BUS 5431 Managerial Accounting

Homework 1.3

Chapter 1
Exercise 1-14 Opportunity Cost:
As Ken is curious to know the advantages and profitability for staying open on Saturdays, the
additional generated income would total in $2,500 and $130,000 for the year.
The Additional Revenue per year is calculated:
$2,500 x 52 days= $2,500
The Additional Costs is calculated:
$700 + $500 + $100 + $200= $1,000
The Opportunity Cost is calculated:
$2,500 - $1,000= $1,500
Within this analysis, rent or depreciation does not necessarily need to be in this estimate. This is
in result to the costs being fixed. Therefore, they do not increase nor decrease with the size of
days or production of operation. The rent or depreciation would not be relevant in Ken’s decision
of starting to operate on Saturdays. Regardless if Parrish Plumbing decides to open on Saturdays
or not, rent will still be the same.

Problem 1-2 Incremental Analysis:

a.) The incremental cost of producing an extra 50,000 jars is $64,000.
($1.28 x 50,000)= $64,000
b.) Incremental Revenue= $100,000
original revenue- (325,000 x 5.00)= $1,625,000
revenue with price change- (375,000 x $4.60)= 1,725,000
incremental revenue- 1,725,000 – 1,625,000= $100,000
c.) In this case, Santiago should lower the price of the Salsa simply because the incremental
cost is less than the incremental revenue.

Problem 1-4 Performance Reports:

a.) The increase of sales is approximately 10.7%
The increase of staff salaries is 11.4%
The increase of merchandise cost is 22.9%
Due to the low percentage of sales, I believe it would be useful to investigate the increase
in expenses.
 b.) The cost for storewide electricity is something that cannot be controlled. In order to
assess the department level manager, they must be assessed on the basis of the costs that
they can control within their level. Storewide electricity is therefore managed by the store
manager and not the department manager.

Chapter 2
Exercises 2-9 Recording Labor Cost in Job-Order Costing:
a.) Employee #11- $10.00/hour for 110 hrs.= 1,100.00
Employee #008- $21.00/hour for 90 hrs.= $1,890.00
Employee #011- $12.00/hour for 40 hrs.= $480.00
Total for job #201- $3,470.00
Employee #008- $20.00/hour for 50 hrs.= $1,000.00
Employee #008- #18.00/ hour for 70 hrs.= $1,260.00

b.) Total direct labor: $5,730.00

February Journal Entries
Work in Process Inventory $5,730.00
Wages Payable $5,730.00

Exercise 2-12 Allocating Manufacturing Overhead to Jobs:

a.) 1. Expected manufacturing overhead: $1,000,000/ direct labor hrs.= $1,000,000/ 40,000=
$25.00/hr

2. Expected manufacturing overhead: $1,000,000/ direct labor costs= $1,000,000/

$625,000= 1.6

3. Expected manufacturing overhead: $1,000,000/ machine hours= $1,000,000/ 20,000=

$50.00/hr

4. Expected manufacturing overhead: $1,000,000/ material costs= $1,000,000/ $800,000=

1.25
b.) Job 253
Direct Materials $3,000
Direct Labor (150 hrs at $12/hr) $1,800
Machine Hours Used 150

MOH Based on Direct Labor Hours-

Direct Labor 150 hrs x $25/hr= $3,750

Material Costs $3,000
Labor Costs $1,800
Total Based on Labor Hours: $8,550

MOH Based on Direct Machine Hours-

Machine Hours Used 150 x $50.00= $7,500

Material Costs $3,000
Labor Costs $1,800
Total Based on Machine Hours: $12,300

MOH Based on Labor Costs-

Labor Costs $1,800 x 1.6= $2,800

Material Costs $3,000
Labor Costs $1,800
Total Based on Labor Costs: $7,680

MOH Based on Material Costs-

Material Costs $3,000 x 1.25= $3,750

Material Costs $3,000
Labor Costs $1,800
Total Based on Material Costs: $8,550
Problems 2-1 Costs of Goods Manufactured, Cost of Goods Sold, and Income:
a.)

Satterfield’s Custom Glass Schedule- Cost of Goods Manufactured

For the Fiscal Year Ending December 31, 2017

Beginning Balance Work in Process $210,000.00

Current Manufacturing Costs
Direct Material $2,500,000.00
Direct Labor $3,000,000.00
Manufacturing Overhead $1,700,000.00 $7,200,000.00
Total $7,410,000.00
Less Ending Balance in Work in Process Inventory -$300,000.00
Cost of Goods Manufactured $7,110,000.00

b.)

Satterfield’s Custom Glass Schedule- Income Statement

For the Fiscal Year Ending December 31, 2017

Sales $8,500,000.00
Less Cost of Goods Sold $500,000.00
Beginning Finished Goods Inventory $7,110,000.00
Cost of Goods Manufactured $7,610,000.00
Cost of Goods Available for sale
Inventory -$400,000.00 $7,210,000.00
Gross Profit $1,290,000.00
Less Non-manufacturing Expenses
Selling and Administrative Expenses $1,350,000.00
Net Income -$60,000.00
Problem 2-6 Job Costs Using Different Overhead Rates:
a.) 1. Overhead/ Direct Labor
$200,000/ $300,000= 67%
2. Overhead/ Machine
$200,000/ 8,000= $25 per hour
3. Overhead/ Direct Labor Hours
$200,000/ 25,000= 8

b.) 1. Overhead for Labor

JOB 9823= (0.67)1,400= $938
JOB 9824= (0.67)1,400= $938

2. Overhead for Labor Hours

JOB 9823= (8) 150= 1,200
JOB 9824= (8) 130= 1,040

3. Overhead for Machine Hours

JOB 9823= (25) 130= 3,250
JOB 9827= (25) 270= 6,750

c.) With this data, I believe the allocation base that appears more preferable is the machine
hours, simply because the machine’s depreciation makes up 75% of all overhead costs.