4-39
1. Adjusting entry for 12/31 payroll.
(a) Work-in–Process Control 3,850
Manufacturing Department Overhead Control 950
problem.
2. a-e An effective approach to this problem is to draw T-accounts and insert all the known
figures. Then, working with T-account relationships, solve for the unknown figures. Entries (a)
and (b) are posted into the T-accounts that follow.
Materials Control
Beginning balance 12/1
Purchases
1,200
65,400
59,000a
Materials requisitioned
Balance 12/30
7,600
a $1,200 + $65,400 – $7,600 = $59,000
(a) Direct materials requisitioned into work in process during December equals $59,000
because no materials are requisitioned on December 31.
Work-in–Process Control
Beginning balance 12/1
Direct materials $59,000
Direct manf. labor 76,500b
Manf. overhead
allocated 91,800b
5,800
227,300
225,000
Cost of goods manufactured
Balance 12/30
8,100
(a) Direct manuf. labor 12/31 payroll
3,850
(b) Manuf. overhead allocated 12/31
4,620c
Ending balance 12/31
16,570
b Direct manufacturing labor and manufacturing overhead allocated are unknown. Let x = Direct
manufacturing labor up to 12/30 payroll, then manufacturing overhead allocated up to 12/30
payroll = 1.20x
Use the T-account equation and solve for x:
$5,800 + $59,000 + x + 1.20x – $225,000 = $8,100
2.20x = $8,100 – $5,800 – $59,000 + $225,000 = $168,300
$168,300 $76,500
Total direct manufacturing labor for December = $80,350
Total manufacturing overhead allocated in December = 1.20 $80,350 = $96,420
Finished Goods Control
Beginning balance 12/1
Cost of goods manufactured
3,500
225,000
210,000c
Cost of goods sold
Balance 12/30
18,500
(c) Closing entry
(c) Closing entry
1. Budgeted overhead rate = Budgeted overhead costs ÷ Budgeted labor costs
= $180,000 ÷ $150,000 = 120% of labor cost
2. Ending work in process
Job 1
Job 2
Total
Direct material costs
$ 3,620
$ 6,830
$10,450
Direct labor costs
4,500
7,250
11,750
Overhead
(1.20 × Direct labor costs)
5,400
8,700
14,100
Total costs
$13,520
$22,780
$36,300
3. Overhead allocated = 1.20
$148,750 = $178,500
4.a. All overallocated overhead is written off to cost of goods sold.
WIP inventory remains unchanged.
Account
(1)
Dec. 31, 2010
Account Balance
(Before Proration)
(2)
Write-off of $2,500
Overallocated
overhead
(3)
Dec. 31, 2010
Account Balance
(After Proration)
(4) = (2) + (3)
Work in Process
$ 36,300
$ 0
$ 36,300
Cost of goods sold
417,450
(2,500)
414,950
$453,750
$(2,500)
$451,250
4b. Overallocated overhead prorated based on ending balances
Account
(1)
Dec. 31, 2010
Balance
(Before Proration)
(2)
Balance as a
Percent of Total
(3) = (2) ÷ $453,750
Proration of $2,500
Overallocated
Overhead
(4) = (3)
$2,500
Dec. 31, 2010
Balance
(After Proration)
(5) = (2) + (4)
Work in Process
$ 36,300
0.08
$ (200)
$ 36,100
Cost of Goods Sold
417,450
0.92
(2,300)
415,150
$453,750
1.00
$(2,500)
$451,250
5. Writing off all of the overallocated overhead to Cost of Goods Sold (CGS) is warranted
4-40 (20 min.) Job costing, contracting, ethics.
1.
Direct manufacturing costs:
Direct materials ($8,000 x 150 huts)
Direct manufacturing labor ($600 150 huts)
Manufacturing overhead ($3 90,000)
Total costs
Markup (15% $1,560,000)
Total bid price
$1,200,000
90,000
270,000
$1,560,000
234,000
$1,794,000
2.
Direct manufacturing costs:
Direct materials
Direct manufacturing labor
Production labor
Inspection labor
Setup labor
Manufacturing overhead
Total costs
Markup (15% of $1,795,200)
Total bid price
$84,000
9,000
10,800
$1,380,000
103,800
311,400
$1,795,200
269,280
$2,064,480
Direct materials = ($1,840,000/200) 150 = $1,380,000
Direct labor = production labor + inspection labor + setup labor
Production labor = 28 hours 150 $20 = $84,000
Inspection labor = 4 hours x 150 $15 = $9,000
Setup labor = 6 hours x 150 $12 = $10,800
Alternatively, Direct manufacturing labor
$138,400 150 huts = $103,800
200 huts
=
Manufacturing overhead = (3 $103,800) = $311,400
3. The main discrepancies in costs (before the mark up) in requirements 1 and 2 are as follows:
a. Materials are marked up by 15% in the Sept. 15, 2005 invoice
4. According to the IMA Standards of Ethical Conduct for Practitioners of Management
Accounting and Financial Management, the following principles should guide your decision
I would go to my boss with the bid in requirement 1 after checking
(a) If any direct material savings is possible and
(b) If direct manufacturing labor can be reduced to 28 hours from 30 hours.
4-41 (35 min.) Job costing-service industry.
Author
Materials
(1)
Direct
Labor
(2)
Overhead
(3) = 80% × (2)
Total
(4)
Asher ($425 + $90; $750 + $225)
$ 515
$ 975
$ 780
$2,270
Brown ($200 + $320; $550 + $450)
520
1,000
800
2,320
Sherman
150
200
160
510
Total
$1,185
$2,175
$1,740
$5,100
2. Cost of Completed Signings (CCS) in April 2010
Author
Materials
(1)
Direct
Labor
(2)
Overhead
(3) = 80% × (2)
Total
(4)
Bucknell ($710 + $150; $575 + $75)
$ 860
$ 650
$ 520
$2,030
King
650
400
320
1,370
Total
$1,510
$1,050
$ 840
$3,400
3. Overhead allocated = 0.80 × 1,350a = $1,080
Underallocated overhead = Actual overhead – Allocated overhead
= $1,980 – 1,080 = $900 underallocated
Account
April 30, 2010
Balance
(Before Proration)
(1)
Proration of
$900
Underallocated
Overhead
(2)
April 30, 2010
Balance
(After
Proration)
(3) = (1) + (2)
SIP
$5,100
$ 0
$5,100
CCS
3,400
900
4,300
$8,500
$900
$9,400
4b. Underallocated overhead prorated based on ending balances
Account
April 30, 2010
Balance
(Before Proration)
(1)
Balance as a
Percent of Total
(2) = (1) ÷ $8,500
Proration of $900
Underallocated
Overhead
(3) = (2)
$900
April 30, 2010
Balance
(After Proration)
(4) = (1) + (3)
SIP
$5,100
0.60
0.60
$900 = $540
$5,640
CCS
3,400
0.40
0.40
$900 = 360
3,760
$8,500
1.00
$900
$9,400
4c. Underallocated overhead prorated based on April overhead in ending balances
Account
April 30, 2010
Balance
(Before
Proration)
(1)
Overhead
Allocated in
April Included
in April 30, 2010
Balance
(2)
Overhead Allocated
in April Included
in April 30, 2010 as
a Percent of Total
(3) = (2) ÷ $1,080
Proration of $900
Underallocated
Overhead
(4) = (3)
$900
April 30, 2010
Balance
(After Proration)
(5) = (1) + (4)
SIP
$5,100
$ 700a
0.648
0.648
$900 = $ 583.20
$5,683.20
CCS
3,400
380b
0.352
0.352
$900 = 316.80
3,716.80
$8,500
$1,080
1.000
$ 900.00
$9,400.00
aApril labor for Asher, Brown, and Sherman
5. I would choose the method in 4c (proration based on overhead allocated) because this
method results in account balances based on actual overhead allocation rates. The account