Chap 003 hilton

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CHAPTER 3

Product Costing and Cost Accumulation in aBatch Production Environment

ANSWERS TO REVIEW QESTIONS

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

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

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

"hat those costs are

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

3-' In a &ob-order costing system, costs are assigned to batches or &ob orders of

production ob-order costing systems are used by firms that produce relatively smallnumbers of dissimilar products In a process-costing system, production costs areaveraged over a large number of product units $rocess-costing systems are used byfirms that produce large numbers of nearly identical products

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

3-* a +aterial reuisition form: document upon "hich the production department

supervisor reuests the release of ra" materials for production

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

McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.

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

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

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

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

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

overhead involves the use of a predetermined overhead rate or an actual overheadrate 5ince an actual overhead rate is computed after costs have been incurred andactivity has been recorded, it is more accurate than a predetermined rate 7o"ever, apredetermined overhead rate is more timely than an actual rate, since thepredetermined rate is computed earlier and in time to be used for ma!ing decisions,planning, and controlling operations

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

the period) and the actual amount of the cost driver used Under normal costing,applied overhead is the product of the predetermined overhead rate (computed at thebeginning of the period) and the actual amount of the cost driver used


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

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

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

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

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

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

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

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

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

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

computer interface

3-'' n engineer could use bar code technology to record ho" she spends her time Aarcodes "ould be assigned to her and to each of her activities ?ach time she arrived at

"or!, left "or!, or changed activity at "or!, the engineer "ould scan her personal barcode and the bar code of the appropriate action or activity ?xamples of activities aredesigning, redesigning, or testing a productB change ordersB visiting the factory floorBconstructing a prototypeB and being trained


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SO&TIONS TO E'ERCISES

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

1 $rocess

' ob-order

3 ob-order (contracts or pro&ects)

* $rocess

$rocess

2 ob-order

$rocess

6 ob-order (contracts or pro&ects)

8 $rocess

19 ob-order

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

1 Ca"-material inventory, anuary 1 E1*,'99

dd: Ca"-material purchases '*6,399Ca" material available for use E*'',99

@educt: Ca"-material inventory, anuary 31 121,'99

Ca" material used in anuary E'21,399

@irect labor 389,999

/otal prime costs incurred in anuary E21,399

' /otal prime cost incurred in anuary E21,399

pplied manufacturing overhead (9F E389,999) '3,999

/otal manufacturing cost for anuary E8'*,399


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

3 /otal manufacturing cost for anuaryE 8'*,399dd: 0or!-in-process inventory, anuary 1 39,99

5ubtotalE1,''8,699

@educt: 0or!-in-process inventory, anuary 31 3'2,399ost of goods manufacturedE 893,99

* %inished-goods inventory, anuary 1E 12',99dd: ost of goods manufactured 893,99

ost of goods available for saleE1,922,999

@educt: %inished-goods inventory, anuary 31 1',199

ost of goods soldE 813,899

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

pplied manufacturing overhead for anuary E'3,999ctual manufacturing overhead incurred in anuary '',99

;verapplied overhead as of anuary 31 E *,99

/he balance in the +anufacturing ;verhead account on anuary 31 is a E*,99 creditbalance

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


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

;A-;5/ C?;C@

ob Dumber /A6 @escription teddy bears

@ate 5tarted 6G11 @ate ompleted 6G'9

Dumber of Units ompleted 1,999

@irect +aterial@ate Ceuisition Dumber Huantity Unit $rice ost6G11 '91 99 E89 E*96G1' '96 299 *9 '*9

@irect .abor

@ate /ime ard Dumber 7ours Cate ost6G1 6' 9 E1* E,99

+anufacturing ;verhead@ate ctivity Aase Huantity pplication Cate ost6G1 direct-labor hours 9 E3 E1,29

ost 5ummary

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

E 289,991,29

/otal ost E19,9*9Unit ost E 199*

5hipping 5ummary

@ate Units 5hippedUnits Cemaining

In Inventory ost Aalance

6G39 699 '99 E',996

'99 units remaining in inventoryE199* J E',996


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?>?CI5? 3-'2 (1 +IDU/?5)

1 pplied manufacturing overhead J total manufacturing costs 39F

J E1,'9,999 39F

J E3,999

pplied manufacturing overhead J direct-labor cost 69F

@irect-labor cost J applied manufacturing overhead 69F

J E3,999 6

J E*26,9

' @irect-material used J total manufacturing costK direct labor cost

K applied manufacturing overhead

J E1,'9,999 K E*26,9 K E3,999

J E*92,'9

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

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

cost an 1 @ec 31 manufactured

E1,'9,999 L X K X J E1,'1',99

'X J E1,'9,999 K E1,'1',99

X J E19,999

0or!-in-process inventory on @ecember 31 amounted to E19,999

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

0or!-in-$rocess Inventory 2,929Ca"-+aterial Inventory ,1990ages $ayable '9+anufacturing ;verhead '*9

%inished-4oods Inventory 2,9290or!-in-$rocess Inventory 2,929


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

1volumeproductionbudgeted

overheadbudgetedrateoverheadned$redetermi =

(a) t 199,999 chic!en volume:

chic!enperE12199,999

,999)(E1)(199E19,999rate;verhead

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

chic!enperE89'99,999

,999)(E1)('99E19,999rate;verhead

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

chic!enperE2399,999

,999)(E1)(399E19,999rate;verhead

' /he predetermined overhead rate does not change in proportion to the change inproduction volume s production volume increases, the E19,999 of fixed overhead isallocated across a larger activity base 0hen volume rises by 199F, from 199,999 to'99,999 chic!ens, the decline in the overhead rate is **F M(E12 K E89)GE12N 0henvolume rises by 9F, from '99,999 to 399,999 chic!ens, the decline in the overhead rate is'6F M(E89 K E2)GE89N

?>?CI5? 3-'8 (39 +IDU/?5)

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


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?>?CI5? 3-39 ('9 +IDU/?5)

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

'8,199 '3,*99''2,'99 ''2,'99

26,899 *'1,'99'3*,999

0ages $ayable 12,999

*'1,'99 *6,699

+anufacturing ;verhead %inished-4oods Inventory'3*,999 38,999

12,9995ales Cevenue 11,299

'3,99 '3,*99

ccounts Ceceivable ost of 4oods 5old'3,99 11,299

' -A.SPORTSEQIP/ENTCO/PAN.0 INC1PARTIA&BA&ANCES2EET

ASO34ECE/BER$!0 #5'#

urrent assets ash >>> ccounts receivable >>>

Inventory Ca" materialE26,899 0or! in process *6,699 %inished goods '3,*99

-A.SPORTSEQIP/ENTCO/PAN.0 INC1PARTIA&INCO/ESTATE/ENT

3ORT2E.EAREN4E44ECE/BER$!0 #5'#

5ales revenue E'3,99.ess: ost of goods sold 11,2994ross margin E

61,899


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

1 Ca" material:

Aeginning inventory E1*',999

dd: $urchases

O@educt: Ca" material used 2',999?nding inventory E12',999

/herefore, purchases for the year "ere E2',999

' @irect labor:

/otal manufacturing cost E1,3',999@educt: @irect material 2',999

@irect labor and manufacturing overhead E '9,999

@irect labor L manufacturing overhead J E'9,999@irect labor L (29F) (direct labor) J E'9,999

(129F) (direct labor) J E'9,999

@irect labor J E'9,99912

@irect labor J E*9,999

3 ost of goods manufactured:

0or! in process, beginning inventory E 129,999dd: /otal manufacturing costs 1,3',999@educt: ost of goods manufactured O0or! in process, ending inventory E 29,999

/herefore, cost of goods manufactured "as E1,*',999


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?>?CI5? 3-31 (;D/IDU?@)

* ost of goods sold:

%inished goods, beginning inventory E169,999

dd: ost of goods manufactured 1,*',999@educt: ost of goods sold O%inished goods, ending inventory E ''9,999

/herefore, cost of goods sold "as E1,*3',999

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

1 CRNC2E/CEREA&CO/PAN.

SC2E4&EO3COSTO36OO4S/AN3ACTRE43ORT2E.EAREN4E44ECE/BER$!0 #5'%

@irect material:Ca"-material inventory, anuary 1E*,999dd: $urchases of ra" material*1,999Ca" material available for useE*2',999@educt: Ca"-material inventory, @ecember 31 *8,99Ca" material used E

*1',99

@irect labor 169,999

+anufacturing overhead

36,999/otal manufacturing costs E

89,99

dd: 0or!-in-process inventory, anuary 1 6,995ubtotal E1,9'8,999

@educt: 0or!-in-process inventory, @ecember 31 2*,39ost of goods manufactured E

82*,29

pplied manufacturing overhead is E36,999 (E169,999'19F) ctual manufacturingoverhead is also E36,999, so there is no overapplied or underapplied overhead

' %inished-goods inventory, anuary 1E 23,999dd: ost of goods manufactured 82*,29ost of goods available for saleE1,9',29@educt: %inished-goods inventory, @ecember 31 28,399


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ost of goods soldE 86,39

3 /he electronic version of the 5olutions +anual ?CI5? 3-33 ('9 +IDU/?5)

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

1 $redetermined overhead rate J drivercostoflevelbudgetedoverheadingmanufacturbudgeted

(a) hoursmachine'9,999E29,999

J E3'9 per machine hour

(b) hourslabor-direct',999E29,999 J E'299 per direct-labor hour

(c) IE3',999E29,999

JE'99 per direct-labor dollar or '99Fof direct-labor cost

Audgeted direct-labor cost J ',999E13

' ctualmanufacturing

overheadK

appliedmanufacturing

overheadJ

overapplied orunderapplied

overhead

(a) E289,999 K ('',999)(E3'9) J E',999 overapplied overhead

(b) E289,999 K ('2,999)(E'299) J E1*,999 underapplied overhead

(c) E289,999 K (E32*,999P)('99F) J E36,999 overapplied overhead

Pctual direct-labor cost J '2,999E1*

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

1 0or!-in-$rocess Inventory 289,999+anufacturing ;verhead 289,999

' 0or!-in-$rocess Inventory 1,999+anufacturing ;verhead 1,999


Managerial Accounting, 8/e 3-!$
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pplied manufacturing overhead J E1,999J '',999 hours x E3'9 per machine hour


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

1 $redetermined overhead rate J E883,399 G ,999 hours J E1'89 per hour

' /o compute actual manufacturing overhead:

@epreciation E'',999

$roperty taxes 18,999

Indirect labor 8,999

5upervisory salaries '19,999

Utilities 6,999

Insurance 3',999

Cental of space '8,999

Indirect material:

Aeginning inventory, anuary 1E*2,999

dd: $urchases

8,999Indirect material available for useE1*1,999

@educt: ?nding inventory, @ecember 312',999Indirect material used 8,999

ctual manufacturing overhead E88,999

actual applied

;verapplied J manufacturing K manufacturing

overhead overhead overhead

J E88,999 K (E1'898,999) J E'',199

ctual direct-labor hours

3 +anufacturing ;verhead '',199ost of 4oods 5old '',199

* /he electronic version of the 5olutions +anual


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?>?CI5? 3-32 ('9 +IDU/?5)

alculation of proration amounts:

alculation of

ccount mount $ercentage $ercentage0or! in $rocessE'8,999 '9F '8,999 E1*,999%inished 4oods9,9 3F 9,9 E1*,999ost of 4oods 5old2,'9 *F 2,'9 E1*,999/otalE1*,999 199F

Underapplied mount ddedccount ;verhead x $ercentage to ccount

0or! in $rocessE'',999 x '9F E*,*99%inished 4oods '',999 x 3F ,99

ost of 4oods 5old '',999 x *F

8,899

Underapplied overhead J actual overhead K applied overheadE'',999 J E12,999 K E1*,999

ournal entry:

0or!-in-$rocess Inventory *,*99%inished-4oods Inventory ,99ost of 4oods 5old 8,899

+anufacturing ;verhead '',999


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

Audgeted overhead rate J budgeted overhead G budgeted direct professional labor 19F J 19,999eurosG 399,999 euros

ontract to redecorate mayorQs offices:

@irect material*,199euros@irect professional labor ,999euros

;verhead (19F ,999 euros) 11,899 euros

/otal contract cost '3,999 euros

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

0or!-in-$rocess Inventory: /anning @epartment11,999a

+anufacturing ;verhead 11,999

a11,999 J ' sets x 119 s ft x E* per s ft

0or!-in-$rocess Inventory: ssembly @epartment 1,199b

+anufacturing ;verhead 1,199

bE1,199 J ' sets x * +7 x E11 per +7

0or!-in-$rocess Inventory: 5addle @epartment ,2'c

+anufacturing ;verhead ,2'

cE,2' J ' sets x * @.7 x E per @.7


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

1 +emorandum

@ate: /oday

/o: $resident

%rom: I+ 5tudent

5ub&ect: ost driver for overhead application

I recommend direct-labor hours as the best volume-based cost driver upon "hich tobase the application of manufacturing overhead 5ince our products are made byhand, direct labor is a very significant production input +oreover, the incurrence of

manufacturing overhead cost appears to be related to the use of direct labor

' +emorandum

@ate: /oday

/o: $resident

%rom: I+ 5tudent

5ub&ect: ost driver for overhead application

I recommend either machine hours or units of production as the most appropriate costdriver for the application of manufacturing overhead 5ince our production process ishighly automated, machine hours are the most significant production input lso, ourchips are nearly identical, so the amount of overhead incurred in their production doesnot vary much across product lines /he incurrence of manufacturing overhead costappears to be related closely both to machine time and units of production


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

;verhead distribution: llocation of the hospitals building maintenance and custodial coststo all of the hospitals departments

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

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

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

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

' ;verhead rate J total budgeted overheadGtotal budgeted staff compensation

J E2,999GE99,999

J 196F

3 pplied overhead J 196F R total direct professional labor

J 196F R (E1,'99 L E',999)

J E3,*2

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

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


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SO&TIONS TO PROB&E/S

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

1

hourperE13(19)(',999)

E'29,999

hourslabor-directbudgeted

overheadingmanufacturbudgetedrateoverheadned$redetermi

==

=

' ournal entries:

(a) Ca"-+aterial Inventory 3*,699ccounts $ayable 3*,699

(b) 0or!-in-$rocess Inventory *9

Ca"-+aterial Inventory *9

(c) +anufacturing ;verhead 1'+anufacturing-5upplies Inventory 1'

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

(e) +anufacturing ;verhead 399ash 399

(f) 0or!-in-$rocess Inventory 31,8990ages $ayable 31,899

/o record direct-labor cost

0or!-in-$rocess Inventory 16,69+anufacturing ;verhead 16,69

/o apply manufacturing overhead to "or! in process (E16,69 J 1,*9 x E13 per hour)

(g) +anufacturing ;verhead 689$roperty /axes $ayable 689

(h) +anufacturing ;verhead 3,1990ages $ayable 3,199


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

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

(&) ccounts Ceceivable 1*,*995ales Cevenue 1*,*99

ost of 4oods 5old 11,3'%inished-4oods Inventory 11,3'

E11,3' J (8G1')(E1,199)


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

1 $redetermined overhead rate J budgeted overhead S budgeted direct-labor cost J E',39,999 S E',199,999 J 139F of direct labor cost

' dditions (debits) total E,69',99 ME',699,999 L E',1,999 L (E',1,999 x 139F)N

3 /he finished-goods inventory consisted of &ob no 31*, "hich cost E1,9 ME6,999L E*',99 L (E*',99 x 139F)N

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

%inished-4oods Inventory,669,8990or!-in-$rocess Inventory ,669,899

Aeginning balance in 0or!-in-$rocess Inventory L additions to the account: E6,*99 L E,69',99 J E,669,899

AAAQs applied overhead totals 139F of direct-labor cost, or E',6',99 (E',1,999 x139F) ctual overhead "as E',,999, itemi#ed as follo"s, resulting in overappliedoverhead of E9,99

Indirect materials used E 3',99Indirect labor 1,*39,999%actory depreciation 69,999

%actory insurance '8,99%actory utilities *1,999/otal

E',,999

+anufacturing ;verhead 9,99ost of 4oods 5old 9,99


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

2 /he companyQs cost of goods sold totals E,2*,29:

%inished-goods inventory, an 1TTTTT E 9

dd: ost of goods manufacturedTTTT ,669,899ost of goods available for saleTTTTT E ,669,899.ess: %inished-goods inventory, @ec 31T 1,9Unad&usted cost of goods soldTTTTTT E ,9,19.ess: ;verapplied overheadTTTTTTT 9,99ost of goods soldTTTTTTTTTTT E ,2*,29

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


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

D;/?: /he 1'G31Gx* balances for cash and accounts receivable, although given in theproblem, are irrelevant to the solution

1 /ISTER/NC2IE0 INC1SC2E4&EO3COSTO36OO4S/AN3ACTRE4

3ORT2E.EAREN4E44ECE/BER$!0 #5'%

@irect material:Ca"-material inventory, 1'G31Gx3E 39,399dd: $urchases of ra" material 11 ,999Ca" material available for useE1*,399@educt: Ca"-material inventory, 1'G31Gx* 33,999Ca" material used E11*,399

@irect labor '3,999+anufacturing overhead:

Indirect materialE 1*,99Indirect labor 6,999@epreciation on factory building 11,*99@epreciation on factory euipment 2,399Utilities 16,999$roperty taxes ,'99Insurance 19,699Cental of "arehouse spaceP 8,399

/otal actual manufacturing overheadE12*,99dd: ;verapplied overhead 8,399

;verhead applied to "or! in process 1* ,999/otal manufacturing costs E',399dd: 0or!-in-process inventory, 1'G31Gx3 '* ,3995ubtotal E*8,299@educt: 0or!-in-process inventory, 1'G31Gx* '* ,899ost of goods manufactured E'*,99

/he 5chedule of ost of 4oods +anufactured lists the manufacturing costs applied to "or!

in process /herefore, the overapplied overhead, E8,399, must be added to total actualoverhead to arrive at the amount of overhead applied to "or! in process If there had beenunderapplied overhead, the balance "ould have been deducted from total actualmanufacturing overhead /he amount of overapplied overhead is found by subtracting actualoverhead, E12*,99 (as computed above), from applied overhead, E1*,999 (given)P5ee next page


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

PIn some companies, the cost of renting "arehouse space to store ra" material might be added tora"-material cost /he most common treatment, ho"ever, is to include this cost in manufacturingoverhead as is done here

' /ISTER/NC2IE0 INC1SC2E4&EO3COSTO36OO4SSO&4


%inished-goods inventory, 1'G31Gx3 E*',999dd: ost of goods manufactured '*,99ost of goods available for sale E22,99@educt: %inished-goods inventory, 1'G31Gx* *2,'99ost of goods sold E'9,99

@educt: ;verapplied overheadP

8,399ost of goods sold (ad&usted for overapplied overhead) E11,'99

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

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

3 /ISTER/NC2IE0 INC1

INCO/ESTATE/ENT3ORT2E.EAREN4E44ECE/BER$!0 #5'%

5ales revenue E21,*99.ess: ost of goods sold 11,'994ross margin E192,'995elling and administrative expenses:

5alaries E*1,*99Utilities ,99@epreciation 3,299

Cental of office space ,199;ther expenses 1' ,999/otal 28,299

Income before taxes E32,299Income tax expense 1 ,399Det income E ' 1,399


Managerial Accounting, 8/e 3-#(


26/63

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

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

Ca"-+aterial Inventory ccounts $ayable

Aal 1G1 '8,*99 3,99 Aal 1G1189,000 168,000 181,199 189,000

Aal 1'G31 9,*99 1,*99 Aal 1'G31

0or!-in-$rocess Inventory %inished-4oods InventoryAal 1G1 '3,699 Aal 1G1 12,699@irectmaterial

168,000Aal 1'G31

1,005,200

'6,999

994,000

@irect

labor

210,000 1,005,200

+fgoverhead

630,000

Aal 1'G31 '2,299 ost of 4oods 5old

88*,999+anufacturing ;verhead

633,500 630,000 5ales Cevenue1,134,000

0ages $ayable',699 Aal 1G1 ccounts Ceceivable

'9,699 210,000 Aal 1G1 1,*99,999 Aal 1'G31 1,134,00

01,1'6,*99

Aal 1'G31 '1,999


3"#) Solutions Manual


27/63

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

1 $redetermined overhead rate J budgeted overhead S budgeted machine hours J E1,269,999 S 3',999 J E'9 per machine hour

' (a) 0or!-in-$rocess Inventory 129,999Ca"-+aterial Inventory 129,999

0or!-in-$rocess Inventory '21,2990ages $ayable '21,299

E*',999 L E66,999 L E39,999 J E129,999 E9,999 L E**,999 L E139,999 L E1,299 J E'21,299

(b) +anufacturing ;verhead *,999ccumulated @epreciation 26,999

0ages $ayable 1'9,999+anufacturing 5upplies Inventory 19,999+iscellaneous ccounts '8,999

(c) 0or!-in-$rocess Inventory *2',999+anufacturing ;verhead *2',999

(',*99 L 1,*99 L *,999 L 1,999) x E'9 J E*2',999

(d) %inished-4oods Inventory 239,990or!-in-$rocess Inventory 239,99

ob 191: E126,999 L E*',999 L E9,999 L (',*99 x E'9) J E*92,999ob 19': E19,999 L E**,999 L (1,*99 x E'9) J E''*,99

E239,99 J E*92,999 L E''*,99

(e) ccounts Ceceivable '83,8995ales Cevenue '83,899

E''*,99 L E28,*99 J E'83,899

ost of 4oods 5old ''*,99%inished-4oods Inventory ''*,99

3 ob no 193 and no 19* are in production as of +arch 31:ob 193: E66,999 L E139,999 L (*,999 x E'9)E*'6,999ob 19*: E39,999 L E1,299 L (1,999 x E'9) 199,199

/otalE'6,199


Managerial Accounting, 8/e 3-#*


28/63

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

* %inished-goods inventory increased by E*92,999 (E239,99 - E''*,99)

/he companyQs actual overhead amounted to E*,999, "hereas applied overhead

totaled E*2',999 /hus, overhead "as underapplied by E1,999

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

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

1 +achining @ept overhead rate J budgeted overhead S budgeted machine hours J E',999,999 S '99,999 J E19 per machine hour

ssembly @ept overhead rate J budgeted overhead S budgeted direct-labor cost J E1,*9,999 S E',699,999 J F of direct-labor cost

' /he ending "or!-in-process inventory is carried at a cost of E2,2, computed asfollo"s:

+achining @epartment:@irect materialTTTTTTTTTTTTTT E1','9

@irect laborTTTTTTTTTTTTTTT 13,89+anufacturing overhead (169 x E19)TTTT 1,699 E '6,999

ssembly @epartment:@irect materialTTTTTTTTTTTTTT E 3,39@irect laborTTTTTTTTTTTTTTT '8,399+anufacturing overhead (E'8,399 x F)T 12,11 *6,2

/otal costTTTTTTTTTTTTTTTTT E 2,2

3 ctual overhead in the +achining @epartment amounted to E',139,999, "hereasapplied overhead totaled E',1',999 ('1',99 hours x E19) /hus, overhead "as

underapplied by E,999 during the year

* ctual overhead in the ssembly @epartment amounted to E1,',999, "hereasapplied overhead totaled E1,68,99 (E',689,999 x F) /hus, overhead "asoverapplied by E2*,99

/he companyQs manufacturing overhead "as overapplied by E8,99 (E2*,99 -E,999) s a result, excessive overhead flo"ed from 0or!-in-$rocess Inventory, to


3"#+ Solutions Manual


29/63

%inished-4oods Inventory, to ost of 4oods 5old, meaning that the ost of 4oods5old account must be decreased at year-end


Managerial Accounting, 8/e 3-#,


30/63

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

2 /he 0or!-in-$rocess account is charged "ith applied overhead, or E3,1*,99(E',1',999 L E1,68,99)

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

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

1 /raceable costs total E3,9,999, computed as follo"s:

/otal ost

$ercent

/raceable

/raceable

ost

$rofessional staff salariesTTT E3,9,999 69F E3,999,999dministrative support staffTT *9,999 29 '9,999$hotocopyingTTTTTTTT ,999 89 2,99/ravelTTTTTTTTTTTT 3,999 89 33,99;ther operating costsTTTTT 19,999 9 ,999

/otalTTTTTTTTTTT E*,699,999 E3,9,999

4olden 5tate ?nterprisesQ overhead (ie, the nontraceable costs) total E1,99,999

(E*,699,999 - E3,9,999)

' $redetermined overhead rate J budgeted overhead S traceable costs J E1,99,999 S E3,9,999 J '6F of traceable costs

3 /arget profit percentage J target profit S total cost J E829,999 S E*,699,999 J '9F of cost


3"$5 Solutions Manual


31/63

$C;A.?+ 3-*6 (;D/IDU?@)

* /he total cost of the @avis +anufacturing pro&ect is E82,999, and the billing is E11,'99,as follo"s:

$rofessional staff salariesTTTT E21,99dministrative support staffTTT 3,899$hotocopyingTTTTTTTTTT 9/ravelTTTTTTTTTTTTT 2,9;ther operating costsTTTTTT ',199

5ubtotalTTTTTTTTTTT E,999;verhead (E,999 x '6F)TTTT '1,999

/otal costTTTTTTTTTT E82,999+ar!up (E82,999 x '9F)TTTTT 18,'99Ailling to @avisTTTTTTTTT E11,'99

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

2 $rofessional staff members are compensated for attending training sessions and firm-"ide planning meetings, paid vacations, and completion of general, non-client-relatedpaper"or! and reports /hese activities benefit multiple clients, the consultant, andGorthe overall firm, ma!ing traceability to specific clients difficult if not impossible


Managerial Accounting, 8/e 3-$!


32/63

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

1 SPERIOR/ETA&SSC2E4&EO3COSTO36OO4S/AN3ACTRE4


@irect material:Ca" material inventory, 1'G31Gx3 E 22,9dd: $urchases of ra" material *6,'9Ca" material available for use E21,999@educt: Ca"-material inventory, 1'G31Gx* **,'9Ca" material used E9,9

@irect labor 3,99+anufacturing overhead:

Indirect material E 33,9

Indirect labor 11',99@epreciation on factory building 83,9@epreciation on factory euipment *,999Utilities ',99$roperty taxes 2,99Insurance 39,999

/otal actual manufacturing overhead E*3,999@educt: Underapplied overhead 1,6

;verhead applied to "or! in process *33,1'/otal manufacturing costs E1,38,3

dd: 0or!-in-process inventory, 1'G31Gx3 -9-5ubtotal E1,38,3@educt: 0or!-in-process inventory, 1'G31Gx* 39,999ost of goods manufactured E1,3'8,3

/he 5chedule of ost of 4oods +anufactured lists the manufacturing costs applied to "or!in process /herefore, the underapplied overhead, E1,6, must be deducted from total actualoverhead to arrive at the amount of overhead applied to "or! in process If there had beenoverapplied overhead, the balance "ould have been added to total manufacturing overhead

/he amount of underapplied overhead is found by subtracting the applied

manufacturing overhead, E*33,1', from the total actual manufacturing overhead, E*3,999


3"$# Solutions Manual


33/63

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

' SPERIOR/ETA&SSC2E4&EO3COSTO36OO4SSO&4


%inished-goods inventory, 1'G31Gx3 E '2,'9dd: cost of goods manufactured 1,3'8,3ost of goods available for sale E1,3,2'@educt: %inished-goods inventory, 1'G31Gx* 39,999ost of goods sold E1,3',2'dd: Underapplied overhead 1,6ost of goods sold (ad&usted for underapplied overhead) E1,3',99

/he company closes underapplied or overapplied overhead into cost of goods sold 7encethe E1,6 balance in underapplied overhead is added to cost of goods sold for the month

3 SPERIOR/ETA&SINCO/ESTATE/ENT


5ales revenue E1,6,9.ess: ost of goods sold 1,3',994ross margin E '1,'9

5elling and administrative expenses '91,9Income before taxes E *8,99

Income tax expense 16,9Det income E 39,9

* /he electronic version of the 5olutions +anual


34/63

$C;A.?+ 3-9 (1 +IDU/?5)

1 E39,999 5ince there "as no "or!-in-process inventory at the beginning of '9x*, all of thecosts in the year-end "or!-in-process inventory "ere incurred during '9x*

' /he direct-material cost "ould have been larger, probably by roughly 39 percent,because direct material is a variable cost

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

* ;nly the E'',99 of euipment depreciation "ould have been included inmanufacturing overhead on the 5chedule of ost of 4oods +anufactured /he E'',99of depreciation related to selling and administrative euipment "ould have beentreated as a period cost and expensed during '9x*


3"$% Solutions Manual


35/63

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

1

rhoumachineperE''28,199

E1,'9,'99

hoursmachinebudgeted


' ournal entries:

(a) Ca"-+aterial Inventory 6,'*9ccounts $ayable 6,'*9

(b) 0or!-in-$rocess Inventory 182Ca"-+aterial Inventory 182

(c) +anufacturing ;verhead 3'+anufacturing-5upplies Inventory 3'

(d) +anufacturing ;verhead 899ash 899

(e) 0or!-in-$rocess Inventory 3,990ages $ayable 3,99

(f) 5elling and dministrative ?xpense ',199

$repaid Insurance ',199

(g) Ca"-+aterial Inventory ',699ccounts $ayable ',699

(h) ccounts $ayable 1,69ash 1,69


Managerial Accounting, 8/e 3-$(


36/63

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

(i) +anufacturing ;verhead 18,9990ages $ayable 18,999

(&) +anufacturing ;verhead 6,99ccumulated @epreciation: ?uipment 6,99

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

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

pplied manufacturing overhead J 2,99 machine hoursE'' per hour

(m) ccounts Ceceivable 161,9995ales Cevenue 161,999

ost of 4oods 5old 1*',99%inished-4oods Inventory 1*',99

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

1 In accordance "ith the 5tandards of ?thical onduct for +anagement ccountants,the appropriateness of +arc ac!sonQs three alternative courses of action is describedas follo"s:

Follow Brown's directive and do nothing urther! /his action is inappropriate as

ac!son has ethical responsibilities to ta!e further action in accordance "ith thefollo"ing standards of ethical conduct

"o#$etence! +anagement accountants have a responsibility to perform their

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

%ntegrit&! +anagement accountants should (1) refrain from either actively orpassively subverting the attainment of the organi#ations legitimate and ethicalob&ectives, (') communicate favorable as "ell as unfavorable information, and (3)refrain from engaging in or supporting any activity that "ould discredit theprofession


3"$) Solutions Manual


37/63

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

()ectivit&! +anagement accountants have a responsibility to communicate

information fairly and ob&ectively, and to disclose fully all relevant information thatcould reasonably be expected to influence an intended users understanding of thereports presented

*tte#$t to convince Brown to #a+e the $ro$er ad)ust#ents and to advise the

eternal auditors o her actions!/his action is appropriate as ac!son has ta!enthe ethical conflict to his immediate superior for resolution Unless ac!sonsuspects that his superior is involved, this alternative is the first step for theresolution of an ethical conflict

-ell the *udit "o##ittee o the Board o .irectors a(out the $ro(le# and give

the# the a$$ro$riate accounting data!/his action is not appropriate as a first stepsince the resolution of ethical conflicts reuires ac!son to first discuss the matter

"ith his immediate superior

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


38/63

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

1 /ARVE&OS/ARS2/A&&OWCO/PAN.SC2E4&EO3COSTO36OO4S/AN3ACTRE4

3ORT2E/ONT2O3-ANAR.

@irect material:Ca"-material inventory, anuary 1 E 3*,999dd: anuary purchases of ra" material ''2,999Ca" material available for use E'29,999@educt: Ca"-material inventory, anuary 31 ',999Ca" materials used E'96,999

@irect labor 3'9,999+anufacturing overhead applied (9F of direct labor) 129,999/otal manufacturing costs E266,999

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

69,9995ubtotal E26,999

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

anuary 31 (89FE69,999) ',999

ost of goods manufactured E282,999P

0or! up"ard from the bottom of the statement, using the information available @irect laborL manufacturing overhead J total manufacturing costs K direct material cost J E266,999 K E'96,999 J E*69,999 5ince manufacturing overhead J 9F of direct labor, thenmanufacturing overhead J E129,999 and direct labor J E3'9,999

Post of goods manufactured J cost of goods sold L increase in finished-goods inventoryJ E289,999 L E2,999 J E282,999


3"$+ Solutions Manual


39/63

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

' /ARVE&OS/ARS2/A&&OWCO/PAN.SC2E4&EO3PRI/ECOSTS

3ORT2E/ONT2O3-ANAR.

Ca" material:Aeginning inventory E 3*,999dd: $urchases ''2,999Ca" material available for use E'29,999@educt: ?nding inventory ',999

Ca" material used E'96,999@irect labor 3'9,999/otal prime costs E'6,999

3 /ARVE&OS/ARS2/A&&OWCO/PAN.SC2E4&EO3CONVERSIONCOSTS

3ORT2E/ONT2O3-ANAR.

@irect labor E3'9,999+anufacturing overhead applied (9F of direct labor) 129,999/otal conversion cost E*69,999

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

1

hourmachineperE21,999

E392,999

hoursmachinebudgeted


' alculation of applied manufacturing overhead:

pplied manufacturing overhead J machine hrs used x predetermined overhead rate E32,999 J 2,999 hrs x E2 per hr

3 Underapplied overhead J actual overhead K applied overhead

E',999 J E36,999 K E32,999

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


Managerial Accounting, 8/e 3-$,


40/63

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

(a) alculation of proration amounts:

ccount ?xplanation mount $ercentagealculation

of $ercentage0or! in $rocess ob A18 only E19,699 39F 19,699 32,999%inished 4oods ob /'6 only 16,999 9F 16,999 32,999ost of 4oods

5old ob +9 only ,'99 '9 F ,'99 32,999/otal E32,999 199 F

+achine hours used on &obpredetermined overhead rate

ccountUnderapplied

;verhead

$ercentagemount dded

to ccount

0or! in $rocess E',999

39F E 299

%inished 4oods ',999

9F 1,999

ost of 4oods 5old ',999

'9F *99

/otal E',999

(b) ournal entry:

0or!-in-$rocess Inventory 299%inished-4oods Inventory 1,999ost of 4oods 5old *99

+anufacturing ;verhead ',999


3"%5 Solutions Manual


41/63

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

1 $redetermined overhead rate:

11,999

E,999

hourslabor-directAudgeted

overheadingmanufacturAudgeted

= E99 per direct-labor hour

E,999 J E3*,999 L E'39,999

' ost of &ob :

ost in beginning "or!-in-process inventory E196,999@irect material 89,999

@irect labor (,999 hoursE'*99 per hour) 126,999

pplied manufacturing overhead

(,999 hoursE99 per hour) 3,999

/otal cost E*91,999

houperE'*991,999

E*96,999

hourslabor-direct

"ageslabor-directratelabor-@irectI ===

3 +anufacturing overhead applied to &ob 8:

@irect-labor hourspredetermined overhead rate = *,999 hoursE99 per hour

= E'9,999


Managerial Accounting, 8/e 3-%!


42/63

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

* /otal manufacturing overhead applied during Dovember:

/otal direct-labor hourspredetermined overhead rate = 1,999 hoursE99= E6,999

ctual manufacturing overhead incurred during Dovember:

Indirect material (supplies) E'*,999Indirect-labor "ages 39,9995upervisory salaries 1',999Auilding occupancy costs, factory facilities 1',699$roduction euipment costs 12,'99

/otal E8,999

2 Underapplied overhead for Dovember:

ctual manufacturing overhead K applied manufacturing overhead

= E8,999 K E6,999

= E19,999 underapplied


3"%# Solutions Manual


43/63

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

1

Huarter$redetermined;verhead Cate alculations

1st E6 per hour

E*99,999G9,999'nd 19 per hour E3'9,999G3',9993rd 6 per hour E'99,999G',999*th 19 per hour E'69,999G'6,999

'%ebruary +ay

@irect material E299 E299@irect labor 3*9 3*9+anufacturing overhead:

'9 hrsE6 per hr 129'9 hrsE19 per hr '99

/otal cost E1,199 E1,1*9

3%ebruary +ay

/otal cost E1,199 E1,1*9+ar!up (19F) 119 11*$rice E1,'19 E1,'*

*hourslabor-directbudgetedannual

overheadingmanufacturbudgetedannualratened$redetermi =

(rounded)hourperE66813,999

E1,'99,999

%ebruary +ay

@irect material E 29999 E 29999@irect labor 3*999 3*999

+anufacturing overhead ('9 hrs E668) 1 69 1 69

/otal cost E1,11 69 E1,11 69


Managerial Accounting, 8/e 3-%$


44/63

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

2 /otal cost E1,1169+ar!up (19F) 111 6$rice E1,''8 6

Dotice that "ith uarterly overhead rates, the firm may underprice its product in %ebruary andoverprice it in +ay


3"%% Solutions Manual


45/63

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

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

1 E2*6,999 2 E169,999

' E,999 E*9,9993 E'19,999 6 E1'9,999* E11*,999 8 E*,999 E'*9,999 19 ero

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

Ca"-+aterial Inventory ccounts $ayableAal 6G31 *,999 32,999 Aal 6G31

'19,999 1'9,999 '*3,999 '19,999

Aal 8G39 13,999 3,999 Aal 8G39

0or!-in-$rocess Inventory %inished-4oods InventoryAal 6G31 '*,999 Aal 6G31 19,999@irect *9,999 *9,999 *9,999

material 1'9,999 Aal 8G39 1,999@irect

labor '*9,999 ost of 4oods 5old;verhead 169,999 *9,999Aal 8G39 11*,999

+anufacturing ;verhead 5ales Cevenue169,999 169,999 2*6,999

0ages $ayable ccounts Ceceivable 3,999 Aal 6G31 Aal 6G31 '*,999

'36,99 '*9,999 2*6,999 21,999 *,99 Aal 8G39 Aal 8G39 ,999

5upporting alculations:

1 5ales revenue J cost of goods sold1'9F

J E*9,9991'9F J E2*6,999


Managerial Accounting, 8/e 3-%(


46/63

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

' ?nding balance in accounts receivable J beginning balance L sales revenueK collections

J E'*,999 L E2*6,999 K E21,999

J E,999

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

ddition to accounts payable J ending balance L paymentsK beginning balance

J E3,999 L E'*3,999 K E32,999

J E'19,999

* 5eptember 39 balance in"or!-in-process inventory

J directmaterial

L directlabor

L manufacturingoverhead

J E21,99 L (1,99)(E'9) L (1,99)(E1)

J E11*,999

$redetermined overhead rate J Phourslabor-directbudgeted

overheadbudgeted

J 1**,999

E',129,999

J E1 per direct-labor hour

PAudgeted direct-labor hours Jratelabor-direct

costlabor-directbudgeted=

1**,999E'9

E',669,999

ddition to "or! in processfor direct labor J

5eptember credit to"ages payable

5eptember credit to"ages payable J ending balance L payments K beginning balance

J E*,99 L E'36,99 E3,999 J E'*9,999


3"%) Solutions Manual


47/63

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

2 5eptember applied overhead J direct labor hourspredetermined overhead rate

J 1',999E1

J E169,999

@irect labor hours Jratelabor-direct

labordirectforprocessin"or!toaddition

J hours1',999E'9

E'*9,999

ost of goods completedduring 5eptember J

beginning

balance in"or! inprocess

L

additions

duringDovember

K

ending balance in

"or! in process

J E'*,999 L (E1'9,999 L E'*9,999 L E169,999) K E11*,999

J E*9,999

6 Ca" material used in5eptember J

5eptember credit to ra"-material inventory J E1'9,999 (given)

8 ugust 31 balance inra"-material inventory J 5eptember 39balance in ra"-material inventory

L directmaterialused

K purchases

J E13,999 L E1'9,999 K E'19,999

J E*,999

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

J E169,999 K E169,999 J 9


Managerial Accounting, 8/e 3-%*


48/63

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

1

hourlabor-directperE'''1,999

E*2',999

hourslabor-directbudgeted


' ournal entries:

(a) Ca"-+aterial Inventory 2,999ccounts $ayable 2,999

(b) Ca"-+aterial Inventory ,'99ccounts $ayable ,'99

(c) 0or!-in-$rocess Inventory 11,339Ca"-+aterial Inventory 11,339

('29 s ftE9 per s ft) L (1,199 lbsE8 per lb)

+anufacturing ;verhead 1'9

+anufacturing-5upplies Inventory 1'9

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

(d) 0or!-in-$rocess Inventory 32,999

+anufacturing ;verhead 1*,199

0ages $ayable 9,199

0or!-in-$rocess Inventory 38,299+anufacturing ;verhead 38,299

pplied manufacturing overhead J 1,699 direct-labor hoursE'' per hour

(e) +anufacturing ;verhead 13,999ccumulated @epreciation: Auilding and

?uipment 13,999

(f) +anufacturing ;verhead 1,3*9ash 1,3*9


3"%+ Solutions Manual


49/63

$C;A.?+ 3-6 (;D/IDU?@)

(g) +anufacturing ;verhead ',*99ccounts $ayable ',*99

(h) +anufacturing ;verhead ',39ash ',39

(i) +anufacturing ;verhead ',899$repaid Insurance ',899

(&) 5elling and dministrative ?xpenses ,99ash ,99

(!) 5elling and dministrative ?xpenses *,99ccumulated @epreciation: Auildings and?uipment *,99

(l) 5elling and dministrative ?xpenses 1,19ash 1,19

(m) %inished-4oods Inventory 3,139

0or!-in-$rocess Inventory 3,139

ost of ob /8:

@irect material ('29E9) E 1,*39

@irect labor (69E'9) 1,999

+anufacturing overhead (69E'') 16,99

/otal cost E3,139

(n) ccounts Ceceivable ',329

5ales Cevenue ',329

(2 ')E'9 per trombone

ost of 4oods 5old 16,2

%inished-4oods Inventory

16,2

16,2 J E3,139 '


Managerial Accounting, 8/e 3-%,


50/63

$C;A.?+ 3-6 (;D/IDU?@)

3 /-accounts and posting of &ournal entries:

ash ccounts $ayable

Aal 11,999 1*,99 Aal1,3*9 (f) 2,999 (a)',39 (h) ,'99 (b),99 (&) ',*99 (g)1,19 (l)

ccounts Ceceivable 0ages $ayableAal '9,999 6,99 Aal(n) ',329 9,199 (d)

ccumulated @epreciation:$repaid Insurance Auildings and ?uipment

Aal 2,999 88,999 Aal',899 (i) 13,999 (e)

*,99 (!)

+anufacturing-5upplies Inventory +anufacturing ;verheadAal 299 (c) 1'9 38,299 (d)

1'9 (c) (d) 1*,199(e) 13,999(f) 1,3*9(g) ',*99(h) ',39(i) ',899

Ca"-+aterial Inventory ost of 4oods 5oldAal 19,999 (n) 16,2(a) 2,999 11,339 (c)(b) ,'99

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

Aal 68,999 (&) ,99(c) 11,339 3,139 (m) (!) *,99(d) 32,999 (l) 1,19(d) 38,299


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$C;A.?+ 3-6 (;D/IDU?@)

%inished-4oods Inventory 5ales CevenueAal ''3,999 ',329 (n)(m) 3,139 16,2 (n)

* (a) alculation of actual overhead:

Indirect material (valve lubricant) E 1'9Indirect labor 1*,199@epreciation: factory building and euipment 13,999Cent: "arehouse 1,3*9Utilities ',*99$roperty taxes ',39

Insurance

',899/otal actual overhead E32,'39

(b) ;verapplied overhead J

overhead

ingmanufacturapplied

overhead

ingmanufacturactual

J E32,'39 K E38,299

J E3,39 overapplied

E38,299 J 1,699 direct-labor hoursE'' per hour

(c) +anufacturing ;verhead3,39ost of 4oods 5old 3,39


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$C;A.?+ 3-6 (;D/IDU?@)

BAN4WA.CO/PAN.SC2E4&EO3COSTO36OO4S/AN3ACTRE4

3ORT2E/ONT2O3OCTOBER

@irect material:Ca"-material inventory, ;ctober 1 E19,999dd: ;ctober purchases of ra" material 11,'99Ca" material available for use E121,'99@educt: Ca"-material inventory, ;ctober 31 1*8,69Ca" material used E 11,339

@irect labor 32,999

+anufacturing overhead:Indirect material E 1'9

Indirect labor 1*,199

@epreciation on factory building and euipment 13,999

Cent: "arehouse 1,3*9

Utilities ',*99

$roperty taxes ',39

Insurance ',899/otal actual manufacturing overhead E32,'39

dd: overapplied overhead 3,39;verhead applied to "or! in process 38,299

/otal manufacturing costs E 62,839

dd: 0or!-in-process inventory, ;ctober 1

68,9995ubtotal E1,839

@educt: 0or!-in-process inventory, ;ctober 31 136,699

ost of goods manufactured E 3,139P

/he 5chedule of ost of 4oods +anufactured lists the manufacturing costs a$$liedto "or!in process /herefore, the overapplied overhead, E3,39, must be added to actual overhead toarrive at the amount of overhead a$$liedto "or! in process during ;ctober

Post of ob /8, "hich "as completed during ;ctober


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2 BAN4WA.CO/PAN.SC2E4&EO3COSTO36OO4SSO&4


%inished-goods inventory, ;ctober 1 E''3,999dd: ost of goods manufactured 3,139ost of goods available for sale E'29,139@educt: %inished-goods inventory, ;ctober 31 '*1,2ost of goods sold E 16,2@educt: ;verapplied overhead 3,39ost of goods sold (ad&usted for overapplied overhead) E 1,18

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

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

BAN4WA.CO/PAN.INCO/ESTATE/ENT


5ales revenue E',329.ess: ost of goods sold 1,184ross margin E1',125elling and administrative expenses 13,19Income (loss) E (86)


Managerial Accounting, 8/e 3-($


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$C;A.?+ 3-8 ('9 +IDU/?5)

;A-;5/ C?;C@

ob Dumber /8 @escription /rombones

@ate 5tarted ;ctober @ate ompleted ;ctober '9

Dumber of Units ompleted 2

@irect +aterial@ate Ceuisition Dumber Huantity Unit $rice ost19G 11' '29 E9 E1,*39

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

19G6 to19G1'

19-96 through 19-1' 69 E'9 E1,999

+anufacturing ;verhead@ate ost @river (ctivity Aase) Huantity pplication Cate ost

19G6 to19G1'

@irect-labor hours 69 E'' E16,99

ost 5ummaryost Item mount

/otal direct material/otal direct labor/otal manufacturing overhead

E 1,*391,99916,99

/otal cost E3,139Unit cost E*66

5hipping 5ummary

@ate Units 5hippedUnits Cemaining

In Inventory ost Aalance;ctober 36 36 E16,2P

Counded

PE16,2 J E3,139 S '


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1 5chedule of budgeted overhead costs:

@epartment @epartment A

Variable overhead '1,999E1 E3,999

A '1,999E E19,999

%ixed overhead '19,999 '19,999/otal overhead E2,999 E31,999

4rand total of budgeted overhead ( L A): E66',999

hourperE'1*',999

E66',999

hourslabor-directbudgetedtotal

rateoverheadbudgetedtotalrateoverheadned$redetermi

' $roduct prices:

Aasic5ystem

dvanced5ystem

/otal cost E1,189 E1,2*9+ar!up, 19F of cost 118 12*$rice E1,398 E1,69*

3 @epartmental overhead rates:

@epartment @epartment AAudgeted overhead

(from reuirement 1) E2,999 E31,999Audgeted direct-labor hours '1,999 '1,999

$redetermined overhead rates E2,999 E31,999 '1,999 '1,999

E' per E1 perdirect-labor direct-labor

hour 7our


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* Cevised product costs:

Aasic dvanced

5ystem 5ystem@irect material E *9 E 899@irect labor 3'9 3'9+anufacturing overhead:

@epartment :

Aasic system E' 13

dvanced system 1E' *9

@epartment A:

Aasic system 1E1 ''

dvanced system E1 W WWWW

/otal E1,139 E1,99

Cevised product prices:

Aasic dvanced5ystem 5ystem

/otal cost E1,139 E1,99+ar!up, 19F of cost 113 19$rice E1,'*3 E1,69


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

+emorandum

@ate: /oday

/o: $resident, olor/ech orporation

%rom: I + 5tudent

5ub&ect: @epartmental overhead rates

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

costs /his approach resulted in a product cost of E1,189 for the basic system and a cost ofE1,2*9 for the advanced system Under the companys pricing policy of adding a 19 percentmar!up, this yielded prices of E1,398 for the basic system and E1,69* for the advancedsystem

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

most of its time in @epartment A, the inexpensive department /he advanced system spendsmost of its time in @epartment , the more expensive department /hus, using departmentaloverhead rates sho"s that the basic system costs less than "e had previously reali#edB theadvanced system costs more /he revised product costs are E1,139 and E1,99 for the basicand advanced systems, respectively 0ith a 19 percent mar!up, these revised product costsyield prices of E1,'*3 for the basic system and E1,69 for the advanced system 0e have beenoverpricing the basic system and underpricing the advanced system

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


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SO&TIONS TO CASES

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

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

readily identified "ith specific products, batches, contracts, or pro&ects

' /he only &ob remaining in Xidos 0or!-in-$rocess Inventory on @ecember 31 is@C511* /he dollar value of @C511* is calculated as follo"s:

@C511* balance, 11G39 E'9,999@ecember additions:

@irect material used E1'*,999$urchased parts 6,999@irect labor '99,99

+anufacturing overhead (18,99 hoursE9)

1*2,'9

,90or!-in-process inventory, 1'G31 E69,9

hourperE9

hours299,999

E*,99,999rateoverheading+anufacturI

=

=

3 /he dollar value of the playpens remaining in Xidos finished-goods inventory on@ecember 31 is E*,299, calculated as follo"s:

$laypen Units%inished-goods inventory, 11G39 18,*99Units completed in @ecember 1,999Units available for sale 3*,*99Units shipped in @ecember '1,999%inished-goods inventory, 1'G31 13,*99


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

5ince Xido uses the %I%; inventory method, all units remaining in finished- goodsinventory "ere completed in @ecember

Unit cost of playpens completed in @ecember:

0or! in process inventory, 11G39 E*'9,999@ecember additions:

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

+anufacturing overhead (*,*99 hoursE9) 33,999 89,999

/otal cost E19,999

Unit cost J completedunitscosttotal

J 1,999

E19,999

J E3* per unit

Value of finished-goodsinventory on 1'G31 J Unit costuantity

J E3*13,*99

J E*,299


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

1 +anufacturers use predetermined overhead rates to allocate to production &obs theproduction costs that are not directly traceable to specific &obs s a result,management "ill have timely and reasonably accurate &ob-cost information

$redetermined overhead rates are easy to apply and avoid fluctuations in &ob costscaused by changes in production volume or overhead costs throughout the year

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

+achine hourspredetermined overhead rate J overhead applied

3,999E39 J E',189,999

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

+achine hourspredetermined overhead rate J overhead applied

2,999E39 J E169,999

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

ctual overhead (E','99,999 L E18',999) E',38',999pplied overhead (E',189,999 L E169,999) (',39,999)

Underapplied overhead E '',999


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

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

Dovember 39 balance for ob Do D11-913 E119,999@ecember direct material 6,999@ecember direct labor '*,999

@ecember overhead (1,999E39) 39,999

/otal finished-goods inventory E1',999

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

OPTICO/0 INC1SC2E4&EO3COSTO36OO4S/AN3ACTRE4

3ORT2E.EAREN4E44ECE/BER$!

@irect material:Ca"-material inventory, 1G1 E '19,999Ca"-material purchases (E1,839,999 L E182,999) ',1'2,999Ca" material available for use E',332,999@educt: Indirect material used (E'9,999 L E16,999) E'26,999

Ca"-material inventory 1'G31 19,999 *36,999

Ca" material used E1,686,999@irect labor (E1,289,999 L E129,999) 1,69,999+anufacturing overhead:

Indirect material (E'9,999 L E16,999) E'26,999Indirect labor (E289,999 L E29,999) 9,999Utilities (E*89,999 L E**,999) 3*,999@epreciation (E9,999 L E9,999) 6*9,999/otal actual manufacturing overhead ',38',999@educt: Underapplied overhead '',999

;verhead applied to "or! in process E',39,999

/otal manufacturing costs E2,116,999dd: 0or!-in-process inventory, 1G1 1'9,9995ubtotal E2,'36,999@educt: 0or!-in-process inventory, 1'G31 399,*99ost of goods manufactured E,83,299

5upporting calculations follo"


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

5upporting calculations for "or! in process 1'G31:

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

@irect material E ,699 E ',999 E1',699@irect labor *9,999 33,299 3,299pplied overhead:

',99 hrsE39 ,999 ,999

699 hrsE39 WWWWWW '*,999 '*,999

/otal E189,699 E198,299 E399,*99

3OCS ON ET2ICS (5ee page 198 in the text)

@id Aoeing exploit accounting rules to conceal cost overruns and production snafusO

ccording to the circumstances alleged in the Business /ee+ article cited in the text(page 19), Aoeing did not handle its cost overruns, production problems, and the merger

"ith +c@onnell-@ouglas in a transparent manner Aoeing allegedly acted to conceal its"orsening operational problems through

Chap 003 hilton

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Transcript of Chap 003 hilton