Brief exercises

17.1-

Taylor Corporation uses a job order costing system and allocates manufacturing overhead at a
rate of $30 per machine hour. During the period, the company used 800 machine hours and
actually incurred manufacturing overhead costs of $23,800.

a. Prepare a summary journal entry to record total manufacturing overhead allocated to jobs
during the period.
b. Prepare a summary journal entry to record actual overhead costs incurred during the
period (make the credit portion of the entry to “Various Accounts”).
c. Prepare the journal entry to close the Manufacturing Overhead account directly to Cost of
Goods Sold at the end of the period.

Answer-

17.2-

Curtis Corporation finished job no. 314 on June 1. On June 10, the company sold job no. 314 for
$12,000, cash. Total manufacturing costs allocated to this job at the time of the sale amounted to
$8,000.

a. Record the transfer of job no. 314 from Work in Process to Finished Goods on June 1.
b. Record the sale of job no. 314, and the transfer of its costs from Finished Goods, on June
10.

Answer-
17.4-

Morris Corporation applies manufacturing overhead to jobs at a rate of $50 per direct labor hour.
During the current period, actual overhead costs totaled $240,000, and 5,000 direct labor hours
were worked by the company's employees.

a. Record the journal entry to close the Manufacturing Overhead account directly to Cost of
Goods Sold at the end of the period.
b. Was manufacturing overhead overapplied, or was it underapplied?

Answer – here the manufacturing overheads are over applied because the
manufacturing overhead accounts shows a credit balance if it showed a debit
balance it would then be under applied

17.6-

Needles Manufacturing pays its direct labor employees $18 per hour. During the current period,
400 direct labor hours were recorded on employee time cards, and the company actually paid its
direct labor employees $6,000.

a. Record the summary journal entry to apply direct labor costs to all jobs during the period.
b. Prepare the summary journal entry to record direct labor wages paid during the period.
c. What is the balance of the Direct Labor account at the end of the period? How is it
reported in the company's financial statements?

Answer- The direct labor account has a credit balance of $1,200 ($7,200 - $6,000)
this amount is reported as salaries payable in the company’s balance sheet
17.7-

Norton Industries purchased direct materials costing $800,000 during the current period. It
actually used only $725,000 of direct materials on jobs during the period.

a. Prepare the summary journal entry to record direct materials purchased during the
period. Assume that all purchases are made on account.
b. Prepare the summary journal entry to record all direct materials used during the period.

Answer-

Self-test questions

1. If CustomCraft uses job order costing, each of the following is true, except:

Direct labor cost applicable to individual jobs is recorded when paid by a debit to Work in Process
Inventory and a credit to Cash, as well as by entering the amount on the job cost sheets.

2. When job costing is in use, underapplied overhead:

Is closed out at year-end into the Cost of Goods Sold account if the amount is not material.

3. Which of the following businesses would most likely use job order costing?

A print shop that specializes in wedding invitations.

4. The purpose of an overhead application rate is to:

Assign a portion of indirect manufacturing costs to each product manufactured.

5. Which of the following are true regarding activity-based costing?

A primary goal of using ABC is a more useful allocation of manufacturing overhead to product
lines.
The use of ABC is indicated when it is suspected that each of a firm's product lines consumes
approximately the same amount of overhead resources but the current allocation scheme assigns
each line a substantially different amount.
ABC can be used in conjunction with job order costing.
 6. Which of the following would be the most appropriate basis for allocating the costs of
plant insurance that covers equipment theft and damage?

Value of equipment.

7. Using ABC to allocate manufacturing overhead can help managers to:

Identify what activities drive overhead costs.

Set product prices.
Locate inefficiencies in the production process.

Demonstration problems

Oceanview Enterprises is a print shop that uses job order costing. Overhead is applied to
individual jobs at a predetermined rate based on direct labor costs. The job cost sheet for job no.
21 appears below.

Prepare general journal entries to:

a. Summarize the manufacturing costs charged to job no. 21. (Use one compound entry.)
b. Record the completion of job no. 21.
c. Record the credit sale of 2,000 units from job no. 21 at a unit sales price of $4. Record in
a separate entry the related cost of goods sold.
Answer-