Chapter 06 – Fundamentals of Product and Service Costing
6-11
6-32. (15 min.) Process Costing: Opech, Inc.
Total
Shipped
Work-in–
Process,
May 31
Production:
Barrels (millions) ……………………..
300
270
30
Percentage complete ……………….
100%
70%
Equivalent barrels (millions) ………
291
270
21
Costs:
Materials (millions) …………………..
$5,000
Conversion costs (millions) ……….
6,640
Total cost incurred (millions) ……..
$11,640
Cost per equivalent barrel ……………
$40a
Cost assigned to product …………….
$11,640
$10,800b
$840c
a 291 equivalent units = 270 barrels shipped + 70% x 30 barrels in process.
a $40 = $11,640 ÷ 291 equivalent units.
b $10,800 = 270 equivalent units x $40.
c $840 = 21 equivalent units x $40.
Chapter 06 – Fundamentals of Product and Service Costing
6-12
6-33. (15 min.) Process Costing: Oholics, Ltd.
Total
Completed
Work-in–
Process,
April 30
Production:
Pounds ………………………………….
20,000
19,000
1,000
Percentage complete ……………….
100%
60%
Equivalent pounds …………………..
19,600a
19,000
600
Costs:
Materials ………………………………..
$29,700
Conversion costs …………………….
36,940
Total cost incurred …………………..
$66,640
Cost per equivalent pound …………..
$3.40b
Cost assigned to product …………….
$66,640
$64,600c
$2,040d
a 19,600 equivalent units = 19,000 pounds completed + 60% x 1,000 pounds in
process.
b $3.40 = $66,640 ÷ 19,600 equivalent units.
c $64,600 = 19,000 equivalent units x $3.40.
d $2,040 = 600 equivalent units x $3.40.
6-34. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings.
Predetermined overhead rate = $34.82 per direct labor hour.
Basic
Dominator
Units produced ………………….
1,000
250
Machine-hours…………………..
4,000
2,000
Direct labor-hours ………………
3,000
2,000
Direct materials …………………
$10,000
$3,750
Direct labor ……………………….
64,500
35,500
Manufacturing overhead ……..
Total Costs ……………………….
Burden Rate: …………………….
Total overhead ………………
$174,100
÷ Direct labor-hours …………
÷ 5,000
Chapter 06 – Fundamentals of Product and Service Costing
6-13
6-35. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings.
Predetermined overhead rate = 174.1% of direct labor cost.
Basic
Dominator
Units produced ………………….
1,000
250
Machine-hours…………………..
4,000
2,000
Direct labor-hours ………………
3,000
2,000
Direct materials …………………
$10,000
$3,750
Direct labor ……………………….
64,500
35,500
Manufacturing overhead ……..
Total Costs ……………………….
Burden Rate: …………………….
Total overhead ………………
$174,100
÷ Direct labor cost …………..
÷ $100,000
6-36. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings.
Predetermined overhead rate = $29.0167 per machine-hour (rounded).
Basic
Dominator
Total
Units produced ………………
1,000
250
1,250
Machine-hours……………….
4,000
2,000
6,000
Direct labor-hours …………..
3,000
2,000
5,000
Direct materials ……………..
$10,000
$3,750
$13,750
Direct labor ……………………
64,500
35,500
100,000
Manufacturing Overhead …
174,100
Total Costs ……………………
$287,850
Burden Rate: …………………
Total overhead …………..
$174,100
÷ Machine-hours ………….
÷ 6,000
=$29.0167
Chapter 06 – Fundamentals of Product and Service Costing
6-14
6-37. (20 Minutes) Predetermined Overhead Rates Tiger Furnishings.
6-38. (30 Minutes) Operations Costing: Howrley–David, Inc.
The unit costs are:
Fatboy: …………
$4,000
Screamer: …….
$5,000
Fatboy
Screamer
Total
Number of units …………………….
2,000
4,000
6,000
Materials cost per unit ……………
$2,000
$3,000
Costs …………………………………..
$ 4,000,000
$12,000,000
$16,000,000
Conversion costs:
Direct Labor ……………………..
$ 6,000,000
Indirect materials ………………
1,800,000
Other overhead ………………..
4,200,000
Total operation cost ………
$12,000,000
Conversion cost per unit in plant ……………………
($12,000,000 ÷ 6,000 units) =
$2,000 per unit.
Chapter 06 – Fundamentals of Product and Service Costing
6-15
Operation cost
(@ $2,000 per unit) ……………….
$4,000,000a
$8,000,000b
$12,000,000
Material cost …………………………
4,000,000
12,000,000
Total cost ……………………………..
$8,000,000
$20,000,000
Number of units …………………….
÷ 2,000
÷ 4,000
Unit cost ………………………………
$4,000
$5,000
a $4,000,000 = 2,000 units x $2,000 per unit.
b $8,000,000 = 4,000 units x $2,000 per unit.
6-39. (30 Minutes) Operations Costing: S. Lee Enterprises.
The unit costs are:
SL1: …………….
$2,200
SL2: …………….
$2,700
SL1
SL2
Total
Number of units …………………….
1,300
1,800
3,100
Materials cost per unit ……………
$900
$1,400
Costs …………………………………..
$ 1,170,000
$2,520,000
$3,690,000
Conversion costs:
Direct Labor ……………………..
$ 1,200,000
Indirect materials ………………
480,000
Other overhead ………………..
2,350,000
Total operation cost ………
$4,030,000
Conversion cost per unit in plant ……………………
($4,030,000 ÷ 3,100 units) =
$1,300 per unit.
Operation cost
(@ $1,300 per unit) ……………….
$1,690,000a
$2,340,000b
$4,030,000
Material cost …………………………
1,170,000
2,520,000
Total cost ……………………………..
$2,860,000
$4,860,000
Number of units …………………….
÷ 1,300
÷ 1,800
Unit cost ………………………………
$2,200
$2,700
a $1,690,000 = 1,300 units x $1,300 per unit.
b $2,340,000 = 1,800 units x $1,300 per unit.
Chapter 06 – Fundamentals of Product and Service Costing
6-16
6-40. (30 Minutes) Operations Costing: Organic Grounds.
The unit costs are:
Star: …………….
$10.60
Bucks: ………….
$12.60
Star
Bucks
Total
Number of pounds ………………...
5,000
20,000
25,000
Materials cost per pound ………..
$4.00
$6.00
Costs …………………………………..
$20,000
$120,000
$ 140,000
Conversion costs:
Direct Labor ……………………..
$ 50,000
Indirect materials ……………...
15,000
Other overhead ………………..
100,000
Total operation cost ……...
$165,000
Cost per pound in plant ………....
($165,000 ÷ 25,000 pounds) =
$6.60 per pound.
Conversion cost
(@ $6.60 per pound) ……………..
$33,000a
$132,000b
$165,000
Material cost ………………………...
20,000
120,000
Total cost ……………………………..
$53,000
$252,000
Number of pounds ………………...
÷ 5,000
÷ 20,000
Cost per pound ……………………..
$10.60
$12.60
Chapter 06 – Fundamentals of Product and Service Costing
6-17
Solutions to Problems
6-41. (30 Minutes) Product Costing: Tiger Furnishings.
The unit costs are: Basic: $186.80 and Dominator: $404.22
Basic
Dominator
Total
Direct materials ……………………………………………….…..
$10,000
$3,750
$13,750
Direct labor ……………………………………………………....
64,500
35,500
100,000
Manufacturing overhead
(@174.1% of Direct labor cost)a ……………………….….
112,295
61,805
174,100b
Total costs ……………………………………………………….
$186,795
$101,055
$287,850b
Units produced ………………………………………………..…..
÷ 1,000
÷ 250
Unit cost ……………………………………………………………..
$186.80
$404.22
a 174.1% = $174,100 ÷ $100,000.
b Adjusted for rounding error.
6-42. (30 Minutes) Product Costing: Tiger Furnishings.
The unit costs are: Basic: $190.57 and Dominator: $389.13
Basic
Dominator
Total
Direct materials ……………………………………….……..
$ 10,000
$3,750
$13,750
Direct labor ……………………………………………..……..
64,500
35,500
100,000
Manufacturing overhead
(@29.0167 per machine-hour) a ………………..……..
116,067b
58,033c
174,100
Total costs ……………………………………………………..
$ 190,567
$97,283
$287,850
Units produced ………………………………………..……..
÷ 1,000
÷ 250
Unit cost ……………………………………………………….
$ 190.57
$389.13
a $29.0167 per machine-hour = $174,100 ÷ 6,000 machine-hours.
b $116,067 = 4,000 machine-hours x $29.0167 per machine-hour.
c $58,033 = 2,000 machine-hours x $29.0167 per machine-hour.
Chapter 06 – Fundamentals of Product and Service Costing
6-18
6-43. (30 Minutes) Product Costing—Ethical Issues: Tiger Furnishings.
a. The unit costs are different because the two products use the machine hours and
direct labor costs in different proportions. The Basic model is more machine
intensive (it uses relatively more machine hours than labor compared to the
6-44. (30 Minutes) Two-Stage Allocation and Product Costing: Mets Products.
a. The overhead rates are $13.50 per machine hour and 45% of direct-materials cost.
Account
Machine-Hour
Related
Materials
Related
Utilities …………………………. ……………..
$ 6,000
Supplies …………………………………………….
$4,200
Machine depreciation and maintenance …
13,200
Purchasing and storing materials ………….
4,800
Miscellaneous ……………………………………..
5,100
________________________________
Total overhead ………………………………….
$ 24,300
$ 9,000
÷ Total machine hours ………………………….
÷ 1,800 hours
÷ Total materials cost …………………………...
÷ $20,000
Overhead rate …………………………………….
$13.50 / hour
45%
Chapter 06 – Fundamentals of Product and Service Costing
6-19
b. The cost per unit of output is $3.49 for baseball caps and $4.96 for T-shirts.
Baseball
Caps
T-shirts
Total
Machine hours used ………………………..…
1,000
800
1,800
Direct materials costs ………………….
$12,000
$8,000
$20,000
Direct labor costs ………………………
4,000
2,400
6,400
Manufacturing overhead costs ……….
Machine-hour related overheada ……..…………..
13,500
10,800
24,300
Materials-related overheadb ………………………..
5,400
3,600
9,000
Total cost …………………………………………………..
$34,900
$24,800
$59,700
Units produced ………………………..
÷ 10,000
÷ 5,000
15,000
Cost per unit …………………………..…………………..
$3.49
$4.96
6-45. (30 Minutes) Two-Stage Allocation and Product Costing: Owl-Eye
Radiologists.
a. The overhead rates are $46 per equipment hour and $50 per direct labor hour.
Account
Equipment-
Hour Related
Direct-Labor
Hour Related
Utilities …………………………. ………………..
$ 4,800
Supplies ……………………………………………….
$12,600
Indirect labor and supervision ………………….
20,400
Equipment depreciation and maintenance …
8,400
Miscellaneous ………………………………………..
3,360
________________________________
Total overhead …………………………………….
$ 16,560
$ 33,000
÷ Total equipment hours ………………………….
÷ 360 hours
÷ Total labor hours ………………………………….
÷ 660 hours
Overhead rate ……………………………………….
$46 per hour
$50 per hour