ACCT 1B Quiz 1 Ch 1-3

The Dorilane Company produces a set of wood patio furniture consisting of a table and four chairs. The company has enough customer demand to justify producing its full capacity of 2,000 sets per year. Annual cost data at full capacity follow: Direct labor $ 118,000 Advertising $ 50,000 Factory supervision $ 40,000 Property taxes, factory building $ 3,500 Sales commissions $ 80,000 Insurance, factory $ 2,500 Depreciation, administrative office equipment $ 4,000 Lease cost, factory equipment $ 12,000 Indirect materials, factory $ 6,000 Depreciation, factory building $ 10,000 Administrative office supplies (billing) $ 3,000 Administrative office salaries $ 60,000 Direct materials used (wood, bolts, etc.) $ 94,000 Utilities, factory $ 20,000 Required: 1. Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) 2. Compute the average product cost of one patio set. 3. Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged?

Cost Behavior Period (Selling or Administrative) Cost Product Cost Cost Item Variable Fixed Direct Indirect Direct labor $118,000 $118,000 Advertising 50,000 50,000 Factory supervision 40,000 40,000 Property taxes, factory building 3,500 3,500 Sales commissions 80,000 80,000 Insurance, factory 2,500 2,500 Depreciation, administrative office equipment 4,000 4,000 Lease cost, factory equipment 12,000 12,000 Indirect materials, factory 6,000 6,000 Depreciation, factory building 10,000 10,000 Administrative office supplies (billing) 3,000 3,000 Administrative office salaries 60,000 60,000 Direct materials used (wood, bolts, etc.) 94,000 94,000 Utilities, factory 20,000 20,000 Total costs $321,000 $182,000 $197,000 $212,000 $94,000 2. The average product cost for one patio set would be: Direct $ 212,000 Indirect 94,000 Total $ 306,000 $306,000 ÷ 2,000 sets = $153 per set 3. The average product cost per set would increase if the production drops. This is because the fixed costs would be spread over fewer units, causing the average cost per unit to rise.

Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company's inventory balances were as follows: Raw materials $ 79,000 Work in process $ 25,600 Finished goods $ 37,200 The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company's predetermined overhead rate of $12.25 per direct labor-hour was based on a cost formula that estimated $490,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year: Raw materials were purchased on account, $690,000. Raw materials use in production, $660,000. All of of the raw materials were used as direct materials. The following costs were accrued for employee services: direct labor, $440,000; indirect labor, $150,000; selling and administrative salaries, $260,000. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $462,000. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $340,000. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year. Jobs costing $1,542,950 to manufacture according to their job cost sheets were completed during the year. Jobs were sold on account to customers during the year for a total of $3,172,500. The jobs cost $1,552,950 to manufacture according to their job cost sheets. Required: 1. What is the journal entry to record raw materials used in production?

1 1 Work in process 660,000 Raw materials 660,000

3. What is the journal entry to record the labor costs incurred during the year?

1 Work in process 440,000 Manufacturing overhead 150,000 Selling and administrative salaries 260,000 Wages payable 850,000

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Average Cost Per Unit Direct materials $ 6.00 Direct labor $ 3.50 Variable manufacturing overhead $ 1.50 Fixed manufacturing overhead $ 4.00 Fixed selling expense $ 3.00 Fixed administrative expense $ 2.00 Sales commissions $ 1.00 Variable administrative expense $ 0.50 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?

1. Direct materials $ 6.00 Direct labor 3.50 Variable manufacturing overhead 1.50 Variable manufacturing cost per unit $ 11.00 Variable manufacturing cost per unit (a) $ 11.00 Number of units produced (b) 10,000 Total variable manufacturing cost (a) × (b) $ 110,000 Average fixed manufacturing overhead per unit (c) $ 4.00 Number of units produced (d) 10,000 Total fixed manufacturing cost (c) × (d) 40,000 Total product (manufacturing) cost $ 150,000

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $2,000. It seems we're either too high to get the job or too low to make any money on half the jobs we bid." Teledex Company manufactures products to customers' specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year: Department Fabricating Machining Assembly Total Plant Manufacturing overhead $ 350,000 $ 400,000 $ 90,000 $ 840,000 Direct labor $ 200,000 $ 100,000 $ 300,000 $ 600,000 Jobs require varying amounts of work in the three departments. The Koopers job, for example, would have required manufacturing costs in the three departments as follows: Department Fabricating Machining Assembly Total Plant Direct materials $ 3,000 $ 200 $ 1,400 $ 4,600 Direct labor $ 2,800 $ 500 $ 6,200 $ 9,500 Manufacturing overhead ? ? ? ? Required: 1. Using the company's plantwide approach: a.Compute the plantwide predetermined rate for the current year. b.Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: a.Compute the predetermined overhead rate for each department for the current year. b.Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). a.What was the company's bid price on the Koopers job using a plantwide predetermined overhead rate? b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

1. a. Predetermined overhead rate = Estimated total manufacturing overhead cost Estimated total amount of the allocation base = $840,000 = 140% of direct labor cost $600,000 direct labor cost b. The manufacturing overhead cost applied to the Koopers job is computed as follows: $9,500 × 140% = $13,300 2. a. Fabricating Department Machining Department Assembly Department Estimated manufacturing overhead cost (a) $ 350,000 $ 400,000 $ 90,000 Estimated direct labor cost (b) $ 200,000 $ 100,000 $ 300,000 Predetermined overhead rate (a) ÷ (b) 175 % 400 % 30 % b. Fabricating Department: $2,800 × 175% $ 4,900 Machining Department: $500 × 400% 2,000 Assembly Department: $6,200 × 30% 1,860 Total applied overhead $ 8,760 4.a. The company's bid was: Direct materials $ 4,600 Direct labor 9,500 Manufacturing overhead applied (see requirement 1b) 13,300 Total manufacturing cost $ 27,400 Bidding rate ×1.5 Total bid price $ 41,100 b. If departmental overhead rates had been used, the bid would have been: Direct materials $ 4,600 Direct labor 9,500 Manufacturing overhead applied (see requirement 2b) 8,760 Total manufacturing cost $ 22,860 Bidding rate ×1.5 Total bid price $ 34,290 Note that if departmental overhead rates had been used, Teledex Company would have been the low bidder on the Koopers job because the competitor underbid Teledex by only $2,000.

Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. The company has two manufacturing departments--Molding and Fabrication. It started, completed, and sold only two jobs during March—Job P and Job Q. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March): Molding Fabrication Total Estimated total machine-hours used 2,500 1,500 4,000 Estimated total fixed manufacturing overhead $ 14,000 $ 17,400 $ 31,400 Estimated variable manufacturing overhead per machine-hour $ 3.00 $ 3.80 Job P Job Q Direct materials $ 29,000 $ 16,000 Direct labor cost $ 33,800 $ 13,900 Actual machine-hours used: Molding 3,300 2,400 Fabrication 2,200 2,500 Total 5,500 4,900 Sweeten Company had no underapplied or overapplied manufacturing overhead costs during the month. Required: For questions 1-8, assume that Sweeten Company uses a plantwide predetermined overhead rate with machine-hours as the allocation base. For questions 9-15, assume that the company uses departmental predetermined overhead rates with machine-hours as the allocation base in both departments. 1. What was the company's plantwide predetermined overhead rate?

11.15 1. The first step is to calculate the estimated total overhead costs in Molding and Fabrication: Molding: Using the equation Y = a + bX, the estimated total manufacturing overhead cost is computed as follows: Y = $14,000 + ($3.00 per MH)(2,500 MHs) Estimated fixed manufacturing overhead $ 14,000 Estimated variable manufacturing overhead: $3.00 per MH × 2,500 MHs 7,500 Estimated total manufacturing overhead cost $ 21,500 Fabrication: Using the equation Y = a + bX, the estimated total manufacturing overhead cost is computed as follows: Y = $17,400 + ($3.80 per MH)(1,500 MHs) Estimated fixed manufacturing overhead $ 17,400 Estimated variable manufacturing overhead: $3.80 per MH × 1,500 MHs 5,700 Estimated total manufacturing overhead cost $ 23,100 The second step is to combine the estimated manufacturing overhead costs in Molding and Fabrication ($21,500 + $23,100 = $44,600) to enable calculating the predetermined overhead rate as follows: Estimated total manufacturing overhead (a) $ 44,600 Estimated total machine-hours (MHs) (b) 4,000 MHs Predetermined overhead rate (a) ÷ (b) $ 11.15 per MH

4.. What is the total amount of manufacturing overhead applied to production during the year?

4. The total manufacturing overhead applied to production is computed as follows: Actual direct labor-hours (a) 41,000 Predetermined overhead rate (b) $ 12.25 Manufacturing overhead applied (a) × (b) $ 502,250

5. What is the total manufacturing cost added to Work in Process during the year?

5. The total manufacturing cost added to work in process is: Raw materials used in production $ 660,000 Direct labor 440,000 Manufacturing overhead applied 502,250 Total manufacturing cost $ 1,602,250

2. What is the ending balance in Raw Materials?

Raw Materials Beg. Bal. 79,000 (a) 690,000 660,000 (b) End. Bal. 109,000