Teamwork in Action
1. The types of transactions that are posted to the accounts may be sum-
marized in T-account form as follows:
Raw Materials
Beginning balance
Purchases
Direct materials used (to Work in
Process)
Accounts Payable
Beginning balance
Payments to suppliers
Purchases of raw materials
Work in Process
Beginning balance
Direct materials used (from Raw
Materials)
Cost of goods manufactured (to
Finished Goods)
Direct labor
Manufacturing overhead applied
Manufacturing Overhead
Actual manufacturing costs
Manufacturing overhead applied
Overhead overapplied (to COGS)
Overhead underapplied (to COGS)
Finished Goods
Beginning balance
Cost of goods manufactured (from
WIP)
Cost of goods sold
Cost of goods sold
Teamwork in Action (continued)
2. The predetermined overhead rate and overhead applied amounts are:
Predetermined overhead rate:
3. The balance in the work in process account is determined as follows:
Direct materials (given) ……………………………..
$2,600
Direct labor (300 DLHs × $6 per DLH) …………..
1,800
Overhead applied (300 DLHs × $3 per DLH) …..
900
Total ……………………………………………………..
$5,300
4. The completed T-accounts follow:
Accounts Payable
(c)
Payments
40,000
(c)
Balance 4/1
6,000
(plug)
Purchases
42,000
(given)
Balance 4/30
8,000
Work in Process
(given)
Balance 4/1
4,500
(f)
Cost of goods
manufactured
89,000
(b,d)
Direct labor*
31,200
(above)
Overhead applied
15,600
(plug)
Direct materials
43,000
(above)
Balance 4/30
5,300
* 5,200 DLHs × $6 per DLH = $31,200
Raw Materials
(given)
Balance 4/1
12,000
(above)
Direct materials
43,000
(above)
Purchases
42,000
Balance 4/30
11,000
Teamwork in Action (continued)
Manufacturing Overhead
(given)
Actual costs for
April
14,800
(above)
Overhead ap-
plied
15,600
To cost of
goods sold
800
Overapplied
overhead
800
Finished Goods
(e)
Balance 4/1
11,000
(plug)
Cost of goods
sold
84,000
(f)
Cost of goods
manufactured
89,000
(given)
Balance 4/30
16,000
Cost of Goods Sold
(above)
Cost of goods
sold
84,000
(above)
Overapplied
overhead
800
83,200
Communicating in Practice
Date: Current date
To: Instructor
From: Student’s Name
Subject: Talk with a Controller
The student’s memorandum should address the following:
Chapter 2
Take Two Solutions
Exercise 2-1 (10 minutes)
The estimated total manufacturing overhead cost is computed as follows:
Y = $94,000 + ($2.00 per DLH)(18,000 DLHs)
Estimated fixed manufacturing overhead ………………
$ 94,000
Estimated variable manufacturing overhead: $2.00
per DLH × 18,000 DLHs ………………………………….
36,000
Estimated total manufacturing overhead cost …………
$130,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ……….
$130,000
÷ Estimated total direct labor hours (DLHs) ……
20,000
DLHs
= Predetermined overhead rate …………………..
$6.50
per DLH
Exercise 2-2 (10 minutes)
Actual direct labor-hours ………………………..
10,800
× Predetermined overhead rate ……………….
$23.40
= Manufacturing overhead applied ……………
$252,720
Exercise 2-3 (10 minutes)
1. Total direct labor-hours required for Job A-500:
Direct labor cost (a) ……………………………….
$108
Direct labor wage rate per hour (b) …………..
$12
Total direct labor hours (a) ÷ (b) ………………
9
Total manufacturing cost assigned to Job A-500:
Direct materials ……………………………………………….
$230
Direct labor …………………………………………………….
108
Manufacturing overhead applied ($24 per DLH × 9
DLHs) ………………………………………………………….
216
Total manufacturing cost ……………………………………
$554
2. Unit product cost for Job A-500:
Total manufacturing cost (a) ……………………
$554
Number of units in the job (b) ………………….
40
Unit product cost (a) ÷ (b) ………………………
$13.85
Exercise 2-6 (20 minutes)
1.
Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning……………
$12,000
Add: Purchases of raw materials ……………….
30,000
Total raw materials available ……………………
42,000
Deduct: Raw materials inventory, ending ……
25,000
Raw materials used in production ……………..
17,000
Less indirect materials included in manufac-
turing overhead …………………………………..
5,000
$ 12,000
Direct labor ………………………………………………
58,000
Manufacturing overhead applied to work in pro-
cess inventory …………………………………………
87,000
Total manufacturing costs …………………………...
157,000
Add: Beginning work in process inventory……….
56,000
213,000
Deduct: Ending work in process inventory ………
43,000
Cost of goods manufactured ………………………..
$170,000
2.
Cost of Goods Sold
Finished goods inventory, beginning ………………
$ 35,000
Add: Cost of goods manufactured …………………
170,000
Goods available for sale ………………………………
205,000
Deduct: Finished goods inventory, ending……….
42,000
Unadjusted cost of goods sold ……………………..
163,000
Add: Underapplied overhead ………………………..
4,000
Adjusted cost of goods sold …………………………
$167,000
Exercise 2-7 (10 minutes)
1.
Manufacturing overhead incurred (a) ………
$198,000
Actual direct labor-hours ………………………
11,500
× Predetermined overhead rate …………….
$18.20
= Manufacturing overhead applied (b) …….
$209,300
Manufacturing overhead overapplied
(a) – (b) …………………………………………
$(11,300)
2. Because manufacturing overhead is overapplied, the cost of goods sold
Exercise 2-8 (10 minutes)
Direct material …………………….
$10,000
Direct labor ………………………..
10,000
Manufacturing overhead:
$10,000 × 125% ……………….
12,500
Total manufacturing cost ……….
$32,500
Unit product cost:
$32,500 ÷ 1,000 units ………..
$32.50
Exercise 2-10 (10 minutes)
Yes, overhead should be applied to value the Work in Process inventory at
year-end.
Exercise 2-11 (30 minutes)
1. Mason Company’s schedule of cost of goods manufactured is as follows:
Direct materials:
Beginning raw materials inventory ………………
$ 7,000
Add: Purchases of raw materials …………………
118,000
Raw materials available for use …………………..
125,000
Deduct: Ending raw materials inventory ……….
8,000
Raw materials used in production ……………….
$117,000
Direct labor ………………………………………………
70,000
Manufacturing overhead ……………………………..
90,000
Total manufacturing costs …………………………...
277,000
Add: Beginning work in process inventory ……….
10,000
287,000
Deduct: Ending work in process inventory ……….
16,000
Cost of goods manufactured…………………………
$271,000
2. Mason Company’s schedule of cost of goods sold is as follows:
Beginning finished goods inventory ………….
$ 20,000
Add: Cost of goods manufactured ……………
271,000
Goods available for sale ………………………..
291,000
Deduct: Ending finished goods inventory ….
35,000
Unadjusted cost of goods sold ………………..
$256,000
Deduct: Overapplied overhead ……………….
10,000
Adjusted cost of goods sold ……………………
$246,000
3.
Mason Company
Income Statement
Sales ……………………………………………………..
$524,000
Cost of goods sold ($256,000 – $10,000) ……….
246,000
Gross margin ……………………………………………
278,000
Selling and administrative expenses:
Selling expenses …………………………………….
$140,000
Administrative expense …………………………...
63,000
203,000
Net operating income ………………………………..
$ 75,000
Exercise 2-12 (15 minutes)
1.
Actual manufacturing overhead costs ……..
$473,000
Manufacturing overhead cost applied:
19,400 MH × $25 per MH …………………..
485,000
Overapplied overhead cost ……………………
$ 12,000
2.
Direct materials:
Raw materials inventory, beginning ……..
$ 20,000
Add purchases of raw materials …………..
350,000
Raw materials available for use …………..
370,000
Deduct raw materials inventory, ending ..
30,000
Raw materials used in production ………..
340,000
Less indirect materials ……………………….
15,000
$325,000
Direct labor ……………………………………….
60,000
Manufacturing overhead cost applied to
work in process ……………………………….
485,000
Total manufacturing costs …………………….
870,000
Add: Work in process, beginning ……………
40,000
910,000
Deduct: Work in process, ending ……………
70,000
Cost of goods manufactured …………………
$840,000
Exercise 2-14 (20 minutes)
1. The estimated total manufacturing overhead cost is computed as fol-
lows:
Y = $650,000 + ($3.00 per MH)(120,000 MHs)
Estimated fixed manufacturing overhead ……………….
$650,000
Estimated variable manufacturing overhead: $3.00
per MH × 120,000 MHs …………………………………..
360,000
Estimated total manufacturing overhead cost …………
$1,010,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ……
$1,010,000
÷ Estimated total machine-hours (MHs) ……..
120,000
MHs
= Predetermined overhead rate (rounded) ….
$8.42
per MH
2. Total manufacturing cost assigned to Job 400:
Direct materials ……………………………………………….
$450
Direct labor …………………………………………………….
210
Manufacturing overhead applied ($8.42 per MH × 40
MHs) (rounded to the nearest dollar)………………….
337
Total manufacturing cost ……………………………………
$997
3. Computing underapplied/overapplied overhead:
Actual manufacturing overhead (a) ……….
$1,350,000
Actual machine-hours …………………………
146,000
× Predetermined overhead rate ……………
$8.42
= Manufacturing overhead applied (b) …..
$1,229,320
Underapplied overhead (a) – (b) …………..
$120,680
The closing entry would increase cost of goods sold by $120,680 and de-
crease net operating income by $120,680.
Exercise 2-18 (30 minutes)
1. The predetermined overhead rate is computed as follows:
Exercise 2-18 (continued)
4. When overhead is applied using a predetermined rate based on ma-
chine-hours, it is assumed that overhead cost is proportional to ma-
chine-hours. When the actual machine-hours turn out to be 75,000,