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NCEA LEVEL 3 ACCOUNTING
By Elizabeth Pitu
2013
BOOK 2
JOB COSTING
Notes, Examples and Exercises
Exercise Solutions
Level 3 Accounting JOB COSTING page 1
Distinguishing Costs
Exercises A-C – No Answers provided – page 4
Source Documents – page 10
Materials requisition
(a) The purpose of preparing and using a materials requisition is to ensure that materials are only
issued from the store to the actual jobs that are in process.
(b) The materials requisition has a number so that each requisition can be accounted for. It
provides a check on the stores that all materials have been issued with a requisition so the costs
can be charged to jobs or overhead as appropriate.
(c) It is important to record Job No. 51 on the requisition as the materials on the requisition must be
added to the cost of Job No. 51 not some other job.
(d) After Charge to if the materials being issued were indirect materials would be overhead.
(e) The date adds an extra form of control over the issue of the materials as the production manager
can check that the Job No. on the requisition was actually being worked on on that date.
(f) The quantity of each material is identified so stores can up-date their records with how much of
the material has been used, and therefore how much will be left in stores. It is also a check for
the production manager that an appropriate amount of material has been issued for the
particular job. The stock number identifies the stock in the computer programme so the correct
records are updated for the material taken from the stores. A description helps ensure the right
material will be issued for the job. The unit cost and amount provide the cost to add to the job
cost card for Job No. 51.
(g) Two signatures required as the production supervisor must authorise the issue of the materials
to the job but a worker goes to retrieve them and signs the requisition to show he has received
the materials from the store as required by the production supervisor.
(h) The information on the materials requisition contributes to accurate costing of jobs in progress
as it details exactly how much of each item of materials has been used and how much the
materials cost so the correct cost for materials can be added to the job cost card.
Time sheets
Time sheets are many and varied – the time sheet should enable the collection of data regarding
hours spent by each employee on different jobs and idle time
The time sheet is essential for accurate costing of jobs in progress as it will detail the hours each
employee has spent on each job in progress. This allows the accounts clerk/production manager to
add the correct amount for direct labour to each job in progress. It also allows the accounts
clerk/production manager to monitor time spent on each job to ensure it is reasonable for the job
being undertaken. This is important so jobs are not overcharged to customers by having too much
labour cost added. Also the cost of idle time can be monitored and added to the overhead costs for
the month.
Job Cost Cards
1. The purpose of preparing and using a job cost card is to collect in one place all of the direct
costs for materials and labour associated with the job and to add an allocation of overhead to the
cost of the job. This is important so that jobs are costed fairly and accurately and the firm’s
costs and prices will enable the firm to earn a profit at the same time as keeping the firm
competitive in the market.
2. The job cost card has a job number so that each job is separately identified and all jobs can be
accounted for.
3. It is important to record the document references on the job cost card as the production manager
may need to check back to the documents to ensure the costing on the job cost card is accurate
and that the materials and labour charges are reasonable for the type of job undertaken.
Level 3 Accounting JOB COSTING page 2
4. The date column assists the production manager to see how long jobs take and when materials
were requisitioned, as well as how long employees spent each day on the job. It provides an
additional check against documents such as the materials requisition and time sheets.
5. The labour and overhead are both recorded from the Time Sheets because the overhead will be
allocated to the jobs based on the direct labour hours.
6. Answered in 1 above.
Complete the invoice
Total Engineering Tax Invoice 5691
PO Box 32, Whakatane GST # 56-239-592
Invoice to: Date: Kids Books
Main Road, Waihi Customer Order No.
Description Qty Unit price Amount $
Display stand 1 481.60 481.60
Sub-total 481.60
GST 72.24
Total $ 553.84
Your Turn Streetsmart Shoes – page 16
Part A
Overhead rates:
Cost driver Calculation Overhead rate
Materials 300/450 66 2/3 % of materials
Labour cost
300/750
40% of labour cost or
40c per $1 of labour
Labour hours 300/75 $4 per labour hour
Machine hours 300/60 $5 per machine hour
Part B
Costs included in Job 372
Cost driver Rate to apply Materials Labour Overhead Total cost
Labour cost 40% of labour cost
0.4 x 9,000 6,000 9,000 3,600 18,600
Labour
hours
$4 per labour hour
4 x 800 6,000 9,000 3,200 18,200
Machine
hours
$5 per machine hour
5 x 600 6,000 9,000 3,000 18,000
Level 3 Accounting JOB COSTING page 3
Exercise One
Bug Toys
Overhead rates
Department M 54/36 = $1.50 per machine hour
Department F 60/50 = $1.20 per labour hour
Bug Toys Cost Card Job 490
Machining
Department
Finishing
Department
Total cost
Materials 2,120 7,600 9,720 Labour 2,880 5,760 8,640 Overhead 240 360 600 Total 18,960
Unit cost $7.90
Your Turn
Anita’s Chocolate Factory
Overhead rate 930/120 = $7.75 per machine hour
Overhead applied $7.75 x 124,000 = 961,000
Overhead incurred 963,000
Under-applied overhead 2,000
Streetsmart Shoes – continued
Part C
Base Rate Overhead applied Actual
overhead
Difference Under/Over
applied
Materials
cost
66 2/3% of
cost
66 2/3 % x 540,000 =
$360,000
$340,000 $20,000 Over applied
Labour
cost
40% of
cost
0.4 x 880,000 =
$352,000
$340,000 $12,000 Over-applied
Labour
hours
$4 x hours $4 x 84,000 =
$336,000
$340,000 ($4,000) Under-applied
Machine
hours
$5 x hours $5 x 70,000 =
$350,000
$340,000 $10,000 Over-applied
Which overhead rate to use?
Streetsmart Shoes should use the labour hours rate as it provides the smallest variance between
applied overhead and actual overhead. This indicates that most of the overhead is likely to be
generated from the number of hours worked on jobs. The other overhead rates provide significant
over-charging of jobs and could easily lost Streetsmart Shoes customers if it overcharges for its
shoes on a consistent basis. While the $4,000 under-applied overhead is also significant, and will
reduce profit by $4,000 plus the mark-up applied to the finished shoes, it is much less that the
$10,000 over-applied using machine hours and the other rates which produce even higher results of
over-applied overhead. Streetsmart Shoes may need to revise and monitor its budget for the
following year to make sure the overhead rate based on labour hours will minimise under- or over-
applied overhead so profit is not lost by under-applied overhead and prices are not too high by over-
applied overhead.
Level 3 Accounting JOB COSTING page 4
Exercise One Bug Toys continued – page 21
Department Rate Overhead
applied
Actual
overhead
Difference Under/Over
applied
Machining $1.5 per
machine hour
$1.5 x 37,200 =
$55,800 $55,500 $300 Over-applied
Finishing
$1.2 per
labour hour
$1.2 x 51,000 =
$61,200 $62,300 ($1,100) Under-applied
Exercise Two – page 21
Hockey Rulz
(a) Overhead rates
Machining 240/60 = $4 per machine hour
Finishing 150,000/18,750 = $8 per labour hour
(b) Cost of Job 172
Machining Finishing Total cost
Materials 3,600 700 4,300
Labour 100 300 400
Overhead 400 120 520
Totals 4,100 1,120 5,220
Unit cost $5.22 per hockey ball
(c) Applied overhead in machining 6,300 x $40 = 252,000
Actual overhead incurred in machining 250,000
Over-applied overhead in machining 2,000
Applied overhead in finishing 19,100 x $8 = 152,800
Actual overhead incurred in finishing 150,100
Over-applied overhead in finishing 2,700
(d) It is important for Hockey Rulz to continually monitor under- and over-applied overhead to
ensure that costs of hockey sticks, hockey balls, and hockey gear are competitive in the market so
Hockey Rulz remains a viable business able to sell its hockey gear. If overhead is over-applied then
the sticks, balls and other gear could end up being over-priced in the market and customers might
go elsewhere for their hockey needs. If overhead is under-applied then Hockey Rulz may not make
as much profit as expected or could end up making a loss. Hockey Rulz needs to make a reasonable
profit to remain a viable business as well as being competitive in the market. Therefore it is
important to monitor overhead budgets against actual results to ensure as near as possible given
budgets can never be 100% accurate, all overhead will be recovered through the accurate costing
and competitive pricing of the production of sticks, balls and gear.
Exercise Three – page 22
Mainly Cane Ltd
Direct Materials
Overhead Work-in-progress
Finished Goods
Direct Labour Cost of Goods Sold
Level 3 Accounting JOB COSTING page 5
(b) Machining overhead costs 60 + 40 + 30 = 130,000
Machine hours 20,000
Overhead rate $6.50 per machine hour
Assembly overhead costs 32 + 12 + 16 = 60,000
Labour hours 30,000
Overhead rate $2.00 per labour hour
(c) Job 97
Machining Assembly Total cost
Materials 700 200 900
Labour 278 426 703
Overhead 98 46 144
Totals 1,075 672 $ 1,747
(d) Applied overhead in machining 21,500 x $6.50 = 139,750
Actual overhead incurred in machining 136,000
Over-applied overhead in machining 3,750
Applied overhead in finishing 32,000 x $2.00 = 64,000
Actual overhead incurred in finishing 65,500
Under-applied overhead in finishing 1,500
(e) Under- or over- applied overhead occurs because overhead is applied to jobs using a rate which
is based on estimates of overhead and cost drivers for the year. Actual results of both overhead
incurred and the cost driver (eg labour hours) will always differ to some extent from budget figures.
This results in applied overhead being different from actual overhead incurred. It is important for
Mainly Cane Ltd to minimise the amount of under- or over-applied overhead by careful monitoring
of overheads and their allocation to jobs. Over-applied overhead means jobs could be priced higher
than is necessary to recover costs and make the desired profit. This could mean Mainly Cane Ltd
does not remain competitive in the furniture market. Under-applied overhead means jobs could be
under-priced and Mainly Cane Ltd could be making less profit or even a loss which long term is not
sustainable for the business.
Level 3 Accounting JOB COSTING page 6
Exercise Four – page 23
Wild Woodworks
Overhead rate in Assembly Overhead rate in Finishing
270/18 = $15 per machine hour 504/42 =$12 per labour hour
(a) The materials requisition is important as it shows how many metres of treated timber were needed for
the outdoor tables and how many bolts and screws. This allows the correct cost of the materials needed
to make the outdoor tables to be added to the cost of Job 65.
(b) The time sheets that detailed labour hours used on Job 65 are important so that the correct number of
hours are used to determine the cost of the direct labour in both the assembly and finishing departments
and the correct amount of overhead can be applied in the finishing department where labour hours are
the cost driver. The time sheets showing the machine hours used in Job 65 in assembly are important so
the correct amount of overhead can be applied to the Job while it was worked on in the assembly
department, where machine hours are the cost driver for allocating the overhead to the jobs.
(c)
Job 65 Assembly Finishing Total
Materials 4,000 1,000 5,000
Labour 450 630 1,080
Overhead 360 360 720
Totals 4,810 1,990 6,800
(d)
Wild Woodworks Tax Invoice 5684
GST # 65-289-246
Invoice to: Outdoors Ltd Date: 29 July
Description Amount $
wooden tables 10,880
Sub-total 10,880
GST 1,632
Total $ 12,512
(e) Assembly Finishing
Applied overhead Applied overhead
20*15 = $300,000 45*12 = $540000
Actual = $290,000 Actual = $545,000
Over-applied $10,000 Under-applied $5,000
(f) Under or over applied overhead occurs because we apply overhead to jobs based on a budget rate that is
calculated at the beginning of the year from budgeted figures for overhead expenses and expected level of
activity. As the actual results will vary from overhead there will be under or over applied overhead.
(g) Wild Woodworks needs to monitor its under- or over-applied overhead to ensure the budgeted overhead
rate being applied in each department is minimising the amount of under- or over-applied overhead.
The $10,000 over-applied in assembly is a significant amount and reasons why the machine hours
increased by 11% while overhead only increased by 7% should be investigated. Wild Woodworks may
have invested in new machinery/tools which do not require as much maintenance or are more
fuel/power efficient so the budget for the next year will have to reflect this in terms of expected
expenses versus expected machine hours. Over-applied overhead means too much cost is being added
to jobs in the assembly department and could lead to them being over-priced in a competitive market for
furniture. The under-applied overhead in finishing is not as significant but should still be monitored as
it means not all overhead costs are being recovered in finishing. The $5,000 under-applied in finishing
does, however, go some way to offsetting the impact of the $10,000 over-applied in assembly in terms
of recovering costs, making a profit and remaining competitive in the market in terms of pricing based
on cost.
Level 3 Accounting JOB COSTING page 7
Exercise Five – page 24
Pinewood Ltd
(a) Overhead rates – Assembly total overhead 108,000/30,000 = $3.60 per machine hour
Finishing total overhead 96,000/32,000 = $3 per labour hour
(b) In the assembly department most of the overhead such as factory depreciation and heat, light
and power, will be generated by the use of machinery, so machine hours is the best way to
allocate overhead in this department. In the finishing department most of the overhead will be
generated by the number of hours workers work (labour hours) so that is the best way to
allocate overhead.
(c) Job 65
Assembly Finishing Totals
Materials 3,900 700 4,600 Direct Labour 5,600 10,340 15,940
Overhead 1,800 1,410 3,210 Totals 11,300 12,450 23,750 Unit cost
475
(d) The tables are first assembled in the assembly department where most of the direct material
such as pine/timber will be added to the job. We see this as $3,900 of materials is added here
compared to only $700 in finishing where the material may only be wood stain. Direct labour
is added in assembly based on the time the workers take to assemble the job with the use of the
power tools and equipment. More worker hours/time is needed in finishing, direct labour cost
being $8,400 compared to only $5,600 in assembly, as the tables must be stained by hand which
takes longer. Overhead in assembly is added based on machine hours as the use of power tools
and equipment/machinery in the assembly department generates most of the overhead expenses
here such as power. Overhead in finishing is added based on labour hours as the overhead
generated in this department will mostly be associated with how long the workers take to stain
the tables. For example they will use more cleaning materials for brushes and hands the longer
the job takes. The final cost of the job is the sum of all of the direct costs of materials and
labour in each department plus the allocation of overhead from each department. This total cost
accounts for all of the costs, both direct and indirect, associated with the production of 50
dining table and chair sets.
(e) Pinewood Tax Invoice 547
GST # 61-225-976
Invoice to: Forlongs Date: 29/07/2006
PO Box 5941, Frankton
Description Qty Unit price
Amount $
dining suites 50 800 40,000
Sub-total 40,000
GST 6,000
Total $ $46,000
(e) A job cost system is suitable for Pinewood because each job or batch is easily separated in
terms of the material needed and the time the workers work on the job in each department.
This means direct material and direct labour costs can easily be added to each separate job or
batch of furniture. Overhead can be allocated to the jobs using appropriate cost drivers for
each department (see answer to b).
Level 3 Accounting JOB COSTING page 8
Exercise Six – page 25
Rata Teeshirts
Overhead rate Sewing department Overhead rate Printing department
$40 per machine hour 70% of direct labour cost
(1) Job 122
Started 24-Jul Transferred 31-Jul Sold 8-Aug
Sewing Department Printing Department
Materials Labour Overhead Materials Labour Overhead
$ $ $ $ $ $
1,500 1,000 80 300 800 560
Total sewing department 2,580 Total printing department 1,660
Total cost of job $4,240
Job 123
Started 5-Aug Transferred 12-Aug Sold 21-Aug
Sewing Department Printing Department
Materials Labour Overhead Materials Labour Overhead
$ $ $ $ $ $
2,600 1,800 120 500 1,200 840
Total sewing department 4,520 Total printing department 2,540
Total cost of job $7,060
(2) Job 124
Started 14-Aug Transferred 23-Aug Sold
Sewing Department Printing Department
Materials Labour Overhead Materials Labour Overhead
$ $ $ $ $ $
5,000 3,400 200 900 2000 1,400
Total sewing department 8,600 Total printing department 4,300
Job 125
Started 24-Aug Transferred Sold
Sewing Department Printing Department
Materials Labour Overhead Materials Labour Overhead
$ $ $ $ $ $
12,000 8,000 280
Total sewing department 20,280 Total printing department
Level 3 Accounting JOB COSTING page 9
General Journal
3 Work-in-progress – Printing 300
Raw Materials 300
4 Work-in-progress – Sewing 2,600
Raw Materials 2,600
5 Work-in-progress – Printing 8,600
Work-in-progress – Sewing 8,600
6 Work-in-progress – Sewing 280
Factory Overhead 280
7 Cost of Goods Sold 7,060
Finished Goods 7,060
8 Accounts Receivable 9,752
Sales 8,480
GST 1,272
General Ledger
9 Raw Materials
01/08 Balance 9,000 Dr
31/08 Accounts Payable 26,000 35,000 Dr
Work-in-Progress – Sewing 21,100 13,900 Dr
Work-in-Progress – Printing 1,700 12,200 Dr
10 Work-in-Progress
01/08 Balance 0 Dr
31/08 Materials 21,100 21,100 Dr
Labour 14,200 35,300 Dr
Overhead Control 680 35,980 Dr
Finished Goods 15,700 20,280 Dr
11 Work-in-Progress
01/08 Balance 2,580 Dr
31/08 Materials 1,700 4,280 Dr
Labour 4,000 8,280 Dr
Overhead 2,800 11,080 Dr
Finished Goods 6,780 4,380 Dr
Level 3 Accounting JOB COSTING page 10
12 Cost of Goods Sold
31/08 Finished Goods 22,480 22,480 Dr
Overhead 200 22,280 Dr
Income Summary 22,280 0 Dr
13 Overhead under/over applied
Sewing Department
Actual 630
Applied 680
Over-applied 50
Printing Department
Actual 2,650
Applied 2,800
Over-applied 150
Exercise Seven – Using Standard Cost Specifications – page 26
(a)
Batch Cost Specification
Item Bryony Bears Number in Batch 60
Particulars Unit cost Amount
Bear materials and clothes 4.00 240.00
Talking mechanisms 4.00 240.00
Direct Labour 11.25 675.00
Overhead Applied ($3 per DLH) 2.25 135.00
Total $21.50 $ 1,290.00
(b)
Batch Cost Specification
Item Tommy Bear Number in Batch 80
Particulars Unit cost Amount
Bear materials and clothes 2.00 160.00
Talking mechanisms 4.00 320.00
Direct Labour 7.50 600.00
Overhead Applied ($3 per DLH) 1.50 120.00
Total $15.00 $ 1,200.00
During September 12 batches of Bryony and 8 batches of Tommy were completed.
Level 3 Accounting JOB COSTING page 11
(c)
Total production costs
Bear materials and clothes 4,160
Talking mechanism 5,440
Total materials 9,600
Direct Labour Cost 12,900
Overhead Applied 2,580
Finished Goods 25,080
(d)
Best Bears Tax Invoice 76821
Business address GST # 24-382-397
Invoice To: Date:
The Warehouse
Customer Order No.
Description Qty Unit $ Amount $
Byrony bears 100 30.10 3,010.00
Tommy bears 70 21.00 1,470.00
Sub total 4,480.00
Plus GST 560.00
Total $ $5,040.00
Level 3 Accounting JOB COSTING page 12
Exercise Eight – page 27
Fine Furniture
General Journal
Date Particulars Debit Credit
Raw Materials 320,000
GST 48,000
Accounts Payable 368,000
(Purchase of raw materials on credit)
Work-in-Progress 340,000
Raw Materials 340,000
(Issue of direct materials to production)
Factory Overhead Control 4,000
Raw Materials 4,000
(Indirect materials charged to overhead)
Work-in-Progress 245,000
Payroll Control 245,000
(Direct labour charged to production)
Factory Overhead Control 8,000
Payroll Control 8,000
(Indirect labour charged to overhead)
Factory Overhead Control 121,000
Factory Rates 9,000
Factory depreciation 40,000
General Factory Expenses 72,000
(factory expenses charged to overhead)
Work-in-Progress 134,750
Factory Overhead Control 134,750
(Overhead applied to production)
Finished Goods 700,000
Work-in-Progress 700,000
(Completed production transferred to Finished Goods)
Cost of Goods Sold 685,000
Finished Goods 685,000
(the cost of finished goods sold)
Accounts Receivable 1,380,000
Sales 1,200,000
GST 180,000
(the selling price of finished goods sold on credit)
Factory Overhead Control 1,750
Cost of Goods Sold 1,750
(transfer of over-applied overhead)
Level 3 Accounting JOB COSTING page 13
Fine Furniture ‘T’ Format
RAW MATERIALS
Apr 1 Balance 85,000 June 30 Work-in-Progress 340,000
June 30 Accounts Payable 320,000 Overhead Control 4,000
Balance 61,000
$405,000 $405,000
July 1 Balance 61,000
WORK-IN-PROGRESS
Apr 1 Balance 90,000 June 30 Finished Goods 700,000
June 30 Materials 340,000 Balance 109,750
Labour 245,000
Overhead Control 134,750
$809,750 $809,750
July 1 Balance 109,750
PAYROLL/LABOUR CONTROL
June 30 Wages/bank 253,000 June 30 Work-in-Progress 245,000
Overhead control 8,000
$253,000 $253,000
FACTORY OVERHEAD CONTROL
June 30 Raw Materials 4,000 June 30 Work-in-Progress 134,750
Labour 8,000
Factory Depreciation 40,000
Factory rates 9,000
Factory expenses 72,000
COGS over-applied 1,750
$134,750 $134,750
FINISHED GOODS CONTROL
Apr 1 Balance 60,000 June 30 Cost of Goods Sold 685,000
June 30 Work-in-
Progress 700,000 Balance 75,000
$760,000 $760,000
July 1 Balance 75,000
COST OF GOODS SOLD
June 30 Finished Goods 685,000 June 30 Factory overhead 1,750
Income summary 683,250
$685,000 $685,000
SALES
June 30 Income summary 1,200,000 June 30 Accounts Receivable 1,200,000
$1,200,000 $1,200,000
Level 3 Accounting JOB COSTING page 14
Fine Furniture ‘Three Column’ Format
Raw Materials
01/04 Balance 85,000 Dr
30/06 Accounts Payable 320,000 405,000 Dr
Work-in-Progress 340,000 65,000 Dr
Factory Overhead Control 4,000 61,000 Dr
Work-in-Progress
01/04 Balance 90,000 Dr
30/06 Raw Materials 340,000 430,000 Dr
Labour 245,000 675,000 Dr
Factory Overhead Control 134,750 809,750 Dr
Finished Goods 700,000 109,750 Dr
Labour/Payroll Control
30/06 Bank 253,000 253,000 Dr
Work-in-Progress 245,000 8,000 Dr
Factory Overhead Control 8,000 0
Factory Overhead Control
30/06 Raw Materials 4,000 4,000 Dr
Labour 8,000 12,000 Dr
Factory Depreciation 40,000 52,000 Dr
Factory Rates 9,000 61,000 Dr
Factory Expenses 72,000 133,000 Dr
Work-in-Progress 134,750 1,750 Cr
Cost of Goods Sold over-applied 1,750 0
Finished Goods Control
01/04 Balance 60,000 Dr
30/06 Work-in-Progress 700,000 760,000 Dr
Cost of Goods Sold 685,000 75,000 Dr
Cost of Goods Sold
30/06 Finished Goods 685,000 685,000 Dr
Factory overhead control 1,750 683,250 Dr
Income Summary 683,250 0
Sales
30/06 Accounts Receivable 1,200,000 1,200,000 Cr
Income Summary 1,200,000 0
Level 3 Accounting JOB COSTING page 15
Exercise Nine A – page 28
Beta Boats
General Journal
Date Particulars Debit Credit
Raw Materials 230,000
GST 34,500
Accounts Payable 264,500
(Purchase of raw materials on credit)
Work-in-Progress 240,000
Raw Materials 240,000
(Issue of direct materials to production)
Work-in-Progress 195,000
Payroll Control 195,000
(Direct labour charged to production)
Factory Overhead Control 135,000
General Factory Expenses 135,000
(factory expenses charged to overhead)
Work-in-Progress 130,000
Factory Overhead Control 130,000
(Overhead applied to production)
Finished Goods 500,000
Work-in-Progesss 500,000
(Completed production transferred to Finished Goods)
Cost of Goods Sold 475,000
Finished Goods 475,000
(the cost of finished goods sold)
Accounts Receivable 655,500
Sales 570,000
GST 85,500
(the selling price of finished goods sold on credit)
Cost of Goods Sold 5,000
Factory Overhead Control 5,000
(transfer of under-applied overhead)
Level 3 Accounting JOB COSTING page 16
‘T’ Form format
Beta Boats
RAW MATERIALS
Jan 1 Balance 120,000 Mar 31 Work-in-Progress 240,000
Mar 31 Accounts Payable 230,000
Balance 110,000
$350,000 $350,000
Apr 1 Balance 110,000
WORK-IN-PROGRESS
Jan 1 Balance 50,000 Mar 31 Finished Goods 500,000
Mar 31 Materials 240,000 Balance 115,000
Labour 195,000
Overhead Control 130,000
$615,000 $615,000
Apr 1 Balance 115,000
PAYROLL/LABOUR CONTROL
Mar 31 Wages/bank 195,000 Mar 31 Work-in-Progress 195,000
$195,000 $195,000
FACTORY OVERHEAD CONTROL
Mar 31 Factory expenses 135,000 Mar 31 Work-in-Progress 130,000
Cost of Goods Sold 5,000
$135,000 $135,000
FINISHED GOODS CONTROL
Jan 1 Balance 65,000 Mar 31 Cost of Goods Sold 475,000
Mar 31 Work-in-Progress 500,000 Balance 90,000
$565,000 $565,000
Apr 1 Balance 90,000
COST OF GOODS SOLD
Mar 31 Finished Goods 475,000 Mar 31 Income summary 480,000
Factory overhead 5,000
$480,000 $480,000
SALES
Mar 31 Income summary 570,000 Mar 31 Accounts Receivable 570,000
$570,000 $570,000
Level 3 Accounting JOB COSTING page 17
Beta Boats Three Column Format
Raw Materials
01/01 Balance 120,000 Dr
31/03 Accounts Payable 230,000 350,000 Dr
Work-in-Progress 240,000 110,000 Dr
Work-in-Progress
01/01 Balance 50,000 Dr
31/03 Raw Materials 240,000 290,000 Dr
Labour 195,000 485,000 Dr
Factory Overhead Control 130,000 615,000 Dr
Finished Goods 500,000 115,000 Dr
Labour/Payroll Control
31/03 Bank 195,000 195,000 Dr
Work-in-Progress 195,000 0 Dr
Factory Overhead Control
31/03 Factory Expenses 135,000 135,000 Dr
Work-in-Progress 130,000 5,000 Dr
Cost of Goods Sold under-applied 5,000 0
Finished Goods Control
01/01 Balance 65,000 Dr
31/03 Work-in-Progress 500,000 565,000 Dr
Cost of Goods Sold 475,000 90,000 Dr
Cost of Goods Sold
31/03 Finished Goods 475,000 475,000 Dr
Factory overhead control 5,000 480,000 Dr
Income Summary 480,000 0
Sales
31/03 Accounts Receivable 570,000 570,000 Cr
Income Summary 570,000 0
Level 3 Accounting JOB COSTING page 18
Exercise Nine B – page 28
Alpha Manufacturing
General Journal
Date Particulars Debit Credit
Raw Materials 22,000
GST 3,300
Accounts Payable 25,300
(Purchase of raw materials on credit)
Work-in-Progress 17,000
Raw Materials 17,000
(Issue of direct materials to production)
Factory Overhead Control 7,000
Raw Materials 7,000
(Indirect materials charged to overhead)
Work-in-Progress 30,000
Payroll Control 30,000
(Direct labour charged to production)
Factory Overhead Control 6,000
Payroll Control 6,000
(Indirect labour charged to overhead)
Factory Overhead Control 14,000
GST 1,750
Accounts Payable 15,750
(accrued factory expenses charged to overhead)
Work-in-Progress 24,000
Factory Overhead Control 24,000
(Overhead applied to production)
Finished Goods 56,000
Work-in-Progesss 56,000
(Completed production transferred to Finished
Goods)
Cost of Goods Sold 48,000
Finished Goods 48,000
(the cost of finished goods sold)
Accounts Receivable 92,000
Sales 80,000
GST 12,000
(the selling price of finished goods sold on credit)
Cost of Goods Sold 3,000
Factory Overhead Control 3,000
(transfer of under-applied overhead)
Level 3 Accounting JOB COSTING page 19
’T’ Form format
Alpha Manufacturing
RAW MATERIALS
Balance 10,000
Work-in-Progress 17,000
Accounts Payable 22,000 Overhead Control 7,000
Balance 8,000
$32,000 $32,000
Balance 8,000
WORK-IN-PROGRESS
Balance 4,000 Finished Goods 56,000
Materials 17,000 Balance 19,000
Labour 30,000
Overhead Control 24,000
$75,000 $75,000
Balance 19,000
PAYROLL/LABOUR CONTROL
Wages/bank 36,000 Work-in-Progress 30,000
Overhead control 6,000
$36,000 $36,000
FACTORY OVERHEAD CONTROL
Raw Materials 7,000 Work-in-Progress 24,000
Labour 6,000 Cost of goods sold 3,000
Factory expenses 14,000
$27,000 $27,000
FINISHED GOODS CONTROL
Balance 8,000 Cost of Goods Sold 48,000
Work-in-Progress 56,000 Balance 16,000
$64,000 $64,000
Balance 16,000
COST OF GOODS SOLD
Finished Goods 48,000 Income summary 51,000
Factory overhead 3,000 $51,000 $51,000
SALES
Income summary 80,000 Accounts Receivable 80,000
$80,000 $80,000
Level 3 Accounting JOB COSTING page 20
Alpha Manufacturing Three Column Format
Raw Materials
Balance 10,000 Dr
Accounts Payable 22,000 32,000 Dr
Work-in-Progress 17,000 15,000 Dr
Factory Overhead Control 7,000 8,000 Dr
Work-in-Progress
Balance 4,000 Dr
Raw Materials 17,000 21,000 Dr
Labour 30,000 51,000 Dr
Factory Overhead Control 24,000 75,000 Dr
Finished Goods 56,000 19,000 Dr
Labour/Payroll Control
Bank 36,000 36,000 Dr
Work-in-Progress 30,000 6,000 Dr
Factory Overhead Control 6,000 0
Factory Overhead Control
Raw Materials 7,000 7,000 Dr
Labour 6,000 13,000 Dr
Factory Expenses 14,000 27,000 Dr
Work-in-Progress 24,000 3,000 Dr
Cost of Goods Sold over-applied 3,000 0
Finished Goods Control
Balance 8,000 Dr
Work-in-Progress 56,000 64,000 Dr
Cost of Goods Sold 48,000 16,000 Dr
Cost of Goods Sold
Finished Goods 48,000 48,000 Dr
Factory overhead control 3,000 51,000 Dr
Income Summary 51,000 0
Sales
Accounts Receivable 80,000 80,000 Cr
Income Summary 80,000 0
Materials requisition
Pre-numbering of documents allows them all to be accounted for – so each materials requisition is accounted for and the materials requisitioned for jobs are all able to be costed to the correct job.
Key items of information on the materials requisition are the job no. the materials are to be used on, the actual quantity of the material being taken from stores for the job, the production supervisors signature authorising the issue of the materials to the job, signature of the employee receiving the materials from stores as evidence they were taken for a legitimate job.
The materials requisition authorises the issue of materials to jobs (direct materials)/overhead (indirect materials). It ensures materials are only issued for actual jobs being worked on and cannot be taken by stores personnel for their own use.
Level 3 Accounting JOB COSTING page 21
Exercise Ten – page 29
General Journal – Waikete Manufacturing
Date Particulars Debit Credit
Sep-30 Raw Materials 180,000
GST 27,000
Accounts Payable 207,000
(Purchase of raw materials on credit)
Work-in-progress 189,000
Raw Materials 189,000
(Issue of direct materials to production)
Factory Overhead Control 8,000
Raw Materials 8,000
(Indirect materials charged to overhead)
Payroll Control 162,000
Bank 162,000
(Payroll incurred)
Work-in-progress 91,000
Payroll Control 91,000
(Direct labour charged to production)
Factory Overhead Control 24,000
Payroll Control 24,000
(Indirect labour charged to overhead)
Administration and Sales Salaries 47,000
Payroll Control 47,000
(administration and sale salaries charged)
Factory Overhead Control 13,000
Factory Insurance 2,000
Factory depreciation 6,000
General Factory Expenses 5,000
(factory expenses charged to overhead)
Work-in-progress 45,500
Factory Overhead Control 45,500
(Overhead applied to production)
Finished Goods 291,000
Work-in-Progress 291,000
(Completed production transferred to Finished Goods)
Cost of Goods Sold 303,000
Finished Goods 303,000
(the cost of finished goods sold)
Accounts Receivable 612,000
Sales 480,000
GST 72,000
(the selling price of finished goods sold on credit)
Factory Overhead Control 500
Cost of Goods Sold 500
(transfer of over-applied overhead)
Level 3 Accounting JOB COSTING page 22
Waikete Manufacturing – General Ledger ‘T’ Form format
RAW MATERIALS
Sep 1 Balance 55,000 Sep 30 Work-in-Progress 189,000
30 Accounts Payable 180,000 Overhead Control 8,000
Balance 38,000
$235,000 $235,000
Oct 1 Balance 38,000
WORK-IN-PROGRESS
Sep 1 Balance 33,000 Sep 30 Finished Goods 291,000
30 Materials 189,000 Balance 67,500
Labour 91,000
Overhead Control 45,500
$358,500 $358,500
Oct 1 Balance 67,500
PAYROLL/LABOUR CONTROL
Sep 30 Wages/bank 162,000 Sep 30 Work-in-Progress 91,000
Overhead control 24,000
Sales/Admin salaries 47,000
$162,000 $162,000
FACTORY OVERHEAD CONTROL
Sep 30 Raw Materials 8,000 Sep 30 Work-in-Progress 45,500
Labour 24,000
Factory Depreciation 6,000
Factory rates 2,000
Factory expenses 5,000
COGS over-applied 500
$45,500 $45,500
FINISHED GOODS CONTROL
Sep 1 Balance 70,000 Sep 30 Cost of Goods Sold 303,000
30 Work-in-Progress 291,000 Balance 58,000
$361,000 $361,000
Oct 1 Balance 58,000
COST OF GOODS SOLD
Sep 30 Finished Goods 303,000 Sep 30 Factory overhead 500
Income summary 302,500
$303,000 $303,000
SALES
Sep 30 Income summary 480,000 Sep 30 Accounts Receivable 480,000
$480,000 $480,000
Level 3 Accounting JOB COSTING page 23
Waikete Manufacturing Three Column Format
Raw Materials
01/09 Balance 55,000 Dr
30/09 Accounts Payable 180,000 235,000 Dr
Work-in-Progress 189,000 46,000 Dr
Factory Overhead Control 8,000 38,000 Dr
Work-in-Progress
01/09 Balance 33,000 Dr
30/09 Raw Materials 189,000 222,000 Dr
Labour 91,000 313,000 Dr
Factory Overhead Control 45,500 358,500 Dr
Finished Goods 291,000 67,500 Dr
Labour/Payroll Control
30/09 Bank 162,000 162,000 Dr
Work-in-Progress 91,000 71,000 Dr
Factory Overhead Control 24,000 47,000 Dr
Sales/Admin Salaries 47,000 0
Factory Overhead Control
30/09 Raw Materials 8,000 8,000 Dr
Labour 24,000 32,000 Dr
Factory Depreciation 6,000 38,000 Dr
Factory Rates 2,000 40,000 Dr
Factory Expenses 5,000 45,000 Dr
Work-in-Progress 45,500 500 Cr
Cost of Goods Sold over-applied 500 0
Finished Goods Control
01/09 Balance 70,000 Dr
30/09 Work-in-Progress 291,000 361,000 Dr
Cost of Goods Sold 303,000 58,000 Dr
Cost of Goods Sold
30/09 Finished Goods 303,000 303,000 Dr
Factory overhead control 500 302,500 Dr
Income Summary 302,500 0
Sales
30/09 Accounts Receivable 480,000 480,000 Cr
Income Summary 480,000 0
Level 3 Accounting JOB COSTING page 24
Exercise Eleven – page 30
Fantastic Plastics
Answer shows relevant numbers only - can be presented as ledger accounts or job sheets or other
Job
Number
Open
balance
Materials
$
Labour
$
Overhead Finished
Goods
Close
balance
301 3,000 3,000 500 2,800 9,300
302 5,000 1,000 4,200 10,200
303 7,500 2,000 7,000 16,500
304 2,000 700 2,800 5,500
totals $3,000 $17,500 $4,200 16,800
Fantastic Plastics ‘T’ Form format
General Ledger
RAW MATERIALS
Mar 1 Balance 23,000 Mar 31 Work-in-Progress 21,000
31 Accounts Payable 25,000
Balance 27,000
$48,000 $48,000
Apr 1 Balance 27,000
WORK-IN-PROGRESS
Mar 1 Balance 3,000 Mar 31 Finished Goods 36,000
31 Materials 17,500 Balance 5,500
Labour 4,200
Overhead Control 16,800
$41,500 $41,500
Apr 1 Balance 15,500
FINISHED GOODS CONTROL
Mar 1 Balance 9,000 Mar 31 Cost of Goods Sold 28,500
31 Work-in-Progress 36,000 Balance 16,500
$45,000 $45,000
Apr 1 Balance 16,500
COST OF GOODS SOLD
Mar 31 Finished Goods 28,500 Mar 31 Income summary 28,900
Overhead under-applied 400
$28,900 $28,900
SALES
Mar 31 Income summary 57,000 Mar 31 Accounts Receivable 57,000
$57,000 $57,000
Level 3 Accounting JOB COSTING page 25
Fantastic Plastics – Three Column Format
Raw Materials
01/03 Balance 23,000 Dr
31/03 Accounts Payable 25,000 48,000 Dr
Work-in-Progress 21,000 27,000 Dr
Work-in-Progress
01/03 Balance 3,000 Dr
31/03 Materials 17,500 20,500 Dr
Labour 4,200 24,700 Dr
Overhead Control 16,800 41,500 Dr
Finished Goods 36,000 5,500 Dr
Factory Overhead Control
31/03 Factory Expenses 17,200 17,200 Dr
Work-in-Progress 16,800 400 Dr
Cost of Goods Sold 400 0
Finished Goods Control
01/03 Balance 9,000 Dr
31/03 Work-in-Progress 36,000 45,000 Dr
Cost of Goods Sold 28,500 16,500 Dr
Cost of Goods Sold
31/03 Finished Goods 28,500 28,500 Dr
Factory overhead control 400 28,900 Dr
Income Summary 28,900 0
Sales
31/03 Accounts Receivable 57,000 57,000 Cr
Income Summary 57,000 0
(e)
Fantastic Plastics
Profit Statement for March
Sales 57,000
Less cost of goods sold 28,900
Gross profit 28,100
Less expenses 9,200
Profit for March $18,900
(f) The $400 under-applied overhead means jobs are under-priced by $800 excluding GST (400 plus 100% mark-up). Therefor profit for March is $800 less than it would have been if all overhead incurred had been allocated to the jobs. Sales would have been $57,800 excluding GST, gross profit $28,900 and profit for March $19,700 which is $800 less than the $18,900 shown above. (g) Review of overhead rates is to ensure that overhead incurred is nearly all being allocated to jobs (as near as possible) so that profit is not being eroded by under-pricing jobs when overhead is under-applied and sales are not being lost to competitors by over-pricing jobs when overhead is over-applied.
Level 3 Accounting JOB COSTING page 26
Exercise Twelve – page 31
(a) Job Cost Sheets – Bentley’s Ltd
Job No. Open Balance
Materials issued
Labour charged
Overhead Finished goods
Close Balance
374 2,700 1,500 3,600 1,400 9,200
375 7,000 5,400 2,100 14,500
376 5,500 7,200 2,800 15,500
377 2,000 1,800 700 4,500
totals $2,700 $16,000 $18,000 $7,000 $39,200
(b) It is necessary to have a separate job cost sheet for each job so all of the direct costs for
materials and labour associated with each job can be collected in one place and an allocation of
overhead can be added to the cost of each job. This is important so that each job is costed fairly
and accurately with overheads being spread across all jobs on a fair basis, and the Bentley’s
costs and prices will earn a profit at the same time as keeping the firm competitive in the
market.
(c) Labour hours are used as the base to allocate overhead to jobs because overhead expenses are
mostly generated by the time it takes direct labour workers to complete jobs such as longer jobs
need more heat, light and power, use more cleaning materials and sundries, have more idle time,
require more supervisor time
(d) Invoice for Barnes
TAX INVOICE Bentley’s Ltd 359
To J Barnes GST 12-341-907
36 Rimu St, Taupo Date
Description AMOUNT
One sign frame 6,300 00
Sub total 6,300 00
Plus GST 945 00
TOTAL 7,245 00
Level 3 Accounting JOB COSTING page 27
(e)
Raw Materials
01/03 Balance 10,000 Dr
31/03 Accounts Payable 18,000 28,000 Dr
Work-in-Progress 16,000 12,000 Dr
Work-in-Progress
01/03 Balance 2,700 Dr
31/03 Raw Materials 16,000 18,700 Dr
Labour 18,000 36,700 Dr
Overhead Control 7,000 43,700 Dr
Finished Goods 39,200 4,500 Dr
Factory Overhead Control
31/03 Factory Expenses 6,000 6,000 Dr
Work-in-Progress 7,000 1,000 Cr
Cost of Goods Sold 1,000 0
Finished Goods Control
01/03 Balance 3,500 Dr
31/03 Work-in-Progress 39,200 42,700 Dr
Cost of Goods Sold 12,700 30,000 Dr
Cost of Goods Sold
31/03 Finished Goods 12,700 12,700 Dr
Overhead control 1,000 11,700 Dr
Income Summary 11,700 0
Sales
31/03 Accounts Receivable 22,860 22,860 Cr
Income Summary 22,860 0
(f) See (e) above
(g) The amount of overhead over-applied is $1,000 which compared to the overhead incurred of
$6,000 is quite significant. Bentley’s jobs during March cost more through the application of
overhead based on the budget rate of $7 per labour hour. While budgets cannot ever exactly
predict the future, $6 per labour hour would have exactly allocated all the overhead incurred
during March. The budgets may need revising and the rate adjusted if necessary so that jobs do
not end up being over-priced because of the added overhead cost, as over-priced products will
not be competitive in the market. Bentley’s will have made more profit as a result of the extra
overhead added to the cost of the jobs but could lose customers if its products become too
expensive.
(h) See (e) above
(i) Trading statement
Sales 22,860
Cost of goods sold 11,700
Gross profit 11,160
(j) The impact of the over-applied overhead of $1,000 on the gross profit is that it is more than
$1,000 over what it would have been less overhead had been added to the jobs in process. The
actual dollar amount is not able to be established as while the entire $1,000 was credited to cost
of goods sold for the month, actually Job 373 was completed last month, so this job was not
impacted in the current month and only Job 374 which had more overhead than it should have
had allocated was sold. The impact for this Job is that it would have cost $200 less so it would
have sold for $360 less. This would have resulted in $160 less gross profit from this job.
Level 3 Accounting JOB COSTING page 28
Exercise Thirteen – page 32
(a)
Hannah’s Creations Tax Invoice 629
PO Box 32, Whakatane GST # 78-923-770
Invoice to: Creative Kiwis Date: 9 September
72 Rata Street
Wanganui
Description Amount $
Titanic Puzzles 23,280
Sub-total 23,280
GST 3,492
Total $ $26,772
(b)
Hannah's Creations Job Cost Card
Description Job No 19
Dolphin Puzzles Date Started: 7-Apr-02
Particulars Totals
Materials 5,000
Direct Labour 3,000
Overhead 1,500
Date Completed: Total cost of job 9,500
10-Apr-02 Mark-up 140% 13,300
Sold to: GST exclusive price 22,800
Creative Kids
Note this is just an example of a job cost card – any format is possible as long as key information is included
on the card – while I have added the mark-up and GST exclusive price, these are not essential but make the
invoice preparation easier.
Hannahs Creations Tax Invoice 630
PO Box 32, Whakatane GST # 78-923-770
Invoice to: Creative Kids Date: 21/09/2006
27 Malvern Place
Napier
Description Amount $
Dolphin Puzzles 22,800
Sub-total 22,800
GST 3,420
Total $ $26,220
Level 3 Accounting JOB COSTING page 29
(c)
RAW MATERIALS
Sep-01 Balance 7,000 Dr
Sep-30 Accounts Payable 8,800 15,800 Dr
Work-in-Progress 8,000 7,800 Dr
WORK-IN-PROGRESS
Sep-01 Balance 6,700 Dr
Sep-30 Materials 8,000 14,700 Dr
Labour 6,000 20,700 Dr
Overhead Control 3,000 23,700 Dr
Cost of goods sold 19,200 4,500 Dr
FACTORY OVERHEAD CONTROL
Sep-30 Factory expenses 3,400 3,400 Dr
Work-in-Progress 3,000 400 Dr
Cost of goods sold 400 0
COST OF GOODS SOLD
Sep-30 Finished Goods 19,200 19,200 Dr
Factory overhead 400 19,600 Dr
Income summary 19,600 0
SALES
Sep-30 Accounts Receivable 46,080 46,080 Cr
Income summary 46,080 0
(d)
General Journal
30-Sep Raw Materials 8,800
GST 1,320
Accounts Payable 10,120
(purchase of materials on account)
Work-in-progress 8,000
Raw Materials 8,000
(issue of materials to jobs)
Overhead Control 3,400
GST 510
Accounts Payable 3,910
(overhead incurred)
Cost of goods sold 400
Overhead control 400
(under-applied overhead)
Level 3 Accounting JOB COSTING page 30
Exercise Fourteen – page 33
(a) Materials requisition answer refer to answer for Exercise 4 Wild Woodworks – answer should
be in context of Waiopehu Foundaries
(b) Time sheets answer refer to answer for Exercise 4 Wild Woodworks – answer should be in
context of Waiopehu Foundaries.
(c) Job Cost Sheets – Waiopehu Foundaries
Job Number 96 98 101 102 103 totals
1-Aug Balance 8,300 11,700 3,900 23,900
31 Materials 8,400 7,700 14,000 6,200 6,500 42,800
Labour 7,600 8,800 13,200 7,200 4,800 41,600
Overhead 950 1,100 1,650 900 600 5,200
to Finished Goods 25,250 29,300 32,750 87,300
to Balance 14,300 11,900 26,200
(d) Refer to answer for Exercise 12 Bentleys – answer in context of Waiopehu Foundaries
(e) Finished Goods Subsidiary Ledger
Job 99
Aug-01 Balance 34,300 Dr
31 Cost of Goods Sold 34,300 0
Job 96
Aug-31 Work-in-Progress 25,250 25,250 Dr
Cost of Goods Sold 25,250 0
Job 98
Aug-31 Work-in-Progress 29,300 29,300 Dr
Job 101
Aug-31 Work-in-Progress 32,750 32,750 Dr
Level 3 Accounting JOB COSTING page 31
(f) Waiopehu Foundaries
General Journal
31-Aug Raw Materials 41,200
GST 6,180
Accounts Payable 47,380
(purchase of materials on
account)
Work-in-progress 42,800
Raw Materials 42,800
(issue of materials to jobs)
Overhead Control 400
Raw Materials 400
(supplies used)
Work-in-progress 41,600
Payroll Control 41,600
(direct labour applied)
Overhead Control 800
Payroll Control 800
(indirect labour)
Overhead Control 4,700
Heat Light Power 2,100
Repairs & Maintenance 1,600
Factory depreciation 1,000
(overhead expenses transferred)
Work-in-progress 5,200
Overhead Control 5,200
(overhead applied)
Finished Goods 87,300
Work-in-progress 87,300
(completed production)
Cost of Goods Sold 59,550
Finished Goods 59,550
(cost of production sold)
Accounts Receivable 108,330
GST 14,130
Sales 94,200
(sales on credit)
Cost of Goods Sold 700
Overhead Control 700
(under-applied overhead)
Level 3 Accounting JOB COSTING page 32
Waiopehu Foundaries ‘T’ Form format
RAW MATERIALS
Aug 1 Balance 29,500 Aug 31 Work-in-Progress 42,800
Aug 31 Accounts Payable 41,200 Overhead Control 400
Balance 27,500
$70,700 $70,700
Sept 1 Balance 27,500
WORK-IN-PROGRESS
Aug 1 Balance 23,900 Aug 31 Finished Goods 87,300
Aug 31 Materials 42,800 Balance 26,200
Labour 41,600
Overhead Control 5,200
$113,500 $113,500
Sept 1 Balance 26,200
PAYROLL/LABOUR CONTROL
Aug 31 Wages/bank 42,400 Aug 31 Work-in-Progress 41,600
Overhead control 800
$42,400 $42,400
FACTORY OVERHEAD CONTROL
Aug 31 Raw Materials 400 Aug 31 Work-in-Progress 5,200
Labour 800 Cost of goods sold 700
Factory Depreciation 1,000
Heat, light, power 2,100
Repairs and Maintenance 1,600
$5,900 $5,900
FINISHED GOODS CONTROL
Aug 1 Balance 60,000 Aug 31 Cost of Goods Sold 59,550
Aug 31 Work-in-Progress 87,300 Balance 87,750
$147,300 $147,300
Sept 1 Balance 87,750
COST OF GOODS SOLD
Aug 31 Finished Goods 59,550 Aug 31 Income summary 60,250
Factory overhead 700
$60,250 $60,250
SALES
Aug 31 Income summary 94,200 Aug 31 Accounts Receivable 94,200
$94,200 $94,200
Level 3 Accounting JOB COSTING page 33
Waiopehu Foundaries Three Column format
Raw Materials
01/08 Balance 29,500 Dr
31/08 Accounts Payable 41,200 70,700 Dr
Work-in-Progress 42,800 27,900 Dr
Overhead Control 400 27,500 Dr
Work-in-Progress
01/08 Balance 23,900 Dr
31/08 Raw Materials 42,800 66,700 Dr
Labour 41,600 108,300 Dr
Overhead Control 5,200 113,500 Dr
Finished Goods 87,300 26,200 Dr
Payroll Control
31/08 Bank 42,400 42,400 Dr
Work-in-Progress 41,600 800 Dr
Overhead Control 800 0
Factory Overhead Control
31/08 Raw Materials 400 400 Dr
Labour 800 1,200 Dr
Factory Depreciation 1,000 2,200 Dr
Heat, Light, Power 2,100 4,300 Dr
Repairs and Maintenance 1,600 5,900 Dr
Work-in-Progress 5,200 700 Dr
Cost of Goods Sold 700 0
Finished Goods Control
01/08 Balance 60,000 Dr
31/08 Work-in-Progress 87,300 147,300 Dr
Cost of Goods Sold 59,550 87,750 Dr
Cost of Goods Sold
31/08 Finished Goods 59,550 59,550 Dr
Overhead control 700 60,250 Dr
Income Summary 60,250 0
Sales
31/08 Accounts Receivable 94,200 94,200 Cr
Income Summary 94,200 0
Level 3 Accounting JOB COSTING page 34
Exercise Fifteen – page 34
Job Cost Cards – Tinies Teddies
(a) Job 684
Date Materials Labour Overhead
30-Jun 500 300 200 1,000
8-Jul 1,000 1,000
14-Jul 600 400 1,000
14-Jul Completed Total cost $3,000
Job 685
Date Materials Labour Overhead
20-Jul 1,200 1,200
26-Jul 900 600 1,500
(b) General Journal
12-Jul Direct Materials 2,000
GST 300
Accounts Payable 2,300
purchase of materials on credit
Work-in-progress 2,200
Direct Materials 2,200
issue of materials to production
Work-in-progress 1,500
Payroll Control 1,500
direct labour added to production
Factory Overhead 200
Payroll Control 200
indirect labour transferred to overhead
Factory Overhead 700
Factory expenses 700
overhead expenses incurred
Work-in-progress 1,000
Factory Overhead 1,000
overhead applied to production
Finished Goods 3,000
Work-in-progress 3,000
finished Goods transferred
Cost of Goods Sold 3,000
Finished Goods 3,000
Cost of Goods Sold
Factory Overhead 100
Cost of Goods Sold 100
over-applied overhead transferred
Accounts Receivable 8,625
GST 1,125
Sales 7,500
sale of job 684
Level 3 Accounting JOB COSTING page 35
(c) Tinies Teddies General Ledger
Cost of Goods Sold
31-Jul Finished Goods 3,000 3,000 Dr
Factory overhead 100 2,900 Dr
Sales
31-Jul Accounts Receivable 7,500 7,500 Cr
(d) Over-applied $100
Exercise Sixteen – page 35
(a) Job Cost Cards – Mainland Metals Job 672
Date Materials Labour Overhead
30-Jun 14,000 10,000 6,000 30,000
4-Jul 1,000 1,000
9-Jul 2,000 1,200 3,200
9-Jul Completed Total cost $34,200
Job 674
Date Materials Labour Overhead
30-Jun 10,200 3,000 1,800 15,000
14-Jul 2,000 2,000
17-Jul 7,000 4,200 11,200
17-Jul Completed Total cost $28,200
(b) and (c) Answer similar to Exercise 4 in context of Mainland Metals
(d) General Journal
Direct Materials 4,000
GST 600
Accounts Payable 4,600
purchase of materials on credit
Work-in-progress 4,500
Direct Materials 4,500
issue of materials to production
Work-in-progress 13,000
Payroll Control 13,000
direct labour added to production
Factory Overhead 800
Payroll Control 200
indirect labour transferred to overhead
Factory Overhead 7,200
Depreciation factory 3,000
Electricity factory 1,000
Factory expenses 3,200
overhead expenses incurred
Level 3 Accounting JOB COSTING page 36
Mainland Metals answer continued
Work-in-progress 7,800
Factory Overhead 7,800
overhead applied to production
Finished Goods 62,400
Work-in-progress 62,400
finished Goods transferred
Cost of Goods Sold 58,200
Finished Goods 58,200
Cost of Goods Sold
Cost of Goods Sold 200
Factory Overhead 200
under-applied overhead transferred
Accounts Receivable 100,395
GST 13,095
Sales 87,300
sale of job 684
(e) General Ledger
Work-in-progress
1-Jul Balance 45,000 Dr
31-Jul Materials 4,500 49,500 Dr
Labour 13,000 62,500 Dr
Overhead 7,800 70,300 Dr
Finished Goods 62,400 7,900
(f) under-applied overhead $200
(g) see (d) above
Level 3 Accounting JOB COSTING page 37
Exercise Seventeen – page 36
(a) Estimated overhead / labour hours = $200000/4000 = $50 per labour hour.
Plus $25 per hour for direct labour
Combined labour charge rate is $75 per hour
(b) Raw materials control account
Raw Materials
Sep 1 Balance 9,000 Dr
Sep 30 Accounts Payable 15,000 24,000 Dr
Work-in-Progress 11,200 12,800 Dr
Overhead Control 800 12,000 Dr
(c) It is necessary to keep accurate time records for the factory staff so the correct amount of direct
labour and overhead (based on labour hours) can be allocated to each job as it is worked on. It
is also important to identify the idle time – ie time not specifically identified with specific jobs
being worked on so the amount can be added to the overhead costs which are then allocated to
jobs via labour hours using the predetermined overhead rate of $50 per labour hour.
(d) Job cost summary
Kiwi Engineering Job Cost Summary Sheet - September
Job No. In progress
start Materials Labour
/overhead Completed
and sold In progress
end
69 3,000 1,000 1,500 5,500
70
3,500 3,000 6,500
71 4,000 4,200 8,200
72 2,700 2,700
5,400
(e) Overhead control
Overhead control
Sep 30 Raw materials 800 800 Dr
Payroll 350 1,150 Dr
Factory expenses 6,000 7,150 Dr
Work-in-Progress 7,600 450 Cr
Cost of goods sold 450 0
(f) Invoice extract to show charges and GST
Description AMOUNT
Materials charge 3,850 00
Labour charge 3,600 00
Please pay on receipt of invoice.
Sub total 7,450 00
Plus GST 1,117 50
TOTAL 8,567 50
Level 3 Accounting JOB COSTING page 38
Exercise Eighteen – page 38
(a) Job cost card
Kitchen Plus Job Cost Card Job No:
Customer Started Completed Delivered 56
Wilson, Morningside 14/8 16/8 16/8
Date Doc.
Ref.
Materials
$
Labour
$
Overhead
$
Totals
$
14/8 R193 1,200 1,200
R194 1,600 1,600
TS 14-8 100 300 400
TS 15-8 120 360 480
TS 16-8 80 240 320
Total cost of job 4,000
(b) Invoice extract showing amounts:
Kitchen Plus Tax Invoice 56
Description Amount $
One Kitchen unit 7,200
Sub-total 7,200
GST 1,080
Total $ $8,280
(c) The purpose of the materials requisitions used to cost Job 56 are to provide details of the actual materials
– bench top and cupboard and drawer fittings used on Job 56 and their cost so the correct materials and
costs are added to the cost of Job 56. The materials requisition also provides the stores with information
to update stores records of inventory on hand of bench tops and fittings.
(d) The purpose of the time sheets used to cost Job 56 is to show exactly how many hours each day were
spent on Job 56 so the direct labour cost can be added and the overhead which is based on the direct
labour hours can be added.
(e) Direct labour hours are used as the overhead allocation cost driver because most of the overhead is
generated by the time it takes to assemble the kitchen units – the parts are already pre-made so require
labour to fit them – hence hours worked on fitting and joining the unit is appropriate as the base for
allocating overhead as most overhead will be generated from the time spent on making the unit.
Level 3 Accounting JOB COSTING page 39
Exercise Nineteen – page 39
(a) Jo’s Toyota
Seaside Garage Tax Invoice
PO Box 32, Whakatane GST # 65-752-432
Invoice to: Date: Jo Car Toyota Corolla
Reg No. SG5432
Part no.
Description Qty Price Total
WOF WOF check 1 43.48 43.48
Sub-total 43.48
GST 6.52
Total $ 50.00
(b) Pete’s Mazda
Seaside Garage Tax Invoice
PO Box 32, Whakatane GST # 65-752-432
Invoice to: Date: Pete Car Mazda Astina
Reg No. CTU407
407 Part no.
Description Qty Price Total
DYLA
N Labour 3 70.00 210.00
WOF WOF check 1 43.48 43.48
FR Freight charge 1 10.43 10.43
PC Parts cleaner 0.3 14.30 4.29
MISC Rear brake hoses 2 39.60 79.20
FLUID Brake fluid 1 9.45 9.45
Z79X Oil filter 1 10.45 10.45
SUN Sundries 1 6.00 6.00
OIL Shell Helix Plus 3.5 13.23 46.31
MISC Igniter 1 168.50 168.50
PLUGS Spark plugs 4 8.47 33.88
Sub-total 621.99
GST 93.30
Total $ 715.29
(c) Labour is charged out at $70 an hour to cover both Bret’s or Dylan’s labour cost and the garage’s
overheads. There is a small mark-up added to parts and oil/fluids to cover the cost of administering the
ordering of parts/storage of oil/fluids but no other mark-up so the labour cost will cover the booking
administration for the cars, the cleaning and power for the garage, and all other overheads, plus provide
a mark-up to earn a profit from the job. It is important that the garage earns a profit or it will not be able
to continue in business so the labour charge has to ensure all expenses including direct and indirect
expenses will be covered, plus a profit made. However Dylan must also ensure the charge out rate is
not too high or he will lose customers to other garages that charge less for labour time.
Level 3 Accounting JOB COSTING page 40
(d) Pete has had a number of things done in one job. He has a WOF check which is $50 including GST to start with. Then he has had an oil change service, which has added costs for oil, oil filter and sundries. He has also had to have the rear brake hoses replaced to get his WOF. To fix the ignition an igniter part has had to be ordered from another city, generating a freight charge on Pete’s invoice. Parts including brake hoses, the igniter and spark plus, plus the freight charge have come to over $280 excluding GST once the garage has added its 10% mark-up to the cost of the parts to the garage. With 3 hours of labour, justified as being $70 an hour because it has to cover all the garage overheads and administration as well as the mechanics wages, another $210 excluding GST brings Pete’s bill to nearly $500 excluding GST. A few minor parts, brake fluid, and oil add to the growing cost of this service. On top of all that Pete must pay GST of over $90, which is the government’s cut from this job. It ceases to become difficult to see how Pete is then faced with a bill of over $700.
(e) Cost to garage and profit made on the job
Item Part Number Quantity
GST
exclusive
cost per 1
item to the
garage Total cost
Labour DYLAN 3 45.00 135.00
WOF check WOF 1 28.00 28.00
Freight charge FR 1 8.00 8.00
Parts cleaner PC 0.3 13.00 3.90
Rear brake hoses MISC 2 36.00 72.00
Brake fluid FLUID 1 9.00 9.00
Oil filter Z79X 1 9.50 9.50
Sundries SUN 1 3.00 3.00
Shell Helix Plus OIL 3.5 12.60 44.10
Igniter MISC 1 153.00 153.00
Spark plugs PLUGS 4 7.70 30.80
Total cost of job 496.30
Sold exc GST 621.99
Profit 125.69
Exercise Twenty – page 40
(a) Show the Raw Materials account in the General Ledger for June.
Palms Pottery General Ledger
Raw Materials
Jun 1 Balance 6,000 Dr
Jun 30 Accounts Payable 8,000 14,000 Dr
Work in progress 7,500 6,500 Dr
(b) overhead rate $7.00 per wheel and kiln hour
(c) Explain why wheel and kiln hours are used as the cost driver for overhead.
The overhead costs are mostly related to the use of the wheel and kiln such as
electricity and maintenance so wheel and kiln hours are the best cost driver for
overhead
Level 3 Accounting JOB COSTING page 41
(d) Complete the ledger account for job 71-bowls in the Work-in-Progress Subsidiary Ledger.
(e) Job cost card for Job 72
(f) Show the general journal entries needed to record the sale of job 72-garden eyes to M Watson on credit,
on 27 June.
Cost of Goods Sold 11,400
Finished goods 11,400
M Watson 26,220
Sales 22,800
GST 3,420
(g) Show the general journal entry to transfer the under or over applied overhead for June to cost of goods
sold.
Factory overhead control 300
Cost of Goods Sold 300
(h) Explain why under or over applied overhead occurs in job cost systems.
Overhead is applied to jobs during the year based on estimates of overhead and
the cost driver at the beginning of the year. Actual results will always be different
from the budget estimates
(i) Tammy needs to ensure under or over applied overhead is minimised so that her pottery garden
ornaments are sold at a price which covers all her direct costs such as clay and glaze, labour time and all
her indirect costs such as power to run the pottery wheel and kiln, and maintenance of her tools and
equipment. This means she needs to apply overhead to each job and use a budget rate that should apply
nearly the entire overhead actually incurred to the jobs. This way the price she charges for them will
cover all her costs and she will make a profit to keep the business viable. She needs to minimise under
applied overhead so she does not make a loss or less profit than she needs to stay viable. She needs to
minimise over applied overhead so she does not price her garden ornaments to high and lose sales to
competitors.
Palms Pottery Work-in-Progress Subsidiary Ledger
Job 71 Bowls
Jun 1 Balance 5,400 Dr
Jun 30 Raw Materials 1,000 6,400 Dr
Labour 2,000 8,400 Dr
Overhead 700 9,100 Dr
Finished Goods 9,100 0
Job No: 72 Product: Garden Eyes
Materials Labour Overhead Total
4,000 6,000 1,400 11,400