Connect - Managerial Accounting Chapter 2

1.

As of the end of June, the job cost sheets at Racing Wheels, Inc., show the following total costs accumulated on three custom jobs.

	Job 102	Job 103	Job 104
Direct materials	$ 15,000	$ 33,000	$ 27,000
Direct labor	8,000	14,200	21,000
Overhead	4,000	7,100	10,500

   

Job 102 was started in production in May and the following costs were assigned to it in May: direct materials, $6,000; direct labor, $1,800; and overhead, $900. Jobs 103 and 104 are started in June. Overhead cost is applied with a predetermined rate based on direct labor cost. Jobs 102 and 103 are finished in June, and Job 104 is expected to be finished in July. No raw materials are used indirectly in June. Using this information, answer the following questions. (Assume this company’s predetermined overhead rate did not change across these months).

      

1&2.	Complete the table below to calculate the cost of the raw materials requisitioned and direct labor cost incurred during June for each of the three jobs.

Direct Materials
Job	May	June	Total
102	$6,000	$9,000	$15,000
103	0	33,000	33,000
104	0	27,000	27,000
Total	$6,000	$69,000	$75,000
Direct Labor
Job	May	June	Total
102	$1,800	$6,200	$8,000
103	0	14,200	14,200
104	0	21,000	21,000
Total	$1,800	$41,400	$43,200

3.	What predetermined overhead rate is used for Job 102?

Overhead Rate
Choose Numerator:	/	Choose Denominator:	=	Overhead Rate
Estimated overhead costs	/	Estimated direct labor	=	Overhead rate
$4,000	/	$8,000	=	50%

4.	How much total cost is transferred to finished goods during June?

Job	Direct Materials	Direct Labor	Applied Overhead	Total Cost	Cost Transferred to Finished Goods
102	$15,000	$8,000	$4,000	$27,000	$27,000
103	33,000	14,200	7,100	54,300	54,300
104	27,000	21,000	10,500	58,500	0
Total	$75,000	$43,200	$21,600	$139,800	$81,300

-----------------------------------------------------------------------------------------------------------------------------------

2.

The following information is available for Lock-Safe Company, which produces special-order security products and uses a job order cost accounting system.

	April 30		May 31
Inventories
Raw materials	$	43,000	$	52,000
Goods in process		10,200		21,300
Finished goods		63,000		35,600
Activities and information for May
Raw materials purchases (paid with cash)				210,000
Factory payroll (paid with cash)				345,000
Factory overhead
Indirect materials				15,000
Indirect labor				80,000
Other overhead costs				120,000
Sales (received in cash)				1,400,000
Predetermined overhead rate based on direct labor cost				70	%

     

Compute the following amounts for the month of May using T-accounts.

  

1.	Cost of direct materials used.
2.	Cost of direct labor used.
3.	Cost of goods manufactured.
4.	Cost of goods sold.*
5.	Gross profit.
6.	Overapplied or underapplied overhead.

  

*Do not consider any underapplied or overapplied overhead.

Raw Materials (RM)					Goods in Process (GIP)
RM - April 30	43,000				GIP - April 30	10,200
RM purchases	210,000				DM used	186,000
		15,000	Indirect materials		DL used	265,000
		186,000	DM used		Overhead applied	185,500	625,400	Cost of goods manuf.
RM- May 31	52,000				GIP - May 31	21,300

Factory Payroll					Finished Goods (FG)
Factory payroll	345,000				FG - April 30	63,000
		80,000	Indirect labor		Cost of goods manuf.	625,400
		265,000	DL used				652,800	Cost of goods sold
	0				FG - May 31	35,600

Factory Overhead					Income statement (partial)
Indirect materials	15,000				Sales	$1,400,000
Indirect labor	80,000				Cost of goods sold	652,800
Other overhead costs	120,000				Gross profit	$747,200
		185,500	Overhead applied
Underapplied OH	29,500

-----------------------------------------------------------------------------------------------------------------------------------

3.

Sunrise Company applies factory overhead based on direct labor costs. The company incurred the following costs during 2013: direct materials costs, $650,000; direct labor costs, $3,000,000; and factory overhead costs applied, $1,800,000.

1.	Determine the company’s predetermined overhead rate for year 2013.

Overhead Rate
Choose Numerator:	/	Choose Denominator:	=	Overhead Rate
Total overhead costs	/	Total direct labor costs	=	Overhead rate
$1,800,000	/	$3,000,000	=	60%

2.	Assuming that the company’s $71,000 ending Goods in Process Inventory account for year 2013 had $20,000 of direct labor costs, determine the inventory’s direct materials costs.

	Total cost of goods in process inventory $71,000 Less: Direct labor 20,000 Less: Factory overhead 12,000 Direct materials $39,000

3.	Assuming that the company’s $490,000 ending Finished Goods Inventory account for year 2013 had $250,000 of direct materials costs, determine the inventory’s direct labor costs and its overhead costs.

	Total cost of finished goods inventory $490,000 Less: Direct materials 250,000 Direct labor and factory overhead costs $240,000

Determine the inventory’s direct labor costs and its overhead costs

	Direct labor $150,000 Factory overhead costs 90,000

-----------------------------------------------------------------------------------------------------------------------------------

4.

Deschamps Company’s ending Goods in Process Inventory account consists of 5,000 units of partially completed product, and its Finished Goods Inventory account consists of 12,000 units of product. The factory manager determines that Goods in Process Inventory includes direct materials cost of $10 per unit and direct labor cost of $7 per unit. Finished goods are estimated to have $12 of direct materials cost per unit and $9 of direct labor cost per unit. The company established the predetermined overhead rate using the following predictions: estimated direct labor cost, $300,000, and estimated factory overhead, $375,000. The company allocates factory overhead to its goods in process and finished goods inventories based on direct labor cost. During the period, the company incurred these costs: direct materials, $535,000; direct labor, $290,000; and factory overhead applied, $362,500.

1.	Determine the predetermined overhead rate.

Overhead Rate
Choose Numerator:	/	Choose Denominator:	=	Overhead Rate
Total estimated overhead cost	/	Total estimated direct labor costs	=	Overhead rate
$375,000	/	$300,000	=	125%

2.	Compute the total cost of the two ending inventories. (Round "Cost per unit" answers to 2 decimal places.)

Goods in Process Finished Goods Cost per unit Units Amount Cost per unit Units Amount Direct materials $10.00 5,000 $50,000 $12.00 12,000 $144,000 Direct labor $7.00 5,000 35,000 $9.00 12,000 108,000 Overhead applied $8.75 5,000 43,750 $11.25 12,000 135,000 $25.75 $128,750 $32.25 $387,000

3.	Compute cost of goods sold for the year (assume no beginning inventories and no underapplied or overapplied overhead).

Goods in Process (GIP)
Beginning GIP	0
Direct materials	535,000
Direct labor	290,000
Factory OH applied	362,500
			1,058,750	Cost of goods manuf.
Ending GIP	128,750
Finished Goods (FG)
Beginning FG		0
Cost of goods manuf.		1,058,750
			671,750	Cost of goods sold
Ending FG		387,000

-----------------------------------------------------------------------------------------------------------------------------------

Questions 5-8
[The following information applies to the questions displayed below.]

Ciolino Co.’s March 31 inventory of raw materials is $80,000. Raw materials purchases in April are $500,000, and factory payroll cost in April is $363,000. Overhead costs incurred in April are: indirect materials, $50,000; indirect labor, $23,000; factory rent, $32,000; factory utilities, $19,000; and factory equipment depreciation, $51,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $635,000 cash in April. Costs of the three jobs worked on in April follow.

  

	Job 306				Job 307				Job 308
Balances on March 31
Direct materials		$	29,000			$	35,000
Direct labor			20,000				18,000
Applied overhead			10,000				9,000
Costs during April
Direct materials			135,000				220,000			$	100,000
Direct labor			85,000				150,000				105,000
Applied overhead			?				?				?
Status on April 30	Finished (sold)				Finished (unsold)					In process

5.

Required:
1.	Determine the total of each production cost incurred for April (direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including the balances from March 31).

	Job 306	Job 307	Job 308	April Total
From March
Direct Materials	$29,000	$35,000		$64,000
Direct Labor	20,000	18,000		38,000
Applied overhead	10,000	9,000		19,000
Beginning goods in process	$59,000	$62,000	$0	$121,000
For April
Direct Materials	135,000	220,000	100,000	455,000
Direct Labor	85,000	150,000	105,000	340,000
Applied overhead	42,500	75,000	52,500	170,000
Total costs added in April	262,500	445,000	257,500	965,000
Total costs (April 30)	$321,500	$507,000	$257,500	$1,086,000
Status on April 30	Finished (sold)	Finished (unsold)	In process
April 30 cost included in:	Cost of goods sold	Finished goods inventory	Goods in process inventory

6. (Old Version)

a.	Materials purchases (on credit), factory payroll (paid in cash), and actual overhead costs including indirect materials and indirect labor. (Factory rent and utilities are paid in cash.)
b.	Assignment of direct materials, direct labor, and applied overhead costs to the Goods in Process Inventory.
c.	Transfer of Jobs 306 and 307 to the Finished Goods Inventory.
d.	Cost of goods sold for Job 306.
e.	Revenue from the sale of Job 306.
f.	Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)

   

2.	Prepare journal entries for the month of April to record the above transactions.

Transaction	General Journal	Debit	Credit
a(1)	Raw materials inventory	500,000
	Accounts payable		500,000
a(2)	Factory payroll	363,000
	Cash		363,000
a(3)	Factory overhead	50,000
	Raw materials inventory		50,000
a(4)	Factory overhead	23,000
	Factory payroll		23,000
a(5)	Factory overhead	32,000
	Cash		32,000
a(6)	Factory overhead	19,000
	Cash		19,000
a(7)	Factory overhead	51,000
	Accumulated depreciation-factory equipment		51,000
b(1)	Goods in process inventory	455,000
	Raw materials inventory		455,000
b(2)	Goods in process inventory	340,000
	Factory payroll		340,000
b(3)	Goods in process inventory	170,000
	Factory overhead		170,000
c	Finished goods inventory	828,500
	Goods in process inventory		828,500
d	Cost of goods sold	321,500
	Finished goods inventory		321,500
e	Cash	635,000
	Sales		635,000
f	Cost of goods sold	5,000
	Factory overhead		5,000

6. (New Version)

a.	Materials purchases (on credit).
b.	Direct materials used in production.
c.	Direct labor paid and assigned to Work in Process Inventory.
d.	Indirect labor paid and assigned to Factory Overhead.
e.	Overhead costs applied to Work in Process Inventory.
f.	Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in cash.)
g.	Transfer of Jobs 306 and 307 to Finished Goods Inventory.
h.	Cost of goods sold for Job 306.
i.	Revenue from the sale of Job 306.
j.	Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)

   

2.	Prepare journal entries for the month of April to record the above transactions.

7.

3.	Prepare a manufacturing statement for April (use a single line presentation for direct materials and show the details of overhead cost).

CIOLINO COMPANY
Manufacturing Statement
For Month Ended April 30
Direct materials used		$455,000
Direct labor used		340,000
Factory overhead
Indirect materials	50,000
Indirect labor	23,000
Factory rent	32,000
Factory utilities	19,000
Depreciation of equipment	51,000
Total factory overhead		175,000
Total manufacturing costs		970,000
Add: Goods in process March 31		121,000
Total cost of goods in process		1,091,000
Less: Goods in process April 30		(257,500)
Less: Underapplied overhead		(5,000)
Cost of goods manufactured		$828,500

(New Version)

Prepare a schedule of cost of goods manufactured.

8.

4.1	Compute gross profit for April.

	Sales $635,000 Less: Cost of goods sold (326,500) Gross profit $308,500

4.2	Show how to present the inventories on the April 30 balance sheet.

	Inventories Raw materials $75,000 Goods in process 257,500 Finished goods 507,000 Total inventories $839,500

-----------------------------------------------------------------------------------------------------------------------------------

9.

Prepare summary journal entries to record the following transactions and events a through g for a company in its first month of operations.

a.	Raw materials purchased on account, $90,000.
b.	Direct materials used in production, $36,500. Indirect materials used in production, $19,200.
c.	Paid cash for factory payroll, $50,000. Of this total, $38,000 is for direct labor and $12,000 is for indirect labor.
d.	Paid cash for other actual overhead costs, $11,475.
e.	Applied overhead at the rate of 125% of direct labor cost.
f.	Transferred cost of jobs completed to finished goods, $56,800.
g.	Sold jobs on account for $82,000. The jobs had a cost of $56,800.

Transaction	General Journal	Debit	Credit
a.	Raw materials inventory	90,000
	Accounts payable		90,000
b(1).	Work in process inventory	36,500
	Raw materials inventory		36,500
b(2).	Factory overhead	19,200
	Raw materials inventory		19,200
c.	Work in process inventory	38,000
	Factory overhead	12,000
	Cash		50,000
d.	Factory overhead	11,475
	Cash		11,475
e.	Work in process inventory	47,500
	Factory overhead		47,500
f.	Finished goods inventory	56,800
	Work in process inventory		56,800
g(1).	Cost of goods sold	56,800
	Finished goods inventory		56,800
g(2).	Accounts receivable	82,000
	Sales		82,000

-----------------------------------------------------------------------------------------------------------------------------------

Cost accounting information is helpful to management for pricing decisions but has no effect on controlling costs.

False

Job order costing is applicable to manufacturing firms only and not service firms.

False

At the current year-end, Simply Company found that its overhead was underapplied by $2,500, and this amount was not considered material. Based on this information, Simply should:

Close the $2,500 to Cost of Goods Sold

Minstrel Manufacturing uses a job order costing system. During one month Minstrel purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Minstrel incurred a factory payroll of $150,000, paid in cash, of which $40,000 was indirect labor. Minstrel uses a predetermined overhead rate of 150% of direct labor cost. The total manufacturing costs added during the period are:

$440,000

A source document that production managers use to request materials for production and that is used to assign materials costs to specific jobs or to overhead is a:

Materials requisition

In a job order costing system, indirect labor costs are debited to the Factory Overhead account.

True

The schedule of cost of goods manufactured for a job costing system includes total actual factory overhead.

False

If overapplied or underapplied overhead is material, it should be disposed of by allocating it to:

work in process inventory, finished goods inventory, and cost of goods sold

Job order production is also known as:

Customized production.

Materials requisitions and time tickets are cost accounting source documents.

True

Manufacturing costs incurred for jobs completed during an accounting period can bypass the inventory accounts on the balance sheet and be recorded directly in expense accounts.

False

The overhead cost applied to a job during a period is recorded with a credit to Factory Overhead and a debit to:

Work in Process Inventory

In comparison to a general accounting system, a cost accounting system for a manufacturing company places an emphasis on:

Continually updating costs of materials, work in process, and finished goods inventories

When materials are used as indirect materials, their cost is debited to the Factory Overhead account.

True

Predetermined overhead rates are calculated at the end of the accounting period once the actual amount of factory overhead is known.

False

Job order production systems would be appropriate for companies that produce compact disks or disposable cameras.

False

The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $4,400 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,000 and direct labor cost of $800. Therefore, the company's overhead application rate is:

200%

A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing $20,000?

$25,000

If one unit of Product Z2 used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much gross profit was realized from this sale?

$1.60

Mesa Corp. allocates overhead to production on the basis of direct labor costs. Mesa's total estimated overhead is $450,000 and estimated direct labor is $180,000. Determine the amount of overhead to be allocated to finished goods inventory if there is $20,000 of total direct labor cost in the jobs in the finished goods inventory.

$50,000

A company's file of job cost sheets jobs not yet completed equals the balance in the Finished Goods Inventory account.
False

A company that produces a large number of standardized units would normally use a job order costing system.
False

A company that uses a cost accounting system normally has only two inventory accounts: Finished Goods Inventory and Work in Process Inventory.
False

Underapplied overhead is the amount by which overhead applied to jobs using the predetermined overhead rate exceeds the overhead incurred during a period.
False

A time ticket is a source document used by an employee to record the total number of hours worked and serves as a source document for entries to record labor costs.
True

Since a predetermined overhead rate is established before a period begins, this rate is revised many times during the period to compensate for inaccurate estimates previously made.
False

The collection of cost sheets for unfinished jobs makes up a subsidiary ledger controlled by the Work in Process Inventory account in the general ledger.
True

Job order production systems would be appropriate for companies that produce custom homes, specialized equipment, and special computer systems.
True

Minstrel Manufacturing uses a job order costing system. During one month Minstrel purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Minstrel incurred a factory payroll of $150,000, paid in cash, of which $40,000 was indirect labor. Minstrel uses a predetermined overhead rate of 150% of direct labor cost. The journal entry to record the purchase of materials is:
Debit Raw Materials Inventory $198,000; credit Accounts Payable $198,000.

Job A3B was ordered by a customer on September 25. During the month of September, Jaycee Corporation requisitioned $2,500 of direct materials and used $4,000 of direct labor. The job was not finished by the end of the month, but needed an additional $3,000 of direct materials and additional direct labor of $6,500 to finish the job in October. The company applies overhead at the end of each month at a rate of 200% of the direct labor cost incurred. What is the balance in the Work in Process account at the end of September relative to Job A3B?
14500

Andrew Industries purchased $165,000 of raw materials on account during the month of March. The beginning Raw Materials Inventory balance was $22,000, and the materials used to complete jobs during the month were $141,000 direct materials and $13,000 indirect materials. What journal entry should Andrew use to account for direct materials used in March:
Debit Work in Process Inventory $141,000; credit Raw Materials Inventory $141,000.

A job cost sheet shows information about each of the following items except:
The costs incurred by the marketing department in selling the job.

Cost accounting systems used by manufacturing companies are based on the:
Perpetual inventory system.

Minstrel Manufacturing uses a job order costing system. During one month Minstrel purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Minstrel incurred a factory payroll of $150,000, paid in cash, of which $40,000 was indirect labor. Minstrel uses a predetermined overhead rate of 150% of direct labor cost. The journal entry to record the application of factory overhead to production is:
Debit Work in Process Inventory $165,000; credit Factory Overhead $165,000.

Copy Center pays an average wage of $12 per hour to employees for printing and copying jobs, and allocates $18 of overhead for each employee hour worked. Materials are assigned to each job according to actual cost. Jobs are marked up 20% above cost to determine the selling price. If Job M-47 used $350 of materials and took 20 hours of labor to complete, what is the selling price that should be assigned to the job?
1140

Finished goods inventory is $190,000. If overhead applied to these goods is $72,000, and the overhead rate is 120% of direct labor, how much direct materials cost was incurred in producing the inventory?
58000

The production activities for a customized product represent a(n):
Job

The amount by which overhead incurred during a period exceeds the overhead applied to jobs is:
Underapplied overhead.

The Dina Corp. has applied overhead to jobs during the period as follows:
The application of overhead has resulted in a $5,600 credit balance in the Factory Overhead account, and this amount is not material. The entry to dispose of this remaining factory overhead balance is:
Debit Factory Overhead $5,600; credit Cost of Goods Sold $5,600.