Solution manual managerial accounting 8e by hansen mowen ch 6

The cost of goods transferred out from beginning work in process is obtained by 1 assigning them all costs carried over from the prior pe- riod and 2 using the current period’s unit cost

CHAPTER 6 JOB ORDER AND PROCESS COSTING QUESTIONS FOR WRITING AND DISCUSSION

1 Job-order costing accumulates costs by

jobs, and process costing accumulates costs

by processes Job-order costing is suitable

for operations that produce custom-made

products that receive different doses of

manufacturing costs Process costing, on

the other hand, is suitable for operations that

produce homogeneous products that receive

equal doses of manufacturing costs in each

process

2 More paperwork is required Labor and

ma-terials are assigned to departments in a

process-costing system In a job-order

cost-ing system, labor and materials must be

tracked to each job, requiring time tickets

and more use of materials requisitions

Addi-tionally, a job-order costing system requires

a separate job-order cost sheet for each job

3 Job-order costing is appropriate for many

service firms The key factor is that differing

amounts of resources must be used for

dif-ferent jobs Examples of service firms that

use job-order costing are law firms,

account-ing firms, dentists, automobile repair, and

architectural firms

4 Unless all your jobs (lawns) are the same

size and require the same services, you will

need to use a job-order costing system At

minimum, you will need job-order cost

sheets for each customer You will need

la-bor time tickets to record the amount of time

spent on each job, both to cost the job and

to pay the individual doing the work A

mate-rials requisition form may be needed if

ferti-ship makes sense not only to the business but also to the customer By comparing the cost of the individual job with the price charged, the firm can determine the profit at- tributable to each job Then, the firm can de- cide whether the profit is sufficient to contin-

ue offering the product or service under the current terms

6 Materials requisition forms serve as the

source documents for posting materials usage and costs to individual jobs Time or work tickets serve a similar function for la- bor Predetermined overhead rates are used

to allocate overhead to jobs

7 In sequential processing, products pass

through a series of processes, one after another (i.e., in a given sequence) In paral- lel processing, products pass through two or more different sequences at the same time, merging eventually at the final process

8 Equivalent units are the number of whole

units that could have been produced, given the amount of materials, labor, and over- head used Equivalent units are the meas- ure of a period’s output, a necessary input for the computation of unit costs in a process-costing system

9 In calculating this period’s unit cost, the

weighted average method treats prior-period output and costs carried over to the current period as belonging to the current period The FIFO method excludes any costs and output carried over from this period’s unit cost computation

product (or further process it), additional

ma-terials and conversion costs are added by

the receiving department

13 The work-in-process account of the

receiv-ing department is debited, and the

work-in-process account of the transferring

depart-ment is credited The finished goods

ac-count is debited, and the work-in-process

account of the final department is credited

upon completion of the product

14 The first step is the preparation of a physical

flow schedule This schedule identifies the

physical units that must be accounted for

and provides an accounting The second

step is the equivalent unit schedule This

schedule computes the equivalent whole

output for the period The schedule’s

com-putations rely on information from the

physi-cal flow schedule The next step is

computa-tion of the unit cost To compute the unit

cost, the manufacturing costs of the period

for the process are divided by the period’s

output The output is obtained from the

equivalent unit schedule The fourth step

out and those remaining in work in process The final step checks to see if the costs as- signed in step 4 equal the total costs to ac- count for

15 The weighted average method uses the

same unit cost for all goods transferred out The FIFO method divides goods transferred out into two categories: units started and completed and units from beginning work in process The period’s unit cost is used to value goods started and completed The cost of goods transferred out from beginning work in process is obtained by (1) assigning them all costs carried over from the prior pe- riod and (2) using the current period’s unit cost to value the equivalent units completed this period

16 Service firms generally do not have

work-in-process inventories, and so equivalent units

of production are not needed An important factor in process costing for services is de- termining just what constitutes a unit of out- put.

EXERCISES 6–1

6–2

1 Auto manufacturing: A job-order example might be Rolls Royce, in which the cars are made to order A process-costing example might be Ford Motor Company

2 Dental services: A job-order example might be a local, full-service dentist A process-costing example might be a denturist (someone who makes only dentures)

3 Jordan would need to prepare a simple form that included columns for the

date, the beginning time, the ending time, the total number of hours worked,

and the job name (or number) She could have a separate page for each day

This would be especially helpful if she hired other employees from time to

time to work on jobs

2 Job#70:$25 per move × 50 moves

Job#71:$25 per move × 10 moves

Job#72:$25 per move × 200 moves

3 Job#70: $40 per PO × 10 PO’s

Job#71:$40 per PO × 40 PO’s

Job#72: $40 per PO × 10 PO’s

2 Ending balance in Work in Process = Job #72 = $56,150

3 Ending balance in Finished Goods = Job #71 = $18,650

4 Cost of Goods Sold = Job #70 = $60,050

6–8

Bosserman Company Income Statement For the Month Ended July 31, 20XX Sales ($60,050 × 1.40) $ 84,070

Cost of goods sold 60,050

Gross margin $ 24,020

Administrative expenses 3,900

Operating income $ 7,613

4 Overhead Control 1,500

Adjusted cost of goods sold:

6–11

Department Department Department

3 Unit cost = $14,625/600 = $24.38* per pair

*Rounded

6–12

2 Equivalent units in Total = 60 + 600 = 660

6–13

1 Physical flow schedule:

2 Equivalent units of production:

2 Physical flow schedule:

The schedule of equivalent units using the weighted average method does not give sufficient information to reconstruct the complete physical flow schedule Units in beginning work in process are embedded in units com- pleted

a Units transferred out = Total units* – Ending WIP = 4,080 – 600 = 3,480

*Total units = Beginning WIP + Units transferred in = 1,200 + 2,880 = 4,080

6–16

1 Physical flow schedule:

Units to account for:

Units accounted for:

Units completed and transferred out:

5 Costs to account for:

Costs accounted for:

6–17 Cocolots Company

Mixing Department Production Report For the Month of June 20XX (Weighted Average Method) Unit Information Physical flow:

Equivalent units:

Cost Information Costs to account for:

Costs accounted for:

Goods transferred out

*See solution to Exercise 6–18

Beginning WIP for B: 1,000 × 0.40 = 400

Beginning WIP for C: 0 × 0 = 0

6–20

1 Physical flow schedule:

Units to account for:

Units accounted for:

Units completed and transferred out:

4 Cost transferred out: 60,000 × $6.13 = $367,800

Cost of ending WIP:

5 Costs to account for:

Costs accounted for:

6–21

Bath Linens Department Production Report For the Month of August 20XX (Weighted Average Method) Unit Information Physical flow:

Equivalent units:

Cost Information Costs to account for:

Costs accounted for:

Goods transferred out

6–23

1 Physical flow schedule:

Units to account for:

Units accounted for:

2 Units started and completed 280,000

3 FIFO unit cost = $1,516,500/337,000 = $4.50

4 Costs transferred out:

6–24

Nogaleen Company Blending Department Production Report For the Month of August 20XX

(FIFO Method) Unit Information Physical flow:

Units to account for:

Units completed from beginning

Cost Information Costs to account for:

Costs accounted for:

Units in beginning work

PROBLEMS 6–26

1 Overhead rate = $270/$900 = 0.30 or 30% of direct labor dollars

(This rate was calculated using information from the Fazel job; however, the Myron and Patton jobs would give the same answer.)

3 Since the Fazel and Myron jobs were completed, the others must still be in process Therefore, the ending balance in Work in Process is the sum of the costs of the Patton, Raider, and Willis jobs

Cost of Goods Sold = Fazel job + Myron job = $3,890 + $2,804 = $6,694

3 The activity-based approach to assigning overhead gives a more accurate

cost figure because so much of the overhead is non unit-level and there is

product diversity

6–29 Concluded

For the Month Ended April 30, 20XX

Less: Underapplied overhead 105

6–30

Debroux Company Assembly Department Production Report For the Month of February 20XX (Weighted Average Method) Unit Information

Equivalent units:

Cost Information Costs to account for:

Costs accounted for:

6–31

Debroux Company Assembly Department Production Report For the Month of February 20XX

(FIFO Method) Unit Information

Equivalent units:

Cost Information Costs to account for:

Costs accounted for:

Units in beginning work in process:

6–32

1 a Physical flow schedule:

b Equivalent unit schedule:

2 Unit cost computation:

6–33

Grace Sauces, Inc

Mixing Department Production Report For the First Quarter 20XX (FIFO Method) Unit Information

* Started and completed = 148,500 + B-WIP 144,000 = 292,500

Units in beginning WIP:

6–34

Grace Sauces, Inc

Mixing Department Production Report For the First Quarter 20XX (Weighted Average Method) Unit Information

Cost Information

Goods transferred out

*Difference due to rounding

6–35

a Physical flow schedule:

Units completed and transferred out:

Costs charged to the department:

c Unit cost calculation:

Unit cost = Unit material cost + Unit conversion cost

6–35 Continued

d and e Cost reconciliation:

Total costs accounted for:

Costs in ending WIP:

Materials (2,000 × $2.26) $4,520

Conversion (1,600 × $3.45) 5,520 10,040

Costs to account for:

*When conversion costs are not broken into labor and overhead components,

a control account for conversion costs is used Some firms now combine overhead and direct labor costs into one category This practice is develop- ing because direct labor is becoming a small percentage of total manufactur- ing costs

6–35 Continued

a Physical flow schedule:

Units completed and transferred out:

Costs charged to the department:

c Unit cost calculation:

Unit cost = Unit material cost + Unit conversion cost + Unit

transferred in cost

6–35 Concluded

d and e Cost reconciliation:

Total costs accounted for:

Costs in ending WIP:

Materials $ 0

Conversion (1,500 × $4.20) 6,300

Transferred in (3,000 × $5.70) 17,100

Total costs in ending WIP 23,400

Costs to account for:

Journal entries for Department B:

com-6–36

a Physical flow schedule:

Units completed and transferred out:

Costs charged to the department:

c Unit cost calculation:

Unit cost = Unit material cost + Unit conversion cost

6–36 Continued

d and e Cost reconciliation:

Cost of units in beginning WIP:

Costs in ending WIP:

Materials (2,000 × $2.312) $4,624

Conversion (1,600 × $3.45) 5,520

Total costs in ending WIP 10,144

Costs to account for:

Beginning WIP $ 16,900 Costs incurred 153,020

com-6–36 Continued

a Physical flow schedule:

Units completed and transferred out:

Costs charged to the department:

c Unit cost calculation:

Unit cost = Unit material cost + Unit conversion cost + Unit

6–36 Concluded

d and e Cost reconciliation:

Cost of units in beginning WIP:

Current cost to finish units:

Costs in ending WIP:

Conversion (1,500 × $4.20) $ 6,300

Transferred in (3,000 × $5.706) 17,118

Total costs in ending WIP 23,418

Costs to account for:

*Difference due to rounding

Journal entries for Department B:

over-6–37

1 a Molding

Molding:

6–37 Concluded

Assembly:

Unit transferred-in cost: (0 + $14,950)/1,300 = $11.50

Packaging:

Unit transferred-in cost: ($1,959 + $11,754)/1,050 = $13.06

5 Costs to account for:

Costs accounted for:

6–38

Assembly:

Packaging:

3 Molding:

Packaging:

Costs to account for:

Costs accounted for:

MANAGERIAL DECISION CASES

to the proposal, she would be taking action that would discredit her sion Finally, Donna has an ethical obligation to communicate information fairly and objectively, disclosing all information that would be needed for the loan officer to fairly assess the merits of the company’s request for a loan Clearly, Donna should not agree to falsify the production report

profes-2 Donna has an obligation to report Gary to a superior only if an actual ethical problem exists If Gary decides that the course of action he is suggesting is not really in his or the company’s best interests, then no ethical problem ex- ists, and no action by Donna is needed

3 If Gary insists on his idea of falsification of the division’s reports, Donna should attempt to resolve the conflict by appealing to Gary’s immediate su- pervisor (and on up, if necessary, until a satisfactory resolution is achieved)

If no satisfactory resolution is possible, then Donna should resign and mit an informative memo to a representative of the organization

sub-4 In this situation, the ethical dilemma is complicated by two factors: Donna’s age and a low likelihood of resolution by appealing to higher-level authorities Donna’s age may make it more difficult to find alternative employment (at least at the same level and pay), and it may mean possible forfeiture of re- tirement benefits Many students will likely respond that Donna should still resign (assuming that resolution is not likely), recommending the ideal out- come While Donna’s ultimate resignation is the right choice if resolution fails, students should realize that ethical behavior may often carry with it