sm03

CHAPTER 21

Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly

CHAPTER 3

Job-Order Cost Accounting

ASSIGNMENT CLASSIFICATION TABLE

Study ObjectivesQuestionsBriefExercisesDo It!ReviewExercisesA & BProblems

1.Explain the characteristics and purposes of costaccounting.1, 2, 3, 432A

2.Describe the flow ofcosts in a job-order cost accounting system.5, 6, 7, 8, 9, 10, 11, 12, 15, 161, 2, 3, 4, 5, 6, 79, 10, 1113, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 2526A, 27A, 28A, 29A, 30A, 31A, 32A, 34A, 35B, 36B, 37B, 38B, 39B, 40B, 41B, 42B, 43B

3.Distinguish betweenunder- and over-applied manufacturing overhead and discuss the methods of adjusting overheads.13, 14, 17, 1881217, 2530A, 33A, 39B, 40B, 41B, 42B, 43B

ASSIGNMENT CHARACTERISTICS TABLEProblemNumberDescriptionDifficultyLevelTimeAllotted (min.)

26ACalculate the predetermined overhead rate and job costs for a service organizationSimple20-30

27APrepare entries in a job-order cost system and job cost sheets.Simple3040

28APrepare entries in a job-order cost system and partial income statement.Moderate3040

29APrepare entries in a job-order cost system and a cost of goods manufactured schedule.Simple3040

30ACalculate the predetermined overhead rate and proration of overhead.Moderate3040

31AAnalyze a job-order cost system and calculate work in process.Challenging3040

32APrepare T accounts in a comprehensive manufacturing job-order cost system and compare process costing.Simple20-30

33APrepare entries and close out under- or over-applied overheadsSimple30-40

34AAnalyze manufacturing accounts and determine missing amounts.Challenging3040

35BPrepare entries in a job-order cost system and job cost sheets.Simple3040

36BPrepare entries in a job-order cost system and a partial income statement.Moderate3040

37BCalculate the predetermined overhead rate and a job cost.Simple20-30

38BPrepare entries in a job-order cost system and a cost of goods manufactured schedule.Simple30-40

39BPrepare entries and close out under- or over-applied overheadsSimple30-40

40BPrepare entries and close out under- or over-applied overheads.Moderate20-30

41BCalculate various job costs in comprehensive manufacturing system.Challenging30-40

ASSIGNMENT CHARACTERISTICS TABLE (Continued)

ProblemNumberDescriptionDifficultyLevelTimeAllotted (min.)

42BAnalyze manufacturing accounts and determine missing amountsChallenging30-40

43BCalculate job costs and inventories, and prepare an income statement for a service organizationModerate30-40

Solutions Manual 2012 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 3-1

Correlation Chart between Blooms Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

2012For Instructor Use Only3-4BLOOMS TAXONOMY TABLE

ANSWERS TO QUESTIONS

1.(a)Cost accounting involves the measuring, recording, and reporting of product costs. A cost accounting system consists of manufacturing cost accounts that are fully integrated into the general ledger of a company.

(b)An important feature of a cost accounting system is the use of a perpetual inventory system that provides immediate, up-to-date information on the cost of a product.

2.(a)The two principal types of cost accounting systems are: (1) job-order cost system and (2) process cost system. Under a job-order cost system, costs are assigned to each job or batch of goods; at all times each job or batch of goods can be separately identified. A job-order cost system measures costs for each completed job, rather than for set time periods. Unit costs are determined by dividing the total cost of the job by the number of units produced. Under a process cost system, product-related costs are accumulated by or assigned to departments or processes for a set period of time. Job-order costing lends itself to specific, special-order manufacturing or servicing while process costing is better suited to similar, large-volume products and continuous process manufacturing. Unit costs in a process costing system are determined by dividing the total processing costs for a certain period of time by the number of units produced during that time.

(b)A company may use both types of systems. For example, General Motors uses process costing for standard model cars and job-order costing for custom-made vehicles.

3.A job-order cost system is most likely to be used by a company that receives special orders, or custom builds, or produces heterogeneous items or products; that is, the product manufactured or the service rendered is tailored to the customer or clients requests, needs, or situation. Examples of industries that use job-order systems are custom home builders, commercial printing companies, motion picture companies, construction contractors, repair shops, accounting and law firms, hospitals, shipbuilders, and architects.

4.A process cost system is most likely to be used by manufacturing firms with continuous production flows usually found in mass production, assembly line, large-volume, uniform, or relatively similar product industries. Companies producing appliances, chemicals, pharmaceuticals, rubber and tires, plastics, cement, petroleum, and automobiles utilize process cost systems.

5.The major steps in the flow of costs in a job-order cost system are: (1) accumulating the manufacturing costs incurred and (2) assigning the accumulated costs to work in process.

6.The three inventory control accounts and their subsidiary ledgers are:Raw materials inventorymaterials inventory records.Work in process inventoryjob cost sheets.Finished goods inventoryfinished goods records.

7.The source documents used in accumulating direct labour costs are time tickets and time cards.

8.Disagree. Entries to Manufacturing Overhead are also made periodically during an accounting period. For example, there will be adjusting entries for factory depreciation, property taxes, and insurance.Questions Chapter 3 (Continued)

9.The source document for materials is the materials requisition slip and the source document for labour is the time ticket. The entries are:

MaterialsLabour

Work in Process InventoryManufacturing OverheadRaw Materials InventoryXXXX

XXWork in Process InventoryManufacturing OverheadFactory LabourXXXX

XX

10.The purpose of a job cost sheet is to record the costs assigned to a specific job and to determine the total and unit costs of the completed job.

11.The source documents for charging costs to specific jobs are materials requisition slips for direct materials, time tickets for direct labour, and the predetermined overhead rate for manufacturing overhead.

12.The materials requisition slip is a business document used as an authorization to issue materials from inventory to production. It is approved and signed by authorized personnel so that materials may be removed from inventory and charged to production, to specific jobs, departments, or processes. The materials requisition slip is the basis for posting to the materials inventory records and to the job cost sheet.

13.Disagree. Actual manufacturing overhead cannot be determined until the end of a period of time. Consequently, there could be a significant delay in assigning overhead and in determining the total cost of the completed job.

14.The relationships for computing the predetermined overhead rate are the estimated annual overhead costs and an associated activity base such as direct labour hours. The rate is computed by dividing the estimated annual overhead costs by the expected annual operating activity.

15.At any point in time, the balance in Work in Process Inventory should equal the sum of the costs shown on the job cost sheets of unfinished jobs. Alternatively, posting to Work in Process Inventory may be compared with the sum of the postings to the job cost sheets for each of the manufacturing cost elements.

16.Tina is incorrect. There is a difference in computing total manufacturing costs. In job-order costing, manufacturing overhead applied is used, whereas in Chapter 2, actual manufacturing overhead is used.

17.Under-applied overhead means that the overhead assigned to work in process is less than the overhead incurred. Over-applied overhead means that the overhead assigned to work in process is greater than the overhead incurred. Manufacturing Overhead will have a debit balance when overhead is under-applied and a credit balance when overhead is over-applied.

18.Under- or over-applied overhead is not closed to Income Summary. The balance in Manufacturing Overhead is eliminated through an adjusting entry. Under- or over-applied overhead generally is considered to be an adjustment of Cost of Goods Sold.Managerial Accounting: Tools for Business Decision-Making, Third Canadian Edition Weygandt, Kimmel, Kieso, Aly


2012For Instructor Use Only3-7SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1

BRIEF EXERCISE 3-2

Jan.31Raw Materials Inventory5,000Accounts Payable5,000

31Factory Labour7,000Factory Wages Payable5,600Employer Payroll Taxes Payable 1,400

31Manufacturing Overhead2,000Utilities Payable2,000

BRIEF EXERCISE 3-3

Jan.31Work in Process Inventory (1,200+1,500+900)3,600Manufacturing Overhead 800Raw Materials Inventory4,400

BRIEF EXERCISE 3-4

Jan.31Work in Process Inventory (1,400+1,800+1,600)5,600Manufacturing Overhead 800Factory Labour5,600

BRIEF EXERCISE 3-5

Job 1Job 2

DateDirectMaterialsDirectLabourDateDirectMaterialsDirectLabour

1/311/311,2001,2001/311/311,5001,600

Job 3

DateDirectMaterialsDirectLabour

1/311/319001,400

BRIEF EXERCISE 3-6

Direct material + Direct labour = Prime costDirect material + Direct labour + Applied MOH = Total manufacturing cost$4,000 + DL + .75($4,000 + DL) = $21,000

Thus, DL = $8,000;and MOH = .75($4,000 + $8,000) = $9,000

[Proof: $4,000 + $8,000 + $9,000 = $21,000]

BRIEF EXERCISE 3-7

Jan.31Work in Process Inventory36,000Manufacturing Overhead36,000($40,000 90%)

Feb.28Work in Process Inventory27,000Manufacturing Overhead27,000($30,000 90%)

Mar.31Work in Process Inventory45,000Manufacturing Overhead45,000($50,000 90%)

BRIEF EXERCISE 3-8

Dec. 31Manufacturing Overhead 3,500Work-in-process Inventory350Finished Goods Inventory875Cost of Goods Sold2,275

SOLUTIONS TO DO IT! REVIEW

DO IT! REVIEW 3-9

Raw Materials Inventory13,000Accounts Payable13,000

Factory Labour40,000Factory Wages Payable31,000Employer Payroll Taxes Payable 9,000

Manufacturing Overhead15,000Utilities Payable3,100Prepaid Factory Property Taxes2,400Accumulated DepreciationFactory Building9,500

DO IT! REVIEW 3-10

Work in Process Inventory(7,200+9,000)16,200Raw Materials Inventory16,200Work in Process Inventory (4,000+6,000)10,000Factory Labour10,000Work in Process Inventory (5,200+7,800)13,000Manufacturing Overhead13,000

DO IT! REVIEW 3-11

Finished Goods Inventory (60,000+40,000)100,000Work in Process Inventory100,000Accounts Receivable90,000Sales90,000

Cost of Goods Sold (Job 312)40,000Finished Goods Inventory40,000

DO IT! REVIEW 3-12

Manufacturing overhead applied = $85,000 1.5 = $127,500

MOH applied MOH actual = over-applied overhead

$127,500 $120,000 = $7,500 over-applied

SOLUTIONS TO EXERCISESEXERCISE 3-13

(a) June 30Work in Process Inventory4,000Raw Materials Inventory4,000

30Work in Process Inventory2,800Factory Labour (200 hours $14)2,800

30Work in Process Inventory1,960($2,800 ($3,920 $5,600)) Manufacturing Overhead1,960

(b) June 30Finished Goods Inventory44,680Work in Process Inventory44,680[(26,400+4,000)+(5,600+2,800)+(3,920+1,960)

EXERCISE 3-14

(a)May31Work in Process Inventory10,500Manufacturing Overhead 1,000Raw Materials Inventory11,500

31Work in Process Inventory12,800Manufacturing Overhead1,500Factory Labour14,300

31Work in Process Inventory10,240($12,800 80%)Manufacturing Overhead10,240

31Finished Goods Inventory8,460Work in Process Inventory8,460 ($2,000 + $2,500 + $2,200 + $1,760*)

*$2,200 80%

EXERCISE 3-14 (Continued)

(b)Work in Process Inventory

May1Balance3,2003110,5003112,8003110,240May 318,460

May31Balance28,280

Job Cost Sheets

JobNo.Beginning WorkIn ProcessDirectMaterialDirectLabourManufacturing*OverheadTotal

430431$1,200 0$1,200$3,600 4,400$8,000$3,000 7,600$10,600$2,400 6,080$8,480$10,200 18,080$28,280

*Direct labour .80EXERCISE 3-15

(a)1.$14,125, or ($3,925 + $6,000 + $4,200).

2.Last year 70%, or ($4,200 $6,000); this year 75% (either $6,375 $8,500 or $3,000 $4,000).

(b)Jan.31Work in Process Inventory(6,600+2,000)8,000Raw Materials Inventory8,000

31Work in Process Inventory (8,500+4,000)12,500Factory Labour12,500

31Work in Process Inventory(12,500x75%)9,375Manufacturing Overhead9,375

31Finished Goods Inventory44,000Work in Process Inventory44,000

EXERCISE 3-16

(a) + $50,000 + $37,500 = $135,650(a) = $48,150

$135,650 + (b) = $211,500(b) = $75,850

$211,500 (c) = $193,200(c) = $18,300

[Note:The instructions indicate that manufacturing overhead is applied on the basis of direct labour cost, and the rate is the same in all cases. From Case A, a student should note the overhead rate to be 75%, or ($37,500 $50,000).]

(d) = .75 $120,000(d) = $90,000

$78,000 + $120,000 + $90,000 = (e)(e) = $288,000

$288,000 + $15,500 = (f)(f) = $303,500

$303,500 $11,800 = (g)(g) = $291,700

[Note:(h) and (i) are solved together.]

(i) = .75(h)$72,600 + (h) + .75(h) = $212,6001.85(h) = $140,000(h) = $80,000(i) = $60,000

(j) = $212,600 + $23,000(j) = $235,600

$235,600 (k) = $222,000(k) = $13,600

EXERCISE 3-17

(a)$2.32 per machine hour ($290,000 125,000).

(b)($295,000) ($2.32 130,000 machine hours)$295,000 $301,600 = $6,600 over-applied

(c)Manufacturing Overhead6,600Cost of Goods Sold6,600

EXERCISE 3-18

(a)The source documents are:Direct materialsMaterials requisition slips.Direct labourTime tickets.Manufacturing overheadPredetermined overhead rate.

(b)The predetermined overhead rate is 140% of direct labour cost. For example, on July 15, the computation is $560 $400 = 140%. The same result is obtained on July 22 and 31.

(c)The total cost is:Direct materials$4,825Direct labour1,250Manufacturing overhead 1,750$7,825The unit cost is $3.91 ($7,825 2,000).

(d)July 31Finished Goods Inventory7,825Work in Process Inventory7,825

EXERCISE 3-19

Work in Process Inventory2,670Raw Materials Inventory2,670

Work in Process Inventory1,120Factory Labour1,120EXERCISE 3-19 (Continued)

Manufacturing Overhead890Various Accounts890

Work in Process Inventory910Manufacturing Overhead910

EXERCISE 3-20

1.Raw Materials Inventory192,000Accounts Payable192,000

Factory Labour91,500Factory Wages Payable91,500

2.Work in Process Inventory153,530Manufacturing Overhead4,470Raw Materials Inventory158,000

Work in Process Inventory84,000Manufacturing Overhead7,500Factory Labour91,500

3.Manufacturing Overhead59,500Accounts Payable59,500

4.Manufacturing Overhead14,550Accumulated DepreciationMachinery & Equipment14,5505.Work in Process Inventory67,200Manufacturing Overhead67,200(80% $84,000)

6.Finished Goods Inventory238,030Work in Process Inventory238,030EXERCISE 3-20 (Continued)

Computation of cost of jobs finished:

JobDirectMaterialsDirectLabourManufacturingOverheadTotal

A20A21A23$33,24042,92041,270$18,00024,00025,000$14,40019,20020,000$65,64086,120 86,270$238,030

EXERCISE 3-21

(a)HANNIFAN MANUFACTURING COMPANYCost of Goods Manufactured ScheduleFor the Month Ended May 31, 2012

Work in process, May 1$17,400Direct materials used$54,200Direct labour32,000Manufacturing overhead applied 40,000Total manufacturing costs 126,200Total cost of work in process143,600Less: Work in process, May 31 17,900Cost of goods manufactured$125,700

(b)HANNIFAN MANUFACTURING COMPANY(Partial) Income StatementFor the Month Ended May 31, 2012

Sales$200,000Cost of goods soldFinished goods, May 1$12,600Cost of goods manufactured 125,700Cost of goods available for sale138,300Less: Finished goods, May 31 15,400Cost of goods sold 122,900Gross profit$77,100EXERCISE 3-21 (Continued)

(c)In the May 31 balance sheet, the manufacturing inventories will be reported in current assets as follows:Finished goods$15,400Work in process17,900Raw materials 7,100

EXERCISE 3-22

(a)Work in Process InventoryApril 30$10,600(#10: $6,500 + #11: $4,100)May 31$18,100(#11: $4,100 + $3,900 + #13: $4,700 + #14: $5,400)June 30$ 9,000(#14, $5,400 + $3,600)

(b)Finished Goods InventoryApril 30 $1,200(#12)May 31 $10,900(#10)June 30$19,100(#11, $11,000 + #13, $8,100)

(c)Gross Profit

MonthJobNumberSales(25% above cost)Cost ofGoods SoldGrossProfit

MayJuneJuly121011/13$1,50013,62523,875$1,20010,90019,100$ 3002,725 4,775

EXERCISE 3-23

(a)

1Supplies1,500

Accounts Payable1,500

2Work in Process700

Operating Overhead300

EXERCISE 3-23 (Continued)

Supplies1,000

3Work in Process41,250

Operating Overhead13,750

Salaries Payable55,000

4Operating Overhead30,000

Cash30,000

5Work in Process ($41,250 80%)33,000


6Cost of Completed Work70,000

Work in Process70,000

(b)Work in Process

2.70070,000(6)

3.41,250

5.33,000

4,950

EXERCISE 3-24

(a)KoppelDupontRojasTOTAL

Direct materials$ 700$ 400$ 250

Auditor labour costs5,4006,6003,375

Applied overhead 4,320 5,400 2,40012,120

Total cost$10,420$12,400$6,025

(b) The Koppel job is the only incomplete job, therefore, $10,420.

(c) Actual overhead$12,000 (DR)

Applied overhead 12,120 (CR)

Balance$ 120 (CR)Over-applied

EXERCISE 3-25

(a)Predetermined overhead rate=Estimated overhead Estimated decorator hours

= $840,000 40,000 decorator hours

= $21 per decorator hour

(b)Work in Process (41,500 hrs $21)871,500


(c)Actual overhead$861,000

Applied overhead 871,500

Balance$ 10,500Over-applied

SOLUTIONS TO PROBLEMS: SET A

PROBLEM 3-26A

(a)Total estimated indirect costs $1,400,000

Estimated direct labour hours

(40 employees 1,750 hours per employee) 70,000

Overhead rate per direct labour hour $ 20.00

(b)Total estimated labour costs per employee $ 105,000

Estimated direct labour hours per employee 1,750

Direct labour rate per hour $ 60.00

(c)Total cost per hour ($20.00 + $60.00) $ 80.00

Total number of direct labour hours 270

Total cost of the job (rounded) $21,600

PROBLEM 3-27A

(a)$1,500,000 $750,000 direct labour costs = 200% of direct labour costs

(b)See solution to part (e) for job cost sheets

(c)Raw Materials Inventory100,000Accounts Payable100,000

Factory Labour75,000Factory Wages Payable57,000Employer Payroll Taxes Payable18,000

Manufacturing Overhead71,000Accounts Payable22,000Accumulated Depreciation14,000Raw Materials Inventory18,000Factory Labour17,000

(d)Work in Process Inventory89,000Raw Materials Inventory89,000($12,000 + $42,000 + $35,000)

Work in Process Inventory57,000Factory Labour57,000($7,000 + $28,000 + $22,000)

Work in Process Inventory114,000Manufacturing Overhead114,000($57,000 200% of direct labour costs)

(e)See next page for postings to job cost sheets.

PROBLEM 3-27A (Continued)

(b)&(e)Job Cost Sheets

Job No. 50

DateDirect MaterialsDirect LabourManufacturing Overhead

Beg.Jan.$30,000 12,000$42,000$15,000 7,000$22,000*$20,000** 14,000**$34,000*

Cost of completed jobDirect materials$42,000Direct labour22,000Manufacturing overhead 34,000Total cost$98,000

*$7,000 200%

Job No. 51


Jan.$42,000$42,000$28,000$28,000**$56,000****$56,000**

Cost of completed jobDirect materials$ 42,000Direct labour28,000Manufacturing overhead 56,000Total cost$126,000

**$28,000 200%

Job No. 52


Jan.$35,000$22,000***$44,000***

***$22,000 200%


Finished Goods Inventory224,000Work in Process Inventory224,000($98,000 + $126,000)

(f)Cost of Goods Sold218,000Finished Goods Inventory218,000($120,000 + $98,000)

Accounts Receivable350,000Sales350,000($152,000 + $198,000)

(g)FinishedGoods Inventory

Beginning balanceCost of completed jobs 50 and 51120,000224,000218,000Cost of jobs 49 and 50 sold

Ending balance126,000

The balance in this account consists of the cost of completed Job No. 51 which has not yet been sold.

(h)Manufacturing Overhead

Actual71,000Applied114,000

43,000

The balance indicates that manufacturing overhead was over-applied by $43,000.

PROBLEM 3-28A

(a)Work in Process Inventory

1/1Balance (1)128,400Direct materials (2)121,000Direct labour (3)139,000Manufacturing overhead (4)166,800Completed work (5) (c)386,200

12/31Balance169,000

(1)Job 7640Job 7641$77,800 50,600$128,400(3)Job 7640Job 7641Job 7642$36,00048,000 55,000$139,000

(2)Job 7640Job 7641Job 7642$30,00043,000 48,000$121,000(4)Job 7640Job 7641Job 7642$43,20057,600 66,000$166,800

(5)Job 7640Beginning balance$77,800Direct materials30,000Direct labour36,000Manufacturing overhead 43,200$187,000

Job 7641Beginning balance$50,600Direct materials43,000Direct labour48,000Manufacturing overhead 57,600$199,200Total cost of completed workJob 7640$187,000Job 7641 199,200$386,200


Work in process balance$169,000Unfinished job No. 7642 $169,000*

*Current years costDirect materials$48,000Direct labour55,000Manufacturing overhead 66,000$169,000

(b)Actual overhead costsIncurred on account$120,000Indirect materials14,000Indirect labour20,000Depreciation 8,000$162,000

Applied overhead costsJob 7640$ 43,200Job 764157,600Job 7642 66,000$166,800

Actual overhead$162,000Applied overhead 166,800Over-applied overhead$ 4,800

Manufacturing Overhead4,800Cost of Goods Sold4,800

(c)Sales (given)$530,000Cost of goods sold Job 7638$87,000Job 763992,000Job 7641 199,200378,200Less: Over-applied overhead 4,800 373,400Gross profit$156,600

PROBLEM 3-29A

(a)(1)Raw Materials Inventory3,900Accounts Payable3,900

Factory Labour4,800Cash4,800

Manufacturing Overhead1,100Accumulated DepreciationEquipment 700Accounts Payable 400

(2)Work in Process Inventory4,900Manufacturing Overhead1,500Raw Materials Inventory6,400


Work in Process Inventory ($3,600 1.25)4,500Manufacturing Overhead4,500

(3)Finished Goods Inventory14,740Work in Process Inventory14,740

JobDirectMaterialsDirectLabourManufacturingOverhead*TotalCosts

FowlerHainesKrantz$1,7001,3002,200$1,160 9002,180$1,4501,1252,725$4,3103,3257,105$14,740

*125% direct labour amount

Cash18,900Sales18,900

Cost of Goods Sold14,740Finished Goods Inventory14,740



6/1Balance5,540Direct materials4,900Direct labour3,600Overhead applied4,500JuneCompleted work14,740

6/30Balance3,800

(c)Work in Process Inventory$3,800

Job: Farkas (Direct materials $2,000 + Direct labour $800 +Manufacturing overhead $1,000(800x1.25))$3,800

(d)ENOS INC.Cost of Goods Manufactured ScheduleFor the Month Ended June 30, 2012

Work in process, June 1$5,540Direct materials used$4,900Direct labour3,600Manufacturing overhead applied 4,500Total manufacturing costs 13,000Total cost of work in process18,540Less: Work in process, June 30 3,800Cost of goods manufactured$14,740

PROBLEM 3-30A

(a)Overhead rate = $900,000 $1,800,000 = 50% of each labour $

Now calculate under- or over-applied overhead for the year.

Actual Overhead(given)$897,000

Overhead applied($1,583,600 50%) 791,800

Under-applied overhead$105,200

(b)To prorate the over-applied overhead we need

the ending balances in WIP and Finished Goods

Inventories and the Cost of Goods Sold.

%Allocation

Cost of goods sold (given) $3,935,000 65.10% $ 68,485

Finished goods inventory (given) 720,000 11.91% 12,530

WIP inventory (see below) 1,390,000 22.99% 24,185

Total $6,045,000 $105,200

Ending Work in process inventory:

1768B1819CTotal

Direct materials $220,000 $ 420,000 $ 640,000

Direct labour 110,000 390,000 500,000

Manufacturing overhead* 55,000 195,000 250,000

$385,000 $1,005,000 $1,390,000

* Direct labour amount 50% overhead rate


(c) First adjust cost of goods sold for prorated under-applied overhead.(1)Cost of goods sold $3,935,000

Plus: under-applied overhead 68,485

Adjusted cost of goods sold $4,003,485

NICOLE LIMITED

Income Statement

for the year 2012

Sales $6,201,355

Less: Adjusted cost of goods sold (1) 4,003,485

Gross profit 2,197,870

Less: Operating expenses 1,857,870

Net income before taxes 340,000

Taxes at 40% 136,000

Net income $ 204,000

PROBLEM 3-31A

Direct materials used:

Beginning inventory $79,250

Plus: purchases 95,580 (1)

Total available for use 174,830

Less: ending inventory 73,250

Used in production 101,580

Less: indirect materials 5,848

Direct materials used $95,732

(1) Materials purchased:

Account payable, ending $53,540

Plus: cash payments 60,000

113,540

Less: Accounts payable, beginning 17,960

Materials purchased $95,580

Direct labour:

Total Payroll $83,500

Less: indirect labour 15,375

Direct labour used $68,125

Manufacturing overhead applied:

Overhead, Nov 30 $163,300

Overhead, Nov 1 129,500

Overhead incurred during the month 33,800

Plus: over-applied overhead 2,750

Manufacturing overhead applied $ 36,550


Cost of goods sold:

Balance Nov 30 $656,000

Balance Nov 1 576,000

Cost of goods sold for the month $ 80,000

Cost of completed goods:

Finished goods, Nov 30 $63,000

Plus: cost of goods sold 80,000

Goods available for sale143,000

Less: finished goods, Nov 1 60,000

Cost of completed goods: $83,000

Ending work in process:

Beginning work in process $ 58,875

Plus:Direct materials used 95,732

Direct labour 68,125

Manufacturing overhead applied 36,550

Total manufacturing cost for the month 259,282

Less: completed goods transferred out 83,000

Ending work in process $176,282

PROBLEM 3-32A

(a) Raw Materials InventoryWork in Process Inventory

Beg Bal3,500Beg Bal2,040

(1)22,40018,800(2)(2)18,80052,450(ii)

End Bal7,100(3)5,000

(i)30,420

End Bal3,810

Finished Goods InventoryCost of Goods Sold

Beg Bal2,890

(ii)52,45051,315(iii)(iii)51,315

End Bal4,025

Variable Factory OverheadFixed Factory Overhead

(3)1,500(4)3,000

(5)410(5)110

(6)1,300*3,210(i)(7)22,500

End Bal----(8) 1,60027,210(i)

End Bal----

Supplies not raw materials

(b)Job Order CostingProcess Costing

Custom furniture shopPaint producer

1Unique differentiated productsAll output the same or very similar

2Large number of separate operationsContinuous operations

3Labour intensiveHighly automated

4Products made to customer orderStandard output made for inventory

PROBLEM 3-33A

(a)Applied overhead rate (from Job 200) = $27,000 $18,000 = 150%Direct labour costs incurred: $130,000 + $45,000 + $25,000 = $200,000MOH applied = $200,000 1.5 = $300,000.

(b)Job No. 200


1/1Year$ 13,500 150,000$163,500$ 18,000 130,000$148,000$ 27,000195,000$222,000

Cost of completed jobDirect materialsDirect labour Manufacturing overhead Total cost$163,500148,000 222,000$533,500

Job No. 300


1/1Year $45,000$45,000$45,000$45,000$67,500$67,500



Job No. 400


1/1Year $35,000$35,000$25,000$25,000$37,500$37,500


(c) Manufacturing overhead applied:Overhead incurred during the month$276,250


Over-applied overhead $ 23,750

(d)RED FIRE INC.Statement of Cost of Goods SoldFor the Year Ended December 31, 2012

Finished goods inventory, January 1$85,000Cost of goods manufactured* 691,000Cost of goods available for sale776,000Less: Finished goods, December 31** 157,500Unadjusted Cost of goods sold*** 618,500Less: Over-applied overhead 23,750Adjusted cost of goods sold$594,750

*Job #200, $533,500 + Job #300, $157,500 **Job #300, $157,500 ***Job #100, $85,000 + Job #200, $533,500


(e) Selling price of Job 200: $533,500 1.30 = $693,550

(f) Ending balance in direct materials inventory:

Balance, January 1 $ 45,000

Plus: purchases 375,000

Direct material available for use420,000

Less: materials used in production 230,000

Balance, December 31 $190,000

Ending balance in work-in-process inventory:Balance, January 1$ 58,500Plus: Manufacturing costs during the month:Direct materials$230,000Direct labour 200,000Applied manufacturing overhead 300,000 730,000Total cost of work-in-process788,500Less: cost of goods manufactured 691,000Balance, December 31(Job 400)$ 97,500

PROBLEM 3-34A

Note: Some letters cannot be determined until subsequent letters are solved.

(a)$84,000($75,000 + $9,000).

(b)$21,400($15,000 + $90,400 $84,000).

(c)$32,200($19,000 + $13,200).

(d)$91,200($114,000 125%).

(e)$114,000(Given in Manufacturing Overhead account)

(f)$307,025($32,200 + $75,000 + $91,200 + $114,000 $5,375).

(g)$5,375[$2,000 + $1,500 + ($1,500 1.25)].

(h)$145,000(Given in other data).

(i)$307,025(See (f) above).

(j)$314,025($145,000 + $307,025 $138,000).

(k)$138,000(Given in other data).

(l)$107,200(Same as (m)).

(m)$107,200($91,200 + $16,000).

(n)$92,000($114,000 + $3,000 $9,000 $16,000)

SOLUTIONS TO PROBLEMS: SET B

PROBLEM 3-35B

(a)$500,000 20,000 direct labour hours = $25 per direct labour hour

(b)See solution to part (e) for job cost sheets

(c)Raw Materials Inventory40,000Accounts Payable40,000

Factory Labour31,500Factory Wages Payable24,500Employer Payroll Taxes Payable7,000

Manufacturing Overhead40,500Accumulated Depreciation12,000Raw Materials Inventory10,000Accounts Payable11,000Factory Labour7,500

(d)Work in Process Inventory33,000Raw Materials Inventory33,000($5,000 + $15,000 + $13,000)

Work in Process Inventory24,900Factory Labour24,900($3,000 + $12,000 + $9,900)

Work in Process Inventory40,000Manufacturing Overhead40,000(200 + 800 + 600) $25 per hour

See solution to part (e) for postings to job cost sheets.

PROBLEM 3-35B (Continued)

(b)&(e)Job Cost Sheets

Job No. 25


Beg.Jan.$10,000 5,000$15,000$6,000 3,000$9,000*$ 9,000** 5,000**$14,000*


*$25 200 direct labour hours

Job No. 26


Jan.$15,000$15,000$12,000$12,000**$20,000****$20,000**


**$25 800 direct labour hours

Job No. 27


Jan.$13,000$9,900***$15,000***

***$25 600 direct labour hours


Finished Goods Inventory85,000Work in Process Inventory85,000($38,000 + $47,000)

(f)Cost of Goods Sold83,000Finished Goods Inventory83,000($45,000 + $38,000)

Accounts Receivable139,000Sales139,000($65,000 + $74,000)

(g)Work in Process

Beginning balanceDirect materialsDirect labourManufacturing overhead25,00033,00024,90040,00085,000Cost of completed jobs 25 and 26

Ending balance37,900

The balance in this account consists of the current costs assigned to Job 27:

Direct Materials$13,000Direct Labour9,900Manufacturing Overhead 15,000Total costs assigned$37,900

(h)Manufacturing Overhead

Actual40,500Applied40,000

500

The balance in the Manufacturing Overhead account is under-applied.

PROBLEM 3-36B

(a)Work in Process Inventory

1/1Balance (1)110,000Direct materials (2)105,000Direct labour (3)140,000Manufacturing overhead (4)175,000Completed work (5) (iii)343,000

12/31Balance (6)187,000

(1)Job 7650Job 7651$62,000 48,000$110,000(3)Job 7650Job 7651Job 7652$36,00040,000 64,000$140,000

(2)Job 7650Job 7651Job 7652$32,00030,000 43,000$105,000(4)Job 7650Job 7651Job 7652$45,00050,000 80,000$175,000

(5)(i)Job 7650Beginning balance$62,000Direct materials32,000Direct labour36,000Manufacturing overhead 45,000$175,000(ii)Job 7651Beginning balance$48,000Direct materials30,000Direct labour40,000Manufacturing overhead 50,000$168,000(iii)Total cost of completed workJob 7650$175,000Job 7651 168,000$343,000


Work in process balance$187,000Unfinished Job 7652$187,000(iv)

(iv)Current years costDirect materials$43,000Direct labour64,000Manufacturing overhead 80,000$187,000(b)Actual overhead costsIncurred on account$125,000Indirect materials12,000Indirect labour18,000Depreciation 19,500$174,500

Applied overhead costsJob 7650$45,000Job 765150,000Job 7652 80,000$175,000

Actual overhead$174,500Applied overhead 175,000Over-applied overhead$ 500

Manufacturing Overhead500Cost of Goods Sold500

(c)Sales (given)$490,000Cost of goods sold Job 7648$93,000Job 764962,000Job 7650 175,000330,000Less: Over-applied overhead 500 329,500Gross profit$160,500

PROBLEM 3-37B

(a) First determine the total estimated manufacturing overhead costs for the year.

Rent on factory building$150,000

Depreciation on factory equipment80,000

Indirect labour120,000

Production supervisors salary 150,000

Total estimated MOH costs$500,000

Predetermined overhead rate= Estimated annual overhead costs Expected annual operating activity

=$500,000 40,000 machine hours

=$12.50 per machine hour

(b) Direct labour rate = $2,000,000 20,000 labour hours = $100 per direct labour hour

(c) Total cost of the job would be:

Direct materials$15,000

Direct labour (50 hrs $100)5,000

Manufacturing overhead (200 hrs $12.50) 2,500

Total cost of the job$22,500

PROBLEM 3-38B

(a)(1)Raw Materials Inventory4,000Accounts Payable4,000

Factory Labour7,600Cash7,600

Manufacturing Overhead1,400Cash1,400

(2)Work in Process Inventory5,300Manufacturing Overhead1,500Raw Materials Inventory6,800


Work in Process Inventory3,920($5,600 .70)Manufacturing Overhead3,920

(3)Finished Goods Inventory20,190Work in Process Inventory20,190

JobDirectMaterialsDirectLabourManufacturingOverhead*TotalCosts

LooperZammitIngle$3,0002,6003,200$2,4002,2002,100$1,6801,5401,470$7,0806,340 6,770$20,190

*70% of direct labour cost

PROBLEM 3-38B (Continued) Cash36,000Sales (3 $12,000)36,000

Cost of Goods Sold20,190Finished Goods Inventory20,190


5/1Balance12,200Direct materials5,300Direct labour5,600Overhead applied3,9205/31Completed work20,190

5/31Balance6,830

(c)Work in Process Inventory$6,830

Job: Gao (Direct materials $1,900 + Direct labour $2,900 +Manufacturing overhead $2,030)$6,830

(d)GIOVANNI LOFARO COMPANYCost of Goods Manufactured ScheduleFor the Month Ended May 31, 2012

Work in process, May 1$12,200Direct materials used$5,300Direct labour5,600Manufacturing overhead applied 3,920Total manufacturing costs 14,820Total cost of work in process27,020Less: Work in process, May 31 6,830Cost of goods manufactured$20,190

PROBLEM 3-39B

(a)Applied overhead rate (from Job A-1) = $18,000 $15,000 = 120%Direct labour costs incurred: $150,000 + $35,000 + $15,000 = $200,000MOH applied = $200,000 1.2 = $240,000.

(b)Job A-1


1/1Year$ 3,500 150,000$153,500$ 15,000 150,000$165,000$ 18,000180,000$198,000


Job B-1


1/1Year $30,000$30,000$35,000$35,000$42,000$42,000



Job C-1


1/1Year $10,000$10,000$15,000$15,000$18,000$18,000


(c) Manufacturing overhead applied:Overhead incurred during the month$241,250


Under-applied overhead $ 1,250

(d)SNCStatement of Cost of Goods SoldFor the Year Ended December 31, 2012

Finished goods inventory, January 1$65,000Cost of goods manufactured* 623,500Cost of goods available for sale688,500Less: Finished goods, December 31** 107,000Unadjusted Cost of goods sold*** 581,500Plus: Under-applied overhead 1,250Adjusted cost of goods sold$582,750

*Job A-1, $516,500 + Job B-1, $107,000 **Job B-1, $107,000 ***Job D-1, $65,000 + Job A-1, $516,500


(e) Selling price of Job A-1: $516,500 1.40 = $723,100

(f) Ending balance in direct materials inventory:

Balance, January 1 $ 35,000

Plus: purchases 275,000

Direct material available for use310,000

Less: materials used in production 190,000

Balance, December 31 $120,000

Ending balance in work-in-process inventory:Balance, January 1$ 36,500Plus: Manufacturing costs during the month:Direct materials$190,000Direct labour 200,000Applied manufacturing overhead 240,000 630,000Total cost of work-in-process666,500Less: cost of goods manufactured 623,500Balance, December 31*$ 43,000

*(Job C-1, $43,000)

PROBLEM 3-40B

Work in process13,000Raw materials inventory13,000

Work in process20,000Factory Labour20,000

Work in process30,000Manufacturing Overhead30,000 (Overhead rate = $1,800 $1,200 = 150% of labour cost; $20,000 150% = $30,000)

Manufacturing Overhead28,000Various accounts28,000

Finished goods66,750Work in process66,750Calculation of finished goods:

Beginning inventory, Work in process $ 7,400 *

Plus:Raw materials 13,000

Direct labour 20,000

Manufacturing overhead 30,000

Total manufacturing costs 70,400

Ending inventory, Work in process 3,650 (1)

Cost of goods manufactured $ 66,750

* Order 8A ($2,000 + $1,200 + $1,800) + Order 10A ($1,900 + $200 + $300) = $7,400

(1) Order 12A

Raw materials $ 1,150

Direct labour 1,000

Overhead ($1,000 150%) 1,500

$ 3,650

Cost of goods sold63,450Finished goods63,450


Calculation of cost of goods sold

Beginning inventory, Finished goods$ -

Plus:Cost of goods manufactured 66,750

Cost of goods available for sale 66,750

Less: Ending inventory, Finished goods 3,300

Cost of goods sold $ 63,450

Manufacturing Overhead2,000Cost of goods sold2,000

Overhead incurred (given) $28,000

Overhead applied:

($20,000 150%) $30,000

Over-applied overhead $ 2,000

PROBLEM 3-41B

(a)Check the relationship between direct labour and factory overhead applied for several of the jobs to see what the overhead rate is:Job 43: $288 $360 = 80% of direct labour cost.Job 44: $792 $990 = 80% of direct labour cost.Job 47: $680 $850 = 80% of direct labour cost.

The predetermined overhead rate is 80% of direct labour costs.

(b)Total factory overhead applied $2,832

Less: beginning overhead 120 (1)

Overhead applied during the month 2,712

Less: over-applied overhead 600

Total factory overhead incurred $2,112

(1)Work in process, beginning $570

Less: direct labour 150

Less: overhead applied

($150 80%) 120

Direct material $300

(c)Direct materials shown on the job sheets

(Jobs 43 to 48) $4,190

Less: Direct materials in beginning WIP 300 (1) above

Direct materials put into production in June $3,890

(d)Direct labour shown on the job sheets

(Jobs 43 to 48) $3,540

Less: Direct labour in beginning WIP 150 (given)

Direct labour costs incurred in June $3,390

PROBLEM 3-41 (Continued)

(e)Work in process inventory, June 1 $ 570

Plus: manufacturing costs

Direct material $3,890

Direct labour 3,390

Factory overhead applied (DL 80%) 2,712 9,992

Total manufacturing costs 10,562

Less: Work in process inventory, June 30 477

Cost of goods manufactured for June $10,085

(f)Finished goods inventory, June 1 $ 2,550

Plus: Cost of goods manufactured 10,085


Less: Finished goods inventory, June 30 3,550

Cost of goods sold $ 9,085

PROBLEM 3-42B

(a)$78,900($70,000 + $8,900).

(b)$30,500[($19,000 + $90,400) $78,900 (See (a))].

(c)$27,200(Given in other data$19,000 + $8,200).

(d)$80,000($104,000 manufacturing overhead applied 130%).

(e)$104,000(Manufacturing overhead applied).

(f)$275,750[$27,200 + $70,000 + $80,000 + $104,000 $5,450 (See (g))].

(g)$5,450[$2,000 + $1,500 + ($1,500 130%)].

(h)$135,000(Given in other data).

(i)$275,750(Same as (f)).

(j)$267,750[$135,000 + $275,750 $143,000 (Given in other data)].

(k)$143,000(Given in other data).

(l)$96,000[$80,000 (See (d)) + $16,000].

(m)$96,000(Same as (l)).

(n)$82,100[$104,000 + $3,000 (Given in other data) $8,900 $16,000].

PROBLEM 3-43B

(a)Overhead rate = $267,000 10,000 hours = $26.70

Project 80

Direct material ($80 + $120) $ 200.00

Direct labour (40 hrs + 138 hrs) x $60/hour10,680.00

Overhead (40 hrs + 138 hrs) x $26.70/hour 4,752.60

$15,632.60

(b)Work in Process, October 31

Project 84Project 85Total

Materials $ 85.00 $ 100.00 $ 185.00

Direct labour (at $60 per hour) 8,700.00 9,600.00 18,300.00

Overhead (at $26.70 per DL hour) 3,871.50 4,272.00 8,143.50

$12,656.50 $13,972.00 $26,628.50

(c)PRICE-GORDON ARCHITECTURAL CONSULTANTS LTD.

Income Statement

for the month of October, 2012

Consulting revenue $43,800.00 (1)

Less: Cost of services 36,629.50 (2)

Gross Profit 7,170.50

Less: Operating expenses 2,340.94

Net Income $ 4,829.56


(1)Consulting revenue:

Project 80 (178 hours at $120/hour) $21,360.00

Project 86 (187 hours at $120/hour) 22,440.00

$43,800.00

(2)Cost of services:

Project 80 (as in (a)) $15,632.60

Project 86 16,362.90 (3)

31,995.50

Plus: under-applied overhead 4,634.00 (4)

Adjusted cost of services $36,629.50

(3)Project 86

Direct material $ 150.00

Direct labour (187 hrs $60/hour)11,220.00

Overhead (187 hrs $26.70/hour) 4,992.90

$16,362.90

(4)Overhead incurred (given) $21,455.00

Overhead applied:

(138 + 145 + 160 + 187) $26.70 16,821.00

Under-applied overhead $ 4,634.00

SOLUTIONS TO CASES

CASE 3-44

(a) The manufacturing cost element that is responsible for the fluctuating unit costs is manufacturing overhead. Manufacturing overhead is being included as incurred rather than being applied on a predetermined basis. Direct materials and direct labour are not the cause as they have the same unit cost per batch in each quarter.

(b) The solution is to apply overhead using a predetermined overhead rate based on a relevant basis of production activity. Based on actual overhead incurred and using batches of product TC-1 as the activity base, the overhead rate is $18,850 per batch [($128,000 + $192,500 + $100,000 + $145,000) 30]. Another approach would be to use direct labour cost as the relevant basis to apply overhead on a predetermined basis. For example, a rate of 125.66% of direct labour cost ($565,500 $450,000) could be used. Either approach will provide the same result. (c) The quarterly results using a predetermined overhead rate based on batches produced are as follows:Quarter

Costs1234

Direct materialsDirect labourMOH applied ($18,850 batches)Total$150,00075,000

94,250$319,250$330,000 165,000

207,350$702,350$120,00060,000

75,400$255,400$300,000150,000

188,500$638,500

Production in batches 5 11 4 10

Unit cost (per batch)$63,850$63,850$63,850$63,850

(Note:The unit cost of a batch remains the same in each quarter. Both sales and production should be pleased with this solution to fluctuating unit costs.)

CASE 3-45

(a) Using Job 22 as the basis for the calculation, Overhead rate = $7,350 $10,500 = 70% of the direct labour cost. (Note: Job 24 or Job 25 could have been used; the result would have been the same.)

(b)Unit cost of Job 24:

DirectDirect*Applied

MaterialsLabourOverheadTOTAL

Beginning WIP $ 5,190 $ 9,210 $ 6,447 $20,847

Costs added in Oct. 610 4,500 3,150* 8,260

Total $ 5,800 $ 13,710 $ 9,597 29,107

Divide by the number of units 40

Unit cost of Job 24 $727.675

*$4,500 70% = $3,150

(c) (1)Raw Materials Inventory

Beginning balance $ 9,800

Plus Purchases 28,500

Material available for use 38,300

Less: Material used 18,240 *

Ending balance $ 20,060

*Direct materials, Jobs 26, 27, 28 $ 14,980

Direct materials, Jobs 22, 24, 25 3,260

$ 18,240

CASE 3-45 (Continued)

(2)Work in Process Inventory

Job 27Job 28TOTAL

Direct materials (given) $ 5,600 $ 4,200 $ 9,800

Direct labour (given) 9,340 5,910 15,250

Overhead (70% of direct labour) 6,538 4,137 10,675

$21,478 $14,247 $35,725

(3)Finished Goods Inventory

Job 25

From beginning WIP $20,950

Plus: costs added in October

Direct materials (given) 1,500

Direct labour (given) 5,500

Overhead (60% of direct labour) 3,850

$31,800

(d)Cost of Goods Manufactured

DirectDirectApplied

MaterialsLabourOverheadTOTAL

Job 22 $ 7,350 $13,500 $ 9,450 $ 30,300

Job 24 5,800 13,710 9,597 29,107

Job 25 6,300 15,000 10,500 31,800

Job 26 5,180 11,200 7,840 24,220

$115,427


(e)Under- or Over-applied Overhead

Supervisory salaries $ 6,000

Factory rent 5,000

Depreciation (machines) 5,000

Indirect labour 4,000

Factory supplies 2,100

Property tax and insurance 2,250 (1)

Benefits 3,360 (2)

Total overhead incurred 27,710

Less: Overhead applied ($39,450 70%) 27,615

Under-applied overhead $ 95

Cost of Goods Sold $ 95

Manufacturing Overhead$ 95

(1)Assumes factory site

(2)80% of total benefits costs

CASE 3-46

(a) (1) Overhead rate = $150,000 12,500 = $12.00 per labour hour. (2)Ending Work in process:

Job 75

From beginning WIP $6,150

Plus:Direct materials 900

Direct labour 1,500

Overhead 1,200 (1)

Total ending WIP $9,750

(1) 100 direct labour hours at $12/hour

(3)Cost of Goods Manufactured

Beginning Work in process (Jobs 70, 75, 80) $12,300

Plus:Direct materials added 5,550

Direct labour added 13,500

Overhead applied 10,800 (2)

Total manufacturing costs in WIP 42,150

Less: Ending work in process (Job 75) 9,750

Cost of goods manufactured $32,400

(2)900 hours at $12 per hour


(4)Unadjusted Gross Margin:

Sales (20,100 x 250%) $50,250

Less: Cost of Goods Sold

Beginning finished goods inventory $ -

Plus: Cost of goods manufactured 32,400


Less: Ending finished goods inventory (3) 12,300 20,100

Unadjusted gross margin $30,150

(3)Job #90: $1,500 + $6,000 + (400 hrs $12 per hour)

(b)Raw materials inventory 7,500

Cash/Accounts Payable 7,500

Work in Process 29,850

Raw Material Inventory 5,550

Wages Payable or Factory Labour 13,500

Overhead (900 hrs $12/hr) 10,800

Finished Goods Inventory 32,400

Work in Process 32,400

Manufacturing overhead 9,490

Cash/Accounts Payable 7,000*

Accumulated Depreciation 2,490

*($1,500 + $2,200 + $1,500 + $1,800)


(c)Total overhead applied to Dec 1 (11,250 $12) $135,000

Plus: overhead applied in December (900 $12) 10,800

Total overhead applied during the year 145,800

Less: Overhead incurred during the year

($160,010 + $9,490) 169,500

Under-applied overhead $ (23,700)

Cost of goods sold will be increased by $23,700;

therefore, net income will be decreased by $23,700.

CASE 3-47

(a)Overhead rate = $606,000 120,000 = $5.05 per labour hour. (Note: using 120,000 hours as the basis for the calculation.)

(b)Costs assigned to Jobs X-50, X-51, X-52:

X-50X-51X-52Total

Beginning balance $ 54,000 $ - $ - $ 54,000

Material added 45,000 37,500 25,500 108,000

Labour added (1) 21,000 18,000 12,000 51,000

Overhead applied 17,675 15,150 10,100 42,925

$137,675 $70,650 $47,600 $255,925

(1)Direct labour cost $51,000

Total direct labour hours 8,500

Rate per hour $6.00

(c)Cost of goods manufactured:

Job X-50 $137,675

Job X-51 70,650

$208,325

(d)Work in process, November 30

Job X-52 $47,600

(e)Manufacturing overhead incurred:

Supplies $12,000

Indirect labour 15,000

Supervisory salaries 6,000

Occupancy costs-factory 6,500

Factory equipment costs 8,000

Total overhead incurred 47,500

Less: overhead applied 42,925

Under-applied overhead $ 4,575


CASE 3-48

(a) Costs assigned to Jobs 101 & 111:

Job 101Job 111

Prior to July:

Direct materials $ 9,000 $ 600

Direct labour 2,000 100

Overhead applied 1 2,400 120

Added in July:

Direct materials - 500

Direct labour 1,000 3,000

Overhead applied 1 1,200 3,600

$15,600 $7,920

1Direct labour cost 120%

(b)Direct Materials Inventory

Beg Bal 3,000 4,900 Used

Purchases 6,000

End Bal 4,100

(c) Work in Process, ending

Job 103Job 115Total

Beginning balance $ 5,800 (1) $ - $ 5,800

Material added 3,600 (2) 800 4,400

Labour added 3,800 (3) 200 4,000

Overhead applied 4,560 (4) 240 4,800

$17,760 $1,240 $19,000

(1)Direct Material $ 2,500

Direct Labour 1,500

Overhead applied

(120% of direct labour cost) 1,800

Total $ 5,800


(2)Total material used $ 4,900

Less: Jobs 111 & 115 1,300

Material added to Job 103 $ 3,600

(3)Total direct labour used $ 8,000

Less: Jobs 101, 111, & 115 4,200

Labour added to Job 103 $ 3,800

(4)Overhead applied =

Direct labour cost 120%

(d)Finished Goods Inventory

Beg Bal 18,000 18,000 Cost of Goods Sold

Completed* 23,520

End Bal 23,520

* Job 101, $15,600 + Job 111, $7,920

CASE 3-49

(a)The stakeholders in this situation are:

Clara Biggio, controller for ESU Printing. The president of ESU Printing. The customers of ESU Printing. The competitors of ESU Printing.

(b)Padding cost-plus contracts is both unethical and illegal. Clara is faced with an ethical dilemma. She will be in trouble with the president if she doesnt follow his directive, and she will be committing an unethical act if she does follow his instructions.

(c)Clara should continue to accurately account for cost-plus contracts and, if challenged by the president, she should say that she isdoing her very best to charge each and every legitimate cost to the cost-plus contracts. Let the president perform the unethical act if he continues to persist in padding costs.

CASE 3-50: All About You Activity

(a) Major fixed overheads Rent Utilities; heat, light, water Property taxes Depreciation and amortization Design fees for embroidered designs (see note) Web site design, hosting, maintenance etc. Supervisory salaries

(b) Allocation of overhead

The following are two possible methods others are possible.

Estimate the labour costs per garment: This will reflect the time taken to complete each order and allows for an increased cost according to the complexity of the order Estimate the total number of metres of fabric used per year and allocate overhead to each metre of fabric used for a shirt order.

Note: copyright fees for designs are assumed to be variable with production volume.

SOLUTION TO WATERWAYS CONTINUING PROBLEM WCP 3

(a)

Direct materialsDirect labourManu-facturing overhead Total

Job SOC-01 $12,500 $13,000$15,600$41,100

Job SOC-024,200 7,300 8,760 20,260

Job SOC-0310,500 12,500 15,000 38,000

The consistent relationship exists between manufacturing overhead and direct labour costs ($15,600/$13,000 = 120% or $15,000/12,500 = 120%) so direct labour would be the activity based used, and the rate for manufacturing overhead is 120% x direct labour cost.

(b) Manufacturing overhead is $2,558 over-applied.

Manufacturing Overhead

Beg Bal -----

Supplies $3,832 $29,880 Applied OH*

Rent 3,010

Depreciation 6,000

Insurance 1,500**

Employee Ben. 4,980

Salaries 8,000

Cost of Sales 2,558

Ending bal $29,880$29,880 Ending bal

*$24,900 x 120%** $18,000/12

Waterways Problem CH03 (continued)

(c)Prepaid Insurance18,000Cash18,000

Direct Labour (5,000+8,000+1,500+3,200+7,200)24,900Manufacturing Overhead (2,900+2,080)4,980Cash29,880

Work in process24,900Direct labour24,900

Raw Materials Inventory28,000Factory Work in process28,000

Work in process(2,100+6,000+500+3,000)11,600Raw materials inventory11,600

Manufacturing Overhead27,322Raw Materials Inventory3,382Rent Payable3,010Accumulated Depreciation6,000Prepaid Insurance1,500Salaries Payable8,000

Work in Process Inventory29,880($24,900 X 1.20)Manufacturing Overhead29,880

Cost of Sales114,840Work in Process Inventory114,840

Manufacturing Overhead2,558Cost of Sales2,558

Waterways Problem CH03 (continued)

(d) Work in Process

Beg Bal $99,360 $114,840 Cost of Sales

Direct Mat. 11,600

Direct Lab. 24,900

Overhead 29,880

End Bal $50,900

Job SOC-02

Beginning Balance $20,260

Plus: Costs added in June

Direct Materials$ 6,000

Direct Labour11,200

Manufacturing overhead13,44030,640

Ending Balance $50,900

(e)Sales $150,000

Less: Cost of Sales

Unadjusted cost of sales$114,840

Less: over-applied overhead2,558

Adjusted cost of sales111,922

Gross Profit $38,078

Legal Notice

Copyright

Copyright 2012 by John Wiley & Sons Canada, Ltd. or related companies. All rights reserved.

The data contained in these files are protected by copyright. This manual is furnished under licence and may be used only in accordance with the terms of such licence.

The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd.


Documents

sm03