PROBLEMSETC

PROBLEM191C
RitterCompanysDecember31inventoryofrawmaterialsis$43,200.Rawmaterialspurchases
inJanuaryare$162,000.FactorypayrollcostinJanuaryis$183,600.Overheadcostsincurredin
January areindirectmaterials,$16,200;indirectlabor,$10,800;factoryrent;$48,000;factory
utilities,$36,200;andfactoryequipmentdepreciation,$27,500.Thepredeterminedoverheadrate
is80%ofdirectlaborcost.Job241issoldfor$270,000cashinJanuary.Costsofthethreejobs
workedoninJanuaryfollow:
Job240
Job241 Job242
BalancesonDecember31
Directmaterials $10,800$16,200
Directlabor
5,4005,800
Appliedoverhead 4,3204,640
CostsduringJanuary
Directmaterials 27,00081,000
$43,200
Directlabor
43,20075,600
54,000
Appliedoverhead ?
?

StatusonJanuary31 Finished Finished

Inprocess
(unsold)(sold)
Required
1.DeterminethetotalofeachproductioncostincurredforJanuary(directlabor,directmaterials,
appliedoverhead),andthetotalcostassignedtoeachjob(includingthebalancesfromDecember
31).
2.PreparejournalentriesforthemonthofJanuarytorecordthefollowing.
a. Materialspurchases(oncredit),factorypayroll(paidincash),andactualoverheadcosts
includingindirectmaterialsandindirectlabor.(Factoryrentandutilitiesarepaidincash.)
b. Assignmentofdirectmaterials,directlabor,andappliedoverheadcoststotheGoodsin
ProcessInventory.
c. TransferofJobs240and241totheFinishedGoodsInventory.
d. CostofgoodssoldforJob241.
e. RevenuefromthesaleofJob241.
f. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold
account.(Theamountisnotmaterial.)
3.Prepare a manufacturing statement for January (use a single line presentation for direct
materialsandshowthedetailsofoverheadcost).
4.ComputegrossprofitforJanuary.ShowhowtopresenttheinventoriesontheJanuary31
balancesheet.
AnalysisComponent

5. The over or underapplied overhead is closed to Cost of Goods Sold. Discuss how this
adjustmentimpactsbusinessdecisionmakingregardingindividualjobsorbatchesofjobs.

PROBLEM192C
PacificCoastscomputersystemgeneratedthefollowingtrialbalanceonDecember31,2008.
Thecompanysmanagerknowssomethingiswrongwiththetrialbalancebecauseitdoesnot
showanybalanceforGoodsinProcessinventoryandstillshowsbalancesintheFactoryPayroll
andFactoryOverheadaccounts.
Debit
Credit
Cash
$89,100
AccountsReceivable42,000
Rawmaterialsinventory
20,800
Goodsinprocessinventory
0
Finishedgoodsinventory
7,200
Prepaidinsurance
2,400
Accountspayable
$7,300
NotesPayable10,000
Commonstock
21,000
Retainedearnings
62,000
Sales
174,000
Costofgoodssold
63,000
Factorypayroll
6,600
Factoryoverhead
16,200
Operatingexpenses
27,000
Totals
$274,300$274,300
Aftersearchingforvariousfiles,themanagerfindsthefollowingsourcedocumentsthatneedto
beprocessedtobringtheaccountingrecordsuptodate:
Materialsrequisition1001:$6,500directmaterialsforthelongboard
Materialsrequisition1045:$3,300indirectmaterials
Labortimeticket888: $5,600directlaborforthelongboard
Labortimeticket556: $1,000indirectlabor
Longboardsaretheonlygoodsinprocessatyearend.Thepredeterminedoverheadapplication
rateis150%ofdirectlaborcost.
Required
1.Usetheinformationonthesourcedocumentstopreparejournalentriestoassignthefollowing
costs:
a. DirectmaterialcoststoGoodsinProcessInventory.

b. DirectlaborcoststoGoodsinProcessInventory.
c. OverheadcoststoGoodsinProcessInventory.
d. IndirectmaterialcoststotheFactoryOverheadaccount.
e. IndirectlaborcoststotheFactoryOverheadaccount.
2.DeterminetherevisedbalanceoftheFactoryOverheadaccountaftermakingtheentriesin
part(1).Determinewhetherthereisanyunderoroverappliedoverheadfortheyear.Preparethe
adjustingentrytoallocateanyoverorunderappliedoverheadtoCostofGoodsSold,assuming
theamountisnotmaterial.
3.Preparearevisedtrialbalance.
4.Prepareanincomestatementforyear2008andabalancesheetasofDecember31,2008.
AnalysisComponent
5.Assume that the$3,300onmaterials requisition 1045should havebeen direct materials.
Without providing specific calculations, describe the impact of this error on the income
statementfor2008andthebalancesheetatDecember31,2008.

PROBLEM193C
OTWInc.spredeterminedoverheadrateforyear2008is250%ofdirectlabor.Thecompanys
activitiesrelatedtomanufacturingduringMay2008follow:
a. Purchasedrawmaterialsoncredit,$150,000.
b. Paid$108,100cashforfactorywages.
c. Paid$18,000cashtoaenvironmentalconsultanttoreadjustfactoryequipment.
d. Materialsrequisitionsrecorduseofthefollowingmaterialsforthemonth:
Job66
$32,000
Job67
23,000
Job68
17,400
Job69
42,000
Job70
6,900
Totaldirectmaterials$121,300
Indirectmaterials 25,400
Totalmaterialsused$146,700
e. Timeticketsrecorduseofthefollowinglaborforthemonth:
Job66
$8,000
Job67
7,500
Job68
38,600
Job69
25,000
Job70
3,500

Totaldirectlabor
$82,600
Indirectlabor
25,500

Total
$108,100

f. AppliedoverheadtoJobs66,68,and69.
g. TransferredJobs66,68,and69toFinishedGoods.
h. SoldJobs66and68oncreditatatotalpriceof$420,000.
i. Incurredthefollowingoverheadcostsduringthemonth(creditPrepaidInsuranceforexpired
factoryinsurance):
Depreciationoffactorybuilding
$44,000
Depreciationoffactoryequipment
28,300
Expiredfactoryinsurance 12,000
Accruedpropertytaxespayable
15,000
j. Applied overhead at monthend to the Goods in Process (Jobs 67 and 70) using the
predeterminedrateof250%ofdirectlaborcost.
Required
1.Prepare a job cost sheet for each job worked on during the month. Use the following
simplifiedform:
JobNo.____
Materials
$
Labor
Overhead
Totalcost
$
2.Preparejournalentriestorecordtheeventsandtransactionsathroughj.
3.SetupTaccountsforeachofthefollowinggeneralledgeraccounts,eachofwhichstartedthe
monthwithazerobalance: RawMaterials Inventory;Goods inProcess Inventory; Finished
GoodsInventory;FactoryPayroll;FactoryOverhead;CostofGoodsSold.Thenpostthejournal
entriestotheseTaccountsanddeterminethebalanceofeachaccount.
4.Prepareareportshowingthetotalcostofeachjobinprocessandprovethatthesumoftheir
costsequalstheGoodsinProcessInventoryaccountbalance.PreparesimilarreportsforFinished
GoodsInventoryandCostofGoodsSold.
PROBLEM194C
InDecember2007,SheilaandTheScreamersrecordingstudioaccountant,CountD.Monet,
estimatednextyearstotaldirectlaborcostassuming20employeesworkinganaverageof2,000
hourseachatanaveragewagerateof$20perhour.Theaccountantalsoestimatedthefollowing
recordingoverheadcostsforyear2008:
Indirectlabor
$200,000
Factorysupervision
100,000
Taxesonfactorybuilding
44,000
Factorysecurity
28,000
DepreciationRecordingequipment50,000
Employeemotivationsuppliesused282,000

Miscellaneousrecordingcosts 16,000
Totalestimatedoverheadcosts $720,000
Attheendof2008,records show thestudioincurred$748,000ofactual overhead costs.It
recordedandsoldthreeCDswiththefollowingdirectlaborcosts:LiveScreams,$340,000;
ScreamerDreams,GreatestHitscollection,$70,000;UnpluggedandAwful,$480,000.The
studiospredeterminedoverheadallocationrateisbasedondirectlaborcost.
Required
1.Determinethefollowing:
a. Predeterminedoverheadallocationrateforyear2008.
b. TotaloverheadcostappliedtoeachofthethreeCDsduringyear2008.
c. Overorunderappliedoverheadatyearend.
2.Assumingthatanyoverorunderappliedoverheadisnotmaterial,preparetheadjustingentry
toallocateanyoverorunderappliedoverheadtoCostofGoodsSoldattheendofyear2008.