INDIAN INSTITUTE OF MANAGEMENT VISAKHAPATNAM

MANACC PGP 2021-23

Class Handout – 2 (Session 2/3)
1. For each of the following companies, indicate whether job-order or process costing is more
appropriate.

a. Manufacturer of household cleaning solution.

b. Manufacturer of custom hot tubs and spas.
c. Architectural firm.
d. Manufacturer of ceramic tile.
e. Producer of Yogurt
f. Manufacturer of custom backyard tool sheds.
g. Manufacturer of paper clips.
h. Engineering consulting firms
i. Manufacturer of ball0ons
j. Manufacturer of custom sailboats.

2. Rexford company manufactures finger splints for kids who get tendonitis from playing video
games.
The firm had the following inventories at the beginning and end of the month January

January 1 January 31
Finished goods $162,500 $152,100
Work in Process $305,500 $326,300
Raw Material $174,200 $161,200

The following additional manufacturing data pertains to January operations.

Raw material purchased : $248,300

Direct Labor : $390,000
Actual Manufacturing Overhead : $227,500
Actual selling and administrative expenses : $230,000

Rexford company applies manufacturing overhead at the rate of 70% of direct – labor cost. Any
overapplied or underapplied manufacturing overhead is accumulated until the end of the year.

a. Calculate company’s prime cost for January

b. Calculate Total Manufacturing cost for January
c. Calculate the Cost of goods manufactured for January
d. Calculate Cost of goods sold for January
e. Calculate the balance in the manufacturing overhead account on January 31 st , Debit or
Credit
3. Selected data concerning the past year’s operations of the Lone Star Leather company are as
follows.
Inventories
Beginning Ending
Raw material $142,000 $162,000
Work in process 160,000 60,000
Finished goods 180,000 220,000

Other data:
Direct material used $652,000
Total manufacturing costs charged to product during the year
(includes direct material, direct labor and manufacturing overheads
applied at a rate of 60% of direct labor cost 1,372,000

cost of goods available for sale 1,652,000

Selling and administration expenses 63,000

Required:

A. What was the cost of raw material purchased during the year?
B. What was the direct labor charged to production during the year?
C. What was the cost of goods manufactured during the year?
D. What was the cost of goods sold during the year?

4. The following data pertain to the Aquarius Hostel supply company for the year just ended

Budgeted sales revenue $945,000

Budgeted manufacturing overhead 650,000
Budgeted machine hours (based on practical capacity) 20,000
Budgeted direct labor hours( based on practical capacity) 25,000
Budgeted direct labor rate per hour 13
Actual manufacturing overhead 690,000
Actual machine hours 22,000
Actual direct labor hours 26,000
Actual direct labor rate per hour 14

Required :
A. Compute the firm’s predetermined overhead rate for the year using each of the following
common cost drivers: (a) machine hours, (b) direct labor hours, (c) direct labor dollars.
B. Calculate the overapplied or underapplied overhead for the year using each of the cost
drivers listed above.
5. Overapplied or Underapplied overhead

The following information pertains to Paramus Metal works for the year just ended.

Budgeted direct-labor cost : 77,000 hours (Practical capacity) at $17 per hour
Actual direct-labor cost : 79,000 hours at $18 per hour
Budgeted manufacturing overhead : $993,300
Budgeted selling and administrative expenses : $ 417,000

Actual manufacturing overhead:

Depreciation : $ 225,000
Property taxes : 19,000
Indirect labor : 79,000
Supervisory salaries : 210,000
Utilities : 58,000
Insurance : 32,000
Rental of Space : 295,000
Indirect material (see data below : 79,000

Indirect material:

Beginning inventory, January 1 : 46,000

Purchases during the year : 95,000
Ending inventory, December 31 : 62,000

Required:
A. Compute the firm’s predetermined overhead rate, which is based on direct-labor hours.
B. Calculate the overapplied or underapplied overhead for the year.

6. Contemporary Trends is an interior decorating firm in Munich. The following costs were incurred in
the firm’s contract to redecorate the mayor’s officers.

Direct material used : € 4,100

Direct professional labor : € 7,000

The Firm’s budget for the year included the following estimates:

Budgeted overhead : € 510,000

Budgeted direct professional labor : € 300,000

Overhead is applied to contracts using a predetermined overhead rate calculated annually. The rate is
based on direct professional labor cost.
 Required: Calculate the total cost of the firm’s contract to redecorate the mayor’s officers. (Remember
to express your answer in terms of euros.

7. South western Fashions, Inc, which uses a job-order costing system, had two jobs in process at the
start of the year: Job no. 101 ($168,000) and job no. 102 ($107,000). The following information is
available.

a. The company applies manufacturing overhead on the basis of machine hours (based on the
practical capacity). Budgeted overhead and machine activity for the year were anticipated to be
$1,680,000 and 32,000 hours respectively.

b. The company worked on four jobs during the first quarter. Direct material used, direct labor
incurred, and machine hours consumed were as follows

Job No Direct Material Direct Labor Machine Hours

101 $42,000 $70,000 2,400

102 ---- 44,000 1,400
103 88,000 1,30,000 4,000
104 30,000 17,600 1,000

c. Manufacturing overhead during the first quarter included charges of deprecation ($68,000),
indirect labor ($120,000), indirect material used ($10,000), and other factory cost ($279,000)

d. South western Fashion completed job no. 101 and job no. 102. Job no 102 was sold on account,
producing a profit of $69,400 for the firm.

Required

1. Determine the company’s predetermined overhead application rate.

2. Determine the cost of the jobs still in production as of March 31.
3. Did the finished-goods inventory increases or decrease during the first quarter? By how much?
4. Was manufacturing overhead under or over applied for the first quarter of the year? By how
much.