Cost Accounting - Chapter 6 Cost

CHAPTER 6 – ACCOUNTING FOR MATERIALS Problem 1 - Norman Company _____________ a) EOQ = \/ 2 x 8,000 x 40 25 = 160 units Ordering cost

= = =

Carrying cost

= = =

No of orders x ordering cost 8,000 x 40 160 2,000 Average inventory x 25 160 x 25 2 2000

Problem 2 –Heavyweight Co. 1. Allocation based on cost Product Invoice Percentage Share of Freight X 11,250 49% 450 Y 13,500 49% 540 Z 15,750 49% 630

Total cost Cost/pound 11,700 2.60 14,040 2.34 16,380 2.184

2. Allocation based on shipping weight Product Weight Freight/pound Share of Freight Total Cost Cost/pound X 4,500 .09 405 11,655 2.59 Y 6,000 .09 540 14,040 2.34 Z 7,500 .09 675 16,425 2.19 Problem 3 - Dovin Company 1. Amount debited to Materials = 100,000 x 80% x 90% x 90% = 64,800 2. Amount debited to Materials = 100000 x 80% x 90% x 90% x 98% = 63,504

Page 2 Problem 4 – 1. FIRST-IN, FIRST-OUT Received 5

400 x 7.00

2,800

9

400 x 8.00

3,200

16

24

600 x 9.00

Issued

800 x 6.00

4,800

800 x 6.00 200 x 7.00

4,800 1,400

5,400

27

Balance 1,600 x 6.00 1,600 x 6.00 400 x 7.00 1,600 x 6.00 400 x 7.00 400 x 8.00 800 x 6.00 400 x 7.00 400 x 8.00 800 x 6.00 400 x 7.00 400 x 8.00 600 x 9.00 200 x 7.00 400 x 8.00 600 x 9.00

9,600` 9,600 2.800 9,600 2,800 3,200 4,800 2,800 3,200 4,800 2,800 3,200 5,400 1.400 3,200 5,400

Cost of materials issued = 4,800 + 4,800 + 1,400 = 11,000 Cost of ending inventory = 1,400 + 3,200 + 5,400 = 10,000 2, AVERAGE Received 1 5 400 x 7.00 2,800 9 400 x 8.00 3,200 16 24 600 x 9.00 5,400 27

Issued

800 x 6.50

5,200

1,000 x 7.18

7,180

Cost of materials issued = 5,200 + 7,180 = 12,380 Cost of ending inventory = 8,620 Problem 5 – Heaven & Earth 1. FIFO Issued = 600 x 4.00 = 2,400 Cost of inventory - 200 x 5.00 =- 1,000 500 x 4.50 = 2,250 400 x 4.00 = 1,000

Balance 1,600 x 6.00 2,000 x 6.20 2,400 x 6.50 1,600 x 6.50 2,200 x 7.18 1,200 x 7.18

9,600 12.400 15,600 10,400 15,800 8,620

Page 3 2. WEIGHTED AVERAGE Received 1 3 5 500 x 4.50 2,250 6 10 11 15 500 x 5.00 2,500 20 (300) x 5.00 ( 1,500) 26

Issued 250 x 4.00

1,000

150 x 4.20 110 x 4.20 ( 10)x 4.20

630 462 ( 42)

100 x 4.33

433

Balance 1,000 x 4.00 750 x 4.00 1,250 x 4.20 1,100 x 4.20 990 x 4.20 1,000 x 4.20 1,500 x 4.47 1,200 x 4.33 1,100 x 4.33

4,000 3,000 5,250 4,620 4,158 4,200 6,700 5,200 4,767

Balance 300 x 17.50 100 x 17.50 100 x 17.50 900 x 18.00 400 x 18.00

5,250 1,750 1,750 16,200 7,200

Problem 6 – Sterling Company A. PERPETUAL 1. FIFO Received 1 8 10 900 x 18.00 16,200 18 20 1,200 x 18,25

200 x 1750

3,500

100 x 17.50 500 x 18.00

1,750 9,000

21,900

25

2. AVERAGE Received 1 8 10 900 x 18.00 18 20 1,200 x 18.25 25

Issued

400 x 18.00 600 x 18.25

7,200 10,950

Issued 200 x 17.50

3,500

600 x 17.95

10,770

1000 x 18.175

18,175

16,200 21,900

Problem 7 – Bedrock Company a. Loss due to spoiled work is spread over all jobs 1. Work in process Materials Payroll FO Applied

400 x 18.00 1,200 x 18.25

7,200 21,900

600 x 18.25

10,950

Balance 300 x 17.50 100 x 17.50 1,000 x 17.95 400 x 17.95 1,600 x 18.175 600 x 18.175

5,250 1,750 17,950 7,180 29,080 10,906

1,320,000 360,000 480,000 480,000

Page 4 2. Spoiled Goods FO Control Work in process (100 x 165) 3. Finished goods Work in process Unit cost = 1,303,500/7,900 = 165

8,000 8,500 16,500 1,303,500 1,303,500

B, Loss due to spoiled work is charged to the specific job 1. Work in process Materials Payroll FO Applied

1,320,000 360,000 480,000 480,000

2. Spoiled Goods Work in process

8,000

3. Finished goods Work in process

1,312000

8,000

1,312,000

Problem 8 – Kyralei Co. 1. RAGC is charged with the cost of defective units a. Work in process 176,000 Materials Payroll FO Applied (40,000 x 140%) b.

c.

2.

Work in process Materials Payroll FO Applied Finished goods Work in process

80,000 40,000 56,000

23,200 4,000 8,000 11,200 199,200 199,200

Cost of correcting defective work in not charged to RAGC a. Work in process 180,000 Materials 80,000 Payroll 40,000 FO Applied (40,000 x 150%) 60,000 b.

FO Control Materials Payroll

24,000 4,000 8,000

Page 5 c.

Finished goods Work in process

180,000 180,000

Problem 9 – Little Mermaid 1. Charged to specific job a. Work in process 75,000 Materials Payroll FO Applied (20,000 x 150%) b.

c.

2.

Work in process Materials Payroll FO Applied

25,000 20,000 30,000

1,250 500 300 450

Finished goods Work in process

76,250 76,250

Charged to all production (FO rate should be 160% of direct labor cost) a. Work in process 77,000 Materials 25,000 Payroll 20,000 FO Applied (20,000 x 160^) 32,000 b.

c.

FO Control Materials Payroll FO Applied

1,280 500 300 480

(300 x 160%)

Finished goods Work in process

77,000 77,000

Problem 10 - Nicole Company 1. Cost to correct defective units charged to specific job a. Work in process 9,000 Materials Payroll FO Applied (20,000 x 150%) b.

Work in process Materials Payroll FO Applied

5,000 2,000 2,000

100 60 20 20

Page 6 c.

2.

Finished goods Work in process

Charged to all production a. Work in process Materials Payroll FO Applied (20,000 x 160^) b.

c.

FO Control Materials Payroll FO Applied

3.

4.

9,000 5,000 2,000 2,000

60 20 20

(300 x 160%)

Finished goods Work in process

Work in process Materials Payroll FO Applied

9,000 9,000

300,000 117,000 100,000 83,000 4,350 1,650 1,500 1,200

Spoiled goods Work in process

825

Finished goods Work in process

303,525

Problem 12 – Alexis Company 1. Charged to specific job a. Work in process Materials Payroll FO Applied b.

9,100

100

Problem 11 – Marvin Corporation1. Work in process Materials Payroll FO Applied 2.

9,100

Spoiled goods ( 600 x 50) Work in process

825

303,525

700,000 350,000 150,000 200,000 30,000 30,000

Page 7 c.

2.

Finished goods Work in process

670,000 670,000

Charged to all production a. Work in process (10,000 x 70) Materials Payroll FO Applied

700,000 350,000 150,000 200,000

b.

c.

Spoiled goods FO Control Work in process (600 x 70) Finished goods Work in process (9,400 x 70)

30,000 12,000 42,000 658,000 658,000

Problem 13 – Raindrops Company _____________________ EOQ = \/ 2 x 60,000 x 800 1,200 Problem 14 EOQ =

____________________ \/ 2 z 100,000 x 413 25.30

a. Investment costs Invoice price Excise tax ( 125.00 x 4%) Insurance on shipment Total

P 125.00 5.00 2.00 P 132.00

b. Carrying costs Cost of capital ( 132.00 x 15%) Inventory insurance Inventory tax ( 125.00 x 2%) Total

P 19.80 3.00 2.50 P 25.30

c. Ordering costs Shipping permit Processing costs Unloading Total

P 300.00 23.00 90,00 P 413.00

Page 8 Problem 15 - Candice Foundry Inc. 1. Spoiled units are due to internal failure a. Work in process Materials Payroll FO Applied b.

c.

2.

90,000 46,000 14,000 30,000

Spoiled goods ( 200 x 15.00) Factory overhead control Work in process ( 200 x 18.00) Finished goods Work in process

3,000 600 3,600 86,400 86,400

Spoiled units are due to customer’s specification a. Work in process 90,000 Materials 46,000 Payroll 14,000 FO Applied 30,000 b.

c.

Spoiled goods Work in process

3,000

Finished goods Work in process

87,000

TRUE/FALSE 1. True 2. False 3. False 4. True 5. True Multiple choice 1, a 2, b 3, d 4, a 5, c

6. 7. 8. 9. 10.

3,000

87,000

False False False False True

6. b 7. b 8. a 9. 700 at 5,400 10. b

11. 12. 13. 14. 15.

11. 12. 13. 14. 15.

a a c c d

True False False False False

16. 17. 18. 19. 20.

d b b a b