ADVANCE COST ACCOUNTING

Name : Afrah Azzahira Wismono

Student ID : 008202000053
Class : M ACC 2020 Class 3

FURTHER PROBLEM ANALYSIS

1. JOINT PRODUCT AND BY PRODUCT

PROBLEM 16-28 Alternative methods of joint-cost allocation, product-mix decision. The Eastern Oil Comp
buys crude vegetable oil. Refining this oil results in four products at the splitoff point: A, B, C, and D. Product
C is fully processed by the splitoff point. Products A,B, and D can individually be further refined into Super
A, Super B, and Super D. In the most recent month (December), the output at the splitoff point was as follows :

- Product A, 275,000 gallons

- Product B, 100,000 gallons
- Product C, 75,000 gallons
- Product D, 50,000 gallons

The joint costs of purchasing and processing the crude vegetable oil were $105,000. Eastern had no beginning
or ending inventories. Sales of product C in December were $45,000. Products A, B, and D were further
refined and then sold. Data related to December are as follows :

Separable Processing
Costs to Make Super Revenues
Products
Super A $240,000 $375,000
Super B 60,000 150,000
Super D 45,000 75,000

Eastern had the option of selling products A, B, and D at the splitoff point. This alternative would have
yielded the following revenues for the December production :

- Product A, $75,000
- Product B, $62,500
- Product D, $67,500

1. Compute the gross-margin percentage for each product sold in December, using the following methods
for allocating the $105,000 joint costs :
a. Sales value at splitoff
b. Physical-measure
c. NRV
2. Could Eastern have increased its December operating income by making different decisions about the
further processing of products A, B, or D? Show the effect on operating income of any changes you
recommend.

PROBLEM 16-29 Comparison of alternative joint-cost-allocation methods, further-processing decision, ch

The Cocoa Factory manufactures and distributes chocolate products. It purchases cocoa beans
and processes them into two intermediate products: chocolate-powder liquor base and milk-chocolate
liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every
2,000 pounds of cocoa beans yieds 50 gallons of chocolate-powder liquor base and 50 gallons of milk-
 chocolate liquor base.

The chocolate-powder liquor base is further processed into chocolate powder. Every 50 gallons of
chocolate-powder liquor base yield 650 pounds of chocolate powder. The milk-chocolate liquor base is
further processed into milk chocolate. Every 50 gallons of milk-chocolate liquor base yield 1,070 pounds of milk c

Production and sales data for August 2014 are as follows (assume no beginning inventory):

- Cocoa beans processed 28,000 pounds

- Costs of processing cocoa beans to splitoff point (including purchase of beans) $62,000

Production Sales Selling price

Chocolate powder 9,100 pounds 6,500 pounds $9 per pound
Milk chocolate 14,980 pounds 13,500 pounds $10 per pound

Cocoa Factory fully processes both of its intermediate products into chocolate powder or milk chocolate.
There is an active market for these intermediate products. In August 2014, Cocoa Factory could have sold
the chocolate-powder liquor base for $20 a gallon and the milk-chocolate liquor base for $60 a gallon.

1. Calculate how the joint costs of $62,000 would be allocated between chocolate powder and milk
chocolate under the following methods:
a. Sales value at splitoff
b. Physical-measure (gallons)
c. NRV
d. Constant gross-margin percentage NRV
2. What are the gross-margin percentages of chocolate powder and milk chocolate under each of the
methods in requirement 1?
3. Could Cocoa Factory have increased its operating income by a change in its decision to fully process
both of its intermediate products? Show your computations.

PROBLEM 16-33 Joint-cost allocation with a byproduct. Mat Place purchases old tires and recycles them to
produce rubber floow mats and car mats. The company washes, shreds, and molds the recycled tires into
sheets. The floor and car mats are cut from these sheets. A small amount of rubber shred remains after the
mats are cut. The rubber shreds can be sold to use as cover for paths and playgrounds. The company can
produce 25 floor mats, 75 car mats, and 40 pounds of rubber shreds from 100 old tires.

In May, Mat Place, which had no beginning inventory, processed 125,000 tires and had joint production
costs of $600,000. Mat Place sold 25,000 floor mats, 85,000 car mats, and 43,000 pounds of rubber shreds.
The company sells each floor mat for $12 and each car mat for $6. The company treats the rubber shreds as
a byproduct that can be sold for $0.70 per pound.

1. Assume that Mat Place allocates the joints costs to floor mats and car mats using the sales value at splitoff
method and accounts for the byproduct using the production method. What is the ending inventory costs
for each product and gross margin for Mat Place ?
2. Assume that Mat Place allocates the joint costs to floor mats and car mats using the sales value at
splitoff method and accounts for the byproduct using the sales method. What is the ending inventory
cost for each product and gross margin for Mat Place ?
3. Discuss the difference between the two methods of accounting for byproducts, focusing on what conditions
are necessary to use each method.

2. SPOILAGE, REWORK, SCRAP

 PROBLEM 18-32 FIFO method, spoilage. Refer the information in Problem 18-31.
Do Problem 18-31 using the FIFO method of process costing. (Problem 18-34 explores addictional facets of this p

PROBLEM 18-34 FIFO method, packaging department (continuation of 18-32). Refer to the information in
Problem 18-33 except that the transferred-in costs of beginning work in process on May 1 are $33,090
(instead of $33,698). Transferred-in costs for May equal the total cost of good units completed and
transferred out in May from the cleaning department, as calculated in Problem 18-32 using the FIFO
method of process costing.

For the packaging department, use the FIFO method to summarize the total costs to account for and assign
those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units

PROBLEM 18-36 Spoilage in job costing. Jellyfish Machine Shop is a manufacturer of motorized carts for vaca
resorts.

Patrick Cullin, the plant manager of Jellyfish, obtains the following information for Job #10 in August
2014. A total of 46 units were started, and 6 spoiled units were detected and rejected at final inspection,
yielding 40 good units. The spoiled units were considered to be normal spoilage. Costs assigned prior to the
inspection point are $1,100 per unit. The current disposal price of the spoiled untis is $235 per unit. When
the spoilage is detected, the spoiled goods are inventoried at $235 per unit.

1. What is the normal spoilage rate ?

2. Prepare the journal entries to record the normal spoilage, assuming the following:
a. The spoilage is related to a specific job
b. The spoilage is common to all jobs
c. The spoilage is considered to be abnormal spoilage

PROBLEM 18-37 Rework in job costing, journal entry (continuation of 18-36). Assume that the 6 spoiled uni
Jellyfish Machine Shop's Job #10 can be reworked for a total cost of $1,800. A total cost of $6,600 associated
with these units has already been assigned to Job #10 before the rework.

Prepare the journal entries for the rework, assuming the following :

a. The rework is related to a specific job

b. The rework is common to all jobs
c. The rework is considered to be abnormal

PROBLEM 18-38 Scarp at time of sale or at time of production, journal entries (continuation of 18-36).
Job #10 of Jellyfish Machine Shop generates normal scarp with a total sales value of $700 (it is assumed
that the scarp returned to the store room is sold quickly).

Prepate the journal entries for the recognition of scarp, assuming the following :

a. The value of scrap is immaterial and scrap is recognized at the time of sale.
b. The value of scrap is material, is related to a specific job, and is recognized at the time of sale.
c. The value of scrap is material, is common to all jobs, and is recognized at the time of sale.
d. The value of scrap is material, and scrap is recognized as inventory at the time of production and is
recorded at its net realizable value.

3. INVENTORY MANAGEMENT

PROBLEM 20-25 EQQ, uncertainty, safety stock, reorder point. Chadwick Shoe Co. produces and sells an
excellent-quality walking shoe. After production, the shoes are distributed to 20 warehouses aroung the country.
Each warehouse services approximately 100 store in its region. Chadwick uses an EQQ model to determine
the number of pairs of shoes to order for each warehouse from the factory. Annual demand for warehouse OR2
is approximately 120,000 pairs of shoes. The ordering cost is $250 per order. The annualcarrying cost of a pair o
is $2.40 per pair.

1. Use the EQQ model to determine the optimal number of pairs of shoes per order.
2. Assume each month consists of approximately 4 weeks. If its takes 1 week to receive an order, at what
point should warehouse OR2 reorder shoes ?
3. Although OR2's average weekly demand is 2,500 pairs of shoes (120,000 : 12 months : 4 weeks),
demand each week may vary with the following probability distribution:

2,000 2,250 2,500 2,750 3,000

Total demand for 1 week
pairs pairs pairs pairs pairs
Probability (sums to 1.00) 0.04 0.2 0.52 0.2 0.04

If a store wants shoes and OR2 has none in stock, OR2 can "rush" them to the store at an additional cost
of $2 per pair. How much safety stock should Warehouse OR2 hold ? How will this affect the reorder point and re

PROBLEM 20-32 Bacflush costing and JIT production. The Grand Meter Corporation manufactures electrical
meters. For August, there were no beginning inventories of direct materials and no beginning or ending
work in process. Grand Meter uses a JIT production system and backflush costing with three trigger points
for making entries in the accounting system:

- Purchase of direct materials and incurring of conversion costs

- Completion of good finished units of product
- Sale of finished goods

Grand Meter's August standard cost per meter is direct materials, $25, and conversion cost, $20. Grand Meter
has no direct materials variances. The following data apply to August manufacturing :

Direct materials purchased $550,000 Number of finished units manufactured

Conversion costs incurred $440,000 Number of finished units sold

1. Prepare summary journal entries for August (without disposing of under- or overallocated conversion
costs). Assume no direct materials variances.
2. Post the entries in requirement 1 to T-accounts for Materials and In-Process Inventory Control, Finished
Goods Control, Conversion Costs Control, Conversion Costs Allocated, and Cost of Goods Sold.

PROBLEM 20-33 Backflush, two trigger points, materials purchase and sale (continuation of 20-32).
the second trigger point for Grand Meter Corporation is the sale-rather than the completion-of finished goods.
Also, the inventory account is confined solely to direct material, whether these materials are in a
storeroom, in work in process, or in finished goods. No conversion costs are inventoried. They are allocated
to the unites sold at standard costs. Any under- or overallocated conversion costs are written off monthly to
Cost of Goods Sold.

1. Prepare summary journal entries for August, including the disposition of under- or overallocated con
costs. Assume no direct materials variances.
2. Post the entries in requirement 1 to T-accounts for Inventory Control, Conversion Costs Control,
Conversion Costs Allocated, and Cost of Goods Sold.

PROBLEM 20-34 Backflush, two trigger points, completion of production and sale (continuation of 20-32).
the same facts as in Problem 20-33 except now there are onlt two trigger points: Completion of good finished unit

1. Prepare summary journal entries for August, including the disposition of under- or overallocated con
costs. Assume no direct materials variances.
 2. Post the entries in requirement 1 to T-accounts for Finished Goods Control, Conversion Costs Cont

PROBLEM 20-35 Lean accounting. Reliable Security Devices (RSD) has introduced a just-in-time production
process and is considering the adoption of lean accounting principles to support its new production
philosophy. The company has two product lines: Mechanical Device and Electronic Devices. Two
individual products are made in each line. Product-line manufacturing overhead costs are traced directly to produ
lines and then allocated to the two individual products in each line. The company's traditional cost-
accounting system allocates all plant-level facility costs and some corporate overhead costs to individual
products. The latest accounting report using traditional cost accounting methods included the following
information (in thousands of dollars):

Mechanical Devices Electronic Devices

Product A Product B Product C Product D
Sales 1400 1000 1800 900
Direct material (based on quantity used) 400 200 500 150
Direct manufacturing labor 300 150 400 120
Manufacturing overhead (equipment lease,
supervision, production control) 180 240 400 190
Allocated plant-level facility costs 100 80 160 60
Design and marketing costs 190 100 210 84
Allocated corporate overhed costs 30 20 40 16
Operating income 200 210 90 280

RSD has determined that each of the two product lines represents a distinct value stream. It has also
determined that out of the $400,000 ($100,000 + $80,000 + $160,000 + $60,000) plant-level facility costs,
product A occupies 22% of the plant's square footage, product B occupies 18%, product C occupies
36%, and product D occupies 14%. The remaining 10% of square footage is not being used. Finally, RSD
has decided that in order to identify inefficiencies, direct material should be expensed in the period it is purchased
rather than when the material is used. According to purchasing records, direct material purchase costs during the

Mechanical Devices Electronic Devices

Product A Product B Product C Product D
Direct material (purchases) 420 240 500 180

1. What are the cost objects in RSD's lean accounting system ?

2. Compute operating income for the cost objects identified in requirement 1 using lean accounting principles.
What would you compare this operating income against? Comment on your results.

4. COST OF SERVICE

PROBLEM 5-15 Journal Entries, T-Accounts, Cost of Goods Manufactured and Sold

During September, the following transactions were completed and reported by Golder Products, Inc;

a. Purchased materials on accounts for $50,100

b. Issued materials to production to fill job-order requisitions: direct materials, $30,000; indirect materials, $15,000
c. Accumulated payroll for the month: direct labor, $70,000; indirect labor, $32,000; administrative, $18,000; sales
d. Accrued depreciation on factory plant and equipment of $13,400
e. Accrued property taxes during the month for $1,450 (on factory)
f. Recorded expired insurance with a credit to the prepaid insurance account of $6,200
g. Incurred factory utilities costs of $6,000
h. Paid advertising costs of $7,200
i. Accrued depreciation: office equipment, $1,500; sales vehicles, $650.
j. Paid legal fees for preparation of lease agreements of $750.
k. Charged overhead to production at a rate of $9 per direct labor hour. Recorded 8,000 direct labor hours during
l. Incurred cost of jobs completed during the month of $158,000

The company also reported the following beginning balances in its inventory accounts:

Materials Inventory $5,000

Work-In Process Inventory 30,000
Finished Goods Inventory 60,000

Required :
1. Prepare journal entries to record the transactions ocurring in September
2. Prepare T-accounts for Materials Inventory, Overhead Control, Work-in Process Inventory, and Finished Good
Post all relevant entries to these accounts.
3. Prepare a schedule of cost of goods manufactured.
4. If the overhead variance is all allocated to Cost of Goods Sold, by how much will Cost of Goods Sold
decrease or increase ?

PROBLEM 5-16 Overhead Application, Activity-Based Costing, Bid Prices

Smedly Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is as f

Purchasing $30,000
Setups 35,000
Engineering 15,000
Other 10,000

Previously, Lisa Benetton, Smedley Company's controller, had applied overhead on the basis of machine hours.
Expected machine hours for the coming year are 10,000. Lisa has been reading about activity-based costing,
and she wonders whether it might offer some advantages to her company. She decided that appropriate drivers f
are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost,
and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders,
500 setups, and 500 engineering hours.

Lisa has been asked to prepare bids for two jobs with the following information:

Job 1 Job 2
Direct materials $3,700 $8,900
Direct labor $1,000 $2,000
Number of setups 2 3
Number of purchase orders 15 20
Number of engineering hours 25 10
Number of machine hours 200 200

The typical bid price includes a 30 percent markup over full manufacturing cost.

Required :
1. Calculate a plantwide rate for Smedley Company based on machine hours. What is the
bid price of each job using this rate ?
2. Calculate activity rates for the four overhead activities. What is the bid price of each job using
these rates ?
3. Which bids are more accurate? Why?

PROBLEM 5-17 Plantwide Overhead Rate, Activity-Based Costing, Job Costs

Anselmo's Kwik Print provides a variety of photocopying and printing services. On June 5, Anselmo invested
in come computer-aided photography equipment that enables customers to reproduce a picture or illustration,
input it digitally into the computer, enter text into the computer, and then print out a four-color professional quality
Prior to the purchase of this equipment, Kwik Print's overhead averaged $35,000 per year. Kwik Print
has always costed jobs on the basis of actual materials and labor plus overhead assigned using a predeterminde
overhead rate based on direct labor hours. Budgeted direct labor hours for the year are 5,000, and the wage rate

Required :
1. What was the predetermined overhead rate prior to the purchase of the new equipment?
2. What was the predetermined overhead rate after the new equipment was purchased ?
3. Suppose Kevin Bess brought in several items he wanted photocopied. The job required 100 sheets
of paper at $0.015 each and 12 minutes of direct labor time. What would have been the cost of Kevin's
job on May 20? On June 20?
4. Suppose that Anselmo decides to calculate two overhead rates, one for the photocopying area based on
direct labor hours as before, and one for the computer aided printing area based on machine time.
Estimated overhead applicable to the computer-aided printing area is $50,000, and forecasted usage of the mach
is better-one rate or two ?
 The Eastern Oil Company
, C, and D. Product
efined into Super
point was as follows :

tern had no beginning

D were further

would have

llowing methods

sions about the

rocessing decision, chocolate products.

lk-chocolate
plitoff point. Every
allons of milk-
liquor base is
1,070 pounds of milk chocolate.

Separable
Processing Costs
$50,100
$60,115

milk chocolate.
y could have sold
$60 a gallon.

each of the

o fully process

s and recycles them to

ecycled tires into
d remains after the
The company can

oint production
s of rubber shreds.
he rubber shreds as

ales value at splitoff

inventory costs

les value at

g on what conditions
 ddictional facets of this problem).

to the information in
1 are $33,090

ount for and assign

al spoilage, and to units in ending work in process.

motorized carts for vacation

nal inspection,
ssigned prior to the
5 per unit. When

me that the 6 spoiled units of

of $6,600 associated

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0 (it is assumed

at the time of sale.

e time of sale.
me of production and is

roduces and sells an

es aroung the country.
model to determine
nd for warehouse OR2
carrying cost of a pair of shoes

an order, at what

n additional cost
the reorder point and reorder quantity ?

manufactures electrical
ning or ending
ree trigger points

st, $20. Grand Meter

nits manufactured 21,000

20,000

ed conversion

Control, Finished

uation of 20-32). Assume that

n-of finished goods.

They are allocated

tten off monthly to

er- or overallocated conversion

rsion Costs Control,

continuation of 20-32). Assume

ion of good finished units of product and Sale of finished goods.

er- or overallocated conversion

 Conversion Costs Control, Conversion Costs Allocated, and Cost of Goods Sold

ust-in-time production

traced directly to product

sts to individual
the following

. It has also
vel facility costs,

ed. Finally, RSD

he period it is purchased,
urchase costs during the period were as follows:

ccounting principles.

direct materials, $15,000.

nistrative, $18,000; sales, $9,900
direct labor hours during the month.

ory, and Finished Goods Inventory.

of Goods Sold

r the coming year is as follows:

asis of machine hours.

tivity-based costing,
hat appropriate drivers for overhead activitied
or engineering cost,
 , Anselmo invested
picture or illustration,
olor professional quality brochure.
r. Kwik Print
d using a predeterminde
,000, and the wage rate is $6 per hour.

d 100 sheets
ost of Kevin's

ng area based on

asted usage of the machines is 2,000 hours. What are the two overhead rates ? Which overhead rate system