Exercise 3-17 (30 minutes)
1. The predetermined overhead rate is computed as follows:
Estimated fixed manufacturing overhead ………………
$0.75 per MH × 85,000 MHs …………………………...
63,750
Estimated total manufacturing overhead cost …………
$170,000
The predetermined overhead rate is computed as follows:
MHs
per MH
2. The amount of overhead cost applied to Work in Process for the year
would be: 80,000 machine-hours × $2.00 per machine-hour =
$160,000. This amount is shown in entry (a) below:
(Utilities)
14,000
(a)
160,000
(Insurance)
9,000
(Maintenance)
33,000
(Indirect materials)
(Indirect labor)
65,000
(Depreciation)
40,000
Balance
(Direct materials)
(Direct labor)
85,000
(Overhead)
(a)
160,000
3. Overhead is underapplied by $8,000 for the year, as shown in the
Manufacturing Overhead account above. The entry to close out this
balance to Cost of Goods Sold would be:
Cost of Goods Sold ………………………………..
Exercise 3-17 (continued)
4. When overhead is applied using a predetermined rate based on
machine-hours, it is assumed that overhead cost is proportional to
machine-hours. When the actual level of activity turns out to be 80,000
Exercise 3-18 (45 minutes)
1 a. The estimated total manufacturing overhead cost is computed as
follows:
Y = $1,100,000 + $5.00 per MH × 50,000 MHs
Estimated fixed manufacturing overhead ………………
$1,100,000
Estimated variable manufacturing overhead
$5.00 per MH × 50,000 MHs …………………………...
250,000
Estimated total manufacturing overhead cost …………
$1,350,000
MHs
per MH
1 b and 1 c. Total manufacturing cost assigned to Jobs D-75 and C-100:
D-75
C–100
Direct materials …………………………...
$ 700,000
$ 550,000
Direct labor …………………………………
360,000
400,000
Total manufacturing cost ………………..
$1,600,000
$1,760,000
Manufacturing overhead applied
D-75
C–100
Total manufacturing cost ………………..
$1,600,000
$1,760,000
× Markup percentage ……………………
150%
150%
= Bid price ………………………………….
$2,400,000
$2,640,000
Exercise 3-18 (continued)
2 a. Molding Department:
The estimated total manufacturing overhead cost in the Molding
Department is computed as follows:
Y = $800,000 + $5.00 per MH × 20,000 MH
Estimated fixed manufacturing overhead ………………
$800,000
Estimated total manufacturing overhead cost …………
$900,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead …….
$900,000
÷ Estimated total machine-hours ………………
20,000
MHs
= Predetermined overhead rate ………………..
$45.00
per MH
Estimated fixed manufacturing overhead ………………
$300,000
Estimated variable manufacturing overhead
$5.00 per MH × 30,000 MHs …………………………...
150,000
Estimated total manufacturing overhead cost …………
$450,000
Estimated total manufacturing overhead …….
$450,000
÷ Estimated total direct labor-hours ………….
30,000
MHs
$15.00
per MH
Exercise 3-18 (continued)
2b and 2c. Total manufacturing costs assigned to Jobs D-75 and C-100:
D-75
C-100
Direct materials ………………………
$700,000
$550,000
Direct labor …………………………...
360,000
400,000
Total manufacturing cost ………….
$1,810,000
Molding Department
Bid prices for Jobs D-75 and C–100:
D-75
C–100
Total manufacturing cost ………….
$1,810,000
$1,550,000
× Markup percentage ………………
150%
150%
= Bid price…………………………….
$2,715,000
$2,325,000
3. The plantwide and departmental approaches produce identical cost of
goods sold figures. However, these two approaches lead to different bid
prices for Jobs D-75 and C-100. The bid price for Job D-75 using the
Exercise 3-18 (continued)
Whether a job-order costing system has only one plantwide overhead
cost pool or numerous departmental overhead cost pools does not
usually have an important impact on the accuracy of the cost of goods
Exercise 3-19 (30 minutes)
1.
a.
Raw Materials …………………………
315,000
Accounts Payable ………………..
315,000
b.
Work in Process ………………………
216,000
Manufacturing Overhead …………..
54,000
Raw Materials …………………….
270,000
Work in Process ………………………
80,000
Wages and Salaries Payable ….
190,000
d.
Manufacturing Overhead …………..
63,000
Accumulated Depreciation …….
63,000
e.
Manufacturing Overhead …………..
85,000
Accounts Payable ………………..
85,000
f.
Work in Process ………………………
300,000
Manufacturing Overhead ………
300,000
2.
Manufacturing Overhead
Work in Process
(b)
54,000
(f)
300,000
(b)
216,000
(c)
110,000
(c)
80,000
(d)
63,000
(f)
300,000
(e)
85,000
Finished Goods …………………………..
Work in Process …………………….
Exercise 3-20 (30 minutes)
1. Since $320,000 of studio overhead cost was applied to Work in Process
on the basis of $200,000 of direct staff costs, the apparent
predetermined overhead rate was 160%:
2. The Krimmer Corporation Headquarters project is the only job remaining
in Work in Process at the end of the month; therefore, the entire
$40,000 balance in the Work in Process account at that point must apply
to it. Recognizing that the predetermined overhead rate is 160% of
direct staff costs, the following computation can be made:
Total cost added to the Krimmer
Corporation Headquarters project …..
$40,000
Problem 3-21 (30 minutes)
1. The predetermined overhead rate was:
Y = $1,275,000 + $3.00 per hour × 85,000 hours
Estimated fixed manufacturing overhead ………………
$1,275,000
Estimated total manufacturing overhead cost …………
hours
per hour
Estimated variable manufacturing overhead
2.
Actual manufacturing overhead cost …………………..
$1,350,000
Underapplied overhead cost ……………………………..
Manufacturing overhead cost applied to Work in
3.
Cost of Goods Sold …………………………..…..
270,000
Manufacturing Overhead …………………..
270,000
4. The underapplied overhead would be allocated using the following
percentages:
Overhead applied during the year in:
%
Problem 3-21 (continued)
The entry to record the allocation of the underapplied overhead is:
Cost of Goods Sold (70% × $270,000) …
5. Comparing the two methods of closing underapplied overhead:
Cost of goods sold if the underapplied overhead
is closed directly to cost of goods sold
($2,800,000 + $270,000) …………………………...
$3,070,000
Difference in cost of goods sold ……………………..
Cost of goods sold if the underapplied overhead
Problem 3-22 (30 minutes)
1.
Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning* ………..
$ 50,000
Add: Purchases of raw materials* ……………
260,000
Total raw materials available ………………….
310,000
Deduct: Raw materials inventory, ending* …
Raw materials used in production ……………
Direct labor …………………………………………….
Total manufacturing costs* ………………………..
Add: Beginning work in process inventory……..
Deduct: Ending work in process inventory*……
33,000
Cost of goods manufactured ………………………
$690,000
2.
Cost of Goods Sold
Finished goods inventory, beginning* …………..
$ 30,000
Add: Cost of goods manufactured ……………….
690,000
Cost of goods available for sale* …………………
720,000
Deduct: Finished goods inventory, ending……..
Unadjusted cost of goods sold* …………………..
665,000
Add: Underapplied overhead ………………………
Adjusted cost of goods sold ……………………….
3.
Valenko Company
Income Statement
Sales …………………………………………………
$1,085,000
Cost of goods sold ($665,000 + $10,000) ….
675,000
Gross margin …………………………..…………..
410,000
Selling and administrative expenses:
Selling expenses* ………………………………
375,000
Net operating income* …………………………..
$ 35,000
Problem 3-23 (45 minutes)
1. The cost of raw materials put into production was:
Raw materials inventory, 1/1 …………………..
$ 30,000
Debits (purchases of materials) ……………….
Materials requisitioned for production ……….
$390,000
2. Of the $390,000 in materials requisitioned for production, $320,000 was
debited to Work in Process as direct materials. Therefore, the difference
of $70,000 ($390,000 – $320,000 = $70,000) would have been debited
to Manufacturing Overhead as indirect materials.
3.
$175,000
Less direct labor cost (from Work in Process) ……..
Indirect labor cost ………………………………………..
$ 65,000
Total factory wages accrued during the year
4. The cost of goods manufactured for the year was $810,000—the credits
to Work in Process.
5. The Cost of Goods Sold for the year was:
Finished goods inventory, 1/1 ……………………………………
$ 40,000
Add: Cost of goods manufactured (from Work in Process) .
Cost of goods available for sale ………………………………….
6. The predetermined overhead rate was:
Manufacturing overhead cost applied
Predetermined=
overhead rate Direct materials cost
Problem 3-23 (continued)
7. Manufacturing overhead was overapplied by $15,000, computed as
follows:
$385,000
Overapplied overhead ……………………………………………..
8. The ending balance in Work in Process is $90,000. Direct labor makes
up $18,000 of this balance, and manufacturing overhead makes up
$40,000. The computations are:
Balance, Work in Process, 12/31 …………………………...
$90,000
Less: Direct materials cost (given) ………………………….
Direct labor cost (remainder) ………………………………..
$18,000
Problem 3-24 (60 minutes)
1. a.
Estimated total manufacturing overhead cost
Predetermined=
overhead rate Estimated total amount of the allocation base
$126,000
= =150% of direct labor cost
$84,000 direct labor cost
Actual manufacturing overhead costs:
Insurance, factory ………………………………
Depreciation of equipment……………………
Indirect labor …………………………………….
Property taxes …………………………………..
Maintenance ……………………………………..
Rent, building ……………………………………
Total actual costs …………………………………
Underapplied overhead ………………………….
2.
Pacific Manufacturing Company
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning ……………..
$ 21,000
Add: Purchases of raw materials …………………
133,000
Total raw materials available ……………………..
154,000
Deduct: Raw materials inventory, ending ……..
Raw materials used in production ……………….
Direct labor ………………………………………………
Total manufacturing cost …………………………….
338,000
Add: Work in process, beginning …………………..
382,000
Deduct: Work in process, ending …………………..
Problem 3-24 (continued)
3.
Unadjusted cost of goods sold:
Finished goods inventory, beginning ………………..
$ 68,000
Add: Cost of goods manufactured ……………………
342,000
Cost of goods available for sale ………………………
4.
Direct materials ……………………………………………..
$ 3,200
Direct labor …………………………………………………..
4,200
Overhead applied (150% × $4,200) …………………..
6,300
Total manufacturing cost …………………………………
$13,700
$13,700 × 140% = $19,180 price to customer.
5. The amount of overhead cost in Work in Process was:
$8,000 direct labor cost × 150% = $12,000
The amount of direct materials cost in Work in Process was:
Total ending work in process ………………….
$40,000
Deduct:
Manufacturing overhead ……………………..
Direct materials …………………………………..
$20,000
Direct materials …………………………………..
Direct labor ………………………………………..
Manufacturing overhead ……………………….
Work in process inventory ……………………..
Problem 3-25 (120 minutes)
1.
a.
Raw Materials ………………………………..
142,000
Accounts Payable ………………………
142,000
b.
Work in Process ……………………………..
150,000
Raw Materials …………………………...
150,000
Manufacturing Overhead ………………….
21,000
Accounts Payable ………………………
21,000
Work in Process ……………………………..
Manufacturing Overhead ………………….
90,000
Salaries Expense …………………………….
145,000
Salaries and Wages Payable …………
451,000
e.
Manufacturing Overhead ………………….
15,000
Accounts Payable ………………………
15,000
f.
Advertising Expense ………………………..
130,000
Accounts Payable ………………………
130,000
g.
Manufacturing Overhead ………………….
45,000
Depreciation Expense………………………
5,000
Accumulated Depreciation ……………
50,000
Manufacturing Overhead ………………….
72,000
Rent Expense ………………………………..
18,000
Accounts Payable ………………………
90,000
Miscellaneous Expense …………………….
17,000
Accounts Payable ………………………
17,000
Work in Process ……………………………..
Manufacturing Overhead ……………..
160% of direct
=materials cost.
$150,000 direct materials cost × 160% = $240,000 applied.
Problem 3-25 (continued)
k.
Finished Goods ……………………………..
590,000
Accounts Receivable ……………………….
1,000,000
Cost of Goods Sold …………………………
600,000
2.
Accounts Receivable
Raw Materials
(l)
1,000,000
Bal.
18,000
(b)
150,000
(a)
142,000
Bal.
10,000
Bal.
24,000
(k)
590,000
Bal.
35,000
(l)
600,000
(b)
(k)
(d)
(j)
Manufacturing Overhead
Accounts Payable
(c)
21,000
(j)
240,000
(a)
142,000
(d)
90,000
(c)
21,000
(e)
15,000
(e)
15,000
(g)
45,000
(f)
130,000
(h)
72,000
(h)
90,000
Bal.
3,000
(i)
17,000
(g)
50,000
(g)
(d)
451,000
(d)
145,000
Problem 3-25 (continued)
Rent Expense
Cost of Goods Sold
(h)
18,000
(l)
600,000
Sales
(l)
1,000,000
3.
Southworth Company
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning ……………….
$ 18,000
Add: Purchases of raw materials ……………………
142,000
Materials available for use …………………………...
Deduct: Raw materials inventory, ending ………..
Materials used in production …………………………
$150,000
Direct labor …………………………………………………
Add: Work in process, beginning ……………………..
Deduct: Work in process, ending ……………………..
Cost of goods manufactured …………………………..
$590,000
4.
Cost of Goods Sold ……………………………………
3,000
Manufacturing Overhead………………………..
3,000
Schedule of cost of goods sold:
Finished goods inventory, beginning …………..
$ 35,000
Add: Cost of goods manufactured ………………
Cost of goods available for sale …………………
Deduct: Finished goods inventory, ending ……
Unadjusted cost of goods sold …………………..
Adjusted cost of goods sold ………………………
$603,000
Problem 3-25 (continued)
5.
Southworth Company
Income Statement
Sales …………………………..……………………..
$1,000,000
Cost of goods sold …………………………..…….
603,000
Gross margin ……………………………………….
397,000
Selling and administrative expenses:
315,000
Net operating income …………………………….
$ 82,000
6.
Direct materials …………………………………………………….
$ 3,600
Direct labor (400 hours × $11 per hour) …………………….
4,400
Manufacturing overhead cost applied (160% × $3,600) …
Total manufacturing cost ………………………………………..
Add markup (75% × $13,760) …………………………………
Total billed price of Job 218 …………………………………….
Problem 3-26 (30 minutes)
1. Preparation Department:
The estimated total manufacturing overhead cost in the Preparation
Estimated fixed manufacturing overhead ………………
$256,000
$2.00 per MH × 80,000 MHs …………………………...
160,000
Estimated total manufacturing overhead cost …………
$416,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ……
$416,000
÷ Estimated total machine-hours …………….
MHs
= Predetermined overhead rate ………………
per MH
Estimated fixed manufacturing overhead ………………
$520,000
$4.00 per DLH × 50,000 DLHs ………………………….
200,000
Estimated total manufacturing overhead cost …………
$720,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ……
$720,000
÷ Estimated total machine-hours …………….
50,000
DLHs
= Predetermined overhead rate ………………
$14.40
per DLH