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COSTING
NOTES and
ILLUSTRATIVE
PROBLEMS
ILLUSTRATION:
Black Polo, Inc. specializes in custom steel frames and uses job costing to account
for its operations. The following information is available as of May 1 for the workin-process inventory account.
Job#
304
306
Total
Polo costs
pays an
Direct
materials
Direct
labor
P3,000
4,000
P7,000
P1,800
2,100
P3,900
Manufactur
ing
overhead
P2,520
2,940
P5,460
Total
costs
P7,320
9,040
P16,360
Black
hourly rate of P15 for direct labor. The manufacturing overhead
costs are applied to jobs based on the direct labor hours. During the month of May,
Black Polo spends P5,800 for materials and P4,650 for manufacturing overhead.
The operations in May are summarized below.
Job#
304
306
307
308
Total
Material requisition
summary
P1,100
900
2,800
750
P5,550
Jobs 304, 306, and 307 are completed in May but only Jobs 304 and 307 are
delivered to customers.
Requirements:
1. Calculate the predetermined overhead rate used.
2. Calculate the Over / (under) applied overhead.
3. Calculate the ending balance of Work In process (assuming
that over / under applied overhead is insignificant or
immaterial.)
4. Calculate the Ending Balance of Finished Goods Inventory
Account. (assuming that over / under applied overhead is
insignificant or immaterial.)
5. Calculate the Cost of Goods Sold if over/ under applied
overhead is immaterial.
6. Prepare the necessary journal entries for May (assuming any
over- or under-applied manufacturing overhead is written off to
Cost of goods sold account monthly)
Materials inventory
5,800
Accounts payable
(Materials purchased)
5,800
Work-in-process inventory
5,550
Materials inventory
5,550
(Materials put into production)
Work-in-process inventory
Wages payable
(Direct labor incurred)
3,075
3,075
Work-in-process inventory
4,305
Applied manufacturing overhead
4,305
(Manufacturing overhead applied)
Finished goods inventory
Work-in-process inventory
27,640
27,640
16,620
4,305
4,650
EB
P9,860
11,020
6,760
1,650
P29,290
EXERCISE PROBLEM
YELLOW-KITTY CORPORATION manufactures one product and accounts
for costs using a job-order cost system. You have obtained the following
information for the year ended December 31, 2011 from the Corporations
books and records:
Total manufacturing cost added during 2011 was P1,000,000 based on
actual direct material, actual direct labor, and factory overhead applied
based on actual direct labor pesos.
Costs of goods manufactured was P970,000 also based on actual direct
material, actual direct labor, and applied factory overhead.
Factory overhead was applied to work-in-process at 75% of direct labor
pesos. Applied factory overhead for the year was 27% of the total
manufacturing cost.
Beginning work-in-process inventory, January 1, was 80% of ending
work
in
process
inventory,
December 31.
Requirements:
1. Calculate the amount of Factory overhead applied.
2. Calculate the amount of Direct Labor Costs.
3. Calculate the ending balance of the work in process.
4. Calculate the beginning balance of the work in process.
4. Calculate the amount of total manufacturing costs to
account for.
56,700
56,700
45,360
8,505
53,865
33,100
12,500
45,600
66,900
66,900
36,410
36,410
97,600
97,600
51,320
51,320
77,600
77,600
Scrap includes:
the filings or excessive trimmings of materials after the manufacturing
operations
defective materials that cannot be returned to vendor or not suitable
for manufacturing operations, and
broken parts as a result of an employee error or machine breakdowns
that causes the product in a poor quality condition
Scrap Sales are accounted for as:
A. Additional Revenue
B. Reduction to Cost of Goods Sold
C. Reduction to Factory Overhead Control
D. Reduction in Cost of Materials traceable to a job
Spoilage loss
Charged to all production or Factory Overhead due to internal
failure brought by worn out machinery or employee error.
Charged to a particular job attributable to the exacting
specifications imposed by customers
EXERCISE PROBLEM
Yellow-Arrow company manufactures picture frames and uses job order
costing system. The following cost relate to the current run:
Estimated Overhead(exclusive of spoilage) ------ P80,000
Spoilage (Estimated)-----------------------------------12,500
Sales Value of the Spoiled frames-------------------- 5,750
Labor hours--------------------------------------------------50,000
The actual cost of a spoiled frame is P 7. During the production,
150 frames are considered spoiled. Each spoiled frames can be
sold for P 4.
1. Assume that spoilage is part of all jobs, What is the predetermined
overhead rate using labor hours as the activity base?
2. Prepare the Journal Entry for the spoilage.
3. Assume that the spoilage relate to a specific job # 143, What is the
predetermined overhead rate using labor hours as activity base?
4. prepare the Journal Entry for the spoilage.
EXERCISE PROBLEM
Burblurry Cos Job 168 for the manufacture of 4,400 coats, which was
completed in September at unit costs presented below. Final Inspection of
Job 168 disclosed 400 spoiled coats which were sold to a jobber for
P12,000
Direct Materials-------------------------------- P40
Direct Labor ------------------------------------ 36
Factory Overhead (includes an allowance
for P 2 overhead) -------------------36
P112
1. If the spoilage loss is charged to all production , what would be the
unit cost of good coats produced on Job 168?
2. If the spoilage loss is attributable to exacting specifications, what
would be the unit cost of good coats produced on Job 168?
EXERCISE PROBLEM
Blackbike Cos incurred the following costs on Job 999 for the manufacture
of 400 motors during April:
Direct Materials-------------------------------- P1,320
Direct Labor ------------------------------------ 1,600
Factory Overhead (150% of DL) ----------2,400
P 5,320
Direct Costs of reworking 10 units:
Direct Materials---------------------P 200
Direct Labor ------------------------320
P 520
1. If the rework costs were attributable to internal failure or charged to
Factory overhead , what would be the unit cost of Job 999?
2. If the rework costs were attributable to exacting specifications of Job
999, what would be the unit cost of Job 999?
EXERCISE PROBLEM
Camille Co. manufactures electric drills to the exacting specifications of
various customers. During May 2012, Job 143 for the production of 2,200
drills was completed at the following costs per unit:
Direct Materials-------------------------------- P20
Direct Labor ------------------------------------ 16
Applied Factory Overhead (P 3 allowance)--- 24
P 60
Final inspection of Job 143 disclosed 100 defective units and 200 spoiled
units. The defective drills were reworked at total cost of P1,000, and the
spoiled drills were sold to a jobber for P 3,000.
What would be the unit cost of goods produced?
Carmella Mfg. Co. started 150 units in process on job order # 5. The prime
costs placed in process consisted of P30,000 for direct material in which
this amount is 62.5 percent of the said prime costs. The predetermined
overhead rate was used to charged factory overhead to production at
133.33 % of the direct labor cost. Upon completion of the job order, units
equal to 20 percent of good output were rejected for failing to meet the
strict quality control requirements.
The company sells rejected units as scrap at only 1/3 of its production cost,
and bills the customers at 150% of the production cost.
1. If the rejected units were due to machine breakdown, the billing price
of job order # 5 would be?
2. If the rejected units were due to customer specification, the billing
price of job order # 5 would be?
Silver Metal Products accumulates metal shavings from the shop floor and
sells them periodically to a nearby scrap dealer. Scrap sales, on account,
for the period just ended total P2,300.
Required: Indicate the journal entries when:
(1)The scrap sales are viewed as additional revenue.
(2)The scrap sales are viewed as a reduction of the cost of goods sold
during the period.
(3)The scrap sales are viewed as a reduction of factory overhead.
(4)The scrap sales are traceable to individual jobs and are viewed as a
reduction in the cost of materials used on the jobs.
(2)Accounts Receivable
Cost of Goods Sold
2,300
2,300
2,300
(3)Accounts Receivable
2,300
Factory Overhead Control
2,300
2,300