EXERCISE 3-25
1
.
2
.
3
.
4
.
$134,000
191,000
$325,000
124,000
$201,000
Direct labor
300,000
$501,000
$501,000
180,000
$681,000
$681,000
235,000
Subtotal
$916,000
251,000
$665,000
$125,000
665,000
$790,000
117,000
$673,000
Since the company accumulates overapplied or underapplied overhead until the end of the
year, no adjustment is made to cost of goods sold until December 31.
5
.
$180,000
175,000
$ 5,000
EXERCISE 3-26
1
.
$2,500,000 30%
$750,000
Applied manufacturing
overhead
Direct-labor cost
$750,000 .8
Applied manufacturing
overhead
2
.
Direct-material cost
3
.
$812,500
Total
manufacturin
g
work-inprocess
+
cost
$2,500,000
inventory,
work-inprocess
inventory,
Jan.1
.75X
cost of
=
Dec. 31
goods
manufactured
$2,425,000
.25X
$2,500,000
$2,425,000
$300,000
EXERCISE 3-28
1
.
Direct material:
Raw-material inventory, January 1
$30,000
278,000
$308,000
33,000
$275,000
Direct labor
120,000
Manufacturing overhead
252,000
$647,000
39,000
Subtotal
$686,000
42,900
$643,100
2
.
$42,000
643,100
$685,100
46,200
$638,900
PROBLEM 3-38
1
.
Direct material:
Raw-material inventory, 12/31/x0
$10,100
39,000
$49,100
11,000
$38,100
Direct labor
79,000
Manufacturing overhead:
Indirect material
$4,900
Indirect labor
29,000
3,800
2,100
Utilities
6,000
Property taxes
2,400
Insurance
3,600
3,100
$54,900
3,100
58,000
$175,100
8,100
Subtotal
$183,200
8,300
$174,900
*The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to
work in process. Therefore, the overapplied overhead, $3,100, must be added to total
actual overhead to arrive at the amount of overhead applied to work in process. If there
had been underapplied overhead, the balance would have been deducted from total
actual manufacturing overhead. The amount of overapplied overhead is found by
subtracting actual overhead, $54,900 (as computed above), from applied overhead,
$58,000 (given).
2
.
$14,000
174,900
$188,900
15,400
$173,500
3,100
$170,400
*The cost of goods manufactured is obtained from the Schedule of Cost of Goods
Manufactured.
The company closes underapplied or overapplied overhead into cost of goods sold.
Hence, the balance in overapplied overhead is deducted from cost of goods sold for the
month.
3
.
Sales revenue
$205,800
170,400
Gross margin
$35,400
$13,800
Utilities
2,500
Depreciation
1,200
1,700
Other expenses
4,000
Total
23,200
$12,200
5,100
Net income
$7,100
PROBLEM 3-40
Traceable costs total $2,500,000, computed as follows:
Percent
Traceab
le
Traceab
le
Cost
$2,500,0
00
300,000
80%
60
$2,000,0
00
180,000
250,000
90
225,000
50,000
90
45,000
100,000
50
50,000
Total
Cost
Professional staff
salaries
Administrative support
staff
Travel
.
Photocopying
..
Other operating
costs
Total.
$3,200,0
00
$2,500,0
00
JLRs overhead (i.e., the nontraceable costs) total $700,000 ($3,200,000 - $2,500,000).
Predetermined overhead rate = budgeted overhead traceable costs
= $700,000 $2,500,000 = 28% of traceable costs
Target profit percentage = target profit total cost
= $640,000 $3,200,000 = 20% of cost
The total cost of the Martin Manufacturing project is $64,000, and the billing is $76,800,
as follows:
Professional staff salaries
Administrative support
staff
Travel.
.
Photocopying
Other operating
costs.
Subtotal
Overhead ($50,000 x 28%)
$41,0
00
2,600
4,500
500
1,400
$50,0
00
14,00
.
Total cost.
Markup ($64,000 x 20%)
.
Billing to
Martin
0
$64,0
00
12,80
0
$76,8
00
PROBLEM 3-42
1
.
HURON CORPORATION
SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 20X2
Direct material:
Raw material inventory, 12/31/x1
$89,000
731,000
$820,000
59,000
$761,000
Direct labor
474,000
Manufacturing overhead:
Indirect material
$45,000
Indirect labor
150,000
125,000
60,000
Utilities
70,000
Property taxes
90,000
Insurance
40,000
$580,000
2,500
577,500
$1,812,500
-0-
Subtotal
$1,812,500
40,000
$1,772,500
*The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to
work in process. Therefore, the underapplied overhead, $2,500, must be deducted from
total actual overhead to arrive at the amount of overhead applied to work in process. If
there had been overapplied overhead, the balance would have been added to total
manufacturing overhead.
The amount of underapplied overhead is found by subtracting the applied
manufacturing overhead, $577,500, from the total actual manufacturing overhead,
$580,000.
2
.
HURON CORPORATION
SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 20X2
$ 35,000
1,772,500
$1,807,500
10
40,000
$1,767,500
2,500
$1,770,000
*The company closes underapplied or overapplied overhead into cost of goods sold.
Hence the $2,500 balance in underapplied overhead is added to cost of goods sold for
the month.
3
.
HURON CORPORATION
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X2
Sales revenue
$2,105,000
1,770,000
Gross margin
$335,000
269,000
$ 66,000
25,000
Net income
$ 41,000
PROBLEM 3-44
1
.
Direct material:
11
$17,000
113,000
$130,000
26,000
$104,000
Direct labor
160,000
80,000
$344,000
40,000
Subtotal
$384,000
36,000
$348,000
*Work upward from the bottom of the statement, using the information available. Direct
labor + manufacturing overhead = total manufacturing costs direct material cost =
$344,000 $104,000 = $240,000. Since manufacturing overhead = 50% of direct labor,
then manufacturing overhead = $80,000 and direct labor = $160,000.
Raw material:
Beginning inventory
$17,000
Add: Purchases
113,000
12
3
.
$130,000
26,000
$104,000
Direct labor
160,000
$264,000
Direct labor
$160,000
80,000
$240,000
PROBLEM 3-48
1
.
$390,000
+ $216,000
13
$54,000
Direct material
45,000
84,000
17,675
Total cost
$200,675
*Direct-labor rate
3
.
direct-labor wages
$204,000
$10,100
4
.
14
Direct
Material
Conversion
$ 220,000
1,404,000
$1,624,000
29,000
$56a
$ 66,000
506,000
$572,000
26,000
$22b
3.
4.
$280,000
44,000
$324,000
(a) No material would be added during May. All material is introduced at the start of
Goodsons manufacturing process, and these units were begun in April.
(b) Since the work-in-process inventory is 40% complete at the end of April, 60% of
the conversion would be done in May.
1.
Given that the ending work-in-process inventory is at the 40% stage of completion,
these units would not have reached the 70% point in April where HH887 is added.
Therefore, there would be zero equivalent units with respect to part HH887 in the
ending work-in-process inventory.
PROBLEM 4-32
1.
The ending work-in-process inventory consisted of 500 units (300 + 900 700).
2.
The cost of goods completed during June totaled $57,400 (700 units x $82):
Physical
Units
Work in process, June 1.
Units started during June..
15
300
900
Percentage
Of
Completion
With
Respect to
Conversion
30%
Equivalent Units
Direct
Material Conversion
1,200
700
500
1,200
100%
60%
700
500
700
300
1,200
1,000
Direct
Material
Conversion
Total
$15,000
45,000
$60,000
1,200
$50a
$ 6,300
25,700
$32,000
1,000
$32b
$21,300
70,700
$92,000
Finished-Goods Inventory
57,400
Work-in-Process Inventory.
57,400
3.
4.
$25,000
9,600
$34,600
Equivalent units measure the amount of manufacturing activity (i.e., for direct
material or conversion) that has been applied to a batch of physical units. If, for
example, a company has 600 physical units in process that are 40% complete as to
conversion, the firm has done the equivalent amount of conversion activity as would
be required to do all of the conversion work for 240 units (600 x 40%).
Equivalent units are needed to state manufacturing activity on a common
measurement scale. One cannot add completed units to units in process. Such a
combination is like adding apples and oranges, as some units are complete and
some are incomplete. Instead, these units are first converted to equivalent units,
and the latter are then used in unit-cost calculations.
16
$82c
15,000
65,000
71,000
$ 37,500
570,000
12.25
1,407,250
94,000
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material
15,000
60,000
75,000
17
20%
Conversion
65,000
100%
65,000
65,000
10,000
60%
10,000
6,000
75,000
_____
_____
75,000
71,000
Direct
Material
Conversion
Total
$135,000
$37,500
$172,500
570,000
832,250
1,402,250
$705,000
$869,750
$1,574,750
Equivalent units...................................
75,000
71,000
$9.40*
$12.25
$21.65**
number of units
Direct material:
18
$1,407,250
number of
cost per
equivalent
equivalent
units of
unit of
direct
material
direct
material
.....................................10,000$9.40
$94,000
Conversion:
number of
cost per
equivalent
equivalent
units of
unit of
conversion
conversion
................................................6,000$12.25
73,500
$167,500
$1,407,250
167,500
$1,574,750
CHAPTER:5
EXERCISE 5-27
REDWOOD COMPANY
COMPUTATION OF SELLING COSTS
BY ORDER SIZE AND PER SKEIN WITHIN EACH ORDER SIZE
1.
Order Size
Small
Sales commissionsa
19
Medium
Large
Total
$534,000
$ 675,000
62,600
295,400
26,400
105,000
31,000
60,000
$654,000
$1,135,400
2,180,000
Catalogsb
(Unit cost: $295,400/590,800
= $.50 per catalog)........................................................
127,150
105,650
catalog).............................................................................
20
$.50
$.30
2.
The analysis of selling costs shows that small orders cost more than large orders. This fact
could persuade management to market large orders more aggressively and/or offer
discounts for them.
PROBLEM 5-28
1.
Manufacturing overhead costs include all indirect manufacturing costs (all production
costs except direct material and direct labor). Typical overhead costs include:
a.
Indirect labor (e.g., a lift-truck driver, maintenance and inspection labor, engineering
labor, and supervisors).
Indirect material.
Other indirect manufacturing costs (e.g., building maintenance, machine and tool
maintenance, property taxes, insurance, depreciation on plant and equipment, rent, and
utilities).
Companies develop overhead rates before production to facilitate the costing of
products as they are completed and shipped, rather than waiting until actual costs are
accumulated for the period of production.
b.
2.
The increase in the overhead rate should not have a negative impact on the company,
because the increase in indirect costs was offset by a decrease in direct labor.
3.
Rather than using a plantwide overhead rate, Borealis Manufacturing could implement
separate activity cost pools. Examples are as follows:
Separate costs into departmental overhead accounts (or other relevant pools), with
one account for each production and service department. Each department would
allocate its overhead to products on the basis that best reflects the use of these
21
overhead services.
4.
Treat individual machines as separate cost centers, with the machine costs collected
and charged to the products using machine hours.
An activity-based costing system might benefit Borealis Manufacturing because it
assigns costs to products according to their usage of activities in the production
process. More accurate product costs are the result.
22
23
24