Managerial Accounting Chapter 3
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. g) Sales (all on credit) for the month totaled $340,000. According to the job cost records, the units sold cost $250,000 to manufacture. Assume the company uses a perpetual inventory system.
Accounts Receivable (debit) = $340,000 Sales Revenue (credit) = $340,000 to record the sales and receivables Cost of Goods Sold (debit) = $250,000 Finished Goods Inventory (credit) = $250,000 to reduce Finished Goods Inventory and record Cost of Goods Sold
The amount of manufacturing overhead recorded on a job cost record for a particular job is found by
allocating manufacturing overhead to the job.
For which of the following would job costing not be appropriate? a. Electrician b. Manufacturer of mass-produced carbonated beverages c. Law firm d. Manufacturer of custom-ordered production equipment
b
Which of the following is false? a. Direct costing focuses on only the direct costs found on the job cost record. b. Job cost information is not useful for assessing the profitability of different products. c. A cost-plus price is determined by adding a markup to the cost. d. Non-manufacturing costs can be assigned to jobs only for internal decision making, never for external financial reporting.
b
Which of the following is true when using job costing at a service firm? a. Professional labor cost would be considered an indirect cost of serving the client. b. Office rent would be considered a direct cost of serving the client. c. Both direct and indirect costs are assigned to client jobs. d. The professional billing rate consists solely of the professionals' labor cost.
c
Which of the following is true? a. If manufacturing overhead is underallocated, then jobs will be overcosted. b. If manufacturing overhead is overallocated, then jobs will be undercosted. c. Both of the statements are true. d. None of the statements is true.
d
a) Calculate the predetermined overhead rate.
Estimated yearly overhead costs / estimated yearly direct labor hours = Predetermined overhead rate
a) What is the predetermined overhead rate based on direct labor hours?
Estimated yearly overhead costs / estimated yearly direct labor hours = Predetermined overhead rate
When a job is completed, the total cost of manufacturing the job should be moved to which of the following general ledger accounts?
Finished Goods Inventory
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. f) Several jobs were completed during the month. According to the job cost records, these jobs cost $255,000 to manufacture.
Finished Goods Inventory (debit) = $255,000 Work in Process Inventory (credit) = $255,000 to move the completed jobs out of the factory and into Finished Goods
Bill from supplier
Invoice
Which of the following documents is used to accumulate all of the manufacturing costs assigned to a job?
Job cost record
Architect
Job costing
Catering service
Job costing
Commercial plumbing contractor
Job costing
Company providing Web design services
Job costing
Janitorial services company
Job costing
Medical practice of six doctors and four physician assistants
Job costing
Movie studio
Job costing
Product costing system used by manufacturers of unique products
Job costing
Shipbuilder
Job costing
Temporary staffing agency
Job costing
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. d) The company recorded $9,000 of depreciation on the plant building and machinery. In addition, $3,000 of prepaid property tax expired during the month. The company also recieved the plant utility bill for $6,000 which will be paid at a later date.
Manufacturing Overhead (debit) = $18,000 Accumulated Depreciation-Plant and Equipment (credit) = $9,000 Prepaid Plant Property Tax for expiration of property tax (credit) = $3,000 Accounts Payable for electric bill (credit) = $6,000 to record other indirect manufacturing costs incurred during the month
b) How much manufacturing overhead was allocated to jobs during the year?
Predetermined overhead rate * actual machine hours = Manufacturing overhead allocated
Oil refinery
Process costing
Plastic bottle manufacturer
Process costing
Product costing system used by mass manufacturers
Process costing
Soft drink bottler
Process costing
Soup manufacturer
Process costing
Toothpaste manufacturer
Process costing
Document specifying when jobs will be manufactured
Production schedule
b) Calculate the professional billing rate Wilson & Associates would use for billing out Jennifer's services.
Professional labor cost per hour + Indirect cost allocation rate per hour = Total hourly cost; Total hourly cost + Profit markup (Total hourly cost * percentage) = Hourly billing rate for Jennifer Jackson
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. a) During January, $150,000 of raw materials was purchased on account.
Raw Materials Inventory (debit) = $150,000 Accounts Payable (credit) = $150,000 to record purchases of raw materials
Document containing the details and balance of each part in stock
Raw materials records
Document for recording incoming shipments
Receiving report
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. h) The company incurred operating expenses of $60,000 during the month. Assume that 80% of these were for marketing and administrative salaries and the other 20% were lease and utility bills related to the corporate headquarters. The expenses will be paid later.
Salary Expense ($60,000 * 80%, debit) = $48,000 Lease and Utilities Expense ($60,000 * 20%, debit) = $12,000 Salaries and Wages Payable (credit) = $48,000 Accounts Payable (credit) = $12,000 to record all non-manufacturing costs incurred during the month
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. j) Prepare the January income statement for Fashion Fabrics based on the transactions recorded in Requirements a through i.
Sales Revenue = $340,000 (Requirement g) Less: Cost of Goods Sold = $248,000 (Cost of Goods Sold in Requirement g ($250,000) - Cost of Goods Sold in Requirement i ($2,000)) Gross Profit = $92,000 Less: Operating Expenses = $60,000 (Requirement h) Operating Income = $32,000
Products normally kept on hand in order to fill orders quickly
Stock inventory
E-Z Boy Furniture makes sofas, loveseats, and recliners. The company allocates manufacturing overhead based on direct labor hours. E-Z Boy estimated a total of $2 million of manufacturing overhead and 40,000 direct labor hours for the year. Job 310 consists of a batch of 10 recliners. The company's records show that the following direct materials were requisitioned for Job 310. Lumber: 10 units at $30 per unit Padding: 20 yards at $20 per yard Upholstery fabric: 60 yards at $25 per yard, soucred from a local manufacturer Labor time records show the following employees (direct labor) worked on Job 310: Jesse Slothower: 10 hours at $12 per hour Becky Wilken: 15 hours at $18 per hour Chip Lathrop: 12 hours at $15 per hour d) The company's customers are concerned abour environmental responsibility and social justice and require additional sustainability-related information prior to making their purchasing decisions. To meet customer concerns, determine which materials used for the product are sourced locally, and the percentage of labor paid at a rate greater than minimum wage. Currently, the federal minimum wage is $1.75 per hour.
Supplemental sustainability information for Job 310: All fabric contained in the product was sourced locally and all labor used in the manufacturing was paid at a rate higher than minimum wage.
E-Z Boy Furniture makes sofas, loveseats, and recliners. The company allocates manufacturing overhead based on direct labor hours. E-Z Boy estimated a total of $2 million of manufacturing overhead and 40,000 direct labor hours for the year. Job 310 consists of a batch of 10 recliners. The company's records show that the following direct materials were requisitioned for Job 310. Lumber: 10 units at $30 per unit Padding: 20 yards at $20 per yard Upholstery fabric: 60 yards at $25 per yard, soucred from a local manufacturer Labor time records show the following employees (direct labor) worked on Job 310: Jesse Slothower: 10 hours at $12 per hour Becky Wilken: 15 hours at $18 per hour Chip Lathrop: 12 hours at $15 per hour c) Compute the total cost of Job 310, as well as the cost of each recliner produced in Job 310.
The direct materials ($2,000), direct labor ($570), and manufacturing overhead ($1,850) sum to a total job cost of $4,620. When the total job cost is averaged over the 10 recliners in the job, the cost per recliner is $462.
Recall that Life Fitness had estimated $1,000,000 of MOH for the year and 62,500 DL hours, resulting in a predetermined MOH rate of $16/DL hour. By the end of the year, the company had actually incurred $975,000 of MOH costs and used a total of 60,000 DL hours on jobs. By how much had Life Fitness overallocated or underallocated MOH for the year?
Actual MOH incurred during the year ($975,000) - MOH allocated to jobs during the year ($16/DL hour * 60,000 DL hours) (960,000) = Underallocated MOH ($15,000); Since the company allocated less MOH to jobs than was actually incurred during the year, it has underallocated MOH. Notice that the $1 million of estimated MOH at the beginning of the year is only used to calculate the predetermined MOH rate.
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. i) In order to prepare its January financial statements, the company had to close its Manufacturing Overhead account.
Actual Manufacturing Overhead = $5,000 (Requirement b) + $20,000 (Requirement c) + $18,000 (Requirement d) Allocated Manufacturing Overhead = $45,000 (Requirement e) Credit Balance = $2,000 Manufacturing Overhead (debit) = $2,000 Cost of Goods Sold (credit) = $2,000 to close the Manufacturing Overhead account to CGS
d) Is manufacturing overhead underallocated or overallocated at the end of the year? By how much?
Actual total manufacturing overhead incurred (c) - Allocated total manufacturing overhead (b) = underallocated or overallocated manufacturing overhead; underallocated = + and overallocated = -
Were the jobs overcosted or undercosted? By how much?
Actual total manufacturing overhead incurred (c) - Allocated total manufacturing overhead (b) = undercosted or overcosted manufacturing overhead; undercosted = (+) and overcosted = (-)
Document specifying parts needed to produce a job
Bill of materials
Which of the following documents specifies the materials needed to produce a job?
Bill of materials
Assuming the amount of manufacturing overhead overallocation or underallocation is not material, which account is adjusted at the end of the period?
Cost of Goods Sold
c) How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated at the end of the year? By how much?
Depreciation on manufacturing plant and equipment + Plant janitors' wages + Property taxes on plant = Total manufacturing overhead
Sarah Haymeyer, CPA, pays her new staff accountant, Hannah, a salary equivalent to $25 per hour, while Sarah receives a salary equivalent to $40 per hour. The firm's predetermined indirect cost allocation rate for the year is $12 per hour. Haymeyer bills for the firm's services at 30% over cost. Assume Sarah works 5 hours and Hannah works 10 hours preparing a tax return for Michele Meckfessel. a) What is the total cost of preparing Meckfessel's tax return?
Direct cost ((5hr * $40/hr) + (10hr * $25/hr) = $450) + Indirect cost (15hr * $12/hr = 180) = Total cost of preparing tax return ($630)
a) Convert Jennifer's salary to an hourly wage rate for billing purposes.
Direct labor costs / Direct labor hours = Direct labor rate
b) Calculate the overhead to be allocated to each of the two jobs based on direct labor hours.
Direct labor hours used * Predetermined overhead rate = Job 101 (or 102) overhead costs
b) Calculate the manufacturing cost for Job 304.
Direct materials + Direct labor (used direct labor hours * cost of direct labor per hour) + Manufacturing overhead (used direct labor hours * predetermined overhead rate) = Total job cost
c) What is the total cost of Job 101? Job 102?
Direct materials used + Direct labor (cost-per-hour wage rate * direct labor hours used) + Overhead (direct labor hours used * predetermined overhead rate) = Total job cost
a) Compute predetermined manufacturing overhead rate.
Estimated yearly overhead costs / Estimated yearly machine costs = Predetermined overhead rate
E-Z Boy Furniture makes sofas, loveseats, and recliners. The company allocates manufacturing overhead based on direct labor hours. E-Z Boy estimated a total of $2 million of manufacturing overhead and 40,000 direct labor hours for the year. Job 310 consists of a batch of 10 recliners. The company's records show that the following direct materials were requisitioned for Job 310. Lumber: 10 units at $30 per unit Padding: 20 yards at $20 per yard Upholstery fabric: 60 yards at $25 per yard, soucred from a local manufacturer Labor time records show the following employees (direct labor) worked on Job 310: Jesse Slothower: 10 hours at $12 per hour Becky Wilken: 15 hours at $18 per hour Chip Lathrop: 12 hours at $15 per hour b) Compute the total amount of direct materials, direct labor, and manufacturing overhead that should be shown on Job 310's job cost record.
The total amount of direct materials ($2,200) and direct labor ($570) incurred on Job 310 is determined from the materials requisitions and labor time records. Because the job required 37 direct labor hours, we determine the amount of manufacturing overhead to allocate to the job is as follows: Predetermined MOH rate ($50 direct labor hour) * Actual amount of allocation base used by the job (37 direct labor hours used on Job 310) = $1,850
Sarah Haymeyer, CPA, pays her new staff accountant, Hannah, a salary equivalent to $25 per hour, while Sarah receives a salary equivalent to $40 per hour. The firm's predetermined indirect cost allocation rate for the year is $12 per hour. Haymeyer bills for the firm's services at 30% over cost. Assume Sarah works 5 hours and Hannah works 10 hours preparing a tax return for Michele Meckfessel. b) How much will Sarah bill Meckfessel for the tax work?
Total cost of preparing tax return ($630) + Profit markup ($630 * 30% = 189) = Amount to bill Meckfessel ($819)
E-Z Boy Furniture makes sofas, loveseats, and recliners. The company allocates manufacturing overhead based on direct labor hours. E-Z Boy estimated a total of $2 million of manufacturing overhead and 40,000 direct labor hours for the year. Job 310 consists of a batch of 10 recliners. The company's records show that the following direct materials were requisitioned for Job 310. Lumber: 10 units at $30 per unit Padding: 20 yards at $20 per yard Upholstery fabric: 60 yards at $25 per yard, soucred from a local manufacturer Labor time records show the following employees (direct labor) worked on Job 310: Jesse Slothower: 10 hours at $12 per hour Becky Wilken: 15 hours at $18 per hour Chip Lathrop: 12 hours at $15 per hour a) Compute the company's predetermined manufacturing overhead rate
Total estimated manufacturing overhead cost ($2 million) / Total estimated amount of the allocation rate (40,000 direct labor hours) = Predetermined MOH rate ($50 per direct labor hour)
c) How much will the city pay for this equipment?
Total job cost + Markup (Total job cost * percentage) = Total price to charge
Whenever direct material, direct labor, and manufacturing overhead are recorded on a job cost record, an associated journal entry is made to debit which of the following accounts?
Work in Process Inventory
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. e) Manufacturing overhead was allocated to jobs using a predetermined manufacturing overhead rate of 75% of direct labor cost. (Hint: Total direct labor cost is found in Requirement c)
Work in Process Inventory (75% * 60,000 of direct labor, debit) = $45,000 Manufacturing Overhead (credit) = $45,000 to allocate manufacturing overhead to jobs
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. b) During the month, $140,000 of raw materials was requisitioned. Of this amount, $135,000 was traced to specific jobs, while the remaining materials were for general factory use.
Work in Process Inventory (debit) = $135,000 Manufacturing Overhead (debit) = $5,000 Raw Materials Inventory (credit) = $140,000 to record the use of direct materials and indirect materials
Fashion Fabrics makes custom handbags and accessories for high-end clothing boutiques. Record summary journal entries for each of the following transactions that took place during the month of January, the first month of the fiscal year. c) Manufacturing labor (both direct and indirect) for the month totaled $80,000. It has not yet been paid. Of this amount, $60,000 was traced to specific jobs.
Work in Process Inventory for direct labor (debit) = $60,000 Manufacturing Overhead for indirect labor (debit) = $20,000 Wages Payable (credit) = $60,000 to record the use of direct labor and indirect labor