89225009-ch05
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JOB ORDER COST SYSTEM
10. Two characteristics of the proposal are critical in advising London about acosting system:
a. the expected high sales volume and
b. the repetitive nature of production implied by that high sales volume.
These characteristics indicate that Londons best choice would be to use aprocess costing system and standard cost valuations
Standard costing would benefit London because it would help identifyinefficiencies in production operations and help her identify ways to reduceproduction costs.
The homogeneous nature of the product maes the use of !ob order costingunnecessary "its higher cost is not !ustified#.
11. $ach student will have a different answer% depending on the particular yachtselected. Some will discuss the yachts si&e' others will discuss the interiorfinishes' others will discuss the navigation e(uipment. The )*+., million-ichmond Lady ull / *00 " http:22richmondyachts.com2pdf213*4-567894L;4?-56$.pdf# provides numerous featuresupon which students can focus.
1*. a. $mployee time cardb. >or in ?rocess 5nventory 6ontrol or @inished Aoods 5nventoryc. -aw 7aterial 5nventoryd. Bob order cost sheete. 7anufacturing 8verhead 6ontrolf. Bob order cost sheetg. -aw 7aterial 5nventoryh. @inished Aoods 5nventory or 6ost of Aoods Soldi. 7anufacturing 8verhead 6ontrol
!. >or in ?rocess 5nventory 6ontrol
1+. a. The direct material charge of )C%000 is higher than the estimate by)1%000. ;ssuming that there were no errors in the estimated andactual amounts% then either the price paid for the material or the (uantityof material used was su!stantially higher than e"pected. To begin the
#
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validation process%1. details of the original estimate to identify prices and (uantities of
materials for this !ob would need to be examined.
The starting point to validate the material prices and (uantities
purchased is to examine vendor invoices billed to Duindo. Theseinvoices will validate material purchase $uantities and prices paid byDuindo.*. ;dditionally% material re(uisition forms should be examined tovalidate the $uantity o% material actually used in production +. 9ext% an examination of the material cost "material (uantity multipliedby material price# on the&o! order cost sheetshould reconcile to the(uantity of material shown on the material re(uisition forms.
b. The direct labor charge of )C*%000 is higher than the estimate by)**%000. ;ssuming that there were no errors in the estimated and
actual amounts% then either the hourly rate paid to or the number ofhours wored 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 !ob
would need to be examined.
The starting point to validate the labor rates and hours wored is to
*. examine employee time sheets "or other labor accumulation documents#. Thetime sheets will validate which employees wored on the !ob and forwhat period of time.
+. ; discussion with the payroll manager should help ascertain the actual oraverage wage rates paid to employees.
3. ?ossibly some of Duindos employees who were listed as woring on the !obshould be interviewed to determine the accuracy of the time sheets.
c. The predetermined overhead rate could have been manipulated to ahigher rate by using a lo'er denominator level of activity than wasappropriate. ;dditionally% inappropriate costs "such as period costs inaddition to product overhead costs# could have been included in thenumerator. ; large estimate for spoilage and defect costs might alsohave been included in the numerator when% in fact% such costs rarelyoccur at Duindo 5ndustries.
d. The companys behavior is at best (uestionable. Aiven that thedifference between actual and estimated direct material cost was liely
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nown at the point of purchase% Duindo should have notified Salem6orp. immediately of the excessive increase in cost. Similar notificationshould have been provided when it was seen that direct labor andmachine times were higher than expected.
13. a. -aw 7aterial 5nventory *03%000;ccounts ?ayable *03%000
>or in ?rocess 5nventory4/3*C+ 1C+%00>or in ?rocess 5nventory4/3*C3 1%E07anufacturing 8verhead 1*%3C0
-aw 7aterial 5nventory 1E%1+0
>or in ?rocess 5nventory4/3*C+ 3%000>or in ?rocess 5nventory4/3*C3 1%00 6ash "+%C00 x )1# %00
7anufacturing 8verhead C%E00 6ash ")1%000 F )E%*00 F ),%00# +3%E00
;ccumulated epreciation *1%00 >ages ?ayable 1*%00
>or in ?rocess 5nventory4/3*C+ C3%00>or in ?rocess 5nventory4/3*C3 *%1C0
7anufacturing 8verhead CC%,C0
b. -7 5nventory G )3%+00 F )*03%000 4 )1C+%00 4 )1*%3C0 4 )1%E0 G)+0%1E0
c. =ecause the company wored only on Bob /3*C+ until the end of ;pril%all costs in beginning >5? for other !obs are still in that account at theend of the month.
=eginning >5? )11%300Less costs associated with Bob /3*C+ "00#6osts associated with other !obs )10%C006osts for Bob /3*C3 ")1%E0 F )1%00 F )*%1C0# %+0$nding >5? )1C%3+0
d. 6A7 G =eginning >5? F 6urrent period costs H $nding >5?G )11%300 F )1C+%00 F )1%E0 F )%00 F )CC%,C0 4 )1C%3+0G )*+%300
Init cost G )*+%300 J 10%000 G )*.+3
e. ;pplied 8 H ;ctual 8 G )CC%,C0 4 )C%E00 G )1%E30 underapplied
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1. a. 8 rate G )*C%00 J )1,*%000 G 130K of direct labor
b. $nding >5? =alance: 7 ) E%30
L +C%*00
8 ")+C%*00 x 1.30# 0%C0$nding balance )1C*%++0
c. 6A7 G =eg. >5? F 6urrent costs H 6ost of !obs completedG )0 F )*EE%*00 F )1,*%000 F )*C%00 4 )1C*%++0G )E%CE0
1C. a. -aw 7aterial 5nventory EC%000;ccounts ?ayable EC%000
>5? 4 Bob /*1E 33%00
>5? 4 Bob /*1 E%*00>5? 4 other !obs +%C00irect 7aterial 5nventory 10%C00
>5? 4 Bob /*1E 10%300>5? 4 Bob /*1 13%000>5? 4 other !obs 1,%C00
6ash "or >ages ?ayable# 33%000
7anufacturing 8verhead **0%000arious accounts **0%000
>5? 4 Bob /*1E 1%30>5? 4 Bob /*1 C,%+00>5? 4 other !obs ,E%0*0
7anufacturing 8verhead *1E%00";ctual rate per L) G )33%000 x )3.,#
@inished Aoods 5nventory 11E%0>5? 5nventory 4 Bob /*1E 11E%0
")11%*00 F )33%00 F )10%300 F )1%30 G )11E%0#
6ash 1,%1+Sales 1,%1+
")11E%0 M 1.+ G )1,%1+#
6ost of Aoods Sold 11E%0@inished Aoods 5nventory 11E%0
*
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b. $nding >5? G =eg. >5? F 6urrent costs H 6ost of Bob /*1E completedG )1C%00 F )10%C00 F )33%000 F )*1E%00 4 )11E%0G )*CC%+*0
$nding balance in Bob /*1 G )%C00 F )E%*00 F )13%000 F )C,%+00 G
),C%100
1E. a. 8 rate G )1*E%C0 J E%C00 G )1C.0 per L
b. ;verage L rate G )1,%C00 J E%C00 G )*1 per L
c. 1%*00 x ")*1.00 F )1C.0# G 1%*00 x )+E.0 G )E3%C0 L N 8),1C%C0 4 )E3%C0 G )+3*%0,0 7 in beginning >5?
d. 5f worers on the !ob in ending >5? are assumed to be paid theaverage L rate% then the ending >5? balance is:
7 ) E+%*0L "*%0 x )*1# ,%08 "*%0 x )1C.0# 3E%0$nding balance )10%,0
e. 6A7 G =eg. >5? F 6urrent period costs H $nd. >5?G ),1C%C0 F ),%CE0 F )1,%C00 F )1*E%C0 4 )10%,0G )1%C1*%C*0
1. a. 6AS is the amount credited to @inished Aoods 5nventory for the year G)1%,0%000.
b. =eg. @A F 6A7 H $nd. @A G 6AS),0%000 F 6A7 4 )E%000 G )1%,0%0006A7 F )++%000 G )1%,0%0006A7 G )1%E%000
c. ;pplied 8 G )+,%000 M 1.30 G )+%000
d. =eg. >5? F 7 used F L F 8 H $nd. >5? G 6A7)C%000 F 7 F )+,%000 F )+%000 4 )*E%C30 G )1%E%0007 F ),EC%+C0 G )1%E%0007 G )0%C30
e. =eg. 7 F ? H 7 used G $nd. 7)*3%C00 F ? 4 )0%C30 G )3%100? 4 )C%030 G )3%100? G )C0%130
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1,. a. 6AS G .E x Sales G .E")1%,%000# G )1%1,%00.
b. =eg. @A F 6A7 H $nd. @A G 6AS)C%,00 F 6A7 4 )1C%C00 G )1%1,%00
6A7 4 ),C%E00 G )1%1,%006A7 G )1%*,%*00
c. Bob =+*: ;pplied 8 G K of L) G . "1* x )1*.,0# G . x)1%C1.*0 G )1%30+.*
Bob D3*: ;pplied 8 G K of L) G . "*30 x )1*.,0# G . x)+%0,C.00 G )*%C+1.C0
d. Bob =+* D3*7 )*1%,0.00 )13%E00.00L 1%C1.*0 +%0,C.008 1%30+ .* *%C+1 .C0
)*%0+3 .E* )*0%3*E .C0
e. 6A7 G =eg. >5? F 7 used F L F 8 H $nd. >5?)1%*,%*00 G )13%C00 F 7 used F )1*.,0"*%EC0# F .")1*.,0 x
*%EC0# H ")*%0+3.E* F )*0%3*E.C0#)1%*,%*00 G )13%C00 F 7 used F )++*%+03 F )**%3.30 4
)3%3C*.+*)1%*,%*00 G )+%,00.0 F 7 used7 used G )E11%*,,.,*
=eg. 7 F ?urchases 4 7 used G $nd. 7)1,%00 F )3+%*EC 4 )E11%*,,.,* G $nd. 7$nd. 7 "destroyed# G )11%3EC.0
*0. a. 6ase /1 6ase /* 6ase /+ 6ase /37 ) 30 ) %00 ) +%E00 ) 0L ")1,0 per hour# E%C00 1E%100 1+%+00 *%08 ")10 per court hour# 1%00 ,%E0 1%000 C%000
Totals ),%0 )+%C0 )+%000 ),%E00
b. 7 )10%100L "1E3 x )1,0# ++%0C0
8 "E* x )10# 10%00Total cost )+%,C07arup "3K# *3%**Total billed to client )E%*3*
*1. a. 8verhead rate G =udgeted 8 J =udgeted L))3.* G )1%*E%000 J =udgeted L)=udgeted L cost G )1%*E%000 J )3.*
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=udgeted L cost G )+00%000
8verhead rate G )1%*E%000 J )+00%000 G )3.* per L)
b. >or in ?rocess 5nventory ,C%3E
7anufacturing 8verhead ,C%3E ")**%E00 x )3.* G ),C%3E#
c. )3.* x +%,00 G )1C%E
d. =eginning balance )1%+0irect material *,%C00irect labor +%,007anufacturing overhead 1C%E$nding balance )C%3*
**. a. irect material )*%0irect labor ")00 J )*0 G 30 Ls# 00;pplied overhead ")1E x 30# C0Total cost of Bob /,*0 )3%++0
b. =5 of >5? ")%*0 F )00 F ")1E x *# ) ,%1Eirect material )*1%C0irect labor ")C%+00 J )*0 G +1 Ls# C%+00
;pplied overhead ")1E x +1# %+ ++%+0)3*%30
$5 of >5? "3%++0#6ost of goods manufactured )+%10
c. ;ctual overhead )%03;pplied overhead "%+#8verapplied 8 ) +01
*+. a. 7ixing: )30%000 J C0%000 G ) per 7?aving: )E00%000 J *%000 G )* per L
b. 7ixing "*,0 7s x )# ) *%+*0?aving "+30 Ls x )*# %00Total overhead applied )10%*0
c. ")30%000 F )E00%000# J "C0%000 F 1*%000# G )1%10%000 J E*%000 G)1C.+,
)1C.+, x ++3 G )%3E3.*C applied to Bob /**0
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; plant4wide rate would not have been indicative of the actual cost ofeach !ob because the 7ixing department is very machine4intensivewhile the ?aving department is very labor4intensive.
*3. a. epartment 1 G )3C%000 J +0%000 7s G )1.0 per 7
epartment * G )+0%C00 J **%000 Ls G )1E.+0 per L
b. -aw 7aterial 5nventory +3C%000;ccounts ?ayable +3C%000
>or in ?rocess 5nventory H Bob /3C* 1,%000>or in ?rocess 5nventory H other !obs +*1%000
-aw 7aterial 5nventory +30%000
>or in ?rocess 5nventory H Bob /3C* *E>or in ?rocess 5nventory H other !obs *%C0
6ash "* x )11# +%1+
>or in ?rocess 5nventory H Bob /3C* 3%,C0>or in ?rocess 5nventory H other !obs +*%*30
8verhead 6ontrol "*%300 x )1.0# +E%*00
>or in ?rocess 5nventory H Bob /3C* *%33>or in ?rocess 5nventory H other !obs **%,C
6ash "1%3+0 x )1# *%E30
>or in ?rocess 5nventory H Bob /3C* +3C>or in ?rocess 5nventory H other !obs *%EC
8verhead 6ontrol "10 x )1E.+0# +%113
@inished Aoods 5nventory H Bob /3C* *E%3*>or in ?rocess 5nventory H Bob /3C* *E%3*
")1,%000 F )*E F )3%,C0 F )*%33 F )+3C#
;ccounts -eceivable H ?ower +*%,10Sales ")*E%3* x 1.*0# +*%,10
6ost of Aoods Sold *E%3*@inished Aoods 5nventory H Bob /3C* *E%3*
c. 6ost per unit G )*E%3* J 00 G )3.Selling price per unit G )C.*-aw material G )1,%000 J 00 G )+
d. Total -7 issued )+30%000Total units "00 F *0%000# J *0%00
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-7 cost per unit )1C., "rounded#
Total cost per unit G )3. 4 )+.00 F )1C., G )++.33Selling price per unit G )++.33 x 1.* G )30.1+ "rounded#
Sales without error )+*%,10Sales with error "00 x )30.1+# *0%0CTotal OsavingsP of the error )1*%3
*. ; standard costing system is most appropriate in production settings inwhich activities are repetitive. That criterion is met in the case of Latamore5ndustries. evelopment of such standards re(uires that reliableexpectations about input cost amounts and (uantities be determined forthe more routine aspects of client services. 8nce the standards aredeveloped% actual costs and input (uantities can be compared against thestandards to better understand the causes of cost variability across the
contracts. =etter identification and understanding of the causes ofvariances will allow managers to manage costs more effectively and pricecompany services more appropriately.
*C. 7? G ;ctual cost for paper purchasedH Standard cost for paperpurchased G ")0.0+* x ,0%000# H ")0.0+C x ,0%000# G )+1%+C0 4 )+%*0G 4)+%,*0.Since actual cost was less than standard% the variance is favorable.
7D G ;ctual cost for paper used H Standard cost for paper that shouldhave been used G ")0.0+C x ,0%000# H ")0.0+C x ,3%000# G )+%*0 4)+%3*3 G 4)133.
Since actual paper usage was less than the standard allowed% thevariance is favorable.
*E. a. Total payroll G ,%000 M ),.C G )C%0
b. L- G ;ctual payroll H Standard cost for actual hours wored G)C%0 H "),. x ,%000# G )C%0 4 )%C0 G 4)1%00.
Since direct labor employees were paid less than the standard rate%the variance is favorable.
c. LD G Standard cost for actual hours wored H Standard cost forstandard hours allowed for production G )%C0 H "),. x %C00# G)%C0 4 )3%E10 G )+%,30.
Since the number of hours wored was greater than the standardhours allowed% the variance is unfavorable.
d. 8ne concern would be the reason the company was paying its worers
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less than the standard rate per hour. The other concern would be thatthe worers% recogni&ing that they were being paid less than thestandard% chose to wor more slowly than they normally would% tocompensate "relative to total wages# for the reduced wage. 5f thissituation is the case% the company would have been better off paying
the standard rate because the actual payroll was ")C%0 4 )3%E10#or )*%130 greater than the standard would have been.
*. a. 6urrently% =onivo has no data on the actual cost of building any of thecomputers being configured. 6onse(uently% the company is unable todetermine the actual profit "loss# generated on any sales transaction.The !ob order cost system would allow =onivo to better understandwhat factors drive costs in the firm% measure the profit on salestransactions% and identify ways to better manage costs and revenues.
b. ; pricing policy that ignores the costs of direct labor and overhead "in
addition to mareting and administrative costs# is flawed. 8nly if Land 8 are strictly proportional to direct material could their costs notbe considered in determining the price and profit of each computer.owever% in this case% these costs are liely a ma!or portion of the costof building a made4to4order computer.
*,. a. Secretary ")3%00 J 1C0 hrs. x + hrs.# ) 1%006opies "1%30 pages x )0.0C per page# E?hone calls 138verhead "),%C00 J 1C0 hrs. x + hrs.# *%100
;ttorneyQs time ")1,0 x , hrs.# 1%00Total charges )*1%3+*
This means 6onroe would be charging )*1%3+* J , G )**.C0 or)*+0 per hour "rounded#.
Total bill to 8livgra G , hours x )*+0 G )*1%0
b. irect costs ")E F )13 F )1%00# )1%**;llocated secretarial costs 1%00;llocated overhead *%1007argin R")1%00 F )*%100# M 0.30 %0C0Total billing )*,%3,*
c. ; flat charge per hour would be more liely to be acceptable to clients
because such a charge is more understandable than being charged anhourly rate plus a charge for the time that is not really being spent ontheir cases.
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+0. $ach student will have a different answer% but the memo should addressthe following issue:
=udgeted cost is far below each !obs actual cost% which indicates that thecompany is not using past !ob information as a basis for either controllingcosts or increasing future bid prices. =y not using available historical
information to ad!ust operations% the company is accepting marginal !obs.;lthough each !ob generated a positive gross margin% the actual grossmargin is only a small fraction of the budgeted gross margin. 5t is importantthat a company learn from past mistaes.
+1. a. Some of the companies that have been found to engage in thispractice are @amily ollar% ?ep =oys% Taco =ell% Toys4-4Is% and >al47art.
b. 5t is easier to doctor the records now than in the past because recordsare computeri&ed and managers generally have access to the files.
?reviously% managers would have had to conspire with payroll clers oraccountants to change paper or punch4card records.
c. $ach student will have a different answer. owever% most students willprobably indicate that store managers maing such changes would befired "short4run#. @or the long4run% ethics training would probably berecommended and possibly a change in the way store managersbonuses are computed.
+*. a. 7anufacturing 8verhead 1%10-aw 7aterial 5nventory *0
>ages ?ayable ,00
b. >5? 4 Bob /=;3C 1%10-aw 7aterial 5nventory *0>ages ?ayable ,00
Aiven that the rewor costs were not necessary to the completion ofthe !ob% San ;ngelo 6orp. should probably not charge its maruppercentage on the )1%10 of rewor costs unless the customer hadalready been informed that such charges might be charged and the
customer had agreed to such charges.
c. Loss on ;bnormal -ewor 1%10-aw 7aterial 5nventory *0>ages ?ayable ,00
++. a. ?redetermined 8 rate G )1%3*1%000 J 13%000 G ),.0 per 7
irect material )3E%00
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irect labor *1%008verhead "+* x ),.0# +%1Total cost )E*%3
?er unit cost G )E*%3 J 1%00 G )3.+* "rounded#
b. The )E0 rewor cost is included in 7anufacturing 8verhead 6ontrol.
c. Total original cost )E*%36ost of new +0 units 1%+,0Less sale of defective units "*30#Total cost of Bob /EC )E+%C+
+3. a. The estimated cost of the spoilage should be included in calculatingthe predetermined overhead rate. This approach spreads the cost ofspoilage across all good units produced.
b. The cost of this spoilage should be charged to the specific !ob. Sincethere is no salvage value for the spoilage% no !ournal entry would be
necessary as the cost of the spoiled units would be included in theprior charges to the !ob for direct materials% direct labor andmanufacturing overhead.
c. 5n this case% the spoilage is unexpected and the net cost should berecorded as a loss of the period in which it occurred. ;ny salvagevalue associated with the spoilage will reduce the amount of the loss.To record the transaction% wor in process "and the specific !obs !oborder cost sheet# should be credited for the cost of the spoilage andthe expected% net salvage of the spoilage should be debited "isposalvalue of defective wor#. ; loss account "e.g.% Loss from abnormalspoilage# should be debited to balance the transaction.
?roblems
+. -aw 7aterial 5nventory E,0%000;ccounts ?ayable E,0%000
>or in ?rocess 5nventory E0%000-aw 7aterial 5nventory E0%000
7anufacturing 8verhead 1*0%000-aw 7aterial 5nventory 1*0%000
>or in ?rocess 5nventory E,3%0007anufacturing 8verhead 0%000
>ages ?ayable E3%000
>or in ?rocess 5nventory ")E,3%000 x .# 3+C%E007anufacturing 8verhead 3+C%E00
#(
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@inished Aoods 5nventory 1%03C%000>or in ?rocess 5nventory 1%03C%000
6ost of Aoods Sold 1%03C%000
@inished Aoods 5nventory 1%03C%000
6ash 1%+3*%000 Sales 1%+3*%000
+C. a. )*%000 J %000 L G )10.* per L
b. irect 7aterial 5nventory ,0%000;ccounts ?ayable ,0%000
>or in ?rocess 5nventory E%C00
6ash E%C00
7anufacturing 8verhead *%000arious accounts *%000
>or in ?rocess 5nventory *%0007anufacturing 8verhead *%000
>or in ?rocess 5nventory %00irect 7aterial 5nventory %00
")*%000 F ),0%000 4 )+%00#
@inished Aoods 5nventory *3%0>or in ?rocess 5nventory *3%0
6A7 G =>5? F 7 F L F 8 H $>5?6A7 G )10%00 F )%00 F )E%C00 F
)*%000 H)E%E0 G )*3%0
;ccounts -eceivable +0%300Sales +0%300
6ost of Aoods Sold *3+%E00@inished Aoods 5nventory *3+%E00
c. =eginning @A ) C%006A7 *3%06AS "*3+%E00#$nding @A ) 11%C0
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+E. a. ,21 -aw 7aterial 5nventory 1%,30%000;ccounts ?ayable 1%,30%000
,23 >or in ?rocess 5nventory 1%3C%00
7anufacturing 8verhead +%*00-aw 7aterial 5nventory 1%,00%0005ssuances made to !obs as follows:/E% )*,%C00' /E% )**%C00' /*% ),,*%*00' /C% )+1*%300
,21 >or in ?rocess 5nventory CC%C00
7anufacturing 8verhead ,1%3006ash EE%000
Labor charged to !obs as follows:/E% )3%C00' /E% )*CE%*00' /*% )*0+%000'/C% )110%00
,21 >or in ?rocess 5nventory +*%0007anufacturing 8verhead +*%0008verhead applied to !obs as follows:/E% )1*0%E0' /E% )+*,%000' /*% )*+%E0'/C% )1*%00.
,21 @inished Aoods 5nventory 1%01%+0>or in ?rocess 5nventory 1%01%+0
")C%300 F )*,%C00 F )3%C00 F )1*0%E0#
;ccounts -eceivable 1%30%ESales 1%30%E
")1%01%+0 x 1.+#
6ost of Aoods Sold 1%01%+0@inished Aoods 5nventory 1%01%+0
,2*0 7anufacturing 8verhead 110%*00;ccounts ?ayable 1,C%00
6ash +0E%000
,2*3 -aw 7aterial 5nventory C*3%000;ccounts ?ayable C*3%000
,2* >or in ?rocess 5nventory E1C%3007anufacturing 8verhead %00-aw 7aterial 5nventory EE*%*00
5ssuances made to !obs as follows:/E% )13%00' /*% )*1*%C00' /C% )+3,%000
,2+0 7anufacturing 8verhead 1%*0C%00
#*
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;ccumulated epreciation 0,%000?repaid 5nsurance 1C%300Taxes N Licenses ?ayable *+*%300
,2+0 >or in ?rocess 5nventory C3,%300
7anufacturing 8verhead C%0006ash E13%300Labor charged to !obs as follows:/E% )1EE%300' /*% )**%300' /C% )*3+%C00
,2+0 >or in ?rocess 5nventory 30E%1*7anufacturing 8verhead 30E%1*
To apply overhead to !obs as follows:/E% )111%E0' /*% )1E0%C*' /C% )1*3%E0
b. -aw 7aterial 5nventory=al. ++*%300 ,23
1%,00%000,21 1%,30%000 ,2* EE*%*00
,2*3 C*3%000
=al. **3%*00
>or in ?rocess=al. 1%1*%C00 ,21 1%01%+0,23 1%3C%00,21 CC%C00,21 +*%000,2* E1C%300,2+0 C3,%300,2+0 30E%1*
=al. %3%E 6ost of Aoods Sold=al. 3%C3%000/E 1%01%+0
=al. %,3%+0
Bob /E Bob /E
=al. C%300 1%01%+0 =al. *CC%C007 *,%C00 7 **%C00L 3%C00 L *CE%*008 1*0%E0 8 +*,%000=al. 0 7 13%00
L 1EE%300
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8 111%E0=al 1%,%+0
Bob /* Bob /C
=al. C,%C00 7 +1*%3007 ,,*%*00 L 110%00L *0+%000 8 1*%008 *+%E0 7 +3,%0007 *1*%C00 L *3+%C00L **%300 8 1*3%E08 1E0%C*
=al. *%E*0%1E =al. 1%*C,%00
c. Schedule of Bob 6ost -ecordsSeptember +0% *010
Bob /E )1%,%+0Bob /* *%E*0%1EBob /C 1%*C,%00Total )%3%E
d. ;ctual overhead for September,23 ) +%*00,21 ,1%300,2*0 110%*00
,2* %00,2+0 1%*0C%00,2+0 C%000 )1%*%300
;pplied overhead for September,21 ) +*%000,2+0 30E%1* "1%*+,%1*#
Inderapplied overhead ) +3+%*E
+. a. -aw 7aterial 5nventory 3*%000 6ash 3*%000
7anufacturing 8verhead 3%000>or in ?rocess 5nventory C0*%00
>ages2Salaries ?ayable "or 6ash# CC%00To record L for !obs "Bob /*3E% )1E%300' /*1% )%00'/*+% )*1%000' /*3% )1+C%C00' /*% )13%000'/*C% ),3%C00' and /*E% )1E,%300#
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7anufacturing 8verhead EC%000>or in ?rocess 5nventory 3CC%300
-aw 7aterial 5nventory 3*%300To record 7 for !obs "Bob /*3E% )1*%300' /*1% )C%*00'/*+% )1C%00' /*3% )10%*00' /*% )11,%00'/*C% )E*%00' and /*E% )1++%*00#
7anufacturing 8verhead 113%300arious accounts 113%300
To record 8 costs other than indirect labor andindirect materials ")*33%300 4 )3%000 4 )EC%000#
>or in ?rocess 5nventory *31%1*07anufacturing 8verhead *31%1*0
To apply 8 at a rate of )0.30 per L) "Bob /*3E% )C%,C0'/*1% )+%*0' /*+% )%300' /*3% )3%C30' /*% )%000'/*C% )+E%30' and /*E% )E1%EC0#
@inished Aoods 5nventory 1%EE,%030>or in ?rocess 5nventory 1%EE,%030 "See schedule below.#
6ash *%*C3%EE3Sales *%*C3%EE3
6ost of Aoods Sold 1%EE,%030@inished Aoods 5nventory 1%EE,%030
Schedule of 6ompleted Bobs
Bob irect 7aterial irect Labor ;pplied 8 Total*3E ) ,%C00 )10%00 ) 3+%*0 ) *31%,*0*1 1*%00 *1%C00 E%330 3%30*+ 1C*%*00 1,0%C00 EC%*30 3*,%030*3 10%*00 1+C%C00 3%C30 *,C%330* 11,%00 13%000 %000 +**%00Totals )C,%C00 )E,,%C00 )+1,%30 )1%EE,%030
b. Bob irect 7aterial irect Labor ;pplied 8 Total*C ) E*%00 ) ,3%C00 )+E%30 )*0%*30
*E 1++%*00 1E,%300 E1%EC0 +3%+C0Totals )*0C%000 )*E3%000 )10,%C00 ),%C00
c. ;ctual overhead ) *33%300;pplied overhead *31%1*0Inderapplied overhead ) +%*0Inad!usted cost of !obs completed 1%EE,%030
;d!usted cost of !obs completed )1%E*%+*0
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+,. a. ;luminum Steel 8ther Total=5 ) %+00 )1*%00 ) %00 ) *C%,00?urchases ,%+00 *C%00 *+%0 13%+0
;vailable )10C%C00 )+,%+00 )*,%+0 )1E%*0
5ssuances "%E00# "+3%*00# "*%,00# "11%00#$5 ) 3E%,00 ) %100 ) +%30 ) C%30
b. irect material ) C*0irect labor " x )1# 1*08verhead "1C x )+0# 30Total )1%**0
c. >5? H beginningU ) C%*+0irect material "total issuances# 11%00irect labor "C0 M )1# 10%*00
8verhead "1%*00 M )+0# +C%000Total manufacturing costs )1E1%*+0>5? 4 ending "1%**0#6ost of goods manufactured )1E0%010@A 4 beginning *+%006ost of goods available for sale )1,+%10@A 4 ending "0#6ost of goods sold )1,+%10
UBob / 7aterial Labor 8 Total 311 )1%,00 ) 30 )1%00 )+%,30 31* 1%*30 10 ,00 *%*,0
)+%130 ) C,0 )*%300 )C%*+0
30. a. Ising any of the !obs% one can determine that the relationship betweendirect labor and applied overhead is that overhead is 11K of directlabor cost. @or example% using !ob /CE: )1%,1C J )1+%30 G 1.1.
b. irect material )*%00irect labor E%*00
;pplied overhead %*0Total )31%*0
c. Total direct material )1+%+3Less direct material in =5 "*%00# )3%0+3
Total direct labor ) ,+%E*0
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Less direct labor in =5 "E%*00# C%*0Total direct cost added during 7ay )E3%3
d. >or in process 4 beginning ) 31%*06osts added during 7ay:
irect material )3%0+3irect labor C%*0;pplied overhead ")C%*0 x 1.1# ,,%3, CE3%0*
)E1%++*>or in process 4 ending ")+0%3+0 F )E%000 F ")E%000 M 1.1# "3+0%,0#6ost of goods manufactured )*3%+*
31. a. @abrication: )1%C0%000 J 103%000 7Ls G )1 per 7;ssembly: )1%EC0%000 J +*0%000 Ls G ).0 per L
b. Bob /**,C: @abrication ",00 hours V )1*# )10%00;ssembly "0 hours V )10# %00Total L )1,%+00
Bob /**,E: @abrication "3C0 hours V )1*# )%*0;ssembly "300 hours V )10# 3%000Total L ),%*0
c. Bob /**,C: @abrication "1%00 hours V )1# )*E%000;ssembly "0 hours V ).0# 3%CETotal 8 applied )+1%CE
Bob /**,E: @abrication ",00 hours V )1# )1+%00;ssembly "300 hours V ).0# *%*00Total 8 applied )1%E00
d. Bob /**,C Bob /**,E
irect 7aterial )11%00 )13E%*00irect Labor 1,%+00 ,%*08verhead +1%CE 1%E00Total )1C,%3E )1E*%3*0
e. @abrication: ;pplied "10+%*00 M )1# )1%3%000;ctual "1%*%000#8verapplied ) *0%000
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;ssembly: ;pplied "+*3%000 M ).0# )1%E*%000;ctual "1%E,0%000#Inderapplied ) %000
The company has overapplied overhead of )1*%000 for the year.
3*. a. Bob 6ost Sheet 4 Bob /1
6ustomer 9ame and ;ddress: escription of Bob: ?repare site%6ity of Aulf Shores build and install a pedestrianAulf Shores% ;labama overpass in Aulf Shores: see bid
specifications for details
6ontract ;greement ate: 210Scheduled Starting ate: E210
;greed Ipon 6ompletion ate: 1*212106ontract ?rice: )+%+00%000;ctual 6ompletion ate: Special 5nstructions: 9one
irect 7aterial "$st. )1%*30%000#ate Source 6ost*010Buly +1 Summary of material re(. )1*1%00
irect Labor "$st. )CE0%000# 8verhead "$st. )30*%000# .
ate Source 6ost ate Source 6ost*010 *010Buly +1 Summary of time Buly +1 Bournal entry
sheets for direct of E2+1210 )10%0*3labor )1E%030
Summary "as of E2+1210# ;ctual =udget Inder"8ver#
irect material )1*1%00 )1%*30%000irect labor 1E%030 CE0%0008verhead 10%0*3 30*%000Totals )301%C3 )*%+1*%000
b. >or in ?rocess 4 Bob /1 1*1%00
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>or in ?rocess H other !obs 3E%00irect 7aterial 5nventory E,%+00
>or in ?rocess 4 Bob /1 1E%030>or in ?rocess 4 other !obs 30%,C0
7anufacturing 8verhead %00Salaries and >ages $xpense +,%C00Salaries and >ages ?ayable CE,%300
7anufacturing 8verhead *C%300epreciation $xpense E%00
;ccumulated epr. 4 6onst. ;ssets *C%300;ccumulated epr. 4 8ffice ;ssets E%00
Sales ?romotion $xpense 11%100;ccounts ?ayable 11%100
;dvertising $xpense C%C006ash C%C00
7anufacturing 8verhead 1%C00Supplies 5nventory 1%C00
7iscellaneous $xpense 10%*00;ccounts ?ayable 10%*00
Itilities $xpense 1%007anufacturing 8verhead %300Itilities ?ayable E%*00
>or in ?rocess 4 Bob /1 10%0*3>or in ?rocess 4 other !obs *3%+EC
7anufacturing 8verhead +0%300
;ccounts -eceivable 1%**3%000Sales 1%**3%000
@inished Aoods 5nventory *,%000 >or in ?rocess 5nventory *,%000
6ost of Aoods Sold *,%000@inished Aoods 5nventory *,%000
c. >or in ?rocess 4 beginning ) E1%00?roduction costs:
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irect material )E,%+00 irect labor 3%000 ;pplied overhead +0%300 1%1+%E00 )*%+%00
>or in process H ending "1%C%00#
6ost of goods manufactured ) *,%000
d. =irmingham 6ontractors5ncome Statement
@or the 7onth $nded Buly +1% *010
-evenues from completed pro!ects )1%**3%000Less 6ost of Aoods Sold "*,%000#Aross 7argin on 6ompleted Bobs ) +,%0009on4?roduction $xpenses:
Salaries and >ages $xpense )+,%C00
epreciation $xpense E%00Itilities $xpense 1%00Sales ?romotion $xpense 11%100
;dvertising $xpense C%C007iscellaneous $xpense 10%*00 "EE%100#
5ncome =efore 5ncome Taxes )+1E%,005ncome Taxes "30K# "1*E%1C0#9et 5ncome )1,0%E30
3+. a. Bob /*01,:esign ")1%C00 M +0K# )*3%30?roduction "E*0 M )1# 10%005nstallation ")10%00 M ,0K# ,%0E*
Total overhead applied )33%+*
Bob /*0*0:esign ")C,%+C0 M +0K# )*0%0?roduction "*%300 M )1# +C%0005nstallation ")11%*0 M ,0K# 10%+C
Total overhead applied )CE%1EC
Bob /*0*1:esign ")E+%330 M +0K# )**%0+*?roduction ",C0 M )1# 13%3005nstallation ")1%*00 M ,0K# 1+%C0
Total overhead applied )0%11*
esign ?roduction 5nstallation
((
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;ctual )10%C00 )C0%000 )+1%*00;pplied "CE%+*0# "C1%*00# "++%1*0#"8ver#2under applied ) +%*0 ) "1%*00# ) "1%,*0#
;ctual 8 for company )1,C%00
;pplied 8 for company "1C1%C30#Total company underapplied 8 ) +%1C0
b. >or in ?rocess "esign# H Bob /*01, ,%C00>or in ?rocess "esign# H Bob /*0*0 %*00>or in ?rocess "esign# H Bob /*0*1 1E%C00
-aw 7aterial 5nventory +%300
>or in ?rocess "esign# H Bob /*01, 1%C00>or in ?rocess "esign# H Bob /*0*0 C,%+C0>or in ?rocess "esign# H Bob /*0*1 E+%330
>ages ?ayable **3%300
>or in ?rocess "esign# H Bob /*01, *3%30>or in ?rocess "esign# H Bob /*0*0 *0%0>or in ?rocess "esign# H Bob /*0*1 **%0+*
7anufacturing 8verhead CE%+*0
>or in ?rocess "?rod.# H Bob /*01, 11C%300>or in ?rocess "?rod.# H Bob /*0*0 *C%00>or in ?rocess "?rod.# H Bob /*0*1 *+*%000
-aw 7aterial 5nventory C1E%*00
>or in ?rocess "?rod.# H Bob /*01, +3%000>or in ?rocess "?rod.# H Bob /*0*0 ,%C00>or in ?rocess "?rod.# H Bob /*0*1 *1%C00
>ages ?ayable 11%*00
>or in ?rocess "?rod.# H Bob /*01, 10%00>or in ?rocess "?rod.# H Bob /*0*0 +C%000>or in ?rocess "?rod.# H Bob /*0*1 13%300
7anufacturing 8verhead C1%*00
>or in ?rocess "5nst.# H Bob /*01, 10%300>or in ?rocess "5nst.# H Bob /*0*0 +C%00>or in ?rocess "5nst.# H Bob /*0*1 10%300
-aw 7aterial 5nventory E%C00
>or in ?rocess "5nst.# H Bob /*01, 10%00>or in ?rocess "5nst.# H Bob /*0*0 11%*0
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>or in ?rocess "5nst.# H Bob /*0*1 1%*00>ages ?ayable +C%00
>or in ?rocess "5nst.# H Bob /*01, ,%0E*>or in ?rocess "5nst.# H Bob /*0*0 10%+C
>or in ?rocess "5nst.# H Bob /*0*1 1+%C07anufacturing 8verhead ++%1*0
c. Bob /*01,:irect material )1+C%300irect labor 1*%C08verhead 33%+*Total cost )+0C%3+*
Bob /*0*0:irect material )+1+%00irect labor 130%308verhead CE%1ECTotal cost )*1%3C
Bob /*0*1:irect material )*C0%000irect labor 110%*308verhead 0%11*Total cost )3*0%+*
33. a. -eliant: )%0 J )3 G 1*3 L woredumas: )1%000 J )3 G 300 L wored
8maha: )*%+0 J )3 G C+0 L wored
-eliant: 1*3 L x ) G )E%1,* 8 appliedumas: 300 L x ) G )*+%*00 8 applied8maha: C+0 L x ) G )+C%30 8 applied
-eliant umas 8mahairect material ) E%00 )13%*00 ) 1,%00irect labor %0 1%000 *%+08verhead E%1,* *+%*00 +C%30Total cost )*0%E* )%300 )3%C,0
b. -eliant: )*0%E* J + G )C%E per adumas: )%300 J 10 G )%30 per ad8maha: )3%C,0 J G )10%C per ad
c. Sales "*1 ads W )%C00# )10%C006osts:
irect material )31%00
(*
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irect labor 1%,+0;pplied overhead CC%,+*8verapplied overhead "1C%,+*# "13+%E+0#
9et income ) +C%E0
d. Sales: -eliant ")*0%E* x 1.+# )*C%E3+.C0umas ")%300 x 1.+# E*%0*0.00 8maha ")3%C,0 x 1.+# 110%0,E .00 )*0%C0.C0
6osts:irect material )31%00.00irect labor 1%,+0.00
;pplied overhead CC%,+*.008verapplied overhead "1C%,+* .00# "13+%E+0 .00#
9et income ) C%1+0 .C0
5ncome using a cost4plus basis is substantially higher than that which
is obtained using a flat rate selling price. umas 7anufacturing will bemore pleased with the system' rather than paying a rate of )%C00 perad% umas would be paying )E%*0*. 8n the other hand% -eliants and8mahas costs per ad would increase from )%C00 per ad to )%,1and )1+%EC*% respectively.
;ds shouldnQt be billed at a flat rate because some may tae muchlonger to develop than others. The ads for 8maha too C+0 hours todevelop or about E, hours each. 5n contrast% the + ads were developedfor -eliant in 1*3 hours "31 hours each# and the 10 ads weredeveloped for umas in only 300 hours "30 hours each#.
;nother possibility for Le=lanc is to bill based on a standard chargeper labor hourXespecially if clients tend to change their minds afterthe ad development process begins.
3. a. 8ct. 1 -aw 7aterial 5nventory 1%10%000;ccounts ?ayable 1%10%000
1 >or in ?rocess 4 ? C0%0007anufacturing 8verhead 4 ? 00%000
-aw 7aterial 5nventory 1%10%000
7anufacturing 8verhead 4 6 *%000;ccounts ?ayable *%000
7anufacturing 8verhead 4 ? %0006ash %000
1 9o entry needed.
(5
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*0 7anufacturing 8verhead 4 6 C0%0006ash C0%000
*3 -aw 7aterial 5nventory 1%3%000
;ccounts ?ayable 1%3%000
+1 7anufacturing 8verhead H ? +C%+*0>or in ?rocess H ? 3%000
6ash CC%1*0;ccumulated epr. 4 ? 1%*00
+1 7anufacturing 8verhead H 6 1%C0>or in ?rocess H 6 1C%+00
6ash *C%*00;ccumulated epr. 4 6 %E0
+1 ;ccounts ?ayable *%C+%0006ash *%C+%000
+1 >or in ?rocess H ? 10%0007anufacturing 8verhead H ? 10%000
"C%000 7 x )*#
+1 >or in ?rocess H 6 *C%,7anufacturing 8verhead H 6 *C%,
")1C%+00 x 1.C#
9ov. 1 7anufacturing 8verhead H 6 %0006ash %000
3 >or in ?rocess 4 ? *%0007anufacturing 8verhead 4 ? 1E%000
-aw 7aterial 5nventory 1%000%000
7anufacturing 8verhead H ? %000 6ash %000
1 >or in ?rocess H 6 *00%0007anufacturing 8verhead 4 6 **%000
-aw 7aterial 5nventory 3*%000
1 9o entry needed.
*3 9o entry needed.
(+
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3%00 3+%0
bal C0%000 bal *C%C*0 bal 1*,%010
>5? H ?recast >5? 4 6onstruction
C0%000 1%+%E0 1C%+00 ,,%0,0 3%000 *C%, 10%000 *00%000 *%000 1+3%+00 11%000 **1%, ,%E0
bal 0 bal 0
6ompleted ?ro!ects 5nv. 6ost of 6ontracts Sold
*%3*%30 *%3*%30 *%3*%30
bal 0 bal *%3*%30
c. "bottom section of !ob cost sheet#
?recast epartment
7 "$st. )1%0%000# L "$st. )**0%000# 8 "$st. )*E%000#ate ;mount ate ;mount ate ;mount8ct. 1 ) C0%000 8ct. +1 ) 3%000 8ct. +1 )10%000
9ov. 3 *%000 9ov. +0 11%000 9ov. +0 ,%E0 )1%3E%000 )1C0%000 )*3%E0
6onstruction epartment
7 "$st. )+0%000# L "$st. )1+0%000# 8 "$st. )*13%00#ate ;mount ate ;mount ate ;mount9ov. 1 ) *00%000 8ct. +1 ) 1C%+00 8ct. +1 ) *C%,
9ov. +0 1+3%+00 9ov. +0 **1%,)10%C00 )*3%3,0
d. Lincoln 6onstruction 6ompany does not seem to have a goodestimation system in place for its bid process% especially in its ?recastepartment. The company may be losing a significant number of bidsbecause of inflated cost estimates.
3C. a. ; !ob order cost system is appropriate in any environment in whichcosts can be readily identified with specific products% batches%
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contracts% or pro!ects. @or adopting this system there should be a!ustification on a cost4benefit basis to trace costs to those specificproducts% batches% contracts% or pro!ects.
b. The only !ob remaining in >5? at 2+1 is -S113:
-S113 balance% 32+0 )1%E0%0007ay additions:-aw material )1*3%000?urchased parts E%000irect labor *00%008verhead "1,%00 hrs. V )E.0U# 13C%*0 E%E0
>5? balance% 2+1 )*%1*E%E0
U8 rate G )3%00%000 J C00%000 hrs. G )E.0 per hour
c. @A inventory of playpens% 32+0 1,%300Inits completed in 7ay 1%000
Inits available +3%300Inits shipped in 7ay "*1%000#@A inventory% 2+1 1+%300
Since ?ip S(ueas uses the @5@8 inventory method% all unitsremaining in @A inventory were completed in 7ay.
>or in process inventory% 32+0 )3*0%0007ay additions: -aw material ) +%000 ?urchased parts 10%00
irect labor 3+%*00 8verhead "3%300 W )E.0# ++%000 ,0%000Total cost )10%000
Init cost G )10%000 J 1%000 units completed G )+3 per unit@A inventory G )+3 W 1+%300 G )3%C00
d. 5f the amount of overapplied or underapplied 8 is not material or theresult of an error in the 8 application rate% the amount is normallycharged directly to 6AS. 5f the amount is significant% the amountshould be prorated over the relevant accounts "i.e.% >5?% @A% and6AS#.
"67; adapted#3E. a.% b. ;pplied 8 rate G )+0*%300 J 100%00 G )+ per L
6ost of goods manufactured ) ,C%000;dd ending wor in process:
Two !obs open have 7 of ) 3%00Two !obs open have L of ,%000Two !obs open have applied 8 of ")+ M *%133# C%3+* *0%*+*
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Total costs accounted for )11C%*+*Less beginning wor in process "1%300#6ost of production inputs )100%+*Less: irect labor )+C%300
;pplied 8 ")+.00 M %00# *C%300 "C*%00#
6ost of direct material used ) +%0+*6ost of indirect material issued 11%C00 Total cost of raw material used ) 3,%C+*
c. =eginning raw material ) ,%C00-aw material purchased C%000Total raw material available )C%C00-aw material issued "3,%C+*#$nding raw material )1%,C
d. 8verhead applied ")+ M %00# ) *C%300
;ctual overhead charges:5ndirect labor )10%005ndirect material 11%C00
;ll other %000 "*E%300#Inderapplied overhead in ;pril ) 1%000
e. =eginning finished goods ) 1C%00;dd cost of goods manufactured ,C%0006ost of goods available )11*%00Less ending finished goods "1+%*00#6ost of goods sold ) ,,%C00
3. a. ;ctual 7 cost )11%C00%000Standard 7 cost ")C%000 M *00# "11%*00%000#7aterial ?rice ariance ) 300%000 I
;ctual L cost )C%,E%C00Standard L cost ")+3%300 M *00# "C%0%000#irect Labor -ate ariance ) EE%C00 I
;ctual 8 cost )13%00%000Standard 8 cost ")EC%000 M *00# "1%*00%000#8 ariance ) "300%000# @
b. 7aterial:)11%C00%000 J C%000%000 G )1.,+ "rounded# actual cost per lb. vs.)*.00 standard cost per lb.' )0.0E x C%000%000 G )3*0%000 @ pricevariance
C%000%000 lbs. used vs. "*%000 x *00# standard G C%000%000 H%C00%000 G 300%000 lbs. more than standard' 300%000 x )* G
)/
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)00%000 I (uantity variance
The primary cause of the unfavorable material variance is because ofexcess usage.
3,. a. 7 cost )1.00L cost ")*0 x "1* J C0## 3 .00Total standard prime costs )** .00
b. Bob /,1 7 cost ")1 x 1%*00# )*1%C00 L cost ")3 x 1%*00# 3%00 Total standard direct cost )*C%300
Bob /*00*7 cost ")1 x *%000# ) +C%000
L cost ")3 x *%000# %000Total standard direct cost )33%000
c. Bob /,1 Standard ;ctual ariance 7 ) *1%C00 )*+%* )1%,* I L 3%00 3%30 30 I Total )*C%300 )*%+C )1%,C I
Bob /*00* 7 )+C%000 )+E%330 )1%330 I L %000 E%0 10 @
Total )33%000 )3%*,0 )1%*,0 I
d. =y computing variances for each !ob% managers become aware of anytrends in costs. 5f costs are aggregated across !obs% any trends maybe obscured.
0. a. ?rofit on the fixed4price contracts is constrained by the contract price.?rofit can only be increased if ways are found to reduce costs. 8neway that costs can be reduced is to shift them to other contracts. Thisis a particularly effective strategy if the costs that are shifted to anothercontract can be recouped under the terms of that other contract. =yshifting some costs of the fixed4price contracts to the cost4pluscontracts% the profit on the fixed4price contracts rises and the shifted
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costs can be recovered under the terms of the cost4plus contracts.@urther% this strategy may have the effect of increasing costs under thecost4plus contracts if those contracts determine profit as a percentageof total costs.
b. This type of cost shifting is dishonest and unethical. 5t has the effect ofincreasing the total prices of cost4plus contracts% and% if those contractsare government related% those prices are typically borne by taxpayers.5n a sense it is a way for the stocholders and managers of thedefense contractors to steal from the taxpayers. 5t is difficult toimagine a setting in which this process could be labeled ethical.
1. a. $ach student will have a different answer.
b. The company is utili&ing the benefits of automation to reduce the costsof handling so many parts. =y standardi&ing processes% the company
can assemble a messenger bag with a diverse set of parts in anamount of time that is similar to that re(uired for mass4produced ones.;ccordingly% although the company is probably paying% on average%more for parts on custom messenger bags than mass4produced ones'it is holding the line on direct labor and production overhead. =yholding costs down for labor and overhead% the total cost of the customproduced messenger bags is not significantly higher than that of themass produced messenger bags.
c. Duality as viewed from the perspective of the consumer should bemuch higher with the custom4made messenger bags becausecustomers are able to specify the various parts they want included. =ygetting the exact combination of parts the customers desire% they willperceive the (uality of the product to be very high relative to thepremium in price they pay over the mass4produced messenger bags.
d. The answer is mostly revealed in part "c#. =y containing costs to levelsclose to those of mass4produced messenger bags% but allowing thecustomer to choose the parts they desire% a substantial gross profitcan be achieved. The higher gross profit reflects the customersQwillingness to pay a premium for the exact combination of partsdesired% even though the companyQs costs are not significantly greaterthan those incurred to mass produce messenger bags.
*. a. 5t is liely that the least popular thoughts and opinions would not beheard on campus. Students would naturally support those ideas andpositions that were consistent with their own ethics% philosophies% andself interests. ;s a conse(uence% the overall diversity of ideas wouldprobably decline.
b. ;ssuming diversity of opinions ultimately benefits all students% the
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Iniversity of >isconsin is possibly supporting diversity with the onlymeans availableXstudent dollars. owever% this approach may not beethical because it forces students to support opinions% beliefs% andideas that may violate their personal ethics. ;lthough the Supreme6ourt of the Inited States will ultimately determine whether this is a
legal practice% each individual student can reach his2her ownconclusion as to whether the practice is ethical.
+. a. 8verhead other than spoilage )C00%000$stimated spoilage cost )0%000Less salvage value *0%000 +0%000
;d!usted estimated overhead cost )C+0%000
?8- G )C+0%000 J 30%000 G )1.E per L
b. isposal value of chemical 3,C
7anufacturing 8verhead 1%*+3>or in ?rocessXBob /E 1%E+0
3. a. ?redetermined rate G ),*%000 J 100%000 G ),.* per 7
b. Total cost of direct material )CE%100Total cost of direct labor 1E%E0
;pplied 8 "+%00 x ),.*# *%3,0Total cost of Bob =+1C )E+%+30
c. The rewor cost is debited to the manufacturing overhead accountsince the company uses a predetermined rate that includes reworcosts to apply overhead.
7anufacturing 8verhead E%00arious accounts E%00
d. ?redetermined rate G )0%000 J 100%000 G ).0 per 7
Total cost of direct material )CE%100Total cost of direct labor 1E%E0
;pplied 8 "+%00 x ).0# *C%10Total cost of Bob =+1C )E1%0+0
e. Total cost of direct material )CE%100Total cost of direct labor 1E%E0
;pplied 8 "+%00 x ).0# *C%10-ewor cost ")E%00 x .*0# 1%100Sale of rewored pipe "*00 x )+.0# "E00#Total cost of Bob =+1C )%3+0
))