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Name/ Section: RYAN JAY M.

RAYA / 3:00pm 6:00pm

Chapter/Topic: Chapter 2: Job Order Costing
Date Submitted: August 6, 2016

Skills Development Cases

S1-1. Video Case Assignment: Identifying Characteristics of Job Order Costing
Video URL: (https://www.youtube.com/watch?v=mSnWvfzCsfg)

Case Requirement:

1. What product or service did you choose? Why is job order costing appropriate for

this setting?

For this case, I choose Commercial Drone.

Companies creates different kind of drone depending on the market or per

target heading of which they are to sell the specific drone. Thus, they manufacture

this product to fill specific customer/clients need per market category. And in this

type of product, Job order costing is most appropriate.

2. Why does the company that makes the product or service need a cost system?

Describe two decisions a manager would make based on cost information.

Whether you are an established business or a start-up, a cost system is

needed because it will deliver an extremely efficient method to calculate the

precise expenses needed for things like labor, materials, and overhead before you

even produce an item. Getting the required information regarding manufacturing

costs can help you evaluate profitability and determine whether or not you should

be producing a particular item.

Management then need to decide what type of cost system to use in each

of their different products.

3. List two direct costs of making the product or service. Describe how the company

would track these costs to specific jobs, projects, or customers?

On board Camera and Imagery Transmitter/Receiver. The total cost of the

drone will depend on the quality of the camera, video transmitter and ground

receiver attached to it.

4. List three indirect costs of making the product or service. Describe how the

company would assign these costs to specific jobs, projects, or customers? What

allocation base (cost driver) would be appropriate for this setting?

Indirect cost in manufacturing these products includes but is not limited to

administration, electricity and security costs which are not directly related to

production. These cost are often allocated using the Activity-based indirect cost

allocation to accurately allocate costs. It first requires managers to identify and

record each activity needed in the production. Activities then are categorized as

incurring direct or indirect costs. At the end of reporting period, such as at month's

end, records are reviewed, indirect cost rates are calculated and the appropriate

indirect costs are allocated.

S2-2. Applying Job Order Costing to an Entrepreneurial Business

1. What would the major cost of your business be? Try to classify the costs into the

areas of direct materials; direct labor; manufacturing overhead; and selling,

general, and administrative expenses.

Business: Automotive Auto Repair Shop

Since I enjoy working on automobiles, starting a small auto repair business

may be bright for me. It is ultimately the goal of the to offer a one-stop facility for

all auto servicing needs, including brakes, transmission, wheel alignment, etc. In

this way the company can offer greater perceived value for the customer than

many other shops which specialize in certain areas.

Direct materials would include various automotive parts and accessories

that may be needed in the services that we provide. Direct labors would be the

salaries of the workers directly involved in the repairs and servicing of the

customers. Overhead cost will be the indirect factory-related cost that will be

incurred in the shop. These includes but are not limited to electricity, depreciation

equipment and building, shop supplies and shop personnel (other than direct

labor). The SG&A will be the general company overhead which cannot be traced

to the sale of services. These cost includes expenses incurred for accounting,

corporate, sales and marketing expenses.

2. Why would you need to determine the cost of providing your product or service to

individual customers? In other words, what types of decisions would you expect to

make based on job order cost information?

Cost determination for each activity in the service is needed in order to

properly allocate the costs and make informed decisions regarding costing and

revenue measures, operational efficiency and effectiveness. I may then decide to

use different approaches in minimizing the costs involved, maximizing revenues

and optimizing operational efficiency. In addition, proper pricing that would

generate income for the company will be attained.

3. In general, would you expect you companys indirect (overhead) costs to be less

or more than the direct costs (direct labor and materials)? What allocation base do

you think you would use to charge overhead costs to individual customers? How

much do you think the overhead rate would be?

Since there is a significant variations in every services provided to the

customer, overhead cost charge to individual customer will be on a per job order

basis. Meaning, depending on the complexity, the time and effort required to

complete its job will be the allocation basis. Since it will just be an average size

shop, I expect that my direct overhead cost will be more than the indirect cost.

4. Create a job cost sheet for a hypothetical average customer that includes

estimates of the major costs of serving that customer. How much do you think you

would need to charge to cover all of the costs plus provide a reasonable profit for


Base on my experience, one of the required car care maintenance is the

regular wheel alignment. It is very important to ensure tires would not wear

prematurely. It also prevents wear and tear on steering/suspension components.

Below is my sample of a very basic wheel alignment job order.

KimYan Auto Services

Block 13-6, COA Subdivision, Mabini Boulevard
Davao City

Change Oil

Wheel Alignment Php200.00

Under-Chassis repair


Labor 180.00

TOTAL Php 380.00

S2-3. Comprehensive Job Order Costing Case


1. Compute and interpret the predetermined overhead rate.

Answer: $30.00

2. How much overhead would be applied to jobs during the period?

Answer: $15,000.00

3. Compute the total cost of Jobs 102 and 103 at the end of the period. Where

would the cost of each of these jobs appear on the year-end balance sheet?

Answer: Job102 - $32,000.00 classified as Finished Goods Inventory

Job 103 - $15,000.00 classified as Work in Process Inventory

4. Prepare journal entries to record the January transactions and post the entries

to the general ledger T-accounts given earlier in the problem.

Answer: Journal Entries are as follows:

Particulars Debit ($) Credit ($)

(a) Raw Materials Inventory 10,000.00

Accounts Payable 10,000.00

(b) Work in Process Inventory 7,000.00

Manufacturing Overhead 2,000.00
Raw Materials Inventory 9,000.00

('c) Work in Process Inventory 10,000.00

Manufacturing Overhead 4,000.00
Salaries and Wages Expense 5,000.00
Salaries and Wages Payable 19,000.00

(d) Work in Process Inventory 15,000.00

Manufacturing Overhead 15,000.00

('e) Manufacturing Overhead 16,000.00

Cash 6,000.00
Prepaid Insurance 3,000.00
Acc. Dep - Factory Eqpt. 5,000.00
Accrued Utility Expense 2,000.00

(f) Advertising Expense 2,000.00

Dep'n. Expense - Office Eqpt. 3,000.00
Miscllaneous Expense 1,000.00
Cash 2,000.00
Acc. Dep'n - Office Eqpt. 3,000.00
Accrued Miscllaneous Expense 1,000.00

(g) Cash 55,000.00

Cost of Goods Sold 30,000.00
Sales Revenue 55,000.00
Finished goods Inventory 30,000.00

(h) Finished goods Inventory 32,000.00

Work in Process Inventory 32,000.00

192,000.00 192,000.00
5. Calculate the amount of Over or Underapplied Overhead.

Answer: $7,000.00

6. Prepare the journal entry to dispose the overhead balance assuming that it

had been a year-end balance instead of a month-end balance. Post the effect

to the general ledger T-accounts.

Answer: Journal Entry

Cost of Goods Sold $ 7,000.00

Manufacturing Overhead 7,000.00

General Ledger:


MOH (under) 7,000.00 2,000.00
37,000.00 4,000.00
7,000.00 7,000.00

Particulars Debit ($) Credit ($)

Sales Revenue 55,000.00

Salaries and Wages Expenses 5,000.00
Advertising Expense 2,000.00
Depreciation Expense - Office Eqpt. 3,000.00
Miscellaneous Expense 1,000.00
Cost of Goods Sold 37,000.00
Income and Expense Summary 7,000.00

Income and Expense Summary 7,000.00

Retained Earnings 7,000.00

62,000.00 62,000.00

7. Prepare a statement of cost of goods manufactured report including the

adjustment for over or under applied overhead.

Sampson Company

Cost of Goods Manufactured

For the period ended December 31, 2014

Beg. Raw Mats Invty $ 10,000.00

Add: Purchases 10,000.00


Indirect materials 2,000.00

End. Raw Mats Invty 11,000.00

DM used 7,000.00

Direct Labor 10,000.00

Manufacturing Overhead 15,000.00

Total Manufacturing cost 32,000.00

Add: Work in Process, beg. 15,000.00

Less: WIP, end 15,000.00

Cost of Goods Manufactured $32,000.00

8. Prepare a brief income statement for Sampson Company.

Sampson Company

Income Statement

For the period ended December 31, 2014

Sales Revenue $55,000.00

Less: Cost of goods sold

Beg. Finished goods inventory 30,000.00

Add: Cost of goods manufactured 32,000.00

Less: Ending Finished goods Inventory 32,000.00

Unadjusted Cost of goods sold 30,000.00

Add: Under applied MOH 7,000.00 37,000.00

Gross Profit 18,000.00

Less: SG&A expenses 11,000.00

Net Operating Income $ 7,000.00

Factual Experience: