Question 1

The management of Royal Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 70,000 machine-hours. In addition, capacity is 82,000 machine-hours and the actual activity for the year is 72,900 machine-hours. All of the manufacturing overhead is fixed and is $4,132,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Job 706H, which required 300 machine-hours, is one of the jobs worked on during the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
b. Determine how much overhead would be applied to Job 706H if the predetermined overhead rate is based on the amount of the allocation base at capacity.
c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 2

Dickerson Corporation has provided the following data for the month of April:
 $$\begin{array} { l c c } 
\text { Inventories: } & \text { Beginning } & \text { Ending } \
\text { Raw materials } & \$ 21,000 & \$ 35,000 \
\text { Work-in-Process } & \$ 17,000 & \$ 19,000 \
\text { Finished goods } & \$ 46,000 & \$ 38,000
\end{array}$$ 
 $\begin{array}{llr}
\text { Additional information: }\
\text { Raw materials purchases } & \$ 76,000 \
\text { Direct labor cost } & \$ 81,000 \
\text { Manufacturing overhead cost incurred } & \$ 42,000 \
\text { Indirect materials included in manufacturing overhead cost incurred } & \$ 6,000 \
\text { Manufacturing overhead cost applied to Work-in-Process } & \$ 44,000
\end{array}$ 
Required:
Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form.

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Question 3

Why is control of materials important from a managerial planning perspective?

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Question 4

In the context of job costing, what are projects? What additional costing issues are there with projects?

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Question 5

Townley Inc. has provided the following data for the month of February. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.
 $\begin{array}{llr}
& \text {Work-in- }& \text {Finished }& \text {Cost of Goods}\
& \text {Process}& \text {Goods}& \text {Sold}& \text {Total}\
  \text { Direct materials } &\$7,570&\$19,200&\$35,280&\$62,050\
 \text {Direct labor  } &8,810&24,000&44,100&76,910\
 \text { Manufacturing } &\
 \text { overhead applied } &8,320&15,600&28,080&52,000\
 \text {Total  } &\$24,700&\$58,800&\$107,460&\$190,960\
 \text {  } &\
\end{array}$
 
Manufacturing overhead for the month was overapplied by $3,000.
The company allocates any underapplied or overapplied overhead among Work-in-Process, Finished Goods, and Cost of Goods Sold at the end of the month on the basis of the overhead applied during the month in those accounts.
Required:
Provide the journal entry that would record the allocation of underapplied or overapplied among Work-in-Process, Finished Goods, and Cost of Goods Sold.

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Question 6

Describe the difference between normal costing, actual costing, and standard costing.

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Question 7

Aardvark Inc. has provided the following data for the month of November. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.
 $\begin{array}{lrrrrrr}
&\text { Work-in- } & \text { Finished } & \text { Cost of Goods } & \
&\text { Process } & \text { Goods } & \text { Sold } & \text { Total }\
\text { Direct materials } & \$ 3,500 & \$ 11,200 & \$ 51,800 &  \$6 6,500 \
\text { Direct labor } & 3,260 & 14,400 &  66,600 & 84,260 \
\text { Manufacturing } & 3,840 & 7,680 & 36,480 & 48,000 \
\text { overhead applied } & & & & & &\
\text { Total }&\$10,600&\$33,280&\$154,880&\$198,760
\end{array}$
 
Manufacturing overhead for the month was underapplied by $6,000.
The company allocates any underapplied or overapplied overhead among Work-in-Process, Finished Goods, and Cost of Goods Sold at the end of the month on the basis of the overhead applied during the month in those accounts.
Required:
Determine the cost of Work-in-Process, Finished Goods, and Cost of Goods Sold AFTER allocation of the underapplied or overapplied overhead for the period.

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Question 8

The management of Grainger Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 48,000 machine-hours. In addition, capacity is 53,000 machine-hours and the actual activity for the year is 47,700 machine-hours. All of the manufacturing overhead is fixed and is $1,144,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Job SUA-600, which required 40 machine-hours, is one of the jobs worked on during the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
b. Determine how much overhead would be applied to Job SUA-600 if the predetermined overhead rate is based on estimated amount of the allocation base.
c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
d. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
e. Determine how much overhead would be applied to Job SUA-600 if the predetermined overhead rate is based on the amount of the allocation base at capacity.
f. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 9

Why might a company use a predetermined rate for applying overhead rather than just apply actual overhead?

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Question 10

The management of Philly Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 37,000 machine-hours. In addition, capacity is 46,000 machine-hours and the actual activity for the year is 36,900 machine-hours. All of the manufacturing overhead is fixed and is $697,820 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Required:
a. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 11

Cherry Company is a manufacturing firm that uses job costing. The company's inventory balances were as follows at the beginning and end of the year:
 $$\begin{array} { l r r } 
& \begin{array} { c } 
\text { Begirning } \
\text { Balance }
\end{array} & \text { Ending Balance } \
\text { Raw materials } & \$ 11,000 & \$ 15,000 \
\text { Work-in-Process } & 32,000 & 14,000 \
\text { Finished goods } & 108,000 & 123,000
\end{array}$$ 
The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 17,000 machine-hours and incur $272,000 in manufacturing overhead cost. The following transactions were recorded for the year:
? Raw materials were purchased, $416,000.
? Raw materials were requisitioned for use in production, $412,000 ($376,000 direct and $36,000 indirect).
? The following employee costs were incurred: direct labor, $330,000; indirect labor, $69,000; and administrative salaries, $157,000.
? Selling costs, $113,000.
? Factory utility costs, $29,000.
? Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities.
? Manufacturing overhead was applied to jobs. The actual level of activity for the year was 15,000 machine-hours.
? Sales for the year totaled $1,282,000.
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead underapplied or overapplied? By how much?
c. Prepare an income statement for the year in good form. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

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Question 12

Santos Company is a manufacturing firm that uses job costing. At the beginning of the year, the company's inventory balances were as follows:
 $$\begin{array} { l r } 
\text { Raw materials } & \$ 24,000 \
\text { Work-in-Process } & 73,000 \
\text { Finished goods } & 27,000
\end{array}$$ 
The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 45,000 machine-hours and incur $180,000 in manufacturing overhead cost. The following transactions were recorded for the year:
a. Raw materials were purchased, $416,000.
b. Raw materials were requisitioned for use in production, $420,000 ($380,000 direct and $40,000 indirect).
c. The following employee costs were incurred: direct labor, $414,000; indirect labor, $60,000; and administrative salaries, $212,000.
d. Selling costs, $141,000.
e. Factory utility costs, $20,000.
f. Depreciation for the year was $81,000 of which $73,000 is related to factory operations and $8,000 is related to selling, general, and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 48,000 machine-hours.
h. The cost of goods manufactured for the year was $1,004,000.
i. Sales for the year totaled $1,416,000 and the costs on the job cost sheets of the goods that were sold totaled $989,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a) through (j). You can assume that all transactions with employees, customers, and suppliers were conducted in cash.

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Question 13

The management of Atlas Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 19,000 machine-hours. In addition, capacity is 21,000 machine-hours and the actual activity for the year is 18,200 machine-hours. All of the manufacturing overhead is fixed and is $71,820 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
d. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 14

The management of Satellite Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 13,000 machine-hours. In addition, capacity is 16,000 machine-hours and the actual activity for the year is 12,900 machine-hours. All of the manufacturing overhead is fixed and is $29,120 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 15

What are characteristics of companies that are likely to use a job costing system and what are examples of types of companies that are likely to use a job costing system?

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Question 16

Melbourne Consultants works for only two clients: a large for-profit corporation and a small environmental not-for-profit agency. The fee charged for work is based on cost. In deciding how to allocate overhead, the CFO of Melbourne Consultants decides to use the base that allocates the most cost to the large corporation. Is this ethical?

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Question 17

ProBuild Contractors sells to government agencies using a cost-plus contract and to private firms using fixed price contracts. What choices does ProBuild have in the design of its job costing system that affect the cost of the government jobs?

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Question 18

Describe two alternative approaches to the handling of over- or underapplied overhead.

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Question 19

How does job costing for a service organization differ from job costing for a manufacturer?

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Quiz 7: Job Costing