Chapter 2

PROBLEM 2-21B Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead (LO1, LO7)CHECK FIGURE

(2) Underapplied: $68,600

Adriana Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:Computer-hours 82,000

Fixed manufacturing overhead cost$1,278,000

Variable manufacturing overhead per computer-hour$3.40

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the companys warehouse. The companys cost records revealed the following actual cost and operating data for the year:

Computer-hours60,000

Manufacturing overhead cost$1,208,000

Inventories at year-end:

Raw materials$420,000

Work in process$120,000

Finished goods$1,030,000

Cost of goods sold$2,770,000

Required:

1.

Compute the companys predetermined overhead rate for the year.

2.

Compute the underapplied or overapplied overhead for the year.

3.Assume the company closes any underapplied or overapplied overhead directly to cost of goods sold. Prepare the appropriate entry.Will this entry increase or decrease net operating income? PROBLEM 2-22B Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement (LO6)CHECK FIGUREDirect labor: $57,000

Alexsandar Company provided the following account balances for the year ended December 31 (all raw materials are used in production as direct materials):Selling expenses$217,000

Purchases of raw materials$263,000

Direct labor ?

Administrative expenses$151,000

Manufacturing overhead applied to work in process$336,000

Total actual manufacturing overhead costs$359,000

Inventory balances at the beginning and end of the year were as follows:Beginning of YearEnd of Year

Raw materials$59,000$30,000

Work in process?$29,000

Finished goods$37,000?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $663,000; and the net operating income was $39,000. The companys overapplied or underapplied overhead is closed entirely to cost of goods sold.Required:

Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)PROBLEM 2-23B Account Analysis of Cost Flows (LO1, LO5, LO6, LO7)CHECK FIGURE(4) Cost of goods manufactured: $780,000(7) Overapplied: $32,000Selected T-accounts for Rolm Company are given below for the just completed year:Raw MaterialsManufacturing Overhead

Bal. 1/138,000Credits? Debits388,000Credits?

Debits450,000

Bal. 12/3155,000

Work in ProcessFactory Wages Payable

Bal. 1/179,000Credits780,000Debits177,000Bal. 1/110,000

Direct Materials328,000Credits181,000

Direct Labor119,000Bal. 12/3114,000

Overhead420,000

Bal. 12/31?

Finished GoodsCost of Goods Sold

Bal. 1/147,000Credits? Debits?

Debits?

Bal. 12/31138,000

Required:

1.What was the cost of raw materials put into production during the year?

2.How much of the materials in (1) above consisted of indirect materials?

3.How much of the factory labor cost for the year consisted of indirect labor?

4.What was the cost of goods manufactured for the year?

5.What was the cost of goods sold for the year (before considering underapplied or overapplied overhead)?

6.If overhead is applied to production on the basis of direct materials cost, what rate was in effect during the year?

7.Was manufacturing overhead underapplied or overapplied? By how much?

8.Compute the ending balance in the Work in Process inventory account. Assume that this balance consists entirely of goods started during the year. If $32,200 of this balance is direct materials cost, how much of it is direct labor cost? Manufacturing overhead cost?PROBLEM 2-24B Schedule of Cost of Goods Manufactured; Overhead Analysis (LO1, LO2, LO3, LO6, LO7)CHECK FIGURE

(2) Cost of goods manufactured: $354,800

(5) Direct materials: $15,990

The Ilarion Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $117,000 of manufacturing overhead for an estimated allocation base of $90,000 direct labor dollars. The company has provided the following data in the form of an Excel worksheet:

BeginningEnding

Raw Materials$29,000$11,000

Work in Process45,00036,000

Finished Goods71,00061,000

The following actual costs were incurred during the year:

Purchase of raw materials (all direct)$130,000

Direct labor cost$86,000

Manufacturing overhead costs:

Insurance, factory$8,800

Depreciation of equipment$17,000

Indirect labor$32,700

Property taxes$8,500

Maintenance$13,000

Rent, building$36,000

Required:

1.a. Compute the predetermined overhead rate for the year.

b. Compute the amount of underapplied or overapplied overhead for the year.

2.Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

3.Compute the unadjusted cost of goods sold for the year. (Do not include any underapplied or overapplied overhead in your cost of goods sold figure.)

4.Job 453 was started and completed during the year. What price would have been charged to the customer if the job required $3,300 in materials and $4,900 in direct labor cost, and the company priced its jobs at 40% above the jobs cost according to the accounting system?

5.Direct labor made up $8,700 of the $36,000 ending Work in Process inventory balance. Supply the information missing below:Direct materials$ ?

Direct labor8,700

Manufacturing overhead ?

Work in process inventory$36,000

PROBLEM 2-25B Journal Entries; T-Accounts; Financial Statements (LO1, LO2, LO3, LO4, LO5, LO6, LO7)CHECK FIGURE(3) Cost of goods manufactured: $555,000

(6) Price per unit: $45.71Mariya Company uses a job-order costing system and applies manufacturing overhead cost to jobs on the basis of the cost of direct materials used in production. Its predetermined overhead rate was based on a cost formula that estimated $221,200 of manufacturing overhead for an estimated allocation base of $158,000 direct material dollars. The following transactions took place during the year (all purchases and services were acquired on account):

a.Raw materials purchased, $145,000.

b.Raw materials requisitioned for use in production (all direct materials), $141,000.

c.Utility bills incurred in the factory, $24,000.

d.Costs for salaries and wages were incurred as follows:

Direct labor$223,000

Indirect labor$61,700

Selling and administrative salaries$143,000

e.Maintenance costs incurred in the factory, $17,000.

f.Advertising costs incurred, $128,000.

g.Depreciation recorded for the year, $43,000 (70% relates to factory assets, and the remainder relates to selling and administrative assets).

h.Rental cost incurred on buildings, $85,000 (80% of the space is occupied by the factory, and 20% is occupied by sales and administration).

i.Miscellaneous selling and administrative costs incurred, $11,000.

j.Manufacturing overhead cost was applied to jobs, $ ?

k.Cost of goods manufactured for the year, $555,000.

l.Sales for the year (all on account) totaled $1,100,000. These goods cost $530,000 according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were as follows:

Raw materials$23,000

Work in process$24,000

Finished Goods$34,000

Required:

1.Prepare journal entries to record the above data.

2.Post your entries to T-accounts. (Dont forget to enter the opening inventory balances above.) Determine the ending balances in the inventory accounts and in the Manufacturing Overhead account.

3.Prepare a schedule of cost of goods manufactured.

4.Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. Prepare a schedule of cost of goods sold.

5.Prepare an income statement for the year.

6.Job 521 was one of the many jobs started and completed during the year. The job required $3,900 in direct materials and 400 hours of direct labor time at a rate of $14 per hour. If the job contained 540 units and the company billed at 65% above the unit product cost on the job cost sheet, what price per unit would have been charged to the customer?PROBLEM 2-26B Multiple Departments; Applying Overhead (LO1, LO2, LO3, LO7)

CHECK FIGURE

(2) Total overhead: $3,855(3) Unit product cost: $261.21Broucek Inc. makes baby furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Preparation Department is based on machine hours, and the rate in the Fabrication Department is based on direct labor-hours. At the beginning of the year, the companys management made the following estimates for the year:

Department

PreparationFabrication

Machine-hours83,000 32,000

Direct labor-hours33,000 57,000

Direct materials cost$194,000 $204,000

Direct labor cost$280,000 $521,000

Fixed manufacturing overhead cost$207,500 $518,700

Variable manufacturing overhead per machine-hour$3.00

Variable manufacturing overhead per direct labor-hour$5.00

Job 135 was started on April 1 and completed on May 12. The company's cost records show the following information concerning the job:

Department

PreparationFabrication

Machine-hours360 67

Direct labor-hours80 133

Direct materials cost$940 $1,120

Direct labor cost$690 $970

Required:

1.Compute the predetermined overhead rate used during the year in the Preparation Department. Compute the rate used in the Fabrication Department.

2.Compute the total overhead cost applied to Job 135.

3.What would be the total cost recorded for Job 135? If the job contained 29 units, what would be the unit product cost?

4.At the end of the year, the records of Broucek Inc. revealed the following actual cost and operating data for all jobs worked on during the year:Department

PreparationFabrication

Machine-hours82,70024,800

Direct labor-hours28,00053,000

Direct materials cost$165,800$412,000

Direct labor cost$464,550$711,400

What was the amount of underapplied or overapplied overhead in each department at the end of the year?PROBLEM 2-27B Cost Flows; T-Accounts; Income Statement(LO1, LO2, LO5, LO6, LO7)

CHECK FIGURE

(3) Underapplied: $13,900(4) Net operating income: $129,500Carpenter Cornices, Ltd., produces a wide variety of cornice moldings for windows at a plant located in Evergreen Park, Illinois. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the companys fiscal year, inventory account balances were as follows:

Raw materials$10,800

Work in process$4,800

Finished goods$8,500

The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated $108,000 of manufacturing overhead for an estimated activity level of 45,000 machine-hours. During the year, the following transactions were completed:

a.Raw materials purchased on account, $164,000.

b.Raw materials requisitioned for use in production, $145,000 (materials costing $127,000 were chargeable directly to jobs; the remaining materials were indirect).

c.Costs for employee services were incurred as follows:

Direct labor$94,000

Indirect labor$38,800

Sales commissions$25,000

Administrative salaries$44,000

d.Prepaid insurance expired during the year, $18,500 ($13,900 of this amount related to factory operations, and the remainder related to selling and administrative activities).

e.Utility costs incurred in the factory, $16,000.

f.Advertising costs incurred, $11,000.

g.Depreciation recorded on equipment, $20,000. ($16,000 of this amount was on equipment used in factory operations; the remaining $4,000 was on equipment used in selling and administrative activities.)

h.Manufacturing overhead cost was applied to jobs, $ ?(The company recorded 37,000 machine-hours of operating time during the year.)

i.Goods that had cost $288,000 to manufacture according to their job cost sheets were completed.

j.Sales (all on account) to customers during the year totaled $519,000. These goods had cost $287,000 to manufacture according to their job cost sheets.

Required:

1.Prepare journal entries to record the transactions for the year.

2.Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (dont forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

3.Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

4.Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)PROBLEM 2-28B Cost Flows; T-Accounts; Income Statement (LO1, LO2, LO5, LO6, LO7)CHECK FIGURE

(3) Overapplied: $3,400(4) Net operating income: $166,000Brinkerhoff, Inc., designs and fabricates display units for use at conventions. The companys balance sheet as of January 1, the beginning of the current year, appears below:

Brinkerhoff, Inc.Balance SheetJanuary 1

Assets

Current assets:

Cash$ 13,000

Accounts receivable45,000

Inventories:

Raw materials$ 38,000

Work in process30,000

Finished goods (props awaiting shipment) 45,000113,000

Prepaid insurance 5,300

Total current assets176,300

Buildings and equipment510,000

Less accumulated depreciation 210,000 300,000

Total assets$476,300

Liabilities and Stockholders' Equity

Accounts payable$ 73,000

Capital stock$230,000

Retained earnings 173,300 403,300

Total liabilities and stockholders' equity$476,300

Because each display unit is a unique design and may require anything from a few hours to a month or more to complete, Brinkerhoff, Inc. uses a job-order costing system. Overhead in the fabrication shop is charged to display units on the basis of direct labor cost. The companys predetermined overhead rate for the year is based on a cost formula that estimated $99,000 in manufacturing overhead for an estimated allocation base of $110,000 direct labor dollars. The following transactions were recorded during the year:a.Raw materials, such as wood, paints, and metal sheeting, were purchased on account, $82,000.b.Raw materials were issued to production, $93,000; $5,600 of this amount was for indirect materials.c.Payroll costs incurred and paid: direct labor, $125,000; indirect labor, $49,500; and selling and administrative salaries, $71,000.d.Fabrication shop utilities costs incurred, $14,000.e.Depreciation recorded for the year, $23,000 ($4,200 on selling and administrative assets; $18,800 on fabrication shop assets).f.Prepaid insurance expired, $4,600 ($3,400 related to fabrication shop operations, and $1,200 related to selling and administrative activities).g.Shipping expenses incurred, $41,000.h.Other manufacturing overhead costs incurred, $17,800 (credit Accounts Payable).i.Manufacturing overhead was applied to production. Overhead is applied on the basis of direct labor cost.j.Display units that cost $281,000 to produce according to their job cost sheets were completed.k.Sales for the year totaled $530,000 and were all on account. The total cost to produce these display units was $250,000 according to their job cost sheets.l.Collections on account from customers, $415,000.m.Payments on account to suppliers, $141,000.Required:

1.Prepare a T-account for each account on the companys balance sheet, and enter the beginning balances.

2.Make entries directly into the T-accounts for transactions (a) through (m). Create new T-accounts as needed. Determine an ending balance for each T-account.

3.Was manufacturing overhead underapplied or overapplied for the year? Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

4.Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the T-accounts.) The McGraw-Hill Companies, Inc., 2013. All rights reserved.2-2Introduction to Managerial Accounting, 6th edition

The McGraw-Hill Companies, Inc., 2013. All rights reserved.Chapter 2 Alternative Problems2-1