Solution manual cost accounting 14e by carter ch05

Despite these shortcomings, product costs are useful in costing inventories, comparing prices and total unit cost, measuring current profit or loss, and indicating the minimum cost below

CHAPTER 5

DISCUSSION QUESTIONS

5-1

Q5-1 The cost attached to a product is an amount

assigned by the costing methods used—an

amount controlled by the circumstances,

assumptions, and limitations of the method

under which it was compiled Product costs

are composites of historical outlay that have,

perhaps, been modified by estimates or

stan-dards, by processes assigning or prorating

expenditures to periods, or by tracing the

direct costs and allocating the indirect costs

to particular products so that the total period

outlay is spread over the aggregate output.

Despite these shortcomings, product costs

are useful in costing inventories, comparing

prices and total unit cost, measuring current

profit or loss, and indicating the minimum cost

below which a sales price cannot go in the

long run Some confusion will result at times

in using cost information in making

manage-ment decisions unless information relevant

only to the decision is used.

Q5-2 The primary objective in job order costing is to

determine the cost of materials, labor, and

factory overhead used to produce a specific

order or contract Cost estimates are made

when the order is taken, and the job order

procedures are designed to reveal costs as

the order goes through production, thereby

giving an opportunity to control costs.

Q5-3 The type of cost accumulation method used

by a company will be determined by the type

of manufacturing operations performed A

manufacturing company should use process

cost accumulation for product costing

pur-poses when like units are continuously mass

produced; when custom-made or unique

goods are produced, job order costing would

be more appropriate Process costing is often

used in industries such as chemicals, food

processing, oil, mining, rubber, and electrical

appliances With a continuous mass

produc-tion of like units, the center of attenproduc-tion is the

individual process (usually a department).

The unit costs by cost category as well as total unit cost for each process (department) are necessary for product costing purposes Q5-4 A job order cost sheet is used:

(a) to keep track of the direct materials and direct labor used on a job plus an appro- priate share of factory overhead;

(b) to compare actual costs to estimated costs;

(c) as a subsidiary ledger for the work in process account.

Q5-5 The work in process account is a control account in the general ledger, reflecting total costs assigned or applied to jobs The individ- ual job cost sheets form the work in process account’s subsidiary ledger, indicating the direct materials, direct labor, and factory over- head charged to each job.

Q5-6 Job order cost sheets serve a control tion Comparisons are made between esti- mates of job costs and costs actually accumulated for the job In addition, cost con- trol is enhanced by accumulating direct mate- rials and labor as well as factory overhead costs by cost centers or departments, and by comparing the actual costs to cost center budgets.

func-Q5-7 Actual factory overhead consists of the by-day costs that are actually experienced and incurred by the company Applied factory overhead is the overhead charged to jobs based on the predetermined factory overhead rate This rate is created by dividing total esti- mated overhead by total estimated number of units (or any other appropriate base) The dif- ference between actual and applied factory overhead is the over- or underapplied factory overhead.

day-Q5-8 The characteristic of a service business that makes likely the use of job order costing is that all jobs are not alike and cost information for each job is desired.

Materials included in finished goods ($15,500 – $3,200) 12,300

Direct labor and factory overhead in finished goods $25,200

Let X = direct labor in finished goods

1.8X = $25,200 direct labor and factory overhead in finished goods

X = $14,000 direct labor in finished goods

(2) The amount of factory overhead in finished goods:

X = $14,000

.8X = 8($14,000)

.8X = $11,200 factory overhead in finished goods

E5-4

(1) December materials used:

Materials inventory, December 1 $ 8,000

Factory overhead charged to work in process

Direct labor charged to wo ork in process == $ , ==

11 800

E5-4 (Concluded)

(2) Work in process, December 31:

Per Unit Direct materials $2.40

Direct labor 80

$3.20 × 2,000 units = $6,400 Factory overhead 32 machine hrs @ $100 = 3,200

$9,600

(3) December cost of goods manufactured:

Materials used (direct) (requirement (1)) $ 90,000 Direct labor 30,000 Factory overhead (600 machine hours @$100) 60,000 Total manufacturing cost $180,000 Add work in process, December 1:

Direct Material, $2.40 × 3,000 = $7,200

$194,400 Less work in process, December 31 (requirement (2)) 9,600

$184,800

(4) Finished goods, December 31:

Direct materials $ 5,000 Direct labor 3,000 Factory overhead (60 machine hours @$100) 6,000

14,000

(5) December cost of goods sold:

Cost of goods manufactured (requirement (3)) $184,800 Add finished goods, December 1 12,000 Cost of goods available for sale $196,800 Less finished goods, December 31 (requirement (4)) 14,000

$182,800 CGA-Canada (adapted) Reprint with permission.

E5-5 Materials:

Beginning inventory $ 75 Purchases 336 (1) Materials available for use $411 Less ending inventory 85 Materials used $326 Direct labor (($686 – $326) ÷ 1.6) 225 (2) Factory overhead ($225 × 6) 135 Total manufacturing cost $686

$766 Less work in process, ending inventory 30 Cost of goods manufactured $736 (3) Add finished goods, beginning inventory 90 Cost of goods available for sale $826 Less finished goods, ending inventory 110 Cost of goods sold $716 (4)

E5-6

(1) Materials $13,000

Direct labor 15,000 Factory overhead:

Molding (1,000 DLH × $2.70) 2,700 Decorating ($6,000 × 35%) 2,100 Estimated cost to produce $32,800

(2) Materials $13,000

Direct labor 15,000 Estimated prime cost $28,000

(3) Direct labor $15,000

Factory overhead ($2,700 + $2,100) 4,800 Estimated conversion cost $19,800

(4) Estimated cost to produce (requirement (1)) $32,800

Markup ($32,800 × 35%) 11,480 Bid price $44,280

Job Order Cost Sheet—Job 909

E5-8

(1) Work in Process (35,000 + 45,000 + 55,000) 135,000

Materials 135,000 (2) Work in Process (45,000 + 40,000 + 35,000) 120,000

Payroll 120,000 (3) Work in Process (36,000 + 32,000 + 28,000) 96,000

Factory Overhead Control 96,000 (4) Finished Goods (156,000 + 132,000) 288,000

Work in Process 288,000

E5-9 (a) Materials 35,000

Accounts Payable 35,000 (b) Work in Process 8,000

Factory Overhead Control 2,000 Materials 10,000 (c) Payroll 9,400

Accrued Payroll 9,400 Work in Process 7,600

Factory Overhead Control 1,800 Payroll 9,400 (d) Factory Overhead Control 1,200

Accumulated Depreciation—

Factory Equipment 1,200 (e) Work in Process (1,830 × 66 2/3%) 1,220

Applied Factory Overhead 1,220 Finished Goods (1,450 + 1,830 + 1,220) 4,500

Work in Process 4,500 (f) Factory Overhead Control 1,250

Accounts Payable 1,250 (g) Accounts Receivable 5,400

Sales 5,400 Cost of Goods Sold 4,500

Finished Goods 4,500 E5-10

350,000 145,000

CGA-Canada (adapted) Reprint with permission.

(1) Work in Process 21,112.50

Materials 11,250.00 Payroll 3,945.00 Applied Factory Overhead 5,917.50 (2) Finished Goods 21,112.50

Work in Process 21,112.50

PROBLEMS P5-1

(1) Total cost of work put into process:

Materials $ 60,000 Labor: Grinding (8,000 hrs × $5.60) 44,800

Machining (4,600 hrs × $6) 27,600 Factory overhead: Grinding (8,000 hrs × $6) 48,000

Machining (4,600 hrs × $8) 36,800

$217,200

(2) Cost of goods manufactured:

Total cost of work put into process (from requirement (1)) $217,200 Work in process, beginning inventory 15,000

$232,200 Work in process, ending inventory 17,600

$214,600

(3) Cost of goods sold:

Cost of goods manufactured (from requirement (2)) $214,600 Finished goods, beginning inventory 22,000

$236,600 Finished goods, ending inventory 17,000

$219,600

(4) Conversion cost:

Labor: Grinding (8,000 hrs × $5.60) $ 44,800

Machining (4,600 hrs × $6) 27,600 Factory overhead: Grinding (8,000 hrs × $6) 48,000

Machining (4,600 hrs × $8) 36,800

$157,200

(5) Cost of materials purchased:

Materials put into process $ 60,000 Add materials, ending inventory 18,000

$ 78,000 Less materials, beginning inventory 19,000

$ 59,000

Work in Process 9,550 Cost of Goods Sold 9,550

Finished Goods 9,550 Accounts Receivable 14,325

Sales 14,325

P5-2 (Concluded)

(3) Cost of goods manufactured = cost of jobs finished in April.

Job 205:

Direct material $ 2,500 Direct labor 2,100 (105 direct labor hours × $20) Applied overhead 1,680 (105 direct labor hours × $16) Total Job 205 $ 6,280

Job 202 9,550 (see requirement (2))

350,000 30,000

*$330,000 – $80,000 = $250,000 direct labor and factory overhead Factory overhead is 150% of direct labor, therefore, direct labor is $100,000

**Cost of goods sold is 72% of sales (100% – 28%).

(1) Materials purchased—$100,000

(2) Cost of goods sold—$360,000

(3) Finished goods ending inventory—$40,000

(4) Work in process ending inventory—$30,000

(5) Direct labor cost—$100,000

(6) Applied factory overhead—$150,000

(7) Over or underapplied factory overhead—$3,000 overapplied

(8) Closed out to the cost of goods sold account

CGA-Canada (adapted) Reprint with permission.

Cost of Goods Sold Statement For Month Ended October 31 Materials:

Materials and supplies inventory, Oct 1 $40,700

Purchases 24,800

Materials and supplies available for use $65,500

Less: Factory supplies used $ 3,950

Materials and supplies inventory, Oct 31 31,750 35,700 Materials consumed $29,800

Direct labor 18,600

Applied factory overhead 27,450

Total manufacturing cost $75,850

Add work in process inventory, Oct 1 4,070

$79,920 Less work in process inventory, Oct 31 4,440

Cost of goods manufactured $75,480

Add finished goods inventory, Oct 1 9,800

Cost of goods available for sale $85,280

Less finished goods inventory,

Units in finished goods inventory, Oct 31 2,500

Cost of goods manufactured

75 480

20 400 3 3 70 .

P5-4 (Concluded)

Income Statement For Month Ended October 31 Sales $144,900

Net sales $143,600 Less cost of goods sold 76,030 Gross profit $ 67,570 Less commercial expenses:

Marketing expense $25,050 Depreciation—building 30 Depreciation—office equipment 16 $25,096 Administrative expense $19,700

Depreciation—building 20 Depreciation—office equipment 24 19,744 44,840 Income before income tax $ 22,730 (3) Amount of over- or underapplied factory overhead:

Actual factory overhead:

Factory overhead paid $20,100 Indirect materials 3,950 Depreciation—building 150 Depreciation—machinery and

equipment 800 Indirect labor 4,400 $29,400 Applied factory overhead 27,450

Underapplied factory overhead $ 1,950

Balance Sheet December 31, 20B Assets

Current assets:

Cash $19,000 Accounts receivable 10,000 Inventories:

Finished goods $4,000 Work in process 1,000 Materials 2,000 7,000 Prepaid expenses 500

Total assets $62,500

Liabilities Current liabilities $17,500

Stockholders’ Equity Common stock $30,000

Retained earnings 15,000

Total stockholders’ equity 45,000

P5-5 (Concluded)

Income Statement For Year Ended December 31, 20B Sales $60,000 Cost of goods sold:

Materials:

Inventory, January 1 $ 4,000 Purchases 15,000 Materials available for use $19,000 Less inventory, December 31 2,000 Materials consumed $17,000 Direct labor 9,000 Applied factory overhead 9,000 Total manufacturing cost $35,000 Add work in process inventory, January 1 2,000

$37,000 Less work in process inventory, December 31 1,000 Cost of goods manufactured $36,000 Add finished goods inventory, January 1 6,000 Cost of goods available for sale $42,000 Less finished goods inventory, December 31 4,000 Cost of goods sold $38,000 Add underapplied factory overhead 2,000 Cost of goods sold—adjusted 40,000 Gross profit $20,000 Less commercial expenses:

Marketing expense $ 6,000 Administrative expense 9,000 15,000 Income before income tax $ 5,000

Job Order Cost Sheets To Post Beginning Inventory Data

(j) Completed and transferred Completed and trans- Still in

(a) Materials 19,000.00

Accounts Payable 19,000.00 (b) Work in Process 18,600.00

Factory Overhead Control 2,400.00 Materials 21,000.00 (c) Materials 600.00

Work in Process 400.00 Factory Overhead Control 200.00 (d) Accounts Payable 800.00

Materials 800.00 (e) Payroll 38,000.00

Accrued Payroll 38,000.00 (f) Work in Process 20,900.00

Factory Overhead Control 7,600.00 Marketing Expenses Control 5,700.00 Administrative Expenses Control 3,800.00 Payroll 38,000.00 (g) Factory Overhead Control 9,404.50

Accounts Payable 7,154.50 Accumulated Depreciation—Factory

Building & Equipment 2,000.00 Prepaid Insurance 250.00

Work in Process 53,384.00 (j) Accounts Receivable 74,738.00*

Sales 74,738.00 Cost of Goods Sold 53,384.00

Finished Goods 53,384.00 (k) Cash 69,450.00

68,384 15,000

Schedule of Inventories, March 31 Materials $14,800 Work in Process (Job 623) 21,506 Finished Goods 15,000 Total $51,306

*$5,800 could also be posted directly to the work in process account, reducing entry (d) to $47,930.

P5-7 (Concluded)

(2) The total cost of each job at the end of March:

Accrued Payroll 110,000 (c) Work in Process 78,000

Factory Overhead Control 12,000 Marketing and Administrative Expenses 20,000 Payroll 110,000 (d) Work in Process 108,175

Factory Overhead Control 7,520 Materials 115,695 (e) Work in Process 42,750

Applied Factory Overhead 42,750 (f) Cost of Goods Sold 190,350

Work in Process 190,350 Accounts Receivable 255,000

Sales 255,000

P5-8 (Continued)

(g) Cash 247,000

Sales Discounts 13,000 Accounts Receivable 260,000 (h) Marketing and Administrative Expenses 15,000

Factory Overhead Control 24,680 Cash 37,680

(i) Accounts Payable 85,000

Cash 85,000 (j) Applied Factory Overhead 42,750

Factory Overhead Control 42,750

Cost of Goods Sold 1,450 Factory Overhead Control 1,450

236,425 46,075

P5-8 (Concluded)

Trial Balance January 31 Cash 171,320

Sales 255,000 Sales Discounts 13,000

Cost of Goods Sold 191,800

Cost of Goods Sold Statement For Month Ended January 31 Direct materials used $108,175 Direct labor 78,000 Applied factory overhead 42,750 Total manufacturing cost at normal $228,925 Add work in process inventory, January 1 7,500

$236,425 Less work in process inventory, January 31 46,075 Cost of goods sold $190,350 Add underapplied factory overhead 1,450 Cost of goods sold—adjusted $191,800