Solution Manual Cost Aaccounting 14e by Carter Ch05 PDF

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To download more slides, ebook, solutions and test bank, visit CHAPTER 5 DISCUSSION QUESTIONS The cost attached to a product is an amount assigned the costing methods amount controlled the circumstances, assumptions, and limitations of the method under which it was compiled. Product costs are compos...

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CHAPTER 5 DISCUSSION QUESTIONS

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 standards, 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 management 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 purposes 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 production of like units, the center of attention is the individual process (usually a department).

5-1

Q5-4.

Q5-5.

Q5-6.

Q5-7.

Q5-8.

The unit costs by cost category as well as total unit cost for each process (department) are necessary for product costing purposes. A job order cost sheet is used: (a) to keep track of the direct materials and direct labor used on a job plus an appropriate share of factory overhead; (b) to compare actual costs to estimated costs; (c) as a subsidiary ledger for the work in process account. The work in process account is a control account in the general ledger, reflecting total costs assigned or applied to jobs. The individual job cost sheets form the work in process account’s subsidiary ledger, indicating the direct materials, direct labor, and factory overhead charged to each job. Job order cost sheets serve a control function. Comparisons are made between estimates of job costs and costs actually accumulated for the job. In addition, cost control is enhanced by accumulating direct materials and labor as well as factory overhead costs by cost centers or departments, and by comparing the actual costs to cost center budgets. Actual factory overhead consists of the dayby-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 estimated overhead by total estimated number of units (or any other appropriate base). The difference between actual and applied factory overhead is the over- or underapplied factory overhead. 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.

5-2

Chapter 5

EXERCISES E5-1

E5-2

E5-3 (1)

Job 5575 Direct material............................................................... Direct labor.................................................................... Applied overhead ......................................................... Total job cost .......................................................

$24,070 22,832 10,024 $56,926

Job 5576 Direct material............................................................... Direct labor.................................................................... Applied overhead ......................................................... Cost to date..........................................................

$ 4,420 2,600 2,000 $ 9,020

The amount of direct labor in finished goods: Finished goods ............................................................. Materials included in finished goods ($15,500 – $3,200) Direct labor and factory overhead in finished goods

$37,500 12,300 $25,200

Factory overhead charged to work in process $11, 800 = = .8 Direct labor charged to wo ork in process $14, 750 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)

E5-4 (1)

The amount of factory overhead in finished goods: X = $14,000 .8X = .8($14,000) .8X = $11,200 factory overhead in finished goods December materials used: Materials inventory, December 1............... Materials purchased ................................... $87,000 Freight-in .................................................... 1,500 Materials available ...................................... Materials inventory, December 31.............

$ 8,000 88,500 $96,500 6,500 $90,000

Chapter 5

5-3

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)) ........................................... Direct labor ........................................................................................... Factory overhead (600 machine hours @$100) ................................ Total manufacturing cost .................................................................... Add work in process, December 1: Direct Material, $2.40 × 3,000 = $7,200 Direct Labor, $.80 × 3,000 = 2,400 Overhead, $100 × 48 machine hours = 4,800

$ 90,000 30,000 60,000 $180,000

14,400 $194,400 9,600 $184,800

Less work in process, December 31 (requirement (2)) ....................

(4)

(5)

Finished goods, December 31: Direct materials .................................................................................. Direct labor ......................................................................................... Factory overhead (60 machine hours @$100) ................................

December cost of goods sold: Cost of goods manufactured (requirement (3)) .............................. Add finished goods, December 1 ..................................................... Cost of goods available for sale....................................................... Less finished goods, December 31 (requirement (4)) ....................

$

5,000 3,000 6,000 14,000

$184,800 12,000 $196,800 14,000 $182,800

CGA-Canada (adapted). Reprint with permission.

5-4

Chapter 5

E5-5 Materials: Beginning inventory ............................................ Purchases............................................................. Materials available for use.................................. Less ending inventory ........................................ Materials used...................................................... Direct labor (($686 – $326) ÷ 1.6) ................................ Factory overhead ($225 × .6) ....................................... Total manufacturing cost............................................. Add work in process, beginning inventory................ Less work in process, ending inventory .................... Cost of goods manufactured ...................................... Add finished goods, beginning inventory.................. Cost of goods available for sale ................................. Less finished goods, ending inventory...................... Cost of goods sold....................................................... E5-6 (1)

$ 75 336 (1) $411 85 $326 225 (2) 135 $686 80 $766 30 $736 (3) 90 $826 110 $716 (4)

Materials ...................................................................... Direct labor .................................................................. Factory overhead: Molding (1,000 DLH × $2.70)............................... Decorating ($6,000 × 35%) .................................. Estimated cost to produce ..........................................

$13,000 15,000

(2)

Materials ...................................................................... Direct labor.................................................................... Estimated prime cost ...................................................

$13,000 15,000 $28,000

(3)

Direct labor.................................................................... Factory overhead ($2,700 + $2,100) ............................ Estimated conversion cost ..........................................

$15,000 4,800 $19,800

(4)

Estimated cost to produce (requirement (1)) ............ Markup ($32,800 × 35%) ............................................... Bid price ......................................................................

$32,800 11,480 $44,280

2,700 2,100 $32,800

Chapter 5

5-5

E5-7 (1)

KEMP MACHINE WORKS Job Order Cost Sheet—Job 909

Direct Materials Date Issued Amount 9/14 $ 600 9/20 331 9/22 200 $1,131

(2)

Direct Labor Date (Week of) 9/20 9/26

Hours 90 70

Rate $6.20 7.30

Cost $ 558 511

Applied Factory Overhead Date (Week of) Hours Rate Cost 9/20 10 $80 $800

$1,069

$800

Sales price of Job 909, contracted a markup of 65% of cost: Direct materials.................................................... $1,131 Direct labor........................................................... 1,069 Applied factory overhead ................................... 800 Total factory cost................................................. $3,000 Markup 65% of production cost......................... 1,950 Sales price............................................................ $4,950

E5-8 (1) (2) (3) (4)

Work in Process (35,000 + 45,000 + 55,000) .............. Materials ...............................................................

Debit 135,000

Credit 135,000

Work in Process (45,000 + 40,000 + 35,000) .............. Payroll ...................................................................

120,000

Work in Process (36,000 + 32,000 + 28,000) .............. Factory Overhead Control ..................................

96,000

120,000

Finished Goods (156,000 + 132,000)........................... 288,000 Work in Process...................................................

96,000 288,000

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E5-9

Chapter 5

(a) (b)

(c)

(d)

(e)

(f) (g)

Materials ............................................................... 35,000 Accounts Payable.......................................

35,000

Work in Process................................................... 8,000 Factory Overhead Control .................................. 2,000 Materials ......................................................

10,000

Payroll................................................................... 9,400 Accrued Payroll ..........................................

9,400

Work in Process................................................... 7,600 Factory Overhead Control .................................. 1,800 Payroll ..........................................................

9,400

Factory Overhead Control .................................. 1,200 Accumulated Depreciation— Factory Equipment ......................................

1,200

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

Factory Overhead Control .................................. 1,250 Accounts Payable.......................................

1,250

Accounts Receivable .......................................... 5,400 Sales ............................................................

5,400

Cost of Goods Sold............................................. 4,500 Finished Goods ..........................................

4,500

E5-10 Materials Inv. 10,000 WIP Purch. 138,000 148,000 38,000

Inv. WIP

Finished Goods 50,000 CGS 300,000 350,000 145,000

110,000

205,000

Work in Process Inv. 30,000 FG Materials 110,000 Factory overhead 90,000 Labor 180,000 410,000 110,000 Cost of Goods Sold FG 205,000

300,000

CGA-Canada (adapted). Reprint with permission.

Chapter 5

5-7

E5-11 (1)

(2)

Work in Process............................................................ 21,112.50 Materials ............................................................... Payroll ................................................................... Applied Factory Overhead..................................

11,250.00 3,945.00 5,917.50

Finished Goods ............................................................ 21,112.50 Work in Process...................................................

21,112.50

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Chapter 5

PROBLEMS P5-1 (1)

(2)

Total cost of work put into process: Materials ............................................................... Labor: Grinding (8,000 hrs. × $5.60) ................. Machining (4,600 hrs. × $6) ................... Factory overhead: Grinding (8,000 hrs. × $6)..... Machining (4,600 hrs. × $8) ..

Cost of goods manufactured: Total cost of work put into process (from requirement (1)) ......................................... Work in process, beginning inventory .............. Work in process, ending inventory....................

(3)

Cost of goods sold: Cost of goods manufactured (from requirement (2)) ......................................... Finished goods, beginning inventory................ Finished goods, ending inventory .....................

(4)

(5)

Conversion cost: Labor: Grinding (8,000 hrs. × $5.60) ................. Machining (4,600 hrs. × $6) ................... Factory overhead: Grinding (8,000 hrs. × $6)..... Machining (4,600 hrs. × $8) ..

Cost of materials purchased: Materials put into process.................................. Add materials, ending inventory ........................ Less materials, beginning inventory .................

$ 60,000 44,800 27,600 48,000 36,800 $217,200

$217,200 15,000 $232,200 17,600 $214,600

$214,600 22,000 $236,600 17,000 $219,600

$ 44,800 27,600 48,000 36,800 $157,200

$ 60,000 18,000 $ 78,000 19,000 $ 59,000

Chapter 5

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P5-2 (1)

Materials 4/1 2,700 Indirect Purchases 11,550 Material Direct 14,250 Material 1,755

* $9,705 =

2,790 9,705* 12,495

$2,450 + $970 + $6,285 (Job 207) (Job 204) (Jobs 202, 203, 205, & 206)

Work in process ending inventory consists of jobs 203 Job 203 Direct materials ........................... ($1,480 + $ 555) Direct labor ................................. ( 1,000 + 1,500) Applied overhead ........................ ( 800 *+ 1,200) Total ....................................... ($3,280 + $3,255)

& 206: Job 206 Total + $1,980 = $ 4,015 + 1,000 = 3,500 + 800 = 2,800 + $3,780 = $10,315

* Applied overhead is 80% of direct labor cost. (2)

Work in Process............................................................ 4,850 Materials ............................................................... Payroll ................................................................... Applied Overhead................................................

1,250 2,000 1,600

Finished Goods (4,700 + 1,250 + 2,000 + 1,600) ........ 9,550 Work in Process...................................................

9,550

Cost of Goods Sold...................................................... 9,550 Finished Goods ...................................................

9,550

Accounts Receivable ................................................... 14,325 Sales .....................................................................

14,325

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Chapter 5

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 ................................................. Job 204 ................................................. Job 207 ................................................. Total .........................................

(4)

9,550 (see requirement (2)) 6,930 5,870 $28,630

Actual overhead (1,375 + 2,500 + 2,700 + 2,790) ....... Applied overhead: Jobs 202, 203, 205, 206 (330* hours × $16) ....... Job 207 ................................................................. Job 204 ($1,760 – $960) ...................................... Total applied overhead............................... Underapplied.................................................................

$9,365 $ 5,280 1,520 800 7,600 $1,765

*100 + 75 + 105 + 50 (5)

Jobs 201, 202, and 205 were sold. Their costs are $8,450 + $9,550 + $6,280 = $24,280. Sales ($24,280 × 1.5) .................................................... $36,420 Cost of goods sold....................................................... (24,280) Underapplied overhead................................................ (1,765) Gross profit for April .................................................... $10,375

P5-3 Bal. (i)

Finished Goods 80,000 320,000 400,000 40,000

360,000

Bal. (c) (e)

Work in Process 20,000 (i) 150,000 80,000 100,000 * 350,000 30,000

320,000

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

Chapter 5

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P5-3 (Concluded)

Bal. (b)

(d)

(f)

Bal. (a)

Materials 15,000 (e) 100,000 115,000 23,000

Cost of Goods Sold 80,000 12,000 92,000

360,000

Factory Overhead Control 60,000 12,000 75,000 147,000

Applied Factory Overhe...