Accounting Chapter 16 brief exercises and exercises Page 1 of 10

Accounting Chapter 16 brief exercises and exercises

Solutions Guide: This is meant as a solutions guide. Please try reworking the questions and reword the
answers to essay type parts so as to guarantee that your answer is an original. Do not submit as your
own.
acob Potter

Brief Exercises

1. During the year, Coronado Boat Yard has incurred manufacturing costs of 420,000 in building three
large sailboats. At year end, each boat is about 70 percent complete. How much of these manufacturing
costs should be recognized as expense in Coronado Boat Yards income statement for the current year?
Explain?
Coronado Boat Yard should not recognize any of the manufacturing
costs on their year-end income statement. These are product costs
and as a result, will not appear on the income statement until the
boats are sold and the revenue is earned.
2. During the current year, the cost of direct materials purchased by a manufacturing firm was $340,000,
and the direct materials inventory increased by $20,000. What was the cost of direct materials used during
the year?
Direct materials used is $340,000 less the $20,000 increase in the
ending balance of direct materials or $320,000.

3. A company that assembles trucks produces 60 trucks during the current year and incurs $3 million of
material, labor, and overhead costs. Fifty-three trucks were sold during the year and each is allocated the
same amount of costs. How much of the $3 million assembly costs should appear on the company’s income
statement for the current year?
Product costs per truck: $3,000,000 ÷ 60 = $50,000
Costs recognized due to matching: 53 trucks sold × $50,000 =
2,650,000
The company should recognize $2,650,000 in product costs in the
current year income statement.

4. Hula’s Heavyweights, Inc., is a company that manufactures forklifts. During the year, Hulas purchased
$1,450,000 of direct materials and placed $1,525,000 worth of direct materials into production. Hula’s
beginning balance in the materials inventory account was 320,000. What is the ending balance in Hula’s
Materials inventory account?

Direct Materials Inventory

Balance, 1/1 $
320,000

Purchases of Direct materials used

$1,525,000
direct $
materials 1,450,000

Balance, 12/31 $
 Accounting Chapter 16 brief exercises and exercises Page 2 of 10

245,000

5. A.J.’s Cooling Systems, Inc., assigns $230,000 of direct labor costs to production during the current
period. A.J.’s also pays employees $200,000 during the period. What are the two journal entries used to
record these transactions?
Direct Labor $200,000
Cash $200,000
To record payment of direct labor costs.

WIP Inventory $230,000

Direct Labor $230,000.00
To record usage of direct labor in the production process.

6. During the Current year, Cherry Electronics incurred $350,000 of indirect labor costs, $10,000 of
indirect material costs, $130,000 of rent costs, and $260,000 of other overhead costs. How much did Cherry
Electronics assign to the work in process Inventory account from the Manufacturing Overhead Account?
Manufacturing Overhead
Indirect labor $ Overhead costs
payroll 350,000 assigned to $
production 750,000
Indirect material 10,000
costs

Rent costs 130,000

Other overhead 260,000

costs

7. Ardvark Pets, Inc., has three stores in the state. The owner, Ms. Perkins, is having trouble tracking
inventory costs in the three pet stores. Ms. Perkins knows about your skill in tracking and understanding
costs flows and asks you to find the following missing items for the three stores:

Midwest Ardvark Northern Ardvark Eastern Ardvark

Beg Inventory $30,000 ? ?
Transferred in $100,000 $200,000 $160,000
Transferred out $110,000 $180,000 $150,000
Ending Inventory ? $60,000 $40,000

All amounts debited to the Manufacturing Overhead account during

the year will be assigned to units of product manufactured.
Therefore, at year-end the Manufacturing Overhead account will
have a balance of zero. This means $750,000 must have been assigned
to Work in Process Inventory during the year.
Basic Formula = Beg. Inv. + Tr. In = End. Inv. + Tr. Out
 Accounting Chapter 16 brief exercises and exercises Page 3 of 10

Midwest Ardvark’s = $30,000 + $100,000 = X + $110,000; X = $20,000

Northern Ardvark’s = X + $200,000 = $60,000 + $180,000; X =
$40,000
Eastern Ardvark’s = X + $160,000 = $40,000 + $150,000; X =
$30,000

8. The work in process inventory account had a beginning balance of $16,200 on April 1. During April, the
cost of direct materials used was 408,000 and direct labor cost assigned to production was $56,000. A total
of $72,000 of overhead was assigned to production in April. If the costof finished goods manufactured was
$523,500 what was the balance in the work in process inventoryaccount on April 30?
Work in Process
Beginning Bal. 4/1 $ 16,200 Transferred to
Finished
Goods account $ 523,500
Direct material used 408,000

Direct labor applied 56,000

Overhead applied 72,000

Ending Bal. 4/30 $ 28,700

9. Hapless Repairs Co. does all the repair work for a medium sized manufacturer of handheld computer
games. The games are sent directly to Hapless, and after the games are repaired, Hapless bills the game
manufacturer for costs plus a 30 percent makeup. In the month of February, purchases of parts (replacement
parts) by Hapless amounted to $90,000, the beginning inventory of parts was $40,500, and the ending
inventory of parts was $15,250. Payments to repair technicians during the month of February totaled
$63,000. Overhead incurred was $113,000.
a. What was the cost of materials used for repair work during the month of February?
b. What was the prime cost for February?
c. What was the conversion cost for February?
d. What was the total repair cost for February?

a. $40,500 + $90,000 - $15,250 = $115,250

b. $115,250 + $63,000 = $178,250
c. $63,000 + $ 113,000 = $176,000
d. $115,250 + $63,000 + $113,000 = $291,250

10. At the end of the year, Johnson’s Manufacturing Corporation had the following balances:

Work in process………………………………………..$52,000
Cash and cash equivalents………………………..$346,000
 Accounting Chapter 16 brief exercises and exercises Page 4 of 10

Finished Goods…………………………………………. $85,600

Raw materials……………………………………………. $33,000
Accounts Receivable…………………………………..$237,000

Prepare a partial balance sheet for Johnson’s showing the above accounts.

Johnson’s Manufacturing Corporation

Partial Balance Sheet
December 31, 200X
Current assets:
Cash and Cash Equivalents ……………………………………………. $346,000
Accounts Receivable …………………………………………………….. 237,000
Inventories:
Raw Materials
……………………………………………….. $33,000
Work in Process
………………………………………………….. 52,000
Finished Goods
……………………………………………….. 85,600
Total Inventories
……………………………………………………….. 170,600
Total current assets
……………………………………………………………………….. $753,600

4 Exercises

1. Listed below are eight technical accounting terms introduced or emphasized in the reading

Work in process Inventory Cost of finished goods manufactured

Conversion Costs Cost of Goods sold
Period Cost Management Accounting
Product Cost Manufacturing Overhead

Each of the following statements may or may not describe one of these technical terms.
For each statement, indicate the accounting term described or answer None if the
statement does not describe any of the terms

a. The preparation and use of accounting information designed to assist managers in

planning and controlling the operations of a business
b. All manufacturing costs other than direct materials used and direct labor
c. Direct materials and direct labor used in manufacturing a product
d. A manufacturing cost that can be traced conveniently and directly to manufactured
units of a product.
e. The account debited at the time that the manufacturing overhead account is credited
f. The amount transferred from the work in process Inventory account to the finished
goods Inventory account.
 Accounting Chapter 16 brief exercises and exercises Page 5 of 10

Costs that are debited directly to expense accounts when the costs are incurred

a. Management accounting
b. Manufacturing overhead
c. None (These are prime costs.)
d. None (The statement describes direct manufacturing costs.)
e. Work in Process Inventory
f. Cost of finished goods manufactured
g. Period costs

4. The following information was taken from the accounting Records of Reliable Tool Corporation:
Work in process inventory, beginning of year………………………….$35,000
Cost of direct materials used…………………………………………………….245,000
Direct labor costs applied to production…………………………………..120,000
Cost of finished goods manufactured……………………………………….675,000

Overhead is assigned to production at $300,000. Compute the amount of work in process inventory on
hand at year-end.
Work in process inventory, beginning of the year $
……………………….. 35,000
Manufacturing costs applied to production:
Direct materials used
………………………………….. $245,000
Direct labor ……………………………………….
120,000
Manufacturing overhead
……………………………………………….. 300,000
Total manufacturing costs
………………………………………………. 665,000
Total cost of all goods in process during the year
…………………….. $700,000
Less: Cost of finished goods manufactured 675,000
…………………………
Work in process inventory, end of the year $25,000
……………………………….

5. The Accounting records of NuTronics, Inc., include the following information for the year ended
Dec. 31, 2009.
Dec.31 Jan 1
Inventory of materials…………………………………………………………………………… $24,000
20,000
Inventory of work in process………………………………………………………………… 8,000
12,000
Inventory of finished goods………………………………………………………………….. 90,000
80,000
Direct materials used……………………………………………………………………………. 210,000
 Accounting Chapter 16 brief exercises and exercises Page 6 of 10

Direct labor…………………………………………………………………………………………….
120,000
Selling Expenses…………………………………………………………………………………….
170,000
General and administrative expenses…………………………………………………… 140,000

Overhead is assigned to production at $192,000.

a. Prepare a schedule of the cost of finished goods manufactured. (not all the data given above are
used in this schedule)
b. Assume that the company manufactures a single productand that 20,000 units were completed during
the year. What is the average per-unit costs of manufacturing this product?

NuTronics, Inc.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31, 2007

Work in process, January 1, 2007 $12,000

………………………………….
Manufacturing costs assigned to production:
Direct materials used $210,000
………………………………..
Direct labor 120,000
………………………………….
Manufacturing overhead 192,000
……………………….
Total manufacturing costs 522,000
………………………………….
Total cost of all goods in process during the year $534,000
………………………..
Less: Work in process inventory, December 31, 2007 8,000
…………………….
Cost of finished goods manufactured $526,000
…………………………………………..

b. $26.30 per unit ($526,000 cost of finished goods manufactured,

divided by 20,000 units)

6. Stone Tools, Inc., had the following account balances as of Jan. 1

Direct Materials inventory………………………………………$8,700
Work in Process Inventory………………………………………76,500
Finished Goods inventory………………………………………..53,000
Manufacturing overhead…………………………………………. -0-

During the month of Jan. all of the following occurred:

1. Direct labor costs were $42,000 for 1,800 hours worked
2. Direct materials costing $25,750 and indirect materials costing $3,500 were purchased
 Accounting Chapter 16 brief exercises and exercises Page 7 of 10

3. Sales commissions of $16,500 were earned by the sales force

4. $26,000 worth of direct materials were used in production
5. Advertising costs of $6,300 were incurred
6. Factory supervisors earned salaries of $12,000
7. Indirect labor costs for the month were $3,000
8. Monthly depreciation on factory equipment was $4,500
9. Utilities expense of $7,800 was incurred in the factory
10. Tools with manufacturing costs of $69,000 were transferred to finished goods
11. Monthly insurance costs for the factory were $4,200
12. $3,000 in property taxes on the factory were incurred and paid
13. Tools with manufacturing costs of $89,000 were sold for $165,000

Instructions:
a. If stone assigns manufacturing overhead of $32,400 what will the balance in the Direct Materials,
Work in Process, and finished Goods inventory accounts at the end of January?
b. As of January 31, what will be the balance in the manufacturing Overhead account?
c. What was stones operating income for January?

Direct materials inventory, Jan. 1 ……………………………………… $

a. 8,700
Direct materials purchased ……………………………………. 25,750
Less: Direct materials used in production ………………………….. (26,000)
Direct materials inventory, Jan. 31 $
8,450

Work in process inventory, Jan. 1 ……………………………………….. $

76,500
Direct materials used ………………………………………………… 26,000
Direct labor used ………………………………………………… 42,000
Manufacturing overhead assigned ……………………………………. 32,400
Less: Finished goods transferred out …………………………………. (69,000)
Work in process inventory, Jan. 31 $
…………………………………………….. 107,900

Finished goods inventory, Jan. 1 ……………………………………. $

53,000
Cost of finished goods transferred in 69,000
………………………………………….
Less: Cost of goods sold (89,000)
…………………………………………………………….
Finished goods inventory, Jan. 31 $
……………………………………………. 33,000

Manufacturing overhead, Jan. 1 ………………………………………. $

b. 0
Indirect materials purchased 3,500
 Accounting Chapter 16 brief exercises and exercises Page 8 of 10

…………………………………………………….
Supervisor salaries 12,000
………………………………………………………………
Indirect labor costs 3,000
……………………………………………………………
Depreciation 4,500
……………………………………………………………………….
Factory utilities 7,800
……………………………………………………………..
Factory insurance 4,200
……………………………………………………………
Property taxes on factory 3,000
………………………………………………….
Less: Manufacturing overhead assigned (32,400)
…………………………………………
Manufacturing overhead, Jan. 31 ………………………………………….. $
5,600
c. Operating income for the month of January:
Revenues $
………………………………………………………………………. 165,000
Cost of goods sold (89,000)
………………………………………………………
Gross profit 76,000
…………………………………………………………….
Operating expenses:
Sales commissions $
…………………………………. 16,500
Advertising expense 6,300 (22,800)
…………………………..
Operating income $
…………………………………………………………….. 53,200

9. Mayville Company, a sole proprietorship, reports the following information pertaining to its operating
activities:
Ending Balance Beg. Bal
Material Inventory………………………………………………………………………..$20,000
$40,000
Work in process Inventory…………………………………………………………….$29,000
$60,000
Finished Goods Inventory………………………………………………………………$52,000
$42,000

During the year, the company purchased $30,000 of direct materials and incurred $21,000 of direct labor costs.
Total manufacturing overhead costs for the year amounted to 18,000. Selling and administrativeexpenses
amounted to $60,000, and the companies annual sales amounted to $200,000.
a. Prepare a Mayvilles schedule of the costs of finished goods manufactured.
b. Prepare Mayvilles income statement (ignore income taxes)
 Accounting Chapter 16 brief exercises and exercises Page 9 of 10

a. MAYVILLE COMPANY
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31
Work in process inventory, January 1 $ 60,000
Add: Manufacturing costs assigned to production:
Direct materials used (1) $ 50,000
Direct labor 21,000
Manufacturing overhead 18,000
89,000
Total costs in process $ 149,000
Less: Work in process inventory, December 31 29,000
Cost of finished goods manufactured $ 120,000

Computation of direct materials used:

(1)
Direct materials,
January 1 $ 40,000
Add: Direct materials
purchased 30,000
Direct materials
available $ 70,000
Less: Direct
materials, December
31 20,000
Direct materials put
into production $ 50,000

b. MAYVILLE COMPANY
Income Statement
For the Year Ended December 31
Sales $ 200,000
Less: Cost of goods sold (1) 110,000
Gross profit on sales $ 90,000
Less: Selling and administrative expenses 60,000
Net income $ 30,000

The company’s cost of goods sold figure is based

 Accounting Chapter 16 brief exercises and exercises Page 10 of 10

(1)
on the following flow of costs through production
to finished goods:

Finished goods inventory, January 1 $ 42,000

Add: Cost of finished goods manufactured 120,000
Cost of goods available for sale $ 162,000
Less: Finished goods inventory, December 31 52,000
Cost of goods sold $ 110,000