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CHAPTER12:INTRODUCTIONTOPRODUCTCOSTING

MultipleChoice
b1.Thethreemajorcomponentsofmanufacturingcostare
a.materials,workinprocess,andfinishedgoods.
b.materials,labor,andmanufacturingoverhead.
c.materials,labor,andfinishedgoods.
d.materials,labor,andproductioncosts.
a2.ApredeterminedoverheadrateCANNOTbeused
a.ifacompanydoesnotbudgetitsoverheadcosts.
b.byacompanythatusesjobordercosting.
c.inamultipleproductcompany.
d.byahighlyautomatedcompanywherelaborisaminorpartofproduct
cost.
a3.Assigningoverheadtojobsusingapredeterminedoverheadrateiscalled
a.applying.
b.budgeting.
c.productcosting.
d.jobordercosting.
d4.Predeterminedoverheadratesarebasedonactivitymeasuredby
a.numberofjobs.
b.unitsofsales.
c.unitsofproduction.
d.unitsofaninputfactor.
b5.Absorptioncostingisrequired
a.forfinancialaccountingpurposesonly.
b.forfinancialaccountingandtaxpurposes.
c.forfinancialandmanagerialaccountingpurposes.
d.formanagerialaccountingpurposesonly.
a6.Bothactualandnormalcosting
a.includematerial,labor,andoverheadinproductcost.
b.requirepredeterminedoverheadrates.
c.arelikelytoresultinoverorunderabsorptionofoverhead.
d.willshowafavorablevolumevarianceifproductionisgreaterthan
budgeted.
b7.Anadvantageofnormalcostingoveractualcostingisthat
a.thecompanycancomputetheexactcostofaunitofproduct.
b.unitcostsarenotaffectedbymonthlyfluctuationsinproduction
activity.
c.controloverfixedcostsisimproved.
d.thecompanyneednotforecastthelevelofproductiveactivityfor
theyear.
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d8.Anunfavorablevolumevariancesignifiesthat
a.costcontrolwaspoor.
b.saleswerelessthanbudgeted.
c.productionwaslessthansales.
d.productionwaslessthanthelevelusedtosetthefixedoverhead
applicationrate.
b9.Theprincipalreasonforusingmorethanoneratetoapplyoverheadis
a.tokeeptheindividualrateslow.
b.thatoverheadcostsaredrivenbymorethanoneactivity.
c.thatsuchratesrecognizetheseasonalnatureofsomecosts.
d.tosimplifyrecordkeeping.
a10.Activitybasedoverheadratesaremoreusefulthanasingleplantwide
rateif
a.overheadcostsaredrivenbyseveralactivities.
b.directlaborcostvariessignificantlyfromdepartmenttodepartment.
c.allproductsrequireaboutthesameamountsofallactivities.
d.manufacturingoverheadcostsarenearlyallfixed.
c11.Actualcostingandnormalcostingdifferintreating
a.materialscost.
b.directlaborcost.
c.overheadcost.
d.alloftheabove.
d12.WhichcompanyisLEASTlikelytousejobordercosting?
a.Furnituremaker.
b.Printer.
c.Constructioncompany.
d.Flourmaker.
d13.Acostpoolis
a.allcostsofaproductiondepartment.
b.thematerialandlaborcostusedonaparticularjob.
c.overappliedorunderappliedoverheadcosts.
d.agroupofoverheadcostsdrivenbythesameactivity.
c14.Eachgroupofoverheadcostsshouldbeappliedbasedon
a.directlaborhoursorcost.
b.unitsproduced.
c.whateveractivitydrivesthosespecificoverheadcosts.
d.machinetime.
d15.APOORreasontouseactivitybasedoverheadratesisthat
a.somedepartmentsarelaborintensive,somearemachineintensive.
b.significantamountsofoverheadaredrivenbydifferentfactors.
c.ratescalculatedforsomedepartmentsaremuchhigherthanforother
departments.
d.alljobsrequireaboutthesameamountsofcostdrivingactivities.
a16.XYZhadan$8,000unfavorablevolumevariance,a$11,500unfavorable
variableoverheadspendingvariance,and$1,500totalunderapplied
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overhead.Thefixedoverheadbudgetvariancewas
a.$18,000favorable.
b.$21,000favorable.
c.$17,500unfavorable.
d.$21,000unfavorable.
d17.Machinehoursusedtosetthepredeterminedoverheadratewere25,000,
actualhourswere24,000,andoverheadappliedwas$60,000.Budgeted
overheadfortheyearwas
a.$57,600.
b.$59,000.
c.$60,000.
d.$62,500.
c18.Thethreeinventoryaccountsinamanufacturingcompanyare
a.Materials,Labor,andManufacturingOverhead.
b.Materials,Labor,andFinishedGoods.
c.Materials,WorkinProcess,andFinishedGoods.
d.Materials,FinishedGoods,andInventorySold.
a19.Apredeterminedoverheadrateiscalculatedusing
a.budgetedoverheadcostandbudgetedactivity.
b.actualoverheadcostandactualactivity.
c.budgetedoverheadcostandbudgeteddirectlaborhours.
d.budgetedoverheadcostandbudgeteddirectlaborcost.
d20.Undernormalcosting,incomecanbe
a.lowerthanunderactualcosting.
b.higherthanunderactualcosting.
c.thesameasunderactualcosting.
d.anyoftheabove.
a21.Thenumeratorincomputingapredeterminedoverheadrateis
a.budgetedmanufacturingoverheadcost.
b.actualmanufacturingoverheadcost.
c.budgetedactivity.
d.fixedmanufacturingoverhead.
c22.Thedenominatorincalculatingapredeterminedoverheadrateis
a.budgetedmanufacturingoverheadcost.
b.actualmanufacturingoverheadcost.
c.budgetedactivity.
d.actualactivity.
c23.Inafactoryoperatedlargelybyrobots,thebestbasisforapplying
overheadisprobably
a.directlaborhours.
b.directlaborcost.
c.machinehours.
d.rawmaterialuse.
a24.Spoonerappliesoverheadbasedondirectlaborcost.Ithadbudgeted
manufacturingoverheadof$50,000andbudgeteddirectlaborof$25,000.
Actualoverheadwas$52,500,actuallaborcostwas$27,000.Overheadwas
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a.overappliedby$1,500.
b.overappliedby$2,000.
c.overappliedby$2,500.
d.underappliedby$2,000.
c25.Haywardappliesoverheadat$5permachinehour.DuringMarchitworked
10,000hoursandoverappliedoverheadby$3,000.Actualoverheadwas
a.$53,000.
b.$50,000.
c.$47,000.
d.noneoftheabove.
b26.Auroraappliesoverheadat$9perdirectlaborhourofwhich$4is
variableoverhead.Budgeteddirectlaborhourswere80,000.Budgeted
fixedoverheadwas
a.$320,000
b.$400,000.
c.$720,000.
d.noneoftheabove.
a27.Whichisagoodreasontouseseparateoverheadrates?
a.Somedepartmentsarelaborintensive,somearemachineintensive.
b.Laborratesvaryconsiderablyamongdepartments.
c.Theresultingoverheadratesareallaboutthesame.
d.Alljobsrequireaboutthesamepercentageoftimeinall
departments.
c28.Incontrasttoacompanythatusesasingleoverheadrate,onethatuses
activitybasedcosting
a.willhavehigherproductcoststhanoneusingasingleoverheadrate.
b.cannotcomputebudgetvariances.
c.willincuradditionalcostsforrecordkeeping.
d.musthaveapreponderanceoffixedoverheadcosts.
a29.Whichofthefollowingisasignofpoorcostcontrol?
a.Ahighunfavorablebudgetvariance.
b.Ahighunfavorablevolumevariance.
c.Highunderappliedoverhead.
d.Highoverappliedoverhead.
c30.HoytCompanyappliesoverheadat$4perdirectlaborhour.InMarchHoyt
incurredoverheadof$96,000.Underappliedoverheadwas$4,000.How
manydirectlaborhoursdidHoytwork?
a.25,000
b.24,000
c.23,000
d.22,000
d31.Acompanyusingactivitybasedoverheadrates
a.willusuallyhavehigherbudgetvariancesthanoneusingasingle
rate.
b.willusuallyhavehighervolumevariancesthanoneusingasingle
rate.
c.cannotcomputefixedandvariablecomponentsofoverheadcost.
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d.shouldhavebetterinformationforplanningandcontrolthanone
usingasinglerate.
a32.Dalyhada$9,000favorablevolumevariance,a$7,500unfavorable
variableoverheadspendingvariance,and$6,000totaloverapplied
overhead.Thefixedoverheadbudgetvariancewas
a.$4,500favorable.
b.$8,000favorable.
c.$4,500unfavorable.
d.$8,000unfavorable.
d33.Acmehada$6,000favorablefixedoverheadbudgetvariance,a$2,500
unfavorablevariableoverheadspendingvariance,and$1,000total
overappliedoverhead.Thevolumevariancewas
a.$4,500overapplied.
b.$4,500underapplied.
c.$2,500overapplied.
d.$2,500underapplied.
b34.Waldorfhada$10,000unfavorablefixedoverheadbudgetvariance,a
$6,000unfavorablevariableoverheadspendingvariance,anda$2,000
favorablevolumevariance.Thetotaloverheadwas
a.$14,000overapplied.
b.$14,000underapplied.
c.$18,000overapplied.
d.$18,000underapplied.
a35.Baconhada$18,000unfavorablevolumevariance,a$5,000unfavorable
fixedoverheadbudgetvariance,and$12,000totalunderappliedoverhead.
Thevariableoverheadspendingvariancewas
a.$11,000favorable.
b.$1,000favorable.
c.$11,000unfavorable.
d.$23,000unfavorable.
d36.GonzalezCompanyusestheequation$520,000+$2perdirectlaborhour
tobudgetmanufacturingoverhead.Gonzalezhasbudgeted150,000direct
laborhoursfortheyear.Actualresultswere150,000directlaborhours
and$817,500totalmanufacturingoverhead.Thetotaloverheadapplied
fortheyearis
a.$300,000.
b.$520,000.
c.$817,500.
d.$820,000.
a37.GonzalezCompanyusestheequation$520,000+$2perdirectlaborhour
tobudgetmanufacturingoverhead.Gonzalezhasbudgeted150,000direct
laborhoursfortheyear.Actualresultswere150,000directlaborhours
and$817,500totalmanufacturingoverhead.Thetotaloverheadvariance
fortheyearis
a.$2,500favorable.
b.$12,500favorable.
c.$2,500unfavorable.
d.someothernumber.
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c38.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhour
tobudgetmanufacturingoverhead.Bondshasbudgeted125,000direct
laborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.The
totaloverheadvariancefortheyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
a39.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhour
tobudgetmanufacturingoverhead.Bondshasbudgeted125,000direct
laborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.The
variableoverheadspendingvariancefortheyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
b40.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhour
tobudgetmanufacturingoverhead.Bondshasbudgeted125,000direct
laborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.The
fixedoverheadbudgetvariancefortheyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
d41.BondsCompanyusestheequation$300,000+$1.75perdirectlaborhour
tobudgetmanufacturingoverhead.Bondshasbudgeted125,000direct
laborhoursfortheyear.Actualresultswere110,000directlabor
hours,$297,000fixedoverhead,and$194,500variableoverhead.The
fixedoverheadvolumevariancefortheyearis
a.$2,000.
b.$3,000.
c.$47,000.
d.$48,000.
a42.Machinehoursusedtosetthepredeterminedoverheadratewere80,000,
actualhourswere90,000,andoverheadappliedwas$117,000.Budgeted
overheadfortheyearwas
a.$104,000.
b.$117,000.
c.$131,625.
d.someothernumber.
a43.CookeCompanyusestheequation$450,000+$1.50perdirectlaborhour
tobudgetmanufacturingoverhead.Cookehasbudgeted150,000direct
laborhoursfortheyear.Actualresultswere156,000directlaborhours
and$697,500totalmanufacturingoverhead.Thetotaloverheadvariance
fortheyearis
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a.$4,500favorable.
b.$18,000favorable.
c.$4,500unfavorable.
d.$18,000unfavorable.
b44.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhour
tobudgetmanufacturingoverhead.Antayahasbudgeted75,000direct
laborhoursfortheyear.Actualresultswere81,000directlaborhours,
$388,000fixedoverhead,and$98,600variableoverhead.Thetotal
overheadvariancefortheyearis
a.$2,700.
b.$10,700.
c.$22,000.
d.$30,000.
a45.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhour
tobudgetmanufacturingoverhead.Antayahasbudgeted75,000direct
laborhoursfortheyear.Actualresultswere81,000directlaborhours,
$388,000fixedoverhead,and$98,600variableoverhead.Thevariable
overheadspendingvariancefortheyearis
a.$2,700.
b.$10,700.
c.$22,000.
d.$30,000.
c46.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhour
tobudgetmanufacturingoverhead.Antayahasbudgeted75,000direct
laborhoursfortheyear.Actualresultswere81,000directlaborhours,
$388,000fixedoverhead,and$98,600variableoverhead.Thefixed
overheadbudgetvariancefortheyearis
a.$2,700.
b.$10,700.
c.$22,000.
d.$30,000.
d47.AntayaCompanyusestheequation$375,000+$1.20perdirectlaborhour
tobudgetmanufacturingoverhead.Antayahasbudgeted75,000direct
laborhoursfortheyear.Actualresultswere81,000directlaborhours,
$388,000fixedoverhead,and$98,600variableoverhead.Thefixed
overheadvolumevariancefortheyearis
a.$1,400.
b.$13,000.
c.$15,600.
d.$30,000.
a48.Machinehoursusedtosetthepredeterminedoverheadratewere68,000,
actualhourswere64,000,andbudgetedoverheadwas$142,800.Overhead
appliedfortheyearwas
a.$134,400.
b.$136,500.
c.$142,800.
d.$151,725.
a49.Rhodahada$2,000favorablevolumevariance,a$7,000unfavorable
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variableoverheadspendingvariance,and$3,000totalunderapplied
overhead.Thefixedoverheadbudgetvariancewas
a.$1,000favorable.
b.$8,000favorable.
c.$2,000unfavorable.
d.$8,000unfavorable.
b50.KatrinaInc.hada$30,000favorablefixedoverheadbudgetvariance,a
$44,000unfavorablevariableoverheadspendingvariance,and$44,000
totalunderappliedoverhead.Thevolumevariancewas
a.$30,000overapplied.
b.$30,000underapplied.
c.$58,000overapplied.
d.$58,000underapplied.

170

TrueFalse
T1.Amajoradvantageofnormalcostingoveractualcostingisthatit
smoothesoutfluctuationsinunitcosts.
F2.Normalcostingincomesarelessthanactualcostingincomes.
T3.Thetermoverappliedoverheadisnotusedwithactualcosting.
T4.Aseasonalbusinessusingnormalcostingexpectshighoverappliedand
underappliedoverheadduringindividualmonthsoftheyear.
F5.Underappliedoverheadindicatesinefficientoperations.
F6.Activitybasedoverheadratesgivehighercoststhandoesasingle,
plantwiderate.
F7.Acostpoolconsistsofallofthecostsofaparticulardepartment.
T8.AbsorptioncostingisrequiredbyGAAPforexternalfinancialreporting.
F9.Variablecostingandfullcostingarethesamething.
T10.Overheadvariancesdonotexistwhenactualcostingisused.

Problems

1. GagneCompanyusesthefollowingequationtobudgetmanufacturingoverhead.

Manufacturingoverhead=$600,000+$2perdirectlaborhour

Gagnehasbudgeted300,000directlaborhoursfortheyear.Actualresults
were320,000directlaborhoursand$1,249,000totalmanufacturing
overhead.

a. Findthepredeterminedoverheadrate.
b. Findtotaloverheadappliedfortheyear.
c. Compute(overappliedunderapplied)overheadandcirclethecorrect
direction.
d. Findtheoverheadbudgetvarianceandstatewhetherfavorableor
unfavorable.
e. Computethevolumevarianceandstatewhetherfavorableorunfavorable

SOLUTION:
a.$4($600,000/300,000+$2variable)

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b.$1,280,000($4x320,000)
c.$31,000overapplied($1,280,000$1,249,000)
d.$9,000unfavorable{$1,249,000[($2x320,000)+$600,000]}
e.$40,000favorable($1,240,000budgeted$1,280,000applied)

2.GomezCompanyusesjobordercosting.Dataareasfollows:

JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$1,600,000$1,450,000$50,000$100,000
Directlabor$1,250,000$900,000$100,000$250,000

Gomezappliesoverheadtojobsat$0.80perdirectlabordollar.Total
overheadcostincurredwas$950,000.Therewerenobeginninginventories.
a. Whatiscostofgoodssoldusingnormalcosting?
b. Findtheendinginventoryofworkinprocessusingnormalcosting.
c. Findtheamountofoverhead(overappliedunderapplied)andcirclethe
correctdirection.
d. Gomeztreatsoverappliedorunderappliedoverheadasanadjustmentto
costofgoodssold.Computetotalcostofgoodssold.

SOLUTION:
a.$3,070,000[$1,450,000+$900,000+($0.80x$900,000)]
b.$230,000[$50,000+$100,000+($0.80x$100,000)]
c.$50,000overapplied[($1,250,000x$0.80)$950,000]
d.$3,020,000($3,070,000normalminus$50,000overappliedOH)

3. AntigoCompanyusesjobordercosting.DatarelatedtoMarchareas
follows:
JobAJobBJobC

Materialcost$3,900$4,700$5,200
Directlaborcost$4,000$6,000$4,000
Machinehours300500300

Antigoappliesoverheadtojobsat$8permachinehour.Totaloverheadcost
incurredinMarchwas$8,400.Therewerenobeginninginventories.JobA
wasincompleteattheendofMarch,JobBwassoldfor$28,000,andJobC
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wasinfinishedgoodsinventory.Sellingandadministrativeexpenseswere
$2,100.

a. Computetheendinginventoryofworkinprocess.
b. Computetheendinginventoryoffinishedgoods.
c. Overheadwas(overappliedunderapplied)by?Circlethecorrect
direction.

d. Computethenormalcostofgoodssold.
e. Prepareanincomestatementshowingunderappliedoroverappliedoverhead
asanadjustmenttonormalcostofsales.

SOLUTION:
a. $10,300(CostofjobA,below)
b. $11,600(CostofjobC,below)
JobAJobBJobC

Materialcost$3,900$4,700$5,200
Directlaborcost4,0006,0004,000
Appliedoverheadat$82,4004,0002,400

Totalcosts$10,300$14,700$11,600
=====================
c. $400overapplied
Actualoverhead$8,400
Appliedoverhead($2,400+$4,000+$2,400)8,600

Overappliedoverhead$400
======
d. $14,700(CostofjobB,seeabove)
e.
Sales$28,000
Normalcostofsales$14,700
Lessoverappliedoverhead40014,300

Grossmargin$13,700
Sellingandadministrativeexpenses2,100

Income$11,600
=======

4. BrunoCompanyusesthefollowingequationtobudgetmanufacturingoverhead.

173

Manufacturingoverhead=$200,000+$3perdirectlaborhour

Brunohasbudgeted100,000directlaborhoursfortheyear.Actualresults
were90,000directlaborhoursand$457,000totalmanufacturingoverhead.
a. Findthepredeterminedoverheadrate.
b. Findtotaloverheadappliedfortheyear.
c. Compute(overappliedunderapplied)overheadandcirclethecorrect
direction.
d. Findtheoverheadbudgetvarianceandstatewhetherfavorableor
unfavorable.
e. Computethevolumevarianceandstatewhetherfavorableorunfavorable

SOLUTION:
a.$5($200,000/100,000+$3variable)
b.$450,000($5x90,000)
c.$7,000underapplied($450,000$457,000)
d.$13,000favorable{$457,000[($3x90,000)+$200,000]}
e.$20,000unfavorable($470,000budgeted$450,000applied)

5.HurleyCompanyusesjobordercosting.Dataareasfollows:

JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$2,050,000$1,500,000$200,000$350,000
Directlabor$2,250,000$1,650,000$160,000$440,000

Hurleyappliesoverheadtojobsat$0.60perdirectlabordollar.Total
overheadcostincurredwas$1,460,000.Therewerenobeginninginventories.
a. Whatiscostofgoodssoldusingnormalcosting?
b. Findtheendinginventoryofworkinprocessusingnormalcosting.
c. Findtheamountofoverhead(overappliedunderapplied)andcirclethe
correctdirection.
d. Hurleytreatsoverappliedorunderappliedoverheadasanadjustmentto
costofgoodssold.Computetotalcostofgoodssold.

SOLUTION:
174

a.$4,140,000[$1,500,000+$1,650,000+($0.60x$1,650,000)]
b.$456,000[$200,000+$160,000+($0.60x$160,000)]

c.$110,000underapplied[($2,250,000x$0.60)$1,460,000]
d.$4,250,000($4,140,000normalplus$110,000underappliedOH)

6. AcmeCompanyusesjobordercosting.DatarelatedtoAugustareasfollows:
JobAJobBJobC

Materialcost$3,900$4,700$5,400
Directlaborcost$4,000$7,000$4,000
Machinehours400700500

Acmeappliesoverheadtojobsat$10.00permachinehour.Totaloverhead
costincurredinAugustwas$16,700.Therewerenobeginninginventories.
JobAwasincompleteattheendofAugust,JobBwassoldfor$34,000,and
JobCwasinfinishedgoodsinventory.Sellingandadministrativeexpenses
were$3,500.

a. Computetheendinginventoryofworkinprocess.
b. Computetheendinginventoryoffinishedgoods.
c. Overheadwas(overappliedunderapplied)by?Circlethecorrect
direction.

d. Computethenormalcostofgoodssold.
e. Prepareanincomestatementshowingunderappliedoroverappliedoverhead
asanadjustmenttonormalcostofsales.

SOLUTION:
a. $11,900(CostofjobA,below)
b. $14,400(CostofjobC,below)
JobAJobBJobC

Materialcost$3,900$4,700$5,400
Directlaborcost4,0007,0004,000
Appliedoverheadat$104,0007,0004,000

Totalcosts$11,900$18,700$14,400
=====================
c. $700underapplied
Actualoverhead$16,700
175

Appliedoverhead($4,000+$7,000+$4,000)16,000

Underappliedoverhead$700
=======
d. $18,700(CostofjobB,seeabove)

176

e.
Sales$34,000
Normalcostofsales$18,700
Plusunderappliedoverhead70019,400

Grossmargin$14,600
Sellingandadministrativeexpenses3,500

Income$11,100
=======

7.DarlingtonCompanyusesjobordercosting.Dataareasfollows:
JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

Materials$3,200,000$2,700,000$200,000$300,000
Directlabor$1,500,000$1,000,000$100,000$400,000

Darlingtonusesactualcostingtoassignoverheadbasedondirectlabor.
Totaloverheadcostincurredwas$2,700,000.Therewerenobeginning
inventories.
a. Whatiscostofgoodssold?
b. Findtheendinginventoryofworkinprocess.
c. Findtheendingfinishedgoodsinventoryvalue.

SOLUTION:
a.$5,500,000[$2,700,000+$1,000,000+($1,000,000/$1,500,000x
$2,700,000)]
b.$480,000[$200,000+$100,000+($100,000/$1,500,000x$2,700,000)]

c.$1,420,000[$300,000+$400,000+($400,000/$1,500,000x$2,700,000)]

8. BeloitCompanyusesjobordercosting.DatarelatedtoSeptemberareas
follows:
JobAJobBJobC

Materialcost$4,400$3,400$4,200
Directlaborcost$3,000$6,000$2,000

Beloitusesactualcostingtoapplyoverheadtojobsbasedondirectlabor
cost.TotaloverheadcostincurredinSeptemberwas$14,300.Therewereno
beginninginventories.JobAwasincompleteattheendofSeptember,JobB
wassoldfor$22,000,andJobCwasinfinishedgoodsinventory.Selling
andadministrativeexpenseswere$3,800.
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a. Computetheendinginventoryofworkinprocess.
b. Computetheendinginventoryoffinishedgoods.
c. Overheadwas(overappliedunderapplied)by?Circlethecorrect
direction.

d. Computecostofgoodssold.
e. Prepareanincomestatementshowingunderappliedoroverappliedoverhead
asanadjustmenttocostofsales.

SOLUTION:
a. $11,300(CostofjobA,below)
b. $8,800(CostofjobC,below)
JobAJobBJobC

Materialcost$4,400$3,400$4,200
Directlaborcost3,0006,0002,000
Appliedoverhead3,9007,8002,600

Totalcosts$11,300$17,200$8,800
====================
c. neither;actualoverheadisapplied
Actualoverhead$14,300
Appliedoverhead($3,900+$7,800+$2,600)14,300

Underappliedoverhead$0
=======
d. $17,200(CostofjobB,seeabove)
e.
Sales$22,000
Costofsales17,200

Grossmargin$4,800
Sellingandadministrativeexpenses3,800

Income$1,000
=======

9.AshlandCompanyusesjobordercosting.Dataareasfollows:

JobsinJobsinEnding
TotalsJobsSoldEndingWIPFinishedGoods

178

Materials$1,450,000$800,000$300,000$350,000
Directlabor$1,650,000$850,000$260,000$540,000

Ashlandappliesoverheadtojobsat$0.70perdirectlabordollar.Total
overheadcostincurredwas$1,070,000.Therewerenobeginninginventories.
a. Whatiscostofgoodssoldusingnormalcosting?
b. Findtheendinginventoryofworkinprocessusingnormalcosting.
c. Findtheamountofoverhead(overappliedunderapplied)andcirclethe
correctdirection.
d. Ashlandtreatsoverappliedorunderappliedoverheadasanadjustmentto
costofgoodssold.Computetotalcostofgoodssold.

SOLUTION:
a.$2,245,000[$800,000+$850,000+($0.70x$850,000)]
b.$742,000[$300,000+$260,000+($0.70x$260,000)]
c.$85,000overapplied[($1,650,000x$0.70)$1,070,000]
d.$2,160,000($2,245,000normalless$85,000overappliedOH)

10.HayesCompanyusesjobordercosting.DatarelatedtoMayareasfollows:
JobAJobBJobC

Materialcost$3,900$5,700$4,400
Directlaborcost$2,000$4,000$3,000
Machinehours1,0007001,400

Hayesappliesoverheadtojobsat$8permachinehour.Totaloverheadcost
incurredinMaywas$24,650.Therewerenobeginninginventories.JobAwas
incompleteattheendofMay,JobBwassoldfor$30,000,andJobCwasin
finishedgoodsinventory.Sellingandadministrativeexpenseswere$3,900.

a. Computetheendinginventoryofworkinprocess.
b. Computetheendinginventoryoffinishedgoods.
c. Overheadwas(overappliedunderapplied)by?Circlethecorrect
direction.

d. Computethenormalcostofgoodssold.
e. Prepareanincomestatementshowingunderappliedoroverappliedoverhead
asanadjustmenttonormalcostofsales.

SOLUTION:
179

a. $13,900(CostofjobA,below)

180

b. $18,600(CostofjobC,below)
JobAJobBJobC

Materialcost$3,900$5,700$4,400
Directlaborcost2,0004,0003,000
Appliedoverheadat$88,0005,60011,200

Totalcosts$13,900$15,300$18,600
=====================
c. $150overapplied
Actualoverhead$24,650
Appliedoverhead($8,000+$5,600+$11,200)24,800

Overappliedoverhead$150
=======
d. $15,300(CostofjobB,seeabove)
e.
Sales$30,000
Normalcostofsales$15,300
Lessoverappliedoverhead15015,150

Grossmargin$14,850
Sellingandadministrativeexpenses3,900

Income$10,950
=======

181