Chapter 4 Cost Accounting

Under Stanford Corporation's job costing system, manufacturing overhead is applied to work in process using a predetermined annual overhead rate. During November, Year 1, Stanford's transactions included the following: Direct Materials Used in Production-----------$180,000 Indirect Materials Issued to Production-------$16,000 Manufacturing Overhead Incurred------------$250,000 Manufacturing Overhead Applied------------$226,000 Direct Manufacturing Labor Costs------------$214,000 Stanford had neither beginning nor ending work in process inventory. What was the cost of jobs completed and transferred to finish goods in November 20X1? 1. $604,000 2. $644,000 3. $620,000 4. $660,000

3. $620,000 (Explanation: What is in WIP? Beginning=$0 Db. WIP for DM=$180,000 Db. WIP for DL=$214,000 Db. WIP for FOH applied=$226,000 Total Db. balance=$620,000 Db. FG $620,000 Cr. WIP $620,000 )

Dakota products uses a job-costing system with two direct cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Dakota provides the following information: Budgeted 2017 Actual 2017 Direct Materials Costs $2,250,000 $2,150,000 Direct Labor Costs $1,700,000 $1,650,000 Manufacturing OH $3,060,000 $3,217,500 During March, the job-cost record for Job 626 contained the following information: Direct Materials Used-----$55,000 Direct Labor Costs--------$45,000 Compute the cost of Job 626 using (a) actual costing and (b) normal costing

Actual Costing: Actual Rate= $3,217,500/$1,650,000= $1.95/dollar of labor cost DM=$55,000 DL=$45,000 FOH=($45,000x$1.95)=$87,750 Total=$187,750 Normal Costing (only difference is you take budgeted rate multiplied by the actual labor costs): Budgeted Rate= $3,060,000/$1,700,000= $1.80/dollar of labor cost DM=$55,000 DL=$45,000 FOH=($45,000x$1.80)=$81,000 Total=$181,000

Dakota products uses a job-costing system with two direct cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Dakota provides the following information: Budgeted 2017 Actual 2017 Direct Materials Costs $2,250,000 $2,150,000 Direct Labor Costs $1,700,000 $1,650,000 Manufacturing OH $3,060,000 $3,217,500 Compute the actual and budgeted overhead rates for 2017.

Budgeted Rate= $3,060,000/$1,700,000= $1.80/dollar of labor cost Actual Rate= $3,217,500/$1,650,000= $1.95/dollar of labor cost

The Ride-On-Wave (ROW) produces a line of non-motorized boats. ROW uses a normal costing system and allocates overhead using direct manufacturing labor costs. The following data are for 2017: Budgeted Manufacturing Overhead Costs-------$125,000 Budgeted Direct Manufacturing Labor Costs----$250,000 Actual Manufacturing Overhead Costs----------$117,000 Actual Direct Manufacturing Labor Costs-------$228,000 Compute the amount of under-or-over-allocated manufacturing overhead.

FOH Allocation Rate=$125,000/$250,000=$0.50 per dollar of DL What is in FOH? Cr. for Applied FOH($0.50 x $228,000)=$114,000 Db. for Actual FOH (given)=$117,000 Ending Db. balance of $3,000 in FOH (FOH is underapplied by this amount)

The Ride-On-Wave (ROW) produces a line of non-motorized boats. ROW uses a normal costing system and allocates overhead using direct manufacturing labor costs. The following data are for 2017: Budgeted Manufacturing Overhead Costs-------$125,000 Budgeted Direct Manufacturing Labor Costs----$250,000 Actual Manufacturing Overhead Costs----------$117,000 Actual Direct Manufacturing Labor Costs-------$228,000 Calculate the manufacturing overhead allocation rate.

FOH Allocation Rate=Budgeted FOH/DL Costs FOH Allocation Rate=$125,000/$250,000=$0.50 per dollar of DL

Dakota products uses a job-costing system with two direct cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Dakota provides the following information: Budgeted 2017 Actual 2017 Direct Materials Costs $2,250,000 $2,150,000 Direct Labor Costs $1,700,000 $1,650,000 Manufacturing OH $3,060,000 $3,217,500 Why might managers at Dakota products prefer to use normal costing?

It gives them better knowledge of costs for different jobs and allows them to quickly and easily give customers quotes for specific jobs. We want to avoid fluctuating costs throughout the period.

The Ride-On-Wave (ROW) produces a line of non-motorized boats. ROW uses a normal costing system and allocates overhead using direct manufacturing labor costs. The following data are for 2017: End Work in Process=$50,700 End Finished Goods=$245,050 End Cost of Goods Sold=$549,250 FOH underapplied by $3,000 Calculate the ending balances in work in process, finished goods, and cost of goods sold if under-or-over-allocated manufacturing overhead is prorated based on ending balances (before proration) in each of the three accounts.

Total=$50,700+$245,050+$549,250=$845,000 WIP Percent=$50,700/$845,000=.06 Amount of Underapplied OH allocated to WIP=$3,000 x .06=$180 WIP Ending Balance=$50,700+$180=$50,880 FG Percent=$245,050/$845,000=.29 Amount of Underapplied OH allocated to FG=$3,000 x .29=$870 FG Ending Balance=$245,050+$870=$245,920 COGS Percent=$549,250/$845,000=.65 Amount of Underapplied OH allocated to COGS=$3,000 x .65=$1,950 COGS Ending Balance=$549,250+$1,950=$551,200

The Ride-On-Wave (ROW) produces a line of non-motorized boats. ROW uses a normal costing system and allocates overhead using direct manufacturing labor costs. The following data are for 2017: End Work in Process=$50,700 End Finished Goods=$245,050 End Cost of Goods Sold=$549,250 FOH underapplied by $3,000 Calculate the ending balances in work in process, finished goods, and cost of goods sold if under-or-over-allocated manufacturing overhead is written off to cost of goods sold.

WIP (stays the same)=$50,700 FG (stays the same)=$245,050 COGS (changes)=$549,250+$3,000(underapplied FOH)=$552,250

Dakota products uses a job-costing system with two direct cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Dakota provides the following information: Budgeted 2017 Actual 2017 Direct Materials Costs $2,250,000 $2,150,000 Direct Labor Costs $1,700,000 $1,650,000 Manufacturing OH $3,060,000 $3,217,500 At the end of 2017, compute the under-or-over-allocated manufacturing overhead under normal costing. Why is there no under-or-over-allocated manufacturing overhead under actual costing?

What is in FOH? Cr. for Applied Overhead ($1.80x$1,650,000)=$2,970,000 Db. for Actual Incurred (given)=$3,217,500 Result: Db. balance of $247, 500 (underapplied FOH) There is no under-or-over-allocated manufacturing overhead under actual costing because we wait until the end of the period to see what actual overhead is and what our actual allocation base is and then we apply overhead. This is not a common practice to use actual costing.

For which of the following industries would job-order costing most likely not be applied? a. small business printing b. cereal production c. home construction d. aircraft assembly

b. cereal production

ABC Company uses job order costing and has assembled the following cost data for the production and assembly of item X: Direct Manufacturing Labor Wages------------$35,000 Direct Materials Used---------------------------$70,000 Indirect Manufacturing Labor------------------$4,000 Utilities------------------------------------------$400 Fire Insurance----------------------------------$500 Manufacturing Overhead Applied------------$11,000 Indirect Materials------------------------------$6,000 Depreciation on Equipment-------------------$600 Based on the above cost data, the manufacturing overhead for item X is: a. $500 overallocated b. $600 underallocated c. $500 underallocated d. $600 overallocated

c. $500 underallocated (Explanation: What is in FOH? Cr. FOH Applied= $11,000 Db. FOH for IDL=$4,000 Db. FOH for U=$400 Db. FOH for FI=$500 Db. FOH for IDM=$6,000 Db. FOH for Eq.Dep.=$600 Total Cr.=$11,000 Total Db.=$11,500 This means we are left with Db. balance in FOH. FOH is underapplied by $500)

Sturdy Manufacturing Co. assembled the following cost data for job order #23: Direct Manufacturing Labor----------------$80,000 Indirect Manufacturing Labor--------------$12,000 Equipment Depreciation--------------------$1,000 Other Indirect Manufacturing Costs--------$1,500 Direct Materials------------------------------$95,000 Indirect Materials-----------------------------$4,000 Manufacturing Overhead Overapplied------$2,000 What are the total manufacturing costs for job order #23 if the company uses normal job-order costing? a. $191,500 b. $193,500 c. $194,500 d. $195,500

d. $195,500 ( Explanation: 1. What is in FOH? IDL $12,000 ED $1,000 Oth. $1,500 IDM $4,000 Total=$18,500 2. We know that FOH is $2,000 overapplied, which means: FOH applied=$18,500+$2,000=$20,500 3.WIP Job #23 is made up of DM, DL, and FOH applied: WIP Job #23=$80,000+$95,000+$20,500=$195,500)

Which of the following does not accurately describe the application of job-order costing? a. Finished goods that are purchased by customers will directly impact cost of goods sold b. Indirect manufacturing labor and indirect materials are part of the actual manufacturing costs incurred c. Direct materials and direct manufacturing labor are included in total manufacturing costs d. Manufacturing overhead costs incurred is used to determine total manufacturing costs

d. Manufacturing overhead costs incurred is used to determine total manufacturing costs (Explanation: Manufacturing overhead costs incurred are not used it is manufacturing overhead applied that goes into total manufacturing costs)