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SERIAL PROBLEM— SP 15
Serial Problem—SP 15, Business Solutions (40 minutes)
1.The cost of direct materials requisitioned in the month equals the total
direct materials costs accumulated on the three jobs less the amount of
direct materials cost assigned to Job 602 in May:
Job 602 ...........................................................................$1,500
Less prior costs............................................................. (600 ) $ 900
2.Direct labor cost incurred in the month equals the total direct labor
costs accumulated on the three jobs less the amount of direct labor cost
assigned to Job 602 in May:
Job 602 ........................................................................... $ 800
Less prior costs............................................................. (180 ) $ 620
Job 603 ........................................................................... 1,420
3.The predetermined overhead rate equals the ratio between the amount
of overhead assigned to the jobs divided by the amount of direct labor
cost assigned to them. Since the rate is assumed constant during the
year in this problem, and the same rate is used for all jobs within a
month, the ratio for any one of them equals the rate that was applied.
This table shows the ratio for jobs 602 and 604:
Job 602 Job 604
4. The cost transferred to finished goods in June equals the total costs of
the two completed jobs for the month, which are Jobs 602 and 603:
Job 602 Job 603 Total
Direct materials..................................... $1,500 $3,300 $4,800
Reporting in Action — BTN 15-1
1. We would anticipate that at least two types of costs will increase as a
percent of sales with Apple’s growth in sales. The first type is broadly
classed into variable costs. Variable costs are the usual operating costs
including selling, and administrative costs. Simply stated, it will cost
Apple to expand and operate in more markets. The second type of costs
2. Both types of costs identified in part 1 are likely to increase as Apple
increases sales. Examples of specific items include communication,
advertising, training, travel, and management costs. In addition, if
growth is sufficiently large to push Apple’s sales beyond its current
capacity, additional costs will be incurred in expanding property and
equipment assets.
3. Solution depends on the annual report information obtained.
Comparative Analysis — BTN 15-2
1. Actual inventory changes and operating cash flow effects as found on
the cash flow statement (amounts are in $millions)
Apple Current Year
One Year
Prior
Two Years
Prior
Inventory change..............................Increase Increase Decrease
Operating cash
flow effect from
inventory change..............................
Decrease of
$973
Decrease of
$15
Increase of
$275
Google Current Year
One Year
Prior
Two Years
Prior
2. A successful JIT system should reduce inventory levels. This reduction
in inventory should increase operating cash flows. In the solution of
part 1, notice that decreases in inventory yield increases in operating
cash flow, while increases in inventory yield decreases in operating
3. This is a one-time occurrence of a release of cash. However, this one-
time adjustment can yield a recurring impact on returns if such freed up
Ethics Challenge — BTN 15-3
Instructor note: This problem is designed to illustrate why the accounting professional
must be aware of management’s and employees’ biases when working with and relying
on accounting estimates and data.
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Suggested content outline
The obvious concern is that management is allocating more overhead to
Specifically, by allocating more overhead to government jobs, profits on
This type of abuse in overhead allocation is a real problem in practice. This
is why we hear of “$500 hammers” sold to the U.S. Government.
Communicating in Practice — BTN 15-4
Student notes should include but not be limited to the following points:
1. You recommend replacing the general accounting (periodic inventory)
system with a cost accounting (perpetual inventory) system—
specifically a job order cost accounting system. Cost accounting
systems provide product cost information as products are
2. This new system would require use of many different documents to
control the acquisition, use, and availability of materials. It also requires
documents for allocation of labor and overhead costs, and for finished
3. The focal point of the new system is the job cost sheet, which is used to
accumulate and tally costs of goods as produced for each specific job
Taking It to the Net — BTN 15-5
Instructor note: There is no single solution to this assignment.
The Website [amsi.com] provides details about what its job costing
software can provide to users. After careful examination, students can
write a report to the CEO, which may include the following points:
Features of the software (including the tools it offers)
Teamwork in Action — BTN 15-6
1. A medical clinic can be considered as appropriate for a job order cost
accounting system. This is because each patient is unique in many
ways, such as the type/location of the illness (skin, heart, lung, etc.),
2. In light of the differences identified in part 1, the doctors will consider
the individual characteristics of every patient in determining the type
and extent of treatment to be provided, the extent of counseling
Entrepreneurial Decision — BTN 15-7
1. A job cost sheet for a service company would likely not have any costs
for direct materials. A manufacturing company like Middleton Made
2. Examples of direct labor and overhead costs for Middleton Made Knives
include:
Direct Labor: Wages/salaries of knife-makers (assuming Quintin’s
business grows to add more laborers).
Hitting the Road — BTN 15-8
1. The framework for the job cost sheet should follow that in the third
exhibit in the chapter. This includes the descriptions for: company
name, date, quantity, etc. In addition, the direct costs should include
2. Results of the comparison of job cost sheets to a builder’s actual job
Global Decision — BTN 15-9
1. Actual inventory amounts and changes. Apple’s amounts are in $millions
and Samsung’s amounts are in millions of Korean won.
Apple ($millions)
Balance,
Current Year
Balance,
Prior Year
Change in
Inventory
Inventory...........................................$1,764 $791 $973 Increase
Samsung (₩millions)
Balance,
Current Year
Balance,
Prior Year
Change in
Inventory
Inventory...........................................₩19,134,868 ₩17,747,413 ₩1,386,755
Increase
2. A successful JIT system should reduce inventory levels. This reduction
in inventory should increase operating cash flows. In the solution of
part 1, notice that increases in inventory yield decreases in operating
cash flow; thus, decreases in inventory will yield increases in operating
3. We cannot definitively determine which company of the two would
benefit the most from JIT implementation. The benefit of JIT would
depend on the efficiencies gained from the implementation, which
