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CHAPTER 10
SYSTEMS DESIGN: JOB-ORDER COSTING AND
PROCESS COSTING
I.
Questions
1. Job-order costing is used in those manufacturing situations where there
are many different products produced each period. Each product or job is
different from all others and requires separate costing. Process costing is
used in those manufacturing situations where a single, homogeneous
product, such as cement, bricks, or gasoline, is produced for long periods
at a time.
2. The job cost sheet is used in accumulating all costs assignable to a
particular job. These costs would include direct materials cost traceable
to the job, and manufacturing overhead cost allocable to the job. When a
job is completed, the job cost sheet is used to compute the cost per
completed unit. The job cost sheet is then used as a control document for:
(1) determining how many units have been sold and determining the cost
of these units; and (2) determining how many units are still in inventory at
the end of a period and determining the cost of these units on the balance
sheet.
3. Many production costs cannot be traced directly to a particular product or
job, but rather are incurred as a result of overall production activities.
Therefore, in order to be assigned to products, such costs must be
allocated to the products in some manner. Examples of such costs would
include utilities, maintenance on machines, and depreciation of the factory
building. These costs are indirect production costs.
4. A firm will not know its actual manufacturing overhead costs until after a
period is over. Thus, if actual costs were used to cost products, it would
be necessary either (1) to wait until the period was over to add overhead
costs to jobs, or (2) to simply add overhead cost to jobs as the overhead
cost was incurred day by day. If the manager waits until after the period
is over to add overhead cost to jobs, then cost data will not be available
during the period. If the manager simply adds overhead cost to jobs as
the overhead cost is incurred, then unit costs may fluctuate from month to
month. This is because overhead cost tends to be incurred somewhat
evenly from month to month (due to the presence of fixed costs), whereas
production activity often fluctuates. For these reasons, most firms use
10-1
10-2
14. The company will want to distinguish between the costs of the metals used
to make the medallions, but the medals are otherwise identical and go
through the same production processes. Thus, operation costing is ideally
suited for the companys needs.
II. Exercises
Exercise 1 (Process Costing and Job Order Costing)
b.
c.
d.
e.
a. Job-order costing
Process costing
Process costing *
Job-order costing
Job-order costing
g.
h.
i.
j.
f. Process costing
Process costing
Job-order costing
Job-order costing
Job-order costing
* Some of the listed companies might use either a process costing or a joborder costing system, depending on how operations are carried out and how
homogeneous the final product is. For example, a plywood manufacturer
might use job-order costing if plywoods are constructed of different woods
or come in markedly different sizes.
Exercise 2 (Applying Overhead with Various Bases)
Requirement 1
Predetermined overhead rates:
Company X:
Predetermined
overhead rate
=
=
Company Y:
Predetermined
overhead rate
=
=
P3.00 per MH
Company Z:
Predetermined
overhead rate
10-3
P384,000
P240,000 materials cost
Requirement 2
Actual overhead costs incurred.........................................
Overhead cost applied to Work in Process:........................
58,000* actual hours P7.20 per hour.......................
Underapplied overhead cost..............................................
P420,000
417,600
P2,400
P510,000
60,000 machine-hours
Assembly Department:
Predetermined
overhead rate
P800,000
P640,000 direct labor cost
Requirement 2
Milling Department: 90 MHs P8.50 per MH
Assembly Department: P160 125%
Total overhead cost applied
Overhead Applied
P765
200
P965
Requirement 3
Yes; if some jobs required a large amount of machine time and little labor cost,
they would be charged substantially less overhead cost if a plantwide rate
based on direct labor cost were being used. It appears, for example, that this
would be true of job 123 which required considerable machine time to
10-4
80,000
760,000
840,000
Equivalent Units
Materials
Labor
Overhead
10-5
790,000
790,000
790,000
790,000
50,000
840,000
30,000
820,000
10,000
800,000
10,000
800,000
Requirement 2
Total Costs Materials
Cost to be accounted for:
Work in process, May 1...............................................
P 146,600
P 68,600
Cost added during the month.......................................
1,869,200
907,200
Total cost to be accounted for (a)......................................
P2,015,800
P975,800
Equivalent units (b)...........................................................
820,000
Cost per equivalent unit (a) (b)......................................
P1.19
Labor
P30,000
370,000
P400,000
800,000
+ P0.50
Overhead
P 48,000
592,000
P640,000
800,000
+ P0.80
Whole Unit
P2.49
80,000
760,000
840,000
Equivalent Units
Materials
Labor
Overhead
10-6
16,000*
710,000
30,000
20,000*
710,000
10,000
20,000*
710,000
10,000
756,000
740,000
740,000
Requirement 2
Total Costs Materials
Cost to be accounted for:
Work in process, May 31.............................................
P 146,600
Cost added during the month (a)..................................
1,869,200
P907,200
Total cost to be accounted for............................................
P2,015,800
Equivalent units (b)........................................................... 756,000
Cost per equivalent unit (a) (b)......................................
P1.20
Labor
P370,000
+
740,000
P0.50
Overhead
Whole Unit
P592,000
+
740,000
P0.80
P2.50
Exercise 7
Requirement (1)
The direct materials and direct labor costs listed in the exercise would have
been recorded on four different documents: the materials requisition form for
Job KC123, the time ticket for Kristine, the time ticket for Clarisse, and the
job cost sheet for Job KC123.
Requirement (2)
The costs for Job KC123 would have been recorded as follows:
Materials requisition form:
Quantity
Blanks
40
Nibs
960
Unit Cost
P80.00
P6.00
Total Cost
P3,200
5,760
P8,960
Ended
12:15 PM
Time
Completed
3.25
10-7
Rate
P120.00
Amount
P390.00
Job
Number
KC123
Ended
4:30 PM
Time
Completed
2.25
Rate
P140.00
Amount
P315.00
Job
Number
KC123
Exercise 8
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead......................................P586,000
Estimated total direct labor hours (DLHs)................................ 40,000 DLHs
= Predetermined overhead rate..................................................... P14.65 per DLH
Exercise 9
Weighted-Average Method
Materials
Work in process, May 1.................................
P 14,550
Cost added during May.................................
88,350
Total cost (a)..................................................
P102,900
Equivalent units of
production (b)............................................1,200
Cost per equivalent unit
(a) (b).....................................................
P85.75
Labor
P23,620
14,330
P37,950
Overhead
P118,100
71,650
P189,750
1,100
1,100
P34.50
P172.50
Total
P292.75
Exercise 10
FIFO Method
Materials
To complete beginning work in process:
10-8
Conversion
III. Problems
Problem 1
Requirement 1
a. Raw Materials Inventory.............................................. 210,000
Accounts Payable.....................................................
210,000
b. Work in Process........................................................... 178,000
Manufacturing Overhead............................................. 12,000
Raw Materials Inventory..........................................
190,000
c. Work in Process........................................................... 90,000
Manufacturing Overhead............................................. 110,000
Salaries and Wages Payable.....................................
200,000
d. Manufacturing Overhead............................................. 40,000
Accumulated Depreciation.......................................
40,000
70,000
f.
10-9
Manufacturing Overhead
12,000
240,000
(f)
110,000
40,000
70,000
8,000
(Overapplied
overhead)
Bal.
(b)
(c)
(f)
Bal.
Work in Process
42,000
510,000
178,000
90,000
240,000
30,000
(g)
Problem 2
Requirement 1
The costing problem does, indeed, lie with manufacturing overhead cost, as
suggested. Since manufacturing overhead is mostly fixed, the cost per unit
increases as the level of production decreases. The problem can be solved by
use of predetermined overhead rates, which should be based on expected
activity for the entire year. Many students will use units of product in
computing the predetermined overhead rate, as follows:
Estimated manufacturing overhead cost, P840,000
= P4.20 per unit.
Estimated units to be produced,
200,000
The predetermined overhead rate could also be set on the basis of either direct
labor cost or direct materials cost. The computations are:
Estimated manufacturing overhead cost, P840,000
= 350% of direct
Estimated direct labor cost,
P240,000
labor cost
Estimated manufacturing overhead cost, P840,000
10-10
140% of direct
= materials cost
P600,000
Requirement 2
Using a predetermined overhead rate, the unit costs would be:
Direct materials...................
Direct labor.........................
Manufacturing overhead:
Applied at P4.20 per
units; 350% of direct
labor cost, or 140% of
direct materials cost
Total cost.......................
Number of units
produced...........................
Estimated cost per unit........
First
P240,000
96,000
Quarter
Second
Third
P120,000 P 60,000
48,000
24,000
Fourth
P180,000
72,000
336,000
168,000
84,000
252,000
P672,000
P336,000
P168,000
P504,000
80,000
P8.40
40,000
P8.40
20,000
P8.40
60,000
P8.40
Problem 3
Weighted-Average Method
Pounds to be accounted for:
Work in process, May 1
(all materials, 55% labor and
overhead added last month)..........
Started into production during
May................................................
Total pounds.............................
Quantity
Schedule
30,000
480,000
510,000
Equivalent Units
Labor &
Materials
Overhead
10-11
490,000*
490,000
490,000
20,000
510,000
20,000
510,000
18,000
508,000
Quantity
Schedule
Equivalent Units
Materials Conversion
190,000
190,000
190,000
40,000
30,000
24,000
230,000
220,000
214,000
Whole Unit
Requirement 2
Work in process, April 1......
Cost added during the
month................................
Total cost (a).....................
Equivalent units of
production (b)
..........................................
Cost per EU (a) (b)...........
Total Cost
P 98,000
Materials
P 67,800
Conversion
P 30,200
827,000
P925,000
579,000
P646,800
248,000
P278,200
220,000
214,000
P2.94
P1.30
P4.24
Requirement 3
Total units transferred.......................................................
Less units in the beginning inventory.................................
Units started and completed during April..........................
10-12
190,000
30,000
160,000
Requirement 4
No, the manager should not be rewarded for good cost control. The reason for
the Mixing Departments low unit cost for April is traceable to the fact that
costs of the prior month have been averaged in with Aprils costs in computing
the lower, P2.94 per unit figure. This is a major criticism of the weightedaverage method in that the figures computed for product costing purposes
cant be used to evaluate cost control or measure performance for the current
period.
Problem 5 (Preparation of Production Report from Analysis of Work in
Process T-account Weighted-Average Method)
Requirement 1
Weighted-Average Method
Quantity Schedule and Equivalent Units
Quantity
Schedule
Pounds to be accounted for:
Work in process, May 1
(materials all complete, labor
and overhead 4/5 complete)......
Started into production................
Total pounds to be accounted for......
35,000
280,000
315,000
Equivalent Units (EU)
Labor &
Materials
Overhead
270,000
270,000
270,000
45,000
315,000
45,000
315,000
30,000
300,000
Total
Materials
Labor &
Overhead
P 63,700
P 43,400
P 20,300
587,300
397,600
189,700
P651,000
P441,000
P210,000
315,000
300,000
P1.40
P0.70
Whole
Unit
P2.10
Cost Reconciliation
Total
Cost
Cost accounted for as follows:
Transferred to Blending:
270,000 pounds x P2.10
per pound..............................
Work in process, May 31:
Materials, at P1.40 per EU......
Labor and overhead, at P0.70
per EU...................................
Total work in process, May 31....
Total costs accounted for..................
P567,000
270,000
63,000
45,000
21,000
84,000
P651,000
270,000
30,000
Requirement 2
In computing unit costs, the weighted-average method mixes costs of the prior
period with current period costs. Thus, under the weighted-average method,
unit costs are influenced to some extent by what happened in a prior period.
This problem becomes particularly significant when attempting to measure
performance in the current period. Good (or bad) cost control in the current
period might be concealed to some degree by the costs that have been brought
forward in the beginning inventory.
10-14
D
D
D
C
D
6.
7.
8.
9.
10.
D
A
C
C
B
11.
12.
13.
14.
15.
A
D
B
D
C
10-15
16.
17.
18.
19.
20.
A
D
A
C
D