Ellaine Dorado

4-BSAct
June 4, 19

IDENTIFICATION
1. Costing method that includes all manufacturing costs—direct materials, direct labor, and
both variable and fixed manufacturing overhead—in the cost of a product. -
Absorption costing
2. A measure of activity such as direct labor-hours or machine-hours that is used to assign
costs to cost object. - allocation base
3. A document that shows the quantity of each type of direct material required to make a
product.- bill of materials
4. A costing system used in situations where many different products, jobs, or services are
produced each period job-order costing
5. A document that specifies the type and quantity of materials to be drawn from the
storeroom and that identifies the job that will be charged for the cost of those materials.-
materials requisition form
6. A debit balance in the Manufacturing Overhead account that occurs when the amount of
overhead cost actually incurred exceeds the amount of overhead cost applied to Work in
Process during a period under applied overhead
7. The process of charging manufacturing overhead cost to job cost sheets and to the Work in
Process account.- Overhead application
8. A costing system used in situations where a single, homogeneous product (such as cement
or flour) is produced for long periods of time.- Process costing
9. A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes
overhead costs.- cost driver
10. A costing system with multiple overhead cost pools and a different predetermined overhead
rate for each cost pool, rather than a single predetermined overhead rate for the entire
company. Each production department may be treated as a separate overhead cost pool. -
multiple predetermined overhead rates
11. A costing system in which overhead costs are applied to a job by multiplying a
predetermined overhead rate by the actual amount of the allocation base incurred by the
job. - normal cost system
12. A document that is used to record the amount of time an employee spends on various
activities.- time ticket
13. A form prepared for a job that records the materials, labor, and manufacturing overhead
costs charged to that job job cost sheet
14. A rate used to charge manufacturing overhead cost to jobs that is established in advance for
each period. It is computed by dividing the estimated total manufacturing overhead cost for
the period by the estimated total amount of the allocation base for the period.-
Predetermined Overhead Rate
15. A single predetermined overhead rate that is used throughout a plant.- Plant wide overhead
rate
16. A credit balance in the Manufacturing Overhead account that occurs when the amount of
overhead cost applied to Work in Process exceeds the amount of overhead cost actually
incurred during a period.- Over applied overhead
17. The units transferred to the next department (or to finished goods) during the period plus
the equivalent units in the department’s ending work in process inventory.- Equivalent units
of production
18. Direct labor cost plus manufacturing overhead cost.- Conversion cost
19. A hybrid costing system used when products have some common characteristics and some
individual characteristics.- Operation costing
20. A costing method used when essentially homogeneous products are produced on a
continuous basis. Process costing

Problem 1 – Job Order Costing

EDSON NGO Corporation is a manufacturer that uses job-order costing. On January 1,

the beginning of its fiscal year, the company’s inventory balances were as follows:

Raw materials . . . . . . . . . . . . $20,000

Work in process . . . . . . . . . . $15,000
Finished goods . . . . . . . . . . . $30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For
the current year, the company estimated that it would work 75,000 machine-hours and
incur $450,000 in manufacturing overhead cost. The following transactions were
recorded for the year:

a. Raw materials were purchased on account, $410,000.

b. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct
materials and $20,000 indirect materials).
c. The following costs were accrued for employee services: direct labor, $75,000;
indirect labor, $110,000; sales commissions, $90,000; and administrative salaries,
$200,000.
d. Sales travel costs were $17,000.
e. Utility costs in the factory were $43,000.
f. Advertising costs were $180,000.
g. Depreciation was recorded for the year, $350,000 (80% relates to factory operations,
and 20% relates to selling and administrative activities)
h. Insurance expired during the year, $10,000 (70% relates to factory operations, and
the remaining 30% relates to selling and administrative activities).
i. Manufacturing overhead was applied to production. Due to greater than expected
demand for its products, the company worked 80,000 machine-hours during the
year.
j. Goods costing $900,000 to manufacture according to their job cost sheets were
completed during the year.
k. Goods were sold on account to customers during the year for a total of $1,500,000.
The goods cost $870,000 to manufacture according to their job cost sheets.

Required:
1. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a
journal entry to close any balance in the Manufacturing Overhead account to Cost of
Goods Sold. Do not allocate the balance between ending inventories and Cost of
Goods Sold.
Manufacturing overhead…………………………………. 20,000
Cost of goods sold………………………………….. 20,000

2. Prepare an income statement

EDSON NGO Corporation

Income Statement
Year ended December 31
Sales $ 1,500,000
Cost of goods sold ($870,000 - $20,000) 850,000
Gross margin 650,000
Selling and administrative expenses
Sales commission expense $ 90,000
Administrative salaries expense 200,000
Sales travel expense 17,000
Advertising expense 180,000
Depreciation expense 70,000
Insurance expense 3,000 560,000
Net operating income $ 90,000
Problem 2 – Process Costing

JERICO JUANGCO Home Paint Company produces exterior latex paint, which it sells
in one-gallon containers. The company has two processing departments—Base Fab and
Finishing. White paint, which is used as a base for all the company’s paints, is mixed
from raw ingredients in the Base Fab Department. Pigments are then added to the basic
white paint, the pigmented paint is squirted under pressure into one-gallon containers,
and the containers are labeled and packed for shipping in the Finishing Department.

Information relating to the company’s operations for April follows:

a. Issued raw materials for use in production: Base Fab Department, $851,000; and
Finishing Department, $629,000.
b. Incurred direct labor costs: Base Fab Department, $330,000; and Finishing
Department, $270,000.
c. Applied manufacturing overhead cost: Base Fab Department, $665,000; and
Finishing Department, $405,000.
d. Transferred basic white paint from the Base Fab Department to the Finishing
Department, $1,850,000.
e. Transferred paint that had been prepared for shipping from the Finishing
Department to Finished Goods, $3,200,000.

Required:

1. Determine the cost of ending work in process inventories and of units transferred
out of the Base Fab Department in April. The following additional information is
available regarding production in the Base Fab Department during April:

Production data:
Units (gallons) in process, April 1: materials 100% complete,
Labor and overhead 60% complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Units (gallons) started into production during April . . . . . . . . . . . . . . . . . 420,000
Units (gallons) completed and transferred to the
Finishing Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,000
Units (gallons) in process, April 30: materials 50% complete,
Labor and overhead 25% complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Cost data:
Work in process inventory, April 1:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,000
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000
Total cost of work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
 Cost added during April:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 851,000
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,000
Total cost added during April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,846,000

Base Fab department

(Equivalent units)
Materials Labor overhead
Units transferred to the next department 370,000 370,000 370,000
Ending work in process inventory

 materials 80,000 x 50% complete

 Labor : 80,000 unit x 25% complete

 Overhead: 80,000 units x 25% complete 40,000 20,000 20,000

Equivalent units of production 410,000 390,000 390,000

Base fab department

Cost per equivalent units

Materials Labor Overhead
Costs:
Cost in beginning in process inventory $92,000 $21,000 $37,000
Cost added during the period 851,000 330,000 665,000
Total cost $943,000 $351,000 $702,000
Equivalent unit of production 410,000 390,000 390,000
Cost per equivalent units $2.30 $0.90 $1.80

Base fab department

Costs of ending work in process inventory and the units transferred out
Materials Labor Overhead total
Work in process inventory
Equivalent units of production 40,000 20,000 20,000
Cost per equivalent unit $2.30 $0.90 $1.80
Cost of ending work in process inventory $92,000 $18,000 $36,000 $146,000

Units completed and transferred out

Units transferred to the next department 370,000 370,000 370,000
Cost per equivalent unit $2.30 $0.90 $1.80
Cost of units completed and transferred $851,000 $333,000 $666,000 $1,850,000
out

2. Prepare a cost reconciliation report for the month of April

Base Fab department

Cost reconciliation
Cost to be accounted for
Cost of beginning work in process inventory $150,000
Costs added to production during the period 1,846,000
Total cost to be accounted for $1,996,000

Costs accounted for as follows:

Cost of ending work in process inventory $146,000
Cost of units transferred out 1,850,000
Total cost accounted for $1,996,000