313
E10–26
Piecework compensation is a characteristic of a traditional manufacturing philos-
ophy that is inconsistent with just–in-time. Under just-in-time, workers are viewed
not just as laborers but as valuable assets of the company. The company wants
E10–27
a. The Japanese supply chain model is one based on long-term arrangements
and partnership. The Japanese automobile manufacturers want their suppliers
to be financially healthy because they rely on them for innovation. The Big
Three automakers, in contrast, are only concerned about getting the best
short-term price from their suppliers. The article seems to imply that the
longer-term benefits from partnership are being ignored by the Big Three. As a
result, they are willing to view their supplier relationships as temporary―until
E10–27, Concluded
c. Supply chain management is often beneficial to the customer. However, the
customer may have to trade off between short-term and longer-term benefits.
E10–28
Quickie’s team approaches are very different from using a manager to hire and
evaluate employees. First, the input of many individuals goes into the hiring
decision. In this way, the viewpoints of a variety of people are brought into the
315
E10–29
a.
A
B
C
D
E
F
G
1
Patient Mims
Patient Slater
2
Activity
Activity
Usage ×
Activity
Rate
Activity
= Cost
Activity
Usage ×
Activity
Rate
Activity
= Cost
3
Room and
meals
2 days
$125/day
$ 250
4 days
$125/day
$ 500
4
Radiology
4 images
$180/image
720
7 images
$180/image
1,260
5
Pharmacy
6 orders
90
$15/order
6
Chemistry lab
2 tests
180
5 tests
$90/test
8
Total cost
$2,320
b. Patient Slater apparently had a more serious condition than did Patient Mims.
Patient Mims required less operating room hours, fewer tests and images,
and fewer days to recover than did Patient Slater. Thus, the activity cost to
Patient Mims is nearly one-third that of Patient Slater.
316
E10–30
a.
UMBRELLA INSURANCE COMPANY
Product Profitability Report
For the Year Ended December 31, 20Y2
Workers’
Auto Comp. Homeowners
Premium revenue …………………………….. $ 7,200,000 $ 6,500,000 $ 9,200,000
Less estimated claims ……………………… 5,040,000 4,550,000 6,440,000
Underwriting income ………………………… $ 2,160,000 $ 1,950,000 $ 2,760,000
Administrative activities:*
New policy processing ………………… $ 240,000 $ 232,000 $ 656,000
b. Workers’
Auto Comp. Homeowners
Underwriting income as a
percent of premium revenue ……… 30.0% 30.0% 30.0%
E10–30, Concluded
d. All three insurance lines have the same percentage of underwriting income to
premium revenue (30%). The differences among the insurance lines are in the
way they consume administrative activities. For example, the Homeowners
PROBLEMS
P10–1
Product Costs Period Costs
Direct Direct Factory
Materials Labor Overhead Selling Administrative
Cost Cost Cost Cost Expense Expense
a. X
b. X
c. X
k. X
l. X
m. X
n. X
o. X
P10–2
1. Schedule of manufacturing costs incurred during June:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 6001 $ 9,400 $ 8,800 $ 3,600 $ 21,800
2. Schedule of cost of jobs finished during June:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 6001 $ 9,400 $ 8,800 $3,600 $ 21,800
3. Schedule of cost of jobs sold during June*:
Job
No. 6001 …………………………..……… $ 21,800
P10–2, Concluded
4. Schedule of completed jobs on hand, June 30, 20Y4*:
Direct Direct Factory
Job Materials Labor Overhead Total
Finished Goods, June 30
(Job 6005) ……………………. $16,400 $16,600 $6,600 $39,600
*This schedule supports the finished goods account as of June 30, 20Y4.
5. Schedule of unfinished jobs*:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 6004 …………………………. $25,800 $21,840 $15,000 $62,640
6. Sales ……………………………… $110,000*
Cost of goods sold …………. 69,540
321
P10–3
1. and 2.
JOB ORDER COST SHEET
Customer Millard Schmidt Date February 14, 20Y1
Address 315 White Oak Drive Date wanted March 15, 20Y1
Columbus, GA Date completed March 9, 20Y1
Item Reupholster couch and chair Job. No. 02–019
ESTIMATE
Direct Materials
Direct Labor
Summary
Amount
Amount
Amount
Direct materials
Direct labor
Factory overhead
ACTUAL
Direct Materials
Direct Labor
Summary
Mat.
Req.
No.
Descrip-
tion
Amount
Time
Ticket
No.
Descrip-
tion
Amount
Item
Amount
at $9
Total cost
Comments:
The direct materials cost exceeded the estimate by $36 because 4 meters of materials were spoiled. The di-
rect labor cost exceeded the estimate by $20 because an additional 6 hours of labor were used by an inexpe-
rienced employee that worked for $14 per hour. The increased labor cost also caused an additional $5 ($20 ×
25%) of factory overhead to be allocated to the job.
P10–4
1. Supporting calculations:
Job No.
Quan-
tity
May 1
Work in
Process
Direct
Materials
Direct
Labor
Factory
Overhead
Total
Cost
Unit
Cost
Units
Sold
Cost of
Goods
Sold
No. 0521
100
$1,500
$ 5,000
$ 15,000
$ 18,000
$ 39,500
$395.00
80
$ 31,600
No. 0522
200
4,000
8,500
26,000
31,200
69,700
$348.50
160
55,760
No. 0523
100
3,500
8,000
9,600
21,100
0
0
No. 0524
7,500
30,000
62,500
No. 0525
90
5,600
17,500
21,000
44,100
$490.00
36,750
No. 0526
70
4,500
5,400
11,900
0
0
A. $34,600. Materials applied to production in May + indirect materials.
($32,100 + $2,500)
B. $5,500. From table above and problem.
C. $32,100. From table above.
2. May 31 balances:
Materials $14,400 ($9,000 + $40,000 – $34,600)
Work in Process $33,000* [$21,100 (Job 0523) + $11,900 (Job 0526)]
Finished Goods $39,190** ($215,800 – $176,610)
323
P10–5
1.
R-TUNES INC.
Income Statement
For the Year Ended December 31, 20Y8
Sales …………………………..…………………….. $3,800,000
Cost of goods sold …………………………….. 807,500
Gross profit ……………………………………….. $2,992,500
Selling expenses:
Total operating expenses …………………… 2,808,000
Income from operations ……………………… $ 184,500
Supporting calculations:
Sales: 475,000 units × $8 = $3,800,000
Cost of goods sold: 475,000 units × $1.70 = $807,500
Manufacturing cost per unit (CD):
2. Finished Goods balance, December 31, 20Y8:
(500,000 units – 475,000 units) × $1.70 = $42,500
Work in Process, December 31, 20Y8:
18,000 units × ($0.83 + $0.50) = $23,940
324
CASES
Case 10–1
Although Beth may appear to have technically complied with company policy, her
computation of the cost of the lumber is unethical. The Statement of Ethical Con-
duct for Practitioners of Management Accounting and Financial Management
Case 10–2
The objectives of managerial accounting and financial accounting are different;
therefore, the vice president’s statement is very incomplete. In one sense, the
statement may be true at only very high levels in the organization. For example,
the division manager may be evaluated on the basis of financial accounting prof-
it. Thus, the divisional manager would be evaluated by central management in
nearly the same way that central management is evaluated by shareholders.
325
Case 10–3
1. Ashley’s bill has a number of points that should be considered. Some of the
points, with the appropriate argument, are identified below.
a. The trip back to the shop resulted in a $95 labor charge. Ashley should
argue that the whole hour should not be billed. The hour is the result of
b. The overtime premium should not have been charged to Ashley. What if
Ashley was the first appointment in the morning? If so, then there would
be no overtime premium. It’s only random misfortune that Ashley was
the last client of the day and therefore received the overtime premium.
Add to this the fact that the overtime would not have been necessary
without the trip back to the shop, and the conclusion is that Ashley
should not be directly charged for overtime. The overtime premium
should be part of Reboot’s overhead charged to all clients equally. Ash-
ley should be charged the overtime only if the decision for overtime was
caused by or required by Ashley.
Thus, the labor portion of the bill should only be $65 + $40 + $40 = $145.
There are other parts of the bill that should not be in dispute.
• The materials storage and handling charge is a normal charge of maintain-
ing a parts inventory for the benefit of clients that need parts.
326
Case 10–3, Concluded
2.
Cost Direct Materials Direct Labor Overhead
Circuit board X
Storage and handling X
Case 10–4
Two or three trends seem apparent. Starting with the most obvious:
a. There appears to be a strong “Friday effect.” The unit cost on Friday increas-
es dramatically, then falls on Monday. Apparently, the workforce is preparing
early for the weekend.
A number of further pieces of information should be requested.
a. First, it would be good to verify these trends with some other products. This
trend is probably not product-related but related generally to the day of the
week. This would mean that the trend should be apparent in the other prod-
ucts.
327
Case 10–4, Concluded
c. The Friday–Monday phenomenon is likely related to the workforce, but the
same cannot be said about the larger increasing trend over the four weeks. It
could be caused by any number of factors. A good first look would be to iso-
Case 10–5
1. The engineer is concerned that direct labor is not related to overhead con-
sumption because direct labor is a small part of the cost structure. Apparent-
ly, the company has replaced labor with expensive machine technology and
2. Since each direct labor hour now has $3,000 of factory overhead, small mis-
takes in the direct labor time estimates can have a large impact on the esti-
mated cost of a product. This is very critical. If the company underestimates
3. The engineer’s concern is valid. The company should consider replacing its
direct labor time activity base with one that more accurately reflects its pre-
sent resources. If the company is now highly automated, then machine hours
may be a much more reasonable activity base.
328
Case 10–6
Note to Instructors: Consider having the teams compete for the most examples.
Have half the class do the pizza restaurant and the other the copy shop, and
compare results.
Some examples that may be offered by the students are the following:
Copy and Graphics Shop
Direct Direct Selling
Cost Materials Labor Overhead Expense
Paper ……………………………………… X
Graphic designer wages ………….. X
Manager salary ……………………….. X
329
Case 10–6, Concluded
Pizza Restaurant
Direct Direct Selling
Cost Materials Labor Overhead Expense
Ingredients ……………………………. X
Cook wages ………………………….. X
Manager salary ……………………… X
Depreciation on equipment
and fixtures ……………………… X
Nondisposable plates, utensils,
cups …………………………..……. X
Repair costs …………………………. X
Property taxes ………………………. X
Store depreciation …………………. X
Cashier salary ……………………….. X
Beverage ………………………………. X
and overhead will not always be clear.
330
Case 10–7
Tyra Chastain’s claim that the inventory doesn’t cost the company anything is
likely not true. At the very minimum, inventory requires working capital to be
used. The financing cost associated with the working capital represents a cost to
high.
Gwen Willis should suggest that Tyra Chastain use just-in-time manufacturing
principles. The production process could be scheduled using pull techniques.
This would mean that the plant produces products only when there are orders.
Products would not be manufactured for inventory. In addition, the plant manager
should work to develop a reliable supply chain. One of the objectives of the sup-