3-41
PROBLEM 3-56 (25 MINUTES)
1.
Quarter
Predetermined
Overhead Rate
Calculations
2.
February
May
Direct material………………………………………
$600
$600
Direct labor ………………………………………….
Manufacturing overhead:
3.
February
May
Total cost …………………………………………….
$1,100
$1,140
Markup (10%) ……………………………………….
110
4.
hours labor–direct budgeted annual
overhead ingmanufactur budgeted annual
rate nedPredetermi =
5.
February
May
Direct material………………………………………..
$ 600.00
$ 600.00
Direct labor ……………………………………………
PROBLEM 3-56 (CONTINUED)
6.
Total cost ………………………………………………
$1,117.80
Markup (10%) …………………………………………
$1,229.58
3-43
PROBLEM 3-57 (55 MINUTES)
The answers to the questions are as follows:
1.
$648,000
6.
$180,000
2.
$57,000
7.
$450,000
3.
$210,000
8.
$120,000
4.
$114,000
9.
$45,000
5.
$240,000
Zero
The completed T accounts, along with supporting calculations, follow.
Raw-Material Inventory
Accounts Payable
Bal. 8/31
45,000
36,000
Bal. 8/31
210,000
120,000
243,000
210,000
Bal. 9/30
135,000
3,000
Bal. 9/30
Work-in-Process Inventory
Finished-Goods Inventory
Bal. 8/31
24,000
Bal. 8/31
105,000
Direct
450,000
450,000
540,000
material
Bal. 9/30
15,000
Direct
labor
Overhead
540,000
Bal. 9/30
Manufacturing Overhead
Sales Revenue
180,000
180,000
648,000
Wages Payable
Accounts Receivable
3,000
Bal. 8/31
Bal. 8/31
24,000
238,500
240,000
648,000
615,000
Bal. 9/30
Bal. 9/30
57,000
Supporting Calculations:
3-44
PROBLEM 3-57 (CONTINUED)
2.
Ending balance in accounts receivable
=
=
$24,000 + $648,000 – $615,000
=
$57,000
beginning balance + sales revenue
3.
Purchases of raw material
=
addition to accounts payable
Addition to accounts payable
=
ending balance + payments
=
$3,000 + $243,000 – $36,000
=
$210,000
4.
September 30 balance in
work-in-process inventory
=
direct
material
+
direct
labor
+
manufacturing
overhead
=
$61,500 + (1,500)($20) + (1,500)($15*)
*Predetermined overhead rate
=
†
hours labor–direct budgeted
overhead budgeted
=
$15 per direct-labor hour
5.
Addition to work in process
for direct labor
=
September credit to
wages payable
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-45
PROBLEM 3-57 (CONTINUED)
6.
September applied overhead
=
direct labor hours predetermined overhead rate
7.
Cost of goods completed
during September
=
beginning
balance in
work in
process
+
additions
during
September
–
ending balance in
work in process
=
$24,000 + ($120,000 + $240,000 + $180,000) – $114,000
=
$450,000
9.
August 31 balance in
raw-material inventory
=
=
$135,000 + $120,000 – $210,000
=
$45,000
September 30
balance in raw-
+
direct
material
–
purchases
10.
Overapplied or underapplied overhead = actual overhead – applied overhead
= $180,000 – $180,000 = 0
3-46
PROBLEM 3-58 (75 MINUTES)
1.
hours labor–direct budgeted
overhead ingmanufactur budgeted
rate overhead nedPredetermi
=
2.
Journal entries:
(a)
Raw-Material Inventory ………………………………..
6,000
Accounts Payable ………………………………
6,000
(b)
Raw-Material Inventory ………………………………..
5,200
Accounts Payable ………………………………
5,200
(c)
Work-in-Process Inventory …………………………..
Raw-Material Inventory ……………………….
11,330
Manufacturing Overhead** …………………………...
Manufacturing-Supplies Inventory ……….
**Valve lubricant is an indirect material, so it is considered an overhead cost.
(d)
Work-in-Process Inventory …………………………..
36,000
Manufacturing Overhead ……………………………..
14,100
Wages Payable …………………………………..
50,100
Work-in-Process Inventory …………………………..
Manufacturing Overhead …………………….
39,600
(e)
Manufacturing Overhead ……………………………..
13,000
Accumulated Depreciation: Building and
Equipment ……………………………………….
13,000
Manufacturing Overhead ……………………………..
1,340
3-47
PROBLEM 3-58 (CONTINUED)
(g)
Manufacturing Overhead ……………………………..
2,400
Accounts Payable ………………………………
2,400
(h)
Manufacturing Overhead ……………………………..
2,370
Cash ………………………………………………….
2,370
(i)
Manufacturing Overhead ……………………………..
2,900
Prepaid Insurance ………………………………
2,900
(j)
Selling and Administrative Expenses ……………
7,500
Cash ………………………………………………….
7,500
(k)
Selling and Administrative Expenses ……………
4,500
Accumulated Depreciation: Buildings and
Equipment ……………………………………….
4,500
(l)
Selling and Administrative Expenses ……………
1,150
Cash ………………………………………………….
1,150
Finished-Goods Inventory ………………………….
37,130*
Work-in-Process Inventory ………………..
*Cost of Job T79:
Direct material (260 $5.50) …………….
$ 1,430
Manufacturing overhead (850 $22) ..
Total cost ……………………………………….
(n)
Accounts Receivable …………………………………
27,360*
Sales Revenue …………………………..………
Cost of Goods Sold ……………………………………
Finished-Goods Inventory ………………….
**18,565 = $37,130
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-48
PROBLEM 3-58 (CONTINUED)
3.
T-accounts and posting of journal entries:
Cash
Accounts Payable
Bal
11,000
14,500
Bal
1,340
(f)
6,000
(a)
2,370
5,200
(b)
7,500
2,400
(g)
1,150
Accounts Receivable
Wages Payable
20,000
(n)
50,100
(d)
Accumulated Depreciation:
Prepaid Insurance
Buildings and Equipment
Bal.
99,000
Bal.
13,000
(e)
4,500
(k)
Manufacturing-Supplies Inventory
Manufacturing Overhead
(d)
14,100
(e)
13,000
1,340
(g)
2,400
(h)
2,370
(i)
2,900
Raw-Material Inventory
Cost of Goods Sold
Bal.
(n)
(a)
(b)
Selling and Administrative
Work-in-Process Inventory
Expenses
(c)
(k)
4,500
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
PROBLEM 3-58 (CONTINUED)
Finished-Goods Inventory
Sales Revenue
4.
(a)
Calculation of actual overhead:
Indirect material (valve lubricant) …………………………………….
$ 120
Indirect labor ………………………………………………………………….
Depreciation: factory building and equipment ………………….
Rent: warehouse …………………………………………………………….
Utilities …………………………………………………………………………..
Property taxes ………………………………………………………………..
Insurance ……………………………………………………………………….
Total actual overhead ……………………………………………………..
(b)
Overapplied overhead
=
−
overhead
ingmanufactur applied
overhead
ingmanufactur actual
=
$36,230 – $39,600*
=
$3,370 overapplied
(c)
Manufacturing Overhead …………………………………………………
Cost of Goods Sold ……………………………………………….
PROBLEM 3-58 (CONTINUED)
5.
BANDWAY COMPANY
SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE MONTH OF OCTOBER
Direct material:
Raw-material inventory, October 1 …………………….
$150,000
Add: October purchases of raw material ……………
Raw material available for use …………………………..
$161,200
Deduct: Raw-material inventory, October 31 ………
Raw material used …………………………………………….
Direct labor …………………………………………………………….
Manufacturing overhead:
Indirect material ………………………………………………..
$ 120
Indirect labor ……………………………………………………
Depreciation on factory building and equipment ..
Utilities …………………………………………………………….
Property taxes ………………………………………………….
Insurance …………………………………………………………
Total actual manufacturing overhead ……………
Add: overapplied overhead ………………………….
Overhead applied to work in process …………………
39,600
Total manufacturing costs ……………………………………….
$ 86,930
Add: Work-in-process inventory, October 1 ………………
89,000
Subtotal ………………………………………………………………….
Deduct: Work-in-process inventory, October 31 ……….
Cost of goods manufactured ……………………………………
$ 37,130†
3-51
PROBLEM 3-58 (CONTINUED)
6.
BANDWAY COMPANY
SCHEDULE OF COST OF GOODS SOLD
FOR THE MONTH OF OCTOBER
Finished-goods inventory, October 1 ………………………………………………
$223,000
Add: Cost of goods manufactured …………………………………………………..
37,130
Cost of goods available for sale ………………………………………………………
$260,130
Deduct: Finished-goods inventory, October 31 ………………………………..
Cost of goods sold …………………………………………………………………………
Deduct: Overapplied overhead* ………………………………………………………
Cost of goods sold (adjusted for overapplied overhead) …………………..
7.
BANDWAY COMPANY
INCOME STATEMENT
FOR THE MONTH OF OCTOBER
Sales revenue ………………………………………………………………………………..
$27,360
Less: Cost of goods sold ……………………………………………………………….
Gross margin …………………………………………………………………………………
$12,165
Selling and administrative expenses …………………………..…………………..
Income (loss) …………………………………………………………………………………
3-52
PROBLEM 3-59 (20 MINUTES)
JOB-COST RECORD
Job Number
T79
Description
Trombones
Date Started
October 5
Date Completed
October 20
Number of Units Completed
76
Direct Material
Date
Requisition Number
Quantity
Unit Price
Cost
$1,430
Direct Labor
Date
Time Card Number
Hours
Rate
Cost
Manufacturing Overhead
Date
Cost Driver (Activity Base)
Quantity
Application Rate
Cost
Cost Summary
Cost Item
Amount
Total cost
$37,130
Unit cost
$488.55*
Total direct material
$ 1,430
Shipping Summary
Date
Units Shipped
Units Remaining
In Inventory
Cost Balance
*Rounded
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-53
PROBLEM 3-60 (50 MINUTES)
1.
Schedule of budgeted overhead costs:
Department A
Department B
Variable overhead
A 21,000 $17 ………………………………………………
$357,000
Fixed overhead …………………………………………………….
Total overhead ……………………………………………………..
Grand total of budgeted overhead (A + B):
hours labor–direct budgeted total
rate overhead budgeted total
rate overhead nedPredetermi
=
2.
Product prices:
Basic
System
Advanced
System
Total cost ……………………………………………………………
$1,190
$1,640
Markup, 10% of cost …………………………………………….
3.
Departmental overhead rates:
Department A
Department B
Budgeted overhead
(from requirement 1) ………………………………………..
$567,000
$315,000
Budgeted direct-labor hours ………………………………..
Predetermined overhead rates ……………………………..
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-54
PROBLEM 3-60 (CONTINUED)
4.
Revised product costs:
Basic
Advanced
System
System
Direct material …………………………………………………….
$ 450
$ 900
Direct labor …………………………………………………………
Manufacturing overhead:
Department A:
Department B:
5.
Revised product prices:
Basic
Advanced
System
System
Total cost ……………………………………………………………
Markup, 10% of cost …………………………………………….
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-55
PROBLEM 3-60 (CONTINUED)
6.
COLORTECH CORPORATION
Memorandum
Date:
Today
To:
President, ColorTech Corporation
From:
I. M. Student
Subject:
Departmental overhead rates
Until now the company has used a single, plantwide overhead rate in computing product
costs. This approach resulted in a product cost of $1,190 for the basic system and a cost of
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-56
SOLUTIONS TO CASES
CASE 3-61 (45 MINUTES)
1.
A job order costing system is appropriate in any environment where costs can be
readily identified with specific products, batches, contracts, or projects.
2.
The only job remaining in KidCo’s Work–in-Process Inventory on December 31 is
DRS114. The dollar value of DRS114 is calculated as follows:
DRS114 balance, 11/30 ……………………………………………….
$250,000
December additions:
Direct material used ……………………………………………
$124,000
Purchased parts …………………………………………………
Direct labor ………………………………………………………..
$807,750
3.
The dollar value of the playpens remaining in KidCo’s finished-goods inventory on
December 31 is $455,600, calculated as follows:
Playpen Units
Finished-goods inventory, 11/30 …………………………………………………..
19,400
Units completed in December ……………………………………………………….
15,000
Units available for sale …………………………………………………………………
34,400
Units shipped in December …………………………………………………………..
21,000
3-57
CASE 3-61 (CONTINUED)
Since KidCo uses the FIFO inventory method, all units remaining in finished- goods
Unit cost of playpens completed in December:
Work in process inventory, 11/30 ………………………………
$420,000
December additions:
Direct material used ……………………………………………..
Purchased parts …………………………………………………..
Direct labor ………………………………………………………….
Total cost …………………………………………………………………
$510,000
=
$34 per unit
=
$455,600
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-58
CASE 3-62 (50 MINUTES)
1.
Manufacturers use predetermined overhead rates to allocate to production jobs the
2.
The manufacturing overhead applied through November 30 is calculated as follows:
3.
The manufacturing overhead applied in December is calculated as follows:
4.
Underapplied manufacturing overhead through December 31 is calculated as follows:
Actual overhead ($2,200,000 + $192,000) …………………………………………….
Applied overhead ($2,190,000 + $180,000) …………………………..……………..
Underapplied overhead ……………………………………………………………………..
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-59
CASE 3-62 (CONTINUED)
5.
The balance in the Finished-Goods Inventory account on December 31 is comprised
only of Job No. N11-013 and is calculated as follows:
November 30 balance for Job No. N11-013 ……………………………………….
December direct material …………………………………………………………………
December direct labor ……………………………………………………………………..
Total finished-goods inventory ………………………………………………….
6.
Opticom’s Schedule of Cost of Goods Manufactured for the year just completed is
constructed as follows:
OPTICOM, INC.
SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31
Direct material:
Raw-material inventory, 1/1 …………………………………….
$ 210,000
Raw-material purchases ($1,930,000 + $196,000) ……..
Raw material available for use ………………………………..
Deduct: Indirect material used ($250,000 + $18,000) ..
Raw-material inventory 12/31 …………………….
Raw material used ………………………………………………….
Direct labor ($1,690,000 + $160,000) …………………………...
Manufacturing overhead:
Indirect material ($250,000 + $18,000) ……………………..
Indirect labor ($690,000 + $60,000) ………………………….
Utilities ($490,000 + $44,000) …………………………………..
Depreciation ($770,000 + $70,000) …………………………..
Total actual manufacturing overhead ………………………
Deduct: Underapplied overhead ……………………………..
Overhead applied to work in process ………………………….
Total manufacturing costs …………………………………………
Add: Work-in-process inventory, 1/1 …………………………..
Subtotal …………………………………………………………………….
Deduct: Work-in-process inventory, 12/31* …………………
Cost of goods manufactured ………………………………………
Chapter 03 – Product Costing and Cost Accumulation in a Batch Production Environment
3-60
CASE 3-62 (CONTINUED)
*Supporting calculations for work in process 12/31:
D12-002
D12-003
Total
Direct material ………………..
$ 75,800
$ 52,000
$127,800
Direct labor …………………….
Applied overhead:
FOCUS ON ETHICS (See page 107 in the text.)
Did Boeing exploit accounting rules to conceal cost overruns and production snafus?
According to the circumstances alleged in the Business Week article cited in the text
(page 107), Boeing did not handle its cost overruns, production problems, and the merger