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Ethics Challenge — BTN 16-3
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Instructor note: The student’s solution will vary depending on the industry, product, and process
(1) First, the professional should read a quality trade journal in the selected
(2) The second step is to join an industry organization, such as a local
(3) The third step is to learn as much as one can from the management and
employees producing the product once one is engaged on a project.
This would include spending time on the shop floor and become
involved as a team member of, for example, product development.
1. The reason for the assistant’s confusion. Given the assistant’s
2. Since your company does not limit production to specific batches of
3. It is important to recognize that the cost object is the process, not the
4. In job order cost accounting, materials and labor used exclusively on
specific jobs are charged to the jobs as direct costs. Materials and
5. A process cost accounting system uses the concepts of direct and
6. Some costs classified as manufacturing overhead in a job order system
can be classified as direct costs in process cost accounting. For
example, depreciation of a machine used exclusively by one process is
a direct cost of that process.
16.14. (Note: The entries below are pro forma entries since information for
1.
Raw Materials Inventory ................................
#
Accounts Payable ....................................................
#
Purchased materials on credit.
2.
Work in Process Inventory ................................
#
Raw Materials Inventory ................................
#
To assign costs of direct materials
used in production departments.
3.
Factory Overhead...........................................................
#
Raw Materials Inventory ................................
#
To record indirect materials used.
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
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Financial and Managerial Accounting, 6th Edition
976
Teamwork in Action (concluded)
4.
No journal entry required
5.
Work in Process Inventory ................................
#
Factory Payroll Payable................................
#
To assign costs of direct labor used
in production.
6.
Factory Overhead...........................................................
#
Factory Payroll Payable................................
#
To record indirect labor as overhead.
7.
Factory Overhead ..........................................................
#
Prepaid Insurance ...................................................
#
Accrued Utilities Payable ................................
#
Cash ................................................................
#
Accum. Depreciation—Factory Equip ....................
#
To record manufacturing overhead incurred.
8.
Work in Process Inventory ................................
#
Factory Overhead.....................................................
#
Apply factory overhead costs
to production.
9a.
Work in Process Inventory-Blending ...........................
#
Work in Process Inventory-Roasting .....................
#
To record the transfer of partially complete
goods across processing departments.
9b.
Finished Goods Inventory ................................
#
Work in Process Inventory-Blending .....................
#
To record the transfer of completed
goods from blending to finished
goods inventory.
10.
Accounts Receivable .....................................................
#
Sales ................................................................
#
To record sale.
Cost of Goods Sold ........................................................
#
Finished Goods Inventory ................................
#
To record cost of goods sold.
1. Using separate process cost summary reports for each process
enables managers to better understand costs and make decisions. For
example, Kar’s Nuts adds nuts in its first process and other
2. If a business unnecessarily holds materials, it will be less profitable
than a company that maintains appropriate raw materials inventory
levels. First, the inventory requires costs for storage space. Second,
when inventory is perishable, additional costs must be incurred to
3. A hybrid system combines features of both process and job order
operations. Kar’s Nuts resembles a process operation in that each
flavor of trail mix goes through the same processing steps. On the
other hand, allowing customers to make their own unique flavors
would be similar to a job order operation. A hybrid costing system can
Hitting The Road — BTN 16-8
Instructor note: This assignment is designed to help students identify
specific costs in a service process costing system. The answers are likely
to be unique for each student. Below are a few suggestions. This problem
is also a review of cost classifications.
Cost
Description
Direct
Material
Direct
Labor
Overhead
Variable
Cost
Fixed
Cost
Manual
sorting
X
X
Heating and
cooling
X
X
Manually
moving mail
– within
department
X
X
If hired on
a temp.
basis
X
Full time
labor under
contract.
Manually
moving mail
– between
departments
X
X
If hired on
a temp.
basis
X
Full time
labor under
contract
Sorting
equipment
X
X
Rentals
X
X
Overhead allocation suggestions:
Not all components should be allocated the same. Some examples:
Heating cost can be allocated on square footage.
Rent cost on the value of floor space occupied.
1. Ratio of Cost of Goods Sold to Total Expenses
(₩ billions)
Current Year
Prior Year
Samsung .......................
₩137,696.3 /
₩191,907.6
= 71.8%
₩126,651.9 /
₩172,054.2
= 73.6%
(From BTN 16-2)
($ millions)
Current Year
Prior Year
Apple .............................
$106,606 /
$121,911
= 87.4%
$87,846 /
$101,267
= 86.7%
($ millions)
Current Year
Prior Year
Google ...........................
$25,858 /
$45,859
= 56.4%
$20,634 /
$37,415
= 55.1%
2. As a percentage of total expenses, Apple spends less on selling and
administrative expenses (and more on cost of goods sold) than does
