Job Order Cost Ch 05

8/12/2019 Job Order Cost Ch 05

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Chapter 5

JOB ORDER COST SYSTEM-raibornExercises

11. Each student will have a diferent answer, depending on the

particular yacht selected. Some will discuss the yachts size;others will discuss the interior nishes; others will discuss thenavigation equipment. he !"#.$ million %ichmond &ady 'ull ()provides numerous *eatures upon which students can *ocus.

1". a. Employee time card+. or- in rocess /nventory 0ontrol or inished 2oods /nventoryc. %aw 3aterial /nventoryd. 4o+ order cost sheete. 3anu*acturing 5verhead 0ontrol

*. 4o+ order cost sheetg. %aw 3aterial /nventoryh. inished 2oods /nventory or 0ost o* 2oods Soldi. 3anu*acturing 5verhead 0ontrol6. or- in rocess /nventory 0ontrol

1#. a. he direct material charge o* !7)8,999 is higher than the

estimate +y !1)8,999. :ssuming that there were no errors inthe estimated and actual amounts, then either the price paid*or the material or the quantity o* material used wassubstantially higher than expected. o +egin the validation

process,1. details o* the original estimate to identi*y prices and

quantities o* materials *or this 6o+ would need to +e eamined.

he starting point to validate the material prices and quantitiespurchased is to eamine vendor invoices +illed to


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to or the num+er o* hours wor-ed +y employees wassu+stantially higher than epected.

o +egin the validation process,1. details o* the original estimate to identi*y rates and hours *or la+or

on this 6o+ would need to +e eamined.

he starting point to validate the la+or rates and hours wor-edis to

". eamine employee time sheets >or other la+or accumulationdocuments?. he time sheets will validate which employeeswor-ed on the 6o+ and *or what period o* time.

#. : discussion with the payroll manager should help ascertain theactual or average wage rates paid to employees.

@. ossi+ly some o* such as period costs in addition to product overhead costs?could have +een included in the numerator. : large estimate *or

spoilage and de*ect costs might also have +een included in thenumerator when, in *act, such costs rarely occur at


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or- in rocess /nventoryA(@"7# )@,999or- in rocess /nventoryA(@"7@ 1,899 0ash >#,799 !1)? )),899

3anu*acturing 5verhead 78,B99 0ash >!18,999 C !B,"99 C !$,)99? #@,B99:ccumulated Depreciation "1,)99

ages aya+le 1",)99

or- in rocess /nventoryA(@"7# 7@,899or- in rocess /nventoryA(@"7@ ",179

3anu*acturing 5verhead 77,$79

+. %3 /nventory !@,#99 C !"9@,999 A !17#,899 A !1",@79 A!1,8B9

!#9,1B9

c. Fecause the company wor-ed only on 4o+ (@"7# until the endo* :pril, all costs in +eginning / *or other 6o+s are still inthat account at the end o* the month.

Feginning / !11,@99&ess costs associated with 4o+ (@"7# >899?0osts associated with other 6o+s !19,7990osts *or 4o+ (@"7@ >!1,8B9 C !1,899 C !",179? ),8#9Ending / !17,@#9

d. 023 Feginning / C 0urrent period costs G Ending / !11,@99 C !17#,899 C !1,8B9 C !)),899 C !77,$79 A

!17,@#9 !"8#,@99

Hnit cost !"8#,@99 I 19,999 !"8.#@

e. :pplied 5' G :ctual 5' !77,$79 A !78,B99 !1,B@9underapplied

1). a. 5' rate !"78,899 I !1$",999 1@9J o* direct la+or

+. Ending / FalanceK D3 ! B),@)9

D& #7,"995' >!#7,"99 1.@9? )9,789Ending +alance !17",##9

c. 023 Feg. / C 0urrent costs G 0ost o* 6o+s completed

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!9 C !"BB,"99 C !1$",999 C !"78,899 A !17",##9 !)B),7B9

17. a. %aw 3aterial /nventory B7,999:ccounts aya+le B7,999

/ A 4o+ ("1B @@,899/ A 4o+ ("18 B,"99/ A other 6o+s )#,799

Direct 3aterial /nventory 19),799

/ A 4o+ ("1B 19,@99/ A 4o+ ("18 1@,999/ A other 6o+s 1$,799

0ash >or ages aya+le? @@,999

3anu*acturing 5verhead ""9,999Larious accounts ""9,999

/ A 4o+ ("1B )1,@89/ A 4o+ ("18 7$,#99/ A other 6o+s $B,9"9

3anu*acturing 5verhead "1B,899>:ctual rate per D&! !@@,999 !@.$)?

inished 2oods /nventory 11B,889

/ /nventory A 4o+ ("1B 11B,889>!11,"99 C !@@,899 C !19,@99 C !)1,@89 !11B,889?

0ash 1)$,1#8Sales 1)$,1#8

>!11B,889 M 1.#) !1)$,1#8?

0ost o* 2oods Sold 11B,889inished 2oods /nventory 11B,889

+. Ending / Feg. / C 0urrent costs G 0ost o* 4o+ ("1B

completed !17,899 C !19),799 C !@@,999 C !"1B,899 A

!11B,889 !"77,#"9

Ending +alance in 4o+ ("18 !),799 C !B,"99 C !1@,999 C!7$,#99

!$7,199

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1B. a. 5' rate !1"B,789 I B,799 !17.89 per D&'

+. :verage D& rate !1)$,799 I B,799 !"1 per D&'

c. 1),"99 >!"1.99 C !17.89? 1),"99 !#B.89 !)B@,)79D& N 5'!$17,7)9 A !)B@,)79 !#@",9$9 D3 in +eginning /

d. /* wor-ers on the 6o+ in ending / are assumed to +e paidthe average D& rate, then the ending / +alance isK

D3 ! B#,")9D& >",8)9 !"1? )$,8)95' >",8)9 !17.89? @B,889

Ending +alance !189,$89

e. 023 Feg. / C 0urrent period costs G End. / !$17,7)9 C !)8$,7B9 C !1)$,799 C !1"B,789 A

!189,$89 !1,71",7"9

18. a. 02S is the amount credited to inished 2oods /nventory *orthe year !1,8$9,999.

+. Feg. 2 C 023 G End. 2 02S!$9,999 C 023 A !)B,999 !1,8$9,999023 C !##,999 !1,8$9,999023 !1,8)B,999

c. :pplied 5' !#$),999 M 1.@9 !))#,999

d. Feg. / C D3 used C D& C 5' G End. / 023!)7,999 C D3 C !#$),999 C !))#,999 A !"B,7@9

!1,8)B,999D3 C !$B7,#79 !1,8)B,999

D3 !889,7@9

e. Feg. D3 C G D3 used End. D3!"@,799 C A !889,7@9 !@,199 A !8)7,9@9 !@,199 !879,1@9

1$. a. 02S .B) Sales .B)>!1,)$8,999? !1,1$8,)99.

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+. Feg. 2 C 023 G End. 2 02S!78,$99 C 023 A !17),799 !1,1$8,)99023 A !$7,B99 !1,1$8,)99023 !1,"$),"99

c. 4o+ F#")K :pplied 5' 8)J o* D&! .8) >1"8 !1".$9? .8) !1,7)1."9 !1,@9#.)"

4o+ !1".$9 "),B79? G >!"),9#@.B" C !"9,@"B.79?!1,"$),"99 !1@,799 C D3 used C !##",#9@ C !"8",@)8.@9

A !@),@7".#"!1,"$),"99 !)8#,$99.98 C D3 usedD3 used !B11,"$$.$"

Feg. D3 C urchases A D3 used End. D3

!1$,)99 C !8@#,"B7 A !B11,"$$.$" End. D3End. D3 >destroyed? !1)1,@B7.98"9. a. 0ase (1 0ase (" 0ase (#0ase (@

D3 ! @89 ! 8,899! #,B99 ! 8)9

D& >!1$9 per hour? B,799 1B,199 1#,#99 ",8)95' >!1)9 per court hour? 1,899 $,B)9 18,999 7,999

otals !$,889 !#),7)9!#),999 !$,B99

+. D3 !19,199D& >1B@ !1$9? ##,9795' >B" !1)9? 19,899otal cost !)#,$793ar-up >@)J? "@,"8"otal +illed to client !B8,"@"

"1. a. 5verhead rate Fudgeted 5' I Fudgeted D&!

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!@.") !1,"B),999 I Fudgeted D&!Fudgeted D& cost !1,"B),999 I !@.")Fudgeted D& cost !#99,999

5verhead rate !1,"B),999 I !#99,999 !@.") per D&!

+. or- in rocess /nventory $7,@B) 3anu*acturing 5verhead $7,@B) >!"",B99 !@.") !$7,@B)?

c. !@.") #,$99 !17,)B)

d. Feginning +alance !18,#)9Direct material "$,799Direct la+or #,$993anu*acturing overhead 17,)B)

Ending +alance !78,@")

"". a. Direct material !",8)9Direct la+or >!899 I !"9 @9 D&'s? 899:pplied overhead >!1B @9? 789otal cost o* 4o+ ($"9 !@,##9

+. F/ o* / >!8,")9 C !)99 C >!1B ")? ! $,1B)Direct material !"1,7)9Direct la+or >!7,#99 I !"9 #1) D&'s? 7,#99:pplied overhead >!1B #1)? ),#)) ##,#9)

!@",@89E/ o* / >@,##9?0ost o* goods manu*actured !#8,1)9

c. :ctual overhead !),9)@:pplied overhead >),#))?5verapplied 5' ! #91

"#. a. 3iingK !@89,999 I 79,999 !8 per 3'avingK !B99,999 I "8,999 !") per D&'

+. 3iing >"$9 3's !8?! ",#"9

aving >#@9 D&'s !")? 8,)99otal overhead applied !19,8"9

c. >!@89,999 C !B99,999? I >79,999 C 1",999? !1,189,999 IB",999 !17.#$

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!17.#$ ##@ !),@B@."7 applied to 4o+ (""9

: plantAwide rate would not have +een indicative o* the actualcost o* each 6o+ +ecause the 3iing department is very

machineAintensive while the aving department is very la+orAintensive.

"@. a. Department 1 !@7),999 I #9,999 3's !1).)9 per 3'Department " !#89,799 I "",999 D&'s !1B.#9 per D&'

+. %aw 3aterial /nventory #@7,999:ccounts aya+le #@7,999

or- in rocess /nventory G 4o+ (@7" 1$,999or- in rocess /nventory G other 6o+s#"1,999

%aw 3aterial /nventory #@9,999

or- in rocess /nventory G 4o+ (@7" "B)or- in rocess /nventory G other 6o+s ",879

0ash >"8) !11? #,1#)

or- in rocess /nventory G 4o+ (@7" @,$79or- in rocess /nventory G other 6o+s#","@9

5verhead 0ontrol >",@99 !1).)9? #B,"99

or- in rocess /nventory G 4o+ (@7" ",8@@

or- in rocess /nventory G other 6o+s"",8$70ash >1,@#9 !18? "),B@9

or- in rocess /nventory G 4o+ (@7" #@7or- in rocess /nventory G other 6o+s ",B78

5verhead 0ontrol >189 !1B.#9? #,11@

inished 2oods /nventory G 4o+ (@7" "B,@")or- in rocess /nventory G 4o+ (@7" "B,@")

>!1$,999 C !"B) C !@,$79 C !",8@@ C !#@7?

:ccounts %eceiva+le G ower #",$19Sales >!"B,@") 1."9? #",$19

0ost o* 2oods Sold "B,@")inished 2oods /nventory G 4o+ (@7" "B,@")

c. 0ost per unit !"B,@") I )99 !)@.8)Selling price per unit !7).8"

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%aw material !1$,999 I )99 !#8

d. otal %3 issued !#@9,999otal units >)99 C "9,999? I "9,)99%3 cost per unit !17.)$ >rounded?

otal cost per unit !)@.8) A !#8.99 C !17.)$ !##.@@Selling price per unit !##.@@ 1." [email protected]# >rounded?

Sales without error !#",$19Sales with error >)99 [email protected]#? "9,97)otal OsavingsP o* the error !1",8@)

"). : standard costing system is most appropriate in productionsettings in which activities are repetitive. hat criterion is met inthe case o* &atamore /ndustries. Development o* such standards

requires that relia+le epectations a+out input cost amounts andquantities +e determined *or the more routine aspects o* clientservices. 5nce the standards are developed, actual costs andinput quantities can +e compared against the standards to +etterunderstand the causes o* cost varia+ility across the contracts.Fetter identication and understanding o* the causes o*variances will allow managers to manage costs more efectivelyand price company services more appropriately.

"7. 3L :ctual cost *or paper purchasedG Standard cost *or paperpurchased >!9.9#" $89,999? G >!9.9#7 $89,999? !#1,#79

A !#),"89 A!#,$"9.Since actual cost was less than standard, the variance is*avora+le.

3!9.9#7 $89,999? G >!9.9#7 $8@,999? !#),"89 A !#),@"@ A!1@@.

Since actual paper usage was less than the standard allowed, thevariance is *avora+le.

"B. a. otal payroll $,999 M !$.7) !87,8)9

+. &%L :ctual payroll G Standard cost *or actual hours wor-ed !87,8)9 G >!$.8) $,999? !87,8)9 A !88,7)9 A!1,899.

Since direct la+or employees were paid less than the standardrate, the variance is *avora+le.

c. &


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Chapter 5

*or standard hours allowed *or production !88,7)9 G >!$.8) 8,799? !88,7)9 A !8@,B19 !#,$@9.

Since the num+er o* hours wor-ed was greater than thestandard hours allowed, the variance is un*avora+le.

d. 5ne concern would +e the reason the company was paying itswor-ers less than the standard rate per hour. he otherconcern would +e that the wor-ers, recognizing that they were+eing paid less than the standard, chose to wor- more slowlythan they normally would, to compensate >relative to totalwages? *or the reduced wage. /* this situation is the case, thecompany would have +een +etter of paying the standard rate+ecause the actual payroll was >!87,8)9 A !8@,B19? or !",1@9greater than the standard would have +een.

"8. a. 0urrently, Fonivo has no data on the actual cost o* +uildingany o* the computers +eing congured. 0onsequently, thecompany is una+le to determine the actual prot >loss?generated on any sales transaction. he 6o+ order costsystem would allow Fonivo to +etter understand what *actorsdrive costs in the rm, measure the prot on salestransactions, and identi*y ways to +etter manage costs andrevenues.

+. : pricing policy that ignores the costs o* direct la+or andoverhead >in addition to mar-eting and administrative costs?

is Qawed. 5nly i* D& and 5' are strictly proportional to directmaterial could their costs not +e considered in determiningthe price and prot o* each computer. 'owever, in this case,these costs are li-ely a ma6or portion o* the cost o* +uilding amadeAtoAorder computer.

"$. a. Secretary >!@,899 I 179 hrs. #) hrs.? ! 1,9)90opies >1,@)9 pages !9.97 per page? 8Bhone calls 1@)5verhead >!$,799 I 179 hrs. #) hrs.? ",199:ttorneyRs time >!1$9 $) hrs.? 18,9)9

otal charges !"1,@#"

his means 0onroe would +e charging !"1,@#" I $) !"").79 or !"#9 per hour >rounded?.

otal +ill to 5livgra $) hours !"#9 !"1,8)9

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+. Direct costs >!8B C !1@) C !18,9)9? !18,"8":llocated secretarial costs 1,9)9:llocated overhead ",1993argin >!18,9)9 C !",199? M 9.@9T 8,979otal +illing !"$,@$"

c. : Qat charge per hour would +e more li-ely to +e accepta+leto clients +ecause such a charge is more understanda+le than+eing charged an hourly rate plus a charge *or the time that isnot really +eing spent on their cases.

#9. Each student will have a diferent answer, +ut the memo shouldaddress the *ollowing issueK

Fudgeted cost is *ar +elow each 6o+s actual cost, which indicatesthat the company is not using past 6o+ in*ormation as a +asis *oreither controlling costs or increasing *uture +id prices. Fy not using

availa+le historical in*ormation to ad6ust operations, the companyis accepting marginal 6o+s. :lthough each 6o+ generated a positivegross margin, the actual gross margin is only a small *raction o* the+udgeted gross margin. /t is important that a company learn *rompast mista-es.

#1. a. Some o* the companies that have +een *ound to engage inthis practice are amily Dollar, ep Foys, aco Fell, oysA%AHs,and alA3art.

+. /t is easier to doctor the records now than in the past +ecause

records are computerized and managers generally have accessto the les. reviously, managers would have had to conspirewith payroll cler-s or accountants to change paper or punchAcard records.

c. Each student will have a diferent answer. 'owever, moststudents will pro+a+ly indicate that store managers ma-ingsuch changes would +e red >shortArun?. or the longArun,ethics training would pro+a+ly +e recommended and possi+lya change in the way store managers +onuses are computed.

#". a. 3anu*acturing 5verhead 1,1)9%aw 3aterial /nventory ")9ages aya+le $99

+. / A 4o+ (F:@78 1,1)9%aw 3aterial /nventory ")9ages aya+le $99

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Chapter 5

2iven that the rewor- costs were not necessary to thecompletion o* the 6o+, San :ngelo 0orp. should pro+a+ly notcharge its mar-up percentage on the !1,1)9 o* rewor- costsunless the customer had already +een in*ormed that such

charges might +e charged and the customer had agreed tosuch charges.

c. &oss on :+normal %ewor- 1,1)9%aw 3aterial /nventory ")9ages aya+le $99

##. a. redetermined 5' rate !1,@"1,999 I 1@),999 !$.89 per3'

Direct material !@B,)99Direct la+or "1,899

5verhead >#") !$.89? #,18)otal cost !B",@8)

er unit cost !B",@8) I 1,)99 !@8.#" >rounded?

+. he !B)9 rewor- cost is included in 3anu*acturing 5verhead0ontrol.

c. otal original cost !B",@8)0ost o* new #9 units 1,#$9&ess sale o* de*ective units >"@9?otal cost o* 4o+ (8B7 !B#,7#)

#@. a. he estimated cost o* the spoilage should +e included incalculating the predetermined overhead rate. his approachspreads the cost o* spoilage across all good units produced.

+. he cost o* this spoilage should +e charged to the specic 6o+.Since there is no salvage value *or the spoilage, no 6ournalentry would +e necessary as the cost o* the spoiled unitswould +e included in the prior charges to the 6o+ *or directmaterials, direct la+or and manu*acturing overhead.

c. /n this case, the spoilage is unepected and the net costshould +e recorded as a loss o* the period in which it occurred.

:ny salvage value associated with the spoilage will reduce theamount o* the loss. o record the transaction, wor- inprocess >and the specic 6o+s 6o+ order cost sheet? should +ecredited *or the cost o* the spoilage and the epected, netsalvage o* the spoilage should +e de+ited >Disposal value o*de*ective wor-?. : loss account >e.g., &oss *rom a+normalspoilage? should +e de+ited to +alance the transaction.

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ro+lems

#). %aw 3aterial /nventory B$9,999:ccounts aya+le B$9,999

or- in rocess /nventory )B9,999%aw 3aterial /nventory )B9,999

3anu*acturing 5verhead 1"9,999%aw 3aterial /nventory 1"9,999

or- in rocess /nventory B$@,9993anu*acturing 5verhead 89,999

ages aya+le 8B@,999

or- in rocess /nventory >!B$@,999 .))? @#7,B993anu*acturing 5verhead @#7,B99

inished 2oods /nventory 1,9@7,999or- in rocess /nventory 1,9@7,999

0ost o* 2oods Sold 1,9@7,999inished 2oods /nventory 1,9@7,999

0ash 1,#@",999 Sales 1,#@",999

#7. a. !8",999 I 8,999 D&' !19.") per D&'

+. Direct 3aterial /nventory $9,999:ccounts aya+le $9,999

or- in rocess /nventory B),7990ash B),799

3anu*acturing 5verhead 8",999Larious accounts 8",999

or- in rocess /nventory 8",9993anu*acturing 5verhead 8",999

or- in rocess /nventory 88,)99Direct 3aterial /nventory 88,)99

>!",999 C !$9,999 A !#,)99?

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inished 2oods /nventory "@8,8)9or- in rocess /nventory "@8,8)9

023 F/ C D3 C D& C 5' G E/

023 !19,)99 C !88,)99 C !B),799C!8",999 G!B,B)9 !"@8,8)9

:ccounts %eceiva+le #)9,@99Sales #)9,@99

0ost o* 2oods Sold "@#,B99inished 2oods /nventory "@#,B99

c. Feginning 2 ! 7,)99

023 "@8,8)902S >"@#,B99?Ending 2 ! 11,7)9

#B. a. $U1 %aw 3aterial /nventory 1,$@9,999:ccounts aya+le 1,$@9,999

$U@ or- in rocess /nventory 1,8@7,8993anu*acturing 5verhead )#,"99

%aw 3aterial /nventory 1,$99,999/ssuances made to 6o+s as *ollowsK

(B), !"8$,799; (B8, !")",799; (8", !$$","99; (87,!#1",@99

$U1) or- in rocess /nventory 77),799

3anu*acturing 5verhead $1,@990ash B)B,999

&a+or charged to 6o+s as *ollowsK(B), !8@,799; (B8, !"7B,"99; (8", !"9#,999;(87, !119,899

$U1) or- in rocess /nventory 8#",9993anu*acturing 5verhead 8#",999

5verhead applied to 6o+s as *ollowsK(B), !1"9,B)9; (B8, !#"$,999; (8", !")#,B)9;(87, !1"8,)99.

$U1) inished 2oods /nventory 1,981,#)9or- in rocess /nventory 1,981,#)9

>!)87,@99 C !"8$,799 C !8@,799 C !1"9,B)9?

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:ccounts %eceiva+le 1,@9),B))Sales 1,@9),B))

>!1,981,#)9 1.#?

0ost o* 2oods Sold 1,981,#)9

inished 2oods /nventory 1,981,#)9

$U"9 3anu*acturing 5verhead 119,"99:ccounts aya+le 1$7,899

0ash #9B,999

$U"@ %aw 3aterial /nventory 7"@,999:ccounts aya+le 7"@,999

$U") or- in rocess /nventory B17,@993anu*acturing 5verhead )),899

%aw 3aterial /nventoryBB","99/ssuances made to 6o+s as *ollowsK(B8, !1)@,899; (8", !"1",799; (87, !#@$,999

$U#9 3anu*acturing 5verhead 1,"97,899:ccumulated Depreciation 89$,999repaid /nsurance 17),@99aes N &icenses aya+le "#",@99

$U#9 or- in rocess /nventory 7@$,@99 3anu*acturing 5verhead 7),999

0ash B1@,@99&a+or charged to 6o+s as *ollowsK(B8, !1BB,@99; (8", !""8,@99; (87, !"@#,799

$U#9 or- in rocess /nventory @9B,1")3anu*acturing 5verhead @9B,1")

o apply overhead to 6o+s as *ollowsK(B8, !111,B)9; (8", !1B9,7"); (87, !1"@,B)9

+. %aw 3aterial /nventoryVVVVVFal. ##",@99 $U@ 1,$99,999

$U1 1,$@9,999 $U") BB","99

$U"@ 7"@,999

Fal. ""@,"99

or- in rocess

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Chapter 5

Fal. 1,)1",799 $U1) 1,981,#)9$U@ 1,8@7,899$U1) 77),799$U1) 8#",999$U") B17,@99

$U#9 7@$,@99$U#9 @9B,1")

Fal. ),)@8,)B) 0ost o* 2oods SoldVVVVVVVVFal. @,87@,999(B) 1,981,#)9

Fal. ),$@),#)9

4o+ (B) 4o+ (B8

Fal. )87,@99 1,981,#)9 Fal. "77,799

D3 "8$,799 D3 ")",799D& 8@,799 D& "7B,"995' 1"9,B)9 5' #"$,999Fal. 9 D3 1)@,899

D& 1BB,@995' 111,B)9Fal1,))$,#)9

4o+ (8" 4o+ (87Fal. 7)$,799 D3 #1",@99

D3 $$","99 D& 119,899D& "9#,999 5' 1"8,)995' ")#,B)9 D3 #@$,999D3 "1",799 D& "@#,799D& ""8,@99 5' 1"@,B)95' 1B9,7")

Fal.",B"9,1B) Fal.1,"7$,9)9

c. Schedule o* 4o+ 0ost %ecordsSeptem+er #9, "919

4o+ (B8!1,))$,#)9

4o+ (8" ",B"9,1B)4o+ (87 1,"7$,9)9otal !),)@8,)B)

d. :ctual overhead *or Septem+er

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Chapter 5

$U@ ! )#,"99$U1) $1,@99$U"9 119,"99$U") )),899$U#9 1,"97,899

$U#9 7),999 !1,)8",@99:pplied overhead *or Septem+er$U1) ! 8#",999$U#9 @9B,1") >1,"#$,1")?

Hnderapplied overhead ! #@#,"B)

#8. a. %aw 3aterial /nventory )@",999 0ash

)@",999

3anu*acturing 5verhead )@,999or- in rocess /nventory 79",899

agesUSalaries aya+le >or 0ash? 7)7,899o record D& *or 6o+s >4o+ ("@B, !1B,@99; (")1, !8,899;(")#, !"1,999; (")@, !1#7,799; (")), !1@),999;(")7, !$@,799; and (")B, !1B$,@99?

3anu*acturing 5verhead B7,999or- in rocess /nventory @77,@99

%aw 3aterial /nventory )@",@99o record D3 *or 6o+s >4o+ ("@B, !1",@99; (")1, !7,"99;(")#, !17,899; (")@, !19),"99; (")), !11$,899;

(")7, !B",899; and (")B, !1##,"99?

3anu*acturing 5verhead 11@,@99Larious accounts 11@,@99

o record 5' costs other than indirect la+or andindirect materials >!"@@,@99 A !)@,999 A !B7,999?

or- in rocess /nventory "@1,1"93anu*acturing 5verhead "@1,1"9

o apply 5' at a rate o* !9.@9 per D&! >4o+ ("@B, !7,$79;(")1, !#,)"9; (")#, !8,@99; (")@, !)@,7@9; (")), !)8,999;(")7, !#B,8@9; and (")B, !B1,B79?

inished 2oods /nventory 1,BB$,9@9or- in rocess /nventory 1,BB$,9@9 >See schedule +elow.?

0ash ","7@,BB@Sales ","7@,BB@

17


18/35

Chapter 5

0ost o* 2oods Sold 1,BB$,9@9inished 2oods /nventory 1,BB$,9@9

Schedule o* 0ompleted 4o+s

4o+ Direct 3aterial Direct &a+or :pplied 5' otal"@B ! 8$,799 !198,899 ! @#,)"9 ! "@1,$"9")1 18",899 "18,799 8B,@@9 @88,8@9")# 17","99 1$9,799 B7,"@9 @"$,9@9")@ 19),"99 1#7,799 )@,7@9 "$7,@@9")) 11$,899 1@),999 )8,999 #"",899otals !7)$,799 !B$$,799 !#1$,8@9 !1,BB$,9@9

+. 4o+ Direct 3aterialDirect &a+or :pplied 5' otal")7 ! B",899 ! $@,799 !#B,8@9 !"9),"@9")B 1##,"99 1B$,@99 B1,B79 #8@,#79

otals !"97,999 !"B@,999 !19$,799 !)8$,799

c. :ctual overhead ! "@@,@99:pplied overhead "@1,1"9Hnderapplied overhead ! #,"89Hnad6usted cost o* 6o+s completed 1,BB$,9@9:d6usted cost o* 6o+s completed !1,B8",#"9

#$. a. :luminum Steel 5ther otalF/ ! 8,#99 !1",899 ! ),899 ! "7,$99urchases $8,#99 "7,)99 "#,))9 1@8,#)9

:vaila+le !197,799 !#$,#99 !"$,#)9 !1B),")9/ssuances >)8,B99? >#@,"99? >"),$99? >118,899?E/ ! @B,$99 ! ),199 ! #,@)9 ! )7,@)9

+. Direct material ! 7"9Direct la+or >8 !1)? 1"95verhead >17 !#9? @89otal !1,""9

c. / G +eginningW ! 7,"#9Direct material >total issuances? 118,899

Direct la+or >789 M !1)? 19,"995verhead >1,"99 M !#9? #7,999otal manu*acturing costs !1B1,"#9/ A ending >1,""9?0ost o* goods manu*actured !1B9,9192 A +eginning "#,8990ost o* goods availa+le *or sale !1$#,8192 A ending >9?

18


19/35

Chapter 5

0ost o* goods sold !1$#,819

W4o+ ( 3aterial &a+or 5' otal @11 !1,$99 ! )@9 !1,)99 !#,$@9 @1" 1,"@9 1)9 $99 ","$9

!#,1@9 ! 7$9 !",@99 !7,"#9

@9. a. Hsing any o* the 6o+s, one can determine that the relationship+etween direct la+or and applied overhead is that overhead is11)J o* direct la+or cost. or eample, using 6o+ (7BK!1),$17 I !1#,8@9 1.1).

+. Direct material !"),899Direct la+or B,"99

:pplied overhead 8,"89otal !@1,"89

c. otal direct material !)1#,8#@&ess direct material in F/ >"),899?!@88,9#@

otal direct la+or ! $#,B"9&ess direct la+or in F/ >B,"99? 87,)"9otal direct cost added during 3ay !)B@,))@

d. or- in process A +eginning ! @1,"890osts added during 3ayKDirect material !@88,9#@Direct la+or 87,)"9:pplied overhead >!87,)"9 1.1)? $$,@$8 7B@,9)"

!B1),##"or- in process A ending >!#98,@#9 C !)B,999 C >!)B,999 M 1.1)? >@#9,$89?0ost o* goods manu*actured !"8@,#)"

@1. a. a+ricationK !1,)79,999 I 19@,999 3&'s !1) per 3'

:ssem+lyK !1,B79,999 I #"9,999 D&'s !).)9 per D&'

+. 4o+ (""$7K a+rication >$99 hours X !1"? !19,899:ssem+ly >8)9 hours X !19? 8,)99otal D& !1$,#99

4o+ (""$BK a+rication >@79 hours X !1"? !),)"9:ssem+ly >@99 hours X !19? @,999

19


20/35

Chapter 5

otal D& !$,)"9

c. 4o+ (""$7K a+rication >1,899 hours X !1)?!"B,999

:ssem+ly >8)9 hours X !).)9? @,7B)

otal 5' applied !#1,7B)

4o+ (""$BK a+rication >$99 hours X !1)?!1#,)99:ssem+ly >@99 hours X !).)9? ","99otal 5' applied !1),B99

d. 4o+ (""$7 4o+ (""$BDirect 3aterial !118,)99 !1@B,"99Direct &a+or 1$,#99 $,)"95verhead #1,7B) 1),B99otal !17$,@B) !1B",@"9

e. a+ricationK:pplied >19#,"99 M !1)?!1,)@8,999:ctual >1,)"8,999?5verapplied ! "9,999

:ssem+lyK :pplied >#"@,999 M !).)9?!1,B8",999

:ctual >1,B$9,999?Hnderapplied ! 8,999

he company has overapplied overhead o* !1",999 *or theyear.

@". a. 4o+ 0ost Sheet A 4o+ ()1)

0ustomer =ame and :ddressK Description o* 4o+K reparesite,

0ity o* 2ul* Shores +uild and install a pedestrian

2ul* Shores, :la+ama overpass in 2ul* ShoresK see+id

specications *or details

0ontract :greement DateK )U19Scheduled Starting DateK BU19:greed Hpon 0ompletion DateK 1"U1)U190ontract riceK !#,#99,999

20


21/35

Chapter 5

:ctual 0ompletion DateK VVVVVVVVVVVVVVVVSpecial /nstructionsK =one

Direct 3aterial >Est. !1,"@9,999?Date Source 0ost

"9194uly #1 Summary o* material req. !1"1,899

Direct &a+or >Est. !7B9,999? 5verhead >Est. !@9",999?.

Date Source 0ost Date Source0ost

"919 "9194uly #1 Summary o* time 4uly #1 4ournal entry

sheets *or direct o* BU#1U19!19),9"@

la+or !1B),9@9

Summary >as o* BU#1U19?

:ctual FudgetHnder>5ver?

Direct material !1"1,899 !1,"@9,999

Direct la+or 1B),9@9 7B9,9995verhead 19),9"@ @9",999otals !@91,87@ !",#1",999

+. or- in rocess A 4o+ ()1) 1"1,899or- in rocess G other 6o+s @)B,)99

Direct 3aterial /nventory )B$,#99

or- in rocess A 4o+ ()1) 1B),9@9or- in rocess A other 6o+s @98,$793anu*acturing 5verhead )),899

Salaries and ages Epense #$,799Salaries and ages aya+le 7B$,@99

3anu*acturing 5verhead "7,@99Depreciation Epense B,899

:ccumulated Depr. A 0onst. :ssets "7,@99:ccumulated Depr. A 5Yce :ssets B,899

21


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Chapter 5

Sales romotion Epense 11,199:ccounts aya+le 11,199

:dvertising Epense 7,7990ash 7,799

3anu*acturing 5verhead 18,799Supplies /nventory 18,799

3iscellaneous Epense 19,"99:ccounts aya+le 19,"99

Htilities Epense 1,8993anu*acturing 5verhead ),@99

Htilities aya+le B,"99

or- in rocess A 4o+ ()1) 19),9"@or- in rocess A other 6o+s "@),#B7

3anu*acturing 5verhead #)9,@99

:ccounts %eceiva+le 1,""@,999Sales 1,""@,999

inished 2oods /nventory 8"$,999 or- in rocess /nventory

8"$,999

0ost o* 2oods Sold 8"$,999inished 2oods /nventory 8"$,999

c. or- in rocess A +eginning ! 8B1,899roduction costsK

Direct material!)B$,#99

Direct la+or )8@,999 :pplied overhead#)9,@99 1,)1#,B99

!",#8),)99or- in process G ending >1,))7,)99?

0ost o* goodsmanu*actured ! 8"$,999

d. Firmingham 0ontractors/ncome Statement

or the 3onth Ended 4uly #1, "919

22


23/35

Chapter 5

%evenues *rom completed pro6ects !1,""@,999&ess 0ost o* 2oods Sold >8"$,999?2ross 3argin on 0ompleted 4o+s ! #$),999=onAroduction EpensesK

Salaries and ages Epense !#$,799Depreciation Epense B,899Htilities Epense 1,899Sales romotion Epense 11,199:dvertising Epense 7,7993iscellaneous Epense 19,"99 >BB,199?

/ncome Fe*ore /ncome aes !#1B,$99/ncome aes >@9J? >1"B,179?=et /ncome !1$9,B@9

@#. a. 4o+ ("91$K

Design >!81,799 M #9J? !"@,@89roduction >B"9 M !1)? 19,899/nstallation >!19,989 M $9J? $,9B"

otal overhead applied !@@,#)"

4o+ ("9"9KDesign >!7$,#79 M #9J? !"9,898roduction >",@99 M !1)? #7,999/nstallation >!11,)"9 M $9J? 19,#78

otal overhead applied !7B,1B7

4o+ ("9"1KDesign >!B#,@@9 M #9J? !"",9#"roduction >$79 M !1)? 1@,@99/nstallation >!1),"99 M $9J? 1#,789

otal overhead applied !)9,11"

Design roduction/nstallation

:ctual !19),799 !79,999 !#1,"99

:pplied >7B,#"9? >71,"99? >##,1"9?>5ver?Uunder applied ! #8,"89 ! >1,"99? ! >1,$"9?

:ctual 5' *or company !1$7,899:pplied 5' *or company >171,7@9?otal company underapplied 5' ! #),179

+. or- in rocess >Design? G 4o+ ("91$ $,799

23


24/35

Chapter 5

or- in rocess >Design? G 4o+ ("9"9 8,"99or- in rocess >Design? G 4o+ ("9"1 1B,799

%aw 3aterial /nventory #),@99

or- in rocess >Design? G 4o+ ("91$ 81,799

or- in rocess >Design? G 4o+ ("9"9 7$,#79or- in rocess >Design? G 4o+ ("9"1 B#,@@9ages aya+le ""@,@99

or- in rocess >Design? G 4o+ ("91$ "@,@89or- in rocess >Design? G 4o+ ("9"9 "9,898or- in rocess >Design? G 4o+ ("9"1 "",9#"

3anu*acturing 5verhead 7B,#"9

or- in rocess >rod.? G 4o+ ("91$ 117,@99or- in rocess >rod.? G 4o+ ("9"9 "78,899

or- in rocess >rod.? G 4o+ ("9"1 "#",999%aw 3aterial /nventory 71B,"99

or- in rocess >rod.? G 4o+ ("91$ #@,999or- in rocess >rod.? G 4o+ ("9"9 )$,799or- in rocess >rod.? G 4o+ ("9"1 "1,799

ages aya+le 11),"99

or- in rocess >rod.? G 4o+ ("91$ 19,899or- in rocess >rod.? G 4o+ ("9"9 #7,999or- in rocess >rod.? G 4o+ ("9"1 1@,@99

3anu*acturing 5verhead 71,"99

or- in rocess >/nst.? G 4o+ ("91$ 19,@99or- in rocess >/nst.? G 4o+ ("9"9 #7,899or- in rocess >/nst.? G 4o+ ("9"1 19,@99

%aw 3aterial /nventory )B,799

or- in rocess >/nst.? G 4o+ ("91$ 19,989or- in rocess >/nst.? G 4o+ ("9"9 11,)"9or- in rocess >/nst.? G 4o+ ("9"1 1),"99

ages aya+le #7,899

or- in rocess >/nst.? G 4o+ ("91$ $,9B"or- in rocess >/nst.? G 4o+ ("9"9 19,#78or- in rocess >/nst.? G 4o+ ("9"1 1#,789

3anu*acturing 5verhead ##,1"9

c. 4o+ ("91$K

24


25/35

Chapter 5

Direct material !1#7,@99Direct la+or 1"),7895verhead @@,#)"otal cost !#97,@#"

4o+ ("9"9KDirect material !#1#,899Direct la+or 1@9,@895verhead 7B,1B7otal cost !)"1,@)7

4o+ ("9"1KDirect material !"79,999Direct la+or 119,"@95verhead )9,11"otal cost !@"9,#)"

@@. a. %eliantK !),)89 I !@) 1"@ D&' wor-edDumasK !18,999 I !@) @99 D&' wor-ed5mahaK !"8,#)9 I !@) 7#9 D&' wor-ed

%eliantK 1"@ D&' !)8 !B,1$" 5' appliedDumasK @99 D&' !)8 !"#,"99 5' applied5mahaK 7#9 D&' !)8 !#7,)@9 5' applied

%eliant Dumas 5mahaDirect material ! B,899 !1@,"99 ! 1$,899

Direct la+or ),)89 18,999 "8,#)95verhead B,1$" "#,"99 #7,)@9otal cost !"9,)B" !)),@99 !8@,7$9

+. %eliantK !"9,)B" I # !7,8)B per adDumasK !)),@99 I 19 !),)@9 per ad5mahaK !8@,7$9 I 8 !19,)87 per ad

c. Sales >"1 ads Z !8,799? !189,7990ostsK

Direct material !@1,899

Direct la+or )1,$#9:pplied overhead 77,$#"5verapplied overhead >17,$#"? >1@#,B#9?

=et income ! #7,8B9

d. SalesK %eliant >!"9,)B" 1.#?!"7,B@#.79Dumas >!)),@99 1.#? B",9"9.99

5maha >!8@,7$9 1.#? 119,9$B .99 !"98,879.79

25


26/35

Chapter 5

0ostsKDirect material !@1,899.99Direct la+or )1,$#9.99:pplied overhead 77,$#".995verapplied overhead >17,$#" .99? >1@#,B#9 .99?

=et income ! 7),1#9 .79

/ncome using a costAplus +asis is su+stantially higher thanthat which is o+tained using a Qat rate selling price. Dumas3anu*acturing will +e more pleased with the system; ratherthan paying a rate o* !8,799 per ad, Dumas would +e paying!B,"9". 5n the other hand, %eliants and 5mahas costs perad would increase *rom !8,799 per ad to !8,$1) and !1#,B7",respectively.

:ds shouldnRt +e +illed at a Qat rate +ecause some may ta-e

much longer to develop than others. he 8 ads *or 5mahatoo- 7#9 hours to develop or a+out B$ hours each. /n contrast,the # ads were developed *or %eliant in 1"@ hours >@1 hourseach? and the 19 ads were developed *or Dumas in only @99hours >@9 hours each?.

:nother possi+ility *or &eFlanc is to +ill +ased on a standardcharge per la+or hour[especially i* clients tend to changetheir minds a*ter the ad development process +egins.

@). a. 5ct.1 %aw 3aterial /nventory 1,1)9,999

:ccounts aya+le 1,1)9,999

1 or- in rocess A 7)9,9993anu*acturing 5verhead A )99,999

%aw 3aterial /nventory 1,1)9,999

) 3anu*acturing 5verhead A 0 "),999:ccounts aya+le "),999

8 3anu*acturing 5verhead A ),9990ash ),999

1) =o entry needed.

"9 3anu*acturing 5verhead A 0 79,9990ash 79,999

"@ %aw 3aterial /nventory 1,@8),999:ccounts aya+le 1,@8),999

26


27/35

Chapter 5

#1 3anu*acturing 5verhead G #7,#"9or- in rocess G @),999

0ash 77,1"9:ccumulated Depr. A 1),"99

#1 3anu*acturing 5verhead G0 18,7)9

or- in rocess G 0 17,#990ash "7,"99:ccumulated Depr. A 0 8,B)9

#1 :ccounts aya+le ",7#),9990ash ",7#),999

#1 or- in rocess G 1)9,999

3anu*acturing 5verhead G 1)9,999 >7,999 3' !")?

#1 or- in rocess G 0 "7,8$)3anu*acturing 5verhead G 0 "7,8$)

>!17,#99 1.7)?

=ov. 1 3anu*acturing 5verhead G 0 ),9990ash ),999

@ or- in rocess A 8"),999

3anu*acturing 5verhead A 1B),999 %aw 3aterial /nventory 1,999,999

8 3anu*acturing 5verhead G ),999 0ash ),999

1) or- in rocess G 0 "99,9993anu*acturing 5verhead A 0 ""),999

%aw 3aterial /nventory @"),999

18 =o entry needed.

"@ =o entry needed.

"$ =o entry needed.

#9 3anu*acturing 5verhead G )@,9)9or- in rocess G 11),999

27


28/35

Chapter 5

0ash 1)#,8)9:ccumulated Depr. G 1),"99

#9 3anu*acturing 5verhead G 0 @#,8)9or- in rocess G 0 1#@,#99

0ash 1)$,899:ccumulated Depr. A 0 18,#)9

#9 or- in rocess G $8,B)93anu*acturing 5verhead G $8,B)9

>#,$)9 !")?

#9 or- in rocess G 0 ""1,)$)3anu*acturing 5verhead A 0 ""1,)$)

>!1#@,#99 1.7)?

#9 0ompleted ro6ects /nventory ",@8",8@9 or- in rocess A 1,88#,B)9 or- in rocess A 0 )$$,9$9

#9 :ccounts %eceiva+le #,@)9,999 0onstruction %evenue #,@)9,999

#9 0ost o* 0ontracts Sold ",@8",8@9 0ompleted ro6ects /nventory ",@8",8@9

+. recast 0onstruction %aw 3aterial 5verheadG 5verhead A 0

1,1)9,999 1,1)9,999 )99,999 1)9,999 "),999"7,8$) 1,@8),999 1,999,999 ),999 $8,B)9 79,999""1,)$) @"),999 #7,#"9 18,7)9 1B),999 ),999 ),999 ""),999 )@,9)9 @#,8)9

+al 79,999 +al )"7,7"9 +al 1"$,919

28


29/35

Chapter 5

/ G recast / A 0onstruction

7)9,999 1,88#,B)9 17,#99 )$$,9$9 @),999 "7,8$) 1)9,999 "99,999

8"),999 1#@,#99 11),999 ""1,)$) $8,B)9

+al 9 +al 9

0ompleted ro6ects /nv. 0ost o* 0ontracts Sold

",@8",8@9 ",@8",8@9 ",@8",8@9

+al 9 +al ",@8",8@9

c. >+ottom section o* 6o+ cost sheet?

recast Department

D3 >Est. !1,))9,999? D& >Est. !""9,999? 5' >Est.!"B),999?

Date :mount Date :mount Date:mount

5ct. 1 ! 7)9,999 5ct. #1 ! @),999 5ct. #1!1)9,999 =ov. @ 8"),999 =ov. #9 11),999 =ov. #9 $8,B)9 !1,@B),999 !179,999!"@8,B)9

0onstruction Department

D3 >Est. !#)9,999? D& >Est. !1#9,999? 5' >Est.!"1@,)99?

Date :mount Date :mount Date:mount

=ov. 1) ! "99,999 5ct. #1 ! 17,#99 5ct. #1 ! "7,8$)=ov. #9 1#@,#99 =ov. #9 ""1,)$)

!1)9,799!"@8,@$9

d. &incoln 0onstruction 0ompany does not seem to have a goodestimation system in place *or its +id process, especially in its

29


30/35

Chapter 5

recast Department. he company may +e losing a signicantnum+er o* +ids +ecause o* inQated cost estimates.

@7. a. : 6o+ order cost system is appropriate in any environment inwhich costs can +e readily identied with specic products,

+atches, contracts, or pro6ects. or adopting this system thereshould +e a 6ustication on a costA+enet +asis to trace coststo those specic products, +atches, contracts, or pro6ects.

+. he only 6o+ remaining in / at )U#1 is D%S11@KD%S11@ +alance, @U#9 !1,)B9,9993ay additionsK

%aw material !1"@,999urchased parts 8B,999Direct la+or "99,)995verhead >1$,)99 hrs. X !B.)9W? 1@7,")9 ))B,B)9

/ +alance, )U#1 !",1"B,B)9W5' rate !@,)99,999 I 799,999 hrs. !B.)9 per hour

c. 2 inventory o* playpens, @U#9 1$,@99Hnits completed in 3ay 1),999Hnits availa+le #@,@99Hnits shipped in 3ay >"1,999?2 inventory, )U#1 1#,@99

Since ip Squea-s uses the /5 inventory method, all unitsremaining in 2 inventory were completed in 3ay.

or- in process inventory, @U#9 !@"9,9993ay additionsK %aw material ! #,999 urchased parts 19,899 Direct la+or @#,"99 5verhead >@,@99 Z !B.)9? ##,999 $9,999otal cost !)19,999

Hnit cost !)19,999 I 1),999 units completed !#@ per unit2 inventory !#@ Z 1#,@99 !@)),799

d. /* the amount o* overapplied or underapplied 5' is notmaterial or the result o* an error in the 5' application rate,the amount is normally charged directly to 02S. /* the amountis signicant, the amount should +e prorated over therelevant accounts >i.e., /, 2, and 02S?.

>03:adapted?

30


31/35

Chapter 5

@B. a., +. :pplied 5' rate !#9",@99 I 199,899 !# per D&'0ost o* goods manu*actured ! $7,999:dd ending wor- in processK

wo 6o+s open have D3 o* ! @,899wo 6o+s open have D& o* $,999

wo 6o+s open have applied 5' o* >!# M ",1@@? 7,@#""9,"#"

otal costs accounted *or !117,"#"&ess +eginning wor- in process >1),@99?0ost o* production inputs !199,8#"&essK Direct la+or !#7,@99

:pplied 5' >!#.99 M 8,899? "7,@99>7",899?

0ost o* direct material used ! #8,9#"0ost o* indirect material issued 11,799

otal cost o* raw material used ! @$,7#"

c. Feginning raw material ! $,799%aw material purchased )7,999otal raw material availa+le !7),799%aw material issued >@$,7#"?Ending raw material !1),$78

d. 5verhead applied >!# M 8,899? ! "7,@99:ctual overhead chargesK

/ndirect la+or !19,899

/ndirect material 11,799 :ll other ),999 >"B,@99?Hnderapplied overhead in :pril ! 1,999

e. Feginning nished goods ! 17,899:dd cost o* goods manu*actured $7,9990ost o* goods availa+le !11",899&ess ending nished goods >1#,"99?0ost o* goods sold ! $$,799

@8. a. :ctual D3 cost !11,799,999

Standard D3 cost >!)7,999 M "99? >11,"99,999?3aterial rice Lariance ! @99,999 H

:ctual D& cost !7,$)B,799Standard D& cost >!#@,@99 M "99? >7,889,999?Direct &a+or %ate Lariance ! BB,799 H

:ctual 5' cost !1@,899,999

31


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Chapter 5

Standard 5' cost >!B7,999 M "99? >1),"99,999?5' Lariance ! >@99,999?

+. 3aterialK!11,799,999 I 7,999,999 !1.$# >rounded? actual cost per

l+. vs. !".99 standard cost per l+.; !9.9B 7,999,999 !@"9,999 price variance

7,999,999 l+s. used vs. >"8,999 "99? standard 7,999,999 G),799,999 @99,999 l+s. more than standard; @99,999 !" !899,999 H quantity variance

he primary cause o* the un*avora+le material variance is+ecause o* ecess usage.

@$. a. D3 cost !18.99

D& cost >!"9 >1" I 79?? @ .99otal standard prime costs !"" .99

+. 4o+ ($18 D3 cost >!18 1,"99? !"1,799 D& cost >!@ 1,"99? @,899 otal standard direct cost !"7,@99

4o+ ("99"D3 cost >!18 ",999? ! #7,999D& cost >!@ ",999? 8,999

otal standard direct cost !@@,999

c. 4o+ ($18 Standard :ctual Lariance D3 ! "1,799 !"#,)") !1,$") H D& @,899 @,8@9 @9 H otal !"7,@99 !"8,#7) !1,$7) H

4o+ ("99" D3 !#7,999 !#B,@@9 !1,@@9 H D& 8,999 B,8)9 1)9 otal !@@,999 !@),"$9 !1,"$9 H

d. Fy computing variances *or each 6o+, managers +ecomeaware o* any trends in costs. /* costs are aggregated across6o+s, any trends may +e o+scured.

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Chapter 5

)9. a. rot on the edAprice contracts is constrained +y thecontract price. rot can only +e increased i* ways are *ound

to reduce costs. 5ne way that costs can +e reduced is to shi*tthem to other contracts. his is a particularly efectivestrategy i* the costs that are shi*ted to another contract can+e recouped under the terms o* that other contract. Fyshi*ting some costs o* the edAprice contracts to the costAplus contracts, the prot on the edAprice contracts rises andthe shi*ted costs can +e recovered under the terms o* thecostAplus contracts. urther, this strategy may have the efecto* increasing costs under the costAplus contracts i* thosecontracts determine prot as a percentage o* total costs.

+. his type o* cost shi*ting is dishonest and unethical. /t has theefect o* increasing the total prices o* costAplus contracts, and,i* those contracts are government related, those prices aretypically +orne +y tapayers. /n a sense it is a way *or thestoc-holders and managers o* the de*ense contractors tosteal *rom the tapayers. /t is diYcult to imagine a setting inwhich this process could +e la+eled ethical.

)1. a. Each student will have a diferent answer.

+. he company is utilizing the +enets o* automation to reduce

the costs o* handling so many parts. Fy standardizingprocesses, the company can assem+le a messenger +ag witha diverse set o* parts in an amount o* time that is similar tothat required *or massAproduced ones. :ccordingly, althoughthe company is pro+a+ly paying, on average, more *or partson custom messenger +ags than massAproduced ones; it isholding the line on direct la+or and production overhead. Fyholding costs down *or la+or and overhead, the total cost o*the custom produced messenger +ags is not signicantlyhigher than that o* the mass produced messenger +ags.

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Chapter 5

d. he answer is mostly revealed in part >c?. Fy containing coststo levels close to those o* massAproduced messenger +ags,+ut allowing the customer to choose the parts they desire, asu+stantial gross prot can +e achieved. he higher grossprot reQects the customersR willingness to pay a premium *or

the eact com+ination o* parts desired, even though thecompanyRs costs are not signicantly greater than thoseincurred to mass produce messenger +ags.

)". a. /t is li-ely that the least popular thoughts and opinions wouldnot +e heard on campus. Students would naturally supportthose ideas and positions that were consistent with their ownethics, philosophies, and sel* interests. :s a consequence, theoverall diversity o* ideas would pro+a+ly decline.

+. :ssuming diversity o* opinions ultimately +enets allstudents, the Hniversity o* isconsin is possi+ly supporting

diversity with the only means availa+le[student dollars.'owever, this approach may not +e ethical +ecause it *orcesstudents to support opinions, +elie*s, and ideas that mayviolate their personal ethics. :lthough the Supreme 0ourt o*the Hnited States will ultimately determine whether this is alegal practice, each individual student can reach hisUher ownconclusion as to whether the practice is ethical.

)#. a. 5verhead other than spoilage !799,999Estimated spoilage cost !)9,999&ess salvage value "9,999 #9,999

:d6usted estimated overhead cost !7#9,999

5% !7#9,999 I @9,999 !1).B) per D&'

+. Disposal value o* chemical @$73anu*acturing 5verhead 1,"#@

or- in rocess[4o+ (B88 1,B#9

)@. a. redetermined rate !$"),999 I 199,999 !$.") per 3'

+. otal cost o* direct material !78B,199

otal cost o* direct la+or 1)B,B)9:pplied 5' >#,989 !$.")? "8,@$9otal cost o* 4o+ F#17 !8B#,#@9

c. he rewor- cost is de+ited to the manu*acturing overheadaccount since the company uses a predetermined rate thatincludes rewor- costs to apply overhead.

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Chapter 5

3anu*acturing 5verhead B),)99Larious accounts B),)99

d. redetermined rate !8)9,999 I 199,999 !8.)9 per 3'

otal cost o* direct material !78B,199otal cost o* direct la+or 1)B,B)9:pplied 5' >#,989 !8.)9? "7,189otal cost o* 4o+ F#17 !8B1,9#9

e. otal cost o* direct material !78B,199otal cost o* direct la+or 1)B,B)9:pplied 5' >#,989 !8.)9? "7,189%ewor- cost >!B),)99 ."9? 1),199Sale o* rewor-ed pipe >"99 !#.)9? >B99?otal cost o* 4o+ F#17 !88),@#9

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