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JOB ORDER COST SYSTEM-raiborn Exercises 13. a. The direct material charge of $658,000 is higher than the estimate by $158,000. Assuming that there were no errors in the estimated and actual amounts, then either the price paid for the material or the quantity of material used was substantially higher than expected. To begin the validation process, 1. details of the original estimate to identify prices and quantities of materials for this job would need to be examined. The starting point to validate the material prices and quantities purchased is to examine vendor invoices billed to Quindo. These invoices will validate material purchase quantities and prices paid by Quindo. 2. Additionally, material requisition forms should be examined to validate the quantity of material actually used in production. 3. Next, an examination of the material cost (material quantity multiplied by material price) on the job order cost sheet should reconcile to the quantity of material shown on the material requisition forms. b. The direct labor charge of $625,000 is higher than the estimate by $225,000. Assuming that there were no errors in the estimated and actual amounts, then either the hourly rate paid to or the number of hours worked by employees was substantially higher than expected. To begin the validation process, 1. details of the original estimate to identify rates and hours for labor on this job would need to be examined. The starting point to validate the labor rates and hours worked is to 2. examine employee time sheets (or other labor accumulation documents). The time sheets will validate which employees worked on the job and for what period of time. 3. A discussion with the payroll manager should help ascertain the actual or average wage rates paid to employees. 4. Possibly some of Quindo’s employees who were listed as working on the job should be interviewed to determine the accuracy of the time sheets.
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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 Accounts Payable
204,000 204,000
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 (3,600 x $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
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c. Because the company worked only on Job #4263 until the end of April, all costs in beginning WIP for other jobs are still in that account at the end of the month. Beginning WIP $11,400 Less costs associated with Job #4263 (800) Costs associated with other jobs $10,600 Costs for Job #4264 ($1,870 + $1,800 + $2,160) 5,830 Ending WIP $16,430 d. CGM = Beginning WIP + Current period costs – Ending WIP = $11,400 + $163,800 + $1,870 + $55,800 + $66,960 $16,430 = $283,400 Unit cost = $283,400 ÷ 10,000 = $28.34 e. Applied OH – Actual OH = $66,960 - $68,700 = $1,740 underapplied 15.
a. OH rate = $268,800 ÷ $192,000 = 140% of direct labor b. Ending WIP Balance: DM
$ 75,450 DL OH ($36,200 x 1.40) 50,680 Ending balance $162,330
36,200
c. CGM = Beg. WIP + Current costs – Cost of jobs completed = $0 + $277,200 + $192,000 + $268,800 - $162,330 = $575,670 16.
a. Raw Material Inventory Accounts Payable
76,000 76,000
WIP - Job #217 WIP - Job #218 WIP - other jobs Direct Material Inventory
44,800 7,200 53,600
WIP - Job #217 WIP - Job #218 WIP - other jobs Cash (or Wages Payable)
10,400 14,000 19,600
Manufacturing Overhead Various accounts
105,600
44,000 220,000 220,000
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WIP - Job #217 51,480 WIP - Job #218 69,300 WIP - other jobs 97,020 Manufacturing Overhead 217,800 (Actual rate per DL$ = $44,000 x $4.95) Finished Goods Inventory 117,880 WIP Inventory - Job #217 117,880 ($11,200 + $44,800 + $10,400 + $51,480 = $117,880) Cash Sales ($117,880 × 1.35 = $159,138)
159,138
Cost of Goods Sold Finished Goods Inventory
117,880 117,880
159,138
b. Ending WIP = Beg. WIP + Current costs – Cost of Job #217 completed = $16,800 + $105,600 + $44,000 + $217,800 $117,880 = $266,320 Ending balance in Job #218 = $5,600 + $7,200 + $14,000 + $69,300 = $96,100 17.
a. OH rate = $127,680 ÷ 7,600 = $16.80 per DLH b. Average DL rate = $159,600 ÷ 7,600 = $21 per DLH c. 15,200 x ($21.00 + $16.80) = 15,200 x $37.80 = $574,560 DL & OH $916,650 - $574,560 = $342,090 DM in beginning WIP d. If workers on the job in ending WIP are assumed to be paid the average DL rate, then the ending WIP balance is: DM $ 73,250 DL (2,850 x $21) 59,850 OH (2,850 x $16.80) 47,880 Ending balance
$180,980
e. CGM = Beg. WIP + Current period costs – End. WIP
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= $916,650 + $589,670 + $159,600 + $127,680 $180,980 = $1,612,620 18.
a. CGS is the amount credited to Finished Goods Inventory for the year = $1,890,000.
b. Beg. FG + CGM – End. FG = CGS $90,000 + CGM - $57,000 = $1,890,000 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 = .75 x Sales = .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 = $1,295,200 c. Job B325: Applied OH = 85% of DL$ = .85 (128 x $12.90) = . 85 x $1,651.20 = $1,403.52 Job Q428: Applied OH = 85% of DL$ = .85 (240 x $12.90) = . 85 x $3,096.00 = $2,631.60 d. DM DL OH
Job B325 $21,980.00 1,651.20 1,403.52 $25,034.72
Q428 $14,700.00 3,096.00 2,631.60 $20,427.60
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e. CGM = Beg. WIP + DM used + DL + OH – End. WIP $1,295,200 = $14,600 + DM used + $12.90(25,760) + . 85($12.90 x 25,760) – ($25,034.72 + $20,427.60) $1,295,200 = $14,600 + DM used + $332,304 + $282,458.40 - $45,462.32 $1,295,200 = $583,900.08 + DM 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. Case #1 Case #2 Case #3 Case #4 DM $ 480 $ 8,800 $ 3,700 $ 850 DL ($190 per hour) 7,600 17,100 13,300 2,850 OH ($150 per court hour) 1,800 9,750 18,000 6,000 Totals $9,880 $35,650 $35,000 $9,700 b. DM DL (174 x $190) OH (72 x $150) Total cost Markup (45%) Total billed to client 21.
$10,100 33,060 10,800 $53,960 24,282 $78,242
a. Overhead rate = Budgeted OH ÷ Budgeted DL$ $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 ($22,700 x $4.25 = $96,475) c. $4.25 x 3,900 = $16,575 d. Beginning balance Direct material Direct labor Manufacturing overhead Ending balance
$18,350 29,600 3,900 16,575 $68,425
96,475 96,475
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7
a. Direct material $2,850 Direct labor ($800 ÷ $20 = 40 DLHs) 800 Applied overhead ($17 x 40) 680 Total cost of Job #920 $4,330 b. BI of WIP ($8,250 + $500 + ($17 x 25) $ 9,175 Direct material $21,650 Direct labor ($6,300 ÷ $20 = 315 DLHs) 6,300 Applied overhead ($17 x 315) 5,355 33,305 $42,480 EI of WIP (4,330) Cost of goods manufactured $38,150 c. Actual overhead $5,054 Applied overhead (5,355) Overapplied OH $ 301
23.
a. Mixing: $480,000 ÷ 60,000 = $8 per MH Paving: $700,000 ÷ 28,000 = $25 per DLH b. Mixing (290 MHs x $8) $ 2,320 Paving (340 DLHs x $25) 8,500 Total overhead applied $10,820 c. ($480,000 + $700,000) ÷ (60,000 + 12,000) = $1,180,000 ÷ 72,000 = $16.39 $16.39 x 334 = $5,474.26 applied to Job #220 A plant-wide rate would not have been indicative of the actual cost of each job because the Mixing department is very machine-intensive while the Paving department is very 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 19,000 Work in Process Inventory – other jobs321,000 Raw Material Inventory 340,000
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Work in Process Inventory – Job #462 275 Work in Process Inventory – other jobs 2,860 Cash (285 x $11)
3,135
Work in Process Inventory – Job #462 4,960 Work in Process Inventory – other jobs32,240 Overhead Control (2,400 x $15.50) 37,200 Work in Process Inventory – Job #462 2,844 Work in Process Inventory – other jobs22,896 Cash (1,430 x $18) 25,740 Work in Process Inventory – Job #462 346 Work in Process Inventory – other jobs 2,768 Overhead Control (180 x $17.30)
3,114
Finished Goods Inventory – Job #462 27,425 Work in Process Inventory – Job #462 27,425 ($19,000 + $275 + $4,960 + $2,844 + $346) Accounts Receivable – Power Sales ($27,425 x 1.20)
32,910 32,910
Cost of Goods Sold 27,425 Finished Goods Inventory – Job #462
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 x 1.2 = $40.13 (rounded) Sales without error Sales with error (500 x $40.13) Total “savings” of the error 25.
$32,910 20,065 $12,845
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
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services. Once the standards are developed, actual costs and input quantities can be compared against the standards to better understand the causes of cost variability across the contracts. Better identification and understanding of the causes of variances will allow managers to manage costs more effectively and price company services more appropriately. 26.
MPV = Actual cost for paper purchased– Standard cost for paper purchased = ($0.032 x 980,000) – ($0.036 x 980,000) = $31,360 - $35,280 = -$3,920. Since actual cost was less than standard, the variance is favorable. MQV = Actual cost for paper used – Standard cost for paper that should have been used = ($0.036 x 980,000) – ($0.036 x 984,000) = $35,280 - $35,424 = -$144.
27.
Since actual paper usage was less than the standard allowed, the variance is favorable. a. Total payroll = 9,000 × $9.65 = $86,850 b. LRV = Actual payroll – Standard cost for actual hours worked = $86,850 – ($9.85 x 9,000) = $86,850 - $88,650 = -$1,800. Since direct labor employees were paid less than the standard rate, the variance is favorable. c. LQV = Standard cost for actual hours worked – Standard cost for standard hours allowed for production = $88,650 – ($9.85 x 8,600) = $88,650 - $84,710 = $3,940. Since the number of hours worked was greater than the standard hours allowed, the variance is unfavorable. d. One concern would be the reason the company was paying its workers less than the standard rate per hour. The other concern would be that the workers, recognizing that they were being paid less than the standard, chose to work more slowly than they normally would, to compensate (relative to total wages) for the reduced wage. If this situation is the case, the company would have been better off paying the standard rate because the actual payroll was ($86,850 - $84,710) or $2,140 greater than the standard would have been.
28.
a. Currently, Bonivo has no data on the actual cost of building any of the computers being configured. Consequently, the
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company is unable to determine the actual profit (loss) generated on any sales transaction. The job order cost system would allow Bonivo to better understand what factors drive costs in the firm, measure the profit on sales transactions, and identify ways to better manage costs and revenues. b. A pricing policy that ignores the costs of direct labor and overhead (in addition to marketing and administrative costs) is flawed. Only if DL and OH are strictly proportional to direct material could their costs not be considered in determining the price and profit of each computer. However, in this case, these costs are likely a major portion of the cost of building a made-to-order computer. 29.
a. Secretary ($4,800 ÷ 160 hrs. x 35 hrs.) Copies (1,450 pages x $0.06 per page) Phone calls Overhead ($9,600 ÷ 160 hrs. x 35 hrs.) Attorney's time ($190 x 95 hrs.) Total charges
$ 1,050 87 145 2,100 18,050 $21,432
This means Conroe would be charging $21,432 ÷ 95 = $225.60 or $230 per hour (rounded). Total bill to Olivgra = 95 hours x $230 = $21,850 b. Direct costs ($87 + $145 + $18,050) Allocated secretarial costs Allocated overhead Margin [($18,050 + $2,100) × 0.40] Total billing
$18,282 1,050 2,100 8,060 $29,492
c. A flat charge per hour would be more likely to be acceptable to clients because such a charge is more understandable than being charged an hourly rate plus a charge for the time that is not really being spent on their cases. 30.
Each student will have a different answer, but the memo should address the following issue: Budgeted cost is far below each job’s actual cost, which indicates that the company is not using past job information as a basis for either controlling costs or increasing future bid prices. By not using available historical information to adjust operations, the company
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is accepting marginal jobs. Although each job generated a positive gross margin, the actual gross margin is only a small fraction of the budgeted gross margin. It is important that a company learn from past mistakes. 31.
a. Some of the companies that have been found to engage in this practice are Family Dollar, Pep Boys, Taco Bell, Toys-R-Us, and Wal-Mart. b. It is easier to doctor the records now than in the past because records are computerized and managers generally have access to the files. Previously, managers would have had to conspire with payroll clerks or accountants to change paper or punchcard records. c.
32.
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.
a. Manufacturing Overhead Raw Material Inventory Wages Payable
1,150
b. WIP - Job #BA468 Raw Material Inventory Wages Payable
1,150
250 900
250 900
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 33.
1,150 250 900
a. Predetermined OH rate = $1,421,000 ÷ 145,000 = $9.80 per MH Direct material $47,500 Direct labor 21,800 Overhead (325 x $9.80) 3,185
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Total cost
$72,485
Per unit cost = $72,485 ÷ 1,500 = $48.32 (rounded) b. The $750 rework cost is included in Manufacturing Overhead Control. c. Total original cost Cost of new 30 units Less sale of defective units Total cost of Job #876 34.
$72,485 1,390 (240) $73,635
a. The estimated cost of the spoilage should be included in calculating the predetermined overhead rate. This approach spreads the cost of spoilage across all good units produced. b. The cost of this spoilage should be charged to the specific job. Since there is no salvage value for the spoilage, no journal entry would be necessary as the cost of the spoiled units would be included in the prior charges to the job for direct materials, direct labor and manufacturing overhead. c. In this case, the spoilage is unexpected and the net cost should be recorded as a loss of the period in which it occurred. Any salvage value associated with the spoilage will reduce the amount of the loss. To record the transaction, work in process (and the specific job’s job order cost sheet) should be credited for the cost of the spoilage and the expected, net salvage of the spoilage should be debited (Disposal value of defective work). A loss account (e.g., Loss from abnormal spoilage) should be debited to balance the transaction.
Problems 35.
Raw Material Inventory Accounts Payable
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
790,000 570,000 120,000
Work in Process Inventory ($794,000 x .55) 436,700
874,000
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Manufacturing Overhead
436,700
Finished Goods Inventory Work in Process Inventory
1,046,000
Cost of Goods Sold Finished Goods Inventory
1,046,000
Cash
1,342,000
1,046,000 1,046,000
Sales 36.
1,342,000
a. $82,000 ÷ 8,000 DLH = $10.25 per DLH b. Direct Material Inventory Accounts Payable
90,000 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
75,600 82,000 82,000 88,500
Finished Goods Inventory 248,850 Work in Process Inventory CGM = BWIP + DM + DL + OH – EWIP CGM = $10,500 + $88,500 + $75,600 + $82,000 –$7,750 = $248,850 Accounts Receivable Sales
350,400
Cost of Goods Sold Finished Goods Inventory
243,700
c. Beginning FG CGM
$ 6,500 248,850
248,850
350,400 243,700
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CGS Ending FG 37.
a.
9/1 9/4
(243,700) $ 11,650
Raw Material Inventory Accounts Payable
1,940,000
Work in Process Inventory Manufacturing Overhead Raw Material Inventory
1,846,800 53,200
1,940,000
1,900,000
Issuances made to jobs as follows: #75, $289,600; #78, $252,600; #82, $992,200; #86,
$312,400
9/15
Work in Process Inventory Manufacturing Overhead Cash
665,600 91,400 757,000
Labor charged to jobs as follows: #75, $84,600; #78, $267,200; #82, $203,000; #86, $110,800
9/15
Work in Process Inventory Manufacturing Overhead
832,000
Overhead applied to jobs as follows: #75, $120,750; #78, $329,000; #82, $253,750; #86, $128,500.
9/15
Finished Goods Inventory Work in Process Inventory
832,000
1,081,350 1,081,350
($586,400 + $289,600 + $84,600 + $120,750)
Accounts Receivable Sales
1,405,755
Cost of Goods Sold Finished Goods Inventory
1,081,350
1,405,755
($1,081,350 x 1.3)
9/20
Manufacturing Overhead Accounts Payable Cash
1,081,350 110,200 196,800 307,000
9/24 Raw Material Inventory 624,000 Accounts Payable 9/25 772,200
Work in Process Inventory Manufacturing Overhead Raw Material Inventory
624,000 716,400 55,800
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15 Issuances made to jobs as follows: #78, $154,800; #82, $212,600; #86, $349,000
9/30
9/30
Manufacturing Overhead Accumulated Depreciation Prepaid Insurance Taxes & Licenses Payable Work in Process Inventory Manufacturing Overhead Cash
1,206,800 809,000 165,400 232,400 649,400 65,000 714,400
Labor charged to jobs as follows: #78, $177,400; #82, $228,400; #86, $243,600
9/30
Work in Process Inventory Manufacturing Overhead
407,125
To apply overhead to jobs as follows: #78, $111,750; #82, $170,625; #86, $124,750
b.
407,125
Raw Material Inventory_____ Bal. 332,400 9/4 1,900,000 9/1 1,940,000 9/25 772,200 9/24
624,000
Bal.
224,200
Bal. 9/4 9/15 9/15 9/25 9/30 9/30
Work in Process 1,512,600 9/15 1,081,350 1,846,800 665,600 832,000 716,400 649,400 407,125
Bal. 5,548,575 Cost of Goods Sold________ Bal. 4,864,000 #75 1,081,350 Bal.
5,945,350 Job #75
Bal. DM DL
586,400 289,600 84,600
1,081,350
Job #78 Bal. 266,600 DM 252,600 DL 267,200
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OH Bal.
120,750 0
Bal. DM DL OH DM DL OH
Job #82 659,600 992,200 203,000 253,750 212,600 228,400 170,625
OH 329,000 DM 154,800 DL 177,400 OH 111,750 Bal1,559,350 Job #86 DM 312,400 DL 110,800 OH 128,500 DM 349,000 DL 243,600 OH 124,750
Bal. 2,720,175 c.
Bal.1,269,050 Schedule of Job Cost Records September 30, 2010 Job #78
$1,559,350 Job #82 Job #86 Total d. Actual overhead for September 9/4 $ 53,200 9/15 91,400 9/20 110,200 9/25 55,800 9/30 1,206,800 9/30 65,000 Applied overhead for September 9/15 $ 832,000 9/30 407,125 Underapplied overhead 38.
a. Raw Material Inventory
2,720,175 1,269,050 $5,548,575
$1,582,400 (1,239,125) $ 343,275 542,000 Cash
542,000 Manufacturing Overhead Work in Process Inventory Wages/Salaries Payable (or Cash)
54,000 602,800 656,800
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17 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)
Manufacturing Overhead Work in Process Inventory Raw Material Inventory
76,000 466,400 542,400
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
114,400 114,400
To record OH costs other than indirect labor and indirect materials ($244,400 - $54,000 - $76,000)
Work in Process Inventory Manufacturing Overhead
241,120 241,120
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
1,779,040 1,779,040
(See schedule below.)
Cash Sales
2,264,774
Cost of Goods Sold Finished Goods Inventory
1,779,040
2,264,774 1,779,040
Schedule of Completed Jobs Job 247 251 253 254 255 Totals
Direct Material Direct Labor Applied OH Total $ 89,600 $108,800 $ 43,520 $ 241,920 182,800 218,600 87,440 488,840 162,200 190,600 76,240 429,040 105,200 136,600 54,640 296,440 119,800 145,000 58,000 322,800 $659,600 $799,600 $319,840 $1,779,040
b. Job Direct Material Direct Labor Applied OH Total 256 $ 72,800 $ 94,600 $37,840 $205,240 257 133,200 179,400 71,760 384,360 Totals $206,000 $274,000 $109,600 $589,600 c. Actual overhead
$ 244,400
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Applied overhead Underapplied overhead Unadjusted cost of jobs completed Adjusted cost of jobs completed 39.
a. BI Purchases Available Issuances EI
Aluminum Steel 8,300 $12,800 98,300 26,500 $106,600 $39,300 (58,700) (34,200) $ 47,900 $ 5,100 $
b. Direct material Direct labor (8 x $15) Overhead (16 x $30) Total
Job # 411 412
40.
Other Total $ 5,800 $ 26,900 23,550 148,350 $29,350 $175,250 (25,900) (118,800) $ 3,450 $ 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 *
241,120 $ 3,280 1,779,040 $1,782,320
Material Labor $1,900 $ 540 1,240 150 $3,140 $ 690
OH $1,500 900 $2,400
$ 6,230 118,800 10,200 36,000 $171,230 (1,220) $170,010 23,800 $193,810 (0) $193,810 Total $3,940 2,290 $6,230
a. Using any of the jobs, one can determine that the relationship between direct labor and applied overhead is that overhead is 115% of direct labor cost. For example, using job #67: $15,916 ÷ $13,840 = 1.15.
b. Direct material Direct labor Applied overhead Total
$25,800 7,200 8,280 $41,280
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c. Total direct material Less direct material in BI
$513,834 (25,800)$488,034
Total direct labor Less direct labor in BI Total direct cost added during May
$ 93,720 (7,200) 86,520 $574,554
d. Work in process - beginning Costs added during May: Direct material Direct labor Applied overhead ($86,520 x 1.15)
$ 41,280 $488,034 86,520 99,498
Work in process - ending ($308,430 + $57,000 + ($57,000 × 1.15) Cost of goods manufactured 41.
674,052 $715,332 (430,980) $284,352
a. Fabrication: $1,560,000 ÷ 104,000 MLHs = $15 per MH Assembly: $1,760,000 ÷ 320,000 DLHs = $5.50 per DLH b. Job #2296: Fabrication (900 hours @ $12) $10,800 Assembly (850 hours @ $10) 8,500 Total DL $19,300 Job #2297: Fabrication (460 hours @ $12) $5,520 Assembly (400 hours @ $10) 4,000 Total DL $9,520 c. Job #2296: $27,000
Fabrication (1,800 hours @ $15) Assembly (850 hours @ $5.50) 4,675 Total OH applied $31,675
Job #2297: Fabrication (900 hours @ $15) $13,500 Assembly (400 hours @ $5.50) 2,200 Total OH applied $15,700
d. Direct Material Direct Labor
Job #2296 $118,500 19,300
Job #2297 $147,200 9,520
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Overhead Total
31,675 $169,475
15,700 $172,420
e. Fabrication: Applied (103,200 × $15)$1,548,000 Actual (1,528,000) Overapplied $ 20,000 Assembly: Applied (324,000 × $5.50)$1,782,000 Actual (1,790,000) Underapplied $ 8,000 The company has overapplied overhead of $12,000 for the year. 42.
a.
Job Cost Sheet - Job #515 Customer Name and Address: Description of Job: Prepare
site, City of Gulf Shores Gulf Shores, Alabama
build and install a pedestrian overpass in Gulf Shores: see
bid specifications for details Contract Agreement Date: 5/10 Scheduled Starting Date: 7/10 Agreed Upon Completion Date: 12/15/10 Contract Price: $3,300,000 Actual Completion Date: ________________ Special Instructions: None Direct Material (Est. $1,240,000) Date Source 2010 July 31 Summary of material req. Direct Labor (Est. $670,000)
Cost $121,800 Overhead (Est. $402,000)
. Date
Source
Cost
Date
Source
Cost 2010 July 31
Summary of time sheets for direct
2010 July 31 Journal entry of 7/31/10
$105,024 labor
$175,040
Chapter 5
21
Summary (as of 7/31/10) Actual Under(Over) Direct material Direct labor Overhead Totals
Budget
$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 Accounts Payable
11,100
Advertising Expense Cash
26,400 7,800 11,100 6,600 6,600
Manufacturing Overhead Supplies Inventory
18,600
Miscellaneous Expense Accounts Payable
10,200
Utilities Expense Manufacturing Overhead Utilities Payable Work in Process - Job #515 Work in Process - other jobs
18,600
10,200 1,800 5,400 7,200 105,024 245,376
22
Chapter 5
Manufacturing Overhead
350,400
Accounts Receivable Sales
1,224,000 1,224,000
Finished Goods Inventory Work in Process Inventory 829,000
829,000
Cost of Goods Sold Finished Goods Inventory
829,000 829,000
c. Work in Process - beginning Production costs:
$ 871,800 Direct material
$579,300 Direct labor Applied overhead 350,400
1,513,700 $2,385,500 (1,556,500) Cost of goods $ 829,000
Work in process – ending manufactured d.
Birmingham Contractors Income Statement For the Month Ended July 31, 2010 Revenues from completed projects Less Cost of Goods Sold Gross Margin on Completed Jobs Non-Production Expenses: Salaries and Wages Expense Depreciation Expense Utilities Expense Sales Promotion Expense Advertising Expense Miscellaneous Expense Income Before Income Taxes Income Taxes (40%) Net Income
43.
584,000
$1,224,000 (829,000) $ 395,000 $39,600 7,800 1,800 11,100 6,600 10,200
a. Job #2019: Design ($81,600 × 30%) $24,480 Production (720 × $15) 10,800 Installation ($10,080 × 90%) 9,072
(77,100) $317,900 (127,160) $190,740
Chapter 5
23
Total overhead applied
$44,352
Job #2020: Design ($69,360 × 30%) $20,808 Production (2,400 × $15) 36,000 Installation ($11,520 × 90%) 10,368 Total overhead applied $67,176
Job #2021: Design ($73,440 × 30%) $22,032 Production (960 × $15) 14,400 Installation ($15,200 × 90%) 13,680 Total overhead applied $50,112 Design Installation Actual $105,600 Applied (67,320) (Over)/under applied $ 38,280 Actual OH for company Applied OH for company Total company underapplied OH b.
Production $60,000 (61,200) $ (1,200)
$31,200 (33,120) $ (1,920)
$196,800 (161,640) $ 35,160
Work in Process (Design) – Job #2019 9,600 Work in Process (Design) – Job #2020 8,200 Work in Process (Design) – Job #2021 17,600 Raw Material Inventory 35,400 Work in Process (Design) – Job #2019 81,600 Work in Process (Design) – Job #2020 69,360 Work in Process (Design) – Job #2021 73,440 Wages Payable 224,400 Work in Process (Design) – Job #2019 24,480 Work in Process (Design) – Job #2020 20,808 Work in Process (Design) – Job #2021 22,032 Manufacturing Overhead 67,320 Work in Process (Prod.) – Job #2019 116,400 Work in Process (Prod.) – Job #2020 268,800 Work in Process (Prod.) – Job #2021 232,000 Raw Material Inventory 617,200
24
44.
Chapter 5
Work in Process (Prod.) – Job #2019 Work in Process (Prod.) – Job #2020 Work in Process (Prod.) – Job #2021 Wages Payable
34,000 59,600 21,600 115,200
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 57,600
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 36,800
Work in Process (Inst.) – Job #2019 Work in Process (Inst.) – Job #2020 Work in Process (Inst.) – Job #2021 Manufacturing Overhead
9,072 10,368 13,680
61,200
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
a. Reliant: $5,580 ÷ $45 = 124 DLH worked Dumas: $18,000 ÷ $45 = 400 DLH worked
33,120
Chapter 5
25
Omaha: $28,350 ÷ $45 = 630 DLH worked Reliant: 124 DLH x $58 = $7,192 OH applied Dumas: 400 DLH x $58 = $23,200 OH applied Omaha: 630 DLH x $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 X $8,600) Costs: Direct material Direct labor Applied overhead Overapplied overhead Net income
$180,600 $41,800 51,930 66,932 (16,932)
(143,730) $ 36,870
d. Sales: Reliant ($20,572 x 1.3) $26,743.60 Dumas ($55,400 x 1.3) 72,020.00 Omaha ($84,690 x 1.3) 110,097.00 Costs: Direct material $41,800.00 Direct labor 51,930.00 Applied overhead 66,932.00 Overapplied overhead (16,932.00) Net income
$208,860.60
(143,730.00) $ 65,130.60
Income using a cost-plus basis is substantially higher than that which is obtained using a flat rate selling price. Dumas Manufacturing will be more pleased with the system; rather than paying a rate of $8,600 per ad, Dumas would be paying $7,202. On the other hand, Reliant’s and Omaha’s costs per ad would increase from $8,600 per ad to $8,915 and $13,762, respectively. Ads shouldn't be billed at a flat rate because some may take much longer to develop than others. The 8 ads for Omaha took 630 hours to develop or about 79 hours each. In contrast, the 3 ads were developed for Reliant in 124 hours (41 hours
26
Chapter 5
each) and the 10 ads were developed for Dumas in only 400 hours (40 hours each). Another possibility for LeBlanc is to bill based on a standard charge per labor hour—especially if clients tend to change their minds after the ad development process begins. 45.
a. Oct. 1 Raw Material Inventory Accounts Payable 1 Work in Process - P Manufacturing Overhead - P Raw Material Inventory
1,150,000 1,150,000 650,000 500,000 1,150,000
5 Manufacturing Overhead - C Accounts Payable
25,000
8 Manufacturing Overhead - P Cash
5,000
25,000 5,000
15 No entry needed. 20 Manufacturing Overhead - C Cash
60,000
24 Raw Material Inventory Accounts Payable
1,485,000
31 Manufacturing Overhead – P Work in Process – P Cash Accumulated Depr. - P
36,320 45,000
31 C
60,000
1,485,000
66,120 15,200 Manufacturing Overhead –
18,650 Work in Process – C Cash Accumulated Depr. - C 31 Accounts Payable Cash
16,300 26,200 8,750 2,635,000
31 Work in Process – P 150,000 Manufacturing Overhead – P (6,000 MH x $25)
2,635,000 150,000
Chapter 5
27
31 Work in Process – C 26,895 Manufacturing Overhead – C ($16,300 x 1.65) Nov. 1 Manufacturing Overhead – C Cash 4 Work in Process - P Manufacturing Overhead - P Raw Material Inventory 8 Manufacturing Overhead – P Cash
26,895
5,000 5,000 825,000 175,000 1,000,000 5,000 5,000
15 Work in Process – C 200,000 Manufacturing Overhead - C 225,000 Raw Material Inventory
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
54,050 115,000 153,850 15,200
30 Manufacturing Overhead – C 43,850 Work in Process – C 134,300 Cash Accumulated Depr. - C
159,800 18,350
30 Work in Process – P 98,750 Manufacturing Overhead – P (3,950 x $25)
98,750
30 Work in Process – C 221,595 Manufacturing Overhead - C ($134,300 x 1.65)
221,595
30 Completed Projects Inventory Work in Process - P Work in Process - C
2,482,840 1,883,750 599,090
28
Chapter 5
30 Accounts Receivable Construction Revenue
3,450,000 3,450,000
30 Cost of Contracts Sold 2,482,840 Completed Projects Inventory
b. Raw Material 1,150,000
1,150,000
2,482,840
Precast Overhead– P
Construction Overhead - C
500,000 150,000
25,000
26,895 1,485,000
1,000,000
5,000
98,750
60,000
221,595 425,000
bal 60,000 WIP – Precast
36,320 175,000 5,000 54,050 bal 526,620
16,300 599,090 26,895 200,000 134,300 221,595
bal 0
bal 0
Completed Projects Inv. 2,482,840 2,482,840
c.
bal 129,010
WIP - Construction
650,000 1,883,750 45,000 150,000 825,000 115,000 98,750
bal
18,650 5,000 225,000 43,850
0
Cost of Contracts Sold 2,482,840 bal 2,482,840
(bottom section of job cost sheet)
Chapter 5
29
Precast Department DM (Est. $1,550,000) $275,000) Date Amount Amount Oct. 1 $ 650,000 $150,000 Nov. 4 825,000
DL (Est. $220,000) Date
Oct. 31 Nov. 30
Amount
OH (Est.
Date
$ 45,000 Oct. 31 115,000 Nov. 30 98,750 $1,475,000 $160,000
$248,750 Construction Department DM (Est. $350,000) $214,500) Date Amount Amount Nov. 15 $ 200,000
DL (Est. $130,000) Date
Amount
Oct. 31 $ 16,300 Nov. 30 134,300 $150,600
OH (Est. Date Oct. 31 $ 26,895 Nov. 30 221,595
$248,490
d. Lincoln Construction Company does not seem to have a good estimation system in place for its bid process, especially in its Precast Department. The company may be losing a significant number of bids because of inflated cost estimates. 46.
a. A job order cost system is appropriate in any environment in which costs can be readily identified with specific products, batches, contracts, or projects. For adopting this system there should be a justification on a cost-benefit basis to trace costs to those specific products, batches, contracts, or projects. b. The only job remaining in WIP at 5/31 is DRS114: DRS114 balance, 4/30 $1,570,000 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
30
Chapter 5
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 $ 3,000 Purchased parts 10,800 Direct labor 43,200 Overhead (4,400 X $7.50) 33,000 Total cost
$420,000
90,000 $510,000
Unit cost = $510,000 ÷ 15,000 units completed = $34 per unit FG inventory = $34 X 13,400 = $455,600 d. If the amount of overapplied or underapplied OH is not material or the result of an error in the OH application rate, the amount is normally charged directly to CGS. If the amount is significant, the amount should be prorated over the relevant accounts (i.e., WIP, FG, and CGS). (CMA adapted) 47. a., b. Applied OH rate = $302,400 ÷ 100,800 = $3 per DLH Cost of goods manufactured $ 96,000 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 20,232 Total costs accounted for $116,232 Less beginning work in process (15,400) Cost of production inputs $100,832 Less: Direct labor $36,400 Applied OH ($3.00 × 8,800) 26,400 (62,800) Cost of direct material used $ 38,032 Cost of indirect material issued 11,600 Total cost of raw material used $ 49,632 c. Beginning raw material
$ 9,600
Chapter 5
31
Raw material purchased 56,000 Total raw material available $65,600 Raw material issued (49,632) Ending raw material $15,968 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 48.
$ 26,400 $10,800 11,600 5,000 (27,400) $ 1,000 $ 16,800 96,000 $112,800 (13,200) $ 99,600
a. Actual DM cost $11,600,000 Standard DM cost ($56,000 × 200) (11,200,000) Material Price Variance $ 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 $14,800,000 Standard OH cost ($76,000 × 200) (15,200,000) OH Variance $ (400,000) F b. Material: $11,600,000 ÷ 6,000,000 = $1.93 (rounded) actual cost per lb. vs. $2.00 standard cost per lb.; $0.07 x 6,000,000 = $420,000 F price variance 6,000,000 lbs. used vs. (28,000 x 200) standard = 6,000,000 – 5,600,000 = 400,000 lbs. more than standard; 400,000 x $2 = $800,000 U quantity variance The primary cause of the unfavorable material variance is because of excess usage. 49.
a. DM cost DL cost ($20 x (12 ÷ 60)) Total standard prime costs
$18.00 4.00 $22.00
32
Chapter 5
b. Job #918 DM cost ($18 x 1,200) $21,600 DL cost ($4 x 1,200) 4,800 Total standard direct cost $26,400 Job #2002 DM cost ($18 x 2,000) DL cost ($4 x 2,000) Total standard direct cost c. Job #918 DM DL Total Job #2002 DM DL Total
$ 36,000 8,000 $44,000
Standard Actual Variance $ 21,600 $23,525 $1,925 U 4,800 4,840 40 U $26,400 $28,365 $1,965 U $36,000 8,000 $44,000
$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.
50.
a. Profit on the fixed-price contracts is constrained by the contract price. Profit can only be increased if ways are found to reduce costs. One way that costs can be reduced is to shift them to other contracts. This is a particularly effective strategy if the costs that are shifted to another contract can be recouped under the terms of that other contract. By shifting some costs of the fixed-price contracts to the costplus contracts, the profit on the fixed-price contracts rises and the shifted costs can be recovered under the terms of the cost-plus contracts. Further, this strategy may have the effect of increasing costs under the cost-plus contracts if those contracts determine profit as a percentage of total costs. b. This type of cost shifting is dishonest and unethical. It has the effect of increasing the total prices of cost-plus contracts, and, if those contracts are government related, those prices are
Chapter 5
33
typically borne by taxpayers. In a sense it is a way for the stockholders and managers of the defense contractors to steal from the taxpayers. It is difficult to imagine a setting in which this process could be labeled ethical. 51.
a. Each student will have a different answer. b. The company is utilizing the benefits of automation to reduce the costs of handling so many parts. By standardizing processes, the company can assemble a messenger bag with a diverse set of parts in an amount of time that is similar to that required for mass-produced ones. Accordingly, although the company is probably paying, on average, more for parts on custom messenger bags than mass-produced ones; it is holding the line on direct labor and production overhead. By holding costs down for labor and overhead, the total cost of the custom produced messenger bags is not significantly higher than that of the mass produced messenger bags. c. Quality as viewed from the perspective of the consumer should be much higher with the custom-made messenger bags because customers are able to specify the various parts they want included. By getting the exact combination of parts the customers desire, they will perceive the quality of the product to be very high relative to the premium in price they pay over the mass-produced messenger bags. d.
52.
The answer is mostly revealed in part (c). By containing costs to levels close to those of mass-produced messenger bags, but allowing the customer to choose the parts they desire, a substantial gross profit can be achieved. The higher gross profit reflects the customers' willingness to pay a premium for the exact combination of parts desired, even though the company's costs are not significantly greater than those incurred to mass produce messenger bags. 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
34
Chapter 5
violate their personal ethics. Although the Supreme Court of the United States will ultimately determine whether this is a legal practice, each individual student can reach his/her own conclusion as to whether the practice is ethical. 53.
a. Overhead other than spoilage $600,000 Estimated spoilage cost $50,000 Less salvage value 20,000 30,000 Adjusted estimated overhead cost $630,000 POR = $630,000 ÷ 40,000 = $15.75 per DLH b. Disposal value of chemical Manufacturing Overhead Work in Process—Job #788
54.
496 1,234 1,730
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 x $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 x $8.50) Total cost of Job B316 e. Total cost of direct material Total cost of direct labor Applied OH (3,080 x $8.50) Rework cost ($75,500 x .20) Sale of reworked pipe (200 x Total cost of Job B316
$687,100 157,750 26,180 $871,030 $687,100 157,750 26,180 15,100 $3.50) (700) $885,430
