Problem 3-1: Process Costing and Job-Order Costing

Required:
Which would be more appropriate in each of the following
situations -- job-order costing or process costing?
Job Order
a. A custom yacht builder

b. A golf course designer

c. A potato chip manufacturer

d. A business consultant

Process

X
X

e. A plywood manufacturer

f. A soft-drink bottler

g. A film studio

h. A firm that supervises bridge

construction projects

i. A manufacturer of custom jewelry

j. A made-to-order clothing factory

k. A factory making one personal

computer model

l. A fertilizer factory

Exercise 3-6 Schedules of Cost of Goods Manufactured and Cost of Goods Sold
Given:
Parmitan Corporation has provided the following data concerning last month's manufacturing
operations.
Purchases of raw materials
Indirect materials included in manufacturing overhead
Direct labor
Manufacturing overhead applied to work in process
Underapplied overhead

Raw materials inventory

Work in process inventory
Finished goods inventory

$53,000
8,000
62,000
41,000
8,000
Beginning
$24,000
41,000
86,000

Ending
$6,000
38,000
93,000

Required:
1. Prepare a schedule of Cost of Goods Manufactured Schedule
Parmitan Corporation
Schedule of Cost of Goods Manufactured
For the month just completed
Direct materials used:
Raw materials inventory, beginning
Add: Purchases of raw materials
Raw materials available for use
Less: Raw materials inventory, ending
Raw materials used in production
Less: Indirect materials used
Direct Material Used
Direct labor incurred:
Manufacturing overhead applied
Total manufacturing costs added this period
Beginning work-in-process
Total work in process
Less: Work in process inventory, ending
Cost of goods manufactured

$24,000
53,000
$77,000
(6,000)
$71,000
8,000
$63,000
62,000
41,000
$166,000
41,000
$207,000
38,000
$169,000

2. Prepare an COGS statement for the just completed month.

Parmitan Corporation
Cost of Goods Sold Schedule
For the month just completed
Cost of goods sold:
Finished goods inventory, beginning
Add: Cost of goods manufactured

$86,000
169,000

Cost of goods available for sale

Less: Finished goods inventory, ending
Unadjusted cost of goods sold
Add: Underapplied overhead
Adjusted cost of good sold

$255,000
93,000
$162,000
8,000
$170,000

Exercise 3-16: Applying Overhead; J/Es; Disposition of Underapplied or Overapplied Overhead

Given:
The following information is taken from the accounts of FasGrow Company. The entries in the
T-accounts are summaries of the transaction that affected those accounts during the year.

a.
b.

Manufacturing Overhead
380,000
410,000

Bal.

Work In Process Inventory

Bal.
105,000
c.
760,000
210,000
115,000
b.
410,000
80,000

30,000

Finished Goods Inventory

Bal.
160,000
c.
760,000
d.
820,000
Bal.

d.

Cost of Goods Sold

820,000

100,000

The overhead that had been applied to production during the year is distributed among the
ending balances in the accounts as follow:
Work in Process, ending
Finished Goods, ending
Cost of Goods Sold

$32,800
41,000
336,200
$410,000

For example, of the $80,000 ending balance in WIP, $32,800 was overhead that had been
applied during the year.
Required:
1. Identify the reasons for entries (a) through (d).
(a)
(b)
(c)
(d)

To record the actual MOH incurred during the current time period.
To record applied MOH assigned to production during the current time period.
To record cost of goods manufactured for the current time period.
To record the cost of goods sold for the current time period.

2. Assume that the company closes any balance in the MOH directly to COGS.
Prepare the necessary journal entry.
Debit
Manufacturing Overhead
30,000
Cost of Goods Sold
To close the Manufacturing Overhead Account

Credit
30,000

3. Assume instead that the company allocates any balance in the MOH account to the
other accounts in proportion to the overhead applied during the year that is in the
ending balance in each account. Prepare the necessary journal entry, with
supporting computations.
Debit
Credit
Manufacturing Overhead
30,000
Work in Process Inventory
2,400
Finished Goods Inventory
3,000
Cost of Goods Sold
24,600
To close the Manufacturing Overhead Account

Exercise 3-14: Varying Predetermined Overhead Rates

Given:
Javadi Company makes a single product that is subject to wide seasonal variations
in demand. Javadi uses a job-order costing system and computes predetermined
overhead rates on a quarterly basis using the number of units to be produced as the
allocation base. Its estimated costs, by quarter, for the coming year are given below:

Direct Materials
Direct Labor
Manufacturing Overhead
Total Manufacturing Costs
Number of units to be produced
Estimated unit product cost

First
$240,000
96,000
228,000
$564,000
80,000
$7.05

Quarter
Second
Third
$120,000
$60,000
48,000
24,000
204,000
192,000
$372,000 $276,000
40,000
$9.30

20,000
$13.80

Fourth
$180,000
72,000
?
?
60,000
?

Management finds the variation in quarterly unit product costs to be confusing and
difficult to work with. It has been suggested that the problem lies with manufacturing
overhead, since it is the largest element of total manufacturing cost. Accordingly,
you have been asked to find a more appropriate way of assigning manufacturing
overhead cost to units of product.
Required:
1. Using the high-low method, estimate the fixed manufacturing overhead cost per
quarter and the variable manufacturing overhead cost per unit. Create a cost
formula to estimate the total manufacturing overhead cost for the fourth quarter.
Compute the total manufacturing cost and unit product cost for the fourth quarter.
Manufacturing
Dollars

High Values
Low Values
Change in Costs
Variable MOH cost per unit
Fixed MOH cost per quarter
Cost Formula for 4th Q MOH:

Units

$228,000
192,000
$36,000

80,000
20,000
60,000

$180,000

$180,000

$0.60

Y = $180,000 + $.60(4th quarter units)

Y = $180,000 + $.60 (60,000) = $180,000 + $36,000 =

Direct Materials
Direct Labor
Manufacturing Overhead
Total Manufacturing Costs

Fourth
$180,000
72,000
216,000
$468,000
60,000
$7.80

$216,000

$3.00
$1.20
$4.20
$8.40
200,000

2. What is causing the estimated unit product cost to fluctuate from one quarter
to the next?
The fixed portion of the MOH cost is causing the unit product costs to fluctuate.
The unit product cost increases as the level of production decreases because
fixed overhead is being spread over fewer units.
3. How would you recommend stabilizing the company's unit product cost?
Support your answer with computations that adapt the cost formula you
created in requirement 1.
The unit product cost can be stabilized by using a predetermined overhead
rate that is based on expected activity for the entire year (200,000 units).
200,000
The cost formula created in requirement 1 can be adapted to compute the
annual predetermined overhead rate as follows:
Fixed cost for the year can be estimated as 4 times the quarterly
high-low fixed cost value of $180,000 or $720,000.
The variable portion would still be $.60 per unit produced.
Therefore the cost formula would be: $720,000 + $.60(units produced)
Since the yearly production is expected to be 200,000 the estimated MOH
cost is expected cost is $720,000 + ($.60 X 200,000) or $720,000 + $120,000
or $840,000. Thus, the stable yearly predetermined mfg. overhead would be
$840,000/200,000 = $4.20 per unit produced.
$4.20
Stabilized Total Mfg. Costs
Direct Materials
Direct Labor
Total Mfg. Overhead Costs
Total Mfg. Costs Per Unit
* VMOH Per Unit
FMOH Per Unit
Total Mfg. Overhead Costs

Unit Costs

$3.00
1.20
4.20 *
$8.40
$0.60
3.60
$4.20

See Q3

Problem 3-29: Plantwide versus Departmental MOH Rates; Under/Overapplied Overhead

Given:
"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products,
Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors
underbid us by about $10,000 on the Hastings job." "I just can't figure it out," said Kovallas. "It
seems we're either too high to get the job or too low to make any money on half the jobs we bid
any more. What's happened?"
Lenko Products manufactures specialized goods to customers' specifications and operates a joborder costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor
cost. The following estimates were made at the beginning of the year:

Manufacturing overhead
Direct labor

Cutting
$540,000
$300,000

Department
Machining
Assembly
$800,000
$100,000
$200,000
$400,000

Total Plant
$1,440,000
$900,000

Jobs require varying amounts of work in the three departments. The Hastings job, for
example, would have required manufacturing costs in the three departments as follows:

Direct materials
Direct labor
Manufacturing overhead

Cutting
$12,000
$6,500
?

Department
Machining
Assembly
$900
$5,600
$1,700
$13,000
?
?

Total Plant
$18,500
$21,200
?

The company uses a plantwide overhead rate to apply manufacturing overhead costs
to jobs.
Required:
1. Assuming the use of a plantwide rate:
a. Calculate the MOH rate for the current year
Predetermined MOH Rate = Estimated TMOH $/ Estimated total amount of the allocation base
Predetermined MOH Rate = $1,440,000 / $900,000 =

$1.60

160%

b. Determine the amount of MOH $ that would have been applied to the Hastings job.
Applied MOH = MOH Rate X Actual use of the allocation based used to the determine rate
Applied MOH = $1.60 X $21,200 =

$33,920

2. Suppose that instead of using a plantwide overhead rate, the company had used a
separate predetermined overhead rate in each department. Under these conditions:
a. Compute the MOH rate for each department for the current year.
Predetermined MOH Rate = Estimated TMOH $/ Estimated total amount of the allocation base

Manufacturing overhead
Direct labor cost
MOH Rate per DL $
MOH Rate as a % of DL $

Cutting
$540,000
$300,000
1.80
180%

Department
Machining
Assembly
$800,000
$100,000
$200,000
$400,000
4.00
0.25
400%
25%

Total Plant
$1,440,000
$900,000
1.60
160%

b. Determine the amount of MOH cost that would have been applied to the Hastings job.

Direct materials
Direct labor
Manufacturing overhead

Cutting
$12,000
$6,500
$11,700

Department
Machining
Assembly
$900
$5,600
$1,700
$13,000
$6,800
$3,250

Total Plant
$18,500
$21,200
$21,750

3. Explain the difference between the MOH that would have been applied to the Hastings
job using the plantwide rate in question 1 (b) above and using the departmental rates
in question 2 (b).
The bulk of the labor cost on the Hastings job is in the Assembly Department, which incurs
very little overhead cost. The department has an overhead rate of only 25% of direct labor
cost as compared to much higher rates in the other two departments.
As indicated above, use of departmental MOH overhead rates results in a much smaller
amount of overhead cost charged to the Hastings job than if a plantwide rate is used.
The use of a plantwide overhead rate redistributes MOH costs proportionally between the
three departments (at the rate of 160% of DL costs) and results in a larger amount of MOH
cost being charged to the Hastings job, as shown in Part 1. Use of the plantwide MOH rate
may help explain why the company bid too high and lost the job.
If a plantwide MOH rate is being used, the company will tend to charge too little MOH cost
to jobs that require a large amount of labor in the Cutting or Machining Departments. The
reason is that the plantwide overhead rate (160%) is much lower than the rates if these
departments were considered separately (180% and 400%).
4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing
cost (direct materials, direct labor, and applied MOH). What was the company's bid
price on the Hastings job? What would the bid price have been if departmental MOH
rates had been used to apply MOH costs?

Bid Based On Plantwide MOH Rate

Direct materials
Direct labor
Manufacturing overhead
Total Manufacturing Costs
Customary markup 50%

Cutting
$12,000
6,500
10,400
$28,900

Department
Machining
Assembly
$900
$5,600
1,700
13,000
2,720
20,800
$5,320
$39,400

Total Plant
$18,500
21,200
33,920
$73,620
36,810

Bid price on Hastings job (TMC X 1.50)

$110,430
Department
Machining
Assembly
$900
$5,600
1,700
13,000
6,800
3,250
$9,400
$21,850

Bid Based On Departmental MOH Rate

Cutting
Direct materials
$12,000
Direct labor
6,500
Manufacturing overhead
11,700
Total Manufacturing Costs
$30,200
Customary markup 50%
Bid price on Hastings job (TMC X 1.50)

Difference in Bid price if departmental MOH rates are used

Total Plant
$18,500
21,200
21,750
$61,450
30,725
$92,175
$18,255

5. At the end of the year, the company assembled the following actual cost data relating
to all jobs worked on during the year:
Actual manufacturing costs

Direct materials
Direct labor
Manufacturing overhead
Total Manufacturing Costs

Cutting
$760,000
320,000
560,000
$1,640,000

Department
Machining Assembly
$90,000
$410,000
210,000
340,000
830,000
92,000
$1,130,000
$842,000

Total Plant
$1,260,000
870,000
1,482,000
$3,612,000

Compute the underapplied or overapplied for the year

(a) assuming that a plantwide overhead rate is used

Actual MOH Incurred

Applied MOH
Underapplied Overhead

Cutting
$560,000
512,000
$48,000

Department
Machining Assembly Total Plant
$830,000
$92,000 $1,482,000
336,000
544,000
1,392,000
$494,000 ($452,000)
$90,000

(b) assuming that departmental overhead rates are used

Actual MOH Incurred

Applied MOH
Overapplied Overhead

Department
Cutting
Machining Assembly
$560,000
$830,000
$92,000
576,000
840,000
85,000
($16,000)
($10,000)
$7,000
Check
($16,000)

Check
($10,000)

Check
$7,000

Total Plant
$1,482,000
1,501,000
($19,000)
Check
($19,000)

$110,430.0

1.7034483
AMOH Rate

Check

$90,000

Problem 3A-3: Predetermined Overhead Rate and Capacity

Given:
Skid Road Recording, Inc., is a small audio recording studio located in Seattle. The company handles
work for advertising agencies -- primarily for radio ads -- and has a few singers and bands as clients.
Skid Road Recording handles all aspects of recording from editing to making a digital master from
which CDs can be copied. The competition in the audio recording industry in Seattle has always been
tough, but it has been getting even tougher over the last several years. The studio has been losing
customers to newer studios that are equipped with more-up-to-date equipment and that are able to
offer very attractive prices and excellent service. Summary data concerning the last two years of
operations follows:
2010
2011
Estimated hours of studio services
1,000
750
Estimated studio overhead cost
$90,000
$90,000
Actual hours of studio service provided
900
600
Actual studio overhead cost incurred
$90,000
$90,000
Hours of studio service at capacity
1,800
1,800
The company applies studio overhead to recording jobs on the basis of the hours of studio service
provided. For example, 30 hours of studio time were required to record, edit, and master the Slug
Fest music CD for a local band. All the studio overhead is fixed, and the actual overhead cost
incurred was exactly as estimated at the beginning of the year in both 2010 and 2011.
Required:
1. Skid Road Recording computes its predetermined overhead rate at the beginning of each year
based on the estimated studio overhead and the estimated hours of studio service for the year.
How much overhead would have applied to the Slug Fest job if it had been done in 2010? In
2011? By how much would overhead have been underapplied or overapplied in 2010? In 2011?
Predetermined overhead rate = Estimated studio overhead cost / Estimated hours of studio services

Predetermined rate
Estimated studio overhead cost
Estimated hours of studio services
Predetermined overhead rate
Studio time used on Slug Fest job
Applied overhead to Slug Fest job

Calculation of Under/Overapplied Overhead

Actual hours of studio service provided
Predetermined overhead rate
Applied overhead
Actual studio overhead cost incurred
Underapplied overhead

2010

2011

$90,000
1,000
$90
30
$2,700

$90,000
750
$120
30
$3,600

2010

2011

900
600
$90
$120
$81,000
$72,000
90,000
90,000
($9,000) ($18,000)

2. The president of Skid Road Recording has heard that some companies in the industry have
changed to a system of computing the predetermined overhead rate at the beginning of each
year based on the estimated studio overhead for the year and the hours of studio service that

could be provided at capacity. He would like to know what effect this method would have on
job costs. How much overhead would have been applied using this method to the Slug Fest
job if it had been done in 2010? In 2011? By how much will overhead have been underapplied
or overapplied in 2010 using this method? In 2011?
Predetermined overhead rate = Estimated studio overhead cost / Capacity hours of studio services

Predetermined rate
Estimated studio overhead cost
Capacity hours of studio services
Predetermined overhead rate
Studio time used on Slug Fest job
Applied overhead to Slug Fest job

Calculation of Under/Overapplied Overhead

Actual hours of studio service provided
Predetermined overhead rate
Applied overhead
Actual studio overhead cost incurred
Underapplied overhead

2010

2011

$90,000
1,800
$50
30
$1,500

$90,000
1,800
$50
30
$1,500

2010

2011

900
600
$50
$50
$45,000
$30,000
90,000
90,000
($45,000) ($60,000)

3. How would you interpret the underapplied or overapplied overhead that results from using studio
hours at capacity to compute the predetermined overhead rate?

When the predetermined overhead rate is based on capacity, underapplied overhead is

interpreted as the cost of idle capacity. This underapplied overhead can be treated as a
period expense that would be separately disclosed on the Income statement as Cost of
Unused Capacity.
4. What fundamental business problem is Skid Road Recording facing? Which method of
determinimg the predetermined overhead rate is likely to be more helpful in facing this problem?
Explain.

Fundamental problem: competition is drawing customers away

Use of estimated hours as the predetermined overhead base can cause a death spiral
Lower volume causes higher cost which leads to higher prices which leads to lower
volume which leads to higher costs which leads to higher prices which leads to lower
volume, etc.
Use of capacity hours as the predetermined overhead base will avoid the death spiral.
Predetermined overhead rate is stable throughout.
While basing the predetermined rate on capacity (rather than on estimated activity) will
not solve the company's basic problem (decreasing mkt. share), at least this method
will be less likely to send managers misleading signals.

Problem 3-25: Comprehensive Problem -- J/Es, T-Accounts, Financial Statements

Given:
Southworth Company uses a job-order costing system and applies manufacturing
cost to jobs on the basis of the cost of direct materials used in production. At the
beginning of the current year, the following estimates were made for the purpose
of computing the predetermined overhead rate:
Estimated
Manufacturing overhead cost
$248,000
Direct materials cost
$155,000
MOH rate per DM $
$1.60 160%

Actual
$243,000
$150,000
$1.62

The following transactions took place during the year (all purchases and services were
acquired on account):
a. Raw materials purchased
$142,000
b. Raw materials requisitioned for use in production (all DM)
$150,000
c. Utility bills incurred in the factory
$21,000
$21,000
d. Costs for salaries and wages were incurred as follows:
Direct labor
Indirect labor
Selling and Administrative Salaries
e. Maintenance costs incurred in the factory
f. Advertising costs incurred
g. Depreciation recorded for the year
90% relates to factory assets
10% relates to Selling & Administrative
h. Rental cost incurred on buildings
80% is factory related
20% is selling & administrative related
i. Misc. selling & administrative costs
j. Manufacturing overhead cost applied to jobs
k. Cost of goods manufactured for the year
l. Sales for the year on account
Cost of goods sold (from job cost sheets)

$216,000
$90,000
$145,000
$15,000
$130,000
$50,000
$45,000
$5,000

$90,000

$15,000

$45,000
$90,000

$72,000
$18,000

$72,000
$17,000
?
$590,000
$1,000,000
$600,000
$243,000
Actual MOH

Inventory balances at the beginning of the year

Raw materials
Work in Process
Finished Goods

$18,000
$24,000
$35,000

Required:
Debit

Credit

1. Prepare journal entries to record the above data.

a. Raw Materials Inventory
Accounts Payable
To record purchase of direct materials

142,000
142,000

b. Work In Process Inventory, Job #????

Raw Materials Inventory
To record materials requisitions
c. Manufacturing Overhead
Accounts Payable
To record factory utilities
d. Work-in-Process Inventory, Jobs #????
Manufacturing Overhead
Selling and Administrative Salaries Expense
Wages and Salaries Payable
To record payroll
e. Manufacturing Overhead
Accounts Payable
To record factory maintenance
f.

Advertising Expense
Accounts Payable
To record advertising expense incurred

150,000
150,000

21,000
21,000

216,000
90,000
145,000
451,000

15,000
15,000

130,000
130,000

g. Manufacturing Overhead
Depreciation Expense, Selling & Administrative
Accumulated Depreciation, Selling & Administrative
Accumulated Depreciation, Factory
To record depreciation

45,000
5,000

h. Manufacturing Overhead
Rental Expense
Accounts Payable
To record cost of rent

72,000
18,000

i.

17,000

j.

Misc. Selling and Administrative Expense

Accounts Payable
To record misc. selling & administrative expense
Work In Process Inventory, Job #????
Manufacturing Overhead
To record the application of MOH

k. Finished Goods Inventory, Job#'s

Work In Process Inventory, Job #????
To record completed goods transferred to FG
l.

Accounts Receivable, Name???

Sales
To record sales on account

5,000
45,000

90,000

17,000

240,000
240,000

590,000
590,000

1,000,000
1,000,000

Cost of Goods Sold

Finished Goods Inventory, Job#'s
To record cost of goods sold

600,000
600,000

4. Prepare a journal entry to close any balance in the Manufacturing

Overhead account to COGS.
m. Cost of Goods Sold
Manufacturing Overhead
To close the Manufacturing Overhead Account

3,000
3,000

2. Post entries to T-accounts. Determine the ending balances in the

inventory accounts and in the manufacturing overhead account.
Raw Materials Inventory
BB
18,000
a.
142,000
b.
150,000
EB
10,000

Work In Process Inventory

BB
24,000
b.
150,000
d.
216,000
j.
240,000
k.
590,000
40,000

Finished Goods Inventory

BB
35,000
k.
590,000
l.
600,000
25,000

Accounts Receivable
BB
??
l.
1,000,000

Manufacturing Overhead
BB
0
c.
21,000
d.
90,000
e.
15,000
g.
45,000
h.
72,000
243,000 j.
240,000
B
3,000
m.
3,000
EB
0

BB
a.
c.
e.
f.
h.
i.

Accounts Payable
??
142,000
21,000
15,000
130,000
90,000
17,000
415,000

Wages & Salaries Payable

BB
0
d.
451,000

BB
l.

Sales
0
1,000,000

BB
l.
m.

BB
f.

Cost of Goods Sold

0
600,000
3,000
603,000

S & A. Salaries Expense

BB
0
d.
145,000

Advertising Expense
0
130,000

Depreciation Exp., S & A

BB
0
g.
5,000

Acc. Depr., Selling & Admin.

BB
0
g.
5,000

Acc. Depreciation, Factory

BB
0
g.
45,000

Rental Expense
0
18,000

Misc. Selling & Admin. Exp.

BB
0
i.
17,000

BB
h.

3. Prepare a schedule of cost of goods manufactured

Southworth Company
Schedule of Cost of Goods Manufactured
For the Period ended on ___________
Raw Material Inventory, Beginning
Plus: Purchases of raw materials during period
Raw material available for use during period
Less: Raw Material Inventory, Ending
Direct material used in production
Direct labor incurred during period
Manufacturing overhead applied to work in process
Total Manufacturing Costs Added to Production
Plus: Work-in-Process Inventory, Beginning Balance
Total manufacturing costs to account for
Less: Work-in-Process Inventory, Ending Balance
Cost of Goods Manufactured

$18,000
142,000
$160,000
10,000
$150,000
216,000
240,000
$606,000
24,000
$630,000
40,000
$590,000

4. Prepare a journal entry (J/E) to close any balance in the Manufacturing

Overhead account to Cost of Goods Sold.
See J/E " m." above.
Prepare a schedule of cost of goods sold.
Southworth Company
Schedule of Cost of Goods Sold
For the Period ended on ___________

Finished Goods Inventory, beginning

Plus: Cost of Goods Manufactured
Cost of Goods Available for Sale
Less: Finished Goods Inventory, ending
Unadjusted Cost of Goods Sold
Plus: Underapplied manufacturing overhead
Adjusted Cost of Goods Sold

$35,000
590,000
$625,000
(25,000)
$600,000
3,000
$603,000

5. Prepare an income statement for the year.

Southworth Company
Statement of Income
For the Period ended on ___________
Sales
Less: Adjusted Cost of Goods Sold
Gross Margin
Selling and Administrative Expenses:
Salaries Expense
Advertising Expense
Depreciation Expense
Rent Expense
Miscellaneous Expense
Net Operating Income

$1,000,000
603,000
$397,000
$145,000
130,000
5,000
18,000
17,000

315,000
$82,000

6. Job 218 was one of the many jobs started and completed during the
year. The job required $3,600 in DMs and 400 hours of DL time at a
rate of $11 per hour. If the job contained 500 units and the company
billed at 75% above the unit product cost on the job cost sheet, what
price per unit would have been charged to the customer?
Cost assigned to Job 218:
Direct materials
Direct labor
Applied manufacturing overhead ($1.60/DM$)
Total manufacturing costs
Add: Markup based on 75% of TMC
Anticipated sales billings for Job 218
Divided by units produced
Price Per Unit Produced

$3,600
4,400
5,760
$13,760
10,320
$24,080
500
$48.16

5,760

Direct materials used

Direct labor incurred
MOH Applied
Total manufacturing costs added
BWIP
Total work in process
EWIP
Cost of goods manufactured

$150,000
216,000
240,000
$606,000
24,000
$630,000
$40,000 ??
$590,000

Actual MOH
Applied MOH
Underapplied
To COGS
Closed

$243,000 Dr.
240,000 Cr.
$3,000 Dr. Balance in MOH Account
3,000 Cr. MOH; Dr. COGS
$0 Balance

Problem 3B-5: Classification of Labor Costs

Given:
Lynn Bjorland is employed by Southern Laboratories and is directly involved in preparing
the company's leading antibiotic drug. Lynn's basic wage rate is $24 per hour. The
company pays its employees time and a half for any work in excess of 40 hours per
week.
Required:
1. Suppose that in a given week Lynn works 45 hours. Compute Lynn's total wages for
the week. How much of this cost would the company allocate to direct labor cost? To
manufacturing overhead?
Hours
Rate
Total
Direct labor costs
45
$24
$1,080
MOH-Overtime Premium
5
$12
60
$1,140
Regular Pay
Overtime Pay

40
5

$24
$36

$960
180
$1,140

2. Suppose in another week that Lynn works 50 hours but is idle for 4 hours during the
week due to equipment breakdowns. Compute Lynn's total wages for the week. How
much of this amount would be allocated to direct labor cost? To manufacturing
overhead?
Hours
Rate
Total
Direct labor costs
46
$24
$1,104
$1,104
MOH idle time
4
$24
96
MOH overtime premium
10
$12
120
Total MOH
216
$1,320
$1,320
Regular Pay
Overtime Pay

40
10

$24
$36

$960
360
$1,320

3. Southern Laboratories has an attractive package of fringe benefits that costs the
company $8 for each hour of employee time (either regular time or overtime).
During a particular week Lynn works 48 hours but is idle for 3 hours due to
material shortages. Compute Lynn's total wages and fringe benefits for the week.
If the company treats all fringe benefits as part of manufacturing overhead cost,
how much of Lynn's wages and fringe benefits for the week would be allocated
to direct labor cost? To manufacturing costs?

Direct labor costs

MOH idle time
MOH overtime premium
MOH fringe benefits

Hours
45
3
8
48

Rate
$24
$24
$12
$8

Total
$1,080
$72
$96
384

$1,080

Total MOH
$1,632
Regular pay
Overtime pay

40
8

$32
$44

$552
$1,632

$1,280
352
$1,632

4. Refer to the data in (3) above. If the company treats that part of fringe benefits
relating to direct labor as added direct labor cost, how much of Lynn's wages and
fringe benefits for the week will be allocated to direct labor cost? To MOH cost?

Direct labor costs

MOH idle time
MOH fringe benefits
MOH overtime premium
Total MOH

Hours
45
3
3
8

Rate
$32
$24
$8
$12

Total
$1,440
$72
24
$96
$1,632

Regular pay
Overtime pay

40
8

$32
$44

$1,280
352
$1,632

$1,440

$192
$1,632