Problem 2-25A (continued)
5. The amount of overhead cost in Work in Process was:
$24,000 direct materials cost × 160% = $38,400
The amount of direct labor cost in Work in Process is:
Total ending work in process ……………
$70,000
Deduct: Direct materials ………………..
$24,000
Manufacturing overhead ……..
38,400
62,400
Direct labor cost …………………………...
$ 7,600
The completed schedule of costs in Work in Process was:
Direct materials …………………………….
$24,000
Direct labor ………………………………….
7,600
Manufacturing overhead …………………
38,400
Work in process inventory ……………….
$70,000
Problem 2-26A (120 minutes)
1.
a.
Raw Materials ………………………………
Accounts Payable …………………….
200,000
b.
Work in Process …………………………...
Raw Materials ………………………….
185,000
c.
Manufacturing Overhead ………………..
Utilities Expense …………………………..
Accounts Payable …………………….
70,000
d.
Work in Process …………………………...
Manufacturing Overhead ………………..
Salaries Expense …………………………..
Salaries and Wages Payable ……….
430,000
e.
Manufacturing Overhead ………………..
Accounts Payable …………………….
54,000
f.
Advertising Expense ………………………
Accounts Payable …………………….
136,000
g.
Manufacturing Overhead ………………..
Depreciation Expense…………………….
Accumulated Depreciation ………….
95,000
h.
Manufacturing Overhead ………………..
Rent Expense ………………………………
Accounts Payable …………………….
120,000
i.
Work in Process …………………………...
Manufacturing Overhead ……………
390,000
Estimated total manufacturing overhead cost
Predetermined =
overhead rate Estimated total amount of the allocation base
$360,000
= = $400 per DLH
900 DLHs
975 actual DLH × $400 per DLH = $390,000
Problem 2-26A (continued)
j.
Finished Goods …………………………….
770,000
Work in Process ……………………….
770,000
k.
Accounts Receivable ………………………
1,200,000
Sales ……………………………………..
1,200,000
Cost of Goods Sold ………………………..
800,000
Finished Goods ………………………..
800,000
Problem 2-26A (continued)
2.
Accounts Receivable
Sales
(k)
1,200,000
(k)
1,200,000
Raw Materials
Cost of Goods Sold
Bal.
30,000
185,000
(k)
800,000
(a)
200,000
(b)
Bal.
45,000
Work in Process
Manufacturing Overhead
Bal.
21,000
(j)
770,000
(c)
63,000
(i)
390,000
(b)
185,000
(d)
90,000
(d)
230,000
(e)
54,000
(i)
390,000
(g)
76,000
Bal.
56,000
(h)
102,000
Bal.
5,000
Finished Goods
Advertising Expense
Bal.
60,000
(k)
800,000
(f)
136,000
(j)
770,000
Bal.
30,000
Accumulated Depreciation
Utilities Expense
(g)
95,000
(c)
7,000
Accounts Payable
Salaries Expense
(a)
200,000
(d)
110,000
(c)
70,000
(e)
54,000
Depreciation Expense
(f)
136,000
(g)
19,000
(h)
120,000
Salaries & Wages Payable
Rent Expense
(d)
430,000
(h)
18,000
Problem 2-26A (continued)
3.
Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning ……..
$ 30,000
Purchases of raw materials …………………
200,000
Materials available for use ………………….
230,000
Raw materials inventory, ending ………….
45,000
Materials used in production ……………….
$185,000
Direct labor ……………………………………….
230,000
Manufacturing overhead applied to work in
process ………………………………………….
390,000
Total manufacturing costs …………………….
805,000
Add: Work in process, beginning ……………
21,000
826,000
Deduct: Work in process, ending ……………
56,000
Cost of goods manufactured …………………
$770,000
4.
Manufacturing Overhead ………………………
5,000
Cost of Goods Sold …………………………
5,000
Schedule of cost of goods sold:
Finished goods inventory, beginning …….
$ 60,000
Add: Cost of goods manufactured ………..
770,000
Goods available for sale …………………….
830,000
Deduct finished goods inventory, ending .
30,000
Unadjusted cost of goods sold …………….
800,000
Deduct: Overapplied overhead …………….
5,000
Adjusted cost of goods sold ………………..
$795,000
Problem 2-26A (continued)
5.
Froya Fabrikker A/S
Income Statement
Sales ……………………………………………..
$1,200,000
Cost of goods sold …………………………….
795,000
Gross margin …………………………………..
405,000
Selling and administrative expenses:
Advertising expense ………………………..
$136,000
Utilities expense …………………………….
7,000
Salaries expense …………………………....
110,000
Depreciation expense ………………………
19,000
Rent expense …………………………..……
18,000
290,000
Net operating income ………………………..
$ 115,000
6.
Direct materials …………………………………………………
$ 8,000
Direct labor ………………………………………………………
9,200
Manufacturing overhead applied
(39 hours × $400 per hour) ………………………………
15,600
Total manufacturing cost …………………………………….
32,800
Add markup (60% × $32,800) ……………………………..
19,680
Total billed price of Job 412 …………………………..…….
$52,480
$52,480 ÷ 4 units = $13,120 per unit
Problem 2-27A (60 minutes)
1.
a.
Raw Materials ………………………………….
275,000
Cash …………………………………………
275,000
b.
Work in Process ……………………………….
220,000
Manufacturing Overhead ……………………
60,000
Raw Materials ……………………………..
280,000
c.
Work in Process ……………………………….
180,000
Manufacturing Overhead ……………………
72,000
Sales Commissions Expense ……………….
63,000
Salaries Expense ………………………………
90,000
Cash …………………………………………
405,000
d.
Manufacturing Overhead ……………………
13,000
Rent Expense ………………………………….
5,000
Cash …………………………………………
18,000
e.
Manufacturing Overhead ……………………
57,000
Cash …………………………………………
57,000
f.
Advertising Expense ………………………….
140,000
Cash …………………………………………
140,000
g.
Manufacturing Overhead ……………………
88,000
Depreciation Expense ………………………..
12,000
Accumulated Depreciation ……………..
100,000
h.
Work in Process ……………………………….
297,000
Manufacturing Overhead ……………….
297,000
Estimated total manufacturing overhead cost
Predetermined =
overhead rate Estimated total amount of the allocation base
$330,000 165% of
= =
direct labor cost
$200,000 direct labor cost
$180,000 actual direct labor cost × 165% = $297,000
Problem 2-27A (continued)
i.
Finished Goods ………………………………..
675,000
Work in Process …………………………..
675,000
j.
Cash ………………………………………………
1,250,000
Sales …………………………………………
1,250,000
Cost of Goods Sold …………………………...
700,000
Finished Goods …………………………...
700,000
2.
Raw Materials
Work in Process
Bal.
25,000
(b)
280,000
Bal.
10,000
(i)
675,000
(a)
275,000
(b)
220,000
Bal.
20,000
(c)
180,000
(h)
297,000
Bal.
32,000
Finished Goods
Manufacturing Overhead
Bal.
40,000
(j)
700,000
(b)
60,000
(h)
297,000
(i)
675,000
(c)
72,000
Bal.
15,000
(d)
13,000
(e)
57,000
(g)
88,000
Bal.
7,000
Cost of Goods Sold
(j)
700,000
3. Manufacturing overhead is overapplied by $7,000 for the year. The en-
Manufacturing Overhead ……………………………….
Cost of Goods Sold ………………………………….
Problem 2-27A (continued)
4.
Gold Nest Company
Income Statement
Sales ……………………………………………..
$1,250,000
Cost of goods sold
($700,000 – $7,000) ………………………..
693,000
Gross margin ……………………………………
557,000
Selling and administrative expenses:
Sales commissions ………………………….
$63,000
Administrative salaries ……………………..
90,000
Rent expense …………………………………
5,000
Advertising expense ………………………..
140,000
Depreciation expense ………………………
12,000
310,000
Net operating income ………………………..
$ 247,000
Problem 2-28A (60 minutes)
1. and 2.
Cash
Accounts Receivable
Bal.
63,000
(m)
785,000
Bal.
102,000
(l)
850,000
(l)
850,000
(k)
925,000
Bal.
128,000
Bal.
177,000
Raw Materials
Prepaid Insurance
Bal.
30,000
(b)
200,000
Bal.
9,000
(g)
7,000
(a)
185,000
Bal.
2,000
Bal.
15,000
Bal.
45,000
(j)
Bal.
(k)
(b)
170,000
(j)
550,000
(f)
82,000
Bal.
(i)
290,000
Bal.
37,000
Bal.
Bal.
(d)
Bal.
(b)
30,000
* (i)
(d)
(c)
72,000
(d)
63,000
(f)
(g)
(n)
Bal.
(g)
Problem 2-28A (continued)
Administrative Salaries Expense
Sales
(f)
95,000
(k)
925,000
Cost of Goods Sold
Accounts Payable
(k)
600,000
(n)
9,400
(m)
500,000
Bal.
160,000
(a)
185,000
Bal.
590,600
(c)
72,000
(e)
130,000
(h)
8,600
Bal.
55,600
Salaries & Wages Payable
(m)
285,000
(f)
287,000
Bal.
2,000
Capital Stock
Retained Earnings
Bal.
420,000
Bal.
270,000
3. Overhead is overapplied for the year by $9,400. Entry (n) above records
4.
Supreme Videos, Inc.
Income Statement
For the Year Ended December 31
Sales of videos …………………………………….
$925,000
Cost of goods sold ($600,000 – $9,400) …….
590,600
Gross margin ……………………………………….
334,400
Selling and administrative expenses:
Depreciation expense ………………………….
$ 21,000
Advertising expense …………………………...
130,000
Administrative salaries …………………………
95,000
Insurance expense ……………………………..
1,400
Miscellaneous expense ………………………..
8,600
256,000
Net operating income …………………………...
$ 78,400
Case (60 minutes)
1.
a.
Estimated total manufacturing overhead cost
Predetermined =
overhead rate Estimated total amount of the allocation base
$840,000 140% of direct
= = labor cost
$600,000 direct labor cost
b. $9,500 × 140% = $13,300
2.
a.
Fabricating
Department
Machining
Department
Assembly
Department
Estimated manufacturing
overhead cost (a) ………
$350,000
$400,000
$ 90,000
Estimated direct labor
cost (b) ……………………
$200,000
$100,000
$300,000
Predetermined overhead
rate (a) ÷ (b) ……………
175%
400%
30%
b.
Fabricating Department:
$2,800 × 175% ………………………..
$4,900
Machining Department:
$500 × 400% …………………………..
2,000
Assembly Department:
$6,200 × 30% ………………………….
1,860
Total applied overhead …………………
$8,760
3. The bulk of the labor cost on the Koopers job is in the Assembly De-
partment, which incurs very little overhead cost. The department has an
overhead rate of only 30% of direct labor cost as compared to much
higher rates in the other two departments. Therefore, as shown above,
© The McGraw-Hill Companies, Inc., 2016. All rights reserved.
Solutions Manual, Chapter 2 53
Case (continued)
bid too high and lost the job. Too much overhead cost was assigned to
the job for the kind of work being done on the job in the plant.
On jobs that require a large amount of labor in the Fabricating or Ma–
chining Departments the opposite will be true, and the company will
tend to charge too little overhead cost to the jobs if a plantwide over-
head rate is being used. The reason is that the plantwide overhead rate
(140%) is much lower than the rates would be if these departments
were considered separately.
4. The company’s bid was:
Direct materials …………………………………….
$ 4,600
Direct labor ………………………………………….
9,500
Manufacturing overhead applied (above) ……
13,300
Total manufacturing cost ………………………..
$27,400
Bidding rate …………………………………………
× 1.5
Total bid price ………………………………………
$41,100
Direct materials …………………………………….
$ 4,600
Direct labor ………………………………………….
9,500
Manufacturing overhead applied (above) ……
8,760
Total manufacturing cost ………………………..
$22,860
Bidding rate …………………………………………
× 1.5
Total bid price ………………………………………
$34,290
Note that if departmental overhead rates had been used, Teledex Com-
pany would have been the low bidder on the Koopers job because the
competitor underbid Teledex by only $2,000.
5.
a.
Actual overhead cost …………………………………
$864,000
Applied overhead cost ($580,000 × 140%) …….
812,000
Underapplied overhead cost ………………………..
$ 52,000
Case (continued)
b.
Department
Fabricating
Machining
Assembly
Total Plant
Actual overhead
cost ………………….
$360,000
$420,000
$84,000
$864,000
Applied overhead
cost: …………………
$210,000 × 175% .
367,500
$108,000 × 400% .
432,000
$262,000 × 30% …
78,600
878,100
Underapplied (over-
applied) overhead
cost ………………….
$ (7,500)
$ (12,000)
$ 5,400
$ (14,100)
Ethics Challenge (45 minutes)
1. Shaving 5% off the estimated direct labor-hours in the predetermined
overhead rate will result in an artificially high overhead rate. The artifi–
2. This question may generate lively debate. Where should Terri Ronsin’s
loyalties lie? Is she working for the general manager of the division or
for the corporate controller? Is there anything wrong with the “Christ-
mas bonus”? How far should Terri go in bucking her boss on a new job?
While individuals can certainly disagree about what Terri should do,
the IMA’s Statement of Ethical Professional Practice seem to be clear.
The Credibility Standard states that management accountants have a
responsibility to “disclose all relevant information that could reasonably
be expected to influence an intended user’s understanding of the re-
ports, analyses or recommendations.” In our opinion, Terri should dis-
Ethics Challenge (continued)
In the actual situation that this case is based on, the corporate control-
ler’s staff were aware of the general manager’s accounting tricks, but