EXERCISE 3-24 (20 MINUTES)

1.

Raw-material inventory, January 1........................................................................

Add: Raw-material purchases................................................................................
Raw material available for use...............................................................................
Deduct: Raw-material inventory, January 31........................................................
Raw material used in January................................................................................
Direct labor..............................................................................................................
Total prime costs incurred in January...................................................................

$174,200
248,300
$422,500
161,200
$261,300
390,000
$651,300

2.

Total prime cost incurred in January..................................................................... $651,300

Applied manufacturing overhead (70% $390,000)............................................ 273,000
Total manufacturing cost for January................................................................... $924,300

EXERCISE 3-24 (CONTINUED)

3.

Total manufacturing cost for January...................................................................$ 924,300

Add: Work-in-process inventory, January 1......................................................... 305,500
Subtotal................................................................................................................... $1,229,800
Deduct: Work-in-process inventory, January 31.................................................. 326,300
Cost of goods manufactured.................................................................................$ 903,500

4.

Finished-goods inventory, January 1....................................................................$ 162,500

Add: Cost of goods manufactured........................................................................ 903,500
Cost of goods available for sale............................................................................$1,066,000
Deduct: Finished-goods inventory, January 31.................................................... 152,100
Cost of goods sold..................................................................................................$ 913,900
Since the company accumulates overapplied or underapplied overhead until the end of
the year, no adjustment is made to cost of goods sold until December 31.

5.

Applied manufacturing overhead for January...................................................... $273,000

Actual manufacturing overhead incurred in January.......................................... 227,500
Overapplied overhead as of January 31................................................................ $ 45,500
The balance in the Manufacturing Overhead account on January 31 is a $45,500 credit
balance.
NOTE: Actual selling and administrative expense, although given in the exercise, is
irrelevant to the solution.

EXERCISE 3-25 (25 MINUTES)

JOB-COST RECORD
Job Number

TB78

Description

Date Started

8/11

Date Completed

teddy bears
8/20

Number of Units Completed

Direct Material
Requisition Number
Quantity
201
500
208
600

Date
8/11
8/12

Unit Price
$.90
.40

Cost
$450
240

Rate
$14

Cost
$7,700

Direct Labor
Hours
550

Date
8/15

Time Card Number

82

Date
8/15

Manufacturing Overhead
Activity Base
Quantity
direct-labor hours
550

1,000

Application Rate
$3

Cost
$1,650

Cost Summary
Cost Item
Total Direct Material
Total Direct Labor
Total Manufacturing Overhead
Total Cost
Unit Cost

Date
8/30

Amount
$ 690
7,700
1,650
$10,040
$ 10.04

Shipping Summary
Units Remaining
Units Shipped
In Inventory
800
200

*200 units remaining in inventory$10.04 = $2,008

EXERCISE 3-26 (15 MINUTES)
1.

Applied manufacturing overhead

= total manufacturing costs 30%

= $1,250,000 30%

Cost Balance
$2,008*

= $375,000
Applied manufacturing overhead

= direct-labor cost 80%

Direct-labor cost = applied manufacturing overhead 80%

= $375,000 .8
= $468,750
2.

Direct-material used = total manufacturing cost

direct labor cost
applied manufacturing overhead
= $1,250,000 $468,750 $375,000
= $406,250

3.

Let X denote work-in-process inventory on December 31.

Total
manufacturing
cost

$1,250,000

work-in-process
inventory,

Jan. 1
.75X

work-in-process
inventory,
Dec. 31
X

cost of
goods
manufactured

= $1,212,500
.25X = $1,250,000 $1,212,500
X = $150,000

Work-in-process inventory on December 31 amounted to $150,000.

EXERCISE 3-27 (5 MINUTES)
Work-in-Process Inventory........................................................
Raw-Material Inventory....................................................
Wages Payable.................................................................
Manufacturing Overhead.................................................

6,060

Finished-Goods Inventory.........................................................
Work-in-Process Inventory..............................................
EXERCISE 3-28 (15 MINUTES)

6,060

1.

Predetermined overhead rate

(a)

At 100,000 chicken volume:

budgeted overhead
budgeted production volume

5,100
720
240
6,060

Overhead rate

(b)

100,000

$1.65 per chicken

At 200,000 chicken volume:

Overhead rate

(c)

$150,000 ($.15)(100,000)

$150,000 ($.15)(200,000)
200,000

$.90 per chicken

At 300,000 chicken volume:

Overhead rate

$150,000 ($.15)(300,000)
300,000

$.65 per chicken

2. The predetermined overhead rate does not change in proportion to the change in
production volume. As production volume increases, the $150,000 of fixed overhead
is allocated across a larger activity base. When volume rises by 100%, from 100,000
to 200,000 chickens, the decline in the overhead rate is 45.45% [($1.65 $.90)/$1.65].
When volume rises by 50%, from 200,000 to 300,000 chickens, the decline in the
overhead rate is 27.78% [($.90 $.65)/$.90].
EXERCISE 3-29 (30 MINUTES)
Job-order costing is the appropriate product-costing system for feature film production,
because a film is a unique production. The production process for each film would use
labor, material and support activities (i.e., overhead) in different ways. This would be
true for any type of film (e.g., filming on location, filming in the studio, or using
animation).

EXERCISE 3-30 (20 MINUTES)

1.

Raw-Material Inventory
295,100
226,200
68,900
Wages Payable
421,200
Manufacturing Overhead
234,000

2.

Work-in-Process Inventory
23,400
226,200
421,200
234,000
156,000
748,800

Sales Revenue
253,500

Finished-Goods Inventory
39,000
156,000
171,600
23,400

Accounts Receivable
253,500

Cost of Goods Sold

171,600

JAY SPORTS EQUIPMENT COMPANY, INC.

PARTIAL BALANCE SHEET
AS OF DECEMBER 31, 20X2
Current assets
Cash.......................................................................................................................
XXX
Accounts receivable.............................................................................................
XXX
Inventory
Raw material.....................................................................................................$68,900
Work in process............................................................................................... 748,800
Finished goods................................................................................................. 23,400
JAY SPORTS EQUIPMENT COMPANY, INC.
PARTIAL INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X2
Sales revenue.......................................................................................................... $253,500
Less: Cost of goods sold....................................................................................... 171,600
Gross margin........................................................................................................... $81,900

EXERCISE 3-31 (20 MINUTES)

1.

2.

Raw material:
Beginning inventory...................................................................................
Add: Purchases..........................................................................................
Deduct: Raw material used........................................................................
Ending inventory........................................................................................

$142,000
?
652,000
$162,000

Therefore, purchases for the year were....................................................

$672,000

Direct labor:
Total manufacturing cost...........................................................................
Deduct: Direct material..............................................................................
Direct labor and manufacturing overhead................................................

3.

$1,372,000
652,000
$ 720,000

Direct labor + manufacturing overhead

Direct labor + (60%) (direct labor)
(160%) (direct labor)

=
=
=

$720,000
$720,000
$720,000

Direct labor

$720,000
1.6

Direct labor

$450,000

Cost of goods manufactured:

Work in process, beginning inventory..................................................
Add: Total manufacturing costs............................................................
Deduct: Cost of goods manufactured...................................................
Work in process, ending inventory.......................................................

$ 160,000
1,372,000
?
$ 60,000

Therefore, cost of goods manufactured was.......................................

$1,472,000

EXERCISE 3-31 (CONTINUED)

4.

Cost of goods sold:

Finished goods, beginning inventory.......................................................
Add: Cost of goods manufactured............................................................
Deduct: Cost of goods sold.......................................................................
Finished goods, ending inventory............................................................

$ 180,000
1,472,000
?
$ 220,000

Therefore, cost of goods sold was...........................................................

$1,432,000

EXERCISE 3-32 (30 MINUTES)

1.

CRUNCHEM CEREAL COMPANY

SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 20X4
Direct material:
Raw-material inventory, January 1...........................................$45,000
Add: Purchases of raw material............................................... 417,000
Raw material available for use.................................................$462,000
Deduct: Raw-material inventory, December 31....................... 49,500
Raw material used.....................................................................
$
412,500
180,000
378,000*

Direct labor.........................................................................................
Manufacturing overhead
Total manufacturing costs.................................................................

Add: Work-in-process inventory, January 1....................................

Subtotal..............................................................................................

970,500
58,500
$1,029,000

Deduct: Work-in-process inventory, December 31..........................

Cost of goods manufactured............................................................

64,350

964,650
*Applied manufacturing overhead is $378,000 ($180,000210%). Actual manufacturing
overhead is also $378,000, so there is no overapplied or underapplied overhead.
2.

Finished-goods inventory, January 1....................................................................$ 63,000

Add: Cost of goods manufactured........................................................................ 964,650
Cost of goods available for sale............................................................................$1,027,650
Deduct: Finished-goods inventory, December 31................................................ 69,300
Cost of goods sold..................................................................................................$ 958,350

3.

The electronic version of the Solutions Manual BUILD A SPREADSHEET

SOLUTIONS is available on your Instructors CD and on the Hilton, 8e website:
www.mhhe.com/hilton8e.

EXERCISE 3-33 (20 MINUTES)

NOTE: Budgeted sales revenue, although given in the exercise, is irrelevant to the
solution.
1.

Predetermined overhead rate

(a)

$650,000
20,000 machine hours

(b)

$650,000
25,000 direct - labor hours

(c)

$650,000
$325,000 *

budgeted manufacturing overhead

budgeted level of cost driver

= $32.50 per machine hour

= $26.00 per direct-labor hour
=

$2.00 per direct-labor dollar or 200%

of direct-labor cost

*Budgeted direct-labor cost = 25,000$13

2.

Actual
manufacturing
overhead

applied
manufacturing
overhead

overapplied or
underapplied
overhead

(a)

$690,000 (22,000)($32.50)

$25,000 overapplied overhead

(b)

$690,000 (26,000)($26.00)

$14,000 underapplied overhead

(c)

$690,000 ($364,000)(200%)

$38,000 overapplied overhead

Actual direct-labor cost = 26,000$14

EXERCISE 3-34 (5 MINUTES)

1.
2.

Work-in-Process Inventory.......................................................
Manufacturing Overhead................................................

690,000

Work-in-Process Inventory.......................................................
Manufacturing Overhead................................................

715,000*

*Applied manufacturing overhead = $715,000

= 22,000 hours x $32.50 per machine hour

690,000
715,000

EXERCISE 3-35 (15 MINUTES)

1.

Predetermined overhead rate = $993,300 / 77,000 hours = $12.90 per hour

2.

To compute actual manufacturing overhead:

Depreciation................................................................................................
Property taxes............................................................................................
Indirect labor...............................................................................................
Supervisory salaries..................................................................................
Utilities........................................................................................................
Insurance....................................................................................................
Rental of space...........................................................................................
Indirect material:
Beginning inventory, January 1.........................................................
$46,000
Add: Purchases...................................................................................
95,000
Indirect material available for use......................................................
$141,000
Deduct: Ending inventory, December 31...........................................
62,000
Indirect material used.........................................................................
Actual manufacturing overhead................................................................
Overapplied
overhead

actual
manufacturing
overhead

$997,000 ($12.9079,000*) = $22,100

$225,000
19,000
79,000
210,000
58,000
32,000
295,000

79,000
$997,000

applied
manufacturing
overhead

*Actual direct-labor hours.

3.

Manufacturing Overhead............................................................
Cost of Goods Sold..........................................................

22,100
22,100

4. The electronic version of the Solutions Manual BUILD A SPREADSHEET

SOLUTIONS is available on your Instructors CD and on the Hilton, 8e website:
www.mhhe.com/hilton8e.
NOTE: Budgeted selling and administrative expense, although given in the exercise, is
irrelevant to the solution.

EXERCISE 3-36 (20 MINUTES)

Calculation of proration amounts:
Account
Amount
Work in Process......................................
$ 29,000
Finished Goods.......................................50,750
Cost of Goods Sold................................ 65,250
Total.........................................................
$145,000

Percentage
20%
35%
45%
100%

Underapplied
Account
Overhead
Work in Process......................................$22,000*
Finished Goods....................................... 22,000
Cost of Goods Sold................................ 22,000

x
x
x
x

*Underapplied overhead =
$22,000 =

Percentage
20%
35%
45%

Calculation of
Percentage
29,000 $145,000
50,750 $145,000
65,250 $145,000

Amount Added
to Account
$4,400
7,700
9,900

actual overhead applied overhead

$167,000 $145,000

Journal entry:
Work-in-Process Inventory............................................
Finished-Goods Inventory.............................................
Cost of Goods Sold........................................................
Manufacturing Overhead...............................................

4,400
7,700
9,900
22,000

PROBLEM 3-56 (25 MINUTES)

1.
Quarter
1st..................................................................
2nd.................................................................
3rd..................................................................
4th..................................................................

Predetermined
Overhead Rate
$8 per hour
10 per hour
8 per hour
10 per hour

Calculations
$400,000/50,000
$320,000/32,000
$200,000/25,000
$280,000/28,000

February
$600
340

May
$600
340

2.
Direct material.............................................
Direct labor..................................................
Manufacturing overhead:
20 hrs$8 per hr................................
20 hrs$10 per hr..............................

160
200

Total cost.....................................................

$1,100

$1,140

Total cost.....................................................
Markup (10%)...............................................
Price.............................................................

February
$1,100
110
$1,210

May
$1,140
114
$1,254

3.

4.

Predetermined rate

annual budgeted manufacturing overhead

annual budgeted direct-labor hours
$1,200,000
$8.89 per hour (rounded)
135,000

5.
Direct material...............................................
Direct labor...................................................
Manufacturing overhead (20 hrs $8.89)...
Total cost.......................................................

February
$ 600.00
340.00
177.80
$1,117.80

May
$ 600.00
340.00
177.80
$1,117.80

PROBLEM 3-56 (CONTINUED)

6.

Total cost.......................................................
Markup (10%)................................................
Price...............................................................

$1,117.80
111.78
$1,229.58

Notice that with quarterly overhead rates, the firm may underprice its product in February
and overprice it in May.

PROBLEM 3-57 (55 MINUTES)

The answers to the questions are as follows:
1.
2.
3.
4.
5.

$648,000
$57,000
$210,000
$114,000
$240,000

6.
7.
8.
9.
10.

$180,000
$450,000
$120,000
$45,000
Zero

The completed T accounts, along with supporting calculations, follow.

Raw-Material Inventory
Bal. 8/31
45,000
210,000
120,000
Bal. 9/30
135,000

Accounts Payable
36,000
243,000 210,000
3,000

Work-in-Process Inventory
Bal. 8/31
24,000
Direct
450,000
material
120,000
Direct
labor
240,000
Overhead
180,000
Bal. 9/30
114,000
Manufacturing Overhead
180,000 180,000

Wages Payable
3,000
238,500 240,000
4,500

Bal. 8/31
Bal. 9/30

Sales revenue

Bal. 9/30

Finished-Goods Inventory
Bal. 8/31
105,000
450,000 540,000
Bal. 9/30
15,000
Cost of Goods Sold
540,000

Sales Revenue
648,000

Accounts Receivable
Bal. 8/31
24,000
648,000 615,000
Bal. 9/30
57,000

Supporting Calculations:
1.

Bal. 8/31

= cost of goods sold120%

= $540,000120% = $648,000

PROBLEM 3-57 (CONTINUED)

2.

Ending balance in accounts receivable

= beginning balance + sales revenue

collections
= $24,000 + $648,000 $615,000
= $57,000

3.

Purchases of raw material

addition to accounts payable

Addition to accounts payable

ending balance + payments

beginning balance

$3,000 + $243,000 $36,000

$210,000

4.

September 30 balance in
work-in-process inventory

direct + direct + manufacturing

material
labor
overhead

= $61,500 + (1,500)($20) + (1,500)($15*)

= $114,000
*Predetermined overhead rate

=
=

budgeted overhead
budgeted direct -labor hours

$2,160,000
144,000

= $15 per direct-labor hour

Budgeted direct-labor hours

budgeted direct -labor cost

direct -labor rate

$2,880,000
144,000
$20

5.

Addition to work in process

for direct labor
September credit to
wages payable

September credit to
wages payable

= ending balance + payments beginning balance

= $4,500 + $238,500 $3,000 = $240,000

PROBLEM 3-57 (CONTINUED)

6.

September applied overhead

= direct labor hourspredetermined overhead rate

= 12,000*$15
= $180,000

*Direct labor hours

7.

Cost of goods completed

during September

addition to work in process for direct labor

direct-labor rate

$240,000
12,000 hours
$20

beginning
balance in
work in
process

additions
+ during

November

ending balance in
work in process

= $24,000 + ($120,000 + $240,000 + $180,000) $114,000

= $450,000
8.

Raw material used in

September

9.

August 31 balance in
raw-material inventory

September credit to raw= $120,000 (given)

material inventory
September 30
balance in rawmaterial inventory

direct
+ material purchases
used

= $135,000 + $120,000 $210,000

= $45,000
10.

Overapplied or underapplied overhead = actual overhead applied overhead

= $180,000 $180,000 = 0

PROBLEM 3-58 (75 MINUTES)

budgeted manufacturing overhead
budgeted direct - labor hours
$462,000

$22 per direct - labor hour

21,000

1.

Predetermined overhead rate

2.

Journal entries:
(a)
(b)

(c)

Raw-Material Inventory......................................
Accounts Payable....................................

6,000

Raw-Material Inventory......................................
Accounts Payable....................................

5,200

Work-in-Process Inventory................................
Raw-Material Inventory............................

11,330*

6,000
5,200

11,330

*(260 sq. ft.$5.50 per sq. ft.) + (1,100 lbs.$9 per lb.)
Manufacturing Overhead**.................................
Manufacturing-Supplies Inventory..........

120
120

**Valve lubricant is an indirect material, so it is considered an overhead cost.

(d)

Work-in-Process Inventory................................
Manufacturing Overhead...................................
Wages Payable.........................................

36,000
14,100

Work-in-Process Inventory................................
Manufacturing Overhead.........................

39,600*

50,100
39,600

*Applied manufacturing overhead = 1,800 direct-labor hours$22 per hour.

(e)

Manufacturing Overhead...................................
Accumulated Depreciation: Building and
Equipment..............................................

13,000

Manufacturing Overhead...................................
Cash..........................................................
PROBLEM 3-58 (CONTINUED)

1,340

(f)

(g)

Manufacturing Overhead...................................
Accounts Payable....................................

13,000
1,340
2,400
2,400

(h)
(i)
(j)

(k)

(l)
(m)

Manufacturing Overhead...................................
Cash..........................................................

2,370

Manufacturing Overhead...................................
Prepaid Insurance....................................

2,900

Selling and Administrative Expenses...............

Cash..........................................................

7,500

Selling and Administrative Expenses...............

Accumulated Depreciation: Buildings and
Equipment..............................................

4,500

Selling and Administrative Expenses...............

Cash..........................................................

1,150

Finished-Goods Inventory................................
Work-in-Process Inventory....................

2,370
2,900
7,500

4,500
1,150
37,130*
37,130

*Cost of Job T79:

Direct material (260$5.50)................
Direct labor (850$20)........................
Manufacturing overhead (850$22). .
Total cost...............................................
(n)

$1,430
17,000
18,700
$37,130

Accounts Receivable........................................
Sales Revenue..........................................
*(76

2)$720 per trombone

18,565**
18,565

**18,565 = $37,130 2.
PROBLEM 3-58 (CONTINUED)
T-accounts and posting of journal entries:
Cash
Bal

27,360
.

Cost of Goods Sold...........................................

Finished-Goods Inventory.......................

3.

27,360*

11,000
1,340
2,370
7,500

(f)
(h)
(j)

Accounts Payable
14,500
6,000
5,200
2,400

Bal
(a)
(b)
(g)

1,150

Bal.
(n)

Bal.

Accounts Receivable
20,000
27,360

Wages Payable
8,500
50,100

Prepaid Insurance
6,000
2,900

Accumulated Depreciation:
Buildings and Equipment
99,000 Bal.
13,000 (e)
4,500 (k)

Manufacturing-Supplies Inventory
Bal.
600
120

Raw-Material Inventory
150,000
6,000
11,330
5,200

Bal.
(a)
(b)

Work-in-Process Inventory
Bal.
89,000
(c)
11,330
37,130
(d)
36,000
(d)
39,600
PROBLEM 3-58 (CONTINUED)
Bal.
(m)
4.

Finished-Goods Inventory
223,000
37,130
18,565
(a)

(l)

(i)

(c)

(c)
(d)
(e)
(f)
(g)
(h)
(i)

Manufacturing Overhead
120
39,600
14,100
13,000
1,340
2,400
2,370
2,900

(n)

Cost of Goods Sold

18,565

(j)
(k)
(l)

Selling and Administrative

Expenses
7,500
4,500
1,150

Bal.
(d)

(d)

(c)

(m)

Sales Revenue
27,360

(n)

(n)

Calculation of actual overhead:

Indirect material (valve lubricant)...........................................
Indirect labor............................................................................
Depreciation: factory building and equipment......................

$ 120
14,100
13,000

Rent: warehouse......................................................................
Utilities......................................................................................
Property taxes..........................................................................
Insurance..................................................................................
Total actual overhead..............................................................
(b)

Overapplied overhead

1,340
2,400
2,370
2,900
$36,230

actual manufacturing ap lied manufacturing

o verhead overhead

= $36,230 $39,600*

= $3,370 overapplied
*$39,600 = 1,800 direct-labor hours$22 per hour.
(c)

Manufacturing Overhead.........................................................3,370
Cost of Goods Sold.......................................................

3,370

PROBLEM 3-58 (CONTINUED)

5.

BANDWAY COMPANY
SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE MONTH OF OCTOBER
Direct material:
Raw-material inventory, October 1..........................
Add: October purchases of raw material................
Raw material available for use.................................
Deduct: Raw-material inventory, October 31..........
Raw material used....................................................
Direct labor.......................................................................
Manufacturing overhead:
Indirect material........................................................
Indirect labor.............................................................
Depreciation on factory building and equipment...
Rent: warehouse.......................................................
Utilities.......................................................................
Property taxes...........................................................
Insurance...................................................................
Total actual manufacturing overhead................
Add: overapplied overhead................................
Overhead applied to work in process.....................
Total manufacturing costs...............................................
Add: Work-in-process inventory, October 1..................
Subtotal............................................................................
Deduct: Work-in-process inventory, October 31...........
Cost of goods manufactured..........................................

$150,000
11,200
$161,200
149,870

$ 120
14,100
13,000
1,340
2,400
2,370
2,900
$36,230
3,370*

$ 11,330
36,000

39,600
$86,930
89,000
$175,930
138,800
$ 37,130

*The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to
work in process. Therefore, the overapplied overhead, $3,370, must be added to actual
overhead to arrive at the amount of overhead applied to work in process during October.

Cost of Job T79, which was completed during October.

PROBLEM 3-58 (CONTINUED)

6.

BANDWAY COMPANY
SCHEDULE OF COST OF GOODS SOLD
FOR THE MONTH OF OCTOBER
Finished-goods inventory, October 1......................................................
Add: Cost of goods manufactured...........................................................
Cost of goods available for sale...............................................................
Deduct: Finished-goods inventory, October 31......................................
Cost of goods sold....................................................................................
Deduct: Overapplied overhead*...............................................................
Cost of goods sold (adjusted for overapplied overhead).......................

$223,000
37,130
$260,130
241,565
$18,565
3,370
$15,195

*The company closes underapplied or overapplied overhead into cost of goods sold.
Hence the balance in overapplied overhead is deducted from cost of goods sold for the
month.
7.

BANDWAY COMPANY
INCOME STATEMENT
FOR THE MONTH OF OCTOBER
Sales revenue............................................................................................
Less: Cost of goods sold.........................................................................
Gross margin.............................................................................................
Selling and administrative expenses.......................................................
Income (loss).............................................................................................

$27,360
15,195
$12,165
13,150
$ (985)

PROBLEM 3-59 (20 MINUTES)

JOB-COST RECORD
Job Number

T79

Date Started

October 5

Description

Trombones

Date Completed

October 20

Number of Units Completed

Date
10/5
Date
10/8 to
10/12
Date
10/8 to
10/12

Direct Material
Requisition Number
Quantity
112
260
Time Card Number
10-08 through 10-12

Unit Price
$5.50

Cost
$1,430

Rate
$20

Cost
$17,000

Direct Labor
Hours
850

Manufacturing Overhead
Cost Driver (Activity Base)
Quantity
Direct-labor hours
850

76

Application Rate
$22

Cost
$18,700

Cost Summary
Cost Item
Total direct material
Total direct labor
Total manufacturing overhead
Total cost
Unit cost

Date
October
*Rounded

$18,565 = $37,130 2

Amount
$ 1,430
17,000
18,700
$37,130
$488.55*

Shipping Summary
Units Remaining
Units Shipped
In Inventory
38
38

Cost Balance
$18,565

PROBLEM 3-60 (50 MINUTES)

1.

Schedule of budgeted overhead costs:

Department A
Variable overhead
A 21,000$17.......................................................
B 21,000$5.......................................................
Fixed overhead.............................................................
Total overhead..............................................................
Grand total of budgeted overhead (A + B):

Department B

$357,000
210,000
$567,000

$105,000
210,000
$315,000

$882,000

total budgeted overhead rate

total budgeted direct - labor hours
$882,000

$21per hour
42,000

Predetermined overhead rate

2.

Product prices:

Total cost.....................................................................
Markup, 10% of cost....................................................
Price.............................................................................
3.

Basic
System
$1,190
119
$1,309

Advanced
System
$1,640
164
$1,804

Department A

Department B

$567,000
21,000

$315,000
21,000

$567,000
21,000

$315,000
21,000

$27 per
direct-labor
hour

$15 per
direct-labor
hour

Departmental overhead rates:

Budgeted overhead
(from requirement 1)...............................................
Budgeted direct-labor hours......................................
Predetermined overhead rates...................................

PROBLEM 3-60 (CONTINUED)

4.

Revised product costs:

Direct material.............................................................
Direct labor..................................................................
Manufacturing overhead:
Department A:
Basic system 5$27.......................................
Advanced system 15$27..............................
Department B:
Basic system 15$15.....................................
Advanced system 5$15................................
Total
5.

Basic
System
$450
320

Advanced
System
$900
320

135
405
225
_ ____
$1,130

75
$1,700

Basic
System
$1,130
113
$1,243

Advanced
System
$1,700
170
$1,870

Revised product prices:

Total cost.....................................................................
Markup, 10% of cost....................................................
Price ............................................................................

PROBLEM 3-60 (CONTINUED)

6.

COLORTECH CORPORATION
Memorandum

Date:

Today

To:

President, ColorTech Corporation

From:

I. M. Student

Subject:

Departmental overhead rates

Until now the company has used a single, plantwide overhead rate in computing product
costs. This approach resulted in a product cost of $1,190 for the basic system and a cost
of $1,640 for the advanced system. Under the company's pricing policy of adding a 10
percent markup, this yielded prices of $1,309 for the basic system and $1,804 for the
advanced system.
When departmental overhead rates are computed, it is apparent that the two
production departments have very different cost structures. Department A is a relatively
expensive department to operate, while Department B is less costly. It is important to
recognize the different rates of cost incurrence in the two departments, because our two
products require different amounts of time in the two departments. The basic system
spends most of its time in Department B, the inexpensive department. The advanced
system spends most of its time in Department A, the more expensive department. Thus,
using departmental overhead rates shows that the basic system costs less than we had
previously realized; the advanced system costs more. The revised product costs are
$1,130 and $1,700 for the basic and advanced systems, respectively. With a 10 percent
markup, these revised product costs yield prices of $1,243 for the basic system and
$1,870 for the advanced system. We have been overpricing the basic system and
underpricing the advanced system.
I recommend that the company switch to a product costing system that
incorporates departmental overhead rates.

solutions to cases
CASE 3-61 (45 MINUTES)
1.

A job order costing system is appropriate in any environment where costs can be
readily identified with specific products, batches, contracts, or projects.

2.

The only job remaining in KidCo's Work-in-Process Inventory on December 31 is

DRS114. The dollar value of DRS114 is calculated as follows:

DRS114 balance, 11/30........................................................

December additions:
Direct material used...................................................
Purchased parts.........................................................
Direct labor.................................................................
Manufacturing overhead (19,500 hours$7.50*)...
Work-in-process inventory, 12/31......................................

$250,000
$124,000
87,000
200,500
146,250

557,750
$807,750

$4,500,000
600,000 hours
$7.50 per hour

* Manufacturing overhead rate

3.

The dollar value of the playpens remaining in KidCo's finished-goods inventory on

December 31 is $455,600, calculated as follows:
Finished-goods inventory, 11/30.............................................................
Units completed in December................................................................
Units available for sale............................................................................
Units shipped in December.....................................................................
Finished-goods inventory, 12/31............................................................

Playpen Units
19,400
15,000
34,400
21,000
13,400

CASE 3-61 (CONTINUED)

Since KidCo uses the FIFO inventory method, all units remaining in finished- goods
inventory were completed in December.
Unit cost of playpens completed in December:
Work in process inventory, 11/30.....................................
December additions:
Direct material used.....................................................
Purchased parts...........................................................
Direct labor...................................................................
Manufacturing overhead (4,400 hours$7.50)........
Total cost...........................................................................
Unit cost =

total cost
units completed

$510,000
15,000

$34 per unit

Value of finished-goods
inventory on 12/31 =

Unit costquantity

$3413,400

$455,600

$420,000
$3,000
10,800
43,200
33,000

90,000
$510,000

CASE 3-62 (50 MINUTES)

1.

Manufacturers use predetermined overhead rates to allocate to production jobs the

production costs that are not directly traceable to specific jobs. As a result,
management will have timely and reasonably accurate job-cost information.
Predetermined overhead rates are easy to apply and avoid fluctuations in job costs
caused by changes in production volume or overhead costs throughout the year.

2.

The manufacturing overhead applied through November 30 is calculated as follows:

Machine hourspredetermined overhead rate = overhead applied
73,000$30 = $2,190,000

3.

The manufacturing overhead applied in December is calculated as follows:

Machine hourspredetermined overhead rate = overhead applied
6,000$30 = $180,000

4.

Underapplied manufacturing overhead through December 31 is calculated as follows:

Actual overhead ($2,200,000 + $192,000)....................................................
Applied overhead ($2,190,000 + $180,000).................................................
Underapplied overhead................................................................................

$2,392,000
(2,370,000)
$ 22,000

CASE 3-62 (CONTINUED)

5.

The balance in the Finished-Goods Inventory account on December 31 is comprised

only of Job No. N11-013 and is calculated as follows:
November 30 balance for Job No. N11-013...............................................
December direct material...........................................................................
December direct labor................................................................................
December overhead (1,000$30)............................................................
Total finished-goods inventory...........................................................

6.

$110,000
8,000
24,000
30,000
$172,000

Opticoms Schedule of Cost of Goods Manufactured for the year just completed is
constructed as follows:
OPTICOM, INC.
SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31
Direct material:
Raw-material inventory, 1/1............................................
Raw-material purchases ($1,930,000 + $196,000).........
Raw material available for use.......................................
Deduct: Indirect material used ($250,000 + $18,000)...
Raw-material inventory 12/31..........................
Raw material used..........................................................
Direct labor ($1,690,000 + $160,000)..................................
Manufacturing overhead:
Indirect material ($250,000 + $18,000)...........................
Indirect labor ($690,000 + $60,000)................................
Utilities ($490,000 + $44,000)..........................................
Depreciation ($770,000 + $70,000).................................
Total actual manufacturing overhead............................
Deduct: Underapplied overhead....................................
Overhead applied to work in process...............................
Total manufacturing costs.................................................
Add: Work-in-process inventory, 1/1.................................
Subtotal...............................................................................
Deduct: Work-in-process inventory, 12/31*......................
Cost of goods manufactured.............................................
*Supporting calculations follow.

$ 210,000
2,126,000
$2,336,000
$268,000
170,000

$268,000
750,000
534,000
840,000

438,000
$1,898,000
1,850,000

2,392,000
22,000
$2,370,000
$6,118,000
120,000
$6,238,000
300,400
$5,937,600

CASE 3-62 (CONTINUED)

*Supporting calculations for work in process 12/31:
Direct material.....................
Direct labor..........................
Applied overhead:
2,500 hrs.$30..............
800 hrs.$30.................
Total..........................

D12-002
$ 75,800
40,000
75,000
______
$190,800

D12-003
$ 52,000
33,600

Total
$127,800
73,600

24,000
$109,600

75,000
24,000
$300,400