Chapter 20 – Exercises & Cases

Multiple Choice Questions

Job order costing is used when:
a) Products are identical
b) Products are unique or customized
c) Mass production
d) Continuous process
Answer: b) Job order costing is used for unique or customized products.
The three components of product costs are:
a) Materials, labor, selling expenses
b) Direct materials, direct labor, manufacturing overhead
c) Fixed costs, variable costs, mixed costs
d) Product costs, period costs, overhead costs
Answer: b) Direct materials, direct labor, and manufacturing overhead.
Manufacturing overhead includes:
a) Only direct costs
b) Only indirect costs
c) Both direct and indirect costs
d) Only variable costs
Answer: b) Manufacturing overhead includes indirect costs that cannot be easily traced.
A predetermined overhead rate is calculated as:
a) Actual overhead ÷ Actual activity
b) Estimated overhead ÷ Estimated activity
c) Applied overhead ÷ Actual activity
d) Actual overhead ÷ Estimated activity
Answer: b) Predetermined rate uses estimated overhead and estimated activity.
Underapplied overhead occurs when:
a) Applied > Actual
b) Actual > Applied
c) Applied = Actual
d) Overhead is zero
Answer: b) Underapplied occurs when actual overhead exceeds applied overhead.
When a job is completed, costs are transferred from:
a) Raw Materials to Work in Process
b) Work in Process to Finished Goods
c) Finished Goods to Cost of Goods Sold
d) Work in Process to Cost of Goods Sold
Answer: b) Completed jobs move from Work in Process to Finished Goods.
Direct materials are:
a) Always indirect
b) Traceable to specific jobs
c) Part of overhead
d) Period costs
Answer: b) Direct materials can be traced to specific jobs.
Job order costing can be used by:
a) Only manufacturing companies
b) Only service companies
c) Both manufacturing and service companies
d) Only large companies
Answer: c) Job order costing applies to both manufacturing and service companies.
The job cost sheet:
a) Tracks costs for all jobs together
b) Tracks costs for a specific job
c) Only tracks materials
d) Only tracks labor
Answer: b) Job cost sheet tracks all costs for a specific job.
In Luxembourg, job costing helps with:
a) Only tax compliance
b) Pricing, profitability, and decision-making
c) Only inventory valuation
d) Only overhead allocation
Answer: b) Job costing helps with pricing, profitability analysis, and business decisions.

Questions

What is job order costing? When is it used?
What are the three major components of product costs? Give examples of each.
How do costs flow through the inventory accounts in job order costing?
What is a predetermined overhead rate? How is it calculated and used?
How do you calculate the total cost of a job?
What is the difference between underapplied and overapplied overhead? How is each disposed of?
What journal entries are needed for a job order cost system?
How does job order costing apply to service companies?
What are the key considerations for job costing in Luxembourg service companies?
How does job order costing help craft and artisan businesses?

Problems Set A

Problem A-1: Job Cost Calculation

Job #101 has the following costs:

Direct materials: €500
Direct labor: €400
Applied overhead: €200 (50% of direct labor)

Calculate total job cost.

Problem A-2: Predetermined Overhead Rate

Estimated overhead: €50,000 Estimated direct labor hours: 5,000 hours

Calculate predetermined overhead rate per direct labor hour.

Problem A-3: Apply Overhead

Predetermined overhead rate: €12 per direct labor hour Job uses 25 direct labor hours

Calculate applied overhead for the job.

Problem A-4: Underapplied/Overapplied Overhead

Actual overhead: €48,000 Applied overhead: €50,000

Calculate and identify as underapplied or overapplied.

Problem A-5: Cost Flow

Record journal entries for: a) Purchase materials €2,000
b) Issue €800 materials to Job #101
c) Record €600 direct labor for Job #101
d) Apply €300 overhead to Job #101

Problems Set B

Problem B-1: Complete Job Costing

A job has:

Direct materials: €1,200
Direct labor: 40 hours × €25/hour = €1,000
Predetermined overhead rate: 60% of direct labor cost

Calculate: a) Applied overhead
b) Total job cost
c) If selling price is €3,500, calculate profit and margin

Problem B-2: Multiple Jobs

Job #201: Materials €800, Labor €600, Overhead rate 50% of labor Job #202: Materials €1,200, Labor €900, Overhead rate 50% of labor

Calculate total cost for each job and total work in process.

Problem B-3: Overhead Application and Disposal

Actual overhead costs: €45,000 Applied overhead: €42,000 Ending balances: WIP €10,000, Finished Goods €15,000, COGS €25,000

Calculate and dispose of underapplied/overapplied overhead using allocation method.

Problem B-4: Service Company Job Costing

Consulting job:

Direct materials (travel, supplies): €1,500
Direct labor: 50 hours × €100/hour = €5,000
Overhead rate: 30% of direct labor

Calculate total job cost. If billing is €8,000, calculate profit.

Comprehensive Problem

Comprehensive Problem 20: Complete Job Order Costing System

Marie's Catering Services implements a job order costing system to track costs for each catering event.

Company Information:

Predetermined overhead rate: 50% of direct labor cost
Overhead includes: Rent (allocated), utilities, depreciation, insurance

November Transactions:

Job #101: Office Lunch (50 people)

Materials issued: €400
Direct labor: Chef 6 hours × €25, Server 4 hours × €15
Completed: November 5
Sold: November 5 for €1,500 (excluding VAT)

Job #102: Wedding Reception (150 people)

Materials issued: €1,750
Direct labor: Head chef 12 hours × €30, Sous chef 10 hours × €25, Servers 20 hours × €15
Completed: November 15
Sold: November 15 for €5,000 (excluding VAT)

Job #103: Corporate Event (100 people) - In Progress

Materials issued: €600
Direct labor so far: Chef 8 hours × €25, Server 6 hours × €15
Not yet completed

Other Transactions:

Purchased materials: €3,000 (excluding VAT), VAT 17%
Actual overhead costs: €2,500
Paid salaries: €2,200

Required:

Calculate predetermined overhead rate (given: 50% of direct labor cost).
For each job, calculate:
a) Direct materials
b) Direct labor
c) Applied overhead
d) Total job cost
Prepare job cost sheets for Jobs #101 and #102.
Prepare all journal entries for November:
a) Purchase materials
b) Issue materials to jobs
c) Record direct labor
d) Apply overhead
e) Complete jobs f) Sell jobs g) Record actual overhead h) Close underapplied/overapplied overhead
Calculate work in process balance at November 30.
Calculate finished goods balance at November 30 (if any).
Calculate cost of goods sold for November.
Calculate underapplied or overapplied overhead and dispose of it.
Calculate profitability for each completed job.
Explain Luxembourg considerations:
a) PCN accounts used
b) VAT handling
c) Cost record requirements
d) Pricing implications

Cases

Case 20-1: Implementing Job Costing

Marie wants to implement job order costing for her catering business. Currently, she doesn't track costs by job and isn't sure which jobs are profitable.

Questions for Analysis:

What information does Marie need to implement job costing?
How should she track direct materials for each job?
How should she track direct labor for each job?
How should she calculate and apply overhead?
What records should she maintain?
How can job costing help her make better decisions?

Case 20-2: Pricing Decision

A custom furniture maker in Luxembourg is struggling with pricing. Some jobs are very profitable, others barely break even. The business uses job order costing but isn't sure how to use the information for pricing.

Questions for Analysis:

How can job cost information help with pricing?
What factors should be considered beyond job cost?
How should overhead be allocated?
What pricing strategy would you recommend?
How can the business improve profitability?
What Luxembourg-specific factors affect pricing?

Solutions are published in supplementary/instructor/solutions/chapter_20_solutions.md.

Multiple Choice Questions​

Questions​

Problems Set A​

Problems Set B​

Comprehensive Problem​

Cases​