Chapter 3

In the month of May, Kachik Manufacturing had the following costs: Property Taxes, $19,200 ($9,200 for offices, $10,000 for factory) Insurance, $15,720 ($3,500 for office building insurance, $8,400 for accidental injury insurance of factory workers, $3,820 for factory building insurance) Utilities, $2,118 ($1,306 for factory, $812 for offices) Depreciation, $36,497 ($12,680 for factory equipment, $14,573 for factory building, $9,244 for office building) What are Kachik's total period costs for the month of May?

--The total period costs are the property taxes for office, insurance for office building, utilities for offices, and depreciation for office building. Total period costs equal $22,756 ($9,200 + $3,500 + $812 + $9,244). $22,756

Elaine's Fine Furniture has just started operations. Elaine's had the following job cost sheets for the month of January. Job Number Start Date End Date Delivery Date Total Cost J1-1 Jan 2 Jan 6 Jan 15 $19,582 J1-2 Jan 4 Jan 14 Jan 19 $10,631 J1-3 Jan 9 Jan 22 Jan 25 $7,526 J1-4 Jan 17 Feb 23 $6,312 J1-5 Jan 18 Jan 29 Feb 14 $3,856 J1-6 Jan 24 Jan 31 Feb 22 $2,033 J1-7 Jan 29 Feb 17 Feb 28 $17,522 J1-8 Jan 30 Feb 25 $10,267 What was the balance in Elaine's Cost of Goods Sold account as of January 31?

--Cost of Goods Sold is the total of all jobs started, completed, and delivered in January, which are jobs J1-1, J1-2, and J1-3; therefore, the Cost of Goods Sold equals $37,739 ($19,582 + $10,631 + $7,526). $37,739

A company has a beginning material inventory of $50,000, makes purchases of $20,000, and has an ending materials inventory of $30,000. If its beginning work-in-process (WIP) inventory is $100,000 and ending WIP inventory is $60,000 and its conversion costs are $80,000, what is its cost of goods manufactured for the period?

--Direct materials (DM) used is equal to the beginning material inventory plus purchases minus ending material inventory ($50,000 + $20,000 − $30,000 = $40,000). Cost of goods manufactured is beginning WIP inventory plus DM, plus conversion costs, minus ending WIP inventory ($100,000 + $40,000 + $80,000 − $60,000 = $160,000). $160,000.

Jones Manufacturing had one job, Job PLS5, in Work-in-Process Inventory at the beginning of March. The costs incurred to date on PLS5 included $12,300 of direct materials, $7,800 in direct labor, and $19,500 in overhead. During March, Jones added $1,700 of direct materials and $3,900 of direct labor. If Jones applies overhead at the rate of 250% of direct labor cost, how much overhead was applied to Job PLS5 during March?

--Overhead is applied at the rate of 250% of direct labor cost. Since $3,900 of direct labor was added during March, the overhead added during March equals $9,750 ($3,900 × 250%). $9,750

If a company has cost of goods sold of $180,000, selling and administrative expenses of $40,000, cost of goods manufactured of $220,000 and sales of $450,000, what is its operating income?

--Sales less cost of goods sold less selling and administrative expenses equals operating income ($450,000 − $180,000 − $40,000 = $230,000). $230,000.

Wolf Company used $5,940 of indirect raw materials and $56,700 of direct raw materials during the period. The company incurred $37,800 of direct factory labor and $6,480 of indirect factory labor during the period. What amount will Wolf assign to Manufacturing Overhead?

--The amounts assigned to manufacturing overhead are indirect raw materials and indirect factory labor; therefore, manufacturing overhead equals $12,420 ($5,940 + $6,480). $12,420

Mink Manufacturing used $2,200 of indirect raw materials and $21,000 of direct raw materials during the period. The company incurred $14,000 of direct factory labor and $2,400 of indirect factory labor during the period. What amount will Mink assign to manufacturing overhead?

--The amounts assigned to manufacturing overhead are indirect raw materials and indirect factory labor; therefore, manufacturing overhead equals $4,600 ($2,200 + $2,400). $4,600

Boom-Boom Bowling Company accounts for its production of specialty bowling accessories by using a job order costing system. On June 30, the company reported the following balances in its inventory accounts: Raw Materials $75,000 Work-in-Process $38,000 Finished Goods $24,000 What is the total of all open job order cost sheets on June 30?

--The balance in Work-in-Process represents the total cost of all open job order cost sheets. The balance in Raw Materials represents the cost of materials on hand as of May 31, and the balance in Finished Goods represents the total of all job order cost sheets that are no longer open. Raw Materials and Finished Goods are not a part of the open job order cost sheets. $38,000

Using job order costing, what general ledger accounts are involved when a job is delivered to the customer?

--The cost flows of a job order costing system flow from Finished Goods Inventory to Cost of Goods Sold as jobs are delivered to customers. Increase (debit) Cost of Goods Sold and decrease (credit) Finished Goods Inventory.

What is the correct order of accounts in which product costs flow?

--The product cost flow includes, in this order, purchases of raw materials (Raw Materials Inventory), requisition of raw materials for use in production (Work-in-Process Inventory), completion of materials for sale (Finished Goods Inventory), and goods sold to customers (Cost of Goods Sold). Raw Materials Inventory, Work-in-Process Inventory, Finished Goods Inventory, Cost of Goods Sold.

Jones Manufacturing had one job, Job PLS5, in Work-in-Process Inventory at the beginning of March. The costs incurred to date on PLS5 included $12,300 of direct materials, $7,800 in direct labor, and $19,500 in overhead. During March, Jones finished the job by adding $1,700 of direct materials and $3,900 of direct labor. If Jones applies overhead at the rate of 250% of direct labor cost, what total cost related to Job PLS5 was transferred to Finished Goods Inventory during March?

--The total costs added prior to March equal $39,600 ($12,300 + $7,800 + $19,500). The costs added during March equal $15,350 ($1,700 + $3,900 + ($3,900 × 250%)). The total cost transferred to Finished Goods Inventory are the costs added prior to March plus the costs added in March which equals $54,950 ($39,600 + $15,350). $54,950

Elaine's Fine Furniture has just started operations. Elaine's had the following job cost sheets for the month of January. Job Number Start Date End Date Delivery Date Total Cost J1-1 Jan 2 Jan 6 Jan 15 $19,582 J1-2 Jan 4 Jan 14 Jan 19 $10,631 J1-3 Jan 9 Jan 22 Jan 25 $7,526 J1-4 Jan 17 Feb 23 $6,312 J1-5 Jan 18 Jan 29 Feb 14 $3,856 J1-6 Jan 24 Jan 31 Feb 22 $2,033 J1-7 Jan 29 Feb 17 Feb 28 $17,522 J1-8 Jan 30 Feb 25 $10,267 Assuming that the total costs listed on these cost sheets were all incurred in January, what was the balance in Elaine's Work-in-Process Inventory account as of January 31?

--Work-in-Process as of January 31 includes all jobs that were started in January with an end date of February. This is because the total costs listed on these cost sheets were all incurred in January. The applicable jobs are J1-4, J1-7, and J1-8; therefore, the Work-in-Process Inventory as of January 31 equals $34,101 ($6,312 + $17,522 + $10,267). $34,101

Tom worked 40 hours during the week ending February 28. On his time ticket, he recorded the following: Job 123 14 hours Job 124 8 hours Job 125 11 hours Machine maintenance 2 hours Breaks and travel 5 hours On Tom's time ticket, how many hours of labor will be allocated to indirect labor?

7 hours are indirect labor. --The hours that are not allocated to specific jobs are considered indirect labor. In this example, it is the sum of the machine maintenance and breaks and travel hours, which equals 7 hours (2 hours + 5 hours).

Ahrens Advertising creates ad campaigns for small local businesses. Ahrens offers three services—print, radio, and online. Customers choose which combination of ad types they would like and then Ahrens produces three ads for each of the selected types. Which cost system should Ahrens use and why?

A job order cost system because each ad campaign is a specific job with its own set of costs

Which of the following indicates that direct materials have been moved from the storeroom to production?

A materials requisition slip.

Lee Manufacturing uses a standard cost system with overhead applied based upon direct labor hours. The manufacturing budget for the production of 5,000 units for the month of May included: Direct labor (10,000 hours at $15 per hour) $150,000 Variable overhead 30,000 Fixed overhead 80,000 During May, 6,000 units were produced and the fixed overhead budget variance was $2,000 favorable. Fixed overhead during May was:

Applied fixed overhead is calculated by taking the predetermined overhead rate for fixed overhead and multiplying it by the standard number of hours. In this case, the predetermined fixed overhead rate would be $8 per hour ($80,000 ÷ 10,000 hours = $8 per hour) and the standard number of hours used to apply fixed overhead would be 12,000 hours (6,000 units × 2 direct labor hours per unit = 12,000 direct labor hours). Multiply the predetermined fixed overhead rate by the standard number of direct labor hours as follows: ($8/hour × 12,000 direct labor hours = $96,000 applied fixed overhead. Since the fixed overhead budget variance was $2,000 favorable, or less than budgeted, then the actual fixed overhead was $78,000 ($80,000 − $2,000). The fixed overhead budget variance is calculated by taking the difference between the applied fixed overhead and the actual fixed overhead. So, if applied fixed overhead was $96,000 and actual fixed overhead was $78,000, then fixed overhead was overapplied by $18,000. overapplied by $18,000.

Wherry Furnishings uses job order costing. The company has a contract to deliver furniture to a hotel. The hotel has 60 basic hotel rooms that each need two double beds and 15 suites that each need one king-size bed. Each double bed has direct material costs of $200 and direct labor costs of $125. Each king-size bed has direct material costs of $350 and direct labor costs of $175. For all beds, overhead was 50% of direct labor cost. Wherry started the project in January and by the end of the month had completed 34 basic rooms and 8 suites. Neither Work-in-Process nor Finished Goods had a beginning balance. What was Wherry's Finished Goods Inventory account balance on January 31?

Correct. Each double bed costs $387.50 ($200 + $125 + ($125 × 50%)). Each king-size bed costs $612.50 ($350 + $175 + ($175 × 50%)). Finished Goods Inventory consists of 68 double beds (34 × 2) and 8 king-size beds. Therefore, the Finished Goods Inventory equals $31,250 ((68 × $387.50) + (8 × $612.50)). $31,250

Using job order costing, what general ledger accounts are involved when a job is finished?

Debit (increase) Finished Goods Inventory and credit (decrease) Work-in-Process Inventory. --The cost flows of a job order costing system flow from Work-in-Process Inventory to Finished Goods Inventory when a job is finished.

Ed was working on a custom-made workbench for a customer. The job, TB0414, was started in November. At the end of November, the job cost sheet for TB0414 showed direct materials of $215, direct labor of 14 hours at $18 per hour, and overhead of 50% of direct labor cost. During December, $85 of direct materials were added to Job TB0414 and Ed's time ticket showed 15 hours on Job TB0414, 25 hours on Job TB0614, 10 hours of maintenance on the lathe, and 40 hours on a new job, DR1014. Job TB0414 was completed on December 28. What is the total cost of Job TB0414 as of December 28?

Direct materials = ($215 + $85) = $300 Direct labor = (14 + 15) × $18 = $522 Overhead applied = $522 × 50% = $261 Total cost of Job TB0414 = $300 + $522 + $261 = $1,083 $1,083

Ehsani Enterprises is a manufacturing company and has calculated depreciation on their factory equipment, factory building, and office building. What is the difference between these types of depreciation?

Factory equipment and factory building depreciation are manufacturing overhead, whereas office building depreciation is a period cost. --In a manufacturing company, all manufacturing and factory costs (other than direct materials and direct labor) are considered manufacturing overhead, and selling and administrative costs are considered period costs.

Young Times Products projected sales for the first six months of the year are as follows: January 5,150 units February 5,200 units March 5,250 units April 6,000 units May 5,800 units June 5,500 units Young's policy is that it maintains an ending finished goods inventory of 10% of the following month's sales. Furthermore, assume that Young's policy is to maintain an ending direct materials inventory of 20% of the following month's direct materials usage budget. Sales the previous December were 4,800 units. The firm generally ends each month by completing all units; therefore, there is no work-in-process inventory at the beginning or end of any period. Standard (budgeted) production costs associated with one unit are: Direct materials: 3 pounds per unit @ $20/lb. = $60/unit Direct labor: 5 hours per unit @ $15/hour = $75 Factory overhead: 10% of direct labor costs = $7.50 Total production cost per unit = $142.50 Using the information from Exhibit C, how many pounds of direct materials must be purchased in February?

First, the number of units to be produced must be computed for February and March. In February: 5,200 + 525 (10% of March's sales) − 520 (10% of February's sales) = 5,205 units. In March: 5,250 + 600 (10% of April's sales) − 525 (10% of March's sales) = 5,325 units. From these values, calculate the direct materials usage budget for each month by multiplying by 3. February: 5,205 × 3 = 15,615 lbs. required for production. March: 5,325 × 3 = 15,975 lbs. required for production. To find the DM purchases budget, adjust the DM usage budget by adding desired ending DM inventory (20% of next month's DM usage budget) and subtracting beginning DM inventory (20% of the current month's DM usage budget.) In February, the DM usage budget would be 15,687 lbs. = 15,615 + 3,195 (20% of 15,975) − 3,123 (20% of 15,615). 15,687 pounds.

An example of a similarity between a job order cost system and a process cost system would be the:

Flow of costs.

Select between job order and process costing for what is best suited to each of the products: 1. Skyscraper 2. Magazine 3. Check processing 4. Advertising campaign 5. Car repair

Job order costing for I, IV, and V; process costing for II and III. --Job order costing is best for specific custom jobs, including capital asset construction (the skyscraper) in the manufacturing sector and advertising campaigns and repair jobs in the service sector. Process costing is best for large numbers of nearly identical products or services such as magazines in the manufacturing sector and check processing in the service sector.

A process cost accounting system is most appropriate when:

Similar products are mass produced.

Manoli Gift Shop maintains a 35% gross profit percentage on sales, and carries an ending inventory balance each month sufficient to support 30% of the next month's expected sales. Anticipated sales for the fourth quarter are as follows. October $42,000 November 58,000 December 74,000 What is the cost of the goods that Manoli Gift Shop should plan to purchase for the month of November?

Purchases in dollars = (cost of sales) + (expected ending inventory) − (expected beginning inventory) Cost of sales = (100% − the gross profit percentage)(sales) Cost of sales, November = (100% − 35%)($58,000) = (0.65)($58,000) = $37,700 The ending inventory for each month = 30% of the next month's expected cost of sales. Ending inventory, November = (30%)(Cost of sales, December) = (0.3)(0.65)($74,000) = $14,430 Beginning inventory, November = (30%)(Cost of sales, November) = (0.3)($37,700) = $11,310 Therefore, the purchases in dollars for November can be calculated as follows: Purchases for November = $37,700 + $14,430 − $11,310 = $40,820 $40,820.

A company uses job order costing and begins the period with no finished goods inventory, but with a beginning work-in-process (WIP) of the following jobs: Job #15 = $42,000 Job #16 = $33,000 Job #17 = $12,000 Total WIP = $87,000 During the period, a new job is started (Job #18) and the following costs are incurred: Direct materials: $100,000 (20% each for Jobs #15, #16, #17 and 40% for Job #18) Direct labor: 5,000 hours at $15 per hour (hours for Jobs #15, #16, #17, and #18 are 1,500, 1,500, 1,200, and 800, respectively) Factory overhead (using a predetermined rate where total overhead for the year is estimated to be $200,000 and total direct labor (cost driver) is 50,000 hours). Jobs #15 and #16 are completed and sold during the period. What is cost of goods sold for the period?

The cost of the jobs completed can be broken down as follows (note the predetermined overhead rate is $200,000 ÷ 50,000 or $4/direct labor hour): Job #15Job #16 Beg. WIP$42,000$33,000 Current: DM20,00020,000(both jobs: 20% of $100,000) DL22,50022,500(both jobs: 1,500 hours x $15/hour) OH 6,000 6,000(both jobs: 1,500 hours x $4/hour Total$90,500$81,500Grand total = $172,000 $172,000.

John at Tim's Toys was working on a custom-made miniature car for a customer. The job, BCB101, was started in March. At the end of March, the job cost sheet for BCB101 showed direct materials of $6,000, direct labor of 200 hours at $75 per hour, and overhead of 80% of direct labor cost. During April, direct materials of $1,700 were added, and John's time ticket showed 50 hours on Job BCB101, 25 hours on Job BCB102, and 40 hours on a new job, BCB103. Job BCB101 was completed on April 29. What is the total cost of Job BCB101 as of April 29?

The total cost of Job BCB101 equals direct materials plus direct labor plus overhead applied in March and April. Direct materials = $6,000 + $1,700 = $7,700 Direct labor = (200 + 50) × $75 = $18,750 Overhead applied = $18,750 × 80% = $15,000 Total cost of Job BCB101 = $7,700 + $18,750 + $15,000 = $41,450 41,450

John Sheng, cost accountant at Starlet Company, is developing departmental factory overhead application rates for the company's tooling and fabricating departments. The budgeted overhead for each department and the data for one job are: Departments Tooling Fabricating Supplies $ 850 $ 200 Supervisors"salaries 1,500 2,000 Indirect labor 1,200 4,880 Depredation 1,000 5,500 Repairs 4,075 3,540 Total Budgeted Overhead $ 8,625 $ 16,120 Total Direct Labor Hours 460 620 Direct Labor Hours on Job #231 12 3 Using the departmental overhead application rates, total overhead applied to Job #231 in the Tooling and Fabricating Departments will be:

The total overhead applied to Job #231 in the Tooling and Fabricating Departments can be calculated as: Total overhead applied, Job #231 = (tooling overhead rate per direct labor hour × number of direct labor hours on Job #231) + (fabricating overhead rate per direct labor hour × number of direct labor hours on Job #231) Tooling overhead rate = $8,625 ÷ 460 total direct labor hours = $18.75 per direct labor hour Fabricating overhead rate = $16,120 ÷ 620 total direct labor hours = $26 per direct labor hour Total overhead applied, Job #231 = ($18.75 × 12 direct labor hours) + ($26 × 3 direct labor hours) Total overhead applied, Job #231 = $225 + $78 = $303. 303

Sugar Industries manufactures specialized candy dispensers. One of Sugar's customers ordered 500 candy dispensers, Job 317C, which was started in March and finished on March 31. The job cost sheet for Job 317C as of March 31 shows $1,750 in direct materials, 30 direct labor hours, and 40 machine hours. The labor rate is $18 per direct labor hour and overhead is applied at the rate of $25 per machine hour. What amount did Sugar post to Finished Goods Inventory as of March 31?

Total cost = $1,750 + (30 × $18) + (40 × $25) Total cost = $1,750 + $540 + $1,000 Total cost = $3,290 $3,290

Ed was working on a custom-made workbench for a customer. The job, TB0414, was started in November. At the end of November, the job cost sheet for TB0414 showed direct materials of $215, direct labor of 14 hours at $18 per hour, and overhead of 50% of direct labor cost. During December, $85 of direct materials were added to Job TB0414 and Ed's time ticket showed 15 hours on Job TB0414, 25 hours on Job TB0614, 10 hours of maintenance on the lathe, and 40 hours on a new job, DR1014. Job TB0414 was completed on December 28. What is the balance in Work-in-Process Inventory related to Job TB0414 as of November 30?

Total costs in November = $215 + (14 × $18) + (14 × $18 × 50%) Total costs in November = $215 + $252 + $126 Total costs in November = $593 593