Example: M Manufacturing Co. uses job order costing for its products. The following data are given:

(In thousands of pesos)

Job No. 12

Job No. 13

Job No. 14

Job No. 15

Total

In Process, May 1, 2010:

Direct Materials

P8,000

P5,000

P13,000

Direct Labor

3,000

1,800

4,800

Mfg. overhead applied

1,200

720

1,920

P12,200

P7,520

P19,720

Mfg. costs incurred for May:

Direct Materials

P6,000

P7,000

P7,500

P1,000

P21,500

Direct Labor

2,000

1,600

2,500

500

6,600

Mfg. overhead applied

800

640

1,000

200

2,640

P8,800

P9,240

P11,000

P1,700

P30,740

Accumulated costs:

May 31, 2010

P21,000

P16,760

P11,000

P1,700

P50,460

Additional information given: Jobs 12, 13, 14 are completed in the month of May, 2010.

Conclusion from the information given: Work In-process, beginning therefore is Jobs 12 and 13 for P19,720, while Work In-process ending is Job No. 15 amounting to P1,700.Cost of goods manufactured then is:

Job No. 12

P21,000

Job No. 13

16,760

Job No. 14

11,000

Cost of goods manufactured

P48,760

Work in Process

May 1Balance

1-31Direct materials

Direct labor

Mfg. overhead applied

P19,720

21,500

6,600

2640

May 1 -31 Cost of goods manufactured

31Balance

P 48,760

1,700

Total

P50,460

Total

P50,460

June 1Balance

P1,700

M Manufacturing Co.

Statement of Cost of Goods Manufactured

For the Month Ended May 31, 2010

Direct Materials

Direct Labor

Manufacturing Overhead Applied

Total Manufacturing Costs

Add: Work In Process Inventory, May 1

Total Cost Of Goods In Process

Less: Work In Process Inventory, May 31

Cost Of Goods Manufactured

P21,500

6,600

2,640

P30,740

19,720

P50,460

1,700

P48,760

Problem #1

Gold Nest Company uses job order costing system in which overhead is applied to jobs on the basis of direct labor cost. Estimated total direct labor cost for the year would be $200,000 and total manufacturing overhead cost would be $330,000. Inventory balance at the beginning of the year were Raw materials at $25,000, work in process at $10,000 and finished goods at $40,000. During the year, the following transactions were completed:

a.Raw materials purchased for cash, $275,000

b.Raw materials requisitioned for use in production, $280,000. Materials charged directly to jobs, $220,000, the remaining materials were indirect.

c.Cost of employee services were direct labor, $180,000; indirect labor, $72,000; sales commissions, $63,000, and administrative salaries, $90,000.

d.Rent for the year was $18,000 of which $13,000 is related to factory operations and the rest to selling and administrative activities.

e.Factory utility costs incurred, $57,000. Advertising costs, $140,000.

f.Depreciation recorded on equipment, $100,000, out of which $88,000 was for factory equipment and the remaining was on equipment used in selling and administrative activities.

g.Based on the job order cost sheets, goods manufactured and completed during the year cost $675,000

h.Sales for the year, $1,250,000. Cost to manufacture these goods according to their job cost sheets was $700,000.

Required: 1. Compute the total manufacturing overhead (MOH) applied to jobs for the year. Is the MOH under-applied or over-applied? Close the balance to cost of goods sold and prepare statement of cost of goods manufactured and income statement for the year.

Problem #1

Manufacturing overhead applied per unit

$/ $

= $

MOH applied for the year

$x $

= $

Actual Manufacturing overhead:

Indirect Materials

$

Indirect Labor

Rent Expense - Factory

Utility Expense - Factory

Depreciation - Factory equipment

Total

$

Over-applied MOH

$

Gold Nest Company

Statement of Cost of Goods Manufactured

For the Year Ended December 31, 20xx

Raw Materials used

$

Direct Labor

Manufacturing Overhead applied

Total Manufacturing costs

$

Add: Work in Process, Jan. 1

Total cost of goods in process

$

Less: Work in Process, Dec. 31

Cost of Goods Manufactured

$

Gold Nest Company

Income Statement

For the Year Ended December 31, 20xx

Sales

$

Less cost of goods sold ($-$)........

Gross margin.............................................................

$

Less selling and administrative expenses:

Advertising expense................................................ $

Administrative salaries..............................................

Sales commissions.....................................................

Rent expense..............................................................

Depreciation expense................................................

Net operating income................................................

$

Problem #2:

Almeda Products, Inc. uses a job order costing system. Inventory balances on April 1 were raw materials, $32,000; work in process, $20,000; and finished goods, $48.000

Additional information are as follows:

a. Raw materials purchased $170,000.

b. Raw materials issued from storeroom to production $180,000; 80% direct and 20% indirect.

c. Direct labor $200,000; indirect labor $82,000; and selling and administrative salaries $90,000.

d. Utility costs incurred in the factory, $65,000. Advertising costs $100,000

e. Insurance Expense $20,000; 90% factory related and 10% selling and administrative related.

f. Depreciation Expense $180,000; 85% for factory assets and 15% for selling and administrative assets

g. Predetermined overhead rate is 175% of direct labor cost. Cost of goods manufactured was $700,000

h.Sales for the year, $1,000,000; cost of the goods sold, $720,000.

Required: 1. Compute for the under- or over-applied overhead for the year. Is it under-applied or over-applied?

2. Compute for the ending balance of raw materials, work in process and finished goods.

3. The company under- or over-applied overhead to cost of goods sold. Prepare an income statement.

Problem #4:

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased.) In computing a predetermined overhead rate at the beginning of the year, the company's estimates were: manufacturing overhead cost, $800,000; and direct materials to be used in production, $500,000. The company has provided the following data :

Beginning

Ending

Raw materials

$20,000

$80,000

Work in Process

150,000

70,000

Finished Goods

260,000

400,000

The following actual costs were incurred during the year:

Purchase of direct raw materials

$510,000

Direct labor cost

90,000

Manufacturing overhead costs:

Indirect labor

170,000

Property taxes

48,000

Depreciation- equipment

260,000

Maintenance

95,000

Insurance

7,000

Rent - Building

180,000

Required:

1.a. Compute the predetermined overhead rate for the year

b. Compute the amount of under- or over-applied overhead for the year.

1.Prepare the statement of cost of goods manufactured for the year.

2.Compute the Cost of Goods Sold for the year. (Do not include the under- or over-applied overhead in the cost of goods sold.) What options are available for disposing ofunder- or over-applied overhead?

3.Job 215 was started and completed during the year. What price would have been charged to customer if the job required $8,500 in direct materials and $2,700 in direct labor cost and the company priced its jobs at 25% above the job's cost to absorb period cost as well as provide for profit?

4.If direct materials made up $24,000 of the ending work in process inventory balance. How much is the direct labor cost and the manufacturing overhead?