CHAPTER 17 (FIN MAN); CHAPTER 2 (MAN) JOB ORDER COSTING · CHAPTER 17 (FIN MAN); CHAPTER 2 (MAN)...

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CHAPTER 17 (FIN MAN); CHAPTER 2 (MAN)

JOB ORDER COSTING

DISCUSSION QUESTIONS

1. a. Job order cost system and process cost system.

b. The job order cost system provides a separate record of each quantity of product that passes through the factory.

c. Process cost systems accumulate costs for each department or process within a factory.

2. Job order costing is used by firms that sell custom goods and services to customers. The job order system is frequently associat-ed with firms that will produce a product or service specifically to a customer order.

3. Materials should not be issued by the store-keeper without a properly authorized materi-als requisition. Both the storekeeper and the recipient of the materials should initial the materials requisition when the materials are issued to indicate release of the proper amount of materials from the storeroom.

4. a. Purchase invoice or receiving report

b. Materials requisition

5. A job cost sheet is the subsidiary ledger to the work in process control account. The cost of materials, labor, and overhead are listed on the job cost sheet for each job. A summary of all the job cost sheets during an accounting period is the basis for journal en-tries to the control accounts.

6. a. The clock card is a means of recording the hours spent by employees in the fac-tory. The time ticket is a means of re-cording the time the employee spends on a specific job or, in cases of indirect labor (factory overhead), the department in which the time was spent.

b. The total time reported on an employee’s time tickets for a payroll period is com-pared with the time reported on the em-ployee’s clock cards as an internal check on the accuracy of payroll disbursements.

7. The use of a predetermined factory over-head rate in job order cost accounting assists management in pricing jobs. By

estimating the cost of direct materials and direct labor based on past experience and by applying the factory overhead rate, the cost of a job can be estimated. The predetermined rate also permits the determina-tion of the cost of a job shortly after it is fin-ished, which enables management to adjust future pricing policies to achieve the best combination of revenue and expense.

8. a. The predetermined factory overhead rate is determined by dividing the bud-geted factory overhead for the forth-coming year by an estimated activity base, one that will equitably apply the factory overhead costs to the goods manufactured.

b. Direct labor cost, direct labor hours, and machine hours.

9. a. (1) If the amount of factory overhead applied is greater than the actual factory overhead, factory overhead is overapplied.

(2) If the amount of actual factory over-head is greater than the amount applied, factory overhead is under-applied.

b. Underapplied

c. Deferred credit

10. Job order cost accumulation would be most appropriate for professional service firms that provide extended, project-type services for clients. Examples would be architectural, consulting, advertising, or legal services. Job cost sheets would accumulate all direct costs of servicing the client. Such costs would include labor, materials, travel, and subcontracted services. In addition, over-head would be applied using a predeter-mined overhead rate. The costs accumulat-ed by the job cost sheet would be treated as work in process (a current asset) until the service is completed. Once completed, the cost would be transferred to the cost of services on the income statement.




PRACTICE EXERCISES

PE 17–1A (FIN MAN); PE 2–1A (MAN)

Apr. 8 Materials .............................................................. 455,000

Accounts Payable .......................................... 455,000

$455,000 = 65,000 × $7.

Apr. 20 Work in Process .................................................. 366,000*

Materials ......................................................... 366,000

*Job 50 $156,000 = 26,000 × $6

Job 51 210,000 = 30,000 × $7

Total $366,000

PE 17–1B (FIN MAN); PE 2–1B (MAN)

June 3 Materials .............................................................. 80,000


$80,000 = 8,000 × $10.

June 22 Work in Process .................................................. 45,200*

Materials ......................................................... 45,200

*Job 30 $19,200 = 2,400 × $8

Job 32 26,000 = 2,600 × $10

Total $45,200


Work in Process ................................................................... 618,000*

Wages Payable ............................................................. 618,000

*Job 50 $258,000 = 12,000 hours × $21.50

Job 51 360,000 = 15,000 hours × $24

Total $618,000





Work in Process ................................................................... 112,800*

Wages Payable ............................................................. 112,800

*Job 30 $ 52,800 = 2,400 hours × $22

Job 32 60,000 = 3,000 hours × $20

Total $112,800


Factory Overhead ................................................................. 170,000

Materials........................................................................ 30,000

Wages Payable ............................................................. 78,000

Utilities Payable ............................................................ 7,000

Accumulated Depreciation .......................................... 55,000

PE 17–3B (FIN MAN); PE 2–3A (MAN)


Materials........................................................................ 14,000

Wages Payable ............................................................. 15,000

Utilities Payable ............................................................ 6,500

Accumulated Depreciation .......................................... 14,500


a. $2.50 = $750,000/300,000 direct labor hours

b. Job 50 $30,000 = 12,000 hours × $2.50 per hour

Job 51 37,500 = 15,000 hours × $2.50 per hour

Total $67,500

c. Work in Process ........................................................... 67,500

Factory Overhead ................................................... 67,500





a. $8.00 = $480,000/60,000 direct labor hours

b. Job 30 $19,200 = 2,400 hours × $8.00 per hour

Job 32 24,000 = 3,000 hours × $8.00 per hour

Total $43,200

c. Work in Process ........................................................... 43,200

Factory Overhead ................................................... 43,200


a.

Job 50 Job 51

Direct materials ............................................................. $156,000 $210,000

Direct labor ..................................................................... 258,000 360,000

Factory overhead ........................................................... 30,000 37,500

Total costs ............................................................... $444,000 $607,500

b. Job 50 $44.40 = $444,000/10,000 units

Job 51 $48.60 = $607,500/12,500 units


a.

Job 30 Job 32

Direct materials .............................................................. $19,200 $ 26,000

Direct labor ..................................................................... 52,800 60,000

Factory overhead ........................................................... 19,200 24,000

Total costs ............................................................... $91,200 $110,000

b. Job 30 $15.20 = $91,200/6,000 units

Job 32 $16.00 = $110,000/6,875 units





$20,470,000 = $1,470,000 + (400,000 × $47.50)*

*Cost per unit of goods produced during the year = $47.50 = $20,187,500/425,000

units


$2,487,000 = $225,000 + (145,000 × $15.60)*

*Cost per unit of goods produced during the year = $15.60 = $2,418,000/155,000

units




EXERCISES

Ex. 17–1 (FIN MAN); Ex. 2–1 (MAN)

a. Materials requisitioned for use (both direct and indirect).

b. Factory labor used (both direct and indirect).

c. Application of factory overhead costs to jobs.

d. Jobs completed.

e. Cost of goods sold.

Ex. 17–2 (FIN MAN); Ex. 2–2 (MAN)

a. Cost of goods sold:

Sales ............................................................................. $1,680,000

Less gross profit ......................................................... 450,000

Cost of goods sold ...................................................... $1,230,000

b. Direct materials cost:

Materials purchased .................................................... $850,000

Less: Indirect materials .............................................. $65,000

Materials inventory ........................................... 63,000 128,000

Direct materials cost ................................................... $722,000

c. Direct labor cost:

Total manufacturing costs for the period .................. $1,850,000

Less: Direct materials cost ........................................ $722,000

Factory overhead .............................................. 245,000* 967,000

Direct labor cost .......................................................... $ 883,000

*$150,000 + $65,000 + $30,000




Ex. 17–3 (FIN MAN); Ex. 2–3 (MAN)

a.

RECEIVED ISSUED BALANCE

Receiving

Report

Number

Quantity

Unit

Price

Materials

Requi-

sition

Number

Quantity

Amount

Date

Quantity

Unit

Price

Amount

June 1 350 $10.000 $3,500

26 250 $12.00 June 2 350 10.000 3,500

250 12.000 3,000

103 380 $3,860* June 6 220 12.000 2,640

32 160 14.00 June 12 220 12.000 2,640

160 14.000 2,240

111 240 2,920** June 21 140 14.000 1,960

*June 6 issuance 350 at $10.00 $3,500

30 at $12.00 360

$3,860

**June 21 issuance 220 at $12.00 $2,640

20 at $14.00 280

$2,920

b. Ending wire cable balance:

140 at $14.00 ............................................................. $1,960

c. Work in Process ($3,860 + $2,920) ............................... 6,780

Materials ................................................................... 6,780

d. Comparing quantities on hand as reported in the materials ledger with pre-

determined order points enables management to order materials before a lack

of materials causes idle time. Also, the subsidiary ledger can include col-

umns for recording quantities ordered, so that management can have easy

access to information about materials on order.

Ex. 17–4 (FIN MAN); Ex. 2–4 (MAN)

Work in Process ................................................................... 110,750


Materials........................................................................ 112,750




Ex. 17–5 (FIN MAN); Ex. 2–5 (MAN)

a. Materials ......................................................................... 1,051,100*

Accounts Payable .................................................... 1,051,100

*$201,600 + $280,000 + $550,000 + $19,500

b. Work in Process ............................................................ 1,046,300

Factory Overhead .......................................................... 20,800

Materials ................................................................... 1,067,100

c. Polyester

Fabric Filling Lumber Glue

Balance, April 1 ................. $ 40,000 $ 12,000 $ 89,500 $ 3,900

April purchases ................ 201,600 280,000 550,000 19,500

Less April requisitions ..... (188,400) (252,900) (605,000) (20,800)

Balance, April 30 ............... $ 53,200 $ 39,100 $ 34,500 $ 2,600

Ex. 17–6 (FIN MAN); Ex. 2–6 (MAN)

Work in Process ................................................................... 43,735


Wages Payable ............................................................. 48,235

Ex. 17–7 (FIN MAN); Ex. 2–7 (MAN)

a. Work in Process ............................................................ 3,179

Factory Overhead .......................................................... 381

Wages Payable ......................................................... 3,560

Supporting Calculations:

Labor Costs (Hourly Rate × Hours)

Direct

Labor

Hourly (sum of Indirect

Rate Job 301 Job 302 Job 303 job costs) Labor

Ken Thain $30.00 $390.00 $390.00 $ 300.00 $1,080 $120

Dick Lewis 34.00 408.00 442.00 374.00 1,224 136

John Fuld 25.00 200.00 375.00 300.00 875 125

$3,179 $381

b. The direct labor costs in the completed jobs would become part of finished

goods inventory. The direct labor costs in Job 303 would remain part of work

in process inventory.




Ex. 17–8 (FIN MAN); Ex. 2–8 (MAN)

a. Work in Process ............................................................ 13,920


Wages Payable ......................................................... 16,370

b. Work in Process ............................................................ 5,568

Factory Overhead ..................................................... 5,568

$13,920/$30 per hour = 464 hours

464 hours × $12 per hour = $5,568

Ex. 17–9 (FIN MAN); Ex. 2–9 (MAN)

a. Factory 1: $22.00 per machine hour ($660,000/30,000 machine hours)

b. Factory 2: $38.00 per direct labor hour ($798,000/21,000 direct labor hours)

c. Factory 1:

Work in Process ............................................................ 48,048


($22.00 × 2,184).

Factory 2:

Work in Process ............................................................ 76,000


($38.00 × 2,000).

d. Factory 1—$5,152 debit (underapplied) ($53,200 – $48,048)

Factory 2—$3,200 credit (overapplied) ($72,800 – $76,000)

Ex. 17–10 (FIN MAN); Ex. 2–10 (MAN)

The estimated shop overhead is determined as follows:

Shop and repair equipment depreciation ......................................... $ 38,000

Shop supervisor salaries.................................................................... 100,000

Shop property tax ................................................................................ 18,000

Shop supplies ...................................................................................... 13,000

Total shop overhead ...................................................................... $169,000

The engine parts and shop labor are direct to the jobs and are not included in the

shop overhead rate. The advertising and administrative expenses are selling and

administrative expenses that are not included in the shop overhead but are treat-

ed as period expenses.




Ex. 17–10 (FIN MAN); Ex. 2–10 (MAN) (Concluded)

The estimated activity base is determined by dividing the shop direct labor cost

by the direct labor rate, as follows:

hour per $20

$520,000 = 26,000 hours

The predetermined shop overhead rate is:

hours 26,000

$169,000 = $6.50 per direct labor hour

Ex. 17–11 (FIN MAN); Ex. 2–11 (MAN)

a. Estimated annual operating room overhead: $588,000

Estimated operating room activity base, number of operating room hours:

Hours per day ...................................................... 8

Days per week ...................................................... × 7

Weeks per year (net of maintenance weeks) .... × 50

Estimated annual operating room hours ........... 2,800

Predetermined surgical overhead rate:

hours 2,800

$588,000 = $210 per hour

b. Dan Baliga’s procedure:

Number of surgical room hours ......................... 4

Predetermined surgical room overhead rate .... × $210

Procedure overhead ............................................ $ 840

c. Actual hours used in January....................................... 196

Predetermined surgical room overhead rate .............. × $210

Surgical room overhead applied, January .................. $ 41,160

Actual surgical room overhead incurred, January ..... 40,000

Overapplied surgical room overhead (credit balance) $ 1,160




Ex. 17–12 (FIN MAN); Ex. 2–12 (MAN)

a. Finished Goods ............................................................. 342,400

Work in Process ....................................................... 342,400

b. Cost of unfinished jobs at March 31:

Balance in Work in Process at March 1 ................. $ 18,000

Add: Direct materials ............................................. 122,500

Direct labor .................................................... 145,000

Factory overhead ........................................... 80,000 $365,500

Less: Jobs finished during March .......................... 342,400

Balance in Work in Process at March 31 ............... $ 23,100

Ex. 17–13 (FIN MAN); Ex. 2–13 (MAN)

a. Work in Process ............................................................ 32,550


Materials ................................................................... 33,550

b. Work in Process ............................................................ 13,000


Wages Payable ......................................................... 25,000

c. Work in Process ............................................................ 9,750


Predetermined overhead rate: Job 101: $3,000/$4,000 = 75% or

Job 102: $3,075/$4,100 = 75%

Direct labor cost × Predetermined factory overhead rate:

$13,000 × 75% = $9,750

d. Finished Goods ............................................................. 29,305*

Work in Process ....................................................... 29,305

*$17,300 + $12,005




Ex. 17–14 (FIN MAN); Ex. 2–14 (MAN)

a. FED INC. Income Statement

For the Month Ended October 31, 2012

Revenues...................................................................... $1,500,000

Cost of goods sold ...................................................... 848,750

Gross profit .................................................................. $ 651,250

Selling expenses ......................................................... $367,500

Administrative expenses ............................................ 131,950 499,450

Income from operations .............................................. $ 151,800

b. Materials inventory:

Purchased materials ............................................... $427,000

Less: Materials used in production ....................... 367,500

Materials inventory, October 31 ............................. $ 59,500

Work in process inventory:

Materials used in production .................................. $367,500

Direct labor .............................................................. 315,000

Factory overhead (80% × $315,000) ....................... 252,000

Additions to work in process ................................. $934,500

Less: Transferred to finished goods ..................... 892,500

Work in process inventory, October 31 ................. $ 42,000

Finished goods inventory:

Transferred to finished goods ................................ $892,500

Less: Cost of goods sold ........................................ 848,750

Finished goods inventory, October 31 .................. $ 43,750




Ex. 17–15 (FIN MAN); Ex. 2–15 (MAN)

a.

Unit

Date Job No. Quantity Product Amount Cost

Jan. 2 1 300 XKR1 $ 6,600 $22

Jan. 15 26 1,300 M-Z4 11,700 9

Feb. 3 34 1,100 M-Z4 14,300 13

Mar. 7 44 460 XKR1 7,360 16

Mar. 24 51 1,850 SL500 12,950 7

May 19 62 2,200 SL500 19,800 9

June 12 76 400 XKR1 4,800 12

Aug. 18 80 2,750 SL500 30,250 11

Sept. 2 88 900 M-Z4 9,000 10

Nov. 14 96 540 XKR1 4,320 8

Dec. 12 102 2,350 SL500 32,900 14




Ex. 17–15 (FIN MAN); Ex. 2–15 (MAN) (Concluded)

As can be seen, the unit costs behave differently for each product. SL500 has

increasing unit costs during the year, M-Z4 is steady, and XKR1 has decreas-

ing unit costs during the year.

b. Management should want to determine why SL500 costs are increasing and

why XKR1 costs are decreasing. This information can be determined from the

job cost sheets for each job. By comparing the cost sheets from job to job

(for a particular product), management can isolate the cause of the cost

changes. The cost sheets will show how materials, labor, and overhead are

consumed across the production process for each job. This information can

isolate the problem or opportunity areas.




Ex. 17–16 (FIN MAN); Ex. 2–16 (MAN)

a. The first item to note is that the cost did not go up due to any increases in the

cost of labor or materials. Rather, the cost of the plaques increased because

Job 105 used more labor and materials per unit than did Job 101. Specifically,

Job 101 required exactly the same number of backboards and brass plates as

the number of actual plaques shipped. However, Job 105 required six more

backboards and brass plates than the number actually shipped (36 vs. 30). In

addition, the labor hours for Job 101 were as follows:

Engraving: (66 units × 30 min. per unit)/60 min. = 33 hours

Assembly: (66 units × 25 min. per unit)/60 min. = 27.5 hours

These are the labor hours to be expected for 66 plaques. However, the labor

hours expected for Job 105 were:

Engraving: (30 units × 30 min. per unit)/60 min. = 15 hours

Assembly: (30 units × 25 min. per unit)/60 min. = 12.5 hours

Job 105’s 33 labor hours are 5.5 more (33 hrs. – 27.5 hrs.) than should have

been expected for a job of 30 plaques [(30 × 55 min.)/60 min. = 27.5 hrs.]. As a

result, the additional hours of labor cost, applied factory overhead, and direct

materials cost cause the unit cost of Job 105 to increase.

b. Apparently, the engraving and assembly work is becoming sloppy. Job 105

required 36 engraved brass plates in order to get 30 with acceptable quality. It

is likely that the engraver is not being careful in correctly spelling the names.

The names should be supplied to the engraver using large typewritten fonts

so that it is easy to read the names. The engraver should be instructed to be

careful in engraving the names. The assembly operation also needs some

improvement. It took 36 assembly operations to properly assemble 30

plaques. It may be that the plates are assembled off-register (crooked) to the

backboard. This could be improved by using a fixture to properly align the

plate to the backboard. Alternatively, it’s possible misengraved plaques were

assembled to backboards and needed to be disassembled, reengraved, and

reassembled to new backboards.




Ex. 17–17 (FIN MAN); Ex. 2–17 (MAN)

a.

July 3 Work in Process (500 hrs. × $150) .............. 75,000

Salaries Payable ..................................... 75,000

9 Work in Process ........................................... 18,500

Cash ......................................................... 18,500

10 Work in Process (250 hrs. × $225) .............. 56,250

Salaries Payable ..................................... 56,250

15 Work in Process ........................................... 55,000

Consultant Fees Payable ....................... 55,000

22 Work in Process (750 × $60) ....................... 45,000

Office Overhead ...................................... 45,000

31 Office Overhead ........................................... 32,000

Cash ......................................................... 32,000

31 Office Overhead ........................................... 10,000

Supplies ................................................... 10,000

31 Salaries Payable ........................................... 126,000

Cash ......................................................... 126,000

31 Accounts Receivable ................................... 365,000

Fees Earned ............................................ 365,000

31 Cost of Services ........................................... 249,750

Work in Process...................................... 249,750*

*$75,000 + $18,500 + $56,250 + $55,000 + $45,000

b. Office overhead incurred ($32,000 + $10,000) .......... $42,000

Office overhead applied ............................................. 45,000

Overapplied overhead................................................. $ (3,000)

c. Fees earned ................................................................. $365,000

Cost of services .......................................................... 246,750*

Gross profit .................................................................. $118,250

*$249,750 – $3,000. Assumes the over- or underapplied office overhead is

closed to cost of services annually.

Note to Instructors: The consultant fees and travel costs can be directly as-

signed to the case and thus are not treated as office overhead. Costs such as

secretarial and administrative salaries and supplies would be part of office

overhead incurred.




Ex. 17–18 (FIN MAN); Ex. 2–18 (MAN)

a. Work in Process .................................................. 474,000

Salaries Payable ............................................. 474,000

b. Work in Process .................................................. 946,500


c. Work in Process (60% × $946,500) ..................... 567,900

Agency Overhead ........................................... 567,900

d. Cost of Services .................................................. 1,225,500

Work in Process ............................................. 1,225,500

Cost of completed jobs, $1,225,500:

Hedge Sullivan

Bank Airlines

March 1 balance ............................................. $120,000 $ 36,000

March costs:

Direct labor ................................................ 84,000 37,500

Media.......................................................... 315,000 277,500

Overhead ................................................... 189,000* 166,500**

Total costs ...................................................... $708,000 $517,500

*60% × $315,000

**60% × $277,500




PROBLEMS

Prob. 17–1A (FIN MAN); Prob. 2–1A (MAN)

a. Materials ......................................................................... 350,000

Accounts Payable .................................................... 350,000

b. Work in Process ............................................................ 240,000


Materials ................................................................... 275,000

c. Work in Process ............................................................ 279,000


Wages Payable ......................................................... 324,500

d. Factory Overhead .......................................................... 128,600

Selling Expenses ........................................................... 116,400

Administrative Expenses .............................................. 72,500


e. Factory Overhead .......................................................... 14,500



Prepaid Expenses .................................................... 35,700

f. Depreciation Expense—Office Building ...................... 42,000

Depreciation Expense—Office Equipment .................. 21,500


Accumulated Depreciation—Fixed Assets ............ 78,000

g. Work in Process ............................................................ 256,400


h. Finished Goods ............................................................. 726,500

Work in Process ....................................................... 726,500

i. Cost of Goods Sold ....................................................... 715,000

Finished Goods ........................................................ 715,000





1. a. Materials ................................................................... 23,400

Accounts Payable ............................................... 23,400

b. Work in Process ....................................................... 39,575


Materials .............................................................. 21,515

Wages Payable .................................................... 22,170

c. Factory Overhead ..................................................... 4,500


d. Factory Overhead ..................................................... 1,560

Accumulated Depreciation—Machinery

and Equipment .................................................... 1,560

e. Work in Process ....................................................... 10,000

Factory Overhead (200 hours × $50) ................. 10,000

f. Finished Goods ........................................................ 27,285

Work in Process .................................................. 27,285

Computation of cost of jobs finished:

Direct Direct Factory

Job Materials Labor Overhead Total

No. 201 $2,350 $2,200 $ 900 $ 5,450

No. 202 2,875 2,970 1,500 7,345

No. 203 1,900 1,490 1,200 4,590

No. 205 4,100 4,150 1,650 9,900

Total $27,285

g. Accounts Receivable ............................................... 27,240

Sales .................................................................... 27,240

Cost of Goods Sold .................................................. 17,385

Finished Goods ................................................... 17,385

Computation of cost of jobs sold:

Job

No. 201 ........................................... $ 5,450

No. 202 ........................................... 7,345

No. 203 ........................................... 4,590

Total ............................................... $ 17,385




Prob. 17–2A (FIN MAN); Prob. 2–2A (MAN) Concluded

2.

Work in Process Finished Goods

(b) 39,575 (f) 27,285 (f) 27,285 (g) 17,385

(e) 10,000

Bal. 22,290 Bal. 9,900

3. Schedule of unfinished jobs:



No. 204 ................................. $6,450 $5,460 $3,750 $15,660

No. 206 ................................. 2,980 2,650 1,000 6,630

Balance of Work in

Process, April 30 ............. $22,290

4. Schedule of completed jobs:



Finished Goods, April 30

(Job 205) ........................... $4,100 $4,150 $1,650 $9,900





1. and 2.

JOB ORDER COST SHEET

Customer Queen Mercury Date May 10, 2010

Address 10 Rhapsody Lane Date wanted June 12, 2010

Lake Forest Date completed June 8, 2010

Item Reupholster couch and chair Job. No. 10-206

ESTIMATE

Direct Materials Direct Labor Summary

Amount Amount Amount

40 meters at $12 480.00 24 hours at $15 360.00 Direct materials 480.00

Direct labor 360.00

Factory overhead 180.00

Total

480.00

Total

360.00

Total cost

1,020.00

ACTUAL


Mat.

Req.

No.

Descrip-

tion

Amount

Time

Ticket

No.

Descrip-

tion

Amount

Item

Amount

210 24

meters

at $12

288.00

H25 18 hours

at $14.50

261.00 Direct materials

Direct labor

540.00

391.50

212 21

meters

at $12

252.00

H34 9 hours

at $14.50

130.50

Factory overhead

195.75

Total 540.00 Total 391.50 Total cost 1,127.25

Comments:

The direct materials cost exceeded the estimate by $60 because 5 meters of ma-

terials were spoiled. The direct labor cost exceeded the estimate by $31.50 be-

cause an additional 3 hours of labor were used by an inexperienced employee

that worked for $0.50/hr. less.





1. Supporting calculations:

Job No.

Quan-

tity

July 1

Work in

Process

Direct

Materials

Direct

Labor

Factory

Overhead

Total

Cost

Unit

Cost

Units

Sold

Cost of

Goods

Sold

No. 21 200 $ 6,000 $ 20,000 $ 15,000 $ 24,000 $ 65,000 $325.00 160 $ 52,000

No. 22 400 16,000 34,000 26,000 41,600 117,600 $294.00 320 94,080

No. 23 200 14,000 8,000 12,800 34,800 0 0

No. 24 250 30,000 25,000 40,000 95,000 $380.00 210 79,800

No. 25 180 22,000 17,500 28,000 67,500 $375.00 150 56,250

No. 26 140 8,000 4,500 7,200 19,700 0 0

Total 1,370 $ 22,000 $ 128,000

$96,000 $ 153,600 $ 399,600 $ 282,130

A. $144,000. Materials applied to production in July + indirect materials.

($128,000 + $16,000)

B. $22,000. From table above and problem.

C. $128,000. From table above.

D. $96,000. From table above.

E. $153,600. ($96,000 × 1.6) and from table above.

F. $345,100. ($65,000 + $117,600 + $95,000 + $67,500)

G. $282,130. From table above.

H. $24,000. Wages incurred less direct labor applied to production in July.

($120,000 – $96,000)

2. July balances:

Materials $ 6,000 ($30,000 + $120,000 – $144,000)

Work in Process $54,500* ($34,800 + $19,700, Job 23 and Job 26)

Finished Goods $62,970** ($345,100 – $282,130)

Factory Overhead $ 3,400 Dr. underapplied ($22,000 + $24,000 + $16,000

+ $95,000 – $153,600)

* or ($22,000 + $128,000 + $96,000 + $153,600 – $345,100)

** Units in Unit Total

Job No. Inventory Cost Cost

Job 21 40 $325 $13,000

Job 22 80 294 23,520

Job 24 40 380 15,200

Job 25 30 375 11,250

Total $62,970





1.

DIGITAL TUNES INC. Income Statement

For the Year Ended December 31, 2010

Sales .......................................................... $ 13,600,000

Cost of goods sold ................................... 3,187,500

Gross profit ............................................... $ 10,412,500

Selling expenses:

Media campaign ................................. $4,000,000

Promotional materials ........................ 1,700,000

Shipping expenses ............................. 212,500

Total selling expenses ........................ $5,912,500

Administrative expenses:

Legal expenses ................................... 1,200,000

Total operating expenses ........................ 7,112,500

Income from operations ........................... $ 3,300,000

Supporting calculations:

Sales: 850,000 units × $16 = $13,600,000

Cost of goods sold: 850,000 units × $3.75 = $3,187,500

Manufacturing cost per unit (CD):

Direct materials:

Blank CD .......................................................... $ 1.80

Jewel case ....................................................... 0.60

Song lyric insert .............................................. 0.60

Total direct materials ...................................... $ 3.00

Direct labor .......................................................... 0.25

Factory overhead ................................................ 0.50*

Total manufacturing cost per CD .................. $ 3.75

*$1,200/2,400 CDs per hour

Promotional materials: 42,500 stores × $40 = $1,700,000

Shipping expenses: 850,000 units × $0.25 = $212,500

2. Finished Goods balance, December 31, 2010:

(1,000,000 units – 850,000 units) × $3.75 = $562,500

Work in Process, December 31, 2010:

25,000 units × ($3.00 + $0.50) = $87,500

The materials and copying have already been applied to the 25,000 units.

Only the direct assembly labor has yet to be applied for these units.




Prob. 17–1B (FIN MAN); Prob. 2–1B (MAN)

a. Materials ......................................................................... 450,000


b. Work in Process ............................................................ 420,500


Materials ................................................................... 425,000

c. Work in Process ............................................................ 290,000


Wages Payable ......................................................... 385,000

d. Factory Overhead .......................................................... 125,400




e. Factory Overhead .......................................................... 12,500



Prepaid Expenses .................................................... 35,500

f. Factory Overhead .......................................................... 25,300

Depreciation Expense—Office Equipment .................. 31,600

Depreciation Expense—Store Equipment ................... 7,600

Accumulated Depreciation—Fixed Assets ............ 64,500

g. Work in Process ............................................................ 261,500


h. Finished Goods ............................................................. 965,000

Work in Process ....................................................... 965,000

i. Cost of Goods Sold ....................................................... 952,400

Finished Goods ........................................................ 952,400





1. a. Materials ................................................................... 68,000


b. Work in Process ....................................................... 123,250


Materials .............................................................. 66,000

Wages Payable .................................................... 70,950

c. Factory Overhead ..................................................... 2,750


d. Factory Overhead ..................................................... 1,870

Accumulated Depreciation—Machinery

and Equipment .................................................... 1,870

e. Work in Process ....................................................... 17,250

Factory Overhead (690 hours × $25) ................. 17,250

f. Finished Goods ........................................................ 80,575

Work in Process .................................................. 80,575

Computation of cost of jobs finished:



No. 401 $ 9,200 $ 9,250 $2,700 $21,150

No. 402 11,000 13,400 2,750 27,150

No. 403 6,400 5,000 2,150 13,550

No. 405 8,600 7,400 2,725 18,725

Total $80,575

g. Accounts Receivable ............................................... 82,800

Sales .................................................................... 82,800

Cost of Goods Sold .................................................. 67,025

Finished Goods ................................................... 67,025

Computation of cost of jobs sold:

Job

No. 401 ........................................... $21,150

No. 402 ........................................... 27,150

No. 405 ........................................... 18,725

Total ............................................... $67,025




Prob. 17–2B (FIN MAN); Prob. 2–2B (MAN) Concluded

2.

Work in Process Finished Goods

(b) 123,250 (f) 80,575 (f) 80,575 (g) 67,025

(e) 17,250

Bal. 59,925 Bal. 13,550

3. Schedule of unfinished jobs:



No. 404 ................................. $18,200 $17,400 $4,000 $39,600

No. 406 ................................. 8,500 8,900 2,925 20,325

Balance of Work in

Process, May 31 ............... $59,925

4. Schedule of completed jobs:



Finished Goods, May 31

(Job 403) ........................... $6,400 $5,000 $2,150 $13,550





1. and 2.

JOB ORDER COST SHEET

Customer Ted Austin Date June 1, 2010

Address 409 Patterson St. Date wanted Aug. 5, 2010

Vienna Date completed Aug. 2, 2010

Item Reupholster couch and chairs Job. No. 10-110

ESTIMATE


Amount Amount Amount

24 meters at $14 336.00 14 hours at $18 252.00 Direct materials 336.00

Direct labor 252.00

Factory overhead 189.00

Total

336.00

Total

252.00

Total cost

777.00

ACTUAL


Mat.

Req.

No.

Descrip-

tion

Amount

Time

Ticket

No.

Descrip-

tion

Amount

Item

Amount

210 10 meters

at $14

140.00

H16 6 hours

at $18

108.00 Direct materials

Direct labor

364.00

288.00

212 16 meters

at $14

224.00

H21 10 hours

at $18

180.00

Factory overhead

216.00

Total 364.00 Total 288.00 Total cost 868.00

Comments:

The direct materials cost exceeded the estimate by $28 because 2 meters of ma-

terials were spoiled. The direct labor cost exceeded the estimate by $36 because

an additional 2 hours of labor were used by an inexperienced employee.





1. Supporting calculations:

Job No.

Quan-

tity

Aug. 1

Work in

Process

Direct

Materials

Direct

Labor

Factory

Overhead

Total

Cost

Unit

Cost

Units

Sold

Cost of

Goods

Sold

No. 101 100 $ 8,000 $ 25,000 $ 18,000 $ 9,000 $ 60,000 $600.00 80 $ 48,000

No. 102 125 14,000 32,000 22,000 11,000 79,000 $632.00 110 69,520

No. 103 150 40,000 34,000 17,000 91,000 0 0

No. 104 125 20,000 12,500 6,250 38,750 $310.00 115 35,650

No. 105 200 36,000 20,000 10,000 66,000 $330.00 160 52,800

No. 106 100 18,000 9,600 4,800 32,400 0 0

Total 800 $ 22,000 $ 171,000

$116,100 $ 58,050 $ 367,150 $ 205,970

A. $175,500. Materials applied to production in August + indirect materials.

($171,000 + $4,500)

B. $22,000. From table above and problem.

C. $171,000. From table above.

D. $116,100. From table above.

E. $58,050. ($116,100 × 0.50) and from table above.

F. $243,750. ($60,000 + $79,000 + $38,750 + $66,000)

G. $205,970. From table above.

H. $3,900. Wages incurred less direct labor applied to production in August.

($120,000 – $116,100)

2. August 31 balances:

Materials $ 6,500 ($32,000 + $150,000 – $175,500)

Work in Process $123,400* ($91,000 + $32,400, Job 103 and Job 106)

Finished Goods $ 37,780** ($243,750 – $205,970)

Factory Overhead $ 9,850 Dr. underapplied ($8,000 + $3,900 + $4,500

+ $51,500 – $58,050)

* or ($22,000 + $171,000 + $116,100 + $58,050 – $243,750)

** Units in Unit Total

Job No. Inventory Cost Cost

Job 101 20 $600 $12,000

Job 102 15 632 9,480

Job 104 10 310 3,100

Job 105 40 330 13,200

Total $37,780





1.

MY WAY SOFTWARE INC. Income Statement

For the Year Ended December 31, 2010

Sales ..................................................................... $8,000,000

Cost of goods sold .............................................. 1,620,000

Gross profit .......................................................... $6,380,000

Selling expenses:

Advertising expenses .................................... $1,380,000

Salespersons commissions .......................... 1,200,000

Advertising design ......................................... 1,400,000

Total selling expenses ................................... 3,980,000

Income from operations ...................................... $2,400,000

Supporting calculations:

Sales: 80,000 units × $100 = $8,000,000

Cost of goods sold: 80,000 units × $20.25 = $1,620,000

Manufacturing cost per unit:

Direct materials:

Blank CD .......................................................... $ 2.50

Packaging ........................................................ 4.00

Manual ............................................................. 12.00

Total direct materials ...................................... $18.50

Direct labor .......................................................... 0.50

Factory overhead cost ........................................ 1.25*

Total manufacturing cost per CD .................. $20.25

*$2,500/2,000 CDs per hour

Salespersons commissions: $8,000,000 × 15% = $1,200,000

2. Finished Goods balance, December 31, 2010:

(100,000 units – 80,000 units) × $20.25 = $405,000

Work in Process, December 31, 2010:

4,000 units × ($18.50 + $1.25) = $79,000

The materials and copying have already been applied to the 4,000 units.

Only the direct assembly labor has yet to be applied for these units.




CASES & PROJECTS

CP 17–1 (FIN MAN); CP 2–1 (MAN)

Two or three trends seem apparent. Starting with the most obvious:

a. There appears to be a strong ―Friday effect.‖ The unit cost on Friday increas-

es dramatically, then falls on Monday. Apparently, the workforce is preparing

early for the weekend.

b. There also appears to be a general increasing trend in the unit cost. Every

Friday effect is larger than the previous Friday. Much the same can be said

about the other days of the week.

c. It’s hard to tell, but there may also be a ―within week‖ trend. The unit cost ap-

pears to increase gradually from Monday through Thursday, before jumping

on Friday. At the very least, Mondays are the best operating days, while Fri-

days are the worst.

A number of further pieces of information should be requested.

a. First, it would be good to verify these trends with some other products. This

trend is probably not product-related but related generally to the day of the

week. This would mean that the trend should be apparent in the other prod-

ucts.

b. The data should be sorted by shift and by employee. It’s possible that the ef-

fect is stronger on one shift than on another or that just a few employees are

responsible for the effect. It may not be prevalent in the general population of

workers.

c. The Friday–Monday phenomenon is likely related to the workforce, but the

same cannot be said about the larger increasing trend over the four weeks. It

could be caused by any number of factors. A good first look would be to iso-

late materials costs to see if these are contributors. How much of the effect is

labor and how much is material should be verified. It’s possible that the gen-

eral increase in cost over time is the result of loss of machine tolerances.

Thus, more and more material is being required to produce a unit of product.

d. Has there been any significant change in supervisors or crucial employees

that may explain this effect?

e. Have prices increased gradually for the raw materials?





1. The unit costs are influenced by both the price and quantity of inputs. On the

price side, the cost of steel has dropped from $800 to $780 per ton. This is

apparently the result of the purchasing manager’s decision to reduce the cost

of raw materials by going to a new vendor. No other input prices change.

Some of the input quantities changed for the worse. Specifically:

Job 206 Job 228

Steel input per unit of product ........................... 1.75 tons1 2.50 tons

2

Foundry labor per unit of product ..................... 6.75 hours3 10.00 hours

4

Welding labor per unit of product ...................... 9.25 hours5 14.00 hours

6

170 tons/40 units

2150 tons/60 units

3270 hours/40 units

4600 hours/60 units

5370 hours/40 units

6840 hours/60 units

These numbers were determined by dividing the number of units produced by

the total input quantities to discover the inputs per unit. The inputs for the

components and shipping labor were unchanged between the two jobs.

2. A possible reason for this deterioration in performance is related to the pur-

chasing manager’s decision to change vendors in order to secure a lower

price per ton. The new vendor is apparently delivering a lower-quality steel

product to the company. As a result, the foundry operation is having to spend

more time forming the steel parts. Moreover, the increased steel tons per unit

is likely to be caused by scrapping some of the formed parts. The scrapped

parts would need to be replaced by additional steel inputs, which would have

the effect of increasing the number of tons required to make a unit of product.

The welding operators are also apparently having difficulty welding the lower-

quality steel parts. As a result, longer welding time is required to assemble a

completed unit.

Overall, management has learned that the drive for lower raw materials prices

was a poor decision. The overall net result was higher costs from the addi-

tional waste caused by lower-quality steel.





1. The engineer is concerned that direct labor is not related to overhead con-

sumption because direct labor is a small part of the cost structure. Apparent-

ly, the company has replaced labor with expensive machine technology and

support. This, of course, represents more factory overhead. Just because the

direct labor is ―designed out‖ of the product will not mean that this overhead

will magically disappear. More likely, the direct labor hours will be replaced

by machine-related factory overhead. Thus, the factory overhead goes up

while the activity base (direct labor) goes down. Hence, the factory overhead

rate will go up.

2. Since each direct labor hour now has $2,000 of factory overhead, small

mistakes in the direct labor time estimates can have a large impact on the

estimated cost of a product. This is very critical since the company sets sell-

ing price by adding a profit to unit cost. If the company underestimates the

direct labor content by a small amount, it will underestimate unit cost causing

the company to underbid and win the job. Unfortunately, the job will turn out

to have less profitability than expected because the price is smaller than it

should be. If the company overestimates the labor time, it will overbid the job.

Thus, it will lose out to competitors who bid more accurately. This puts the

company into a lose-lose situation when such small labor time errors have

such large dollar impacts on the final cost estimate.

3. The engineer’s concern is valid. The company should consider replacing its

direct labor time activity base with one that more accurately reflects its pre-

sent resources. If the company is now highly automated, then machine hours

may be a much more reasonable activity base.





1. Sven should record the debits for factory wages as a debit to Work in Pro-

cess. The factory wages are product costs that must be accumulated in the

cost of producing the product. Eventually, these wage costs will become part

of finished goods inventory and cost of goods sold when the gift items are

sold. Likewise, the depreciation should be recorded as a debit to Factory

Overhead. The overhead is then applied to production work in process. Like

the wages, the depreciation will also eventually become part of the finished

goods inventory and cost of goods sold when the gift items are sold. Thus,

both the wages and depreciation will end up on the income statement as cost

of goods sold, not as individual expenses. The reason is because the ac-

countant wants to match revenues and costs. Costs that are accumulated in

the manufacture of products do not become expenses until the items are

sold. Until that time, the costs are capitalized as inventory. If these costs were

expensed immediately, the income for the firm would be understated for the

period to the extent that there were any increases in the work in process or

finished goods inventories.

2. Boris would not be concerned about immediately expensing administrative

wages and depreciation because the benefits received from these costs are

not product costs. Instead, these costs benefit a period of time. Thus, these

costs should be expensed for the period.





1. Direct labor cost:

Total actual overhead, 2008–2012 ....................... $5,250,000

Total direct labor cost, 2008–2012 ...................... $17,500,000

Predetermined overhead rate

($5,250,000/$17,500,000) .................................. 30.0% of direct labor cost

Machine hours:

Total actual overhead, 2008–2012 ....................... $5,250,000

Total machine hours, 2008–2012 ........................ 625,000 hours

Predetermined overhead rate

($5,250,000/625,000 hours) .............................. $8.40 per machine hour

2. 2012 2011 2010

Direct Direct Direct

Labor Machine Labor Machine Labor Machine

Cost Hours Cost Hours Cost Hours

Actual overhead ....... $1,062,500 $1,062,500 $1,250,000 $1,250,000 $1,025,000 $1,025,000

Applied overhead ..... 1,068,000 1,060,500 1,248,000 1,251,600 1,020,000 1,024,800

(Over-) underapplied

overhead .............. $ (5,500) $ 2,000 $ 2,000 $ (1,600) $ 5,000 $ 200

2009 2008

Direct Direct

Labor Machine Labor Machine

Cost Hours Cost Hours

Actual overhead ............... $975,000 $975,000 $937,500 $937,500

Applied overhead ............. 972,000 974,400 942,000 938,700

(Over-) underapplied

overhead ...................... $ 3,000 $ 600 $ (4,500) $ (1,200)




CP 17–5 (FIN MAN); CP 2–5 (MAN) (Concluded)

3. The best predetermined overhead rate is machine hours. Although the total

overhead applied for each rate developed in part (1) is the same over the en-

tire five-year period (as a result of the method by which the predetermined

overhead rates were developed), the predetermined overhead rate based on

machine hours yields the least fluctuations in the amounts of over- or un-

derapplied overhead considered on a year-by-year basis. With the rate based

on machine hours, the over- or underapplied overhead ranges from $1,600

overapplied to $2,000 underapplied. This fluctuation in the over- or underap-

plied overhead compares favorably with the fluctuation resulting from using

the current overhead base of direct materials ($5,000 overapplied to $5,000

underapplied over the past five years). For the direct labor cost base, the

over- or underapplied overhead ranges from $5,500 overapplied to $5,000 un-

derapplied.

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