Accounting for Managers Canadian 1st

Edition Collier Solutions Manual

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 CHAPTER 7
Solutions to Problems
Problem 7.1

Cost of goods manufactured:

Raw materials used:
Beginning inventory $ 25,000
Plus: purchases 68,000
Raw materials available for use 93,000
Less: ending inventory 45,000 $ 48,000
Direct labour ($98,000/$10 = 9,800 hrs) 98,000
Manufacturing overhead ($7.50 x 9,800 hrs) 73,500
Total manufacturing costs $ 219,500
Beginning inventory, work in process 52,000
$ 271,500
Less: Ending inventory, work in process 15,000
Cost of goods manufactured $ 256,500

Cost of goods sold:

Finished goods inventory, beginning 32,000
Plus: cost of goods manufactured 256,500
Cost of goods available for sale 288,500
Less: finished goods inventory, ending 58,000
Cost of goods sold $ 230,500
Problem 7.2
GOODMAN PRODUCTS
Schedule of Cost of Goods Manufactured
for the quarter ended March 31

Direct material used $ 120,000

Direct manufacturing labour 150,000
Manufacturing overhead:
Depreciation of manufacturing
equipment $ 80,000
Plant utilities 38,000
Property tax on building 5,500
Miscellaneous plant overhead 46,000 169,500
Total manufacturing costs $ 439,500
Beginning inventory, work in process 46,000
$ 485,500
Less: Ending inventory, work in process 65,000
Cost of goods manufactured $ 420,500

GOODMAN PRODUCTS
Schedule of Cost of Goods Sold
for the quarter ended March 31
Finished goods inventory, beginning $ 192,000
Plus: cost of goods manufactured 420,500
Cost of goods available for sale 612,500
Less: finished goods inventory, ending 165,000
Cost of goods sold $ 447,500
Problem 7.3

ACME FIREWORKS
Statement of Comprehensive Income
for the month ended June 30

Sales revenue $ 350,000

Less: sales discounts 3,500
Net revenue 346,500
Less: cost of goods sold
Beginning inventory $ 120,000
Plus purchases 220,000
Goods avaiable for sale 340,000
Less ending inventory 135,000 205,000
Gross profit 141,500
Less: selling and administrative expenses
Supplies $ 10,000
Salaries and benefits 15,000
Maintenance 45,000
Amortization 9,000
Utilities 35,000 114,000
Operating profit $27,500
Problem 7.4

(a) MAMMOTH PRODUCT COMPANY

Schedule of Cost of Goods Manufactured
for the year ended Dec 31, 2012
Raw materials used:
Beginning inventory $ 100,000
Plus: purchases 250,000
Raw materials available for
use 350,000
Less: ending inventory 150,000 $ 200,000
Direct labour 450,000
Manufacturing overhead:
Depreciation of plant and
equipment $ 50,000
Factory rental 75,000
Factory light and power 25,000
Salaries and wages of
factory labour 100,000 250,000
Total manufacturing
costs $ 900,000
Beginning inventory, work in
process 300,000
$ 1,200,000
Less: Ending inentory, work in
process 400,000
Cost of goods manufactured $ 800,000

(b) MAMMOTH PRODUCT COMPANY

Schedule of Cost of Goods Sold
for the year ended Dec 31, 2012
Finished goods inventory, beginning $ 150,000
Plus: cost of goods manufactured 800,000
Cost of goods available for sale 950,000
Less: finished goods inventory, ending 250,000
Cost of goods sold $ 700,000
(c) MAMMOTH PRODUCT COMPANY
Statement of Comprehensive Income
for the year ended Dec 31, 2012
Sales revenue $ 900,000
Less: cost of goods sold 700,000
Gross profit 200,000
Less: selling and administrative
expenses 75,000
Operating profit $ 125,000

Value of inventory on statement of financial position:

Finished goods $ 250,000
Work in process 400,000
Raw materials 100,000
Total $ 750,000

Problem 7.5

HARRY JINGLE PENS

Schedule of Cost of Goods Manufactured
for the month ended Sept 30, 2012
Raw materials used:
Beginning inventory $ 4,800,000
Plus: purchases 8,000,000
Raw materials available for use 12,800,000
Less: ending inventory 1,960,000 $ 10,840,000
Direct labour 5,500,000
Manufacturing overhead:
Indirect materials $ 500,000
Rent 3,000,000
Utilities 1,500,000 5,000,000
Total manufacturing costs $ 21,340,000
Beginning inventory, work in process 3,850,000
$ 25,190,000
Less: Ending inventory, work in process 4,700,000
Cost of goods manufactured $ 20,490,000
 HARRY JINGLE PENS
Statement of Comprehensive Income
for the month ended Sept 30, 2012
Sales revenue $ 32,000,000
Less: cost of goods sold
Beginning inventory $ 6,800,000
Plus cost of goods
manufactured 20,490,000
Goods avaiable for
sale 27,290,000
Less ending inventory 4,200,000 23,090,000
Gross profit 8,910,000
Less: selling and administrative expenses 3,800,000
Advertising 800,000
Office supplies 200,000 4,800,000
Operating profit $ 4,110,000

Problem 7.6

1. The total manufacturing cost per chip for June is $5.633.

2. a.Finished goods inventory: $1,633,671.

b. Work in process: $911,329.

Total Material Conversion Total

Calculation of units completed
Opening WIP inventory -
Units started into production 490,000
Units to be accounted for 490,000
Closing WIP units 200,000 100% 100%
Completed units 290,000 100% 75%

Calculation of cost per equivalent unit

Units completed 290,000 290,000 290,000
WIP 200,000 200,000 150,000
Equivalent units 490,000 490,000 440,000

Opening WIP $ - $ - $ -
Costs for the month 2,545,000 650,000 1,895,000
Total costs $ 2,545,000 $ 650,000 $ 1,895,000

Cost per equivalent unit $1.327 $4.307 $5.633

Assignment of costs
Total cost:
2b. Work in process $ 911,329 $265,306 $646,023
2a. Finished goods 1,633,671 $384,694 $1,248,977
$ 2,545,000

Problem 7.7

Calculation of units completed

Opening WIP inventory 85 100% 45%
Units started into production 125
Units to be accounted for 210
Closing WIP units 60 100% 65%
Completed units 150 100% 100%

Calculation of equivalent units

Units completed 150 150 150
WIP 60 60 39
Equivalent units 210 210 189

Calculation of cost per equivalent unit

Opening WIP $ 43,500 $ 24,000 $ 19,500
Costs for the month $ 66,000 $ 38,000 $ 28,000
Total costs $ 109,500 $ 62,000 $ 47,500

Cost per equivalent unit $295.24 $251.32 $546.56

Assignment of costs
Finished goods $ 81,984 $ 44,286 $ 37,698
Ending work-in-process $ 27,516 $ 17,714 $ 9,802
$ 109,500 $ 62,000 $ 47,500
Problem 7.8

Total Material Conv. Total

Calculation of units completed
Opening WIP inventory 85,000 0% 90%
Units started into production 300,000
Units to be accounted for 385,000
Closing WIP units 35,000 0% 65%
Completed units 350,000 100% 100%
Calculation of equivalent units
WIP--beginning 85,000 85,000 8,500
Units started & completed 265,000 265,000 265,000
WIP--ending 35,000 - 22,750
Equivalent units 385,000 350,000 296,250

Calculation of cost per equivalent unit

Opening WIP $ 100,000 $ 85,000 $ 15,000
Costs for the month 405,000 320,000 85,000
Total costs $ 505,000 $ 405,000 $ 100,000

Cost per equivalent unit $1.16 $0.34 $1.49

Assignment of costs
Finished goods $ 497,321 $ 405,000 $ 92,321
Ending work-in-process $ 7,679 $ - $ 7,679
$ 505,000 $ 405,000 $ 100,000
Problem 7.9

FIFO Method Total Material Conv. Total

Calculation of units completed
Opening WIP inventory 1,200 100% 75%
Units started into
production 2,000
Units to be accounted for 3,200
Closing WIP units 400 100% 50%
Completed units 2,800 100% 100%
Calculation of equivalent units
WIP--beginning 1,200 - 300
Units started & completed 1,600 1,600 1,600
WIP--ending 400 400 200
Equivalent units 3,200 2,000 2,100
Calculation of cost per equivalent unit
Opening WIP $ 630,000 $ 450,000 $ 180,000
Costs for the month $ 1,050,000 $ 800,000 $ 250,000
Total costs $ 1,680,000 $ 1,250,000 $ 430,000
Cost per equivalent unit $625.00 $204.76 $829.76
Assignment of costs
Finished goods $ 1,389,048 $ 1,000,000 $ 389,048
Ending work-in-process $ 290,952 $ 250,000 $ 40,952
$ 1,680,000 $ 1,250,000 $ 430,000

Weighted Average Method Total Material Conv. Total

Calculation of units completed
Opening WIP inventory 1,200 100% 45%
Units started into production 2,000
Units to be accounted for 3,200
Closing WIP units 400 100% 65%
Completed units 2,800 100% 100%
Calculation of equivalent units
Units completed 2,800 2,800 2,800
WIP 400 400 260
Equivalent units 3,200 3,200 3,060
Calculation of cost per equivalent unit
Opening WIP $ 630,000 $ 450,000 $ 180,000
Costs for the month $ 1,050,000 $ 800,000 $ 250,000
Total costs $ 1,680,000 $ 1,250,000 $ 430,000
 Cost per equivalent unit $390.63 $140.52 $531.15
Assignment of costs
Finished goods $ 1,487,214 $ 1,093,750 $ 393,464
Ending work-in-process $ 192,786 $ 156,250 $ 36,536
$ 1,680,000 $ 1,250,000 $ 430,000

Problem 7.10

Weighted Average Method Total Material Conv. Total

Calculation of units completed
Opening WIP inventory 25,000
Units started into production 35,000
Units to be accounted for 60,000
Closing WIP units 15,000 100% 33%
Completed units 45,000 100% 100%
Calculation of equivalent units
Units completed 45,000 45,000 45,000
WIP 15,000 15,000 5,000
Equivalent units 60,000 60,000 50,000
Calculation of cost per equivalent unit
Opening WIP $ 55,250 $ 18,500 $ 36,750
Costs for the month $ 530,000 $ 300,000 $ 230,000
Total costs $ 585,250 $ 318,500 $ 266,750
Cost per equivalent unit $5.31 $5.34 $10.64
Assignment of costs
Finished goods $ 478,950 $ 238,875 $ 240,075
Ending work-in-process $ 106,300 $ 79,625 $ 26,675
$ 585,250 $ 318,500 $ 266,750

Problem 7.11

1. Work-in-process consists of projects that were started but were not completed on
June 30: This would be Jobs 103 & 105, $27,600.

Finished goods would be projects that have been completed but are not sold on
June 30. This would be Job 104, $8,800.

2. Cost of goods sold for June would include Jobs 101 & 102, $19,400.
Problem 7.12

Cost rates:
Lawyers $120.00 [$1,800,000 ÷ (1,500 hours x 10 lawyers )]
Partners $250.00 [$375,000 ÷ 1,500 hours]
Overhead 50% x direct wages
Billing rate: 200% of the client cost

Hours billed to the client:

Partners 10 hours
Lawyers 50 hours

Cost of the client:

Partners $ 2,500
Lawyers 6,000
Total direct wages $ 8,500
Overhead 4,250
$ 12,750

Fee charged to the client $ 25,500

Problem 7.13

1. Total cost of Job 2487:

Units Cost Total
Materials:
Plastic 100 $ 12.00 $ 1,200.00
Timber 70 $ 20.00 $ 1,400.00
Metal 15 $ 35.00 $ 525.00
Labour (hours) 20 $ 20.00 $ 400.00
Overhead (labour hours) 20 $ 20.00 $ 400.00
Total cost $ 3,925.00
Number of tables produced 20
Cost per table $196.25
 2. Cost of goods sold:
Number of tables sold 15
Cost per table $196.25
Cost of goods sold $2,943.75

3. Value of inventory
Number of tables in
inventory 5
Cost per table $196.25
Value of finished goods inventory $981.25

4. Gross profit on sales:

Sales (15 units x $450) $6,750.00
Less: cost of goods sold (from 2) $2,943.75
Gross profit $3,806.25

Problem 7.14

a. Inventory of raw materials: [(400 – 200 – 150) x ($5,800 ÷ 400)]

= 50 units x $14.50 per unit
= $725

Work in process inventory: Job B202 = $7,795

Units Cost Total

Materials: Timber 150 $ 14.50 $ 2,175.00
Materials: Glue 20 $ 6.00 $ 120.00
Labour (hours) 100 $ 30.00 $ 3,000.00
Overhead (labour hours) 100 $ 25.00 $ 2,500.00
Total cost $ 7,795.00

Finished goods inventory: $3,505

Job A101 Units Cost Total

Materials: Timber 200 $ 14.50 $ 2,900.00
Materials: Glue 20 $ 6.00 $ 120.00
Labour (hours) 200 $ 30.00 $ 6,000.00
 Overhead (labour hours) 200 $ 25.00 $ 5,000.00
Total cost $ 14,020.00
Number produced 40
Per unit cost $350.50

Number of tables produced 40

Number of tables sold 30
Tables in finished goods inventory 10
x per unit cost $350.50
Value of finished goods inventory $3,505.00

b. Cost of goods sold: 30 tables x $350.50 per table = $10,515

Gross Profit: $15,000 - $10,515 = $4,485

Problem 7.15

a) Job costing
b) Process costing
c) Job costing
d) Job costing
e) Job costing
f) Process costing
g) Process costing
h) Job costing
i) Process costing
j) Job costing
k) Job costing
l) Job costing
m) Process costing
Problem 7.16

Cost of construction:
Materials $ 500,000
Salaries and wages 750,000
Overhead 250,000
1,500,000
Less: work not certified 200,000
Cost of work certified $ 1,300,000

Anticipated profit:
Cost of work certified $ 1,300,000
Work not certified 200,000
Estimated cost to complete 1,300,000
2,800,000
Plus: cost of land 1,200,000
Total estimated cost to complete 4,000,000
Contract price (10 houses x $450,000) 4,500,000
Anticipated profit $ 500,000

Expected cost of construction $ 2,800,000

Percentage complete 46% ($1,300,000/$2,800,000)

Profit to date $232,143

Problem 7.17

Anticipated profit:
Expected revenue $ 52,000,000
Expected cost of construction 47,500,000
Anticipated profit $ 4,500,000

Percentage complete
Expected cost of construction $ 47,500,000
Costs incurred to date 12,900,000
27.16%

Profit to date ($4,500,000 x 27.16%) $1,222,105

Problem 7.18
EOQ =

where:
D = Demand for a given period 4,000 reams
O = Ordering costs $35.00
C = Carrying costs $5.00

a. EOQ = 237 (rounded)

Number of orders = 17 (rounded)

Cost of order size of 400 = (10 orders x $35) + (400 reams x $5) =
b. $2,350
Cost of order size of 237 = (17 orders x $35) + (237 x $5) = $1,780
Overall cost savings = ($2,350 - $1,780) = $570

Problem 7.19

EOQ =

where:
D = Demand for a given period 250,000 batteries
O = Ordering costs $2,500
C = Carrying costs $0.50

a. EOQ = 50,000
Number of orders = 5

b. Cost of order size of 15,000 = (17 orders x $2,500) + (15,000 batteries x $0.50) = $50,000
Cost of order size of 50,000 = (5 orders x $2,500) + (50,000 x $0.50) = $37,500
Overall cost savings = ($50,000 - $37,500) = $12,500

c. EOQ = 75,000
Number of orders = 3 (rounded)

Cost of order size of 75,000 = (3 orders x $2,500) + (75,000 batteries x $0.50) = $45,000
Additional cost to change the order size = $45,000 - $37,500 = $7,500
Savings by changing the order size = 250,000 x $0.02 = $5,000

It would not make sense to change the order size as the additional cost is $7,500
while the additional savings are only $5,000.
Problem 7.20

EOQ =

where:
D = Demand for a given period 20,000 bags
O = Ordering costs $12.50
C = Carrying costs $1.50

a. EOQ = 577 (rounded)

Number of orders = 35 (rounded)

b. Cost of order size of 50 = (400 orders x $12.50) + (50 x $1.50) = $5,075

Cost of order size of 577 = (35 orders x $12.50) + (577 x $1.50) = $1,303
Overall cost savings = ($5,075 - $1,303) = $3,772

c. If the coffee has a shelf-life of 90 days, then the coffee would have to be replaced at least
every 90 days, which means they would have to place at least 4 (365 ÷ 90) orders per year.
However, the EOQ is 35 orders per year, so the optimal order size would still be 577 bags.