Ch.05 Kinney 9e SM Final
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CHAPTER 5 JOB ORDER COSTING QUESTIONS 1.
The two choices for cost accumulation are the job order and process costing systems. A company should use job order costing when it is necessary and possible to trace costs to products made for individual customers, and when the products made for one customer are very different from those made for other customers. A process costing system is appropriate for production environments that make homogeneous products, usually in large quantities, in batch or continuous flow systems.
2.
The three valuation methods are actual, normal, and standard costing. In actual costing, the actual amounts of material, labor, and overhead costs are assigned to production. In normal costing, the actual amounts of material and labor are assigned to production; however, overhead is applied to products using a predetermined overhead rate (rather than using the actual amount). In standard costing, standard (or “expected norm”) amounts are established for material, labor, and overhead costs and/or quantities and are charged to production rather than the actual costs. The standard for overhead is the predetermined rate (or rates) for the company. Actual costs are accumulated in a standard costing system so that they may be compared with standard costs to determined favorable and unfavorable variances.
3.
The principal documents are job order cost sheets, material requisition forms, and employee time sheets. A job order cost sheet provides all details for a specific job and is used to track the actual costs of direct material and direct labor, and either actual or applied manufacturing overhead associated with a particular job; such amounts may be compared to budgeted costs. Material requisition forms are used to initiate the removal of the material from inventory for use in a particular job. Employee time sheets are used to track the time worked by individual employees to specific jobs.
4.
Job order costing information allows managers to better estimate the costs of producing products and of serving specific customers. This information can be used to manage costs, identify which customers generate the most profitable business, and set prices for products and services.
5.
If normal spoilage is generally anticipated on all jobs in a job order costing system, the estimated overhead used in setting the predetermined overhead rate should include an amount for the net cost of the spoilage. This treatment allows the cost of normal spoilage to be spread over all jobs produced. In contrast, if spoilage is related to a single job, the cost of that spoilage should be assigned to © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
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the job that gave rise to the spoilage. 6.
Normal spoilage refers to an expected reduction in production quantity based on a company’s production technology, quality of material and labor used, and production practices. The level of such a loss may be established from management or engineering; given cost/benefit analysis, management has generally concluded that a certain level of defects is less expensive than trying to prevent all defects from occurring. Because normal spoilage is expected, an estimate for the loss is generally included in the development of the predetermined overhead rate. Alternatively, abnormal spoilage refers to a loss level above that which is normally expected. Such losses are more likely to be preventable and, thus, need to be brought to management’s attention by showing the amount of the loss as a period cost.
7.
When standards are used in a job order costing system, cost and quantity standards may not be able to be determined for material and labor. Standards can only be used if elements of the jobs produced have some common characteristics. Thus, if many jobs use the same direct material, a price standard might be developed for that material. However, the jobs may use very different quantities of that material, and thus, no quantity standard can be developed. Alternatively, a company may pay the same wage rate to all workers performing tasks in a specific department and all jobs flow through that department; in such a case, a labor wage standard can be determined but possibly not a labor hour quantity standard.
8.
In a standard costing system, variances identify the areas of efficiency and inefficiency in production operations. Managers, using the concept of management by exception, focus their attention on the significant variances and attempt to determine causes of those variances (both favorable and unfavorable). Additionally, managers will look for interactions between or among the variances. By concentrating on the significant variances, managers are able to isolate the aspects of operations that are “out of control” and try to correct the causes.
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EXERCISES 9. a. job order b. job order c. process d. job order e. job order f. job order g. job order h. process i. job order j. process k. job order l. process m. process n. job order o. job order p. job order q. process 10.
Two characteristics of the proposal are critical in advising London about a costing system: the expected high sales volume and 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/142RICHMOND LADYBOATSHOWPRICE.pdf) provides numerous features upon which students can focus. 12. a. Employee time card b. Inventory c. d. e. f. g. h. i.
Work in Process Inventory Control or Finished Goods Raw Material Inventory Job order cost sheet Manufacturing Overhead Control Job order cost sheet Raw Material Inventory Finished Goods Inventory or Cost of Goods Sold Manufacturing Overhead Control
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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, details of the original estimate to identify prices and quantities of material 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. Additionally, material requisition forms should be examined to validate the quantity of material actually used in production. 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, 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 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. A discussion with the payroll manager should help ascertain the actual or average wage rates paid to employees. 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 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
204,000
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Accounts Payable
204,000
Work in Process Inventory—#4263 Work in Process Inventory—#4264 Manufacturing Overhead Raw Material Inventory
163,800 1,870 12,460
Work in Process Inventory—#4263 Work in Process Inventory—#4264 Cash (3,720 $15)
54,000 1,800
Manufacturing Overhead Cash ($18,000 + $7,200 + $9,500) Accumulated Depreciation Wages Payable
68,700
Work in Process Inventory—#4263 Work in Process Inventory—#4264 Manufacturing Overhead
64,800 2,160
178,130
55,800 34,700 21,500 12,500
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 Less costs associated with Job #4263 Costs associated with other jobs Costs for Job #4264 ($1,870 + $1,800 + $2,160) Ending WIP
$11,400 (800) $10,600 5,830 $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 ($12,460 + $68,700) = $14,200 underapplied 15. a. OH rate = $134,400 ÷ $96,000 = 140% of direct labor b. Ending WIP balance: DM DL OH ($18,100 1.40) Ending balance c.
completed
$37,725 18,100 25,340 $81,165
CGM = Beg. WIP + Current costs – Cost of jobs
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= $0 + $138,600 + $96,000 + $134,400 $81,165 = $287,835 16. a. Raw Material Inventory Accounts Payable
76,000 76,000
WIP—Job #217 WIP—Job #218 WIP—other jobs Direct Material Inventory
44,800 7,200 53,600
WIP—Job #217 WIP—Job #218 WIP—other jobs Cash (or Wages Payable)
10,400 14,000 19,600
Manufacturing Overhead Various accounts
105,600
44,000
220,000 220,000
WIP—Job #217 WIP—Job #218 WIP—other jobs Manufacturing Overhead
51,480 69,300 97,020
217,800
(Actual rate per DL$ = $44,000 $4.95)
Finished Goods Inventory WIP Inventory—Job #217 ($11,200 + $44,800 + $10,400 + $51,480
117,880
117,880
= $117,880)
Cash Sales
159,138
Cost of Goods Sold Finished Goods Inventory
117,880
159,138
($117,880 × 1.35 = $159,138)
b.
117,880
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
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 ($21.00 + $16.80) = 15,200 $37.80 = $574,560 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
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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 DL (2,850 $21) OH (2,850 $16.80) Ending balance
$ 73,250 59,850 47,880 $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. CGS = $1,890,000 b. Beg. FG + CGM – End. FG = CGS $90,000 + CGM $57,000 = $1,890,000 CGM + $33,000 = $1,890,000 CGM = $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 = $1,857,000 DM + $976,360 = $1,857,000 DM = $880,640 e. Beg. DM + P – DM used = End. DM $24,600 + P $880,640 = $4,100 P $856,040 = $4,100 P = $860,140 19. a. CGS = 0.75 Sales = 0.75($1,598,000) = $1,198,500 b. Beg. FG + CGM – End. FG = CGS $68,900 + CGM $165,600 = $1,198,500 CGM $96,700 = $1,198,500 CGM = $1,295,200 c. Job B325: Applied OH = 85% of DL$ = 0.85(128 $12.90) = 0.85 $1,651.20 = $1,403.52 Job Q428: Applied OH = 85% of DL$ = 0.85(240 $12.90) = 0.85 $3,096.00 = $2,631.60 d.
DM DL
Job B325 Q428 $21,980.00 $14,700.00 1,651.20 3,096.00
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OH
1,403.52 $25,034.72
2,631.60 $20,427.60
e. CGM = Beg. WIP + DM used + DL + OH – End. WIP $1,295,200 = $14,600 + DM used + $12.90(25,760) + 0.85($12.90 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 used DM used = $711,299.92 Beg. DM + Purchases DM used = End. DM $19,500 + $843,276 $711,299.92 = End. DM End. DM (destroyed) = $151,476.08
20. a. DM DL ($190 per hour) OH ($150 per court hour) Totals b.
DM DL (174 $190) OH (72 $150) Total cost Markup (45%) Total billed to client
Case #1 $ 480 7,600 1,800 $9,880
Case #2 Case #3 Case #4 $ 8,800 $ 3,700 $ 850 17,100 13,300 2,850 9,750 18,000 6,000 $35,650 $35,000 $9,700
$10,100 33,060 10,800 $53,960 24,282 $78,242
21. a. Overhead rate = Budgeted OH ÷ Budgeted DL$ $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 Manufacturing Overhead
96,475 96,475
($22,700 $4.25 = $96,475)
c.
$4.25 3,900 = $16,575
d. Beginning balance Direct material Direct labor Manufacturing overhead Ending balance 22. a. Direct material
$18,350 29,600 3,900 16,575 $68,425 $2,850
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Direct labor ($800 ÷ $20 = 40 DLHs) Applied overhead ($17 40) Total cost of Job #920
800 680 $4,330 $ 9,175
b. BI of WIP [$8,250 + $500 + ($17 25)]
Direct material Direct labor ($6,300 ÷ $20 = 315 DLHs) Applied overhead ($17 315)
$21,650 6,300 5,355
EI of WIP Cost of goods manufactured c.
Actual overhead Applied overhead Overapplied OH
33,305 $42,480 (4,330) $38,150
$ 5,054 (5,355) $ 301
23. a. Mixing: $480,000 ÷ 60,000 = $8 per MH Paving: $700,000 ÷ 28,000 = $25 per DLH
b. Mixing (290 MHs $8) Paving (340 DLHs $25) Total overhead applied
$ 2,320 8,500 $10,820
c. ($480,000 + $700,000) ÷ (60,000 + 12,000) = $1,180,000 ÷ 72,000 = $16.39 $16.39 334 = $5,474.26 applied to Job #220 A plantwide rate would not have been indicative of the actual cost of each job because the Mixing department is very machineintensive while the Paving department is very laborintensive. 24. a. Department 1 = $465,000 ÷ 30,000 MHs = $15.50 per MH Department 2 = $380,600 ÷ 22,000 DLHs = $17.30 per DLH b. Raw Material Inventory Accounts Payable
346,000 346,000
Work in Process Inventory—Job #462 Work in Process Inventory—other jobs Raw Material Inventory
19,000 321,000
Work in Process Inventory—Job #462 Work in Process Inventory—other jobs Cash (285 $11)
275 2,860
Work in Process Inventory—Job #462 Work in Process Inventory—other jobs Overhead Control (2,400 $15.50)
4,960 32,240
Work in Process Inventory—Job #462
2,844
340,000
3,135
37,200
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Work in Process Inventory—other jobs Cash (1,430 $18)
22,896
Work in Process Inventory—Job #462 Work in Process Inventory—other jobs Overhead Control (180 $17.30)
346 2,768
Finished Goods Inventory—Job #462 Work in Process Inventory—Job #462 ($19,000 + $275 + $4,960 + $2,844 + $346)
27,425
Accounts Receivable—Power Sales ($27,425 1.20)
32,910
Cost of Goods Sold Finished Goods Inventory—Job #462
27,425
25,740
3,114 27,425
32,910 27,425
c. Cost per unit = $27,425 ÷ 500 = $54.85 Selling price per unit = $65.82 Raw material = $19,000 ÷ 500 = $38
d. Total RM issued Total units (500 + 20,000) RM cost per unit
$340,000 ÷ 20,500 $ 16.59 (rounded)
Total cost per unit = $54.85 $38.00 + $16.59 = $33.44 Selling price per unit = $33.44 1.2 = $40.13 (rounded) Sales without error Sales with error (500 $40.13) Total “savings” of the error
$ 32,910 (20,065) $ 12,845
25. 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 costing 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 madetoorder computer.
26. a. Secretary ($4,800 ÷ 160 hrs. 35 hrs.)
$ 1,050
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87 145 2,100 18,050 $21,432
Copies (1,450 pages $0.06 per page) Phone calls Overhead ($9,600 ÷ 160 hrs. 35 hrs.) Attorney’s time ($190 95 hrs.) Total charges
This means Conroe would be charging $21,432 ÷ 95 = $225.60 or $230 per hour (rounded). Total bill to Olivgra = 95 hours $230 = $21,850 b. Direct costs ($87 + $145 + $18,050) Allocated secretarial costs Allocated overhead Margin [($18,282 + $2,100) × 0.40] Total billing c.
$18,282 1,050 2,100 8,153 $29,585
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.
27. 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. 28. a. Some of the companies that have been found to engage in this practice are Family Dollar, Pep Boys, Taco Bell, ToysRUs, and Walmart. 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 punchcard 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.
29. a. Manufacturing Overhead Raw Material Inventory Wages Payable
1,150
WIP—Job #BA468 Raw Material Inventory
1,150
b.
250 900 250
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Wages 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 Raw Material Inventory Wages Payable
1,150
250 900
30. a. Predetermined OH rate = $1,421,000 ÷ 145,000 = $9.80 per MH Direct material Direct labor Overhead (325 × $9.80) Total cost
$47,500 21,800 3,185 $72,485
Perunit cost = $72,485 ÷ 1,500 = $48.32 (rounded) b.
The $750 rework cost is included in Manufacturing Overhead Control.
c.
Total original cost Cost of new 30 units 1,390 Less sale of defective units (240) Total cost of Job #876 $73,635
$72,485
31. 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.
32. 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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
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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. 33. MPV = Actual cost for paper purchased – Standard cost for paper purchased = ($0.032 980,000) – ($0.036 980,000) = $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 = ($0.036 980,000) – ($0.036 984,000) = $35,280 $35,424 = $144. Since actual paper usage was less than the standard allowed, the variance is favorable. 34. a. Total payroll = 9,000 × $9.65 = $86,850 b. LRV = Actual payroll – Standard cost for actual hours worked = $86,850 – ($9.85 × 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 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.
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PROBLEMS 35. Raw Material Inventory Accounts Payable
790,000 790,000
Work in Process Inventory Raw Material Inventory
570,000
Manufacturing Overhead Raw Material Inventory
120,000
Work in Process Inventory Manufacturing Overhead Wages Payable
794,000 80,000
Work in Process Inventory ($794,000 0.55) Manufacturing Overhead
436,700
570,000 120,000
874,000
436,700
Finished Goods Inventory Work in Process Inventory
1,046,000
Cost of Goods Sold Finished Goods Inventory
1,046,000
Cash Sales
1,342,000
1,046,000 1,046,000 1,342,000
36. a. $82,000 8,000 DLHs = $10.25 per DLH b. Direct Material Inventory Accounts Payable
90,000
Work in Process Inventory Cash
75,600
Manufacturing Overhead Various accounts
82,000
Work in Process Inventory Manufacturing Overhead
82,000
Work in Process Inventory Direct Material Inventory ($2,000 + $90,000 $3,500)
88,500
Finished Goods Inventory Work in Process Inventory
CGM = BWIP + DM + DL + OH – EWIP CGM = $10,500 + $88,500 + $75,600 + $82,000 – $7,750 = $248,850
90,000 75,600 82,000 82,000
248,850
88,500
248,850
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Accounts Receivable Sales Cost of Goods Sold Finished Goods Inventory c. Beginning FG CGM CGS Ending FG
350,400 350,400 243,700
243,700
$ 6,500 248,850 (243,700) $ 11,650
37. a. 9/1 Raw Material Inventory Accounts Payable 9/4 Work in Process Inventory Manufacturing Overhead Raw Material Inventory Issuances made to jobs as follows: #75, $289,600; #78, $252,600; #82, $992,200; #86, $312,400
1,940,000 1,940,000 1,846,800 53,200 1,900,000
9/15 Work in Process Inventory Manufacturing Overhead Cash Labor charged to jobs as follows: #75, $84,600; #78, $267,200; #82, $203,000; #86, $110,800
665,600 91,400
9/15 Work in Process Inventory Manufacturing Overhead Overhead applied to jobs as follows: #75, $120,750; #78, $329,000; #82, $253,750; #86, $128,500
832,000
757,000
832,000
9/15 Finished Goods Inventory 1,081,350 Work in Process Inventory ($586,400 + $289,600 + $84,600 + $120,750) 1,081,350 Accounts Receivable Sales ($1,081,350 1.3)
1,405,755
Cost of Goods Sold Finished Goods Inventory
1,081,350
1,405,755
9/20 Manufacturing Overhead Accounts Payable Cash
110,200 196,800
9/24 Raw Material Inventory Accounts Payable
624,000
9/25 Work in Process Inventory Manufacturing Overhead
716,400 55,800
1,081,350
307,000 624,000
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Raw Material Inventory Issuances made to jobs as follows: #78, $154,800; #82, $212,600; #86, $349,000 9/30 Manufacturing Overhead Accumulated Depreciation Prepaid Insurance Taxes & Licenses Payable 9/30 Work in Process Inventory Manufacturing Overhead Cash Labor charged to jobs as follows: #78, $177,400; #82, $228,400; #86, $243,600
772,200
1,206,800
649,400 65,000
9/30 Work in Process Inventory Manufacturing Overhead To apply overhead to jobs as follows: #78, $111,750; #82, $170,625; #86, $124,750 b. Bal. 9/1 9/24 Bal.
Raw Material Inventory 332,400 9/4 1,940,000 9/25 624,000 224,200
Bal. 9/4 9/15 9/15 9/25 9/30 9/30 Bal.
Work in Process Inventory 1,512,600 9/15 1,846,800 665,600 832,000 716,400 649,400 407,125 5,548,575
Bal. #75 Bal. Bal. DM DL OH Bal.
407,125
809,000 165,400 232,400 714,400
407,125
1,900,000 772,200
1,081,350
Cost of Goods Sold 4,864,000 1,081,350 5,945,350 Job #75 586,400 289,600 84,600 120,750 0
1,081,350
Job #78 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
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Bal. DM DL OH DM DL OH
120
Bal.
266,600 252,600 267,200 329,000 154,800 177,400 111,750 1,559,350
Bal. DM DL OH DM DL OH Bal.
Job #82 659,600 992,200 203,000 253,750 212,600 228,400 170,625 2,720,175
DM DL OH DM DL OH Bal.
Job #86 312,400 110,800 128,500 349,000 243,600 124,750 1,269,050
c. Schedule of Job Cost Records September 30, 2013 Job #78 $1,559,350 Job #82 2,720,175 Job #86 1,269,050 Total $5,548,575 d. Actual overhead for September 9/4 9/15 9/20 9/25 9/30 9/30 Applied overhead for September 9/15 9/30 Underapplied overhead 38. a. Raw Material Inventory
$ 53,200 91,400 110,200 55,800 1,206,800 65,000
$ 1,582,400
$ 832,000 407,125 (1,239,125) $ 343,275 542,000
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Cash Manufacturing Overhead Work in Process Inventory Wages/Salaries Payable (or Cash) To 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)
542,000 54,000 602,800
Manufacturing Overhead 76,000 Work in Process Inventory 466,400 Raw Material Inventory To 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) Manufacturing Overhead Various accounts To record OH costs other than indirect labor and indirect materials ($244,400 $54,000 $76,000)
542,400
114,400 114,400
Work in Process Inventory 241,120 Manufacturing Overhead 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 Work in Process Inventory (See schedule below.)
1,779,040
Cash Sales
2,264,774
Cost of Goods Sold Finished Goods Inventory
1,779,040
Job 247 251 253 254 255 Totals
656,800
Schedule of Completed Jobs Direct Material Direct Labor Applied OH $ 89,600 $108,800 $ 43,520 182,800 218,600 87,440 162,200 190,600 76,240 105,200 136,600 54,640 119,800 145,000 58,000 $659,600 $799,600 $319,840
241,120
1,779,040
2,264,774 1,779,040
Total $ 241,920 488,840 429,040 296,440 322,800 $1,779,040
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Job 256 257 Totals
122
Direct Material Direct Labor $ 72,800 $ 94,600 133,200 179,400 $206,000 $ 274,000
c. Actual overhead Applied overhead Underapplied overhead Unadjusted cost of jobs completed Adjusted cost of jobs completed
39. a. BI Purchases Available Issuances EI
Applied OH $ 37,840 71,760 $109,600 $ 244,400 (241,120) $ 3,280 1,779,040 $1,782,320
Aluminum Steel Other $ 8,300 $ 12,800 $ 5,800 98,300 26,500 23,550 $106,600 $ 39,300 $ 29,350 (58,700) (34,200) (25,900) $ 47,900 $ 5,100 $ 3,450
b. Direct material Direct labor (8 × $15) Overhead (16 × $30) Total
Material $1,900 1,240 $3,140
Total $ 26,900 148,350 $ 175,250 (118,800) $ 56,450
$ 620 120 480 $1,220
c. WIP—beginning* Direct material (total issuances) Direct labor (680 × $15) Overhead (1,200 × $30) Total manufacturing costs WIP—ending Cost of goods manufactured FG—beginning Cost of goods available for sale FG—ending Cost of goods sold *Job # 411 412
Total $205,240 384,360 $589,600
$ 6,230 118,800 10,200 36,000 $171,230 (1,220) $170,010 23,800 $193,810 (0) $193,810
Labor $ 540 150 $ 690
OH $1,500 900 $2,400
Total $3,940 2,290 $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 percent of direct labor cost. For example, using job #67: $15,916 ÷ $13,840 = 1.15. b. Direct material Direct labor Applied overhead
$25,800 7,200 8,280
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Total
$41,280
c. Total direct material Less direct material in BI Total direct labor Less direct labor in BI Total direct cost added during May
$ 513,834 (25,800) $ 93,720 (7,200)
d. Work in process—beginning
Costs added during May: Direct material Direct labor Applied overhead ($86,520 × 1.15)
$ 488,034 86,520 $ 574,554 $ 41,280
$ 488,034 86,520 99,498
674,052 $ 715,332
Work in process—ending [$308,430 + $57,000 + ($57,000 × 1.15)] (430,980) Cost of goods manufactured $ 284,352 a. Fabrication: $1,560,000 104,000 MHs = $15 per MH Assembly: $1,760,000 ÷ 320,000 DLHs = $5.50 per DLH
41.
b. Job #2296:
Fabrication (900 hours @ $12) Assembly (850 hours @ $10) Total DL
$10,800 8,500 $19,300
Job #2297:
Fabrication (460 hours @ $12) Assembly (400 hours @ $10) Total DL
$ 5,520 4,000 $ 9,520
Fabrication (1,800 hours @ $15) Assembly (850 hours @ $5.50) Total OH applied
$27,000 4,675 $31,675
Fabrication (900 hours @ $15) Assembly (400 hours @ $5.50) Total OH applied
$13,500 2,200 $15,700
c. Job #2296:
Job #2297:
d. Direct material Direct labor Overhead Total e. Fabrication:
Assembly:
Job #2296 Job #2297 $118,500 $147,200 19,300 9,520 31,675 15,700 $169,475 $172,420 Applied (103,200 × $15) Actual Overapplied
$ 1,548,000 (1,528,000) $ 20,000
Applied (324,000 × $5.50) Actual Underapplied
$ 1,782,000 (1,790,000) $ (8,000)
The company has overapplied overhead of $12,000 for the year. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
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124
42. a. Job Cost Sheet—Job #515 Customer Name and Address: Description of Job: Prepare site, City of Gulf Shores, Alabama build and install a pedestrian overpass in Gulf Shores: see bid specifications for details Contract Agreement Date: 5/13 Scheduled Starting Date: 7/13 Agreed Upon Completion Date: 12/15/13 Contract Price: $3,300,000 Actual Completion Date:___ Special Instructions: None Direct Material (Est. $1,240,000) Date Source 2013 July 31 Summary of material req.
Direct Labor (Est. $670,000) Date Source Cost 2013 July 31 Summary of time sheets for direct labor $175,040
Direct material Direct labor Overhead Totals
Cost $121,800
Overhead (Est. $402,000) Date Source 2013 July 31 Journal entry of 7/31/13
Summary (as of 7/31/13) Actual Budget Under (Over) $121,800 $1,240,000 175,040 670,000 105,024 402,000 $401,864 $2,312,000
b. Work in Process—Job #515 Work in Process—other jobs Direct Material Inventory Work in Process—Job #515 Work in Process—other jobs Manufacturing Overhead Salaries and Wages Expense Salaries and Wages Payable
121,800 457,500 579,300 175,040 408,960 55,800 39,600 679,400
Manufacturing Overhead Depreciation Expense Accumulated Depr.—Const. Assets Accumulated Depr.—Office Assets
26,400 7,800
Sales Promotion Expense
11,100
26,400 7,800
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Cost $105,024
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Accounts Payable
11,100
Advertising Expense Cash
6,600 6,600
Manufacturing Overhead Supplies Inventory
18,600
Miscellaneous Expense Accounts Payable
10,200 10,200
Utilities Expense Manufacturing Overhead Utilities Payable
1,800 5,400 7,200
Work in Process—Job #515 Work in Process—other jobs Manufacturing Overhead
105,024 245,376 350,400
Accounts Receivable Sales
c.
18,600
1,224,000
1,224,000
Finished Goods Inventory Work in Process Inventory Cost of Goods Sold Finished Goods Inventory
829,000
Work in Process—beginning Production costs: Direct material Direct labor Applied overhead
$ 871,800
Work in process—ending Cost of goods manufactured
829,000
829,000
829,000
$579,300 584,000 350,400
1,513,700 $ 2,385,500 (1,556,500) $ 829,000
d. Birmingham Contractors Income Statement For the Month Ended July 31, 2013 Revenues from completed projects Less cost of goods sold Gross margin on completed jobs Nonproduction expenses: Salaries and wages expense $39,600 Depreciation expense 7,800 Utilities expense 1,800 Sales promotion expense 11,100 Advertising expense 6,600
$1,224,000 (829,000) $ 395,000
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Miscellaneous expense Income before income taxes Income taxes (40%) Net income 43.
126
10,200
a. Job #2019: Design ($81,600 × 30%) Production (720 × $15) Installation ($10,080 × 90%) Total overhead applied
$24,480 10,800 9,072 $44,352
Job #2020: Design ($69,360 × 30%) Production (2,400 × $15) Installation ($11,520 × 90%) Total overhead applied
$20,808 36,000 10,368 $67,176
Job #2021: Design ($73,440 × 30%) Production (960 × $15) Installation ($15,200 × 90%) Total overhead applied
$22,032 14,400 13,680 $50,112
(77,100) $ 317,900 (127,160) $ 190,740
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Actual Applied (Over)/underapplied
Design Production Installation $105,600 $ 60,000 $ 31,200 (67,320) (61,200) (33,120) $ 38,280 $ (1,200) $ (1,920)
Actual OH for company Applied OH for company Total company underapplied OH
$ 196,800 (161,640) $ 35,160
b. Work in Process (Design)—Job #2019 Work in Process (Design)—Job #2020 Work in Process (Design)—Job #2021 Raw Material Inventory
9,600 8,200 17,600
Work in Process (Design)—Job #2019 Work in Process (Design)—Job #2020 Work in Process (Design)—Job #2021 Wages Payable
81,600 69,360 73,440
Work in Process (Design)—Job #2019 Work in Process (Design)—Job #2020 Work in Process (Design)—Job #2021 Manufacturing Overhead
24,480 20,808 22,032
35,400
224,400
67,320
Work in Process (Prod.)—Job #2019 Work in Process (Prod.)—Job #2020 Work in Process (Prod.)—Job #2021 Raw Material Inventory
116,400 268,800 232,000
Work in Process (Prod.)—Job #2019 Work in Process (Prod.)—Job #2020 Work in Process (Prod.)—Job #2021 Wages Payable
34,000 59,600 21,600
Work in Process (Prod.)—Job #2019 Work in Process (Prod.)—Job #2020 Work in Process (Prod.)—Job #2021 Manufacturing Overhead
10,800 36,000 14,400
Work in Process (Inst.)—Job #2019 Work in Process (Inst.)—Job #2020 Work in Process (Inst.)—Job #2021 Raw Material Inventory
10,400 36,800 10,400
Work in Process (Inst.)—Job #2019 Work in Process (Inst.)—Job #2020 Work in Process (Inst.)—Job #2021 Wages Payable
10,080 11,520 15,200
Work in Process (Inst.)—Job #2019 Work in Process (Inst.)—Job #2020
9,072 10,368
617,200
115,200
61,200
57,600
36,800
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Work in Process (Inst.)—Job #2021 Manufacturing Overhead
13,680 33,120
c. Job #2019: Direct material Direct labor Overhead Total cost
$136,400 125,680 44,352 $306,432
Job #2020: Direct material Direct labor Overhead Total cost
$313,800 140,480 67,176 $521,456
Job #2021: Direct material Direct labor Overhead Total cost
$260,000 110,240 50,112 $420,352
44. a. Reliant: $5,580 ÷ $45 = 124 DLHs worked Dumas: $18,000 ÷ $45 = 400 DLHs worked Omaha: $28,350 ÷ $45 = 630 DLHs worked Reliant: 124 DLHs × $58 = $7,192 OH applied Dumas: 400 DLHs × $58 = $23,200 OH applied Omaha: 630 DLHs × $58 = $36,540 OH applied Direct material Direct labor Overhead Total cost
Reliant Dumas Omaha $ 7,800 $14,200 $19,800 5,580 18,000 28,350 7,192 23,200 36,540 $20,572 $55,400 $84,690
b. Reliant: $20,572 ÷ 3 = $6,857 per ad Dumas: $55,400 ÷ 10 = $5,540 per ad Omaha: $84,690 ÷ 8 = $10,586 per ad c. Sales (21 ads × $8,600) Costs: Direct material Direct labor Applied overhead Overapplied overhead Net income d. Sales: Reliant ($20,572 × 1.3) Dumas ($55,400 × 1.3) Omaha ($84,690 × 1.3) Costs:
$ 180,600 $ 41,800 51,930 66,932 (16,932) (143,730) $ 36,870 $ 26,743.60 72,020.00 110,097.00
$ 208,860.60
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Direct material Direct labor Applied overhead Overapplied overhead Net income
$ 41,800.00 51,930.00 66,932.00 (16,932.00)
(143,730.00) $ 65,130.60
Income using a costplus 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 eight ads for Omaha took 630 hours to develop, or about 79 hours each. In contrast, the three ads for Reliant were developed in 124 hours (41 hours each) and the ten ads for Dumas were developed 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 Accounts Payable
1,150,000 1,150,000
1 Work in Process—P Manufacturing Overhead—P Raw Material Inventory
650,000 500,000
5 Manufacturing Overhead—C Accounts Payable
25,000
8 Manufacturing Overhead—P Cash
5,000
1,150,000 25,000 5,000
15 No entry needed. 20 Manufacturing Overhead—C Cash 24 Raw Material Inventory Accounts Payable
60,000
60,000
1,485,000 1,485,000
31 Manufacturing Overhead—P Work in Process—P Cash Accumulated Depr.—P
36,320 45,000
31 Manufacturing Overhead—C Work in Process—C
18,650 16,300
66,120 15,200
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Cash Accumulated Depr.—C 31 Accounts Payable Cash
26,200 8,750 2,635,000
31 Work in Process—P Manufacturing Overhead—P (6,000 MHs × $25)
150,000
Oct. 31 Work in Process—C Manufacturing Overhead—C ($16,300 × 1.65)
26,895
2,635,000
150,000
26,895
Nov. 1 Manufacturing Overhead—C Cash
5,000
4 Work in Process—P Manufacturing Overhead—P Raw Material Inventory
825,000 175,000
8 Manufacturing Overhead—P Cash
5,000
15 Work in Process—C Manufacturing Overhead—C Raw Material Inventory
200,000 225,000
5,000
1,000,000 5,000
425,000
18 No entry needed. 24 No entry needed. 29 No entry needed. 30 Manufacturing Overhead—P Work in Process—P Cash Accumulated Depr.—P
54,050 115,000
30 Manufacturing Overhead—C Work in Process—C Cash Accumulated Depr.—C
43,850 134,300 159,800 18,350
30 Work in Process—P Manufacturing Overhead—P (3,950 × $25)
98,750
30 Work in Process—C Manufacturing Overhead—C ($134,300 × 1.65)
221,595
Nov. 30 Completed Projects Inventory
153,850 15,200
98,750
221,595 2,482,840
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Work in Process—P Work in Process—C
1,883,750 599,090
30 Accounts Receivable Construction Revenue
3,450,000
30 Cost of Contracts Sold Completed Projects Inventory
2,482,840
3,450,000 2,482,840
b. Raw Material 1,150,000 1,150,000 1,485,000 1,000,000 425,000
Bal. 60,000
Precast Overhead—P 500,000 150,000 5,000 98,750 36,320 175,000 5,000 54,050 Bal. 526,620
Construction Overhead—C 25,000 26,895 60,000 221,595 18,650 5,000 225,000 43,850 Bal. 129,010
WIP—Precast 650,000 1,883,750 45,000 150,000 825,000 115,000 98,750 Bal. 0 WIP—Construction 16,300 599,090 26,895 200,000 134,300 221,595 Bal. 0 Completed Projects Inv. 2,482,840 2,482,840 Bal. 0 Cost of Contracts Sold 2,482,840 Bal. 2,482,840 c.
(bottom section of job cost sheet) Precast Department © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 5
DM (Est. $1,550,000) Date Amount Oct. 1 $ 650,000 Nov. 4 825,000 $1,475,000
132
DL (Est. $220,000) OH (Est. $275,000) Date Amount Date Amount Oct. 31 $ 45,000 Oct. 31 $150,000 Nov. 30 115,000 Nov. 30 98,750 $160,000 $248,750 Construction Department
DM (Est. $350,000) Date Amount Nov. 15 $200,000
d.
DL (Est. $130,000) OH (Est. $214,500) Date Amount Date Amount Oct. 31 $ 16,300 Oct. 31 $ 26,895 Nov. 30 134,300 Nov. 30 221,595 $150,600 $248,490
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 costing 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 costbenefit 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 $1,570,000 May additions: Raw material $124,000 Purchased parts 87,000 Direct labor 200,500 Overhead (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 Units completed in May Units available Units shipped in May FG inventory, 5/31
19,400 15,000 34,400 (21,000) 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 May additions: Raw material Purchased parts Direct labor Overhead (4,400 $7.50)
$420,000 $ 3,000 10,800 43,200 33,000
90,000
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Total cost
$510,000
Unit cost = $510,000 ÷ 15,000 units completed = $34 per unit FG inventory = $34 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)
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47. a., b. Applied OH rate = $302,400 ÷ 100,800 = $3 per DLH Cost of goods manufactured Add ending work in process: Two jobs open have DM of $ 4,800 Two jobs open have DL of 9,000 Two jobs open have applied OH of ($3 × 2,144) 6,432 Total costs accounted for Less beginning work in process Cost of production inputs Less: Direct labor $36,400 Applied OH ($3.00 × 8,800) 26,400 Cost of direct material used Cost of indirect material issued Total cost of raw material used c. Beginning raw material Raw material purchased Total raw material available Raw material issued Ending raw material d. Overhead applied ($3 × 8,800) Actual overhead charges: Indirect labor Indirect material All other Underapplied overhead in April e. Beginning finished goods Add cost of goods manufactured Cost of goods available Less ending finished goods Cost of goods sold
$ 96,000
20,232 $116,232 (15,400) $100,832 (62,800) $ 38,032 11,600 $ 49,632
$ 9,600 56,000 $ 65,600 (49,632) $ 15,968 $ 26,400 $10,800 11,600 5,000 (27,400) $ (1,000) $ 16,800 96,000 $112,800 (13,200) $ 99,600
48. a. Profit on the fixedprice 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 fixedprice contracts to the costplus contracts, the profit on the fixedprice contracts rises, and the shifted costs can be recovered under the terms of the costplus contracts. Further, this strategy may have the effect of increasing costs under the costplus 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 costplus contracts, and if those
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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. 49. a. No solution provided; 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 massproduced ones. Accordingly, although the company is probably paying, on average, more for parts on custom messenger bags than massproduced 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 custommade messenger bags because customers are able to specify the various parts desired. By getting the exact combination of parts desired, the customers 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 (c). By containing costs to levels close to those of massproduced messenger bags, but allowing the customer to choose the parts desired, 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.
50. 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. 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.
51. a. Overhead other than spoilage Estimated spoilage cost Less salvage value Adjusted estimated overhead cost
$600,000 $ 50,000 (20,000)
30,000 $630,000
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POR = $630,000 ÷ 40,000 = $15.75 per DLH b. Disposal value of chemical Manufacturing Overhead Work in Process—Job #788
496 1,234 1,730
52. a. Predetermined rate = $925,000 ÷ 100,000 = $9.25 per MH b. Total cost of direct material Total cost of direct labor Applied OH (3,080 × $9.25) Total cost of Job B316
$687,100 157,750 28,490 $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. Manufacturing Overhead Various accounts
75,500 75,500
d. Predetermined rate = $850,000 ÷ 100,000 = $8.50 per MH Total cost of direct material Total cost of direct labor Applied OH (3,080 × $8.50) Total cost of Job B316 e. Total cost of direct material Total cost of direct labor Applied OH (3,080 × $8.50) Rework cost ($75,500 × 0.20) Sale of reworked pipe (200 × $3.50) Total cost of Job B316
$687,100 157,750 26,180 $871,030 $687,100 157,750 26,180 15,100 (700) $885,430
53. a. Actual DM cost Standard DM cost ($56,000 × 200) Material price variance
$ 11,600,000 (11,200,000) $ 400,000 U
Actual DL cost Standard DL cost ($34,400 × 200) Direct labor rate variance
$ 6,957,600 (6,880,000) $ 77,600 U
Actual OH cost Standard OH cost ($76,000 × 200) OH variance
$ 14,800,000 (15,200,000) $ (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 × 6,000,000 = $420,000 F price variance
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6,000,000 lbs. used vs. (28,000 × 200) standard = 6,000,000 – 5,600,000 = 400,000 lbs. more than standard; 400,000 × $2 = $800,000 U quantity variance The primary cause of the unfavorable material variance is excess usage. 54. a. DM cost DL cost [$20 (12 ÷ 60)] Total standard prime cost
$18.00 4.00 $22.00
b. Job #918 DM cost ($18 × 1,200) DL cost ($4 × 1,200) Total standard direct cost
$21,600 4,800 $26,400
Job #2002 DM cost ($18 × 2,000) DL cost ($4 × 2,000) Total standard direct cost
$36,000 8,000 $44,000
c. Job #918 DM DL Total Job #2002 DM DL Total
Standard $21,600 4,800 $26,400 $36,000 8,000 $44,000
Actual $23,525 4,840 $28,365
Variance $1,925 U 40 U $1,965 U
$37,440 $1,440 U 7,850 150 F $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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