Solution Manual, Managerial Accounting Hansen Mowen 8th Editions_ch 6

CHAPTER 6 JOB ORDER AND PROCESS COSTING QUESTIONS FOR WRITING AND DISCUSSION 1. Job-order costing accumulates costs by jobs, and process costing accumulates costs by processes. Job-order costing is suitable for operations that produce custom-made products that receive different doses of manufacturing costs. Process costing, on the other hand, is suitable for operations that produce homogeneous products that receive equal doses of manufacturing costs in each process. 2. More paperwork is required. Labor and materials are assigned to departments in a process-costing system. In a job-order costing system, labor and materials must be tracked to each job, requiring time tickets and more use of materials requisitions. Additionally, a job-order costing system requires a separate job-order cost sheet for each job. 3. Job-order costing is appropriate for many service firms. The key factor is that differing amounts of resources must be used for different jobs. Examples of service firms that use job-order costing are law firms, accounting firms, dentists, automobile repair, and architectural firms. 4. Unless all your jobs (lawns) are the same size and require the same services, you will need to use a job-order costing system. At minimum, you will need job-order cost sheets for each customer. You will need labor time tickets to record the amount of time spent on each job, both to cost the job and to pay the individual doing the work. A materials requisition form may be needed if fertilizer or weed control products are used (alternatively, it may be possible to just list the amount of product used directly on the joborder cost sheet). The more complicated your business becomes (e.g., mowing, trimming, fertilizing, trimming shrubbery, and planting shrubs and trees), the more source documents will be needed to keep track of time, materials, and use of capital equipment (e.g., trimmers and brushhogs). 5. The cost of a job is often strongly related to the price charged. Logically enough, the higher the cost of the job, the higher the price charged to the customer. This relation-

145

ship makes sense not only to the business but also to the customer. By comparing the cost of the individual job with the price charged, the firm can determine the profit attributable to each job. Then, the firm can decide whether the profit is sufficient to continue offering the product or service under the current terms. 6. Materials requisition forms serve as the source documents for posting materials usage and costs to individual jobs. Time or work tickets serve a similar function for labor. Predetermined overhead rates are used to allocate overhead to jobs. 7. In sequential processing, products pass through a series of processes, one after another (i.e., in a given sequence). In parallel processing, products pass through two or more different sequences at the same time, merging eventually at the final process. 8. Equivalent units are the number of whole units that could have been produced, given the amount of materials, labor, and overhead used. Equivalent units are the measure of a period’s output, a necessary input for the computation of unit costs in a process-costing system. 9. In calculating this period’s unit cost, the weighted average method treats prior-period output and costs carried over to the current period as belonging to the current period. The FIFO method excludes any costs and output carried over from this period’s unit cost computation. 10. If the per-unit cost of the prior period is the same as the per-unit cost of the current period, there will be no difference between the results of the weighted average and FIFO methods. Additionally, if no beginning workin-process inventory exists, both the FIFO and weighted average methods give the same results. 11. Separate equivalent units must be calculated for materials and conversion costs. 12. Transferred-in units represent partially completed units and are clearly a material for the

receiving department. To complete the product (or further process it), additional materials and conversion costs are added by the receiving department. 13. The work-in-process account of the receiving department is debited, and the work-inprocess account of the transferring department is credited. The finished goods account is debited, and the work-in-process account of the final department is credited upon completion of the product. 14.

The first step is the preparation of a physical flow schedule. This schedule identifies the physical units that must be accounted for and provides an accounting. The second step is the equivalent unit schedule. This schedule computes the equivalent whole output for the period. The schedule’s computations rely on information from the physical flow schedule. The next step is computation of the unit cost. To compute the unit cost, the manufacturing costs of the period for the process are divided by the period’s output. The output is obtained from the equivalent unit schedule. The fourth step

146

uses the unit cost to value goods transferred out and those remaining in work in process. The final step checks to see if the costs assigned in step 4 equal the total costs to account for. 15.

The weighted average method uses the same unit cost for all goods transferred out. The FIFO method divides goods transferred out into two categories: units started and completed and units from beginning work in process. The period’s unit cost is used to value goods started and completed. The cost of goods transferred out from beginning work in process is obtained by (1) assigning them all costs carried over from the prior period and (2) using the current period’s unit cost to value the equivalent units completed this period.

16.

Service firms generally do not have work-inprocess inventories, and so equivalent units of production are not needed. An important factor in process costing for services is determining just what constitutes a unit of output.

EXERCISES 6–1 Job-Order a. b. c. d. e. f. g. h. i. j. k. l. m. n. o.

Paint manufacturing Auto manufacturing Toy manufacturing Custom cabinet making Airplane manufacturing Personal computer assembly Furniture making Custom furniture making Dental services Hospital services Paper manufacturing Auto repair Architectural services Landscape design services Light bulb manufacturing

Process X X X

X X X X X X X X X X X X

6–2 1.

2.

3.

4.

Auto manufacturing: A job-order example might be Rolls Royce, in which the cars are made to order. A process-costing example might be Ford Motor Company. Dental services: A job-order example might be a local, full-service dentist. A process-costing example might be a denturist (someone who makes only dentures). Auto repair: A job-order example might be a local mechanic or the service department of an automobile dealership. A process-costing example might be a shop that is dedicated to oil changes. Costume making: A job-order example might be a local seamstress who will make the costumes for children in a junior high school play. A processcosting example might be a firm dedicated to the manufacture of dance costumes that are sold nationwide. The designs are preset.

147

6–3 1. Beginning balance Direct materials Direct labor Applied overhead Total cost

Job #614 $10,200 4,200 1,800 1,080 $17,280

Job #615 $ 9,670 9,500 4,000 2,400 $25,570

Job #616 $ 0 1,000 150 90 $1,240

Job #617 $ 0 3,150 800 480 $4,430

2.

Ending balance in Work in Process = Job #614 + Job #616 + Job #617 = $17,280 + $1,240 + $4,430 = $22,950

3.

Cost of Goods Sold = Job #615 = $25,570 Price of Job #615 = $25,570 + (0.4)($25,570) = $35,798

6–4 1.

Overhead applied in October: Job #265: 0.75 × $15,000 = $11,250 Job #266: 0.75 × $12,000 = $9,000 Job #267: 0.75 × $1,900 = $1,425 Job #268: 0.75 × $7,000 = $5,250

2. Beginning balance Direct materials Direct labor Applied overhead Total cost

Job #265 $30,330 13,000 15,000 11,250 $69,580

Job #266 $62,170 7,000 12,000 9,000 $90,170

Job #267 $ 0 3,500 1,900 1,425 $6,825

Job #268 $ 0 4,750 7,000 5,250 $17,000

3.

Ending balance in Work in Process = Job #266 + Job #267 + Job #268 = $90,170 + $6,825 + $17,000 = $113,995

4.

Cost of Goods Sold = Job #265 = $69,580 Price of Job #265 = $69,580 + (0.30)($69,580) = $90,454

148

6–5 1.

Direct materials Direct labor (50 hours × $10) Overhead (50 hours × $4) Total cost Units Unit cost

$ 3,400 500 200 $ 4,100 ÷ 10 $ 410

2.

Price per home = 1.5 × $410 = $615

3.

Jordan would need to prepare a simple form that included columns for the date, the beginning time, the ending time, the total number of hours worked, and the job name (or number). She could have a separate page for each day. This would be especially helpful if she hired other employees from time to time to work on jobs.

6–6 1.

Ending balance in Work in Process

= Job #902 + Job #906 + Job #908 + Job #909 = $400 + $750 + $700 + $905 = $2,755

2.

Ending balance in Finished Goods = Job #901 + Job #903 + Job #905 + Job #910 = $650 + $550 + $860 + $803 = $2,863

3.

Cost of Goods Sold = Job #904 + Job #907 = $695 + $180 = $875

149

6–7 1.

1

Balance, 7/1 Direct materials Direct labor Applied overhead: Power1 Material handling2 Purchasing3 Total cost

Job #70 $ 25,000 12,900 20,000

Job #71 $ 0 9,900 6,500

Job #72 $ 0 35,350 13,000

500 1,250 400 $ 60,050

400 250 1,600 $18,650

2,400 5,000 400 $ 56,150

Job#70:$2 per mh × 250 Job#71:$2 per mh × 200 Job#72:$2 per mh × 1,200

2

Job#70:$25 per move × 50 moves Job#71:$25 per move × 10 moves Job#72:$25 per move × 200 moves

3

Job#70: $40 per PO × 10 PO’s Job#71:$40 per PO × 40 PO’s Job#72: $40 per PO × 10 PO’s

2.

Ending balance in Work in Process = Job #72 = $56,150

3.

Ending balance in Finished Goods = Job #71 = $18,650

4.

Cost of Goods Sold = Job #70 = $60,050

6–8 Bosserman Company Income Statement For the Month Ended July 31, 20XX Sales ($60,050 × 1.40) ................................................. Cost of goods sold ..................................................... Gross margin .............................................................. Selling expenses (0.10 × $84,070 + $4,100) .............. Administrative expenses ........................................... Operating income .......................................................

150

$ 84,070 60,050 $ 24,020 12,507 3,900 $ 7,613

6–9 1.

Applied overhead = Direct labor cost × Overhead rate $140,000= $80,000 × Overhead rate Overhead rate= 1.75 or 175% of direct labor cost

2.

$140,000 138,500 $ 1,500

3.

Direct materials Direct labor Overhead applied

Applied overhead Actual overhead Overapplied overhead $ 40,000 80,000 140,000 $ 260,000 17,000 (32,000) $ 245,000

Add: Beginning work in process Less: Ending work in process Cost of goods manufactured

4. Overhead Control ...................................... Cost of Goods Sold .............................

1,500 1,500

Adjusted cost of goods sold: $ 210,000 (1,500) $ 208,500 5.

Direct materials ($32,000 – $10,000 – $17,500) Direct labor (1,000 × $10) Overhead applied (175% × $10,000) Ending work in process

151

$ 4,500 10,000 17,500 $ 32,000

6–10 1.

Overhead rate = $180,000/20,000 = $9 per DLH

2.

Direct materials Direct labor Applied overhead Total cost

$ 4,140 4,000 3,600* $ 11,740

*$3,600 = $9 × ($4,000/$10) 3.

Overhead Control ...................................... Lease Payable ........................................... Accumulated Depreciation ....................... Wages Payable .......................................... Utilities Payable ........................................ Other Payables ..........................................

189,300

Work in Process ($9 × 21,000).................. Overhead Control ......................................

189,000

4.

Actual overhead Applied overhead Underapplied overhead

$189,300 189,000 $ 300

5.

Normal cost of goods sold Add: Underapplied overhead Adjusted cost of goods sold

$740,000 300 $740,300

5,000 20,000 101,300 18,000 45,000 189,000

6–11 1.

Cutting Department $5,400 150 750

Direct materials Direct labor Applied overhead Transferred-in cost: From cutting From sewing Total manufacturing cost

Sewing Department $ 900 1,800 3,600

Packaging Department $ 225 900 900

6,300 $6,300

$12,600

2. a. Transferred from Cutting to Sewing $6,300 b. Transferred from Sewing to Packaging $12,600 c. Transferred from Packaging to Finished Goods $14,625

152

12,600 $14,625

3.

Unit cost = $14,625/600 = $24.38* per pair *Rounded

6–12 1.

Equivalent unit, Ending work in process = 300 × 0.20 = 60

2.

Equivalent units in Total = 60 + 600 = 660

6–13 1.

2.

Physical flow schedule: Units in beginning work in process Units started during the period Total units to account for

14,000 40,000 54,000

Units transferred out Units in ending work in process Total units accounted for

45,500 8,500 54,000

Equivalent units of production: Units completed Add: Units in ending work in process: (8,500 × 100%) (8,500 × 25%) Equivalent units of output

153

Materials 45,500

Conversion 45,500

8,500 54,000

2,125 47,625

6–14 1.

Cost of ending work in process: Materials ($1.30 × 0) Conversion ($0.50 × 4,800) Total cost

$ 0 2,400 $2,400

Cost of goods transferred out: $1.80 × 45,000 = $81,000 2.

Physical flow schedule: Units to account for: Units in beginning WIP ? Units started ? Total units 53,000

Units accounted for: Units completed Units in ending WIP Total units

45,000 8,000 53,000

The schedule of equivalent units using the weighted average method does not give sufficient information to reconstruct the complete physical flow schedule. Units in beginning work in process are embedded in units completed.

154

6–15 1.

Department 1: a. Units transferred to Department 2 = Total units* – Ending WIP = 6,480 – 3,600 = 2,880 *Total units = Beginning WIP + Units started = 0 + 6,480 = 6,480 b. Units completed Add: Units in ending work in process: 3,600 × 100% 3,600 × 50% Equivalent units of output

2.

Materials 2,880

Conversion 2,880

3,600 6,480

1,800 4,680

Department 2: a. Units transferred out = Total units* – Ending WIP = 4,080 – 600 = 3,480 *Total units = Beginning WIP + Units transferred in = 1,200 + 2,880 = 4,080 b. Units completed Add: Units in ending work in process: 600 × 0% 600 × 40% Equivalent units of output

155

Materials 3,480

Conversion 3,480

0 3,480

240 3,720

6–16 1.

Physical flow schedule: Units to account for: Units in beginning work in process Units started during the period Total units to account for

60,000 220,000 280,000

Units accounted for: Units completed and transferred out: Started and completed From beginning work in process Units in ending work in process Total units accounted for 2.

180,000 60,000

Units completed Add: Units in ending WIP × Fraction complete (40,000 × 20%) Equivalent units of output

3.

Unit cost = ($1,171,800 + $390,600)/248,000 = $6.30

4.

Cost transferred out = 240,000 × $6.30 = $1,512,000 Cost of ending WIP = 8,000 × $6.30 = $50,400

5.

Costs to account for: Beginning work in process Incurred during June Total costs to account for

$

390,600 1,171,800 $ 1,562,400

Costs accounted for: Goods transferred out Goods in ending work in process Total costs accounted for

156

$1,512,000 50,400 $1,562,400

240,000 40,000 280,000 240,000 8,000 248,000

6–17

Cocolots Company Mixing Department Production Report For the Month of June 20XX (Weighted Average Method)

Unit Information Physical flow: Units to account for: Units accounted for: Units in beginning WIP 60,000 Units completed Units started 220,000 Units in ending WIP Total units to account for 280,000 Total units accounted for Equivalent units: Units completed Units in ending work in process Total equivalent units

240,000 40,000 280,000

240,000 8,000 248,000

Cost Information Costs to account for: Beginning work in process Incurred during March Total costs to account for

$ 390,600 1,171,800 $1,562,400

Cost per equivalent unit

$

6.30

Costs accounted for: Transferred Out Goods transferred out ($6.30 × 240,000) Goods in ending WIP ($6.30 × 8,000) Total costs accounted for

Ending Work in Process

Total

$1,512,000

—

$1,512,000

— $1,512,000

$50,400 $50,400

50,400 $1,562,400

157

6–18 Completed Ending WIP Equivalent units

B 24,000c 0 24,000

A 16,200a 1,000b 17,200

a

C 31,000d 900e 31,900

D 60,000f 2,500g 62,500

e

(9,000 × 0.10) (30,000 + 40,000 – 10,000) g (10,000 × 0.25)

(3,200 + 17,000 – 4,000) b (4,000 × 0.25) c (1,000 + 23,000 – 0) d (40,000 – 9,000)

f

6–19 Completed* Add: Ending WIP* Less: Beginning WIP** Equivalent units

A 16,200 1,000 960 16,240

B 24,000 0 400 23,600

C 31,000 900 0 31,900

D 60,000 2,500 22,500 40,000

*See solution to Exercise 6–18. **Beginning WIP for A: 3,200 × 0.30 = 960 Beginning WIP for B: 1,000 × 0.40 = 400 Beginning WIP for C: 0 × 0 = 0 Beginning WIP for D: 30,000 × 0.75 = 22,500

6–20 1.

Physical flow schedule: Units to account for: Units in beginning work in process Units started during the period Total units to account for

10,000 70,000 80,000

Units accounted for: Units completed and transferred out: Started and completed 50,000 From beginning work in process 10,000 Units in ending work in process (60% complete) Total units accounted for

60,000 20,000 80,000

158

6–20

Concluded

2. Units completed Add: Units in ending WIP × Fraction complete (20,000 × 100%; 20,000 × 60%) Equivalent units of output

Materials 60,000

Conversion 60,000

20,000 80,000

12,000 72,000

3.

Unit materials cost ($49,000 + $351,000)/80,000 = Unit conversion cost ($2,625 + $78,735)/72,000 = Total unit cost

4.

Cost transferred out: 60,000 × $6.13 = $367,800 Cost of ending WIP: Materials: 20,000 × $5.00 = Conversion: 12,000 × $1.13 = Total ending WIP cost

5.

$100,000 13,560 $113,560

Costs to account for: Beginning WIP Incurred during August Total costs to account for

$ 51,625 429,735 $481,360

Costs accounted for: Goods transferred out Goods in ending WIP Total costs accounted for

$367,800 113,560 $481,360

159

$5.00 1.13 $6.13

6–21 Bath Linens Department Production Report For the Month of August 20XX (Weighted Average Method) Unit Information Physical flow: Units to account for: Units in beginning WIP Units started Total units to account for

Units accounted for: Units completed Units in ending WIP Total units accounted for

10,000 70,000 80,000

60,000 20,000 80,000

Equivalent units: Materials 60,000 20,000 80,000

Units completed Units in ending work in process Total equivalent units

Conversion 60,000 12,000 72,000

Cost Information Costs to account for: Beginning WIP Incurred during August Total costs to account for Cost per equivalent unit

Materials $ 49,000 351,000 $400,000 $

5.00

Conversion $ 2,625 78,735 $ 81,360 $

1.13

Total $ 51,625 429,735 $481,360 $

6.13

Costs accounted for: Goods transferred out ($6.13 × 60,000) Goods in ending WIP: Materials ($5 × 20,000) Conversion costs ($1.13 × 12,000) Total costs accounted for

Transferred Out

Ending Work in Process

Total

$367,800

—

$367,800

—

$100,000

100,000

— $367,800

13,560 $113,560

13,560 $481,360

160

6–22 1. 2. 3. 4. 5. 6. 7. 8.

b d b b a c c e Supporting computations: Materials 92,000

Units completed Units in ending WIP (24,000 × 90%) (24,000 × 40%) Equivalent units (WA) Less EU in BWIP (16,000 × 60%) (16,000 × 20%)

21,600 113,600

WA:

9,600 101,600

(9,600) (3,200)

Equivalent units (FIFO) Unit cost: FIFO:

Conversion 92,000

104,000

$468,000/104,000 $4.50 ($468,000 + $54,560)/113,600 $4.60

$573,040/98,400 $5.82 ($573,040 + $35,560)/101,600 $5.99

EWIP: FIFO: ($4.50 × 21,600) + ($5.82 × 9,600) = $153,072 WA: ($4.60 × 21,600) + ($5.99 × 9,600) = $156,864

161

98,400

6–23 1.

Physical flow schedule: Units to account for: Units in beginning work in process (75% complete) Units started during August Total units to account for

120,000 370,000 490,000

Units accounted for: Units completed and transferred out: Started and completed 280,000 From beginning work in process 120,000 Units in ending work in process (25% complete) Total units accounted for

400,000 90,000 490,000

2. Units started and completed

280,000

Add: Units to complete beginning WIP (120,000 × 25%) Add: Units ending WIP × Fraction completed (90,000 × 30%) Equivalent units of output 3.

FIFO unit cost = $1,516,500/337,000 = $4.50

4.

Costs transferred out: Costs from beginning WIP Costs to complete beginning WIP (30,000 × $4.50) Started and completed (280,000 × $4.50) Total costs transferred out

30,000 27,000 337,000

$

340,600 135,000 1,260,000 $ 1,735,600

Cost of ending WIP = 27,000 × $4.50 = $121,500 5.

Costs to account for: Beginning WIP $ 340,600 Added in August 1,516,500 Total $ 1,857,100

162

Costs accounted for: Transferred out Ending WIP Total

$1,735,600 121,500 $1,857,100

6–24 Nogaleen Company Blending Department Production Report For the Month of August 20XX (FIFO Method) Unit Information Physical flow: Units to account for: Units in beginning work in process Units started during August Total units to account for Units accounted for: Units started and completed Units completed from beginning work in process Units in ending work in process Total units accounted for

120,000 370,000 490,000 Physical Flow 280,000

Equivalent Units 280,000

120,000 90,000 490,000

30,000 27,000 337,000

Cost Information Costs to account for: Beginning work in process Incurred during August Total costs to account for

$ 340,600 1,516,500 $1,857,100

Cost per equivalent unit

$

4.50

Costs accounted for: Transferred Out Units in beginning work in process: From prior period From current period (30,000 × $4.50) Units started and completed (280,000 × $4.50) Goods in ending work in process (27,000 × $4.50) Total costs accounted for

Ending Work in Process

Total

$ 340,600

—

135,000

—

135,000

1,260,000

—

1,260,000

— $1,735,600

$121,500 $121,500

121,500 $1,857,100

163

$

340,600

6–25 1.

Job #64: Direct materials Direct labor Overhead ($12 × 410)

$ 1,240 6,150 4,920 $12,310

Unit cost = $12,310/50 = $246.20 2.

Ending Work in Process = Cost of Job #65 = $985 + $8,745 + ($12 × 583) = $16,726

3. Finished Goods ......................................... Work in Process ..................................

12,310

Cost of Goods Sold ................................... Finished Goods ...................................

12,310

Accounts Receivable ................................ Sales Revenue .....................................

19,696*

*(160% × $12,310 = $19,696)

164

12,310 12,310 19,696

PROBLEMS 6–26 1.

Overhead rate = $270/$900 = 0.30 or 30% of direct labor dollars. (This rate was calculated using information from the Fazel job; however, the Myron and Patton jobs would give the same answer.)

2. Beginning WIP Direct materials Direct labor Applied overhead Total

Fazel $ 1,730 600 1,200 360 $ 3,890

Myron $1,180 350 980 294 $2,804

Patton $2,500 260 650 195 $3,605

Raider $ 0 780 1,350 405 $ 2,535

Willis $ 0 725 900 270 $ 1,895

Note: This is just one way of setting up the job-order cost sheets. You might prefer to keep the detail on the materials, labor, and overhead in beginning inventory costs. 3.

Since the Fazel and Myron jobs were completed, the others must still be in process. Therefore, the ending balance in Work in Process is the sum of the costs of the Patton, Raider, and Willis jobs. Patton Raider Willis Ending Work in Process

$3,605 2,535 1,895 $8,035

Cost of Goods Sold = Fazel job + Myron job = $3,890 + $2,804 = $6,694 4.

Aldrin Company Income Statement For the Month Ended June 30, 20XX Sales (1.4 × $6,694) ................................................................... Cost of goods sold.................................................................... Gross margin ............................................................................. Marketing and administrative expenses ................................. Operating income......................................................................

165

$9,372 6,694 $2,678 1,200 $1,478

6–27 1.

Overhead rate = $90,000/10,000 = $9 per MHr Overhead costs = $30,000 + 15,000 + 20,000 + 25,000 = $90,000 Job #1 $4,500 1,000 1,800 $7,300 2,190 $9,490

Direct materials Direct labor Overhead ($9 × 200 MHrs.) Total manufacturing cost Plus 30% markup Bid price 2.

Purchasing rate Setup cost rate Engineering rate Other cost rate

= $30,000/5,000 = $15,000/1,000 = $20,000/500 = $25,000/10,000

Direct materials Direct labor Overhead: Purchasing ($6 × 15); ($6 × 20) Setups ($15 × 2); ($15 × 3) Engineering ($40 × 25); ($40 × 10) Other ($2.50 × 200); ($2.50 × 200) Total manufacturing cost Plus 30% markup Bid price 3.

Job #2 $ 8,600 2,000 1,800 $12,400 3,720 $16,120

= $6 per purchase order = $15 per setup = $40 per engineering hour = $2.50 per MHr Job #1 $4,500 1,000

Job #2 $ 8,600 2,000

90 30 1,000 500 $7,120 2,136 $9,256

120 45 400 500 $11,665 3,500 $15,165

The activity-based approach to assigning overhead gives a more accurate cost figure because so much of the overhead is non unit-level and there is product diversity.

166

6–28 1. a. Materials ............................................... Accounts Payable .........................

44,200

b. Work in Process .................................. Materials ........................................

27,000

c. Work in Process .................................. Wages Payable ..............................

28,200

d. Overhead Control ................................ Cash ...............................................

19,950

e. Work in Process .................................. Overhead Control..........................

18,800

2.

44,200 27,000 28,200 19,950 18,800

Job #703 Beginning balance, Work in Process Direct materials Direct labor Overhead applied Total

$13,000 12,500 11,700 7,800 $45,000

Job #704 Direct materials Direct labor Overhead applied Total

$14,500 16,500 11,000 $42,000

3. f. Finished Goods ................................... Work in Process ............................

45,000

h. Cost of Goods Sold ............................. Finished Goods .............................

6,240

Accounts Receivable .......................... Sales Revenue...............................

8,736

4.

a. Materials: Beginning balance Add: Purchases Less: Materials requisitioned Ending balance

45,000 6,240 8,736

$ 6,070 44,200 (27,000) $ 23,270

167

6–28

Concluded

b. Work in Process: Beginning balance Add: Materials requisitioned Direct labor Overhead applied Less: Jobs completed Ending balance

$ 13,000 27,000 28,200 18,800 (45,000) $ 42,000

c. Finished Goods: Beginning balance Add: Jobs completed Less: Jobs sold Ending balance

$ 6,240 45,000 (6,240) $ 45,000

6–29 1. a. Materials ............................................... Accounts Payable .........................

3,000

b. Work in Process .................................. Materials ........................................

1,700

c. Work in Process [$8 × (50 + 100)].......

1,200

3,000 1,700

Wages Payable .............................. d. Work in Process ($7.50 × 150) ............

1,200 1,125

Overhead Control..........................

1,125

e. Overhead Control ................................ 1,230 Cash ............................................... 1,230 2. Job #443 Job #444 Direct materials $ 500 Direct materials $1,200 Direct labor 400 Direct labor 800 Applied overhead 375 Applied overhead 750 Total $1,275 Total $2,750 f. Finished Goods ................................... Work in Process ............................

1,275

g. Cost of Goods Sold ............................. Finished Goods .............................

2,000

Accounts Receivable .......................... Sales Revenue...............................

2,500

168

1,275 2,000 2,500

6–29 3.

Concluded Kearney Company Statement of Cost of Goods Manufactured For the Month Ended April 30, 20XX

Direct materials: Beginning materials inventory ...................... Purchases of materials .................................. Total materials available ................................ Ending materials ............................................. Materials used ................................................. Direct labor ........................................................... Overhead............................................................... Less: Underapplied overhead ............................. Overhead applied ................................................. Current manufacturing costs .............................. Add: Beginning work in process ........................ Total manufacturing costs .................................. Less: Ending work in process ............................ Cost of goods manufactured ..............................

169

$1,400 3,000 $4,400 2,700 $1,700 1,200 $1,230 105 1,125 $4,025 0 $4,025 2,750 $1,275

6–30 Debroux Company Assembly Department Production Report For the Month of February 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units started Total units

Units accounted for: 12,000 28,000 40,000

Units completed Units in ending WIP Total units

Equivalent units: Units completed Units in ending WIP (5,400 × 70%) Total equivalent units

34,600 3,780 38,380

Cost Information Costs to account for: Costs in beginning WIP Costs added by department Total costs to account for

$142,760 333,152 $475,912

Cost per equivalent unit ($475,912/38,380)

$

Costs accounted for: Goods transferred out (34,600 × $12.40) Ending work in process (3,780 × $12.40) Total costs accounted for

$429,040 46,872 $475,912

170

12.40

34,600 5,400 40,000

6–31 Debroux Company Assembly Department Production Report For the Month of February 20XX (FIFO Method) Unit Information Units to account for: Units in beginning WIP Units started Total units

12,000 28,000 40,000

Units accounted for: Started and completed From beginning WIP From ending WIP Total units

Equivalent units: Started and completed To complete beginning WIP (12,000 × 40%) Units in ending WIP (5,400 × 70%) Total equivalent units

22,600 4,800 3,780 31,180

Cost Information Costs to account for: Costs in beginning WIP Costs added by department Total costs to account for

$142,760 333,152 $475,912

Cost per equivalent unit ($333,152/31,180)

$10.6848

Costs accounted for: Transferred out: Units started and completed (22,600 × $10.6848) Units in beginning work in process: From prior period From current period (4,800 × $10.6848) Total cost transferred out Goods in ending work in process (3,780 × $10.6848) Total costs accounted for

171

$241,476 142,760 51,287 $435,523 40,389 $475,912

22,600 12,000 5,400 40,000

6–32 1.

a. Physical flow schedule: Units to account for: Units in BWIP Units started Total units

Units accounted for: Started and completed From BWIP From EWIP Total units

20,000 510,000 530,000

480,000 20,000 30,000 530,000

b. Equivalent unit schedule: Units completed Units in ending WIP Total equivalent units

Paraffin 500,000 30,000 530,000

Pigment 500,000 30,000 530,000

Pigment $ 100,000 2,550,000 $2,650,000

Conversion $ 40,000 5,170,000 $5,210,000

Conversion 500,000 21,000* 521,000

*(30,000 × 70%) 2.

Unit cost computation: Costs in BWIP Costs added Total costs

Paraffin $ 120,000 3,060,000 $3,180,000

Total $ 260,000 10,780,000 $11,040,000

Unit cost = Unit paraffin cost + Unit pigment cost + Unit conversion cost = ($3,180,000/530,000) + ($2,650,000/530,000) + ($5,210,000/521,000) = $6 + $5 + $10 = $21 3. Ending work in process = (30,000 × $6) + (30,000 × $5) + (21,000 × $10) = $180,000 + $150,000 + $210,000 = $540,000 Cost of goods transferred out: 500,000 × $21 = $10,500,000 4.

Cost reconciliation: Costs to account for: Beginning WIP August costs Total to account for

$

260,000 10,780,000 $11,040,000

172

Costs accounted for: Transferred out Ending WIP Total accounted for

$10,500,000 540,000 $11,040,000

6–33 Grace Sauces, Inc. Mixing Department Production Report For the First Quarter 20XX (FIFO Method) Unit Information Units to account for: Units accounted for: Units in beginning WIP 144,000 Units transferred out Units started 180,000 Units in ending WIP Units to account for 324,000 Units accounted for * Started and completed = 148,500 + B-WIP 144,000 = 292,500

Units started and completed Units in BWIP (to complete) Units in EWIP Total units accounted for

292,500* 31,500 324,000

Equivalent Units Transferred In Materials Conversion 148,500 148,500 148,500 — — 36,000 31,500 31,500 6,300 180,000 180,000 190,800 Cost Information

Costs to account for: Transferred In Materials Beginning WIP $ 45,600 $ 6,432 Incurred during quarter 230,400 33,500 Total costs to account for $276,000 $39,932 Equivalent units Cost incurred during quarter ÷ Equivalent units

180,000 $

1.28

180,000

190,800

$ 0.1861

$ 0.3807

$ 1.8468

EWIP —

Total $274,250

Costs accounted for: Transferred Out Started/complete (148,500 × $1.8468) $274,250 Units in beginning WIP: From prior period 66,432 Current period (36,000 × $0.3807) 13,705 Units in ending WIP: Transferred in (31,500 × $1.28) — Materials (31,500 × $0.1861) — Conversion (6,300 × $0.3807) — Total costs accounted for $354,387 *Difference due to rounding.

173

Conversion Total $ 14,400 $ 66,432 72,640 336,540 $ 87,040 $402,972

— — $40,320 5,862 2,398 $48,580

66,432 13,705 40,320 5,862 2,398 $402,967*

6–34 Grace Sauces, Inc. Mixing Department Production Report For the First Quarter 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units started Units to account for

Units accounted for: Units transferred out Units in ending WIP Units accounted for

144,000 180,000 324,000

Units completed Units in ending WIP Total units accounted for

292,500 31,500 324,000

Equivalent Units Transferred In Materials Conversion 292,500 292,500 292,500 31,500 31,500 6,300 324,000 324,000 298,800 Cost Information

Costs to account for: Transferred In Beginning WIP $ 45,600 Incurred during quarter 230,400 Total costs to account for $276,000 ÷ Equivalent units Cost per equivalent unit

324,000 $

0.852

Costs accounted for: Goods transferred out (292,500 × $1.27) Ending work in process: Transferred in (31,500 × $0.852) Materials (31,500 × $0.12) Conversion (6,300 × $0.291) Total costs accounted for *Difference due to rounding.

174

Materials $ 6,432 33,500 $ 39,932 324,000 $

0.12

Transferred Out $370,421 — — — $370,421

Conversion Total $ 14,400 $ 66,432 72,640 336,540 $ 87,040 $402,972 298,800 $ 0.291 EWIP — $26,838 3,780 1,835 $32,453

$

1.27 Total

$370,421 26,838 3,780 1,835 $402,874*

6–35 1.

Department A a. Physical flow schedule: Units in beginning WIP Units started in November Total units to account for

5,000 25,000 30,000

Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for

23,000 5,000 2,000 30,000

Costs charged to the department: Beginning WIP Incurred during November Total costs

Materials $10,000 57,800 $67,800

Conversion $ 6,900 95,220 $102,120

Total $ 16,900 153,020 $169,920

b. Equivalent unit calculation: Units completed Add: Equivalent units in ending WIP Total equivalent units

Materials 28,000 2,000 30,000

c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost = $67,800/30,000 + $102,120/29,600 = $2.26 + $3.45 = $5.71

175

Conversion 28,000 1,600 29,600

6–35

Continued

d. and e. Cost reconciliation: Total costs accounted for: Goods transferred out (28,000 × $5.71) .................. Costs in ending WIP: Materials (2,000 × $2.26) ..................................... Conversion (1,600 × $3.45) ................................. Total costs accounted for ..................................

$159,880 $4,520 5,520

Costs to account for: Beginning work in process ................................ Costs incurred during November ...................... Total costs to account for ..................................

10,040 $169,920 $ 16,900 153,020 $169,920

2. Journal entries: Work in Process—Dept. A ....................... Materials Inventory ..............................

57,800

Work in Process—Dept. A ....................... Conversion Costs—Dept. A ...............

95,220

Work in Process—Dept. B ....................... Work in Process—Dept. A ..................

159,880

57,800 95,220* 159,880

*When conversion costs are not broken into labor and overhead components, a control account for conversion costs is used. Some firms now combine overhead and direct labor costs into one category. This practice is developing because direct labor is becoming a small percentage of total manufacturing costs.

176

6–35 3.

Continued

Department B a. Physical flow schedule: Units in beginning WIP Units started in November (transferred in) Total units to account for

8,000 28,000 36,000

Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for

25,000 8,000 3,000 36,000

Costs charged to the department:

Beginning WIP Incurred in Nov. Total costs

Materials $ 0 37,950 $37,950

Conversion $ 16,800 128,100 $144,900

Transferred In $ 45,320 159,880 $205,200

Total $ 62,120 325,930 $388,050

b. Equivalent unit calculation: Materials Units completed 33,000 Add: Equivalent units in EWIP 0 Total equivalent units 33,000

Conversion 33,000 1,500 34,500

Transferred In 33,000 3,000 36,000

c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost + Unit transferred in cost = ($37,950/33,000) + ($144,900/34,500) + ($205,200/36,000) = $1.15 + $4.20 + $5.70 = $11.05

177

6–35

Concluded

d. and e. Cost reconciliation: Total costs accounted for: Goods transferred out (33,000 × $11.05) ................ Costs in ending WIP: Materials ............................................................... Conversion (1,500 × $4.20) ................................. Transferred in (3,000 × $5.70) ............................. Total costs in ending WIP ........................................ Total costs accounted for ..................................

$364,650 $

0 6,300 17,100 23,400 $388,050

Costs to account for: Beginning work in process ................................ Costs incurred during November ...................... Total costs to account for ..................................

$ 62,120 325,930 $388,050

Journal entries for Department B: Work in Process—Dept. B .................. Work in Process—Dept. A ...........

159,880

Work in Process—Dept. B .................. Materials Inventory .......................

37,950

Work in Process—Dept. B .................. Conversion Costs—Dept. B .........

128,100

Finished Goods ................................... Work in Process—Dept. B ...........

364,650

159,880 37,950 128,100* 364,650

*Because conversion costs are not broken into labor and overhead components, a control account for conversion costs is used. Some firms are now combining overhead and direct labor costs into one category. This practice is developing because direct labor is becoming a small percentage of total manufacturing costs.

178

6–36 1.

Department A a. Physical flow schedule: Units in beginning WIP Units started in November Total units to account for

5,000 25,000 30,000

Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for

23,000 5,000 2,000 30,000

Costs charged to the department: Materials $10,000 57,800 $67,800

Beginning WIP Incurred during November Total costs

Conversion $ 6,900 95,220 $102,120

Total $ 16,900 153,020 $169,920

b. Equivalent unit calculation: Units started and completed Equivalent units in beginning WIP Equivalent units in ending WIP Total equivalent units

Materials 23,000 — 2,000 25,000

c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost = ($57,800/25,000) + ($95,220/27,600) = $2.312 + $3.45 = $5.762

179

Conversion 23,000 3,000 1,600 27,600

6–36

Continued

d. and e. Cost reconciliation: Cost of units started and completed (23,000 × $5.762) Cost of units in beginning WIP: Prior-period costs ............................................... Current cost to finish units (3,000 × $3.45) ....... Total cost of units transferred out .......................... Costs in ending WIP: Materials (2,000 × $2.312) ................................... Conversion (1,600 × $3.45) ................................. Total costs in ending WIP ........................................ Total costs accounted for ..................................

$132,526 16,900 10,350 $159,776 $4,624 5,520 10,144 $169,920

Costs to account for: Beginning WIP ..................................................... Costs incurred ..................................................... Total costs to account for ..................................

$ 16,900 153,020 $169,920

2. Journal entries: Work in Process—Dept. A ....................... Materials Inventory ..............................

57,800

Work in Process—Dept. A ....................... Conversion Costs—Dept. A ...............

95,220

Work in Process—Dept. A ....................... Work in Process—Dept. A ..................

159,776

57,800 95,220* 159,776

*Because conversion costs are not broken into labor and overhead components, a control account for conversion costs is used. Some firms are now combining overhead and direct labor costs into one category. This practice is developing because direct labor is becoming a small percentage of total manufacturing costs.

180

6–36 3.

Continued

Department B a. Physical flow schedule: Units in beginning WIP Units started in November (transferred in) Total units to account for

8,000 28,000 36,000

Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for

25,000 8,000 3,000 36,000

Costs charged to the department: Transferred Materials Beginning WIP $ 0 Incurred during Nov. 37,950 Total costs $37,950

Conversion $ 16,800 128,100 $144,900

In $ 45,320 159,776 $205,096

Total $ 62,120 325,826 $387,946

b. Equivalent unit calculation: Materials 25,000 8,000 0 33,000

Units started and completed Equivalent units in BWIP Equivalent units in EWIP Total equivalent units

Conversion 25,000 4,000 1,500 30,500

Transferred In 25,000 0 3,000 28,000

c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost + Unit transferred in cost = $37,950/33,000 + $128,100/30,500 + $159,776/28,000 = $1.15 + $4.20 + $5.706 = $11.056

181

6–36

Concluded

d. and e. Cost reconciliation: Cost of units started and completed (25,000 × $11.056) Cost of units in beginning WIP: Prior-period costs ............................................... Current cost to finish units: Materials (8,000 × $1.15) ..................................... Conversion (4,000 × $4.20) ................................. Total costs of goods transferred out ...................... Costs in ending WIP: Conversion (1,500 × $4.20) ................................. $ 6,300 Transferred in (3,000 × $5.706) ........................... 17,118 Total costs in ending WIP ........................................ Total costs accounted for .................................. Costs to account for: Beginning work in process ................................ Costs incurred during November ...................... Total costs to account for ..................................

$276,400 62,120 9,200 16,800 $364,520

23,418 $387,938* $ 62,120 325,826 $387,946*

*Difference due to rounding. Journal entries for Department B: Work in Process—Dept. B .................. Work in Process—Dept. A ...........

159,776

Work in Process—Dept. B .................. Materials Inventory .......................

37,950

Work in Process—Dept. B .................. Conversion Costs—Dept. B ........

128,100

Finished Goods ................................... Work in Process—Dept. B ...........

364,520

159,776 37,950 128,100* 364,520

*As before, a control account for conversion cost is used to combine overhead and direct labor cost into one category.

182

6–37 1.

a. Molding Units to account for: Beginning WIP Started

500 1,000 1,500

Units accounted for: Transferred out Ending WIP

1,300 200 1,500

b. Assembly Units to account for: Beginning WIP Started

0 1,300 1,300

Units accounted for: Transferred out Ending WIP

900 400 1,300

c. Packaging Units to account for: Beginning WIP Started

2.

150 900 1,050

Units accounted for: Transferred out Ending WIP

1,050 0 1,050

Equivalent units:

Trans. out EWIP

Molding Mat. Conv. 1,300 1,300 200 40 1,500 1,340

3. Unit prior department cost Unit materials cost Unit conversion cost Total unit cost

Assembly Tr. In Mat. Conv. 900 900 900 400 160 160 1,300 1,060 1,060 Molding — $ 5.00 6.50 $11.50

Assembly $11.50 0.46 1.10 $13.06

Molding: Unit materials cost: ($2,500 + $5,000)/1,500 = $5.00 Unit conversion cost: ($1,050 + $7,660)/1,340 = $6.50

183

Packaging Tr. In Mat. Conv. 1,050 1,050 1,050 0 0 0 1,050 1,050 1,050 Packaging $13.06 2.65 3.05 $18.76

6–37

Concluded

Assembly: Unit transferred-in cost: (0 + $14,950)/1,300 = $11.50 Unit materials cost: (0 + $487.60)/1,060 = $0.46 Unit conversion cost: (0 + $1,166)/1,060 = $1.10 Packaging: Unit transferred-in cost: ($1,959 + $11,754)/1,050 = $13.06 Unit materials cost: ($375 + $2,407.50)/1,050 = $2.65 Unit conversion cost: ($225 + $2,977.50)/1,050 = $3.05 4.

Molding: Transferred out: (1,300 × $11.50) = $14,950 Ending WIP: (200 × $5) + (40 × $6.50) = $1,260 Assembly: Transferred out: (900 × $13.06) = $11,754 Ending WIP: (400 × $11.50) + (160 × $1.56) = $4,849.60 Packaging: Transferred out: (1,050 × $18.76) = $19,698 Ending WIP: 0

5.

Costs to account for: Molding Assembly Packaging Costs accounted for: Molding Assembly Packaging

BWIP $3,550.00 0.00 2,559.00

+

Current $12,660.00 16,603.60 17,139.00

=

Total $16,210.00 16,603.60 19,698.00

Trans. Out $14,950.00 11,754.00 19,698.00

+

EWIP $1,260.00 4,849.60 0.00

=

Total $16,210.00 16,603.60 19,698.00

184

6–38 1.

Equivalent units: Molding Mat. Conv.

Started and completed BWIP EWIP

2.

3.

800 0 200 1,000

800 350 40 1,190

Assembly Tr. In Mat. Conv. 900 0 400 1,300

Molding: Unit materials cost: Unit conversion cost: Total unit cost

900 0 160 1,060

Packaging Tr. In Mat. Conv.

900 0 160 1,060

900 0 0 900

$5,000/1,000 $7,660/1,190

= =

$ 5.000 6.437 $11.437

Assembly: Unit transferred-in cost: Unit materials cost: Unit conversion cost: Total unit cost

$14,950/1,300 $487.60/1,060 $1,166/1,060

= = =

$11.500 0.460 1.100 $13.060

Packaging: Unit transferred-in cost: Unit materials cost: Unit conversion cost: Total unit cost

$11,754/900 $2,407.50/900 $2,977.50/975

= = =

$13.060 2.675 3.054 $18.789

Molding: Transferred out: Started and completed (800 × $11.437) Prior-period cost Complete beginning WIP (350 × $6.437) Total transferred out Ending WIP: (200 × $5) + (40 × $6.437)

185

$ 9,149.60 3,550.00 2,252.95 $ 14,952.55 $ 1,257.48

900 0 0 900

900 75 0 975

6–38

Concluded

Assembly: Transferred out: Started and completed (900 × $13.06) Prior-period cost Complete beginning WIP Total transferred out

$ 11,754.00 0.00 0.00 $ 11,754.00

Ending WIP: (400 × $11.50) + (160 × $1.56) Packaging: Transferred out: Started and completed (900 × $18.789) Prior period cost Complete beginning WIP (75 × $3.054) Total transferred out

$ 16,910.10 2,559.00 229.05 $ 19,698.15

Ending WIP: 4.

$ 4,849.60

$

0

Cost reconciliation: Costs to account for: Molding Assembly Packaging

BWIP $3,550.00 0.00 2,559.00

+

Current $12,660.00 16,603.60 17,139.00

=

Total $16,210.00 16,603.60 19,698.00

Trans. Out $14,952.55 11,754.00 19,698.15

+

EWIP $1,257.48 4,849.60 0.00

=

Total $16,210.03* 16,603.60 19,698.15*

Costs accounted for: Molding Assembly Packaging

*Difference due to rounding.

186

MANAGERIAL DECISION CASES

6–39 1.

Gary’s proposal requires Donna to falsify the equivalent unit calculation so that income and assets can be inflated and reported incorrectly. Falsification of the production report would be a violation of at least two major ethical standards: integrity and objectivity. Falsification does not allow the organization to attain its legitimate and ethical objectives. Moreover, if Donna agrees to the proposal, she would be taking action that would discredit her profession. Finally, Donna has an ethical obligation to communicate information fairly and objectively, disclosing all information that would be needed for the loan officer to fairly assess the merits of the company’s request for a loan. Clearly, Donna should not agree to falsify the production report.

2.

Donna has an obligation to report Gary to a superior only if an actual ethical problem exists. If Gary decides that the course of action he is suggesting is not really in his or the company’s best interests, then no ethical problem exists, and no action by Donna is needed.

3.

If Gary insists on his idea of falsification of the division’s reports, Donna should attempt to resolve the conflict by appealing to Gary’s immediate supervisor (and on up, if necessary, until a satisfactory resolution is achieved). If no satisfactory resolution is possible, then Donna should resign and submit an informative memo to a representative of the organization.

4.

In this situation, the ethical dilemma is complicated by two factors: Donna’s age and a low likelihood of resolution by appealing to higher-level authorities. Donna’s age may make it more difficult to find alternative employment (at least at the same level and pay), and it may mean possible forfeiture of retirement benefits. Many students will likely respond that Donna should still resign (assuming that resolution is not likely), recommending the ideal outcome. While Donna’s ultimate resignation is the right choice if resolution fails, students should realize that ethical behavior may often carry with it some very significant personal sacrifices. It could be argued, however, that the costs of unethical behavior are even greater. Another possibility is to encourage Donna to see a lawyer. She has the option of fighting back, and at her age (with retirement benefits at stake), a good offense may be her best defense.

187

RESEARCH ASSIGNMENT

6–40 Answers will vary.

6–41 Answers will vary.

188