Chapter 5

Exercises
9. a. job order
b. job order
c. process
d. job order
e. job order
f. job order
g. job order
h. process
i. job order
j. process
k. job order
l. process
m. process
n. job order
o. job order
p. job order
q. process
10. Two characteristics of the proposal are critical in advising London abot a costing
s!stem"
a. the expected high sales volme and
b. the repetitive natre of prodction implied b! that high sales volme.
These characteristics indicate that London#s best choice wold be to se a process
costing system and standard cost valuations.
$tandard costing wold benefit London becase it wold help identif! inefficiencies in
prodction operations and help her identif! wa!s to redce prodction costs.
The homogeneos natre of the prodct makes the se of job order costing
nnecessar! %its higher cost is not jstified&.
11. Each stdent will have a different answer' depending on the particlar !acht
selected. $ome will discss the !acht#s si(e) others will discss the interior
finishes) others will discss the navigation eqipment. The *+,.9 million -ichmond
Lad! .ll /0 +001 % http"22richmond!achts.com2pdf213+4-56.789:4L;:<4=8;T4
$.8>4?-56E.pdf & provides nmeros featres pon which stdents can focs.

1+. a. Emplo!ee time card
b. >ork in ?rocess 5nventor! 6ontrol or @inished Aoods 5nventor!
c. -aw 7aterial 5nventor!
d. Bob order cost sheet
1
Chapter 5
e. 7anfactring 8verhead 6ontrol
f. Bob order cost sheet
g. -aw 7aterial 5nventor!
h. @inished Aoods 5nventor! or 6ost of Aoods $old
i. 7anfactring 8verhead 6ontrol
j. >ork in ?rocess 5nventor! 6ontrol

1,. a. The direct material charge of *C01'000 is higher than the estimate b!
*101'000. ;ssming that there were no errors in the estimated and actal
amonts' then either the price paid for the material or the qantit! of material
sed was substantially higher than expected. To begin the validation
process'
1. details of the original estimate to identif! prices and qantities of materials
for this job wold need to be examined.
The starting point to validate the material prices and qantities prchased is to
examine vendor invoices billed to Dindo. These invoices will validate
material purchase quantities and prices paid b! Dindo.
+. ;dditionall!' material reqisition forms shold be examined to validate the
quantity of material actually used in production.
,. 9ext' an examination of the material cost %material qantit! mltiplied b!
material price& on the job order cost sheet shold reconcile to the qantit! of
material shown on the material reqisition forms.
b. The direct labor charge of *C+0'000 is higher than the estimate b! *++0'000.
;ssming that there were no errors in the estimated and actal amonts' then
either the horl! rate paid to or the nmber of hors worked b! emplo!ees was
sbstantiall! higher than expected.
To begin the validation process'
1. details of the original estimate to identif! rates and hors for labor on this job wold
need to be examined.
The starting point to validate the labor rates and hors worked is to
+. examine emplo!ee time sheets %or other labor accmlation docments&. The time
sheets will validate which emplo!ees worked on the job and for what period of
time.
,. ; discssion with the pa!roll manager shold help ascertain the actal or average
wage rates paid to emplo!ees.
3. ?ossibl! some of Dindo#s emplo!ees who were listed as working on the job shold
be interviewed to determine the accrac! of the time sheets.
c. The predetermined overhead rate cold have been maniplated to a higher
rate b! sing a lower denominator level of activit! than was appropriate.
;dditionall!' inappropriate costs %sch as period costs in addition to prodct
overhead costs& cold have been inclded in the nmerator. ; large estimate
for spoilage and defect costs might also have been inclded in the nmerator
2
Chapter 5
when' in fact' sch costs rarel! occr at Dindo 5ndstries.
d. The compan!#s behavior is at best qestionable. Aiven that the difference
between actal and estimated direct material cost was likel! known at the point
of prchase' Dindo shold have notified $alem 6orp. immediatel! of the
excessive increase in cost. $imilar notification shold have been provided
when it was seen that direct labor and machine times were higher than
expected.
13. a. -aw 7aterial 5nventor! +03'000
;cconts ?a!able +03'000
>ork in ?rocess 5nventor!4/3+C, 1C,'100
>ork in ?rocess 5nventor!4/3+C3 1'1E0
7anfactring 8verhead 1+'3C0
-aw 7aterial 5nventor! 1E1'1,0
>ork in ?rocess 5nventor!4/3+C, 03'000
>ork in ?rocess 5nventor!4/3+C3 1'100
6ash %,'C00 x *10& 00'100
7anfactring 8verhead C1'E00
6ash %*11'000 F *E'+00 F *9'000& ,3'E00
;ccmlated :epreciation +1'000
>ages ?a!able 1+'000
>ork in ?rocess 5nventor!4/3+C, C3'100
>ork in ?rocess 5nventor!4/3+C3 +'1C0
7anfactring 8verhead CC'9C0
b. -7 5nventor! G *3',00 F *+03'000 4 *1C,'100 4 *1+'3C0 4 *1'1E0 G
*,0'1E0
c. =ecase the compan! worked onl! on Bob /3+C, ntil the end of ;pril' all
costs in beginning >5? for other jobs are still in that accont at the end of the
month.
=eginning >5? *11'300
Less costs associated with Bob /3+C, %100&
6osts associated with other jobs *10'C00
6osts for Bob /3+C3 %*1'1E0 F *1'100 F *+'1C0& 0'1,0
Ending >5? *1C'3,0
d. 6A7 G =eginning >5? F 6rrent period costs H Ending >5?
G *11'300 F *1C,'100 F *1'1E0 F *00'100 F *CC'9C0 4 *1C'3,0
G *+1,'300
Init cost G *+1,'300 J 10'000 G *+1.,3
e. ;pplied 8. H ;ctal 8. G *CC'9C0 4 *C1'E00 G *1'E30 nderapplied
10. a. 8. rate G *+C1'100 J *19+'000 G 130K of direct labor
3
Chapter 5
b. Ending >5? =alance"
:7 * E0'300
:L ,C'+00
8. %*,C'+00 x 1.30& 00'C10
Ending balance *1C+',,0
c. 6A7 G =eg. >5? F 6rrent costs H 6ost of jobs completed
G *0 F *+EE'+00 F *19+'000 F *+C1'100 4 *1C+',,0
G *0E0'CE0
1C. a. -aw 7aterial 5nventor! EC'000
;cconts ?a!able EC'000
>5? 4 Bob /+1E 33'100
>5? 4 Bob /+11 E'+00
>5? 4 other jobs 0,'C00
:irect 7aterial 5nventor! 100'C00
>5? 4 Bob /+1E 10'300
>5? 4 Bob /+11 13'000
>5? 4 other jobs 19'C00
6ash %or >ages ?a!able& 33'000
7anfactring 8verhead ++0'000
Larios acconts ++0'000
>5? 4 Bob /+1E 01'310
>5? 4 Bob /+11 C9',00
>5? 4 other jobs 9E'0+0
7anfactring 8verhead +1E'100
%;ctal rate per :L* G *33'000 x *3.90&
@inished Aoods 5nventor! 11E'110
>5? 5nventor! 4 Bob /+1E 11E'110
%*11'+00 F *33'100 F *10'300 F *01'310 G *11E'110&
6ash 109'1,1
$ales 109'1,1
%*11E'110 M 1.,0 G *109'1,1&
6ost of Aoods $old 11E'110
@inished Aoods 5nventor! 11E'110
b. Ending >5? G =eg. >5? F 6rrent costs H 6ost of Bob /+1E completed
G *1C'100 F *100'C00 F *33'000 F *+1E'100 4 *11E'110
G *+CC',+0
Ending balance in Bob /+11 G *0'C00 F *E'+00 F *13'000 F *C9',00 G
*9C'100

Chapter 5
1E. a. 8. rate G *1+E'C10 J E'C00 G *1C.10 per :L.
b. ;verage :L rate G *109'C00 J E'C00 G *+1 per :L.
c. 10'+00 x %*+1.00 F *1C.10& G 10'+00 x *,E.10 G *0E3'0C0 :L N 8.
*91C'C00 4 *0E3'0C0 G *,3+'090 :7 in beginning >5?
d. 5f workers on the job in ending >5? are assmed to be paid the average :L
rate' then the ending >5? balance is"
:7 * E,'+00
:L %+'100 x *+1& 09'100
8. %+'100 x *1C.10& 3E'110
Ending balance *110'910
e. 6A7 G =eg. >5? F 6rrent period costs H End. >5?
G *91C'C00 F *019'CE0 F *109'C00 F *1+E'C10 4 *110'910
G *1'C1+'C+0
11. a. 6A$ is the amont credited to @inished Aoods 5nventor! for the !ear G
*1'190'000.
b. =eg. @A F 6A7 H End. @A G 6A$
*90'000 F 6A7 4 *0E'000 G *1'190'000
6A7 F *,,'000 G *1'190'000
6A7 G *1'10E'000
c. ;pplied 8. G *,90'000 M 1.30 G *00,'000
d. =eg. >5? F :7 sed F :L F 8. H End. >5? G 6A7
*0C'000 F :7 F *,90'000 F *00,'000 4 *+E'C30 G *1'10E'000
:7 F *9EC',C0 G *1'10E'000
:7 G *110'C30
e. =eg. :7 F ? H :7 sed G End. :7
*+3'C00 F ? 4 *110'C30 G *3'100
? 4 *10C'030 G *3'100
? G *1C0'130
19. a. 6A$ G .E0 x $ales G .E0%*1'091'000& G *1'191'000.
b. =eg. @A F 6A7 H End. @A G 6A$
*C1'900 F 6A7 4 *1C0'C00 G *1'191'000
6A7 4 *9C'E00 G *1'191'000
6A7 G *1'+90'+00
c. Bob =,+0" ;pplied 8. G 10K of :L* G .10 %1+1 x *1+.90& G .10 x *1'C01.+0
G *1'30,.0+
5
Chapter 5
Bob D3+1" ;pplied 8. G 10K of :L* G .10 %+30 x *1+.90& G .10 x *,'09C.00
G *+'C,1.C0
d. Bob =,+0 D3+1
:7*+1'910.00 *13'E00.00
:L 1'C01.+0 ,'09C.00
8. 1'30, .0+ +'C,1 .C0
*+0'0,3 .E+ *+0'3+E .C0
e. 6A7 G =eg. >5? F :7 sed F :L F 8. H End. >5?
*1'+90'+00 G *13'C00 F :7 sed F *1+.90%+0'EC0& F .10%*1+.90 x +0'EC0& H
%*+0'0,3.E+ F *+0'3+E.C0&
*1'+90'+00 G *13'C00 F :7 sed F *,,+',03 F *+1+'301.30 4 *30'3C+.,+
*1'+90'+00 G *01,'900.01 F :7 sed
:7 sed G *E11'+99.9+
=eg. :7 F ?rchases 4 :7 sed G End. :7
*19'000 F *13,'+EC 4 *E11'+99.9+ G End. :7
End. :7 %destro!ed& G *101'3EC.01
+0. a. 6ase /1 6ase /+ 6ase /, 6ase /3
:7 * 310 * 1'100 * ,'E00 * 100
:L %*190 per hor& E'C00 1E'100 1,',00 +'100
8. %*100 per cort hor& 1'100 9'E00 11'000 C'000
Totals *9'110 *,0'C00 *,0'000 *9'E00
b. :7 *10'100
:L %1E3 x *190& ,,'0C0
8. %E+ x *100& 10'100
Total cost *0,'9C0
7arkp %30K& +3'+1+
Total billed to client *E1'+3+
+1. a. 8verhead rate G =dgeted 8. J =dgeted :L*
*3.+0 G *1'+E0'000 J =dgeted :L*
=dgeted :L cost G *1'+E0'000 J *3.+0
=dgeted :L cost G *,00'000
8verhead rate G *1'+E0'000 J *,00'000 G *3.+0 per :L*
b. >ork in ?rocess 5nventor! 9C'3E0
7anfactring 8verhead 9C'3E0
%*++'E00 x *3.+0 G *9C'3E0&
c. *3.+0 x ,'900 G *1C'0E0
d. =eginning balance *11',00
:irect material +9'C00
:irect labor ,'900
7anfactring overhead 1C'0E0
Ending balance *C1'3+0
!
Chapter 5
++. a. :irect material *+'100
:irect labor %*100 J *+0 G 30 :L.s& 100
;pplied overhead %*1E x 30& C10
Total cost of Bob /9+0 *3',,0
b. =5 of >5? %*1'+00 F *000 F %*1E x +0& * 9'1E0
:irect material *+1'C00
:irect labor %*C',00 J *+0 G ,10 :L.s& C',00
;pplied overhead %*1E x ,10& 0',00 ,,',00
*3+'310
E5 of >5? %3',,0&
6ost of goods manfactred *,1'100
c. ;ctal overhead *0'003
;pplied overhead %0',00&
8verapplied 8. * ,01
+,. a. 7ixing" *310'000 J C0'000 G *1 per 7.
?aving" *E00'000 J +1'000 G *+0 per :L.
b. 7ixing %+90 7.s x *1& * +',+0
?aving %,30 :L.s x *+0& 1'000
Total overhead applied *10'1+0
c. %*310'000 F *E00'000& J %C0'000 F 1+'000& G *1'110'000 J E+'000 G *1C.,9
*1C.,9 x ,,3 G *0'3E3.+C applied to Bob /++0
; plant4wide rate wold not have been indicative of the actal cost of each
job becase the 7ixing department is ver! machine4intensive while the
?aving department is ver! labor4intensive.
+3. a. :epartment 1 G *3C0'000 J ,0'000 7.s G *10.00 per 7.
:epartment + G *,10'C00 J ++'000 :L.s G *1E.,0 per :L.
b. -aw 7aterial 5nventor! ,3C'000
;cconts ?a!able ,3C'000
>ork in ?rocess 5nventor! H Bob /3C+ 19'000
>ork in ?rocess 5nventor! H other jobs ,+1'000
-aw 7aterial 5nventor! ,30'000
>ork in ?rocess 5nventor! H Bob /3C+ +E0
>ork in ?rocess 5nventor! H other jobs +'1C0
6ash %+10 x *11& ,'1,0
>ork in ?rocess 5nventor! H Bob /3C+ 3'9C0
>ork in ?rocess 5nventor! H other jobs ,+'+30
8verhead 6ontrol %+'300 x *10.00& ,E'+00
"
Chapter 5
>ork in ?rocess 5nventor! H Bob /3C+ +'133
>ork in ?rocess 5nventor! H other jobs ++'19C
6ash %1'3,0 x *11& +0'E30
>ork in ?rocess 5nventor! H Bob /3C+ ,3C
>ork in ?rocess 5nventor! H other jobs +'EC1
8verhead 6ontrol %110 x *1E.,0& ,'113
@inished Aoods 5nventor! H Bob /3C+ +E'3+0
>ork in ?rocess 5nventor! H Bob /3C+ +E'3+0
%*19'000 F *+E0 F *3'9C0 F *+'133 F *,3C&
;cconts -eceivable H ?ower ,+'910
$ales %*+E'3+0 x 1.+0& ,+'910
6ost of Aoods $old +E'3+0
@inished Aoods 5nventor! H Bob /3C+ +E'3+0
c. 6ost per nit G *+E'3+0 J 000 G *03.10
$elling price per nit G *C0.1+
-aw material G *19'000 J 000 G *,1
d. Total -7 issed *,30'000
Total nits %000 F +0'000& J +0'000
-7 cost per nit *1C.09 %ronded&
Total cost per nit G *03.10 4 *,1.00 F *1C.09 G *,,.33
$elling price per nit G *,,.33 x 1.+ G *30.1, %ronded&
$ales withot error *,+'910
$ales with error %000 x *30.1,& +0'0C0
Total OsavingsP of the error *1+'130
+0. ; standard costing s!stem is most appropriate in prodction settings in which
activities are repetitive. That criterion is met in the case of Latamore 5ndstries.
:evelopment of sch standards reqires that reliable expectations abot inpt
cost amonts and qantities be determined for the more rotine aspects of client
services. 8nce the standards are developed' actal costs and inpt qantities
can be compared against the standards to better nderstand the cases of cost
variabilit! across the contracts. =etter identification and nderstanding of the
cases of variances will allow managers to manage costs more effectivel! and
price compan! services more appropriatel!.
+C. 7?L G ;ctal cost for paper prchasedH $tandard cost for paper prchased G
%*0.0,+ x 910'000& H %*0.0,C x 910'000& G *,1',C0 4 *,0'+10 G 4*,'9+0.
$ince actal cost was less than standard' the variance is favorable.
7DL G ;ctal cost for paper sed H $tandard cost for paper that shold have
been sed G %*0.0,C x 910'000& H %*0.0,C x 913'000& G *,0'+10 4 *,0'3+3 G 4
*133.
#
Chapter 5
$ince actal paper sage was less than the standard allowed' the variance is
favorable.
+E. a. Total pa!roll G 9'000 M *9.C0 G *1C'100
b. L-L G ;ctal pa!roll H $tandard cost for actal hors worked G *1C'100 H
%*9.10 x 9'000& G *1C'100 4 *11'C00 G 4*1'100.
$ince direct labor emplo!ees were paid less than the standard rate' the
variance is favorable.
c. LDL G $tandard cost for actal hors worked H $tandard cost for standard
hors allowed for prodction G *11'C00 H %*9.10 x 1'C00& G *11'C00 4
*13'E10 G *,'930.
$ince the nmber of hors worked was greater than the standard hors
allowed' the variance is nfavorable.
d. 8ne concern wold be the reason the compan! was pa!ing its workers less
than the standard rate per hor. The other concern wold be that the
workers' recogni(ing that the! were being paid less than the standard' chose
to work more slowl! than the! normall! wold' to compensate %relative to total
wages& for the redced wage. 5f this sitation is the case' the compan! wold
have been better off pa!ing the standard rate becase the actal pa!roll was
%*1C'100 4 *13'E10& or *+'130 greater than the standard wold have been.
+1. a. 6rrentl!' =onivo has no data on the actal cost of bilding an! of the
compters being configred. 6onseqentl!' the compan! is nable to
determine the actal profit %loss& generated on an! sales transaction. The job
order cost s!stem wold allow =onivo to better nderstand what factors drive
costs in the firm' measre the profit on sales transactions' and identif! wa!s
to better manage costs and revenes.
b. ; pricing polic! that ignores the costs of direct labor and overhead %in
addition to marketing and administrative costs& is flawed. 8nl! if :L and 8.
are strictl! proportional to direct material cold their costs not be considered
in determining the price and profit of each compter. .owever' in this case'
these costs are likel! a major portion of the cost of bilding a made4to4order
compter.
+9. a. $ecretar! %*3'100 J 1C0 hrs. x ,0 hrs.& * 1'000
6opies %1'300 pages x *0.0C per page& 1E
?hone calls 130
8verhead %*9'C00 J 1C0 hrs. x ,0 hrs.& +'100
;ttorne!Qs time %*190 x 90 hrs.& 11'000
Total charges *+1'3,+
This means 6onroe wold be charging *+1'3,+ J 90 G *++0.C0 or *+,0 per
hor %ronded&.
Total bill to 8livgra G 90 hors x *+,0 G *+1'100
$
Chapter 5
b. :irect costs %*1E F *130 F *11'000& *11'+1+
;llocated secretarial costs 1'000
;llocated overhead +'100
7argin R%*11'000 F *+'100& M 0.30S 1'0C0
Total billing *+9'39+

c. ; flat charge per hor wold be more likel! to be acceptable to clients
becase sch a charge is more nderstandable than being charged an horl!
rate pls a charge for the time that is not reall! being spent on their cases.
,0. Each stdent will have a different answer' bt the memo shold address the
following isse"
=dgeted cost is far below each job#s actal cost' which indicates that the compan!
is not sing past job information as a basis for either controlling costs or increasing
ftre bid prices. =! not sing available historical information to adjst operations'
the compan! is accepting marginal jobs. ;lthogh each job generated a positive
gross margin' the actal gross margin is onl! a small fraction of the bdgeted gross
margin. 5t is important that a compan! learn from past mistakes.
,1. a. $ome of the companies that have been fond to engage in this practice are
@amil! :ollar' ?ep =o!s' Taco =ell' To!s4-4Is' and >al47art.
b. 5t is easier to doctor the records now than in the past becase records are
compteri(ed and managers generall! have access to the files. ?reviosl!'
managers wold have had to conspire with pa!roll clerks or accontants to
change paper or pnch4card records.
c. Each stdent will have a different answer. .owever' most stdents will
probabl! indicate that store managers making sch changes wold be fired
%short4rn&. @or the long4rn' ethics training wold probabl! be recommended
and possibl! a change in the wa! store managers# bonses are compted.
,+. a. 7anfactring 8verhead 1'100
-aw 7aterial 5nventor! +00
>ages ?a!able 900
b. >5? 4 Bob /=;3C1 1'100
-aw 7aterial 5nventor! +00
>ages ?a!able 900
Aiven that the rework costs were not necessar! to the completion of the job'
$an ;ngelo 6orp. shold probabl! not charge its markp percentage on the
*1'100 of rework costs nless the cstomer had alread! been informed that
sch charges might be charged and the cstomer had agreed to sch
charges.
c. Loss on ;bnormal -ework 1'100
-aw 7aterial 5nventor! +00
1%
Chapter 5
>ages ?a!able 900
,,. a. ?redetermined 8. rate G *1'3+1'000 J 130'000 G *9.10 per 7.
:irect material *3E'000
:irect labor +1'100
8verhead %,+0 x *9.10& ,'110
Total cost *E+'310
?er nit cost G *E+'310 J 1'000 G *31.,+ %ronded&
b. The *E00 rework cost is inclded in 7anfactring 8verhead 6ontrol.
c. Total original cost *E+'310
6ost of new ,0 nits 1',90
Less sale of defective nits %+30&
Total cost of Bob /1EC *E,'C,0
,3. a. The estimated cost of the spoilage shold be inclded in calclating the
predetermined overhead rate. This approach spreads the cost of spoilage
across all good nits prodced.
b. The cost of this spoilage shold be charged to the specific job. $ince there is
no salvage vale for the spoilage' no jornal entr! wold be necessar! as the
cost of the spoiled nits wold be inclded in the prior charges to the job for
direct materials' direct labor and manfactring overhead.
c. 5n this case' the spoilage is nexpected and the net cost shold be recorded
as a loss of the period in which it occrred. ;n! salvage vale associated
with the spoilage will redce the amont of the loss. To record the
transaction' work in process %and the specific job#s job order cost sheet&
shold be credited for the cost of the spoilage and the expected' net salvage
of the spoilage shold be debited %:isposal vale of defective work&. ; loss
accont %e.g.' Loss from abnormal spoilage& shold be debited to balance the
transaction.
?roblems
,0. -aw 7aterial 5nventor! E90'000
;cconts ?a!able E90'000
>ork in ?rocess 5nventor! 0E0'000
-aw 7aterial 5nventor! 0E0'000
7anfactring 8verhead 1+0'000
-aw 7aterial 5nventor! 1+0'000
>ork in ?rocess 5nventor! E93'000
7anfactring 8verhead 10'000
>ages ?a!able 1E3'000
11
Chapter 5
>ork in ?rocess 5nventor! %*E93'000 x .00& 3,C'E00
7anfactring 8verhead 3,C'E00
@inished Aoods 5nventor! 1'03C'000
>ork in ?rocess 5nventor! 1'03C'000
6ost of Aoods $old 1'03C'000
@inished Aoods 5nventor! 1'03C'000
6ash 1',3+'000
$ales 1',3+'000
,C. a. *1+'000 J 1'000 :L. G *10.+0 per :L.
b. :irect 7aterial 5nventor! 90'000
;cconts ?a!able 90'000
>ork in ?rocess 5nventor! E0'C00
6ash E0'C00
7anfactring 8verhead 1+'000
Larios acconts 1+'000
>ork in ?rocess 5nventor! 1+'000
7anfactring 8verhead 1+'000
>ork in ?rocess 5nventor! 11'000
:irect 7aterial 5nventor! 11'000
%*+'000 F *90'000 4 *,'000&
@inished Aoods 5nventor! +31'100
>ork in ?rocess 5nventor! +31'100
6A7 G =>5? F :7 F :L F 8. H E>5?
6A7 G *10'000 F *11'000 F *E0'C00 F
*1+'000 H*E'E00 G *+31'100
;cconts -eceivable ,00'300
$ales ,00'300
6ost of Aoods $old +3,'E00
@inished Aoods 5nventor! +3,'E00
c. =eginning @A * C'000
6A7 +31'100
6A$ %+3,'E00&
Ending @A * 11'C00
,E. a. 921 -aw 7aterial 5nventor! 1'930'000
12
Chapter 5
;cconts ?a!able 1'930'000
923 >ork in ?rocess 5nventor! 1'13C'100
7anfactring 8verhead 0,'+00
-aw 7aterial 5nventor! 1'900'000
5ssances made to jobs as follows"
/E0' *+19'C00) /E1' *+0+'C00) /1+' *99+'+00) /1C' *,1+'300

9210 >ork in ?rocess 5nventor! CC0'C00
7anfactring 8verhead 91'300
6ash E0E'000
Labor charged to jobs as follows"
/E0' *13'C00) /E1' *+CE'+00) /1+' *+0,'000)
/1C' *110'100
9210 >ork in ?rocess 5nventor! 1,+'000
7anfactring 8verhead 1,+'000
8verhead applied to jobs as follows"
/E0' *1+0'E00) /E1' *,+9'000) /1+' *+0,'E00)
/1C' *1+1'000.
9210 @inished Aoods 5nventor! 1'011',00
>ork in ?rocess 5nventor! 1'011',00
%*01C'300 F *+19'C00 F *13'C00 F *1+0'E00&
;cconts -eceivable 1'300'E00
$ales 1'300'E00
%*1'011',00 x 1.,&
6ost of Aoods $old 1'011',00
@inished Aoods 5nventor! 1'011',00
92+0 7anfactring 8verhead 110'+00
;cconts ?a!able 19C'100
6ash ,0E'000
92+3 -aw 7aterial 5nventor! C+3'000
;cconts ?a!able C+3'000
92+0 >ork in ?rocess 5nventor! E1C'300
7anfactring 8verhead 00'100
-aw 7aterial 5nventor! EE+'+00
5ssances made to jobs as follows"
/E1' *103'100) /1+' *+1+'C00) /1C' *,39'000
92,0 7anfactring 8verhead 1'+0C'100
;ccmlated :epreciation 109'000
?repaid 5nsrance 1C0'300
Taxes N Licenses ?a!able +,+'300
92,0 >ork in ?rocess 5nventor! C39'300
7anfactring 8verhead C0'000
6ash E13'300
13
Chapter 5
Labor charged to jobs as follows"
/E1' *1EE'300) /1+' *++1'300) /1C' *+3,'C00
92,0 >ork in ?rocess 5nventor! 30E'1+0
7anfactring 8verhead 30E'1+0
To appl! overhead to jobs as follows"
/E1' *111'E00) /1+' *1E0'C+0) /1C' *1+3'E00
b. -aw 7aterial 5nventor!TTTTT
=al. ,,+'300 923
1'900'000
921 1'930'000 92+0 EE+'+00
92+3 C+3'000
=al. ++3'+00
>ork in ?rocess
=al. 1'01+'C00 9210 1'011',00
923 1'13C'100
9210 CC0'C00
9210 1,+'000
92+0 E1C'300
92,0 C39'300
92,0 30E'1+0
=al. 0'031'0E0
6ost of Aoods $old TTTTTTTT
=al. 3'1C3'000
/E0 1'011',00
=al. 0'930',00
Bob /E0 Bob /E1
=al. 01C'300 1'011',00 =al. +CC'C00
:7 +19'C00 :7 +0+'C00
:L 13'C00 :L +CE'+00
8. 1+0'E00 8. ,+9'000
=al. 0 :7 103'100
:L 1EE'300
8. 111'E00
=al 1'009',00
Bob /1+ Bob /1C
=al. C09'C00 :7 ,1+'300
:7 99+'+00 :L 110'100
:L +0,'000 8. 1+1'000
8. +0,'E00 :7 ,39'000
:7 +1+'C00 :L +3,'C00
:L ++1'300 8. 1+3'E00
8. 1E0'C+0
1
Chapter 5
=al. +'E+0'1E0 =al. 1'+C9'000
c. $chedle of Bob 6ost -ecords
$eptember ,0' +010
Bob /E1 *1'009',00
Bob /1+ +'E+0'1E0
Bob /1C 1'+C9'000
Total *0'031'0E0
d. ;ctal overhead for $eptember
923 * 0,'+00
9210 91'300
92+0 110'+00
92+0 00'100
92,0 1'+0C'100
92,0 C0'000 *1'01+'300
;pplied overhead for $eptember
9210 * 1,+'000
92,0 30E'1+0 %1'+,9'1+0&
Inderapplied overhead * ,3,'+E0
,1. a. -aw 7aterial 5nventor! 03+'000
6ash 03+'000
7anfactring 8verhead 03'000
>ork in ?rocess 5nventor! C0+'100
>ages2$alaries ?a!able %or 6ash& C0C'100
To record :L for jobs %Bob /+3E' *1E'300) /+01' *1'100)
/+0,' *+1'000) /+03' *1,C'C00) /+00' *130'000)
/+0C' *93'C00) and /+0E' *1E9'300&
7anfactring 8verhead EC'000
>ork in ?rocess 5nventor! 3CC'300
-aw 7aterial 5nventor! 03+'300
To record :7 for jobs %Bob /+3E' *1+'300) /+01' *C'+00)
/+0,' *1C'100) /+03' *100'+00) /+00' *119'100)
/+0C' *E+'100) and /+0E' *1,,'+00&
7anfactring 8verhead 113'300
Larios acconts 113'300
To record 8. costs other than indirect labor and
indirect materials %*+33'300 4 *03'000 4 *EC'000&
>ork in ?rocess 5nventor! +31'1+0
7anfactring 8verhead +31'1+0
To appl! 8. at a rate of *0.30 per :L* %Bob /+3E' *C'9C0)
/+01' *,'0+0) /+0,' *1'300) /+03' *03'C30) /+00' *01'000)
/+0C' *,E'130) and /+0E' *E1'EC0&
@inished Aoods 5nventor! 1'EE9'030
15
Chapter 5
>ork in ?rocess 5nventor! 1'EE9'030
%$ee schedle below.&
6ash+'+C3'EE3
$ales +'+C3'EE3
6ost of Aoods $old 1'EE9'030
@inished Aoods 5nventor! 1'EE9'030

$chedle of 6ompleted Bobs
Bob :irect 7aterial :irect Labor ;pplied 8. Total
+3E * 19'C00 *101'100 * 3,'0+0 * +31'9+0
+01 11+'100 +11'C00 1E'330 311'130
+0, 1C+'+00 190'C00 EC'+30 3+9'030
+03 100'+00 1,C'C00 03'C30 +9C'330
+00 119'100 130'000 01'000 ,++'100
Totals *C09'C00 *E99'C00 *,19'130 *1'EE9'030
b. Bob :irect 7aterial :irect Labor ;pplied 8. Total
+0C * E+'100 * 93'C00 *,E'130 *+00'+30
+0E 1,,'+00 1E9'300 E1'EC0 ,13',C0
Totals *+0C'000 *+E3'000 *109'C00 *019'C00
c. ;ctal overhead * +33'300
;pplied overhead +31'1+0
Inderapplied overhead * ,'+10
Inadjsted cost of jobs completed 1'EE9'030
;djsted cost of jobs completed *1'E1+',+0
,9. a. ;lminm $teel 8ther Total
=5 * 1',00 *1+'100 * 0'100 * +C'900
?rchases 91',00 +C'000 +,'000 131',00
;vailable *10C'C00 *,9',00 *+9',00 *1E0'+00
5ssances %01'E00& %,3'+00& %+0'900& %111'100&
E5 * 3E'900 * 0'100 * ,'300 * 0C'300
b. :irect material * C+0
:irect labor %1 x *10& 1+0
8verhead %1C x *,0& 310
Total *1'++0
c. >5? H beginning
U
* C'+,0
:irect material %total issances& 111'100
:irect labor %C10 M *10& 10'+00
8verhead %1'+00 M *,0& ,C'000
Total manfactring costs *1E1'+,0
>5? 4 ending %1'++0&
6ost of goods manfactred *1E0'010
@A 4 beginning +,'100
1!
Chapter 5
6ost of goods available for sale *19,'110
@A 4 ending %0&
6ost of goods sold *19,'110
U
Bob / 7aterial Labor 8. Total
311 *1'900 * 030 *1'000 *,'930
31+ 1'+30 100 900 +'+90
*,'130 * C90 *+'300 *C'+,0
30. a. Ising an! of the jobs' one can determine that the relationship between direct
labor and applied overhead is that overhead is 110K of direct labor cost. @or
example' sing job /CE" *10'91C J *1,'130 G 1.10.
b. :irect material *+0'100
:irect labor E'+00
;pplied overhead 1'+10
Total *31'+10
c. Total direct material *01,'1,3
Less direct material in =5 %+0'100& *311'0,3
Total direct labor * 9,'E+0
Less direct labor in =5 %E'+00& 1C'0+0
Total direct cost added dring 7a! *0E3'003
d. >ork in process 4 beginning * 31'+10
6osts added dring 7a!"
:irect material *311'0,3
:irect labor 1C'0+0
;pplied overhead %*1C'0+0 x 1.10& 99'391 CE3'00+
*E10',,+
>ork in process 4 ending
%*,01'3,0 F *0E'000 F %*0E'000 M 1.10& %3,0'910&
6ost of goods manfactred *+13',0+
31. a. @abrication" *1'0C0'000 J 103'000 7L.s G *10 per 7.
;ssembl!" *1'EC0'000 J ,+0'000 :L.s G *0.00 per :L.
b. Bob /++9C" @abrication %900 hors V *1+& *10'100
;ssembl! %100 hors V *10& 1'000
Total :L *19',00
Bob /++9E" @abrication %3C0 hors V *1+& *0'0+0
;ssembl! %300 hors V *10& 3'000
Total :L *9'0+0
c. Bob /++9C" @abrication %1'100 hors V *10& *+E'000
;ssembl! %100 hors V *0.00& 3'CE0
1"
Chapter 5
Total 8. applied *,1'CE0
Bob /++9E" @abrication %900 hors V *10& *1,'000
;ssembl! %300 hors V *0.00& +'+00
Total 8. applied *10'E00
d. Bob /++9C Bob /++9E
:irect 7aterial *111'000 *13E'+00
:irect Labor 19',00 9'0+0
8verhead ,1'CE0 10'E00
Total *1C9'3E0 *1E+'3+0
e. @abrication" ;pplied %10,'+00 M *10& *1'031'000
;ctal %1'0+1'000&
8verapplied * +0'000
;ssembl!" ;pplied %,+3'000 M *0.00& *1'E1+'000
;ctal %1'E90'000&
Inderapplied * 1'000
The compan! has overapplied overhead of *1+'000 for the !ear.
3+. a. Bob 6ost $heet 4 Bob /010
6stomer 9ame and ;ddress" :escription of Bob" ?repare site'
6it! of Alf $hores bild and install a pedestrian
Alf $hores' ;labama overpass in Alf $hores" see bid
specifications for details
6ontract ;greement :ate" 0210
$chedled $tarting :ate" E210
;greed Ipon 6ompletion :ate" 1+210210
6ontract ?rice" *,',00'000
;ctal 6ompletion :ate" TTTTTTTTTTTTTTTT
$pecial 5nstrctions" 9one

:irect 7aterial %Est. *1'+30'000&
:ate $orce 6ost
+010
Bl! ,1 $mmar! of material req. *1+1'100
:irect Labor %Est. *CE0'000& 8verhead %Est. *30+'000& .
:ate $orce 6ost :ate $orce 6ost
+010 +010
Bl! ,1 $mmar! of time Bl! ,1 Bornal entr!
sheets for direct of E2,1210 *100'0+3
1#
Chapter 5
labor *1E0'030
$mmar! %as of E2,1210&
;ctal =dget Inder%8ver&
:irect material *1+1'100 *1'+30'000
:irect labor 1E0'030 CE0'000
8verhead 100'0+3 30+'000
Totals *301'1C3 *+',1+'000
b. >ork in ?rocess 4 Bob /010 1+1'100
>ork in ?rocess H other jobs 30E'000
:irect 7aterial 5nventor! 0E9',00
>ork in ?rocess 4 Bob /010 1E0'030
>ork in ?rocess 4 other jobs 301'9C0
7anfactring 8verhead 00'100
$alaries and >ages Expense ,9'C00
$alaries and >ages ?a!able CE9'300
7anfactring 8verhead +C'300
:epreciation Expense E'100
;ccmlated :epr. 4 6onst. ;ssets +C'300
;ccmlated :epr. 4 8ffice ;ssets E'100
$ales ?romotion Expense 11'100
;cconts ?a!able 11'100
;dvertising Expense C'C00
6ash C'C00
7anfactring 8verhead 11'C00
$pplies 5nventor! 11'C00
7iscellaneos Expense 10'+00
;cconts ?a!able 10'+00
Itilities Expense 1'100
7anfactring 8verhead 0'300
Itilities ?a!able E'+00
>ork in ?rocess 4 Bob /010 100'0+3
>ork in ?rocess 4 other jobs +30',EC
7anfactring 8verhead ,00'300
;cconts -eceivable 1'++3'000
1$
Chapter 5
$ales 1'++3'000
@inished Aoods 5nventor! 1+9'000
>ork in ?rocess 5nventor! 1+9'000
6ost of Aoods $old 1+9'000
@inished Aoods 5nventor! 1+9'000
c. >ork in ?rocess 4 beginning * 1E1'100
?rodction costs"
:irect material *0E9',00
:irect labor 013'000
;pplied overhead ,00'300 1'01,'E00
*+',10'000
>ork in process H ending %1'00C'000&
6ost of goods manfactred * 1+9'000
d. =irmingham 6ontractors
5ncome $tatement
@or the 7onth Ended Bl! ,1' +010
-evenes from completed projects *1'++3'000
Less 6ost of Aoods $old %1+9'000&
Aross 7argin on 6ompleted Bobs * ,90'000
9on4?rodction Expenses"
$alaries and >ages Expense *,9'C00
:epreciation Expense E'100
Itilities Expense 1'100
$ales ?romotion Expense 11'100
;dvertising Expense C'C00
7iscellaneos Expense 10'+00 %EE'100&
5ncome =efore 5ncome Taxes *,1E'900
5ncome Taxes %30K& %1+E'1C0&
9et 5ncome *190'E30
3,. a. Bob /+019"
:esign %*11'C00 M ,0K& *+3'310
?rodction %E+0 M *10& 10'100
5nstallation %*10'010 M 90K& 9'0E+
Total overhead applied *33',0+
Bob /+0+0"
:esign %*C9',C0 M ,0K& *+0'101
?rodction %+'300 M *10& ,C'000
5nstallation %*11'0+0 M 90K& 10',C1
Total overhead applied *CE'1EC
Bob /+0+1"
:esign %*E,'330 M ,0K& *++'0,+
2%
Chapter 5
?rodction %9C0 M *10& 13'300
5nstallation %*10'+00 M 90K& 1,'C10
Total overhead applied *00'11+
:esign ?rodction 5nstallation
;ctal *100'C00 *C0'000 *,1'+00
;pplied %CE',+0& %C1'+00& %,,'1+0&
%8ver&2nder applied * ,1'+10 * %1'+00& * %1'9+0&
;ctal 8. for compan! *19C'100
;pplied 8. for compan! %1C1'C30&
Total compan! nderapplied 8. * ,0'1C0
b. >ork in ?rocess %:esign& H Bob /+019 9'C00
>ork in ?rocess %:esign& H Bob /+0+0 1'+00
>ork in ?rocess %:esign& H Bob /+0+1 1E'C00
-aw 7aterial 5nventor! ,0'300
>ork in ?rocess %:esign& H Bob /+019 11'C00
>ork in ?rocess %:esign& H Bob /+0+0 C9',C0
>ork in ?rocess %:esign& H Bob /+0+1 E,'330
>ages ?a!able ++3'300
>ork in ?rocess %:esign& H Bob /+019 +3'310
>ork in ?rocess %:esign& H Bob /+0+0 +0'101
>ork in ?rocess %:esign& H Bob /+0+1 ++'0,+
7anfactring 8verhead CE',+0
>ork in ?rocess %?rod.& H Bob /+019 11C'300
>ork in ?rocess %?rod.& H Bob /+0+0 +C1'100
>ork in ?rocess %?rod.& H Bob /+0+1 +,+'000
-aw 7aterial 5nventor! C1E'+00
>ork in ?rocess %?rod.& H Bob /+019 ,3'000
>ork in ?rocess %?rod.& H Bob /+0+0 09'C00
>ork in ?rocess %?rod.& H Bob /+0+1 +1'C00
>ages ?a!able 110'+00
>ork in ?rocess %?rod.& H Bob /+019 10'100
>ork in ?rocess %?rod.& H Bob /+0+0 ,C'000
>ork in ?rocess %?rod.& H Bob /+0+1 13'300
7anfactring 8verhead C1'+00
>ork in ?rocess %5nst.& H Bob /+019 10'300
>ork in ?rocess %5nst.& H Bob /+0+0 ,C'100
>ork in ?rocess %5nst.& H Bob /+0+1 10'300
-aw 7aterial 5nventor! 0E'C00
>ork in ?rocess %5nst.& H Bob /+019 10'010
>ork in ?rocess %5nst.& H Bob /+0+0 11'0+0
21
Chapter 5
>ork in ?rocess %5nst.& H Bob /+0+1 10'+00
>ages ?a!able ,C'100
>ork in ?rocess %5nst.& H Bob /+019 9'0E+
>ork in ?rocess %5nst.& H Bob /+0+0 10',C1
>ork in ?rocess %5nst.& H Bob /+0+1 1,'C10
7anfactring 8verhead ,,'1+0
c. Bob /+019"
:irect material *1,C'300
:irect labor 1+0'C10
8verhead 33',0+
Total cost *,0C'3,+
Bob /+0+0"
:irect material *,1,'100
:irect labor 130'310
8verhead CE'1EC
Total cost *0+1'30C
Bob /+0+1"
:irect material *+C0'000
:irect labor 110'+30
8verhead 00'11+
Total cost *3+0',0+
33. a. -eliant" *0'010 J *30 G 1+3 :L. worked
:mas" *11'000 J *30 G 300 :L. worked
8maha" *+1',00 J *30 G C,0 :L. worked
-eliant" 1+3 :L. x *01 G *E'19+ 8. applied
:mas" 300 :L. x *01 G *+,'+00 8. applied
8maha" C,0 :L. x *01 G *,C'030 8. applied
-eliant :mas 8maha
:irect material * E'100 *13'+00 * 19'100
:irect labor 0'010 11'000 +1',00
8verhead E'19+ +,'+00 ,C'030
Total cost *+0'0E+ *00'300 *13'C90
b. -eliant" *+0'0E+ J , G *C'10E per ad
:mas" *00'300 J 10 G *0'030 per ad
8maha" *13'C90 J 1 G *10'01C per ad
c. $ales %+1 ads W *1'C00& *110'C00
6osts"
:irect material *31'100
:irect labor 01'9,0
;pplied overhead CC'9,+
8verapplied overhead %1C'9,+& %13,'E,0&
9et income * ,C'1E0
22
Chapter 5
d. $ales" -eliant %*+0'0E+ x 1.,& *+C'E3,.C0
:mas %*00'300 x 1.,& E+'0+0.00
8maha %*13'C90 x 1.,& 110'09E .00 *+01'1C0.C0
6osts"
:irect material *31'100.00
:irect labor 01'9,0.00
;pplied overhead CC'9,+.00
8verapplied overhead %1C'9,+ .00 & %13,'E,0 .00 &
9et income * C0'1,0 .C0
5ncome sing a cost4pls basis is sbstantiall! higher than that which is
obtained sing a flat rate selling price. :mas 7anfactring will be more
pleased with the s!stem) rather than pa!ing a rate of *1'C00 per ad' :mas
wold be pa!ing *E'+0+. 8n the other hand' -eliant#s and 8maha#s costs per
ad wold increase from *1'C00 per ad to *1'910 and *1,'EC+' respectivel!.
;ds sholdnQt be billed at a flat rate becase some ma! take mch longer to
develop than others. The 1 ads for 8maha took C,0 hors to develop or
abot E9 hors each. 5n contrast' the , ads were developed for -eliant in 1+3
hors %31 hors each& and the 10 ads were developed for :mas in onl! 300
hors %30 hors each&.
;nother possibilit! for Le=lanc is to bill based on a standard charge per labor
horXespeciall! if clients tend to change their minds after the ad
development process begins.
30. a. 8ct. 1 -aw 7aterial 5nventor! 1'100'000
;cconts ?a!able 1'100'000
1 >ork in ?rocess 4 ? C00'000
7anfactring 8verhead 4 ? 000'000
-aw 7aterial 5nventor! 1'100'000
0 7anfactring 8verhead 4 6 +0'000
;cconts ?a!able +0'000
1 7anfactring 8verhead 4 ? 0'000
6ash 0'000
10 9o entr! needed.
+0 7anfactring 8verhead 4 6 C0'000
6ash C0'000
+3 -aw 7aterial 5nventor! 1'310'000
;cconts ?a!able 1'310'000
,1 7anfactring 8verhead H ? ,C',+0
>ork in ?rocess H ? 30'000
6ash CC'1+0
23
Chapter 5
;ccmlated :epr. 4 ? 10'+00
,1 7anfactring 8verhead H 6 11'C00
>ork in ?rocess H 6 1C',00
6ash +C'+00
;ccmlated :epr. 4 6 1'E00
,1 ;cconts ?a!able +'C,0'000
6ash +'C,0'000
,1 >ork in ?rocess H ? 100'000
7anfactring 8verhead H ? 100'000
%C'000 7. x *+0&
,1 >ork in ?rocess H 6 +C'190
7anfactring 8verhead H 6 +C'190
%*1C',00 x 1.C0&
9ov. 1 7anfactring 8verhead H 6 0'000
6ash 0'000
3 >ork in ?rocess 4 ? 1+0'000
7anfactring 8verhead 4 ? 1E0'000
-aw 7aterial 5nventor! 1'000'000
1 7anfactring 8verhead H ? 0'000
6ash 0'000
10 >ork in ?rocess H 6 +00'000
7anfactring 8verhead 4 6 ++0'000
-aw 7aterial 5nventor! 3+0'000
11 9o entr! needed.
+3 9o entr! needed.
+9 9o entr! needed.
,0 7anfactring 8verhead H ? 03'000
>ork in ?rocess H ? 110'000
6ash 10,'100
;ccmlated :epr. H ? 10'+00
,0 7anfactring 8verhead H 6 3,'100
>ork in ?rocess H 6 1,3',00
6ash 109'100
;ccmlated :epr. 4 6 11',00
,0 >ork in ?rocess H ? 91'E00
7anfactring 8verhead H ? 91'E00
2
Chapter 5
%,'900 x *+0&
,0 >ork in ?rocess H 6 ++1'090
7anfactring 8verhead 4 6 ++1'090
%*1,3',00 x 1.C0&
,0 6ompleted ?rojects 5nventor! +'31+'130
>ork in ?rocess 4 ? 1'11,'E00
>ork in ?rocess 4 6 099'090
,0 ;cconts -eceivable ,'300'000
6onstrction -evene ,'300'000
,0 6ost of 6ontracts $old +'31+'130
6ompleted ?rojects 5nventor! +'31+'130
b. ?recast 6onstrction
-aw 7aterial 8verheadH ? 8verhead 4 6
1'100'000 1'100'000 000'000 100'000 +0'000 +C'190
1'310'000 1'000'000 0'000 91'E00 C0'000 ++1'090
3+0'000 ,C',+0 11'C00
1E0'000 0'000
0'000 ++0'000
03'000 3,'100
bal C0'000 bal 0+C'C+0 bal 1+9'010
>5? H ?recast >5? 4 6onstrction
C00'000 1'11,'E00 1C',00 099'090
30'000 +C'190
100'000 +00'000
1+0'000 1,3',00
110'000 ++1'090
91'E00
bal 0 bal 0
6ompleted ?rojects 5nv. 6ost of 6ontracts $old
+'31+'130 +'31+'130 +'31+'130
bal 0 bal +'31+'130
25
Chapter 5
c. %bottom section of job cost sheet&
?recast :epartment
:7 %Est. *1'000'000& :L %Est. *++0'000& 8. %Est. *+E0'000&
:ate ;mont :ate ;mont :ate ;mont
8ct. 1 * C00'000 8ct. ,1 * 30'000 8ct. ,1 *100'000
9ov. 3 1+0'000 9ov. ,0 110'000 9ov. ,0 91'E00
*1'3E0'000 *1C0'000 *+31'E00
6onstrction :epartment
:7 %Est. *,00'000& :L %Est. *1,0'000& 8. %Est. *+13'000&
:ate ;mont :ate ;mont :ate ;mont
9ov. 10 * +00'000 8ct. ,1 * 1C',00 8ct. ,1 * +C'190
9ov. ,0 1,3',00 9ov. ,0 ++1'090
*100'C00 *+31'390
d. Lincoln 6onstrction 6ompan! does not seem to have a good estimation
s!stem in place for its bid process' especiall! in its ?recast :epartment. The
compan! ma! be losing a significant nmber of bids becase of inflated cost
estimates.
3C. a. ; job order cost s!stem is appropriate in an! environment in which costs can
be readil! identified with specific prodcts' batches' contracts' or projects. @or
adopting this s!stem there shold be a jstification on a cost4benefit basis to
trace costs to those specific prodcts' batches' contracts' or projects.
b. The onl! job remaining in >5? at 02,1 is :-$113"
:-$113 balance' 32,0 *1'0E0'000
7a! additions"
-aw material *1+3'000
?rchased parts 1E'000
:irect labor +00'000
8verhead %19'000 hrs. V *E.00U& 13C'+00 00E'E00
>5? balance' 02,1 *+'1+E'E00
U8. rate G *3'000'000 J C00'000 hrs. G *E.00 per hor
c. @A inventor! of pla!pens' 32,0 19'300
Inits completed in 7a! 10'000
Inits available ,3'300
Inits shipped in 7a! %+1'000&
@A inventor!' 02,1 1,'300
$ince ?ip $qeaks ses the @5@8 inventor! method' all nits remaining in @A
inventor! were completed in 7a!.
>ork in process inventor!' 32,0 *3+0'000
2!
Chapter 5
7a! additions"
-aw material * ,'000
?rchased parts 10'100
:irect labor 3,'+00
8verhead %3'300 W *E.00& ,,'000 90'000
Total cost *010'000
Init cost G *010'000 J 10'000 nits completed G *,3 per nit
@A inventor! G *,3 W 1,'300 G *300'C00
d. 5f the amont of overapplied or nderapplied 8. is not material or the reslt
of an error in the 8. application rate' the amont is normall! charged directl!
to 6A$. 5f the amont is significant' the amont shold be prorated over the
relevant acconts %i.e.' >5?' @A' and 6A$&.
%67; adapted&
3E. a.' b. ;pplied 8. rate G *,0+'300 J 100'100 G *, per :L.
6ost of goods manfactred * 9C'000
;dd ending work in process"
Two jobs open have :7 of * 3'100
Two jobs open have :L of 9'000
Two jobs open have applied 8.
of %*, M +'133& C'3,+ +0'+,+
Total costs acconted for *11C'+,+
Less beginning work in process %10'300&
6ost of prodction inpts *100'1,+
Less" :irect labor *,C'300
;pplied 8. %*,.00 M 1'100& +C'300 %C+'100&
6ost of direct material sed * ,1'0,+
6ost of indirect material issed 11'C00
Total cost of raw material sed * 39'C,+
c. =eginning raw material * 9'C00
-aw material prchased 0C'000
Total raw material available *C0'C00
-aw material issed %39'C,+&
Ending raw material *10'9C1
d. 8verhead applied %*, M 1'100& * +C'300
;ctal overhead charges"
5ndirect labor *10'100
5ndirect material 11'C00
;ll other 0'000 %+E'300&
Inderapplied overhead in ;pril * 1'000
e. =eginning finished goods * 1C'100
;dd cost of goods manfactred 9C'000
6ost of goods available *11+'100
Less ending finished goods %1,'+00&
6ost of goods sold * 99'C00
31. a. ;ctal :7 cost *11'C00'000
2"
Chapter 5
$tandard :7 cost %*0C'000 M +00& %11'+00'000&
7aterial ?rice Lariance * 300'000 I
;ctal :L cost *C'90E'C00
$tandard :L cost %*,3'300 M +00& %C'110'000&
:irect Labor -ate Lariance * EE'C00 I
;ctal 8. cost *13'100'000
$tandard 8. cost %*EC'000 M +00& %10'+00'000&
8. Lariance * %300'000& @
b. 7aterial"
*11'C00'000 J C'000'000 G *1.9, %ronded& actal cost per lb. vs. *+.00
standard cost per lb.) *0.0E x C'000'000 G *3+0'000 @ price variance
C'000'000 lbs. sed vs. %+1'000 x +00& standard G C'000'000 H 0'C00'000 G
300'000 lbs. more than standard) 300'000 x *+ G *100'000 I qantit!
variance
The primar! case of the nfavorable material variance is becase of excess
sage.
39. a. :7 cost *11.00
:L cost %*+0 x %1+ J C0&& 3 .00
Total standard prime costs *++ .00
b. Bob /911
:7 cost %*11 x 1'+00& *+1'C00
:L cost %*3 x 1'+00& 3'100
Total standard direct cost *+C'300
Bob /+00+
:7 cost %*11 x +'000& * ,C'000
:L cost %*3 x +'000& 1'000
Total standard direct cost *33'000
c. Bob /911 $tandard ;ctal Lariance
:7 * +1'C00 *+,'0+0 *1'9+0 I
:L 3'100 3'130 30 I
Total *+C'300 *+1',C0 *1'9C0 I

Bob /+00+
:7 *,C'000 *,E'330 *1'330 I
:L 1'000 E'100 100 @
Total *33'000 *30'+90 *1'+90 I
d. =! compting variances for each job' managers become aware of an! trends
in costs. 5f costs are aggregated across jobs' an! trends ma! be obscred.
2#
Chapter 5
00. a. ?rofit on the fixed4price contracts is constrained b! the contract price. ?rofit
can onl! be increased if wa!s are fond to redce costs. 8ne wa! that costs
can be redced is to shift them to other contracts. This is a particlarl!
effective strateg! if the costs that are shifted to another contract can be
recoped nder the terms of that other contract. =! shifting some costs of the
fixed4price contracts to the cost4pls contracts' the profit on the fixed4price
contracts rises and the shifted costs can be recovered nder the terms of the
cost4pls contracts. @rther' this strateg! ma! have the effect of increasing
costs nder the cost4pls contracts if those contracts determine profit as a
percentage of total costs.
b. This t!pe of cost shifting is dishonest and nethical. 5t has the effect of
increasing the total prices of cost4pls contracts' and' if those contracts are
government related' those prices are t!picall! borne b! taxpa!ers. 5n a sense
it is a wa! for the stockholders and managers of the defense contractors to
steal from the taxpa!ers. 5t is difficlt to imagine a setting in which this
process cold be labeled ethical.
01. a. Each stdent will have a different answer.
b. The compan! is tili(ing the benefits of atomation to redce the costs of
handling so man! parts. =! standardi(ing processes' the compan! can
assemble a messenger bag with a diverse set of parts in an amont of time
that is similar to that reqired for mass4prodced ones. ;ccordingl!' althogh
the compan! is probabl! pa!ing' on average' more for parts on cstom
messenger bags than mass4prodced ones) it is holding the line on direct
labor and prodction overhead. =! holding costs down for labor and
overhead' the total cost of the cstom prodced messenger bags is not
significantl! higher than that of the mass prodced messenger bags.
c. Dalit! as viewed from the perspective of the consmer shold be mch
higher with the cstom4made messenger bags becase cstomers are able
to specif! the varios parts the! want inclded. =! getting the exact
combination of parts the cstomers desire' the! will perceive the qalit! of the
prodct to be ver! high relative to the premim in price the! pa! over the
mass4prodced messenger bags.
d. The answer is mostl! revealed in part %c&. =! containing costs to levels close to
those of mass4prodced messenger bags' bt allowing the cstomer to
choose the parts the! desire' a sbstantial gross profit can be achieved. The
higher gross profit reflects the cstomersQ willingness to pa! a premim for
the exact combination of parts desired' even thogh the compan!Qs costs are
not significantl! greater than those incrred to mass prodce messenger
bags.
0+. a. 5t is likel! that the least poplar thoghts and opinions wold not be heard on
camps. $tdents wold natrall! spport those ideas and positions that
were consistent with their own ethics' philosophies' and self interests. ;s a
2$
Chapter 5
conseqence' the overall diversit! of ideas wold probabl! decline.
b. ;ssming diversit! of opinions ltimatel! benefits all stdents' the Iniversit!
of >isconsin is possibl! spporting diversit! with the onl! means availableX
stdent dollars. .owever' this approach ma! not be ethical becase it forces
stdents to spport opinions' beliefs' and ideas that ma! violate their
personal ethics. ;lthogh the $preme 6ort of the Inited $tates will
ltimatel! determine whether this is a legal practice' each individal stdent
can reach his2her own conclsion as to whether the practice is ethical.
0,. a. 8verhead other than spoilage *C00'000
Estimated spoilage cost *00'000
Less salvage vale +0'000 ,0'000
;djsted estimated overhead cost *C,0'000
?8- G *C,0'000 J 30'000 G *10.E0 per :L.
b. :isposal vale of chemical 39C
7anfactring 8verhead 1'+,3
>ork in ?rocessXBob /E11 1'E,0
03. a. ?redetermined rate G *9+0'000 J 100'000 G *9.+0 per 7.
b. Total cost of direct material *C1E'100
Total cost of direct labor 10E'E00
;pplied 8. %,'010 x *9.+0& +1'390
Total cost of Bob =,1C *1E,',30
c. The rework cost is debited to the manfactring overhead accont since the
compan! ses a predetermined rate that incldes rework costs to appl!
overhead.
7anfactring 8verhead E0'000
Larios acconts E0'000
d. ?redetermined rate G *100'000 J 100'000 G *1.00 per 7.
Total cost of direct material *C1E'100
Total cost of direct labor 10E'E00
;pplied 8. %,'010 x *1.00& +C'110
Total cost of Bob =,1C *1E1'0,0
e. Total cost of direct material *C1E'100
Total cost of direct labor 10E'E00
;pplied 8. %,'010 x *1.00& +C'110
-ework cost %*E0'000 x .+0& 10'100
$ale of reworked pipe %+00 x *,.00& %E00&
Total cost of Bob =,1C *110'3,0
3%