chapter 10 - answer
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CHAPTER 9
MANAGEMENT ACCOUNTING - Solutions Manual
Chapter 10 Systems Design: Job-Order Costing and Process CostingSystems Design: Job-Order Costing and Process Costing Chapter 10
CHAPTER 10SYSTEMS DESIGN: JOB-ORDER COSTING AND PROCESS COSTING
I.Questions1. Job-order costing is used in those manufacturing situations where there are many different products produced each period. Each product or job is different from all others and requires separate costing. Process costing is used in those manufacturing situations where a single, homogeneous product, such as cement, bricks, or gasoline, is produced for long periods at a time.
2. The job cost sheet is used in accumulating all costs assignable to a particular job. These costs would include direct materials cost traceable to the job, and manufacturing overhead cost allocable to the job. When a job is completed, the job cost sheet is used to compute the cost per completed unit. The job cost sheet is then used as a control document for: (1) determining how many units have been sold and determining the cost of these units; and (2) determining how many units are still in inventory at the end of a period and determining the cost of these units on the balance sheet.
3. Many production costs cannot be traced directly to a particular product or job, but rather are incurred as a result of overall production activities. Therefore, in order to be assigned to products, such costs must be allocated to the products in some manner. Examples of such costs would include utilities, maintenance on machines, and depreciation of the factory building. These costs are indirect production costs.
4. A firm will not know its actual manufacturing overhead costs until after a period is over. Thus, if actual costs were used to cost products, it would be necessary either (1) to wait until the period was over to add overhead costs to jobs, or (2) to simply add overhead cost to jobs as the overhead cost was incurred day by day. If the manager waits until after the period is over to add overhead cost to jobs, then cost data will not be available during the period. If the manager simply adds overhead cost to jobs as the overhead cost is incurred, then unit costs may fluctuate from month to month. This is because overhead cost tends to be incurred somewhat evenly from month to month (due to the presence of fixed costs), whereas production activity often fluctuates. For these reasons, most firms use predetermined overhead rates, based on estimates of overhead cost and production activity, to apply overhead cost to jobs.
5. An allocation base should act as a cost driver in the incurrence of the overhead cost; that is, the base should cause the overhead cost. If the allocation base does not really cause the overhead, then costs will be incorrectly attributed to products and jobs and their costs will be distorted.
6. A process costing system is appropriate in those situations where a homogeneous product is produced on a continuous basis.
7. In a process costing system, costs are accumulated by department.
8. First, the activity performed in a department must be performed uniformly on all units moving through it. Second, the output of the department must be homogeneous.
9. The reason cost accumulation is simpler is that costs only need to be identified by department - not by separate job. Usually there will be only a few departments in a company, whereas there can be hundreds or even thousands of jobs in a job-order costing system.
10. A quantity schedule shows the physical flow of units through a department during a period. It serves several purposes. First, it provides the manager with information relative to activity in his or her department and also shows the manager the stage of completion of any in-process units. Second, it serves as an essential guide in computing the equivalent units and in preparing the other parts of the production report.11. By definition, manufacturing overhead consists of costs that cannot be practically traced to products or jobs. Therefore, if these costs are to be assigned to products or jobs, they must be allocated rather than traced.12. Assigning manufacturing overhead costs to jobs does not ensure a profit. The units produced may not be sold and if they are sold, they may not be sold at prices sufficient to cover all costs. It is a myth that assigning costs to products or jobs ensures that those costs will be recovered. Costs are recovered only by selling to customersnot by allocating costs.13.(a)Job-order costing and process costing have the same basic purposesto assign materials, labor, and overhead cost to products and to provide a mechanism for computing unit product costs.
(b)Both systems use the same basic manufacturing accounts.
(c)Costs flow through the accounts in basically the same way in both systems.
14.The company will want to distinguish between the costs of the metals used to make the medallions, but the medals are otherwise identical and go through the same production processes. Thus, operation costing is ideally suited for the companys needs.II.ExercisesExercise 1 (Process Costing and Job Order Costing)
a.Job-order costing
f.Process costingb.Process costing
g.Process costingc.Process costing *
h.Job-order costingd.Job-order costing
i.Job-order costing
e.Job-order costing
j.Job-order costing
*Some of the listed companies might use either a process costing or a job-order costing system, depending on how operations are carried out and how homogeneous the final product is. For example, a plywood manufacturer might use job-order costing if plywoods are constructed of different woods or come in markedly different sizes.
Exercise 2 (Applying Overhead with Various Bases)Requirement 1
Predetermined overhead rates:
Company X:
Company Y:
Company Z:
Requirement 2
Actual overhead costs incurred
P420,000
Overhead cost applied to Work in Process:
58,000* actual hours P7.20 per hour
417,600
Underapplied overhead cost
P2,400
* 7,000 hours + 30,000 hours + 21,000 hours = 58,000 hours
Exercise 3 (Departmental Overhead Rates)Requirement 1
Milling Department:
Assembly Department:
Requirement 2
Overhead Applied
Milling Department: 90 MHs P8.50 per MHP765
Assembly Department: P160 125% 200
Total overhead cost appliedP965
Requirement 3Yes; if some jobs required a large amount of machine time and little labor cost, they would be charged substantially less overhead cost if a plantwide rate based on direct labor cost were being used. It appears, for example, that this would be true of job 123 which required considerable machine time to complete, but required only a small amount of labor cost.
Exercise 4 (Process Costing Journal Entries)Work in ProcessMixing
330,000
Raw Materials Inventory
330,000
Work in ProcessMixing
260,000
Work in ProcessBaking
120,000
Wages Payable
380,000
Work in ProcessMixing
190,000
Work in ProcessBaking
90,000
Manufacturing Overhead
280,000
Work in ProcessBaking
760,000
Work in ProcessMixing
760,000
Finished Goods
980,000
Work in ProcessBaking
980,000
Exercise 5 (Quantity Schedule, Equivalent Units, and Cost per Equivalent Unit Weighted Average Method)Requirement 1
Weighted-Average Method
Quantity Schedule
Gallons to be accounted for:
Work in process, May 1 (materials 80% complete, labor and overhead 75% complete)
80,000
Started into production
760,000
Total gallons accounted for
840,000
Equivalent Units
MaterialsLaborOverhead
Gallons accounted for as follows:
Transferred to the next department
790,000790,000790,000790,000
Work in process, May 31 (materials 60% complete, labor and overhead 20% complete)
50,00030,00010,00010,000
Total gallons accounted for
840,000820,000800,000800,000
Requirement 2Total CostsMaterialsLaborOverheadWhole Unit
Cost to be accounted for:
Work in process, May 1
P 146,600P 68,600P30,000P 48,000
Cost added during the month
1,869,200 907,200 370,000 592,000
Total cost to be accounted for (a)
P2,015,800P975,800P400,000P640,000
Equivalent units (b)
820,000800,000800,000
Cost per equivalent unit (a) (b)
P1.19+ P0.50+ P0.80= P2.49
Exercise 6 (Quantity Schedule, Equivalent Units, and Cost per Equivalent Unit FIFO Method)
Requirement 1
FIFO Method
Quantity Schedule
Gallons to be accounted for:
Work in process, May 1 (materials 80% complete, labor and overhead 75% complete)
80,000
Started into production
760,000
Total gallons accounted for
840,000
Equivalent Units
MaterialsLaborOverhead
Gallons accounted for as follows:
Transferred to the next department:
From the beginning inventory
80,00016,000*20,000*20,000*
Started and completed this month** 710,000710,000710,000710,000
Work in process, May 31 (materials 60% complete, labor and overhead 20% complete)
50,00030,00010,00010,000
Total gallons accounted for
840,000756,000740,000740,000
*Work required to complete the beginning inventory.
**760,000 gallons started 50,000 gallons in ending work in process = 710,000 gallons started and completed.
Requirement 2
Total CostsMaterialsLaborOverheadWhole Unit
Cost to be accounted for:
Work in process, May 31
P 146,600
Cost added during the month (a)
1,869,200P907,200 P370,000 P592,000
Total cost to be accounted for
P2,015,800
Equivalent units (b)
756,000740,000740,000
Cost per equivalent unit (a) (b)
P1.20+ P0.50+ P0.80= P2.50
Exercise 7
Requirement (1)
The direct materials and direct labor costs listed in the exercise would have been recorded on four different documents: the materials requisition form for Job KC123, the time ticket for Kristine, the time ticket for Clarisse, and the job cost sheet for Job KC123.
Requirement (2)
The costs for Job KC123 would have been recorded as follows:
Materials requisition form:
QuantityUnit CostTotal Cost
Blanks40P80.00P3,200
Nibs960P6.00 5,760
P8,960
Time ticket for KristineStartedEndedTime CompletedRateAmountJob Number
9:00 AM12:15 PM3.25P120.00P390.00KC123
Time ticket for ClarisseStartedEndedTime CompletedRateAmountJob Number
2:15 PM4:30 PM2.25P140.00P315.00KC123
Job Cost Sheet for Job KC123Direct materials
P8,960.00
Direct labor:
Kristine
390.00
Clarisse
315.00
P9,665.00
Exercise 8
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead
P586,000
Estimated total direct labor hours (DLHs)
40,000DLHs
= Predetermined overhead rate
P14.65per DLH
Exercise 9
Weighted-Average MethodMaterialsLaborOverheadTotal
Work in process, May 1
P 14,550P23,620P118,100
Cost added during May
88,350 14,33071,650
Total cost (a)
P102,900P37,950P189,750
Equivalent units of production (b)
1,2001,1001,100
Cost per equivalent unit (a) (b)
P85.75P34.50P172.50P292.75
Exercise 10
FIFO Method
MaterialsConversion
To complete beginning work in process:
Materials: 400 units x (100% 75%)
100
Conversion: 400 units x (100% 25%)
300
Units started and completed during the period (42,600 units started 500 units in ending inventory)
42,10042,100
Ending work in process
Materials: 500 units x 80% complete
400
Conversion: 500 units x 30% complete
150
Equivalent units of production
42,60042,550
III.ProblemsProblem 1Requirement 1
a.Raw Materials Inventory
210,000
Accounts Payable
210,000
b.Work in Process
178,000
Manufacturing Overhead
12,000
Raw Materials Inventory
190,000
c.Work in Process
90,000
Manufacturing Overhead
110,000
Salaries and Wages Payable
200,000
d.Manufacturing Overhead
40,000
Accumulated Depreciation
40,000
e.Manufacturing Overhead
70,000
Accounts Payable
70,000
f.Work in Process
240,000
Manufacturing Overhead
240,000
30,000 MH x P8 per MH = P240,000.
g.Finished Goods
520,000
Work in Process
520,000
h.Cost of Goods Sold
480,000
Finished Goods
480,000
Accounts Receivable
600,000
Sales
600,000
P480,000 1.25 = P600,000
Requirement 2
Manufacturing OverheadWork in Process
(b)12,000240,000(f)Bal.42,000510,000(g)
(c)110,000(b)178,000
(d)40,000(c)90,000
(e)70,000(f)240,000
8,000Bal.30,000
(Overapplied overhead)
Problem 2Requirement 1
The costing problem does, indeed, lie with manufacturing overhead cost, as suggested. Since manufacturing overhead is mostly fixed, the cost per unit increases as the level of production decreases. The problem can be solved by use of predetermined overhead rates, which should be based on expected activity for the entire year. Many students will use units of product in computing the predetermined overhead rate, as follows:
Estimated manufacturing overhead cost, P840,000
Estimated units to be produced,200,000
The predetermined overhead rate could also be set on the basis of either direct labor cost or direct materials cost. The computations are:
Estimated manufacturing overhead cost, P840,000Estimated direct labor cost,P240,000
Estimated manufacturing overhead cost, P840,000Estimated direct materials cost,P600,000
Requirement 2Using a predetermined overhead rate, the unit costs would be:
Quarter
FirstSecondThirdFourth
Direct materials
P240,000P120,000P 60,000P180,000
Direct labor
96,00048,00024,00072,000
Manufacturing overhead:
Applied at P4.20 per units; 350% of direct labor cost, or 140% of direct materials cost
336,000 168,000 84,000 252,000
Total cost
P672,000P336,000P168,000P504,000
Number of units
produced
80,00040,00020,00060,000
Estimated cost per unit
P8.40P8.40P8.40P8.40
Problem 3
Weighted-Average Method
Quantity
Schedule
Pounds to be accounted for:
Work in process, May 1
(all materials, 55% labor and
overhead added last month)
30,000
Started into production during
May
480,000
Total pounds
510,000
Equivalent Units
MaterialsLabor & Overhead
Pounds accounted for as follows:
Transferred to Department 2
490,000*490,000490,000
Work in process, May 31
(all materials, 90% labor and
overhead added this month)
20,000 20,000 18,000
Total pounds
510,000510,000508,000
* 30,000 + 480,000 - 20,000 = 490,000.
Problem 4 (Weighted-Average Method; Interpreting a Production Report)
Requirement 1Weighted-Average Method
The equivalent units for the month would be:
QuantityEquivalent Units
ScheduleMaterialsConversion
Units accounted for as follows:
Transferred to next department
190,000190,000190,000
Work in process, April 30
(75% materials, 60%
conversion cost added this
month)
40,000 30,000 24,000
Total units and equivalent units
of production
230,000220,000214,000
Requirement 2
Total CostMaterialsConversionWhole Unit
Work in process, April 1
P 98,000P 67,800P 30,200
Cost added during the
month
827,000 579,000 248,000
Total cost (a)
P925,000P646,800P278,200
Equivalent units of production (b)
220,000214,000
Cost per EU (a) ( (b)
P2.94+ P1.30= P4.24
Requirement 3
Total units transferred
190,000
Less units in the beginning inventory
30,000
Units started and completed during April
160,000Requirement 4
No, the manager should not be rewarded for good cost control. The reason for the Mixing Departments low unit cost for April is traceable to the fact that costs of the prior month have been averaged in with Aprils costs in computing the lower, P2.94 per unit figure. This is a major criticism of the weighted-average method in that the figures computed for product costing purposes cant be used to evaluate cost control or measure performance for the current period.Problem 5 (Preparation of Production Report from Analysis of Work in Process T-account Weighted-Average Method)
Requirement 1
Weighted-Average Method
Quantity Schedule and Equivalent Units
Quantity
Schedule
Pounds to be accounted for:
Work in process, May 1
(materials all complete, labor
and overhead 4/5 complete)
35,000
Started into production
280,000
Total pounds to be accounted for
315,000
Equivalent Units (EU)
MaterialsLabor & Overhead
Pounds accounted for as follows:
Transferred to Blending*
270,000270,000270,000
Work in process, May 31
(materials all complete, labor
and overhead 2/3 complete)
45,000 45,000 30,000
Total pounds accounted for
315,000315,000300,000
* 35,000 + 280,000 45,000 = 270,000.
Cost per Equivalent UnitTotal MaterialsLabor & OverheadWhole
Unit
Cost to be accounted for:
Work in process, May 1
P 63,700P 43,400P 20,300
Cost added during the
month
587,300 397,600 189,700
Total cost to be accounted for (a)
P651,000P441,000P210,000
Equivalent units (b)
315,000300,000
Cost per equivalent unit
(a) ( (b)
P1.40+ P0.70= P2.10
Cost Reconciliation
TotalEquivalent Units (EU)
CostMaterialsConversion
Cost accounted for as follows:
Transferred to Blending:
270,000 pounds x P2.10
per pound
P567,000270,000270,000
Work in process, May 31:
Materials, at P1.40 per EU
63,00045,000
Labor and overhead, at P0.70
per EU
21,00030,000
Total work in process, May 31
84,000
Total costs accounted for
P651,000
Requirement 2
In computing unit costs, the weighted-average method mixes costs of the prior period with current period costs. Thus, under the weighted-average method, unit costs are influenced to some extent by what happened in a prior period. This problem becomes particularly significant when attempting to measure performance in the current period. Good (or bad) cost control in the current period might be concealed to some degree by the costs that have been brought forward in the beginning inventory.
IV.Multiple Choice Questions1. D6. D11. A16. A
2. D7. A12. D17. D
3. D8. C13. B18. A
4. C9. C14. D19. C
5. D10. B15. C20. D
Predetermined overhead rate
= P4.20 per unit.
350% of direct
labor cost
=
140% of direct
materials cost
=
=
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
P432,000
60,000 DLHs
=
=P7.20 per DLH
=P3.00 per MH
P270,000
90,000 DLHs
=
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
=
Predetermined overhead rate
= 160% of materials cost
P384,000
P240,000 materials cost
=
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
=
Predetermined overhead rate
= P8.50 per machine-hour
P510,000
60,000 machine-hours
=
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
=
Predetermined overhead rate
= 125% of direct labor cost
P800,000
P640,000 direct labor cost
=
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
=
Predetermined overhead rate
10-110-210-15