Job Order Costing Examples, Practical Problems and Solutions
Written by True Tamplin, BSc, CEPF®
Updated on June 10, 2021
Problem No. 1: (Job Order Costing Cycle)
The Excellent Company had the following inventories on April 1, 2019:
| $ | |
| Raw Material | 50,000 |
| Finished Goods | 28,000 |
| WIP – Material | 2,000 |
| WIP – Labour | 30,000 |
| WIP – FOH | 12,000 |
During the month the cost of material purchased was $120,000, direct labor cost incurred was $160,000 and factory overhead applicable to production was $60,000, on April 30 inventories were:
| $ | |
| Raw Material | 46,000 |
| Finished Goods | 44,000 |
| WIP – Material | 10,000 |
| WIP – Labour | 18,000 |
| WIP – FOH | 8,000 |
Required:
Prepare Journal entries on April 30, to show the flow of cost through the proper summary accounts and also give the subsidiary records.
Solution
Job Order Costing Cycle
Computations Explained:
Raw Material Consumed:
| $ | |
| Opening Inventory | 50,000 |
| + Purchases | 1,20,000 |
| Material available for use | 1,70,000 |
| – Ending Inventory | 46,000 |
| Material used | 1,24,000 |
W.I.P. – Material
W.I.P Labour
W.I.P. FOH
Finished Goods
Problem No. 2: (Charging Actual FOH to Jobs)
The Moon Manufacturing Co. has a partial job order cost system instead of predetermining a factory overhead rate. The company computes a separate factory overhead rate at the end of each month and this rate is used to charge factory overhead to the jobs worked on during that month using the number of direct labour hours used on the jobs as the basis of such allocation. In the following table, the actual factory overhead costs and the direct labour hours for the past two months are listed.
| May | June | |
| Actual Factory Overhead Costs | $6,000 | $12,000 |
| Actual direct labour hours | 15,000 | 20,000 |
During this two month period one customer sent in an identical order each month, calling for the production of 1,000 units, requiring 400 direct labour hours at $1.00 per hour and material $750.
Required:
Compute (a) The total and the unit cost for the job in each of the two months and (b) Give your comments regarding this method of charging actual factory overhead costs to jobs.
Solution
(a).
(b). Comments:
It is clear from the above calculation that charging actual FOH Costs to Jobs gives inaccurate and misleading results. The company should use predetermined FOH rates for correct computation and control.
Computations Explained:
Problem No. 3: (Journal Entries for Cost Cycle)
John Manufacturing Company has a Job Order Costing System, and compiled the following data for 2019.
| Material and Supplies Purchased | $242,000 |
| Direct Material Used | 190,000 |
| Supplies Used | 20,000 |
| Direct Labour | 150,000 |
| Other Labour | 35,000 |
| Utility Cost for the Year | 65,000 |
| Miscellaneous Overhead | 40,000 |
| Depreciation Equipment | 22,000 |
| Applied Factory Overhead (20% of direct labour costs) | |
| Cost of Goods completed (material, $170,000; labour, $130,000) | 3,26,000 |
| Sales | 5,00,000 |
| Selling and Administrative Expenses | 1,10,000 |
Required:
(1). The appropriate journal entries
(2). The computation of net income
Solution
Net Income:
| $ | |
| Sales | 5,00,000 |
| – Cost of sales | 3,26,000 |
| G.P. | 1,74,000 |
| – Selling & Administrative Expenses | 1,10,000 |
| Net Income | 64,000 |