M-Ch05 - Copy

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Exercises

9. a. job orderb. job orderc. processd. job ordere. job orderf. job orderg. job orderh. processi. job orderj. processk. job orderl. processm. processn. job ordero. job orderp. job orderq. process

10. Two characteristics of the proposal are critical in advising London about a costing system:

a. the expected high sales volume and b. the repetitive nature of production implied by that high sales volume.

These characteristics indicate that London’s best choice would be to use a process costing system and standard cost valuations.

Standard costing would benefit London because it would help identify inefficiencies in production operations and help her identify ways to reduce production costs.

The homogeneous nature of the product makes the use of job order costing unnecessary (its higher cost is not justified).

11. Each student will have a different answer, depending on the particular yacht selected. Some will discuss the yacht’s size; others will discuss the interior finishes; others will discuss the navigation equipment. The $23.9 million Richmond Lady Hull #5 2008 ( http://richmondyachts.com/pdf/142-RICHMOND-LADY-BOAT-SHOW-PRICE.pdf ) provides numerous features upon which students can focus.

12. a. Employee time cardb. Work in Process Inventory Control or Finished Goods Inventory c. Raw Material Inventoryd. Job order cost sheet

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http://richmondyachts.com/pdf/142-RICHMOND-LADY-BOAT-SHOW-PRICE.pdf

http://richmondyachts.com/pdf/142-RICHMOND-LADY-BOAT-SHOW-PRICE.pdf

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e. Manufacturing Overhead Control f. Job order cost sheetg. Raw Material Inventory h. Finished Goods Inventory or Cost of Goods Sold i. Manufacturing Overhead Control j. Work in Process Inventory Control

13. a. The direct material charge of $658,000 is higher than the estimate by

$158,000. Assuming that there were no errors in the estimated and actual amounts, then either the price paid for the material or the quantity of material used was substantially higher than expected. To begin the validation process, 1. details of the original estimate to identify prices and quantities of materials for this job would need to be examined.

The starting point to validate the material prices and quantities purchased is to examine vendor invoices billed to Quindo. These invoices will validate material purchase quantities and prices paid by Quindo.2. Additionally, material requisition forms should be examined to validate the quantity of material actually used in production. 3. Next, an examination of the material cost (material quantity multiplied by material price) on the job order cost sheet should reconcile to the quantity of material shown on the material requisition forms.

b. The direct labor charge of $625,000 is higher than the estimate by $225,000. Assuming that there were no errors in the estimated and actual amounts, then either the hourly rate paid to or the number of hours worked by employees was substantially higher than expected.

To begin the validation process, 1. details of the original estimate to identify rates and hours for labor on this job would

need to be examined.

The starting point to validate the labor rates and hours worked is to

2. examine employee time sheets (or other labor accumulation documents). The time sheets will validate which employees worked on the job and for what period of time.

3. A discussion with the payroll manager should help ascertain the actual or average wage rates paid to employees.

4. Possibly some of Quindo’s employees who were listed as working on the job should be interviewed to determine the accuracy of the time sheets.

c. The predetermined overhead rate could have been manipulated to a higher rate by using a lower denominator level of activity than was appropriate. Additionally, inappropriate costs (such as period costs in addition to product overhead costs) could have been included in the numerator. A large estimate for spoilage and defect costs might also have been included in the numerator

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when, in fact, such costs rarely occur at Quindo Industries.

d. The company’s behavior is at best questionable. Given that the difference between actual and estimated direct material cost was likely known at the point of purchase, Quindo should have notified Salem Corp. immediately of the excessive increase in cost. Similar notification should have been provided when it was seen that direct labor and machine times were higher than expected.

14. a. Raw Material Inventory 204,000Accounts Payable 204,000

Work in Process Inventory-#4263 163,800Work in Process Inventory-#4264 1,870Manufacturing Overhead 12,460

Raw Material Inventory 178,130

Work in Process Inventory-#4263 54,000Work in Process Inventory-#4264 1,800 Cash (3,600 x $15) 55,800

Manufacturing Overhead 68,700 Cash ($18,000 + $7,200 + $9,500) 34,700

Accumulated Depreciation 21,500 Wages Payable 12,500

Work in Process Inventory-#4263 64,800Work in Process Inventory-#4264 2,160

Manufacturing Overhead 66,960

b. RM Inventory = $4,300 + $204,000 - $163,800 - $12,460 - $1,870 = $30,170

c. Because the company worked only on Job #4263 until the end of April, all costs in beginning WIP for other jobs are still in that account at the end of the month.

Beginning WIP $11,400Less costs associated with Job #4263 (800)Costs associated with other jobs $10,600Costs for Job #4264 ($1,870 + $1,800 + $2,160) 5,830Ending WIP $16,430

d. CGM = Beginning WIP + Current period costs – Ending WIP = $11,400 + $163,800 + $1,870 + $55,800 + $66,960 - $16,430 = $283,400

Unit cost = $283,400 ÷ 10,000 = $28.34

e. Applied OH – Actual OH = $66,960 - $68,700 = $1,740 underapplied

15. a. OH rate = $268,800 ÷ $192,000 = 140% of direct labor

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b. Ending WIP Balance: DM $ 75,450

DL 36,200 OH ($36,200 x 1.40) 50,680 Ending balance $162,330

c. CGM = Beg. WIP + Current costs – Cost of jobs completed= $0 + $277,200 + $192,000 + $268,800 - $162,330 = $575,670

16. a. Raw Material Inventory 76,000Accounts Payable 76,000

WIP - Job #217 44,800WIP - Job #218 7,200WIP - other jobs 53,600

Direct Material Inventory 105,600


Cash (or Wages Payable) 44,000

Manufacturing Overhead 220,000Various accounts 220,000


Manufacturing Overhead 217,800(Actual rate per DL$ = $44,000 x $4.95)

Finished Goods Inventory 117,880WIP Inventory - Job #217 117,880

($11,200 + $44,800 + $10,400 + $51,480 = $117,880)

Cash 159,138Sales 159,138

($117,880 × 1.35 = $159,138)

Cost of Goods Sold 117,880Finished Goods Inventory 117,880

b. Ending WIP = Beg. WIP + Current costs – Cost of Job #217 completed = $16,800 + $105,600 + $44,000 + $217,800 - $117,880= $266,320

Ending balance in Job #218 = $5,600 + $7,200 + $14,000 + $69,300 = $96,100

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17. a. OH rate = $127,680 ÷ 7,600 = $16.80 per DLH

b. Average DL rate = $159,600 ÷ 7,600 = $21 per DLH

c. 15,200 x ($21.00 + $16.80) = 15,200 x $37.80 = $574,560 DL & OH$916,650 - $574,560 = $342,090 DM in beginning WIP

d. If workers on the job in ending WIP are assumed to be paid the average DL rate, then the ending WIP balance is:

DM $ 73,250 DL (2,850 x $21) 59,850 OH (2,850 x $16.80) 47,880 Ending balance $180,980

e. CGM = Beg. WIP + Current period costs – End. WIP = $916,650 + $589,670 + $159,600 + $127,680 - $180,980 = $1,612,620

18. a. CGS is the amount credited to Finished Goods Inventory for the year = $1,890,000.

b. Beg. FG + CGM – End. FG = CGS$90,000 + CGM - $57,000 = $1,890,000CGM + $33,000 = $1,890,000CGM = $1,857,000

c. Applied OH = $395,000 × 1.40 = $553,000

d. Beg. WIP + DM used + DL + OH – End. WIP = CGM$56,000 + DM + $395,000 + $553,000 - $27,640 = $1,857,000DM + $976,360 = $1,857,000DM = $880,640

e. Beg. DM + P – DM used = End. DM$24,600 + P - $880,640 = $4,100P - $856,040 = $4,100P = $860,140

19. a. CGS = .75 x Sales = .75($1,598,000) = $1,198,500.

b. Beg. FG + CGM – End. FG = CGS$68,900 + CGM - $165,600 = $1,198,500CGM - $96,700 = $1,198,500CGM = $1,295,200

c. Job B325: Applied OH = 85% of DL$ = .85 (128 x $12.90) = .85 x $1,651.20 = $1,403.52

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Job Q428: Applied OH = 85% of DL$ = .85 (240 x $12.90) = .85 x $3,096.00 = $2,631.60

d. Job B325 Q428 DM$21,980.00 $14,700.00DL 1,651.20 3,096.00OH 1,403 .52 2,631 .60

$25,034 .72 $20,427 .60

e. CGM = Beg. WIP + DM used + DL + OH – End. WIP$1,295,200 = $14,600 + DM used + $12.90(25,760) + .85($12.90 x 25,760) –

($25,034.72 + $20,427.60)$1,295,200 = $14,600 + DM used + $332,304 + $282,458.40 - $45,462.32$1,295,200 = $583,900.08 + DM usedDM used = $711,299.92

Beg. DM + Purchases - DM used = End. DM$19,500 + $843,276 - $711,299.92 = End. DMEnd. DM (destroyed) = $151,476.08

20. a. Case #1 Case #2 Case #3 Case #4DM $ 480 $ 8,800 $ 3,700 $ 850DL ($190 per hour) 7,600 17,100 13,300 2,850OH ($150 per court hour) 1,800 9,750 18,000 6,000

Totals $9,880 $35,650 $35,000 $9,700

b. DM $10,100DL (174 x $190) 33,060OH (72 x $150) 10,800Total cost $53,960Markup (45%) 24,282Total billed to client $78,242

21. a. Overhead rate = Budgeted OH ÷ Budgeted DL$ $4.25 = $1,275,000 ÷ Budgeted DL$Budgeted DL cost = $1,275,000 ÷ $4.25 Budgeted DL cost = $300,000

Overhead rate = $1,275,000 ÷ $300,000 = $4.25 per DL$

b. Work in Process Inventory 96,475 Manufacturing Overhead 96,475 ($22,700 x $4.25 = $96,475)

c. $4.25 x 3,900 = $16,575

d. Beginning balance $18,350Direct material 29,600Direct labor 3,900Manufacturing overhead 16,575Ending balance $68,425

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22. a. Direct material $2,850Direct labor ($800 ÷ $20 = 40 DLHs) 800Applied overhead ($17 x 40) 680Total cost of Job #920 $4,330

b. BI of WIP ($8,250 + $500 + ($17 x 25) $ 9,175Direct material $21,650Direct labor ($6,300 ÷ $20 = 315 DLHs) 6,300Applied overhead ($17 x 315) 5,355 33,305

$42,480EI of WIP (4,330)Cost of goods manufactured $38,150

c. Actual overhead $5,054Applied overhead (5,355)Overapplied OH $ 301

23. a. Mixing: $480,000 ÷ 60,000 = $8 per MHPaving: $700,000 ÷ 28,000 = $25 per DLH

b. Mixing (290 MHs x $8) $ 2,320Paving (340 DLHs x $25) 8,500Total overhead applied $10,820

c. ($480,000 + $700,000) ÷ (60,000 + 12,000) = $1,180,000 ÷ 72,000 = $16.39

$16.39 x 334 = $5,474.26 applied to Job #220

A plant-wide rate would not have been indicative of the actual cost of each job because the Mixing department is very machine-intensive while the Paving department is very labor-intensive.

24. a. Department 1 = $465,000 ÷ 30,000 MHs = $15.50 per MHDepartment 2 = $380,600 ÷ 22,000 DLHs = $17.30 per DLH

b. Raw Material Inventory 346,000Accounts Payable 346,000

Work in Process Inventory – Job #462 19,000Work in Process Inventory – other jobs 321,000


Work in Process Inventory – Job #462 275Work in Process Inventory – other jobs 2,860

Cash (285 x $11) 3,135


Overhead Control (2,400 x $15.50) 37,200

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Cash (1,430 x $18) 25,740

Work in Process Inventory – Job #462 346Work in Process Inventory – other jobs 2,768

Overhead Control (180 x $17.30) 3,114

Finished Goods Inventory – Job #462 27,425Work in Process Inventory – Job #462 27,425

($19,000 + $275 + $4,960 + $2,844 + $346)

Accounts Receivable – Power 32,910Sales ($27,425 x 1.20) 32,910

Cost of Goods Sold 27,425Finished Goods Inventory – Job #462 27,425

c. Cost per unit = $27,425 ÷ 500 = $54.85Selling price per unit = $65.82Raw material = $19,000 ÷ 500 = $38

d. Total RM issued $340,000Total units (500 + 20,000) ÷ 20,500RM cost per unit $16.59 (rounded)

Total cost per unit = $54.85 - $38.00 + $16.59 = $33.44Selling price per unit = $33.44 x 1.2 = $40.13 (rounded)

Sales without error $32,910Sales with error (500 x $40.13) 20,065Total “savings” of the error $12,845

25. A standard costing system is most appropriate in production settings in which activities are repetitive. That criterion is met in the case of Latamore Industries. Development of such standards requires that reliable expectations about input cost amounts and quantities be determined for the more routine aspects of client services. Once the standards are developed, actual costs and input quantities can be compared against the standards to better understand the causes of cost variability across the contracts. Better identification and understanding of the causes of variances will allow managers to manage costs more effectively and price company services more appropriately.

26. MPV = Actual cost for paper purchased– Standard cost for paper purchased = ($0.032 x 980,000) – ($0.036 x 980,000) = $31,360 - $35,280 = -$3,920. Since actual cost was less than standard, the variance is favorable.

MQV = Actual cost for paper used – Standard cost for paper that should have been used = ($0.036 x 980,000) – ($0.036 x 984,000) = $35,280 - $35,424 = -$144.

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Since actual paper usage was less than the standard allowed, the variance is favorable.

27. a. Total payroll = 9,000 × $9.65 = $86,850

b. LRV = Actual payroll – Standard cost for actual hours worked = $86,850 – ($9.85 x 9,000) = $86,850 - $88,650 = -$1,800.

Since direct labor employees were paid less than the standard rate, the variance is favorable.

c. LQV = Standard cost for actual hours worked – Standard cost for standard hours allowed for production = $88,650 – ($9.85 x 8,600) = $88,650 - $84,710 = $3,940.

Since the number of hours worked was greater than the standard hours allowed, the variance is unfavorable.

d. One concern would be the reason the company was paying its workers less than the standard rate per hour. The other concern would be that the workers, recognizing that they were being paid less than the standard, chose to work more slowly than they normally would, to compensate (relative to total wages) for the reduced wage. If this situation is the case, the company would have been better off paying the standard rate because the actual payroll was ($86,850 - $84,710) or $2,140 greater than the standard would have been.

28. a. Currently, Bonivo has no data on the actual cost of building any of the computers being configured. Consequently, the company is unable to determine the actual profit (loss) generated on any sales transaction. The job order cost system would allow Bonivo to better understand what factors drive costs in the firm, measure the profit on sales transactions, and identify ways to better manage costs and revenues.

b. A pricing policy that ignores the costs of direct labor and overhead (in addition to marketing and administrative costs) is flawed. Only if DL and OH are strictly proportional to direct material could their costs not be considered in determining the price and profit of each computer. However, in this case, these costs are likely a major portion of the cost of building a made-to-order computer.

29. a. Secretary ($4,800 ÷ 160 hrs. x 35 hrs.) $ 1,050Copies (1,450 pages x $0.06 per page) 87Phone calls 145Overhead ($9,600 ÷ 160 hrs. x 35 hrs.) 2,100Attorney's time ($190 x 95 hrs.) 18,050Total charges $21,432

This means Conroe would be charging $21,432 ÷ 95 = $225.60 or $230 per hour (rounded).

Total bill to Olivgra = 95 hours x $230 = $21,850

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b. Direct costs ($87 + $145 + $18,050) $18,282Allocated secretarial costs 1,050Allocated overhead 2,100Margin [($18,050 + $2,100) × 0.40] 8,060Total billing $29,492

c. A flat charge per hour would be more likely to be acceptable to clients

because such a charge is more understandable than being charged an hourly rate plus a charge for the time that is not really being spent on their cases.

30. Each student will have a different answer, but the memo should address the following issue:

Budgeted cost is far below each job’s actual cost, which indicates that the company is not using past job information as a basis for either controlling costs or increasing future bid prices. By not using available historical information to adjust operations, the company is accepting marginal jobs. Although each job generated a positive gross margin, the actual gross margin is only a small fraction of the budgeted gross margin. It is important that a company learn from past mistakes.

31. a. Some of the companies that have been found to engage in this practice are Family Dollar, Pep Boys, Taco Bell, Toys-R-Us, and Wal-Mart.

b. It is easier to doctor the records now than in the past because records are computerized and managers generally have access to the files. Previously, managers would have had to conspire with payroll clerks or accountants to change paper or punch-card records.

c. Each student will have a different answer. However, most students will probably indicate that store managers making such changes would be fired (short-run). For the long-run, ethics training would probably be recommended and possibly a change in the way store managers’ bonuses are computed.

32. a. Manufacturing Overhead 1,150Raw Material Inventory 250Wages Payable 900

b. WIP - Job #BA468 1,150Raw Material Inventory 250Wages Payable 900

Given that the rework costs were not necessary to the completion of the job, San Angelo Corp. should probably not charge its markup percentage on the $1,150 of rework costs unless the customer had already been informed that such charges might be charged and the customer had agreed to such charges.

c. Loss on Abnormal Rework 1,150Raw Material Inventory 250

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Wages Payable 900

33. a. Predetermined OH rate = $1,421,000 ÷ 145,000 = $9.80 per MH

Direct material $47,500Direct labor 21,800Overhead (325 x $9.80) 3,185Total cost $72,485

Per unit cost = $72,485 ÷ 1,500 = $48.32 (rounded)

b. The $750 rework cost is included in Manufacturing Overhead Control.

c. Total original cost $72,485Cost of new 30 units 1,390Less sale of defective units (240)Total cost of Job #876 $73,635

34. a. The estimated cost of the spoilage should be included in calculating the predetermined overhead rate. This approach spreads the cost of spoilage across all good units produced.

b. The cost of this spoilage should be charged to the specific job. Since there is no salvage value for the spoilage, no journal entry would be necessary as the cost of the spoiled units would be included in the prior charges to the job for direct materials, direct labor and manufacturing overhead.

c. In this case, the spoilage is unexpected and the net cost should be recorded as a loss of the period in which it occurred. Any salvage value associated with the spoilage will reduce the amount of the loss. To record the transaction, work in process (and the specific job’s job order cost sheet) should be credited for the cost of the spoilage and the expected, net salvage of the spoilage should be debited (Disposal value of defective work). A loss account (e.g., Loss from abnormal spoilage) should be debited to balance the transaction.

Problems

35. Raw Material Inventory 790,000Accounts Payable 790,000

Work in Process Inventory 570,000Raw Material Inventory 570,000

Manufacturing Overhead 120,000Raw Material Inventory 120,000

Work in Process Inventory 794,000Manufacturing Overhead 80,000

Wages Payable 874,000

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Work in Process Inventory ($794,000 x .55) 436,700Manufacturing Overhead 436,700

Finished Goods Inventory 1,046,000Work in Process Inventory 1,046,000

Cost of Goods Sold 1,046,000Finished Goods Inventory 1,046,000

Cash 1,342,000 Sales 1,342,000

36. a. $82,000 ÷ 8,000 DLH = $10.25 per DLH

b. Direct Material Inventory 90,000Accounts Payable 90,000

Work in Process Inventory 75,600Cash 75,600



Work in Process Inventory 88,500Direct Material Inventory 88,500

($2,000 + $90,000 - $3,500)

Finished Goods Inventory 248,850Work in Process Inventory 248,850

CGM = BWIP + DM + DL + OH – EWIP CGM = $10,500 + $88,500 + $75,600 +

$82,000 –$7,750 = $248,850

Accounts Receivable 350,400Sales 350,400


c. Beginning FG $ 6,500CGM 248,850CGS (243,700)Ending FG $ 11,650

37. a. 9/1 Raw Material Inventory 1,940,000

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Accounts Payable 1,940,000

9/4 Work in Process Inventory 1,846,800Manufacturing Overhead 53,200

Raw Material Inventory 1,900,000Issuances made to jobs as follows:#75, $289,600; #78, $252,600; #82, $992,200; #86, $312,400

9/15 Work in Process Inventory 665,600

Manufacturing Overhead 91,400Cash 757,000

Labor charged to jobs as follows:#75, $84,600; #78, $267,200; #82, $203,000; #86, $110,800

9/15 Work in Process Inventory 832,000Manufacturing Overhead 832,000

Overhead applied to jobs as follows: #75, $120,750; #78, $329,000; #82, $253,750; #86, $128,500.

9/15 Finished Goods Inventory 1,081,350 Work in Process Inventory 1,081,350

($586,400 + $289,600 + $84,600 + $120,750)

Accounts Receivable 1,405,755Sales 1,405,755

($1,081,350 x 1.3)


9/20 Manufacturing Overhead 110,200Accounts Payable 196,800

Cash 307,000

9/24 Raw Material Inventory 624,000Accounts Payable 624,000

9/25 Work in Process Inventory 716,400Manufacturing Overhead 55,800Raw Material Inventory 772,200

Issuances made to jobs as follows:#78, $154,800; #82, $212,600; #86, $349,000

9/30 Manufacturing Overhead 1,206,800Accumulated Depreciation 809,000Prepaid Insurance 165,400Taxes & Licenses Payable 232,400

9/30 Work in Process Inventory 649,400 Manufacturing Overhead 65,000

Cash 714,400

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Labor charged to jobs as follows:#78, $177,400; #82, $228,400; #86, $243,600

9/30 Work in Process Inventory 407,125Manufacturing Overhead 407,125

To apply overhead to jobs as follows:#78, $111,750; #82, $170,625; #86, $124,750

b. Raw Material Inventory_____Bal. 332,400 9/4 1,900,000 9/1 1,940,000 9/25 772,200 9/24 624,000

Bal. 224,200

Work in Process Bal. 1,512,600 9/15 1,081,3509/4 1,846,8009/15 665,6009/15 832,0009/25 716,4009/30 649,4009/30 407,125

Bal. 5,548,575 Cost of Goods Sold ________Bal. 4,864,000#75 1,081,350

Bal. 5,945,350

Job #75 Job #78

Bal. 586,400 1,081,350 Bal. 266,600DM 289,600 DM 252,600DL 84,600 DL 267,200OH 120,750 OH 329,000Bal. 0 DM 154,800

DL 177,400OH 111,750Bal 1,559,350

Job #82 Job #86 Bal. 659,600 DM 312,400DM 992,200 DL 110,800DL 203,000 OH 128,500OH 253,750 DM 349,000DM 212,600 DL 243,600DL 228,400 OH 124,750OH 170,625

Bal. 2,720,175 Bal. 1,269,050

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c. Schedule of Job Cost Records September 30, 2010

Job #78 $1,559,350Job #82 2,720,175Job #86 1,269,050Total $5,548,575

d. Actual overhead for September9/4 $ 53,2009/15 91,4009/20 110,2009/25 55,8009/30 1,206,8009/30 65,000 $1,582,400

Applied overhead for September9/15 $ 832,0009/30 407,125 (1,239,125)

Underapplied overhead $ 343,275

38. a. Raw Material Inventory 542,000 Cash 542,000

Manufacturing Overhead 54,000Work in Process Inventory 602,800

Wages/Salaries Payable (or Cash) 656,800To record DL for jobs (Job #247, $17,400; #251, $8,800; #253, $21,000; #254, $136,600; #255, $145,000;#256, $94,600; and #257, $179,400)

Manufacturing Overhead 76,000Work in Process Inventory 466,400

Raw Material Inventory 542,400To record DM for jobs (Job #247, $12,400; #251, $6,200; #253, $16,800; #254, $105,200; #255, $119,800;#256, $72,800; and #257, $133,200)


To record OH costs other than indirect labor and indirect materials ($244,400 - $54,000 - $76,000)


To apply OH at a rate of $0.40 per DL$ (Job #247, $6,960;#251, $3,520; #253, $8,400; #254, $54,640; #255, $58,000;#256, $37,840; and #257, $71,760)

Finished Goods Inventory 1,779,040Work in Process Inventory 1,779,040 (See schedule below.)

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Cash2,264,774Sales 2,264,774


Schedule of Completed Jobs

Job Direct Material Direct Labor Applied OH Total247 $ 89,600 $108,800 $ 43,520 $ 241,920251 182,800 218,600 87,440 488,840253 162,200 190,600 76,240 429,040254 105,200 136,600 54,640 296,440255 119,800 145,000 58,000 322,800Totals $659,600 $799,600 $319,840 $1,779,040

b. Job Direct Material Direct Labor Applied OH Total256 $ 72,800 $ 94,600 $37,840 $205,240257 133,200 179,400 71,760 384,360Totals $206,000 $274,000 $109,600 $589,600

c. Actual overhead $ 244,400Applied overhead 241,120Underapplied overhead $ 3,280Unadjusted cost of jobs completed 1,779,040Adjusted cost of jobs completed $1,782,320

39. a. Aluminum Steel Other Total BI $ 8,300 $12,800 $ 5,800 $ 26,900Purchases 98,300 26,500 23,550 148,350Available $106,600 $39,300 $29,350 $175,250Issuances (58,700) (34,200) (25,900) (118,800) EI $ 47,900 $ 5,100 $ 3,450 $ 56,450

b. Direct material $ 620Direct labor (8 x $15) 120Overhead (16 x $30) 480Total $1,220

c. WIP – beginning* $ 6,230Direct material (total issuances) 118,800Direct labor (680 × $15) 10,200Overhead (1,200 × $30) 36,000Total manufacturing costs $171,230WIP - ending (1,220)Cost of goods manufactured $170,010FG - beginning 23,800Cost of goods available for sale $193,810FG - ending (0)

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Cost of goods sold $193,810

*Job # Material Labor OH Total 411 $1,900 $ 540 $1,500 $3,940 412 1,240 150 900 2,290

$3,140 $ 690 $2,400 $6,230

40. a. Using any of the jobs, one can determine that the relationship between direct labor and applied overhead is that overhead is 115% of direct labor cost. For example, using job #67: $15,916 ÷ $13,840 = 1.15.

b. Direct material $25,800Direct labor 7,200Applied overhead 8,280Total $41,280

c. Total direct material $513,834Less direct material in BI (25,800) $488,034

Total direct labor $ 93,720Less direct labor in BI (7,200) 86,520Total direct cost added during May $574,554

d. Work in process - beginning $ 41,280Costs added during May:Direct material $488,034Direct labor 86,520Applied overhead ($86,520 x 1.15) 99,498 674,052

$715,332Work in process - ending ($308,430 + $57,000 + ($57,000 × 1.15) (430,980)Cost of goods manufactured $284,352

41. a. Fabrication: $1,560,000 ÷ 104,000 MLHs = $15 per MHAssembly: $1,760,000 ÷ 320,000 DLHs = $5.50 per DLH

b. Job #2296: Fabrication (900 hours @ $12) $10,800Assembly (850 hours @ $10) 8,500Total DL $19,300

Job #2297: Fabrication (460 hours @ $12) $5,520Assembly (400 hours @ $10) 4,000Total DL $9,520

c. Job #2296: Fabrication (1,800 hours @ $15) $27,000Assembly (850 hours @ $5.50) 4,675Total OH applied $31,675

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Job #2297: Fabrication (900 hours @ $15) $13,500Assembly (400 hours @ $5.50) 2,200Total OH applied $15,700

d. Job #2296 Job #2297Direct Material $118,500 $147,200Direct Labor 19,300 9,520Overhead 31,675 15,700Total $169,475 $172,420

e. Fabrication: Applied (103,200 × $15) $1,548,000Actual (1,528,000)Overapplied $ 20,000

Assembly: Applied (324,000 × $5.50) $1,782,000Actual (1,790,000)Underapplied $ 8,000

The company has overapplied overhead of $12,000 for the year.

42. a. Job Cost Sheet - Job #515

Customer Name and Address: Description of Job: Prepare site, City of Gulf Shores build and install a pedestrian

Gulf Shores, Alabama overpass in Gulf Shores: see bid specifications for details

Contract Agreement Date: 5/10Scheduled Starting Date: 7/10Agreed Upon Completion Date: 12/15/10 Contract Price: $3,300,000Actual Completion Date: ________________Special Instructions: None

Direct Material (Est. $1,240,000) Date Source Cost 2010July 31 Summary of material req. $121,800

Direct Labor (Est. $670,000) Overhead (Est. $402,000) . Date Source Cost Date Source Cost 2010 2010July 31 Summary of time July 31 Journal entry

sheets for direct of 7/31/10 $105,024labor $175,040

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Chapter 5

Summary (as of 7/31/10)

Actual Budget Under(Over) Direct material $121,800 $1,240,000Direct labor 175,040 670,000Overhead 105,024 402,000Totals $401,864 $2,312,000

b. Work in Process - Job #515 121,800Work in Process – other jobs 457,500

Direct Material Inventory 579,300

Work in Process - Job #515 175,040Work in Process - other jobs 408,960Manufacturing Overhead 55,800Salaries and Wages Expense 39,600

Salaries and Wages Payable 679,400

Manufacturing Overhead 26,400Depreciation Expense 7,800

Accumulated Depr. - Const. Assets 26,400Accumulated Depr. - Office Assets 7,800

Sales Promotion Expense 11,100Accounts Payable 11,100

Advertising Expense 6,600Cash 6,600

Manufacturing Overhead 18,600Supplies Inventory 18,600

Miscellaneous Expense 10,200Accounts Payable 10,200

Utilities Expense 1,800Manufacturing Overhead 5,400

Utilities Payable 7,200

Work in Process - Job #515 105,024Work in Process - other jobs 245,376


Accounts Receivable 1,224,000Sales 1,224,000

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Finished Goods Inventory 829,000 Work in Process Inventory 829,000


c. Work in Process - beginning $ 871,800Production costs:

Direct material $579,300 Direct labor 584,000 Applied overhead 350,400 1,513,700 $2,385,500

Work in process – ending (1,556,500) Cost of goods manufactured $ 829,000

d. Birmingham Contractors Income Statement

For the Month Ended July 31, 2010

Revenues from completed projects $1,224,000Less Cost of Goods Sold (829,000)Gross Margin on Completed Jobs $ 395,000Non-Production Expenses:

Salaries and Wages Expense $39,600Depreciation Expense 7,800Utilities Expense 1,800Sales Promotion Expense 11,100Advertising Expense 6,600Miscellaneous Expense 10,200 (77,100)

Income Before Income Taxes $317,900Income Taxes (40%) (127,160)Net Income $190,740

43. a. Job #2019:Design ($81,600 × 30%) $24,480Production (720 × $15) 10,800Installation ($10,080 × 90%) 9,072

Total overhead applied $44,352

Job #2020:Design ($69,360 × 30%) $20,808Production (2,400 × $15) 36,000Installation ($11,520 × 90%) 10,368


Job #2021:Design ($73,440 × 30%) $22,032Production (960 × $15) 14,400Installation ($15,200 × 90%) 13,680

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Design Production InstallationActual $105,600 $60,000 $31,200Applied (67,320) (61,200) (33,120)(Over)/under applied $ 38,280 $ (1,200) $ (1,920)

Actual OH for company $196,800Applied OH for company (161,640)Total company underapplied OH $ 35,160

b. Work in Process (Design) – Job #2019 9,600Work in Process (Design) – Job #2020 8,200Work in Process (Design) – Job #2021 17,600


Work in Process (Design) – Job #2019 81,600Work in Process (Design) – Job #2020 69,360Work in Process (Design) – Job #2021 73,440


Work in Process (Design) – Job #2019 24,480Work in Process (Design) – Job #2020 20,808Work in Process (Design) – Job #2021 22,032


Work in Process (Prod.) – Job #2019 116,400Work in Process (Prod.) – Job #2020 268,800Work in Process (Prod.) – Job #2021 232,000






Work in Process (Inst.) – Job #2019 10,400Work in Process (Inst.) – Job #2020 36,800Work in Process (Inst.) – Job #2021 10,400




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c. Job #2019:Direct material $136,400Direct labor 125,680Overhead 44,352 Total cost $306,432

Job #2020:Direct material $313,800Direct labor 140,480Overhead 67,176 Total cost $521,456

Job #2021:Direct material $260,000Direct labor 110,240Overhead 50,112 Total cost $420,352

44. a. Reliant: $5,580 ÷ $45 = 124 DLH workedDumas: $18,000 ÷ $45 = 400 DLH workedOmaha: $28,350 ÷ $45 = 630 DLH worked

Reliant: 124 DLH x $58 = $7,192 OH appliedDumas: 400 DLH x $58 = $23,200 OH appliedOmaha: 630 DLH x $58 = $36,540 OH applied

Reliant Dumas OmahaDirect material $ 7,800 $14,200 $ 19,800Direct labor 5,580 18,000 28,350Overhead 7,192 23,200 36,540Total cost $20,572 $55,400 $84,690

b. Reliant: $20,572 ÷ 3 = $6,857 per ad Dumas: $55,400 ÷ 10 = $5,540 per adOmaha: $84,690 ÷ 8 = $10,586 per ad

c. Sales (21 ads X $8,600) $180,600Costs:

Direct material $41,800Direct labor 51,930Applied overhead 66,932 Overapplied overhead (16,932) (143,730)

Net income $ 36,870

d. Sales: Reliant ($20,572 x 1.3) $26,743.60

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Dumas ($55,400 x 1.3) 72,020.00 Omaha ($84,690 x 1.3) 110,097 .00 $208,860.60

Costs:Direct material $41,800.00Direct labor 51,930.00Applied overhead 66,932.00 Overapplied overhead (16,932 .00 ) (143,730 .00 )

Net income $ 65,130 .60

Income using a cost-plus basis is substantially higher than that which is obtained using a flat rate selling price. Dumas Manufacturing will be more pleased with the system; rather than paying a rate of $8,600 per ad, Dumas would be paying $7,202. On the other hand, Reliant’s and Omaha’s costs per ad would increase from $8,600 per ad to $8,915 and $13,762, respectively.

Ads shouldn't be billed at a flat rate because some may take much longer to develop than others. The 8 ads for Omaha took 630 hours to develop or about 79 hours each. In contrast, the 3 ads were developed for Reliant in 124 hours (41 hours each) and the 10 ads were developed for Dumas in only 400 hours (40 hours each).

Another possibility for LeBlanc is to bill based on a standard charge per labor hour—especially if clients tend to change their minds after the ad development process begins.

45. a. Oct. 1 Raw Material Inventory 1,150,000Accounts Payable 1,150,000

1 Work in Process - P 650,000Manufacturing Overhead - P 500,000

Raw Material Inventory 1,150,000

5 Manufacturing Overhead - C 25,000Accounts Payable 25,000

8 Manufacturing Overhead - P 5,000Cash 5,000

15 No entry needed.

20 Manufacturing Overhead - C 60,000 Cash 60,000

24 Raw Material Inventory 1,485,000Accounts Payable 1,485,000

31 Manufacturing Overhead – P 36,320Work in Process – P 45,000

Cash 66,120Accumulated Depr. - P 15,200

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31 Manufacturing Overhead – C 18,650Work in Process – C 16,300

Cash 26,200Accumulated Depr. - C 8,750

31 Accounts Payable 2,635,000Cash 2,635,000

31 Work in Process – P 150,000Manufacturing Overhead – P 150,000

(6,000 MH x $25)

31 Work in Process – C 26,895Manufacturing Overhead – C 26,895

($16,300 x 1.65)

Nov. 1 Manufacturing Overhead – C 5,000Cash 5,000

4 Work in Process - P 825,000Manufacturing Overhead - P 175,000

Raw Material Inventory 1,000,000

8 Manufacturing Overhead – P 5,000 Cash 5,000

15 Work in Process – C 200,000Manufacturing Overhead - C 225,000


18 No entry needed.

24 No entry needed.

29 No entry needed.

30 Manufacturing Overhead – P 54,050Work in Process – P 115,000

Cash 153,850Accumulated Depr. – P 15,200

30 Manufacturing Overhead – C 43,850Work in Process – C 134,300

Cash 159,800Accumulated Depr. - C 18,350

30 Work in Process – P 98,750Manufacturing Overhead – P 98,750

(3,950 x $25)

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30 Work in Process – C 221,595Manufacturing Overhead - C 221,595

($134,300 x 1.65)

30 Completed Projects Inventory 2,482,840 Work in Process - P 1,883,750 Work in Process - C 599,090

30 Accounts Receivable 3,450,000 Construction Revenue 3,450,000

30 Cost of Contracts Sold 2,482,840 Completed Projects Inventory 2,482,840

b. Precast Construction Raw Material Overhead– P Overhead - C

1,150,000 1,150,000 500,000 150,000 25,000 26,895 1,485,000 1,000,000 5,000 98,750 60,000 221,595 425,000 36,320 18,650 175,000 5,000 5,000 225,000 54,050 43,850

bal 60,000 bal 526,620 bal 129,010

WIP – Precast WIP - Construction

650,000 1,883,750 16,300 599,090 45,000 26,895 150,000 200,000 825,000 134,300 115,000 221,595 98,750

bal 0 bal 0

Completed Projects Inv. Cost of Contracts Sold

2,482,840 2,482,840 2,482,840

bal 0 bal 2,482,840

c. (bottom section of job cost sheet)

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Precast Department

DM (Est. $1,550,000) DL (Est. $220,000) OH (Est. $275,000) Date Amount Date Amount Date AmountOct. 1 $ 650,000 Oct. 31 $ 45,000 Oct. 31 $150,000

Nov. 4 825,000 Nov. 30 115,000 Nov. 30 98,750 $1,475,000 $160,000 $248,750

Construction Department

DM (Est. $350,000) DL (Est. $130,000) OH (Est. $214,500) Date Amount Date Amount Date AmountNov. 15 $ 200,000 Oct. 31 $ 16,300 Oct. 31 $ 26,895

Nov. 30 134,300 Nov. 30 221,595$150,600 $248,490

d. Lincoln Construction Company does not seem to have a good estimation system in place for its bid process, especially in its Precast Department. The company may be losing a significant number of bids because of inflated cost estimates.

46. a. A job order cost system is appropriate in any environment in which costs can be readily identified with specific products, batches, contracts, or projects. For adopting this system there should be a justification on a cost-benefit basis to trace costs to those specific products, batches, contracts, or projects.

b. The only job remaining in WIP at 5/31 is DRS114:DRS114 balance, 4/30 $1,570,000May additions:

Raw material $124,000Purchased parts 87,000Direct labor 200,500Overhead (19,500 hrs. @ $7.50*) 146,250 557,750

WIP balance, 5/31 $2,127,750

*OH rate = $4,500,000 ÷ 600,000 hrs. = $7.50 per hour

c. FG inventory of playpens, 4/30 19,400Units completed in May 15,000Units available 34,400Units shipped in May (21,000)FG inventory, 5/31 13,400

Since Pip Squeaks uses the FIFO inventory method, all units remaining in FG inventory were completed in May.

Work in process inventory, 4/30 $420,000May additions: Raw material $ 3,000

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Chapter 5

Purchased parts 10,800 Direct labor 43,200 Overhead (4,400 X $7.50) 33,000 90,000Total cost $510,000

Unit cost = $510,000 ÷ 15,000 units completed = $34 per unitFG inventory = $34 X 13,400 = $455,600

d. If the amount of overapplied or underapplied OH is not material or the result of an error in the OH application rate, the amount is normally charged directly to CGS. If the amount is significant, the amount should be prorated over the relevant accounts (i.e., WIP, FG, and CGS).

(CMA adapted)47. a., b. Applied OH rate = $302,400 ÷ 100,800 = $3 per DLH

Cost of goods manufactured $ 96,000Add ending work in process:

Two jobs open have DM of $ 4,800Two jobs open have DL of 9,000Two jobs open have applied OH of ($3 × 2,144) 6,432 20,232

Total costs accounted for $116,232Less beginning work in process (15,400)Cost of production inputs $100,832Less: Direct labor $36,400

Applied OH ($3.00 × 8,800) 26,400 (62,800)Cost of direct material used $ 38,032Cost of indirect material issued 11,600

Total cost of raw material used $ 49,632

c. Beginning raw material $ 9,600Raw material purchased 56,000Total raw material available $65,600Raw material issued (49,632)Ending raw material $15,968

d. Overhead applied ($3 × 8,800) $ 26,400Actual overhead charges:

Indirect labor $10,800Indirect material 11,600

All other 5,000 (27,400)Underapplied overhead in April $ 1,000

e. Beginning finished goods $ 16,800Add cost of goods manufactured 96,000Cost of goods available $112,800Less ending finished goods (13,200)Cost of goods sold $ 99,600

48. a. Actual DM cost $11,600,000Standard DM cost ($56,000 × 200) (11,200,000)Material Price Variance $ 400,000 U

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Chapter 5

Actual DL cost $6,957,600Standard DL cost ($34,400 × 200) (6,880,000)Direct Labor Rate Variance $ 77,600 U

Actual OH cost $14,800,000Standard OH cost ($76,000 × 200) (15,200,000)OH Variance $ (400,000) F

b. Material:$11,600,000 ÷ 6,000,000 = $1.93 (rounded) actual cost per lb. vs. $2.00 standard cost per lb.; $0.07 x 6,000,000 = $420,000 F price variance

6,000,000 lbs. used vs. (28,000 x 200) standard = 6,000,000 – 5,600,000 = 400,000 lbs. more than standard; 400,000 x $2 = $800,000 U quantity variance

The primary cause of the unfavorable material variance is because of excess usage.

49. a. DM cost $18.00DL cost ($20 x (12 ÷ 60)) 4 .00 Total standard prime costs $22 .00

b. Job #918 DM cost ($18 x 1,200) $21,600 DL cost ($4 x 1,200) 4,800 Total standard direct cost $26,400

Job #2002DM cost ($18 x 2,000) $ 36,000DL cost ($4 x 2,000) 8,000 Total standard direct cost $44,000

c. Job #918 Standard Actual Variance DM $ 21,600 $23,525 $1,925 U DL 4,800 4,840 40 U Total $26,400 $28,365 $1,965 U

Job #2002 DM $36,000 $37,440 $1,440 U DL 8,000 7,850 150 F Total $44,000 $45,290 $1,290 U

d. By computing variances for each job, managers become aware of any trends in costs. If costs are aggregated across jobs, any trends may be obscured.

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Chapter 5

50. a. Profit on the fixed-price contracts is constrained by the contract price. Profit can only be increased if ways are found to reduce costs. One way that costs can be reduced is to shift them to other contracts. This is a particularly effective strategy if the costs that are shifted to another contract can be recouped under the terms of that other contract. By shifting some costs of the fixed-price contracts to the cost-plus contracts, the profit on the fixed-price contracts rises and the shifted costs can be recovered under the terms of the cost-plus contracts. Further, this strategy may have the effect of increasing costs under the cost-plus contracts if those contracts determine profit as a percentage of total costs.

b. This type of cost shifting is dishonest and unethical. It has the effect of increasing the total prices of cost-plus contracts, and, if those contracts are government related, those prices are typically borne by taxpayers. In a sense it is a way for the stockholders and managers of the defense contractors to steal from the taxpayers. It is difficult to imagine a setting in which this process could be labeled ethical.

51. a. Each student will have a different answer.

b. The company is utilizing the benefits of automation to reduce the costs of handling so many parts. By standardizing processes, the company can assemble a messenger bag with a diverse set of parts in an amount of time that is similar to that required for mass-produced ones. Accordingly, although the company is probably paying, on average, more for parts on custom messenger bags than mass-produced ones; it is holding the line on direct labor and production overhead. By holding costs down for labor and overhead, the total cost of the custom produced messenger bags is not significantly higher than that of the mass produced messenger bags.

c. Quality as viewed from the perspective of the consumer should be much higher with the custom-made messenger bags because customers are able to specify the various parts they want included. By getting the exact combination of parts the customers desire, they will perceive the quality of the product to be very high relative to the premium in price they pay over the mass-produced messenger bags.

d. The answer is mostly revealed in part (c). By containing costs to levels close to those of mass-produced messenger bags, but allowing the customer to choose the parts they desire, a substantial gross profit can be achieved. The higher gross profit reflects the customers' willingness to pay a premium for the exact combination of parts desired, even though the company's costs are not significantly greater than those incurred to mass produce messenger bags.

52. a. It is likely that the least popular thoughts and opinions would not be heard on campus. Students would naturally support those ideas and positions that were consistent with their own ethics, philosophies, and self interests. As a consequence, the overall diversity of ideas would probably decline.

29

Chapter 5

b. Assuming diversity of opinions ultimately benefits all students, the University of Wisconsin is possibly supporting diversity with the only means available—student dollars. However, this approach may not be ethical because it forces students to support opinions, beliefs, and ideas that may violate their personal ethics. Although the Supreme Court of the United States will ultimately determine whether this is a legal practice, each individual student can reach his/her own conclusion as to whether the practice is ethical.

53. a. Overhead other than spoilage $600,000Estimated spoilage cost $50,000Less salvage value 20,000 30,000Adjusted estimated overhead cost $630,000

POR = $630,000 ÷ 40,000 = $15.75 per DLH

b. Disposal value of chemical 496Manufacturing Overhead 1,234

Work in Process—Job #788 1,730

54. a. Predetermined rate = $925,000 ÷ 100,000 = $9.25 per MH

b. Total cost of direct material $687,100Total cost of direct labor 157,750Applied OH (3,080 x $9.25) 28,490 Total cost of Job B316 $873,340

c. The rework cost is debited to the manufacturing overhead account since the company uses a predetermined rate that includes rework costs to apply overhead.


d. Predetermined rate = $850,000 ÷ 100,000 = $8.50 per MH

Total cost of direct material $687,100Total cost of direct labor 157,750Applied OH (3,080 x $8.50) 26,180 Total cost of Job B316 $871,030

e. Total cost of direct material $687,100Total cost of direct labor 157,750Applied OH (3,080 x $8.50) 26,180Rework cost ($75,500 x .20) 15,100Sale of reworked pipe (200 x $3.50) (700)Total cost of Job B316 $885,430

30

Documents

M-Ch05 - Copy