Chapter 3 job order costing problem3 28 continued

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Chapter 3 Job-Order Costing Problem 3-28  (continued) Salari es  Expen se Depreciation Expense (c) 75,000 (e) 5,000 Insura nce  Expen se Shipping Expense (f) 800 (g) 40,000 Cost  of  Goods  Sold Sales (k) 300,000 (k) 450,000 3. Manufacturing overhead was overapplied by $3,000 for the year. This  balance would be allocated between Work in Process, Finished Goods,  and Cost of Goods Sold in proportion to the ending balances in these  accounts. The allocation would be: Work in Process, 12/31 ................. $ 21,000 5.6 % Finished Goods, 12/31 .................. 55,000 14.6 Cost of Goods Sold, 12/31 ............   300,000       79.8       $376,000 100.0 % Manufacturing Overhead .............................. 3,000 Work in Process (5.6%  ×  $3,000) ............ 168 Finished Goods (14.6%  ×  $3,000) ........... 438 Cost of Goods Sold (79.8%  ×  $3,000) ..... 2,394 4. 3- 68
Chapter 3 Job-Order Costing Fantastic Props, Inc. Income Statement For the Year Ended December 31 Sales ............................................................... $450,000 Cost of goods sold ($300,000 – $2,394) ........   297,606     Gross margin .................................................. 152,394 Selling and administrative expenses: Salaries expense ......................................... $75,000 Depreciation expense .................................. 5,000 Insurance expense ....................................... 800 Shipping expense ........................................ ..................................................................   40,000       120,800     Net operating income ..................................... $       31,594     Case 3-29  (60 minutes) 1. a.  b. $21,200  ×  160% = $33,920. 2. a. Cutting  Department Machining  Department Assembly  Department Estimated manufacturing  overhead cost (a) .......... $540,000 $800,000 $100,000 Estimated direct labor  cost (b) ......................... $300,000 $200,000 $400,000 Predetermined overhead  rate (a)  ÷  (b) ................. 180% 400% 25% b. Cutting Department: 3- 69
Chapter 3 Job-Order Costing $6,500  ×  180% .................................... $11,700 Machining Department: $1,700  ×  400% .................................... 6,800 Assembly Department: $13,000  ×  25% ....................................       3,250     Total applied overhead ........................... $21,750 3. The bulk of the labor cost on the Hastings job is in the Assembly  Department, which incurs very little overhead cost. The department has  an overhead rate of only 25% of direct labor cost as compared to much  higher rates in the other two departments. Therefore, as shown above,  use of departmental overhead rates results in a relatively small amount  of overhead cost charged to the job. 3- 70
Chapter 3 Job-Order Costing Case 3-29  (continued) However, use of a plantwide overhead rate in effect redistributes  overhead costs proportionately between the three departments (at 160%  of direct labor cost) and results in a large amount of overhead cost being  charged to the Hastings job, as shown in Part 1. This may explain why  the company bid too high and lost the job. Too much overhead cost was  assigned to the job for the kind of work being done on the job in the  plant. If a plantwide overhead rate is being used, the company will tend to  charge too little overhead cost to jobs that require a large amount of  labor in the Cutting or Machining Departments. The reason is that the  plantwide overhead rate (160%) is much lower than the rates if these  departments were considered separately. 4. The company’s bid price was: Direct materials ................................................ $ 18,500 Direct labor ...................................................... 21,200 Manufacturing overhead applied (above) ........       33,920     Total manufacturing cost .................................. 73,620 Bidding rate .....................................................           ×      1.5     Total bid price .................................................. $110,430 If departmental overhead rates had been used, the bid price would have  been: Direct materials ................................................ $ 18,500 Direct labor ...................................................... 21,200 Manufacturing overhead applied (above) ........       21,750     Total manufacturing cost .................................. 61,450 Bidding rate .....................................................           ×      1.5     Total bid price .................................................. $       92,175     3- 71

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