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Content Area Mastery Problem: Job Order Costing (Advanced) Question Content Area Cost flows The price quoted to the customer is closely tied to the estimated cost in environments in which products are made according to the customer's specifications. Therefore, a company must be able to determine the unit cost of its products for pricing as well as for financial reporting purposes. To track costs in these environments, a Job order costing system is generally used. A job order costing system must be able to identify each individual job and accumulate its costs separately from the costs of other jobs. Recall the flow of costs used to determine cost of goods manufactured and cost of goods sold. The following flowchart illustrates the flow of costs into Work in Process and Finished Goods. Materials Labor Overhead Work in Process: Job 3 Materials, Labor, OH Job 4 Materials, Labor, OH In job order costing, the costs in Work in Process and Finished Goods can be related to specific jobs. Finished Goods: Job 1 Materials, Labor, OH Job 2 Materials, Labor, OH APPLY THE CONCEPTS: Determine the costs for Work in Process and Finished Goods Job 1 Job 2 Job 3 Job 4 Materials $408 $250 $221 $316 Labor 652 372 349 478 Overhead 175 165 90 126 Total $fill in the blank bdb616fa1fbd07b_1 1,235 $fill in the blank bdb616fa1fbd07b_2 787 $fill in the blank bdb616fa1fbd07b_3 660 $fill in the blank bdb616fa1fbd07b_4 920 Complete the table and determine the following account Work in Process $fill in the blank bdb616fa1fbd07b_5 3,602 Finished Goods $fill in the blank bdb616fa1fbd07b_6 3,602 Job Cost Sheets A job cost sheet is used to accumulate the following costs for each job: direct materials, direct labor and overhead. It is an internal document, so the format varies by company. Some companies prefer a detailed cost sheet that shows the details for direct materials (such as quantity, type, and requisition numbers for each material used) and details for direct labor (such as hours and wage rate for each employee who worked on the job). Other companies prefer a summary showing a total for direct materials and a total for direct labor. Overhead applied is reported on all job cost sheets. Recall that firms use normal costing to determine unit cost. Normal costing requires the use of predetermined overhead rates, which are calculated as follows: Predetermined Overhead Rate = Estimated Annual Overhead Estimated Cost Driver APPLY THE CONCEPTS: Complete the job cost sheets for In the Doghouse Company In the Doghouse Company builds doghouses. They have three sizes: small, medium and large. Each size can be built in one of two styles, standard or deluxe. All doghouses are built with treated lumber and have shingled roofs. The deluxe model is insulated and has a covered porch. In the Doghouse sells mostly to local hardware and garden stores. The costs for direct materials and direct labor for each type of doghouse are shown in the table below. The direct materials cost includes costs for lumber, shingles, stain or paint, and insulation. Nails and glue are also used in the construction and are considered indirect materials which make them part of overhead. The company employs two carpenters and a part-time student to maintain the equipment and clean the shop. The carpenters' wages are direct labor. The student's wages are indirect labor and, therefore, part of overhead. Other overhead costs include depreciation of equipment and the building, insurance, utilities, and taxes. Overhead is applied at 10% of direct labor cost. In the Doghouse summarizes costs by direct materials, direct labor, and overhead on its job cost sheets. Direct Materials Direct Labor Standard: Small $64 $60 Medium 111 90 Large 135 150 Deluxe: Small $78 $120 Medium 152 180 Large 256 240 At the beginning of September, the company has one job, job number 807, in progress from the previous month. This job is for an order of 12 medium, deluxe doghouses. As of September 1, $729.60 of direct materials have been used, $864.00 of direct labor have been charged to the job and $86.40 of overhead was applied to the job. Click on the link below to get more detail on job number 807. During September, In the Doghouse received an order for 16 small, standard doghouses. This is job number 901 and was completed by the end of the month. Another order was received during the month, job 902, for 20 large, deluxe doghouses. At the end of September, job 902 was still in process. $1,024 of direct materials has been used, $960 of direct labor has been charged to the job, and overhead was applied to job 902 using the predetermined overhead rate of 10% of direct labor cost. Complete the following job cost sheets for the month of September In the Doghouse and answer the following questions. Job 807 12 medium, deluxe doghouses Direct materials $fill in the blank 95b97aff1fdc05d_5 3,040 Direct labor fill in the blank 95b97aff1fdc05d_6 864 Overhead fill in the blank 95b97aff1fdc05d_7 86.40 Total job cost $fill in the blank 95b97aff1fdc05d_8 Job 901 16 small, standard doghouses Direct materials $fill in the blank 95b97aff1fdc05d_9 Direct labor fill in the blank 95b97aff1fdc05d_10 Overhead fill in the blank 95b97aff1fdc05d_11 Total job cost $fill in the blank 95b97aff1fdc05d_12 Job 902 20 large, deluxe doghouses Direct materials $fill in the blank 95b97aff1fdc05d_13 Direct labor fill in the blank 95b97aff1fdc05d_14 Overhead fill in the blank 95b97aff1fdc05d_15 Total job cost $fill in the blank 95b97aff1fdc05d_16 What is the balance in Work in Process on September 1? $fill in the blank 95b97aff1fdc05d_17 What is the balance in Work in Process on September 30? $fill in the blank 95b97aff1fdc05d_18

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