Management accounting week 3 solution PDF

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Hahn Company uses a job-order costing system. Its plantwide predetermined overhead rate uses direct labor-hours as the allocation base. The company pays its direct laborers $13.50 per hour. During the year, the company started and completed only two jobs—Job Alpha, which used 68,700 direct laborhours, and Job Omega. The job cost sheets for the these two jobs are shown below: Job Alpha Direct materials Direct labor Manufacturing overhead applied Total job cost

Job Omega Direct materials Direct labor Manufacturing overhead applied Total job cost

? ? ? $1,722,000

$237,050 368,550 177,450 $783,050

Required: 1. Calculate the plantwide predetermined overhead rate. 2. Complete the job cost sheet for Job Alpha. 1. Step 1: The total direct labor-hours required for Job Omega:

Direct labor cost (a) Direct labor wage rate per hour (b) Total direct labor hours worked (a) ÷ (b)

Step 2: Derive the plantwide predetermined overhead rate:

$368,550 $ 13.50 27,300

Manufacturing overhead applied to Job Omega (a) Direct labor hours worked on Job Omega (b) Plantwide predetermined overhead rate (a) ÷ (b)

$177,450 27,300 $ 6.50 per DLH

2. Job Alpha: Direct materials is a plug figure, since the Total Job Cost is given and the Direct Labor and Manufacturing Overhead Applied can be calculated below. Direct labor (68,700 DLHs × $13.50 per DLH) = $927,450 Manufacturing overhead applied ($6.50 per DLH × 68,700 DLHs) = $446,550

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 157,000 production Fixed manufacturing overhead cost $660,000 Variable manufacturing overhead cost per machine$ 4.40 hour

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 Direct labor cost Machine-hours used

$320 $250 37

Compute the total manufacturing cost assigned to Job 400. 3. If Job 400 includes 50 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? 1. The estimated total manufacturing overhead cost is computed as follows:

Y = $660,000 + ($4.40 per MH)(157,000 MHs)

Estimated Estimated $4.40 per Estimated

fixed manufacturing overhead variable manufacturing overhead: MH × 157,000 MHs total manufacturing overhead cost

$

660,000

690,800 $1,350,800

The plantwide predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a) Estimated total machine-hours (b) Predetermined overhead rate (a) ÷ (b)

$1,350,800 157,000 MHs $ 8.60 per MH

2. Total manufacturing cost assigned to Job 400:

Direct materials Direct labor Manufacturing overhead applied ($8.60 per MH × 37 MHs) Total manufacturing cost

3.

$ 320 250 318 $ 888

The unit product cost of Job 400 is computed as follows:

Total manufacturing cost (a) Number of units in the job (b) Unit product cost (a) ÷ (b)

$ 888 50 $ 18

4. The selling price per unit is computed as follows:

Total manufacturing cost Markup (120% of manufacturing cost) Selling price for Job 400 (a) Number of units in Job 400 (b) Selling price per unit (a) ÷ (b)

$

888 1,066 $ 1,954 50 $ 39

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$8,710,000 Fixed overhead cost $5,226,000

Variable overhead cost per direct labor-dollar $

0.08

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 $1,426,000 Direct labor cost$2,613,000

Compute the total job cost for this particular film. Explanation

1. The estimated total overhead cost is computed as follows: Y = $5,226,000 + ($0.08 per DL$)($8,710,000)

Estimated fixed overhead $5,226,000 Estimated variable overhead: $0.08 per DL$ × $8,710,000 DL$ 696,800 Estimated total overhead cost $5,922,800

The predetermined overhead rate is computed as follows:

Estimated total overhead (a) $5,922,800 Estimated total direct labor-dollars (b) 8,710,000 DL$ Predetermined overhead rate (a) ÷ (b) $ 0.68 per DL$

2. Overhead applied ($0.68 per DL$ × $2,613,000) = $1,776,840

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3] Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated 150,000 production Machine-hours required to support estimated 75,000 production Fixed manufacturing overhead cost $420,000 Variable manufacturing overhead cost per direct $ 4.60 labor-hour Variable manufacturing overhead cost per machine-hour $ 9.20

During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials Direct labor cost Direct labor-hours Machine-hours

$195 $288 15 5

Required: 1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? (Round your intermediate calculations to 2 decimal places. Round your Predetermined Overhead Rate answers to 2 decimal places and all other answers to the nearest whole dollar.) Explanation 1. a. The estimated total overhead cost is computed as follows: Y = $420,000 + ($4.60 per DLH)(150,000 DLHs)

Estimated fixed manufacturing overhead $ 420,000 Estimated variable manufacturing overhead: $4.60 per DLH × 150,000 DLH 690,000 Estimated total manufacturing overhead cost $1,110,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a) Estimated total direct labor-hours (b) Predetermined overhead rate (a) ÷ (b)

b.

$1,110,000 150,000 DLH per $ 7.40 DLH

Total manufacturing cost assigned to Job 550:

Direct materials Direct labor Manufacturing overhead applied ($7.40 per DLH × 15 DLH) Total manufacturing cost of Job 550

$195 288 111 $594

c. The selling price for Job 550 is computed as follows:

Total manufacturing cost Markup (200%) Selling price

Job 550 $ 594 1,188 $1,782

2. a. The estimated total overhead cost is computed as follows: Y = $420,000 + ($9.20 per MH)(75,000 MHs)

Estimated fixed manufacturing overhead $ 420,000 Estimated variable manufacturing overhead: $9.20 per MH × 75,000 MHs 690,000 Estimated total manufacturing overhead cost $1,110,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a) Estimated total machine-hours (b) Predetermined overhead rate (a) ÷ (b)

$1,110,000 75,000 MHs $ 14.80 per MH

b. Total manufacturing cost assigned to Job 550:

Direct materials Direct labor Manufacturing overhead applied ($14.80 per MH × 5 MH) Total manufacturing cost of Job 550

$195 288 74 $557

2. c. The selling price for Job 550 is computed as follows:

Total manufacturing cost Markup (200%) Selling price

Next Visit question map Question 4 of 14 Total4 of

Job 550 $ 557 1,114 $1,671

Problem 2-18 Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3] Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room. The company applies all of its overhead costs to jobs based on direct laborhours. At the beginning of the year, it made the following estimates: Direct labor-hours required to support estimated 44,000 output Fixed overhead cost $748,000 Variable overhead cost per direct labor-hour $ 1.00

Required: 1. Compute the predetermined overhead rate. 2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job: Direct materials Direct labor cost Direct labor-hours used

$633 $231 2

Compute Mr. Wilkes’ total job cost. 3. If Speedy establishes its selling prices using a markup percentage of 30% of its total job cost, then how much would it have charged Mr. Wilkes? Explanation 1. The estimated total overhead cost is computed as follows:

Y = $748,000 + ($1.00 per DLH)(44,000 DLHs)

Estimated fixed overhead Estimated variable overhead: $1.00 per DLH × 44,000 DLHs Estimated total overhead cost

$748,000 44,000 $792,000

The predetermined overhead rate is computed as follows:

Estimated total overhead (a) Estimated total direct labor-hours (b) Predetermined overhead rate (a) ÷ (b)

$792,000 44,000 $

18.00

DLHs per DLH

2. Overhead applied ($18.00 per DLH × 2 DLH) = $36

3. The price charged to Mr. Wilkes is computed as follows:

Total manufacturing cost $ 900 Markup (30%) 270 Selling price $1,170

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: Department Molding Painting 35,000 52,300 85,000 33,000 $170,000 $455,010

Direct labor-hours Machine-hours Fixed manufacturing overhead cost Variable manufacturing overhead per $ machine-hour Variable manufacturing overhead per direct labor-hour

2.80 - $

4.80

Job 205 was started on August 1 and completed on August 10. The company's cost records show the following information concerning the job: Department MoldingPainting Direct labor-hours 72 128 Machine-hours 320 67 Direct materials $ 942 $ 1,120 Direct labor cost $ 740 $ 1,000

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-a. What would be the total manufacturing cost recorded for Job 205? 3-b. If the job contained 23 units, what would be the unit product cost? Garrison 16e Rechecks 2017-09-18, 2018-08-21 Explanation 1.

Molding Department: The estimated total manufacturing overhead cost in the Molding Department is computed as follows:

Y = $170,000 + $2.80per MH × 85,000 MHs

Estimated fixed manufacturing overhead $170,000 Estimated variable manufacturing overhead: $2.80 per MH × 85,000 MHs 238,000 Estimated total manufacturing overhead cost $408,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing $408,000 overhead (a) Estimated total machine-hours (b) 85,000 Predetermined overhead rate (a) ÷ (b) $ 4.80

MHs per MH

Painting Department: The estimated total manufacturing overhead cost in the Painting Department is computed as follows:

Y = $455,010 + $4.80 per DLH × 52,300 DLHs

Estimated fixed manufacturing overhead $455,010 Estimated variable manufacturing overhead: $4.80 per DLH × 52,300 DLHs 251,040 Estimated total manufacturing overhead cost $706,050

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead $706,050 (a) Estimated total DLHs (b) 52,300 Predetermined overhead rate (a) ÷ (b)

$

13.50

DLHs per DLH

2.

Molding Department overhead applied: 320 machine-hours × $4.80 per machine$1,536 hour Painting Department overhead applied: 128 direct labor-hours × $13.50 per DLH 1,728 Total overhead cost $3,264

3-a. Total cost of Job 205:

Direct materials Direct labor Manufacturing overhead applied Total manufacturing cost

Molding Dept. $ 942 740

Painting Dept. $ 1,120 1,000

Total $ 2,062 1,740

1,536

1,728

3,264

3,848

$ 7,066

$

3,218

$

3-b. Unit product cost for Job 205:

Total manufacturing cost (a) Number of units in the job (b) Unit product cost (a) ÷ (b)

$ 7,066 23 $307.22

units per

unit

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: Sales $653,000 Direct labor cost $ 81,000 Raw material purchases $133,000 Selling expenses $100,000 Administrative expenses $ 49,000 Manufacturing overhead applied to work in process$206,000 Actual manufacturing overhead costs $230,000

Inventories Beginning Ending Raw materials $ 8,800 $10,600 Work in process$ 5,100 $20,700 Finished goods $ 79,000 $26,000

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. rev: 11_05_2018_QC_CS-146504 Explanation 2. Actual manufacturing overhead cost of $230,000 ‒ Manufacturing overhead applied of $206,000 = Underapplied overhead of $24,000.

3. Cost of goods sold ($455,600 + $24,000) = $479,600

Problem 3-12 Predetermined Overhead Rate; Disposing of Underapplied or Overapplied Overhead [LO3-4] Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The predetermined overhead rate was based on a cost formula that estimates $1,207,000 of total manufacturing overhead for an estimated activity level of 71,000 machinehours. During the year, a large quantity of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year: Machine-hours Manufacturing overhead cost Inventories at year-end: Raw materials Work in process (includes overhead applied of $46,750) Finished goods (includes overhead applied of $187,000) Cost of goods sold (includes overhead applied of $701,250)

55,000 $1,169,000 $

11,000

$

100,000

$

400,000

$1,500,000

Required: 1. Compute the underapplied or overapplied overhead. 2. Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. 3. Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 4. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold? Garrison 16e Rechecks 2017-10-10

Explanation 1. The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a) $1,207,000 Estimated total machine-hours (b) 71,000 Predetermined overhead rate (a) ÷ (b)

$

17

hours per hour

Actual manufacturing overhead cost $ 1,169,000 Manufacturing overhead cost applied to work in process during the year: 55,000 actual MHs × $17 per MH 935,000 Underapplied overhead cost $ 234,000

3. The under applied overhead would be allocated using the following percentages:

Overhead applied during the year in: Work in process $ 46,750 5 Finished goods 187,000 20 Cost of goods sold 701,250 75 Total $ 935,000 100

% % % %

The entry to record the allocation of the underapplied overhead would be:

Work in process (5% × $234,000) Finished goods (20% × $234,000) Cost of goods sold (75% × $234,000) Manufacturing overhead

11,700 46,800 175,500 234,000

4. Comparing the two methods:

Cost of goods sold if the underapplied overhead is closed to cost of goods sold ($1,500,000 + $234,000)$1,734,000 Cost of goods sold if the underapplied overhead is closed to Work in Process, Finished Goods, and Cost of Goods Sold ($1,500,000 + $175,500) 1,675,500 Difference in cost of goods sold $ 58,500

Thus, net operating income will be $58,500 greater if the underapplied overhead is closed to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold.

Problem 3-13 Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3] Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials): Selling expenses $217,000 Purchases of raw materials $269,000 Direct labor ? Administrative expenses $156,000 Manufacturing overhead applied to work in process$371,000 Actual manufacturing overhead cost $356,000

Inventory balances at the beginning and end of the year were as follows: Beginning of YearEnd of Year Raw materials $ 54,000 $ 34,000 Work in process ? $ 32,000

Finished goods

$

39,000

?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale t...