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314
P10–2
1. Schedule of manufacturing costs incurred during April:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 401 $5,500 $ 6,650 $ 1,520 $13,670
No. 402 4,000 4,775 1,200 9,975
2. Schedule of jobs finished during April:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 401 $ 5,500 $ 6,650 $1,520 $13,670
3. Schedule of jobs sold in April:
Job
No. 401 ........................................... $13,670
This schedule supports the cost of goods sold account for April.
315
P10–2, Concluded
4. Schedule of completed jobs on hand, April 30, 20Y4:
Direct Direct Factory
Job Materials Labor Overhead Total
Finished Goods, April 30
(Job 405) .......................... $3,200 $4,000 $960 $8,160
5. Schedule of unfinished jobs:
Direct Direct Factory
Job Materials Labor Overhead Total
No. 404 ................................. $ 7,100 $ 8,500 $2,240 $17,840
No. 406 ................................. 1,850 2,200 560 4,610
6. Sales ................................... $47,750*
Cost of goods sold ............ (28,640)
Gross profit ........................ $19,110
316
P10–3
1. and 2.
JOB 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
ACTUAL
Direct Materials Direct Labor Summary
Mat.
Req.
No.
Descrip-
tion
Amount
Time
Ticket
No.
Descrip-
tion
Amount
Item
Amount
122 9 meters
$ 81.00
T344 20 hours
$280.00 Direct materials
$144.00
317
1. Supporting calculations:
Job No.
Quan-
tity
May 1
Work in
Process
Direct
Materials
Direct
Labo
r
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
(A) $34,600. Materials applied to production in May plus indirect materials.
($32,100 + $2,500)
(B) $5,500. From table above and problem.
(C) $32,100. From table above.
(D) $96,000. 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)
Factory Overhead $1,200 underapplied [$(3,000) + $14,000 + $2,500
+ $102,900 – $115,200]
* or ($5,500 + $32,100 + $96,000 + $115,200 – $215,800)
** Units in Unit Total
Job No. Inventory Cost Cost
318
P10–5
1.
R-TUNES INC.
CYCLONE PANIC CD
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:
Promotional materials ......................... $1,500,000
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):
Direct materials:
Blank CD .......................................................... $ 0.40
Case ................................................................. 0.25
Song lyric insert .............................................. 0.18
Total direct materials ...................................... $ 0.83
2. Finished Goods balance, December 31, 20Y8:
(500,000 units – 475,000 units) × $1.70 = $42,500
Work in Process, December 31, 20Y8:
319
METRIC-BASED ANALYSIS
MBA 10–1
a.
Unit
Date Job No. Quantity Product Amount Cost
Jan. 13 1 180 Mercury $ 4,500 $25
Jan. 29 26 1,020 Venus 8,160 8
Feb. 3 38 1,330 Venus 13,300 10
Mar. 14 49 550 Mercury 12,100 22
Mercury Unit Costs
$20
$25
$30
320
MBA 10–1, Concluded
Venus Unit Costs
Pluto Unit Costs
As can be seen, the unit costs behave differently for each product. Pluto has
increasing unit costs during the year, Venus has fairly steady unit costs during
the year, and Mercury has decreasing unit costs during the year.
b. Management should determine why Pluto costs are increasing and why
Mercury costs are decreasing. This information can be determined from the
$15
$15
321
MBA 10–2
a. The first item to note is that the cost did not go up due to any increases in the
cost of labor or materials. Rather, the cost of the plaques increased because
Job 08-11 used more labor and materials per unit than did Job 05-1. Specifi-
b. An analysis of actual and expected labor hours for Job 05-1 and Job 08-11 is
as follows:
Job 05-1
Engraving:
Actual hours 40.0 hours
Job 08-11
Engraving:
Actual hours 50.0 hours
Expected hours (80 units × 30 min. per unit) ÷ 60 min. = 40.0 hours
Hours over expected 10.0 hours
322
MBA 10–3
The direct materials cost exceeded the estimate by $36 because 4 meters of
materials were spoiled. The direct labor cost exceeded the estimate by $20
even though the laborer was paid $2 less than expected per hour because an
MBA 10–4
Two or three trends seem apparent.
a. There appears to be a strong “Friday effect.” The unit cost on Friday increases
dramatically, then falls on Monday. Apparently, employees are not working as
efficiently because it is the end of the week.
A number of further pieces of information should be requested.
a. 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 the trend should be apparent in the other products.
323
MBA 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-
late materials costs to see if these are contributors. How much of the effect is
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
requires that Beth avoid all actual or apparent conflict-of-interest situations.
Case 10–2
The objectives of managerial accounting and financial accounting are different;
therefore, the vice president’s statement is incomplete. In one sense, the state-
ment may be true at only high levels in the organization. For example, the division
manager may be evaluated on the basis of financial accounting profit. 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
stocking out of a circuit board on the truck. The circuit board should
have been with the repair person. There was a board for the previous
customer. However, since only one was stocked, the repair person had
to go back to the shop. The trip back to the shop was nonproductive time
that should not have been directly charged to Ashley but should be part
of Reboot’s overhead cost to all customers. In other words, Ashley
should not be responsible for this mistake.
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-
326
Case 10–3, Concluded
2.
Cost Direct Materials Direct Labor Overhead
Circuit board X
Storage and handling X
Straight-time labor X
Fringe benefits* X
Case 10–4
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 attached to
it, small mistakes in the direct labor time estimates can have a large impact
on the estimated cost of a product. If the company underestimates the direct
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 present
resources. If the company is now highly automated, then machine hours may
be a much more reasonable activity base for applying overhead to jobs.
327
Case 10–5
Note to Instructors: Consider having the teams compete for the most examples.
Have half the class do the take-out 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
Lease cost of copy machine ........ X
Coupon costs ................................ X
Advertising .................................... X
Packaging (bags and boxes)........ X
328
Case 10–5, Concluded
Take-Out Pizza Restaurant
Direct Direct Selling
Cost Materials Labor Overhead Expense
Ingredients ................................. X
Cook wages ................................ X
Manager salary .......................... X
Depreciation on equipment
and fixtures ........................... X
Repair costs .............................. X
Property taxes ............................ X
Store depreciation ..................... X
Cashier salary ............................ X
Beverage .................................... X
Building heat and A/C ............... X
Salad ingredients ....................... X
329
Case 10–6
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
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 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 supply
chain management would be to improve supplier shipment reliability, so that
