Illustrations in job order costing

1. Robinson Company, a company that manufactures and installs specialized machinery for the
paper-making industry. In early 2011, Robinson receives a request to bid for the manufacturing
and installation of a new paper-making machine for the Western Pulp and Paper Company
(WPP). The cost object of Robinson, the order received from Western Pulp and Paper Company
is assigned with the code WPP 298. From the material requisition form the total actual direct
material cost is determined to be Birr 4,606 and from the time ticket total direct manufacturing
labor costs of the job are 1,579.

Robinson, however, chooses direct manufacturing labor-hours as the sole allocation base for
linking all indirect manufacturing costs to jobs. That’s because, in its labor-intensive
environment, Robinson believes that the number of direct manufacturing labor-hours drives the
manufacturing overhead resources (such as salaries paid to supervisors, engineers, production
support staff, and quality management staff) required by individual jobs. In 2011, Robinson
budgets 28,000 direct manufacturing labor-hours. Because Robinson believes that a single cost-
allocation base—direct manufacturing labor-hours can be used to allocate indirect manufacturing
costs to jobs, Robinson creates a single cost pool called manufacturing overhead costs. This pool
represents all indirect costs of the Manufacturing Department that are difficult to trace directly
to individual jobs. In 2011, budgeted manufacturing overhead costs total $1,120,000. In addition,
Robinson uses 88 direct manufacturing labor-hours on the WPP 298 job. Then:

a. Determine the predetermined overhead rate for Robinson

b. Determine the allocated overhead costs and total cost of job WPP 289 (using normal
costing system).
c. Further assume that Robinson bid a price of Birr 15,000 for the job. So, is the job
profitable for Robinson? If it is profitable how much is the profit margin of Robinson?
d. The following actual data for 2011 are for Robinson’s manufacturing operations:
Total manufacturing overhead costs = Birr 1,215,000
Total direct manufacturing labor-hours = 27,000. Then:
1. Determine the actual overhead rate for Robinson
2. Determine the actual overhead costs and total cost of the job WPP 289
(using actual costing system).
2. Make journal entries for the ff activities made by Robinson in 2011, in relation with job costing:
a. Purchases of materials (direct and indirect) on credit, Birr 89,000
b. Usage of direct materials, $81,000, and indirect materials, $4,000.
c. Manufacturing payroll for February: direct labor, $39,000, and indirect labor, $15,000,
paid in cash.
d. Other manufacturing overhead costs incurred during February, $75,000, consisting of
supervision and engineering salaries, $44,000 (paid in cash); plant utilities, repairs, and
insurance, $13,000 (paid in cash); and plant depreciation, $18,000.
e. Allocation of manufacturing overhead to jobs, $80,000.
f. Completion and transfer of individual jobs to finished goods, $188,800.
g. Cost of goods sold, $180,000.
h. Marketing costs for February, $45,000, and customer service costs for February, $15,000,
paid in cash.
i. Sales revenues, all on credit, $270,000.
3. Recall some information from question number 1 and 2, and note that a total of Birr 1,215,000
manufacturing overhead costs were incurred while only Birr 1,080,000 were allocated. Thus,
the manufacturing overhead controlling account has Birr 1,215,000 debit balance and the
manufacturing overhead applied has Birr 1,080,000 credit balance. Therefore account the
difference using:
a. Adjusted allocation-rate approach
b. Proration approach given that, work in process, finished goods and cost of gods sold
have year end balances of 50,000;75,000 and 2,375,000 with an allocated overhead costs
of 16,200; 31,320 and 1,032,480 respectively.
c. Write-off to cost of goods sold approach.