Chapter 04-Questions

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End of Chapter “A” Chapter 4: Job Order Costing Exercises (Short Questions) Question-1 Process Costing and Job-Order Costing Which would be more appropriate in each of the following organizations— job-order costing or process costing? a. A custom home builder. b. A music producer. c. A website designer. d. A business consultant. e. A paper towel manufacturer. f. An auto repair shop. g. A dairy processing plant. h. A pulp and paper manufacturer. i. A law firm. Exercise 5A After all costs have been recorded, it has been determined that while $1,600 of manufacturing overhead (MOH) was applied to Job #555, the actual amount related to the job was $2,200. An analysis of the current state of what was produced in the job indicates ending balances in the related accounts as follows: WIP $400; Finished Goods $400; Cost of Goods Sold $800. Complete the following: a. Indicate whether this is an under- or overapplication of overhead and by how much. b. Prepare the journal entries necessary to correct this misapplication. c. Determine what change, if any, will appear on the income statement as a result of these corrections. (L.O 4.6/medium)

End of Chapter “A” Chapter 4: Job Order Costing Problems (Long Questions) Problem 1A MidTown Manufacturing’s budget for 2021 includes the following information: Manufacturing overhead $322,500 Direct labour $860,000 Average DL rate: $32.00 In February 2021, MidTown received an order for 70 large juniper-accent benches, which it will sell to the customer for $160 each. Job order #477 was written up and the following partial document was generated in support of the order: MidTown used direct labour hours as its allocation base for manufacturing overhead costs. Based on the information provided above, complete the following: a. Determine MidTown’s predetermined overhead application rate. b. Complete the remainder of the job cost sheet above assuming the average direct labour rate applies to all labour tickets. This includes completion of all elements in the cost summary. c. Determine the gross margin generated from this sale. d. At year end, MidTown determines that the actual manufacturing overhead on this order was $400. Was manufacturing overhead correctly applied, overapplied or underapplied and by how much? e. What adjustment, if any, will be made to the operating income as a result of correcting any misapplication of manufacturing overhead assuming all 70 benches were completed and shipped to the customer. (L.O 4.3,4,6/medium)

End of Chapter “A” Chapter 4: Job Order Costing Problems (Long Questions) Problem 2A Capital Fabrication Company manufactures custom furniture and fixtures for customers in the capital region. It has the following transactions related to Job Order #3121 for the production of 10 custom desks: a. $2,500 of direct materials added to the job. b. $500 of indirect materials added to manufacturing overhead. c. $700 for equipment rental charged against manufacturing overhead – to be paid later. d. 75 hours of direct labour added to the job at a rate of $30 per direct labour hour. e. Manufacturing overhead applied to the job at the predetermined rate of $12 per direct labour hour. f. $400 of administrative expenses incurred on behalf of the job. g. Job order #3121 has been fully completed and production on the job is now closed. h. Product from job #3121 has been shipped to the customer. Selling price is $800 per unit. The customer will pay within 30 days. i. It was later determined that actual manufacturing overhead cost for the job was $850. Make necessary correcting entry. Prepare all related journal entries. (L.O 4.2,4,5,6/medium)

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End of Chapter “A” Chapter 4: Job Order Costing Problems (Long Questions) Problem 3A The original April 202X income statement for Capital Fabrication appears below: Capital Fabrication Company Income Statement For the month ended April 30, 202X Sales $24,000 Less: Cost of Goods Sold 17,600 Gross margin 6,400 Less Selling and administrative expenses Selling expenses $2,300 Administrative expenses 1,400 3,700 Operating income $2,700 During the month, manufacturing overhead was applied to four jobs. Based on month-end analysis after costs were in, the following information is available: Manufacturing overhead at April 30 Job #4366 Job #4368 Job #4369 Job #4370 Applied - WIP $50 $0 $0 $100 Applied - Finished Goods 50 0 200 100 Applied - Cost of Goods Sold 100 350 200 0 Total applied $200 $350 $400 $200 At actual rate $220 $385 $440 $220 Given the above information, complete the following: a. For each job, determine the total correction required for manufacturing overhead and how it should be allocated. b. Prepare the journal entries to correct the misapplication of manufacturing overhead for the month. c. Prepare a corrected version of the income statement for April 202X. (L.O 4.6/medium)

End of Chapter “A” Chapter 4: Job Order Costing Problems (Long Questions) Problem 5A The following are some facts in brief about Company ABC: ● Budgeted Manufacturing overhead for year $575,000 ● Allocation base for manufacturing overhead: machine hours ● Expected machine hours for the year: 25,000 Facts with respect to Job Order #495 ● For sale of 40 units of wagon model GG45 for total price of $18,000 ● Direct labour incurred: $1,568 ● Direct materials used: $5,790 ● Machine hours used: 186 a. Calculate the predetermined manufacturing overhead (MOH) allocation rate. b. Prepare the journal entries to record the costs for direct labour, direct materials, and manufacturing overhead to the job. c. Prepare the journal entry to record the transfer of the 40 completed units to inventory. d. Prepare the journal entry to record the sale/shipment of 20 of these units. Year end facts: ● Actual manufacturing overhead for the year: $583,000 ● Actual machine hours for the year: 26,500 Based on the year end facts, answer the following additional questions: e. What is the actual MOH allocation rate? f. Based on this, was the original overhead overapplied or underapplied and by how much? g. Based on the fact that all 40 wagons were completed and that 50% of them have been shipped to the customer, you may assume that none of the MOH that was applied is sitting in the Work in process account. Prepare the journal entry to correct the MOH allocation. h. Explain the effect of this correction to the operating income for the period. (L.O 4.2,3,4,5,6/difficult)