COST AND MANAGEMENT ACCOUNTING 2B

CMA02B2/BSR2B01/FNM02B2

Job costing
Question Bank

Multiple Choice Questions

1. In a job order cost system, the issue of indirect materials into

production is recorded as a decrease in:
A. Raw Materials Stock.
B. Work in Process Stock.
C. Manufacturing Overhead.
D. Finished Goods Stock.

2. Job-order costing is used in those situations where the units of a

product are homogeneous, such as in the manufacture of sugar.
• True
• False

3. Snappy Company has a job-order cost system. Snappy Company

uses a predetermined overhead rate based on the direct labour-
hours to apply the manufacturing overhead to jobs. The
manufacturing overhead cost and the direct labour-hours were
estimated at £100,000 and 40,000 hours, respectively, for the year.
In July, Job #334 was completed at a cost of £5,000 in the direct
materials and £2,400 in the direct labour. The labour rate is £6 per
hour. By the end of the year, Snappy had worked a total of 45,000
direct labour-hours and had incurred £110,250 actual
manufacturing overhead cost.
If Job #334 contained 200 units, the unit cost on the completed job
cost sheet would be:
A. £37.00.
B. £42.00.
C. £41.90.
D. £39.50.
 Questions

QUESTION 2

Caterpillar (Pty) Ltd is a manufacturing company that uses job costing. The company’s
inventory balances were as follows:

Opening balance Closing balance

R R
Raw materials 22 000 25 000
Work in progress 52 000 34 000
(Job A: 20 000)
(Job B: 32 000)
Finished goods 121 000 136 000

The company applies overheads to jobs using a predetermined overhead rate based on
machine-hours. The rate has been calculated at R5 per machine hour.

The company was involved with two jobs during the year. Job A was in progress at the
beginning of the year and completed during the year. Job B was started but still incomplete
at the end of the year.

The following transactions were recorded for the year:

Job A Job B Total

Raw materials purchased R412 000
Raw materials requisitioned:
- Direct materials 278 000 84 000 R362 000
- Indirect materials 40 000 7 000 R47 000
Wages for machine operators 260 000 64 000 R324 000
Production manager salary R59 000
Administrative salaries R129 000
Packaging cost to protect products during R135 000
shipping
Factory electricity cost R22 000
Depreciation – factory operations R94 000
 Depreciation – selling, general and R8 000
administrative operations

Sales for the year R1 198 000

Actual level of activity – Machine hours 27 000 17 000 44 000

hours hours hours

The company has made the decision to close the over- or under applied overhead directly to
cost of good sold.

REQUIRED:

2.1 Prepare the T-accounts for the year for the following accounts in the general
ledger of Caterpillar (Pty) Ltd:
6.1.1 Material (2)
6.1.2 Work in progress (Prepare a separate work in progress T-account for
Job A and B respectively) (8)
6.1.3 Manufacturing overheads (8)

2.2 Prepare the income statement for the year. (7)

 QUESTION 3 (10 marks)

The Cambridge Company uses job order costing. At the beginning of May, two jobs were in
process:

Job 369 Job372

Materials R2 000 R700

Direct labour R1 000 R300

Applied factory overhead R1 500 R450

4.1

There was no inventory of finished goods on 1 May.

During the month, Jobs 373, 374, 375, 376, 378, and 379 were started.

Materials requisitions for May totalled R13 000, direct labour cost, R10 000, and actual factory
overhead, R16 000.

Factory overhead is applied at a rate of 150% of direct labour cost.

The only job still in process at the end of May is Job 379, with costs of R1 400 for materials
and R900 for direct labour. Job 376, the only finished job on hand at the end of May, has a
total cost of R2 000.

Any over or under applied overhead must be closed to Cost of goods sold.

REQUIRED:

Prepare T-accounts for Work in process, Finished goods and Cost of goods sold. (10)
QUESTION 4 (25 marks)
CRAZY POTTER makes a variety of pottery products that it sells to retailers. The
company uses a traditional job-order costing system although an activity-based costing
(ABC) system is being considered.

Currently, predetermined overhead rates are used to apply manufacturing overhead

cost to jobs. The predetermined overhead rate in the Moulding Department is based on
machine-hours, and the rate in the Painting Department is based on direct labour cost.

At the beginning of the year, management made the following estimates:

Department
Moulding Painting
Direct labour hours 12 000 60 000
Machine hours 70 000 8 000
Direct material cost R510 000 R650 000
Direct labour cost R130 000 R420 000
Manufacturing overhead cost R602 000 R735 000

Further analysis shows that manufacturing overheads can be divided as follows:

Activity cost R Cost driver Quantity for period

pool (cost drivers)
Mixing and 532 000 Machine hours 78 000
shaping
Finishing 431 000 Direct labour hours 72 000
Set-ups 256 000 Number of set-ups 200
Materials handling 118 000 Number of material 400
movements

Job POTS was started on 1 August and completed on 10 August. The company's cost
records show the following information concerning the job:

Total Department
Moulding Painting
Direct labour hours 115 30 85
Machine hours 130 110 20
Direct material placed into production R470 R332
Direct labour cost R290 R680

Number of set-ups 2
Number of material movements 4
REQUIRED:

4.1 Calculate the job cost for Job POTS using the traditional job costing method. (6)

4.2 Calculate the job cost for Job POTS using the ABC method.
Round to TWO decimals throughout the calculation. (10)

4.3 Discuss the reasons for any differences in the costs in your answers to 6.1 and
6.2. Also refer to the differences between the traditional costing system and the
ABC system in your answer. (9)
QUESTION 5 (5 marks)

HAMMER (Pty) Ltd has been asked to quote on a job to produce 500 hydraulic industrial
hammers. Their selling price is based on cost plus 20%. They include an appropriate allocation
of fixed overheads in determining their cost price.

They have provided you with the following information:

R
Direct material 3 400
Direct labour 1 500
Direct expenses 300
Direct selling cost 200

Machine hours in Department 1 120

Labour hours in Department 2 230

You have calculated the appropriate absorption rates to be as follows:

Department 1: R5 per machine hour

Department 2: R2.50 per labour hour

The company estimates that actual fixed overheads will amount to R12 650 for the year.