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1092 Fundamental Accounting Principles, 21st Edition
Exercise 19-18 (35 minutes)
1. Estimated cost of the architectural job
Labor type
Estimated
hours
Hourly rate
Total cost
Architects ................................
150
$300
$ 45,000
Staff ................................
300
75
22,500
Clerical ................................
500
20
10,000
Total labor cost.........................................................................
77,500
Overhead @ 175% of direct labor cost ................................
135,625
Total estimated cost................................................................
$213,125
2. Frey should first determine an estimated selling price, based on its cost
and desired profit for this job.
Total estimated cost ................................................................
$213,125
Desired profit ............................................................................
80,000
Estimated selling price ............................................................
$293,125
This $293,125 price may or may not be its bid. It must consider past
experiences and competition. It might make the bid at the low end of
what it believes the competition will bid. By bidding at about $285,000,
the profit on the job will only be $71,875 ($285,000 – $213,125). While
this may allow Frey to get the job, it must consider several other factors.
Among them:
a. How accurate are its estimates of costs? If costs are understated,
the bid may be too low. This will cause profits to be lower than
anticipated. If costs are overestimated, it may bid too high and lose
the job.
Exercise 19-19 (15 minutes)
(1)
Raw Materials Inventory ...............................................
3,108
Accounts Payable ....................................................
3,108
To record raw material purchases.
Goods in Process Inventory* ................................
3,106
Raw Materials Inventory .........................................
3,106
To record raw materials used in production.
* The amount of raw materials used in production is computed from the Raw Materials
Inventory account. Beginning balance plus purchases minus ending balance equals
raw materials used in production, or (in millions), €83 + €3,108 - €85 = €3,106.
(2) The amount of materials purchased is almost equal to the amount of
1094 Fundamental Accounting Principles, 21st Edition
PROBLEM SET A
Problem 19-1A (80 minutes)
Part 1 Total manufacturing costs and the costs assigned to each job
306
307
308
April Total
From March
Direct materials ......................
$ 29,000
$ 35,000
Direct labor .............................
20,000
18,000
Applied overhead* .................
10,000
9,000
Beginning goods
in process ...........................
59,000
62,000
$ 121,000
For April
Direct materials ......................
135,000
220,000
$100,000
455,000
Direct labor ............................
85,000
150,000
105,000
340,000
Applied overhead* .................
42,500
75,000
52,500
170,000
Total costs added in April .........
262,500
445,000
257,500
965,000
Total costs ..............................
$321,500
$507,000
$257,500
$1,086,000
*Equals 50% of direct labor cost.
Part 2 Journal entries for April
a.
Raw Materials Inventory ................................................
500,000
Accounts Payable ....................................................
500,000
To record materials purchases.
Factory Payroll ...............................................................
363,000
Cash ...........................................................................
363,000
To record factory payroll.
Factory Overhead ...........................................................
50,000
Raw Materials Inventory ..........................................
50,000
To record indirect materials.
Factory Overhead ...........................................................
23,000
Factory Payroll .........................................................
23,000
To record indirect labor.
Factory Overhead ...........................................................
32,000
Cash ...........................................................................
32,000
To record factory rent.
Problem 19-1A (Continued)
a. [continued from prior page]
Factory Overhead ...........................................................
19,000
Cash ...........................................................................
19,000
To record factory utilities.
Factory Overhead ...........................................................
51,000
Accumulated Depreciation—Factory Equip ..........
51,000
To record other factory overhead.
b.
Goods in Process Inventory ..........................................
455,000
Raw Materials Inventory ..........................................
455,000
To assign direct materials to jobs.
Goods in Process Inventory ..........................................
340,000
Factory Payroll .........................................................
340,000
To assign direct labor to jobs.
Goods in Process Inventory ..........................................
170,000
Factory Overhead .....................................................
170,000
To apply overhead to jobs.
c.
Finished Goods Inventory (306 & 307) ..........................
828,500
Goods in Process Inventory ................................
828,500
To record jobs completed ($321,500 + $507,000).
d.
Cost of Goods Sold (306) ...............................................
321,500
Finished Goods Inventory ................................
321,500
To record cost of sale of job.
e.
Cash .................................................................................
635,000
Sales ..........................................................................
635,000
To record sale of job.
f.
Cost of Goods Sold ........................................................
5,000
Factory Overhead* ...................................................
5,000
To assign underapplied overhead.
*Overhead applied to jobs .....
$170,000
Overhead incurred
Indirect materials........................
$50,000
Indirect labor ..............................
23,000
Factory rent ................................
32,000
Factory utilities ...........................
19,000
Factory equip. depreciation. .....
51,000
175,000
Underapplied overhead .............
$ 5,000
1096 Fundamental Accounting Principles, 21st Edition
Problem 19-1A (Continued)
Part 3
CIOLINO COMPANY
Manufacturing Statement
For Month Ended April 30
Direct materials used ................................................................
$ 455,000
Direct labor used .........................................................................
340,000
Factory overhead
Indirect materials................................................................
$50,000
Indirect labor.............................................................................
23,000
Factory rent...............................................................................
32,000
Factory utilities .........................................................................
19,000
Depreciation of equipment ......................................................
51,000
175,000
Total manufacturing costs .........................................................
970,000
Add goods in process March 31 (Jobs 306 & 307) ...................
121,000
Total cost of goods in process ..................................................
1,091,000
Deduct goods in process, April 30 (Job 308) ...........................
(257,500)
Deduct underapplied overhead* ................................................
(5,000)
Cost of goods manufactured .....................................................
$ 828,500
*Alternatively, the underapplied overhead can be listed among factory overhead items.
Part 4
Gross profit on the income statement for the month ended April 30
Sales ..........................................................................................................
$ 635,000
Cost of goods sold ($321,500 + $5,000) ..................................................
(326,500)
Gross profit ...............................................................................................
$ 308,500
Presentation of inventories on the April 30 balance sheet
Inventories
Raw materials ..........................................................................................
$ 75,000*
Goods in process (Job 308).....................................................................
257,500
Finished goods (Job 307) ........................................................................
507,000
Total inventories ......................................................................................
$ 839,500
* Beginning raw materials inventory ................................
$ 80,000
Purchases ................................................................
500,000
Direct materials used ................................................................
(455,000)
Indirect materials used ................................................................
(50,000)
Ending raw materials inventory ................................
$ 75,000
Part 5
Overhead is underapplied by $5,000, meaning that individual jobs or batches of
jobs are under-costed. Thus, profits at the job (and batch) level are overstated.
Problem 19-2A (75 minutes)
Part 1
a.
Dec. 31
Goods in Process Inventory ................................
28,800
Raw Materials Inventory ................................
28,800
To record direct materials costs for
Jobs 402 and 404 ($10,200 + 18,600).
b.
Dec. 31
Goods in Process Inventory ................................
59,800
Factory Payroll .........................................................
59,800
To record direct labor costs for
Jobs 402 and 404 ($36,000 + $23,800).
c.
Dec. 31
Goods in Process Inventory ................................
119,600
Factory Overhead .....................................................
119,600
To allocate overhead to Jobs 402 and 404
at 200% of direct labor cost assigned.
d.
Dec. 31
Factory Overhead ...........................................................
5,600
Raw Materials Inventory ................................
5,600
To add cost of indirect materials
to actual factory overhead.
e.
Dec. 31
Factory Overhead ...........................................................
8,200
Factory Payroll .........................................................
8,200
To add cost of indirect labor to
actual factory overhead.
Part 2
Revised Factory Overhead account
Ending balance from trial balance .............................................
$115,000
debit
Applied to Jobs 402 and 404 ......................................................
(119,600)
credit
Additional indirect materials ......................................................
5,600
debit
Additional indirect labor .............................................................
8,200
debit
Underapplied overhead ..............................................................
$ 9,200
debit
Dec. 31
Cost of Goods Sold ........................................................
9,200
Factory Overhead .....................................................
9,200
To close underapplied overhead.
1098 Fundamental Accounting Principles, 21st Edition
Problem 19-2A (continued)
Part 3
FARINA BAY COMPANY
Trial Balance
December 31, 2013
Debit
Credit
Cash ...................................................................................
$102,000
Accounts receivable ..........................................................
75,000
Raw materials inventory * .................................................
45,600
Goods in process inventory ** .........................................
208,200
Finished goods inventory ................................................
15,000
Prepaid rent .......................................................................
3,000
Accounts payable .............................................................
$ 17,000
Notes payable ....................................................................
25,000
Common stock ................................................................
50,000
Retained earnings .............................................................
271,000
Sales ...................................................................................
373,000
Cost of goods sold ($218,000 + $9,200) ................................
227,200
Factory payroll ................................................................
0
Factory overhead ...............................................................
0
Operating expenses...........................................................
60,000
_______
Totals ..................................................................................
$736,000
$736,000
* Raw materials inventory
Balance per trial balance ................................................................
$80,000
Less: Amounts recorded for Jobs 402 and 404 ...............................
(28,800)
Less: Indirect materials ................................................................
(5,600)
Ending balance ...................................................................................
$45,600
** Goods in process inventory
Job 402
Job 404
Total
Direct materials .................
$ 10,200
$18,600
$ 28,800
Direct labor ........................
36,000
23,800
59,800
Overhead ...........................
72,000
47,600
119,600
Total cost ...........................
$118,200
$90,000
$208,200
Problem 19-2A (continued)
Part 4
FARINA BAY COMPANY
Income Statement
For Year Ended December 31, 2013
Sales ................................................................................................
$373,000
Cost of goods sold .........................................................................
(227,200)
Gross profit .....................................................................................
145,800
Operating expenses .......................................................................
(60,000)
Net income ......................................................................................
$ 85,800
FARINA BAY COMPANY
Balance Sheet
December 31, 2013
Assets
Cash ......................................................................................
$102,000
Accounts receivable ............................................................
75,000
Inventories
Raw materials inventory .....................................................
$ 45,600
Goods in process inventory...............................................
208,200
Finished goods inventory ..................................................
15,000
268,800
Prepaid rent ................................................................
3,000
Total assets ................................................................
$448,800
Liabilities and equity
Accounts payable ................................................................
$ 17,000
Notes payable ................................................................
25,000
Total liabilities ................................................................
42,000
Common stock ................................................................
50,000
Retained earnings ($271,000 + $85,800) ...............................
356,800
Total stockholders' equity ...................................................
406,800
Total liabilities and equity ...................................................
$448,800
1100 Fundamental Accounting Principles, 21st Edition
Problem 19-2A (concluded)
Part 5
This $5,600 error would cause the costs for Job 404 to be understated.
Since Job 404 is in process at the end of the period, goods in process
inventory and total assets would both be understated on the balance sheet.
Problem 19-3A (70 minutes)
Part 1
JOB COST SHEETS
Job No. 136
Job No. 138
Materials ..............
$ 48,000
Materials ..............
$ 19,200
Labor ...................
12,000
Labor ...................
37,500
Overhead .............
24,000
Overhead .............
75,000
Total cost ............
$ 84,000
Total cost ............
$131,700
Job No. 137
Job No. 139
Materials ..............
$ 32,000
Materials ..............
$ 22,400
Labor ...................
10,500
Labor ...................
39,000
Overhead .............
21,000
Overhead .............
78,000
Total cost ............
$ 63,500
Total cost ............
$139,400
Job No. 140
Materials ..............
$ 6,400
Labor ...................
3,000
Overhead .............
6,000
Total cost ............
$ 15,400
Part 2
a.
Raw Materials Inventory ................................................
200,000
Accounts Payable ....................................................
200,000
To record materials purchases.
b.
Factory Payroll ...............................................................
126,000
Cash ...........................................................................
126,000
To record factory payroll.
c.
Factory Overhead ...........................................................
15,000
Cash ...........................................................................
15,000
To record other factory overhead.
d.
Goods in Process Inventory ..........................................
128,000
Factory Overhead ...........................................................
19,500
Raw Materials Inventory ..........................................
147,500
To record direct & indirect materials.
1102 Fundamental Accounting Principles, 21st Edition
Problem 19-3A (Continued)
[continued from prior page]
e.
Goods in Process Inventory ..........................................
102,000
Factory Overhead ...........................................................
24,000
Factory Payroll .........................................................
126,000
To record direct & indirect labor.
f.
Goods in Process Inventory ..........................................
177,000
Factory Overhead .....................................................
177,000
To apply overhead to jobs
[($12,000 + $37,500 + $39,000) x 200%].
g.
Finished Goods Inventory .............................................
355,100
Goods in Process Inventory ................................
355,100
To record completion of jobs
($84,000 + $131,700 + $139,400).
h.
Accounts Receivable .....................................................
525,000
Sales ..........................................................................
525,000
To record sales on account.
Cost of Goods Sold ........................................................
215,700
Finished Goods Inventory ................................
215,700
To record cost of sales ($84,000 + $131,700).
i.
Factory Overhead ...........................................................
149,500
Accum. Depreciation—Factory Building ...............
68,000
Accum. Depreciation—Factory Equipment ...........
36,500
Prepaid Insurance ....................................................
10,000
Property Taxes Payable ...........................................
35,000
To record other factory overhead.
j.
Goods in Process Inventory ..........................................
27,000
Factory Overhead .....................................................
27,000
To apply overhead to jobs
[($10,500 + $3,000) x 200%].
Problem 19-3A (Continued)
Part 3
GENERAL LEDGER ACCOUNTS
Raw Materials Inventory
Factory Payroll
(a)
200,000
(d)
147,500
(b)
126,000
(e)
126,000
Bal.
52,500
Bal.
0
Goods in Process Inventory
Factory Overhead
(d)
128,000
(g)
355,100
(c)
15,000
(f)
177,000
(e)
102,000
(d)
19,500
(j)
27,000
(f)
177,000
(e)
24,000
(j)
27,000
(i)
149,500
Bal.
78,900
Bal.
4,000
Finished Goods Inventory
Cost of Goods Sold
(g)
355,100
(h)
215,700
(h)
215,700
Bal.
139,400
Bal.
215,700
Part 4
Reports of Job Costs*
Goods in Process Inventory
Job 137 ........................................
$ 63,500
Job 140 ........................................
15,400
Balance ........................................
$ 78,900
Finished Goods Inventory
Job 139 ........................................
$139,400
Balance ........................................
$139,400
Cost of Goods Sold
Job 136 ........................................
$ 84,000
Job 138 ........................................
131,700
Balance ........................................
$215,700
*Individual totals reconcile with account balances in part 3.
1104 Fundamental Accounting Principles, 21st Edition
Problem 19-4A (35 minutes)
Part 1
a. Predetermined overhead rate
b. Overhead costs charged to jobs
Direct
Applied
Job No.
Labor
Overhead (60%)
201 .........................................................................
$ 604,000
$ 362,400
202 .........................................................................
563,000
337,800
203 .........................................................................
298,000
178,800
204 .........................................................................
716,000
429,600
205 .........................................................................
314,000
188,400
206 .........................................................................
17,000
10,200
Total ................................................................
$2,512,000
$1,507,200
c. Overapplied or underapplied overhead determination
Actual overhead cost...........................................
$1,520,000
Less applied overhead cost ................................
1,507,200
Underapplied overhead ................................
$ 12,800
Part 2
Dec. 31
Cost of Goods Sold ........................................................
12,800
Factory Overhead ......................................................
12,800
To assign underapplied overhead.
Problem 19-5A (80 minutes)
JOB COST SHEET
Customer's Name
Worldwide Company
Job No.
102
Direct Materials
Direct Labor
Overhead Costs Applied
Date
Requisition
Number
Amount
Time
Ticket
Number
Amount
Date
Rate
Amount
#35
33,750
#1-10
90,000
May ---
80%
72,000
#36
12,960
SUMMARY OF COSTS
Dir. Materials ................................
46,710
Dir. Labor................................
90,000
Overhead ................................
72,000
Total cost of Job ................................
208,710
Total
46,710
Total
90,000
FI N I S H E D
JOB COST SHEET
Customer's Name
Reuben Company
Job No.
103
Direct Materials
Direct Labor
Overhead Costs Applied
Date
Requisition
Number
Amount
Time
Ticket
Number
Amount
Date
Rate
Amount
#37
17,500
#11-30
65,000
May ---
80%
52,000
#38
6,840
SUMMARY OF COSTS
Dir. Materials ................................
Dir. Labor................................
Overhead ................................
______
Total cost of Job ................................
.
Total
Total
1106 Fundamental Accounting Principles, 21st Edition
Problem 19-5A (Continued)
MATERIALS LEDGER CARD
Item
Material M
Received
Issued
Balance
Date
Receiving
Report
Units
Unit
Price
Total
Price
Requi-
sition
Units
Unit
Price
Total
Price
Units
Unit
Price
Total
Price
May 1
200
250
50,000
#426
250
250
62,500
450
250
112,500
#35
135
250
33,750
315
250
78,750
#37
70
250
17,500
245
250
61,250
MATERIALS LEDGER CARD
Item
Material R
Received
Issued
Balance
Date
Receiving
Report
Units
Unit
Price
Total
Price
Requi-
sition
Units
Unit
Price
Total
Price
Units
Unit
Price
Total
Price
May 1
95
180
17,100
#427
90
180
16,200
185
180
33,300
#36
72
180
12,960
113
180
20,340
#38
38
180
6,840
75
180
13,500
MATERIALS LEDGER CARD
Item
Paint
Received
Issued
Balance
Date
Receiving
Report
Units
Unit
Price
Total
Price
Requi-
sition
Units
Unit
Price
Total
Price
Units
Unit
Price
Total
Price
May 1
55
75
4,125
#39
15
75
1,125
40
75
3,000
