216309803 hilton 9e global edition solutions manual chapter03

7/25/2019 216309803 Hilton 9E Global Edition Solutions Manual Chapter03

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CHAPTER 3

Product Costing and Cost Accumulation in aBatch Production Environment

ANSWERS TO REVIEW QESTIONS

3-1 (a) Use in financial accounting: In financial accounting, product costs are needed todetermine the value of inventory on the balance sheet and to compute the cost-of-goods-sold expense on the income statement

(b) Use in managerial accounting: In managerial accounting, product costs areneeded for planning, for cost control, and for decision ma!ing

(c) Use in cost management: In order to manage, control, or reduce the costs ofmanufacturing products or providing services, management needs a clear idea of

"hat those costs are

(d) Use in reporting to interested organi#ations: $roduct cost information is used inreporting on relationships bet"een firms and various outside organi#ations %orexample, public utilities such as electric and gas companies record productcosts to &ustify rate increases that must be approved by state regulatoryagencies

3-' In a &ob-order costing system, costs are assigned to batches or &ob orders ofproduction ob-order costing systems are used by firms that produce relativelysmall numbers of dissimilar products In a process-costing system, production costsare averaged over a large number of product units $rocess-costing systems areused by firms that produce large numbers of nearly identical products

3-3 oncepts of product costing are applied in service industry firms to informmanagement of the costs of producing services %or example, ban!s record thecosts of producing financial services for the purposes of planning, cost control, anddecision ma!ing

3-* a +aterial reuisition form: document upon "hich the production departmentsupervisor reuests the release of ra" materials for production

b .abor time record: document upon "hich employees record the time theyspend "or!ing on each production &ob or batch

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c ob-cost record: document on "hich the costs of direct material, direct labor,and manufacturing overhead are recorded for a particular production &ob orbatch /he &ob-cost sheet is a subsidiary ledger account for the 0or!-in-$rocessInventory account in the general ledger

3- lthough manufacturing-overhead costs are not directly traceable to products,manufacturing operations cannot ta!e place "ithout incurring overhead costsonseuently, overhead costs are applied to products for the purpose of ma!ingpricing decisions, in order to ensure that product prices cover all of the costs ofproduction

3-2 /he primary benefit of using a predetermined overhead rate instead of an actualoverhead rate is to provide timely information for decision ma!ing, planning, andcontrol

3- n advantage of prorating overapplied or underapplied overhead is that it results inthe ad&ustment of all the accounts affected by misestimating the overhead rate/hese accounts include the 0or!-in-$rocess Inventory account, the %inished-4oodsInventory account, and the ost of 4oods 5old account /he resulting balances inthese accounts are more accurate "hen proration is used than "hen overapplied orunderapplied overhead is closed directly into ost of 4oods 5old /he primarydisadvantage of prorating overapplied or underapplied overhead is that it is morecomplicated and time-consuming than the simpler alternative of closing overappliedor underapplied overhead directly into ost of 4oods 5old

3-6 n important cost-benefit issue involving accuracy versus timeliness in accounting

for overhead involves the use of a predetermined overhead rate or an actualoverhead rate 5ince an actual overhead rate is computed after costs have beenincurred and activity has been recorded, it is more accurate than a predeterminedrate 7o"ever, a predetermined overhead rate is more timely than an actual rate,since the predetermined rate is computed earlier and in time to be used for ma!ingdecisions, planning, and controlling operations

3-8 /he difference bet"een actual and normal costing systems involves the procedurefor applying manufacturing overhead to 0or!-in-$rocess Inventory Under actualcosting, applied overhead is the product of the actual overhead rate (computed at

the end of the period) and the actual amount of the cost driver used Under normalcosting, applied overhead is the product of the predetermined overhead rate(computed at the beginning of the period) and the actual amount of the cost driverused


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3-19 0hen a single volume-based cost driver is used to apply manufacturing overhead,the managerial accountants primary ob&ective is to select a cost driver that varies ina pattern similar to the pattern in "hich manufacturing overhead varies +oreover, ifa single cost driver is used, it should be some productive input that is common to allof the firms products

3-11 /he benefit of using multiple overhead rates is that the resulting product-costinginformation is more accurate and more useful for decision ma!ing than is theinformation that results from using a single overhead rate 7o"ever, the use ofmultiple cost drivers and overhead rates is more complicated and more costly

3-1' /he development of departmental overhead rates involves a t"o-stage process Instage one, overhead costs are assigned to the firms production departments %irst,overhead costs are distributed to all departments, including both service andproduction departments 5econd, costs are allocated from the service departments

to the production departments t the end of stage one, all overhead costs havebeen assigned to the production departments

In stage t"o, the costs that have been accumulated in the productiondepartments are applied to the production &obs that pass through the departments

3-13 a ;verhead cost distribution: ssignment of all manufacturing-overhead costs todepartment overhead centers

b 5ervice department cost allocation: llocation of service department costs toproduction departments on the basis of the relative proportion of each service

departments output that is used by the various production departments

c ;verhead application (or overhead absorption): /he assignment of allmanufacturing overhead costs accumulated in a production department to the

&obs that the department has "or!ed on

/hese three processes are used in developing departmental overhead rates

3-1* ob-order costing concepts are used in professional service firms 7o"ever, ratherthan referring to production


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3-1 cost driver is a characteristic of an event or activity that results in the incurrenceof costs by that event or activity volume-based cost driver is one that is closelyassociated "ith production activity, such as the number of units produced, direct-labor hours, or machine hours

3-12 0hen direct material, direct labor, and manufacturing-overhead costs are incurred,they are applied to 0or!-in-$rocess Inventory by debiting the account 0hen goodsare finished, the costs are removed from that account "ith a credit, and they aretransferred to %inished-4oods Inventory by debiting that account 5ubseuently,

"hen the goods are sold, %inished-4oods Inventory is credited, and the costs areadded to ost of 4oods 5old "ith a debit

3-1 7ospitals use &ob-order costing concepts to accumulate the costs associated "itheach case treated in the hospital %or example, the costs of treating a heart patient

"ould be assigned to that patients case /hese costs "ould include the hospital

room, food and beverages, medications, and speciali#ed services such as diagnostictesting and > rays

3-16 5ome manufacturing firms are s"itching from direct-labor hours to machine hoursor throughput time as the basis for overhead application as a result of increasedautomation in their factories 0ith increased automation comes a reduction in theamount of direct labor used in the production process In such cases, direct labormay cease to be a cost driver that varies in a pattern similar to the "ay in "hichmanufacturing-overhead costs are incurred

3-18 ;verapplied or underapplied overhead is caused by errors in estimating the

predetermined overhead rate /hese errors can occur in the numerator (budgetedmanufacturing overhead), or in the denominator (budgeted level of the cost driver)

3-'9 ;verapplied or underapplied overhead can be closed directly into ost of 4oods5old, or it can be prorated among 0or!-in-$rocess Inventory, %inished-4oodsInventory, and ost of 4oods 5old

3-'1 large retailer could use ?@I to exchange such documents as purchase orders,shipping and receiving notices, and invoices electronically "ith its suppliers?lectronic data interchange (?@I) is the direct exchange of data via a computer-to-

computer interface3-'' n engineer could use bar code technology to record ho" she spends her time Aar

codes "ould be assigned to her and to each of her activities ?ach time she arrivedat "or!, left "or!, or changed activity at "or!, the engineer "ould scan her personalbar code and the bar code of the appropriate action or activity ?xamples of activitiesare designing, redesigning, or testing a productB change ordersB visiting the factoryfloorB constructing a prototypeB and being trained


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SO&TIONS TO E'ERCISES

?>?CI5? 3-'3 (19 +IDU/?5)

1 $rocess

' ob-order

3 ob-order (contracts or pro&ects)

* $rocess

$rocess

2 ob-order

$rocess

6 ob-order (contracts or pro&ects)

8 $rocess

19 ob-order

?>?CI5? 3-'* (1 +IDU/?5)

1 volumeproductionbudgeted

overheadbudgetedrateoverheadned$redetermi =

(a) t '99,999 chic!en volume:

chic!enperE29'99,999

,999)(E19)('99E199,999rate;verhead =

+=

(b) t 399,999 chic!en volume:

(rochic!enperE*3399,999

,999)(E19)(399E199,999rate;verhead =

+=

(c) t *99,999 chic!en volume:

chic!enperE3*99,999

,999)(E19)(*99E199,999rate;verhead =

+=


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?>?CI5? 3-'* (;D/IDU?@)

' /he predetermined overhead rate does not change in proportion to the change inproduction volume s production volume increases, the E199,999 of fixed overheadis allocated across a larger activity base 0hen volume rises by 9F, from '99,999 to

399,999 chic!ens, the decline in the overhead rate is '633F G(29 H *3)29J 0henvolume rises by 3333F, from 399,999 to *99,999 chic!ens, the decline in theoverhead rate is 162F G(*3 H 3)*3J

?>?CI5? 3-' ( +IDU/?5)

0or!-in-$rocess Inventory ,99Ca"-+aterial Inventory *,2990ages $ayable '9+anufacturing ;verhead 169

%inished-4oods Inventory ,990or!-in-$rocess Inventory ,99

?>?CI5? 3-'2 (39 +IDU/?5)

ob-order costing is the appropriate product-costing system for feature filmproduction, because a film is a uniue production /he production process foreach film "ould use labor, material and support activities (ie, overhead) indifferent "ays /his "ould be true of or any type of film (eg, filming onlocation, filming in the studio, or using animation)

?>?CI5? 3-' ('9 +IDU/?5)

1 Ca"-material inventory, anuary 1 E13*,999dd: Ca"-material purchases 181,999Ca" material available for use E3',999@educt: Ca"-material inventory, anuary 31 1'*,999

Ca" material used in anuary E'91,999@irect labor 399,999/otal prime costs incurred in anuary E91,999

' /otal prime cost incurred in anuary E91,999

pplied manufacturing overhead (29F E399,999) 169,999

/otal manufacturing cost for anuary E261,999


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?>?CI5? 3-' (;D/IDU?@)

3 /otal manufacturing cost for anuary E261,999dd: 0or!-in-process inventory, anuary 1 '3,9995ubtotal E812,999

@educt: 0or!-in-process inventory, anuary 31

'1,999ost of goods manufactured E22,999

* %inished-goods inventory, anuary 1 E1',999dd: ost of goods manufactured 22,999ost of goods available for sale E89,999@educt: %inished-goods inventory, anuary 31 11,999ost of goods sold E23,999

5ince the company accumulates overapplied or underapplied overhead until the end ofthe year, no ad&ustment is made to cost of goods sold until @ecember 31

pplied manufacturing overhead for anuary E169,999ctual manufacturing overhead incurred in anuary 1,999;verapplied overhead as of anuary 31 E ,999

/he balance in the +anufacturing ;verhead account on anuary 31 is a E,999 creditbalance

D;/?: ctual selling and administrative expense, although given in the exercise, isirrelevant to the solution

?>?CI5? 3-'6 (1 +IDU/?5)

1 pplied manufacturing overhead K total manufacturing costs39F

K E',99,99939F

K E9,999

pplied manufacturing overhead K direct-labor cost69F

@irect-labor cost K applied manufacturing overhead 69F

K E9,999 6

K E83,99


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?>?CI5? 3-'6 (;D/IDU?@)

' @irect-material cost K total manufacturing costH direct labor costH applied manufacturing overhead

K E',99,999 H E83,99 H E9,999

K E61',99

3 .etXdenote "or!-in-process inventory on @ecember 31

/otal "or!-in-process "or!-in-process cost ofmanufacturing L inventory, H inventory, K goods

cost an1 @ec 31 manufactured

E',99,999 L X H X K E',*',99925X K E',99,999 H E',*',999

X K E399,999

0or!-in-process inventory on @ecember 31 amounted to E399,999


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?>?CI5? 3-'8 (' +IDU/?5)

;A-;5/ C?;C@

ob Dumber /A6 @escription stuffed bears

@ate 5tarted *1 @ate ompleted *1

Dumber of Units ompleted 1,999

@irect +aterial@ate Ceuisition Dumber Muantity Unit $rice ost*1 191 *9 E6 E3'9* 196 1' 1' 19

@irect .abor@ate /ime ard Dumber 7ours Cate ost

*1 H *6 Narious time cards 99 E1 E,99

+anufacturing ;verhead@ate ctivity Aase Muantity pplication Cate ost*1 @irect-labor hours 99 E' E1,999

ost 5ummary

ost Item mount/otal @irect +aterial/otal @irect .abor/otal +anufacturing ;verhead

E *9,991,999

/otal ost E6,89Unit ost E 68

5hipping 5ummary

@ate Units 5hippedUnits Cemaining

In Inventory ost Aalance

*39 99 399 E',281O

O399 units remaining in inventoryE68 K E',281


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?>?CI5? 3-39 (39 +IDU/?5)

1 CRNC-E.CEREA&CO.PAN/SC-E0&EO1COSTO12OO0S.AN1ACTRE0

1ORT-E/EAREN0E00ECE.BER$!3 #4'!

@irect material:Ca"-material inventory, anuary 1 E 39,999dd: $urchases of ra" material '6,999Ca" material available for use E396,999@educt: Ca"-material inventory, @ecember 31 33,999Ca" material used E',999

@irect labor 1'9,999

+anufacturing overhead '',999 */otal manufacturing costs E2*,999

dd: 0or!-in-process inventory, anuary 1 38,999

5ubtotal E262,999

@educt: 0or!-in-process inventory, @ecember 31 *',899ost of goods manufactured E2*3,199

Opplied manufacturing overhead is E'',999 (E1'9,999'19F) ctual manufacturing

overhead is also E'',999, so there is no overapplied or underapplied overhead

' %inished-goods inventory, anuary 1 E *',999dd: ost of goods manufactured 2*3,199ost of goods available for sale E26,199

@educt: %inished-goods inventory, @ecember 31

*2,'99ost of goods sold E236,899

3 In the electronic version of the solutions manual, press the /C. !ey and clic! on thefollo"ing lin!: AUI.@ 5$C?@57??/ 93-39>.5


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?>?CI5? 3-31 ('9 +IDU/?5)

1 Ca"-+aterial Inventory 0or!-in-$rocess Inventory

'',999 16,9991*,999 @+ 1*,999

3,999 @. 3'*,999+;7 169,999

0ages $ayable 1'9,9993'*,999 2,999

+anufacturing ;verhead %inished-4oods Inventory169,999 39,999

1'9,9995ales Cevenue 13',999

18,999 16,999

ccounts Ceceivable ost of 4oods 5old18,999 13',999

' REI.E&1RNITRECO.PAN/3 INC5PARTIA&BA&ANCES-EET

ASO10ECE.BER$!3 #4'#

urrent assets ash >>> ccounts receivable >>>

Inventory Ca" material E 3,999 0or! in process 2,999 %inished goods 16,999

REI.E&1RNITRECO.PAN/3 INC5PARTIA&INCO.ESTATE.ENT

1ORT-E/EAREN0E00ECE.BER$!3 #4'#

5ales revenue

E18,999

.ess: ost of goods sold

13',9994ross margin

E 23,999


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?>?CI5? 3-3' ('9 +IDU/?5)

1 Ca" material:

Aeginning inventory E 1,999

dd: $urchases

P@educt: Ca" material used 3'2,999?nding inventory E 61,999

/herefore, purchases for the year "ere E332,999

' @irect labor:

/otal manufacturing cost E262,999@educt: @irect material 3'2,999

@irect labor and manufacturing overhead

329,999

@irect labor L manufacturing overhead K E329,999@irect labor L (29F) (direct labor) K E329,999

(129F) (direct labor) K E329,999

@irect labor K E329,99912

@irect labor K E'',999

3 ost of goods manufactured:

0or! in process, beginning inventory E 69,999dd: /otal manufacturing costs 262,999@educt: ost of goods manufactured P0or! in process, ending inventory E 39,999

/herefore, cost of goods manufactured "as E32,999


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?>?CI5? 3-3' (;D/IDU?@)

* ost of goods sold:

%inished goods, beginning inventory E 89,999

dd: ost of goods manufactured 32,999ost of goods available forsaleQQQQQQQQQQQQQQQQQ

E6'2,999

@educt: ost of goods sold P%inished goods, ending inventoryQQQQQQQQQQQQQQQQ E119,999

/herefore, cost of goods sold "as E12,999

?>?CI5? 3-33 ('9 +IDU/?5)

alculation of proration amounts:

alculation ofccount mount $ercentage $ercentage

0or! in $rocessE 3,'9 'F 3,'9 E1*1,999%inished 4oods*8,39 3F *8,39 E1*1,999ost of 4oods 5old2,*99 *9F 2,*99 E1*1,999/otalE1*1,999 199F

Underapplied mount ddedccount ;verhead x $ercentage to ccount

0or! in $rocessE3',999O x 'F E6,999%inished 4oods 3',999 x 3F 11,'99ost of 4oods 5old 3',999 x *9F 1',699

OUnderapplied overhead K actual overhead H applied overheadE3',999 K E13,999 H E1*1,999

ournal entry:

0or!-in-$rocess Inventory 6,999%inished-4oods Inventory 11,'99ost of 4oods 5old 1',699

+anufacturing ;verhead 3',999


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?>?CI5? 3-3 ('9 +IDU/?5)

D;/?: Audgeted sales revenue, although given in the exercise, is irrelevant to the solution

1 $redetermined overhead rate K drivercostoflevelbudgetedoverheadingmanufacturbudgeted

(a) hoursmachine10,000$378,000

K E369 per machine hour

(b) hourslabor-direct20,000$378,000

K E1689 per direct-labor hour

(c) *$280,000$378,000

KE13 per direct-labor dollar or 13Fof direct-labor cost

OAudgeted direct-labor cost K '9,999E1*

' ctualmanufacturing

overheadH

appliedmanufacturing

overheadK

overapplied orunderapplied

overhead

(a) E3*9,999 H (11,999)(E369) K E,699 overapplied overhead

(b) E3*9,999 H (16,999)(E1689) K E'99 overapplied overhead

(c) E3*9,999 H (E'9,999R)(13F) K E'*,99 overapplied overhead

Rctual direct-labor cost K 16,999E1

?>?CI5? 3-32 ( +IDU/?5)

1 0or!-in-$rocess Inventory 3*9,999+anufacturing ;verhead 3*9,999

' 0or!-in-$rocess Inventory *99,*99+anufacturing ;verhead *99,*99


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?>?CI5? 3-3 (19 +IDU/?5)

Audgeted overhead rate K budgeted overhead budgeted direct professional labor 129F K *99,999 euros '9,999euros

ontract to redecorate mayorSs offices:

@irect material 3,99 euros@irect professional labor 2,999euros

;verhead (129F 2,999 euros) 8,299 euros

/otal contract cost 18,199 euros

?>?CI5? 3-36 (1 +IDU/?5)

1 +emorandum

@ate: /oday

/o: $resident

%rom: I+ 5tudent

5ub&ect: ost driver for overhead application

I recommend direct-labor hours as the best volume-based cost driver upon "hich to

base the application of manufacturing overhead 5ince our products are made byhand, direct labor is a very significant production input +oreover, the incurrence ofmanufacturing overhead cost appears to be related to the use of direct labor


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?>?CI5? 3-36 (;D/IDU?@)

' +emorandum

@ate: /oday

/o: $resident

%rom: I+ 5tudent

5ub&ect: ost driver for overhead application

I recommend either machine hours or units of production as the most appropriate costdriver for the application of manufacturing overhead 5ince our production process ishighly automated, machine hours are the most significant production input lso, our

chips are nearly identical, so the amount of overhead incurred in their production doesnot vary much across product lines /he incurrence of manufacturing overhead costappears to be related closely both to machine time and units of production

?>?CI5? 3-38 (1 +IDU/?5)

0or!-in-$rocess Inventory: /anning @epartment 2,999a

+anufacturing ;verhead 2,999

metersperE39sets'9setpermeterss19E2,999

a=

0or!-in-$rocess Inventory: ssembly @epartment 329b

+anufacturing ;verhead 329

hour.machineper$9sets20hoursmachine2$360b =

0or!-in-$rocess Inventory: 5addle @epartment ',*99c

+anufacturing ;verhead ',*99

hour.labor-directper$4sets20hourslabor-direct30$2,400c =


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?>?CI5? 3-*9 (19 +IDU/?5)

;verhead distribution: llocation of the hospitals building maintenance and custodialcosts to all of the hospitals departments

5ervice-department cost allocation: llocation of the hospitals $ersonnel @epartment coststo the direct-patient-care departments in the hospital

;verhead application: ssignment of the overhead costs in the maternity "ard to eachpatient-day of care provided to ne" mothers

?>?CI5? 3-*1 (1 +IDU/?5)

1 /otal staff compensation K E'69,999 L E*'9,999 K E99,999

' ;verhead rate K total budgeted overheadtotal budgeted staff compensation

K E2,999E99,999

K 196F

3 pplied overhead K 196F T total direct professional labor

K 196F T (E1,'99 L E',999)

K E3,*2

* pplied overhead using single cost driver K E3,*2

pplied overhead using t"o cost drivers K E3,*69 (E1,969 L E',*99)5ee the illustration in the text


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SO&TIONS TO PROB&E.S

$C;A.?+ 3-*' (* +IDU/?5)

D;/?: /he 1'31x1 balances for cash and accounts receivable, although given in the

problem, are irrelevant to the solution

1 TWISTOPRET6E&CO.PAN/SC-E0&EO1COSTO12OO0S.AN1ACTRE0


@irect material:Ca"-material inventory, 1'31x9 E19,199dd: $urchases of ra" material 38,999Ca" material available for use E*8,199

@educt: Ca"-material inventory, 1'31x1

11,999Ca" material used E36,199

@irect labor 8,999+anufacturing overhead:

Indirect material E *,899Indirect labor '8,999@epreciation on factory building 3,699@epreciation on factory euipment ',199Utilities 2,999$roperty taxes ',*99

Insurance 3,299Cental of "arehouse space 3,199/otal actual manufacturing overhead E*,899dd: ;verapplied overheadO 3,199

;verhead applied to "or! in process 6,999/otal manufacturing costs E1,199dd: 0or!-in-process inventory, 1'31x9 6,1995ubtotal E163,'99@educt: 0or!-in-process inventory, 1'31x1 6,399ost of goods manufactured E1*,899

O/he 5chedule of ost of 4oods +anufactured lists the manufacturing costs applied to"or! in process /herefore, the overapplied overhead, E3,199, must be added to total actualoverhead to arrive at the amount of overhead applied to "or! in process If there had beenunderapplied overhead, the balance "ould have been deducted from total actualmanufacturing overhead /he amount of overapplied overhead is found by subtractingactual overhead, E*,899 (as computed above), from applied overhead, E6,999 (given)


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$C;A.?+ 3-*' (;D/IDU?@)

' TWISTOPRET6E&CO.PAN/SC-E0&EO1COSTO12OO0SSO&0


%inished-goods inventory, 1'31x9 E 1*,999dd: ost of goods manufacturedO 1*,899ost of goods available for sale E166,899@educt: %inished-goods inventory, 1'31x1 1,*99ost of goods sold E13,99@educt: ;verapplied overheadR 3,199ost of goods sold (ad&usted for overapplied overhead) E19,*99

O/he cost of goods manufactured is obtained from the 5chedule of ost of 4oods

+anufactured

R/he company closes underapplied or overapplied overhead into cost of goods sold 7ence,the balance in overapplied overhead is deducted from cost of goods sold for the month

3 TWISTOPRET6E&CO.PAN/INCO.ESTATE.ENT


5ales revenue E'9,699.ess: ost of goods sold

19,*994ross margin E 3,*995elling and administrative expenses:

5alaries E13,699Utilities ',99@epreciation 1,'99Cental of office space 1,99;ther expenses *,999/otal '3,'99

Income before taxes E1','99

Income tax expense

,199Det income E ,199


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$C;A.?+ 3-*3 ('9 +IDU/?5)

1

hourperE1'9(19)(',999)

E'9,999

hourslabor-directbudgeted

overheadingmanufacturbudgetedrateoverheadned$redetermi

==

=

' ournal entries:

(a) Ca"-+aterial Inventory 32,999ccounts $ayable 32,999

(b) 0or!-in-$rocess Inventory *29Ca"-+aterial Inventory *29

(c) +anufacturing ;verhead 199+anufacturing-5upplies Inventory 199

(d) +anufacturing ;verhead 6,999ccumulated @epreciation: Auilding 6,999

(e) +anufacturing ;verhead *99ash *99

(f) 0or!-in-$rocess Inventory 3*,999

0ages $ayable 3*,999

/o record direct-labor cost G(1,999 L 99) x E'9J

0or!-in-$rocess Inventory '1,'9+anufacturing ;verhead '1,'9

/o apply manufacturing overhead to "or! in process (E'1,'9 K 1,99E1'9 per hour)

(g) +anufacturing ;verhead 819$roperty /axes $ayable 819

(h) +anufacturing ;verhead ',990ages $ayable ',99

(i) %inished-4oods Inventory 1*,*990or!-in-$rocess Inventory 1*,*99


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$C;A.?+ 3-*3 (;D/IDU?@)

(&) ccounts Ceceivable 13,995ales Cevenue 13,99

ost of 4oods 5old 19,699O%inished-4oods Inventory 19,699

OE19,699 K (81')(E1*,*99)

$C;A.?+ 3-** (' +IDU/?5)

/he completed /-accounts are sho"n belo" (+issing amounts in problem are italici#ed)

Ca"-+aterial Inventory ccounts $ayableAal 11 '1,999 ',99 Aal 11135,000 120,000 132,99 135,000

Aal 1'31 32,999 1,999 Aal 1'31

0or!-in-$rocess Inventory %inished-4oods InventoryAal 11 1,999 Aal 11 1',999@irectmaterial 120,000 Aal 1'31

718,000'9,999

710,000

@irectlabor 150,000 718,000

+fgoverhead 450,000

Aal 1'31 18,999 ost of 4oods 5old19,999

+anufacturing ;verhead452,500 450,000 5ales Cevenue

810,0000ages $ayable

',999 Aal 11 ccounts Ceceivable1*,999 150,000 Aal 11 11,999

,999 Aal 1'31 810,000 692,999Aal 1'31 1,999


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$C;A.?+ 3-* (3 +IDU/?5)

1 $redetermined overhead rate K budgeted overhead budgeted machine hours K E62,999 12,999 K E39 per machine hour

' (a) 0or!-in-$rocess Inventory 69,999OCa"-+aterial Inventory69,999

0or!-in-$rocess Inventory 139,699OO0ages $ayable

139,699

O E'1,999 L E**,999 L E1,999 K E69,999OO E3,999 L E'',999 L E2,999 L E6,699 K E139,699

(b) +anufacturing ;verhead '36,99ccumulated @epreciation

3*,999 0ages $ayable29,999 +anufacturing 5upplies Inventory

,999+iscellaneous ccounts 138,99

(c) 0or!-in-$rocess Inventory '3,*99O+anufacturing ;verhead

'3,*99

O (1,'99 L 99 L ',999 L 99) x E39 K E'3,*99

(d) %inished-4oods Inventory 31,19O0or!-in-$rocess Inventory

31,19

O ob 2*: E6*,999 L E'1,999 L E3,999 L (1,'99 x E39) K E'9*,'99ob 2: E3,99 L E'',999 L (99 x E39) K E11',89

E31,19 K E'9*,'99 L E11',89

(e) ccounts CeceivableQQQQQQQQQQQQQQQQQ 1*,29O

5ales Cevenue 1*,29

O E11',89 L E3*,99 K E1*,29

ost of 4oods 5old 11',89%inished-4oods Inventory 11',89


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3 ob no 22 and no 2 are in production as of +arch 31:ob 22: E**,999 L E2,999 L (',999 x E39)E'12,999ob 2: E1,999 L E6,699 L (99 x E39) 9,9

/otalE'22,9

$C;A.?+ 3-* (;D/IDU?@)

* %inished-goods inventory increased by E'9*,'99 (E31,19 - E11',89)

/he companySs actual overhead amounted to E'36,99, "hereas applied overheadtotaled E'3,*99 /hus, overhead "as underapplied by E3,199

$C;A.?+ 3-*2 (3 +IDU/?5)

1 $redetermined overhead rate K budgeted overhead budgeted direct-labor cost K E,*29,999 E*,'99,999 K 139F of direct labor

cost

' dditions (debits) total E1,29,999 GE,299,999 L E*,39,999 L (E*,39,999 x 139F)J

3 /he finished-goods inventory consisted of &ob no '1*3, "hich cost E31,99GE12,999 L E6,999 L (E6,999 x 139F)J

* 5ince there is no "or! in process at year-end, all amounts in the 0or!-in-$rocessaccount must be transferred to %inished-4oods Inventory /hus:

%inished-4oods Inventory1,21,699O0or!-in-$rocess Inventory 1,21,699

OAeginning balance in 0or!-in-$rocess Inventory L additions to the account: E12,699 L E1,29,999 K E1,21,699

%inlonSs applied overhead totals 139F of direct-labor cost, or E,2,999 (E*,39,999x 139F) ctual overhead "as E,*,999, itemi#ed as follo"s, resulting inoverapplied overhead of E191,999

Indirect materials used E 2,999Indirect labor ',629,999%actory depreciation 1,*9,999%actory insurance 8,999%actory utilities 639,999

/otal

E,*,999


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+anufacturing ;verhead 191,999ost of 4oods 5old 191,999


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$C;A.?+ 3-*2 (;D/IDU?@)

2 /he companySs cost of goods sold totals E1,398,399:

%inished-goods inventory, an 1QQQQQ E 9

dd: ost of goods manufacturedQQQQ 1,21,699ost of goods available for saleQQQQQ E1,21,699.ess: %inished-goods inventory, @ec 31Q 31,99Unad&usted cost of goods soldQQQQQQ E1,*19,399.ess: ;verapplied overheadQQQQQQQ 191,999ost of goods soldQQQQQQQQQQQ E1,398,399

Do, selling and administrative expenses are operating expenses of the firm and aretreated as period costs rather than product costs 5uch costs are unrelated tomanufacturing overhead and cost of goods sold

$C;A.?+ 3-* (39 +IDU/?5)

1 /raceable costs total E',899,999, computed as follo"s:

/otal ost$ercent

/raceable/raceable

ost

$rofessional staff salariesQQQ E3,999,999 69F E',*99,999dministrative support staffQQ 399,999 29 169,999

/ravelQQQQQQQQQQQQ '9,999 89 '',999$hotocopyingQQQQQQQQ 9,999 89 *,999;ther operating costsQQQQQ 199,999 9 9,999

/otalQQQQQQQQQQQ E3,99,999 E',899,999

.CSs overhead (ie, the nontraceable costs) total E699,999 (E3,99,999 - E',899,999)

' $redetermined overhead rate K budgeted overhead traceable costsK E699,999 E',899,999 K '8F of traceable costs

(rounded)

3 /arget profit percentage K target profit total costK E2*9,999 E3,99,999 K 139F of cost (rounded)


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* /he total cost of the +artin +anufacturing pro&ect is E23,8, and the billing isE*,63', as follo"s (using rounded percentages from above):

$rofessional staff salariesQQQQ E*1,999dministrative support staffQQQ ',299/ravelQQQQQQQQQQQQQ *,99$hotocopyingQQQQQQQQQQ 99;ther operating costsQQQQQQ 1,*99

5ubtotalQQQQQQQQQQQ E9,999;verhead (E9,999 x '8F)QQ 13,8

/otal costQQQQQQQQQQ E23,8+ar!up (E23,8 x 13F)QQQQ 11,93Ailling to +artinQQQQQQQQQ E*,63'

$ossible nontraceable costs include utilities, rent, depreciation, advertising, topmanagement salaries, and insurance

2 $rofessional staff members are compensated for attending training sessions andfirm-"ide planning meetings, paid vacations, and completion of general, non-client-related paper"or! and reports /hese activities benefit multiple clients, theconsultant, andor the overall firm, ma!ing traceability to specific clients difficult ifnot impossible

$C;A.?+ 3-*6 (39 +IDU/?5)

D;/?: ctual selling and administrative expense, although given in the exercise, isirrelevant to the solution

1 +achining @ept overhead rate K budgeted overhead budgeted machine hours K E*,999,999 *99,999 K E19 per machine hour

ssembly @ept overhead rate K budgeted overhead budgeted direct-labor cost K E3,969,999 E,299,999 K F of direct-labor cost


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' /he ending "or!-in-process inventory is carried at a cost of E13,39, computed asfollo"s:

+achining @epartment:@irect materialQQQQQQQQQQQQQQ E'*,99@irect laborQQQQQQQQQQQQQQQ ',899+anufacturing overhead (329 x E19)QQQQ 3,299 E 2,999

ssembly @epartment:@irect materialQQQQQQQQQQQQQQ E 2,99@irect laborQQQQQQQQQQQQQQQ 6,299+anufacturing overhead (E6,299 x F)Q 3','39 8,39

/otal costQQQQQQQQQQQQQQQQQ E13,39

3 ctual overhead in the +achining @epartment amounted to E*,'29,999, "hereasapplied overhead totaled E*,'9,999 (*',999 hours x E19) /hus, overhead "asunderapplied by E19,999 during the year

* ctual overhead in the ssembly @epartment amounted to E3,99,999, "hereasapplied overhead totaled E3,18,999 (E,69,999 x F) /hus, overhead "asoverapplied by E1'8,999

/he companySs manufacturing overhead "as overapplied by E118,999 (E1'8,999 -E19,999) s a result, excessive overhead flo"ed from 0or!-in-$rocess Inventory, to%inished-4oods Inventory, to ost of 4oods 5old, meaning that the ost of 4oods

5old account must be decreased at year-end

2 /he 0or!-in-$rocess account is charged "ith applied overhead, or E,*'8,999(E*,'9,999 L E3,18,999)

/he firmSs selection of cost drivers (or application bases) seems appropriate /hereshould be a strong correlation bet"een the cost driver and the amount of overheadincurred In the +achining @epartment, much of the overhead is probably related tothe operation of machines 5imilarly, in the ssembly @epartment, a considerableportion of the overhead incurred is related to manual assembly (ie, labor)operations


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$C;A.?+ 3-*8 (' +IDU/?5)

1

rhoumachineperE''

3,'99

E1,219,*99

hoursmachinebudgeted


==

=

' ournal entries:

(a) Ca"-+aterial Inventory ,69ccounts $ayable ,69

(b) 0or!-in-$rocess Inventory 169Ca"-+aterial Inventory 169

(c) +anufacturing ;verhead 39+anufacturing-5upplies Inventory 39

(d) +anufacturing ;verhead 699ash 699

(e) 0or!-in-$rocess Inventory ,9990ages $ayable ,999

(f) 5elling and dministrative ?xpense 1,699

$repaid Insurance 1,699

(g) Ca"-+aterial Inventory 3,999ccounts $ayable 3,999

(h) ccounts $ayable 1,99ash 1,99

(i) +anufacturing ;verhead '1,9990ages $ayable '1,999

(&) +anufacturing ;verhead ,999ccumulated @epreciation: ?uipment ,999

(!) %inished-4oods Inventory 1,1990or!-in-$rocess Inventory 1,199


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(l) 0or!-in-$rocess Inventory 1*,999O+anufacturing ;verhead 1*,999

Opplied manufacturing overhead K ,999 machine hoursE'' per hour

(m) ccounts Ceceivable 12,9995ales Cevenue 12,999

ost of 4oods 5old 138,999%inished-4oods Inventory 138,999


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$C;A.?+ 3-9 (* +IDU/?5)

1 -RONCORPORATIONSC-E0&EO1COSTO12OO0S.AN1ACTRE0


@irect material:Ca" material inventory, 1'31x1 E 68,999dd: $urchases of ra" material 31,999Ca" material available for use E6'9,999@educt: Ca"-material inventory, 1'31x' 8,999Ca" material used E21,999

@irect labor **,999+anufacturing overhead:

Indirect material E *,999

Indirect labor 19,999@epreciation on factory building 1',999@epreciation on factory euipment 29,999Utilities 9,999$roperty taxes 89,999Insurance *9,999

/otal actual manufacturing overhead E69,999@educt: Underapplied overheadO ',99

;verhead applied to "or! in process ,99/otal manufacturing costs E1,61',99

dd: 0or!-in-process inventory, 1'31x1 -9-5ubtotal E1,61',99@educt: 0or!-in-process inventory, 1'31x' *9,999ost of goods manufactured E1,',99

O/he 5chedule of ost of 4oods +anufactured lists the manufacturing costs applied to"or! in process /herefore, the underapplied overhead, E',99, must be deducted from totalactual overhead to arrive at the amount of overhead applied to "or! in process If there hadbeen overapplied overhead, the balance "ould have been added to total manufacturingoverhead

/he amount of underapplied overhead is found by subtracting the appliedmanufacturing overhead, E,99, from the total actual manufacturing overhead, E69,999


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' -RONCORPORATIONSC-E0&EO1COSTO12OO0SSO&0


%inished-goods inventory, 1'31x1 E 3,999dd: cost of goods manufactured 1,',99ost of goods available for sale E1,69,99@educt: %inished-goods inventory, 1'31x' *9,999ost of goods sold E1,2,99dd: Underapplied overheadO ',99ost of goods sold (ad&usted for underapplied overhead) E1,9,999

O/he company closes underapplied or overapplied overhead into cost of goods sold 7encethe E',99 balance in underapplied overhead is added to cost of goods sold for the month

3 -RONCORPORATIONINCO.ESTATE.ENT


5ales revenue E',19,999.ess: ost of goods sold 1,9,9994ross margin E 33,999

5elling and administrative expenses

'28,999Income before taxes E 22,999

Income tax expense ',999Det income E *1,999

* In the electronic version of the solutions manual, press the /C. !ey and clic! on thefollo"ing lin!: AUI.@ 5$C?@57??/ 93-9>.5

$C;A.?+ 3-1 (1 +IDU/?5)

1 E*9,999 5ince there "as no "or!-in-process inventory at the beginning of '9x', all ofthe costs in the year-end "or!-in-process inventory "ere incurred during '9x'

' /he direct-material cost "ould have been larger, probably by roughly '9 percent,because direct material is a variable cost

3 @epreciation is a fixed cost, so it "ould not have been any larger if the firms volumehad increased


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http://var/www/apps/conversion/tmp/scratch_4/Build%20a%20Spreadsheet%20%2003-50.xlshttp://var/www/apps/conversion/tmp/scratch_4/Build%20a%20Spreadsheet%20%2003-50.xls


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* ;nly the E39,999 of euipment depreciation "ould have been included inmanufacturing overhead on the 5chedule of ost of 4oods +anufactured /heE39,999 of depreciation related to selling and administrative euipment "ould have

been treated as a period cost and expensed during '9x'

$C;A.?+ 3-' (39 +IDU/?5)

1 .ARCOPO&O.APCO.PAN/SC-E0&EO1COSTO12OO0S.AN1ACTRE0

1ORT-E.ONT-O1.ARC-

@irect material:

Ca"-material inventory, +arch 1 E 1,999dd: +arch purchases of ra" material 113,999Ca" material available for use E139,999@educt: Ca"-material inventory, +arch 31 '2,999Ca" materials used E19*,999

@irect labor 129,999 *+anufacturing overhead applied (9F of direct labor) 69,999/otal manufacturing costs E3**,999

dd: 0or!-in-process inventory, +arch 1 *9,9995ubtotal E36*,999

@educt: 0or!-in-process inventory,+arch 31 (89FE*9,999) 32,999

ost of goods manufactured E3*6,999 R

O0or! up"ard from the bottom of the statement, using the information available @irectlabor L manufacturing overhead K total manufacturing costs H direct material cost KE3**,999 H E19*,999 K E'*9,999 5ince manufacturing overhead K 9F of direct labor, thenmanufacturing overhead K E69,999 and direct labor K E129,999

Rost of goods manufactured K cost of goods sold L increase in finished-goods inventoryK E3*,999 L E3,999 K E3*6,999


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' .ARCOPO&O.APCO.PAN/SC-E0&EO1PRI.ECOSTS1ORT-E.ONT-O1.ARC-

Ca" material:Aeginning inventory E 1,999dd: $urchases 113,999Ca" material available for use E139,999@educt: ?nding inventory '2,999

Ca" material used E19*,999@irect labor 129,999/otal prime costs E'2*,999

3 .ARCOPO&O.APCO.PAN/SC-E0&EO1CONVERSIONCOSTS

1ORT-E.ONT-O1.ARC-

@irect labor E129,999+anufacturing overhead applied (9F of direct labor) 69,999/otal conversion cost E'*9,999

$C;A.?+ 3-3 (39 +IDU/?5)

1

hourmachineperE*,999

E'3,999

hoursmachinebudgeted


==

=

' alculation of applied manufacturing overhead:

pplied manufacturing overhead K machine hrs used x predetermined overhead rate E'9,999 K *,999 hrs x E per hr

3 Underapplied overhead K actual overhead H applied overhead

E,999 K E',999 H E'9,999

* ost of 4oods 5old ,999+anufacturing ;verhead ,999


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(a) alculation of proration amounts:

ccount ?xplanation mountO $ercentagealculation

of $ercentage0or! in $rocess ob $6' only E ',99 1'F ',99 '9,999%inished 4oods ob D96 only 1',99 2'F 1',99 '9,999ost of 4oods

5old ob 8 only ,999 '9F ,999 '9,999/otal E'9,999 1999F

O+achine hours used on &obpredetermined overhead rate

ccountUnderapplied

;verhead

$ercentagemount dded

to ccount

0or! in $rocess E,999

1'F E 6

%inished 4oods ,999

2'F *,3

ost of 4oods 5old ,999

'9F 1,9

/otal E,999

(b) ournal entry:

0or!-in-$rocess Inventory 6%inished-4oods Inventory *,3ost of 4oods 5old 1,9

+anufacturing ;verhead ,999

$C;A.?+ 3-* (*9 +IDU/?5)

1 In accordance "ith the I+ 5tatement of ?thical $rofessional $ractice, theappropriateness of +arc ac!sonSs three alternative courses of action is describedas follo"s:

(a) Follow Brown's directive and do nothin !urther"/his action is inappropriate asac!son has ethical responsibilities to ta!e further action in accordance "ith thefollo"ing standards of ethical conduct


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$C;A.?+ 3-* (;D/IDU?@)

#o$%etence&

+aintain an appropriate level of professional expertise by continually developing

!no"ledge and s!ills

$erform professional duties in accordance "ith relevant la"s, regulations, and

technical standards

$rovide decision support information and recommendations that are accurate,

clear, concise, and timely

Cecogni#e and communicate professional limitations or other constraints that

"ould preclude responsible &udgment or successful performance of an activity

nterit&

+itigate actual conflicts of interest Cegularly communicate "ith business

associates to avoid apparent conflicts of interest dvise all parties of anypotential conflicts

Cefrain from engaging in any conduct that "ould pre&udice carrying out duties

ethically

bstain from engaging in or supporting any activity that might discredit the

profession

#rediilit&

ommunicate information fairly and ob&ectively

@isclose all relevant information that could reasonably be expected to influence

an intended userSs understanding of the reports, analyses, or recommendations

@isclose delays or deficiencies in information, timeliness, processing, or internal

controls in conformance "ith organi#ation policy andor applicable la"

() *tte$%t to convince Brown to $a+e the %ro%er adust$ents and to advise thee-ternal auditors o! her actions"/his action is appropriate as ac!son has ta!enthe ethical conflict to his immediate superior for resolution Unless ac!sonsuspects that his superior is involved, this alternative is the first step for theresolution of an ethical conflict


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(c) .ell the *udit #o$$ittee o! the Board o! /irectors aout the %role$ and ivethe$ the a%%ro%riate accountin data"/his action is not appropriate as a firststep since the resolution of ethical conflicts reuires ac!son to first discuss the

matter "ith his immediate superior

' /he next step that ac!son should ta!e in resolving this conflict is to inform Aro"nthat he is planning to discuss the conflict "ith the next higher managerial levelac!son should pursue discussions "ith successively higher levels of management,including the udit ommittee and the Aoard of @irectors, until the matter issatisfactorily resolved t the same time, ac!son should


38/58

$C;A.?+ 3- (' +IDU/?5)

1

Muarter$redetermined;verhead Cate alculations

1st E*9 per hour

E89,999'9,999'nd per hour E69,99912,9993rd * per hour E9,9991',99*th per hour E9,9991*,999

'anuary pril

@irect material E199 E199@irect labor 399 399+anufacturing overhead:

'9 hrsE*9 per hr

89'9 hrsE per hr VVVV 199

/otal cost E*89 E99

3anuary pril

/otal cost E*89 E99+ar!up (19F) *8 9$rice E38 E9

* hourslabor-directbudgetedannual

overheadingmanufacturbudgetedannualratened$redetermi =

hourper$4.6462,00

$290,000 ==

anuary pril

@irect material E19999 E19999@irect labor 39999 39999

+anufacturing overhead ('9 hrs E*2*) 8'69 8'69

/otal cost E*8'69 E*8'69


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2 /otal cost E*8'69+ar!up (19F) *8'6$rice E*'96

Dotice that "ith uarterly overhead rates, the firm may underprice its product in anuaryand overprice it in pril

$C;A.?+ 3-2 (* +IDU/?5)

1 $redetermined overhead rate:

1'9,999

OE292,999

hourslabor-directAudgeted

overheadingmanufacturAudgeted=

= E9 per direct-labor hour

OAudgeted manufacturing overhead K variable overhead L fixed overhead E292,999 K E389,999 L E'12,999

' ost of &ob :

ost in beginning "or!-in-process inventory E *,999@irect material *,999

@irect labor (3,99 hoursE'*99 per hour)O 6*,999pplied manufacturing overhead

(3,99 hoursE9 per hour) 1,2

/otal cost E'99,2

direct-labor "ages E'9*,999O@irect-labor rate E'*99 per hour

direct-labor hours 6,99= = =

3 +anufacturing overhead applied to &ob 8:

@irect-labor hourspredetermined overhead rate = ',999 hoursE9 per hour

= E19,199


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* /otal manufacturing overhead applied during Dovember:

/otal direct-labor hourspredetermined overhead rate = 6,99 hoursE9= E*',8'

ctual manufacturing overhead incurred during Dovember:

Indirect material (supplies) E1',999Indirect-labor "ages 1,9995upervisory salaries 2,999Auilding occupancy costs, factory facilities 2,*99$roduction euipment costs 6,199

/otal E*,99

2 Underapplied overhead for Dovember:

ctual manufacturing overhead H applied manufacturing overhead

= E*,99 H E*',8'

= E*, underapplied


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$C;A.?+ 3- ( +IDU/?5)

1

hourlabor-directperE'1'9,399

E*'2,399

hourslabor-directbudgeted


' ournal entries:

(a) Ca"-+aterial Inventory ,999ccounts $ayable ,999

(b) Ca"-+aterial Inventory *,999ccounts $ayable *,999

(c) 0or!-in-$rocess Inventory 11,'9OCa"-+aterial Inventory 11,'9

O('9 s ftE per s ft) L (1,999 lbsE19 per lb)

+anufacturing ;verheadOO 199

+anufacturing-5upplies Inventory 199

OONalve lubricant is an indirect material, so it is considered an overhead cost

(d) 0or!-in-$rocess Inventory 3*,999

+anufacturing ;verhead 13,999

0ages $ayable *,999

0or!-in-$rocess Inventory 3,99O+anufacturing ;verhead 3,99

Opplied manufacturing overhead K 1,99 direct-labor hoursE'1 per hour

(e) +anufacturing ;verhead 1',999ccumulated @epreciation: Auilding and

?uipment 1',999

(f) +anufacturing ;verhead 1,'99ash 1,'99


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(g) +anufacturing ;verhead ',199ccounts $ayable ',199

(h) +anufacturing ;verhead ',*99ash ',*99

(i) +anufacturing ;verhead 3,199$repaid Insurance 3,199

(&) 5elling and dministrative ?xpenses 6,999ash 6,999

(!) 5elling and dministrative ?xpenses *,999ccumulated @epreciation: Auildings and?uipment *,999

(l) 5elling and dministrative ?xpenses 1,999ash 1,999

(m) %inished-4oods Inventory 3*,99O0or!-in-$rocess Inventory 3*,99

Oost of ob /61:

@irect material ('9E) E 1,'9

@irect labor (699E'9) 12,999

+anufacturing overhead (699E'1) 12,699

/otal cost E3*,99

(n) ccounts Ceceivable '2,299O5ales Cevenue '2,299

O(2

')

E99 per trombone

ost of 4oods 5old 1,9'OO%inished-4oods Inventory

1,9'OO1,9' K E3*,99 '


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$C;A.?+ 3- (;D/IDU?@)

3 /-accounts and posting of &ournal entries:

ash ccounts $ayable

Aal 19,999 13,999 Aal1,'99 (f) ,999 (a)',*99 (h) *,999 (b)6,999 (&) ',199 (g)1,999 (l)

ccounts Ceceivable 0ages $ayableAal '1,999 6,999 Aal(n) '2,299 *,999 (d)

ccumulated @epreciation:$repaid Insurance Auildings and ?uipment

Aal ,999 19',999 Aal3,199 (i) 1',999 (e)

*,999 (!)

+anufacturing-5upplies Inventory +anufacturing ;verheadAal 99 (c) 199 3,99 (d)

199 (c) (d) 13,999(e) 1',999(f) 1,'99(g) ',199(h) ',*99(i) 3,199

Ca"-+aterial Inventory ost of 4oods 5oldAal 1*8,999 (n) 1,9'(a) ,999 11,'9 (c)(b) *,999

5elling and dministrative0or!-in-$rocess Inventory ?xpenses

Aal 81,999 (&) 6,999(c) 11,'9 3*,99 (m) (!) *,999(d) 3*,999 (l) 1,999(d) 3,99


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%inished-4oods Inventory 5ales CevenueAal ''9,999 '2,299 (n)(m) 3*,99 1,9' (n)

* (a) alculation of actual overhead:

Indirect material (valve lubricant) E 199Indirect labor 13,999@epreciation: factory building and euipment 1',999Cent: "arehouse 1,'99Utilities ',199$roperty taxes ',*99

Insurance

3,199/otal actual overhead E33,899

(b) ;verapplied overhead K

overhead

ingmanufacturapplied

overhead

ingmanufacturactual

K E33,899 H E3,99O

K E1,699 overapplied

OE3,99 K 1,99 direct-labor hoursE'1 per hour

(c) +anufacturing ;verhead 1,699ost of 4oods 5old 1,699


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SC-O&ASTICBRASSCORPORATIONSC-E0&EO1COSTO12OO0S.AN1ACTRE0

1ORT-E.ONT-O1.ARC-

@irect material:Ca"-material inventory, +arch 1 E1*8,999dd: +arch purchases of ra" material 8,999Ca" material available for use E16,999@educt: Ca"-material inventory, +arch 31 1*2,9Ca" material used E 11,'9

@irect labor 3*,999

+anufacturing overhead:Indirect material E 199

Indirect labor 13,999

@epreciation on factory building and euipment 1',999

Cent: 0arehouse 1,'99

Utilities ',199

$roperty taxes ',*99

Insurance 3,199/otal actual manufacturing overhead E33,899

dd: overapplied overheadO 1,699;verhead applied to "or! in process 3,99

/otal manufacturing costs E 69,89

dd: 0or!-in-process inventory, +arch 1

81,9995ubtotal E11,89

@educt: 0or!-in-process inventory, +arch 31 13,899ost of goods manufacturedR E 3*,99

O/he 5chedule of ost of 4oods +anufactured lists the manufacturing costs a%%liedto"or! in process /herefore, the overapplied overhead, E1,699, must be added to actualoverhead to arrive at the amount of overhead a%%liedto "or! in process during +arch

Rost of ob /61, "hich "as completed during +arch


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$C;A.?+ 3- (;D/IDU?@)

2 SC-O&ASTICBRASSCORPORATIONSC-E0&EO1COSTO12OO0SSO&0

1ORT-E.ONT-O1.ARC-

%inished-goods inventory, +arch 1 E''9,999dd: ost of goods manufactured 3*,99ost of goods available for sale E'*,99@educt: %inished-goods inventory, +arch 31 '3,9'ost of goods sold E 1,9'@educt: ;verapplied overheadO 1,699ost of goods sold (ad&usted for overapplied overhead) E 1,''

O/he company closes underapplied or overapplied overhead into cost of goods sold 7ence

the balance in overapplied overhead is deducted from cost of goods sold for the month

SC-O&ASTICBRASSCORPORATIONINCO.ESTATE.ENT

1ORT-E.ONT-O1.ARC-

5ales revenue E'2,299.ess: ost of goods sold 1,''4ross margin E11,35elling and administrative expenses 13,999Income (loss) E (1,2')


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$C;A.?+ 3-8 ( +IDU/?5)

/he ans"ers to the uestions are as follo"s:

1 E'',999 2 E2*,999

' E'6,999 E19,9993 E9,999 6 E*9,999* E*',999 8 E1,999 E69,999 19 E*,999 ;verapplied

/he completed / accounts, along "ith supporting calculations, follo"

Ca"-+aterial Inventory ccounts $ayableAal 1931 1,999 1',999 Aal 1931

9,999 *9,999 61,999 9,999

Aal 1139 *,999

1,999 Aal 1139

0or!-in-$rocess Inventory %inished-4oods InventoryAal 1931 6,999 Aal 1931 3,999@irect 19,999 19,999 169,999 material *9,999 Aal 1139 ,999@irect labor 69,999 ost of 4oods 5old;verhead 2*,999 169,999Aal 1139 *',999

+anufacturing ;verhead 5ales Cevenue29,999 2*,999 '',999

0ages $ayable ccounts Ceceivable1,999 Aal 1931 Aal 1931 6,999

8,99 69,999 '',999 '9,9991,99 Aal 1139 Aal 1139 '6,999

5upporting alculations:

1 5ales revenue K cost of goods sold1'F

K E169,9991'F

K E'',999


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$C;A.?+ 3-8 (;D/IDU?@)

' ?nding balance in accounts receivable K beginning balance L sales revenueH collections

K E6,999 L E'',999 H E'9,999

K E'6,999

3 $urchases of ra" material K addition to accounts payable

ddition to accounts payable K ending balance L paymentsH beginning balance

K E1,999 L E61,999 H E1',999

K E9,999

* Dovember 39 balance in "or!-in-process inventory

K directmaterial

L directlabor

L manufacturingoverhead

K E'*,999 L (99)(E'9) L (99)(E12O)

K E*',999

O$redetermined overhead rate K Rhourslabor-directbudgeted

overheadbudgeted

K 48,000

$768,000

K E12 per direct-labor hour

RAudgeted direct-labor hours Kratelabor-direct

costlabor-directbudgeted=

*6,999E'9

E829,999=

ddition to "or! in processfor direct labor K

Dovember credit to"ages payable

Dovember credit to"ages payable K ending balance L payments H beginning balance

K E1,99 L E8,99 H E1,999K E69,999


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2 Dovember applied overhead K direct labor hourspredetermined overhead rate

K *,999OE12

K E2*,999

@irect labor hours Kratelabor-direct

labordirectforprocessin"or!toaddition

K hours*,999E'9

E69,999=

ost of goods completedduring Dovember K

beginning

balance in"or! inprocess

L

additions

duringDovember

H

ending

balance in"or! inprocess

K E6,999 L (E*9,999 L E69,999 L E2*,999) H E*',999

K E19,999

6 Ca" material used inDovember K

Dovember credit to ra"-material inventory K E*9,999 (given)

8 ;ctober 31 balance inra"-material inventory K Dovember 39balance in ra"-material inventory

L directmaterialused

H purchases

K E*,999 L E*9,999 H E9,999

K E1,999

19 ;verapplied or underapplied overhead K actual overhead H applied overhead

K E29,999 H E2*,999

K E*,999 ;verapplied


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* De" product costs:

Aasic dvanced

5ystem 5ystem@irect material E *99 E 699@irect labor 399 399+anufacturing overhead:

@epartment :

Aasic system E'2 139

dvanced system 1E'2 389

@epartment A:

Aasic system 1E1* '19

dvanced system E1* V VVVV 9

/otal E1,9*9 E1,29

De" product prices:

Aasic dvanced5ystem 5ystem

/otal cost E1,9*9 E1,29+ar!up, 19F of cost 19* 12$rice E1,1** E1,12


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2 /?.?/?7 ;C$;C/I;D

+emorandum

@ate: /oday

/o: $resident, /ele/ech orporation

%rom: I + 5tudent

5ub&ect: @epartmental overhead rates

Until no" the company has used a single, plant"ide overhead rate in computing product

costs /his approach resulted in a product cost of E1,199 for the basic system and a cost ofE1,99 for the advanced system Under the companys pricing policy of adding a 19 percentmar!up, this yielded prices of E1,'19 for the basic system and E1,29 for the advancedsystem

0hen departmental overhead rates are computed, it is apparent that the t"oproduction departments have very different cost structures @epartment is a relativelyexpensive department to operate, "hile @epartment A is less costly It is important torecogni#e the different rates of cost incurrence in the t"o departments, because our t"oproducts reuire different amounts of time in the t"o departments /he basic system

spends most of its time in @epartment A, the inexpensive department /he advancedsystem spends most of its time in @epartment , the more expensive department /hus,using departmental overhead rates sho"s that the basic system costs less than "e hadpreviously reali#edB the advanced system costs more /he revised product costs are E1,9*9and E1,29 for the basic and advanced systems, respectively 0ith a 19 percent mar!up,these revised product costs yield prices of E1,1** for the basic system and E1,12 for theadvanced system 0e have been overpricing the basic system and underpricing theadvanced system

I recommend that the company s"itch to a product costing system that incorporatesdepartmental overhead rates


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SO&TIONS TO CASES

5? 3-21 (* +IDU/?5)

1 &ob-order costing system is appropriate in any environment "here costs can be

readily identified "ith specific products, batches, contracts, or pro&ects /his situationtypically occurs in a manufacturing setting "hen relatively small numbers ofheterogeneous products are produced

' /he only &ob remaining in ompu%urnSs "or!-in-process inventory on @ecember 31 is&ob $561' /he cost of &ob $561' can be calculated as follo"s:

ob $561' balance, 1139QQQ E'9,999@ecember additions:

@irect material E1'*,999

$urchased parts 6,999@irect labor '99,99

+anufacturing overhead (18,99 machine hrsEO) 8,99 98,999

0or!-in-process inventory, 1'31 E8,999

hourmachineperEhours899,999

E*,99,999rateoverheading+anufacturO

3 /he cost of the chairs remaining in ompu%urnSs finished-goods inventory on@ecember 31 is E*,299, calculated as follo"s:

Units of chairs in finished-goods inventory on @ecember 31:

hair Units%inished-goods inventory, 1139 18,*99dd: Units completed in @ecember 1,999Units available 3*,*99@educt: Units shipped in @ecember '1,999%inished-goods inventory, 1'31 13,*99


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5? 3-21 (;D/IDU?@)

5ince ompu%urn uses the first-in, first-out (%I%;) inventory method, all unitsremaining in finished- goods inventory "ere completed in @ecember

Unit cost of chairs completed in @ecember:

0or! in process inventory, 1139 E*31,999@ecember additions:

@irect material E 3,999$urchased parts 19,699@irect labor *3,'99

+anufacturing overhead (*,*99 machine hrsE) '',999 8,999

/otal cost E19,999

Unit cost Kcompletedunits

costtotal K1,999E19,999 K E3* per unit

ost of finished-goods inventory K unit cost uantity

K E3* 13,*99

K E*,299

* ;verapplied overhead is E,99, calculated as follo"s:

+achine hours used:

anuary through Dovember 639,999@ecember *8,899

/otal 68,899

pplied manufacturing overhead K 68,899 machine hours E K E*,388,99

ctual manufacturing overhead:

anuary through Dovember E*,1*9,999

@ecember '',999/otal E*,38',999

;verapplied overhead K applied overhead actual overhead

K E*,388,99 E*,38',999

K E,99


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5? 3-21 (;D/IDU?@)

If the amount of overapplied or underapplied overhead is not significant, the amountis generally treated as a period cost and closed to ost of 4oods 5old If the amountis significant, the amount is sometimes prorated over the relevant accounts, ie,0or!-in-$rocess Inventory, %inished-4oods Inventory, and ost of4oods 5old

5? 3-2' (9 +IDU/?5)

1 +anufacturers use predetermined overhead rates to allocate to production &obs theproduction costs that are not directly traceable to specific &obs s a result,management "ill have timely, accurate &ob-cost information $redetermined overheadrates are easy to apply and avoid fluctuations in &ob costs caused by changes in

production volume or overhead costs throughout the year

' /he manufacturing overhead applied through Dovember 39 is calculated as follo"s:

+achine hourspredetermined overhead rate K overhead applied

3,999E1 K E1,98,999

3 /he manufacturing overhead applied in @ecember is calculated as follo"s:

+achine hourspredetermined overhead rate K overhead applied

2,999E1 K E89,999

* Underapplied manufacturing overhead through @ecember 31 is calculated as follo"s:

ctual overhead (E1,199,999 L E82,999) E1,182,999pplied overhead (E1,98,999 L E89,999) (1,16,999)Underapplied overhead E 11,999


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5? 3-2' (;D/IDU?@)

/he balance the %inished-4oods Inventory account on @ecember 31 is comprised onlyof ob Do D11-913 and is calculated as follo"s:

Dovember 39 balance for ob Do D11-913 E,999@ecember direct material *,999@ecember direct labor 1',999

@ecember overhead (1,999E1) 1,999

/otal finished-goods inventory E62,999

2 %iberomSs 5chedule of ost of 4oods +anufactured for the year &ust completed isconstructed as follo"s:

1IBERCO.CO.PAN/SC-E0&EO1COSTO12OO0S.AN1ACTRE0

1ORT-E/EAREN0E00ECE.BER$!

@irect material:Ca"-material inventory, 11 E 19,999Ca"-material purchases (E82,999 L E86,999) 1,923,999Ca" material available for use E1,126,999@educt: Indirect material used (E1',999 L E8,999) E13*,999

Ca"-material inventory 1'31 6,999 '18,999

Ca" material used E 8*8,999@irect labor (E6*,999 L E69,999) 8',999+anufacturing overhead:

Indirect material (E1',999 L E8,999) E13*,999Indirect labor (E3*,999 L E39,999) 3,999Utilities (E'*,999 L E'',999) '2,999@epreciation (E36,999 L E3,999) *'9,999/otal actual manufacturing overhead 1,182,999@educt: Underapplied overhead 11,999

;verhead applied to "or! in process E1,16,999

/otal manufacturing costs E3,98,999dd: 0or!-in-process inventory, 11 29,9995ubtotal E3,118,999@educt: 0or!-in-process inventory, 1'31O 19,'99ost of goods manufactured E',826,699

O5upporting calculations follo"


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5? 3-2' (;D/IDU?@)

O5upporting calculations for "or! in process 1'31:

@1'-99' @1'-993 /otal

@irect material E3,899 E'2,999 E 23,899@irect labor '9,999 12,699 32,699pplied overhead:

',99 hrsE1 3,99 3,99

699 hrsE1 VVVVVV E1',999 1',999

/otal E8,*99 E*,699 E19,'99

1OCS ON ET-ICS 7See 8age !4, in the te9t5: @id Aoeing exploit accounting rules to conceal cost overruns and production snafusP

ccording to the circumstances alleged in the Business ee+article cited in the text(page 999), Aoeing did not handle its cost overruns, production problems, and themerger "ith +c@onnell-@ouglas in a transparent manner Aoeing allegedly acted toconceal its "orsening operational problems through

216309803 hilton 9e global edition solutions manual chapter03

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