Page 754 - Accounting Principles (A Business Perspective)

18. Managerial accounting concepts/job costing

Exercise F Different companies use different bases in computing their predetermined overhead rates. From
the following estimated data, compute the predetermined rate to be used by each company:
Company
Paper Rock Scissors
Machine-hours 100,000 210,000 125,000
Direct labor-hours 50,000 48,000 39,000
Direct labor cost $800,000 $735,000 $410,000
Manufacturing overhead cost $400,000 $432,000 $375,000
Basis for determining predetermined overhead rate:

Company Basis
Paper Direct labor cost
Rock Direct labor-hours
Scissors Machine-hours
Exercise G Refer to the previous exercise. Assume the actual hours and cost data were:
Actual Paper Rock Scissors
Manufacturing overhead $450,000 $400,000 $375,000
Direct labor cost $850,000 $700,000 $400,000
Direct labor-hours 45,000 46,000 38,000
Machine-hours 105,000 200,000 130,000
a. Compute overapplied or underapplied overhead for each company.
b. Prepare journal entries to transfer overapplied or underapplied overhead to Cost of Goods Sold for each
company.
Exercise H Ernest Peat Consultants uses a job cost system and had the following activity during December:

There were no jobs in beginning Work in Process or Finished Goods Inventory.
Three jobs were started: No. 222, 223, and 224. Job No. 222 was completed and the customer was billed for
USD 10,000 on account. Job No. 223 was completed and in Finished Goods Inventory awaiting billing to the client
at the end of the month. Job No. 224 was still in process at month-end.
Direct labor costs incurred for:
Job No. 222 200 hours @ $21/hour
Job No. 223 300 hours @ $18/hour
Job No. 224 120 hours @ $17/hour
Assume overhead is applied at the rate of USD 10 per labor-hour.

Actual overhead was USD 6,400. (The credit part of the journal entry is to Accounts Payable.
Prepare journal entries to record the preceding data, as well as the transfer of underapplied or overapplied
overhead to Cost of Goods Sold.
Exercise I The following data relate to Socks Company for the year ended 2010 December 31:
Cost of production:
Direct materials (variable) $360,000
Direct labor (variable) 504,000
Manufacturing overhead:
Variable 180,000
Fixed 360,000
Sales commissions (variable) 108,000
Sales salaries (fixed) 72,000
Administrative expenses (fixed) 144,000
Units produced 150,000
Units sold (at $18 each) 120,000
Beginning inventory, 2010 January 1 -0-
There were no beginning inventories. Assume direct materials and direct labor are variable costs. Prepare two
income statements—a variable costing income statement and an absorption costing income statement.

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