1. What are the similarities & Difference existing between job-order and process costing?

Job costing and process costing are both methods used in cost accounting to track the costs of
production. However, they differ in how they accumulate and assign these costs.

Similarities:

 Goal: Both methods aim to determine the cost of producing goods or services.
 Cost categories: Both track the same basic cost categories: direct materials, direct labor, and
manufacturing overhead.
 Inventory accounts: Both utilize similar inventory accounts like raw materials inventory, work-
in-process inventory, and finished goods inventory.

Differences:

 Production type: Job costing is suited for custom or unique jobs, where each job has specific
requirements. Process costing is ideal for mass production of similar products in a continuous
flow.
 Cost accumulation: Job costing accumulates costs by individual jobs. Process costing
accumulates costs by production process or department.
 Work in process (WIP) inventory: Job costing tracks WIP based on the completion stage of
each job. Process costing tracks WIP based on the entire production process.
 Cost transfer: Costs cannot be transferred between jobs in job costing. In process costing, costs
are transferred from one department (process) to the next as production progresses.

Here's a table summarizing the key differences:

Feature Job Costing Process Costing

Production type Unique jobs Mass production of similar items
Cost accumulation By individual job By production process or
department
WIP inventory Based on completion stage of Based on the entire production
tracking each job process
Cost transfer between Not possible Possible between departments
jobs (processes)

2. 1. Compute Over or Under Applied Overhead:

 Factory Overhead Control (Actual) = $326,000

 Factory Overhead Applied (Estimated) = $324,000

Overapplied Overhead = Actual - Applied = $326,000 - $324,000 = $2,000

Since the actual overhead (control) is higher than the applied overhead, we have an overapplied
overhead of $2,000.

2. Disposition and Journal Entries:

a) Proration Approach

This method allocates the overapplied overhead to the ending inventory accounts (Finished
Goods and Work in Process) based on their relative proportion of total inventory costs.

Step 1: Calculate Proration Rates

Total Inventory Cost = Finished Goods + Work in Process = $70,000 + $30,000 = $100,000

Proration Rate for Finished Goods = Finished Goods Cost / Total Inventory Cost = $70,000 /
$100,000 = 70%

Proration Rate for Work in Process = Work in Process Cost / Total Inventory Cost = $30,000 /
$100,000 = 30%

Step 2: Calculate Overhead Adjustment

Amount to be Prorated (Overapplied Overhead) = $2,000

Overhead Adjustment for Finished Goods = Proration Rate * Overapplied Overhead = 70% *
$2,000 = $1,400

Overhead Adjustment for Work in Process = Proration Rate * Overapplied Overhead = 30% *
$2,000 = $600

Step 3: Journal Entry

Factory Overhead Control ($2,000)

Finished Goods Inventory ($1,400)
Work in Process Inventory ($600)

This entry decreases the Factory Overhead Control account (actual overhead) by $2,000 and
increases the Finished Goods and Work in Process inventory accounts by their respective
overhead adjustments ($1,400 and $600).

b) Write-Off to Cost of Goods Sold Approach

This method considers the overapplied overhead as a minor expense and directly writes it off
against the Cost of Goods Sold account.

Journal Entry
 Factory Overhead Control ($2,000)
Factory Overhead Applied ($2,000)

This entry reduces the Factory Overhead Control account by $2,000, effectively decreasing the
total manufacturing cost reflected in Factory Overhead Applied. The Cost of Goods Sold account
is not directly impacted.

Choosing the Approach

The Generally Accepted Accounting Principles (GAAP) do not prescribe a specific method.
Here's a general guideline:

 Proration Approach: Preferred for companies with significant ending inventory balances as it
provides a more accurate allocation of overhead costs.
 Write-Off Approach: Simpler and can be used when the over applied overhead amount is
immaterial relative to the total cost of goods sold.

In this case, since the over applied amount ($2,000) is relatively small, either approach would be
acceptable. However, for consistency and a more precise cost allocation, the proration approach
might be preferable.

3. ABC Furniture Company - Year 2008 Analysis

a. Budgeted Overhead Rates:

Department A:

 Budgeted Overhead Cost = $1,980,000

 Machine Hours = 180,000 hours

Budgeted Overhead Rate (Dept. A) = Budgeted Overhead Cost / Machine Hours = $1,980,000 /
180,000 hours = $11.00 per Machine Hour

Department B:

 Budgeted Overhead Cost = $2,200,000

 Direct Labor Cost = $4,400,000 (Note: This is assumed to be budgeted direct labor cost)

Budgeted Overhead Rate (Dept. B) = Budgeted Overhead Cost / Direct Labor Cost = $2,200,000
/ $4,400,000 = 0.50 (or 50%) per dollar of Direct Labor Cost

b. Machine Hours Actually Worked in Department A:

 We are given the budgeted machine hours (180,000) but don't have information on actual hours
worked. This information might be available elsewhere or could be a separate calculation based
on production data.

c. Factory Overhead Applied in Department B:

The information provided (FOH Applied = $1,760,000) already gives us the answer for
Department B.

d. Recording Transactions A through H:

These transactions would involve debits and credits to various accounts throughout the year.
Specific details might require additional information about the company's accounting system.
However, here's a general outline:

Transaction A:

 Debit: Raw Materials Inventory ($3,800,000)

 Credit: Accounts Payable ($3,800,000)

Transaction B:

 Debit: Work in Process Inventory (Dept. A/B) - based on materials requisitioned

 Credit: Raw Materials Inventory ($3,700,000)

Transaction C:

 Debit: Work in Process Inventory (Dept. A/B)

 Credit: Wages Payable ($7,400,000)

Transaction D:

 Debit: Work in Process Inventory (Dept. A/B)

 Credit: Factory Overhead Control ($4,400,000) - May involve separate debits for each overhead
item

Transaction E (Already Given):

 Debit: Work in Process Inventory (Dept. B)

 Credit: Factory Overhead Applied ($1,760,000)

Transaction F:

 Debit: Finished Goods Inventory

 Credit: Work in Process Inventory (Total Cost of Goods Manufactured)
 Transaction G:

 Debit: Cash
 Credit: Sales Revenue ($26,000,000)

Transaction H:

 Debit: Cost of Goods Sold

 Credit: Finished Goods Inventory ($15,600,000)

e. Overhead Underapplied or Overapplied?

To determine this, we need to compare the actual factory overhead incurred (Transaction D) with
the factory overhead applied (Transaction E).

However, the information provided doesn't include the actual overhead incurred in Department
A. Once you have that value, you can calculate the total actual overhead incurred (Dept. A +
Dept. B).

Scenario 1: Total Actual Overhead > Total Applied Overhead

If the total actual overhead is greater than the total applied overhead, then there is underapplied
overhead. The difference represents an additional cost to be allocated to the ending inventory.

Scenario 2: Total Actual Overhead < Total Applied Overhead

If the total actual overhead is less than the total applied overhead, then there is overapplied
overhead. This represents an overestimation of overhead costs, and an adjustment might be
needed to reduce the cost of ending inventory.

4. XYZ Company - Job Costing Analysis

i. Compute the Total Overhead Cost for Job-494

Machining Department Overhead:

Budgeted Overhead Rate (per machine hour) = $1,800,000 Overhead / 50,000 Machine Hours = $36 per
machine hour

Machining Department Overhead Cost (for Job-494) = $36 per hour * 2,000 Machine Hours = $72,000

Assembly Department Overhead:

Budgeted Overhead Rate (as a percentage of direct labor cost) = Not provided directly in the budget, but
we can calculate it.
Assembly Department Budgeted Overhead Rate Calculation:

Total Budgeted Overhead Cost (Assembly) = $3,600,000

Total Budgeted Direct Labor Cost (Assembly) = $2,000,000

Overhead Rate (%) = (Overhead Cost / Direct Labor Cost) * 100%

= ($3,600,000 / $2,000,000) * 100%

= 180%

Assembly Department Overhead Cost (for Job-494):

Overhead Rate = 180%

Direct Labor Cost (Job-494, Assembly) = $15,000

Assembly Department Overhead Cost = Direct Labor Cost * Overhead Rate

= $15,000 * 180%

= $27,000

Total Overhead Cost for Job-494:

Machining Department Overhead = $72,000

Assembly Department Overhead = $27,000

Total Overhead Cost = $72,000 + $27,000

= $99,000

ii. Compute the Total Cost of the Job

Direct Material Used (Job-494) = $45,000 (Machining) + $70,000 (Assembly) = $115,000

Direct Labor Cost (Job-494) = $14,000 (Machining) + $15,000 (Assembly) = $29,000

Overhead Cost (Job-494) = $99,000 (calculated above)

Total Job Cost = Direct Material + Direct Labor + Overhead

= $115,000 + $29,000 + $99,000

= $243,000

Year-End Overhead Variances:

Machining Department:

Budgeted Overhead Cost = $1,800,000

Actual Overhead Cost = $2,100,000

Machine Hours Used = 55,000 hrs

Scenario: We don't have a budgeted overhead rate per machine hour for the actual usage (55,000 hrs).
Without this rate, we cannot directly calculate the expected overhead cost based on actual machine hours.

Assembly Department:

Budgeted Overhead Cost = $3,600,000

Actual Overhead Cost = $3,700,000

Direct Labor Cost Incurred = $2,200,000

Assembly Department Overhead Rate Calculation (Actual):

Actual Overhead Cost = $3,700,000

Direct Labor Cost Incurred = $2,200,000

Actual Overhead Rate (%) = ($3,700,000 / $2,200,000) * 100%

= 168.18%

Overhead Variance Analysis (Assembly Department):

Budgeted Overhead Rate = 180% (calculated earlier)

Actual Overhead Rate = 168.18%

Since the actual overhead rate (168.18%) is less than the budgeted rate (180%), there is a favorable
overhead variance in the Assembly Department.

5. Honey butter, Inc., manufactures a product that goes

through two departments prior to completion. The following
information is available about work in the first department, the
Mixing Department, during June.
Percent Completed
Units Materials Conversion Work in
process, beginning .....................
50,000 60% 30% Started into
production ............................ 470,000 Completed and transferred
out ................ 450,000 Work in process,
ending.......................... 60,000 70%
20% Cost in the beginning work in process inventory and
cost added during June were as follows for the Mixing
Department:
Materials Conversion Work in process,
beginning .....................
$24,500 $9,500 Cost added during
June ...........................
$377,600 $274,200 The company uses
the FIFO method to compute unit product costs. Required:
i. Determine the equivalent units for June for the Mixing
Department. ii. Compute the costs per equivalent unit for
June for the Mixing Department. iii. Determine the total
cost of ending work in process inventory and the total cost of
units transferred to the next department in June.
iv. Prepare a report that reconciles the total costs assigned
to the ending work in process inventory and to the units
transferred out with the costs in beginning inventory and costs
added during the period.
Honey Butter, Inc. - Mixing Department Costing (FIFO
Method)
i. Equivalent Units for June (Mixing Department):

Stage of Production Units Materials Conversion

Beginning WIP 50,000 50,000 * 60% = 30,000 50,000 * 30% = 15,000
Started & Completed 450,000 450,000 450,000
Ending WIP 60,000 60,000 * 70% = 42,000 60,000 * 20% = 12,000
 Total Equivalent Units:

 Materials: 30,000 (Beginning WIP) + 450,000 (Started & Completed) + 42,000 (Ending WIP)
= 522,000
 Conversion: 15,000 (Beginning WIP) + 450,000 (Started & Completed) + 12,000 (Ending WIP)
= 477,000

ii. Costs per Equivalent Unit (June):

 Materials Cost per Equivalent Unit = Total Materials Cost / Total Equivalent Units (Materials) =
($24,500 Beginning WIP + $377,600 Added During June) / 522,000 = $0.74 per equivalent
unit
 Conversion Cost per Equivalent Unit = Total Conversion Cost / Total Equivalent Units
(Conversion) = ($9,500 Beginning WIP + $274,200 Added During June) / 477,000 = $0.57 per
equivalent unit

iii. Total Cost of Ending Work in Process Inventory and Units Transferred Out:

 Ending Work in Process:

o Materials Cost = 42,000 equivalent units * $0.74 per equivalent unit = $31,080
o Conversion Cost = 12,000 equivalent units * $0.57 per equivalent unit = $6,840
o Total Ending WIP Cost = $31,080 (Materials) + $6,840 (Conversion) = $37,920
 Units Transferred Out:
o Materials Cost = 450,000 equivalent units * $0.74 per equivalent unit = $333,000
o Conversion Cost = 450,000 equivalent units * $0.57 per equivalent unit = $256,500
o Total Transferred Out Cost = $333,000 (Materials) + $256,500 (Conversion) = $589,500

iv. Cost Reconciliation Report:

Description Materials Conversion Total

Beginning Work in Process Inventory $24,500 $9,500 $34,000
Cost Added During June $377,600 $274,200 $651,800
Total Costs to Account For $402,100 $283,700 $685,800
Units Transferred Out $333,000 $256,500 $589,500
Ending Work in Process Inventory $31,080 $6,840 $37,920
Total Costs Assigned $364,080 $263,340 $627,420

Variance:

 Total Costs to Account For - Total Costs Assigned = $685,800 - $627,420 = $58,380 Favorable
Variance

6. Daltry Tractor Company - Weighted Average Costing

(April 2012)
 A. Equivalent Units:

 Direct Materials (100% complete):

o Beginning WIP: 400 units (all materials added)
o Units Started: 1,200 units (all materials added)
o Ending WIP: 250 units (all materials added)

Total Equivalent Units for Direct Materials = 400 + 1200 + 250 = 1850 units

 Conversion Costs (assigned evenly throughout production):

We need to consider the completion percentage of both WIP inventories (beginning and ending)
for conversion costs.

o Beginning WIP: 400 units * 30% complete = 120 equivalent units

o Units Started: 1,200 units (assumed 100% started, so all conversion costs added)
o Ending WIP: 250 units * 50% complete = 125 equivalent units

Total Equivalent Units for Conversion Costs = 120 + 1200 + 125 = 1445 units

B. Total Debited to Work-in-Process Account:

1. Beginning WIP Cost (Direct Materials + Conversion) = $230,000 + $220,000 = $450,000

2. Direct Materials Added = $700,000
3. Conversion Costs Added = $1,175,000

Total Debited to WIP = $450,000 + $700,000 + $1,175,000 = $2,325,000

C. Direct Materials Cost per Equivalent Unit:

Direct Materials Cost per Unit = Total Direct Materials Cost / Total Equivalent Units (Direct
Materials) = $700,000 / 1850 units = $0.378 per equivalent unit

D. Conversion Cost per Equivalent Unit:

Conversion Cost per Unit = Total Conversion Cost / Total Equivalent Units (Conversion) =
$1,175,000 / 1445 units = $0.813 per equivalent unit

E. Direct Materials Assigned to Ending WIP:

Direct Materials in Ending WIP = Equivalent Units * Cost per Equivalent Unit = 250 units *
$0.378 per equivalent unit = $94.50 per unit (rounded)

Total Direct Materials Assigned to Ending WIP = $94.50 per unit * 250 units = $23,625

F. Conversion Costs Assigned to Ending WIP:

 Conversion Costs in Ending WIP = Equivalent Units * Cost per Equivalent Unit = 125 units *
$0.813 per equivalent unit = $101.63 per unit (rounded)

Total Conversion Costs Assigned to Ending WIP = $101.63 per unit * 250 units = $25,407.50
(rounded)

7. Daily company produce a product used in preserving grain

and other food products many of the firms product are made in
joint production progress one of such group is called phenol
group which resulted in a joint cost of Br. 240,000 and the
following production quantities and cost after split off in the
month of June. Required 1. Allocate the joint cost for joint
products in each of the following allocation bases a. Physical
units measure allocation method. b. Sales value allocation
method. c. NRV joint cost allocation method. d. Gross profit
percentage method
Phenol Group Joint Cost Allocation (June)
The scenario describes a situation where a company incurs a joint cost (Br. 240,000) for a group
of products (phenol group) before they reach a split-off point. We need to allocate this joint cost
to the individual products based on different allocation methods.

a. Physical Units Measure Allocation Method:

This method allocates joint costs based on the physical quantity of each product produced.

We need information about the physical quantities of each product after the split-off point to
use this method.

Calculation:

 Joint Cost per Unit = Total Joint Cost / Total Physical Units (of all products)
 Joint Cost Allocated to Each Product = Joint Cost per Unit * Physical Quantity (of that
product)

b. Sales Value Allocation Method:

This method allocates joint costs based on the relative sales value of each product at the split-off
point.
 We need information about the selling prices of each product at the split-off point to use this
method.

Calculation:

 Sales Value Ratio = Sales Value (of a product) / Total Sales Value (of all products)
 Joint Cost Allocated to Each Product = Total Joint Cost * Sales Value Ratio (of that product)

c. Net Realizable Value (NRV) Joint Cost Allocation Method:

This method considers the estimated selling price at the split-off point minus any further
processing costs required to make the product saleable.

We need information about the NRV (Net Realizable Value) of each product at the split-off
point to use this method.

Calculation:

 NRV Ratio = NRV (of a product) / Total NRV (of all products)
 Joint Cost Allocated to Each Product = Total Joint Cost * NRV Ratio (of that product)

d. Gross Profit Percentage Method:

This method allocates joint costs based on the ratio of each product's gross profit percentage to
the total gross profit percentage of all products.

We need information about the selling price, variable costs, and NRV of each product at the
split-off point to use this method.

Calculation:

 Gross Profit Ratio = Gross Profit Percentage (of a product) / Total Gross Profit Percentage (of
all products)
 Joint Cost Allocated to Each Product = Total Joint Cost * Gross Profit Ratio (of that product)