Ex. 17.10 a. Materials Inventory …….………………………………. 125,000
Accounts Payable ……………………………….
125,000
f.
Accounts Receivable …………..…………………………
600,000
Sales ………………………………………………. 600,000
To record December sales on account.
Cost of Goods Sold ………..………………………………
Selling and Administrative Expenses ……………….….
To record the purchase of direct materials on account.
Work in Process Inventory ………..………………………
Work in Process Inventory ……………………………….
Manufacturing Overhead …………………………………
Ex. 17.10 h.
Cost of Goods Sold …………..……………………………
10,000
(continued)
10,000
Ex. 17.11 a. Actual manufacturing overhead ………………………………………… 200,000$
Debit balance in Manufacturing Overhead account ………………… (40,000)
Direct labor ………………………………………………………………..
e. Beginning Work in Process Inventory …………………………………. 50,000$
Total manufacturing costs charged to production ……………………. 590,000
Gross Profit ………………………………………………………………..
Ex. 17.12 a.
Beginning Materials Inventory ……………………………………….
16,000$
b.
Beginning Work in Process Inventory ……………………………….
34,000$
Direct materials used ………………………………………………….
104,000
Direct labor incurred …………………………………………………..
Manufacturing overhead applied ……………………………………..
Costs transferred to finished goods ………………………………….
Beginning Finished Goods Inventory ………………………………..
Cost of completed goods manufactured …………………………….
Cost of Goods Sold ……………………………………………………
Computations:
3
Cost of finished goods available for sale ……………………………..
450,000$
$500,000 sales × 75% = $375,000 cost of goods sold
Manufacturing overhead = $475,000 × 60% = $285,000
Materials purchased …………………………………………………..
Materials used …………………………………………………………
Ex. 17.13 a. Work in Process Inventory:
Job no. 1000 ……………………………………………………………
12,400$
Job no. 1001 …………………………………………………………….
15,000
b. Finished Goods Inventory:
Job no. 1002, February 28 …………………………………………….
2,000$
There is no Finished Goods Inventory balance on March 31.
c.
Sales …………………………………………………………………….
78,750$
Cost of Job no. 1000 ($12,400 + $6,800) ……………………………. 19,200
*
Cost of Job no. 1001 ($15,000 + $7,400 + $1,400) …………………..
Cost of Job no. 1002 …………………………………………………..
Gross Profit ……………………………………………………………..
Ex. 17.14 a.
Power-cost pool: Machine hours
Inspection-cost pool: Number of inspection hours
The most likely cost drivers for each cost pool are:
Work in Process Inventory, February 28 …………………………….
Job no. 1003 ……………………………………………………………
Job no. 1004 …………………………………………………………….
Work in Process Inventory, March 31 ……………………………….
% of total
Machine hours used for machine-made costumes …………
96,000 96%
Step 2:
Allocation of inspection-cost pool to each product line:
Step 1:
% of total
Costs assigned to machine-made costumes ($48,000 × 80%) ……..
Costs assigned to hand-made costumes ($48,000 × 20%) ……….
b.
Machine-
Made
Costumes
Hand-
Made
Costumes
$ 120,000 $ 96,000
30,720 1,280
38,400 9,600
$ 189,120 $ 106,880
$ 3.94 $ 6.68
Manufacturing cost per unit ……………………..
Power (from a)…………………………..
Inspection (from a) ……………………..
Number of units …………………………………..
Total manufacturing costs ……………………….
Allocate $32,000 in power-cost pool to each product line based on the
percentages computed in step 1.
Establish the percent of power-cost pool to be allocated to each product
line using the number of inspection hours as an activity base.
Direct labor and materials ………………………..
Manufacturing overhead costs:
Machine hours used for hand-made costumes………..
Ex. 17.14
(continued)
c.
Machine-
Made
Costumes
Hand-Made
Costumes
$ 240,000 $ 160,000
Ex. 17.15 a.
Direct materials ………………………………………………………….
$ 14,000
Direct labor ……………………………………………………………….
15,000
Maintenance ($40,000 × 60/600 machine hours) ……………………….
4,000
Materials handling ($20,000 × 20/400 moves) ……………………………
1,000
Setups ($10,000 × 4/100 setups) …………………………………………..
400
Quality control ($45,000 × 2/300 inspections) ……………………………..
300
Sales
$ 50,880 $ 53,120
Profit generated by product line
Direct labor and materials
Manufacturing overhead costs:
Number of units
SOLUTIONS TO PROBLEMS SET A
20 Minutes, Easy
PROBLEM 17.1A
JENSEN FENCES
a.
Manufacturing overhead charged to jobs in process,
June 30:
Direct labor charged to jobs in process, June 30 1,600$
Overhead application rate 125%
Manufacturing overhead applied to jobs
b.
(1) Work in Process Inventory 45,000
Materials Inventory 18,000
Direct Labor 12,000
Manufacturing Overhead 15,000
To record costs charged to jobs during June.
(2) Finished Goods Inventory 44,000
Work in Process Inventory 44,000
To transfer cost of jobs completed in June to Finished
Goods Inventory.
(3) Cash 50,000
Sales 50,000
To record cash sale of 80% of goods completed in June.
Cost of Goods Sold 35,200
Finished Goods Inventory 35,200
To record cost of goods sold ($44,000 × 80%).
General Journal
Direct materials charged to jobs in process, June 30:
Manufacturing overhead included 2,000 3,600
15 Minutes, Easy
PROBLEM 17.2A
O’SHAUGHNESSY MFG. CO.
General Journal
a. Materials Inventory 59,700
Accounts Payable 59,700
To record purchases of direct materials during March.
d. Direct Labor 26,300
Cash 26,300
To record direct labor payrolls paid in March.
e. Manufacturing Overhead 34,900
Accounts Payable 34,900
To record actual overhead costs in March.
f. Work in Process Inventory 36,000
Manufacturing Overhead 36,000
To record overhead applied to production during March
($18 per labor hour × 2,000 hours = $36,000).
g. Finished Goods Inventory 116,000
Work in Process Inventory 116,000
To record cost of completed jobs in March.
h. Accounts Receivable 210,000
To summarize credit sales in March.
Finished Goods Inventory 128,000
To record cost of units sold during March.
b. Work in Process Inventory 56,200
Materials Inventory 56,200
To record materials placed into production during
March, per materials requisitions.
c. Work in Process Inventory 30,000
Direct Labor 30,000
To record direct labor costs applicable to production
30 Minutes, Medium
PROBLEM 17.3A
GEORGIA WOODS, INC.
a. Department One overhead application rate based on machine-hours:
b. Job no. 58:
Dept. One Total
Direct materials 10,100$ 17,700$
Direct labor 16,500 27,600
Manufacturing overhead:
Total cost of job no. 58 88,200$
16,650
c.
Accounts Receivable (City Furniture)
Sales 147,000
To record revenue from sale to City Furniture.
Cost of Goods Sold
Finished Goods Inventory 88,200
To record cost of goods sold (job no. 58) to City Furniture.
88,200
d.
Dept. Two
Actual manufacturing overhead for January 26,540$
Manufacturing overhead applied to jobs:
General Journal
39,010$
Dept. One
11,100
147,000
Dept. Two
7,600$
30 Minutes, Medium
PROBLEM 17.4A
PRECISION INSTRUMENTS, INC.
a. Department A overhead application rate:
b. Job no. 399:
Total
Direct materials 11,300$
Direct labor
15,300
Manufacturing overhead:
Total cost of job no. 399 44,000$
Unit cost, $44,000 ÷ 4,000 units 11$
9,900
7,500
c.
Accounts Receivable (SkiCraft Boats)
Sales 19,500
Sale on account to SkiCraft Boats.
Cost of Goods Sold
Finished Goods Inventory 11,000
Sold 1,000 units from job no. 399
(1,000 units × $11 = $11,000)
d.
Dept. B
Actual overhead for the year 424,400$
Overhead applied:
7,000$
Dept. A
517,000$
General Journal
19,500
Dept. A
Dept. B
6,800$
8,100
7,200
4,500$
35 Minutes, Medium
PROBLEM 17.5A
YE OLDE BUMP & GRIND, INC.
a. (1)
123,000$
10,000
12.30$
(2)
b. (1)
25.00$
75.00
61.50
Total cost of Job 1 161.50$
$3,800
3,000
2,460
Total cost of Job 2 9,260$
Direct materials used
Direct labor costs
Overhead applied (200 hr. × $12.30 per hr.)
(2)
25$
Total cost of Job 1 510$
3,800$
3,000
Overhead applied ($410 per job)
Direct materials used
Job 2:
Direct labor
Direct labor costs
Overhead application rate based on direct labor hours:
Estimated total overhead
Estimated direct labor hours
Overhead application rate per direct labor hour ($123,000 ÷ 10,000 hours)
Overhead application rate based upon number of repair jobs:
Job 1:
Overhead applied on a per-job basis:
Job 1:
Direct materials used
Direct labor costs
Overhead applied using direct labor hours:
Overhead applied (5 hr. × $12.30 per hr.)
Job 2:
Direct materials used
123,000$
Estimated number of repair jobs
Estimated total overhead
Overhead application rate per repair job ($123,000 ÷ 300 jobs)
PROBLEM 17.5A
YE OLDE BUMP & GRIND, INC. (concluded)
c.
Comments on the alternative overhead applications:
Allocating overhead based upon the number of jobs assumes that each repair job should be
charged with an equal amount ($410) of overhead. This allocation method ignores the fact
In this business, direct labor hours appear to be the major causal factor in the incurrence of
overhead costs. The use of indirect materials (sandpaper, welding materials, and metal
putty) is likely to be greater on jobs requiring more direct labor hours. As rent is a
percentage of gross revenue, large jobs cause the business to incur higher rent costs than do
30 Minutes, Medium
PROBLEM 17.6A
NORTON CHEMICAL COMPANY
a.
base.
% of total
Costs assigned to the order cost pool ($80,000 × 20%)
b.
Purchase orders for Amithol
Costs assigned to Amithol ($16,000 × 20%)
Assign total purchasing department costs of
Establish the percent of order cost pool to be
Allocate $16,000 in the order cost pool to each
$80,000 to each activity cost pool based on the
percentages computed in step 1.
allocated to each product line using the number
of purchase orders as an activity base.
Step 2:
Step 2:
product line based on the percentages computed
in step 1.
Assigning purchasing department costs to activity pools:
Step 1:
Establish the percent of purchasing department
costs to be assigned to each activity cost pool
using the number of employees as an activity
Step 1:
Order cost pool allocated to product lines:
Employees responsible for ordering
PROBLEM 17.6A
NORTON CHEMICAL COMPANY (concluded)
c.
Costs allocated to Bitrite ($64,000 × 25%)
Total inspection costs allocated to products
Costs allocated to Amithol ($64,000 × 75%)
d.
(1)
(2)
If possible, the company needs to consider making larger orders of Bitrite material on a
Step 2:
Norton might control manufacturing overhead costs incurred by the purchasing department
in two ways:
Allocate $64,000 in the inspection cost pool
to each product line based on the percentages
computed in step 1.
The company needs to work more closely with the supplier of materials used to make
of inspections as an activity base.
Inspection cost pool allocated to product lines:
Step 1:
Establish the percent of inspection cost pool to be
allocated to each product line using the number
Inspections for Bitrite
Total inspections
Inspections for Amithol
45 Minutes, Strong
PROBLEM 17.7A
DIXON ROBOTICS
a.
Compute the overhead application rate per MH:
$2.50 per MH
Compute required machine hours on a per-unit basis:
A3B4 (20,000 MH ÷ 6,250 units)
A3B4 (3.2 MH per unit × $2.50 per MH)
Compute maintenance costs allocated to each product
Step 4:
on a per-unit basis:
Maintenance department costs allocated to each product line on a
per-unit basis using machine hours (MH):
Compute total MH at “normal” production levels:
Step 3:
Step 1:
Step 2:
Overhead application rate ($100,000 ÷ 40,000 MH)
Total MH at normal production levels
C3PO
PROBLEM 17.7A
DIXON ROBOTICS (continued)
b.
Costs assigned to the janitorial cost pool ($100,000 × 80%)
Costs assigned to the repairs cost pool ($100,000 × 20%)
Total costs assigned to cost pools
% of total
Production runs for BC11
Production runs for C3PO
Total production runs
in step 1.
Total order costs allocated to products
Costs allocated to BC11 ($20,000 × 37.5%)
Costs allocated to A3B4 ($20,000 × 12.5%)
Costs allocated to C3PO ($20,000 × 50.0%)
Step 1:
Establish the percent of repairs cost pool to be
Assign total maintenance department costs of
$100,000 to each activity cost pool based on the
Step 2:
percentages computed in step 1.
product line based on the percentages computed
Step 2:
Allocate $20,000 in the repairs cost pool to each
allocated to each product line using the
Assigning maintenance department costs to activity pools:
Step 1:
Allocating repairs cost pool to product lines:
number of production runs as an activity base.
Establish the percent of maintenance department
costs to be assigned to each activity cost pool
using the number of work orders as an
activity base.
% of total
Work orders for janitorial activities
Work orders for repair activities
Total work orders issued
PROBLEM 17.7A
DIXON ROBOTICS (concluded)
in step 1.
Costs allocated to C3PO ($80,000 × 62.5%)
Total order costs allocated to products
Costs allocated to A3B4 ($80,000 × 12.5%)
Costs allocated to BC11 ($80,000 × 25.0%)
A3B4 BC11 C3PO Total
$ 2,500 $ 7,500 $ 10,000 $ 20,000
10,000 20,000 50,000 80,000
$ 12,500 $ 27,500 $ 60,000 $ 100,000
$ 2.00 $ 5.50 $ 24.00
Maintenance cost per unit
Total costs allocated
Units produced
c.
A3B4 BC11 C3PO
Maintenance cost per unit (Using ABC)
Maintenance cost per unit (Using MH)
Allocating janitorial cost pool to product lines:
Establish the percent of janitorial cost pool to be
allocated to each product line using square
footage occupied as an activity base.
Step 1:
From janitorial cost pool
Allocate $80,000 in the janitorial cost pool to each
product line based on the percentages computed
Determining maintenance costs per unit using ABC:
Using machine hours as a single activity base is likely to result in significant cost distortions
Step 2:
From repairs cost pool
Square feet occupied by BC11
Square feet occupied by A3B4
Total square feet occupied
Square feet occupied by C3PO
45 Minutes, Strong
PROBLEM 17.8A
HEALTHY HOUND, INC.
a. Budgeted manufacturing overhead 24,600$
Budgeted direct labor hours (DLH) ÷ 2,500
b. Percent of cost driver assigned to each product line Basic Chunks Custom Cuts
Kilowatt hours:
Custom Cuts (10,000 KWH ÷ 100,000 KWH) 10%
Machine hours:
Basic Chunks (160 MH ÷ 200 MH) 80%
Custom Cuts (40 MH ÷ 200 MH) 20%
Square feet occupied:
Basic Chunks (60,000 Sq. Ft. ÷ 80,000 Sq. Ft.) 75%
Custom Cuts (20,000 Sq. Ft. ÷ 80,000 Sq. Ft.) 25%
Direct labor hours:
Basic Chunks (500 DLH ÷ 2,500 DLH) 20%
Custom Cuts (2,000 DLH ÷ 2,500 DLH) 80%
Manufacturing overhead allocated using ABC Basic Chunks Custom Cuts
Utilities cost pool (using KWH as a cost driver):
Basic Chunks (90% × $8,000) 7,200$
Custom Cuts (10% × $8,000) 800$
Maintenance cost pool (using MH as a cost driver):
Basic Chunks (80% × $1,000) 800
Custom Cuts (20% × $1,000) 200
Depreciation cost pool (using Sq. Ft. as a cost driver):
Basic Chunks (75% × $15,000) 11,250
Custom Cuts (25% × $15,000) 3,750
Miscellaneous cost pool (using DLH as a cost driver):
Basic Chunks (20% × $600) 120
Custom Cuts (80% × $600) 480
Total overhead allocated to each product line using ABC 19,370$ 5,230$
Manufacturing overhead application rate 9.84$ per DLH
Manufacturing overhead allocated using DLH Basic Chunks Custom Cuts
PROBLEM 17.8A
HEALTHY HOUND, INC. (concluded)
c. Total manufacturing costs allocated to each product line Basic Chunks Custom Cuts
Direct Labor:
Basic Chunks (50,000 bags × $12 per DLH × 0.01 DLH) 6,000$
Custom Cuts (20,000 cases × $12 per DLH × 0.10 DLH) 24,000$
d.
e.
The Custom Cuts product line is very labor intensive in comparison to the Basic Chunks
product line. Thus, the company’s current practice of using direct labor hours to allocate
The benefits the company would achieve by implementing an activity-based costing system
Direct Materials:
Basic Chunks (50,000 bags × $2 per bag) 100,000
Custom Cuts (20,000 cases × $4 per case) 80,000
Manufacturing Overhead (allocate using ABC):