Chapter 2 23
34. a. Targé Co.
Cost of Goods Sold Schedule
For the Month Ended March 31, 2013
Beginning FG inventory (given)
$ 125,000
Cost of goods manufactured
2,537,500
Cost of goods available for sale
$2,662,500
Ending FG inventory (given)
(18,400)
Cost of goods sold (given)
$2,644,100
b. Targé Co.
Cost of Goods Manufactured Schedule
For the Month Ended March 31, 2013
Beginning WIP inventory (given)
$ 90,000
Direct material:
Beginning DM inventory (given)
$ 30,000
Direct material purchased
1,182,000
Direct material available
$1,212,000
Ending DM inventory (given)
(42,000)
Direct material used
1,170,000
Direct labor
400,000
Overhead
900,000
Total cost to account for
$2,560,000*
Ending WIP inventory ($90,000 0.25)
(22,500)
Cost of goods manufactured [from (a)]
$2,537,500
$2,560,000 = $90,000 + $1,170,000 + DL + OH
DL + OH = $2,560,000 – $90,000 – $1,170,000
c. Prime cost = DM + DL
d. Conversion cost = DL + OH
24 Chapter 2
35. a. Work in Process Inventory
5,000
Supplies Inventory
5,000
To record supplies usage for audit engagements
Travel Expense
8,000
Cash
8,000
To record travel expenses for partner
Fixed Overhead Control
6,500
Accumulated Depreciation—Laptops
6,500
To record laptop depreciation
Depreciation Expense
52,500
Fixed Overhead Control
97,500
Accumulated Depreciation—Building
150,000
To record depreciation on NYC building
Work in Process Inventory
200,000
Salaries Payable
200,000
To accrue partner salaries
Work in Process Inventory
257,900
Salaries Payable
257,900
To accrue audit salaries
Work in Process Inventory
19,400
Cash
19,400
To record audit-related travel costs
Insurance Expense
6,055
Fixed Overhead Control
11,245
Prepaid Insurance and Taxes
17,300
To record expiration of prepaid insurance
and property taxes on downtown building
Variable Overhead Control
3,400
Wages Payable
3,400
To accrue secretarial wages
Salaries Payable
457,900
Wages Payable
3,400
Cash
461,300
To pay accrued salaries and wages
Chapter 2 25
b. Cost of Services Rendered:
Overhead: Laptop depreciation $ 6,500
Depreciation on building 97,500
36.
Direct labor ($8,100 + $3,140)
$11,240
Overhead:
Supplies ($2,400 – $1,200)
$1,200
Utilities ($2,000 0.90)
1,800
Office salaries ($1,900 0.20)
380
Depreciation
3,700
Building rental ($3,100 0.80)
2,480
9,560
Cost of services rendered
$20,800
26 Chapter 2
PROBLEMS
37. Type of Cost
Variable
Fixed
Direct
Indirect
Period
Product
Paint
X
X
X
Spirits
X
X
X
Brushes
X
X
X
Overalls
X
X
X
Ad
X
X
Assistant
X
X
X
Oper. Costs*
X
X
X
Map
X
X
X
Tolls
X
X
X
Phone
X
X
X
38. a. At 80,000 boxes per month:
Material and labor costs ($79,000 ÷ 500)
$158.00
Overhead ($408,000 ÷ 80,000)
5.10
Total cost per box
$163.10
b. At 120,000 boxes per month:
Material and labor costs ($79,000 ÷ 500)
$158.00
Overhead ($408,000 ÷ 120,000)
3.40
Total cost per box
$161.40
c. Material and labor (excluding labor design)
$118.00
Overhead
3.40
Total
$121.40
Cost at 80,000 boxes
$163.10
Cost at 120,000 boxes (excluding labor design)
(121.40)
Maximum labor design costs
$ 41.70
d. At 80,000 boxes:
Sales ($195 × 80,000 boxes)
$ 15,600,000
Cost of sales ($163.10 80,000 boxes)
(13,048,000)
Gross margin
$ 2,552,000
Desired gross margin
$ 2,552,000
Cost of sales ($161.40 120,000 boxes)
19,368,000
Sales needed
$ 21,920,000
$21,920,000 ÷ 120,000 boxes = $182.67 sales price per box
total at any level of production.
Chapter 2 27
39. a. At 150,000 meals per month:
Material and labor costs ($9,320 ÷ 2,000)
$ 4.66
Overhead ($1,200,000 ÷ 150,000)
8.00
Total cost per meal
$12.66
b. At 300,000 meals per month:
Material and labor costs ($9,320 ÷ 2,000)
$ 4.66
Overhead ($1,200,000 ÷ 300,000)
4.00
Total cost per meal
$ 8.66
c. Material and labor (excluding meat) ($5,720 ÷ 2,000)
$ 2.86
Overhead at 300,000 meals
4.00
Total cost without meat
$ 6.86
Cost at 150,000 meals
$12.66
Cost at 300,000 meals (excluding meat)
(6.86)
Maximum meat cost per meal
$ 5.80
Current meat cost ($3,600 ÷ 2,000)
(1.80)
Potential increase in meat cost
$ 4.00
d. $21.92 ÷ 2 = $10.96 maximum cost per meal
Maximum meal cost
$10.96
Current costs for material and labor
(4.66)
Cost per unit for overhead
$ 6.30
Overhead ÷ Cost per unit = Total meals
$1,200,000 ÷ $6.30 = 190,476 or 192,000 if meals must be produced in 2,000 unit
batches
e. The firm would be less profitable if the manager decided to produce 192,000 din-
ners but could sell only the same 150,000 the company is currently selling. The
manager might accept retaining the business to boost his reputation as a “deal–
maker” so as to obtain another position before the financial results were reported.
Current profitability:
Sales (150,000 $25.32)
$ 3,798,000
Variable cost of meals (150,000 $4.66)
(699,000)
Fixed overhead
(1,200,000)
Profitability
$ 1,899,000
40. a. printing invitations: step fixed
preparing the theater: step fixed
postage: variable
28 Chapter 2
accessible website, in whole or in part.
b. Members attending = 300 0.60 = 180 members
Attendance estimate = 180 + [(90 1) + (90 2)] = 450 people
Fixed and step fixed costs = $360 + $900 + $1,800 + $350 + {3 × [$110 + (5
c. $6,460 ÷ 450 = $14.36 (rounded)
d. Member attendance = 300 0.90 = 270
Attendance estimate = 270 + (270 2) = 810 people
The reduction in per-person cost is caused by the fact that, even though some of
the step fixed costs increase, the total fixed costs are spread over more attendees.
41. 1. C
2. H
3. D
(AICPA adapted)
42. a. Determining the cost of a product merely involves tracing direct costs to produc-
tion and finding some systematic method of allocating indirect production costs to
products. Controlling these costs involves completely different issues. Control of
b. The advancement of technology does make costs more difficult to control. As
technology has become more pervasive in manufacturing, the indirect manufactur-
ing costs have grown relative to production volume. Hence, controlling production
volume has little to do with the control of more and more production costs. Fur-
Chapter 2 29
accessible website, in whole or in part.
c. Production volume is no longer as significant a cost driver as it was two decades
ago. The growth in both fixed costs and indirect costs suggests that production
volume cannot be used as an effective control for a substantial set of production-
43. a. To remain competitive in the global marketplace, businesses must control costs.
Provision of health care is creating a crisis for American businesses. In many cas-
es, health-care costs are twice as high for U.S. industries as for their foreign com-
petitors. There is nothing unethical about businesses being concerned about these
b. There are no correct or incorrect answers to this question. It is expected that each
student will have a relatively unique ranking of the alternatives. This subpart is in-
c. By bringing some health-care services in-house, a firm can replace a portion of the
variable costs (per employee) with fixed costs. A company may be able to achieve
similar benefits by directly contracting with health-care service providers on a
44. a. (1) Work in Process Inventory
800,000
Raw Material Inventory
800,000
To issue direct material to production
(2) Work in Process Inventory
720,000
Cash (40,000 × $18)
720,000
To pay direct labor payroll
(3) Manufacturing Overhead Control
232,500
Wages Payable (15,500 × $15)
232,500
To accrue indirect labor costs
(4) Manufacturing Overhead Control
102,100
Accumulated Depreciation
102,100
To depreciate factory assets
30 Chapter 2
(5) Manufacturing Overhead Control
32,800
Salaries Payable
32,800
To accrue supervisors’ salaries
(6) Manufacturing Overhead Control
25,400
Supplies Inventory
25,400
To issue indirect material to production
(7) Finished Goods Inventory
1,749,300
Work in Process Inventory
1,749,300
To transfer completed work to FG
b. Beginning balance of WIP
$ 18,900
Direct material
800,000
Direct labor
720,000
Manufacturing overhead for January (plug)
270,000
Cost to account for
$ 1,808,900
Goods completed
(1,749,300)
Ending balance of WIP
$ 59,600
b. Certain nonproductive time may be a normal and unavoidable part of total labor
time. In such cases, a pro rata share of nonproductive time should be classified as
direct labor time. In many cases, nonproductive time is classified as indirect labor
because it cannot be identified with a cost object. For example, the amount of
training.
c. Direct labor: The items classified as direct labor can usually be specifically identi-
fied with a quantity of labor. Furthermore, other direct costs, such as payroll taxes,
are incurred by the organization because of its use of labor.
janitors, and material handlers). Therefore, all costs associated with these employ-
ees can be classified as direct labor costs. For smaller cost objects, such as a varie-
Chapter 2 31
d. The quantity of labor hours that should be included as direct labor or manufactur-
ing overhead reflects a measure of activity. The activity that was performed was ei-
ther directly related to the product or indirectly related (or not easily traceable) to
separated.
(CMA adapted)
46. a. Overhead costs are the easiest to assign to other classifications since those costs
is suggesting.
c. The memo should contain information as to the nature of costs and the fact that the
“cost” of a product can, in many instances, have many different meanings. It
should indicate the need for the loan, the ability to provide collateral (if any), and
47. a. If GP rate is 35 percent of sales, then CGS is 65 percent of sales.
CGS = 0.65 $1,431,000 = $930,150
b. Direct material used
$ 447,000
Direct labor
322,500
Overhead:
Indirect labor
$ 93,000
Factory insurance
3,000
Factory utilities
21,450
Factory depreciation
32,550
Factory rent
126,000
276,000
Total costs to account for
$1,045,500
Ending WIP inventory
(15,750)
Cost of goods manufactured
$1,029,750