Job Order Costing Examples, Practical Problems and Solutions

True Tamplin

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

Job-Order-Costing-Practical-Problems-and-Solutions

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.-Material

W.I.P Labour

W.I.P.-Labour

W.I.P. FOH

FOH-Applied

Finished Goods

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).
Computing Actual FOH to Jobs
(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:
FOH Calculation

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

Journal Entries for Job Order Costing Cycle
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

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