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CHAPTER 17 (FIN MAN); CHAPTER 2 (MAN)
JOB ORDER COSTING
DISCUSSION QUESTIONS
1. a. Job order cost system and process cost system.
b. The job order cost system provides a separate record of each quantity of product that passes through the factory.
c. Process cost systems accumulate costs for each department or process within a factory.
2. Job order costing is used by firms that sell custom goods and services to customers. The job order system is frequently associat-ed with firms that will produce a product or service specifically to a customer order.
3. Materials should not be issued by the store-keeper without a properly authorized materi-als requisition. Both the storekeeper and the recipient of the materials should initial the materials requisition when the materials are issued to indicate release of the proper amount of materials from the storeroom.
4. a. Purchase invoice or receiving report
b. Materials requisition
5. A job cost sheet is the subsidiary ledger to the work in process control account. The cost of materials, labor, and overhead are listed on the job cost sheet for each job. A summary of all the job cost sheets during an accounting period is the basis for journal en-tries to the control accounts.
6. a. The clock card is a means of recording the hours spent by employees in the fac-tory. The time ticket is a means of re-cording the time the employee spends on a specific job or, in cases of indirect labor (factory overhead), the department in which the time was spent.
b. The total time reported on an employee’s time tickets for a payroll period is com-pared with the time reported on the em-ployee’s clock cards as an internal check on the accuracy of payroll disbursements.
7. The use of a predetermined factory over-head rate in job order cost accounting assists management in pricing jobs. By
estimating the cost of direct materials and direct labor based on past experience and by applying the factory overhead rate, the cost of a job can be estimated. The pre- determined rate also permits the determina-tion of the cost of a job shortly after it is fin-ished, which enables management to adjust future pricing policies to achieve the best combination of revenue and expense.
8. a. The predetermined factory overhead rate is determined by dividing the bud-geted factory overhead for the forth-coming year by an estimated activity base, one that will equitably apply the factory overhead costs to the goods manufactured.
b. Direct labor cost, direct labor hours, and machine hours.
9. a. (1) If the amount of factory overhead applied is greater than the actual factory overhead, factory overhead is overapplied.
(2) If the amount of actual factory over-head is greater than the amount applied, factory overhead is under-applied.
b. Underapplied
c. Deferred credit
10. Job order cost accumulation would be most appropriate for professional service firms that provide extended, project-type services for clients. Examples would be architectural, consulting, advertising, or legal services. Job cost sheets would accumulate all direct costs of servicing the client. Such costs would include labor, materials, travel, and subcontracted services. In addition, over-head would be applied using a predeter-mined overhead rate. The costs accumulat-ed by the job cost sheet would be treated as work in process (a current asset) until the service is completed. Once completed, the cost would be transferred to the cost of services on the income statement.
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PRACTICE EXERCISES
PE 17–1A (FIN MAN); PE 2–1A (MAN)
Apr. 8 Materials .............................................................. 455,000
Accounts Payable .......................................... 455,000
$455,000 = 65,000 × $7.
Apr. 20 Work in Process .................................................. 366,000*
Materials ......................................................... 366,000
*Job 50 $156,000 = 26,000 × $6
Job 51 210,000 = 30,000 × $7
Total $366,000
PE 17–1B (FIN MAN); PE 2–1B (MAN)
June 3 Materials .............................................................. 80,000
Accounts Payable .......................................... 80,000
$80,000 = 8,000 × $10.
June 22 Work in Process .................................................. 45,200*
Materials ......................................................... 45,200
*Job 30 $19,200 = 2,400 × $8
Job 32 26,000 = 2,600 × $10
Total $45,200
PE 17–2A (FIN MAN); PE 2–2A (MAN)
Work in Process ................................................................... 618,000*
Wages Payable ............................................................. 618,000
*Job 50 $258,000 = 12,000 hours × $21.50
Job 51 360,000 = 15,000 hours × $24
Total $618,000
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
PE 17–2B (FIN MAN); PE 2–2B (MAN)
Work in Process ................................................................... 112,800*
Wages Payable ............................................................. 112,800
*Job 30 $ 52,800 = 2,400 hours × $22
Job 32 60,000 = 3,000 hours × $20
Total $112,800
PE 17–3A (FIN MAN); PE 2–3A (MAN)
Factory Overhead ................................................................. 170,000
Materials........................................................................ 30,000
Wages Payable ............................................................. 78,000
Utilities Payable ............................................................ 7,000
Accumulated Depreciation .......................................... 55,000
PE 17–3B (FIN MAN); PE 2–3A (MAN)
Factory Overhead ................................................................. 50,000
Materials........................................................................ 14,000
Wages Payable ............................................................. 15,000
Utilities Payable ............................................................ 6,500
Accumulated Depreciation .......................................... 14,500
PE 17–4A (FIN MAN); PE 2–4A (MAN)
a. $2.50 = $750,000/300,000 direct labor hours
b. Job 50 $30,000 = 12,000 hours × $2.50 per hour
Job 51 37,500 = 15,000 hours × $2.50 per hour
Total $67,500
c. Work in Process ........................................................... 67,500
Factory Overhead ................................................... 67,500
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PE 17–4B (FIN MAN); PE 2–4B (MAN)
a. $8.00 = $480,000/60,000 direct labor hours
b. Job 30 $19,200 = 2,400 hours × $8.00 per hour
Job 32 24,000 = 3,000 hours × $8.00 per hour
Total $43,200
c. Work in Process ........................................................... 43,200
Factory Overhead ................................................... 43,200
PE 17–5A (FIN MAN); PE 2–5A (MAN)
a.
Job 50 Job 51
Direct materials ............................................................. $156,000 $210,000
Direct labor ..................................................................... 258,000 360,000
Factory overhead ........................................................... 30,000 37,500
Total costs ............................................................... $444,000 $607,500
b. Job 50 $44.40 = $444,000/10,000 units
Job 51 $48.60 = $607,500/12,500 units
PE 17–5B (FIN MAN); PE 2–5B (MAN)
a.
Job 30 Job 32
Direct materials .............................................................. $19,200 $ 26,000
Direct labor ..................................................................... 52,800 60,000
Factory overhead ........................................................... 19,200 24,000
Total costs ............................................................... $91,200 $110,000
b. Job 30 $15.20 = $91,200/6,000 units
Job 32 $16.00 = $110,000/6,875 units
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PE 17–6A (FIN MAN); PE 2–6A (MAN)
$20,470,000 = $1,470,000 + (400,000 × $47.50)*
*Cost per unit of goods produced during the year = $47.50 = $20,187,500/425,000
units
PE 17–6B (FIN MAN); PE 2–6B (MAN)
$2,487,000 = $225,000 + (145,000 × $15.60)*
*Cost per unit of goods produced during the year = $15.60 = $2,418,000/155,000
units
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EXERCISES
Ex. 17–1 (FIN MAN); Ex. 2–1 (MAN)
a. Materials requisitioned for use (both direct and indirect).
b. Factory labor used (both direct and indirect).
c. Application of factory overhead costs to jobs.
d. Jobs completed.
e. Cost of goods sold.
Ex. 17–2 (FIN MAN); Ex. 2–2 (MAN)
a. Cost of goods sold:
Sales ............................................................................. $1,680,000
Less gross profit ......................................................... 450,000
Cost of goods sold ...................................................... $1,230,000
b. Direct materials cost:
Materials purchased .................................................... $850,000
Less: Indirect materials .............................................. $65,000
Materials inventory ........................................... 63,000 128,000
Direct materials cost ................................................... $722,000
c. Direct labor cost:
Total manufacturing costs for the period .................. $1,850,000
Less: Direct materials cost ........................................ $722,000
Factory overhead .............................................. 245,000* 967,000
Direct labor cost .......................................................... $ 883,000
*$150,000 + $65,000 + $30,000
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Ex. 17–3 (FIN MAN); Ex. 2–3 (MAN)
a.
RECEIVED ISSUED BALANCE
Receiving
Report
Number
Quantity
Unit
Price
Materials
Requi-
sition
Number
Quantity
Amount
Date
Quantity
Unit
Price
Amount
June 1 350 $10.000 $3,500
26 250 $12.00 June 2 350 10.000 3,500
250 12.000 3,000
103 380 $3,860* June 6 220 12.000 2,640
32 160 14.00 June 12 220 12.000 2,640
160 14.000 2,240
111 240 2,920** June 21 140 14.000 1,960
*June 6 issuance 350 at $10.00 $3,500
30 at $12.00 360
$3,860
**June 21 issuance 220 at $12.00 $2,640
20 at $14.00 280
$2,920
b. Ending wire cable balance:
140 at $14.00 ............................................................. $1,960
c. Work in Process ($3,860 + $2,920) ............................... 6,780
Materials ................................................................... 6,780
d. Comparing quantities on hand as reported in the materials ledger with pre-
determined order points enables management to order materials before a lack
of materials causes idle time. Also, the subsidiary ledger can include col-
umns for recording quantities ordered, so that management can have easy
access to information about materials on order.
Ex. 17–4 (FIN MAN); Ex. 2–4 (MAN)
Work in Process ................................................................... 110,750
Factory Overhead ................................................................. 2,000
Materials........................................................................ 112,750
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Ex. 17–5 (FIN MAN); Ex. 2–5 (MAN)
a. Materials ......................................................................... 1,051,100*
Accounts Payable .................................................... 1,051,100
*$201,600 + $280,000 + $550,000 + $19,500
b. Work in Process ............................................................ 1,046,300
Factory Overhead .......................................................... 20,800
Materials ................................................................... 1,067,100
c. Polyester
Fabric Filling Lumber Glue
Balance, April 1 ................. $ 40,000 $ 12,000 $ 89,500 $ 3,900
April purchases ................ 201,600 280,000 550,000 19,500
Less April requisitions ..... (188,400) (252,900) (605,000) (20,800)
Balance, April 30 ............... $ 53,200 $ 39,100 $ 34,500 $ 2,600
Ex. 17–6 (FIN MAN); Ex. 2–6 (MAN)
Work in Process ................................................................... 43,735
Factory Overhead ................................................................. 4,500
Wages Payable ............................................................. 48,235
Ex. 17–7 (FIN MAN); Ex. 2–7 (MAN)
a. Work in Process ............................................................ 3,179
Factory Overhead .......................................................... 381
Wages Payable ......................................................... 3,560
Supporting Calculations:
Labor Costs (Hourly Rate × Hours)
Direct
Labor
Hourly (sum of Indirect
Rate Job 301 Job 302 Job 303 job costs) Labor
Ken Thain $30.00 $390.00 $390.00 $ 300.00 $1,080 $120
Dick Lewis 34.00 408.00 442.00 374.00 1,224 136
John Fuld 25.00 200.00 375.00 300.00 875 125
$3,179 $381
b. The direct labor costs in the completed jobs would become part of finished
goods inventory. The direct labor costs in Job 303 would remain part of work
in process inventory.
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–8 (FIN MAN); Ex. 2–8 (MAN)
a. Work in Process ............................................................ 13,920
Factory Overhead .......................................................... 2,450
Wages Payable ......................................................... 16,370
b. Work in Process ............................................................ 5,568
Factory Overhead ..................................................... 5,568
$13,920/$30 per hour = 464 hours
464 hours × $12 per hour = $5,568
Ex. 17–9 (FIN MAN); Ex. 2–9 (MAN)
a. Factory 1: $22.00 per machine hour ($660,000/30,000 machine hours)
b. Factory 2: $38.00 per direct labor hour ($798,000/21,000 direct labor hours)
c. Factory 1:
Work in Process ............................................................ 48,048
Factory Overhead ..................................................... 48,048
($22.00 × 2,184).
Factory 2:
Work in Process ............................................................ 76,000
Factory Overhead ..................................................... 76,000
($38.00 × 2,000).
d. Factory 1—$5,152 debit (underapplied) ($53,200 – $48,048)
Factory 2—$3,200 credit (overapplied) ($72,800 – $76,000)
Ex. 17–10 (FIN MAN); Ex. 2–10 (MAN)
The estimated shop overhead is determined as follows:
Shop and repair equipment depreciation ......................................... $ 38,000
Shop supervisor salaries.................................................................... 100,000
Shop property tax ................................................................................ 18,000
Shop supplies ...................................................................................... 13,000
Total shop overhead ...................................................................... $169,000
The engine parts and shop labor are direct to the jobs and are not included in the
shop overhead rate. The advertising and administrative expenses are selling and
administrative expenses that are not included in the shop overhead but are treat-
ed as period expenses.
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Ex. 17–10 (FIN MAN); Ex. 2–10 (MAN) (Concluded)
The estimated activity base is determined by dividing the shop direct labor cost
by the direct labor rate, as follows:
hour per $20
$520,000 = 26,000 hours
The predetermined shop overhead rate is:
hours 26,000
$169,000 = $6.50 per direct labor hour
Ex. 17–11 (FIN MAN); Ex. 2–11 (MAN)
a. Estimated annual operating room overhead: $588,000
Estimated operating room activity base, number of operating room hours:
Hours per day ...................................................... 8
Days per week ...................................................... × 7
Weeks per year (net of maintenance weeks) .... × 50
Estimated annual operating room hours ........... 2,800
Predetermined surgical overhead rate:
hours 2,800
$588,000 = $210 per hour
b. Dan Baliga’s procedure:
Number of surgical room hours ......................... 4
Predetermined surgical room overhead rate .... × $210
Procedure overhead ............................................ $ 840
c. Actual hours used in January....................................... 196
Predetermined surgical room overhead rate .............. × $210
Surgical room overhead applied, January .................. $ 41,160
Actual surgical room overhead incurred, January ..... 40,000
Overapplied surgical room overhead (credit balance) $ 1,160
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–12 (FIN MAN); Ex. 2–12 (MAN)
a. Finished Goods ............................................................. 342,400
Work in Process ....................................................... 342,400
b. Cost of unfinished jobs at March 31:
Balance in Work in Process at March 1 ................. $ 18,000
Add: Direct materials ............................................. 122,500
Direct labor .................................................... 145,000
Factory overhead ........................................... 80,000 $365,500
Less: Jobs finished during March .......................... 342,400
Balance in Work in Process at March 31 ............... $ 23,100
Ex. 17–13 (FIN MAN); Ex. 2–13 (MAN)
a. Work in Process ............................................................ 32,550
Factory Overhead .......................................................... 1,000
Materials ................................................................... 33,550
b. Work in Process ............................................................ 13,000
Factory Overhead .......................................................... 12,000
Wages Payable ......................................................... 25,000
c. Work in Process ............................................................ 9,750
Factory Overhead ..................................................... 9,750
Predetermined overhead rate: Job 101: $3,000/$4,000 = 75% or
Job 102: $3,075/$4,100 = 75%
Direct labor cost × Predetermined factory overhead rate:
$13,000 × 75% = $9,750
d. Finished Goods ............................................................. 29,305*
Work in Process ....................................................... 29,305
*$17,300 + $12,005
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Ex. 17–14 (FIN MAN); Ex. 2–14 (MAN)
a. FED INC. Income Statement
For the Month Ended October 31, 2012
Revenues...................................................................... $1,500,000
Cost of goods sold ...................................................... 848,750
Gross profit .................................................................. $ 651,250
Selling expenses ......................................................... $367,500
Administrative expenses ............................................ 131,950 499,450
Income from operations .............................................. $ 151,800
b. Materials inventory:
Purchased materials ............................................... $427,000
Less: Materials used in production ....................... 367,500
Materials inventory, October 31 ............................. $ 59,500
Work in process inventory:
Materials used in production .................................. $367,500
Direct labor .............................................................. 315,000
Factory overhead (80% × $315,000) ....................... 252,000
Additions to work in process ................................. $934,500
Less: Transferred to finished goods ..................... 892,500
Work in process inventory, October 31 ................. $ 42,000
Finished goods inventory:
Transferred to finished goods ................................ $892,500
Less: Cost of goods sold ........................................ 848,750
Finished goods inventory, October 31 .................. $ 43,750
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45 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–15 (FIN MAN); Ex. 2–15 (MAN)
a.
Unit
Date Job No. Quantity Product Amount Cost
Jan. 2 1 300 XKR1 $ 6,600 $22
Jan. 15 26 1,300 M-Z4 11,700 9
Feb. 3 34 1,100 M-Z4 14,300 13
Mar. 7 44 460 XKR1 7,360 16
Mar. 24 51 1,850 SL500 12,950 7
May 19 62 2,200 SL500 19,800 9
June 12 76 400 XKR1 4,800 12
Aug. 18 80 2,750 SL500 30,250 11
Sept. 2 88 900 M-Z4 9,000 10
Nov. 14 96 540 XKR1 4,320 8
Dec. 12 102 2,350 SL500 32,900 14
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46 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–15 (FIN MAN); Ex. 2–15 (MAN) (Concluded)
As can be seen, the unit costs behave differently for each product. SL500 has
increasing unit costs during the year, M-Z4 is steady, and XKR1 has decreas-
ing unit costs during the year.
b. Management should want to determine why SL500 costs are increasing and
why XKR1 costs are decreasing. This information can be determined from the
job cost sheets for each job. By comparing the cost sheets from job to job
(for a particular product), management can isolate the cause of the cost
changes. The cost sheets will show how materials, labor, and overhead are
consumed across the production process for each job. This information can
isolate the problem or opportunity areas.
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47 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–16 (FIN MAN); Ex. 2–16 (MAN)
a. The first item to note is that the cost did not go up due to any increases in the
cost of labor or materials. Rather, the cost of the plaques increased because
Job 105 used more labor and materials per unit than did Job 101. Specifically,
Job 101 required exactly the same number of backboards and brass plates as
the number of actual plaques shipped. However, Job 105 required six more
backboards and brass plates than the number actually shipped (36 vs. 30). In
addition, the labor hours for Job 101 were as follows:
Engraving: (66 units × 30 min. per unit)/60 min. = 33 hours
Assembly: (66 units × 25 min. per unit)/60 min. = 27.5 hours
These are the labor hours to be expected for 66 plaques. However, the labor
hours expected for Job 105 were:
Engraving: (30 units × 30 min. per unit)/60 min. = 15 hours
Assembly: (30 units × 25 min. per unit)/60 min. = 12.5 hours
Job 105’s 33 labor hours are 5.5 more (33 hrs. – 27.5 hrs.) than should have
been expected for a job of 30 plaques [(30 × 55 min.)/60 min. = 27.5 hrs.]. As a
result, the additional hours of labor cost, applied factory overhead, and direct
materials cost cause the unit cost of Job 105 to increase.
b. Apparently, the engraving and assembly work is becoming sloppy. Job 105
required 36 engraved brass plates in order to get 30 with acceptable quality. It
is likely that the engraver is not being careful in correctly spelling the names.
The names should be supplied to the engraver using large typewritten fonts
so that it is easy to read the names. The engraver should be instructed to be
careful in engraving the names. The assembly operation also needs some
improvement. It took 36 assembly operations to properly assemble 30
plaques. It may be that the plates are assembled off-register (crooked) to the
backboard. This could be improved by using a fixture to properly align the
plate to the backboard. Alternatively, it’s possible misengraved plaques were
assembled to backboards and needed to be disassembled, reengraved, and
reassembled to new backboards.
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48 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–17 (FIN MAN); Ex. 2–17 (MAN)
a.
July 3 Work in Process (500 hrs. × $150) .............. 75,000
Salaries Payable ..................................... 75,000
9 Work in Process ........................................... 18,500
Cash ......................................................... 18,500
10 Work in Process (250 hrs. × $225) .............. 56,250
Salaries Payable ..................................... 56,250
15 Work in Process ........................................... 55,000
Consultant Fees Payable ....................... 55,000
22 Work in Process (750 × $60) ....................... 45,000
Office Overhead ...................................... 45,000
31 Office Overhead ........................................... 32,000
Cash ......................................................... 32,000
31 Office Overhead ........................................... 10,000
Supplies ................................................... 10,000
31 Salaries Payable ........................................... 126,000
Cash ......................................................... 126,000
31 Accounts Receivable ................................... 365,000
Fees Earned ............................................ 365,000
31 Cost of Services ........................................... 249,750
Work in Process...................................... 249,750*
*$75,000 + $18,500 + $56,250 + $55,000 + $45,000
b. Office overhead incurred ($32,000 + $10,000) .......... $42,000
Office overhead applied ............................................. 45,000
Overapplied overhead................................................. $ (3,000)
c. Fees earned ................................................................. $365,000
Cost of services .......................................................... 246,750*
Gross profit .................................................................. $118,250
*$249,750 – $3,000. Assumes the over- or underapplied office overhead is
closed to cost of services annually.
Note to Instructors: The consultant fees and travel costs can be directly as-
signed to the case and thus are not treated as office overhead. Costs such as
secretarial and administrative salaries and supplies would be part of office
overhead incurred.
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49 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Ex. 17–18 (FIN MAN); Ex. 2–18 (MAN)
a. Work in Process .................................................. 474,000
Salaries Payable ............................................. 474,000
b. Work in Process .................................................. 946,500
Accounts Payable .......................................... 946,500
c. Work in Process (60% × $946,500) ..................... 567,900
Agency Overhead ........................................... 567,900
d. Cost of Services .................................................. 1,225,500
Work in Process ............................................. 1,225,500
Cost of completed jobs, $1,225,500:
Hedge Sullivan
Bank Airlines
March 1 balance ............................................. $120,000 $ 36,000
March costs:
Direct labor ................................................ 84,000 37,500
Media.......................................................... 315,000 277,500
Overhead ................................................... 189,000* 166,500**
Total costs ...................................................... $708,000 $517,500
*60% × $315,000
**60% × $277,500
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50 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
PROBLEMS
Prob. 17–1A (FIN MAN); Prob. 2–1A (MAN)
a. Materials ......................................................................... 350,000
Accounts Payable .................................................... 350,000
b. Work in Process ............................................................ 240,000
Factory Overhead .......................................................... 35,000
Materials ................................................................... 275,000
c. Work in Process ............................................................ 279,000
Factory Overhead .......................................................... 45,500
Wages Payable ......................................................... 324,500
d. Factory Overhead .......................................................... 128,600
Selling Expenses ........................................................... 116,400
Administrative Expenses .............................................. 72,500
Accounts Payable .................................................... 317,500
e. Factory Overhead .......................................................... 14,500
Selling Expenses ........................................................... 12,300
Administrative Expenses .............................................. 8,900
Prepaid Expenses .................................................... 35,700
f. Depreciation Expense—Office Building ...................... 42,000
Depreciation Expense—Office Equipment .................. 21,500
Factory Overhead .......................................................... 14,500
Accumulated Depreciation—Fixed Assets ............ 78,000
g. Work in Process ............................................................ 256,400
Factory Overhead ..................................................... 256,400
h. Finished Goods ............................................................. 726,500
Work in Process ....................................................... 726,500
i. Cost of Goods Sold ....................................................... 715,000
Finished Goods ........................................................ 715,000
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51 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–2A (FIN MAN); Prob. 2–2A (MAN)
1. a. Materials ................................................................... 23,400
Accounts Payable ............................................... 23,400
b. Work in Process ....................................................... 39,575
Factory Overhead ..................................................... 4,110
Materials .............................................................. 21,515
Wages Payable .................................................... 22,170
c. Factory Overhead ..................................................... 4,500
Accounts Payable ............................................... 4,500
d. Factory Overhead ..................................................... 1,560
Accumulated Depreciation—Machinery
and Equipment .................................................... 1,560
e. Work in Process ....................................................... 10,000
Factory Overhead (200 hours × $50) ................. 10,000
f. Finished Goods ........................................................ 27,285
Work in Process .................................................. 27,285
Computation of cost of jobs finished:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 201 $2,350 $2,200 $ 900 $ 5,450
No. 202 2,875 2,970 1,500 7,345
No. 203 1,900 1,490 1,200 4,590
No. 205 4,100 4,150 1,650 9,900
Total $27,285
g. Accounts Receivable ............................................... 27,240
Sales .................................................................... 27,240
Cost of Goods Sold .................................................. 17,385
Finished Goods ................................................... 17,385
Computation of cost of jobs sold:
Job
No. 201 ........................................... $ 5,450
No. 202 ........................................... 7,345
No. 203 ........................................... 4,590
Total ............................................... $ 17,385
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52 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–2A (FIN MAN); Prob. 2–2A (MAN) Concluded
2.
Work in Process Finished Goods
(b) 39,575 (f) 27,285 (f) 27,285 (g) 17,385
(e) 10,000
Bal. 22,290 Bal. 9,900
3. Schedule of unfinished jobs:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 204 ................................. $6,450 $5,460 $3,750 $15,660
No. 206 ................................. 2,980 2,650 1,000 6,630
Balance of Work in
Process, April 30 ............. $22,290
4. Schedule of completed jobs:
Direct Direct Factory
Job Materials Labor Overhead Total
Finished Goods, April 30
(Job 205) ........................... $4,100 $4,150 $1,650 $9,900
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53 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–3A (FIN MAN); Prob. 2–3A (MAN)
1. and 2.
JOB ORDER COST SHEET
Customer Queen Mercury Date May 10, 2010
Address 10 Rhapsody Lane Date wanted June 12, 2010
Lake Forest Date completed June 8, 2010
Item Reupholster couch and chair Job. No. 10-206
ESTIMATE
Direct Materials Direct Labor Summary
Amount Amount Amount
40 meters at $12 480.00 24 hours at $15 360.00 Direct materials 480.00
Direct labor 360.00
Factory overhead 180.00
Total
480.00
Total
360.00
Total cost
1,020.00
ACTUAL
Direct Materials Direct Labor Summary
Mat.
Req.
No.
Descrip-
tion
Amount
Time
Ticket
No.
Descrip-
tion
Amount
Item
Amount
210 24
meters
at $12
288.00
H25 18 hours
at $14.50
261.00 Direct materials
Direct labor
540.00
391.50
212 21
meters
at $12
252.00
H34 9 hours
at $14.50
130.50
Factory overhead
195.75
Total 540.00 Total 391.50 Total cost 1,127.25
Comments:
The direct materials cost exceeded the estimate by $60 because 5 meters of ma-
terials were spoiled. The direct labor cost exceeded the estimate by $31.50 be-
cause an additional 3 hours of labor were used by an inexperienced employee
that worked for $0.50/hr. less.
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54 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–4A (FIN MAN); Prob. 2–4A (MAN)
1. Supporting calculations:
Job No.
Quan-
tity
July 1
Work in
Process
Direct
Materials
Direct
Labor
Factory
Overhead
Total
Cost
Unit
Cost
Units
Sold
Cost of
Goods
Sold
No. 21 200 $ 6,000 $ 20,000 $ 15,000 $ 24,000 $ 65,000 $325.00 160 $ 52,000
No. 22 400 16,000 34,000 26,000 41,600 117,600 $294.00 320 94,080
No. 23 200 14,000 8,000 12,800 34,800 0 0
No. 24 250 30,000 25,000 40,000 95,000 $380.00 210 79,800
No. 25 180 22,000 17,500 28,000 67,500 $375.00 150 56,250
No. 26 140 8,000 4,500 7,200 19,700 0 0
Total 1,370 $ 22,000 $ 128,000
$96,000 $ 153,600 $ 399,600 $ 282,130
A. $144,000. Materials applied to production in July + indirect materials.
($128,000 + $16,000)
B. $22,000. From table above and problem.
C. $128,000. From table above.
D. $96,000. From table above.
E. $153,600. ($96,000 × 1.6) and from table above.
F. $345,100. ($65,000 + $117,600 + $95,000 + $67,500)
G. $282,130. From table above.
H. $24,000. Wages incurred less direct labor applied to production in July.
($120,000 – $96,000)
2. July balances:
Materials $ 6,000 ($30,000 + $120,000 – $144,000)
Work in Process $54,500* ($34,800 + $19,700, Job 23 and Job 26)
Finished Goods $62,970** ($345,100 – $282,130)
Factory Overhead $ 3,400 Dr. underapplied ($22,000 + $24,000 + $16,000
+ $95,000 – $153,600)
* or ($22,000 + $128,000 + $96,000 + $153,600 – $345,100)
** Units in Unit Total
Job No. Inventory Cost Cost
Job 21 40 $325 $13,000
Job 22 80 294 23,520
Job 24 40 380 15,200
Job 25 30 375 11,250
Total $62,970
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55 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–5A (FIN MAN); Prob. 2–5A (MAN)
1.
DIGITAL TUNES INC. Income Statement
For the Year Ended December 31, 2010
Sales .......................................................... $ 13,600,000
Cost of goods sold ................................... 3,187,500
Gross profit ............................................... $ 10,412,500
Selling expenses:
Media campaign ................................. $4,000,000
Promotional materials ........................ 1,700,000
Shipping expenses ............................. 212,500
Total selling expenses ........................ $5,912,500
Administrative expenses:
Legal expenses ................................... 1,200,000
Total operating expenses ........................ 7,112,500
Income from operations ........................... $ 3,300,000
Supporting calculations:
Sales: 850,000 units × $16 = $13,600,000
Cost of goods sold: 850,000 units × $3.75 = $3,187,500
Manufacturing cost per unit (CD):
Direct materials:
Blank CD .......................................................... $ 1.80
Jewel case ....................................................... 0.60
Song lyric insert .............................................. 0.60
Total direct materials ...................................... $ 3.00
Direct labor .......................................................... 0.25
Factory overhead ................................................ 0.50*
Total manufacturing cost per CD .................. $ 3.75
*$1,200/2,400 CDs per hour
Promotional materials: 42,500 stores × $40 = $1,700,000
Shipping expenses: 850,000 units × $0.25 = $212,500
2. Finished Goods balance, December 31, 2010:
(1,000,000 units – 850,000 units) × $3.75 = $562,500
Work in Process, December 31, 2010:
25,000 units × ($3.00 + $0.50) = $87,500
The materials and copying have already been applied to the 25,000 units.
Only the direct assembly labor has yet to be applied for these units.
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56 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–1B (FIN MAN); Prob. 2–1B (MAN)
a. Materials ......................................................................... 450,000
Accounts Payable .................................................... 450,000
b. Work in Process ............................................................ 420,500
Factory Overhead .......................................................... 4,500
Materials ................................................................... 425,000
c. Work in Process ............................................................ 290,000
Factory Overhead .......................................................... 95,000
Wages Payable ......................................................... 385,000
d. Factory Overhead .......................................................... 125,400
Selling Expenses ........................................................... 87,500
Administrative Expenses .............................................. 56,400
Accounts Payable .................................................... 269,300
e. Factory Overhead .......................................................... 12,500
Selling Expenses ........................................................... 14,500
Administrative Expenses .............................................. 8,500
Prepaid Expenses .................................................... 35,500
f. Factory Overhead .......................................................... 25,300
Depreciation Expense—Office Equipment .................. 31,600
Depreciation Expense—Store Equipment ................... 7,600
Accumulated Depreciation—Fixed Assets ............ 64,500
g. Work in Process ............................................................ 261,500
Factory Overhead ..................................................... 261,500
h. Finished Goods ............................................................. 965,000
Work in Process ....................................................... 965,000
i. Cost of Goods Sold ....................................................... 952,400
Finished Goods ........................................................ 952,400
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–2B (FIN MAN); Prob. 2–2B (MAN)
1. a. Materials ................................................................... 68,000
Accounts Payable ............................................... 68,000
b. Work in Process ....................................................... 123,250
Factory Overhead ..................................................... 13,700
Materials .............................................................. 66,000
Wages Payable .................................................... 70,950
c. Factory Overhead ..................................................... 2,750
Accounts Payable ............................................... 2,750
d. Factory Overhead ..................................................... 1,870
Accumulated Depreciation—Machinery
and Equipment .................................................... 1,870
e. Work in Process ....................................................... 17,250
Factory Overhead (690 hours × $25) ................. 17,250
f. Finished Goods ........................................................ 80,575
Work in Process .................................................. 80,575
Computation of cost of jobs finished:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 401 $ 9,200 $ 9,250 $2,700 $21,150
No. 402 11,000 13,400 2,750 27,150
No. 403 6,400 5,000 2,150 13,550
No. 405 8,600 7,400 2,725 18,725
Total $80,575
g. Accounts Receivable ............................................... 82,800
Sales .................................................................... 82,800
Cost of Goods Sold .................................................. 67,025
Finished Goods ................................................... 67,025
Computation of cost of jobs sold:
Job
No. 401 ........................................... $21,150
No. 402 ........................................... 27,150
No. 405 ........................................... 18,725
Total ............................................... $67,025
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58 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–2B (FIN MAN); Prob. 2–2B (MAN) Concluded
2.
Work in Process Finished Goods
(b) 123,250 (f) 80,575 (f) 80,575 (g) 67,025
(e) 17,250
Bal. 59,925 Bal. 13,550
3. Schedule of unfinished jobs:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 404 ................................. $18,200 $17,400 $4,000 $39,600
No. 406 ................................. 8,500 8,900 2,925 20,325
Balance of Work in
Process, May 31 ............... $59,925
4. Schedule of completed jobs:
Direct Direct Factory
Job Materials Labor Overhead Total
Finished Goods, May 31
(Job 403) ........................... $6,400 $5,000 $2,150 $13,550
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59 ©© 22001122 CCeennggaaggee LLeeaarrnniinngg.. AAllll RRiigghhttss RReesseerrvveedd.. TThhiiss eeddiittiioonn iiss iinntteennddeedd ffoorr uussee oouuttssiiddee ooff tthhee UU..SS.. oonnllyy,, wwiitthh ccoonntteenntt tthhaatt mmaayy bbee ddiiffffeerreenntt ffrroomm
tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–3B (FIN MAN); Prob. 2–3B (MAN)
1. and 2.
JOB ORDER COST SHEET
Customer Ted Austin Date June 1, 2010
Address 409 Patterson St. Date wanted Aug. 5, 2010
Vienna Date completed Aug. 2, 2010
Item Reupholster couch and chairs Job. No. 10-110
ESTIMATE
Direct Materials Direct Labor Summary
Amount Amount Amount
24 meters at $14 336.00 14 hours at $18 252.00 Direct materials 336.00
Direct labor 252.00
Factory overhead 189.00
Total
336.00
Total
252.00
Total cost
777.00
ACTUAL
Direct Materials Direct Labor Summary
Mat.
Req.
No.
Descrip-
tion
Amount
Time
Ticket
No.
Descrip-
tion
Amount
Item
Amount
210 10 meters
at $14
140.00
H16 6 hours
at $18
108.00 Direct materials
Direct labor
364.00
288.00
212 16 meters
at $14
224.00
H21 10 hours
at $18
180.00
Factory overhead
216.00
Total 364.00 Total 288.00 Total cost 868.00
Comments:
The direct materials cost exceeded the estimate by $28 because 2 meters of ma-
terials were spoiled. The direct labor cost exceeded the estimate by $36 because
an additional 2 hours of labor were used by an inexperienced employee.
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–4B (FIN MAN); Prob. 2–4B (MAN)
1. Supporting calculations:
Job No.
Quan-
tity
Aug. 1
Work in
Process
Direct
Materials
Direct
Labor
Factory
Overhead
Total
Cost
Unit
Cost
Units
Sold
Cost of
Goods
Sold
No. 101 100 $ 8,000 $ 25,000 $ 18,000 $ 9,000 $ 60,000 $600.00 80 $ 48,000
No. 102 125 14,000 32,000 22,000 11,000 79,000 $632.00 110 69,520
No. 103 150 40,000 34,000 17,000 91,000 0 0
No. 104 125 20,000 12,500 6,250 38,750 $310.00 115 35,650
No. 105 200 36,000 20,000 10,000 66,000 $330.00 160 52,800
No. 106 100 18,000 9,600 4,800 32,400 0 0
Total 800 $ 22,000 $ 171,000
$116,100 $ 58,050 $ 367,150 $ 205,970
A. $175,500. Materials applied to production in August + indirect materials.
($171,000 + $4,500)
B. $22,000. From table above and problem.
C. $171,000. From table above.
D. $116,100. From table above.
E. $58,050. ($116,100 × 0.50) and from table above.
F. $243,750. ($60,000 + $79,000 + $38,750 + $66,000)
G. $205,970. From table above.
H. $3,900. Wages incurred less direct labor applied to production in August.
($120,000 – $116,100)
2. August 31 balances:
Materials $ 6,500 ($32,000 + $150,000 – $175,500)
Work in Process $123,400* ($91,000 + $32,400, Job 103 and Job 106)
Finished Goods $ 37,780** ($243,750 – $205,970)
Factory Overhead $ 9,850 Dr. underapplied ($8,000 + $3,900 + $4,500
+ $51,500 – $58,050)
* or ($22,000 + $171,000 + $116,100 + $58,050 – $243,750)
** Units in Unit Total
Job No. Inventory Cost Cost
Job 101 20 $600 $12,000
Job 102 15 632 9,480
Job 104 10 310 3,100
Job 105 40 330 13,200
Total $37,780
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
Prob. 17–5B (FIN MAN); Prob. 2–5B (MAN)
1.
MY WAY SOFTWARE INC. Income Statement
For the Year Ended December 31, 2010
Sales ..................................................................... $8,000,000
Cost of goods sold .............................................. 1,620,000
Gross profit .......................................................... $6,380,000
Selling expenses:
Advertising expenses .................................... $1,380,000
Salespersons commissions .......................... 1,200,000
Advertising design ......................................... 1,400,000
Total selling expenses ................................... 3,980,000
Income from operations ...................................... $2,400,000
Supporting calculations:
Sales: 80,000 units × $100 = $8,000,000
Cost of goods sold: 80,000 units × $20.25 = $1,620,000
Manufacturing cost per unit:
Direct materials:
Blank CD .......................................................... $ 2.50
Packaging ........................................................ 4.00
Manual ............................................................. 12.00
Total direct materials ...................................... $18.50
Direct labor .......................................................... 0.50
Factory overhead cost ........................................ 1.25*
Total manufacturing cost per CD .................. $20.25
*$2,500/2,000 CDs per hour
Salespersons commissions: $8,000,000 × 15% = $1,200,000
2. Finished Goods balance, December 31, 2010:
(100,000 units – 80,000 units) × $20.25 = $405,000
Work in Process, December 31, 2010:
4,000 units × ($18.50 + $1.25) = $79,000
The materials and copying have already been applied to the 4,000 units.
Only the direct assembly labor has yet to be applied for these units.
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
CASES & PROJECTS
CP 17–1 (FIN MAN); CP 2–1 (MAN)
Two or three trends seem apparent. Starting with the most obvious:
a. There appears to be a strong ―Friday effect.‖ The unit cost on Friday increas-
es dramatically, then falls on Monday. Apparently, the workforce is preparing
early for the weekend.
b. There also appears to be a general increasing trend in the unit cost. Every
Friday effect is larger than the previous Friday. Much the same can be said
about the other days of the week.
c. It’s hard to tell, but there may also be a ―within week‖ trend. The unit cost ap-
pears to increase gradually from Monday through Thursday, before jumping
on Friday. At the very least, Mondays are the best operating days, while Fri-
days are the worst.
A number of further pieces of information should be requested.
a. First, it would be good to verify these trends with some other products. This
trend is probably not product-related but related generally to the day of the
week. This would mean that the trend should be apparent in the other prod-
ucts.
b. The data should be sorted by shift and by employee. It’s possible that the ef-
fect is stronger on one shift than on another or that just a few employees are
responsible for the effect. It may not be prevalent in the general population of
workers.
c. The Friday–Monday phenomenon is likely related to the workforce, but the
same cannot be said about the larger increasing trend over the four weeks. It
could be caused by any number of factors. A good first look would be to iso-
late materials costs to see if these are contributors. How much of the effect is
labor and how much is material should be verified. It’s possible that the gen-
eral increase in cost over time is the result of loss of machine tolerances.
Thus, more and more material is being required to produce a unit of product.
d. Has there been any significant change in supervisors or crucial employees
that may explain this effect?
e. Have prices increased gradually for the raw materials?
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
CP 17–2 (FIN MAN); CP 2–2 (MAN)
1. The unit costs are influenced by both the price and quantity of inputs. On the
price side, the cost of steel has dropped from $800 to $780 per ton. This is
apparently the result of the purchasing manager’s decision to reduce the cost
of raw materials by going to a new vendor. No other input prices change.
Some of the input quantities changed for the worse. Specifically:
Job 206 Job 228
Steel input per unit of product ........................... 1.75 tons1 2.50 tons
2
Foundry labor per unit of product ..................... 6.75 hours3 10.00 hours
4
Welding labor per unit of product ...................... 9.25 hours5 14.00 hours
6
170 tons/40 units
2150 tons/60 units
3270 hours/40 units
4600 hours/60 units
5370 hours/40 units
6840 hours/60 units
These numbers were determined by dividing the number of units produced by
the total input quantities to discover the inputs per unit. The inputs for the
components and shipping labor were unchanged between the two jobs.
2. A possible reason for this deterioration in performance is related to the pur-
chasing manager’s decision to change vendors in order to secure a lower
price per ton. The new vendor is apparently delivering a lower-quality steel
product to the company. As a result, the foundry operation is having to spend
more time forming the steel parts. Moreover, the increased steel tons per unit
is likely to be caused by scrapping some of the formed parts. The scrapped
parts would need to be replaced by additional steel inputs, which would have
the effect of increasing the number of tons required to make a unit of product.
The welding operators are also apparently having difficulty welding the lower-
quality steel parts. As a result, longer welding time is required to assemble a
completed unit.
Overall, management has learned that the drive for lower raw materials prices
was a poor decision. The overall net result was higher costs from the addi-
tional waste caused by lower-quality steel.
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
CP 17–3 (FIN MAN); CP 2–3 (MAN)
1. The engineer is concerned that direct labor is not related to overhead con-
sumption because direct labor is a small part of the cost structure. Apparent-
ly, the company has replaced labor with expensive machine technology and
support. This, of course, represents more factory overhead. Just because the
direct labor is ―designed out‖ of the product will not mean that this overhead
will magically disappear. More likely, the direct labor hours will be replaced
by machine-related factory overhead. Thus, the factory overhead goes up
while the activity base (direct labor) goes down. Hence, the factory overhead
rate will go up.
2. Since each direct labor hour now has $2,000 of factory overhead, small
mistakes in the direct labor time estimates can have a large impact on the
estimated cost of a product. This is very critical since the company sets sell-
ing price by adding a profit to unit cost. If the company underestimates the
direct labor content by a small amount, it will underestimate unit cost causing
the company to underbid and win the job. Unfortunately, the job will turn out
to have less profitability than expected because the price is smaller than it
should be. If the company overestimates the labor time, it will overbid the job.
Thus, it will lose out to competitors who bid more accurately. This puts the
company into a lose-lose situation when such small labor time errors have
such large dollar impacts on the final cost estimate.
3. The engineer’s concern is valid. The company should consider replacing its
direct labor time activity base with one that more accurately reflects its pre-
sent resources. If the company is now highly automated, then machine hours
may be a much more reasonable activity base.
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
CP 17–4 (FIN MAN); CP 2–4 (MAN)
1. Sven should record the debits for factory wages as a debit to Work in Pro-
cess. The factory wages are product costs that must be accumulated in the
cost of producing the product. Eventually, these wage costs will become part
of finished goods inventory and cost of goods sold when the gift items are
sold. Likewise, the depreciation should be recorded as a debit to Factory
Overhead. The overhead is then applied to production work in process. Like
the wages, the depreciation will also eventually become part of the finished
goods inventory and cost of goods sold when the gift items are sold. Thus,
both the wages and depreciation will end up on the income statement as cost
of goods sold, not as individual expenses. The reason is because the ac-
countant wants to match revenues and costs. Costs that are accumulated in
the manufacture of products do not become expenses until the items are
sold. Until that time, the costs are capitalized as inventory. If these costs were
expensed immediately, the income for the firm would be understated for the
period to the extent that there were any increases in the work in process or
finished goods inventories.
2. Boris would not be concerned about immediately expensing administrative
wages and depreciation because the benefits received from these costs are
not product costs. Instead, these costs benefit a period of time. Thus, these
costs should be expensed for the period.
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
CP 17–5 (FIN MAN); CP 2–5 (MAN)
1. Direct labor cost:
Total actual overhead, 2008–2012 ....................... $5,250,000
Total direct labor cost, 2008–2012 ...................... $17,500,000
Predetermined overhead rate
($5,250,000/$17,500,000) .................................. 30.0% of direct labor cost
Machine hours:
Total actual overhead, 2008–2012 ....................... $5,250,000
Total machine hours, 2008–2012 ........................ 625,000 hours
Predetermined overhead rate
($5,250,000/625,000 hours) .............................. $8.40 per machine hour
2. 2012 2011 2010
Direct Direct Direct
Labor Machine Labor Machine Labor Machine
Cost Hours Cost Hours Cost Hours
Actual overhead ....... $1,062,500 $1,062,500 $1,250,000 $1,250,000 $1,025,000 $1,025,000
Applied overhead ..... 1,068,000 1,060,500 1,248,000 1,251,600 1,020,000 1,024,800
(Over-) underapplied
overhead .............. $ (5,500) $ 2,000 $ 2,000 $ (1,600) $ 5,000 $ 200
2009 2008
Direct Direct
Labor Machine Labor Machine
Cost Hours Cost Hours
Actual overhead ............... $975,000 $975,000 $937,500 $937,500
Applied overhead ............. 972,000 974,400 942,000 938,700
(Over-) underapplied
overhead ...................... $ 3,000 $ 600 $ (4,500) $ (1,200)
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tthhee UU..SS.. EEddiittiioonn.. MMaayy nnoott bbee ssccaannnneedd,, ccooppiieedd,, dduupplliiccaatteedd,, oorr ppoosstteedd ttoo aa ppuubblliiccllyy aacccceessssiibbllee wweebbssiittee,, iinn wwhhoollee oorr iinn ppaarrtt..
CP 17–5 (FIN MAN); CP 2–5 (MAN) (Concluded)
3. The best predetermined overhead rate is machine hours. Although the total
overhead applied for each rate developed in part (1) is the same over the en-
tire five-year period (as a result of the method by which the predetermined
overhead rates were developed), the predetermined overhead rate based on
machine hours yields the least fluctuations in the amounts of over- or un-
derapplied overhead considered on a year-by-year basis. With the rate based
on machine hours, the over- or underapplied overhead ranges from $1,600
overapplied to $2,000 underapplied. This fluctuation in the over- or underap-
plied overhead compares favorably with the fluctuation resulting from using
the current overhead base of direct materials ($5,000 overapplied to $5,000
underapplied over the past five years). For the direct labor cost base, the
over- or underapplied overhead ranges from $5,500 overapplied to $5,000 un-
derapplied.
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