufactures custom bridal gowns
4. Provides public accounting services
5. Pharmaceutical and semiconductor industries
6. Automobile repair shop
7. Designs custom software
8. Health care clinic
9. Engage in road and bridge construction
10. Produce bricks for sale to the public
11. Produce sailboats made to customer specification
12. Produces stained glass windows
13. Company that manufactures blank CD
14. Manufactures hair spray and hand lotion
15. Provides landscaping services for corporations

Exercise 2-2 (True/False)

Instruction: Write T if the statement is TRUE and F if it is FALSE.

1. Job costing manufactures small quantities of identifiable products.


2. In a Job Cost System the cost object is an individual unit, batch or lot of a distinct product or
services.
3. In Job Costing only direct costs are used to determine the cost of jobs.
4. A job cost sheet is a source document, but individual items of the job cost sheet may also have a
source document.
5. Companies typically wait for accurate information regarding actual manufacturing overhead
costs before pricing a job.
6. Work in Process account will be decreased if Direct Material is incurred.
7. Work in Process account tracks the cost of a particular job from start until they are completed.
8. Indirect Material that is requisitioned increase the Work in Process Account.
9. The ending balance of Work in Process Control represents the total costs of all jobs that have
not yet been completed.
10. When actual indirect costs exceed allocated indirect costs, overhead is applied.
11. The overhead accounts are closed or zero at the end of each year.
12. When indirect labor is recorded for a job in process, the work in process is debited.
13. When indirect labor is applied to job in process, the manufacturing overhead account is debited.
14. When manufacturing overhead is charged to a job, the work in process is debited.
15. In job order costing, costs are accumulated for each individual jobs.
Exercise 2-3 (Multiple Choice) Encircle the letter of the BEST answer you will choose.

1. When a job order cost accounting system is used, the cost accumulation is centered on which cost
object:
a. Department
b. Job
c. Item
d. Supervisor

2. Job order cost accounting system is applicable for those companies producing products that are:
a. Homogeneous and in large quantities
b. Homogeneous and in limited quantities
c. Heterogeneous and in limited quantities
d. Heterogeneous and in large quantities

3. The source document that records the amount of raw materials requested and issued for production
is:
a. Job order cost sheet memo
b. Bill of lading
c. Material requisition
d. Interoffice memo

4. The primary or main source document in job order costing is:


a. Material requisition slip
b. Employee’s time sheet
c. Factory overhead analysis sheet
d. Job cost sheet

5. A job cost sheet details the


a. Direct labor cost incurred
b. Direct material purchased and paid
c. Actual indirect overhead costs incurred
d. Indirect labor costs incurred

6. Which of the following items is not included in (charged to) factory overhead?
a. Cost of service departments
b. Cost of marketing departments
c. Cost of maintenance departments
d. Factory depreciation and supplies
7. In a normal costing system, debits to Work in Process Inventory would not be made fore
a. Actual overhead
b. Applied overhead
c. Actual DM
d. Actual DL

8. In job order costing system, the use of indirect material would usually be reflected in the general
ledger as an increase in
a. Material Inventory
b. Work in Process
c. Applied Factory Overhead
d. FOC

9. Two basic costing system for assigning costs to products or services are job costing and process
costing/ The fundamental criterion employed to determine whether job order costing or process
costing should be employed is:
a. Number of cost pools employed to allocate the direct costs to the product or service.
b. Type of base used in allocating the indirect cost pools to the product or service.
c. Proportion of direct costs expended to produce the product or service.
d. The nature and amount of the product or service brought to the marketplace for customer
consumption

10. The cost of materials that have been started into production but are not completely processed
would be found in which inventory account?
a. Supplies Inventory
b. Work in Process Inventory
c. Raw Materials Inventory
d. Finished Goods Inventory
Exercise 2-4 (Cost flows)

Orly Corp. applies overhead to job at a rate of 120% of direct labor cost. On December 31, 2019, a fire
burned many of the firm’s cost records, leaving only the following information:

Direct Material Inventory Work in Process Inventory


Beg Balance 30,750 Beg Balance 68,750 ???
Purchases ??? ??? Direct Mat ???
Direct Labor 225,000
FOH ???
10,250 60,000

Finished Goods Inventory Cost of Goods Sold


Beg Balance 135,000 ???
Goods ??? 1,712,500
Completed

105,000

Required:
1. Supply the missing data in the T-accounts
2. Prepare the Statement of Cost of Goods Manufactured and Cost of Goods Sold Statement

Exercise 2-5 (Manufacturing cost)

The Work in Process account of L. Han Company showed the following:

Work in Process
Jan 1 Balance P250,000 Finished Goods 1,254,500
Direct Material Used 500,000
Direct Labor 400,000
Applied FOH 300,000

Factory overhead is applied to production at a predetermined rate based on direct labor cost. The work
in process on January 31 represents the cost of Job# 888 which has a direct labor cost of P30,000 and
Job#899 with applied factory overhead of P24,000.

Determine the:
1. Predetermined factory overhead rate for the year
2. Cost of direct materials charged to Job #888 and Job #899.
Exercise 2-6 (Manufacturing Cost)

The Work in Process of Bangerz Company showed the following:

Work in Process
Materials 38,750 Finished Goods 93,750
Direct Labor 36,875
Factory Overhead 29,500

Materials charged to the only job still in process amounted to P8,000. Factory overhead is applied at a
predetermined percentage of direct labor cost.

Determine the:
1. Predetermined factory overhead rate.
2. Direct labor cost contained in Finished Goods inventory account.
3. Factory overhead included in Finished Goods inventory account.

Exercise 2-7 (Manufacturing Cost)

The following data are available about Mamita Company who uses job order cost system:

2017 Balances 2018 Balances 2019 Balances


Beginning materials inventory P100,000 P120,000
Ending materials inventory 150,000 110,000
Beginning work in process inventory 300,000 180,000
Ending work in process inventory 240,000 210,000
Direct Labor P200,000
Manufacturing Overhead 400,000
Material purchases 300,000

Required: Determine the cost of goods manufactured in 2018

Exercise 2-8 (Manufacturing Cost)

On December 1, Neil Company had the following inventories: materials, P60,000; work in process –
P30,000; and finished goods – P90,000. During the month, materials purchases totaled P140,000. Direct
Labor for December was P100,000, at a uniform wage of P6.40 per hour. Marketing and Administrative
expenses for the month amounted to 10% of net sales. Inventories on December 31, were as follows:
Materials, P50,000; Work in Process, P20,000; and Finished Goods, P100,000. Net sales for December
totals P500,000. Factory overhead is applied @ P8.00 per direct labor hour.

Determine the following:


1. Prime costs incurred for the month.
2. Conversion costs incurred for the month.
Exercise 2-9 (Cost of Goods Sold Computation)

Job cost records of Kent Company showed the following data:

Total Cost of Job


Job No. Date Started Date Finished Date Sold at June 30
230 May 18 June 12 June 20 P6,000
231 May 20 June 19 June 21 4,000
232 June 7 July 5 July 12 7,000
233 June 10 June 28 July 1 6,500
234 June 19 July 16 July 25 8,000

Compute the:
1. WIP inventory at June 30
2. Finished Goods inventory at June 30
3. Cost of Goods Sold in June

Exercise 2-10 (Manufacturing Cost)

Information concerning Zian Company’s manufacturing activities for November follows:

Inventories
November 1, 2019 November 30, 2019
Finished Goods P30,000
Direct Materials P12,500
Direct Labor P7,500
Machine Time 150 hours
Work in Process 7,500 units 5,000 units
Direct Materials, P2.40 per unit
Direct Labor, P0.80 per unit
Machine Time 120 hours 80 hours
Materials P20,000 P16,250

Total factory costs in November was P450,000, of which P75,000 was direct labor cost. A total of 600
machine hours were used for the month. The company uses a predetermined overhead rate of P100 per
machine hour in assigning factory overhead to Work in Process and Finished Goods inventories.
Materials purchased in November were P217,500 and Freight-In on these purchases totaled P3,750.

Compute the:
1. Cost of Materials used for the month
2. Work in Process at November 30
3. November Cost of Goods Manufactured
4. Finished Goods Inventory at November 30
5. November Cost of Goods Sold
Exercise 2-11 (Manufacturing cost)

Jehu Company uses job order costing. At the beginning of May, two jobs were in process:

Materials Direct labor Applied Factory Overhead


Job # 947 P10,000 P5,000 P7,500
Job # 968 3,500 1,500 2,250

There was no inventory of finished goods on May 1. During the month, Jobs #969, 970, 971, 972 and 973
were started. Materials requisitioned in May totaled P65,000, direct labor cost P50,000 and actual
factory overhead, P80,000. Factory overhead is applied at a rate of 150% of direct labor cost.

The only job still in process at the end of May is Job# 973, with cost of P7,000 for materials and P4,500
for direct labor. Job# 971, the only finished job on hand at the end of May, has a total cost of P10,000.

Compute the:
1. Prime cost for the month of May
2. Conversion cost for the month of May
3. Cost of goods manufactured for the month of May
4. Cost of jobs available for sale in May

Exercise 2-12 (Journal entries for Job Order Costing)

The following information pertains to the three jobs that were in process at the factory of Dereal
Company:

Job #100 Job #101 Job #102


Costs Charged in Prior Month P100,000 P37,500 P0
Costs Added in February:
Direct Materials 87,500 112,500 137,500
Direct Labor 112,500 100,000 87,500
Factory Overhead (P50 per MH) ? ? ?
Machine Hours (MH) used in February 1,800 1,600 1,400

Required:
Prepare the appropriate journal entry to record each of the following February transactions:
1. Direct materials were issued from the storeroom to work in process.
2. The distribution of payroll to work in process
3. Factory overhead was applied to February production.
4. Job #101 and Job #102 were completed and transferred to the storeroom.
Exercise 2-13 (Work in Process)

On January 1, two jobs were in process at Clare Printing Press. Details of the jobs are:

Job No. Direct Materials Direct Labor


R-215 P21,750 P8,000
R-238 4,000 10,500

Materials inventory at January 1 totaled P115,000 and P14,500 in materials were purchased during the
month. A requisition for P1,750 in supplies was filled. On January 1, finished goods inventory consisted
of two jobs: Job No. R-207 costing of P49,000 and Job No. R-221 with a cost of P19,750. Both of these
jobs were sold during the month.

On January, Job No. R-215 and R-238 were completed. Completing Job No. R-215 required additional
direct labor cost of P8,500 and direct materials costing P3,750. The completion costs for Job No. R-238
included P13,500 in direct materials and P25,000 in direct labor.

Job No. R-240 was started during the month but was not finished. A total of P39,250 of direct materials
were brought from the storeroom during the period and total direct labor costs during the month
amounted to P51,000. Factory overhead was applied at 150% of direct labor costs of all jobs.

Determine the:
1. Cost of the completed jobs in January.
2. Cost of job/s still in process at the end of January.

Exercise 2-14 (Inventory Costing)

The following data pertains to the production and sale of a commodity that were taken from the
company’s stock card:

May 1 Balance 25 units at P40


6 Sale 20 units
8 Production 20 units at P41
16 Sale 10 units
20 Production 20 units at P42
23 Sale 25 units
30 Production 15 units at P43

REQUIRED:
Determine the cost of the inventory balance at May 31, using (a) first-in, first-out method and (b)
weighted average costing. Identify the quantity, unit price, and total cost of each lot in the inventory.
Exercise 2-15 (inventory Costing)

The units of an item available for sale during the year were as follows:

Jan. 1 Inventory 20 units at P50


Feb. 4 Production 10 units at P52
July 7 Production 30 units at P55
Oct. 15 Production 15 units at P60

There are 30 units of the item in the physical inventory at December 31. The periodic inventory system
is used.

REQUIRED: Determine the inventory cost using First-In, First-Out (FIFO) costing method.

Exercise 2-16 (Inventory Costing)

The beginning inventory and purchases of an item for the period were as follows:

Beginning inventory 6 units at P73 each


First production 10 units at P72 each
Second production 18 units at P74 each
Third production 10 units at P75 each

The company uses the physical inventory system, and there were 15 units in the inventory at the end of
the period. Determine the cost of the 15 units in the inventory by each of the following methods,
presenting details of your computations:
(1) FIFO;
(2) Average cost.

Exercise 2-17 (Inventory Costing)

The material ledger card shows the balance of Material Q on May 1 and its receipts and issuance in May
as follows:

Balance May 1 8 at P32


Received May 11 23 at P34
Received May 25 15 at P35
Issued May 17 14
Issued May 27 18

REQUIRED: Determine the breakdown of the total cost of materials issued in May assuming the use of
Perpetual Inventory System, First-In, First-Out (FIFO) method.
Exercise 2-18 (Comprehensive)

Zelsa Company had the following inventories on November 1, 2019: Finished Goods – P37,500; Work in
Process – P47,675; Materials – P35,000. The breakdown of Work in process account is as follows:

Job # 1234 Job # 1235 Job # 1236 Total


Materials P7,000 P8,500 P4,000 P19,500
Labor 5,250 6,750 3,375 15,375
Applied Factory Overhead 4,200 5,400 3,200 12,800
Total P16,450 P20,650 P10,575 P47,675

The following information pertains to November operations:


a. Materials acquired from the supplier amounted to P55,000. Term: n/30
b. Materials requisitioned for production cost P52,500. Of this amount, P6,000 was for indirect
materials and the balance distributed as follows: P13,250 to Job #1234; P18,500 to Job#1235;
P14,750 to Job#1236.
c. Materials returned to the storeroom from the factory totaled P1,500, of which P500 was for
indirect materials, the balance from Job #1235.
d. Materials returned to vendors totaled P2,000.
e. Payroll of P95,000 was accrued in November.
f. Of the payroll, direct labor represented 55%; indirect labor – 20%; sales salaries – 15% and
administrative salaries 10%. The direct labor cost was distributed as follows: P16,050 for
Job#1234, P20,400 to Job#1235, P15,800 for Job#1236.
g. Factory overhead, other than any previously mentioned, amounted to P23, 511.25. Included in
this amount were P5,000 for building and equipment depreciation and P625 for the expired
factory insurance premiums. The remaining overhead, P17,886.25 was unpaid at the end of
November.
h. Factory overhead was applied to production at a rate of 80% of the direct labor cost to be
charged to the three jobs, based on the labor cost for November.
i. Jobs #1234 and #1235 were completed and transferred to the finished goods warehouse.
j. Both Job #1234 and #1235 were shipped and billed at a gross profit rate of 40% of cost of goods
sold.
k. Collection of customers’ accounts amounted to P173, 125.

Required:
1. Journalize the November transactions.
2. Prepare the T-accounts for Raw Materials, Payroll, Factory Overhead, WIP and Finished Goods.
3. Determine the cost of goods manufactured, cost of goods sold and net profit for the month.
Problem 2-A (T-Account Analysis)

D Wonder Landscape Co. began operations on November 1, 2019. Its Work in Process inventory account
on November 30 appeared as follows:

Work in Process Inventory


Direct Materials 360,500 Cost of Completed Jobs ?
Direct Labor 960,000
Applied Factory OH 1,056,000

The company applies overhead on the basis of direct labor cost. Only one job was still in process on
November 30. That job had P83,375 in direct material and P234,000 in direct labor cost assigned to it.

Required:
1. What was the predetermined overhead rate?
2. What was the balance in Work in Process Inventory at the end of May?
3. What was the total cost of jobs completed in May?

Problem 2-B (Flow of Cost)

Delex Company had the following inventories at the beginning and end of January:

January 1 January 31
Materials P50,000 P112,500
Work in Process ? 462,500
Finished Goods 162,500 287,500

During January, the cost of materials purchased was P400,000 and factory overhead of P312,500 was
applied at a rate of 125% of direct labor cost. July Cost of Goods Sold was P600,000.

Required: Prepare the T-accounts showing the flow of cost f goods manufactured and sold.
Problem 2-C (Job Cost Computation)

A manufacturer employs a job order cost system. All jobs ordinarily pass through all three production
departments, and Job 102 and Job 103 were completed during the current month.

Direct Labor Rate FOH Application Rate


Department 1 P12.00 150% of direct materials cost
Department 2 P18.00 P8.00 per machine hour
Department 3 P15.00 200% of direct labor cost

Job 101 Job 102 Job 103


Beg Work In Process P63,750 P81,000 P0
Direct Materials:
Department 1 P100,000 P65,000 P145,000
Department 2 P7,500 P12,500 P35,000
Department 3 P0 P0 P0
Direct Labor hours:
Department 1 1,250 1,000 750
Department 2 500 625 875
Department 3 3,750 4,500 6,250
Machine Hours:
Department 1 0 0 0
Department 2 3,000 3,750 6,750
Department 3 375 750 500

Required:
1. Compute the total cost of jobs completed
2. Compute the total cost of jobs still in process
Problem 2-D (Manufacturing Cost)

Last month, Gumela Company put P150,000 of materials into production. The Grinding Department
used 20,000 direct labor hours at a cost of P5.60 per hour, and the Machining Department used 11,500
direct labor hours at a cost of P6 per hour. Factory overhead is applied at a rate of P6 per labor hour in
the Grinding Department and P8 per labor hour in the Machining department. Inventory accounts had
the following beginning and ending balances:

Beginning Ending
Materials P55,000 P42,500
Work in Process P37,500 P44,000
Finished Goods P47,500 P45,000

Compute the following:


1. Total cost of work put into process
2. Cost of jobs completed
3. Conversion cost
4. Cost of materials purchased

Problem 2-E (Cost of Goods Manufactured)

Mark Kevin Motor of Panguil Bay, Philippines makes marine motors for vessels. The company uses a job-
order costing system. Only three jobs –Job MK508, Job MK509 and Job MK510 – were worked on during
May and June. Job MK508 was completed on June 20; the other two jobs were uncompleted on June 30.
Job cost sheets on the three jobs are given below:

MK508 MK509 MK510


May Cost Incurred
Direct Materials P23,750 P12,750 P0
Direct Labor P20,000 P7,500 P0
FOH P28,000 P10,500 P0
June Cost Incurred
Direct Materials P0 P15,000 P18,000
Direct Labor P10,000 P18,750 P21,250
FOH ? ? ?
*MK508 and MK509 were started during May

The following additional information is available:


a. Manufacturing overhead is applied to jobs on the basis of direct labor cost.
b. Balances in the inventory accounts at May 31, were: Raw Materials P75,000; WIP - ?; Finished
Goods 125,000.

Required:
1. Compute for Cost of Goods Manufactured
2. Determine the June 30 Work in Process inventory account.
Problem 2-F (Cost of Goods Sold)

On September 18, 2019, a fire destroyed Wawangz World’s Work in Process Inventory, which consisted
of two in process custom jobs (WA25 and NG28). The following information had, however, been
contained in some offsite records:

 Herman World applies overhead at a rate of 85% of direct labor cost.


 The cost of goods sold for the company averages 75% of selling price. Sales from July 1 to the
date of the fire totaled P254,800.
 The company’s wage rate for production employees is P8.90 per hour.
 As of September 18, P8,400 of direct material and 11.20 hours of direct labor had been recorded
for WA25. Also at that time, P5,880 of direct material and 16 hours of direct labor had been
recorded for NG28.
 On July 1, 2019, inventories were as follows: P7,800 of Direct Materials, ??? Work in Process,
and P27,560 of Finished Goods. Jobs WA25 and NG28 were not in process on July 1.
 One job, R21, was completed and in the warehouse awaiting shipments on September 18. The
total cost of this job was P21,440.

Determine the following:


1. Cost of goods sold for the 3rd quarter
2. Cost of goods manufactured during the 3rd quarter
3. Cost of WIP inventory destroyed by fire

Problem 2-G (Cost of Goods Sold)

Wako Refrigeration uses an actual cost, job order cost system. The following transactions are for August
2019. At the beginning of the month, Materials Inventory was P17,750, Work in Process Inventory was
P56,750, and Finished Goods Inventory was P27,500.

 Direct material purchases on account totaled P225,000.


 Direct labor cost for the period totaled P189,000 for 20,000 direct labor hours; these costs were
paid in cash.
 Actual overhead costs were P205,000 and are applied to production based on direct labor hours.
 The ending inventory of Materials Inventory was P7,500.
 The ending inventory of Work in Process Inventory was P28,750.
 Goods costing P609,250 were sold for P865,125.

Required:

1. Determine the actual overhead rate per direct labor hour.


2. Prepare all journal entries for the transactions given above.
3. Determine the ending balance in Finished goods inventory.
Problem 2-H (Journal Entries)

Vanda Inc. produces customized vans in a job order shop. On November 1, the following balances
appear in the inventory records.

Materials P207,500
Work in Process 770,000
Finished Goods 447,500

The amount in Finished Goods represents P252,500 recorded for Van 1075 and P195,000 recorded for
Van 1077. The work in process account represents the three vans in process, as follows:

Van 1079 Van 1080 Van 1081


Direct Materials P187,500 P125,000 P62,500
Direct Labor 150,000 100,000 50,000
Factory Overhead 65,000 17,500 12,500

The following transactions occurred during November:


a. Purchased materials on account; P200,000.
b. Requisitioned P150,000 of materials from inventory: P37,500 applied to Van 1080, P62,500 to
Van 1081, and P40,000 to Van 1082, a new order; the balance was for indirect materials.
c. Recorded the liability for the payroll and the labor cost distribution in a single entry: total
payroll, P521,875. Of the payroll cost, 10% applied to Van 1079, 20% to Van 1080, 35% to Van
1081, 30% to Van 1082, and the remainder to indirect labor.
d. Paid the payroll.
e. Applied factory overhead at the rate of 150% of direct labor cost.
f. Completed Vans 1079 and 1080.
g. Sold Van 1075, 1077 and 1080 at 50% over manufacturing costs.

Required: Prepare general journal entries to record these transactions.


Problem 2-I (Comprehensive)

Hawan Manufacturing Corp. uses a job order cost system. The company’s trial balances as of May 1,
2012 included the following accounts:

Materials Inventory P112,500


Work in Process 63,500
Finished Jobs Inventory 72,000
Manufacturing Overhead Control 10,750 (CR)

Job Order cost sheet for the month of May, 2012 were as follows:

Job 3909 Job 3911


Materials P6,250 P16,750
Labor 10,000 8,000
Overhead 12,500 10,000

Transactions for the month of May 2012 were as follows:


a. Raw materials purchased P340,000
b. Total factory Payroll P450,000
c. Manufacturing overhead incurred and accrued: Power and heat – P88,750; Repairs – P60,000;
Other manufacturing overhead – P97,500; Depreciation – Plant – P150,000
d. Materials requisitioned for use: Job 3909 – P35,000; Job 3911 – P60,000; Job 3912 – P85,000;
Job 3913 – P38,750
e. Payroll Analysis:
Hours Amount
Job 3909 20,000 P160,000
Job 3911 10,000 P80,000
Job 3912 11,250 P90,000
Job 3913 7,500 P60,000
Indirect Factory Labor 1,250 P10,000
Supervision - P50,000

f. Overhead is applied at jobs in process at predetermined rate of P10 per direct labor hour.
g. Jobs 3909, 3911 and 3912 were completed during the month.
h. Jobs 3909, 3910 and 3911 were sold to customers during the month. The prices of these jobs
were P562,500, P93,750 and P375,000 respectively.
i. Total operating expenses (selling, distribution, general and administrative) were P186,250 for
the month.

Required:
1. Prepare the general journal entries to record these transactions.
2. Prepare job order cost sheets for jobs worked on during the month.
3. Prepare the Cost of Goods Manufactured Statement for the month of May.
4. Prepare an income statement for the month of May.
Problem 2-J (Comprehensive)

The following transactions pertain to the manufacturing operations of Dale Dan Company:

a. Material purchased totaling P250,000


b. Materials were issued as follows: Direct Materials – P122,500; Indirect Materials – P22,500.
c. Payroll is broken down as follows:
Direct labor, P150,000 Sales salaries, P15,000
Indirect labor, P30,000 Office salaries, P25,000
Income tax withheld was 10% of wages earned; SSS contribution at a rate of 5%. Philhealth
contribution at 1.5% and Pag-IBIG contribution at 1% were deducted. The payroll due to the
employees was paid.
d. The employer’s share of payroll taxes for all categories of employees consists of 5% SSS
contribution, 1.5% Philhealth contribution, ½% employees compensation contribution and 1%
Pag-IBIG contribution.
e. Miscellaneous factory expenses of P37,500 were paid.
f. Factory overhead of P75,000 was charged to production.
g. Cost of production completed during the period was P300,000.
h. Goods costing P100,000 were billed to customers at a sales price of P130,000.

Required: Prepare the journal entries to record the transactions.


CASELET

A client has asked advice as to a satisfactory system of factory costs for a factory that is divided into two
main divisions:

1. Machine Shop: This division makes steel molds used in the manufacture to plastic articles. These
molds require careful precision work; and frequently, one person is employed at machining one
mold for several weeks. The finished molds are used by the Plastic Division of the company/ In
addition, some other machine work is done for customers, although this forms the smaller
portion of the shop’s output.
2. Plastic Division: This division manufactures plastic article including ash trays, buttons, knobs, etc.
The process of manufacturing consists of placing chemical powders in a mold, which is then
placed under a stream press where pressure is applied for a few minutes. The chemical powders
are the only materials used and are not processed before being placed in the mold. After being
processed, a certain amount of finishing and inspection labor is necessary to complete the
articles.

It is ascertained that:

 The company has had no previous cost records.


 Production in both divisions is controlled by job order tickets.
 Materials are kept in one place, but no record has been kept of withdrawals.
 Labor is paid at hourly rates, and a time clock at the factory entrance is used for determining the
hours worked in any day.
 Employees have been preparing satisfactory time tickets showing the hours worked on each job
and, in the case of plastics division, the number of units produced; but this record has never
been balanced against the wages paid nor the record of production.
 Spoilage is a substantial factor in both divisions.
 The machine stop and the plastic division are in separate parts of the one building.
 The company has a satisfactory system of general ledger accounting.

Required: A method or methods for obtaining factory costs, explaining why there are considered the
most satisfactory under the circumstances.

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