Solution manual cost accounting by lauderbach INTRODUCTION TO PRODUCT COSTING

Overapplication of overhead arises from production in excess of budget, and from the earliest of chapters it was pointed out that fixed cost per unit declines as volume increases.. Regar

CHAPTER 12

INTRODUCTION TO PRODUCT COSTING

12-1 FedEx's Handling Costs

This question gets at two principal concepts: (1) the difference

between unit cost and total cost and (2) the effects on unit cost of volume changes In this example, volume rises, but it could just as easily have fallen, with a commensurate rise in unit costs

1 FedEx's total domestic handling costs increased The 12% increase in volume overwhelmed the 1.5% decrease in unit cost Using their numbers,

is probably due to the increase in volume, rather than to savings in variablecosts

2 As FedEx increases its volume, its per-unit cost will fall, and thereforeits profit margin will rise (assuming level selling prices) Total costs will rise less rapidly than volume and revenue and total fixed costs will be spread over more units

12-2 Overhead Absorption

The statement means that Trane used 85% of capacity to set its overhead rates If Trane works at 85% of capacity it will not have a fixed overhead volume variance (It could still, of course, have a budget variance.) If it works more or less than 85%, it absorbs more or less overhead into inventory,but the economic situation (actual overhead) remains the same, ignoring tax effects (as we did in the chapter) Selecting a level of activity for a costdriver used as an overhead base is similar to selecting any other kind of estimate bad debts, useful lives of fixed assets, estimated provision for inventory losses, and so on The use of an overhead rate based on some specified level of activity speeds up or defers the recognition of overhead

as an expense but does not, in itself, change the total expense that will be recognized over a period of years

12-3 Overhead Application

The stated relationship of overhead application to variations in fixed cost per unit is true but whether the situations are good or bad is not so clear Overapplication of overhead arises from production in excess of budget, and from the earliest of chapters it was pointed out that fixed cost per unit declines as volume increases The reverse is true for

underapplication

Underapplication or overapplication are not necessarily good or bad First, under- or overapplied overhead say nothing good or bad about the

control of overhead costs The relationship of actual overhead to budgeted overhead is the important point for control.

If the lower cost per unit (of overapplication) is caused by higher production because of higher sales than budgeted, the situation is good (though under-budgeting sales is not desirable because of the resource

requirements generated by sales budgets) If the lower cost is the result ofhigher production only, the situation is not good unless anticipated sales are higher If the higher cost per unit is caused by lower production

because of lower sales, the situation is bad If sales are keeping pace withthe budget and production is reduced, the higher cost per unit does not indicate a bad situation

Regardless, the variations in fixed cost per unit and the under- or overapplied overhead are not the important factors

12-4 Costing Methods and Inventories

This question is deceptively simple There will be no difference in incomes because all costs expire, either as cost of goods sold or as a

combination of cost of goods sold and overapplied or underapplied overhead The question brings home the point that different costing methods affect income because they give different inventory valuations In fact, as Chapter

14 shows, but which could be discussed now, the sole difference between incomes using any inventory valuation methods lies in the differences in inventories

Students should know this from financial accounting, where FIFO, LIFO, and other inventory valuations are treated, usually for merchandising firms However, students do tend to compartmentalize and ignore the lessons of previous coursework, and this simple question should help to get them

thinking about the reasons that incomes differ under different methods

It is worthwhile to point out that, if the company has inventories duringthe year, its interim results will differ using actual costing vis a vis normal costing

12-5 "What's Normal About It?"

Overall Note to the Instructor: The purpose of this question is

obvious: to allow you to bring out the entire set of arguments favoring normal costing The text provides what we believe is a good rationale, but seldom is a text more convincing than an explanation from the instructor Ifthe usual arguments (confusing results, potential difficulties in pricing andanalyzing profitability on work done in different months) don't seem to convince the class, you might want to refer to some points that students learned in financial accounting

There is a strong similarity between normal costing and accrual/deferral practices used in financial accounting Perhaps the closest parallel is the units-of-production method of depreciation, but the same principle applies toaccruing vacation pay and major maintenance over an entire year Note also that taxes, bonuses, and profit-sharing obligations are accrued as the

company earns income, even though these items do not become liabilities untilthe final results are in for the year

In fact, virtually any allocation of costs to different periods parallelsnormal costing Though depreciation is the obvious example, perhaps more striking is the case where a firm pays a year's rent in January and cannot sublease the property We have found no student who advocated expensing the

whole year's rent in January even though the expenditure occurs then and cannot be recouped (Indeed, even those financial analysts who argue to "letthe chips fall where they may" and equate "reality" with cash flows show no support for such an expensing practice.) In essence, normal costing treats the year as the relevant accounting period, not the month or quarter That estimates prove incorrect should not deter one from using them, just as basing depreciation on estimates (of useful life and salvage value) does not deter one from computing annual depreciation expense Thus, such conditions

as high heating costs in the winter should not bind a firm to actual costing for each month

12-6 Are Cost Accountants the Villains?

Mr Fox probably means that the company uses absorption costing and decreases unit costs by producing more units A supervisor could also reduceunfavorable labor efficiency variances by producing more units than were required

The company is probably applying factory overhead on the basis of machinehours Managers of individual departments are therefore encouraged to

produce as much as they possibly can during each hour of machine use (The labor cost for an hour of machine time is probably fixed and material costs charged to departments are probably independent of machine time.) To reduce overhead charges by producing as much as possible per hour of machine use, department managers could be bunching their jobs, and so affecting the flow

of jobs through the factory ("each hour is running") The overall issue is whether cost accounting systems are used, more or less exclusively,

to evaluate performance The same news story quoted Fox as saying that "Costaccountants never said this is a tool to measure the performance of people." Chapter 13 treats dysfunctional consequences of absorption costing

12-7 Basic Actual Job-Order Costing (10-15 minutes)

1 $11 per hour $220,000/(11,000 + 9,000)

2 $121,000 to King Louis, $99,000 to Ranchero

King Louis Ranchero

Direct labor hours 11,000 9,000

Times $11 rate equals overhead applied $121,000 $99,000

3 $366,000 for King Louis, $234,000 for Ranchero

King Louis Ranchero

Material cost $150,000 $ 60,000

Direct labor cost 95,000 75,000

Overhead cost (part 2) 121,000 99,000

Total costs $366,000 $234,000

12-8 Basic Normal Job-Order Costing (15-20 minutes)

1 $110,000 to King Louis, $90,000 to Ranchero

King Louis Ranchero

Direct labor hours 11,000 9,000

Times $10 rate equals overhead applied $110,000 $90,000

2 $355,000 for King Louis, $225,000 for Ranchero

King Louis Ranchero

Material cost $150,000 $ 60,000

Direct labor cost 95,000 75,000

Overhead cost (requirement 1) 110,000 90,000

Applied overhead also equals 20,000 direct labor hours at the $10 rate

4 You might wish to verify the overhead rate calculation for the class Rate = ($150,000 + [$4 x 25,000])/25,000 = $250,000/25,000 = $10

You might want to point out that the rate has a $6 fixed component and a $4 variable component

Unfavorable volume variance $ 30,000

The volume variance is also 5,000 hours (25,000 - 20,000) x $6

12-9 Job-Order Costing Income Statements (15-20 minutes)

Less ending inventory (Ranchero) 234,000

Cost of goods sold 366,000

Normal cost of goods sold $355,000

Plus underapplied overhead 20,000

Cost of goods sold 375,000

Gross profit 275,000

Selling and administrative expenses 260,000

Income $ 15,000

Again, showing the details of cost of sales, we have the following

Less ending inventory (Ranchero) 225,000

Normal cost of goods sold 355,000

Plus underapplied overhead 20,000

Cost of goods sold 375,000

12-10 Job Order Costing Income Statement, Service Company (15-20 minutes)

1 $5, $2 variable plus $3 fixed ($600,000/200,000 hours), or

($600,000 + [$2 x 200,000])/200,000

2

Sales $5,200,000

Normal cost of sales* $3,100,000

Less overapplied overhead** 60,000

Less ending inventory* 400,000

Normal cost of sales $3,100,000

Less overapplied overhead 60,000

Cost of sales $3,040,000

* Direct expenses $100,000

Professional salary cost 200,000

Applied overhead ($5 x 20,000) 100,000

Total cost $400,000

Note to the Instructor: You might want to comment on the similarities

of service and manufacturing companies here Service providers do not use direct materials in the same sense in which manufacturers do, but they incur costs that are direct to specific jobs Professionals do not like being called "direct labor," but the analogy is apt They are the people who, likedirect laborers, work specifically and directly on jobs

12-11 Predetermined Overhead Rates (15-20 minutes)

12-12 Ethics and Overhead Application (10 minutes)

The controller's proposal is unethical and violates the IMA Standards

If machine time is the principal overhead cost driver, to change the

application base to labor time violates even the competence standard Of course, to change the base simply to increase government billings is illegal

as well as unethical Such an act violates the integrity standard of

"engaging in or supporting any activity that would discredit the profession."12-13 Overhead Relationships Variances (15-20 minutes)

1 (b) $596,000 $600,000 - $4,000 favorable budget variance

(e) $ 15,000 U $600,000 - $585,000

2 (d) $3,000 F $400,000 - $397,000

(e) $2,000 F $400,000 - $402,000

3 (b) $394,000 $400,000 - $6,000 favorable budget variance

(c) $390,000 $400,000 - $10,000 favorable volume variance

4 (a) $304,000 $310,000 - $6,000 unfavorable budget variance (c) $322,000 $304,000 + $18,000 favorable volume variance12-14 Job-Order Costing Assigning Overhead (15 minutes)

1 $1.40 $0.80 variable plus $0.60 fixed ($600,000/$1,000,000), or

[$600,000 + ($0.80 x $1,000,000)]/$1,000,000

2 $2,478,000 (see below)

3 $320,000 (see below)

4 $276,000 (see below)

Ending Ending Jobs Sold Work-in-Process Finished Goods Applied overhead:

$820,000 x $1.40 $1,148,000

$100,000 x $1.40 $140,000

$ 90,000 x $1.40 $126,000 Materials 510,000 80,000 60,000 Direct labor 820,000 100,000 90,000 Totals $2,478,000 $320,000 $276,000

Total underapplied overhead

Note to the Instructor: Because this simple exercise contains only fixedoverhead, it can be used effectively to show why the volume variance is economically irrelevant Students can see that the $6,000 unfavorable

variance comes about because Midus worked 1,000 fewer hours (40,000 - 39,000)than the number used to set the predetermined overhead rate You could pointout that in order to make the volume variance zero, Midus could either (1) work 40,000 hours or (2) have used 39,000 hours as the denominator in

calculating the rate Obviously, working additional hours is senseless unless there is profitable work to be done

You might wish to point out that the volume variance does show that Miduswas less busy than it had originally forecast (The managers do not need thevolume variance to tell them that they were not as busy as they had

originally forecast.) But the profit lost because of inability to generate work requiring 40,000 hours (if that was the case) is not the $6,000 volume variance but rather the contribution margin that Midus could have earned had

it gotten more work (It is also possible that Midus did about as much business as originally forecast but did it in fewer hours.) 12-16 Activity-Based Overhead Rates (20-25 minutes)

1 $0.24 per part and $7.00 per machine hour

Normal cost of sales $2,883,200

Overapplied overhead (below) 4,600

12-17 Basic Job Order Costing (15 minutes)

1

QB-002 WB-011 LB-012 Total Machine hours 2,180 1,130 2,810 6,120 Overhead applied at $4.20/hour $9,156 $4,746 $11,802 $25,704

2 Cost of sales, Job QB-002 ($23,400 + $24,570 + $9,156) $ 57,126 Ending inventories:

Job WB-011 ($14,200 + $9,220 + $4,746) $ 28,166 Job LB-012 ($36,320 + $26,245 + $11,802) 74,367 Total ending inventory $102,533

3 Overhead incurred $ 25,210 Applied overhead (requirement 1) 25,704 Overapplied overhead $ 49412-18 Comparison of Actual and Normal Costing (25-30 minutes)

1 $2.80 $196,000/($24,000 + $18,000 + $28,000)

2

A-1 A-2 A-3 Total Material cost $ 22,000 $ 51,000 $ 38,000 $111,000 Direct labor cost 24,000 18,000 28,000 70,000 Overhead applied at $2.80 67,200 50,400 78,400 196,000 Total cost $113,200 $119,400 $144,400 $377,0003

4 The predetermined overhead rate is $3 ($2,100,000/$700,000)

A-1 A-2 A-3 Total Material cost $ 22,000 $ 51,000 $ 38,000 $111,000 Direct labor cost 24,000 18,000 28,000 70,000 Overhead applied at $3 72,000 54,000 84,000 210,000 Total cost $118,000 $123,000 $150,000 $391,000 Sales $160,000

Normal cost of sales (Job A-1) 118,000

Normal gross margin 42,000

Plus overapplied overhead 14,000

individual jobs or by multiplying total direct labor cost by the overhead rate They can then subtract actual overhead to find overapplied overhead

We cannot determine budget and volume variances because the fixed and variable components of overhead are not given

12-19 Graphical Analysis of Overhead (20 minutes)

Note to the Instructor: This assignment allows you to discuss several points: the relationship of applied overhead to budgeted overhead, the visualinterpretation of the volume variance, and the effects of differing levels ofactivity on the volume variance The basic purpose of requirement 2 is to show that the volume variance depends only on fixed costs Because the predetermined overhead rate covers both variable and fixed costs, the amount absorbed at any volume level should cover the variable costs at that level, leaving only unabsorbed fixed costs to constitute the volume variance

You might best start the coverage by directing the students' attention tothe budget line That line indicates that manufacturing overhead has a fixedcomponent of $200,000 (the y-axis intersect) The variable component is $2.50per direct hour (At 120,000 hours, total overhead is $500,000 Subtractingthe $200,000 fixed costs from $500,000 leaves $300,000 of variable costs; dividing $300,000 by 120,000 hours yields the variable component of $2.50 perhour.) We believe it is important to deal first, and independently, with thebudget equation for this cost, so as to distinguish clearly between the behavior of the cost and "behavior" of overhead application The original graph emphasizes the behavior of the cost completely apart from any

manipulation of that cost by means of an overhead application rate

Students should have no difficulty drawing the first absorption line, for

an absorption rate of $5 per hour (requirement la) For the second line, requirement lb, students need only to connect the origin with the budget line

at that level of volume used to set the overhead rate (100,000)

Graphically, the volume variance (requirement 2) is the vertical distance between the budget line at 90,000 hours and the absorption line at 90,000 hours

The volume variance for the first overhead rate is $25,000 favorable, computed as follows:

Budgeted overhead at 90,000 hours

$200,000 + ($2.50 x 90,000) $425,000

Overhead applied at 90,000 hours ($5 x 90,000) 450,000

Volume variance, favorable $ 25,000

The volume variance for the second overhead rate is $20,000 unfavorable, computed as follows:

Budgeted overhead at 100,000 hours used to set

the overhead rate

$200,000 + ($2.50 x 100,000) $450,000 Overhead rate ($450,000/100,000) $4.50 Budgeted overhead at 90,000 hours, as above $425,000 Overhead applied at 90,000 hours ($4.50 x 90,000) 405,000 Volume variance, unfavorable $ 20,000

At this point, we have fulfilled the two requirements of the assignment However, we think it is useful to continue the problem to emphasize the point, made in the text, that the volume variance depends only on fixed costs The text introduces the volume variance in the context of a separate overhead rate for fixed overhead and shows its calculation as either:

Volume Budgeted Applied

= fixed - fixed

variance overhead overhead

$2.50 ($5 - $2.50) of the rate is for fixed overhead At the level of

activity at which the absorption rate was set, all fixed costs (as well as all variable costs, of course) are absorbed, so we can compute that level of activity as 80,000 hours ($200,000 fixed costs/ $2.50 per hour) The

previously computed volume variance of $25,000 favorable is consistent with this approach Actual volume of 90,000 hours is 10,000 hours greater than the volume level used to compute the overhead rate (80,000) The volume variance equals $25,000 or 10,000 hours times the $2.50 per hour rate for fixed overhead

Knowing the variable component of the budget equation ($2.50) and the

$4.50 per hour overhead rate in part 1b (computed above), we can infer the

$2.00 per hour component for fixed costs (Note that $2 is consistent with fixed costs of $200,000 and volume of 100,000 hours.) The $20,000

unfavorable volume can be seen now as 10,000 hours less than budgeted volume times the $2.00 per hour rate for fixed overhead

12-21 Basic Job-Order Costing (10-15 minutes)

1 311 312 313 TotalsMachine hours 1,480 1,230 860 3,570Overhead applied at $3.70 $ 5,476 $ 4,551 $ 3,182 $ 13,209 Material cost 15,260 21,340 8,890 45,490 Direct labor cost 18,250 14,550 11,100 43,900

Total cost $38,986 $40,441 $23,172 $102,599

2 $229 overapplied, $13,209 applied - $12,980 actual

Note to the Instructor: We cannot isolate the budget variance and volumevariance because we do not have the budget formula

12-22 Overhead Application (15 minutes)

1 $2.66 ($186,200/70,000)

2 (a) $178,220 (67,000 x $2.66)

(b) $87,100 (67,000 x $1.30) This is the answer to both parts,

incurred and applied

(c) $1,500 unfavorable budget variance, $7,980 unfavorable volume variance

Actual overhead $274,800

Budgeted overhead ($186,200 + $87,100 [part b]) 273,300

Unfavorable budget variance $ 1,500

Budgeted overhead $273,300

Applied overhead ($178,220 [part a] + $87,100) 265,320

Unfavorable volume variance $ 7,980

Note to the Instructor: This exercise has two aspects that you might wish to develop in class First, it lists overhead items instead of simply giving totals Students occasionally need reminding that overhead consists

of a number of separate elements Second, you could reinforce the point thatthe volume variance relates only to fixed overhead Both budgeted and

applied variable overhead are given in requirement 2b, so that the volume variance is easily seen as the difference between budgeted and applied fixed overhead

Budgeted fixed overhead $186,200

Applied fixed overhead (part 2a) 178,220

Unfavorable volume variance, 3,000 x $2.38 $ 7,980

12-23 Overhead Application (15-20 minutes)

1 $5.00 [$600,000 + ($3 x 300,000)]/300,000, or doing the fixed and

variable rates separately, $3 variable + $2 fixed ($600,000/300,000)

2

Applied overhead in cost of sales (275,000 x $5) $1,375,000

Applied overhead in inventories (40,000 x $5) 200,000

Total applied overhead 1,575,000

Incurred overhead 1,585,000

Total underapplied overhead $ 10,000

Actual overhead Budgeted overhead Applied overhead $600,000 + ($3 x 315,000)

$1,585,000 $1,545,000 $1,575,000 $40,000 U $30,000 F

Budget variance Volume variance

$10,000

Total underapplied overhead

Note to the Instructor: You may also show that the volume variance

relates only to fixed overhead.

Budgeted fixed overhead $600,000

Applied fixed overhead ($2 x 315,000) 630,000

Favorable volume variance $ 30,000

12-24 Job Order Costing Activity-Based Overhead Rates (20 minutes)

1 $0.40 per material dollar and $5.50 per machine hour

Machine-related at $5.50** 46,750 24,750 15,950 87,450 Total applied overhead $55,150 $ 57,550 $31,550

$144,250 Materials, given 21,000 82,000 39,000 142,000 Direct labor, given 16,000 13,000 18,000 47,000 Total costs of jobs $92,150 $152,550 $88,550

1 $6 per machine hour and $2 per direct labor hour

* Labor hours are determined by dividing labor cost by $12

in equal monthly amounts (For example, in some areas, March is a cold month, giving higher-than-average utility bills.) We can say that activity

in March was below the average monthly amount in machining, and above it in assembly, as shown below

Machining Assembly Actual activity (4,000 + 5,000), (2,000 + 3,200) 9,000 MH 5,200 DLH Average activity (120,000/12), (60,000/12) 10,000 5,000 Over (under) average activity ( 1,000) 200

12-26 Basic Job-Order Costing (20 minutes)

1 M-101 R-12 Z-610

Machine hours 8,800 8,200 7,200

Overhead applied at $11.40/hour $100,320 $93,480 $82,080

2 Cost of sales, Job M-101 ($35,800 + $123,200 + $100,320) $259,320

components This is clearly a drawback as far as analysis is concerned Second, we do know that the month was relatively busy because machine hours, totaling 24,200, were well above a pace of 280,000 hours for the year (24,200

x 12 = 290,400) Therefore, part of overapplied overhead results from a favorable volume variance, the amount of which depends on the fixed component

of the predetermined overhead rate

12-27 Job Costing in a Service Firm (15-20 minutes)

2 $1,092

Hourly rates ($30,000/1,800) x 2.5 $ 42

($35,000/1,800) x 2.5) 49

Total 91

Hours worked 12

Charge $1,092 12-28 Overhead Costs and Pricing Policy (10 minutes) 1 Busy months will appear more profitable, partly because they are more profitable, but also because overhead assigned to jobs in busy months will be spread more thinly 2 The pricing policy is reasonable because it is based on expected results (and historical results) for a fairly long period Horton's problem is that the different profitabilities of similar jobs confuses her Horton should use normal costing to avoid the monthly fluctuations in overhead rates Note to the Instructor: This short problem is not difficult, but it is interesting because it shows a situation opposite to that mentioned in the chapter The chapter speaks of the dangers of using actual-costing data for pricing purposes This problem involves a manager who wisely uses a normal- costing approach to pricing and also wisely questions the value of the actual- costing data she receives 12-29 Job-Order Costing (20-25 minutes) 1 $678,600 in work-in-process, $1,806,510 in cost of sales

Work in Process Cost of Sales Direct labor used this month $452,400 $ 892,880 Overhead at $1.50 $678,600 $1,339,320 Overhead in beginning inventory 467,190 Total overhead $1,806,510 2 $1,999,490

Applied overhead ($678,600 + $1,339,320) $2,017,920

Less overapplied overhead 18,430

Actual overhead $1,999,490

3

Sales $4,680,000

Normal cost of sales* $4,140,740

Less overapplied overhead 18,430

Cost of sales 4,122,310

Gross margin 557,690

Selling and administrative expenses 453,650

Profit $ 104,040

* Normal cost of sales:

Materials ($237,670 BI + $881,480) $1,119,150

Direct labor ($322,200 BI + $892,880) 1,215,080

Overhead applied (part 1) 1,806,510

Normal cost of sales $4,140,740

An alternative is to use the format:

Beginning inventory ($237,670 + $322,200 + $467,190) $1,027,060

Current period costs:

Materials ($228,310 + $881,480) 1,109,790

Direct labor ($452,400 + $892,880) 1,345,280

Overhead applied ($1,345,280 x $1.50) 2,017,920

Total 5,500,050

Less ending inventory ($228,310 + $452,400 + $678,600) 1,359,310

Normal cost of sales $4,140,740

12-30 Job-Order Costing Comparison of Overhead Rates (20 minutes)

1 $8.90, $1,780,000/200,000 Note that all overhead must be included here Students frequently use only the cost applicable to the single driver.2

Job XT-56 Job XR-23 Job XY-67 Totals Overhead applied at $8.90 $ 75,650 $ 40,050 $ 25,810 $141,510Materials, given 21,000 82,000 39,000 142,000Direct labor, given 16,000 13,000 18,000 47,000 Total costs of jobs $112,650 $135,050 $82,810 $330,510

3 $0.30 per material dollar and $6.50 per machine hour

Machine-related at $6.50** 55,250 29,250 18,850

103,350 Total applied overhead $61,550 $ 53,850 $30,550

$145,950 Materials, given 21,000 82,000 39,000 142,000 Direct labor, given 16,000 13,000 18,000 47,000 Total costs of jobs $98,550 $148,850 $87,550

Job XT-56 shows a lower cost because it has high machine time and

relatively little material cost The $2.40 decrease in the material rate (from $8.90 to $6.50) affected the cost of XT-56 considerably more than the adding of $0.30 per material dollar The cost of Job XR-23 increased because

it has so much material that the added overhead applied exceeded the

reduction of machine-related overhead applied The cost of XY-67 also rose That job is similar to XR-23 except that it is smaller in total

All three jobs showed significant changes The question is whether the refinement will enable managers to make better decisions, sufficiently better

to repay the increased bookkeeping cost

12-31 Job-Order Costing for a Service Business (20 minutes)

Note to the Instructor: Westlake combines an overhead and profit rate, which might confuse students It might be helpful to point out that Westlake

is not a public company and so does not have to abide by GAAP

We used "all other jobs" because a tax firm will have a multitude of clients and it is obviously impracticable, and undesirable, for students to repeat calculations over and over We gave the jobs names that you might wish to use to explain the sorts of things that tax specialists do

1 $30 for seniors, $60,000/2,000, $15 for juniors, $30,000/2,000

2 $44 per hour, ($8,200,000 + $600,000)/200,000

3

Walton Estate GHK, Inc All

Planning Federal Return Other JobsSenior accountant cost* $ 1,200 $ 600 $ 90,000 Junior accountant cost** 900 1,500 180,000 Overhead/profit at $44/hour*** 4,400 5,280 660,000 Total price $ 6,500 $7,380 $930,000

* $30 x 40, 20, and 3,000

** $15 x 60, 100, and 12,000

*** $44 x (40 + 60), (20 + 100), (3,000 + 12,000)

4 Westlake's system differs only in that it combines profit with overhead

A manufacturer could do the same for internal purposes, though not for tax and GAAP purposes Westlake's method makes sense in that it allows the company to determine what its charges must be to achieve its profit

Overhead applied at $15 x DLH $30,000 $60,000 $97,500 $22,500

$210,000

2 $2,000 underapplied ($212,000 incurred - $210,000 applied)

3 Cost of goods sold = $609,500, ending inventory = $43,500 (cost of 4-25) Total costs of jobs for March

4-22 4-23 4-24 4-25 Total Materials $ 11,000 $ 46,000 $ 60,000 $ 9,000