866 Financial & Managerial Accounting, 5th Edition
Problem 15-4B (35 minutes)
Part 1
a. Predetermined overhead rate
b. Overhead costs charged to jobs
Direct
Applied
Job No.
Labor
Overhead (50%)
625 ……………………………………………………....
$ 354,000
$177,000
626 ……………………………………………………....
330,000
165,000
627 ……………………………………………………....
175,000
87,500
628 ……………………………………………………....
420,000
210,000
629 ……………………………………………………....
184,000
92,000
630 ……………………………………………………....
10,000
5,000
Total …………………………………………………..…..
$1,473,000
$736,500
c. Overapplied or underapplied overhead determination
Actual overhead cost………………………………………………………
$725,000
Less applied overhead cost ………………………………………….…
736,500
Overapplied overhead ………………………………………………….…
$ (11,500)
Part 2
Dec. 31
Factory Overhead …………………………………………….…….
11,500
Cost of Goods Sold …………………………………….…….
11,500
To assign overapplied overhead.
Problem 15-5B (90 minutes)
JOB COST SHEET
Customer’s Name
Encinita Company
Job No.
450
Direct Materials
Direct Labor
Overhead Costs Applied
Date
Requisition
Number
Amount
Time
Ticket
Number
Amount
Date
Rate
Amount
#223
16,000
#1–10
40,000
June —
70%
28,000
#224
9,600
SUMMARY OF COSTS
Dir. Materials ……..……………………
25,600
Dir. Labor …………..………………
40,000
Overhead …………..………………
28,000
Total Cost of Job …………………………..
93,600
Total
25,600
Total
40,000
FI N I S H E D
JOB COST SHEET
Customer’s Name
Fargo, Inc.
Job No.
451
Direct Materials
Direct Labor
Overhead Costs Applied
Date
Requisition
Number
Amount
Time
Ticket
Number
Amount
Date
Rate
Amount
#225
8,000
#11–20
32,000
June—
70%
22,400
#226
4,800
SUMMARY OF COSTS
Dir. Materials ………..…………………
Dir. Labor ……………..……………
Overhead ……………..……………
______
Total cost of Job …..………………………
.
Total
Total
868 Financial & Managerial Accounting, 5th Edition
Problem 15–5B (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
June 1
120
200
24,000
#20
150
200
30,000
270
200
54,000
#223
80
200
16,000
190
200
38,000
#225
40
200
8,000
150
200
30,000
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
June 1
80
160
12,800
#21
70
160
11,200
150
160
24,000
#224
60
160
9,600
90
160
14,400
#226
30
160
4,800
60
160
9,600
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
June 1
44
72
3,168
#227
12
72
864
32
72
2,304
Problem 15-5B (Continued)
GENERAL JOURNAL
a.
Raw Materials Inventory ……………………………………..….
41,200
Accounts Payable …………………………………………….
41,200
To record materials purchases ($30,000+$11,200).
d.
Factory Payroll …………………………………………………..….
84,000
Cash …………………………..………………………………..….
84,000
To record factory payroll.
Factory Overhead ………………………………………………….
36,800
Cash …………………………..………………………………..….
36,800
To record other factory overhead.
e.
Finished Goods Inventory ………………………………….….
93,600
Goods in Process …………………………………………….
93,600
To record completion of jobs.
f.
Accounts Receivable ………………………………………….….
290,000
Sales …………………………………………………………….….
290,000
To record sales on account.
Cost of Goods Sold ……………………………………………….
93,600
Finished Goods Inventory …………………………….….
93,600
To record cost of sales.
h.
Goods in Process Inventory* ………………………………….
38,400
Factory Overhead ………………………………………………….
864
Raw Materials Inventory ………………………………..….
39,264
To record direct & indirect materials.
*($16,000 + $8,000 + $9,600 + $4,800)
i.
Goods in Process Inventory* ………………………………….
72,000
Factory Overhead ………………………………………………….
12,000
Factory Payroll ……………………………………………..….
84,000
To record direct & indirect labor.
*($40,000 + $32,000)
j.
Goods in Process Inventory …………………………..…..….
50,400
Factory Overhead …………………………………………….
50,400
To apply overhead ($28,000 + $22,400).
870 Financial & Managerial Accounting, 5th Edition
Problem 15-5B (Continued)
k. The ending balance in Factory Overhead is computed as:
Actual Factory Overhead
Miscellaneous overhead …………..
$36,800
Indirect materials ……………………..
864
Indirect labor …………………………...
12,000
Total actual factory overhead ……
49,664
Factory overhead applied ……………
50,400
Overapplied overhead …………………
$ (736)
SERIAL PROBLEM— SP 15
Serial Problem—SP 15, Success Systems (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 6.02 in May:
Job 6.02 ………………………………………………………………..
$1,500
Less prior costs ……………………………………………..……..
(600)
$ 900
Job 6.03 ………………………………………………………………..
3,300
Job 6.04 ………………………………………………………………..
2,700
Total materials used (requisitioned) ………………..……..
$6,900
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 6.02 in May:
Job 6.02 …………………………..…………………………….……..
$ 800
Less prior costs ……………………………………………..……..
(180)
$ 620
Job 6.03 …………………………..…………………………….……..
1,420
Job 6.04 …………………………..…………………………….……..
2,100
Total direct labor …………………………………………….……..
$4,140
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 6.02 and 6.04:
Job 6.02
Job 6.04
Overhead ………………………………………………..……
$ 400
$1,050
Direct labor …………………………..………………………
800
2,100
Predetermined overhead rate …………………..……
50%
50%
4. The cost transferred to finished goods in June equals the total costs of
the two completed jobs for the month, which are Jobs 6.02 and 6.03:
Job 6.02
Job 6.03
Total
Direct materials ………………………..…
$1,500
$3,300
$4,800
Direct labor …………………………..….…….
800
1,420
2,220
Overhead ………………………………….…….
400
710
1,110
Total transferred cost ……………….…….
$2,700
$5,430
$8,130
872 Financial & Managerial Accounting, 5th Edition
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 Polaris’s growth in domestic sales. The first type
is broadly classed into variable costs. Variable costs are the usual
operating costs including selling, and administrative costs. Simply
2. Both types of costs identified in part 1 are likely to increase as Polaris
expands into more markets. Examples of specific items include
communication, advertising, training, travel, and management costs. In
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 $thousands)
Polaris
Current Year
One Year
Prior
Two Years
Prior
Inventory change ………..………………
Increase
Increase
Decrease
Operating cash
flow effect from
inventory change ………..………………
Decrease of
$49,973
Decrease of
$56,612
Increase of
$42,997
Arctic Cat
Current Year
One Year
Prior
Two Years
Prior
Inventory change ………..………………
Decrease
Decrease
Decrease
Operating cash
flow effect from
inventory change ………..………………
Increase of
$20,587
Increase of
$40,003
Increase of
$2,798
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
3. This is a one-time occurrence of a release of cash. However, this one–
874 Financial & Managerial Accounting, 5th Edition
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
government jobs compared to open market bid contracts. There is no
obvious reason for such behavior other than a profit motive.
Specifically, by allocating more overhead to government jobs, profits on
government jobs will increase in relation to cost. Conversely, private
market jobs will show greater profits because more overhead is allocated
to government jobs and less to private jobs.
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.
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
manufactured whereas the current system does not. The new system
of a JIT system—that will free up funds to be devoted elsewhere.
2. This new system would require use of many different documents to
control the acquisition, use, and availability of materials. It also requires
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
order and job lot. You could prepare a sample and explain and illustrate
how the system determines unit costs as production is completed.
876 Financial & Managerial Accounting, 5th Edition
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
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
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
2. Examples of direct labor and overhead costs for Astor and Black
include:
Hitting the Road — BTN 15-8
1. The framework for the job cost sheet should follow that in the second
exhibit in the chapter. This includes the descriptions for: company
2. Results of the comparison of job cost sheets to a builder’s actual job
cost sheets depend on the builder chosen and the format used.
Global Decision — BTN 15-9
1. Actual inventory amounts and changes. KTM’s amounts are in Australian
dollars (thousands) and Piaggio’s amounts are in euros (thousands).
KTM ($ ‘000’s)
Balance,
Current Year
Balance,
Prior Year
Change in
Inventory
Inventory …………………….…….
$113,979
$108,910
$5,069
Increase
Operating cash
flow effect from
inventory change ………..………………
Decrease of
$5,069
Piaggio (€ ‘000’s)
Balance,
Current Year
Balance,
Prior Year
Change in
Inventory
Inventory …………………….…….
€236,998
€240,066
€3,068
Decrease
Operating cash
flow effect from
inventory change ………..………………
Increase of
€3,068
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
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