exercise 3-24 (20 minutes) - middle east technical …users.metu.edu.tr/mugan/hilton ch 3 select...

EXERCISE 3-24 (20 MINUTES)

1. Raw-material inventory, January 1......................................................................... $174,200Add: Raw-material purchases................................................................................. 248,300Raw material available for use................................................................................ $422,500Deduct: Raw-material inventory, January 31......................................................... 161,200Raw material used in January................................................................................. $261,300Direct labor................................................................................................................ 390,000Total prime costs incurred in January................................................................... $651,300

2. Total prime cost incurred in January..................................................................... $651,300Applied manufacturing overhead (70% $390,000)............................................ 273,000Total manufacturing cost for January.................................................................... $924,300

EXERCISE 3-24 (CONTINUED)

3. Total manufacturing cost for January....................................................................$ 924,300Add: Work-in-process inventory, January 1.......................................................... 305,500Subtotal.....................................................................................................................$1,229,800Deduct: Work-in-process inventory, January 31................................................... 326,300Cost of goods manufactured...................................................................................$ 903,500

4. Finished-goods inventory, January 1.....................................................................$ 162,500Add: Cost of goods manufactured......................................................................... 903,500Cost of goods available for sale.............................................................................$1,066,000Deduct: Finished-goods inventory, January 31.................................................... 152,100Cost of goods sold...................................................................................................$ 913,900

Since the company accumulates overapplied or underapplied overhead until the end of the year, no adjustment is made to cost of goods sold until December 31.

5. Applied manufacturing overhead for January....................................................... $273,000Actual manufacturing overhead incurred in January........................................... 227,500Overapplied overhead as of January 31................................................................. $ 45,500

The balance in the Manufacturing Overhead account on January 31 is a $45,500 credit balance.

NOTE: Actual selling and administrative expense, although given in the exercise, is irrelevant to the solution.


JOB-COST RECORD

Job Number TB78 Description teddy bears

Date Started 8/11 Date Completed 8/20

Number of Units Completed 1,000

Direct MaterialDate Requisition Number Quantity Unit Price Cost8/11 201 500 $.90 $4508/12 208 600 .40 240

Direct LaborDate Time Card Number Hours Rate Cost8/15 82 550 $14 $7,700

Manufacturing OverheadDate Activity Base Quantity Application Rate Cost8/15 direct-labor hours 550 $3 $1,650

Cost SummaryCost Item Amount

Total Direct MaterialTotal Direct LaborTotal Manufacturing Overhead

$ 6907,7001,650

Total Cost $10,040Unit Cost $ 10.04

Shipping Summary

Date Units ShippedUnits Remaining

In Inventory Cost Balance8/30 800 200 $2,008*

*200 units remaining in inventory$10.04 = $2,008


1. Applied manufacturing overhead = total manufacturing costs 30%= $1,250,000 30%= $375,000

Applied manufacturing overhead = direct-labor cost 80%

Direct-labor cost = applied manufacturing overhead 80%= $375,000 .8= $468,750

2. Direct-material used = total manufacturing cost– direct labor cost– applied manufacturing overhead

= $1,250,000 – $468,750 – $375,000= $406,250

3. Let X denote work-in-process inventory on December 31.

Total work-in-process work-in-process cost ofmanufacturing + inventory, – inventory, = goods

cost Jan. 1 Dec. 31 manufactured

$1,250,000 + .75X – X = $1,212,500.25X = $1,250,000 – $1,212,500X = $150,000

Work-in-process inventory on December 31 amounted to $150,000.


Work-in-Process Inventory......................................................... 6,060Raw-Material Inventory..................................................... 5,100Wages Payable.................................................................. 720Manufacturing Overhead.................................................. 240

Finished-Goods Inventory.......................................................... 6,060Work-in-Process Inventory............................................... 6,060


1.

(a) At 100,000 chicken volume:

(b) At 200,000 chicken volume:

(c) At 300,000 chicken volume:

2. The predetermined overhead rate does not change in proportion to the change in production volume. As production volume increases, the $150,000 of fixed overhead is allocated across a larger activity base. When volume rises by 100%, from 100,000 to 200,000 chickens, the decline in the overhead rate is 45.45% [($1.65 – $.90)/$1.65]. When volume rises by 50%, from 200,000 to 300,000 chickens, the decline in the overhead rate is 27.78% [($.90 – $.65)/$.90].


Job-order costing is the appropriate product-costing system for feature film production, because a film is a unique production. The production process for each film would use labor, material and support activities (i.e., overhead) in different ways. This would be true for any type of film (e.g., filming on location, filming in the studio, or using animation).


1. Raw-Material Inventory Work-in-Process Inventory295,100 23,400

226,200 226,20068,900 421,200

234,000Wages Payable 156,000

421,200 748,800

Manufacturing Overhead Finished-Goods Inventory234,000 39,000

156,000Sales Revenue 171,600

253,500 23,400

Accounts Receivable Cost of Goods Sold253,500 171,600

2. JAY SPORTS EQUIPMENT COMPANY, INC.PARTIAL BALANCE SHEET

AS OF DECEMBER 31, 20X2Current assets Cash......................................................................................................................... XXX Accounts receivable............................................................................................... XXX Inventory Raw material.......................................................................................................$ 68,900 Work in process................................................................................................. 748,800 Finished goods.................................................................................................. 23,400

JAY SPORTS EQUIPMENT COMPANY, INC.PARTIAL INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 20X2Sales revenue............................................................................................................ $253,500Less: Cost of goods sold......................................................................................... 171,600Gross margin............................................................................................................. $ 81,900


1. Raw material:

Beginning inventory.................................................................................... $142,000Add: Purchases............................................................................................ ?Deduct: Raw material used......................................................................... 652,000Ending inventory.......................................................................................... $162,000

Therefore, purchases for the year were.................................................... $672,000

2. Direct labor:

Total manufacturing cost............................................................................ $1,372,000Deduct: Direct material................................................................................ 652,000 Direct labor and manufacturing overhead................................................ $ 720,000

Direct labor + manufacturing overhead = $720,000Direct labor + (60%) (direct labor) = $720,000

(160%) (direct labor) = $720,000

Direct labor = $720,0001.6

Direct labor = $450,000

3. Cost of goods manufactured:

Work in process, beginning inventory.................................................. $ 160,000Add: Total manufacturing costs............................................................. 1,372,000Deduct: Cost of goods manufactured................................................... ? Work in process, ending inventory........................................................ $ 60,000

Therefore, cost of goods manufactured was........................................ $1,472,000

EXERCISE 3-31 (CONTINUED)

4. Cost of goods sold:

Finished goods, beginning inventory........................................................ $ 180,000Add: Cost of goods manufactured............................................................. 1,472,000Deduct: Cost of goods sold........................................................................ ? Finished goods, ending inventory............................................................. $ 220,000

Therefore, cost of goods sold was............................................................ $1,432,000


1. CRUNCHEM CEREAL COMPANYSCHEDULE OF COST OF GOODS MANUFACTURED

FOR THE YEAR ENDED DECEMBER 31, 20X4Direct material:

Raw-material inventory, January 1...........................................$ 45,000Add: Purchases of raw material................................................ 417,000 Raw material available for use..................................................$462,000Deduct: Raw-material inventory, December 31....................... 49,500 Raw material used...................................................................... $ 412,500

Direct labor.......................................................................................... 180,000

Manufacturing overhead 378,000 *Total manufacturing costs................................................................. $ 970,500

Add: Work-in-process inventory, January 1..................................... 58,500 Subtotal................................................................................................ $1,029,000

Deduct: Work-in-process inventory, December 31.......................... 64,350 Cost of goods manufactured............................................................. $ 964,650

*Applied manufacturing overhead is $378,000 ($180,000210%). Actual manufacturing overhead is also $378,000, so there is no overapplied or underapplied overhead.

2. Finished-goods inventory, January 1.....................................................................$ 63,000Add: Cost of goods manufactured......................................................................... 964,650 Cost of goods available for sale.............................................................................$1,027,650Deduct: Finished-goods inventory, December 31................................................. 69,300 Cost of goods sold...................................................................................................$ 958,350

3. The electronic version of the Solutions Manual “BUILD A SPREADSHEET SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website: www.mhhe.com/hilton8e.

http://www.mhhe.com/hilton8e


NOTE: Budgeted sales revenue, although given in the exercise, is irrelevant to the solution.

1. Predetermined overhead rate =

(a) = $32.50 per machine hour

(b) = $26.00 per direct-labor hour

(c) = $2.00 per direct-labor dollar or 200%of direct-labor cost

*Budgeted direct-labor cost = 25,000$13

2. Actualmanufacturing

overhead–

appliedmanufacturing

overhead=

overapplied orunderapplied

overhead

(a) $690,000 – (22,000)($32.50) = $25,000 overapplied overhead

(b) $690,000 – (26,000)($26.00) = $14,000 underapplied overhead

(c) $690,000 – ($364,000†)(200%) = $38,000 overapplied overhead

†Actual direct-labor cost = 26,000$14


1. Work-in-Process Inventory....................................................... 690,000Manufacturing Overhead................................................ 690,000

2. Work-in-Process Inventory....................................................... 715,000*Manufacturing Overhead................................................ 715,000

*Applied manufacturing overhead = $715,000 = 22,000 hours x $32.50 per machine hour


1. Predetermined overhead rate = $993,300 / 77,000 hours = $12.90 per hour

2. To compute actual manufacturing overhead:

Depreciation................................................................................................. $225,000Property taxes.............................................................................................. 19,000Indirect labor................................................................................................ 79,000Supervisory salaries.................................................................................... 210,000Utilities.......................................................................................................... 58,000Insurance...................................................................................................... 32,000Rental of space............................................................................................ 295,000Indirect material:

Beginning inventory, January 1..........................................................$ 46,000Add: Purchases.................................................................................... 95,000 Indirect material available for use.......................................................$141,000Deduct: Ending inventory, December 31........................................... 62,000 Indirect material used.......................................................................... 79,000

Actual manufacturing overhead................................................................. $997,000

actual appliedOverapplied = manufacturing – manufacturing

overhead overhead overhead

= $997,000 – ($12.9079,000*) = $22,100

*Actual direct-labor hours.

3. Manufacturing Overhead............................................................. 22,100Cost of Goods Sold........................................................... 22,100

4. The electronic version of the Solutions Manual “BUILD A SPREADSHEET SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website: www.mhhe.com/hilton8e.

NOTE: Budgeted selling and administrative expense, although given in the exercise, is irrelevant to the solution.

http://www.mhhe.com/hilton8e


Calculation of proration amounts:

Calculation ofAccount Amount Percentage Percentage

Work in Process......................................$ 29,000 20% 29,000 $145,000Finished Goods....................................... 50,750 35% 50,750 $145,000Cost of Goods Sold................................. 65,250 45% 65,250 $145,000Total..........................................................$145,000 100%

Underapplied Amount AddedAccount Overhead x Percentage to Account

Work in Process......................................$22,000* x 20% $4,400Finished Goods....................................... 22,000 x 35% 7,700Cost of Goods Sold................................. 22,000 x 45% 9,900

*Underapplied overhead = actual overhead – applied overhead$22,000 = $167,000 – $145,000

Journal entry:

Work-in-Process Inventory............................................. 4,400Finished-Goods Inventory.............................................. 7,700Cost of Goods Sold......................................................... 9,900

Manufacturing Overhead................................................ 22,000

PROBLEM 3-56 (25 MINUTES)

1.

QuarterPredetermined Overhead Rate Calculations

1st................................................................... $8 per hour $400,000/50,0002nd.................................................................. 10 per hour $320,000/32,0003rd................................................................... 8 per hour $200,000/25,0004th................................................................... 10 per hour $280,000/28,000

2.February May

Direct material.............................................. $600 $600Direct labor................................................... 340 340Manufacturing overhead:

20 hrs$8 per hr.............................. 160 20 hrs$10 per hr............................ 200

Total cost...................................................... $1,100 $1,140

3.

February MayTotal cost...................................................... $1,100 $1,140Markup (10%)............................................... 110 114 Price.............................................................. $1,210 $1,254

4.

5.February May

Direct material............................................... $ 600.00 $ 600.00Direct labor.................................................... 340.00 340.00Manufacturing overhead (20 hrs $8.89).. 177 .80 177 .80 Total cost....................................................... $1,117 .80 $1,117 .80

PROBLEM 3-56 (CONTINUED)

6. Total cost....................................................... $1,117.80Markup (10%)................................................. 111 .78 Price................................................................ $1,229 .58

Notice that with quarterly overhead rates, the firm may underprice its product in February and overprice it in May.


The answers to the questions are as follows:

1. $648,000 6. $180,0002. $57,000 7. $450,0003. $210,000 8. $120,0004. $114,000 9. $45,0005. $240,000 10. Zero

The completed T accounts, along with supporting calculations, follow.

Raw-Material Inventory Accounts PayableBal. 8/31 45,000 36,000 Bal. 8/31

210,000 120,000 243,000 210,000Bal. 9/30 135,000 3,000 Bal. 9/30

Work-in-Process Inventory Finished-Goods InventoryBal. 8/31 24,000 Bal. 8/31 105,000Direct 450,000 450,000 540,000

material 120,000 Bal. 9/30 15,000Direct

labor 240,000 Cost of Goods SoldOverhead 180,000 540,000Bal. 9/30 114,000

Manufacturing Overhead Sales Revenue180,000 180,000 648,000

Wages Payable Accounts Receivable 3,000 Bal. 8/31 Bal. 8/31 24,000

238,500 240,000 648,000 615,000 4,500 Bal. 9/30 Bal. 9/30 57,000

Supporting Calculations:

1. Sales revenue = cost of goods sold120%= $540,000120% = $648,000


2. Ending balance in accounts receivable = beginning balance + sales revenue– collections

= $24,000 + $648,000 – $615,000= $57,000

3. Purchases of raw material = addition to accounts payable

Addition to accounts payable = ending balance + payments – beginning balance

= $3,000 + $243,000 – $36,000= $210,000

4. September 30 balance in work-in-process inventory = direct

material + directlabor + manufacturing

overhead= $61,500 + (1,500)($20) + (1,500)($15*)= $114,000

*Predetermined overhead rate =

=

= $15 per direct-labor hour

†Budgeted direct-labor hours =

5. Addition to work in processfor direct labor =

September credit towages payable

September credit towages payable = ending balance + payments – beginning balance

= $4,500 + $238,500 $3,000 = $240,000


6. September applied overhead = direct labor hourspredetermined overhead rate

= 12,000*$15= $180,000

*Direct labor hours =

=

7. Cost of goods completed during September =

beginning balance in

work in process

+additions

during November

–ending balance in work in process

= $24,000 + ($120,000 + $240,000 + $180,000) – $114,000= $450,000

8. Raw material used in September =

September credit to raw-material inventory = $120,000 (given)

9. August 31 balance in raw-material inventory =

September 30 balance in raw-

material inventory+

direct material

used– purchases

= $135,000 + $120,000 – $210,000= $45,000

10. Overapplied or underapplied overhead = actual overhead – applied overhead= $180,000 – $180,000 = 0


1.

2. Journal entries:

(a) Raw-Material Inventory....................................... 6,000Accounts Payable..................................... 6,000

(b) Raw-Material Inventory....................................... 5,200Accounts Payable..................................... 5,200

(c) Work-in-Process Inventory................................. 11,330*Raw-Material Inventory............................. 11,330

*(260 sq. ft.$5.50 per sq. ft.) + (1,100 lbs.$9 per lb.)

Manufacturing Overhead**................................. 120

Manufacturing-Supplies Inventory.......... 120

**Valve lubricant is an indirect material, so it is considered an overhead cost.

(d) Work-in-Process Inventory................................. 36,000

Manufacturing Overhead.................................... 14,100

Wages Payable.......................................... 50,100

Work-in-Process Inventory................................. 39,600*Manufacturing Overhead.......................... 39,600

*Applied manufacturing overhead = 1,800 direct-labor hours$22 per hour.

(e) Manufacturing Overhead.................................... 13,000Accumulated Depreciation: Building and

Equipment.............................................. 13,000

(f) Manufacturing Overhead.................................... 1,340Cash........................................................... 1,340


(g) Manufacturing Overhead.................................... 2,400Accounts Payable..................................... 2,400

(h) Manufacturing Overhead.................................... 2,370Cash........................................................... 2,370

(i) Manufacturing Overhead.................................... 2,900Prepaid Insurance..................................... 2,900

(j) Selling and Administrative Expenses............... 7,500Cash........................................................... 7,500

(k) Selling and Administrative Expenses............... 4,500Accumulated Depreciation: Buildings and

Equipment.............................................. 4,500

(l) Selling and Administrative Expenses............... 1,150Cash........................................................... 1,150

(m) Finished-Goods Inventory................................ 37,130*Work-in-Process Inventory..................... 37,130

*Cost of Job T79:

Direct material (260$5.50)............. $ 1,430Direct labor (850$20)..................... 17,000Manufacturing overhead (850$22) 18,700Total cost................................................ $37,130

(n) Accounts Receivable......................................... 27,360*Sales Revenue........................................... 27,360

*(76 2)$720 per trombone .

Cost of Goods Sold........................................... 18,565**Finished-Goods Inventory.......................

18,565**18,565 = $37,130 2.


3. T-accounts and posting of journal entries:

Cash Accounts PayableBal 11,000 14,500 Bal

1,340 (f) 6,000 (a)2,370 (h) 5,200 (b)7,500 (j) 2,400 (g)1,150 (l)

Accounts Receivable Wages PayableBal. 20,000 8,500 Bal.(n) 27,360 50,100 (d)

Accumulated Depreciation:Prepaid Insurance Buildings and Equipment

Bal. 6,000 99,000 Bal.2,900 (i) 13,000 (e)

4,500 (k)

Manufacturing-Supplies Inventory Manufacturing OverheadBal. 600 (c) 120 39,600 (d)

120 (c) (d) 14,100(e) 13,000(f) 1,340(g) 2,400(h) 2,370(i) 2,900

Raw-Material Inventory Cost of Goods SoldBal. 150,000 (n) 18,565(a) 6,000 11,330 (c)(b) 5,200

Selling and AdministrativeWork-in-Process Inventory Expenses

Bal. 89,000 (j) 7,500(c) 11,330 37,130 (m) (k) 4,500(d) 36,000 (l) 1,150(d) 39,600PROBLEM 3-58 (CONTINUED)

Finished-Goods Inventory Sales RevenueBal. 223,000 27,360 (n)(m) 37,130 18,565 (n)

4. (a) Calculation of actual overhead:

Indirect material (valve lubricant)............................................ $ 120Indirect labor............................................................................. 14,100Depreciation: factory building and equipment...................... 13,000Rent: warehouse....................................................................... 1,340Utilities....................................................................................... 2,400Property taxes........................................................................... 2,370Insurance................................................................................... 2,900Total actual overhead............................................................... $36,230

(b) Overapplied overhead == $36,230 – $39,600*

= $3,370 overapplied

*$39,600 = 1,800 direct-labor hours$22 per hour.

(c) Manufacturing Overhead..........................................................3,370Cost of Goods Sold........................................................ 3,370


5. BANDWAY COMPANYSCHEDULE OF COST OF GOODS MANUFACTURED

FOR THE MONTH OF OCTOBER

Direct material:Raw-material inventory, October 1.......................... $150,000Add: October purchases of raw material................ 11,200 Raw material available for use................................. $161,200Deduct: Raw-material inventory, October 31.......... 149,870 Raw material used..................................................... $ 11,330

Direct labor........................................................................ 36,000

Manufacturing overhead:Indirect material......................................................... $ 120

Indirect labor.............................................................. 14,100

Depreciation on factory building and equipment... 13,000

Rent: warehouse........................................................ 1,340

Utilities........................................................................ 2,400

Property taxes............................................................ 2,370

Insurance.................................................................... 2,900 Total actual manufacturing overhead................ $36,230

Add: overapplied overhead................................ 3,370 *Overhead applied to work in process...................... 39,600

Total manufacturing costs............................................... $ 86,930

Add: Work-in-process inventory, October 1.................. 89,000

Subtotal.............................................................................. $175,930

Deduct: Work-in-process inventory, October 31........... 138,800

Cost of goods manufactured........................................... $ 37,130 †

*The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to work in process. Therefore, the overapplied overhead, $3,370, must be added to actual overhead to arrive at the amount of overhead applied to work in process during October.

†Cost of Job T79, which was completed during October.


6. BANDWAY COMPANYSCHEDULE OF COST OF GOODS SOLD


Finished-goods inventory, October 1....................................................... $223,000Add: Cost of goods manufactured............................................................ 37,130Cost of goods available for sale................................................................ $260,130Deduct: Finished-goods inventory, October 31....................................... 241,565Cost of goods sold..................................................................................... $ 18,565Deduct: Overapplied overhead*................................................................ 3,370Cost of goods sold (adjusted for overapplied overhead)....................... $ 15,195

*The company closes underapplied or overapplied overhead into cost of goods sold. Hence the balance in overapplied overhead is deducted from cost of goods sold for the month.

7. BANDWAY COMPANYINCOME STATEMENT


Sales revenue.............................................................................................. $27,360Less: Cost of goods sold........................................................................... 15,195Gross margin.............................................................................................. $12,165Selling and administrative expenses........................................................ 13,150Income (loss)............................................................................................... $ (985)


JOB-COST RECORD

Job Number T79 Description Trombones

Date Started October 5 Date Completed October 20

Number of Units Completed 76

Direct MaterialDate Requisition Number Quantity Unit Price Cost10/5 112 260 $5.50 $1,430

Direct LaborDate Time Card Number Hours Rate Cost

10/8 to10/12

10-08 through 10-12 850 $20 $17,000

Manufacturing OverheadDate Cost Driver (Activity Base) Quantity Application Rate Cost

10/8 to10/12

Direct-labor hours 850 $22 $18,700

Cost SummaryCost Item Amount

Total direct materialTotal direct laborTotal manufacturing overhead

$ 1,43017,00018,700

Total cost $37,130Unit cost $488.55*

Shipping Summary

Date Units ShippedUnits Remaining

In Inventory Cost BalanceOctober 38 38 $18,565†

*Rounded†$18,565 = $37,130 ÷ 2


1. Schedule of budgeted overhead costs:

Department A Department BVariable overhead

A 21,000$17..................................................... $357,000B 21,000$5.................................................... $105,000

Fixed overhead.............................................................. 210,000 210,000Total overhead............................................................... $567,000 $315,000

Grand total of budgeted overhead (A + B): $882,000

2. Product prices:

BasicSystem

Advanced System

Total cost...................................................................... $1,190 $1,640Markup, 10% of cost.................................................... 119 164 Price............................................................................... $1,309 $1,804

3. Departmental overhead rates:

Department A Department BBudgeted overhead

(from requirement 1)................................................ $567,000 $315,000Budgeted direct-labor hours....................................... 21,000 21,000

Predetermined overhead rates................................... $567,000 $315,000 21,000 21,000

$27 per $15 perdirect-labor direct-labor

hour hour


4. Revised product costs:

Basic AdvancedSystem System

Direct material.............................................................. $ 450 $ 900Direct labor................................................................... 320 320Manufacturing overhead:

Department A:Basic system 5$27..................................... 135Advanced system 15$27............................ 405

Department B:Basic system 15$15................................... 225Advanced system 5$15.............................. _ ____ 75

Total $1,130 $1,700

5. Revised product prices:

Basic AdvancedSystem System

Total cost...................................................................... $1,130 $1,700Markup, 10% of cost.................................................... 113 170 Price ............................................................................. $1,243 $1,870


6. COLORTECH CORPORATION

Memorandum

Date: Today

To: President, ColorTech Corporation

From: I. M. Student

Subject: Departmental overhead rates

Until now the company has used a single, plantwide overhead rate in computing product costs. This approach resulted in a product cost of $1,190 for the basic system and a cost of $1,640 for the advanced system. Under the company's pricing policy of adding a 10 percent markup, this yielded prices of $1,309 for the basic system and $1,804 for the advanced system.

When departmental overhead rates are computed, it is apparent that the two production departments have very different cost structures. Department A is a relatively expensive department to operate, while Department B is less costly. It is important to recognize the different rates of cost incurrence in the two departments, because our two products require different amounts of time in the two departments. The basic system spends most of its time in Department B, the inexpensive department. The advanced system spends most of its time in Department A, the more expensive department. Thus, using departmental overhead rates shows that the basic system costs less than we had previously realized; the advanced system costs more. The revised product costs are $1,130 and $1,700 for the basic and advanced systems, respectively. With a 10 percent markup, these revised product costs yield prices of $1,243 for the basic system and $1,870 for the advanced system. We have been overpricing the basic system and underpricing the advanced system.

I recommend that the company switch to a product costing system that incorporates departmental overhead rates.

solutions to casesCASE 3-61 (45 MINUTES)

1. A job order costing system is appropriate in any environment where costs can be readily identified with specific products, batches, contracts, or projects.

2. The only job remaining in KidCo's Work-in-Process Inventory on December 31 is DRS114. The dollar value of DRS114 is calculated as follows:

DRS114 balance, 11/30........................................................ $250,000

December additions:Direct material used.................................................... $124,000Purchased parts.......................................................... 87,000Direct labor.................................................................. 200,500Manufacturing overhead (19,500 hours$7.50*). 146,250 557,750

Work-in-process inventory, 12/31...................................... $807,750

3. The dollar value of the playpens remaining in KidCo's finished-goods inventory on December 31 is $455,600, calculated as follows:

Playpen UnitsFinished-goods inventory, 11/30............................................................. 19,400Units completed in December.................................................................. 15,000Units available for sale............................................................................. 34,400Units shipped in December...................................................................... 21,000Finished-goods inventory, 12/31............................................................. 13,400

CASE 3-61 (CONTINUED)

Since KidCo uses the FIFO inventory method, all units remaining in finished- goods inventory were completed in December.

Unit cost of playpens completed in December:

Work in process inventory, 11/30..................................... $420,000December additions:

Direct material used..................................................... $ 3,000Purchased parts............................................................ 10,800Direct labor.................................................................... 43,200Manufacturing overhead (4,400 hours$7.50)...... 33,000 90,000

Total cost............................................................................ $510,000

Unit cost =

=

= $34 per unit

Value of finished-goods inventory on 12/31 = Unit costquantity

= $3413,400= $455,600

CASE 3-62 (50 MINUTES)

1. Manufacturers use predetermined overhead rates to allocate to production jobs the production costs that are not directly traceable to specific jobs. As a result, management will have timely and reasonably accurate job-cost information. Predetermined overhead rates are easy to apply and avoid fluctuations in job costs caused by changes in production volume or overhead costs throughout the year.

2. The manufacturing overhead applied through November 30 is calculated as follows:

Machine hourspredetermined overhead rate

= overhead applied

73,000$30 = $2,190,000

3. The manufacturing overhead applied in December is calculated as follows:

Machine hourspredetermined overhead rate

= overhead applied

6,000$30 = $180,000

4. Underapplied manufacturing overhead through December 31 is calculated as follows:

Actual overhead ($2,200,000 + $192,000).................................................... $2,392,000Applied overhead ($2,190,000 + $180,000).................................................. (2,370,000)Underapplied overhead................................................................................. $ 22,000


5. The balance in the Finished-Goods Inventory account on December 31 is comprised only of Job No. N11-013 and is calculated as follows:

November 30 balance for Job No. N11-013................................................ $110,000December direct material............................................................................. 8,000December direct labor.................................................................................. 24,000December overhead (1,000$30)........................................................... 30,000

Total finished-goods inventory............................................................ $172,000

6. Opticom’s Schedule of Cost of Goods Manufactured for the year just completed is constructed as follows:

OPTICOM, INC.SCHEDULE OF COST OF GOODS MANUFACTURED

FOR THE YEAR ENDED DECEMBER 31Direct material:

Raw-material inventory, 1/1............................................ $ 210,000Raw-material purchases ($1,930,000 + $196,000)......... 2,126,000Raw material available for use....................................... $2,336,000Deduct: Indirect material used ($250,000 + $18,000)... $268,000

Raw-material inventory 12/31.......................... 170,000 438,000Raw material used........................................................... $1,898,000

Direct labor ($1,690,000 + $160,000).................................. 1,850,000Manufacturing overhead:

Indirect material ($250,000 + $18,000)........................... $268,000Indirect labor ($690,000 + $60,000)................................ 750,000Utilities ($490,000 + $44,000).......................................... 534,000Depreciation ($770,000 + $70,000)................................. 840,000Total actual manufacturing overhead............................ 2,392,000Deduct: Underapplied overhead.................................... 22,000

Overhead applied to work in process................................ $2,370,000Total manufacturing costs.................................................. $6,118,000Add: Work-in-process inventory, 1/1................................. 120,000Subtotal................................................................................. $6,238,000Deduct: Work-in-process inventory, 12/31*...................... 300,400Cost of goods manufactured.............................................. $5,937,600

*Supporting calculations follow.


*Supporting calculations for work in process 12/31:

D12-002 D12-003 TotalDirect material..................... $ 75,800 $ 52,000 $127,800Direct labor.......................... 40,000 33,600 73,600Applied overhead:

2,500 hrs.$30............ 75,000 75,000800 hrs.$30............... ______ 24,000 24,000

Total.......................... $190,800 $109,600 $300,400

exercise 3-24 (20 minutes) - middle east technical …users.metu.edu.tr/mugan/hilton ch 3 select...

Documents