Q1. Job Order Costing

Theodore Structures uses a job costing system to cost its products, in which manufacturing overhead is

applied on the basis of direct labour hours. On January 1, 2015, Job No. 25 was the only job in process.

The costs incurred prior to January 1 on this job were: direct materials $10,000, direct labour $6,000, and

manufacturing overhead $9,000. As of January 1, Job No. 24 had been completed at a cost of $42,000

and was part of finished goods inventory. There was a $5,000 balance in the Raw Materials Inventory

account.

During the month of January, Theodore Structures began production on Jobs 26 and 27, and completed

Jobs 25 and 26. Jobs 24 and 25 were sold on credit during the month for $63,000 and $74,000

respectively.

The following additional events occurred during the month.

1. The firm purchased on credit: 9,000 metres of raw material for $45,000.

2. The following raw materials were transferred to production (requisitioned):

a. Job number 25: 2,000 metres of raw material at $6 per metre (Requisition number

210)

b. Job number 26: 4,000 metres of raw material for $20,000 (Requisition number

211)

c. Job number 27: 5,000 metres of material for $15,000 (Requisition number 212)

3. Time sheets showed the following use of labour:

a. Job number 25: 150 hours of direct labour @ $20 per hour.

b. Job number 26: 600 hours of direct labour @ $20 per hour.

c. Job number 27: 360 hours of direct labour @ $25 per hour.

c. Indirect labour: maintenance and supervision, $6,000.

Manufacturing overhead is applied to production based on actual direct labour hours used each

month.

4. 1000 litres of indirect material were requisitioned and issued to production (Requisition number

213) at a cost of $10,000.

5. Depreciation on the production building and equipment for January was $12,000.

6. The month’s $5,000 utilities bill for production was received and paid (show both entries).

7. The January council rates and property taxes bill for the production building of $3,000 was

received.

8. Depreciation on Theodore’s administration office equipment amounted to $6,000.

Required:

1. Calculate Theodore’s predetermined overhead rate for 2015 assuming Theodore estimates total

manufacturing overhead costs of $450,000, direct labour costs of $300,000 and direct labour hours of

15,000 for the year.

2. Open and complete job cost sheets for job numbers 25, 26 and 27 using the template provided over

the page, and submit with your assignment (one job cost sheet per job). Tip: Don’t forget to calculate

and include the relevant overhead cost for each job. Where you don’t have information to complete

certain fields, you can leave blank. Remember, these sheets summarise the TOTAL cost of each job.

3. Provide journal entries (properly presented and including explanations) to record all of the events of

January, including the completion and sale of relevant jobs.

4. Set up a Manufacturing Overhead Control ledger account for the company, complete the relevant

entries for January, balance and close off the account on 31 January (assume the opening balance on 1

January is $0). What is the under or over-applied overhead for January? Close off the amount to

COGS with a journal entry

Q2. Support Department Cost Allocation – direct, step-down and reciprocal

methods

Samuel and Stevens Brokerage firm is organised around two major sales divisions: institutional clients

and retail clients. The firm also has two support departments: research and administration. The research

department’s costs are allocated to the other departments based on a log of hours spent on tasks for each

user. The administration department’s costs are allocated based on the number of employees in each

department.

Required (show all workings and round all allocation ratios to at least four decimal points, where

applicable):

1. Allocate the support department costs using the direct method.

2. Allocate the support department costs using the step-down method. Briefly outline the criteria,

which could determine the sequence for allocating support department costs using the step-down

method. Allocate the support department costs using the ‘magnitude of costs’ criterion.

3. Allocate the support department costs using the reciprocal method.

Q3. Cost-Volume-Profit Analysis (CVP)

Bishop Corporation has collected the following information after its first year of sales. Sales were

$1,500,000 on 100,000 units; selling expenses $220,000 (40% variable, 60% fixed); direct materials

$510,000; direct labour $280,000; administrative expenses $260,000 (20% variable, 80% fixed);

manufacturing overhead $350,000 (70% variable, 30% fixed). Top management has asked you to do a

CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase

by 10% next year.

Required (show all calculations):

a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed

costs for the current year. Assume that fixed costs will remain the same in the projected year.

b) Compute the break-even point in units and sales dollars for the current year. Briefly comment on

this result.

c) The company is considering the purchase of equipment that would reduce its direct labour costs

by $100,000 and would change its manufacturing overhead costs to 30% variable and 70% fixed

(assume total manufacturing overhead cost is $350,000, as above). It is also considering switching

to pure commission basis for its sales staff. This would change selling expenses to 90% variable

and 10% fixed (assume total selling expense is $220,000, as above). Assuming sales remain

constant at 100,000 units, compute (1) the contribution margin and (2) the contribution margin

ratio, and recompute (3) the break-even point sales dollars. Comment on the effect of these

proposed changes on the break-even point.

Q4. Process Costing – Transferred-in costs, WA.

Buster Dog Treats has two departments, Mixing and Packaging. Each unit of product is a 1 kg bag of dog

treats.

The Packaging department started in December with opening work in process inventory of 20,000

kilograms of dog treats - 40% complete as materials and 20% complete as to conversion in the Packaging

department. This inventory had $24,000 of transferred-in costs, $6,000 of Packaging material costs,

$5,000 of Packaging labour costs and $3,000 of Packaging overhead.

During December, Packaging received a further 100,000 kilograms from Mixing at a cost of $120,000

(transferred-in costs).

Packaging also incurred $34,500 of material cost, $27,600 of labour, and $16,100 of overhead during the

month of December.

At the end of December, Packaging had ending work in process inventory of 5,000 kilograms. These

units were 20% complete with respect to material, and 10% complete as to labour and overhead.

(TIP: Conversion costs are direct labour and overhead costs combined. Your process cost report

should show conversion costs).

Required (show all workings)

Using the Weighted Average method, prepare a process cost report (following the 4 steps outlined in your

lecture notes) for the Packaging department for December. Prepare a journal entry that transfers the

goods from the Packaging department to finished goods.

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