Quiz 4: Job Costing
Business
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Costing plays a strategic role in an organization. The success of a firm depends on effective decision making which requires timely and accurate information which is provided by costing. To get the accurate and timely information the firm has to decide the cost system that is required to be employed. In some firms activity based costing may provide timely and accurate information while in others actual costing is easier, hence the firms need to decide on the basis of the nature of their operation the cost method required to be employed. In both strategies whether it is cost leadership or differentiator the requirement of timely and accurate information exists for strategic making decisions. In some companies the strategic environment of the firms keep changing hence the cost system needs to change with the changing environment to ensure timely and accurate information is provided. Some strategic decisions and analysis made on information provided by costing are as follows- a. Product Pricing b. Profitability of Product c. Profit Analysis d. Evaluation of Management performance e. Refinement of strategic goals.
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Costing is the process of accumulating, classifying and assigning direct materials, direct labor and overhead costs to products, services or projects The three characteristics of costing system are as follows- a. The cost accumulation method- It is the method in which cost is accumulated for a particular job or process. It includes job costing, process costing and joint costing. b. The cost measurement method- It the method in which cost is measured. This can be done based on actual costing, standard costing or normal costing. c. The overhead application method- It is the method of application overhead amongst different products or activities which can be volume based or activity based. These three characteristics will be reflected in any costing system in a company. The company has to adopt the correct combination of the three aspects to obtain accurate and timely information.
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Costing: Costing refers to the process of accumulating, classifying and assigning the various cost to the products, services and special orders or projects to arrive at the accurate cost of such product or services. Since every product and service go through different process so, different costing method is required. Job costing and process costing is two types of costing method. Difference between Job costing and process costing: 1. Job costing accumulates cost and then assigns the same to the product or service produced. Whereas, Process costing refers to the accumulating cost at the departmental level and then assigning the same to the product or service 2. Job costing is used when costs are directly traceable with respect to the specific product or customer project whereas process costing is used where mass production of product or service is done. 3. Job costing is used when every project is different from the previous project and hence, cost is required to be calculated per project. And process costing is used where same process is used to produce products. 4. Example of job costing is service industries like accounting or advocate firm. Example of process costing is industries like chemical industry, bottling companies.
Q 4Q 4
Explain when companies are likely to use a job costing system or a process costing system. Provide examples.
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Q 5Q 5
Which costing system is extensively used in the service industry for hospitals, law firms, or accounting firms Explain why.
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Q 6Q 6
What document is prepared to accumulate costs for each separate job in a job costing system What types of costs are recorded in the document
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Q 7Q 7
Explain how predetermined factory overhead rates are computed and why they are used to apply factory overhead to units of products instead of actual overhead costs.
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Q 8Q 8
What is the role of material requisitions in a job costing system Time tickets Bills of materials
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Q 9Q 9
What does the statement "Accounting for overhead involves an important cost-benefit issue" mean Why is that issue important
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Q 10Q 10
Describe the flow of costs through a job costing system from materials through finished product.
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Q 11Q 11
What do underapplied overhead and overapplied overhead mean How are these amounts disposed of at the end of a period
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Q 12Q 12
Why would a manufacturing firm switch from direct labor-hours to machine-hours as the cost driver for factory overhead application
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Q 14Q 14
Distinguish between an actual costing system and a normal costing system. What are the components of the actual manufacturing costs and the components of the normal manufacturing costs
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Q 18Q 18
If the overhead rate is $10 per machine-hour, and there are 20 labor-hours, 16 machine-hours, and 2 personnel on the job, how much overhead should be applied to the job
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Q 19Q 19
Nieto Machine Shop has 4,000 labor-hours and 8,000 machine-hours used in May. Total budgeted overhead for May is $80,000. What is the overhead rate using labor-hours and also using machine-hours Which would you pick and why
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Q 20Q 20
Assume that actual overhead is $613,000 in a given year and the overhead rate is $10 per unit, 60,000 units were sold, and 59,000 units were produced. For the end of the year, is overhead underapplied or overapplied, and by how much
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Q 21Q 21
If the end-of-period balance for cost of goods sold is $90,000 and underapplied overhead is $10,000, what is the ending balance in cost of goods sold, after adjusting for the underapplied overhead
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Q 22Q 22
A small consulting firm has an overhead rate of 200% of direct labor charged to each job. The materials cost (including travel and other direct costs) for a particular job is $10,000 and the direct labor is $20,000. What is the total job cost for this job
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Q 23Q 23
Company A has a number of jobs that are processed through similar manufacturing processes. However, most jobs have labor-hour requirements ranging from 100 to 130 hours, while these jobs differ significantly in the number of machine-hours required for each job-some as low as 50, other as high as 5,000 hours. One reason for this is a well-trained labor pool that has the ability to work cross-functionally and perform a variety of duties. What do you think is the best overhead rate basis for this firm-labor-hours, machine-hours, or some other rate basis Explain your answer.
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Q 24Q 24
When overhead is overapplied, is the balance of cost of good sold, before adjustment, too low or too high Why
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Q 25Q 25
Some firms pool overhead into a single plantwide overhead pool, while others collect overhead costs into manufacturing departments, each of which has an overhead cost pool and overhead cost application rate. Which approach is likely to provide more accurate cost numbers for cost estimating, pricing, and performance evaluation
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Q 26Q 26
Assume the following for White Top, Inc., for 2013. White Top applies overhead on the basis of units produced.
Required How many units were produced in 2013
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Q 27Q 27
Assume the following for Round Top, Inc., for 2013. Round Top applies overhead on the basis of units produced.
Required How many units were produced in 2013
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Q 29Q 29
Choice of Costing System
Required The following is a list of websites for a number of companies. Briefly describe each company and indicate whether it is more likely to use job costing or process costing. Explain why in each case. Also explain why you think each company (a) is or is not a global company, and (b) has significant environmental issues in its operations.
1. New Century Software Inc. at www.newcenturysoftware.com.
2. FedExOffice at www.fedex.com.
3. TXI Cement (TXI) at www.txi.com.
4. Paramount Pictures at www.paramount.com.
5. Coca-Cola at www.coca-cola.com.
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Q 30Q 30
Choice of Costing System
Required The following is a list of websites for a number of companies. Briefly describe each company and indicate whether it is more likely to use job costing or process costing. Explain why in each case. Also explain why you think each company (a) is or is not a global company, and (b) has significant environmental issues in its operations.
1. Zurich Financial Services Group at www.zurich.com.
2. Reichhold Chemical Co. at www.reichhold.com.
3. Nestle S.A. at www.nestle.com.
4. Evian at www.evian.com.
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Q 31Q 31
Cost Flows; Applying Overhead Erkens Company uses a job costing system with normal costing and applies factory overhead on the basis of machine-hours. At the beginning of the year, management estimated that the company would incur $1,980,000 of factory overhead costs and use 66,000 machine-hours.
Erkens Company recorded the following events during the month of April:
a. Purchased 180,000 pounds of materials on account; the cost was $5.00 per pound.
b. Issued 120,000 pounds of materials to production, of which 15,000 pounds were used as indirect materials.
c. Incurred direct labor costs of $240,000 and $40,000 of indirect labor costs.
d. Recorded depreciation on equipment for the month, $75,700.
e. Recorded insurance costs for the manufacturing property, $3,500.
f. Paid $8,500 cash for utilities and other miscellaneous items for the manufacturing plant.
g. Completed Job H11 costing $7,500 and Job G28 costing $77,000 during the month and transferred them to the Finished Goods Inventory account.
h. Shipped Job G28 to the customer during the month. The job was invoiced at 35% above cost.
i. Used 7,700 machine-hours during April.
Required
1. Compute Erkens Company's predetermined overhead rate for the year.
2. Prepare journal entries to record the events that occurred during April.
3. Compute the amount of overapplied or underapplied overhead and prepare a journal entry to close overapplied or underapplied overhead into cost of goods sold on April 30.
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Q 32Q 32
Application of Overhead Alles Company uses a job costing system that applies factory overhead on the basis of direct labor dollars. No job was in process on February 1. During the month of February, the company worked on these three jobs:
During the month, the company completed and transferred Job B10 to the finished goods inventory. Jobs C44 and G15 were not completed and remain in work in process at the cost of $148,650 at the end of the month. Actual factory overhead costs during the month totaled $38,500.
Required
1. What is the predetermined factory overhead rate
2. Compute the amount of underapplied or overapplied overhead for February.
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Q 33Q 33
Job Costing Johnson Inc. is a job-order manufacturing company that uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. For 2013, estimated direct labor-hours are 95,000 and estimated factory overhead is $617,500. The following information is for September 2013. Job A was completed during September, and Job B was started but not finished.
Required
1. What is the total cost of Job A
2. What is the total factory overhead applied during September
3. What is the overapplied or underapplied overhead for September
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Q 34Q 34
Application of Overhead Whitley Construction Company is in the home remodeling business. Whitley has three teams of highly skilled employees, each of whom has multiple skills involving carpentry, painting, and other home remodeling activities. Each team is led by an experienced employee who coordinates the work done on each job. As the needs of different jobs change, some team members may be shifted to other teams for short periods of time. Whitley uses a job costing system to determine job costs and to serve as a basis for bidding and pricing the jobs. Direct materials and direct labor are easily traced to each job, using Whitley's cost tracking software. Overhead consists of the purchase and maintenance of construction equipment, some supervisory labor, the cost of bidding for new customers, and administrative costs. Whitley uses an annual overhead rate based on direct labor-hours.
Whitley has recently completed work for three clients: Harrison, Barnes, and Tyler. The cost data for each of the three jobs are summarized below.
Budgeted direct materials cost and direct labor cost for the year are estimated at $450,000 and $600,000, respectively. Direct labor-hours are budgeted at 22,500 hours, and total overhead is budgeted at $495,000.
Required
1. Calculate the total cost of each of the three jobs.
2. Suppose that for the entire year, Whitley used 23,800 labor-hours and total actual overhead was $525,000. What is the amount of underapplied or overapplied overhead
3. Whitley's business is very seasonal, with summer the period of high activity and winter the low period. How would seasonality potentially affect the job costing at the company
4. What are some of the potential sustainability issues for Whitley
5. Whitley has chosen direct labor-hours as the cost-driver base for applying overhead. What are some alternative cost drivers, and how would you choose among them
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Q 35Q 35
Application of Overhead Tomek Company uses a job costing system that applies factory overhead on the basis of direct labor-hours. The company's factory overhead budget for 2013 included the following estimates:
Required
1. Compute the firm's predetermined factory overhead rate for 2013.
2. Calculate the amount of overapplied or underapplied overhead.
3. Prepare a journal entry to transfer the underapplied or overapplied overhead to the Cost of Goods Sold account.
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Q 36Q 36
Application of Overhead Norton Associates is an advertising agency in Austin, Texas. The company's controller estimated that it would incur $325,000 in overhead costs for 2013. Because the overhead costs of each project change in direct proportion to the amount of direct professional hours incurred, the controller decided that overhead should be applied on the basis of professional hours. The controller estimated 25,000 professional hours for the year. During October, Norton incurred the following costs to make a 20-second TV commercial for Central Texas Bank:
The industry customarily bills customers at 150% of total cost.
Required
1. Compute the predetermined overhead rate.
2. What is the total amount of the bill that Norton will send Central Texas Bank
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Q 37Q 37
Application of Overhead Progressive Painting Company (PPC) is a successful company in commercial and residential painting. PPC has a variety of jobs: new construction, repair and repainting existing structures, and restoration of very old buildings and homes. The company is known for the quality and reliability of its work, and customers expect to pay a little more for those benefits. One of the company's core values is sustainability, and it insists on using the most environmentally friendly paints and materials in its work; it has refused jobs where the client required a more environmentally harmful paint than PPC thought was appropriate for the application. The company's commitment to sustainability has lost PPC some jobs, but it has also attracted a loyal and growing customer base.
The company uses job costing and applies overhead on the basis of direct labor-hours. Overhead for the company consists of painting equipment, trucks, supervisory labor, supplies, and administrative operation costs. The total budgeted costs for the year are shown below.
PPC has just completed two jobs:
Required
1. Determine the total cost of each job.
2. The Prevette job required oil-based paint and the clean-up after the job required the use of chemicals that, after use, had to be disposed of in an environmentally appropriate way. In contrast, the Harmon job required water-based paint and the job clean-up was very quick and simple and involved no harmful chemicals. Does the job costing in part 1 above capture the difference between the two jobs in regard to the types of paint used Do you think the costing system should capture this difference, if any, and if so, how do you think the costing system should be changed
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Q 38Q 38
Spoilage and Scrap (appendix)
Lexan Textile Company's Job X12 had one of its 20 units spoiled. The cost incurred on the unit was $600. It was specific normal spoilage with an estimated disposal price of $300 for the spoiled unit. Job Y34 had common normal spoilage with the estimated cost of $400 from the general production process failure and abnormal spoilage of $200. The company also incurred scrap due to Job Y34 and sold it for $80. It also sold the scrap common to all jobs for $120 cash in May.
Required
1. Make the necessary journal entries to record normal and abnormal spoilage costs.
2. Make the necessary journal entries to record both types of scrap sold.
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Q 39Q 39
Overhead Rates Used for Each Machine in a Printing Plant
Ennis Inc.'s Forms Solutions Group (http://www.ennis.com/) is a Texas-based machine-intensive printing company that produces business forms. The resources demanded by a specific job depend on the type and amount of paper used and the composition and the construction of the business form. All jobs are constrained by the time necessary on a press and on a collator capable of producing forms at the required size.
Ennis Inc.'s Forms Solutions (EFS) uses job costing for pricing and bidding decisions. EFS uses a separate factory overhead rate for each machine. Costs of machine operator, support personnel, and supplies are identified directly with presses and collators. Other factory overhead costs-including insurance, supervision, and office salaries-are allocated to machines based on their processing capacity (cost driver is the number of feet of business form per minute), weighted by the maximum paper width and complexity (the cost driver is the number of colors and other features) that they are capable of handling.
When EFS receives a request for a bid on a particular job, the company uses computer software to determine direct material costs based on the type and quantity of paper. Then it identifies the least expensive press and collator that are capable of handling the specifications for the business form ordered. The third step is to estimate the total press and collator processing costs by using specific cost-driver rates per machine time multiplied by the estimated processing time. The bid price is calculated by adding a standard markup to the total press, collator, and direct material costs. A higher markup is used for rush jobs and jobs requiring special features.
Required Discuss the strengths and weaknesses of the EFS costing system and its strategic implications.
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Q 40Q 40
Plantwide vs. Departmental Overhead Rate
Rose Bach was recently hired as controller of Empco Inc., a sheet metal manufacturer. Empco has been in the sheet metal business for many years and is currently investigating ways to modernize its manufacturing process. At the first staff meeting Rose attended, Bob Kelley, chief engineer, presented a proposal for automating the drilling department. He recommended that Empco purchase two robots that could replace the eight direct labor workers in the department. The cost savings outlined in Bob's proposal included eliminating direct labor cost and reducing factory overhead cost to zero in the drilling department because Empco charges factory overhead on the basis of direct labor dollars using a plantwide rate.
Empco's president was puzzled by Kelley's explanation of cost savings, believing it made no sense. Rose agreed, explaining that as firms become more automated, they should rethink their factory overhead systems. The president then asked her to look into the matter and prepare a report for the next staff meeting.
Required
1. Describe the shortcomings of the Empco's current system for applying overhead.
2. Explain the misconceptions in Bob Kelley's statement that the factory overhead cost in the drilling department would be reduced to zero if the automation proposal were implemented.
3. How would you improve the allocation of overhead costs
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Q 41Q 41
Plantwide vs. Departmental Overhead Rate Adams Corporation manufactures auto steering systems. Cost estimates for one unit of the product for the year 2013 follow:
This product requires 12 hours of direct labor in department A and 8 hours in department B. Also, it requires 5 machine-hours in department A and 15 machine-hours in department B. The factory overhead costs estimated in these two departments follow:
Management expects the firm to produce 1,000 units during 2013.
Required
1. Assume that factory overhead was applied on the basis of direct labor-hours. Compute the predetermined factory overhead rate.
2. If factory overhead were applied on the basis of machine-hours, what would be the plantwide overhead rate
3. If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2
4. If you were asked to evaluate the performance of each department manager, which allocation basis (cost driver) would you use Why
5. Compute the departmental overhead rates for each department.
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Q 42Q 42
Application of Overhead Work in process inventory for Carston Inc. at the beginning of the year was a single job, Job T114:
The company's budgeted costs for the year are as follows:
The company's actual costs incurred during the year are as follows:
Required
1. What was the actual factory overhead for Carston Inc. for the year
2. What was overapplied or underapplied overhead for the year
3. Job T114 was the only job completed and sold in the year. What amount was included in the cost of the goods sold for this job
4. What was the amount of work-in-process inventory at the end of the year
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Q 43Q 43
Quarterly and Annual Overhead Application
The Mansfield Machine Shop is a family-owned business with 25 employees. The founding brothers, Steve and George, started the business in 1974 with a single milling machine, a grinder, and a lathe. The brothers now own a business with 27 machines, and operating revenues of more than $5 million per year. The brothers have noticed that they are losing business to new competitors and they have heard from some of their customers that their competitors have better prices. So they have asked you to study their operations and summary financial reports for the prior year and to make recommendations. The information available to you includes:
1. The business is very seasonal, as it reflects the seasonality of the businesses of its major customers in the manufacturing and construction industries. The first and third quarters of the year have relatively low demand, while their busiest periods are the second and fourth quarters. George and Steve measure the volume of their business in machine-hours, since they charge by the machine-hour and the materials costs are negligible. The machine-hours demand for last year was 5,000 hours in the first quarter, 12,500 in the second quarter, 7,500 in the third quarter, and 11,250 in the fourth quarter.
2. Mansfield has 27 machines in the plant, and while some are newer and more technologically advanced than others, the differences are not great. Because of this, the brothers charge the same price for machining on each of the machines. George and Steve realize that their business is very seasonal and that their machines and operators will be busier at times, but to keep the machines in good shape and operators rested, they try to limit the work to approximately 150 hours per month per machine.
3. Because of the seasonality of the business, George and Steve have always recalculated the overhead rate for each quarter. The overhead rate is determined at the end of each quarter based on actual total overhead costs for the quarter (which are $450,000 per quarter) and the actual machine-hours for that quarter. This machine-hours-based rate is then used in the following quarter, and is revised accordingly at the end of each quarter.
4. Mansfield's variable costs are $45 per machine-hour. The firm charges a 50 percent markup over full cost, the sum of variable costs and overhead charges per unit. Mansfield uses $85 full cost in pricing for the first quarter.
5. In addition to $450,000 fixed operating costs per quarter, Mansfield has $25,000 administrative fixed costs per quarter.
Required
1. Calculate the overhead rates and machine-hour pricing rates using the quarterly overhead system now used by the firm.
2. Recalculate the overhead rates and machine-hour pricing rates using an annual overhead rate.
3. Calculate total contribution and operating income for the year and for each quarter under both the quarterly and annual rates.
4. Interpret your findings in parts 1 through 3. How does the choice of a quarterly overhead rate affect pricing for Mansfield Which overhead rate, quarterly or annual, do you think Mansfield should use and why What are the strategic implications of the choice of overhead rates for the company
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Q 44Q 44
Application of Overhead The following information applies to the O'Donnell Company for March production. There are only two jobs (X and Y) in production in March.
a. Purchased direct materials and indirect materials with the following summary of receiving reports:
b. Issued direct materials and indirect materials with this summary of requisitions:
c. Factory labor incurred is summarized by these time tickets:
d. Factory utilities, factory depreciation, and factory insurance incurred is summarized as follows:
e. Factory overhead costs were applied to jobs at the predetermined rate of $46 per machine hour. Job X incurred 1,100 machine-hours; Job Y used 800 machine-hours. f. Job X was completed; Job Y was still in process at the end of March. The company closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the end of March.
Required
1. Calculate the total manufacturing cost for Job X and Job Y for March.
2. Calculate the amount of overapplied or underapplied overhead and state whether the cost of goods sold account will be increased or decreased by the adjustment.
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Q 45Q 45
Application of Overhead The following information is for Punta Company for July 2013:
a. Applied factory overhead costs to jobs at the predetermined rate of $42.50 per labor-hour. Job S incurred 6,175 labor-hours; Job T used 4,275 labor-hours.
b. Shipped Job S to customers during July. Job S had a gross margin of 24% based on manufacturing cost.
c. Job T was still in process at the end of July.
d. Closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the end of July.
e. Factory utilities, factory depreciation, and factory insurance incurred are summarized as follows:
f. Direct materials and indirect materials used are as follows:
g. Factory labor incurred for the two jobs and indirect labor are as follows:
Required
1. Calculate the total manufacturing cost for Job S and Job T for July 2013.
2. Calculate the amount of overapplied or underapplied overhead and state whether the Cost of Goods Sold account will be increased or decreased by the adjustment.
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Q 46Q 46
Cost Flows; Application of Overhead Apex Corporation manufactures reproductions of eighteenth century, classical-style furniture. It uses a job costing system that applies factory overhead on the basis of direct labor-hours. Budgeted factory overhead for the year 2013 was $1,235,475, and management budgeted 86,700 direct labor-hours. Apex had no materials, work-in-process, or finished goods inventory at the beginning of August 2013. These transactions were recorded during August:
a. Purchased 5,000 square feet of oak on account at $25 per square foot.
b. Purchased 50 gallons of glue on account at $36 per gallon (indirect material).
c. Requisitioned 3,500 square feet of oak and 30.5 gallons of glue for production.
d. Incurred and paid payroll costs of $187,900. Of this amount, $46,000 were indirect labor costs; direct labor personnel earned $22 per hour.
e. Paid factory utility bill, $15,230 in cash.
f. August's insurance cost for the manufacturing property and equipment was $3,500. The premium had been paid in March.
g. Incurred $8,200 depreciation on manufacturing equipment for August.
h. Recorded $2,400 depreciation on an administrative asset.
i. Paid advertising expenses in cash, $5,500.
j. Incurred and paid other factory overhead costs, $13,500.
k. Incurred miscellaneous selling and administrative expenses, $13,250.
l. Applied factory overhead to production on the basis of direct labor-hours.
m. Completed goods costing $146,000 manufactured during the month.
n. Sales on account in August were $132,000. The cost of goods sold was $112,000.
Required
1. Compute the firm's predetermined factory overhead rate for the year.
2. Prepare journal entries to record the August events. Letter your entries from a to n.
3. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on August 31, 2013.
4. Prepare a schedule of cost of goods manufactured and sold.
5. Prepare the income statement for August.
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Q 47Q 47
Cost Flows; Application of Overhead Platinum Wish is a small manufacturer of gold and platinum jewelry. It uses a job costing system that applies overhead on the basis of direct labor hours. Budgeted factory overhead for the year 2013 was $443,800, and management budgeted 31,700 direct labor-hours. The company had no materials, work-in process, or finished goods inventory at the beginning of April. These transactions were recorded during April:
a. April insurance cost for the manufacturing property and equipment was $1,600. The premium had been paid in January.
b. Recorded $1,025 depreciation on an administrative asset.
c. Purchased 21 pounds of high-grade polishing materials at $15 per pound (indirect material).
d. Paid factory utility bill, $6,510 in cash.
e. Incurred 4,000 hours and paid payroll costs of $160,000. Of this amount, 1,000 hours and $20,000 were indirect labor costs.
f. Incurred and paid other factory overhead costs, $5,770.
g. Purchased $24,500 of materials. Direct materials included unpolished semiprecious stones and gold. Indirect materials included supplies and polishing materials.
h. Requisitioned $18,500 of direct materials and $1,500 of indirect materials from materials inventory.
i. Incurred miscellaneous selling and administrative expenses, $5,660.
j. Incurred $3,505 depreciation on manufacturing equipment for April.
k. Paid advertising expenses in cash, $2,350.
l. Applied factory overhead to production on the basis of direct labor-hours.
m. Completed goods costing $65,000 manufactured during the month.
n. Made sales on account in August, $56,410. The cost of goods sold was $47,860.
Required
1. Compute the firm's predetermined factory overhead rate for the year.
2. Prepare journal entries to record the April events.
3. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on April 30.
4. Prepare a schedule of cost of goods manufactured and sold.
5. Prepare the income statement for April.
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Q 48Q 48
Application of Overhead The Terry CPA firm has the following overhead budget for 2013:
The firm estimates total direct labor cost in 2013 to be $1,600,000. The firm uses direct labor cost as the cost driver to apply overhead to clients.
During January, the firm worked for many clients; data for two of them follow:
Required
1. Compute the firm's budgeted overhead rate.
2. Compute the amount of overhead to be charged to the Barry and Miles accounts using the predetermined overhead rate calculated in requirement 1.
3. Compute total job cost for the Barry account and the Miles account.
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Q 49Q 49
Job Cost; Spreadsheet Application; Pivot Tables in Excel (see Excel tutorial on text website) Decker Screw Manufacturing Company produces special screws made to customer specifications. During June, the following data pertained to these costs:
Decker had no beginning work-in-process inventory for June. Of the jobs begun in June, Job 2906 was completed and sold on account for $30,000, Job 2907 was completed but not sold, and Job 2908 was still in process.
Required
1. Calculate the direct materials, direct labor, factory overhead, and total costs for each job started in June, using Excel.
2. Perform the same calculations as in requirement (1), but assume that the direct labor-rate per hour increased by 10% in Department 1 and 25% in Department 2.
3. Perform the same calculations in part (1) except that you should use Pivot Tables in Excel to arrive at the answer. The Excel Tutorial for Chapter 4, on the text website, explains how to use Pivot Tables.
4. Perform the same calculations in part (2) except that you should use Pivot Tables in Excel to arrive at the answer.
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Q 50Q 50
Application of Overhead; Schedule of Cost of Goods Manufactured
Haughton Company uses a job costing system for its production costs and a predetermined factory overhead rate based on direct labor costs to apply factory overhead to all jobs. During the month of July, the firm processed three jobs: X13, X14, and X15, of which X13 was started in June.
Required
1. Compute the predetermined factory overhead rate.
2. Compute the amount of materials inventory at the end of July.
3. Compute the actual factory overhead cost incurred during the month of July.
4. Compute the ending balance of the work-in-process inventory account for July.
5. Prepare the statement cost of goods manufactured for July.
6. Compute the amount of over- or underapplied overhead.
7. What is the cost per unit of Job X13 if it has a total of 100 units
8. Prepare the statement of cost of goods sold for July.
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Q 51Q 51
Assigning Overhead to Jobs; Ethics
Aero Systems is a manufacturer of airplane parts and engines for a variety of military and commercial aircraft. It has two production departments. Department A is machine-intensive; Department B is labor-intensive. Aero Systems has adopted a traditional plantwide rate using the direct labor-hour-based overhead allocation system. The company recently conducted a pilot study using a departmental overhead rate costing system. This system used two overhead allocation bases: machine-hours for Department A and direct labor-hours for Department B. The study showed that the system, which will be more accurate and timely, will assign lower costs to the government jobs and higher costs to the company's nongovernmental jobs. Apparently, the current (less accurate) direct labor-based costing system has overcosted government jobs and undercosted private business jobs. On hearing of this, top management has decided to scrap the plans for adopting the new departmental overhead rate costing system because government jobs constitute 40 percent of Aero Systems' business and the new system will reduce the price and thus the profit for this part of its business.
Required As the management accountant participating in this pilot study project, what is your responsibility when you hear of top management's decision to cancel the plans to implement the new departmental overhead rate costing system What would you do
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Q 52Q 52
Operation Costing
Brian Canning Co., which sells canned corn, uses an operation costing system. Cans of corn are classified as either sweet or regular, depending on the type of corn used. Both types of corn go through the separating and cleaning operations, but only regular corn goes through the creaming operation. During January, two batches of corn were canned from start to finish. Batch X consisted of 800 pounds of sweet corn and batch Y consisted of 700 pounds of regular corn. The company had no beginning or ending work-in-process inventory. The following cost information is for the month of January:
*Includes $300 for cream.
Required
1. Compute the unit cost for sweet corn and regular corn.
2. Record appropriate journal entries.
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Q 53Q 53
Spoilage, Rework, and Scrap (appendix)
Richport Company manufactures products that often require specification changes or modifications to meet customer needs. Consequently, Richport employs a job costing system for its operations.
Although the specification changes and modifications are commonplace, Richport has been able to establish a normal spoilage rate of 2.5% of good units produced (before spoilage). The company recognizes normal spoilage during the budgeting process and classifies it as a component of factory overhead. Thus, the predetermined overhead rate used to apply factory overhead costs to jobs includes an allowance for net spoilage cost for normal spoilage. If spoilage on a job exceeds the normal rate, it is considered abnormal and then must be analyzed and the cause of the spoilage must be submitted to management.
Randa Duncan, one of Richport's inspection managers, has been reviewing the output of Job N1192-122 that was recently completed. A total of 122,000 units had been started for the job, and 5,000 units were rejected at final inspection, meaning that the job yielded 117,000 good units.
Randa noted that 900 of the first units produced were rejected due to a very unusual design defect that was corrected immediately; no more units were rejected for this reason.
Randa was unable to identify a pattern for the remaining 4,100 rejected units. They can be sold at a salvage value of $7 per unit.
The total costs accumulated for all 122,000 units of Job N1192-122 follow. Although the job is completed, all of these costs are still in the Work-in-Process Inventory account (i.e., the cost of the completed job has not been transferred to Finished Goods Inventory account).
Required
1. Explain the distinction between normal and abnormal spoilage.
2. Distinguish between spoiled units, rework units, and scrap.
3. Review the results and costs for Job N1192-122.
a. Prepare an analysis separating the spoiled units into normal and abnormal spoilage by first determining the normal input required to yield 117,000 good units.
b. Prepare the appropriate journal entries to account for Job N1192-122.
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