# Job Order Costing Examples, Practical Problems and Solutions

## 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
Also Check:  Job Costing

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).

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
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