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LABMIS

Contents CHAPTER 1 .................................................................................................................................................... 4 CHAPTER 2 .................................................................................................................................................... 5 MATH ........................................................................................................................................................ 5 EXERCISE 2–11 .......................................................................................................................................... 5 EXERCISE 2–12 .......................................................................................................................................... 8 EXERCISE 2–13 ........................................................................................................................................ 10 EXERCISE 2–14 ........................................................................................................................................ 12 EXERCISE 2–15 ........................................................................................................................................ 14 PROBLEM 2–19 ....................................................................................................................................... 19 CHAPTER 3 .................................................................................................................................................. 21 EXERCISE 3–3 .......................................................................................................................................... 21 EXERCISE 3–4 .......................................................................................................................................... 23 EXERCISE 3–6 .......................................................................................................................................... 24 EXERCISE 3–7 .......................................................................................................................................... 27 PROBLEM 3–14 ....................................................................................................................................... 29 CHAPTER 5 .................................................................................................................................................. 33 EXERCISE 5–1 .......................................................................................................................................... 33 EXERCISE 5–2 .......................................................................................................................................... 35 EXERCISE 5–3 .......................................................................................................................................... 37 EXERCISE 5–4 .......................................................................................................................................... 38 EXERCISE 5–5 .......................................................................................................................................... 39 EXERCISE 5–6 .......................................................................................................................................... 41 EXERCISE 5–7 .......................................................................................................................................... 43 EXERCISE 5–8 .......................................................................................................................................... 44 EXERCISE 5–9 .......................................................................................................................................... 45 EXERCISE 5–10 ........................................................................................................................................ 47 PROBLEM 5–21 ....................................................................................................................................... 48 EXERCISE 5–13 ........................................................................................................................................ 50 EXERCISE 5–16 ........................................................................................................................................ 52 EXERCISE 5–18 ........................................................................................................................................ 54 PROBLEM 5–23 ....................................................................................................................................... 56

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LABMIS CHAPTER 6 .................................................................................................................................................. 58 EXERCISE 6–9 .......................................................................................................................................... 58 EXERCISE 6–10 ........................................................................................................................................ 60 EXERCISE 6–11 ........................................................................................................................................ 62 EXERCISE 6–12 ........................................................................................................................................ 64 EXERCISE 6–13 ........................................................................................................................................ 66 EXERCISE 6–14 ........................................................................................................................................ 67 EXERCISE 6–16 ........................................................................................................................................ 69 EXERCISE 6–17 ........................................................................................................................................ 72 PROBLEM 6–18 ....................................................................................................................................... 74 CHAPTER 7 .................................................................................................................................................. 77 MATH ...................................................................................................................................................... 77 EXERCISE 7–4 .......................................................................................................................................... 77 EXERCISE 7–10 ........................................................................................................................................ 79 EXERCISE 7–15 ........................................................................................................................................ 82 CHAPTER 12 ................................................................................................................................................ 85 MATH ...................................................................................................................................................... 85 EXERCISE 12–2 ........................................................................................................................................85 EXERCISE 12–3 ........................................................................................................................................87 EXERCISE 12–9 ........................................................................................................................................89 EXERCISE 12–10 ......................................................................................................................................91 EXERCISE 12–14 ......................................................................................................................................92 EXERCISE 12–15 ......................................................................................................................................94 EXERCISE 12–16 ......................................................................................................................................96 EXERCISE 12–17 ......................................................................................................................................98

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LABMIS E-3.3, 3.4, 3.6, 3.7, P3.14 E-6.9 P 6-18 E 7.15 Basic math: E5.1 to E5.10 Important types for real life scenario: E5.13, E5.16, E5.18 P5.21, P5.23

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CHAPTER 1 DIFFERENCE BETWEEN Managerial Accounting and Financial Accounting

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CHAPTER 2 MATH EXERCISE 2–11 Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:

Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. Required: 1. Assuming the estimated variable manufacturing overhead cost per unit is $2.00, what must be the estimated total fixed manufacturing overhead cost per quarter? 2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter? 3. What is causing the estimated unit product cost to fluctuate from one quarter to the next? 4. How would you recommend stabilizing the company’s unit product cost? Support your answer with computations.

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LABMIS SOLUTION:

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EXERCISE 2–12 Computing Predetermined Overhead Rates and Job Costs LO2–1, LO2–2, LO2–3 Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: Machine-hours required to support estimated production . . . . . . . . . . . 100,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000 Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $3.00 Required: 1. Compute the plantwide predetermined overhead rate. 2. During the year, Job 400 was started and completed. The following information was available with respect to this job: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $210 Machine-hours used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Compute the total manufacturing cost assigned to Job 400. 3. If Job 400 includes 52 units, what is the unit product cost for this job? 4. If Moody uses a markup percentage of 120% of its total manufacturing cost, then what selling price per unit would it have established for Job 400? 5. If Moody hired you as a consultant to critique its pricing methodology, what would you say?

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EXERCISE 2–13 Departmental Predetermined Overhead Rates LO2–1, LO2–2, LO2–4 White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates:

Required: 1. Compute the predetermined overhead rate for each department. 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following:

Using the predetermined overhead rates that you computed in (1) above, compute the total manufacturing cost assigned to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct laborhours, rather than using departmental rates? Explain. No computations are necessary.

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LABMIS SOLUTION:

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EXERCISE 2–14 Job-Order Costing for a Service Company LO2–1, LO2–2, LO2–3 Yancey Productions is a film studio that uses a job-order costing system. The company’s direct materials consist of items such as costumes and props. Its direct labor includes each film’s actors, directors, and extras. The company’s overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. At the beginning of the year, Yancey made the following estimates: Direct labor-dollars to support all productions . . . . . . $8,000,000 Fixed overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,800,000 Variable overhead cost per direct labor-dollar . . . . . . $0.05 Required: 1. Compute the predetermined overhead rate. 2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,259,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,400,000 Compute the total job cost for this particular film. SOLUTION:

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EXERCISE 2–15 Plantwide and Departmental Predetermined Overhead Rates; Job Costs LO2–1, LO2–2, LO2–3, LO2–4 Delph Company uses a job-order costing system and has two manufacturing departments—Molding and Fabrication. The company provided the following estimates at the beginning of the year:

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:

Delph had no underapplied or overapplied manufacturing overhead during the year. Required: 1. Assume Delph uses a plantwide predetermined overhead rate based on machine-hours. a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost assigned to Job D-70 and Job C-200. c. If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C-200? d. What is Delph’s cost of goods sold for the year? 2. Assume Delph uses departmental predetermined overhead rates based on machine-hours. a. Compute the departmental predetermined overhead rates. b. Compute the total manufacturing cost assigned to Job D-70 and Job C-200. c. If Delph establishes bid prices that are 150% of total manufacturing costs, what bid prices would it have established for Job D-70 and Job C-200? 14

LABMIS d. What is Delph’s cost of goods sold for the year? 3. What managerial insights are revealed by the computations that you performed in this problem? (Hint: Do the cost of goods sold amounts that you computed in requirements 1 and 2 differ from one another? Do the bid prices that you computed in requirements 1 and 2 differ from one another? Why?)

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PROBLEM 2–19 Multiple Predetermined Overhead Rates; Applying Overhead LO2–1, LO2–2, LO2–4 High Desert Potteryworks makes a variety of pottery products that it sells to retailers. The company uses a job-order costing system in which departmental predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based on machine-hours, and the rate in the Painting Department is based on direct labor-hours. At the beginning of the year, the company provided the following estimates:

Job 205 was started on August 1 and completed on August 10. The company’s cost records show the following information concerning the job:

Required: 1. Compute the predetermined overhead rates used in the Molding Department and the Painting Department. 2. Compute the total overhead cost applied to Job 205. 3. What would be the total manufacturing cost recorded for Job 205? If the job contained 50 units, what would be the unit product cost?

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CHAPTER 3 EXERCISE 3–3 Schedules of Cost of Goods Manufactured and Cost of Goods Sold LO3–3 Primare Corporation has provided the following data concerning last month’s manufacturing operations.

Required: 1. Prepare a schedule of cost of goods manufactured for the month. 2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.

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EXERCISE 3–4 Underapplied and Overapplied Overhead LO3–4 Osborn Manufacturing uses a predetermined overhead rate of $18.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $218,400 of total manufacturing overhead for an estimated activity level of 12,000 direct labor-hours. The company actually incurred $215,000 of manufacturing overhead and 11,500 direct laborhours during the period. Required: 1. Determine the amount of underapplied or overapplied manufacturing overhead for the period. 2. Assume that the company’s underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company’s gross margin? By how much?

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EXERCISE 3–6 Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement LO3–3 The following data from the just completed year are taken from the accounting records of Mason Company:

Required: 1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials. 2. Prepare a schedule of cost of goods sold. Assume that the company’s underapplied or overapplied overhead is closed to Cost of Goods Sold. 3. Prepare an income statement.

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EXERCISE 3–7 Applying Overhead; Cost of Goods Manufactured LO3–3, LO3–4 The following cost data relate to the manufacturing activities of Chang Company during the just completed year:

The company uses a predetermined overhead rate of $25 per machine-hour to apply overhead cost to jobs. A total of 19,400 machine-hours were used during the year. Required: 1. Compute the amount of underapplied or overapplied overhead cost for the year. 2. Prepare a schedule of cost of goods manufactured for the year

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PROBLEM 3–14 Schedule of Cost of Goods Manufactured; Overhead Analysis LO3–3, LO3–4 Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased). Its predetermined overhead rate ...