Job Costing Chapter 03 PDF

Job Costing A. Fadiah Bagies © 2009 Pearson Prentice Hall. All rights reserved.  Basic Costing Terminology… The building block concepts of acosting system: Cost Objects – any thing of which measurement of cost is desired including responsibility c...

Job Costing A. Fadiah Bagies © 2009 Pearson Prentice Hall. All rights reserved.  Basic Costing Terminology… The building block concepts of acosting system: Cost Objects – any thing of which measurement of cost is desired including responsibility centers (such as departments, segment , divisions , or subunit of an organization ) customers, products, etc. Direct costs are tracing – materials (DM) and labor(DL) Indirect costs are allocating – manufacturing overhead ( MOH) Cost Pool – is a group of individual indirect cost items Cost-allocation base– a cost driver is a basis to allocate indirect costs among different products , it can be financial ( direct labor cost ) or non- financial (number of machine hours , direct labor hours ). For example, let’s say that direct labor hours cause indirect costs to change. Accordingly, direct labor hours will be used to distribute or allocate costs among objects based on their usage of that cost driver © 2009 Pearson Prentice Hall. All rights reserved.  Costing Systems There are two basic type costing systems that are used to assign costs to products or services Job-Costing: is defined as a method of recording the costs of a manufacturing job. With job costing systems ,accountant can keep track the cost of ( materials, labor, and overhead) for specific job Costs are measured and accumulate separately for each Loading… individual jobs Process-Costing: accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process they divide the total cost of producing similar products by the total numbers of units produced to obtain a per- unit cost Costs are measured for individual process stages Oil refining, orange juice, soda pop, beverage production © 2009 Pearson Prentice Hall. All rights reserved.  When would be appropriate to use each Of costing systems ?? Job costing accumulates costs for different jobs required by specific customers. Process costing computes and allocates an equal amount of cost to each product. Job costing is the logical choice when the production process has many distinct products or many heterogeneous jobs, while process costing is typically used when it is not necessary to keep separate cost records for individual jobs and the products are relatively homogeneous Job costing and process costing systems share the same objective of estimating product costs © 2009 Pearson Prentice Hall. All rights reserved.  Actual costing versus Normal costing In order to compute the total cost of a job We need to know : 1. Direct cost ( material + labor ) there is no problem with it , its easy to determine as we will see later. 2. Indirect cost for this job ( there is a problem here ) , Because of the difficulty of calculating the actual indirect cost on a monthly basis or weekly , Loading… we must wait until the year end of the fiscal year to calculate all the indirect cost , in the other hand we want to price each job , evaluate the success of each job , bidding in new job, so few companies wait until the end of the year when actual overhead finally known. Others used a budgeted or a predetermined indirect –cost rate that are calculated at the beginning of a fiscal year 3. So we have two methods to determine the indirect cost of the job ( actual costing that use actual indirect cost or normal costing which use estimated ( budgeted) indirect cost © 2009 Pearson Prentice Hall. All rights reserved.  An actual Cost system traces object cost to cost object by using Actual direct-cost rates X the actual quantities of direct-cost inputs, and allocates indirect costs based on the actual indirect cost MOH rates X the actual quantities of the cost-allocation bases. A normal Cost system traces direct costs to a cost object by using the actual direct-cost rates X the actual quantities of direct-cost inputs, and allocates indirect costs based on the budgeted indirect cost MOH rates X the actual quantities of the cost-allocation bases. © 2009 Pearson Prentice Hall. All rights reserved. Costing Approaches Summarized as we will notice the actual costing use actual indirect-cost rate and the normal costing use budgeted indirect-cost rate , but when we allocate the indirect costs to products we will use the actual quantity of the cost-allocation bases in our calculation. © 2009 Pearson Prentice Hall. All rights reserved.  Compute the Rate per Unit of Each Cost-Allocation Base Used to Allocate Indirect Costs to the Job. Budgeted MOH Rate = Budgeted MOH Costs ÷ Budgeted total quantity of cost - Allocation Base Actual MOH Rate = Actual annual MOH Costs ÷ Actual annual quantity of cost - Allocation Base © 2009 Pearson Prentice Hall. All rights reserved. there are seven-step required to compute direct and indirect cost of a job in job- costing system Identify the Job that is the Chosen Cost Object. Identify the Direct Costs of the Job (material , labor) Select the Cost-Allocation Bases to Use for Allocating Indirect Costs to the Job. : to use for allocating different Indirect Costs to the Job ( different indirect costs have different cost drivers ) company may choose one cost driver far all the indirect costs Match Indirect Costs to their respective Cost-Allocation base to compute Compute the Overhead Allocation Rate for each cost allocation base Budgeted MOH Rate = Budgeted MOH Costs ÷ Budgeted total quantity of cost - Allocation Base 6. Compute the Indirect Costs Allocated to the Job. Calculate Applied Overhead Costs to the Job = Budgeted MOH Allocation Rate x Actual allocation Base quantity For the Job Compute Total Job Costs by adding all direct and indirect costs together job cost = DM + DL + MHO © 2009 Pearson Prentice Hall. All rights reserved. Job Costing Overview © 2009 Pearson Prentice Hall. All rights reserved.  Three major source documents are used in job costing system : 1. Job –cost sheet : a document that record an accumulate all cost assigned to a specific job starting when work begin. 2. Material requisition record : document contain information about the actual material used on a specific job or department. Loading… Actual material used ( DM ) = actual quantity * actual unit cost 3. Labor time record :document contain information about the labor time used on a specific job or department. it’s the sum of all the direct manufacturing labor costs charge to a specific job by different employee actual direct labor cost( DL ) = number of DL hours spent in a specific job * cost per hour ( hourly rate ) © 2009 Pearson Prentice Hall. All rights reserved. Sample Job Cost Source Documents © 2009 Pearson Prentice Hall. All rights reserved.  Another example of Normal and Actual costing The following information are related to a company that are using job costing system and have two job ( A ,B) The (MOH) is allocated using machine hours ( allocation base) Actual Indirect ( MOH) cost $ 6 / machine hour Total budgeted MOH is $ 10,000 Total budgeted machine hours is 2,000 hours The actual rates : Cost Job A Job B Direct material (DM) $ 25 / pound $ 22/ pound DL) ) Direct labor $ 12/ DLH $ 7 / DLH The actual quantity used : Job A Job B DM 1000 pounds 1500 pound DL 100 hour 90 hour Machine hours 200 Hall. © 2009 Pearson Prentice hourAll rights reserved. 300 hour  Required : Compute the total cost of each job using Actual and Normal costing ??? Solution : First Actual costing Job A Job B © 2009 Pearson Prentice Hall. All rights reserved. Second Normal costing Budgeted MOH rate per machine hour = Job A Job B © 2009 Pearson Prentice Hall. All rights reserved.  Example of acompany using two cost pools two overhead rate for allocating indirect cost Jordan Company has two departments, X and Y. Overhead is applied based on direct labor cost in Department X and machine-hours in Department Y. The following additional information is available: Budgeted Amounts Department X Department Y Direct labor cost $180,000 $165,000 Factory overhead $225,000 $180,000 Machine-hours 51,000 mh 40,000 mh Actual data for Job #10 Department X Department Y Direct materials requisitioned $10,000 $16,000 Direct labor cost $11,000 $14,000 Machine-hours 5,000 mh 3,000 mh Required: a. Compute the budgeted factory overhead rate for Department X. b. Compute the budgeted factory overhead rate for Department Y. c. What is the total overhead cost of Job 10? d. If Job 10 consists of 50 units of product, what is the unit cost of this job? © 2009 Pearson Prentice Hall. All rights reserved. Answer: a. budgeted factory overhead rate for Department X. ………………………………………………………………………………………. ………………………………………………………………………………………. b. budgeted factory overhead rate for Department Y ………………………………………………………………………… ………………………………………………………………………………………. c. the total overhead cost of Job 10 ………………………………………………………………………………………. …………………………………………………………………………… d. total cost for job 10 = ………………………………………………………………………………………. Unit cost of job 10 = ……………………………….. © 2009 Pearson Prentice Hall. All rights reserved. Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year: Machining Assembly Direct labor-hours 10,000 dlh 90,000 dlh Machine-hours 100,000 mh 5,000 mh Direct labor cost $ 80,000 $720,000 Manufacturing overhead costs $250,000 $360,000 The accounting records of the company show the following data for Job #846: Machining Assembly Direct labor-hours 50 dlh 120 dlh Machine-hours 170 mh 10 mh Direct material cost $2,700 $1,600 Direct labor cost $ 400 $ 900 Required: a. Compute the manufacturing overhead allocation rate for each department. b. Compute the total cost of Job #846. © 2009 Pearson Prentice Hall. All rights reserved. Solution : A- Machining Department cost-allocation rate= Assembly Department cost-allocation rate = b- Total cost of Job #846 is = Total cost = C- if the company use single indirect cost rate for the entire plant based on machine hours what will would be the cost of this job ? © 2009 Pearson Prentice Hall. All rights reserved.  Answer : A) Machining Department cost-allocation rate: ………………………………………………………………. Assembly Department cost-allocation rate: …………………………………………………….. B) Total cost of Job #846 is = ………………………………………………………………… ………………… ………………………………………………………………… ………………… © 2009 Pearson Prentice Hall. All rights reserved.  Journal Entries for the job-costing Journal entries are made at each step of the production process The purpose is to have the accounting system closely reflect the actual state of the business,( its inventories and its production processes) We will open several control accounts in General Ledger that relate to all of the jobs in the company and maintain specific accounts for each of job in a subsidiary Ledgers. The main control accounts in the general ledger are :. Material control. Manufacturing overhead ( MOH) control. Manufacturing overhead ( MOH) allocated. Work-in process control. Finished goods control. Cash control. Accounts payable control. Accounts receivable control © 2009 Pearson Prentice Hall. All rights reserved.  We will follow these procedures :. All Product Costs related to the jobs are accumulated in the Work-in-Process Control Account ( WIP control) Direct Materials used Direct Labor incurred Factory Overhead allocated or applied ( assign for a job). Actual Indirect Costs (overhead) are accumulated in the Manufacturing Overhead Control account ( MOH control) in-direct Materials used in-direct Labor incurred other Factory Overhead costs incurred © 2009 Pearson Prentice Hall. All rights reserved. Journal Entries 1- Purchase of Materials on credit ( direct and indirect) Materials Control XX Accounts Payable Control XX 2- Requisition of Direct and Indirect Materials into production Work-in-Process Control ( direct) X Manufacturing Overhead Control ( indirect) Y Materials Control Used Z © 2009 Pearson Prentice Hall. All rights reserved. 3- Incurred Direct and Indirect Labor Wage Work-in-Process Control ( direct) X Manufacturing Overhead Control (indirect) Y Cash Control Z 4- Incurring or recording of various actual Indirect Costs: Manufacturing Overhead (MOH) Control X Salaries Payable Control A Accounts Payable Control B Accumulated Depreciation Control C Prepaid Expenses Control D © 2009 Pearson Prentice Hall. All rights reserved. 5- Allocation of overhead to the Work-in-Process account Work-in-Process Control X Applied Manufacturing Overhead (Allocated) X Note: actual overhead costs are never posted directly into Work-in- Process 6- Completion and transfer of individual jobs to finished goods Finished Goods Control X Work-in-Process Control X © 2009 Pearson Prentice Hall. All rights reserved.  7- Transferred the sold finished goods to an expense ( COGS) Cost of Goods Sold Y Finished Goods Control Y 8- Recording the sales revenues on credit Accounts Receivable Control X Sales revenues X Gross profit = sales – cost of goods sold 9-Recording other period costs ( marketing, customers – services ) Marketing expenses Y Customers – services expenses Y Cash Control Y 10- Made the required end- of accounting year adjustments ( we will explain it later ) © 2009 Pearson Prentice Hall. All rights reserved. Important Notes We have two accounts related to the Manufacturing overhead cost ( MOH) MOH control account which is debited with the actual overhead costs incurred throughout the year. MOH Applied account which is credited with the allocated costs amount ( budgeted overhead costs) this account is consider as a contra account for the MOH control account At the end of the year they will be compared with each other to determine the differences(variance) © 2009 Pearson Prentice Hall. All rights reserved. Flow of Costs Illustrated © 2009 Pearson Prentice Hall. All rights reserved.  Example : Company has made the following operation during year : The total purchased materials were 89,000 in account 81,000 DM and $ 4000 is indirect material Labor cost were $54,000 consist of DL 39,000 ,In direct labor $15,000 Total actual MOH were $ 75,000 ( $57,000 were paid , $ 18,000 plant depreciation Loading… MOH allocated to WIP were $ 80,000 Cost of completed units $188.800 Cost of goods sold $ 180,000 The marketing expenses was $45,000 , customers services expenses $ 15000 paid in cash The total sales were $ 270,000 on account Prepare the journal entries??? © 2009 Pearson Prentice Hall. All rights reserved. Journal Entries for our example 1- Purchase of Materials on credit ( direct and indirect) Materials Control 89,000 Accounts Payable Control 89,000 2- Usage of Direct and Indirect Materials Work-in-Process Control ( direct) 81,000 Manufacturing Overhead Control ( indirect) 4,000 Materials Control 85,000 © 2009 Pearson Prentice Hall. All rights reserved. 3- Incurred Direct and Indirect (OH) Labor Wage Work-in-Process Control ( direct) 39,000 Manufacturing Overhead Control (indirect) 15,000 Cash or wage Control 54,000 4- Recording of various actual Indirect Costs: Manufacturing Overhead Control 75,000 Cash Control 57,000 Accumulated Depreciation Control 18.000 © 2009 Pearson Prentice Hall. All rights reserved. 5- Allocation of (overhead) to the Work-in-Process account Work-in-Process Control 80,000 Manufacturing Overhead Allocated 80,000 6- Completion and transfer of individual jobs to finished goods Finished Goods Control 188,800 Work-in-Process Control 188,800 © 2009 Pearson Prentice Hall. All rights reserved.  7- Transferred the sold finished goods to an expense ( COGS) Cost of Goods Sold 180,000 Finished Goods Control 180,000 8- Recording the sales revenues on credit Accounts Receivable Control 270,000 Sales revenues 270,000 Gross profit = sales – cost of goods sold 9-Recording other period costs ( marketing, customers – services ) Marketing expenses 45,000 Customers – services expenses 15,000 Cash Control 60,000 © 2009 Pearson Prentice Hall. All rights reserved. Illustrated General Ledger in a Job Cost Environment © 2009 Pearson Prentice Hall. All rights reserved.  Exercise : 1- Actual costing is a costing method that allocates______________ indirect costs. a. actual b. budgeted c. estimated d. predetermined 2- Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs: A. Identify indirect costs B. Compute the total cost of the job C. Select cost-allocation bases D. Compute the indirect cost rate a. ACDB b. CADB c. BACD d. DCAB © 2009 Pearson Prentice Hall. All rights reserved. 3- Which of the following statements about normal costing is TRUE? a. Direct costs and indirect costs are traced using an actual rate. b. Direct costs and indirect costs are traced using budgeted rates. c. Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate. d. Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate. 4- The Materials Control account is increased ( debited) when: a. direct materials are purchased b. indirect materials are purchased c. materials are requisitioned for production d. Both a and b are correct. © 2009 Pearson Prentice Hall. All rights reserved. 5- All of the following increase (are debited to) the Work-in-Process Control account EXCEPT: a. actual plant insurance costs b. direct materials c. allocated manufacturing overhead costs d. direct manufacturing labor 6- When indirect materials are requisitioned the __________ account is increased. a. Manufacturing Overhead Control b. Work-in-Process Control c. Materials Control d. Accounts Payable Control © 2009 Pearson Prentice Hall. All rights reserved. 7- What is the appropriate journal entry if direct materials of $50,000 and indirect materials of $3,000 are sent to the manufacturing plant floor? a. Work-in-Process Control 50,000 Materials Control 50,000 b. Work-in-Process Control 53,000 Materials Control 53,000 c. Manufacturing Overhead Control 3,000 Materials Control 50,000 Work-in-Process Control 53,000 d. Work-in-Process Control 50,000 Manufacturing Overhead Control 3,000 Materials Control 53000 © 2009 Pearson Prentice Hall. All rights reserved. 8- What would be the appropriate journal entry if the following labor wages were incurred in a furniture manufacturing company? Assembly workers $30,000 Supervision wages $20,000 a. Work-in-Process Control 50,000 Wages Payable Control 50,000 b. Work-in-Process Control 30,000 Manufacturing Overhead Control 20,000 Wages Payable Control 50,000 c. Manufacturing Overhead Control 50,000 Wages Payable Control 50,000 d. Wages Payable Control 50,000 Work-in-Process Control 50,000 © 2009 Pearson Prentice Hall. All rights reserved.  Use the following information to answers questions Estimated Actual Manufacturing overhead costs $100,000 $120,000 Machine-hours 20,000 25,000 the company use the machine-hours as the only overhead cost-allocation base. 1- the budgeted manufacturing overhead rate is: a. $4.00 per machine-hour b. $4.80 per machine-hour c. $5.00 per machine-hour d. $6.00 per machine-hour 2- Using normal costing, the amount of manufacturing overhead costs allocated to jobs a. $150,000 b. $125,000 c. $120,000 d. $100,000 3- Using job costing, the actual indirect-cost rate is: a. $4.00 per machine-hour b. $4.80 per machine-hour c. $5.00 per machine-hour d. $6.00 per machine-hour © 2009 Pearson Prentice Hall. All rights reserved. 4- Using actual costing, the amount of manufacturing overhead costs allocated to jobs is: a. $150,000 b. $125,000 c. $120,000. d. $100,000 5- Budgeted manufacturing costs for the year are: Department A Department B Direct materials $700,000 $100,000 Direct manufacturing labor $200,000 $800,000 Manufacturing overhead $600,000 $400,000 The actual material and labor costs charged to Job #432 were as follows: Direct materials: $25,000 Direct labor: Department A $ 8,000 Department B $12,000 The company use the direct labor cost as allocation base What is the total cost for the job 432 a. $55,000 b. $65,000 c. $70,000 d. $75,000 © 2009 Pearson Prentice Hall. All rights reserved. Job-cost records for Boucher Company contained the following data: Total Cost Date Date Date of Job Job No. Started Finished Sold at June 30 220 May 18 June 12 June 20 $6,000 221 May 20 June 19 June 21 4,000 222 June 7 July 5 July 12 7,000 223 June 10 June 28 July 1 6,500 224 June 19 July 16 July 25 8,000 Required: a. Compute WIP inventory at June 30. b. Compute finished goods inventory at June 30. c. Compute cost of goods sold for June. Answer: a. $7,000 + $8,000 = $15,000 b. $6,500 c. $6,000 + $4,000 = $10,000 © 2009 Pearson Prentice Hall. All rights reserved.  Accounting for Overhead Recall that two different overhead accounts were used in the preceding journal entries: Manufacturing Overhead ( MOH Control )was debited for the actual overhead costs incurred. Manufacturing Overhead (MOH Allocated ) was credited for estimated (budgeted) overhead applied to production through the Work-in-Process account. Actual costs will almost never equal budgeted costs. Accordingly, an imbalance situation exists between the two overhead accounts If Overhead Control > Overhead Allocated, this is called Under allocated Overhead ( under applied) If Overhead Control < Overhead Allocated, this is called Over allocated Overhead ( over applied) This difference will be eliminated in the end-of-period adjusting entry process, using one of three possible methods © 2009 Pearson Prentice Hall. All rights reserved. Under allocated Overhead and Overallocated overhead Under-allocated indirect costs occur when the allocated amount of indirect costs in an accounting period is less than the actual (incurred) amount. Overallocated indirect costs occur when the allocated amount of indirect costs in an accounting period is greater than the actual (incurred) amount. © 2009 Pearson Prentice Hall. All rights reserved.  Reason for difference between the actual overhead cost and the budgeted overhead Because of the calculation of the budgeted MOH rate = = budgeted of annual overhead costs / budgeted annual quantity of cost allocation base Numerator reason ( indirect cost pool ) actual overhead cost differ than the budgeted overhead cost Denominator reason ( quantity of the allocation base) Quantity of the Actual allocation base differ than the budgeted © 2009 Pearson Prentice Hall. All rights reserved.  Three Methods for Adjusting Over/Underallocated Overhead Write-Off Approach – the difference is simply written off to Cost of Goods Sold Adjusted Allocation Rate Approach – all allocations are recalculated with the actual, exact allocation rate. Proration Approach – the difference is allocated between Cost of Goods Sold, Work-in-Process, and Finished Goods based on their relative sizes © 2009 Pearson Prentice Hall. All rights reserved.  1- Write – Off to Cost of Goods Sold Approach If Overhead Control (actual) > Overhead Allocated, this is called under this approach the total under allocated MOH is included in the cost of goods sold : D.R Cost of goods sold ( value difference ) xxx D.R MOH allocated xxx C.R MOH control xxx If Overhead Control < Overhead Allocated, this is called overallocated , what would be the entry ?? D.R MOH allocated XXX C.R MOH control XXX C.R cost of goods sold ( value difference) XXX Notice : the cost of goods sold will be debited with difference in case of under allocated , and will be credited in over allocated case © 2009 Pearson Prentice Hall. All rights reserved.  2- Adjusted Allocation – Rate Approach In this approach ( adjusted allocation rate ) we will recalculate the MOH rate and recomputed the MOH allocated for each job As a result all the ending WIP control , finished goods control , cost of a goods account will represent the actual MOH cost incurred Under-allocated overhead: we must increase the MOH allocated to WPP 298 job by 12.5% [( MOH control - MOH allocated ) / MOH allocated ] x 100 MOH allocated to job = manufacturing overhead allocated to the job x increase the MOH allocated to the job Adjusted amount for MOH allocated to job = manufacturing overhead allocated to the job + MOH allocated to job Overallocated overhead: Adjusted amount for MOH allocated to job = manufacturing overhead allocated to the job - MOH allocated to job © 2009 Pearson Prentice Hall. All rights reserved.  3- Proration Approach the difference ( underallocated or overallocated ) is spread among Cost of Goods Sold, Work-in-Process, and Finished Goods based on their ending balances ) Account Balance Percentage Proration of New 1 1/ 2,500,000 135,000 Balance Work in process 50,000 2% 2% * 135,000 52,700 2,700 Finished goods 75,000 3 % 3% * 135,000 79,050 4,050 Cost of goods sold 2,375,000 95 % 95 % * 135,000 2,503,250 128,250 total 2,500,000 100 % 135,000 2,635,000 © 2009 Pearson Prentice Hall. All rights reserved. the journal entry to record this proration for underallocated Work in process control 2,700 Finished goods control 4,050 Cost of goods sold 128.250 MOH allocated 1080,000 MOH control 1,215,000 If the case was overall acted we will credited the ( WIP , FG, CGS ) MOH allocated 1.215,000 Work in process control 2,700 Finished goods control 4,050 Cost of goods sold 128.250 MOH control 1,080,000 Notice : in all cases MOH allocated account always debited , MOH control account always credited in spite there is underallocated or overallocated overheads © 2009 Pearson Prentice Hall. All rights reserved. Q : Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory overhead was $287,920 and actual machine-hours were 19,050. Before disposition of under/over applied overhead, the cost of goods sold was $560,000 and ending inventories were as follows: Direct materials $ 60,000 WIP 190,000 Finished goods 250,000 Total $500,000 Required: a. Determine the budgeted factory overhead (MOH) rate per machine- hour. b. Compute the over/under applied overhead. c. Prepare the journal entry to dispose of the variance using the write-off to cost of goods sold approach. d. Prepare the journal entry to dispose of the variance using the proration approach. © 2009 Pearson Prentice Hall. All rights reserved.  solution : a. ……………………………………… Budgeted MOH rate b. MOH allocated …………………………………………. MOH actual $........................... ………………….. ………………………………………………………….. c. Dispose of variance using the write off method ………………………………………. ………………………………………. ………………………………………. D. Dispose of variance using proration method total of the balances : Cost of Goods Sold: WIP: Finished Goods: © 2009 Pearson Prentice Hall. All rights reserved. Overhead allocated $1,000,000. Actual overhead incurred was $1,100,000. Ending balances in the following accounts are: Work-in-Process $ 100,000 Finished Goods 750,000 Cost of Goods Sold 4,150,000 Prepare a journal entry to dispose off the difference between allocated and actual overhead using the Write off , proration method???? © 2009 Pearson Prentice Hall. All rights reserved. The following information was gathered for Rogers Company for the year ended December 31, 20X5. Budgeted Actual Direct labor-hours 75,000 dlh 77,500 dlh Factory overhead $525,000 $558,000 Assume that direct labor-hours are the cost-allocation base. Required: a. Compute the budgeted factory overhead rate. b. Compute the factory overhead applied. c. Compute the amount of over/underapplied overhead. Answer: a. $525,000/75,000 hrs. = $7.00 per hour b. $7.00 x 77,500 hrs. = $542,500 c. $558,000 – $542,500 = $15,500 underapplied © 2009 Pearson Prentice Hall. All rights reserved.  q2 : a company uses a budgeted factory overhead rate to apply overhead to production. The following data are available for the year ended December 31, 20X5. Budgeted Actual Factory overhead $675,000 $716,000 Direct labor costs $450,000 $432,000 Direct labor-hours 12,500 DLh 13,325 DLh Required: a. Determine the budgeted factory overhead rate based on direct labor-hours. b. What is the applied overhead based on direct labor-hours ( MOH allocated c. Is overhead over applied or under applied? © 2009 Pearson Prentice Hall. All rights reserved. Job Order Cost Flow Review Question In M Company, Job No. 26 is completed at a cost of $4,500 and later sold for $7,000 cash. A correct entry is: a. Debit Finished Goods control Inventory $7,000 $7,000 and and credit credit Work Work inin Process Process Inventory control $7,000. $7,000. b. Debit Cost of Goods Sold $7,000 and credit Finished Goods Inventory control $7,000. $7,000. c. Debit Finished Goods control Inventory $4,500 $4,500 andand credit credit Work Work in Process in Process Inventory control $4,500. $4,500. d. Debit Accounts Receivable $7,000 and credit Sales $7,000. SO 5 Prepare entries for jobs completed and sold. Solution on notes page © 2009 Pearson Prentice Hall. All rights reserved.