Chapter 7: Job costing

E20-3 Record the following transactions in Micro Speaker’s general journal.

a. Incurred and paid Web site expenses, $3,400.
b. Incurred and paid manufacturing wages, $16,000.
c. Purchased materials on account, $14,750.
d. Used in production: direct materials, $7,000; indirect materials $3,000.
e. Assigned $15,000 of manufacturing labor to jobs, 70% of which was direct labor and
30% of which was indirect labor.
f. Recorded manufacturing overhead: depreciation on plant, $13,000; plant insurance,
$1,700; plant property tax, $4,200 (credit Property Tax Payable).
g. Allocated manufacturing overhead to jobs, 200% of direct labor costs.
h. Completed production, $33,000.
i. Sold inventory on account, $23,000; cost of goods sold, $11,000

E20-5 September production generated the following activity in Digital Connection’s

Work in Process Inventory:

Completed production, not yet recorded, consists of Jobs B-78 and G-65, with total costs
of $41,000 and $37,000, respectively.
Required
1. Compute the cost of work in process at September 30.
2. Prepare the journal entry for production completed in September.
3. Prepare the journal entry to record the sale (on credit) of Job G-65 for $45,000. Also
make the cost-of-goods-sold entry.
4. What is the gross profit of Job G-65? What other costs must this gross profit cover?

E20-6 Selected cost data for Star Poster Co. are as follows:
Expected manufacturing overhead cost for the year . . . $ 97,800
Expected direct labor cost for the year . . . . . . . . . . . . . . . 61,125
Actual manufacturing overhead cost for the year. . . . . . 104,600
Actual direct labor cost for the year . . . . . . . . . . . . . . . . . 63,900
Required
1. Compute the predetermined manufacturing overhead rate per direct labor dollar.
2. Prepare the journal entry to allocate overhead cost for the year.
3. Use a T-account to determine the amount of overallocated or underallocated manufacturing
overhead.
4. Prepare the journal entry to close the balance of the manufacturing overhead account.
E20-7 Freeman Foundry in Charleston, South Carolina, uses a predetermined manufacturing
overhead rate to allocate overhead to individual jobs, based on the machine hours
required. At the beginning of 20X6, the company expected to incur the following:
Manufacturing overhead costs. . . . . . . . . . . . . . . . . . . . . . $600,000
Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000
Machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
At the end of 20X6, the company had actually incurred:
Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,210,000
Depreciation on manufacturing property, plant
and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,000
Property taxes on plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Delivery drivers’ wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Plant janitors’ wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000

Required
1. Compute Freeman’s predetermined manufacturing overhead rate.
2. Record the summary journal entry for allocating manufacturing overhead.
3. Post the manufacturing overhead transactions to the Manufacturing Overhead Taccount. Is
manufacturing overhead underallocated or overallocated? By how
much?
4. Close the Manufacturing Overhead account to Cost of Goods Sold. Does your entry
increase or decrease cost of goods sold?
E20-8 Refer to the data in Exercise 20-7. Freeman’s accountant found an error in her
20X6 expense records. Depreciation on manufacturing property, plant, and equipment
was actually $400,000, not the $480,000 she had originally reported. Unadjusted balances
at the end of 20X6 include
Finished Goods Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 130,000
Cost of Goods Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Required
1. Use a T-account to determine whether manufacturing overhead is underallocated or
overallocated, and by how much.
2. Record the entry to close out the underallocated or overallocated manufacturing
overhead.
3. What is the adjusted ending balance of Cost of Goods Sold?
E20-9 Land Resources, a real estate consulting firm, specializes in advising companies on
potential new plant sites. Land Resources uses a job cost system with a predetermined indirect
cost allocation rate, computed as a percentage of expected direct
labor costs.
At the beginning of 20X5, managing partner Tony Black prepared the following plan,
or budget, for 20X5:
Direct labor hours (professionals) . . . . . . . . . . . . . . . . . . . 17,000
Direct labor costs (professionals) . . . . . . . . . . . . . . . . . . . $2,669,000
Office rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Support staff salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,194,300
Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,000
Auto Supplies, Inc., is inviting several consultants to bid for work. Tony Black estimates
that this job will require about 220 direct labor hours.
Required
1. Compute Land Resources’ (a) hourly direct labor cost rate and (b) indirect cost allocation rate.
2. Compute the predicted cost of the Auto Supplies job.
3. If Black wants to earn a profit that equals 50% of the job’s cost, how much should he
bid for the Auto Supplies job

E20-10 At the end of 20X7 fiscal year, Rave Kayaks’ manufacturing records show the
following unadjusted ending account balances:
Work in Process Finished Goods Cost of
Inventory Inventory Goods Sold
Direct materials . . . . . . . . . . $100,000 $170,000 $ 360,000
Direct labor . . . . . . . . . . . . . 80,000 250,000 600,000
Manufacturing overhead . . 70,000 300,000 440,000
Total . . . . . . . . . . . . . . . . . . . $250,000 720,000 $1,400,000
Rave’s accountants allocated overhead during the year using a predetermined rate of $40
per machine hour. At year-end, they computed the actual rate of $52 per machine hour.
The beginning balances of both Work in Process Inventory and Finished Goods Inventory
were zero.
Required
1. How many machine hours did Rave Kayaks use in 20X7?
2. Was manufacturing overhead over- or underallocated for the year? By how much?
3. Record the entry to close out the over- or underallocated overhead