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Chapter 5

JOB ORDER COST SYSTEM-raiborn


Exercises

13. a. The direct material charge of $658,000 is higher than the
estimate by $158,000. Assuming that there were no errors in
the estimated and actual amounts, then either the rice aid
for the material or the !uantity of material used was
substantially higher than expected. To begin the "alidation
rocess,
1. details of the original estimate to identify rices and
!uantities of materials for this #ob would need to be e$amined.
The starting oint to "alidate the material rices and !uantities
urchased is to e$amine "endor in"oices billed to %uindo.
These in"oices will alidate !aterial purchase "uantities
and prices paid by %uindo.
&. Additionally, material re!uisition forms should be e$amined
to alidate the "uantity o# !aterial actually used in
production$
3. 'e$t, an e$amination of the material cost (material !uantity
multilied by material rice) on the %ob order cost sheet
should reconcile to the !uantity of material shown on the
material re!uisition forms.
b. The direct labor charge of $6&5,000 is higher than the estimate
by $&&5,000. Assuming that there were no errors in the
estimated and actual amounts, then either the hourly rate aid
to or the number of hours wor*ed by emloyees was
substantially higher than e$ected.
To begin the "alidation rocess,
1. details of the original estimate to identify rates and hours for labor
on this #ob would need to be e$amined.
The starting oint to "alidate the labor rates and hours wor*ed
is to
&. e$amine emloyee time sheets (or other labor accumulation
documents). The time sheets will "alidate which emloyees
wor*ed on the #ob and for what eriod of time.
3. A discussion with the ayroll manager should hel ascertain the
actual or a"erage wage rates aid to emloyees.
+. ,ossibly some of %uindo-s emloyees who were listed as wor*ing on
the #ob should be inter"iewed to determine the accuracy of the
time sheets.
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Chapter 5
c. The redetermined o"erhead rate could ha"e been maniulated
to a higher rate by using a lo&er deno!inator le"el of
acti"ity than was aroriate. Additionally, inaroriate costs
(such as eriod costs in addition to roduct o"erhead costs)
could ha"e been included in the numerator. A large estimate for
soilage and defect costs might also ha"e been included in the
numerator when, in fact, such costs rarely occur at %uindo
.ndustries.
d. The comany-s beha"ior is at best !uestionable. /i"en that the
di0erence between actual and estimated direct material cost
was li*ely *nown at the oint of urchase, %uindo should ha"e
noti1ed 2alem 3or. immediately of the e$cessi"e increase in
cost. 2imilar noti1cation should ha"e been ro"ided when it
was seen that direct labor and machine times were higher than
e$ected.
1+. a. 4aw 5aterial .n"entory &0+,000
Accounts ,ayable &0+,000
6or* in ,rocess .n"entory78+&63 163,800
6or* in ,rocess .n"entory78+&6+ 1,890
5anufacturing :"erhead 1&,+60
4aw 5aterial .n"entory 198,130
6or* in ,rocess .n"entory78+&63 5+,000
6or* in ,rocess .n"entory78+&6+ 1,800
3ash (3,600 $ $15) 55,800
5anufacturing :"erhead 68,900
3ash ($18,000 ; $9,&00 ; $<,500) 3+,900
Accumulated =ereciation &1,500
6ages ,ayable 1&,500
6or* in ,rocess .n"entory78+&63 6+,800
6or* in ,rocess .n"entory78+&6+ &,160
5anufacturing :"erhead 66,<60
b. 45 .n"entory > $+,300 ; $&0+,000 7 $163,800 7 $1&,+60 7
$1,890 >
$30,190
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Chapter 5
c. ?ecause the comany wor*ed only on @ob 8+&63 until the end
of Aril, all costs in beginning 6., for other #obs are still in
that account at the end of the month.
?eginning 6., $11,+00
Aess costs associated with @ob 8+&63 (800)
3osts associated with other #obs $10,600
3osts for @ob 8+&6+ ($1,890 ; $1,800 ; $&,160) 5,830
Bnding 6., $16,+30
d. 3/5 > ?eginning 6., ; 3urrent eriod costs C Bnding 6.,
> $11,+00 ; $163,800 ; $1,890 ; $55,800 ; $66,<60 7
$16,+30
> $&83,+00
Dnit cost > $&83,+00 E 10,000 > $&8.3+
e. Alied :F C Actual :F > $66,<60 7 $68,900 > $1,9+0
underalied
15. a. :F rate > $&68,800 E $1<&,000 > 1+0G of direct labor
b. Bnding 6., ?alanceH
=5 $ 95,+50
=A 36,&00
:F ($36,&00 $ 1.+0) 50,680
Bnding balance $16&,330
c. 3/5 > ?eg. 6., ; 3urrent costs C 3ost of #obs comleted
> $0 ; $&99,&00 ; $1<&,000 ; $&68,800 7 $16&,330
> $595,690
16. a. 4aw 5aterial .n"entory 96,000
Accounts ,ayable 96,000
6., 7 @ob 8&19 ++,800
6., 7 @ob 8&18 9,&00
6., 7 other #obs 53,600
=irect 5aterial .n"entory 105,600
6., 7 @ob 8&19 10,+00
6., 7 @ob 8&18 1+,000
6., 7 other #obs 1<,600
3ash (or 6ages ,ayable) ++,000
5anufacturing :"erhead &&0,000
Iarious accounts &&0,000
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Chapter 5
6., 7 @ob 8&19 51,+80
6., 7 @ob 8&18 6<,300
6., 7 other #obs <9,0&0
5anufacturing :"erhead &19,800
(Actual rate er =A$ > $++,000 $ $+.<5)
Jinished /oods .n"entory 119,880
6., .n"entory 7 @ob 8&19 119,880
($11,&00 ; $++,800 ; $10,+00 ; $51,+80 > $119,880)
3ash 15<,138
2ales 15<,138
($119,880 K 1.35 > $15<,138)
3ost of /oods 2old 119,880
Jinished /oods .n"entory 119,880
b. Bnding 6., > ?eg. 6., ; 3urrent costs C 3ost of @ob 8&19
comleted
> $16,800 ; $105,600 ; $++,000 ; $&19,800 7
$119,880
> $&66,3&0
Bnding balance in @ob 8&18 > $5,600 ; $9,&00 ; $1+,000 ;
$6<,300 >
$<6,100
19. a. :F rate > $1&9,680 E 9,600 > $16.80 er =AF
b. A"erage =A rate > $15<,600 E 9,600 > $&1 er =AF
c. 15,&00 $ ($&1.00 ; $16.80) > 15,&00 $ $39.80 > $59+,560
=A L :F
$<16,650 7 $59+,560 > $3+&,0<0 =5 in beginning 6.,
d. .f wor*ers on the #ob in ending 6., are assumed to be aid
the a"erage =A rate, then the ending 6., balance isH
=5 $ 93,&50
=A (&,850 $ $&1) 5<,850
:F (&,850 $ $16.80) +9,880
Bnding balance $180,<80
e. 3/5 > ?eg. 6., ; 3urrent eriod costs C Bnd. 6.,
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Chapter 5
> $<16,650 ; $58<,690 ; $15<,600 ; $1&9,680 7
$180,<80
> $1,61&,6&0
18. a. 3/2 is the amount credited to Jinished /oods .n"entory for
the year > $1,8<0,000.
b. ?eg. J/ ; 3/5 C Bnd. J/ > 3/2
$<0,000 ; 3/5 7 $59,000 > $1,8<0,000
3/5 ; $33,000 > $1,8<0,000
3/5 > $1,859,000
c. Alied :F > $3<5,000 K 1.+0 > $553,000
d. ?eg. 6., ; =5 used ; =A ; :F C Bnd. 6., > 3/5
$56,000 ; =5 ; $3<5,000 ; $553,000 7 $&9,6+0 >
$1,859,000
=5 ; $<96,360 > $1,859,000
=5 > $880,6+0
e. ?eg. =5 ; , C =5 used > Bnd. =5
$&+,600 ; , 7 $880,6+0 > $+,100
, 7 $856,0+0 > $+,100
, > $860,1+0
1<. a. 3/2 > .95 $ 2ales > .95($1,5<8,000) > $1,1<8,500.
b. ?eg. J/ ; 3/5 C Bnd. J/ > 3/2
$68,<00 ; 3/5 7 $165,600 > $1,1<8,500
3/5 7 $<6,900 > $1,1<8,500
3/5 > $1,&<5,&00
c. @ob ?3&5H Alied :F > 85G of =A$ > .85 (1&8 $ $1&.<0) > .
85 $ $1,651.&0 > $1,+03.5&
@ob %+&8H Alied :F > 85G of =A$ > .85 (&+0 $ $1&.<0) > .
85 $ $3,0<6.00 > $&,631.60
d. @ob ?3&5 %+&8
=5 $&1,<80.00 $1+,900.00
=A 1,651.&0 3,0<6.00
:F 1,+03 .5& &,631 .60
$&5,03+ .9& $&0,+&9 .60
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Chapter 5
e. 3/5 > ?eg. 6., ; =5 used ; =A ; :F C Bnd. 6.,
$1,&<5,&00 > $1+,600 ; =5 used ; $1&.<0(&5,960) ; .
85($1&.<0 $ &5,960) C ($&5,03+.9& ; $&0,+&9.60)
$1,&<5,&00 > $1+,600 ; =5 used ; $33&,30+ ; $&8&,+58.+0
7 $+5,+6&.3&
$1,&<5,&00 > $583,<00.08 ; =5 used
=5 used > $911,&<<.<&
?eg. =5 ; ,urchases 7 =5 used > Bnd. =5
$1<,500 ; $8+3,&96 7 $911,&<<.<& > Bnd. =5
Bnd. =5 (destroyed) > $151,+96.08
&0. a. 3ase 81 3ase 8& 3ase 83
3ase 8+
=5 $ +80 $ 8,800
$ 3,900 $ 850
=A ($1<0 er hour) 9,600 19,100 13,300 &,850
:F ($150 er court hour) 1,800 <,950 18,000 6,000
Totals $<,880 $35,650
$35,000 $<,900
b. =5 $10,100
=A (19+ $ $1<0) 33,060
:F (9& $ $150) 10,800
Total cost $53,<60
5ar*u (+5G) &+,&8&
Total billed to client $98,&+&
&1. a. :"erhead rate > ?udgeted :F E ?udgeted =A$
$+.&5 > $1,&95,000 E ?udgeted =A$
?udgeted =A cost > $1,&95,000 E $+.&5
?udgeted =A cost > $300,000
:"erhead rate > $1,&95,000 E $300,000 > $+.&5 er =A$
b. 6or* in ,rocess .n"entory <6,+95
5anufacturing :"erhead <6,+95
($&&,900 $ $+.&5 > $<6,+95)
c. $+.&5 $ 3,<00 > $16,595
d. ?eginning balance $18,350
=irect material &<,600
=irect labor 3,<00
5anufacturing o"erhead 16,595
Bnding balance $68,+&5
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Chapter 5
&&. a. =irect material $&,850
=irect labor ($800 E $&0 > +0 =AFs) 800
Alied o"erhead ($19 $ +0) 680
Total cost of @ob 8<&0 $+,330
b. ?. of 6., ($8,&50 ; $500 ; ($19 $ &5) $ <,195
=irect material $&1,650
=irect labor ($6,300 E $&0 > 315 =AFs) 6,300
Alied o"erhead ($19 $ 315) 5,355 33,305
$+&,+80
B. of 6., (+,330)
3ost of goods manufactured $38,150
c. Actual o"erhead $5,05+
Alied o"erhead (5,355)
:"eralied :F $ 301
&3. a. 5i$ingH $+80,000 E 60,000 > $8 er 5F
,a"ingH $900,000 E &8,000 > $&5 er =AF
b. 5i$ing (&<0 5Fs $ $8)
$ &,3&0
,a"ing (3+0 =AFs $ $&5) 8,500
Total o"erhead alied $10,8&0
c. ($+80,000 ; $900,000) E (60,000 ; 1&,000) > $1,180,000 E
9&,000 > $16.3<
$16.3< $ 33+ > $5,+9+.&6 alied to @ob 8&&0
A lant7wide rate would not ha"e been indicati"e of the actual
cost of each #ob because the 5i$ing deartment is "ery
machine7intensi"e while the ,a"ing deartment is "ery labor7
intensi"e.
&+. a. =eartment 1 > $+65,000 E 30,000 5Fs > $15.50 er 5F
=eartment & > $380,600 E &&,000 =AFs > $19.30 er =AF
b. 4aw 5aterial .n"entory 3+6,000
Accounts ,ayable 3+6,000
6or* in ,rocess .n"entory C @ob 8+6& 1<,000
6or* in ,rocess .n"entory C other #obs3&1,000
4aw 5aterial .n"entory 3+0,000
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Chapter 5
6or* in ,rocess .n"entory C @ob 8+6& &95
6or* in ,rocess .n"entory C other #obs &,860
3ash (&85 $ $11) 3,135
6or* in ,rocess .n"entory C @ob 8+6& +,<60
6or* in ,rocess .n"entory C other #obs3&,&+0
:"erhead 3ontrol (&,+00 $ $15.50) 39,&00
6or* in ,rocess .n"entory C @ob 8+6& &,8++
6or* in ,rocess .n"entory C other #obs&&,8<6
3ash (1,+30 $ $18) &5,9+0
6or* in ,rocess .n"entory C @ob 8+6& 3+6
6or* in ,rocess .n"entory C other #obs &,968
:"erhead 3ontrol (180 $ $19.30) 3,11+
Jinished /oods .n"entory C @ob 8+6& &9,+&5
6or* in ,rocess .n"entory C @ob 8+6& &9,+&5
($1<,000 ; $&95 ; $+,<60 ; $&,8++ ; $3+6)
Accounts 4ecei"able C ,ower 3&,<10
2ales ($&9,+&5 $ 1.&0) 3&,<10
3ost of /oods 2old &9,+&5
Jinished /oods .n"entory C @ob 8+6& &9,+&5
c. 3ost er unit > $&9,+&5 E 500 > $5+.85
2elling rice er unit > $65.8&
4aw material > $1<,000 E 500 > $38
d. Total 45 issued $3+0,000
Total units (500 ; &0,000) E &0,500
45 cost er unit $16.5< (rounded)
Total cost er unit > $5+.85 7 $38.00 ; $16.5< > $33.++
2elling rice er unit > $33.++ $ 1.& > $+0.13 (rounded)
2ales without error $3&,<10
2ales with error (500 $ $+0.13) &0,065
Total Msa"ingsN of the error $1&,8+5
&5. A standard costing system is most aroriate in roduction
settings in which acti"ities are reetiti"e. That criterion is met in
the case of Aatamore .ndustries. =e"eloment of such standards
re!uires that reliable e$ectations about inut cost amounts and
!uantities be determined for the more routine asects of client
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Chapter 5
ser"ices. :nce the standards are de"eloed, actual costs and
inut !uantities can be comared against the standards to better
understand the causes of cost "ariability across the contracts.
?etter identi1cation and understanding of the causes of
"ariances will allow managers to manage costs more e0ecti"ely
and rice comany ser"ices more aroriately.
&6. 5,I > Actual cost for aer urchasedC 2tandard cost for aer
urchased > ($0.03& $ <80,000) C ($0.036 $ <80,000) > $31,360
7 $35,&80 > 7$3,<&0.
2ince actual cost was less than standard, the "ariance is
fa"orable.
5%I > Actual cost for aer used C 2tandard cost for aer that
should ha"e been used > ($0.036 $ <80,000) C ($0.036 $
<8+,000) > $35,&80 7 $35,+&+ > 7$1++.
2ince actual aer usage was less than the standard allowed, the
"ariance is fa"orable.
&9. a. Total ayroll > <,000 K $<.65 > $86,850
b. A4I > Actual ayroll C 2tandard cost for actual hours wor*ed
> $86,850 C ($<.85 $ <,000) > $86,850 7 $88,650 > 7$1,800.
2ince direct labor emloyees were aid less than the standard
rate, the "ariance is fa"orable.
c. A%I > 2tandard cost for actual hours wor*ed C 2tandard cost
for standard hours allowed for roduction > $88,650 C ($<.85
$ 8,600) > $88,650 7 $8+,910 > $3,<+0.
2ince the number of hours wor*ed was greater than the
standard hours allowed, the "ariance is unfa"orable.
d. :ne concern would be the reason the comany was aying its
wor*ers less than the standard rate er hour. The other
concern would be that the wor*ers, recogniOing that they were
being aid less than the standard, chose to wor* more slowly
than they normally would, to comensate (relati"e to total
wages) for the reduced wage. .f this situation is the case, the
comany would ha"e been better o0 aying the standard rate
because the actual ayroll was ($86,850 7 $8+,910) or $&,1+0
greater than the standard would ha"e been.
&8. a. 3urrently, ?oni"o has no data on the actual cost of building
any of the comuters being con1gured. 3onse!uently, the
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Chapter 5
comany is unable to determine the actual ro1t (loss)
generated on any sales transaction. The #ob order cost
system would allow ?oni"o to better understand what factors
dri"e costs in the 1rm, measure the ro1t on sales
transactions, and identify ways to better manage costs and
re"enues.
b. A ricing olicy that ignores the costs of direct labor and
o"erhead (in addition to mar*eting and administrati"e costs)
is Pawed. :nly if =A and :F are strictly roortional to direct
material could their costs not be considered in determining
the rice and ro1t of each comuter. Fowe"er, in this case,
these costs are li*ely a ma#or ortion of the cost of building a
made7to7order comuter.
&<. a. 2ecretary ($+,800 E 160 hrs. $ 35 hrs.) $ 1,050
3oies (1,+50 ages $ $0.06 er age) 89
,hone calls 1+5
:"erhead ($<,600 E 160 hrs. $ 35 hrs.) &,100
AttorneyQs time ($1<0 $ <5 hrs.) 18,050
Total charges $&1,+3&
This means 3onroe would be charging $&1,+3& E <5 >
$&&5.60 or $&30 er hour (rounded).
Total bill to :li"gra > <5 hours $ $&30 > $&1,850
b. =irect costs ($89 ; $1+5 ; $18,050) $18,&8&
Allocated secretarial costs 1,050
Allocated o"erhead &,100
5argin R($18,050 ; $&,100) K 0.+0S 8,060
Total billing $&<,+<&

c. A Pat charge er hour would be more li*ely to be accetable
to clients because such a charge is more understandable than
being charged an hourly rate lus a charge for the time that is
not really being sent on their cases.
30. Bach student will ha"e a di0erent answer, but the memo should
address the following issueH
?udgeted cost is far below each #ob-s actual cost, which indicates
that the comany is not using ast #ob information as a basis for
either controlling costs or increasing future bid rices. ?y not using
a"ailable historical information to ad#ust oerations, the comany
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Chapter 5
is acceting marginal #obs. Although each #ob generated a ositi"e
gross margin, the actual gross margin is only a small fraction of the
budgeted gross margin. .t is imortant that a comany learn from
ast mista*es.
31. a. 2ome of the comanies that ha"e been found to engage in
this ractice are Jamily =ollar, ,e ?oys, Taco ?ell, Toys747Ds,
and 6al75art.
b. .t is easier to doctor the records now than in the ast because
records are comuteriOed and managers generally ha"e access
to the 1les. ,re"iously, managers would ha"e had to consire
with ayroll cler*s or accountants to change aer or unch7
card records.
c. Bach student will ha"e a di0erent answer. Fowe"er, most
students will robably indicate that store managers ma*ing
such changes would be 1red (short7run). Jor the long7run,
ethics training would robably be recommended and ossibly
a change in the way store managers- bonuses are comuted.
3&. a. 5anufacturing :"erhead 1,150
4aw 5aterial .n"entory &50
6ages ,ayable <00
b. 6., 7 @ob 8?A+68 1,150
4aw 5aterial .n"entory &50
6ages ,ayable <00
/i"en that the rewor* costs were not necessary to the
comletion of the #ob, 2an Angelo 3or. should robably not
charge its mar*u ercentage on the $1,150 of rewor* costs
unless the customer had already been informed that such
charges might be charged and the customer had agreed to
such charges.
c. Aoss on Abnormal 4ewor* 1,150
4aw 5aterial .n"entory &50
6ages ,ayable <00
33. a. ,redetermined :F rate > $1,+&1,000 E 1+5,000 > $<.80 er
5F
=irect material $+9,500
=irect labor &1,800
:"erhead (3&5 $ $<.80) 3,185
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Chapter 5
Total cost $9&,+85
,er unit cost > $9&,+85 E 1,500 > $+8.3& (rounded)
b. The $950 rewor* cost is included in 5anufacturing :"erhead
3ontrol.
c. Total original cost $9&,+85
3ost of new 30 units 1,3<0
Aess sale of defecti"e units (&+0)
Total cost of @ob 8896 $93,635
3+. a. The estimated cost of the soilage should be included in
calculating the redetermined o"erhead rate. This aroach
sreads the cost of soilage across all good units roduced.
b. The cost of this soilage should be charged to the seci1c #ob.
2ince there is no sal"age "alue for the soilage, no #ournal
entry would be necessary as the cost of the soiled units
would be included in the rior charges to the #ob for direct
materials, direct labor and manufacturing o"erhead.
c. .n this case, the soilage is une$ected and the net cost
should be recorded as a loss of the eriod in which it occurred.
Any sal"age "alue associated with the soilage will reduce the
amount of the loss. To record the transaction, wor* in
rocess (and the seci1c #ob-s #ob order cost sheet) should be
credited for the cost of the soilage and the e$ected, net
sal"age of the soilage should be debited (=isosal "alue of
defecti"e wor*). A loss account (e.g., Aoss from abnormal
soilage) should be debited to balance the transaction.
,roblems
35. 4aw 5aterial .n"entory 9<0,000
Accounts ,ayable 9<0,000
6or* in ,rocess .n"entory 590,000
4aw 5aterial .n"entory 590,000
5anufacturing :"erhead 1&0,000
4aw 5aterial .n"entory 1&0,000
6or* in ,rocess .n"entory 9<+,000
5anufacturing :"erhead 80,000
6ages ,ayable 89+,000
6or* in ,rocess .n"entory ($9<+,000 $ .55) +36,900
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Chapter 5
5anufacturing :"erhead +36,900
Jinished /oods .n"entory 1,0+6,000
6or* in ,rocess .n"entory 1,0+6,000
3ost of /oods 2old 1,0+6,000
Jinished /oods .n"entory 1,0+6,000
3ash 1,3+&,000
2ales 1,3+&,000
36. a. $8&,000 E 8,000 =AF > $10.&5 er =AF
b. =irect 5aterial .n"entory <0,000
Accounts ,ayable <0,000
6or* in ,rocess .n"entory 95,600
3ash 95,600
5anufacturing :"erhead 8&,000
Iarious accounts 8&,000
6or* in ,rocess .n"entory 8&,000
5anufacturing :"erhead 8&,000
6or* in ,rocess .n"entory 88,500
=irect 5aterial .n"entory 88,500
($&,000 ; $<0,000 7 $3,500)
Jinished /oods .n"entory &+8,850
6or* in ,rocess .n"entory &+8,850
3/5 > ?6., ; =5 ; =A ; :F C B6.,
3/5 > $10,500 ; $88,500 ; $95,600
;
$8&,000 C$9,950 > $&+8,850
Accounts 4ecei"able 350,+00
2ales 350,+00
3ost of /oods 2old &+3,900
Jinished /oods .n"entory &+3,900
c. ?eginning J/ $ 6,500
3/5 &+8,850
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Chapter 5
3/2 (&+3,900)
Bnding J/ $ 11,650
39. a. <T1 4aw 5aterial .n"entory 1,<+0,000
Accounts ,ayable 1,<+0,000
<T+ 6or* in ,rocess .n"entory 1,8+6,800
5anufacturing :"erhead 53,&00
4aw 5aterial .n"entory 1,<00,000
.ssuances made to #obs as followsH
895, $&8<,600U 898, $&5&,600U 88&, $<<&,&00U 886,
$31&,+00

<T15 6or* in ,rocess .n"entory 665,600
5anufacturing :"erhead <1,+00
3ash 959,000
Aabor charged to #obs as followsH
895, $8+,600U 898, $&69,&00U 88&, $&03,000U
886, $110,800
<T15 6or* in ,rocess .n"entory 83&,000
5anufacturing :"erhead 83&,000
:"erhead alied to #obs as followsH
895, $1&0,950U 898, $3&<,000U 88&, $&53,950U
886, $1&8,500.
<T15 Jinished /oods .n"entory 1,081,350
6or* in ,rocess .n"entory 1,081,350
($586,+00 ; $&8<,600 ; $8+,600 ; $1&0,950)
Accounts 4ecei"able 1,+05,955
2ales 1,+05,955
($1,081,350 $ 1.3)
3ost of /oods 2old 1,081,350
Jinished /oods .n"entory 1,081,350
<T&0 5anufacturing :"erhead 110,&00
Accounts ,ayable 1<6,800
3ash 309,000
<T&+ 4aw 5aterial .n"entory 6&+,000
Accounts ,ayable 6&+,000
<T&5 6or* in ,rocess .n"entory 916,+00
5anufacturing :"erhead 55,800
4aw 5aterial .n"entory
99&,&00
14
Chapter 5
.ssuances made to #obs as followsH
898, $15+,800U 88&, $&1&,600U 886, $3+<,000
<T30 5anufacturing :"erhead 1,&06,800
Accumulated =ereciation 80<,000
,reaid .nsurance 165,+00
Ta$es L Aicenses ,ayable &3&,+00
<T30 6or* in ,rocess .n"entory 6+<,+00
5anufacturing :"erhead 65,000
3ash 91+,+00
Aabor charged to #obs as followsH
898, $199,+00U 88&, $&&8,+00U 886, $&+3,600
<T30 6or* in ,rocess .n"entory +09,1&5
5anufacturing :"erhead +09,1&5
To aly o"erhead to #obs as followsH
898, $111,950U 88&, $190,6&5U 886, $1&+,950
b. 4aw 5aterial .n"entoryVVVVV
?al. 33&,+00 <T+ 1,<00,000
<T1 1,<+0,000 <T&5 99&,&00
<T&+ 6&+,000
?al. &&+,&00
6or* in ,rocess
?al. 1,51&,600 <T15 1,081,350
<T+ 1,8+6,800
<T15 665,600
<T15 83&,000
<T&5 916,+00
<T30 6+<,+00
<T30 +09,1&5
?al. 5,5+8,595
3ost of /oods 2oldVVVVVVVV
?al. +,86+,000
895 1,081,350
?al. 5,<+5,350
@ob 895 @ob 898
?al. 586,+00 1,081,350 ?al. &66,600
=5 &8<,600 =5 &5&,600
=A 8+,600 =A &69,&00
15
Chapter 5
:F 1&0,950 :F 3&<,000
?al. 0 =5 15+,800
=A 199,+00
:F 111,950
?al 1,55<,350
@ob 88& @ob 886
?al. 65<,600 =5 31&,+00
=5 <<&,&00 =A 110,800
=A &03,000 :F 1&8,500
:F &53,950 =5 3+<,000
=5 &1&,600 =A &+3,600
=A &&8,+00 :F 1&+,950
:F 190,6&5
?al. &,9&0,195 ?al.1,&6<,050
c. 2chedule of @ob 3ost 4ecords
2etember 30, &010
@ob 898
$1,55<,350
@ob 88& &,9&0,195
@ob 886 1,&6<,050
Total $5,5+8,595
d. Actual o"erhead for 2etember
<T+ $ 53,&00
<T15 <1,+00
<T&0 110,&00
<T&5 55,800
<T30 1,&06,800
<T30 65,000 $1,58&,+00
Alied o"erhead for 2etember
<T15 $ 83&,000
<T30 +09,1&5 (1,&3<,1&5)
Dnderalied o"erhead $ 3+3,&95
38. a. 4aw 5aterial .n"entory 5+&,000
3ash
5+&,000
5anufacturing :"erhead 5+,000
6or* in ,rocess .n"entory 60&,800
6agesT2alaries ,ayable (or 3ash) 656,800
16
Chapter 5
To record =A for #obs (@ob 8&+9, $19,+00U 8&51, $8,800U
8&53, $&1,000U 8&5+, $136,600U 8&55, $1+5,000U
8&56, $<+,600U and 8&59, $19<,+00)
5anufacturing :"erhead 96,000
6or* in ,rocess .n"entory +66,+00
4aw 5aterial .n"entory 5+&,+00
To record =5 for #obs (@ob 8&+9, $1&,+00U 8&51, $6,&00U
8&53, $16,800U 8&5+, $105,&00U 8&55, $11<,800U
8&56, $9&,800U and 8&59, $133,&00)
5anufacturing :"erhead 11+,+00
Iarious accounts 11+,+00
To record :F costs other than indirect labor and
indirect materials ($&++,+00 7 $5+,000 7 $96,000)
6or* in ,rocess .n"entory &+1,1&0
5anufacturing :"erhead &+1,1&0
To aly :F at a rate of $0.+0 er =A$ (@ob 8&+9, $6,<60U
8&51, $3,5&0U 8&53, $8,+00U 8&5+, $5+,6+0U 8&55, $58,000U
8&56, $39,8+0U and 8&59, $91,960)
Jinished /oods .n"entory 1,99<,0+0
6or* in ,rocess .n"entory 1,99<,0+0
(2ee schedule below.)
3ash &,&6+,99+
2ales &,&6+,99+
3ost of /oods 2old 1,99<,0+0
Jinished /oods .n"entory 1,99<,0+0

2chedule of 3omleted @obs
@ob =irect 5aterial =irect Aabor Alied :F Total
&+9 $ 8<,600 $108,800 $ +3,5&0 $ &+1,<&0
&51 18&,800 &18,600 89,++0 +88,8+0
&53 16&,&00 1<0,600 96,&+0 +&<,0+0
&5+ 105,&00 136,600 5+,6+0 &<6,++0
&55 11<,800 1+5,000 58,000 3&&,800
Totals $65<,600 $9<<,600 $31<,8+0 $1,99<,0+0
b. @ob =irect 5aterial =irect Aabor Alied :F Total
&56 $ 9&,800 $ <+,600 $39,8+0 $&05,&+0
&59 133,&00 19<,+00 91,960 38+,360
Totals $&06,000 $&9+,000 $10<,600 $58<,600
c. Actual o"erhead $ &++,+00
17
Chapter 5
Alied o"erhead &+1,1&0
Dnderalied o"erhead $ 3,&80
Dnad#usted cost of #obs comleted 1,99<,0+0
Ad#usted cost of #obs comleted $1,98&,3&0
3<. a. Aluminum 2teel :ther Total
?. $ 8,300 $1&,800 $ 5,800 $ &6,<00
,urchases <8,300 &6,500 &3,550 1+8,350
A"ailable $106,600 $3<,300 $&<,350 $195,&50
.ssuances (58,900) (3+,&00) (&5,<00) (118,800)
B. $ +9,<00 $ 5,100 $ 3,+50 $ 56,+50
b. =irect material $ 6&0
=irect labor (8 $ $15) 1&0
:"erhead (16 $ $30) +80
Total $1,&&0
c. 6., C beginning
W
$ 6,&30
=irect material (total issuances) 118,800
=irect labor (680 K $15) 10,&00
:"erhead (1,&00 K $30) 36,000
Total manufacturing costs $191,&30
6., 7 ending (1,&&0)
3ost of goods manufactured $190,010
J/ 7 beginning &3,800
3ost of goods a"ailable for sale $1<3,810
J/ 7 ending (0)
3ost of goods sold $1<3,810
W
@ob 8 5aterial Aabor :F Total
+11 $1,<00 $ 5+0 $1,500 $3,<+0
+1& 1,&+0 150 <00 &,&<0
$3,1+0 $ 6<0 $&,+00 $6,&30
+0. a. Dsing any of the #obs, one can determine that the relationshi
between direct labor and alied o"erhead is that o"erhead is
115G of direct labor cost. Jor e$amle, using #ob 869H
$15,<16 E $13,8+0 > 1.15.
b. =irect material $&5,800
=irect labor 9,&00
Alied o"erhead 8,&80
Total $+1,&80
18
Chapter 5
c. Total direct material $513,83+
Aess direct material in ?. (&5,800)$+88,03+
Total direct labor $ <3,9&0
Aess direct labor in ?. (9,&00) 86,5&0
Total direct cost added during 5ay $59+,55+
d. 6or* in rocess 7 beginning $ +1,&80
3osts added during 5ayH
=irect material $+88,03+
=irect labor 86,5&0
Alied o"erhead ($86,5&0 $ 1.15) <<,+<8 69+,05&
$915,33&
6or* in rocess 7 ending
($308,+30 ; $59,000 ; ($59,000 K 1.15) (+30,<80)
3ost of goods manufactured $&8+,35&
+1. a. JabricationH $1,560,000 E 10+,000 5AFs > $15 er 5F
AssemblyH $1,960,000 E 3&0,000 =AFs > $5.50 er =AF
b. @ob 8&&<6H Jabrication (<00 hours X $1&) $10,800
Assembly (850 hours X $10) 8,500
Total =A $1<,300
@ob 8&&<9H Jabrication (+60 hours X $1&) $5,5&0
Assembly (+00 hours X $10) +,000
Total =A $<,5&0
c. @ob 8&&<6H Jabrication (1,800 hours X $15)
$&9,000
Assembly (850 hours X $5.50) +,695
Total :F alied $31,695
@ob 8&&<9H Jabrication (<00 hours X $15) $13,500
Assembly (+00 hours X $5.50) &,&00
Total :F alied $15,900
d. @ob 8&&<6 @ob 8&&<9
=irect 5aterial $118,500 $1+9,&00
=irect Aabor 1<,300 <,5&0
19
Chapter 5
:"erhead 31,695 15,900
Total $16<,+95 $19&,+&0
e. JabricationH Alied (103,&00 K $15)$1,5+8,000
Actual (1,5&8,000)
:"eralied $ &0,000
AssemblyH Alied (3&+,000 K $5.50)$1,98&,000
Actual (1,9<0,000)
Dnderalied $ 8,000
The comany has o"eralied o"erhead of $1&,000 for the
year.
+&. a. @ob 3ost 2heet 7 @ob 8515
3ustomer 'ame and AddressH =escrition of @obH ,reare
site,
3ity of /ulf 2hores build and install a edestrian
/ulf 2hores, Alabama o"erass in /ulf 2horesH see
bid
seci1cations for details
3ontract Agreement =ateH 5T10
2cheduled 2tarting =ateH 9T10
Agreed Don 3omletion =ateH 1&T15T10
3ontract ,riceH $3,300,000
Actual 3omletion =ateH VVVVVVVVVVVVVVVV
2ecial .nstructionsH 'one

=irect 5aterial (Bst. $1,&+0,000)
=ate 2ource 3ost
&010
@uly 31 2ummary of material re!. $1&1,800
=irect Aabor (Bst. $690,000) :"erhead (Bst. $+0&,000)
.
=ate 2ource 3ost =ate 2ource
3ost
&010 &010
@uly 31 2ummary of time @uly 31 @ournal entry
sheets for direct of 9T31T10
$105,0&+
labor $195,0+0
20
Chapter 5
2ummary (as of 9T31T10)
Actual ?udget
Dnder(:"er)
=irect material $1&1,800 $1,&+0,000
=irect labor 195,0+0 690,000
:"erhead 105,0&+ +0&,000
Totals $+01,86+ $&,31&,000
b. 6or* in ,rocess 7 @ob 8515 1&1,800
6or* in ,rocess C other #obs +59,500
=irect 5aterial .n"entory 59<,300
6or* in ,rocess 7 @ob 8515 195,0+0
6or* in ,rocess 7 other #obs +08,<60
5anufacturing :"erhead 55,800
2alaries and 6ages B$ense 3<,600
2alaries and 6ages ,ayable 69<,+00
5anufacturing :"erhead &6,+00
=ereciation B$ense 9,800
Accumulated =er. 7 3onst. Assets &6,+00
Accumulated =er. 7 :Yce Assets 9,800
2ales ,romotion B$ense 11,100
Accounts ,ayable 11,100
Ad"ertising B$ense 6,600
3ash 6,600
5anufacturing :"erhead 18,600
2ulies .n"entory 18,600
5iscellaneous B$ense 10,&00
Accounts ,ayable 10,&00
Dtilities B$ense 1,800
5anufacturing :"erhead 5,+00
Dtilities ,ayable 9,&00
6or* in ,rocess 7 @ob 8515 105,0&+
6or* in ,rocess 7 other #obs &+5,396
21
Chapter 5
5anufacturing :"erhead 350,+00
Accounts 4ecei"able 1,&&+,000
2ales 1,&&+,000
Jinished /oods .n"entory 8&<,000
6or* in ,rocess .n"entory
8&<,000
3ost of /oods 2old 8&<,000
Jinished /oods .n"entory 8&<,000
c. 6or* in ,rocess 7 beginning $ 891,800
,roduction costsH
=irect material
$59<,300
=irect labor 58+,000
Alied o"erhead
350,+00 1,513,900
$&,385,500
6or* in rocess C ending (1,556,500)
3ost of goods
manufactured $ 8&<,000
d. ?irmingham 3ontractors
.ncome 2tatement
Jor the 5onth Bnded @uly 31, &010
4e"enues from comleted ro#ects $1,&&+,000
Aess 3ost of /oods 2old (8&<,000)
/ross 5argin on 3omleted @obs $ 3<5,000
'on7,roduction B$ensesH
2alaries and 6ages B$ense $3<,600
=ereciation B$ense 9,800
Dtilities B$ense 1,800
2ales ,romotion B$ense 11,100
Ad"ertising B$ense 6,600
5iscellaneous B$ense 10,&00 (99,100)
.ncome ?efore .ncome Ta$es $319,<00
.ncome Ta$es (+0G) (1&9,160)
'et .ncome $1<0,9+0
+3. a. @ob 8&01<H
=esign ($81,600 K 30G) $&+,+80
,roduction (9&0 K $15) 10,800
.nstallation ($10,080 K <0G) <,09&
22
Chapter 5
Total o"erhead alied $++,35&
@ob 8&0&0H
=esign ($6<,360 K 30G) $&0,808
,roduction (&,+00 K $15) 36,000
.nstallation ($11,5&0 K <0G) 10,368
Total o"erhead alied $69,196
@ob 8&0&1H
=esign ($93,++0 K 30G) $&&,03&
,roduction (<60 K $15) 1+,+00
.nstallation ($15,&00 K <0G) 13,680
Total o"erhead alied $50,11&
=esign ,roduction
.nstallation
Actual $105,600 $60,000 $31,&00
Alied (69,3&0) (61,&00) (33,1&0)
(:"er)Tunder alied $ 38,&80 $ (1,&00) $ (1,<&0)
Actual :F for comany $1<6,800
Alied :F for comany (161,6+0)
Total comany underalied :F $ 35,160
b. 6or* in ,rocess (=esign) C @ob 8&01< <,600
6or* in ,rocess (=esign) C @ob 8&0&0 8,&00
6or* in ,rocess (=esign) C @ob 8&0&1 19,600
4aw 5aterial .n"entory 35,+00
6or* in ,rocess (=esign) C @ob 8&01< 81,600
6or* in ,rocess (=esign) C @ob 8&0&0 6<,360
6or* in ,rocess (=esign) C @ob 8&0&1 93,++0
6ages ,ayable &&+,+00
6or* in ,rocess (=esign) C @ob 8&01< &+,+80
6or* in ,rocess (=esign) C @ob 8&0&0 &0,808
6or* in ,rocess (=esign) C @ob 8&0&1 &&,03&
5anufacturing :"erhead 69,3&0
6or* in ,rocess (,rod.) C @ob 8&01< 116,+00
6or* in ,rocess (,rod.) C @ob 8&0&0 &68,800
6or* in ,rocess (,rod.) C @ob 8&0&1 &3&,000
4aw 5aterial .n"entory 619,&00
23
Chapter 5
6or* in ,rocess (,rod.) C @ob 8&01< 3+,000
6or* in ,rocess (,rod.) C @ob 8&0&0 5<,600
6or* in ,rocess (,rod.) C @ob 8&0&1 &1,600
6ages ,ayable 115,&00
6or* in ,rocess (,rod.) C @ob 8&01< 10,800
6or* in ,rocess (,rod.) C @ob 8&0&0 36,000
6or* in ,rocess (,rod.) C @ob 8&0&1 1+,+00
5anufacturing :"erhead 61,&00
6or* in ,rocess (.nst.) C @ob 8&01< 10,+00
6or* in ,rocess (.nst.) C @ob 8&0&0 36,800
6or* in ,rocess (.nst.) C @ob 8&0&1 10,+00
4aw 5aterial .n"entory 59,600
6or* in ,rocess (.nst.) C @ob 8&01< 10,080
6or* in ,rocess (.nst.) C @ob 8&0&0 11,5&0
6or* in ,rocess (.nst.) C @ob 8&0&1 15,&00
6ages ,ayable 36,800
6or* in ,rocess (.nst.) C @ob 8&01< <,09&
6or* in ,rocess (.nst.) C @ob 8&0&0 10,368
6or* in ,rocess (.nst.) C @ob 8&0&1 13,680
5anufacturing :"erhead 33,1&0
c. @ob 8&01<H
=irect material $136,+00
=irect labor 1&5,680
:"erhead ++,35&
Total cost $306,+3&
@ob 8&0&0H
=irect material $313,800
=irect labor 1+0,+80
:"erhead 69,196
Total cost $5&1,+56
@ob 8&0&1H
=irect material $&60,000
=irect labor 110,&+0
:"erhead 50,11&
Total cost $+&0,35&
++. a. 4eliantH $5,580 E $+5 > 1&+ =AF wor*ed
=umasH $18,000 E $+5 > +00 =AF wor*ed
24
Chapter 5
:mahaH $&8,350 E $+5 > 630 =AF wor*ed
4eliantH 1&+ =AF $ $58 > $9,1<& :F alied
=umasH +00 =AF $ $58 > $&3,&00 :F alied
:mahaH 630 =AF $ $58 > $36,5+0 :F alied
4eliant =umas :maha
=irect material $ 9,800 $1+,&00 $ 1<,800
=irect labor 5,580 18,000 &8,350
:"erhead 9,1<& &3,&00 36,5+0
Total cost $&0,59& $55,+00 $8+,6<0
b. 4eliantH $&0,59& E 3 > $6,859 er ad
=umasH $55,+00 E 10 > $5,5+0 er ad
:mahaH $8+,6<0 E 8 > $10,586 er ad
c. 2ales (&1 ads Z $8,600) $180,600
3ostsH
=irect material $+1,800
=irect labor 51,<30
Alied o"erhead 66,<3&
:"eralied o"erhead (16,<3&) (1+3,930)
'et income $ 36,890
d. 2alesH 4eliant ($&0,59& $ 1.3)$&6,9+3.60
=umas ($55,+00 $ 1.3) 9&,0&0.00
:maha ($8+,6<0 $ 1.3) 110,0<9 .00 $&08,860.60
3ostsH
=irect material $+1,800.00
=irect labor 51,<30.00
Alied o"erhead 66,<3&.00
:"eralied o"erhead (16,<3& .00) (1+3,930 .00)
'et income $ 65,130 .60
.ncome using a cost7lus basis is substantially higher than
that which is obtained using a Pat rate selling rice. =umas
5anufacturing will be more leased with the systemU rather
than aying a rate of $8,600 er ad, =umas would be aying
$9,&0&. :n the other hand, 4eliant-s and :maha-s costs er
ad would increase from $8,600 er ad to $8,<15 and $13,96&,
resecti"ely.
Ads shouldnQt be billed at a Pat rate because some may ta*e
much longer to de"elo than others. The 8 ads for :maha
too* 630 hours to de"elo or about 9< hours each. .n contrast,
the 3 ads were de"eloed for 4eliant in 1&+ hours (+1 hours
25
Chapter 5
each) and the 10 ads were de"eloed for =umas in only +00
hours (+0 hours each).
Another ossibility for Ae?lanc is to bill based on a standard
charge er labor hour[esecially if clients tend to change
their minds after the ad de"eloment rocess begins.
+5. a. :ct. 1 4aw 5aterial .n"entory 1,150,000
Accounts ,ayable 1,150,000
1 6or* in ,rocess 7 , 650,000
5anufacturing :"erhead 7 , 500,000
4aw 5aterial .n"entory 1,150,000
5 5anufacturing :"erhead 7 3 &5,000
Accounts ,ayable &5,000
8 5anufacturing :"erhead 7 , 5,000
3ash 5,000
15 'o entry needed.
&0 5anufacturing :"erhead 7 3 60,000
3ash 60,000
&+ 4aw 5aterial .n"entory 1,+85,000
Accounts ,ayable 1,+85,000
31 5anufacturing :"erhead C , 36,3&0
6or* in ,rocess C , +5,000
3ash 66,1&0
Accumulated =er. 7 , 15,&00
31 5anufacturing :"erhead C
3 18,650
6or* in ,rocess C 3 16,300
3ash &6,&00
Accumulated =er. 7 3 8,950
31 Accounts ,ayable &,635,000
3ash &,635,000
31 6or* in ,rocess C , 150,000
5anufacturing :"erhead C , 150,000
(6,000 5F $ $&5)
26
Chapter 5
31 6or* in ,rocess C 3 &6,8<5
5anufacturing :"erhead C 3 &6,8<5
($16,300 $ 1.65)
'o". 1 5anufacturing :"erhead C 3 5,000
3ash 5,000
+ 6or* in ,rocess 7 , 8&5,000
5anufacturing :"erhead 7 , 195,000
4aw 5aterial .n"entory 1,000,000
8 5anufacturing :"erhead C , 5,000
3ash 5,000
15 6or* in ,rocess C 3 &00,000
5anufacturing :"erhead 7 3 &&5,000
4aw 5aterial .n"entory +&5,000
18 'o entry needed.
&+ 'o entry needed.
&< 'o entry needed.
30 5anufacturing :"erhead C , 5+,050
6or* in ,rocess C , 115,000
3ash 153,850
Accumulated =er. C , 15,&00
30 5anufacturing :"erhead C 3 +3,850
6or* in ,rocess C 3 13+,300
3ash 15<,800
Accumulated =er. 7 3 18,350
30 6or* in ,rocess C , <8,950
5anufacturing :"erhead C , <8,950
(3,<50 $ $&5)
30 6or* in ,rocess C 3 &&1,5<5
5anufacturing :"erhead 7 3 &&1,5<5
($13+,300 $ 1.65)
30 3omleted ,ro#ects .n"entory &,+8&,8+0
6or* in ,rocess 7 , 1,883,950
6or* in ,rocess 7 3 5<<,0<0
27
Chapter 5
30 Accounts 4ecei"able 3,+50,000
3onstruction 4e"enue 3,+50,000
30 3ost of 3ontracts 2old &,+8&,8+0
3omleted ,ro#ects .n"entory &,+8&,8+0
b. ,recast 3onstruction
4aw 5aterial :"erheadC , :"erhead 7 3
1,150,000 1,150,000 500,000 150,000 &5,000
&6,8<5
1,+85,000 1,000,000 5,000 <8,950 60,000
&&1,5<5
+&5,000 36,3&0 18,650
195,000 5,000
5,000 &&5,000
5+,050 +3,850
bal 60,000 bal 5&6,6&0 bal 1&<,010
6., C ,recast 6., 7 3onstruction
650,000 1,883,950 16,300 5<<,0<0
+5,000 &6,8<5
150,000 &00,000
8&5,000 13+,300
115,000 &&1,5<5
<8,950
bal 0 bal 0
3omleted ,ro#ects .n". 3ost of 3ontracts 2old
&,+8&,8+0 &,+8&,8+0 &,+8&,8+0
bal 0 bal &,+8&,8+0
c. (bottom section of #ob cost sheet)
28
Chapter 5
,recast =eartment
=5 (Bst. $1,550,000) =A (Bst. $&&0,000) :F (Bst.
$&95,000)
=ate Amount =ate Amount =ate
Amount
:ct. 1 $ 650,000 :ct. 31 $ +5,000 :ct. 31
$150,000
'o". + 8&5,000 'o". 30 115,000 'o". 30 <8,950
$1,+95,000 $160,000
$&+8,950
3onstruction =eartment
=5 (Bst. $350,000) =A (Bst. $130,000) :F (Bst.
$&1+,500)
=ate Amount =ate Amount =ate
Amount
'o". 15 $ &00,000 :ct. 31 $ 16,300 :ct. 31 $ &6,8<5
'o". 30 13+,300 'o". 30 &&1,5<5
$150,600
$&+8,+<0
d. Aincoln 3onstruction 3omany does not seem to ha"e a good
estimation system in lace for its bid rocess, esecially in its
,recast =eartment. The comany may be losing a signi1cant
number of bids because of inPated cost estimates.
+6. a. A #ob order cost system is aroriate in any en"ironment in
which costs can be readily identi1ed with seci1c roducts,
batches, contracts, or ro#ects. Jor adoting this system there
should be a #usti1cation on a cost7bene1t basis to trace costs
to those seci1c roducts, batches, contracts, or ro#ects.
b. The only #ob remaining in 6., at 5T31 is =4211+H
=4211+ balance, +T30 $1,590,000
5ay additionsH
4aw material $1&+,000
,urchased arts 89,000
=irect labor &00,500
:"erhead (1<,500 hrs. X $9.50W) 1+6,&50 559,950
6., balance, 5T31 $&,1&9,950
W:F rate > $+,500,000 E 600,000 hrs. > $9.50 er hour
29
Chapter 5
c. J/ in"entory of layens, +T30 1<,+00
Dnits comleted in 5ay 15,000
Dnits a"ailable 3+,+00
Dnits shied in 5ay (&1,000)
J/ in"entory, 5T31 13,+00
2ince ,i 2!uea*s uses the J.J: in"entory method, all units
remaining in J/ in"entory were comleted in 5ay.
6or* in rocess in"entory, +T30 $+&0,000
5ay additionsH
4aw material $ 3,000
,urchased arts 10,800
=irect labor +3,&00
:"erhead (+,+00 Z $9.50) 33,000 <0,000
Total cost $510,000
Dnit cost > $510,000 E 15,000 units comleted > $3+ er unit
J/ in"entory > $3+ Z 13,+00 > $+55,600
d. .f the amount of o"eralied or underalied :F is not
material or the result of an error in the :F alication rate,
the amount is normally charged directly to 3/2. .f the amount
is signi1cant, the amount should be rorated o"er the
rele"ant accounts (i.e., 6.,, J/, and 3/2).
(35A
adated)
+9. a., b. Alied :F rate > $30&,+00 E 100,800 > $3 er =AF
3ost of goods manufactured $ <6,000
Add ending wor* in rocessH
Two #obs oen ha"e =5 of $ +,800
Two #obs oen ha"e =A of <,000
Two #obs oen ha"e alied :F
of ($3 K &,1++) 6,+3&
&0,&3&
Total costs accounted for $116,&3&
Aess beginning wor* in rocess (15,+00)
3ost of roduction inuts $100,83&
AessH =irect labor $36,+00
Alied :F ($3.00 K 8,800) &6,+00
(6&,800)
3ost of direct material used $ 38,03&
3ost of indirect material issued 11,600
Total cost of raw material used $ +<,63&
c. ?eginning raw material $ <,600
30
Chapter 5
4aw material urchased 56,000
Total raw material a"ailable $65,600
4aw material issued (+<,63&)
Bnding raw material $15,<68
d. :"erhead alied ($3 K 8,800) $ &6,+00
Actual o"erhead chargesH
.ndirect labor $10,800
.ndirect material 11,600
All other 5,000 (&9,+00)
Dnderalied o"erhead in Aril $ 1,000
e. ?eginning 1nished goods $ 16,800
Add cost of goods manufactured <6,000
3ost of goods a"ailable $11&,800
Aess ending 1nished goods (13,&00)
3ost of goods sold $ <<,600
+8. a. Actual =5 cost $11,600,000
2tandard =5 cost ($56,000 K &00) (11,&00,000)
5aterial ,rice Iariance $ +00,000 D
Actual =A cost $6,<59,600
2tandard =A cost ($3+,+00 K &00) (6,880,000)
=irect Aabor 4ate Iariance $ 99,600 D
Actual :F cost $1+,800,000
2tandard :F cost ($96,000 K &00) (15,&00,000)
:F Iariance $ (+00,000) J
b. 5aterialH
$11,600,000 E 6,000,000 > $1.<3 (rounded) actual cost er
lb. "s. $&.00 standard cost er lb.U $0.09 $ 6,000,000 >
$+&0,000 J rice "ariance
6,000,000 lbs. used "s. (&8,000 $ &00) standard > 6,000,000 C
5,600,000 > +00,000 lbs. more than standardU +00,000 $ $& >
$800,000 D !uantity "ariance
The rimary cause of the unfa"orable material "ariance is
because of e$cess usage.
+<. a. =5 cost $18.00
=A cost ($&0 $ (1& E 60)) + .00
Total standard rime costs $&& .00
31
Chapter 5
b. @ob 8<18
=5 cost ($18 $ 1,&00) $&1,600
=A cost ($+ $ 1,&00) +,800
Total standard direct cost $&6,+00
@ob 8&00&
=5 cost ($18 $ &,000) $ 36,000
=A cost ($+ $ &,000) 8,000
Total standard direct cost $++,000
c. @ob 8<18 2tandard Actual Iariance
=5 $ &1,600 $&3,5&5 $1,<&5 D
=A +,800 +,8+0 +0 D
Total $&6,+00 $&8,365 $1,<65 D

@ob 8&00&
=5 $36,000 $39,++0 $1,++0 D
=A 8,000 9,850 150 J
Total $++,000 $+5,&<0 $1,&<0 D
d. ?y comuting "ariances for each #ob, managers become
aware of any trends in costs. .f costs are aggregated across
#obs, any trends may be obscured.
50. a. ,ro1t on the 1$ed7rice contracts is constrained by the
contract rice. ,ro1t can only be increased if ways are found
to reduce costs. :ne way that costs can be reduced is to shift
them to other contracts. This is a articularly e0ecti"e
strategy if the costs that are shifted to another contract can
be recoued under the terms of that other contract. ?y
shifting some costs of the 1$ed7rice contracts to the cost7
lus contracts, the ro1t on the 1$ed7rice contracts rises and
the shifted costs can be reco"ered under the terms of the
cost7lus contracts. Jurther, this strategy may ha"e the e0ect
of increasing costs under the cost7lus contracts if those
contracts determine ro1t as a ercentage of total costs.
b. This tye of cost shifting is dishonest and unethical. .t has the
e0ect of increasing the total rices of cost7lus contracts, and,
if those contracts are go"ernment related, those rices are
32
Chapter 5
tyically borne by ta$ayers. .n a sense it is a way for the
stoc*holders and managers of the defense contractors to
steal from the ta$ayers. .t is diYcult to imagine a setting in
which this rocess could be labeled ethical.
51. a. Bach student will ha"e a di0erent answer.
b. The comany is utiliOing the bene1ts of automation to reduce
the costs of handling so many arts. ?y standardiOing
rocesses, the comany can assemble a messenger bag with
a di"erse set of arts in an amount of time that is similar to
that re!uired for mass7roduced ones. Accordingly, although
the comany is robably aying, on a"erage, more for arts
on custom messenger bags than mass7roduced onesU it is
holding the line on direct labor and roduction o"erhead. ?y
holding costs down for labor and o"erhead, the total cost of
the custom roduced messenger bags is not signi1cantly
higher than that of the mass roduced messenger bags.
c. %uality as "iewed from the ersecti"e of the consumer
should be much higher with the custom7made messenger
bags because customers are able to secify the "arious arts
they want included. ?y getting the e$act combination of arts
the customers desire, they will ercei"e the !uality of the
roduct to be "ery high relati"e to the remium in rice they
ay o"er the mass7roduced messenger bags.
d. The answer is mostly re"ealed in art (c). ?y containing costs
to le"els close to those of mass7roduced messenger bags,
but allowing the customer to choose the arts they desire, a
substantial gross ro1t can be achie"ed. The higher gross
ro1t rePects the customersQ willingness to ay a remium for
the e$act combination of arts desired, e"en though the
comanyQs costs are not signi1cantly greater than those
incurred to mass roduce messenger bags.
5&. a. .t is li*ely that the least oular thoughts and oinions would
not be heard on camus. 2tudents would naturally suort
those ideas and ositions that were consistent with their own
ethics, hilosohies, and self interests. As a conse!uence, the
o"erall di"ersity of ideas would robably decline.
b. Assuming di"ersity of oinions ultimately bene1ts all
students, the Dni"ersity of 6isconsin is ossibly suorting
di"ersity with the only means a"ailable[student dollars.
Fowe"er, this aroach may not be ethical because it forces
students to suort oinions, beliefs, and ideas that may
33
Chapter 5
"iolate their ersonal ethics. Although the 2ureme 3ourt of
the Dnited 2tates will ultimately determine whether this is a
legal ractice, each indi"idual student can reach hisTher own
conclusion as to whether the ractice is ethical.
53. a. :"erhead other than soilage $600,000
Bstimated soilage cost $50,000
Aess sal"age "alue &0,000 30,000
Ad#usted estimated o"erhead cost $630,000
,:4 > $630,000 E +0,000 > $15.95 er =AF
b. =isosal "alue of chemical +<6
5anufacturing :"erhead 1,&3+
6or* in ,rocess[@ob 8988 1,930
5+. a. ,redetermined rate > $<&5,000 E 100,000 > $<.&5 er 5F
b. Total cost of direct material $689,100
Total cost of direct labor 159,950
Alied :F (3,080 $ $<.&5) &8,+<0
Total cost of @ob ?316 $893,3+0
c. The rewor* cost is debited to the manufacturing o"erhead
account since the comany uses a redetermined rate that
includes rewor* costs to aly o"erhead.
5anufacturing :"erhead 95,500
Iarious accounts 95,500
d. ,redetermined rate > $850,000 E 100,000 > $8.50 er 5F
Total cost of direct material $689,100
Total cost of direct labor 159,950
Alied :F (3,080 $ $8.50) &6,180
Total cost of @ob ?316 $891,030
e. Total cost of direct material $689,100
Total cost of direct labor 159,950
Alied :F (3,080 $ $8.50) &6,180
4ewor* cost ($95,500 $ .&0) 15,100
2ale of rewor*ed ie (&00 $ $3.50) (900)
Total cost of @ob ?316 $885,+30
34