Problem 15-2B (Continued)
Part 2
Revised Factory Overhead account
Ending balance from trial balance …………………………………..
$27,000
Debit
Applied to Jobs 603 and 604 …………………………………………..
(26,000)
Credit
Additional indirect materials …………………………………………..
2,100
Debit
Additional indirect labor …………………………………………………
3,000
Debit
Underapplied overhead …………………………………………………..
$ 6,100
Debit
Dec. 31
Cost of Goods Sold ………………………………………………..
6,100
Factory Overhead ……………………………………………..
6,100
To remove $6,100 of underapplied overhead from
the Factory Overhead account and add it to cost
of goods sold.
Part 3
CAVALLO MFG.
Trial Balance
December 31, 2019
Debit
Credit
$ 64,000
42,000
11,700
51,200
9,000
3,000
Problem 15-2B (Continued)
Part 3 (Concluded)
* Raw materials inventory
Balance per trial balance …………………………..…………………………..
$26,000
Less: Amounts recorded for Jobs 603 and 604 ………………………….
(12,200)
Less: Indirect materials ……………………………………………………….
(2,100)
Ending balance ………………………………………………………………………..
$11,700
Direct materials ……………..
Overhead ………………………
Part 4
CAVALLO MFG.
Income Statement
For Year Ended December 31, 2019
Sales …………………………………………………………………………..
$ 180,000
Cost of goods sold ………………………………………………………
(111,100)
Gross profit …………………………………………………………………
68,900
Net income ………………………………………………………………….
Problem 15-2B (Concluded)
Part 4 (Concluded)
CAVALLO MFG.
Balance Sheet
December 31, 2019
Assets
Cash ……………………………………………………….
$ 64,000
Accounts receivable …………………………..…………
42,000
Inventories
Raw materials inventory …………………………..
$11,700
Work in process inventory …………………………..
51,200
Finished goods inventory …………………………..
9,000
71,900
Prepaid rent ………………………………………………….
3,000
Total assets ………………………………………………….
$180,900
Accounts payable …………………………………………
Notes payable …………………………..…………………..
13,500
Common stock ……………………………………………..
30,000
Retained earnings ($87,000 + $23,900) ……………….
110,900
Total liabilities and equity …………………………..
$180,900
Part 5
The $2,100 error would cause the costs for Job 604 to be understated.
Since Job 604 is in process at the end of the period, work in process
inventory and total assets would both be understated on the balance sheet.
In addition the over- or underapplied overhead would change by $2,100.
That is, if overhead is underapplied by, say, $6,100, that amount would
decrease by $2,100, yielding $4,000 in underapplied overhead. Any under–
or overapplied overhead is charged directly to cost of goods sold, so
Problem 15-3B (70 minutes)
Part 1
JOB COST SHEETS
Job No. 487
Materials ……………………
$30,000
Labor ………………………..
8,000
Overhead …………………..
16,000
Total cost ………………….
$54,000
Job No. 488
Materials ……………………
$20,000
Labor ………………………..
7,000
Overhead …………………..
14,000
Total cost ………………….
$41,000
Job No. 489
Materials ……………………
$12,000
Labor ………………………..
25,000
Overhead …………………..
50,000
Total cost ………………….
$87,000
Job No. 490
Materials ……………………
$14,000
Labor ………………………..
26,000
Overhead …………………..
Total cost ………………….
$92,000
Job No. 491
Materials ……………………
$ 4,000
Overhead …………………..
4,000
Total cost ………………….
$10,000
Problem 15-3B (Concluded)
Part 2
a.
Raw Materials Inventory …………………………..…………….
125,000
Accounts Payable …………………………………………….
125,000
Record materials purchases.
b.
Work in Process Inventory ……………………………………..
80,000
Factory Overhead …………………………………………………..
12,000
Raw Materials Inventory …………………………..……….
92,000
Record direct & indirect materials.
c.
Factory Overhead …………………………………………………..
11,000
Cash ………………………………………………………………..
11,000
Record other factory overhead.
d.
Work in Process Inventory ……………………………………..
68,000
Factory Overhead …………………………………………………..
16,000
Cash ………………………………………………………………..
84,000
e.
Work in Process Inventory ……………………………………..
118,000
Factory Overhead ……………………………………………..
118,000
[($8,000 + $25,000 + $26,000) x 200%].
f.
Finished Goods Inventory ………………………………………
233,000
Work in Process Inventory …………………………..
233,000
($54,000 + $87,000 + $92,000).
Problem 15-3B (Continued)
[continued from prior page]
g.
Accounts Receivable …………………………..…………………
340,000
Sales ………………………………………………………………..
340,000
Record sales on account.
Cost of Goods Sold ………………………………………………..
141,000
Finished Goods Inventory …………………………..
141,000
Record cost of sales ($54,000 + $87,000).
h.
Accum. Depreciation—Factory Building ……………
Accum. Depreciation—Factory Equipment ………..
Prepaid Insurance …………………………..………………..
Property Taxes Payable ……………………………………
Record other factory overhead.
i.
Work in Process Inventory ……………………………………..
Factory Overhead ……………………………………………..
[($7,000 + $2,000) x 200%].
Problem 15-3B (Continued)
Part 3
GENERAL LEDGER ACCOUNTS
Raw Materials Inventory
(a)
125,000
(b)
92,000
Bal.
33,000
Work in Process Inventory
Factory Overhead
(b)
80,000
(f)
233,000
(b)
12,000
(e)
118,000
(d)
68,000
(c)
11,000
(i)
18,000
(e)
118,000
(d)
16,000
(i)
18,000
(h)
96,000
Bal.
51,000
Bal.
1,000
Part 4
Reports of Job Costs*
Work in Process Inventory
Job 488 …………………………………..
$ 41,000
Job 491 …………………………………..
10,000
Balance …………………………………..
$ 51,000
Finished Goods Inventory
Job 490 …………………………………..
$ 92,000
Balance …………………………………..
$ 92,000
Job 487 …………………………………..
$ 54,000
Job 489 …………………………………..
Balance …………………………………..
$141,000
Problem 15-4B (35 minutes)
Part 1
a. Predetermined overhead rate
= = = 50%
b. Overhead costs charged to jobs
Direct
Applied
Job No.
Labor
Overhead (50%)
625 ……………………………………………………….
$ 354,000
$177,000
626 ……………………………………………………….
330,000
165,000
627 ……………………………………………………….
175,000
628 ……………………………………………………….
420,000
210,000
629 ……………………………………………………….
184,000
630 ……………………………………………………….
c. Overapplied or underapplied overhead determination
Actual overhead cost………………………………………………………
$725,000
Less applied overhead cost …………………………………………….
736,500
Overapplied overhead …………………………………………………….
$ (11,500)
Part 2
Dec. 31
Estimated overhead costs
Estimated direct labor cost
$750,000 $750,000
[50 x 2,000 x $15] $1,500,000
Problem 15-5B (90 minutes)
JOB COST SHEET
Customer’s Name
Encinita Company
Job No.
450
Direct Materials
Direct Labor
Overhead Costs Applied
Date
Requisition
Number
Amount
Time
Ticket
Number
Amount
Date
Rate
Amount
#223
16,000
#1–10
40,000
June —
70%
28,000
#224
SUMMARY OF COSTS
25,600
40,000
28,000
93,600
25,600
40,000
JOB COST SHEET
Customer’s Name
Fargo, Inc.
Job No.
451
Direct Materials
Direct Labor
Overhead Costs Applied
Date
Number
Amount
Number
Amount
Rate
Amount
#225
#11–20
32,000
#226
Requisition
Time
Ticket
SUMMARY OF COSTS
Dir. Materials …………………………..
Dir. Labor …………………………..
Overhead …………………………..
______
Total cost of Job …………………………..
.
Total
Total
Problem 15–5B (Continued)
MATERIALS LEDGER CARD
Item
Material M
Received
Issued
Balance
Date
Receiving
Report
Units
Unit
Price
Total
Price
Requi–
sition
Units
Unit
Price
Total
Price
Units
Unit
Price
Total
Price
June 1
120
200
24,000
30,000
270
200
54,000
#223
80
200
16,000
190
200
38,000
#225
40
200
8,000
150
200
30,000
MATERIALS LEDGER CARD
Item
Material R
Received
Issued
Balance
Date
Receiving
Report
Units
Unit
Price
Total
Price
Requi–
sition
Units
Unit
Price
Total
Price
Units
Unit
Price
Total
Price
80
160
12,800
70
11,200
150
160
24,000
#224
60
160
9,600
90
160
14,400
#226
30
160
4,800
60
160
9,600
MATERIALS LEDGER CARD
Item
Paint
Received
Issued
Balance
Date
Receiving
Report
Units
Unit
Price
Total
Price
Requi–
sition
Units
Unit
Price
Total
Price
Units
Unit
Price
Total
Price
June 1
44
72
3,168
#227
12
864
32
72
2,304
Problem 15-5B (Continued)
GENERAL JOURNAL
a.
Raw Materials Inventory …………………………………………
41,200
Accounts Payable …………………………………………….
41,200
Record materials purchases ($30,000+$11,200).
d.
Work in Process Inventory* ……………………………………
72,000
Factory Overhead …………………………..……………………..
12,000
Cash ………………………………………………………………..
84,000
Record direct & indirect labor.
*($40,000 + $32,000)
Factory Overhead …………………………..……………………..
36,800
Cash ………………………………………………………………..
36,800
Record other factory overhead.
e.
Finished Goods Inventory ……………………………………..
93,600
Work in Process Inventory ……………………………….
93,600
Record completion of jobs.
f.
Accounts Receivable ……………………………………………..
290,000
Sales ………………………………………………………………..
290,000
Record sales on account.
Cost of Goods Sold …………………………..…………………..
93,600
Finished Goods Inventory ………………………………..
93,600
Record cost of sales.
Work in Process Inventory* ……………………………………
38,400
Factory Overhead ………………………………………………….
Raw Materials Inventory ……………………………………
39,264
Record direct & indirect materials.
*($16,000 + $8,000 + $9,600 + $4,800)
i.
Work in Process Inventory …………………………………….
50,400
Factory Overhead …………………………………………….
50,400
Apply overhead ($28,000 + $22,400).
Problem 15-5B (Continued)
j. The ending balance in Factory Overhead is computed as:
Actual Factory Overhead
Miscellaneous overhead …………..
$36,800
Indirect materials ……………………..
864
Indirect labor …………………………...
12,000
Total actual factory overhead ……
49,664
1. The cost of direct materials requisitioned in the month equals the total
direct materials costs accumulated on the three jobs less the amount of
direct materials cost assigned to Job 602 in May:
Job 602 …………………………………………………………………
$1,500
Less prior costs …………………………………………………….
(600)
$ 900
Job 603 …………………………………………………………………
3,300
Job 604 …………………………………………………………………
2,700
Total materials used (requisitioned) ……………………….
$6,900
2. Direct labor cost incurred in the month equals the total direct labor
costs accumulated on the three jobs less the amount of direct labor cost
assigned to Job 602 in May:
Job 602 …………………………………………………………………
Less prior costs …………………………………………………….
Job 603 …………………………………………………………………
1,420
Job 604 …………………………………………………………………
Total direct labor ……………………………………………………
3. The predetermined overhead rate equals the ratio between the amount
of overhead assigned to the jobs divided by the amount of direct labor
cost assigned to them. Since the rate is assumed constant during the
year in this problem, and the same rate is used for all jobs within a
month, the ratio for any one of them equals the rate that was applied.
This table shows the ratio for jobs 602 and 604:
Job 602
Job 604
Overhead ……………………………………………………..
$ 400
$1,050
Direct labor …………………………………………………..
800
2,100
Predetermined overhead rate ………………………..
50%
50%
4. The cost transferred to finished goods in June equals the total costs of
the two completed jobs for the month, which are Jobs 602 and 603:
Job 602
Job 603
Total
Accounting Analysis — AA 15-1
1. Actual inventory changes and operating cash flow effects as found on
the cash flow statement (amounts are in $millions)
Apple
Year Ending
Sept. 30, 2017
Year Ending
Sept. 24, 2016
Inventory change ………………………..
Increase
Decrease
Operating cash
flow effect from
inventory change ………………………..
Decrease of
$2,723
Increase of
$217
2. A successful JIT system should reduce inventory levels (a). This
reduction in inventory should increase operating cash flows (b). In the
solution of part 1, notice that decreases in inventory yield increases in
operating cash flow, while increases in inventory yield decreases in
Comparative Analysis — AA 15-2
1.
Apple ($millions)
Year Ended
Sept. 30, 2017
Year Ended
Sept. 24, 2016
Gross margin …………………………..
$88,186
$84,263
Net sales …………………………..
Gross margin ratio ………………………
$229,234
0.385
$215,639
0.391
2.
Google ($millions)
Year Ended
Dec. 31, 2017
Year Ended
Dec. 31, 2016
Gross margin* …………………………..
$65,272
$55,134
3. For both Apple and Google, gross margin ratios decreased in fiscal-year
2017 relative to their ratios in fiscal-year 2016. Neither company
improved its control of costs during 2017.
Global Analysis — AA 15-3
1.
APPLE
As of Sept. 30,
2017
SAMSUNG
As of Dec. 31
2017
Inventory …………………………..
$4,855*
₩24,983,355**
2. Apple has a lower ratio of inventory to total assets (1.29%) compared to
Samsung (8.28%). Based on this ratio Apple’s inventory policy more
closely follows a JIT system.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 15
Ethics Challenge — BTN 15-1
Instructor note: This problem is designed to illustrate why the accounting professional
must be aware of management’s and employees’ biases when working with and relying
on accounting estimates and data.
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Suggested content outline
The obvious concern is that management is allocating more overhead to
government jobs compared to open market bid contracts. There is no
obvious reason for such behavior other than a profit motive.
Communicating in Practice — BTN 15-2
Student notes should include but not be limited to the following points:
1. You recommend replacing the general accounting (periodic inventory)
system with a cost accounting (perpetual inventory) system—
specifically a job order cost accounting system. Cost accounting
systems provide product cost information as products are
manufactured whereas the current system does not. The new system
2. This new system would require use of many different documents to
control the acquisition, use, and availability of materials. It also requires
documents for allocation of labor and overhead costs, and for finished
goods that are sold and unsold. The chapter illustrates many of these
source documents for a cost accounting system. You might also
3. The focal point of the new system is the job cost sheet, which is used to
accumulate and tally costs of goods as produced for each specific job
order and job lot. You could prepare a sample and explain and illustrate
how the system determines unit costs as production is completed.
Taking It to the Net — BTN 15-3
Instructor note: There is no single solution to this assignment.
The website [softwareconnect.com/construction/amsi-construction-
software/ ] provides details about what its job costing software can provide
to users. After careful examination, students can write a report to the CEO,
which may include the following points:
• Features of the software (including the tools it offers)
Teamwork in Action — BTN 15-4
1. A medical clinic can be considered as appropriate for a job order cost
accounting system. This is because each patient is unique in many
ways, such as the type/location of the illness (skin, heart, lung, etc.),
health condition (some may have diabetes or high blood pressure
2. In light of the differences identified in part 1, the doctors will consider
the individual characteristics of every patient in determining the type
and extent of treatment to be provided, the extent of counseling
required, and so forth. Each individual patient will therefore “consume”
Entrepreneurial Decision — BTN 15-5
1. A job cost sheet for a service company would likely not contain many
costs for direct materials. Often, service providers simply include
2. Examples of direct labor and overhead costs for Brennan Agranoff
include:
Direct Materials: Socks
Direct Labor: Wages/salaries of employees printing socks.
Overhead: Brennan’s overhead costs likely include the cost of supplies
(ink, packaging), insurance, licenses and permits, and depreciation on
printing equipment.
Hitting the Road — BTN 15-6
1. The framework for the job cost sheet should follow that in the third
exhibit in the chapter. This includes the descriptions for: company
name, date, quantity, etc. In addition, the direct costs should include
subcontract work, such as electrical and plumbing. The response for
2. Results of the comparison of job cost sheets to a builder’s actual job
cost sheets depend on the builder chosen and the format used.