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Chapter 5

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Department
Marketing
Course
MKT 504
Professor
Rich Ryerson
Semester
Winter

Description
CHAPTER 5 JOB-ORDER COSTING CORNERSTONE EXERCISES Cornerstone Exercise 5–22 Estimated overhead 1. Predetermined overhead rate = Estimated direct labour cost = $450,000 $600,000 = 0.75, or 75% of direct labour cost 2. Overhead applied to December production = 0.75 × $38,900 = $29,175 Cornerstone Exercise 5–23 1. Applied overhead = Overhead rate × Actual direct labour cost = 0.75 × $607,200 = $455,400 Actual overhead $456,500 Applied overhead 455,400 Overhead variance $ 1,100 underapplied 2. Unadjusted COGS $890,000 Add: Underapplied overhead 1,100 Adjusted COGS $891,100 Cornerstone Exercise 5–24 $378,000 1. Cutting department overhead rate = 210,000 = $1.80 per machine hour $450,000 Sewing department overhead rate = 200,000 = $2.25 per direct labour hour 2. Overhead applied to cutting in June = $1.80 × 17,840 = $32,112 Overhead applied to sewing in June = $2.25 × 16,000 = $36,000 Copyright © 2012 by Nelson Education Ltd. 5-1 Cornerstone Exercise 5–24 (Concluded) 3. Cutting Department Sewing Department Actual overhead $32,612 $35,750 Less: Applied overhead 32,112 36,000 Overhead variance $ 500 underapplied $ 250 overapplied Cornerstone Exercise 5–25 $828,000 1. Predetermined plantwide overhead rate = 331,200 = $2.50 per direct labour hour 2. Overhead applied in June = $2.50 × 27,800 = $69,500 3. Overhead variance = Applied overhead – Actual overhead = $69,500 – $68,362 = $1,138 overapplied Cornerstone Exercise 5–26 1. Since the predetermined overhead rate is not given, it must be calculated from BWIP amounts using either Job 44 or Job 45. Using Job 44, Appliedoverhead Predetermined overhead rate = Direct labourcost $750 = $1,200 = 0.625, or 62.5% (The predetermined overhead rate using Job 45 is identical.) 2. Job 44 Job 45 Job 46 Job 47 Beginning balance, June 1 $6,550 $ 2,800 $ 0 $ 0 Direct materials 1,500 6,100 800 700 Direct labour 1,000 2,400 2,000 600 Applied overhead 625 1,500 1,250 375 Total, June 30 $9,675 $12,800 $4,050 $1,675 Copyright © 2012 by Nelson Education Ltd. 5-2 Cornerstone Exercise 5–26 (Concluded) 3. By the end of June, Jobs 44, 45, and 47 have been transferred out of Work in Process. Thus, the ending balance in Work in Process consists of Job 46. Work in process, June 30 $4,050 While three jobs (44, 45, and 47) were transferred out of Work in Process and into Finished Goods during June, only two jobs remain (Jobs 44 and 47). Finished goods, June 1 $ 0 Job 44 9,675 Job 47 1,675 Finished goods, June 30 $11,350 4. One job, Job 45, was sold during June. Cost of goods sold $12,800 Copyright © 2012 by Nelson Education Ltd. 5-3 EXERCISES Exercise 5–27 a. Paint manufacturing—process b. Auto manufacturing—process c. Toy manufacturing—process d. Custom cabinet making—job order e. Airplane manufacturing (e.g., 767s)—job order f. Personal computer assembly—process g. Furniture making—process h. Custom furniture making—job order i. Dental services—job order j. Hospital services—job order k. Paper manufacturing—process l. Auto repair—job order m. Architectural services—job order n. Landscape design services—job order o. Light bulb manufacturing—process Exercise 5–28 a. Auto manufacturing—a shop that builds autos from scratch (the way Rolls Royce used to build cars, or a car that can be built from kits) would use job-order costing. Large automobile manufacturers use process costing. (While the customer may think the car is being built to order when selected among options, actually, the manufacturer waits until enough of the same orders are received to build a run of virtually identical cars.) b. Dental services—basic dental services use job-order costing, but denturists (who make only dentures) can use process costing. (It is important to recognize that while the dentures themselves are uniquely shaped to fit each patient, the costs involved do not differ from patient to patient.) c. Auto repair—a general automobile repair shop uses job-order costing. However, a shop devoted to only one type of service or repair (e.g., oil change) can use process costing yet price the cost of the number of litres of oil used for each customer. Copyright © 2012 by Nelson Education Ltd. 5-4 Exercise 5–28 (Concluded) d. Costume making—a small tailor shop would use job-order costing. However, a large costume manufacturer that sews a certain number of costume designs would use process costing. Exercise 5–29 1. Predetermined overhead rate = $570,000 = $6 per direct labour hour 95,000 2. Applied overhead = $6 × 7,400 = $44,400 Exercise 5–30 1. Predetermined overhead rate = $216,000 = $2.70 per direct labour hour 80,000 2. Applied overhead = $2.70 × 7,950 = $21,465 3. Applied overhead = $2.70 × 82,600 = $223,020 Actual overhead $226,000 Applied overhead 223,020 Underapplied overhead $ 2,980 4. Adjusted Cost of Goods Sold = $235,670 + $2,980 = $238,650 Exercise 5–31 $620,000 1. Assembly department overhead rate = 155,000 = $4 per direct labour hour $180,000 Testing department overhead rate = 120,000 = $1.50 per machine hour Copyright © 2012 by Nelson Education Ltd. 5-5 Exercise 5–31 (Concluded) 2. Assembly department applied overhead = $4 × 13,000 = $52,000 Testing department applied overhead = $1.50 × 13,050 = $19,575 3. Assembly Department Testing Department Actual overhead.................... $53,000 $15,500 Applied overhead.................. 52,000 19,575 Overhead variance........... $ 1,000 $(4,075) Assembly department has underapplied overhead of $1,000. Testing department has overapplied overhead of $4,075. Exercise 5–32 1. Job 24: Beginning balance $ 330 Direct materials 475 Direct labour 280 Applied overhead 210 Total cost $1,295 2. Unit cost = $1,295 = $259 5 Exercise 5–33 1. Materials requisition form 2. Time ticket 3. Mileage log 4. Job-order cost sheet Copyright © 2012 by Nelson Education Ltd. 5-6 Exercise 5–34 $1,800 1. Job 730 direct labour hours = $10 = 180 $4,000 Job 731 direct labour hours = $10 = 400 $200 Job 732 direct labour hours =$10 = 20 $800 Job 733 direct labour hours =$10 = 80 2. August applied overhead for: Job 730 = 180 × $11 = $1,980 Job 731 = 400 × $11 = $4,400 Job 732 = 20 × $11 = $220 Job 733 = 80 × $11 = $880 3. Job 730 Job 731 Job 732 Job 733 Beginning balance $10,400 $ 8,600 — — Direct materials 1,200 8,000 $2,100 $3,000 Direct labour 1,800 4,000 200 800 Applied overhead 1,980 4,400 220 880 Total $15,380 $25,000 $2,520 $4,680 4. Work in Process, August 31, consists of unfinished jobs: Job 731 $25,000 Job 732 2,520 Job 733 4,680 Total $32,200 5. Price of Job 730 = $15,380 + 0.40($15,380) = $21,532 Exercise 5–35 1. Job 877 Job 878 Job 879 Job 880 Beginning balance $20,520 — — — Direct materials 13,960 $ 7,000 $ 350 $4,800 Direct labour 13,800 10,000 1,500 4,000 Copyright © 2012 by Nelson Education Ltd. 5-7 Exercise 5–35 (Concluded) 2. Applied overhead in October for: Job 877 = $13,800 × 0.85 = $11,730 Job 878 = $10,000 × 0.85 = $8,500 Job 879 = $1,500 × 0.85 = $1,275 Job 880 = $4,000 × 0.85 = $3,400 3. Work in Process, October 31: Job 877 $60,010 Job 879 3,125 Job 880 12,200 Total $75,335 4. Cost of Job 878 = $7,000 + $10,000 + $8,500 = $25,500 Price of Job 878 = $25,500 + 0.5($25,500) = $38,250 Exercise 5–36 1. Balance in Work in Process (all incomplete jobs): Job 303 $ 460 Job 306 230 Job 308 650 Job 309 1,035 Job 310 217 Total $2,592 2. Balance in Finished Goods (all jobs completed but not sold): Beginning balance $ 0 Job 301 610 Job 304 2,670 Job 305 3,800 Total $7,080 3. Cost of Goods Sold = Job 302 + Job 307 = $1,300 + $300 = $1,600 Copyright © 2012 by Nelson Education Ltd. 5-8 Exercise 5–37 1. Job 73 Job 74 Job 75 Balance, July 1 $ 8,450 — — Direct materials 7,450 $12,300 $16,150 Direct labour 12,000 10,500 23,000 Applied overhead 8,000 7,000 20,000 Total $35,900 $29,800 $59,150 2. Work in Process, July 31 = Job 74 = $29,800 3. Finished Goods: Beginning balance $49,000 Job 75 (transferred in) 59,150 Job 70 (sold) (19,000) Ending balance, July 31 $89,150 4. Cost of Goods Sold = Job 70 + Job 73 = $19,000 + $35,900 = $54,900 Sales [$54,900 + (0.30 × $54,900)]........................ $71,370 Cost of goods sold ............................................... 54,900 Gross margin.................................................... $16,470 Less: Variable marketing (0.1 × $71,370)..................$7,137 Fixed marketing......................................2,000..... Administrative expense...............................4,800 13,937 Operating income.................................................. $ 2,533 Exercise 5–38 Job 213: 1. Number of units = Total manufacturing cost Unit cost = $855 $8.55 = 100 Copyright © 2012 by Nelson Education Ltd. 5-9 Exercise 5–38 (Continued) 2. Total sales revenue = Price per unit × Number of units = $12 × 100 = $1,200 Overhead applied, Department 1 3. Direct labour hours, Department 1 = $6 $90 = $6 = 15 Direct labour cost, Department 1 = 15 direct labour hours × $10 = $150 4. Overhead applied, Department 2 = 25 machine hours × $8 = $200 Job 214: Totalsalesrevenue 1. Price per unit = Numberofunits $4,375 = 350 = $12.50 Direct labour cost, Department 1 2. Direct labour hours, Department 1 = $10 $700 = $10 = 70 Overhead applied, Department 1 = Direct labour hours, Department 1 × $6 = 70 × $6 = $420 Copyright © 2012 by Nelson Education Ltd. 5-10 Exercise 5–38 (Continued) 3. Materials used in production = Total manufacturing cost – Direct labour cost, Department 1 – Direct labour cost, Department 2 – Overhead applied, Department 1 – Overhead applied, Department 2 = $3,073 – $700 – $100 – $420 – $400 = $1,453 4. Unit cost = Total manufacturing cost Numberofunits $3,073 = 350 = $8.78 Job 217: 1. Machine hours, Department 2 = Overhead applied, Department2 Overhead rate = $160 $8 =20 2. Total manufacturing cost = Unit cost × Number of units = $9.87 × 400 = $3,948 3. Direct labour cost, Department 2 = Total manufacturing cost – Materials used in production – Direct labour cost, Department 1 – Overhead applied, Department 1 – Overhead applied, Department 2 = $3,948 – $488 – $2,000 – $1,200 – $160 = $100 Copyright © 2012 by Nelson Education Ltd. 5-11 Exercise 5–38 (Concluded) Job 225: 1. Number of units = Total sales revenue Price per unit = $1,150 = 230 $5 Total manufacturing cost 2. Unit cost = Numberofunits $575 = 230 = $2.50 Overhead applied, Department 2 3. Machine hours, Department 2 = $8 = $0 $8 = 0 Exercise 5–39 1. Direct materials...................................................... $ 18,000 Direct labour: Department A..........................................$36,000... Department B............................................6,000... 42,000 Overhead ($12 × 7,000 DLH)................................. 84,000 Total manufacturing costs.............................. $144,000 $144,000 2. Unit cost = 10,000 = $14.40 3. Direct materials...................................................... $18,000 Direct labour: Department A..........................................$36,000... Department B............................................6,000... 42,000 Overhead: Department A ($3 × 6,000)............................... 18,000 Department B ($7 × 1,200)............................... 8,400 Total manufacturing costs.................................... $86,400 Copyright © 2012 by Nelson Education Ltd. 5-12 Exercise 5–39 (Concluded) $86,400 4. Unit cost = 10,000 = $8.64 Exercise 5–40 1. Job 68 Job 69 Job 70 Job 71 Job 72 Balance, April 1 $ 540 $1,230 $ 990 — — Direct materials 700 560 75 $3,500 $2,750 Direct labour 500 600 90 2,500 2,000 Applied overhead 600 720 108 3,000 2,400 Total cost $2,340 $3,110 $1,263 $9,000 $7,150 2. Ending balance in Work in Process = Job 68 + Job 71 = $2,340 + $9,000 = $11,340 Cost of Goods Sold for April = Job 69 + Job 70 + Job 72 = $3,110 + $1,263 + $7,150 = $11,523 3. Greenthumb Landscape Design Income Statement For the Month Ended April 30 Sales [$11,523 + 0.40($11,523)]......................................$16,132..... Cost of goods sold....................................................11,523............ Gross margin......................................................$ 4,609............. Less: Operating expenses...............................................3,670...... Operating income..................................................$...939.......... Exercise 5–41 1. a. Raw Materials...........................................27,800........ Accounts Payable............................................. 27,800 b. Work in Process.........................................21,000...... Raw Materials....................................................21,000 c. Work in Process.........................................27,000...... Wages Payable................................................. 27,000 d. Overhead Control........................................15,500..... Various Payables.............................................. 15,500 Copyright © 2012 by Nelson Education Ltd. 5-13 Exercise 5–41 (Continued) e. Work in Process............................................13,500... Overhead Control............................................. 13,500 $27,000 Total direct labour hours = $15 = 1,800 Applied overhead = 1,800 × $7.50 = $13,500 f. Finished Goods.............................................47,700... Work in Process............................................... 47,700 g. Cost of Goods Sold.........................................58,700 Finished Goods................................................ 58,700 Accounts Receivable.......................................82,180 Sales Revenue.................................................. 82,180 2. Job 58 Job 59 Job 60 Direct materials $ 9,300 $ 6,900 $ 4,800 Direct labour 12,000 9,000 6,000 Applied overhead 6,000 4,500 3,000 Total cost $27,300 $20,400 $13,800 3. Raw Materials: Beginning balance $ 5,170 Purchases 27,800 Direct materials (21,000) Ending balance $11,970 4. Work in Process: Beginning balance................................................. $ 0 Direct materials...................................................... 21,000 Direct labour........................................................... 27,000 Applied overhead................................................... 13,500 Jobs completed: Job 58................................................$27,300......... Job 59.................................................20,400........(47,700) Ending balance...................................................... $ 13,800 Copyright © 2012 by Nelson Education Ltd. 5-14 Exercise 5–41 (Concluded) 5. Finished Goods: Beginning balance................................................. $ 31,400 Jobs transferred in: Job 58.............................................$27,300............ Job 59..............................................20,400........47,700 Jobs sold: Job 57.............................................$31,400............ Job 58..............................................27,300........(58,700) Ending balance.....................................................$ 20,400 Exercise 5–42 1. Allocation ratios for Power based on number of machine hours: 5,000 Battery = = 0.625 (5,000 + 3,000) Small Motors = 3,000 = 0.375 (5,000 + 3,000) Allocation ratios for Human Resources based on number of employees: Battery = 20 = 0.25 (20 + 60) 60 Small Motors = (20 + 60)= 0.75 2. Support Departments Producing Departments Human Small Power Resources Battery Motors Direct costs $ 100,000 $ 205,000 $180,000 $ 93,500 Allocate: Power (100,000) — 62,500 37,500 Human Resources — (205,000) 51,250 153,750 Total $ 0 $ 0 $293,750 $284,750 $293,750 3. Battery overhead rate = 15,000 = $19.58 Small Motors overhead rate = $284,750 = $3.56 80,000 Copyright © 2012 by Nelson Education Ltd. 5-15 Exercise 5–43 1. Allocation ratios for Human Resources based on number of employees: 20 Power = = 0.20 (20 + 20 + 60) Battery = 20 = 0.20 (20 + 20 + 60) 60 Small Motors = (20 + 20 + 60)= 0.60 Allocation ratios for Power based on number of machine hours: 5,000 Battery = (5,000 + 3,000) 0.625 3,000 Small Motors = = 0.375 (5,000 + 3,000) 2. Support Departments Producing Departments Human Small Power Resources Battery Motors Direct costs $ 100,000 $ 205,000 $180,000 $ 93,500 Allocate: Human Resources 41,000 (205,000) 41,000 123,000 Power (141,000) — 88,125 52,875 Total $ 0 $ 0 $309,125 $269,375 $309,125 3. Battery overhead rate = 15,000 = $20.61 $269,375 Small Motors overhead rate = = $3.37 80,000 Copyright © 2012 by Nelson Education Ltd. 5-16 PROBLEMS Problem 5–44 $665,000 1. Overhead rate = 100,000 = $6.65/per DLH 2. Job 210 Job 211 Job 212 Job 213 Job 214 Balance, July 1 $ 32,780 $ 51,770 $ 29,600 $ 0 $ 0 Direct materials 25,500 39,800 24,450 13,600 18,420 Direct labour 60,000 28,500 41,500 23,000 21,300 Applied overhead 26,600 12,635 17,955 9,975 9,310 Total cost $144,880 $132,705 $113,505 $46,575 $49,030 3. Ending balance in Work in Process = Job 211 + Job 213 + Job 214 = $132,705 + $46,575 + $49,030 = $228,310 4. Cost of Goods Sold = Job 210 + Job 212 = $144,880 + $113,505 = $258,385 Problem 5–45 1. Cost of Alban job: Professional time (85 hours @ $120) $10,200 Mileage (510 km @ $0.50) 255 Photographs 120 Total $10,575 2. Overhead is included in the rate for professional time. This is easier for professionals than to calculate a separate overhead rate and charge it to clients. In effect, Zeta charges a conversion cost rate, not a labour rate, to its clients. Copyright © 2012 by Nelson Education Ltd. 5-17 Problem 5–45 (Concluded) 3. Answers may vary. The following is one example. Inspector Clouseau Mileage Log Beginning Ending Total Date Client Mileage Mileage Destination km 7/8 Alban 56,780 56,815 Ofc. to claimant #1, 35 to Dr. Phony, to claimant #2, to ofc. 7/9 Alban 56,815 56,903 Ofc. to claimant #3, 88 to claimant #4, to ofc. 7/10 Alban 56,903 57,078 Ofc. to witness #3, 175 to client, to ofc. 7/11 Alban 57,078 57,290 Ofc. to claimant #2, 212 to claimant #4, to ofc. Note: Separate mileage logs are kept by Inspector Clouseau and Hercules Poirot. Then, relevant amounts are transferred to cost sheets (or folders) for each client. Problem 5–46 $280 1. Overhead rate = $350 = 0.80 times direct labour dollars (This rate was calculated using information from the Asher job; however, the Ayce and Wollner jobs would give the same answer.) 2. Asher Ayce Wollner Yorgo Burton Beginning WIP $ 730 $1,600 $2,670 $ 0 $ 0 Direct materials 600 550 860 1,310 260 Direct labour 300 200 250 1,650 180 Applied overhead 240 160 200 1,320 144 Total $1,870 $2,510 $3,980 $4,280 $584 Note: This is just one way of setting up the job-order cost sheets. You might prefer to keep the details on the materials, labo
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