Job Order Cost Ch 05 Kinney

8/12/2019 Job Order Cost Ch 05 Kinney

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Chapter 5

c. The redetermined o"erhead rate could ha"e been maniulated

to a higher rate by using a lo&er deno!inator le"el of acti"ity than was aroriate. Additionally, inaroriate costs(such as eriod costs in addition to roduct o"erhead costs)could ha"e been included in the numerator. A large estimate forsoilage and defect costs might also ha"e been included in thenumerator when, in fact, such costs rarely occur at %uindondustries.

d. The comany-s beha"ior is at best !uestionable. /i"en that thedierence between actual and estimated direct material costwas li*ely *nown at the oint of urchase, %uindo should ha"e

notied 2alem or. immediately of the ecessi"e increase incost. 2imilar notication should ha"e been ro"ided when itwas seen that direct labor and machine times were higher thaneected.

1+. a. 4aw aterial n"entory &0+,000Accounts ayable &0+,000

or* in rocess n"entory7+&63 163,800or* in rocess n"entory7+&6+ 1,890anufacturing :"erhead 1&,+60

4aw aterial n"entory 198,130

or* in rocess n"entory7+&63 5+,000or* in rocess n"entory7+&6+ 1,800 ash (3,600 $15) 55,800

anufacturing :"erhead 68,900 ash ($18,000 ; $9,&00 ; $<,500) 3+,900

Accumulated =ereciation &1,500 ages ayable 1&,500

or* in rocess n"entory7+&63 6+,800or* in rocess n"entory7+&6+ &,160

anufacturing :"erhead 66,<60

b. 4 n"entory > $+,300 ; $&0+,000 7 $163,800 7 $1&,+60 7$1,890 >

$30,190

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Chapter 5

c. ?ecause the comany wor*ed only on @ob +&63 until the endof Aril, all costs in beginning for other #obs are still inthat account at the end of the month.

?eginning $11,+00

ess costs associated with @ob +&63 (800)osts associated with other #obs $10,600osts for @ob +&6+ ($1,890 ; $1,800 ; $&,160) 5,830Bnding $16,+30

d. / > ?eginning ; urrent eriod costs C Bnding > $11,+00 ; $163,800 ; $1,890 ; $55,800 ; $66,<60 7

$16,+30> $&83,+00

Dnit cost > $&83,+00 E 10,000 > $&8.3+

e. Alied :F C Actual :F > $66,<60 7 $68,900 > $1,9+0underalied

15. a. :F rate > $&68,800 E $1<&,000 > 1+0G of direct labor

b. Bnding ?alanceH = $ 95,+50

= 36,&00:F ($36,&00 1.+0) 50,680Bnding balance $16&,330

c. / > ?eg. ; urrent costs C ost of #obs comleted> $0 ; $&99,&00 ; $1<&,000 ; $&68,800 7 $16&,330> $595,690

16. a. 4aw aterial n"entory 96,000Accounts ayable 96,000

7 @ob &19 ++,800 7 @ob &18 9,&00 7 other #obs 53,600

=irect aterial n"entory 105,600

7 @ob &19 10,+00 7 @ob &18 1+,000 7 other #obs 1<,600

ash (or ages ayable) ++,000

anufacturing :"erhead &&0,000Iarious accounts &&0,000

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Chapter 5

7 @ob &19 51,+80 7 @ob &18 6<,300 7 other #obs <9,0&0

anufacturing :"erhead &19,800(Actual rate er =$ > $++,000 $+.<5)

Jinished /oods n"entory 119,880 n"entory 7 @ob &19 119,880

($11,&00 ; $++,800 ; $10,+00 ; $51,+80 > $119,880)

ash 15<,1382ales 15<,138

($119,880 K 1.35 > $15<,138)

ost of /oods 2old 119,880Jinished /oods n"entory 119,880

b. Bnding > ?eg. ; urrent costs C ost of @ob &19comleted

> $16,800 ; $105,600 ; $++,000 ; $&19,800 7$119,880

> $&66,3&0

Bnding balance in @ob &18 > $5,600 ; $9,&00 ; $1+,000 ;$6<,300 >

$<6,100

19. a. :F rate > $1&9,680 E 9,600 > $16.80 er =F

b. A"erage = rate > $15<,600 E 9,600 > $&1 er =F

c. 15,&00 ($&1.00 ; $16.80) > 15,&00 $39.80 > $59+,560= L :F$<16,650 7 $59+,560 > $3+&,0<0 = in beginning

d. f wor*ers on the #ob in ending are assumed to be aid

the a"erage = rate, then the ending balance isH = $ 93,&50

= (&,850 $&1) 5<,850:F (&,850 $16.80) +9,880

Bnding balance $180,<80

e. / > ?eg. ; urrent eriod costs C Bnd.

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Chapter 5

> $<16,650 ; $58<,690 ; $15<,600 ; $1&9,680 7$180,<80

> $1,61&,6&0

18. a. /2 is the amount credited to Jinished /oods n"entory for

the year > $1,8<0,000.

b. ?eg. J/ ; / C Bnd. J/ > /2$<0,000 ; / 7 $59,000 > $1,8<0,000/ ; $33,000 > $1,8<0,000/ > $1,859,000

c. Alied :F > $3<5,000 K 1.+0 > $553,000

d. ?eg. ; = used ; = ; :F C Bnd. > /$56,000 ; = ; $3<5,000 ; $553,000 7 $&9,6+0 >

$1,859,000= ; $<96,360 > $1,859,000= > $880,6+0

e. ?eg. = ; C = used > Bnd. =$&+,600 ; 7 $880,6+0 > $+,100 7 $856,0+0 > $+,100 > $860,1+0

1<. a. /2 > .95 2ales > .95($1,5<8,000) > $1,1<8,500.

b. ?eg. J/ ; / C Bnd. J/ > /2$68,<00 ; / 7 $165,600 > $1,1<8,500/ 7 $<6,900 > $1,1<8,500/ > $1,&<5,&00

c. @ob ?3&5H Alied :F > 85G of =$ > .85 (1&8 $1&.<0) > .85 $1,651.&0 > $1,+03.5&

@ob %+&8H Alied :F > 85G of =$ > .85 (&+0 $1&.<0) > .

85 $3,0<6.00 > $&,631.60

d. @ob ?3&5 %+&8= $&1,<80.00 $1+,900.00= 1,651.&0 3,0<6.00:F 1,+03 .5& &,631 .60

$&5,03+ .9& $&0,+&9 .60

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Chapter 5

e. / > ?eg. ; = used ; = ; :F C Bnd. $1,&<5,&00 > $1+,600 ; = used ; $1&.<0(&5,960) ; .

85($1&.<0 &5,960) C ($&5,03+.9& ; $&0,+&9.60)$1,&<5,&00 > $1+,600 ; = used ; $33&,30+ ; $&8&,+58.+0

7 $+5,+6&.3&

$1,&<5,&00 > $583,<00.08 ; = used= used > $911,&<<.<&

?eg. = ; urchases 7 = used > Bnd. =$1<,500 ; $8+3,&96 7 $911,&<<.<& > Bnd. =Bnd. = (destroyed) > $151,+96.08

&0. a. ase 1 ase & ase 3ase +

= $ +80 $ 8,800$ 3,900 $ 850

= ($1<0 er hour) 9,600 19,100 13,300 &,850

:F ($150 er court hour) 1,800 <,950 18,000 6,000 Totals $<,880 $35,650$35,000 $<,900

b. = $10,100= (19+ $1<0) 33,060:F (9& $150) 10,800 Total cost $53,<60ar*u (+5G) &+,&8& Total billed to client $98,&+&

&1. a. :"erhead rate > ?udgeted :F E ?udgeted =$$+.&5 > $1,&95,000 E ?udgeted =$?udgeted = cost > $1,&95,000 E $+.&5?udgeted = cost > $300,000

:"erhead rate > $1,&95,000 E $300,000 > $+.&5 er =$

b. or* in rocess n"entory <6,+95 anufacturing :"erhead <6,+95 ($&&,900 $+.&5 > $<6,+95)

c. $+.&5 3,<00 > $16,595

d. ?eginning balance $18,350=irect material &<,600=irect labor 3,<00anufacturing o"erhead 16,595Bnding balance $68,+&5

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Chapter 5

&&. a. =irect material $&,850=irect labor ($800 E $&0 > +0 =Fs) 800Alied o"erhead ($19 +0) 680 Total cost of @ob <&0 $+,330

b. ? of ($8,&50 ; $500 ; ($19 &5) $ <,195=irect material $&1,650=irect labor ($6,300 E $&0 > 315 =Fs) 6,300Alied o"erhead ($19 315) 5,355 33,305

$+&,+80B of (+,330)ost of goods manufactured $38,150

c. Actual o"erhead $5,05+Alied o"erhead (5,355)

:"eralied :F $ 301

&3. a. iingH $+80,000 E 60,000 > $8 er Fa"ingH $900,000 E &8,000 > $&5 er =F

b. iing (&<0 Fs $8)$ &,3&0

a"ing (3+0 =Fs $&5) 8,500 Total o"erhead alied $10,8&0

c. ($+80,000 ; $900,000) E (60,000 ; 1&,000) > $1,180,000 E

9&,000 > $16.3<

$16.3< 33+ > $5,+9+.&6 alied to @ob &&0

A lant7wide rate would not ha"e been indicati"e of the actualcost of each #ob because the iing deartment is "erymachine7intensi"e while the a"ing deartment is "ery labor7intensi"e.

&+. a. =eartment 1 > $+65,000 E 30,000 Fs > $15.50 er F=eartment & > $380,600 E &&,000 =Fs > $19.30 er =F

b. 4aw aterial n"entory 3+6,000Accounts ayable 3+6,000

or* in rocess n"entory C @ob +6& 1<,000or* in rocess n"entory C other #obs3&1,000

4aw aterial n"entory 3+0,000

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Chapter 5

or* in rocess n"entory C @ob +6& &95or* in rocess n"entory C other #obs &,860

ash (&85 $11) 3,135

or* in rocess n"entory C @ob +6& +,<60

or* in rocess n"entory C other #obs3&,&+0:"erhead ontrol (&,+00 $15.50) 39,&00

or* in rocess n"entory C @ob +6& &,8++or* in rocess n"entory C other #obs&&,8<6

ash (1,+30 $18) &5,9+0

or* in rocess n"entory C @ob +6& 3+6or* in rocess n"entory C other #obs &,968

:"erhead ontrol (180 $19.30) 3,11+

Jinished /oods n"entory C @ob +6& &9,+&5or* in rocess n"entory C @ob +6& &9,+&5

($1<,000 ; $&95 ; $+,<60 ; $&,8++ ; $3+6)

Accounts 4ecei"able C ower 3&,<102ales ($&9,+&5 1.&0) 3&,<10

ost of /oods 2old &9,+&5Jinished /oods n"entory C @ob +6& &9,+&5

c. ost er unit > $&9,+&5 E 500 > $5+.85

2elling rice er unit > $65.8&4aw material > $1<,000 E 500 > $38

d. Total 4 issued $3+0,000 Total units (500 ; &0,000) E &0,5004 cost er unit $16.5< (rounded)

Total cost er unit > $5+.85 7 $38.00 ; $16.5< > $33.++2elling rice er unit > $33.++ 1.& > $+0.13 (rounded)

2ales without error $3&,<10

2ales with error (500 $+0.13) &0,065 Total Msa"ingsN of the error $1&,8+5

&5. A standard costing system is most aroriate in roductionsettings in which acti"ities are reetiti"e. That criterion is met inthe case of atamore ndustries. =e"eloment of such standardsre!uires that reliable eectations about inut cost amounts and!uantities be determined for the more routine asects of client

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Chapter 5

ser"ices. :nce the standards are de"eloed, actual costs andinut !uantities can be comared against the standards to betterunderstand the causes of cost "ariability across the contracts.?etter identication and understanding of the causes of "ariances will allow managers to manage costs more eecti"ely

and rice comany ser"ices more aroriately.

&6. I > Actual cost for aer urchasedC 2tandard cost for aerurchased > ($0.03& <80,000) C ($0.036 <80,000) > $31,3607 $35,&80 > 7$3,<&0.2ince actual cost was less than standard, the "ariance isfa"orable.

%I > Actual cost for aer used C 2tandard cost for aer thatshould ha"e been used > ($0.036 <80,000) C ($0.036 <8+,000) > $35,&80 7 $35,+&+ > 7$1++.

2ince actual aer usage was less than the standard allowed, the"ariance is fa"orable.

&9. a. Total ayroll > <,000 K $<.65 > $86,850

b. 4I > Actual ayroll C 2tandard cost for actual hours wor*ed> $86,850 C ($<.85 <,000) > $86,850 7 $88,650 > 7$1,800.

2ince direct labor emloyees were aid less than the standardrate, the "ariance is fa"orable.

c. %I > 2tandard cost for actual hours wor*ed C 2tandard costfor standard hours allowed for roduction > $88,650 C ($<.85 8,600) > $88,650 7 $8+,910 > $3,<+0.

2ince the number of hours wor*ed was greater than thestandard hours allowed, the "ariance is unfa"orable.

d. :ne concern would be the reason the comany was aying itswor*ers less than the standard rate er hour. The otherconcern would be that the wor*ers, recogniOing that they werebeing aid less than the standard, chose to wor* more slowly

than they normally would, to comensate (relati"e to totalwages) for the reduced wage. f this situation is the case, thecomany would ha"e been better o aying the standard ratebecause the actual ayroll was ($86,850 7 $8+,910) or $&,1+0greater than the standard would ha"e been.

&8. a. urrently, ?oni"o has no data on the actual cost of buildingany of the comuters being congured. onse!uently, the

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Chapter 5

comany is unable to determine the actual rot (loss)generated on any sales transaction. The #ob order costsystem would allow ?oni"o to better understand what factorsdri"e costs in the rm, measure the rot on salestransactions, and identify ways to better manage costs and

re"enues.

b. A ricing olicy that ignores the costs of direct labor ando"erhead (in addition to mar*eting and administrati"e costs)is Pawed. :nly if = and :F are strictly roortional to directmaterial could their costs not be considered in determiningthe rice and rot of each comuter. Fowe"er, in this case,these costs are li*ely a ma#or ortion of the cost of building amade7to7order comuter.

&<. a. 2ecretary ($+,800 E 160 hrs. 35 hrs.) $ 1,050

oies (1,+50 ages $0.06 er age) 89hone calls 1+5:"erhead ($<,600 E 160 hrs. 35 hrs.) &,100AttorneyQs time ($1<0 <5 hrs.) 18,050 Total charges $&1,+3&

This means onroe would be charging $&1,+3& E <5 >$&&5.60 or $&30 er hour (rounded).

Total bill to :li"gra > <5 hours $&30 > $&1,850

b. =irect costs ($89 ; $1+5 ; $18,050) $18,&8&Allocated secretarial costs 1,050Allocated o"erhead &,100argin R($18,050 ; $&,100) K 0.+0S 8,060 Total billing $&<,+<&

c. A Pat charge er hour would be more li*ely to be accetable

to clients because such a charge is more understandable thanbeing charged an hourly rate lus a charge for the time that isnot really being sent on their cases.

30. Bach student will ha"e a dierent answer, but the memo shouldaddress the following issueH

?udgeted cost is far below each #ob-s actual cost, which indicatesthat the comany is not using ast #ob information as a basis foreither controlling costs or increasing future bid rices. ?y not usinga"ailable historical information to ad#ust oerations, the comany

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Chapter 5

is acceting marginal #obs. Although each #ob generated a ositi"egross margin, the actual gross margin is only a small fraction of thebudgeted gross margin. t is imortant that a comany learn fromast mista*es.

31. a. 2ome of the comanies that ha"e been found to engage inthis ractice are Jamily =ollar, e ?oys, Taco ?ell, Toys747Ds,and al7art.

b. t is easier to doctor the records now than in the ast becauserecords are comuteriOed and managers generally ha"e accessto the les. re"iously, managers would ha"e had to consirewith ayroll cler*s or accountants to change aer or unch7card records.

c. Bach student will ha"e a dierent answer. Fowe"er, most

students will robably indicate that store managers ma*ingsuch changes would be red (short7run). Jor the long7run,ethics training would robably be recommended and ossiblya change in the way store managers- bonuses are comuted.

3&. a. anufacturing :"erhead 1,1504aw aterial n"entory &50ages ayable <00

b. 7 @ob ?A+68 1,150

4aw aterial n"entory &50ages ayable <00

/i"en that the rewor* costs were not necessary to thecomletion of the #ob, 2an Angelo or. should robably notcharge its mar*u ercentage on the $1,150 of rewor* costsunless the customer had already been informed that suchcharges might be charged and the customer had agreed tosuch charges.

c. oss on Abnormal 4ewor* 1,150

4aw aterial n"entory &50ages ayable <00

33. a. redetermined :F rate > $1,+&1,000 E 1+5,000 > $<.80 erF

=irect material $+9,500=irect labor &1,800:"erhead (3&5 $<.80) 3,185

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Chapter 5

Total cost $9&,+85

er unit cost > $9&,+85 E 1,500 > $+8.3& (rounded)

b. The $950 rewor* cost is included in anufacturing :"erheadontrol.

c. Total original cost $9&,+85ost of new 30 units 1,3<0ess sale of defecti"e units (&+0) Total cost of @ob 896 $93,635

3+. a. The estimated cost of the soilage should be included incalculating the redetermined o"erhead rate. This aroachsreads the cost of soilage across all good units roduced.

b. The cost of this soilage should be charged to the secic #ob.2ince there is no sal"age "alue for the soilage, no #ournalentry would be necessary as the cost of the soiled units

would be included in the rior charges to the #ob for directmaterials, direct labor and manufacturing o"erhead.

c. n this case, the soilage is uneected and the net costshould be recorded as a loss of the eriod in which it occurred.Any sal"age "alue associated with the soilage will reduce theamount of the loss. To record the transaction, wor* inrocess (and the secic #ob-s #ob order cost sheet) should becredited for the cost of the soilage and the eected, netsal"age of the soilage should be debited (=isosal "alue of defecti"e wor*). A loss account (e.g., oss from abnormalsoilage) should be debited to balance the transaction.

roblems

35. 4aw aterial n"entory 9<0,000Accounts ayable 9<0,000

or* in rocess n"entory 590,0004aw aterial n"entory 590,000

anufacturing :"erhead 1&0,0004aw aterial n"entory 1&0,000

or* in rocess n"entory 9<+,000anufacturing :"erhead 80,000

ages ayable 89+,000

or* in rocess n"entory ($9<+,000 .55) +36,900

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Chapter 5

anufacturing :"erhead +36,900

Jinished /oods n"entory 1,0+6,000or* in rocess n"entory 1,0+6,000

ost of /oods 2old 1,0+6,000Jinished /oods n"entory 1,0+6,000

ash 1,3+&,000 2ales 1,3+&,000

36. a. $8&,000 E 8,000 =F > $10.&5 er =F

b. =irect aterial n"entory <0,000Accounts ayable <0,000

or* in rocess n"entory 95,600ash 95,600

anufacturing :"erhead 8&,000Iarious accounts 8&,000

or* in rocess n"entory 8&,000anufacturing :"erhead 8&,000

or* in rocess n"entory 88,500=irect aterial n"entory 88,500

($&,000 ; $<0,000 7 $3,500)

Jinished /oods n"entory &+8,850or* in rocess n"entory &+8,850

/ > ? ; = ; = ; :F C B/ > $10,500 ; $88,500 ; $95,600;

$8&,000 C$9,950 > $&+8,850

Accounts 4ecei"able 350,+002ales 350,+00

ost of /oods 2old &+3,900Jinished /oods n"entory &+3,900

c. ?eginning J/ $ 6,500/ &+8,850

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Chapter 5

/2 (&+3,900)Bnding J/ $ 11,650

39. a. <1 4aw aterial n"entory 1,<+0,000Accounts ayable 1,<+0,000

<+ or* in rocess n"entory 1,8+6,800anufacturing :"erhead 53,&00

4aw aterial n"entory 1,<00,000ssuances made to #obs as followsH95, $&8<,600U 98, $&5&,600U 8&, $<<&,&00U 86,

$31&,+00

<15 or* in rocess n"entory 665,600

anufacturing :"erhead <1,+00ash 959,000

abor charged to #obs as followsH

95, $8+,600U 98, $&69,&00U 8&, $&03,000U86, $110,800

<15 or* in rocess n"entory 83&,000anufacturing :"erhead 83&,000

:"erhead alied to #obs as followsH 95, $1&0,950U 98, $3&<,000U 8&, $&53,950U86, $1&8,500.

<15 Jinished /oods n"entory 1,081,350or* in rocess n"entory 1,081,350

($586,+00 ; $&8<,600 ; $8+,600 ; $1&0,950)

Accounts 4ecei"able 1,+05,9552ales 1,+05,955

($1,081,350 1.3)

ost of /oods 2old 1,081,350Jinished /oods n"entory 1,081,350

<&0 anufacturing :"erhead 110,&00Accounts ayable 1<6,800

ash 309,000

<&+ 4aw aterial n"entory 6&+,000Accounts ayable 6&+,000

<&5 or* in rocess n"entory 916,+00anufacturing :"erhead 55,8004aw aterial n"entory

99&,&00

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Chapter 5

ssuances made to #obs as followsH98, $15+,800U 8&, $&1&,600U 86, $3+<,000

<30 anufacturing :"erhead 1,&06,800Accumulated =ereciation 80<,000reaid nsurance 165,+00 Taes L icenses ayable &3&,+00

<30 or* in rocess n"entory 6+<,+00 anufacturing :"erhead 65,000

ash 91+,+00abor charged to #obs as followsH98, $199,+00U 8&, $&&8,+00U 86, $&+3,600

<30 or* in rocess n"entory +09,1&5anufacturing :"erhead +09,1&5

To aly o"erhead to #obs as followsH

98, $111,950U 8&, $190,6&5U 86, $1&+,950

b. 4aw aterial n"entory VVVVV ?al. 33&,+00 <+ 1,<00,000<1 1,<+0,000 <&5 99&,&00

<&+ 6&+,000

?al. &&+,&00

or* in rocess?al. 1,51&,600 <15 1,081,350<+ 1,8+6,800<15 665,600<15 83&,000<&5 916,+00<30 6+<,+00<30 +09,1&5

?al. 5,5+8,595 ost of /oods 2oldVVVVVVVV ?al. +,86+,000

95 1,081,350?al. 5,<+5,350

@ob 95 @ob 98

?al. 586,+00 1,081,350 ?al. &66,600= &8<,600 = &5&,600= 8+,600 = &69,&00

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Chapter 5

:F 1&0,950 :F 3&<,000?al. 0 = 15+,800

= 199,+00:F 111,950?al1,55<,350

@ob 8& @ob 86?al. 65<,600 = 31&,+00= <<&,&00 = 110,800= &03,000 :F 1&8,500:F &53,950 = 3+<,000= &1&,600 = &+3,600= &&8,+00 :F 1&+,950:F 190,6&5

?al.&,9&0,195 ?al.1,&6<,050

c. 2chedule of @ob ost 4ecords 2etember 30, &010

@ob 98$1,55<,350

@ob 8& &,9&0,195 @ob 86 1,&6<,050 Total $5,5+8,595

d. Actual o"erhead for 2etember

<+ $ 53,&00<15 <1,+00<&0 110,&00<&5 55,800<30 1,&06,800<30 65,000 $1,58&,+00

Alied o"erhead for 2etember<15 $ 83&,000<30 +09,1&5 (1,&3<,1&5)

Dnderalied o"erhead $ 3+3,&95

38. a. 4aw aterial n"entory 5+&,000 ash

5+&,000

anufacturing :"erhead 5+,000or* in rocess n"entory 60&,800

ages2alaries ayable (or ash) 656,800

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Chapter 5

To record = for #obs (@ob &+9, $19,+00U &51, $8,800U&53, $&1,000U &5+, $136,600U &55, $1+5,000U&56, $<+,600U and &59, $19<,+00)

anufacturing :"erhead 96,000or* in rocess n"entory +66,+00

4aw aterial n"entory 5+&,+00 To record = for #obs (@ob &+9, $1&,+00U &51, $6,&00U&53, $16,800U &5+, $105,&00U &55, $11<,800U&56, $9&,800U and &59, $133,&00)

anufacturing :"erhead 11+,+00Iarious accounts 11+,+00

To record :F costs other than indirect labor andindirect materials ($&++,+00 7 $5+,000 7 $96,000)

or* in rocess n"entory &+1,1&0anufacturing :"erhead &+1,1&0

To aly :F at a rate of $0.+0 er =$ (@ob &+9, $6,<60U&51, $3,5&0U &53, $8,+00U &5+, $5+,6+0U &55, $58,000U&56, $39,8+0U and &59, $91,960)

Jinished /oods n"entory 1,99<,0+0or* in rocess n"entory 1,99<,0+0 (2ee schedule below.)

ash &,&6+,99+2ales &,&6+,99+

ost of /oods 2old 1,99<,0+0Jinished /oods n"entory 1,99<,0+0

2chedule of omleted @obs

@ob =irect aterial =irect abor Alied :F Total&+9 $ 8<,600 $108,800 $ +3,5&0 $ &+1,<&0&51 18&,800 &18,600 89,++0 +88,8+0&53 16&,&00 1<0,600 96,&+0 +&<,0+0&5+ 105,&00 136,600 5+,6+0 &<6,++0&55 11<,800 1+5,000 58,000 3&&,800

Totals $65<,600 $9<<,600 $31<,8+0 $1,99<,0+0

b. @ob =irect aterial=irect abor Alied :F Total&56 $ 9&,800 $ <+,600 $39,8+0 $&05,&+0&59 133,&00 19<,+00 91,960 38+,360 Totals $&06,000 $&9+,000 $10<,600 $58<,600

c. Actual o"erhead $ &++,+00

17



Chapter 5

Alied o"erhead &+1,1&0Dnderalied o"erhead $ 3,&80Dnad#usted cost of #obs comleted 1,99<,0+0Ad#usted cost of #obs comleted $1,98&,3&0

3<. a. Aluminum 2teel :ther Total? $ 8,300 $1&,800 $ 5,800 $ &6,<00urchases <8,300 &6,500 &3,550 1+8,350A"ailable $106,600 $3<,300 $&<,350 $195,&50ssuances (58,900) (3+,&00) (&5,<00) (118,800)B $ +9,<00 $ 5,100 $ 3,+50 $ 56,+50

b. =irect material $ 6&0=irect labor (8 $15) 1&0:"erhead (16 $30) +80 Total $1,&&0

c. C beginningW $ 6,&30=irect material (total issuances) 118,800=irect labor (680 K $15) 10,&00:"erhead (1,&00 K $30) 36,000 Total manufacturing costs $191,&30 7 ending (1,&&0)ost of goods manufactured $190,010J/ 7 beginning &3,800ost of goods a"ailable for sale $1<3,810J/ 7 ending (0)

ost of goods sold $1<3,810

W @ob aterial abor :F Total +11 $1,<00 $ 5+0 $1,500 $3,<+0 +1& 1,&+0 150 <00 &,&<0

$3,1+0 $ 6<0 $&,+00 $6,&30

+0. a. Dsing any of the #obs, one can determine that the relationshibetween direct labor and alied o"erhead is that o"erhead is115G of direct labor cost. Jor eamle, using #ob 69H$15,<16 E $13,8+0 > 1.15.

b. =irect material $&5,800=irect labor 9,&00Alied o"erhead 8,&80 Total $+1,&80

18



Chapter 5

c. Total direct material $513,83+ess direct material in ? (&5,800)$+88,03+

Total direct labor $ <3,9&0

ess direct labor in ? (9,&00) 86,5&0 Total direct cost added during ay $59+,55+

d. or* in rocess 7 beginning $ +1,&80osts added during ayH=irect material $+88,03+=irect labor 86,5&0Alied o"erhead ($86,5&0 1.15) <<,+<8 69+,05&

$915,33&or* in rocess 7 ending ($308,+30 ; $59,000 ; ($59,000 K 1.15) (+30,<80)

ost of goods manufactured $&8+,35&

+1. a. JabricationH $1,560,000 E 10+,000 Fs > $15 er FAssemblyH $1,960,000 E 3&0,000 =Fs > $5.50 er =F

b. @ob &&<6H Jabrication (<00 hours X $1&) $10,800Assembly (850 hours X $10) 8,500 Total = $1<,300

@ob &&<9H Jabrication (+60 hours X $1&) $5,5&0Assembly (+00 hours X $10) +,000

Total = $<,5&0

c. @ob &&<6H Jabrication (1,800 hours X $15)$&9,000

Assembly (850 hours X $5.50) +,695 Total :F alied $31,695

@ob &&<9H Jabrication (<00 hours X $15)$13,500Assembly (+00 hours X $5.50) &,&00 Total :F alied $15,900

d. @ob &&<6 @ob &&<9=irect aterial $118,500 $1+9,&00=irect abor 1<,300 <,5&0

19



Chapter 5

:"erhead 31,695 15,900 Total $16<,+95 $19&,+&0

e. JabricationHAlied (103,&00 K $15)$1,5+8,000Actual (1,5&8,000)

:"eralied $ &0,000

AssemblyH Alied (3&+,000 K $5.50)$1,98&,000Actual (1,9<0,000)Dnderalied $ 8,000

The comany has o"eralied o"erhead of $1&,000 for theyear.

+&. a. @ob ost 2heet 7 @ob 515

ustomer 'ame and AddressH =escrition of @obH rearesite,

ity of /ulf 2hores build and install a edestrian/ulf 2hores, Alabama o"erass in /ulf 2horesH see

bidsecications for details

ontract Agreement =ateH 5102cheduled 2tarting =ateH 910Agreed Don omletion =ateH 1&1510ontract riceH $3,300,000

Actual omletion =ateH VVVVVVVVVVVVVVVV 2ecial nstructionsH 'one

=irect aterial (Bst. $1,&+0,000)=ate 2ource ost&010 @uly 31 2ummary of material re!. $1&1,800

=irect abor (Bst. $690,000) :"erhead (Bst. $+0&,000).

=ate 2ource ost =ate 2ource

ost&010 &010 @uly 31 2ummary of time @uly 31 @ournal entry

sheets for direct of 93110$105,0&+

labor $195,0+0

20



Chapter 5

2ummary (as of 93110)

Actual ?udget

Dnder(:"er)=irect material $1&1,800 $1,&+0,000=irect labor 195,0+0 690,000:"erhead 105,0&+ +0&,000 Totals $+01,86+ $&,31&,000

b. or* in rocess 7 @ob 515 1&1,800or* in rocess C other #obs +59,500

=irect aterial n"entory 59<,300

or* in rocess 7 @ob 515 195,0+0

or* in rocess 7 other #obs +08,<60anufacturing :"erhead 55,8002alaries and ages Bense 3<,600

2alaries and ages ayable 69<,+00

anufacturing :"erhead &6,+00=ereciation Bense 9,800

Accumulated =er. 7 onst. Assets &6,+00Accumulated =er. 7 :Yce Assets 9,800

2ales romotion Bense 11,100

Accounts ayable 11,100

Ad"ertising Bense 6,600ash 6,600

anufacturing :"erhead 18,6002ulies n"entory 18,600

iscellaneous Bense 10,&00Accounts ayable 10,&00

Dtilities Bense 1,800anufacturing :"erhead 5,+00

Dtilities ayable 9,&00

or* in rocess 7 @ob 515 105,0&+or* in rocess 7 other #obs &+5,396

21



Chapter 5

anufacturing :"erhead 350,+00

Accounts 4ecei"able 1,&&+,0002ales 1,&&+,000

Jinished /oods n"entory 8&<,000 or* in rocess n"entory8&<,000

ost of /oods 2old 8&<,000Jinished /oods n"entory 8&<,000

c. or* in rocess 7 beginning $ 891,800roduction costsH

=irect material$59<,300

=irect labor 58+,000 Alied o"erhead350,+00 1,513,900 $&,385,500

or* in rocess C ending (1,556,500) ost of goodsmanufactured $ 8&<,000

d. ?irmingham ontractorsncome 2tatement

Jor the onth Bnded @uly 31, &010

4e"enues from comleted ro#ects $1,&&+,000ess ost of /oods 2old (8&<,000)/ross argin on omleted @obs $ 3<5,000'on7roduction BensesH

2alaries and ages Bense $3<,600=ereciation Bense 9,800Dtilities Bense 1,8002ales romotion Bense 11,100Ad"ertising Bense 6,600iscellaneous Bense 10,&00 (99,100)

ncome ?efore ncome Taes $319,<00ncome Taes (+0G) (1&9,160)'et ncome $1<0,9+0

+3. a. @ob &01<H=esign ($81,600 K 30G) $&+,+80roduction (9&0 K $15) 10,800nstallation ($10,080 K <0G) <,09&

22





Chapter 5

or* in rocess (rod.) C @ob &01< 3+,000or* in rocess (rod.) C @ob &0&0 5<,600or* in rocess (rod.) C @ob &0&1 &1,600

ages ayable 115,&00

or* in rocess (rod.) C @ob &01< 10,800or* in rocess (rod.) C @ob &0&0 36,000or* in rocess (rod.) C @ob &0&1 1+,+00

anufacturing :"erhead 61,&00

or* in rocess (nst.) C @ob &01< 10,+00or* in rocess (nst.) C @ob &0&0 36,800or* in rocess (nst.) C @ob &0&1 10,+00

4aw aterial n"entory 59,600

or* in rocess (nst.) C @ob &01< 10,080or* in rocess (nst.) C @ob &0&0 11,5&0or* in rocess (nst.) C @ob &0&1 15,&00

ages ayable 36,800

or* in rocess (nst.) C @ob &01< <,09&or* in rocess (nst.) C @ob &0&0 10,368or* in rocess (nst.) C @ob &0&1 13,680

anufacturing :"erhead 33,1&0

c. @ob &01<H

=irect material $136,+00=irect labor 1&5,680:"erhead ++,35& Total cost $306,+3&

@ob &0&0H=irect material $313,800=irect labor 1+0,+80:"erhead 69,196 Total cost $5&1,+56

@ob &0&1H=irect material $&60,000=irect labor 110,&+0:"erhead 50,11& Total cost $+&0,35&

++. a. 4eliantH $5,580 E $+5 > 1&+ =F wor*ed=umasH $18,000 E $+5 > +00 =F wor*ed

24



Chapter 5

:mahaH $&8,350 E $+5 > 630 =F wor*ed

4eliantH 1&+ =F $58 > $9,1<& :F alied=umasH +00 =F $58 > $&3,&00 :F alied:mahaH 630 =F $58 > $36,5+0 :F alied

4eliant =umas :maha=irect material $ 9,800 $1+,&00 $ 1<,800=irect labor 5,580 18,000 &8,350:"erhead 9,1<& &3,&00 36,5+0 Total cost $&0,59& $55,+00 $8+,6<0

b. 4eliantH $&0,59& E 3 > $6,859 er ad=umasH $55,+00 E 10 > $5,5+0 er ad:mahaH $8+,6<0 E 8 > $10,586 er ad

c. 2ales (&1 ads Z $8,600) $180,600ostsH

=irect material $+1,800=irect labor 51,<30Alied o"erhead 66,<3&:"eralied o"erhead (16,<3&) (1+3,930)

'et income $ 36,890

d. 2alesH 4eliant ($&0,59& 1.3)$&6,9+3.60=umas ($55,+00 1.3) 9&,0&0.00

:maha ($8+,6<0 1.3) 110,0<9 .00 $&08,860.60

ostsH=irect material $+1,800.00=irect labor 51,<30.00Alied o"erhead 66,<3&.00:"eralied o"erhead (16,<3& .00) (1+3,930 .00)

'et income $ 65,130 .60

ncome using a cost7lus basis is substantially higher thanthat which is obtained using a Pat rate selling rice. =umasanufacturing will be more leased with the systemU ratherthan aying a rate of $8,600 er ad, =umas would be aying

$9,&0&. :n the other hand, 4eliant-s and :maha-s costs erad would increase from $8,600 er ad to $8,<15 and $13,96&,resecti"ely.

Ads shouldnQt be billed at a Pat rate because some may ta*emuch longer to de"elo than others. The 8 ads for :mahatoo* 630 hours to de"elo or about 9< hours each. n contrast,the 3 ads were de"eloed for 4eliant in 1&+ hours (+1 hours

25



Chapter 5

each) and the 10 ads were de"eloed for =umas in only +00hours (+0 hours each).

Another ossibility for e?lanc is to bill based on a standardcharge er labor hour[esecially if clients tend to change

their minds after the ad de"eloment rocess begins.

+5. a. :ct.1 4aw aterial n"entory 1,150,000Accounts ayable 1,150,000

1 or* in rocess 7 650,000anufacturing :"erhead 7 500,000

4aw aterial n"entory 1,150,000

5 anufacturing :"erhead 7 &5,000Accounts ayable &5,000

8 anufacturing :"erhead 7 5,000ash 5,000

15 'o entry needed.

&0 anufacturing :"erhead 7 60,000ash 60,000

&+ 4aw aterial n"entory 1,+85,000Accounts ayable 1,+85,000

31 anufacturing :"erhead C 36,3&0or* in rocess C +5,000

ash 66,1&0Accumulated =er. 7 15,&00

31 anufacturing :"erhead C 18,650

or* in rocess C 16,300ash &6,&00Accumulated =er. 7 8,950

31 Accounts ayable &,635,000ash &,635,000

31 or* in rocess C 150,000anufacturing :"erhead C 150,000

(6,000 F $&5)

26





Chapter 5

30 Accounts 4ecei"able 3,+50,000 onstruction 4e"enue 3,+50,000

30 ost of ontracts 2old &,+8&,8+0

omleted ro#ects n"entory &,+8&,8+0

b. recast onstruction

4aw aterial :"erheadC :"erhead 7 1,150,000 1,150,000 500,000 150,000 &5,000

&6,8<5 1,+85,000 1,000,000 5,000 <8,950 60,000&&1,5<5 +&5,000 36,3&0 18,650 195,000 5,000 5,000 &&5,000 5+,050 +3,850

bal 60,000 bal 5&6,6&0 bal 1&<,010

C recast 7 onstruction

650,000 1,883,950 16,300 5<<,0<0 +5,000 &6,8<5 150,000 &00,000 8&5,000 13+,300 115,000 &&1,5<5 <8,950

bal 0 bal 0

omleted ro#ects n". ost of ontracts 2old

&,+8&,8+0 &,+8&,8+0 &,+8&,8+0

bal 0 bal &,+8&,8+0

c. (bottom section of #ob cost sheet)

28



Chapter 5

recast =eartment

= (Bst. $1,550,000) = (Bst. $&&0,000) :F (Bst.$&95,000)

=ate Amount =ate Amount =ate

Amount :ct. 1 $ 650,000 :ct. 31 $ +5,000 :ct. 31$150,000 'o". + 8&5,000 'o". 30 115,000 'o". 30 <8,950 $1,+95,000 $160,000$&+8,950

onstruction =eartment

= (Bst. $350,000) = (Bst. $130,000) :F (Bst.$&1+,500)

=ate Amount =ate Amount =ateAmount

'o". 15 $ &00,000 :ct. 31 $ 16,300 :ct. 31 $ &6,8<5'o". 30 13+,300 'o". 30 &&1,5<5

$150,600$&+8,+<0

d. incoln onstruction omany does not seem to ha"e a goodestimation system in lace for its bid rocess, esecially in its

recast =eartment. The comany may be losing a signicantnumber of bids because of inPated cost estimates.

+6. a. A #ob order cost system is aroriate in any en"ironment inwhich costs can be readily identied with secic roducts,batches, contracts, or ro#ects. Jor adoting this system thereshould be a #ustication on a cost7benet basis to trace coststo those secic roducts, batches, contracts, or ro#ects.

b. The only #ob remaining in at 531 is =4211+H=4211+ balance, +30 $1,590,000

ay additionsH4aw material $1&+,000urchased arts 89,000=irect labor &00,500:"erhead (1<,500 hrs. X $9.50W) 1+6,&50 559,950

balance, 531 $&,1&9,950

W:F rate > $+,500,000 E 600,000 hrs. > $9.50 er hour

29



Chapter 5

c. J/ in"entory of layens, +30 1<,+00Dnits comleted in ay 15,000Dnits a"ailable 3+,+00Dnits shied in ay (&1,000)

J/ in"entory, 531 13,+002ince i 2!uea*s uses the JJ: in"entory method, all unitsremaining in J/ in"entory were comleted in ay.

or* in rocess in"entory, +30 $+&0,000ay additionsH 4aw material $ 3,000 urchased arts 10,800 =irect labor +3,&00 :"erhead (+,+00 Z $9.50) 33,000 <0,000 Total cost $510,000

Dnit cost > $510,000 E 15,000 units comleted > $3+ er unitJ/ in"entory > $3+ Z 13,+00 > $+55,600

d. f the amount of o"eralied or underalied :F is notmaterial or the result of an error in the :F alication rate,the amount is normally charged directly to /2. f the amountis signicant, the amount should be rorated o"er therele"ant accounts (i.e., , J/, and /2).

(Aadated)

+9. a., b. Alied :F rate > $30&,+00 E 100,800 > $3 er =Fost of goods manufactured $ <6,000Add ending wor* in rocessH

Two #obs oen ha"e = of $ +,800 Two #obs oen ha"e = of <,000 Two #obs oen ha"e alied :F of ($3 K &,1++) 6,+3&

&0,&3& Total costs accounted for $116,&3&ess beginning wor* in rocess (15,+00)ost of roduction inuts $100,83&

essH =irect labor $36,+00Alied :F ($3.00 K 8,800) &6,+00

(6&,800)ost of direct material used $ 38,03&ost of indirect material issued 11,600

Total cost of raw material used $ +<,63&

c. ?eginning raw material $ <,600

30



Chapter 5

4aw material urchased 56,000 Total raw material a"ailable $65,6004aw material issued (+<,63&)Bnding raw material $15,<68

d. :"erhead alied ($3 K 8,800) $ &6,+00Actual o"erhead chargesHndirect labor $10,800ndirect material 11,600

All other 5,000 (&9,+00)Dnderalied o"erhead in Aril $ 1,000

e. ?eginning nished goods $ 16,800Add cost of goods manufactured <6,000ost of goods a"ailable $11&,800ess ending nished goods (13,&00)

ost of goods sold $ <<,600

+8. a. Actual = cost $11,600,0002tandard = cost ($56,000 K &00) (11,&00,000)aterial rice Iariance $ +00,000 D

Actual = cost $6,<59,6002tandard = cost ($3+,+00 K &00) (6,880,000)=irect abor 4ate Iariance $ 99,600 D

Actual :F cost $1+,800,0002tandard :F cost ($96,000 K &00) (15,&00,000):F Iariance $ (+00,000) J

b. aterialH$11,600,000 E 6,000,000 > $1.<3 (rounded) actual cost erlb. "s. $&.00 standard cost er lb.U $0.09 6,000,000 >$+&0,000 J rice "ariance

6,000,000 lbs. used "s. (&8,000 &00) standard > 6,000,000 C5,600,000 > +00,000 lbs. more than standardU +00,000 $& >$800,000 D !uantity "ariance

The rimary cause of the unfa"orable material "ariance isbecause of ecess usage.

+<. a. = cost $18.00= cost ($&0 (1& E 60)) + .00 Total standard rime costs $&& .00

31



Chapter 5

b. @ob <18 = cost ($18 1,&00) $&1,600 = cost ($+ 1,&00) +,800 Total standard direct cost $&6,+00

@ob &00&= cost ($18 &,000) $ 36,000= cost ($+ &,000) 8,000 Total standard direct cost $++,000

c. @ob <18 2tandard Actual Iariance = $ &1,600 $&3,5&5 $1,<&5 D = +,800 +,8+0 +0 D Total $&6,+00 $&8,365 $1,<65 D

@ob &00&

= $36,000 $39,++0 $1,++0 D = 8,000 9,850 150 J Total $++,000 $+5,&<0 $1,&<0 D

d. ?y comuting "ariances for each #ob, managers becomeaware of any trends in costs. f costs are aggregated across #obs, any trends may be obscured.

50. a. rot on the ed7rice contracts is constrained by thecontract rice. rot can only be increased if ways are foundto reduce costs. :ne way that costs can be reduced is to shiftthem to other contracts. This is a articularly eecti"estrategy if the costs that are shifted to another contract canbe recoued under the terms of that other contract. ?yshifting some costs of the ed7rice contracts to the cost7lus contracts, the rot on the ed7rice contracts rises and

the shifted costs can be reco"ered under the terms of thecost7lus contracts. Jurther, this strategy may ha"e the eectof increasing costs under the cost7lus contracts if thosecontracts determine rot as a ercentage of total costs.

b. This tye of cost shifting is dishonest and unethical. t has theeect of increasing the total rices of cost7lus contracts, and,if those contracts are go"ernment related, those rices are

32



Chapter 5

tyically borne by taayers. n a sense it is a way for thestoc*holders and managers of the defense contractors tosteal from the taayers. t is diYcult to imagine a setting inwhich this rocess could be labeled ethical.

51. a. Bach student will ha"e a dierent answer.

b. The comany is utiliOing the benets of automation to reducethe costs of handling so many arts. ?y standardiOingrocesses, the comany can assemble a messenger bag witha di"erse set of arts in an amount of time that is similar tothat re!uired for mass7roduced ones. Accordingly, althoughthe comany is robably aying, on a"erage, more for artson custom messenger bags than mass7roduced onesU it isholding the line on direct labor and roduction o"erhead. ?yholding costs down for labor and o"erhead, the total cost of

the custom roduced messenger bags is not signicantlyhigher than that of the mass roduced messenger bags.

c. %uality as "iewed from the ersecti"e of the consumershould be much higher with the custom7made messengerbags because customers are able to secify the "arious artsthey want included. ?y getting the eact combination of artsthe customers desire, they will ercei"e the !uality of theroduct to be "ery high relati"e to the remium in rice theyay o"er the mass7roduced messenger bags.

d. The answer is mostly re"ealed in art (c). ?y containing coststo le"els close to those of mass7roduced messenger bags,but allowing the customer to choose the arts they desire, asubstantial gross rot can be achie"ed. The higher grossrot rePects the customersQ willingness to ay a remium forthe eact combination of arts desired, e"en though thecomanyQs costs are not signicantly greater than thoseincurred to mass roduce messenger bags.

5&. a. t is li*ely that the least oular thoughts and oinions wouldnot be heard on camus. 2tudents would naturally suortthose ideas and ositions that were consistent with their own

ethics, hilosohies, and self interests. As a conse!uence, theo"erall di"ersity of ideas would robably decline.

b. Assuming di"ersity of oinions ultimately benets allstudents, the Dni"ersity of isconsin is ossibly suortingdi"ersity with the only means a"ailable[student dollars.Fowe"er, this aroach may not be ethical because it forcesstudents to suort oinions, beliefs, and ideas that may

33



Chapter 5

"iolate their ersonal ethics. Although the 2ureme ourt of the Dnited 2tates will ultimately determine whether this is alegal ractice, each indi"idual student can reach hisher ownconclusion as to whether the ractice is ethical.

53. a. :"erhead other than soilage $600,000Bstimated soilage cost $50,000ess sal"age "alue &0,000 30,000Ad#usted estimated o"erhead cost $630,000

:4 > $630,000 E +0,000 > $15.95 er =F

b. =isosal "alue of chemical +<6anufacturing :"erhead 1,&3+

or* in rocess[@ob 988 1,930

5+. a. redetermined rate > $<&5,000 E 100,000 > $<.&5 er F

b. Total cost of direct material $689,100 Total cost of direct labor 159,950Alied :F (3,080 $<.&5) &8,+<0 Total cost of @ob ?316 $893,3+0

c. The rewor* cost is debited to the manufacturing o"erheadaccount since the comany uses a redetermined rate thatincludes rewor* costs to aly o"erhead.

anufacturing :"erhead 95,500Iarious accounts 95,500

d. redetermined rate > $850,000 E 100,000 > $8.50 er F

Total cost of direct material $689,100 Total cost of direct labor 159,950Alied :F (3,080 $8.50) &6,180 Total cost of @ob ?316 $891,030

e. Total cost of direct material $689,100 Total cost of direct labor 159,950

Alied :F (3,080 $8.50) &6,1804ewor* cost ($95,500 .&0) 15,1002ale of rewor*ed ie (&00 $3.50) (900) Total cost of @ob ?316 $885,+30

34

Documents

Job Order Cost Ch 05 Kinney