Ch.05 Kinney 9e SM Final

104
Chapter 5
CHAPTER 5
JOB ORDER COSTING
QUESTIONS
1.
Thetwochoicesforcostaccumulationarethejoborderandprocesscosting
systems. A company should use job order costing when it is necessary and
possibletotracecoststoproductsmadeforindividualcustomers,andwhenthe
products madeforonecustomerareverydifferent fromthosemadeforother
customers.
Aprocesscostingsystemisappropriateforproductionenvironmentsthatmake
homogeneousproducts,usuallyinlargequantities,inbatchorcontinuousflow
systems.
2.
Thethreevaluationmethodsareactual,normal,andstandardcosting.Inactual
costing,theactualamountsofmaterial,labor,andoverheadcostsareassignedto
production. In normal costing, the actual amounts of material and labor are
assigned to production; however, overhead is applied to products using a
predeterminedoverheadrate(ratherthanusingtheactualamount).
Instandardcosting,standard(orexpectednorm)amountsareestablishedfor
material,labor,andoverheadcostsand/orquantitiesandarechargedtoproduction
ratherthantheactualcosts.Thestandardforoverheadisthepredeterminedrate
(orrates)forthecompany.Actualcostsareaccumulatedinastandardcosting
systemsothattheymaybecomparedwithstandardcoststodeterminedfavorable
andunfavorablevariances.
3.
Theprincipaldocumentsarejobordercostsheets,materialrequisitionforms,
andemployeetimesheets.Ajobordercostsheetprovidesalldetailsforaspecific
jobandisusedtotracktheactualcostsofdirectmaterialanddirectlabor,and
eitheractualorappliedmanufacturingoverheadassociatedwithaparticularjob;
suchamountsmaybecomparedtobudgetedcosts.Materialrequisitionformsare
usedtoinitiatetheremovalofthematerialfrominventoryforuseinaparticular
job. Employee time sheets are used to track the time worked by individual
employeestospecificjobs.
4.
Jobordercostinginformationallowsmanagerstobetterestimatethecostsof
producingproductsandofservingspecificcustomers.Thisinformationcanbe
used to manage costs, identify which customers generate the most profitable
business,andsetpricesforproductsandservices.
5.
Ifnormalspoilageisgenerallyanticipatedonalljobsinajobordercosting
system,theestimatedoverheadusedinsettingthepredeterminedoverheadrate
shouldincludeanamountforthenetcostofthespoilage.Thistreatmentallows
thecostofnormalspoilagetobespreadoveralljobsproduced.Incontrast,if
spoilageisrelatedtoasinglejob,thecostofthatspoilageshouldbeassignedto
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accessible website, in whole or in part.
105
Chapter 5
thejobthatgaverisetothespoilage.
6.
Normalspoilagereferstoanexpectedreductioninproductionquantitybased
onacompanysproductiontechnology,qualityofmaterialandlaborused,and
production practices. The level of such a loss may be established from
management or engineering; given cost/benefit analysis, management has
generallyconcludedthatacertainlevelofdefectsislessexpensivethantryingto
prevent all defects from occurring. Because normal spoilage is expected, an
estimateforthelossisgenerallyincludedinthedevelopmentofthepredetermined
overheadrate.
Alternatively, abnormal spoilage refers to a loss level above that which is
normallyexpected.Suchlossesaremorelikelytobepreventableand,thus,need
tobebroughttomanagementsattentionbyshowingtheamountofthelossasa
periodcost.
7.
When standards are used in a job order costing system, cost and quantity
standardsmaynotbeabletobedeterminedformaterialandlabor.Standardscan
onlybeusedifelementsofthejobsproducedhavesomecommoncharacteristics.
Thus, if many jobs use the same direct material, a price standard might be
developedforthatmaterial.However,thejobsmayuseverydifferentquantitiesof
thatmaterial,andthus,noquantitystandardcanbedeveloped.Alternatively,a
companymaypaythesamewageratetoallworkersperformingtasksinaspecific
departmentandalljobsflowthroughthatdepartment;insuchacase,alaborwage
standardcanbedeterminedbutpossiblynotalaborhourquantitystandard.
8.
Inastandardcostingsystem,variancesidentifytheareasofefficiencyand
inefficiency in production operations. Managers, using the concept of
managementbyexception,focustheirattentiononthesignificantvariancesand
attempttodeterminecausesofthosevariances(bothfavorableandunfavorable).
Additionally,managerswilllookforinteractionsbetweenoramongthevariances.
Byconcentratingonthesignificantvariances,managers areabletoisolatethe
aspectsofoperationsthatareoutofcontrolandtrytocorrectthecauses.
Chapter 5
106
EXERCISES
9. a.joborder
b.
joborder
c.
process
d.
joborder
e.
joborder
f.
joborder
g.
joborder
h.
process
i.
joborder
j.
process
k.
joborder
l.
process
m. process
n.
joborder
o.
joborder
p.
joborder
q.
process
10.
Two characteristics of the proposal are critical in

advisingLondonaboutacostingsystem:theexpectedhighsalesvolumeandthe
repetitive nature of production implied by that high sales volume. These
characteristics indicate that Londons best choice would be to use a process
costing system and standard cost valuations. Standard costing would benefit
Londonbecauseitwouldhelpidentifyinefficienciesinproductionoperationsand
helpheridentifywaystoreduceproductioncosts.
The homogeneous nature of the product makes the use of job order costing
unnecessary(itshighercostisnotjustified).
11. Each student will have a different answer, depending on the particular yacht
selected. Some will discuss the yachts size; others will discuss the interior
finishes; others will discuss the navigation equipment. The $23.9 million
RichmondLadyHull#52008(http://richmondyachts.com/pdf/142RICHMOND
LADYBOATSHOWPRICE.pdf) provides numerous features upon which
studentscanfocus.
12. a. Employeetimecard
b.
Inventory
c.
d.
e.
f.
g.
h.
i.
WorkinProcessInventoryControlorFinishedGoods
RawMaterialInventory
Jobordercostsheet
ManufacturingOverheadControl
Jobordercostsheet
FinishedGoodsInventoryorCostofGoodsSold
ManufacturingOverheadControl
107
Chapter 5
j.
WorkinProcessInventoryControl
13. a.Thedirectmaterialchargeof$658,000ishigherthantheestimateby$158,000.
Assumingthattherewerenoerrorsintheestimatedandactualamounts,then
either the price paid for the material or the quantity of material used was
substantiallyhigherthanexpected.Tobeginthevalidationprocess,detailsof
theoriginalestimatetoidentifypricesandquantitiesofmaterialforthisjob
wouldneedtobeexamined.
Thestartingpointtovalidatethematerialpricesandquantitiespurchasedisto
examine vendor invoices billed to Quindo. These invoices will validate
materialpurchasequantitiesandpricespaidbyQuindo.Additionally,material
requisition forms should be examined to validate the quantity of material
actuallyusedinproduction.Next,anexaminationofthematerialcost(material
quantity multiplied by material price) on the job order cost sheet should
reconciletothequantityofmaterialshownonthematerialrequisitionforms.
b.
Thedirectlaborchargeof$625,000ishigherthanthe
estimateby$225,000.Assumingthattherewerenoerrorsintheestimatedand
actual amounts, then either the hourly rate paid to or the number of hours
workedbyemployees was substantially higherthanexpected. Tobeginthe
validationprocess,detailsoftheoriginalestimatetoidentifyratesandhoursfor
laboronthisjobwouldneedtobeexamined.
Thestartingpointtovalidatethelaborratesandhoursworkedistoexamine
employeetimesheets(orotherlaboraccumulationdocuments).Thetimesheets
willvalidatewhichemployeesworkedonthejobandforwhatperiodoftime.
A discussion with the payroll manager should help ascertain the actual or
averagewageratespaidtoemployees.PossiblysomeofQuindosemployees
whowerelistedasworkingonthejobshouldbeinterviewedtodeterminethe
accuracyofthetimesheets.
c.
The predetermined overhead rate could have been

manipulatedtoahigherratebyusingalowerdenominatorlevelofactivitythan
was appropriate. Additionally, inappropriate costs (such as period costs in
additiontoproductoverheadcosts)couldhavebeenincludedinthenumerator.
Alargeestimateforspoilageanddefectcostsmightalsohavebeenincludedin
thenumeratorwhen,infact,suchcostsrarelyoccuratQuindoIndustries.
d.
Thecompanysbehaviorisatbestquestionable.Given
thatthedifferencebetweenactualandestimateddirectmaterialcostwaslikely
known at the point of purchase, Quindo should have notified Salem Corp.
immediatelyoftheexcessiveincreaseincost.Similarnotificationshouldhave
been provided when it was seen that direct labor and machine times were
higherthanexpected.
14.a.RawMaterialInventory
204,000
Chapter 5
108
AccountsPayable
204,000
WorkinProcessInventory#4263
ManufacturingOverhead
163,800
1,870
12,460
Cash(3,720$15)
54,000
1,800
Cash($18,000+$7,200+$9,500)
AccumulatedDepreciation
WagesPayable
68,700
64,800
2,160
178,130
55,800
34,700
21,500
12,500
66,960
b. RMInventory=$4,300+$204,000$163,800$12,460$1,870=$30,170
c.
BecausethecompanyworkedonlyonJob#4263until
theendofApril,all costs inbeginningWIPforotherjobs arestillinthat
accountattheendofthemonth.
BeginningWIP
LesscostsassociatedwithJob#4263
Costsassociatedwithotherjobs
CostsforJob#4264($1,870+$1,800+$2,160)
EndingWIP
$11,400
(800)
$10,600
5,830
$16,430
d. CGM=BeginningWIP+CurrentperiodcostsEndingWIP
=$11,400+$163,800+$1,870+$55,800+$66,960$16,430
=$283,400
Unitcost=$283,40010,000=$28.34
e. AppliedOHActualOH=$66,960 ($12,460 + $68,700) =$14,200
underapplied
15. a.OHrate=$134,400$96,000=140%ofdirectlabor
b.EndingWIPbalance:
DM
DL
OH($18,1001.40)
Endingbalance
c.
completed
$37,725
18,100
25,340
$81,165
CGM=Beg.WIP+CurrentcostsCostofjobs
109
Chapter 5
=$0+$138,600+$96,000+$134,400$81,165
=$287,835
AccountsPayable
76,000
76,000
WIPJob#217
WIPJob#218
WIPotherjobs
DirectMaterialInventory
44,800
7,200
53,600
WIPJob#217
WIPJob#218
WIPotherjobs
Cash(orWagesPayable)
10,400
14,000
19,600
Variousaccounts
105,600
44,000
220,000
220,000
WIPJob#217
WIPJob#218
WIPotherjobs
51,480
69,300
97,020
217,800
(ActualrateperDL$=$44,000$4.95)
FinishedGoodsInventory
WIPInventoryJob#217
($11,200+$44,800+$10,400+$51,480
117,880
117,880
=$117,880)
Cash
Sales
159,138
CostofGoodsSold
117,880
159,138
($117,8801.35=$159,138)
b.
117,880
EndingWIP=Beg.WIP+CurrentcostsCostofJob
#217completed
=$16,800+$105,600+$44,000+$217,800$117,880
=$266,320
EndingbalanceinJob#218=$5,600+$7,200+$14,000+$69,300
=$96,100
17.a.OHrate=$127,6807,600=$16.80perDLH
b. AverageDLrate=$159,6007,600=$21perDLH
c. 15,200($21.00+$16.80)=15,200$37.80=$574,560
Chapter 5
DL&OH$916,650$574,560=$342,090DMinbeginningWIP
d. IfworkersonthejobinendingWIPareassumedtobepaidtheaverageDL
rate,thentheendingWIPbalanceis:
DM
DL(2,850$21)
OH(2,850$16.80)
Endingbalance
$73,250
59,850
47,880
$180,980
e. CGM=Beg.WIP+CurrentperiodcostsEnd.WIP
=$916,650+$589,670+$159,600+$127,680$180,980
=$1,612,620
18.a.CGSistheamountcreditedtoFinishedGoodsInventoryfortheyear.
CGS=$1,890,000
b. Beg.FG+CGMEnd.FG=CGS
$90,000+CGM$57,000=$1,890,000
CGM+$33,000=$1,890,000
CGM=$1,857,000
c. AppliedOH=$395,0001.40=$553,000
d. Beg.WIP+DMused+DL+OHEnd.WIP=CGM
$56,000+DM+$395,000+$553,000$27,640=$1,857,000
DM+$976,360=$1,857,000
DM=$880,640
e. Beg.DM+PDMused=End.DM
$24,600+P$880,640=$4,100
P$856,040=$4,100
P=$860,140
19. a.CGS=0.75Sales=0.75($1,598,000)=$1,198,500
b. Beg.FG+CGMEnd.FG=CGS
$68,900+CGM$165,600=$1,198,500
CGM$96,700=$1,198,500
CGM=$1,295,200
c. JobB325:AppliedOH=85%ofDL$=0.85(128$12.90)=0.85$1,651.20
=$1,403.52
JobQ428:AppliedOH=85%ofDL$=0.85(240$12.90)=0.85
$3,096.00=$2,631.60
d.
DM
DL
JobB325 Q428
$21,980.00 $14,700.00
1,651.20
3,096.00
111
Chapter 5
OH
1,403.52
$25,034.72
2,631.60
$20,427.60
e. CGM=Beg.WIP+DMused+DL+OHEnd.WIP
$1,295,200=$14,600+DMused+$12.90(25,760)+0.85($12.9025,760)
($25,034.72+$20,427.60)
$1,295,200=$14,600+DMused+$332,304+$282,458.40$45,462.32
$1,295,200=$583,900.08+DMused
DMused=$711,299.92
Beg.DM+PurchasesDMused=End.DM
$19,500+$843,276$711,299.92=End.DM
End.DM(destroyed)=$151,476.08
20. a.
DM
DL($190perhour)
OH($150percourthour)
Totals
b.
DM
DL(174$190)
OH(72$150)
Totalcost
Markup(45%)
Totalbilledtoclient
Case#1
$480
7,600
1,800
$9,880
Case#2 Case#3 Case#4

$8,800 $3,700 $850
17,100
13,300
2,850
9,750 18,000
6,000
$35,650 $35,000 $9,700
$10,100
33,060
10,800
$53,960
24,282
$78,242
21. a.Overheadrate=BudgetedOHBudgetedDL$
$4.25=$1,275,000BudgetedDL$
BudgetedDLcost=$1,275,000$4.25
BudgetedDLcost=$300,000
Overheadrate=$1,275,000$300,000=$4.25perDL$
b.
WorkinProcessInventory
96,475
96,475
($22,700$4.25=$96,475)
c.
$4.253,900=$16,575
d.Beginningbalance
Directmaterial
Directlabor
Manufacturingoverhead
Endingbalance
22.a.Directmaterial
$18,350
29,600
3,900
16,575
$68,425
$2,850
Chapter 5
Directlabor($800$20=40DLHs)
Appliedoverhead($1740)
TotalcostofJob#920
800
680
$4,330
$9,175
b. BIofWIP[$8,250+$500+($1725)]
Directmaterial
Directlabor($6,300$20=315DLHs)
Appliedoverhead($17315)
$21,650
6,300
5,355
EIofWIP
Costofgoodsmanufactured
c.
Actualoverhead
Appliedoverhead
OverappliedOH
33,305
$42,480
(4,330)
$38,150
$5,054
(5,355)
$301
23. a.Mixing:$480,00060,000=$8perMH
Paving:$700,00028,000=$25perDLH
b. Mixing(290MHs$8)
Paving(340DLHs$25)
Totaloverheadapplied
$2,320
8,500
$10,820
c. ($480,000+$700,000)(60,000+12,000)=$1,180,00072,000=$16.39
$16.39334=$5,474.26appliedtoJob#220
Aplantwideratewouldnothavebeenindicativeoftheactualcostofeachjob
because the Mixing department is very machineintensive while the Paving
departmentisverylaborintensive.
24. a.Department1=$465,00030,000MHs=$15.50perMH
Department2=$380,60022,000DLHs=$17.30perDLH
b.RawMaterialInventory
AccountsPayable
346,000
346,000
WorkinProcessInventoryJob#462
WorkinProcessInventoryotherjobs
19,000
321,000
Cash(285$11)
275
2,860
OverheadControl(2,400$15.50)
4,960
32,240
2,844
340,000
3,135
37,200
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Chapter 5
Cash(1,430$18)
22,896
OverheadControl(180$17.30)
346
2,768
FinishedGoodsInventoryJob#462
($19,000+$275+$4,960+$2,844+$346)
27,425
AccountsReceivablePower
Sales($27,4251.20)
32,910
CostofGoodsSold
FinishedGoodsInventoryJob#462
27,425
25,740
3,114
27,425
32,910
27,425
c.Costperunit=$27,425500=$54.85
Sellingpriceperunit=$65.82
Rawmaterial=$19,000500=$38
d. TotalRMissued
Totalunits(500+20,000)
RMcostperunit
$340,000
20,500
$16.59(rounded)
Totalcostperunit=$54.85$38.00+$16.59=$33.44
Sellingpriceperunit=$33.441.2=$40.13(rounded)
Saleswithouterror
Saleswitherror(500$40.13)
Totalsavingsoftheerror
$32,910
(20,065)
$12,845
25. a. Currently, Bonivo has no data on the actual cost of building any of the
computersbeingconfigured.Consequently,thecompanyisunabletodetermine
theactualprofit(loss)generatedonanysalestransaction.Thejobordercosting
systemwouldallowBonivotobetterunderstandwhatfactorsdrivecostsinthe
firm, measure the profit on sales transactions, and identify ways to better
managecostsandrevenues.
b.
Apricingpolicythatignoresthecostsofdirectlabor
and overhead(in addition tomarketing andadministrative costs)is flawed.
OnlyifDLandOHarestrictlyproportionaltodirectmaterialcouldtheircosts
not be considered in determining the price and profit of each computer.
However,inthis case,thesecostsarelikelyamajorportionofthecostof
buildingamadetoordercomputer.
26. a. Secretary($4,800160hrs.35hrs.)
$1,050
Chapter 5
87
145
2,100
18,050
$21,432
Copies(1,450pages$0.06perpage)
Phonecalls
Overhead($9,600160hrs.35hrs.)
Attorneystime($19095hrs.)
Totalcharges
ThismeansConroewouldbecharging$21,43295=$225.60or$230per
hour(rounded).
TotalbilltoOlivgra=95hours$230=$21,850
b. Directcosts($87+$145+$18,050)
Allocatedsecretarialcosts
Allocatedoverhead
Margin[($18,282+$2,100)0.40]
Totalbilling
c.
$18,282
1,050
2,100
8,153
$29,585
A flat charge per hour would be more likely to be

acceptabletoclientsbecausesuchachargeismoreunderstandablethanbeing
chargedanhourlyrateplusachargeforthetimethatisnotreallybeingspent
ontheircases.
27. Each student will have a different answer, but the memo should address the
followingissue:Budgetedcostisfarbeloweachjobsactualcost,whichindicates
thatthecompanyisnotusingpastjobinformationasabasisforeithercontrolling
costsorincreasingfuturebidprices.Bynotusingavailablehistoricalinformation
toadjustoperations,thecompanyisacceptingmarginaljobs.Althougheachjob
generatedapositivegrossmargin,theactualgrossmarginisonlyasmallfractionof
thebudgetedgrossmargin.Itisimportantthatacompanylearnfrompastmistakes.
28.a.Someofthecompanies thathavebeenfoundtoengageinthispractice are
FamilyDollar,PepBoys,TacoBell,ToysRUs,andWalmart.
b.
Itiseasiertodoctortherecordsnowthaninthepast
becauserecordsarecomputerizedandmanagersgenerallyhaveaccesstothe
files.Previously,managerswouldhavehadtoconspirewithpayrollclerksor
accountantstochangepaperorpunchcardrecords.
c.
Each student will have a different answer. However,

moststudentswillprobablyindicatethatstoremanagersmakingsuchchanges
wouldbefired(shortrun).Forthelongrun,ethicstrainingwouldprobablybe
recommendedandpossiblyachangeinthewaystoremanagersbonusesare
computed.
29.a.ManufacturingOverhead
WagesPayable
1,150
WIPJob#BA468
1,150
b.
250
900
250
115
Chapter 5
WagesPayable
900
Giventhatthereworkcostswerenotnecessarytothecompletionofthejob,
SanAngeloCorp.shouldprobablynotchargeitsmarkuppercentageonthe
$1,150ofreworkcostsunlessthecustomerhadalreadybeeninformedthatsuch
chargesmightbechargedandthecustomerhadagreedtosuchcharges.
c. LossonAbnormalRework
WagesPayable
1,150
250
900
30.a.PredeterminedOHrate=$1,421,000145,000=$9.80perMH
Directmaterial
Directlabor
Overhead(325$9.80)
Totalcost
$47,500
21,800
3,185
$72,485
Perunitcost=$72,4851,500=$48.32(rounded)
b.
The $750 rework cost is included in Manufacturing

OverheadControl.
c.
Totaloriginalcost
Costofnew30units
1,390
Lesssaleofdefectiveunits(240)
TotalcostofJob#876
$73,635
$72,485
31.a. The estimated cost of the spoilage should be included in calculating the
predeterminedoverheadrate.Thisapproachspreadsthecostofspoilageacross
allgoodunitsproduced.
b.
Thecostofthisspoilageshouldbechargedtothespecific
job.Sincethereisnosalvagevalueforthespoilage,nojournalentrywouldbe
necessaryasthecostofthespoiledunitswouldbeincludedinthepriorcharges
tothejobfordirectmaterials,directlabor,andmanufacturingoverhead.
c.
In this case, the spoilage is unexpected and the net cost

shouldberecordedasalossoftheperiodinwhichitoccurred.Anysalvage
valueassociatedwiththespoilagewillreducetheamountoftheloss.Torecord
thetransaction,workinprocess(andthespecificjobsjobordercostsheet)
shouldbecreditedforthecostofthespoilageandtheexpected,netsalvageof
the spoilage should be debited (Disposal value of defective work). A loss
account(e.g.,LossfromAbnormalSpoilage)shouldbedebitedtobalancethe
transaction.
32. Astandardcostingsystemismostappropriateinproductionsettings inwhich

activitiesarerepetitive.ThatcriterionismetinthecaseofLatamoreIndustries.
Developmentofsuchstandardsrequiresthatreliableexpectationsaboutinputcost
amounts and quantities be determined for the more routine aspects of client
services.Oncethestandardsaredeveloped,actualcostsandinputquantitiescan
Chapter 5
be compared against the standards to better understand the causes of cost

variability across the contracts. Better identification and understanding of the
causesofvarianceswillallowmanagerstomanagecostsmoreeffectivelyand
pricecompanyservicesmoreappropriately.
33. MPV=ActualcostforpaperpurchasedStandardcostforpaperpurchased
=($0.032980,000)($0.036980,000)=$31,360$35,280
=$3,920.
Sinceactualcostwaslessthanstandard,thevarianceisfavorable.
MQV=ActualcostforpaperusedStandardcostforpaperthatshouldhave
beenused=($0.036980,000)($0.036984,000)=$35,280$35,424
=$144.
Sinceactualpaperusagewaslessthanthestandardallowed,thevarianceis
favorable.
34. a.Totalpayroll=9,000$9.65=$86,850
b. LRV=ActualpayrollStandardcostforactualhoursworked=$86,850
($9.859,000)=$86,850$88,650=$1,800.
Sincedirectlaboremployeeswerepaidlessthanthestandardrate,thevariance
isfavorable.
c.LQV=StandardcostforactualhoursworkedStandardcostforstandard
hoursallowedforproduction=$88,650($9.858,600)=$88,650
$84,710=$3,940.
Sincethenumberofhoursworkedwasgreaterthanthestandardhoursallowed,
thevarianceisunfavorable.
d.Oneconcernwouldbethereasonthecompanywaspayingitsworkerslessthan
the standard rate per hour. The other concern would be that the workers,
recognizingthattheywerebeingpaidlessthanthestandard,chosetowork
moreslowlythantheynormallywould,tocompensate(relativetototalwages)
forthereducedwage.Ifthissituationisthecase,thecompanywouldhavebeen
betteroffpayingthestandardratebecausetheactualpayrollwas($86,850
$84,710)or$2,140greaterthanthestandardwouldhavebeen.
117
Chapter 5
PROBLEMS
35. RawMaterialInventory
AccountsPayable
790,000
790,000
570,000
120,000
WagesPayable
794,000
80,000
WorkinProcessInventory($794,0000.55)
436,700
570,000
120,000
874,000
436,700
1,046,000
CostofGoodsSold
1,046,000
Cash
Sales
1,342,000
1,046,000
1,046,000
1,342,000
36.a.$82,0008,000DLHs=$10.25perDLH
b. DirectMaterialInventory
AccountsPayable
90,000
Cash
75,600
Variousaccounts
82,000
82,000
($2,000+$90,000$3,500)
88,500
CGM=BWIP+DM+DL+OHEWIP
CGM=$10,500+$88,500+$75,600+$82,000
$7,750=$248,850
90,000
75,600
82,000
82,000
248,850
88,500
248,850
Chapter 5
AccountsReceivable
Sales
CostofGoodsSold
c. BeginningFG
CGM
CGS
EndingFG
350,400
350,400
243,700
243,700
$6,500
248,850
(243,700)
$11,650
37.a.9/1RawMaterialInventory
AccountsPayable
9/4 WorkinProcessInventory
Issuancesmadetojobsasfollows:
#75,$289,600;#78,$252,600;
#82,$992,200;#86,$312,400
1,940,000
1,940,000
1,846,800
53,200
1,900,000
9/15WorkinProcessInventory
Cash
Laborchargedtojobsasfollows:
#75,$84,600;#78,$267,200;
#82,$203,000;#86,$110,800
665,600
91,400
Overheadappliedtojobsasfollows:
#75,$120,750;#78,$329,000;
#82,$253,750;#86,$128,500
832,000
757,000
832,000
9/15 FinishedGoodsInventory
1,081,350
($586,400+$289,600+$84,600+$120,750)1,081,350
AccountsReceivable
Sales($1,081,3501.3)
1,405,755
CostofGoodsSold
1,081,350
1,405,755
9/20 ManufacturingOverhead
AccountsPayable
Cash
110,200
196,800
9/24 RawMaterialInventory
AccountsPayable
624,000
716,400
55,800
1,081,350
307,000
624,000
119
Chapter 5
Issuancesmadetojobsasfollows:
#78,$154,800;#82,$212,600;#86,$349,000
9/30 ManufacturingOverhead
AccumulatedDepreciation
PrepaidInsurance
Taxes&LicensesPayable
Cash
Laborchargedtojobsasfollows:
#78,$177,400;#82,$228,400;
#86,$243,600
772,200
1,206,800
649,400
65,000
Toapplyoverheadtojobsasfollows:
#78, $111,750; #82, $170,625;
#86, $124,750
b.
Bal.
9/1
9/24
Bal.
332,400 9/4
1,940,000 9/25
624,000
224,200
Bal.
9/4
9/15
9/15
9/25
9/30
9/30
Bal.
1,512,600 9/15
1,846,800
665,600
832,000
716,400
649,400
407,125
5,548,575
Bal.
#75
Bal.
Bal.
DM
DL
OH
Bal.
407,125
809,000
165,400
232,400
714,400
407,125
1,900,000
772,200
1,081,350
CostofGoodsSold
4,864,000
1,081,350
5,945,350
Job#75
586,400
289,600
84,600
120,750
0
1,081,350
Job#78
Chapter 5
Bal.
DM
DL
OH
DM
DL
OH
120
Bal.
266,600
252,600
267,200
329,000
154,800
177,400
111,750
1,559,350
Bal.
DM
DL
OH
DM
DL
OH
Bal.
Job#82
659,600
992,200
203,000
253,750
212,600
228,400
170,625
2,720,175
DM
DL
OH
DM
DL
OH
Bal.
Job#86
312,400
110,800
128,500
349,000
243,600
124,750
1,269,050
c. ScheduleofJobCostRecords
September30,2013
Job#78
$1,559,350
Job#82
2,720,175
Job#86
1,269,050
Total
$5,548,575
d. ActualoverheadforSeptember
9/4
9/15
9/20
9/25
9/30
9/30
AppliedoverheadforSeptember
9/15
9/30
Underappliedoverhead
$53,200
91,400
110,200
55,800
1,206,800
65,000
$1,582,400
$832,000
407,125
(1,239,125)
$343,275
542,000
121
Chapter 5
Cash
Wages/SalariesPayable(orCash)
TorecordDLforjobs(Job#247,$17,400;
#251,$8,800;#253,$21,000;
#254,$136,600;#255,$145,000;
#256,$94,600;and#257,$179,400)
542,000
54,000
602,800
76,000
466,400
TorecordDMforjobs(Job#247,$12,400;
#251,$6,200;#253,$16,800;#254,$105,200;
#255,$119,800;#256,$72,800;
and#257,$133,200)
Variousaccounts
TorecordOHcostsotherthan
indirectlaborandindirect
materials($244,400$54,000$76,000)
542,400
114,400
114,400
241,120
ToapplyOHatarateof$0.40perDL$
(Job#247,$6,960;#251,$3,520;#253,$8,400;
#254,$54,640;#255,$58,000;
#256,$37,840;and#257,$71,760)
(Seeschedulebelow.)
1,779,040
Cash
Sales
2,264,774
CostofGoodsSold
1,779,040
Job
247
251
253
254
255
Totals
656,800
ScheduleofCompletedJobs
DirectMaterial DirectLabor AppliedOH
$89,600
$108,800
$43,520
182,800
218,600
87,440
162,200
190,600
76,240
105,200
136,600
54,640
119,800
145,000
58,000
$659,600
$799,600
$319,840
241,120
1,779,040
2,264,774
1,779,040
Total
$241,920
488,840
429,040
296,440
322,800
$1,779,040
Chapter 5
Job
256
257
Totals
122
DirectMaterial DirectLabor
$72,800
$94,600
133,200
179,400
$206,000
$274,000
c. Actualoverhead
Appliedoverhead
Underappliedoverhead
Unadjustedcostofjobscompleted
Adjustedcostofjobscompleted
39.a.
BI
Purchases
Available
Issuances
EI
AppliedOH
$37,840
71,760
$109,600
$244,400
(241,120)
$3,280
1,779,040
$1,782,320
Aluminum Steel Other

$8,300
$12,800 $5,800
98,300
26,500 23,550
$106,600
$39,300 $29,350
(58,700) (34,200)
(25,900)
$47,900
$5,100 $3,450
b.Directmaterial
Directlabor(8$15)
Overhead(16$30)
Total
Material
$1,900
1,240
$3,140
Total
$26,900
148,350
$175,250
(118,800)
$56,450
$620
120
480
$1,220
c.WIPbeginning*
Directmaterial(totalissuances)
Directlabor(680$15)
Overhead(1,200$30)
Totalmanufacturingcosts
WIPending
FGbeginning
Costofgoodsavailableforsale
FGending
Costofgoodssold
*Job#
411
412
Total
$205,240
384,360
$589,600
$6,230
118,800
10,200
36,000
$171,230
(1,220)
$170,010
23,800
$193,810
(0)
$193,810
Labor
$540
150
$690
OH
$1,500
900
$2,400
Total
$3,940
2,290
$6,230
40. a.Usinganyofthejobs,onecandeterminethattherelationshipbetweendirect
laborandappliedoverheadisthatoverheadis115percentofdirectlaborcost.
Forexample,usingjob#67:$15,916$13,840=1.15.
b.Directmaterial
Directlabor
Appliedoverhead
$25,800
7,200
8,280
123
Chapter 5
Total
$41,280
c. Totaldirectmaterial
LessdirectmaterialinBI
Totaldirectlabor
LessdirectlaborinBI
TotaldirectcostaddedduringMay
$513,834
(25,800)
$93,720
(7,200)
d. Workinprocessbeginning
CostsaddedduringMay:
Directmaterial
Directlabor
Appliedoverhead($86,5201.15)
$488,034
86,520
$574,554
$41,280
$488,034
86,520
99,498
674,052
$715,332
Workinprocessending
[$308,430+$57,000+($57,0001.15)]
(430,980)
$284,352
a.Fabrication:$1,560,000104,000MHs=$15perMH
Assembly:$1,760,000320,000DLHs=$5.50perDLH
41.
b.Job#2296:
Fabrication(900hours@$12)
Assembly(850hours@$10)
TotalDL
$10,800
8,500
$19,300
Job#2297:
Assembly(400hours@$10)
TotalDL
$5,520
4,000
$9,520
Fabrication(1,800hours@$15)
Assembly(850hours@$5.50)
TotalOHapplied
$27,000
4,675
$31,675
Assembly(400hours@$5.50)
TotalOHapplied
$13,500
2,200
$15,700
c. Job#2296:
Job#2297:
d.
Directmaterial
Directlabor
Overhead
Total
e. Fabrication:
Assembly:
Job#2296 Job#2297
$118,500
$147,200
19,300
9,520
31,675
15,700
$169,475
$172,420
Applied(103,200$15)
Actual
Overapplied
$1,548,000
(1,528,000)
$20,000
Applied(324,000$5.50)
Actual
Underapplied
$1,782,000
(1,790,000)
$(8,000)
Thecompanyhasoverappliedoverheadof$12,000fortheyear.
Chapter 5
124
42. a.JobCostSheetJob#515
CustomerNameandAddress:
DescriptionofJob:Preparesite,
CityofGulfShores,Alabama
buildandinstallapedestrian
overpassinGulfShores:seebid
specificationsfordetails
ContractAgreementDate:5/13
ScheduledStartingDate:7/13
AgreedUponCompletionDate:12/15/13
ContractPrice:$3,300,000
ActualCompletionDate:___
SpecialInstructions:None
DirectMaterial(Est.$1,240,000)
Date
Source
2013July31
Summaryofmaterialreq.
DirectLabor(Est.$670,000)
Date
Source
Cost
2013July31 Summary
oftime
sheetsfor
directlabor $175,040
Directmaterial
Directlabor
Overhead
Totals
Cost
$121,800
Overhead(Est.$402,000)
Date
Source
2013July31 Journal
entryof
7/31/13
Summary(asof7/31/13)
Actual Budget Under(Over)
$121,800
$1,240,000
175,040
670,000
105,024
402,000
$401,864
$2,312,000
b.WorkinProcessJob#515
WorkinProcessotherjobs
WorkinProcessJob#515
SalariesandWagesExpense
SalariesandWagesPayable
121,800
457,500
579,300
175,040
408,960
55,800
39,600
679,400
DepreciationExpense
AccumulatedDepr.Const.Assets
AccumulatedDepr.OfficeAssets
26,400
7,800
SalesPromotionExpense
11,100
26,400
7,800
Cost
$105,024
125
Chapter 5
AccountsPayable
11,100
AdvertisingExpense
Cash
6,600
6,600
SuppliesInventory
18,600
MiscellaneousExpense
AccountsPayable
10,200
10,200
UtilitiesExpense
UtilitiesPayable
1,800
5,400
7,200
105,024
245,376
350,400
AccountsReceivable
Sales
c.
18,600
1,224,000
1,224,000
CostofGoodsSold
829,000
WorkinProcessbeginning
Productioncosts:
Directmaterial
Directlabor
Appliedoverhead
$871,800
Workinprocessending
829,000
829,000
829,000
$579,300
584,000
350,400
1,513,700
$2,385,500
(1,556,500)
$829,000
d. BirminghamContractors
IncomeStatement
FortheMonthEndedJuly31,2013
Revenuesfromcompletedprojects
Lesscostofgoodssold
Grossmarginoncompletedjobs
Nonproductionexpenses:
Salariesandwagesexpense
$39,600
Depreciationexpense
7,800
Utilitiesexpense
1,800
Salespromotionexpense
11,100
Advertisingexpense
6,600
$1,224,000
(829,000)
$395,000
Chapter 5
Miscellaneousexpense
Incomebeforeincometaxes
Incometaxes(40%)
Netincome
43.
126
10,200
a.Job#2019:
Design($81,60030%)
Production(720$15)
Installation($10,08090%)
$24,480
10,800
9,072
$44,352
Job#2020:
Design($69,36030%)
Production(2,400$15)
$20,808
36,000
10,368
$67,176
Job#2021:
Design($73,44030%)
Production(960$15)
$22,032
14,400
13,680
$50,112
(77,100)
$317,900
(127,160)
$190,740
127
Chapter 5
Actual
Applied
(Over)/underapplied
Design Production
Installation
$105,600 $60,000 $31,200
(67,320)
(61,200)
(33,120)
$38,280 $(1,200) $(1,920)
ActualOHforcompany
AppliedOHforcompany
TotalcompanyunderappliedOH
$196,800
(161,640)
$35,160
b.WorkinProcess(Design)Job#2019
WorkinProcess(Design)Job#2020
9,600
8,200
17,600
WagesPayable
81,600
69,360
73,440
24,480
20,808
22,032
35,400
224,400
67,320
WorkinProcess(Prod.)Job#2019
116,400
268,800
232,000
WagesPayable
34,000
59,600
21,600
10,800
36,000
14,400
WorkinProcess(Inst.)Job#2019
10,400
36,800
10,400
WagesPayable
10,080
11,520
15,200
9,072
10,368
617,200
115,200
61,200
57,600
36,800
Chapter 5
128
13,680
33,120
c.Job#2019:
Directmaterial
Directlabor
Overhead
Totalcost
$136,400
125,680
44,352
$306,432
Job#2020:
Directmaterial
Directlabor
Overhead
Totalcost
$313,800
140,480
67,176
$521,456
Job#2021:
Directmaterial
Directlabor
Overhead
Totalcost
$260,000
110,240
50,112
$420,352
44.a. Reliant:$5,580$45=124DLHsworked
Dumas:$18,000$45=400DLHsworked
Omaha:$28,350$45=630DLHsworked
Reliant:124DLHs$58=$7,192OHapplied
Dumas:400DLHs$58=$23,200OHapplied
Omaha:630DLHs$58=$36,540OHapplied
Directmaterial
Directlabor
Overhead
Totalcost
Reliant Dumas Omaha

$7,800
$14,200
$19,800
5,580
18,000
28,350
7,192
23,200
36,540
$20,572
$55,400
$84,690
b. Reliant:$20,5723=$6,857perad
Dumas:$55,40010=$5,540perad
Omaha:$84,6908=$10,586perad
c.Sales(21ads$8,600)
Costs:
Directmaterial
Directlabor
Appliedoverhead
Overappliedoverhead
Netincome
d.Sales:Reliant($20,5721.3)
Dumas($55,4001.3)
Omaha($84,6901.3)
Costs:
$180,600
$41,800
51,930
66,932
(16,932)
(143,730)
$36,870
$26,743.60
72,020.00
110,097.00
$208,860.60
129
Chapter 5
Directmaterial
Directlabor
Appliedoverhead
Overappliedoverhead
Netincome
$41,800.00
51,930.00
66,932.00
(16,932.00)
(143,730.00)
$65,130.60
Income using a costplus basis is substantially higher than that which is

obtained usinga flat rateselling price. Dumas Manufacturing will bemore
pleasedwiththesystem;ratherthanpayingarateof$8,600perad,Dumas
wouldbepaying$7,202.Ontheotherhand,ReliantsandOmahascostsperad
wouldincreasefrom$8,600peradto$8,915and$13,762,respectively.
Adsshouldntbebilledataflatratebecausesomemaytakemuchlongerto
developthanothers.TheeightadsforOmahatook630hourstodevelop,or
about79hourseach.Incontrast,thethreeadsforReliantweredevelopedin
124hours(41hourseach)andthetenadsforDumasweredevelopedinonly
400hours(40hourseach).
AnotherpossibilityforLeBlancistobillbasedonastandardchargeperlabor
hourespeciallyifclientstendtochangetheirmindsaftertheaddevelopment
processbegins.
45.a Oct.1 RawMaterialInventory
AccountsPayable
1,150,000
1,150,000
1 WorkinProcessP
ManufacturingOverheadP
650,000
500,000
5 ManufacturingOverheadC
AccountsPayable
25,000
8 ManufacturingOverheadP
Cash
5,000
1,150,000
25,000
5,000
15 Noentryneeded.
Cash
24 RawMaterialInventory
AccountsPayable
60,000
60,000
1,485,000
1,485,000
WorkinProcessP
Cash
AccumulatedDepr.P
36,320
45,000
WorkinProcessC
18,650
16,300
66,120
15,200
Chapter 5
130
Cash
AccumulatedDepr.C
31 AccountsPayable
Cash
26,200
8,750
2,635,000
31 WorkinProcessP
(6,000MHs$25)
150,000
Oct.31 WorkinProcessC
ManufacturingOverheadC
($16,3001.65)
26,895
2,635,000
150,000
26,895
Nov.1 ManufacturingOverheadC
Cash
5,000
4 WorkinProcessP
825,000
175,000
Cash
5,000
15 WorkinProcessC
200,000
225,000
5,000
1,000,000
5,000
425,000
18 Noentryneeded.
24 Noentryneeded.
29 Noentryneeded.
WorkinProcessP
Cash
AccumulatedDepr.P
54,050
115,000
WorkinProcessC
Cash
AccumulatedDepr.C
43,850
134,300
159,800
18,350
30 WorkinProcessP
(3,950$25)
98,750
30 WorkinProcessC
($134,3001.65)
221,595
Nov.30 CompletedProjectsInventory
153,850
15,200
98,750
221,595
2,482,840
131
Chapter 5
WorkinProcessP
WorkinProcessC
1,883,750
599,090
30 AccountsReceivable
ConstructionRevenue
3,450,000
30 CostofContractsSold
CompletedProjectsInventory
2,482,840
3,450,000
2,482,840
b.
RawMaterial
1,150,000 1,150,000
1,485,000 1,000,000
425,000
Bal.60,000
PrecastOverheadP
500,000 150,000
5,000
98,750
36,320
175,000
5,000
54,050
Bal.526,620
ConstructionOverheadC
25,000
26,895
60,000
221,595
18,650
5,000
225,000
43,850
Bal.129,010
WIPPrecast
650,000
1,883,750
45,000
150,000
825,000
115,000
98,750
Bal.0
WIPConstruction
16,300
599,090
26,895
200,000
134,300
221,595
Bal.0
CompletedProjectsInv.
2,482,840
2,482,840
Bal.0
CostofContractsSold
2,482,840
Bal.2,482,840
c.
(bottomsectionofjobcostsheet)
PrecastDepartment
Chapter 5
DM(Est.$1,550,000)
Date
Amount
Oct.1
$650,000
Nov.4
825,000
$1,475,000
132
DL(Est.$220,000)
OH(Est.$275,000)
Date
Amount
Date
Amount
Oct.31
$45,000 Oct.31
$150,000
Nov.30 115,000
Nov.30
98,750
$160,000
$248,750
ConstructionDepartment
DM(Est.$350,000)
Date
Amount
Nov.15
$200,000
d.
DL(Est.$130,000)
OH(Est.$214,500)
Date
Amount
Date
Amount
Oct.31
$16,300 Oct.31
$26,895
Nov.30 134,300
Nov.30
221,595
$150,600
$248,490
LincolnConstructionCompanydoesnotseemto
haveagoodestimationsysteminplaceforitsbidprocess,especiallyinitsPrecast
Department.Thecompanymaybelosingasignificantnumberofbidsbecauseof
inflatedcostestimates.
46.a.Ajobordercostingsystemisappropriateinanyenvironmentinwhichcostscan
bereadilyidentifiedwithspecificproducts,batches,contracts,orprojects.For
adoptingthissystemthereshouldbeajustificationonacostbenefitbasisto
tracecoststothosespecificproducts,batches,contracts,orprojects.
b. TheonlyjobremaininginWIPat5/31isDRS114:
DRS114balance,4/30
$1,570,000
Mayadditions:
Rawmaterial
$124,000
Purchasedparts
87,000
Directlabor
200,500
Overhead(19,500hrs.@$7.50*)
146,250
557,750
WIPbalance,5/31
$2,127,750
*OHrate=$4,500,000600,000hrs.=$7.50perhour
c. FGinventoryofplaypens,4/30
UnitscompletedinMay
Unitsavailable
UnitsshippedinMay
FGinventory,5/31
19,400
15,000
34,400
(21,000)
13,400
SincePipSqueaksusestheFIFOinventorymethod,allunitsremaininginFG
inventorywerecompletedinMay.
Workinprocessinventory,4/30
Mayadditions:
Rawmaterial
Purchasedparts
Directlabor
Overhead(4,400$7.50)
$420,000
$3,000
10,800
43,200
33,000
90,000
133
Chapter 5
Totalcost
$510,000
Unitcost=$510,00015,000unitscompleted=$34perunitFGinventory=
$3413,400=$455,600
d.
IftheamountofoverappliedorunderappliedOHisnot
material ortheresultofanerrorintheOH application rate, theamountis
normally chargeddirectly toCGS.Iftheamountis significant, theamount
shouldbeproratedovertherelevantaccounts(i.e.,WIP,FG,andCGS).
(CMAadapted)
Chapter 5
134
47.a.,b. AppliedOHrate=$302,400100,800=$3perDLH
Addendingworkinprocess:
TwojobsopenhaveDMof
$4,800
TwojobsopenhaveDLof
9,000
TwojobsopenhaveappliedOHof
($32,144)
6,432
Totalcostsaccountedfor
Lessbeginningworkinprocess
Costofproductioninputs
Less:Directlabor
$36,400
AppliedOH($3.008,800)
26,400
Costofdirectmaterialused
Costofindirectmaterialissued
Totalcostofrawmaterialused
c. Beginningrawmaterial
Rawmaterialpurchased
Totalrawmaterialavailable
Rawmaterialissued
Endingrawmaterial
d. Overheadapplied($38,800)
Actualoverheadcharges:
Indirectlabor
Indirectmaterial
Allother
UnderappliedoverheadinApril
e. Beginningfinishedgoods
Addcostofgoodsmanufactured
Costofgoodsavailable
Lessendingfinishedgoods
Costofgoodssold
$96,000
20,232
$116,232
(15,400)
$100,832
(62,800)
$38,032
11,600
$49,632
$9,600
56,000
$65,600
(49,632)
$15,968
$26,400
$10,800
11,600
5,000 (27,400)
$(1,000)
$16,800
96,000
$112,800
(13,200)
$99,600
48. a.Profitonthefixedpricecontractsisconstrainedbythecontractprice.Profit
canonlybeincreasedifwaysarefoundtoreducecosts.Onewaythatcostscan
bereducedistoshiftthemtoothercontracts.Thisisaparticularlyeffective
strategyifthecoststhatareshiftedtoanothercontractcanberecoupedunder
the terms of that other contract. By shifting some costs of the fixedprice
contractstothecostpluscontracts,theprofitonthefixedpricecontractsrises,
and the shifted costs can be recovered under the terms of the costplus
contracts.Further,thisstrategymayhavetheeffectofincreasingcostsunder
thecostpluscontracts ifthosecontractsdetermineprofitasapercentageof
totalcosts.
b.
Thistypeofcostshiftingisdishonestandunethical.It
hastheeffectofincreasingthetotalpricesofcostpluscontracts,andifthose
135
Chapter 5
contractsaregovernmentrelated,thosepricesaretypicallybornebytaxpayers.
In a sense it is a way for the stockholders and managers of the defense
contractorstostealfromthetaxpayers.Itisdifficulttoimagineasettingin
whichthisprocesscouldbelabeledethical.
49. a.Nosolutionprovided;eachstudentwillhaveadifferentanswer.
b.
Thecompanyisutilizingthebenefitsofautomationto
reducethecostsofhandlingsomanyparts.Bystandardizingprocesses,the
companycanassembleamessengerbagwithadiversesetofpartsinanamount
oftimethatissimilartothatrequiredformassproducedones.Accordingly,
althoughthecompanyisprobablypaying,onaverage,moreforpartsoncustom
messengerbagsthanmassproducedones;itisholdingthelineondirectlabor
andproductionoverhead.Byholdingcostsdownforlaborandoverhead,the
totalcostofthecustomproducedmessengerbagsisnotsignificantlyhigher
thanthatofthemassproducedmessengerbags.
c.
Qualityasviewedfromtheperspectiveoftheconsumer
should be much higher with the custommade messenger bags because
customersareabletospecifythevariouspartsdesired.Bygettingtheexact
combination ofparts desired,thecustomers willperceive thequality ofthe
producttobeveryhighrelativetothepremiuminpricetheypayoverthemass
producedmessengerbags.
d.
The answer is mostly revealed in (c). By containing

coststolevelsclosetothoseofmassproducedmessengerbags,butallowing
the customer to choose the parts desired, a substantial gross profit can be
achieved.Thehighergrossprofitreflectsthecustomerswillingnesstopaya
premiumfortheexactcombinationofpartsdesired,eventhoughthecompanys
costs are not significantly greater than those incurred to mass produce
messengerbags.
50. a.Itislikelythattheleastpopularthoughtsandopinionswouldnotbeheardon
campus.Studentswouldnaturallysupportthoseideasandpositionsthatwere
consistent with their own ethics, philosophies, and self interests. As a
consequence,theoveralldiversityofideaswouldprobablydecline.
b.
Assumingdiversityofopinionsultimatelybenefitsall
students,theUniversityofWisconsinispossiblysupportingdiversitywiththe
only means availablestudent dollars. However, this approach may not be
ethicalbecauseitforcesstudentstosupportopinions,beliefs,andideasthat
mayviolatetheirpersonalethics.AlthoughtheSupremeCourtoftheUnited
Stateswillultimatelydeterminewhetherthisisalegalpractice,eachindividual
studentcanreachhis/herownconclusionastowhetherthepracticeisethical.
51. a.Overheadotherthanspoilage
Estimatedspoilagecost
Lesssalvagevalue
Adjustedestimatedoverheadcost
$600,000
$50,000
(20,000)
30,000
$630,000
Chapter 5
136
POR=$630,00040,000=$15.75perDLH
b. Disposalvalueofchemical
496
1,234
1,730
52. a. Predeterminedrate=$925,000100,000=$9.25perMH
b.Totalcostofdirectmaterial
Totalcostofdirectlabor
AppliedOH(3,080$9.25)
TotalcostofJobB316
$687,100
157,750
28,490
$873,340
c. Thereworkcostisdebitedtothemanufacturingoverheadaccountsincethe
company uses a predetermined rate that includes rework costs to apply
overhead.
Variousaccounts
75,500
75,500
d. Predeterminedrate=$850,000100,000=$8.50perMH
Totalcostofdirectmaterial
TotalcostofJobB316
e. Totalcostofdirectmaterial
Reworkcost($75,5000.20)
Saleofreworkedpipe(200$3.50)
TotalcostofJobB316
$687,100
157,750
26,180
$871,030
$687,100
157,750
26,180
15,100
(700)
$885,430
53. a.ActualDMcost
StandardDMcost($56,000200)
Materialpricevariance
$11,600,000
(11,200,000)
$400,000U
ActualDLcost
StandardDLcost($34,400200)
Directlaborratevariance
$6,957,600
(6,880,000)
$77,600U
ActualOHcost
StandardOHcost($76,000200)
OHvariance
$14,800,000
(15,200,000)
$(400,000)F
b.
Material:
$11,600,000 6,000,000 = $1.93 (rounded) actual cost per lb. vs. $2.00
standardcostperlb.;$0.076,000,000=$420,000Fpricevariance
137
Chapter 5
6,000,000lbs.usedvs.(28,000200)standard=6,000,0005,600,000=
400,000lbs.morethanstandard;400,000$2=$800,000Uquantityvariance
Theprimarycauseoftheunfavorablematerialvarianceisexcessusage.
54.a.DMcost
DLcost[$20(1260)]
Totalstandardprimecost
$18.00
4.00
$22.00
b.Job#918
DMcost($181,200)
DLcost($41,200)
Totalstandarddirectcost
$21,600
4,800
$26,400
Job#2002
DMcost($182,000)
DLcost($42,000)
Totalstandarddirectcost
$36,000
8,000
$44,000
c.Job#918
DM
DL
Total
Job#2002
DM
DL
Total
Standard
$21,600
4,800
$26,400
$36,000
8,000
$44,000
Actual
$23,525
4,840
$28,365
Variance
$1,925U
40U
$1,965U
$37,440
$1,440U
7,850
150F
$45,290
$1,290U
d.Bycomputingvariancesforeachjob,managersbecomeawareofanytrendsin
costs.Ifcostsareaggregatedacrossjobs,anytrendsmaybeobscured.

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104

Two characteristics of the proposal are critical in

The predetermined overhead rate could have been

Case#2 Case#3 Case#4

A flat charge per hour would be more likely to be

Each student will have a different answer. However,

The $750 rework cost is included in Manufacturing

In this case, the spoilage is unexpected and the net cost

32. Astandardcostingsystemismostappropriateinproductionsettings inwhich

be compared against the standards to better understand the causes of cost

Aluminum Steel Other

Reliant Dumas Omaha

Income using a costplus basis is substantially higher than that which is

The answer is mostly revealed in (c). By containing

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