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ACC 406 Chapter Notes - Chapter 5: Cheque Clearing

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School
Ryerson University
Department
Accounting
Course
ACC 406
Professor
Anthony Chan

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Document Summary

Chapter 5: job-order costing: describe the difference between job order costing and process costing, and identify the types of firms that could use each method. Job order firms produce heterogeneous products/services each unit or batch has a difference total cost. Job order firms include construction, custom cabinetry, dentistry, medical services, and automotive repair. In process firms, the cost of one batch or unit is the same as another batch or unit. Process firms include paint manufacturing, cheque clearing, and toy manufacturing: compute the predetermined overhead rate, and use the rate to assign overhead to units or services produced. Predetermined overhead is total budgeted overhead divided by total budgeted activity level. Overhead is applied by multiplying the rate by the actual activity usage. Applied overhead is added to total actual direct materials and direct labour cost, which is divided by number of units to yield unit cost. Identify and set up the source documents used in job order costing.

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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.

the gilster company, a machine tooling firm, has several plants,one plant, located in St falls, minnesota, uses a job order costingsystem for its batch production processes. The st. falls plant hastwo departments through which most jobs pass. plantwide overhead,which includes the plant managers salary, accounting personnal,cafeteria, and human services, is budgeted at $ 200,000. during thepast year, actual plantwide overhead was 190,000. Each departmentsoverhead consists primarily of depreciation and othermachine-related expenses. Selected budgeted and actual data fromthe st. falls plant for the past year are as follows

Budgeted department overhead

(excludes plant wideoverhead)...............................DepartmentA....100,000.......Department B.....500,000

Direct laborhours.........................................................50,000......................................10,000

Machinehours...............................................................10,000......................................50,000

Actual activity

Direct laborhours.........................................................51,000.......................................9.000

Machinehours...............................................................10,500........................................52,000


For the coming year, the accountants at st. falls are in theprocess of helping the sales force create bids for several jobs.Projected data pertaining to job no. 110 are as follows


Directmaterials.......................................................20,000

Direct labor cost:

Department A.( 2,000HR).....................................30,000

department B ( 500hr)............................................ 6,000

Machine hours projected:

Department A........................................................... 100

DepartmentB............................................................1,200

Unitsproduced..........................................................10,000

Instructions round overhead rate and unit costs to 2 decimalplaces and round other cost calculations to the nearest dollar.

.

A) Assume the st. falls plant uses a single plantwide overheadrate to assign all over head( plantwide and department) costs tojobs. use expected direct labor hours to compute the overhead rate.find the overhead rate and determine the projected amount of totalmanufacturing costs per unit in job no. 110.


B) recalculate the projected manufacturing costs for job no. 110using three separate rates: one rate for plantwide overhead and twoseparate department overhead rates, all based on machine-hours.


C) The sales policy at st. falls dictates that job bids becalculated by adding 30 percent to total manaufacturing costs. whatwould be the bid for job no. 110 using 1) the overhead rate frompart A and 2) the overhead rate from part B? explain why the bidsdiffer. which of the over head allocation methods would yourecommend and why?


D) using allocation rates in part B, compare the under-or overapplied overhead for the st. falls plant for the year. explain theimpact on net income of assigning the under- overapplied overheadto cost of goods sold rather than prorating the amount betweeninventories and cost of goods sold.



E) A st. falls subcontractor has offered to produce the partsfor job 110. for a price of $ 8 per unit. Assume the st. fallssales force has already committed to the bid price based on thecalculations in part B. should st. falls buy the 8 per unit partfrom the subcontractor or continue to make the parts for job no.110 itself.


F) would your response to part e change if the st. falls plantcould use the facilities necessary to produce parts for job no. 110for another job that could earn incremental profit of $ 15,000


G) if the subcontractor mentioned in part e is located inmexico, what additional international environmental issues, otherthan price, will gilster and st. falls management need toevaluate.

1.) On January 31, Village Bank had 500,000 shares of $3 parvalue common stock outstanding. On that date, the company declareda 10% stock dividend when the market price of the stock was $62 pershare. The immediate effect of this dividend upon Village Bankwas:

A.)A reduction in cash of $3,794,500.

B.) A reduction in retained earnings of $3,100,000.

C.) A reduction in retained earnings of $150,000.

D.) A liability to the stockholders of $150,000.

2.) Mayfair Corporation has outstanding 70,000 shares of $1 parvalue common stock as well as 20,000 shares of 7%, $100 par valuecumulative preferred stock. At the beginning of the year, thebalance in retained earnings was $800,000, and one year's dividendswere in arrears. Net income for the current year is $580,000.Compute the balance in retained earnings at the end of the year ifMayfair Corporation pays a dividend of $3 per share on its commonstock this year.

A.)

$1,080,000.

B.)

$1,670,000.

C.)

$890,000.

D.)

$310,000.

3.) During the years 2009 through 2011, Powers, Inc., reportedthe following amounts of net income (dollars in thousands):

Relative to the prior year, the percentage change in netincome:

A.)

Was the same in 2010 and 2011.

B.)

Was larger in 2011 than in 2010.

C.)

Was smaller in 2011 than in 2010.

D.)

Cannot be determined without knowing how many shares of stockwere outstanding.

4.) Hines Cannery issued capital stock in 2009 for $700,000.During 2009 the company paid dividends of $250,000. What is theeffect of these events in Hines' statement of cash flows for2009?

A.)

$700,000 cash provided by investing activities, and $250,000cash disbursed for financing activities.

B.)

$700,000 cash provided by financing activities, and $250,000cash disbursed for investing activities.

C.)

$700,000 cash provided by financing activities, and $250,000cash disbursed for operating activities.

D.)

$450,000 net cash provided by financing activities

5.) Direct labor costs in a paint factory would include wages ofemployees who:

A.)

Supervise heavy equipment operators.

B.)

Operate paint-mixing machines.

C.)

Develop highly secret formulas for new products.

D.)

Paint the interior of the factory every two years.

6.) Which of the following is a characteristic of manufacturingoverhead in a job order cost system?

A.)

It is indirectly traceable to specific jobs or units.

B.)

It includes the cost of all labor relating to manufacturingoperations.

C.)

It is assigned to units produced by means of an overheadapplication rate.

D.)

It includes the cost of direct materials used and of indirectlabor.

7.) A job order cost system traces direct materials cost to aparticular job by means of:

A.)

Materials requisitions.

B.)

A production budget.

C.)

The Materials Inventory controlling account.

D.)

A debit to the job cost sheet for the job.

8.) Which of the following costing systems would always use jobcost sheets?

A.)

Job order costing.

B.)

Process costing.

C.)

Activity-based costing.

D.)

All three systems.

9.) Edwards Auto Body uses a job order cost system. Overhead isapplied to jobs on the basis of direct labor hours. During thecurrent period, Job No. 337 was charged $425 in direct materials,$475 in direct labor, and $190 in overhead. If direct labor costsan average of $16 per hour, the company's overhead application rateis:

A.)

$7.27 per direct labor hour.

B.)

$6.40 per direct labor hour.

C.)

$17.50 per direct labor hour.

D.)

$40 per direct labor hour.

10.) Marty's Metal Shop uses a job order cost system. It appliesoverhead to jobs at a rate of 175% of direct labor costs. Job No.2617 required $800 in direct labor costs. The job was initiallybudgeted to require $850 in direct labor costs. Overhead applied toJob No. 2617 during the period amounted to:

A.)

$850.

B.)

$1,400.

C.)

$1,275.

D.)

Some other amount.

11.) In a job cost system, the Work-in-Process Inventorycontrolling account may be reconciled to the total of the:

A.)

Employee time cards.

B.)

Materials requisitions.

C.)

Work-in-Process Inventory records for each department orprocess.

D.)

Job cost sheets.

12.) For the month of December, its first month of operations,the Radcliffe Corporation completed and transferred 800 units ofproduct costing $80,000 to produce to Finished Goods Inventory. IfRadcliffe sold 650 units during the same month, how much was costof goods sold for the same period?

A.)

$80,000.

B.)

$8,000.

C.)

$6,500.

D.)

$65,000.

13.) The computation of equivalent full units is generally notnecessary when:

A.)

Beginning work-in-process inventories are significantly largerthan ending work-in-process inventories.

B.)

Beginning and ending work-in-process inventories differ onlyslightly.

C.)

The number of units in ending work-in-process exceeds the numberof units completed and transferred to finished goods during theperiod.

D.)

Per-unit costs become distorted as a result of not computingequivalent full units of production.

14.) During July, the equivalent full units of direct materialsadded to the product worked on by Department A amounted to a totalof 90,000 applied as follows: beginning inventory, 20,000 units;units started and completed in July, 60,000 units; and endinginventory, 10,000 units. Assuming that the cost of direct materialsrequisitioned by the department in July was $135,000; the amount ofthe materials cost to be assigned to the ending inventory wouldbe:

A.)

$16,875.

B.)

$54,000.

C.)

$15,000.

D.)

$18,000.