Exercise 4-24: Job Costing, Journal Entries

Given:
The University of Chicago Press is wholly owned by the University. It
performs the bulk of its work for other university departments, which
pay as though the press were an outside business enterprise. The press
also publishes and maintains a stock of books for general sale. The
Press uses normal costing to cost each job. Its job-costing system has
two direct-cost categories (direct materials and direct manufacturing
labor) and one indirect-cost pool (manufacturing overhead, allocated
on the basis of direct manufacturing labor costs).
The following data (in thousands) pertain to 2014:
DM and supplies purchased on credit
DM used
Indirect materials issued to various production departments
Direct manufacturing labor
Indirect manufacturing labor incurred by various production depts.
Depreciation on building and manufacturing equipment
Miscellaneous MOH incurred by various production depts.
MOH allocated at 160% of direct mfg. labor costs
Cost of Goods Mfg. (COGM)
Revenues
COGS
Inventories. 12/31/2013 (not 12/31/2014):
Materials Control
WIP, Control
FG, Control

1. Present an overview diagram of the job-costing system used at the

University of Chicago Press.

Indirect Cost Pool

Manufacturing
Overhead
Costs

Cost Allocation Base

Direct Mfg. Labor $

Cost Objects: Print Jobs

Allocated MOH $
and
Traced DML & DM

Direct
Costs

Direct
Manufacturing
Labor Costs

Direct Tracing

Direct
Materials
Costs

$800
710
100
1,300
900
400
550
?
4,120
8,000
4,020
100
60
500

2080

2. Prepare journal entries to summarize 2014 transactions.

Dr.
1

Cr.

Materials Inventory Control

Accounts Payable Control
To record purchase of direct
materials & supplies.

800

Work-in-Process Inventory Control

Manufacturing Overhead Control
Materials Inventory Control
To record direct materials and
supplies used.

710
100

Work-in-Process Inventory Control

Manufacturing Overhead Control
Wages Payable
To record manufacturing labor.

800

810

1,300
900
2,200

Manufacturing Overhead Control

Accumulated Depreciation -- Building
and Manufacturing Equipment
To record depreciation of building
and manufacturing equipment

400

Manufacturing Overhead Control

miscellaneous accounts
To record miscellaneous factory
overhead.

550

400

550

Work-in-Process Inventory Control

Applied Manufacturing Overhead
To assign manufacturing overhead
to WIP based on DML dollars.
($1,300 X 160%)

2,080

Finished Goods Inventory Control

Work-in-Process Inventory Control
To record the cost of goods
manufactured.

4,120

Accounts Receivable Control or Cash

Sales Revenues
To record sales revenue.

8,000

Cost of Goods Sold

Finished Goods Inventory Control
To record the costs of the goods
sold.

4,020

2,080

4,120

8,000

4,020

10

Applied Manufacturing Overhead

Manufactured Overhead Control
Cost of Goods Sold
To adjust for the over application
of manufacturing overhead.

2,080
1,950
130

25,060

25,060

3. Show posted T-accounts for all inventories, COGS, MOH Control, and Applied MOH.

BOY
J/E #1
EOY

Materials Inventory Control

100
800
810 J/E #2
90

Work-in-Process Inventory Control

BOY
60
J/E #2
710
J/E #3
1,300
J/E #6
2,080
4,120 J/E #7
EOY
30
Finished Goods Inventory Control
BOY
500
J/E #7
4,120
4,020 J/E #9
EOY
600
Manufacturing Overhead Control
0
100
900
400
550
1,950 J/E #10
EOY
0
BOY
J/E #2
J/E #3
J/E #4
J/E #5

Applied Manufacturing Overhead

BOY
0
2,080 J/E #6
J/E #10
2,080
EOY

BOY
J/E #9

0
Cost of Good Sold
0
4,020

130 J/E #10

EOY

3,890

4. How did the University of Chicago Press perform in 2014?

a. Gross margin.
Sales
Less Cost of Goods Sold
Gross Margin

$8,000
3,890
$4,110

51.38%

The gross margin percentage of over 51% is quite good. In general, GM ratios
above 30% are considered good.
b. The company did a good job of estimating MOH. Overhead was overapplied by
only $130 or about 6.7% (130/1,950).

Exercise 4-32: Service industry, job costing, law firm

Given:
Kidman & Associates is a law firm specializing in labor relations and employee-related
work. It employs 30 professionals (5 partners and 25 associates) who work directly with
its clients. The average budgeted total compensation per professional for 2014 is $97,500.
Each professional is budgeted to have 1,500 billable hours to clients in 2014. All professionals
work for clients to their maximum 1,500 billable hours available. All professional labor costs
are included in a simple direct-cost category and are traced to jobs on a per-hour basis. All
costs of Keating & Associates other than professional labor costs are included in a single
indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as
the allocation base. The budgeted level of indirect costs in 2014 is $2,475,000.
Required:
1. Prepare an overview diagram of the job-costing system used at the Kidman & Associates
Law Firm.

Indirect Cost Pool

Cost Allocation Base

Cost Objects: Legal Jobs

Direct Costs

Legal
Support
Costs
Professional
Labor
Hours
$55 per billable hour
Allocated LSC
and
Traced PLC
$65 per billable hour
Professional
Labor
Costs

2. Compute the 2014 budgeted direct-cost rate per hour of professional labor.
Charging rate = (Budgeted cost per professional) / (Budgeted billable hours per professional)

Charging rate = $97,500 / 1,500 =

$65 per billable hour

3. Compute the 2014 budgeted indirect-cost rate per hour of professional labor.
Allocation rate = (Budgeted legal support costs) / (Budgeted billable hours)
Allocation rate = $2,475,000 / (1,500 X30) =

$55 per billable hour

4. Kidman & Associates is considering bidding on two jobs:

a. Litigation work for Richardson, Inc., which requires 120 budgeted hours
of professional labor
b. Labor contract work for Punch, Inc., which requires 160 budgeted hours

of professional labor
Prepare a cost estimate for each job.
Estimated Billable Hours Required
Professional Labor Charge @ $65/hour:
Legal Support Costs @ $55/hour:
Total Estimated Costs

Richardson

Punch

120

160

$7,800
6,600
$14,400

$10,400
8,800
$19,200

$14,400

$19,200

Could simplify accounting system by

using a single rate as follows:
Application rate = ($65 + $55) = $120

Application rate:
Cost to allocate
Professional Labor -$97,500 X 30 =
Legal Support Costs -Total Costs -Allocation base (Billable Hrs.)
Application rate: $/Billable hrs.

$2,925,000
$2,475,000
$5,400,000
45,000
$120

Exercise 4-33: (Continuation of 4-32) Service industry, job costing, two direct and two indirect-cost categories.
Kidman has just completed a review of its job-costing system. This review included a detailed analysis of how past
jobs used the firm's resources and interviews with personnel about what factors drive the level of indirect costs.
Management concluded that a system with two direct-cost categories (professional partner labor and professional
associate labor) and two indirect-cost categories (general support and secretarial support) would yield more accurate
job costs. Budgeted information for 2014 related to the two direct-cost categories is as follows:
Professional Partner Labor
5
1,500
$210,000

Number of professionals
Hours of billable time per professional per year
Total compensation (average per professional)
Average cost per professional (same as P4-32)

Professional Associate Labor

25
1,500
$75,000
$97,500

Budgeted information for 2014 relating to the two indirect-cost categories is as follows:
Total legal support costs (same as P4-32)
$2,475,000
General Support
$2,025,000
Professional labor-hours

Total costs
Cost-allocation base

Secretarial Support
$450,000
Partner labor-hours

An overview diagram of the job-costing system used at the Kidman & Associates Law Firm

Indirect Cost Pool

Cost Allocation Base

General
Support
Costs

Secretarial
Support
Costs

Professional
Labor
Hours

Allocate

Partner
Labor
Hours

Allocated GSC

Allocated SSC

Traced PPLC

Traced PALC

Professional
Partner Labor
Costs

Direct
Tracing

Professional
Associate Labor
Costs

Cost Objects: Legal Jobs

Direct Costs

1a. Compute the 2014 budgeted direct-cost rate for professional partner labor.
Charging rate = (Budgeted cost per partner) / (Budgeted billable hours per partner)
Charging rate = $210,000 / 1,500 =

$140

per billable partner hour

1b. Compute the 2014 budgeted direct-cost rate for professional associate labor.
Charging rate = (Budgeted cost per professional associate) / (Budgeted billable hours per professional associate)

Charging rate = $75,000 / 1,500 =

$50

per billable professional associate hour

2a. Compute the 2014 budgeted indirect-cost rate for general support costs.
Allocation rate = (Budgeted general support costs) / (Budgeted professional billable labor hours)
Allocation rate = $2,025,000 / (1,500 X 30) =

$45

per billable hour

2b. Compute the 2014 budgeted indirect-cost rate for secretarial support costs.
Allocation rate = (Budgeted secretarial support costs) / (Budgeted partner billable labor hours)
Allocation rate = $450,000 / (1,500 X 5) =

$60

per partner billable hour

3. Prepare a cost estimate for each job. Given that:

Richardson

Estimated Billable Professional Partner Hours

Estimated Billable Professional Associate Hours
Same total hours as in Problem 4-32

40%
60%

Punch

48

32

72
120

128
160

Richardson

Punch

Estimated costs of Richardson & Punch jobs:

Direct Costs:

Rate

Professional Partner Charge Rate per billable partner hour

$140
$50

$6,720
3,600

$4,480
6,400

$45
$60

5,400
2,880
$18,600

7,200
1,920
$20,000

Professional Associate Charge per billable associate hour

Indirect Costs:
General Support Costs per billable professional hour
Secretarial Support Costs per billable partner hour
Total Estimated Costs

4. Why are the expected job costs different from those computed in Problem 4-32?
The Richardson and Punch jobs differ in their use of resources. The Richardson job
has a mix of 40% partners and 60% associates, while Punch has a mix of 20% partners
and 80% associates. The Richardson job is a relatively high user of the more costly
partner-related resources (both direct professional partner labor and indirect partner secretarial
support). Hence more of these costs are assigned to Richardson under the revised costing
method used in Problem 4-33.
5. Would you recommend Kidman & Associates use the job-costing system in P4-32
or the job-costing system in P4-33.
Cost Benefit: Are the costs associated with the improved job-costing system in P4-33
justified by sufficient benefits? Benefits > Costs?
Richardson

Cost assignments using P4-33 costing system

Cost assignments using P4-32 costing system
Difference in cost assignments

$18,600
14,400
$4,200
Under costing

Punch

$20,000
19,200
$800
Under costing

20%
80%

ect-cost categories.

lysis of how past

ndirect costs.
nd professional
ield more accurate

onal Associate Labor

cretarial Support

tner labor-hours

sional associate)

Exercise 4-39

Given data:
Nicole Limited is a company that produces machinery to customer order. Its job-costing system (using normal costing) ha
and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead, allocated using a budgeted rate base
budget for 2011 was:
Manufacturing Overhead
$252,000
0.60
Direct manufacturing labor
$420,000
DM
At the end of 2011, two jobs were incomplete (EWIP)
No. 1768B
Direct materials issued
$22,000
$22,000
Total direct manufacturing labor costs
$11,000
No. 1819C
Direct materials issued
$42,000
$42,000
Total direct manufacturing labor costs
$39,000
At the end of 2011, two jobs were finished but not sold (EFG)
No. 1500B
Direct materials assigned
$22,000
$22,000
Total direct manufacturing labor costs
$10,000
No. 1600C
Direct materials issued
$70,000
$70,000
Total direct manufacturing labor costs
$30,000
During 2011, two jobs were started, completed, and sold (COGS)
No. 1300B
Direct materials assigned
$500,000
$500,000
Total direct manufacturing labor costs
$150,000
No. 1200C
Direct materials issued
$604,000
$604,000
Total direct manufacturing labor costs
$160,000
Direct material costs incurred for all jobs.
Direct manufacturing labor costs incurred for all jobs were
Total charges to the MOH Control account for the year were
There were no beginning inventories.

$1,260,000
$186,840

An overview diagram of the job-costing system used at Nicole Limited.

Indirect Cost Pool

Manufacturing
Overhead
Costs

Cost Allocation Base

Direct Mfg. Labor $

Cost Objects: Custom

Machinery

Allocated MOH $
and
Traced DML & DM

Rate = Estimated MOH$ / Estimated DML$

Rate = $252,000 / $420,000
Rate =
60.00% Estimated MOH Rate
Rate = $186,840 / $400,000
Rate =
46.71% Actual MOH Rate
Used to prove proration

Direct
Costs

Direct
Manufacturing
Labor Costs

Direct
Materials
Costs

Direct Tracing

1. Prepare a detail schedule showing the unajusted ending balances of inventories and COGS.
Started this period
Completed this period
Sold this period
Current Job Location

Yes
No
No
EWIP
Job
1768B

Beginning Inventory:
Direct Materials
Direct Manufacturing Labor
Applied Manufacturing Overhead
Sub-total
Current Period Costs
Direct Materials
Direct Manufacturing Labor
Applied Manufacturing Overhead
Sub-total (New mfg. $ added)
Unadjusted Ending Balances

Yes
No
No
EWIP
Job
1819C

Yes
Yes
No
EFG
Job
1500B

Both
Jobs

$0
0
0
$0

$0
0
0
$0

$0
0
0
$0

$0
0
0
$0

$22,000
11,000
6,600
$39,600
$39,600

$42,000
39,000
23,400
$104,400
$104,400

$64,000
50,000
30,000
$144,000
$144,000

$22,000
10,000
6,000
$38,000
$38,000

2. Calculate under/overapplied overhead.

Applied mfg. overhead
$240,000
Actual mfg. overhead
186,840
Overapplied overhead
$53,160
3. Adjust only COGS
Unadjusted balances
Proration amount
Adjusted balances

4. Proration using
Ending balance method
Unadjusted balances
Proration amount
Adjusted balances

NC

Job
Job
Both
Job
1768B
1819C
Jobs
1500B
$39,600 $104,400
$144,000
$38,000
0
0
0
0
$39,600 $104,400
$144,000
$38,000
Note: COGS is lower than the other methods resulting in a higher NI.

NC

Job
1768B
$39,600
1,108
$38,492

Job
1819C
$104,400
2,921
$101,479

Both
Jobs
$144,000
4,029
$139,971

Job
1500B
$38,000
1,063
$36,937

MOH component of ending balance

Unadjusted balances
Proration amount
Adjusted balances
C

$39,600
1,462
$38,138

$104,400
5,183
$99,217

$144,000
6,645
$137,355

$38,000
1,329
$36,671

Proration using adjusted-allocation rate

Unadjusted balances

$39,600

$104,400

$144,000

$38,000

Proration amount
*** Adjusted balances
From ***
Adjusted balances (Values only)

22.15%
C

1,462
$38,138

5,183
$99,217

6,645
$137,355

1,329
$36,671

$38,138

$99,217

$137,355

$36,671

system (using normal costing) has two direct-cost categories (direct materials
ocated using a budgeted rate based on direct manufacturing labor costs). The

DML

$11,000

$39,000

$10,000

$30,000

$150,000

$160,000

$400,000

/ Estimated DML$

stimated MOH Rate

ctual MOH Rate

Yes
Yes
No
EFG
Job
1600C

Yes
Yes
Yes
COGS
Job
1300B

Both
Jobs

Yes
Yes
Yes
COGS
Job
1200C

Both
Jobs

Grand
Total

$0
0
0
$0

$0
0
0
$0

$0
0
0
$0

$0
0
0
$0

$0
$0
$0
$0

$0
0
0
$0

$70,000
30,000
18,000
$118,000
$118,000

$92,000
40,000
24,000
$156,000
$156,000

$500,000
150,000
90,000
$740,000
$740,000

$604,000
160,000
96,000
$860,000
$860,000

$1,104,000
310,000
186,000
$1,600,000
$1,600,000

$1,260,000
400,000
240,000
$1,900,000
$1,900,000

Job
Both
1600C
Jobs
$118,000 $156,000
0
0
$118,000 $156,000
methods resulting in a higher NI.

Job
1300B
$740,000
24,587
$715,414

Job
1200C
$860,000
28,574
$831,427

Both
Jobs
$1,600,000
53,160
$1,546,840

Grand
Total
$1,900,000
53,160
$1,846,840

Job
1600C
$118,000
3,302
$114,698

Both
Jobs
$156,000
4,365
$151,635

Job
1300B
$740,000
20,704
$719,296

Job
1200C
$860,000
24,062
$835,938

Both
Jobs
$1,600,000
44,766
$1,555,234

Grand
Total
$1,900,000
53,160
$1,846,840

$118,000
3,987
$114,013

$156,000
5,316
$150,684

$740,000
19,935
$720,065

$860,000
21,264
$838,736

$1,600,000
41,199
$1,558,801

$1,900,000
53,160
$1,846,840

$118,000

$156,000

$740,000

$860,000

$1,600,000

$1,900,000

3,987
$114,013

5,316
$150,684

19,935
$720,065

21,264
$838,736

41,199
$1,558,801

53,160
$1,846,840

$114,013

$150,684

$720,065

$838,736

$1,558,801

$1,846,840

Budgeted direct labor costs

Budgeted overhead costs
Costs of actual material used
Actual direct labor costs
Actual overhead costs

$150,000
$180,000
$126,500
$148,750 Estimated Rate
Actual Rate
$176,000
1.20
1.1832
COGS

Job 11

Job 12

WIP Control
Normal Costs

Direct materials
Direct labor
Applied mfg. overhead
Total
Correction for overapplication
All to cost of goods sold
Post allocation balance

$116,050
$137,000
$164,400
$417,450

$3,620
$4,500
$5,400
$13,520

$6,830
$7,250
$8,700
$22,780

$10,450
$11,750
$14,100
$36,300

$126,500
$148,750
$178,500
$453,750

($2,500)
$414,950

$13,520

$22,780

$36,300

($2,500)
$451,250

Total
Correction for overapplication
Ending Balance method
Post allocation balance

$417,450

$13,520

$22,780

($2,300)
$415,150

($74)
$13,446

($126)
($200) ($2,500)
$22,654 $36,100 $451,250

Total
Adj. Allocation
Correction for overapplication
Proration method -- Correct
Post allocation balance

$417,450

$13,520

$22,780

($2,303)
$415,147

($76)
$13,444

($122)
($197) ($2,500)
$22,658 $36,103 $451,250

COGS

COGS

Proof
Direct materials
Direct labor
Applied mfg. overhead
Total

COGS

$116,050
$137,000
$162,097
$415,147

Job 11

Job 11

Job 11

$3,620
$4,500
$5,324
$13,444

Job 12

Job 12

Job 12

$6,830
$7,250
$8,578
$22,658

WIP Control
Normal Costs

$36,300

$453,750

WIP Control
Normal Costs

$36,300

$453,750

WIP Control
Normal Costs

$10,450
$11,750
$13,903
$36,103

$126,500
$148,750
$176,000
$451,250

Normal Costs
Overapplied

$2,500
1.40%

Normal Costs

Normal Costs

Normal Costs
Overapplied

$0

Exercise 4-36

Given Data
Needham Company uses normal costing in its job costing system. Partially completed T-accounts and additional informat
as follows:
a.

DML rate
$15 per hour.

b.

MOH rate
$20 per DMLH

c.

Sales =
Marketing &
Distribution
Costs =

Manufacturing Overhead Control

540,000

$1,090,000

Materials Control
01/01/06

$140,000
12/31/06

30,000
400,000
50,000

380,000 (1)

Finished Goods Control

01/01/03
(3)
12/31/06

10,000
940,000
50,000

900,000 (5)

Required
1. What was the amount of DM issued to production during 2006?
2. What was the amount of MOH allocated to jobs during 2006?
3. What was the total costs of jobs completed during 2006??
4. What was the balance of WIP inventry on 12/31/06?
5. What was the COGS before proration of under- or overallocated MOH?
6. What was the under- or overallocated manufacturing overhead in 2006?
7. Dispose of the under- or overallocated manufacturing using
a. Write-off to COGS
Manufacturing Overhead Allocated
Cost of Goods Sold
Manufacturing Overhead Control
To transfer underapplied overhead to COGS
b.

Proration based on ending balances (before proration) in WIP,

FG, and COGS
Manufacturing Overhead Allocated
Cost of Goods Sold
Finished Goods Control
Work-in-Progress Control
Manufacturing Overhead Control
To prorate underapplied manufacturing overhead to

COGS, FG, and WIP using the ending balance method.

Supporting Calculations:

COGS
FG
WIP
Total

Original
Balance
$900,000
50,000
300,000
$1,250,000

Adjustment
Amount
$43,200
2,400
14,400
$60,000

Porated
Balance
$943,200
52,400
314,400
$1,310,000

8. Using each of the approaches in requirement 7, calculate Needham's

operating income for 2006.

Revenues
Cost of Goods Sold
Gross margin
Marketing & Distribution
Operating income (Loss)

All to COGS
$1,090,000
960,000
$130,000
140,000
($10,000)

Proration
$1,090,000
943,200
$146,800
140,000
$6,800

9. Which approach in requirement 7 do you recommend Needham use?

Explain your answer briefly.
All to COGS -- wrong, but cheap and efficient.
Proration -- still wrong, but likely to be closer to results if actual cost rates had been used.

d T-accounts and additional information for 2006 are

Manufacturing Overhead Allocated

480,000 (2)

Work-in-Progress Control
01/01/06
20,000
DM
380,000 (1)
DML
360,000
MOH
480,000 (2)
940,000 (3)
12/31/06
300,000 (4)
Cost of Goods Sold
COGS

$380,000
$480,000
$940,000
$300,000
$900,000
$60,000

Debit
480,000
60,000

900,000 (5)

(1)
(2)
(3)
(4)
(5)

Credit

540,000

480,000
43,200
2,400
14,400
540,000

$1,310,000