Connect - Managerial Accounting Exam (Ch 1-3)

Questions 1-2

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

Listed here are the total costs associated with the 2013 production of 1,000 drum sets manufactured by DrumBeat. The drum sets sell for $568 each.

	Costs
1.	Plastic for casing—$23,000
2.	Wages of assembly workers—$90,000.
3.	Property taxes on factory—$5,000
4.	Accounting staff salaries—$41,000
5.	Drum stands (1,000 stands outsourced)—$43,000
6.	Rent cost of equipment for sales staff—$24,000
7.	Upper management salaries—$215,000
8.	Annual flat fee for maintenance service on factory equipment—$15,000
9.	Sales commissions—$25 per unit, 1,000 units sold.
10.	Machinery depreciation, straight-line—$45,000

1.

Required:
1.	Classify each cost and its amount as (a) either variable or fixed and (b) either product or period. (The first cost is completed as an example.)

		Cost by Behavior		Cost by Function
	Costs	Variable	Fixed	Product	Period
1.	Plastic for casing	$23,000		$23,000
2.	Wages of assembly workers	90,000		90,000
3.	Property taxes on factory		$5,000	5,000
4.	Accounting staff salaries		41,000		41,000
5.	Drum stands	43,000		43,000
6.	Rent cost of equipment for sales staff		24,000		24,000
7.	Upper management salaries		215,000		215,000
8.	Annual flat fee paid for maintenance service on factory equipment		15,000	15,000
9.	Sales commissions	25,000			25,000
10.	Machinery depreciation, straight-line		45,000	45,000

Explanation:

Sales commissions = $25 × 1,000 = $25,000

2.

2.	Prepare the manufacturing cost per drum set.

DrumBeat
Calculation of Manufacturing Cost per Drum Set
For Year Ended December 31, 2013
Item	Total cost	Per unit cost
Variable production costs
Plastic for casing	$23,000	$23
Wages of assembly workers	90,000	90
Drum stands	43,000	43
Total variable production costs	156,000	156
Fixed production costs
Property taxes on factory	5,000	5
Annual fee for maintenance service	15,000	15
Machinery depreciation	45,000	45
Total fixed production costs	65,000	65
Total production cost	$221,000	$221

Listed here are the total costs associated with the 2013 production of 1,000 drum sets manufactured by DrumBeat. The drum sets sell for $568 each.

Per unit cost =  Total cost / 1000

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3.

Shown here are annual financial data at December 31, 2013, taken from two different companies.

   

	Sports World Retail			Sno-Board Manufacturing
Beginning inventory
Merchandise	$	165,000
Finished goods				$	250,000
Cost of purchases		310,000
Cost of goods manufactured					583,000
Ending inventory
Merchandise		160,000
Finished goods					200,000

   

Required:

Prepare the cost of goods sold of the income statement at December 31, 2013, for each company.

Merchandising Business

	SPORTS WORLD RETAIL Partial Income Statement For Year Ended December 31, 2013 Cost of goods sold: Merchandise inventory, December 31, 2012 $165,000 Add: Merchandise purchases 310,000 Goods available for sale 475,000 Less: Merchandise inventory, December 31, 2013 160,000 Cost of goods sold $315,000

Manufacturing Business

	SNO-BOARD MFG. Partial Income Statement For Year Ended December 31, 2013 Cost of goods sold Finished goods inventory, December 31, 2012 $250,000 Add: Cost of goods manufactured 583,000 Goods available for sale 833,000 Less: Finished goods inventory, December 31, 2013 200,000 Cost of goods sold $633,000

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4.

In December 2012, Yerbury Company’s manager estimated next year’s total direct labor cost assuming 45 persons working an average of 2,000 hours each at an average wage rate of $25 per hour. The manager also estimated the following manufacturing overhead costs for year 2013.

  

Indirect labor	$	325,200
Factory supervision		233,000
Rent on factory building		146,000
Factory utilities		94,000
Factory insurance expired		74,000
Depreciation—Factory equipment		520,000
Repairs expense—Factory equipment		66,000
Factory supplies used		74,800
Miscellaneous production costs		42,000
Total estimated overhead costs	$	1,575,000

  

At the end of 2013, records show the company incurred $1,820,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $610,000; Job 202, $569,000; Job 203, $304,000; Job 204, $722,000; and Job 205, $320,000. In addition, Job 206 is in process at the end of 2013 and had been charged $23,000 for direct labor. No jobs were in process at the end of 2012. The company’s predetermined overhead rate is based on direct labor cost.

  

Required
1.a	Determine the predetermined overhead rate for year 2013.

	Predetermined overhead rate Choose Numerator: / Choose Denominator: = Predetermine overhead rate Estimated overhead costs / Estimated direct labor cost = Predetermine overhead rate $1,575,000 / $2,250,000 = 70%

Estimated direct labor cost 

$2,250,000 = [45 × 2,000 × $25]

1.b	Determine the total overhead cost applied to each of the six jobs during year 2013.

	Job No. Direct Labor Overhead cost applied 201 $610,000 $427,000 202 569,000 398,300 203 304,000 212,800 204 722,000 505,400 205 320,000 224,000 206 23,000 16,100 Total $2,548,000 $1,783,600

Overhead cost applied
Direct Labor (1.b) * Predetermine overhead rate (1.a)
example: (Job No. 201) 610,000 * 0.7 = 427,000

1.c	Determine the over- or underapplied overhead at year-end 2013.

	Factory Overhead Actual overhead cost 1,820,000 1,783,600 Applied overhead cost Underapplied overhead 36,400

2.	Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2013.

Date	General Journal	Debit	Credit
Dec. 31	Cost of goods sold	36,400
	Factory overhead		36,400

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

Widmer Watercraft’s predetermined overhead rate for year 2013 is 200% of direct labor. Information on the company’s production activities during May 2013 follows.

  

a.	Purchased raw materials on credit, $200,000.
b.	Paid $129,500 cash for factory wages.
c.	Paid $15,750 cash to a computer consultant to reprogram factory equipment.
d.	Materials requisitions record use of the following materials for the month.

Job 136	$	49,000
Job 137		32,000
Job 138		19,400
Job 139		22,600
Job 140		7,200
Total direct materials		130,200
Indirect materials		20,000
Total materials used	$	150,200

  

e.	Time tickets record use of the following labor for the month.

Job 136	$	12,200
Job 137		10,800
Job 138		38,100
Job 139		39,400
Job 140		3,000
Total direct labor		103,500
Indirect labor		26,000
Total	$	129,500

  

f.	Applied overhead to Jobs 136, 138, and 139.
g.	Transferred Jobs 136, 138, and 139 to Finished Goods.
h.	Sold Jobs 136 and 138 on credit at a total price of $530,000.
i.	The company incurred the following overhead costs during the month (credit Prepaid Insurance for expired factory insurance).

Depreciation of factory building	$	69,000
Depreciation of factory equipment		36,500
Expired factory insurance		10,000
Accrued property taxes payable		36,500

  

j.	Applied overhead at month-end to the Goods in Process (Jobs 137 and 140) using the predetermined overhead rate of 200% of direct labor cost.

5.

Required:
1.	Prepare a job cost sheet for each job worked on during the month.

	Job No. 136 Job No. 137 Job No. 138 Job No. 139 Job No. 140 Materials (d. ↑) $49,000 $32,000 $19,400 $22,600 $7,200 Labor (e. ↑) 12,200 10,800 38,100 39,400 3,000 Overhead (200% of labor) 24,400 21,600 76,200 78,800 6,000 Total cost $85,600 $64,400 $133,700 $140,800 $16,200

6.

2.	Prepare journal entries to record the events and transactions a through j.

Transaction	General Journal	Debit	Credit
a.	Raw materials inventory	200,000
	Accounts payable		200,000
b.	Factory payroll	129,500
	Cash		129,500
c.	Factory overhead	15,750
	Cash		15,750
d.	Goods in process inventory	130,200
	Factory overhead	20,000
	Raw materials inventory		150,200
e.	Goods in process inventory	103,500
	Factory overhead	26,000
	Factory payroll		129,500
f. (hint↓)	Goods in process inventory	179,400
	Factory overhead		179,400
g. (hint↓)	Finished goods inventory	360,100
	Goods in process inventory		360,100
h(1).	Accounts receivable	530,000
	Sales		530,000
h(2). (hint↓)	Cost of goods sold	219,300
	Finished goods inventory		219,300
i.	Factory overhead	152,000
	Accum. depreciation—Factory building		69,000
	Accum. depreciation—Factory equipment		36,500
	Prepaid insurance		10,000
	Property taxes payable		36,500
j.	Goods in process inventory	27,600
	Factory overhead		27,600

f.	To apply overhead to jobs: [($12,200 + $38,100 + $39,400) × 200%] = $179,400
g.	To record completion of jobs: ($85,600 + $133,700 + $140,800) = $360,100
h.	To record cost of sales: ($85,600 + $133,700) = $219,300
j.	To apply overhead to jobs: [($10,800 + $3,000) × 200%] = $27,600

7.

3.

Prepare T-accounts for each of the following general ledger accounts, each of which started the month with a zero balance: Raw Materials Inventory, Goods in Process Inventory, Finished Goods Inventory, Factory Payroll, Factory Overhead, Cost of Goods Sold. Then post the journal entries to these T-accounts and determine the balance of each account.

8.

4.	Prepare a report showing the total cost of each job in process and prove that the sum of their costs equals the Goods in Process Inventory account balance. Prepare similar reports for Finished Goods Inventory and Cost of Goods Sold.

	Reports of Job Costs Goods in Process Inventory Job 137 $64,400 Job 140 16,200 Balance 80,600 Finished Goods Inventory Job 139 140,800 Balance 140,800 Cost of Goods Sold Job 136 85,600 Job 138 133,700 Balance $219,300

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Questions 9-10

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

Elliott Company produces large quantities of a standardized product. The following information is available for its production activities for March.

Raw materials				Factory overhead incurred
Beginning inventory	$	23,000		Indirect materials used	$	82,000
Raw materials purchased (on credit)		270,000		Indirect labor used		50,000
Direct materials used		(169,000	)	Other overhead costs		148,840
Indirect materials used		(82,000	)	Total factory overhead incurred	$	280,840
Ending Inventory	$	42,000
				Factory overhead applied
Factory payroll				(140% of direct labor cost)
Direct labor used	$	200,600		Total factory overhead applied	$	280,840
Indirect labor used		50,000
Total payroll cost (paid in cash)	$	250,600

Additional information about units and costs of production activities follows.

Units			Costs
Beginning goods in process inventory	2,300		Beginning goods in process inventory
Started	38,000		Direct materials	$	4,000
Ending goods in process inventory	5,400		Direct labor		3,400
			Factory overhead		4,760
						$	12,160
Status of ending goods in process inventory			Direct materials added				169,000
Materials—Percent complete	60	%	Direct labor added				200,600
Labor and overhead—Percent complete	55	%	Overhead applied (140% of direct labor)				280,840
			Total costs			$	662,600
			Ending goods in process inventory			$	53,112

During March, 22,000 units of finished goods are sold for $140 cash each. Cost information regarding finished goods follows.

  

Beginning finished goods inventory	$	155,000
Cost transferred in		609,488
Cost of goods sold		(384,340	)
Ending finished goods inventory	$	380,148

9.

Required:

1.

Prepare journal entries dated March 31 to record the following March activities: (a) purchase of raw materials, (b) direct materials usage, (c) indirect materials usage, (d) factory payroll costs, (e) direct labor costs used in production, (f) indirect labor costs, (g) other overhead costs—credit Other Accounts, (h) overhead applied, (i) goods transferred to finished goods, and ( j) sale of finished goods.

Date	General Journal	Debit	Credit
Mar. 31	Raw materials inventory	270,000
	Accounts payable		270,000
Mar. 31	Goods in process inventory	169,000
	Raw materials inventory		169,000
Mar. 31	Factory overhead	82,000
	Raw materials inventory		82,000
Mar. 31	Factory payroll	250,600
	Cash		250,600
Mar. 31	Goods in process inventory	200,600
	Factory payroll		200,600
Mar. 31	Factory overhead	50,000
	Factory payroll		50,000
Mar 31	Factory overhead	148,840
	Other accounts		148,840
Mar 31	Goods in process inventory	280,840
	Factory overhead		280,840
Mar 31	Finished goods inventory	609,488
	Goods in process inventory		609,488
Mar 31	Cash	3,080,000
	Sales		3,080,000
Mar 31	Cost of goods sold	384,340
	Finished goods inventory		384,340

Explanation:

1(h)	Application of overhead at 140% of direct labor cost = $280,840
1(j)	Sales of finished goods (22,000 × $140) = $3,080,000

10.

2. Prepare a process cost summary report for this company, showing costs charged to production, units cost information, equivalent units of production, cost per EUP, and its cost assignment and reconciliation. (Round "Cost per EUP" to 2 decimal places.) Total costs to account for: Costs of beginning goods in process $12,160 Costs incurred this period $650,440 Total costs to account for: $662,600 Total costs accounted for 662,815 Difference due to rounding cost/unit $(215) Unit reconciliation: Units to account for: Beginning goods in process inventory - units 2,300 Units started this period 38,000 Total units to account for 40,300 Total units accounted for: Units completed and transferred out 34,900 Ending goods in process - units 5,400 Total units accounted for 40,300 Equivalent units of production (EUP)- weighted average method Units % Materials EUP- Materials % Labor EUP- Labor % Overhead EUP- Overhead Units completed and transferred out 34,900 100% 34,900 100% 34,900 100% 34,900 Ending goods in process - units 5,400 60% 3,240 55% 2,970 55% 2,970 Total units 40,300 38,140 37,870 37,870 Cost per equivalent unit of production Materials Labor Overhead Cost of beginning goods in process $4,000 $3,400 $4,760 Costs incurred this period 169,000 200,600 280,840 Total costs Costs $173,000 Costs $204,000 Costs $285,600 ÷ Equivalent units of production EUP 38,140 EUP 37,870 EUP 37,870 Cost per equivalent unit of production (rounded to 2 decimals) $4.54 $5.39 $7.54 Total costs accounted for: Cost of units transferred out: EUP Cost per EUP Total cost Direct materials 34,900 $4.54 $158,446 Direct labor 34,900 $5.39 $188,111 Factory overhead 34,900 $7.54 $263,146 Total costs transferred out $609,703 Costs of ending goods in process EUP Cost per EUP Total cost Direct materials 3,240 $4.54 14,710 Direct labor 2,970 $5.39 16,008 Factory overhead 2,970 $7.54 22,394 Total cost of ending goods in process $53,112 Total costs accounted for $662,815