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Managerial Accounting 4e Solutions Manual
(continued) P3-48A
Req. 5
Steinborn Homes
Gross Profit on Chalets Sold in May
Chalet #13
Chalet #16
Sales revenue
$99,000
$146,000
Cost of goods sold
(64,460)
(100,500)
Gross profit
$34,540
$ 45,500
The gross profit must cover these type of costs:
• Administration
• Customer Service
• Design
• Distribution
• Marketing
• Research & Development
(25-35 min.) P3-49A
Req. 1
Gibbs Engine, Inc.
Computation of Work in Process Inventory, Finished Goods
Inventory, and Cost of Goods Sold for March and April
Date
(a) Work in Process Inventory
(b) Finished Goods
Inventory
(c) Cost of Goods
Sold
Job
Cost
Job
Cost
Job
Cost
March 31
4
$ 400
3
$1,000
1
$1,900
2
1,500
Total
$3,400
April 30
6
$1,100
None
3
$1,000
4
800
5
800
Total
$2,600
Req. 2
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Finished Goods Inventory
4,400
Work in Process Inventory
4,400
To record completion of Jobs 1, 2,
and 3 in April. ($1,900 + $1,500 + $1,000)
Finished Goods Inventory
1,600
Work in Process Inventory
1,600
To record completion of Jobs 4
and 5 in May. ($800 + $800)
Chapter 3 Job Costing
(continued) P3-49A
Req. 3
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Accounts Receivable
2,200
Sales Revenue
2,200
To record the sale of Job 5.
Cost of Goods Sold
800
Finished Goods Inventory
800
To record the cost of goods sold
for Job 5.
Req. 4
The gross profit for Job 5 is:
Sales revenue............………..
$ 2,200
Cost of goods sold......……...
(800)
Gross profit....................…....
$ 1,400
The gross profit must be high enough to these types of costs:
Managerial Accounting 4e Solutions Manual
Problems (Group B)
(25-30 min.) P3-50B
Req. 1
Predetermined manufacturing overhead rate:
=
Estimated yearly overhead costs*
Estimated yearly machine hours
=
$186,300
6,900 hours
=
$27 per machine hour
Req. 2
Actual machine hours x Predetermined overhead rate
Req. 3
Manufacturing Overhead
Indirect materials
53,500
186,300b
Allocated
Depreciation on plant
and equipment
67,000
Indirect manufacturing labor
46,500
Plant utilities
29,300
Balance
10,000
The underallocated overhead will be closed to Cost of Goods Sold in the following entry:
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Cost of Goods Sold
10,000
Manufacturing Overhead
10,000
To close underallocated manufacturing
overhead to Cost of Goods Sold.
Req. 4
To help control manufacturing overhead, managers compare the actual line-item amounts for manufacturing overhead
with the budgeted amounts. Managers will also investigate only large differences between actual and budgeted
amounts to identify the reasons why actual costs differ from planned or budgeted costs.
Chapter 3 Job Costing
(20-25 min.) P3-51B
Req. 1
Predetermined indirect cost allocation rate:
Estimated indirect costs:
Support staff salaries...............……..
$170,000
Rent and utilities..................…………
46,000
Supplies.......................................……
459,300
Leased computer hardware…………
60,000
Total estimated indirect costs.......……
$735,300
Managerial Accounting 4e Solutions Manual
(continued) P3-51B
DreamTrips.com:
$131,020
=
$163,775
0.80
Port Albany Golf Resort:
$8,350
=
$10,437.50
0.80
Req. 4
Walker & Janosko assigns costs to jobs to help the company set fees that cover all costs and contribute to profit.
Assigning costs to individual clients can also help the company control costs.
(20-25 min.) P3-52B
Req. 1
Predetermined indirect cost allocation rate:
Estimated indirect costs:
Support staff salaries................……….
$ 190,000
Computer leases…………………….…...
41,000
Office supplies.......................…………..
23,000
Office rent..........................................….
66,000
Total estimated indirect costs........………
$ 320,000
Estimated indirect costs
=
$ 320,000
=
20%
Estimated direct labor cost
$1,600,000
Req. 2
Raven Design
Estimated Cost of Organic Delight and AllFood.com Jobs
Organic Delight
AllFood.com
Direct Costs:
Direct labor*
770 hours × $200 per hour
$ 154,000
60 hours × $200 per hour
$ 12,000
Licensing costs
2,000
350
Travel
9,000
0
Total Direct Costs
165,000
12,350
Indirect Costs:
20% × $154,000
30,800
20% × $ 12,000
2,400
Total Cost
$ 195,800
$ 14,750
* $1,600,000 / 8000 = $200 per hour
Chapter 3 Job Costing
(continued) P3-52B
Req. 3
Sales revenue − Total cost
=
Profit
Sales revenue − Total cost
=
0.20 × Sales revenue
0.80 × Sales revenue
=
Total cost
Sales revenue
=
Total cost
0.80
Organic Delight:
$195,800
=
$244,750
0.80
AllFood.com:
$14,750
=
$18,437.50
0.80
Req. 4
Raven Design assigns costs to jobs to help the company set fees that cover all costs and contribute to profit. Assigning
costs to individual clients can also help the company control costs.
Chapter 3 Job Costing
(30-45 min.) P3-54B
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
a.
Raw Materials Inventory
440,000
Accounts Payable
440,000
b.
Work in Process Inventory (14,800 + 28,500 + 19,900 +
21,400)
84,600
Manufacturing Overhead
29,400
Wages Payable
114,000
c.
Work in Process Inventory (41,700 + 56,400 + 62,000 +
66,300)
226,400
Raw Materials Inventory
226,400
d.
Manufacturing Overhead
6,300
Accum. Depr. — Equipment
6,300
e.
Manufacturing Overhead
19,500
Cash
10,500
Prepaid Insurance
9,000
f.
Work in Process Inventory ($84,600 × 0.60)
50,760
Manufacturing Overhead
50,760
Managerial Accounting 4e Solutions Manual
(continued) P3-54B
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
g.
Finished Goods Inventoryc
259,760
Work in Process Inventory
259,760
h.
Accounts Receivable ($97,000 + $146,000)
243,000
Sales Revenue
243,000
Cost of Goods Sold (65,380 + 100,540)
165,920
Finished Goods Inventory
165,920
Req. 2
Work in Process Inventory
Finished Goods Inventory
(b)
84,600
(g)
259,760
(g)
259,760
(h)
165,920
(c)
226,400
Bal.
93,840
(f)
50,760
Bal.
102,000
Chapter 3 Job Costing
(continued) P3-54B
Req. 4
Echo Ridge Homes
Reconciliation of Finished Goods Inventory Subsidiary
and Control Accounts
Chalet #15
Completed, unsold chalet (#15):
Direct materials
$ 62,000
Direct labor
19,900
Manufacturing overhead (60% of labor)
11,940
Total cost equals Finished Goods balance
$ 93,840
Req. 5
Echo Ridge Homes
Gross Profit on Chalets Sold in May
Chalet #13
Chalet #16
Sales revenue
$97,000
$146,000
Cost of goods sold
(65,380)
(100,540)
Gross profit
$31,620
$ 45,460
The gross profit must cover these types of expenses:
• Administration
• Customer Service
• Design
• Distribution
• Marketing
• Research and Development
(25-35 min.) P3-55B
Req. 1
Engine Pro, Inc.
Computation of Work in Process Inventory, Finished Goods
Inventory, and Cost of Goods Sold for May and June
Date
(a) Work in Process Inventory
(b) Finished Goods
Inventory
(c) Cost of Goods
Sold
Job
Cost
Job
Cost
Job
Cost
April 30
4
$400
3
$1,300
1
$1,200
2
1,500
Total
$2,700
May 31
6
$1,100
None
3
$1,300
4
1,000
5
400
Total
$2,700
Managerial Accounting 4e Solutions Manual
(continued) P3-55B
Req. 2
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Finished Goods Inventory
4,000
Work in Process Inventory
4,000
To record completion of Jobs 1, 2,
and 3 in May. ($1,200 + $1,500 + $1,300)
Finished Goods Inventory
1,400
Work in Process Inventory
1,400
To record completion of Jobs 4
and 5 in June. ($1,000 + $400)
Copyright © 2015 Pearson Education, Inc.
3-49
A3-56
1. Why would it be inappropriate for a custom home builder to use process costing?
2. For what types of products is job costing appropriate? Why? For what types of products is process costing
appropriate? Why?
3. What product costs must be allocated to jobs? Why must these costs be allocated rather than assigned?
4. When the predetermined manufacturing overhead rate is calculated, why are estimated costs and cost driver
levels used instead of actual dollars and amounts?
5. Why should manufacturing overhead be allocated to a job even though the costs cannot be directly traced to a
job? Give at least two reasons.
6. Why does management need to know the cost of a job? Discuss at least five reasons.
Management needs to know the cost of a job for many reasons:
Chapter 3 Job Costing
Copyright © 2015 Pearson Education, Inc.
3-51
costs, will management have the information it needs to adequately weigh the costs and benefits associated with
environmental and social responsibility initiatives.
12. Why should companies estimate the environmental cost of a given job? Why have EPR laws come into
existence?
Managerial Accounting 4e Solutions Manual
Application & Analysis
A3-57
Basic Discussion Questions
1. Describe the product that is being produced and the company that makes it.
2. Summarize the production process that is used in making this product.
Truckloads of russet potatoes arrive at the manufacturing plant where they are first scrubbed, then crinkle sliced
3. What raw materials are used to make this product?
Potatoes, oil, and seasoning are the raw materials used to make this product.
5. Describe the jobs of the workers who would be considered “direct labor” in the making this product.
6. Describe the jobs of the workers who would be considered “indirect labor” in the making this product.
7. Define manufacturing overhead. In addition to the indirect materials and indirect labor previously described,
what other manufacturing overhead costs would be incurred in this production process? Be specific and
thorough. Make reasonable “guesses” if you do not know for sure.
8. Would a job-order costing system or a process costing system be used for this production process? Give specific
reasons for your choice of which costing system would be most appropriate for this manufacturer.
Chapter 3 Job Costing
(15-30 min.) A3-58
Ethics Mini-Case
1.
a. If Molly were to change the change the allocation method to grant the employees their holiday bonuses, the
2. First, Molly should report her findings to the owner and CEO, Franklin Roberts. Second, if there is still a conflict, she
(15-30 min.) A3-59
Real Life Mini-Case
1. Do you think that Apple uses a process costing system or a job costing system?
2. The iPad mini is assigned a cost of $10 for “manufacturing cost.” What specific costs do you think are included in
3. In accounting terminology, what would “Bill of Materials (BOM)” be when discussing product cost?
4. The gross profit per iPad mini is approximately $131, which is the difference between the retail price of $329
and its estimated cost (BOM) + Manufacturing) of $198. Is Apple really making $131 for each iPad mini sold? If
Managerial Accounting 4e Solutions Manual
5. The BOM costs for the units sold would appear on Apple’s income statement. In which income statement
6. Late in 2012, Apple announced that it was going to start manufacturing some products in the United States
rather than in China. If the iPad mini were to be manufactured in the U.S., which cost components would you
expect to increase? Which cost components might you expect to decrease? What other factors would Apple
consider when deciding where to manufacture its products.
(15-30 min.) A3-60
Req. 1
Custom Cookies allocates overhead costs to orders at the rate of 180% of direct labor cost ($0.90 / $0.50 = 180%; $1.17
/ $1.10 = 180%). But direct labor cost does not drive overhead cost—direct labor cost has increased in recent months,
year.
