Problem 1Job order costing

OtobiFurn Ltd manufactures furniture for computer work stations. OtobiFurn uses a job costing system. The work in process inventory on 30 November consisted of the following jobs.

Job No.

Description

Units

Total cost

CC723

Computer caddy

20 000

$ 900 000

CH 291

Chair

15 000

431 000

PS812

Printer stand

25 000

250 000

Total

$1 581 000

On 30 November, the company's finished goods inventory consisted of four items.

Item

Quantity and unit cost

Total cost

Computer caddy

7 500 units @ $ 64 each

$480 000

Chair

19 400 units @ $ 35 each

679 000

Printer stand

21 000 units @ $ 55 each

1 155 000

Desk

11 200 units @ $ 102 each

1 142 400

Total

$ 3 456 400

At the end of November, the balance in the OtobiFurn's materials inventory account, which includes both raw materials and purchased parts, was $ 668 000. Additions to and requisitions from the materials inventory during December included the following.

Additions and requisitions

Raw materials

Purchased parts

Additions

$242 000

$396 000

Requisitions:

Job CC723

Job CH 291

Job PS812

Job DS444 (5 000 desks)

51 000

3 000

124 000

65 000

104 000

10 800

87 000

187 000

OtobiFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totalled $4 500 000. The company planned to use 900 000 machine hours during this period, which is the firm's estimated practical capacity. Through the first 11 months of the year, a total of 830 000 machine hours were used, and actual manufacturing overhead amounted to $4 140 000.

During December, machine hours and labour hours consisted of the following:

Account

Machine hours

Labour hours

Labour cost

CC723

12 000

11 600

$122 400

CH 291

4 400

3 600

43 200

PS812

19 500

14 300

200 500

DS444

14 000

12 500

138 000

Indirect labour

-

3 000

29 400

Supervision

-

-

57 600

Total

49 900

45 000

$ 591 100

The jobs completed in December and the unit sales for that month are as follows:

Job No.

Production items

Quantity completed

Item

Quantity shipped

CC723

Computer caddy

20 000

Computer caddy

17 500

CH291

Chair

15 000

Chair

21 000

DS444

Desk

5 000

Pinter stand

18 000

Desk

6 000

Required:

1.Describe when it is appropriate for a company to use a job costing system.

2.Calculate the balance in OtobiFurn's work in process inventory account as at 31 December.

3.Calculate the cost of the chairs in OtobiFurn's finished goods inventory as at 31 December.

4.Actual manufacturing overhead incurred in December amounted to $252 000. Calculate OtobiFurn's overapplied or underapplied overhead balances when using a job costing system.

5.Explain two alternative accounting treatments for overapplied or underapplied overhead balances when using a job costing system.