Week 3 QUIZ Manangement Accounting PDF

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Newhard Company assigns overhead cost to jobs on the basis of 118% of direct labor cost. The job cost sheet for Job 313 includes $19,392 in direct materials cost and $10,600 in direct labor cost. A total of 1,250 units were produced in Job 313. Required: a. What is the total manufacturing cost assigned to Job 313? b. What is the unit product cost for Job 313? Explanation a. & b.

Direct material $19,392 Direct labor 10,600 Manufacturing overhead applied: $10,600 × 118% 12,508 Total manufacturing cost $42,500 Total manufacturing cost (a) Number of units in job (b) Unit product cost (a) ÷ (b)

$42,500 1,250 $ 34

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:

Direct materials Direct labor Manufacturing overhead Total manufacturing costs (a) Number of units to be produced (b) Estimated unit product cost (a) ÷ (b)

Quarter First Second Third Fourth $280,000 $140,000 $ 70,000 $210,000 80,000 40,000 20,000 60,000 230,000 206,000 194,000 ? $590,000 $386,000 $284,000 $ 120,000 $

4.92 $

60,000 6.43 $

30,000 9.47 $

? 90,000 ?

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 $0.40, 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. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year. Garrison 16e Rechecks 2018-08-21 Explanation 1. The estimated total fixed manufacturing overhead can be computed using the data from any of quarters 1-3. For illustrative purposes, we’ll use the first quarter as follows:

Total overhead cost (First quarter) Variable cost element ($0.40 per unit × 120,000 units) Fixed cost element

$230,000 48,000 $182,000

2. The fixed and variable cost estimates from requirement 1 can be used to estimate the total manufacturing overhead cost for the fourth quarter as follows: Y = $182,000 + ($0.40 per unit)(90,000 units)

Estimated fixed manufacturing overhead $182,000 Estimated variable manufacturing overhead $0.40 per unit × 90,000 units 36,000 Estimated total manufacturing overhead $218,000 cost

The estimated unit product cost for the fourth quarter is computed as follows:

Direct materials $210,000 Direct labor 60,000 Manufacturing overhead $218,000 Total manufacturing costs (a) $488,000 Number of units to be produced (b) 90,000

Unit product cost (rounded) (a) ÷ $ (b)

5.42

3. The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the fixed overhead is spread over fewer units.

4. The unit product cost can be stabilized by using a predetermined overhead rate that is based on expected activity for the entire year. The cost formula created in requirement 1 can be adapted to compute the annual predetermined overhead rate. The annual fixed manufacturing overhead is $728,000 ($182,000 per quarter × 4 quarters). The variable manufacturing overhead per unit is $0.40. The cost formula is as follows: Y = $728,000 + 0.40 per unit × 300,000 units

Estimated fixed manufacturing overhead $728,000 Estimated variable manufacturing overhead $0.40 per unit × 300,000 units 120,000 Estimated total manufacturing overhead cost $848,000

The annual predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a) Estimated total units produced (b) Predetermined overhead rate (a) ÷ (b)

$848,000 300,000 $ 2.83 per unit

Using a predetermined overhead rate of $2.83 per unit, the unit product costs would stabilize as shown below:

Direct materials Direct labor Manufacturing overhead:at $2.83 per unit Total cost (a) Number of units produced (b)

Quarter First Second Third Fourth $280,000 $140,000 $ 70,000 $210,000 80,000 40,000 20,000 60,000 339,200

169,600

84,800

254,400

$699,200 $349,600 $174,800 $524,400 120,000 60,000 30,000 90,000

Unit product cost (a) ÷ (b)

$

5.83 $

5.83 $

5.83 $

5.83

Required information [The following information applies to the questions displayed below.] 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:

Machine-hours Fixed manufacturing overhead costs Variable manufacturing overhead cost per machine-hour

Molding Fabrication Total 29,000 39,000 68,000 $710,000 $ 220,000 $930,000 $

5.90 $

5.90

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: Job D-70: Molding Fabrication Total Direct materials cost$374,000 $ 326,000 $700,000 Direct labor cost $250,000 $ 120,000 $370,000 Machine-hours 21,000 8,000 29,000

Job C-200: Molding Fabrication Total Direct materials cost$230,000 $ 260,000 $490,000 Direct labor cost $100,000 $ 260,000 $360,000 Machine-hours 8,000 31,000 39,000

Delph had no underapplied or overapplied manufacturing overhead during the year. Required: 1. Assume Delph uses a plantwide predetermined overhead rate based on machinehours. 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 130% 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? Garrison 16e Rechecks 2017-08-08, 2018-08-21 Explanation 1 a.

The first step is to calculate the estimated total overhead costs in Molding and Fabrication: Molding: Using the equation Y = a + bX, the estimated total manufacturing overhead cost would be calculated as follows:

Y = $710,000 + ($5.90 per MH)(29,000 MHs)

Estimated Estimated $5.90 per Estimated

fixed manufacturing overhead $710,000 variable manufacturing overhead MH × 29,000 MHs 171,100 total manufacturing overhead cost$881,100

Fabrication: Using the equation Y = a + bX, the estimated total manufacturing overhead cost would be calculated as follows:

Y = $220,000 + ($5.90 per MH)(39,000 MHs)

Estimated fixed manufacturing overhead Estimated variable manufacturing overhead: $5.90 per MH × 39,000 MHs Estimated total manufacturing overhead cost

$220,000 230,100 $450,100

The second step is to combine the estimated manufacturing overhead costs in Molding and Fabrication ($881,100 + $450,100 = $1,331,200) to enable calculating the predetermined overhead rate as follows:

Estimated total manufacturing overhead (a)$1,331,200 Estimated total machine-hours (b) 68,000 MHs Predetermined overhead rate (a) ÷ (b) $ 19.58 per MH

b. Total manufacturing cost assigned to Jobs D-70 and C-200:

Direct materials Direct labor Manufacturing overhead applied ($19.58 per MH × 29,000 MHs; $19.58 per MH × 39,000 MHs) Total manufacturing cost

$

D-70 700,000 $ 370,000

C-200 490,000 360,000

567,820 763,620 $1,637,820 $1,613,620

c. Bid prices for Jobs D-70 and C-200:

D-70 Total manufacturing cost (a) Markup percentage (b) Bid price (a) × (b)

C-200

$1,637,820 $1,613,620 130% 130% $2,129,166 $2,097,706

d. Because the company has no beginning or ending inventories and only Jobs D-70 and C-200 were started, completed, and sold during the year, the cost of goods sold is equal to the sum of the manufacturing costs assigned to both jobs of $3,251,440 (= $1,637,82110 + $1,613,620).

Required information [The following information applies to the questions displayed below.] 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:

Machine-hours Fixed manufacturing overhead costs Variable manufacturing overhead cost per machine-hour

Molding Fabrication Total 29,000 39,000 68,000 $710,000 $ 220,000 $930,000 $

5.90 $

5.90

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: Job D-70: Molding Fabrication Total Direct materials cost$374,000 $ 326,000 $700,000 Direct labor cost $250,000 $ 120,000 $370,000 Machine-hours 21,000 8,000 29,000

Job C-200: Molding Fabrication Total Direct materials cost$230,000 $ 260,000 $490,000 Direct labor cost $100,000 $ 260,000 $360,000 Machine-hours 8,000 31,000 39,000

Delph had no underapplied or overapplied manufacturing overhead during the year.

2. Assume Delph uses departmental predetermined overhead rates based on machinehours. 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 130% of total manufacturing costs, 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? Garrison 16e Rechecks 2018-08-21 Explanation 2. a. Molding Department:

Using the equation Y = a + bX, the estimated total manufacturing overhead cost would be depicted as follows:

Y = $710,000 + ($5.90 per MH)(29,000 MHs)

Estimated Estimated $5.90 per Estimated

fixed manufacturing overhead $710,000 variable manufacturing overhead: MH × 29,000 MHs 171,100 total manufacturing overhead cost$881,100

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a)$881,100 Estimated total machine-hours (b) 29,000 MHs Predetermined overhead rate (a) ÷ (b) $ 30.38 per MH Fabrication Department:

Using the equation Y = a + bX, the estimated total manufacturing overhead cost would be depicted as follows:

Y = $220,000 + ($5.90 per MH)(39,000 MHs)

Estimated fixed manufacturing overhead Estimated variable manufacturing overhead: $5.90 per MH ×

$220,000 230,100

39,000 MHs Estimated total manufacturing overhead cost

$450,100

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a)$450,100 Estimated total direct labor-hours (b) 39,000 MHs Predetermined overhead rate (a) ÷ (b) $ 11.54 per MH

b. Total manufacturing costs assigned to Jobs D-70 and C-200:

D-70 C-200 Direct materials $ 700,000 $ 490,000 Direct labor 370,000 360,000 Molding Department (21,000 MHs × $30.38 per MH;8,000 MHs × $30.38 per MH) 637,980 243,040 Fabrication Department (8,000 MH × $11.54 per MH;31,000 MH × $11.54 per MH) 92,320 357,740 Total manufacturing cost $1,800,300 $1,450,780

c. Bid prices for Jobs D-70 and C-200:

D-70 C-200 Total manufacturing cost (a)$1,800,300 $1,450,780 Markup percentage (b) 130 % 130 % Bid price (a) × (b) $2,340,390 $1,886,014

d. Because the company has no beginning or ending inventories and only Jobs D-70 and C-200 were started, completed, and sold during the year, the cost of goods sold is equal to the sum of the manufacturing costs assigned to both jobs of $3,251,080 (=$1,800,300 + $1,450,780).

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: Department

Cutting Finishing Direct labor-hours 7,200 68,000 Machine-hours 53,500 1,800 Total fixed manufacturing overhead cost $380,000 $478,000 Variable manufacturing overhead per machine-hour $ 4.00 — Variable manufacturing overhead per direct labor-hour — $ 4.75 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: Department CuttingFinishing Direct labor-hours 4 17 Machine-hours 84 4 Direct materials $ 720 $ 360 Direct labor cost $ 100 $ 425

Using the predetermined overhead rates that you computed in requirement (1), 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 labor-hours, rather than using departmental rates? Garrison 16e Rechecks 2017-08-08 Explanation 1. Cutting Department:

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

Y = $380,000 + ($4.00 per MH)(53,500 MHs)

Estimated fixed manufacturing overhead Estimated variable manufacturing overhead $4.00 per MH × 53,500 MHs Estimated total manufacturing overhead cost

The predetermined overhead rate is computed as follows:

$380,000 214,000 $594,000

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

$594,000 53,500 MHs $ 11.10 per MH

Finishing Department:

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

Y = $478,000 + ($4.75 per DLH)(68,000 DLHs)

Estimated fixed manufacturing overhead Estimated variable manufacturing overhead $4.75 per DLH × 68,000 DLHs Estimated total manufacturing overhead cost

$478,000 323,000 $801,000

The predetermined overhead rate is computed as follows:

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

$801,000 68,000 DLHs $ 11.78 per DLH

2.

Total manufacturing cost assigned to Job 203: Direct materials ($720 + $360) Direct labor ($100 + $425) Cutting Department (84 MHs × $11.10 per MH) Finishing Department (17 DLH × $11.78 per DLH) Total manufacturing cost

$1,080.00 525.00 $ 932.40 200.26

1,132.66 $2,737.66

3. Yes; if some jobs require a large amount of machine time and a small amount of labor time, they would be charged substantially less overhead cost if a plantwide overhead rate based on direct labor hours were used. It appears, for example, that this would be true of Job 203 which required considerable machine time to complete, but required a relatively small amount of labor hours.

6 - he Polaris Company uses a job-order costing system. The following transactions occurred in October: a. Raw materials purchased on account, $210,000. b. Raw materials used in production, $190,000 ($152,000 direct materials and $38,000 indirect materials). c. Accrued direct labor cost of $48,000 and indirect labor cost of $21,000. d. Depreciation recorded on factory equipment, $105,000. e. Other manufacturing overhead costs accrued during October, $131,000. f. The company applies manufacturing overhead cost to production using a predetermined rate of $7 per machine-hour. A total of 76,100 machine-hours were used in October. g. Jobs costing $514,000 according to their job cost sheets were completed during October and transferred to Finished Goods. h. Jobs that had cost $452,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 24% above cost. Required: 1. Prepare journal entries to record the transactions given above. 2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $34,000. Explanation

1. f. Manufacturing overhead applied: 76,100 MH × $7 per MH = $532,700. h(2). Accounts receivable: $452,000 × 1.24 = $560,480.

he following information is taken from the accounts of Latta Company. The entries in the T-accounts are summaries of the transactions that affected those accounts during the year. Manufacturing Overhead (a)

495,360 (b)

Bal.

412,800

82,560

Work in Process

Bal.

7,200 (c)

770,000

312,500 92,500 (b)

412,800

Bal.

55,000

Finished Goods Bal. (c)

35,000 (d)

670,000

770,000

Bal. 135,000

Cost of Goods Sold (d)

670,000

The overhead that had been applied to production during the year is distributed among Work in Process, Finished Goods, and Cost of Goods Sold as of the end of the year as follows:

Work in Process, ending $ 26,400 Finished Goods, ending Cost of Goods Sold Overhead applied

64,800 321,600 $412,800

For example, of the $55,000 ending balance in work in process, $26,400 was overhead that had been applied during the year. Required: 1. Identify reasons for entries (a) through (d). 2. Assume that the underapplied or overapplied overhead is closed to Cost of Goods Sold. Prepare the necessary journal entry. 3. Assume that the underapplied or overapplied overhead is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the necessary journal entry. Garrison 16e Rechecks 2017-08-18, 2017-10-21 rev: 09_18_2018_QC_CS-138117 Explanation 3.

The underapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold based on the percentage of total overhead applied during the year that resides in each account as of the end of the year:

Work in Process Finished Goods Cost of Goods Sold Total cost

$ 26,400

6.40 %

64,800

15.70

321,600

77.91

$412,800

100.00 %

Using these percentages, calculations for the journal entry would be as follows:

Work in Process (6.40% × $82,560) = $5,280 Finished Goods (15.70% × $82,560) = $12,960 Cost of Goods Sold (77.91% × $82,560) = $64,320 Manufacturing Overhead = $82,560

Harwood Company uses a job-order costing system that applies overhead cost to jobs on the basis of machine-hours. The company's predetermined overhead rate of $2.20 per machine-hour was based on a cost formula...