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Job Order Cost Flows - Managerial Accounting

  1. In a job order costing system, the issuance of direct materials to a production department and indirect materials to the factory maintenance department requires which of the following accounting entries?
    Answer: A debit to Work in Process and a debit to Manufacturing Overhead. When materials are issued, Raw Materials Inventory is credited. The debit depends on the material's use. Direct materials are traced to specific jobs, so Work in Process is debited. Indirect materials cannot be traced to specific jobs and are considered part of overhead, so Manufacturing Overhead is debited. Therefore, the complete entry involves debits to both WIP and MOH, and a credit to Raw Materials Inventory.
  2. Assuming overhead is applied when each department completes its work on the job, what is the journal entry when the Assembly department completes its portion of Job 789?
    Answer: Debit Work in Process $216; Credit Manufacturing Overhead Applied $216 Assembly department overhead application = 18 hours × $12 = $216. This amount is debited to Work in Process and credited to Manufacturing Overhead Applied (or Manufacturing Overhead). Choice B uses an incorrect account name. Choice C incorrectly includes overhead from all departments ($200 + $216 + $180). Choice D reverses the debit and credit.
  3. During an audit, it was discovered that $10,000 of indirect materials had been erroneously requisitioned and charged as direct materials to Job #501, which was still in process at year-end. No other errors were found. Before considering any adjustment for total company-wide over- or underapplied overhead, what is the effect of this single error?
    Answer: Work in Process is overstated by $10,000 and actual Manufacturing Overhead is understated by $10,000. The error caused a $10,000 cost to be debited to Work in Process that should have been debited to Manufacturing Overhead. As a result, the Work in Process account for Job #501 is overstated by $10,000. Concurrently, since the cost was not charged to Manufacturing Overhead where it belonged, the total of actual Manufacturing Overhead costs is understated by $10,000.
  4. A company calculates its predetermined overhead rate annually based on estimated direct labor hours. At the beginning of the year, management revises its estimate of total direct labor hours for the upcoming year downward by 10%, but the estimate for total manufacturing overhead costs remains unchanged. This revision will have what effect on the predetermined overhead rate and the total cost of a labor-intensive job?
    Answer: Increase the rate and increase the total job cost. The predetermined overhead rate is calculated as: Estimated Total Manufacturing Overhead / Estimated Allocation Base. If the allocation base (estimated direct labor hours) decreases while the estimated overhead cost remains the same, the rate will increase. A higher rate means that more overhead will be applied to each job based on its usage of the allocation base. Therefore, the total cost of a labor-intensive job will increase.
  5. What is the correct sequence of journal entries to record the completion and sale of Job 88?
    Answer: Debit Finished Goods $31,580; Credit Work in Process $31,580; then Debit Cash $35,000; Credit Sales $35,000; then Debit Cost of Goods Sold $31,580; Credit Finished Goods $31,580 When you encounter job order costing problems involving completion and sale, you need to track the flow of costs through three key stages: Work in Process → Finished Goods → Cost of Goods Sold, along with recording the sale transaction. First, calculate Job 88's total cost: beginning WIP of $18,500 + direct materials of $4,200 + direct labor of $3,700 + applied overhead of $5,180 (140% × $3,700) = $31,580. The correct sequence requires three journal entries: (1) Transfer the completed job from Work in Process to Finished Goods for $31,580, (2) Record the sale by debiting Cash $35,000 and crediting Sales $35,000 since the customer prepaid, and (3) Record the cost of goods sold by transferring $31,580 from Finished Goods to Cost of Goods Sold. Choice A skips the Finished Goods step entirely, moving costs directly from Work in Process to Cost of Goods Sold. This violates proper job order costing flow since completed jobs must first move to Finished Goods. Choice B uses an incorrect total cost of $26,400, likely omitting the applied overhead calculation. Choice C incorrectly debits Accounts Receivable instead of Cash, even though the problem states the customer prepaid $35,000. Choice D correctly shows all three required entries with the proper cost flow and recognizes that cash was already received from the customer. Remember: In job order costing, always follow the complete cost flow sequence and carefully calculate applied overhead using the given rate. Don't shortcut the process by skipping Finished Goods, even when jobs are immediately shipped.
  6. What journal entry should be recorded when Job 308 is completed in March?
    Answer: Debit Finished Goods $57,000; Credit Work in Process $57,000 When Job 308 is completed, the total accumulated cost ($45,000 from prior months + $12,000 from March = $57,000) is transferred from Work in Process to Finished Goods. Choice B only transfers the February balance. Choice C only transfers March costs. Choice D shows the sale entry, not completion.
  7. At year-end, Delta Corp. had a $25,000 debit balance in its Manufacturing Overhead account. The company's policy is to close any immaterial balance directly to Cost of Goods Sold. The journal entry to dispose of this overhead balance will:
    Answer: Increase Cost of Goods Sold by $25,000. A debit balance in the Manufacturing Overhead account means that actual overhead costs exceeded applied overhead costs, resulting in underapplied overhead. To close this debit balance, the Manufacturing Overhead account must be credited. When closing to Cost of Goods Sold, the corresponding debit is to the Cost of Goods Sold account, which increases its balance and decreases net income.
  8. Job #210 incurred $500 of spoilage, which is considered normal and specific to the demanding requirements of this particular job. The spoiled goods have a disposal value of $50. The journal entry to account for this spoilage would include a:
    Answer: Credit to Work in Process for $50. Normal spoilage that is specific to a job is absorbed by the cost of that job. The cost of the spoiled units is removed from Work in Process only to the extent of its disposal value. The spoiled goods are moved to a separate inventory account at their disposal value. The entry is a debit to Spoiled Goods Inventory for $50 and a credit to Work in Process for $50. The remaining cost ($450) stays in the Work in Process account for Job #210, increasing the per-unit cost of the good units produced.
  9. A machine malfunction during the production of Job #99 resulted in $2,000 of abnormal spoilage. These spoiled goods have no disposal value. Which journal entry is required to account for this event?
    Answer: A debit to Loss from Abnormal Spoilage for $2,000 and a credit to Work in Process for $2,000. Abnormal spoilage is not considered a normal cost of production and is treated as a period expense. The cost of the abnormal spoilage ($2,000) is removed from the Work in Process account (a credit) and debited to a loss account, which will appear on the income statement.
  10. Job #77 had a beginning Work in Process balance of $4,500. During the period, $12,000 of direct materials and $8,000 of direct labor were added. Manufacturing overhead was applied at a rate of 150% of direct labor cost. The job was completed at the end of the period. What is the journal entry to record the completion of Job #77?
    Answer: A debit to Finished Goods for $36,500 and a credit to Work in Process for $36,500. First, calculate the total cost of Job #77. Applied overhead is 150% of direct labor cost, or $8,000 * 1.50 = $12,000. The total cost is the sum of beginning WIP, direct materials, direct labor, and applied overhead: $4,500 + $12,000 + $8,000 + $12,000 = $36,500. The journal entry to transfer a completed job from Work in Process to Finished Goods is a debit to Finished Goods and a credit to Work in Process for the total cost of the job.
  11. At the start of the quarter, Foxtrot Inc. had a Finished Goods inventory balance of $50,000. During the quarter, the only job completed was Job #808, which had a total manufacturing cost of $220,000. The unadjusted Cost of Goods Sold for the quarter was $240,000. What is the ending balance in the Finished Goods inventory account?
    Answer: $30,000 The flow through the Finished Goods account is: Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold = Ending Balance. Here, the Cost of Goods Manufactured is the cost of the job completed, $220,000. Therefore, Ending Balance = $50,000 (Beg FG) + $220,000 (COGM) - $240,000 (COGS) = $30,000.
  12. Riverside Company's payroll for the week included: Direct labor on Job 301 ($8,400), Direct labor on Job 302 ($6,200), Indirect labor ($3,800), Administrative salaries ($5,500), Sales commissions ($2,100). Manufacturing-related payroll taxes and benefits are 28% of manufacturing wages. What is the correct journal entry to record the allocation of labor costs to production?
    Answer: Debit Work in Process $14,600; Debit Manufacturing Overhead $4,864; Credit Wages Payable $19,464 Direct labor costs (Job 301 $8,400 + Job 302 $6,200 = $14,600) are debited to Work in Process. Indirect labor of $3,800 plus manufacturing payroll taxes of $1,064 ($3,800 × 28%) totaling $4,864 are debited to Manufacturing Overhead. The credit to Wages Payable is $14,600 + $4,864 = $19,464. Note that payroll taxes apply only to manufacturing wages in this allocation entry.
  13. Kilo Corp. applies manufacturing overhead based on direct labor hours. At the beginning of the year, it estimated total overhead costs of $400,000 and 20,000 direct labor hours. During March, Job #305 required $15,000 of direct materials and its employees worked 500 direct labor hours at a rate of $25 per hour. What is the total manufacturing cost recorded for Job #305 in March?
    Answer: $37,500 This is a three-step calculation. First, calculate the predetermined overhead rate (POHR): $400,000 estimated overhead / 20,000 estimated direct labor hours = $20 per direct labor hour. Second, calculate the costs for Job #305: Direct Materials = $15,000; Direct Labor = 500 hours $25/hour = $12,500; Applied Overhead = 500 hours $20/hour POHR = $10,000. Third, sum the costs: $15,000 (DM) + $12,500 (DL) + $10,000 (MOH) = $37,500.
  14. A manufacturing company's material requisitions for the month totaled $150,000. An analysis of these requisitions revealed that $120,000 was for direct materials used in production and the remainder was for indirect materials used in the factory.
    Answer: A debit to Work in Process for $120,000, a debit to Manufacturing Overhead for $30,000, and a credit to Raw Materials Inventory for $150,000. The correct journal entry to record the use of materials requires assigning costs to the appropriate accounts. Direct materials ($120,000) are traced directly to jobs and are debited to Work in Process. Indirect materials ($150,000 - $120,000 = $30,000) are part of manufacturing overhead and are debited to the Manufacturing Overhead control account. The total amount is credited to Raw Materials Inventory as the materials are removed from storage.
  15. At the end of the fiscal year, a company's records showed actual manufacturing overhead costs of $780,000 and applied manufacturing overhead of $810,000. The company closes the overhead balance to Cost of Goods Sold. Which statement accurately describes the required year-end journal entry?
    Answer: A debit to Manufacturing Overhead for $30,000 is required. Applied overhead ($810,000) is greater than actual overhead ($780,000), resulting in $30,000 of overapplied overhead. This creates a credit balance in the Manufacturing Overhead account. To close this account, a debit to Manufacturing Overhead for $30,000 is required. The corresponding credit will be to Cost of Goods Sold, reducing its balance.
  16. A manager reviews a materials requisition form for Job #113 totaling $5,000 (all direct) and an employee time ticket for a worker on that same job for 40 hours at $20/hour. The company's predetermined overhead rate is $15 per direct labor hour. The journal entries to record these activities for Job #113 would include:
    Answer: A credit to Manufacturing Overhead for $600. The activities described involve adding direct materials ($5,000), direct labor (40 hrs $20/hr = $800), and applied overhead to Work in Process. The entry for direct materials is Dr. WIP, Cr. Raw Materials. The entry for direct labor is Dr. WIP, Cr. Wages Payable. The entry to apply overhead is Dr. Work in Process and Cr. Manufacturing Overhead. The amount of applied overhead is 40 direct labor hours $15/hr = $600. Therefore, the entries include a credit to Manufacturing Overhead for $600.
  17. Bravo Company completed Job #B52 at a total cost of $68,000. The job was sold to a customer on account for $95,000. Which of the following journal entries correctly reflects the cost flow associated with the sale of Job #B52?
    Answer: A debit to Cost of Goods Sold for $68,000 and a credit to Finished Goods for $68,000. The sale of a job requires two entries: one for revenue and one for cost. The question specifically asks for the cost flow entry. This entry moves the cost of the job from the balance sheet (Finished Goods inventory) to the income statement (Cost of Goods Sold). The amount used is the job's cost ($68,000), not its selling price.
  18. What was the Cost of Goods Manufactured for June?
    Answer: $355,000 Cost of Goods Manufactured (COGM) is calculated as: Beginning WIP + Total Manufacturing Costs Added - Ending WIP. First, calculate the Total Manufacturing Costs Added: $90,000 (DM) + $120,000 (DL) + $150,000 (Applied MOH) = $360,000. Then, calculate COGM: $35,000 (Beg WIP) + $360,000 (Costs Added) - $40,000 (End WIP) = $355,000.
  19. The completed job cost sheet for Job #A-1 shows $22,000 in direct materials and 800 direct labor hours at a rate of $30 per hour. Overhead is applied at a rate of $25 per direct labor hour. The job was later sold for $80,000. Upon completion of Job #A-1, what amount is transferred from the Work in Process account to the Finished Goods account?
    Answer: $66,000 The amount transferred from WIP to Finished Goods upon a job's completion is the total manufacturing cost of that job. The total cost is the sum of direct materials, direct labor, and applied manufacturing overhead. Direct Materials = $22,000. Direct Labor = 800 hours $30/hour = $24,000. Applied Overhead = 800 hours $25/hour = $20,000. Total Cost = $22,000 + $24,000 + $20,000 = $66,000. The selling price is irrelevant for this calculation.
  20. Zulu Co. closes its over- and underapplied overhead to Cost of Goods Sold. At year-end, the Cost of Goods Sold account had a balance of $855,000 after an adjustment for $45,000 of underapplied overhead was posted. What was the Cost of Goods Sold balance before the year-end adjustment?
    Answer: $810,000 Underapplied overhead means that not enough overhead was applied to jobs, so the initial Cost of Goods Sold was understated. The adjustment for underapplied overhead increases the Cost of Goods Sold balance. To find the balance before the adjustment, we must reverse this effect. Adjusted COGS = Unadjusted COGS + Underapplied Overhead. Therefore, $855,000 = Unadjusted COGS + $45,000. Solving for Unadjusted COGS gives $855,000 - $45,000 = $810,000.

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