Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Solutions Manual, Chapter 4 41
Problem 4-23 (continued)
3. The value of ending work in process inventory is the sum of the
accumulated costs of the two jobs that were still in process at the end
of the month:
Job A257
Job A260
Total
Beginning balance .....................
$ 500
$ 0
Direct materials .........................
3,500
3,500
Direct labor ...............................
1,000
400
Manufacturing overhead applied .
1,500
600
Total cost of ending work in
process inventory ....................
$6,500
$4,500
$11,000
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Problem 4-24 (45 minutes)
To determine the cost of goods sold using the indirect method, we need:
(1) the beginning work in process inventory;
These values can be determined as follows:
(2) The total manufacturing cost charged to jobs during the period can be
determined as follows:
Job
A256
Job
A257
Job
A258
Job
A260
Total
Direct materials......
$2,600
$3,500
$1,400
$3,500
$11,000
Direct labor ............
800
1,000
600
400
2,800
Manufacturing
overhead applied .
1,200
1,500
900
600
4,200
Total
manufacturing
cost incurred .......
$4,600
$6,000
$2,900
$4,500
$18,000
(3) The value of ending work in process inventory is the sum of the
accumulated costs of the two jobs that were still in process at the end of
the month:
Job A257
Job A260
Total
Beginning balance .....................
$ 500
$ 0
Direct materials .........................
3,500
3,500
Direct labor ...............................
1,000
400
Manufacturing overhead applied .
1,500
600
Total cost of ending work in
process inventory ....................
$6,500
$4,500
$11,000
(4) There was no beginning finished goods inventory.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 4 43
Problem 4-24 (continued)
(5) The value of the ending finished goods inventory can be determined as
follows:
Job A256
Job A258
Beginning balance .......................
$1,200
$ 0
Direct materials ...........................
2,600
1,400
Direct labor .................................
800
600
Manufacturing overhead applied ..
1,200
900
Total (a) .....................................
$5,800
$2,900
Units completed (b) .....................
100
200
Unit product cost (a) ÷ (b) ..........
$58.00
$14.50
Job A256
Job A258
Total
Units completed ..........................
100
200
Deduct: Units sold .......................
80
40
Units in ending inventory .............
20
160
Unit product cost ........................
$58.00
$14.50
Total cost of ending finished
goods inventory ........................
$1,160
$2,320
$3,480
Finally, the cost of goods sold would be computed as follows:
Manufacturing costs charged to jobs:
Direct materials ..............................................
$11,000
Direct labor ....................................................
2,800
Manufacturing overhead applied ......................
4,200
Total manufacturing cost charged to jobs ...........
18,000
Add: Beginning work in process inventory ...........
1,700
19,700
Deduct: Ending work in process inventory ..........
11,000
Cost of goods manufactured ..............................
$ 8,700
Beginning finished goods inventory ....................
$ 0
Add: Cost of goods manufactured (see above) ....
8,700
Goods available for sale .....................................
8,700
Deduct: Ending finished goods inventory ............
3,480
Unadjusted cost of goods sold ...........................
5,220
Deduct: Overapplied overhead ...........................
800
Cost of goods sold .............................................
$4,420
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Case 4-25 (60 minutes)
1. a.
Estimated total manufacturing overhead cost
Predetermined=
overhead rate Estimated total amount of the allocation base
$1,440,000
= =160% of direct labor cost
$900,000 direct labor cost
b. $21,200 × 160% = $33,920.
2. a.
Cutting
Department
Machining
Department
Assembly
Department
Estimated manufacturing
overhead cost (a) ..........
$540,000
$800,000
$100,000
Estimated direct labor
cost (b) .........................
$300,000
$200,000
$400,000
Predetermined overhead
rate (a) ÷ (b) ................
180%
400%
25%
b.
Cutting Department:
$6,500 × 180% ..................................
$11,700
Machining Department:
$1,700 × 400% ..................................
6,800
Assembly Department:
$13,000 × 25% ..................................
3,250
Total applied overhead ..........................
$21,750
3. The bulk of the labor cost on the Hastings job is in the Assembly
Department, which incurs very little overhead cost. The department has
of overhead cost charged to the job.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
Solutions Manual, Chapter 4 45
Case 4-25 (continued)
However, use of a plantwide overhead rate in effect redistributes
overhead cost was assigned to the job for the kind of work being done
on the job in the plant.
departments were considered separately.
4. The company’s bid price was:
Direct materials ..............................................
$ 18,500
Direct labor ....................................................
21,200
Manufacturing overhead applied (above) .........
33,920
Total manufacturing cost ................................
73,620
Bidding rate ...................................................
× 1.5
Total bid price ................................................
$110,430
been:
Direct materials ..............................................
$ 18,500
Direct labor ....................................................
21,200
Manufacturing overhead applied (above) .........
21,750
Total manufacturing cost ................................
61,450
Bidding rate ...................................................
× 1.5
Total bid price ................................................
$ 92,175
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
46 Managerial Accounting for Managers, 4th Edition
Case 4-25 (continued)
5. a.
Actual overhead cost .......................................
$1,482,000
Applied overhead cost ($870,000 × 160%) .......
1,392,000
Underapplied overhead cost .............................
$ 90,000
b.
Department
Cutting
Machining
Assembly
Total Plant
Actual overhead cost ............
$560,000
$830,000
$92,000
$1,482,000
Applied overhead cost:
$320,000 × 180% .............
576,000
$210,000 × 400% .............
840,000
$340,000 × 25% ...............
85,000
1,501,000
Underapplied (overapplied)
overhead cost ...................
$(16,000)
$(10,000)
$ 7,000
$ (19,000)
Solutions Manual, Chapter 4 47
Case 4-26 (60 minutes)
1. Shaving 5% off the estimated direct labor-hours in the predetermined
recognized in December when the balance in the Manufacturing
dissipated over the course of the year.
2. This question may generate lively debate. Where should Cristin
Madsen’s loyalties lie? Is she working for the general manager of the
division or for the corporate controller? Is there anything wrong with the
“Christmas bonus”? How far should Cristin go in bucking her boss on a
new job?
boost to net operating income. Therefore, the practice results in
inventories are still overstated at year-end. This means that retained
earnings is also overstated.
situation with her immediate supervisor in the controller’s office at
corporate headquarters. This step may bring her into direct conflict with
48 Managerial Accounting for Managers, 4th Edition
Case 4-26 (continued)
In the actual situation that this case is based on, the corporate
controller’s staff were aware of the general manager’s accounting tricks,
but top management of the company supported the general manager
illegal?
Case 4-27 (75 minutes)
1. The revised predetermined overhead rate is determined as follows:
Original estimated total manufacturing overhead....
$2,475,000
Plus: Lease cost of the new machine .....................
300,000
Plus: Cost of new technician/programmer ..............
45,000
Estimated total manufacturing overhead ................
$2,820,000
Original estimated total direct labor-hours .............
52,000
Deduct: Estimated reduction in direct labor-hours ..
6,000
Estimated total direct labor-hours ..........................
46,000
Estimated total manufacturing overhead
Predetetermined=
overhead rate Estimated total amount of the allocation base
$2,820,000
=46,000 DLHs
=$61.30 per DLH
The revised predetermined overhead rate is higher than the original rate
increases the predetermined overhead rate.
2. Acquisition of the automated milling machine will increase the apparent
3. The predetermined overhead rate is now considerably higher than it
was. This will penalize products that continue to use the same amount
50 Managerial Accounting for Managers, 4th Edition
Case 4-27 (continued)
4. While it may have been a good idea to acquire the new equipment
because of its greater capabilities, the calculations of the cost savings
were in error. The original calculations implicitly assumed that overhead
Cost consequences of leasing the automated equipment:
Increase in manufacturing overhead cost:
Lease cost of the new machine ..................................
$300,000
Cost of new technician/programmer ...........................
45,000
345,000
Deduct: labor cost savings (2,000 hours × $30 per
hour) ........................................................................
60,000
Net increase in annual costs .........................................
$285,000
There are two morals to this tale. First, predetermined overhead rates
countries except through natural attrition.
