Page 753 - Accounting Principles (A Business Perspective)

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➢ Real world question Besides law firms and public accounting firms, name three service
organizations that produce individual jobs and would use job costing.

➢ (Appendix) Under what specific circumstances would you expect net income to be larger under
variable costing than under absorption costing? What is the reason for this difference?
Exercises
Exercise A The following costs are incurred by an electrical appliance manufacturer. Classify these costs as
direct materials, direct labor, manufacturing overhead, selling, or administrative.

a. President's salary.
b. Cost of electrical wire used in making appliances.
c. Cost of janitorial supplies (the janitors work in the factory).
d. Wages of assembly-line workers.
e. Cost of promotional displays.
f. Assembly-line supervisor's salary.
g. Cost accountant's salary (the accountant works in the factory).
h. Cost of cleaner used to clean appliances when they are completed.
i. Cost of aluminum used for toasters.

j. Cost of market research survey.
Exercise B Classify the costs listed in the previous exercise as either product costs or period costs.
Exercise C Gore Company makes products for sporting events. The following data are for the year ended 2010
December 31:
Materials inventory, 2010 January 1 $ 45,000
Materials inventory, 2010 December 31 65,000
Materials purchases 175,000
Direct labor 225,000
Work in process inventory, 2010 January 1 30,000
Work in process inventory, 2010 December 31 40,000
Manufacturing overhead 130,000
Finished goods inventory, 2010 January 1 80,000
Finished goods inventory, 2010 December 31 140,000
Prepare a Cost of Goods Manufactured Statement and compute the cost of goods sold.
Exercise D In June, Sierra Company worked only on Job No. 100 and completed it on June 30. There were no
prior costs accumulated on Job No. 100 before June 1. During the month, the company purchased and used USD
10,800 of direct materials, used 2,000 machine-hours, and incurred USD 19,200 of direct labor costs. Assuming
manufacturing overhead is applied at the rate of USD 12 per machine-hour, what is the total cost of Job No. 100?
Prepare journal entries to assign the materials, labor, and manufacturing overhead costs to production and to

record the transfer of Job No. 100 to Finished Goods Inventory.
Exercise E At the end of the second week in March, Job No. 710 has an accumulated total cost of USD 37,800.
In the third week, USD 9,000 of direct materials were used on Job 710, 300 hours of direct labor were charged to
the job at USD 40 per hour, and manufacturing overhead was applied on the basis of USD 40 per machine-hour for
overhead. Job No. 710 was the only job worked on in the third week. It was also completed in the third week. Job
No. 710 used 160 machine-hours during the third week in March. Compute the cost of Job No. 710, and give the
journal entry required to record its completion and transfer to Finished Goods Inventory.

Accounting Principles: A Business Perspective 754 A Global Text