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ACC 406 Lecture Notes - Lecture 5: Accounts Receivable, Cost Accounting, Finished Good

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danotehustla
23 Feb 2017
School
Ryerson University
Department
Accounting
Course
ACC 406
Professor
Keith Whelan

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Document Summary

For manufacturing firms, unit costs are essential for: valuing inventory, determining income, making important decisions. For service firms, unit costs are used to determine: profitability, feasibility of introducing new services. Printing, construction, furniture making, medical services, dental services, automobile repair, beautician services. The key feature is that the cost of one unit of a product is identical to the cost of another. Firms operating in job-order industries provide a wide variety of services or produce products that are quite distinct from one another. Customized or built-to-order products fit into this category, as do services that vary from customer to customer. A job is one distinct unit or set of units. Overhead is not so easy to trace to individual jobs. Actual costs of direct materials, direct labour, and overhead are used to determine unit cost. Actual overhead can be hard to track. Many overhead costs are not incurred uniformly through the year.

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Related Questions

Case 3-49

Avid Assemblers uses normal job-order costing to assign costs toproducts. The company assembles and packages 25 different productsaccording to customer specifications. Products are worked on inbatches of 20 to 40 units. Each batch is given a job number. OnOctober 1, the company had the following balances:

Raw materials $9,800
Work in process 65,847
Finished goods 30,640


Work in process consisted of the following jobs:

Job 22 Job 24 Job 25
Direct materials $6,200 $5,190 $4,800
Direct labour 10,500 9,210 9,500
Applied overhead 7,350 6,447 6,650
Total $24,050 $20,847 $20,950
Number of units 20 40 30


Finished goods consisted of Job 23, with the following costs:

Job 23
Direct materials $8,200
Direct labour 13,200
Applied overhead 9,240
Total $30,640
Number of units 50


Shown below are the direct cost data related to jobs started inOctober:

Job 26 Job 27 Job 28 Total
Direct materials $5,180 $5,600 $4,200 $14,980
Direct labour 11,200 9,340 5,910 26,450
Number of units 20 30 20


Other information:

1. Direct materials and direct labour added tobeginning work in process in October were as follows:
Job 22 Job 24 Job 25 Total
Direct materials $1,150 $610 $1,500 $3,260
Direct labour 3,000 4,500 5,500 $13,000
2. Overhead is applied at a predetermined rate basedon the direct labour cost.
3. Actual expenses for October were as follows:
Supervisory salaries $6,000 Supplies (factory) $2,100
Factory rent 5,000 Selling expenses 8,500
Depreciation (machines) 5,000 Property tax and insurance 2,250
Indirect labour 4,000 CPP, EI, and other benefits* 4,200

* 80% of employer contributions and benefits relate to factorypersonnel.
4. Purchases of direct materials (raw materials)during October amounted to $28,500. Indirect materials (supplies)are handled in a separate account.
5. Only Job Nos. 27 and 28 are still in process atclosing on October 31. Finished goods consisted only of Job No. 25at month end.

6.

Avid writes off any under- and over-applied overhead to Cost ofGoods Sold in the month in which it is incurred.

Requirements:

a.Calculate Predetermined overhead rate

b.Calculate Unit cost of job 24 in October

c.Calulate the Oct 31 Balances for the following account:

Raw Materials, Work in Process, Finished Goods

d.What is the cost of goods manufactured?

e. Determine the under- or over- paid in October

Prepare the journal entry to dispose of this amount.

“Blast it!” said David Wilson, president of Teledex Company.“We’ve just lost the bid on the Koopers job by $4,000. It seemswe’re either too high to get the job or too low to make any moneyon half the jobs we bid.”

Teledex Company manufactures products to customers’specifications and operates a job order costing system.Manufacturing overhead cost is applied to jobs on the basis ofdirect labor cost. The following estimates were made at thebeginning of the year:

Department
Fabricating Machining Assembly Total Plant
Direct labor $ 210,000 $ 105,000 $ 315,000 $ 630,000
Manufacturingoverhead $ 367,500 $ 420,000 $ 94,500 $ 882,000

Jobs require varying amounts of work in the three departments.The Koopers job, for example,
would have required manufacturing costs in the three departments asfollows:

Department
Fabricating Machining Assembly Total Plant
Directmaterials $ 4,000 $ 300 $ 2,400 $ 6,700
Direct labor $ 4,800 $ 600 $ 7,200 $ 12,600
Manufacturingoverhead ? ? ? ?

The company uses a plantwideoverhead rate to apply manufacturing overhead cost to jobs.

Required:
1. Assuming use of a plantwideoverhead rate:
a.

Compute the rate for the current year.


b.

Determine the amount of manufacturing overhead cost that wouldhave been applied to
the Koopers job.


2.

Suppose that instead of using a plantwide overhead rate, thecompany had used a separate predetermined overhead rate in eachdepartment. Under these conditions:


a. Compute the rate for eachdepartment for the current year.


b.

Determine the amount of manufacturing overhead cost that wouldhave been applied to
the Koopers job.



4.

Assume that it is customary in the industry to bid jobs at 150%of total manufacturing cost (direct materials, direct labor, andapplied overhead).


a.

What was the company's bid price on the Koopers job if aplantwide overhead rate had been used to apply overhead cost?


b.

What would the bid price have been if departmental overheadrates had been used to apply overhead cost?

5.

At the end of the year, the company assembled the followingactual cost data relating to all jobs worked on during theyear.


Department
Fabricating Machining Assembly Total plant
Directmaterials $ 200,000 $ 17,000 $ 124,000 $ 341,000
Direct labor 220,000 118,000 272,000 610,000
Manufacturingoverhead $ 377,000 $ 440,000 $ 85,900 $ 902,900


a.

Compute the underapplied or overapplied overhead for the year,assuming that a plantwide overhead rate is used.


b.

Compute the underapplied or overapplied overhead for the year,assuming that departmental overhead rates are used. (Enteroverapplied overhead costs as negative amounts and underappliedoverhead costs as positive amounts.)

(TCO A) Wages paid to an assembly line worker in a factory are a(Points : 6) Prime Cost YES.....Conversion Cost YES. Prime CostYES.....Conversion Cost NO. Prime Cost NO....Conversion Cost NO.Prime Cost NO.....Conversion Cost YES. Question 2. 2. (TCO A) Thecosts of staffing and operating the accounting department atCentral Hospital would be considered by the department of surgeryto be (Points : 6) indirect costs. sunk costs. incremental costs.direct costs. Question 3. 3. (TCO A) The cost of lubricants used togrease a production machine in a manufacturing company is anexample of a(n) (Points : 6) period cost. direct material cost.indirect manufacturing cost. direct product cost. None of the aboveQuestion 4. 4. (TCO C) When the activity level is expected toincrease within the relevant range, what effects would beanticipated with respect to each of the following? (Points : 6)Fixed costs per unit decrease and variable costs per unit do notchange. Fixed costs per unit increase and variable costs per unitdo not change. Fixed costs per unit do not change and variablecosts per unit do not change. Fixed costs per unit do not changeand variable costs per unit increase. Question 5. 5. (TCO B) EmcoCompany uses direct labor cost as a basis for computing itspredetermined overhead rate. In computing the predeterminedoverhead rate for last year, the company included in direct laborcost a portion of indirect labor. The effect of thismisclassification will be to (Points : 6) overstate thepredetermined overhead rate. understate the predetermined overheadrate. have no effect on the predetermined overhead rate. Thiscannot be determined from the information given. Question 6. 6.(TCO B) Under a job-order costing system, the product beingmanufactured (Points : 6) is homogeneous. passes from onemanufacturing department to the next before being completed. can becustom manufactured. has a unit cost that is easy to calculate bydividing total production costs by the units produced. Question 7.7. (TCO B) The weighted-average method of process costing differsfrom the FIFO method of process costing in that theweighted-average method (Points : 6) can be used under anycost-flow assumption. does not require the use of predeterminedoverhead rates. keeps costs in the beginning inventory separatefrom current period costs. does not consider the degree ofcompletion of units in the beginning work-in-process inventory whencomputing equivalent units of production. Question 8. 8. (TCO C)The contribution margin ratio always decreases when the (Points :6) fixed expenses increase. fixed expenses decrease. variableexpenses as a percentage of net sales increase. variable expensesas a percentage of net sales decrease. Question 9. 9. (TCO C) Whichof the following would not affect the break-even point? (Points :6) Variable expense per unit Number of units sold Total fixedexpenses Selling price per unit Question 10. 10. (TCO D) In anincome statement prepared using the variable costing method, fixedmanufacturing overhead would (Points : 6) not be used. be used inthe computation of the contribution margin. be used in thecomputation of net operating income but not in the computation ofthe contribution margin. be treated the same as variablemanufacturing overhead.