17Solutions
COSTING CHAPTER SYSTEMS: JOB ORDER AND
PROCESS COSTING
Chapter 17, SE 1.
1.
2.
3.
yes
yes
yes
Chapter 17, SE 2.
1.
2.
3.
process
job order
job order
4.
5.
6.
process
process
job order
Chapter 17, SE 3.
1.
2.
3.
4.
Dr. Materials Inventory, Cr. Accounts Payable
Dr. Work in Process Inventory, Cr. Factory Payroll
Dr. Work in Process Inventory, Cr. Materials Inventory
Dr. Work in Process Inventory, Cr. Overhead
Chapter 17, SE 4.
Work in Process
Inventory
(1)
34,000
(2)
Overhead
(1)
82,420
Factory Payroll
Copyright Houghton Mifflin Company. All rights reserved.
52,000 (1)
Ch17 SE1 to SE4
18,000
82,420 (2)
Chapter 17, SE 5.
1.
2.
3.
4.
5.
6.
Dr. Work in Process Inventory, Cr. Materials Inventory
Dr. Work in Process Inventory, Cr. Factory Payroll
Dr. Materials Inventory, Cr. Accounts Payable
Dr. Overhead, Cr. Accounts Payable
Dr. Work in Process Inventory, Cr. Overhead
Dr. Finished Goods Inventory, Cr. Work in Process Inventory
Chapter 17, SE 6.
168
Job Order:
JOB ORDER COST CARD
Keeper, 3000
Apache City, North Dakota
Customer:
Brian Patcher
Custom: X
Batch:
Specifications: 6 Custom Built Computer Systems
Date of Order:
4/4/xx
6/8/xx
Date of Completion:
Previous
Months
Current
Month
Cost
Summary
$3,540
$2,820
$ 6,360
Direct labor
2,340
1,620
3,960
Overhead applied
2,880
2,550
5,430
$8,760
$6,990
$15,750
Costs Charged to Job
Direct materials
Totals
6
$ 2,625
Units completed
Product unit cost
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 SE5 to SE6
Chapter 17, SE 7.
Blue Blaze
FIFO Costing Method
For the Month Ended July 31
Physical
Units
Beginning inventory
Units started this period
Units to be accounted for
Beginning inventory
Equivalent Units
3,000
17,000
20,000
Direct
Materials
3,000
Units started and completed
14,500
Ending inventory
2,500
20,000
Units accounted for
Conversion
Costs
0%
1,800
60%
14,500
100%
14,500
100%
2,500
17,000
100%
1,750
18,050
70%
Chapter 17, SE 8.
Blue Blaze
Total Cost per Equivalent Unit--FIFO Costing Method
For the Month Ended July 31
Total
Costs
Direct
Materials
Conversion
Costs
$20,400
17,000
$32,490
18,050
Current Costs
Equivalent Units
Cost per equivalent unit
Copyright Houghton Mifflin Company. All rights reserved.
$3.00
=
Ch17 SE7 to SE8
$1.20
+
$1.80
Chapter 17, SE 9.
Blue Blaze
Assigning Costs--FIFO Costing Method
For the Month Ended July 31
Total
Costs
Direct
Materials
Conversion
Costs
Costs of goods manufactured
and transferred out:
From beginning inventory
$10,145
Current costs to complete
3,240
Units started and completed this period
43,500
Cost of goods manufactured
6,150
$63,035
(
1,800 x $1.80
)
x $1.20 ) + (
14,500 x $1.80
)
2,500 x $1.20 ) + (
1,750 x $1.80
)
= ( 14,500
$56,885
Ending inventory
=
Total costs
Copyright Houghton Mifflin Company. All rights reserved.
=(
Ch17 SE9
Chapter 17, SE 10.
The data indicate that the direct materials costs per unit of Product A are steadily
increasing, whereas the direct materials costs per unit of Product B are remaining
fairly constant. If this change in Product A is a surprise, the manager should determine its cause. But the change may have been planned in an attempt to increase
the quality of Product A. If so, the manager can verify that the increased costs are
a result of an increase in the quality of direct materials.
Chapter 17, E 1.
1.
2.
3.
4.
5.
yes
yes
yes
no
yes
6.
7.
8.
9.
10.
no
no
yes
yes
no
Chapter 17, E 2.
a.
b.
c.
d.
e.
f.
g.
h.
process
process
job order
process
job order
process
process
job order
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 SE10 to E2
Chapter 17, E 3.
1.
T accounts prepared
Materials Inventory
Beg. Bal.
Work in Process Inventory
238,820 (a)
28,400
(c)
240,000
Beg. Bal.
28,400 (c)
29,400
(a)
(b)
(b)
52,490
(c)
88,200
(d)
Overhead
238,820
132,300
Factory Payroll
132,300 (d)*
140,690 (b)
28,400
Accounts Payable
28,400 (c)
*
2.
$88,200
x
150%
= $132,300
Ending balance computed
Work in Process Inventory account:
Beginning balance, June 30
$ 29,400
Debits during July:
Direct materials
238,820
Direct labor
88,200
Overhead
132,300
$488,720
Less transfers to Finished Goods Inventory
Ending balance, July 31
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 E3
461,400
$ 27,320
Chapter 17, E 4.
Materials Inventory
42,000
Used
164,000
Beg. Bal.
(a) Purchases
End. Bal.
168,000
38,000
Work in Process Inventory
Beg. Bal.
Direct Materials Used
Direct Labor
(b) Overhead Applied
66,000
(c) Completed During
168,000
Period
382,000
305,600 *
End. Bal.
783,000
138,600
Finished Goods Inventory
Beg. Bal.
(c) Completed During
Period
(d) End. Bal.
* $382,000
29,000
783,000
4,000
x 80% = $305,600
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 E4
Cost of Goods Sold
808,000
Chapter 17, E 5.
Job Order:
A-62
JOB ORDER COST CARD
The Cabinet Company
Thomas Cabinets, Inc.
Customer:
Batch:
Custom:
X
Specifications: Kitchen Cabinets per Customer
1/10/xx
Date of Order:
Date of Completion:
1/24/xx
Previous
Cost
Months
Costs Charged to Job
Current
Month
Summary
Direct materials
Cedar
$ 7,900
Pine
6,320
Hardware
2,930
Assembly supplies
988
Total direct materials
$18,138
$18,138
Direct labor
Sawing
$ 2,840
Shaping
2,200
Finishing
2,250
Assembly
2,890
Total direct labor
$10,180
10,180
Overhead
( $21.60 per machine hour )
Sawing
( 120 hours )
$ 2,592
Shaping
( 220 hours )
4,752
Finishing
( 180 hours )
3,888
Assembly
(
1,080
50 hours )
Total overhead
$12,312
Total cost
Units completed
34
$ 1,195
Product unit cost
Copyright Houghton Mifflin Company. All rights reserved.
12,312
$40,630
Ch17 E5
Chapter 17, E 6.
1.
Total cost of each job computed
Style Corporation
Special Cost Analysis
Job Order Cost Cards
Job A25
Job A27
Job B14
Fabric Q
$10,840
$12,980
$ 17,660
Fabric Z
11,400
12,200
13,440
5,260
6,920
10,900
$27,500
$32,100
$ 42,000
$ 8,900
$10,400
$ 16,200
Layout
6,450
7,425
9,210
Packaging
3,950
4,875
6,090
$19,300
$22,700
$ 31,500
$23,160
$69,960
$27,240
$82,040
$ 37,800
$111,300
Direct materials:
Fabric YB
Total
Direct labor:
Garment maker
Total
Overhead:
( 120% of direct labor costs )
Total cost
2.
Product unit cost for each job computed
$69,960
Units produced
$111,300
775
$105.86
*
1,482
*
$ 99.94
Product unit cost
*Rounded.
Copyright Houghton Mifflin Company. All rights reserved.
$82,040
700
Total cost
Ch17 E6
$
75.10 *
Chapter 17, E 7.
Job Order:
H.W.
JOB ORDER COST CARD
Personal Trainers, Inc.
Customer:
Hillary White
Batch:
Custom:
X
Specifications: Marathon Training
Date of Order: 4/2/xx
Date of Completion: 7/24/xx
Costs Charged to Job
Previous
Months
Current
Month
Total
Cost
In-person consultation
Training logbook
$ 20.00
$
$ 20.00
Labor ($10 per hour)
Overhead (
20.00
30.00
50.00
2.00
3.00
5.00
$ 42.00
$ 33.00
$ 75.00
$ 30.00
$ 30.00
$ 60.00
150.00
300.00
450.00
37.50
75.00
112.50
$217.50
$405.00
$622.50
$ 30.00
$ 10.00
$ 40.00
10.00
10.00
20.00
5.00
5.00
10.00
$ 45.00
$ 25.00
$ 70.00
$767.50
10% of in-person labor costs )
Total
Training
Bike rental
Labor ($5 per hour)
Overhead (
25% of labor costs )
Total
Telephone consultations
Cell phone calls ($1 per call)
Labor ($10 per hour)
Overhead (
50% of telephone labor costs )
Total
Total cost
Job Revenue and Profit
Logbook and bike rental
Service fee:
$
97 hours* x $30
80.00
2,910.00
Job revenue
$2,990.00
Less total cost
767.50
$2,222.50
Profit
*5 + 90 + 2 = 97 hours
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 E7
Chapter 17, E 8.
Total manufacturing costs:
Manufacturing utilities
$
500
Depreciation, manufacturing equipment
450
Indirect materials
300
Direct materials
1,300
Indirect labor
800
Direct labor
2,400
Insurance, manufacturing plant
600
Rent, manufacturing plant
5,000
$11,350
Total manufacturing costs
Computation of product unit cost:
$11,350 4,540 = $2.50 per unit
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 E8
Chapter 17, E 9.
All of the questions except question 2 can be answered from information provided
by the process costing system. Question 2 could be best answered by a job order
costing system that included a job order cost card for each special-order birthday
cake produced. It is not unusual for a company to have both types of costing systems. Tom must decide if the volume of special-order birthday cake sales is worth
the addition of a job order costing system for just those cakes.
Chapter 17, E 10.
Olivares Enterprises
FIFO Costing Method
For the Month Ended August 31
Physical
Units
Beginning inventory
Equivalent Units
5,200
Units started this period
212,500
217,700
Units to be accounted for
Beginning inventory
Direct
Materials
5,200
Conversion
Costs
0%
1,040
20%
Units started and completed
208,000
208,000
100%
208,000
100%
Ending inventory
4,500
217,700
4,500
212,500
100%
2,700
211,740
60%
Units accounted for
Chapter 17, E 11.
Cunningham Paper Corporation
FIFO Costing Method
For the Month Ended September 30
Physical
Units
Beginning inventory
Units started this period
Units to be accounted for
Beginning inventory
Units started and completed
Ending inventory
Units accounted for
Copyright Houghton Mifflin Company. All rights reserved.
Equivalent Units
40,000
250,000
290,000
40,000
170,000
80,000
290,000
Direct
Materials
170,000
80,000
250,000
Ch17 E9 to E11
0%
100%
100%
Conversion
Costs
16,000
170,000
32,000
218,000
40%
100%
40%
Chapter 17, E 12.
Direct Materials
Dept.
A
B
C
D
E
Conversion Costs
Dollars
Equiv.
Units
Unit
Cost
$12,000
21,835
23,896
1,000
1,985
1,030
$12.00
11.00
23.20
$46.20
Totals
Total
Dollars
Equiv.
Units
Unit
Cost
Unit
Cost
$33,825
13,065
20,972
22,086
15,171
2,050
1,005
2,140
2,045
1,945
$16.50
13.00
9.80
10.80
7.80
$57.90
$ 28.50
24.00
33.00
10.80
7.80
$104.10
Chapter 17, E 13.
Turner's Pots, Inc.
FIFO Costing Method
For the Month Ended August 31
Total
Costs
Beginning inventory
Current costs
Total costs
$ 61,100
450,441
$511,541
Direct
Materials
=
=
$ 31,700
275,373
Conversion
Costs
+
+
$ 29,400
175,068
Current Costs
$275,373
$175,068
Equivalent Units
16,450
16,210
Cost per equivalent unit
Copyright Houghton Mifflin Company. All rights reserved.
$27.54
=
$16.74
Ch17 E12 to E13
+
$10.80
Chapter 17, E 14.
Beach Bakery
Assigning Costs--FIFO Costing Method
For the Month Ended March 31
Total
Costs
Direct
Materials
Conversion
Costs
Costs of goods manufactured
and transferred out:
From beginning inventory
Current costs to complete
$
655
324
Units started and completed
31,240
Cost of goods manufactured
804 *
$33,023
(
450
x
90%
x $0.80 )
$32,219
Ending inventory
=
Total costs
= ( 14,200
x $1.40 ) + ( 14,200
x 100% x $0.80 )
=(
x $1.40 ) + (
x
410
*Rounded to the nearest dollar.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 E14
410
70%
x $0.80 )
Chapter 17, E 15.
Managers can interpret the data in several ways. One possible interpretation:
Machine Operator 1 may be a new person just learning the operation; that person's productivity is steadily rising and should meet the target in a week or two.
Machine Operator 2 has a problem that is causing his or her productivity to continuously decrease. The situation should be further examined to determine
whether the decrease is being caused by the person or the machine. Machine
Operator 3 is maintaining a constant productivity level but is not quite reaching
the target. This person may need additional training, or the machine may not be
functioning properly.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 E15
Chapter 17, P 1.
T accounts prepared and unknown values computed
MAY
Materials Inventory
Beg. Bal.
(a) Purchases
JUNE
Materials Inventory
36,240
84,990
End. Bal.
Requests
82,320
(e) Beg. Bal.
Purchases
38,910
End. Bal.
Work in Process Inventory
Beg. Bal.
Direct Materials
(b) Direct Labor
Overhead
56,480
(c) Completed
82,320
66,500 *
53,200
(d) End. Bal.
212,730
45,770
93,080
72,250
57,800 **
(k) End. Bal.
End. Bal.
47,500
209,050
(g) Beg. Bal.
Completed
80% = $66,500
x 80% = $57,800
Copyright Houghton Mifflin Company. All rights reserved.
Completed
221,400
Finished Goods Inventory
47,940
* $53,200
** $72,250
Cost of
Goods Sold
93,080
41,950
(f) Beg. Bal.
(h) Direct Materials
Direct Labor
(i) Overhead
Finished Goods Inventory
44,260
212,730
(h) Requests
Work in Process Inventory
45,770
Beg. Bal.
(c) Completed
38,910
96,120
End. Bal.
Ch17 P1
47,940
221,400
51,180
(j) Cost of
Goods Sold
218,160
Chapter 17, P 2.
1.
Entries recorded in T accounts and job order cost cards prepared
Materials Inventory
1/1
1/2
1/19
215,400 1/4
49,500 1/21
218,000
End. Bal.
Work in Process Inventory
231,300
246,150
193,200 1/31
120,000
1/15
108,000
1/21
1/31
1/31
5,450
1/4
1/15
214,750
132,000
118,800
End. Bal.
Finished Goods Inventory
1/31
End. Bal.
855,990 1/31
855,990
30,760
Overhead
824,520
38,100 1/15
108,000
1/10
1/15
1/21
1/31
1/31
31,470
1/4
12,100 1/31
60,620
31,400
62,240
22,600
118,800
End. Bal.
Cash
260
Accounts Receivable
1/10
12,100
1/31
996,800
End. Bal.
12,100
End. Bal.
996,800
Accumulated Depreciation-Machinery
Prepaid Insurance
1/31
3,700
1/31
15,500
End. Bal.
3,700
End. Bal.
15,500
Accounts Payable
Factory Payroll
1/1
215,400
1/2
49,500
1/19
218,000
End. Bal.
482,900
Property Taxes Payable
3,400
End. Bal.
3,400
Cost of Goods Sold
824,520
End. Bal.
824,520
Copyright Houghton Mifflin Company. All rights reserved.
End. Bal.
180,620
194,240
374,860
Sales
1/31
1/31
1/15
1/31
Ch17 P2
1/31
End. Bal.
996,800
996,800
Chapter 17, P 2. (Continued)
Job Order:
X
Custom:
X
JOB ORDER COST CARD
Par Carts, Inc.
Job X
Customer:
Batch:
Specifications: Golf Carts per Customer Specs
Date of Order:
1/4/xx
Costs Charged to Job
Date of Completion:
Previous
Months
1/31/xx
Current
Month
Cost
Summary
$193,200
Direct materials
178,170
Total direct materials
$371,370
Direct labor
$371,370
$120,000
118,500
Total direct labor
$238,500
$238,500
Overhead
( 90% of direct labor costs )
$108,000
106,650
Total overhead
$214,650
$824,520
Total Cost
$824,520
375
$2,198.72
Units completed
Product unit cost
Copyright Houghton Mifflin Company. All rights reserved.
$214,650
Ch17 P2 (2)
Chapter 17, P 2. (Continued)
Job Order:
Y
Custom:
X
JOB ORDER COST CARD
Par Carts, Inc.
Job Y
Customer:
Batch:
Specifications: Golf Carts per Customer Specs
Date of Order:
1/21/xx
1/31/xx
Date of Completion:
Cost
Summary
$18,170
7,000
7,000
6,300
6,300
$31,470
Direct materials
Direct labor
Current
Month
$18,170
Costs Charged to Job
Previous
Months
$31,470
Overhead
( 90% of direct labor costs )
Total Cost
10
$ 3,147
Units completed
Product unit cost
Job Order:
Z
Custom:
X
JOB ORDER COST CARD
Par Carts, Inc.
Job Z
Customer:
Batch:
Specifications: Golf Carts per Customer Specs
Date of Order:
1/21/xx
Costs Charged to Job
Date of Completion:
Previous
Months
Cost
Summary
$18,410
$18,410
6,500
6,500
5,850
5,850
$30,760
Direct materials
Direct labor
Current
Month
$30,760
Overhead
( 90% of direct labor costs )
Total Cost
Units completed
Product unit cost
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P2 (3)
Chapter 17, P 2. (Continued)
2.
Underapplied overhead computed
Overhead incurred
$227,060
Overhead applied
226,800
$
260
Underapplied overhead
Overhead
1/4
38,100 1/15
108,000
1/10
12,100 1/31
118,800
1/15
60,620
1/21
31,400
1/31
62,240
1/31
22,600
1/31
End. Bal.
260
Cost of Goods Sold
1/31
824,520
1/31
260
End. Bal.
3.
824,780
Manager Insight: Transfer of underapplied or overapplied overhead discussed
The Overhead account's underapplied or overapplied overhead must be transferred
to the Cost of Goods Sold account for cost of goods sold to reflect the actual overhead costs incurred during the period.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P2 (4)
Chapter 17, P 3.
1.
4.
Transactions reconstructed using T accounts
Ending inventory balances computed
Materials Inventory
Work in Process Inventory
Beg. Bal.
21,360
6/6
37,240
Beg. Bal.
15,112
6/4
33,120
6/23
38,960
6/6
37,240
6/16
28,600
6/15
23,680
6/22
31,920
6/15
30,784
End. Bal.
38,800
6/23
38,960
6/29
25,960
6/29
33,748
End. Bal.
20,411
Finished Goods Inventory
Beg. Bal.
6/30
17,120
6/30
185,073 **
Overhead
182,857 *
6/15
Accounts Receivable
33,748
End. Bal.
19,336
30,784
6/29
185,073 **
End. Bal.
6/30
64,532
Factory Payroll
6/30
320,000
6/15
23,680
End. Bal.
320,000
6/29
25,960
End. Bal.
49,640
Sales
Cost of Goods Sold
6/30
**
$205,484
(
6/30
182,857 *
End. Bal.
* Rounded
320,000
320,000
End. Bal.
182,857
1.75 = $182,857 ) .
$20,411
= $185,073
$320,000
Ending Work in Process Inventory:
Job 24A
$ 4,563
Job 24B
4,666
Job 24C
6,032
Job 24D
5,150
$20,411
Total
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P3
Chapter 17, P 3. (Continued)
2. Cost of completed units computed
Cost of ending Work in Process Inventory:
Direct
Direct
Job No.
Materials
Labor
Overhead
Total
24A
$1,596
$1,290
$1,677
$ 4,563
24B
1,492
1,380
1,794
4,666
24C
1,984
1,760
2,288
6,032
24D
1,608
$6,680
1,540
$5,970
2,002
$7,761
5,150
$20,411
Costs of units completed:
Beginning balance, Work in Process Inventory
$ 15,112
Cost of direct materials, direct labor, and overhead
added during period
Total costs included in Work in Process Inventory
190,372
$205,484
Less ending Work in Process Inventory
Cost of goods completed and transferred
3. Cost of units sold computed
Sales equal to 175% of cost of units sold
$320,000 1.75 = $182,857 *
*Rounded.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P3 (2)
20,411
$185,073
Chapter 17, P 3. (Continued)
5. Product unit costs computed
Job 24A:
July beginning balance
$4,563
July costs:
Direct labor
960
Overhead ( 130% )
1,248
$6,771
Total cost
Product unit cost:
$6,771
1,200
= $5.64 *
Job 24C:
July beginning balance
$6,032
July costs:
Direct labor
1,610
Overhead ( 130% )
2,093
$9,735
Total cost
Product unit cost:
$9,735
950
= $10.25 *
*Rounded.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P3 (3)
Chapter 17, P 4.
1. Process cost report prepared using FIFO costing method
Lightning Industries
Process Cost Report--FIFO Costing Method
For the Month Ended January 31
Physical
Units
Beginning inventory
Units started this period
Units to be accounted for
Beginning inventory
Equivalent Units
15,300
15,300
Conversion
Direct
Materials
Costs
0%
0%
Units started and completed
13,600
13,600
100%
13,600
100%
Ending inventory
1,700
15,300
100%
680
14,280
40%
Units accounted for
1,700
15,300
Beginning inventory
Total
Costs
$
Current costs
89,505
$89,505
Total costs
Direct
Materials
$
=
Conversion
Costs
$
46,665
+
42,840 *
=
Current Costs
$46,665
$42,840
Equivalent Units
15,300
14,280
Cost per equivalent unit
$6.05
$3.05
=
+
$3.00
Cost of goods manufactured
and transferred out:
From beginning inventory
$
Current costs to complete
$
Units started and completed
Ending inventory
Total costs
*( $17,136 +
$25,704 ) =
= ( 13,600 x
$3.05 ) + ( 13,600 x
$3.00 )
7,225
$89,505
Cost of goods manufactured
82,280
$82,280
=(
$3.05 ) + (
$3.00 )
1,700 x
680 x
$42,840
2. Amount to be transferred identified
The amount of
$82,280 should be transferred to the Finished Goods Inventory account.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P4
Chapter 17, P 5.
1.
Process cost report prepared using FIFO costing method
Liquid Extracts Company
Process Cost Report--FIFO Costing Method
For the Month Ended June 30
Physical
Units
Beginning inventory
Units started this period
Units to be accounted for
Equivalent Units
4,250
61,300
65,550
Beginning inventory
Conversion
Direct
Materials
4,250
Costs
0%
1,275
30%
Units started and completed
57,900
57,900
100%
57,900
100%
Ending inventory
3,400
65,550
3,400
61,300
100%
1,700
60,875
50%
Units accounted for
Total
Costs
Conversion
Costs
Direct
Materials
Beginning inventory
$
8,142
=
$ 4,607
+
Current costs
122,243
$130,385
=
71,108
+
Total costs
$ 3,535
51,135 *
=
Current Costs
$71,108
$51,135
Equivalent Units
61,300
60,875
$2.00
Cost per equivalent unit
$1.16
=
$0.84
+
Cost of goods manufactured
and transferred out:
From beginning inventory
Current costs to complete
Units started and completed
$
8,142
1,071
(
1,275 x
$0.84 )
Ending inventory
Total costs
= ( 57,900 x
$1.16 ) + ( 57,900 x
$0.84 )
5,372
$130,385
Cost of goods manufactured
115,800
$125,013
=(
$1.16 ) + (
$0.84 )
3,400 x
1,700 x
*( $19,760 + $31,375 ) = $51,135
2.
Amount to be transferred identified
The amount of
$125,013 should be to transferred the Finished Goods Inventory account.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P5
Chapter 17, P 6.
1. Transactions reconstructed using T accounts
4. Ending inventory balances computed
Materials Inventory
Beg. Bal.
2/6
2/12
2/24
27,450
7,200
8,110
5,890
End. Bal.
2/4
2/13
2/25
9,080
5,940
7,600
26,030
Work in Process Inventory
Beg. Bal.
22,900
2/28
76,470 **
2/4
9,080
2/13
5,940
2/14
13,750
2/14
19,250
2/25
2/28
2/28
7,600
13,230
18,522
End. Bal.
33,802 ***
Finished Goods Inventory
Beg. Bal.
2/28
End. Bal.
2/28
End. Bal.
19,200
2/28
76,470 **
Overhead
2/14
2/28
89,647 *
6,023
End. Bal.
Accounts Receivable
152,400
Factory Payroll
2/14
2/28
152,400
End. Bal.
Sales
2/28
End. Bal.
152,400
2/28
Cost of Goods Sold
89,647 *
152,400
End. Bal.
89,647
* $152,400
1.70 = $89,647
** $110,272
$33,802
= $76,470
*** Ending Work in Process Inventory:
Job AJ10
$ 7,564
Job AJ14
8,944
Job AJ15
6,916
Job AJ16
10,378
$33,802
Total
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P6
19,250
18,522
37,772
13,750
13,230
26,980
Chapter 17, P 6. (Continued)
2. Cost of completed units computed
Cost of ending Work in Process Inventory:
Job No.
Direct
Materials
Direct
Labor
Overhead
Total
AJ10
$ 3,220
$1,810
$ 2,534
$ 7,564
AJ14
3,880
2,110
2,954
8,944
AJ15
2,980
1,640
2,296
6,916
AJ16
4,690
$14,770
2,370
$7,930
3,318
$11,102
10,378
$33,802
Costs of units completed:
Beginning balance, Work in Process Inventory
$ 22,900
Cost of direct materials, direct labor, and overhead
added during period
87,372
Total costs included in Work in Process Inventory
$110,272
Less ending Work in Process Inventory
33,802
$ 76,470
Cost of goods completed and transferred
3. Cost of units sold computed
Sales equal to 170% of cost of units sold
$152,400 1.70 = $89,647 *
*Rounded to the nearest dollar.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P6 (2)
Chapter 17, P 6. (Continued)
5. Product unit costs computed
Job AJ10:
March beginning balance
$ 7,564
March costs:
Direct labor
Overhead (
720
140% )
1,008
$ 9,292
Total cost
Product unit cost:
$9,292
40
= $232.30
Job AJ14:
March beginning balance
$ 8,944
March costs:
Direct labor
Overhead (
1,140
140% )
1,596
$11,680
Total cost
Product unit cost:
$11,680
55
= $212.36 *
*Rounded.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P6 (3)
Chapter 17, P 7.
1.
Job order cost cards completed
JOB ORDER COST CARD
Peruga Engineering Company
Customer:
Customer A
Job Order No.:
P12
Contract Type:
Cost-Plus
Specs:
Date of Completion:
Previous
Months
Costs Charged to Job
Bid and proposal
Beginning balance
Current month's costs
Supplies
Engineering labor
$ 2,460
Total
Cost
$ 2,460
$
192
Service overhead ($18 per hour)
Totals
Totals
Totals
$ 2,868
4,998
14,434
$22,300
6,690
$28,990
Contract revenue
Ch17 P7
408
$ 2,868
$
$ 1,910
400
1,280
1,408
400
1,280
1,408
$ 3,088
$ 4,998
$ 2,410
Total
Cost
Bid and proposal
Design
Prototype development
Totals
Profit margin ( 30% )
216
$
$ 2,410
Cost Summary to Date
216
$ 1,910
$ 1,910
Prototype development
Beginning balance
Current month's costs
Supplies
Engineering labor
Service overhead ($20 per hour)
192
$ 2,460
Design
Beginning balance
Current month's costs
Supplies
Engineering labor
Service overhead ($22 per hour)
Copyright Houghton Mifflin Company. All rights reserved.
Current
Month
Jan. 31, 20xx
$ 2,410
$ 6,744
2,880
2,400
6,744
2,880
2,400
$12,024
$14,434
Chapter 17, P 7. (Continued)
JOB ORDER COST CARD
Peruga Engineering Company
Customer:
Customer B
Job Order No.:
P15
Contract Type:
Cost-Plus
Specs:
Date of Completion:
Previous
Months
Costs Charged to Job
Bid and proposal
Beginning balance
Jan. 31, 20xx
Current
Month
$ 2,290
Total
Cost
$ 2,290
Current month's costs
Supplies
Engineering labor
$
Service overhead ($18 per hour)
Totals
$ 2,290
$
280
320
360
280
320
360
960
$ 3,250
Design
Beginning balance
$
460
Current month's costs
Supplies
$
$
460
Service overhead ($22 per hour)
Totals
$
460
460
840
Engineering labor
460
840
924
924
$ 2,224
$ 2,684
Prototype development
Beginning balance
Current month's costs
$ 1,680
Supplies
$ 7,216
Engineering labor
Service overhead ($20 per hour)
Totals
$ 1,680
Total
Cost
Cost Summary to Date
Bid and proposal
$ 3,250
Design
2,684
Prototype development
14,616
Totals
$20,550
Profit margin ( 30% )
6,165
$26,715
Contract revenue
Copyright Houghton Mifflin Company. All rights reserved.
$ 1,680
Ch17 P7 (2)
7,216
3,120
2,600
3,120
2,600
$12,936
$14,616
Chapter 17, P 7. (Continued)
JOB ORDER COST CARD
Peruga Engineering Company
Customer:
Customer C
Job Order No.:
P19
Contract Type:
Cost-Plus
Specs:
Date of Completion:
Previous
Months
Costs Charged to Job
Bid and proposal
Beginning balance
$
Current
Month
940
Total
Cost
$
940
Current month's costs
Supplies
Engineering labor
$ 2,300
1,088
Service overhead ($18 per hour)
Totals
2,300
1,088
1,224
1,224
$ 4,612
$ 5,552
$
940
Design
Beginning balance
$
Current month's costs
Supplies
$
$
290
290
520
520
572
572
$
$ 1,382
$ 1,382
Engineering labor
Service overhead ($22 per hour)
Totals
Prototype development
Beginning balance
Current month's costs
$
Supplies
$ 2,400
Totals
2,400
600
500
600
500
$
Engineering labor
Service overhead ($20 per hour)
$ 3,500
$ 3,500
Total
Cost
Cost Summary to Date
Bid and proposal
$ 5,552
Design
1,382
Prototype development
3,500
Totals
$10,434
Profit margin ( 30% )
Contract revenue
Copyright Houghton Mifflin Company. All rights reserved.
$
Ch17 P7 (3)
Chapter 17, P 7. (Continued)
2.
Customer's cost per unit computed
Customer A
$28,990
12 = $2,416
Customer B
$26,715
18 = $1,484
3.
Ending Contract in Process balance
Ending balance = $10,434
4.
Manager Insight: Jobs ranked and observations made
Ranking from most costly to least costly:
P-12
$22,300
P-15
$20,550
Currently, P-12 is the most costly, followed by P-15. Although P-19 has incurred
the least cost to date, it will incur additional costs as the tasks contracted for by
the job are completed.
5.
Manager Insight: Price to charge discussed
Currently, the company uses a flat cost-plus contract based on 30 percent of
total costs. The company needs to cover all its costs plus build in a profit margin
appropriate for each activity or product. For example, Bid and Proposal, Design,
and Prototype Development may each have a different profit margin percentage
due to differences in their usage of material, labor, or overhead. Product lines
may use different profit margin percentages due to time-to-market and capacity
constraints and varying market conditions for different types of products.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P7 (4)
th
Chapter 17, P 8.
1.
Process cost report prepared using FIFO costing method
Good Foods, Inc.
Mixing Department
Process Cost Report--FIFO Costing Method
For the Month Ended January 31
Physical
Units
Beginning inventory
Units started this period
Units to be accounted for
Beginning inventory
Equivalent Units
5,000
90,000
95,000
Conversion
Direct
Materials
5,000
Costs
0%
3,000
60%
Units started and completed
84,000
84,000
100%
84,000
100%
Ending inventory
6,000
95,000
6,000
90,000
100%
3,600
90,600
60%
Units accounted for
Conversion
Costs
Direct
Materials
Total Costs
Beginning inventory
$ 33,790
=
$ 28,560
+
Current costs
631,200
$664,990
=
450,000
+
Total costs
$
5,230
181,200
Current Costs
$450,000
$181,200
Equivalent Units
90,000
90,600
Cost per equivalent unit
$7.00
$5.00
=
$2.00
+
Cost of goods manufactured
and transferred out:
From beginning inventory
$ 33,790
Current costs to complete
6,000
Units started and completed
Cost of goods manufactured
Ending inventory
Total costs
2.
=
(
3,000 x
$2.00 )
588,000
$627,790
= ( 84,000 x
$5.00 ) + ( 84,000 x
$2.00 )
37,200
$664,990
=(
$5.00 ) + (
$2.00 )
6,000 x
3,600 x
Manager Insight: Analysis for the Cooking Department explained
The Cooking Department will require a separate Work in Process Inventory account and a
separate analysis. The costs transferred from the Mixing Department to the Cooking Department are treated in the same way as direct materials costs added at the beginning of the
process. Because the Cooking Department has no direct materials other than those transferred in from the Mixing Department, there would be no need to include a line for additional
direct materials. Otherwise, the analysis for the Cooking Department is the same as the
analysis for the Mixing Department.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 P8
Chapter 17, C 1.
All nine questions that every great business plan should answer should be addressed when managers plan. Customer identification, customer buying habits,
market segmentation, customer acquisition costs, and pricing strategies are all
considered when managers try to answer the questions "How much should the
product cost?" and "Are period costs reasonable in supporting and retaining customers?" Managers must understand not only their product costs but also their
customers. As managers move through the management process from planning to
performing to evaluating and communicating, they must continue to monitor customer expectations and business goals. If a customer-related change occurs,
managers will review what actions can be taken to improve results and adapt the
execution of the business plan accordingly.
Chapter 17, C 2.
Methocel is a liquid and would be produced in a continuous process. Thus, the
most appropriate system for accounting for the costs of Methocel would be the
process costing system. In a continuous flow environment, where liquid products
or large numbers of similar products are produced, it is not practical or useful to
track costs to individual products, as would be done in a job order costing system,
because all gallons or units of the products are identical. A process costing system
accumulates the costs of direct materials, direct labor, and overhead for each process, department, or work cell and assigns those costs equally to the products produced during a particular time period.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C1 to C2
Chapter 17, C 3.
Ingrid Bjorn installed a process costing system in the new division because product
flow had changed. Changes in product flow also made it necessary to create the
new division. In the specialty steel division, costs are accounted for by job order.
Products are produced in the type and amount specifically ordered by the customer.
Costs are traced to each job being completed. In the new division, product flow is
continuous. Individual jobs are not a part of this process. The sheet steel rolls are
produced in bulk, and customers buy a specific number of rolls. Because of the
changed nature of the product flow in the new division, costs are traced to each of
the three work cells. Process costing is used to assign those costs to the individual
sheet steel rolls.
Three Work in Process Inventory accounts are necessary because the three
work cells produce different types of sheet steel rolls. The continuous flow of
production in the new division makes it a candidate for the process costing system. In process costing, a different Work in Process Inventory account is used
for each work cell because different types of direct materials, direct labor, and
overhead costs are needed by the three work cells. If product costing for the
three new work cells had been incorporated into the existing job order costing
system and only one Work in Process Inventory account was used, the assignment of overhead would be inaccurate. Made-to-order products are usually more
costly than those produced in a continuous fashion because the production
process must be changed to accommodate the specific requirements of each job.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C3
Chapter 17, C 4.
1.
Inaccuracies resulting from cost-charging error pointed out
a.
Recorded costs exceed actual costs incurred.
b.
Unit cost is wrong.
c.
Work in process and finished goods inventories and cost of goods sold are in
error.
d.
Selling price is incorrect and could cost the company revenue dollars and
future customers.
e.
Net income is understated.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C4
Chapter 17, C 4. (Continued)
2. Process cost report prepared using FIFO costing method
Ready Tire Corporation
Process Cost Report--FIFO Costing Method
For the Year Ended December 31
Physical
Units
Beginning inventory
Equivalent Units
4,200
Units started this period
84,200
88,400
Units to be accounted for
Beginning inventory
Conversion
Direct
Materials
4,200
Costs
0%
1,260
30%
Units started and completed
80,400
80,400
100%
80,400
100%
Ending inventory
3,800
88,400
3,800
84,200
100%
1,140
82,800
30%
Units accounted for
Conversion
Costs
Direct
Materials
Total Costs
Beginning inventory
$ 180,670
=
$ 123,660
+
Current costs
4,108,400
$4,289,070
=
1,978,700
+
Total costs
$
57,010
2,129,700 *
Current Costs
$1,978,700
$2,129,700
Equivalent Units
84,200
82,800
$49.22
Cost per equivalent unit
$23.50
=
$25.72
+
Cost of goods manufactured
and transferred out:
From beginning inventory
$ 180,670
Current costs to complete
32,407
Units started and completed
3,957,288
84
Cost of goods manufactured
*( $800,400
= ( 80,400 x
1,260 x
$25.72 )
$23.50 ) + ( 80,400 x
$25.72 )
$23.50 ) + (
$25.72 )
(Add rounding, $84.)
$4,170,449
Ending inventory
Total costs
(
118,621
=(
3,800 x
$4,289,070
+ $1,600,800 ) [
Copyright Houghton Mifflin Company. All rights reserved.
$90,500 +
( $90,500 x
Ch17 C4 (2)
$2.00
)]
1,140 x
Chapter 17, C 4. (Continued)
3.
Minimum selling price per tire computed
Production cost per unit
$49.22
Plus operating costs and profit markup (75%) to cover
36.92 *
$86.14 *
Minimum selling price
*Rounded.
4.
Ways of preventing errors suggested
a.
Review recording procedures for direct labor costs.
b.
Review document verification for direct labor.
c.
Conduct a special review of the system of recording manufacturing costs.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C4 (3)
Chapter 17, C 5.
1. Bar chart prepared
P12
P19
$ 2,868
$ 3,250
$ 5,552
4,998
2,684
1,382
14,434
$22,300
Bid and Proposal
P15
14,616
$20,550
3,500
$10,434
Design
Prototype Development
Total Job Cost
Peruga
Engineering Company
$ 3,500
100%
90%
$ 14 ,4 34
$ 14 ,616
80%
$ 1,382
70%
60%
50%
40%
30%
$ 4 ,998
$ 2,684
$ 2,868
$ 5,552
$ 3,250
20%
10%
0%
P12
Bid and Proposal
P15
P19
Design
Prot otype Development
2. Differences between costs discussed
Because of the nature of an engineering company's services, each of the jobs may
require different amounts of Bid and Proposal costs, Design costs, and Prototype
Development costs to carry out the tasks contracted for with the customer.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C5
Chapter 17, C 6.
This is a case of defrauding the federal government. Laws have been broken in this
scenario. Jennifer Martin should report the incident to her superior. She should also
tell Joe Barnes to correct the pricing error as soon as possible. Martin has the obligation to work toward a successful solution to the problem. Otherwise, she could
face charges as a co-conspirator. If she keeps quiet about an illegal transaction,
she becomes a party to that transaction.
Chapter 17, C 7.
This case will elicit a wide variety of responses. Its objective is to encourage students to explore companies' websites for product information and to apply that information to what they know about process costing systems. All of the companies
listed make similar units of products in a continuous flow and thus are appropriate
candidates for process costing systems. Usually, the type of product will not affect
the appropriateness of the process costing system. Some students may question
how companies solve the problem of different models or configurations of products.
Process costing is still appropriate because even different models are usually made
in large numbers and are not special orders for specific customers. Students may
find cases, however, in which job order costing would be appropriate.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C6 to C7
Chapter 17, C 8.
This assignment is designed to develop students' interviewing, data-gathering, and
writing skills. Students will identify similarities and differences in the processes,
documentation, and recordkeeping practices of small businesses. Some interviewees will be very knowledgeable about the costs of running their businesses.
Others will be less familiar with these costs. It is helpful for students to recognize
the variations that exist in business practices.
Group students based on the type of business they have selected. Discussion
within the groups should focus on the questions in part 5 of the assignment (estimating costs and selling prices, differences in documentation and recordkeeping
practices, and students' opinions about the effectiveness of the businesses' accounting processes). Select a few groups to share the main points of their discussion with the class.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C8
Chapter 17, C 9.
1.
a.
The memo is being prepared for the president of the company. Because
the president probably has tremendous responsibility and limited
amounts of time, the memo should be brief, perhaps no more than a twopage summary. You should be prepared to provide additional detailed
information to support the summary, upon request.
b. The purpose of the memo is to report any inefficiencies or waste that
currently exists in the production process and to make suggestions for
reducing or eliminating the problems.
c.
You can take the following actions to obtain information for the memo:
(1) Identify the cost per equivalent unit of Smackaroos for each month to
verify the increase in production costs. (2) Identify the department where
processing activities contribute most to the increase in the cost per equivalent unit. (3) Identify the cost element within the department that reflects
the increase in the cost per equivalent unit. (4) Examine the nonfinancial
quantitative measures of processing activities within the department.
(5) Talk to production employees and managers to understand the working environment and the problems that are occurring.
Information from the unit cost analysis schedules will help you in analyzing the increase in costs. The accounting system provides this information. Nonfinancial measures, such as number of boxes spoiled, time to
bake cereal for one box, time to package one box, machine downtime,
number of machine repairs, and skill levels of employees, will provide additional knowledge. The accounting system can be designed to gather
such information as well. If the Accounting Department is unable to help,
the Production Department must be willing to track the activity and maintain the records. Finally, much can be learned about the situation by interviewing the employees in the production departments and observing
their actions.
Winslow's information provides a good basis for the analysis, but it is insufficient. The specific causes of the increased costs must be identified
by gathering nonfinancial quantitative and qualitative information.
d. The president must receive the memo in time to use it to prepare for the
meeting in ten days. How quickly you prepare the memo depends on the
availability and reliability of the information. If the managers and employees in the Accounting and Production Departments are reliable, you
should be able to get accurate information quickly. Valuable time will be
lost if the accounting system is slow or the information is not readily
available.
2.
Production problem discussed
Increased direct labor and overhead costs in the Baking Department imply that a
problem exists in the baking process. The problem may or may not be related to
the direct materials used. Additional information is needed to determine if the problem is associated with the employees, the equipment, or some other variable.
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C9
Chapter 17, C 9. (Continued)
3.
Outline of memo prepared
MEMORANDUM
To:
From:
Date:
Topic:
Gilbert Rom
Student's Name, Production Manager
Today's date
Reducing inefficiencies in the production process of Smackaroos
I. Introduction: Purpose of the memo
II. Analysis of recent production activity
III. Causes of increased production costs
IV. Recommendations for reducing or eliminating inefficiencies and waste in the
production process
V. Impact of recommended actions on the profitability of Smackaroo sales
Copyright Houghton Mifflin Company. All rights reserved.
Ch17 C9 (2)