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E21-7 Prepare a production report
The Sanding Department of Quik Furniture Company has the following production and manufacturing cost
data for March 2017, the first month of operation.
Production: 7,000 units finished and transferred out; 3,000 units started that are 100% complete as to
materials and 20% complete as to conversion costs.
Manufacturing costs: Materials $33,000; labor $21,000; overhead $36,000.
Instructions
Prepare a production cost report.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
Physical
Units
Materials
Conversion
Costs
Units to be accounted for
Work in process, March 1 Value
Started into production Value
Total units ?
Units accounted for
Transferred out Value Value Value
Work in process, March 31 Value Value ?
Total units ? ? ?
Costs
Materials
Conversion
Costs
Total
Unit costs
Total cost(a) ? ? ?
Equivalent units (b) Value Value
Unit costs (a) ÷ (b) ? ? ?
Costs to be accounted for
Work in process, March 1 Value
Started into production Value
Total costs ?
Cost Reconciliation Schedule
Cost accounted for
Transferred out Value
Work in Process, March 31
Materials Value
Conversion costs Value ?
Total costs ?
After you have completed the requirements of E21-7, consider this additional question.
1.
Assume that 9,000 units were completed and transferred out. Show the impact of this change
on the calculation of equivalent units, unit cost, and on the cost reconciliation schedule.
Equivalent Units
Quantities
QUIK FURNITURE COMPANY
Sanding Department
Production Cost Report
For the Month ended March 31, 2017
E21-7 Solution
Physical
Units
Materials
Conversion
Costs
Units to be accounted for
Work in process, March 1 0
Started into production 10,000
Total units 10,000
Costs
Materials
Conversion
Costs
Total
Unit costs
Total cost (a) $33,000 $57,000 $90,000
Costs to be accounted for
Work in process, March 1 $0
Cost Reconciliation Schedule
Cost accounted for
Transferred out (7,000 x $10.80) $75,600
Work in Process, March 31
Quantities
QUIK FURNITURE COMPANY
Sanding Department
Production Cost Report
For the Month ended March 31, 2017
Equivalent Units
E21-7 Solution to additional question
1. Assume that 9,000 units were completed and transferred out. Show the impact of this change
on the calculation of equivalent units, unit cost, and on the cost reconciliation schedule.
Physical
Units
Materials
Conversion
Costs
Units to be accounted for
Work in process, March 1 0
Started into production 10,000
Total units 10,000
Units accounted for
Costs
Materials
Conversion
Costs
Total
Costs to be accounted for
Work in process, March 1 $0
Cost Reconciliation Schedule
Cost accounted for
Transferred out (9,000 x $9.50) $85,461
Quantities
QUIK FURNITURE COMPANY
Sanding Department
Production Cost Report
For the Month ended March 31, 2017
Equivalent Units
E21-11 Compute equivalent units, unit costs, and costs assigned.
The Polishing Department of Major Company has the following production and manufacturing cost data for September.
Materials are entered at the beginning of the process.
Production: Beginning inventory 1,600 units that are 100% complete as to materials and 30% complete as to
conversion costs; units started during the period ar 42,900; ending inventory of 5,000 units 10% complete as to
conversion costs.
Manufacturing costs: Beginning inventory costs, comprised of $20,000 of materials and $43,180 of conversion
costs; material costs added in Polishing during the month, $175,800; labor and overhead applied in Polishing during the
month, $125,680 and $257,140, respectively.
Instructions
(a) Compute the equivalent units of production for materials and conversion costs for the month of September.
(b) Compute the unit costs for materials and conversion costs for the month.
(c ) Determine the costs to be assigned o the units transferred out and in process.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Compute the equivalent units of production for materials and conversion costs for the month of September.
Physical
Units
Work in process, September 1 Value
Units started into production Value
?
Units transferred out Value
Work in process, September 30 Value
?
Conversion
Materials Costs
Units transferred out Value Value
Work in process, September 30 Value Value
? ?
(b) Compute the unit costs for materials and conversion costs for the month.
Direct Conversion
Materials Costs Total
Work in process, September 1 Value Value ?
Costs added to production
during September Value Value ?
Total costs ? ? ?
Cost per equivalent units ? ? ?
(c ) Determine the costs to be assigned to the units transferred out and in process.
Costs accounted for
Transferred out ?
Work in process, September 30
Materials Value
Conversion costs Value ?
Total costs ?
After you have completed the requirements of E21-11, consider this additional question.
1. Assume that 3,750 units remained in ending work in process and total conversion costs added during September changed to $359,695.
Show the impact of this change on the calculation of equivalent units, unit cost, and on the cost reconciliation schedule.
(Round calculation of cost per equivalent units to 3 decimal points.)
Equivalent Units
E21-11 Solution
(a) Compute the equivalent units of production for materials and conversion costs for the month of September.
Physical
Units
Conversion
Materials Costs
Units transferred out 39,500 39,500
(b) Compute the unit costs for materials and conversion costs for the month.
Direct Conversion
Materials Costs Total
(c) Determine the costs to be assigned to the units transferred out and in process.
Costs accounted for
Equivalent Units
E21-11 Solution to additional question
1. Assume that 3,750 units remained in ending work in process and total conversion costs added during September changed to $359,695.
Show the impact of this change on the calculation of equivalent units, unit cost, and on the cost reconciliation schedule.
(Round calculation of cost per equivalent units to 3 decimal points.)
(a) Compute the equivalent units of production for materials and conversion costs for the month of September.
Physical
Units
Direct Conversion
Materials Costs
(b) Compute the unit costs for materials and conversion costs for the month. (Round to 3 decimal places.)
Direct Conversion
(c ) Determine the costs to be assigned to the units transferred out and in process.
Costs accounted for
Equivalent Units
E21-16 Compute overhead rates and assign overhead using ABC
Major Instruments, Inc. manufactures two products: missile range instruments and space pressure gauges. During April,
50 range instruments and 300 pressure gauges were produced, and overhead costs of $94,500 were estimated. An
analysis of estimated overhead costs reveals the following activities.
Total Cost
1. Materials handling Number of requisitions $40,000
2. Machine setups Number of setups 27,500
3. Quality inspections Number of inspections 27,000
$94,500
The cost driver volume for each product was as follows.
Instruments Gauges Total
Number of requisitions 400 600 1,000
Number of setups 200 300 500
Number of inspections
200 400 600
Instructions
(a) Determine the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.
and compute the overhead cost per unit.
(c) Write a memorandum to the president of Major Instruments explaining the benefits of activity-based costing.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) The overhead rates are:
Expected Use
Estimated ÷ of Cost Driver/ = Activity-Based
Overhead Activity OH Rates
Materials Handling Value Value ? / requisition
Machine Setups Value Value ? / setup
Quality inspections Value Value ? / inspection
(b)
The assignment of overhead costs to products is as follows:
Cost
Number Cost Number Cost Assigned
Requisitions Value ? Value ? ?
Machine setups Value ? Value ? ?
Inspections Value ? Value ? ?
Total costs assigned ? ? ?
Units produced Value Value
OH cost per unit ? ?
`
After you have completed E21-16, consider the additional question.
1. Assume that total estimated overhead costs changed to $190,000 and the estimated overhead for
materials handling, machine setup and quality inspection changed to $105,000, $38,000 and
$47,000 respectively. Redo instructions (a) to (b) and round overhead rates to two decimal points.
Gauges
Cost Driver
Activities
Cost Drivers
Cost Drivers
Activity Cost Pools
Instruments
E21-16 Solution
(a) Determine the overhead rate for each activity.
The overhead rates are:
Expected Use
Estimated ÷ of Cost Driver/ = Activity-Based
Overhead Activity OH Rates
Materials Handling $40,000 1,000 $40 / requisition
(b)
Assign the manufacturing overhead costs for April to the two products using activity-based costing.
The assignment of overhead costs to products is as follows:
Cost
Number Cost Number Cost Assigned
Requisitions 400 $16,000 600 $24,000 $40,000
Machine setups 200 $11,000 300 $16,500 $27,500
`
(c ) Write a memorandum to the president of Major Instruments, Inc. explaining the benefits of activity-based costing.
To: President, Major Instrument, Inc.
From: Student
Re: Benefits of activity-based costing (ABC)
ABC focuses on the activities performed in producing a product. Overhead costs are assigned to
products based on cost drivers that measure the activities performed on the product.
Activity Cost Pools
Instruments
Gauges
Cost Driver
MEMO
E21-16 Solution to Additional Question
1. Assume that total estimated overhead costs changed to $190,000 and the estimated overhead for
materials handling, machine setup and quality inspection changed to $105,000, $38,000 and
$47,000 respectively. Redo instructions (a) to (b) and round overhead rates to two decimal points.
(a) Determine the overhead rate for each activity.
Expected Use
Estimated ÷ of Cost Driver/ = Activity-Based
Overhead Activity OH Rates
Activity Cost Pools
(b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.
The assignment of overhead costs to products is as follows:
Cost
Cost Driver Number Cost Number Cost Assigned
Requisitions 400 $42,000 600 $63,000 $105,000
Machine setups 200 $15,200 300 $22,800 $38,000
(c) Write a memorandum to the president of Major Instrument explaining the benefits of activity-based costing.
MEMO
To: President, Major Instrument, Inc.
From: Student
Re: Benefits of activity-based costing (ABC)
ABC focuses on the activities performed in producing a product. Overhead costs are assigned to
products based on cost drivers that measure the activities performed on the product.
The overhead rates are:
Instruments
Gauges
P21-7A Assign overhead to products using ABC and evaluate decision
Schultz Electronics manufactures two large-screen television models: the Royale which sells for $1,600 and
a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing
for each model in 2017 as follows.
Royale Majestic
Direct materials $700 $420
Direct labor ($20 per hours)
120 100
Manufacturing overhead ($38 per DLH) 228 190
Total per unit cost $1,048 $710
In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of
$38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the
total direct labor hours (200,000) for the two models.
Under traditional costing, the gross profit on the models was Royale 552 or ($1,600 - $1,048) and Majestic $590 or
($1,300 - $710). Because of this difference, management is considering phasing out the Royale model and increasing
the production of the Majestic model.
Before finalizing its decision, management asks Schultz's controller to prepare an analysis using activity-based
costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017.
Estimated Estimated Use Activity-Based
Activities
Overhead of Cost Drivers
Overhead
Rates
Purchasing Number of orders $1,200,000 40,000 $30/order
Machine setups Number of setups 900,000 18,000 $50/setup
Machining Machine hours 4,800,000 120,000 $40/hour
Quality control Number of inspections 700,000 28,000 $25/inspection
The cost drivers used for each product were:
Cost Drivers Royale Majestic Total
Purchase orders 17,000 23,000 40,000
Machine setups 5,000 13,000 18,000
Machine hours 75,000 45,000 120,000
Inspections 11,000 17,000 28,000
Instructions
(a) Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and
determine the overhead cost per unit.
(b) What was the cost per unit and gross profit of each model using ABC?
(c) Are management's future plans for the two models sound? Explain.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) The allocation of total manufacturing overhead using activity-based costing is as follows:
Total
Overhead Rate Drivers Used Cost Assigned Drivers Used Cost Assigned Overhead
Purchase order@$30 Value ? Value ? ?
Machine setups @$50 Value ? Value ? ?
Machine hours @$40 Value ? Value ? ?
Inspections @$25 Value ? Value ? ?
Total assigned costs (a) ? ? ?
Units produced (b) Value Value
Cost per unit (a) ÷ (b) ? ?
Royale
Majestic
Traditional Costing
Cost Drivers
(b) The cost per unit and gross profit of each model under ABCwere:
Royale Majestic
Direct materials Value Value
Direct labor Value Value
Manufacturing overhead Value Value
Total cost per unit ? ?
Sales price per unit Value Value
Cost per unit Value Value
Gross profit per unit ? ?
(c) Are management's future plans for the two models sound? Explain.
After you have completed P21-7A, consider the additional question.
1. Assume that the purchase orders used by Royale and Majestic changed to 19,000 and 21,000 respectively.
Also assume that the number of inspections used by Royale and Majestic models changed to 12,000 and 16,000
respectively. Redo instsructions (a) to (c ) and round cost and gross profit per unit to two decimal points.
P21-7A Solution
(a) The allocation of total manufacturing overhead using activity-based costing is as follows:
Total
Drivers Used Cost Assigned Drivers Used Cost Assigned Overhead
Purchase order@$30 17,000 $510,000 23,000 $690,000 $1,200,000
Machine setups @$50 5,000 250,000 13,000 650,000 900,000
(b) The cost per unit and gross profit of each model under ABC costing were:
Royale Majestic
Direct materials $700.00 $420.00
Direct labor 120.00 100.00
(c ) Are management's future plans for the two models sound? Explain.
Management's future plans for the two television models are not sound. Under ABC costing,
Royale
Majestic
Overhead Rate
P21-7A Solution to Additional Question
1. Assume that the purchase orders used by Royale and Majestic changed to 19,000 and 21,000 respectively.
Also assume that the number of inspections used by Royale and Majestic models changed to 12,000 and 16,000
respectively. Redo instsructions (a) to (c ) and round cost and gross profit per unit to two decimal points.
(a) The allocation of total manufacturing overhead using activity-based costing is as follows:
Total
Drivers Used Cost Assigned Drivers Used Cost Assigned Overhead
Purchase order@$30 19,000 $570,000 21,000 $630,000 $1,200,000
(b) The cost per unit and gross profit of each model under ABC costing were:
Royale Majestic
Direct materials $700.00 $420.00
Direct labor 120.00 100.00
(c ) Are management's future plans for the two models sound? Explain.
Royale
Majestic
Overhead Rate
CD21 -Excel Tutorial
CURRENT DESIGNS
Building a kayak using the composite method is a very labor-intensive process. In the Fabrication Department, the kayaks go through
several steps as employees carefully place layers of Kevlar® in a mold and then use resin to fuse together the layers. The excess resin is
removed with a vacuum process, and the upper shell and lower shell are removed from the molds and assembled. The seat, hatch, and other
components are added in the Finishing Department.
At the beginning of April, Current Designs had 30 kayaks in process in the Fabrication Department. Rick Thrune, the production manager,
estimated that about 80% of the material costs had been added to these boats, which were about 50% complete with respect to the conversion
costs. The costs of this inventory had been calculated to be $8,400 in materials and $9,000 in conversion costs.
During April, 72 boats were started. At the end of the month, the 35 kayaks in the ending inventory had 20% of the materials and 40% of
the conversion costs added to them.
A review of the accounting records for April showed that materials with a cost of $17,500 had been requisitioned by the Fabrication
Department and that the conversion costs for the month were $39,600.
Instructions
Complete a production report for April 2017 for the Fabrication Department using the weighted-average method.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
Physical
Units Materials
Conversion
Costs
Units to be accounted for
Work in process, April 1 Value
Started into production Value
Total units ?
Units accounted for
Transferred out Value Value Value
Work in process, April 30 Value Value ?
Total units ? ? ?
Costs
Materials
Conversion
Costs
Total
Unit costs
Total cost(a) ? ? ?
Equivalent units (b) Value Value
Unit costs (a) ÷ (b) ? ? ?
Costs to be accounted for
Work in process, April 1 ?
Started into production ?
Total costs ?
Cost Reconciliation Schedule
Cost accounted for
Transferred out ?
Work in Process, April 30
Materials ?
Conversion costs ? ?
Total costs ?
After you have completed the requirements of CD21, consider this additional question.
1. Assume that 25 kayaks remained in ending work in process and conversion costs incurred during the period changed to 42,500.
Show the impact of this change on the calculation of equivalent units, unit cost, and on the cost reconciliation schedule.
(Round calculation of cost per equivalent units to 3 decimal points.)
Equivalent Units
Quantities
CURRENT DESIGNS
Fabrication Department
Production Cost Report
For the Month ended April 30, 2017
CD21 - Solution
Physical
Units
Materials
Conversion
Costs
Units to be accounted for
Work in process, April 1 30
Started into production 72
Costs
Materials
Conversion
Costs
Total
Unit costs
Total cost(a) $25,900 $48,600 $74,500
Equivalent units (b) 74 81
Cost Reconciliation Schedule
Cost accounted for
Transferred out (67 x $950) $63,650
Work in Process, April 30
Quantities
CURRENT DESIGNS
Fabrication Department
Production Cost Report
For the Month ended April 30, 2017
Equivalent Units
CD21 - Solution to additional question
1. Assume that 25 kayaks remained in ending work in process and conversion costs incurred during the period changed to 42,500.
Show the impact of this change on the calculation of equivalent units, unit cost, and on the cost reconciliation schedule.
(Round calculation of cost per equivalent units to 3 decimal points.)
Physical
Units
Materials
Conversion
Costs
Units to be accounted for
Work in process, April 1 30
Total units 102
Units accounted for
Costs
Materials
Conversion
Costs
Total
Unit costs
Total cost(a) $25,900 $51,500 $77,400
Equivalent units (b) 82 87
Cost Reconciliation Schedule
Cost accounted for
Transferred out (77 x $907.808) $69,901
Quantities
CURRENT DESIGNS
Fabrication Department
Production Cost Report
For the Month ended April 30, 2017
Equivalent Units
