Cost & Management Accounting

BBA -7A& B, BBA2-III

Worksheet 1
Cost Basics & COGS Statement

Cost of Goods Manufactured/Sold:

1. Consider the following account balances (in thousands) for the Piedmont Corporation:

Piedmont Corporation Beginning Ending

2011 2011
Direct materials inventory 65,000 34,000
Work-in-process inventory 83,000 72,000
Finished goods inventory 123,000 102,000
Purchases of direct materials 128,000
Direct manufacturing labor 106,000
Indirect manufacturing labor 48,000
Indirect materials 14,000
Plant insurance 2,000
Depreciation—plant, building, and equipment 21,000
Plant utilities 12,000
Repairs and maintenance—plant 8,000
Equipment leasing costs 32,000
Marketing, distribution, and customer-service costs 62,000
General and administrative costs 34,000

Required:
1. Calculate total prime costs and total conversion costs.
2. Prepare a schedule for the cost of goods manufactured for 2011.
3. Revenues for 2011 were $600 million. Prepare the income statement for 2011.

2. Letourneau Company had the following account balances as of August 1, 2010:

Raw Material (direct and indirect) Inventory $20,300
Work in Process Inventory 7,000
Finished Goods Inventory 18,000

During August, the company incurred the following factory costs:

1. Purchased $164,000 of raw material on account.
2. Issued $180,000 of raw material to production, of which $134,000 was for direct materials.
3. Accrued $88,000 in factory payroll costs; $62,000 was for direct labour and the rest was for
supervisors’ salaries.
4. Accrued $7,000 of utility costs; of this amount, $1,600 was fixed.
5. Accrued $2,000 of property taxes on the factory.
6. Recorded the expiration of $1,600 of prepaid insurance on factory equipment.
7. Recorded $40,000 of straight-line depreciation on factory equipment.
8. Applied actual overhead to Work in Process Inventory.
9. Transferred goods costing $320,000 to Finished Goods Inventory.
10. Recorded total sales of $700,000; of these, $550,000 were on account.
11. Recorded cost of goods sold of $330,000.
12. Recorded selling and administrative costs of $280,000 (credit “Various accounts”).

Required:
a. Journalize the transactions for August.
b. Post transactions to T-accounts for Raw Material Inventory, Work in Process Inventory, Finished
Goods Inventory, and Cost of Goods Sold.
c. Prepare a schedule of cost of goods manufactured for August using actual costing.
d. Prepare an income statement, including a detailed schedule of cost of goods sold.

3. Barbieri Co. makes aluminum canoes. Th e company’s June 2010 costs for material and labor
were as follows:

Material costs

Janitorial supplies $ 1,800

Chrome rivets to assemble canoes 12,510
Sealant 1,230
Aluminium 1,683,000
Labor costs
Janitorial wages $ 9,300
Aluminium cutters 56,160
Salespeople salaries 43,050
Welders 156,000
Factory supervisor salaries 101,250

Required:
a. What is the direct material cost for June?
b. What is the direct labor cost for June?

Overhead Application:

4. At the beginning of the year, Intoed established its predetermined overhead rate for movies
produced during the year by using the following cost predictions: overhead costs, $1,680,000,
and direct labor costs, $480,000. At year-end, the company’s records show that actual overhead
costs for the year are $1,652,000. Actual direct labor cost had been assigned to jobs as follows.

Movies completed and released . . . . . . . . . . . . . . . $425,000.

Movies still in production . . . . . . . . . . . . . . . . . . . . . 50,000
Total actual direct labour cost . . . . . . . . . . . . . . . . . . $475,000

1. Determine the predetermined overhead rate for the year.

2. Set up a T-account for overhead and enter the overhead costs incurred and the amounts applied
to movies during the year using the predetermined overhead rate.
3. Determine whether overhead is overapplied or underapplied (and the amount) during the year.
4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods
Sold.
Job Order Costing:

5. Marcelino Co.’s March 31 inventory of raw materials is $80,000. Raw materials purchases in
April are $500,000, and factory payroll cost in April is $363,000. Overhead costs incurred in April
are indirect materials, $50,000; indirect labor, $23,000; factory rent, $32,000; factory utilities,
$19,000; and factory equipment depreciation, $51,000. The predetermined overhead rate is
50% of direct labor cost. Job 306 is sold for $635,000 cash in April. Costs of the three jobs
worked on in April follow.

Job 306 Job 307 Job 308

Balances on March 31
Direct materials. . . . . . . . . . . .. . $ 29,000 $ 35,000
Direct labour . . . . . . . . . . . . . . . . . . 20,000 18,000
Applied overhead . . . . . . . . . . . . ...10,000 9,000.

Costs during April

Direct materials . . . . . . . . . . . .. . 135,000 220,000 $100,000
Direct labour . . . . . . . . . . . . . . . . . . 85,000 150,000 105,000
Applied overhead . . . . . . . . . . . .. ? ? ?

Status on April 30. . . . . . . . . . . .. Finished (sold) Finished (unsold) In process.

Required
1. Determine the total of each production cost incurred for April (direct labour, direct materials, and
applied overhead) and the total cost assigned to each job (including the balances from March 31).
2. Prepare journal entries for the month of April to record the following.
a. Materials purchases (on credit).
b. Direct materials used in production.
c. Direct labour paid and assigned to Work in Process Inventory.
d. Indirect labour paid and assigned to Factory Overhead.
e. Overhead costs applied to Work in Process Inventory.
f. Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in
cash.)
g. Transfer of Jobs 306 and 307 to Finished Goods Inventory.
h. Cost of goods sold for Job 306.
i. Revenue from the sale of Job 306.
j. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The
amount is not material.)
3. Prepare a schedule of cost of goods manufactured.
4. Compute gross profit for April. Show how to present the inventories on the April 30 balance sheet.
5. Over- or underapplied overhead is closed to Cost of Goods Sold. Is this adjustment also posted to
individual job cost sheets?
Process order costing:

6. Fields Company has two manufacturing departments, Forming and Painting. The company uses
the weighted-average method of process costing. At the beginning of the month, the Forming
department has 25,000 units in inventory, 60% complete as to materials and 40% complete as to
conversion costs. The beginning inventory cost of $60,100 consisted of $44,800 of direct
materials costs and $15,300 of conversion costs. During the month, the Forming department
started 300,000 units. At the end of the month, the Forming department had 30,000 units in
ending inventory, 80% complete as to materials and 30% complete as to conversion. Units
completed in the Forming department are transferred to the Painting department. Cost
information for the Forming department follows.

Beginning work in process inventory . . . . . . . . . . . . . . . . . . $ 60,100

Direct materials added during the month . . . . . . . . . . . . . . . 1,231,200.

Conversion added during the month . . . . . . . . . . . . . . . . . .. 896,700

Required:

1. Calculate the equivalent units of production for the Forming department.

2. Calculate the costs per equivalent unit of production for the Forming department.
3. Using the weighted-average method, assign costs to the Forming department’s output—
specifically, its units transferred to Painting and its ending work in process inventory.

7. During April, the first production department of a process manufacturing system completed its
work on 300,000 units of a product and transferred them to the next department. Of these
transferred units, 60,000 were in process in the production department at the beginning of April
and 240,000 were started and completed inApril. April’s beginning inventory units were 60%
complete with respect to materials and 40% complete with respect to conversion. At the end of
April, 82,000 additional units were in process in the production department and 80% complete
with respect to materials and 30% complete with respect to conversion.
 REQUIRED: Compute the number of equivalent units with respect to both materials used, and
conversion used in the first production department for April using the weighted-average method.

The production department described in Exercise 20-8 had $850,368 of direct materials and $649,296 of
conversion costs charged to it during April. Also, its April beginning inventory of $167,066 consists of
$118,472 of direct materials cost and $48,594 of conversion costs.

Required:

1. Compute the direct materials cost per equivalent unit for April.
2. Compute the conversion cost per equivalent unit for April.
3. Using the weighted-average method, assign April’s costs to the department’s output—
specifically, its units transferred to the next department and its ending work in process
inventory.