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Chapter 5

JOB ORDER COST SYSTEM-raiborn


Exercises
11. Each student will have a diferent answer, depending on the
particular yacht selected. Some will discuss the yachts size;
others will discuss the interior fnishes; others will discuss the
navigation equipment. he !"#.$ million %ichmond &ady 'ull ()
provides numerous *eatures upon which students can *ocus.
1". a. Employee time card
+. ,or- in .rocess /nventory 0ontrol or 1inished 2oods /nventory
c. %aw 3aterial /nventory
d. 4o+ order cost sheet
e. 3anu*acturing 5verhead 0ontrol
*. 4o+ order cost sheet
g. %aw 3aterial /nventory
h. 1inished 2oods /nventory or 0ost o* 2oods Sold
i. 3anu*acturing 5verhead 0ontrol
6. ,or- in .rocess /nventory 0ontrol

1#. a. he direct material charge o* !7)8,999 is higher than the
estimate +y !1)8,999. :ssuming that there were no errors in
the estimated and actual amounts, then either the price paid
*or the material or the quantity o* material used was
substantially higher than expected. o +egin the validation
process,
1. details o* the original estimate to identi*y prices and
quantities o* materials *or this 6o+ would need to +e e;amined.
he starting point to validate the material prices and quantities
purchased is to e;amine vendor invoices +illed to <uindo.
hese invoices will alidate !aterial purchase "uantities
and prices paid +y <uindo.
". :dditionally, material requisition *orms should +e e;amined
to alidate the "uantity o# !aterial actually used in
production$
#. =e;t, an e;amination o* the material cost >material quantity
multiplied +y material price? on the %ob order cost sheet
should reconcile to the quantity o* material shown on the
material requisition *orms.
+. he direct la+or charge o* !7"),999 is higher than the estimate
+y !""),999. :ssuming that there were no errors in the
estimated and actual amounts, then either the hourly rate paid
1
Chapter 5
to or the num+er o* hours wor-ed +y employees was
su+stantially higher than e;pected.
o +egin the validation process,
1. details o* the original estimate to identi*y rates and hours *or la+or
on this 6o+ would need to +e e;amined.
he starting point to validate the la+or rates and hours wor-ed
is to
". e;amine employee time sheets >or other la+or accumulation
documents?. he time sheets will validate which employees
wor-ed on the 6o+ and *or what period o* time.
#. : discussion with the payroll manager should help ascertain the
actual or average wage rates paid to employees.
@. .ossi+ly some o* <uindos employees who were listed as wor-ing on
the 6o+ should +e interviewed to determine the accuracy o* the
time sheets.
c. he predetermined overhead rate could have +een manipulated
to a higher rate +y using a lo&er deno!inator level o*
activity than was appropriate. :dditionally, inappropriate costs
>such as period costs in addition to product overhead costs?
could have +een included in the numerator. : large estimate *or
spoilage and de*ect costs might also have +een included in the
numerator when, in *act, such costs rarely occur at <uindo
/ndustries.
d. he companys +ehavior is at +est questiona+le. 2iven that the
diference +etween actual and estimated direct material cost
was li-ely -nown at the point o* purchase, <uindo should have
notifed Salem 0orp. immediately o* the e;cessive increase in
cost. Similar notifcation should have +een provided when it
was seen that direct la+or and machine times were higher than
e;pected.
1@. a. %aw 3aterial /nventory "9@,999
:ccounts .aya+le "9@,999
,or- in .rocess /nventoryA(@"7# 17#,899
,or- in .rocess /nventoryA(@"7@ 1,8B9
3anu*acturing 5verhead 1",@79
%aw 3aterial /nventory 1B8,1#9
2
Chapter 5
,or- in .rocess /nventoryA(@"7# )@,999
,or- in .rocess /nventoryA(@"7@ 1,899
0ash >#,799 ; !1)? )),899
3anu*acturing 5verhead 78,B99
0ash >!18,999 C !B,"99 C !$,)99? #@,B99
:ccumulated Depreciation "1,)99
,ages .aya+le 1",)99
,or- in .rocess /nventoryA(@"7# 7@,899
,or- in .rocess /nventoryA(@"7@ ",179
3anu*acturing 5verhead 77,$79
+. %3 /nventory E !@,#99 C !"9@,999 A !17#,899 A !1",@79 A
!1,8B9 E
!#9,1B9
c. Fecause the company wor-ed only on 4o+ (@"7# until the end
o* :pril, all costs in +eginning ,/. *or other 6o+s are still in
that account at the end o* the month.
Feginning ,/. !11,@99
&ess costs associated with 4o+ (@"7# >899?
0osts associated with other 6o+s !19,799
0osts *or 4o+ (@"7@ >!1,8B9 C !1,899 C !",179? ),8#9
Ending ,/. !17,@#9
d. 023 E Feginning ,/. C 0urrent period costs G Ending ,/.
E !11,@99 C !17#,899 C !1,8B9 C !)),899 C !77,$79 A
!17,@#9
E !"8#,@99
Hnit cost E !"8#,@99 I 19,999 E !"8.#@
e. :pplied 5' G :ctual 5' E !77,$79 A !78,B99 E !1,B@9
underapplied
1). a. 5' rate E !"78,899 I !1$",999 E 1@9J o* direct la+or
+. Ending ,/. FalanceK
D3 ! B),@)9
D& #7,"99
5' >!#7,"99 ; 1.@9? )9,789
Ending +alance !17",##9
c. 023 E Feg. ,/. C 0urrent costs G 0ost o* 6o+s completed
3
Chapter 5
E !9 C !"BB,"99 C !1$",999 C !"78,899 A !17",##9
E !)B),7B9
17. a. %aw 3aterial /nventory B7,999
:ccounts .aya+le B7,999
,/. A 4o+ ("1B @@,899
,/. A 4o+ ("18 B,"99
,/. A other 6o+s )#,799
Direct 3aterial /nventory 19),799
,/. A 4o+ ("1B 19,@99
,/. A 4o+ ("18 1@,999
,/. A other 6o+s 1$,799
0ash >or ,ages .aya+le? @@,999
3anu*acturing 5verhead ""9,999
Larious accounts ""9,999
,/. A 4o+ ("1B )1,@89
,/. A 4o+ ("18 7$,#99
,/. A other 6o+s $B,9"9
3anu*acturing 5verhead "1B,899
>:ctual rate per D&! E !@@,999 ; !@.$)?
1inished 2oods /nventory 11B,889
,/. /nventory A 4o+ ("1B 11B,889
>!11,"99 C !@@,899 C !19,@99 C !)1,@89 E !11B,889?
0ash 1)$,1#8
Sales 1)$,1#8
>!11B,889 M 1.#) E !1)$,1#8?
0ost o* 2oods Sold 11B,889
1inished 2oods /nventory 11B,889
+. Ending ,/. E Feg. ,/. C 0urrent costs G 0ost o* 4o+ ("1B
completed
E !17,899 C !19),799 C !@@,999 C !"1B,899 A
!11B,889
E !"77,#"9
Ending +alance in 4o+ ("18 E !),799 C !B,"99 C !1@,999 C
!7$,#99 E
!$7,199
4
Chapter 5
1B. a. 5' rate E !1"B,789 I B,799 E !17.89 per D&'
+. :verage D& rate E !1)$,799 I B,799 E !"1 per D&'
c. 1),"99 ; >!"1.99 C !17.89? E 1),"99 ; !#B.89 E !)B@,)79
D& N 5'
!$17,7)9 A !)B@,)79 E !#@",9$9 D3 in +eginning ,/.
d. /* wor-ers on the 6o+ in ending ,/. are assumed to +e paid
the average D& rate, then the ending ,/. +alance isK
D3 ! B#,")9
D& >",8)9 ; !"1? )$,8)9
5' >",8)9 ; !17.89? @B,889
Ending +alance !189,$89
e. 023 E Feg. ,/. C 0urrent period costs G End. ,/.
E !$17,7)9 C !)8$,7B9 C !1)$,799 C !1"B,789 A
!189,$89
E !1,71",7"9
18. a. 02S is the amount credited to 1inished 2oods /nventory *or
the year E !1,8$9,999.
+. Feg. 12 C 023 G End. 12 E 02S
!$9,999 C 023 A !)B,999 E !1,8$9,999
023 C !##,999 E !1,8$9,999
023 E !1,8)B,999
c. :pplied 5' E !#$),999 M 1.@9 E !))#,999
d. Feg. ,/. C D3 used C D& C 5' G End. ,/. E 023
!)7,999 C D3 C !#$),999 C !))#,999 A !"B,7@9 E
!1,8)B,999
D3 C !$B7,#79 E !1,8)B,999
D3 E !889,7@9
e. Feg. D3 C . G D3 used E End. D3
!"@,799 C . A !889,7@9 E !@,199
. A !8)7,9@9 E !@,199
. E !879,1@9
1$. a. 02S E .B) ; Sales E .B)>!1,)$8,999? E !1,1$8,)99.
5
Chapter 5
+. Feg. 12 C 023 G End. 12 E 02S
!78,$99 C 023 A !17),799 E !1,1$8,)99
023 A !$7,B99 E !1,1$8,)99
023 E !1,"$),"99
c. 4o+ F#")K :pplied 5' E 8)J o* D&! E .8) >1"8 ; !1".$9? E .
8) ; !1,7)1."9 E !1,@9#.)"
4o+ <@"8K :pplied 5' E 8)J o* D&! E .8) >"@9 ; !1".$9? E .
8) ; !#,9$7.99 E !",7#1.79
d. 4o+ F#") <@"8
D3 !"1,$89.99 !1@,B99.99
D& 1,7)1."9 #,9$7.99
5' 1,@9# .)" ",7#1 .79
!"),9#@ .B" !"9,@"B .79
e. 023 E Feg. ,/. C D3 used C D& C 5' G End. ,/.
!1,"$),"99 E !1@,799 C D3 used C !1".$9>"),B79? C .
8)>!1".$9 ; "),B79? G >!"),9#@.B" C !"9,@"B.79?
!1,"$),"99 E !1@,799 C D3 used C !##",#9@ C !"8",@)8.@9
A !@),@7".#"
!1,"$),"99 E !)8#,$99.98 C D3 used
D3 used E !B11,"$$.$"
Feg. D3 C .urchases A D3 used E End. D3
!1$,)99 C !8@#,"B7 A !B11,"$$.$" E End. D3
End. D3 >destroyed? E !1)1,@B7.98
"9. a. 0ase (1 0ase (" 0ase (#
0ase (@
D3 ! @89 ! 8,899
! #,B99 ! 8)9
D& >!1$9 per hour? B,799 1B,199 1#,#99 ",8)9
5' >!1)9 per court hour? 1,899 $,B)9 18,999 7,999
otals !$,889 !#),7)9
!#),999 !$,B99
+. D3 !19,199
D& >1B@ ; !1$9? ##,979
5' >B" ; !1)9? 19,899
otal cost !)#,$79
3ar-up >@)J? "@,"8"
otal +illed to client !B8,"@"
"1. a. 5verhead rate E Fudgeted 5' I Fudgeted D&!
6
Chapter 5
!@.") E !1,"B),999 I Fudgeted D&!
Fudgeted D& cost E !1,"B),999 I !@.")
Fudgeted D& cost E !#99,999
5verhead rate E !1,"B),999 I !#99,999 E !@.") per D&!
+. ,or- in .rocess /nventory $7,@B)
3anu*acturing 5verhead $7,@B)
>!"",B99 ; !@.") E !$7,@B)?
c. !@.") ; #,$99 E !17,)B)
d. Feginning +alance !18,#)9
Direct material "$,799
Direct la+or #,$99
3anu*acturing overhead 17,)B)
Ending +alance !78,@")
"". a. Direct material !",8)9
Direct la+or >!899 I !"9 E @9 D&'s? 899
:pplied overhead >!1B ; @9? 789
otal cost o* 4o+ ($"9 !@,##9
+. F/ o* ,/. >!8,")9 C !)99 C >!1B ; ")? ! $,1B)
Direct material !"1,7)9
Direct la+or >!7,#99 I !"9 E #1) D&'s? 7,#99
:pplied overhead >!1B ; #1)? ),#)) ##,#9)
!@",@89
E/ o* ,/. >@,##9?
0ost o* goods manu*actured !#8,1)9
c. :ctual overhead !),9)@
:pplied overhead >),#))?
5verapplied 5' ! #91
"#. a. 3i;ingK !@89,999 I 79,999 E !8 per 3'
.avingK !B99,999 I "8,999 E !") per D&'
+. 3i;ing >"$9 3's ; !8?
! ",#"9
.aving >#@9 D&'s ; !")? 8,)99
otal overhead applied !19,8"9
c. >!@89,999 C !B99,999? I >79,999 C 1",999? E !1,189,999 I
B",999 E !17.#$
7
Chapter 5
!17.#$ ; ##@ E !),@B@."7 applied to 4o+ (""9
: plantAwide rate would not have +een indicative o* the actual
cost o* each 6o+ +ecause the 3i;ing department is very
machineAintensive while the .aving department is very la+orA
intensive.
"@. a. Department 1 E !@7),999 I #9,999 3's E !1).)9 per 3'
Department " E !#89,799 I "",999 D&'s E !1B.#9 per D&'
+. %aw 3aterial /nventory #@7,999
:ccounts .aya+le #@7,999
,or- in .rocess /nventory G 4o+ (@7" 1$,999
,or- in .rocess /nventory G other 6o+s#"1,999
%aw 3aterial /nventory #@9,999
,or- in .rocess /nventory G 4o+ (@7" "B)
,or- in .rocess /nventory G other 6o+s ",879
0ash >"8) ; !11? #,1#)
,or- in .rocess /nventory G 4o+ (@7" @,$79
,or- in .rocess /nventory G other 6o+s#","@9
5verhead 0ontrol >",@99 ; !1).)9? #B,"99
,or- in .rocess /nventory G 4o+ (@7" ",8@@
,or- in .rocess /nventory G other 6o+s"",8$7
0ash >1,@#9 ; !18? "),B@9
,or- in .rocess /nventory G 4o+ (@7" #@7
,or- in .rocess /nventory G other 6o+s ",B78
5verhead 0ontrol >189 ; !1B.#9? #,11@
1inished 2oods /nventory G 4o+ (@7" "B,@")
,or- in .rocess /nventory G 4o+ (@7" "B,@")
>!1$,999 C !"B) C !@,$79 C !",8@@ C !#@7?
:ccounts %eceiva+le G .ower #",$19
Sales >!"B,@") ; 1."9? #",$19
0ost o* 2oods Sold "B,@")
1inished 2oods /nventory G 4o+ (@7" "B,@")
c. 0ost per unit E !"B,@") I )99 E !)@.8)
Selling price per unit E !7).8"
8
Chapter 5
%aw material E !1$,999 I )99 E !#8
d. otal %3 issued !#@9,999
otal units >)99 C "9,999? I "9,)99
%3 cost per unit !17.)$ >rounded?
otal cost per unit E !)@.8) A !#8.99 C !17.)$ E !##.@@
Selling price per unit E !##.@@ ; 1." E !@9.1# >rounded?
Sales without error !#",$19
Sales with error >)99 ; !@9.1#? "9,97)
otal OsavingsP o* the error !1",8@)
"). : standard costing system is most appropriate in production
settings in which activities are repetitive. hat criterion is met in
the case o* &atamore /ndustries. Development o* such standards
requires that relia+le e;pectations a+out input cost amounts and
quantities +e determined *or the more routine aspects o* client
services. 5nce the standards are developed, actual costs and
input quantities can +e compared against the standards to +etter
understand the causes o* cost varia+ility across the contracts.
Fetter identifcation and understanding o* the causes o*
variances will allow managers to manage costs more efectively
and price company services more appropriately.
"7. 3.L E :ctual cost *or paper purchasedG Standard cost *or paper
purchased E >!9.9#" ; $89,999? G >!9.9#7 ; $89,999? E !#1,#79
A !#),"89 E A!#,$"9.
Since actual cost was less than standard, the variance is
*avora+le.
3<L E :ctual cost *or paper used G Standard cost *or paper that
should have +een used E >!9.9#7 ; $89,999? G >!9.9#7 ;
$8@,999? E !#),"89 A !#),@"@ E A!1@@.
Since actual paper usage was less than the standard allowed, the
variance is *avora+le.
"B. a. otal payroll E $,999 M !$.7) E !87,8)9
+. &%L E :ctual payroll G Standard cost *or actual hours wor-ed
E !87,8)9 G >!$.8) ; $,999? E !87,8)9 A !88,7)9 E A!1,899.
Since direct la+or employees were paid less than the standard
rate, the variance is *avora+le.
c. &<L E Standard cost *or actual hours wor-ed G Standard cost
9
Chapter 5
*or standard hours allowed *or production E !88,7)9 G >!$.8)
; 8,799? E !88,7)9 A !8@,B19 E !#,$@9.
Since the num+er o* hours wor-ed was greater than the
standard hours allowed, the variance is un*avora+le.
d. 5ne concern would +e the reason the company was paying its
wor-ers less than the standard rate per hour. he other
concern would +e that the wor-ers, recognizing that they were
+eing paid less than the standard, chose to wor- more slowly
than they normally would, to compensate >relative to total
wages? *or the reduced wage. /* this situation is the case, the
company would have +een +etter of paying the standard rate
+ecause the actual payroll was >!87,8)9 A !8@,B19? or !",1@9
greater than the standard would have +een.
"8. a. 0urrently, Fonivo has no data on the actual cost o* +uilding
any o* the computers +eing confgured. 0onsequently, the
company is una+le to determine the actual proft >loss?
generated on any sales transaction. he 6o+ order cost
system would allow Fonivo to +etter understand what *actors
drive costs in the frm, measure the proft on sales
transactions, and identi*y ways to +etter manage costs and
revenues.
+. : pricing policy that ignores the costs o* direct la+or and
overhead >in addition to mar-eting and administrative costs?
is Qawed. 5nly i* D& and 5' are strictly proportional to direct
material could their costs not +e considered in determining
the price and proft o* each computer. 'owever, in this case,
these costs are li-ely a ma6or portion o* the cost o* +uilding a
madeAtoAorder computer.
"$. a. Secretary >!@,899 I 179 hrs. ; #) hrs.? ! 1,9)9
0opies >1,@)9 pages ; !9.97 per page? 8B
.hone calls 1@)
5verhead >!$,799 I 179 hrs. ; #) hrs.? ",199
:ttorneyRs time >!1$9 ; $) hrs.? 18,9)9
otal charges !"1,@#"
his means 0onroe would +e charging !"1,@#" I $) E
!"").79 or !"#9 per hour >rounded?.
otal +ill to 5livgra E $) hours ; !"#9 E !"1,8)9
10
Chapter 5
+. Direct costs >!8B C !1@) C !18,9)9? !18,"8"
:llocated secretarial costs 1,9)9
:llocated overhead ",199
3argin S>!18,9)9 C !",199? M 9.@9T 8,979
otal +illing !"$,@$"

c. : Qat charge per hour would +e more li-ely to +e accepta+le
to clients +ecause such a charge is more understanda+le than
+eing charged an hourly rate plus a charge *or the time that is
not really +eing spent on their cases.
#9. Each student will have a diferent answer, +ut the memo should
address the *ollowing issueK
Fudgeted cost is *ar +elow each 6o+s actual cost, which indicates
that the company is not using past 6o+ in*ormation as a +asis *or
either controlling costs or increasing *uture +id prices. Fy not using
availa+le historical in*ormation to ad6ust operations, the company
is accepting marginal 6o+s. :lthough each 6o+ generated a positive
gross margin, the actual gross margin is only a small *raction o* the
+udgeted gross margin. /t is important that a company learn *rom
past mista-es.
#1. a. Some o* the companies that have +een *ound to engage in
this practice are 1amily Dollar, .ep Foys, aco Fell, oysA%AHs,
and ,alA3art.
+. /t is easier to doctor the records now than in the past +ecause
records are computerized and managers generally have access
to the fles. .reviously, managers would have had to conspire
with payroll cler-s or accountants to change paper or punchA
card records.
c. Each student will have a diferent answer. 'owever, most
students will pro+a+ly indicate that store managers ma-ing
such changes would +e fred >shortArun?. 1or the longArun,
ethics training would pro+a+ly +e recommended and possi+ly
a change in the way store managers +onuses are computed.
#". a. 3anu*acturing 5verhead 1,1)9
%aw 3aterial /nventory ")9
,ages .aya+le $99
+. ,/. A 4o+ (F:@78 1,1)9
%aw 3aterial /nventory ")9
,ages .aya+le $99
11
Chapter 5
2iven that the rewor- costs were not necessary to the
completion o* the 6o+, San :ngelo 0orp. should pro+a+ly not
charge its mar-up percentage on the !1,1)9 o* rewor- costs
unless the customer had already +een in*ormed that such
charges might +e charged and the customer had agreed to
such charges.
c. &oss on :+normal %ewor- 1,1)9
%aw 3aterial /nventory ")9
,ages .aya+le $99
##. a. .redetermined 5' rate E !1,@"1,999 I 1@),999 E !$.89 per
3'
Direct material !@B,)99
Direct la+or "1,899
5verhead >#") ; !$.89? #,18)
otal cost !B",@8)
.er unit cost E !B",@8) I 1,)99 E !@8.#" >rounded?
+. he !B)9 rewor- cost is included in 3anu*acturing 5verhead
0ontrol.
c. otal original cost !B",@8)
0ost o* new #9 units 1,#$9
&ess sale o* de*ective units >"@9?
otal cost o* 4o+ (8B7 !B#,7#)
#@. a. he estimated cost o* the spoilage should +e included in
calculating the predetermined overhead rate. his approach
spreads the cost o* spoilage across all good units produced.
+. he cost o* this spoilage should +e charged to the specifc 6o+.
Since there is no salvage value *or the spoilage, no 6ournal
entry would +e necessary as the cost o* the spoiled units
would +e included in the prior charges to the 6o+ *or direct
materials, direct la+or and manu*acturing overhead.
c. /n this case, the spoilage is une;pected and the net cost
should +e recorded as a loss o* the period in which it occurred.
:ny salvage value associated with the spoilage will reduce the
amount o* the loss. o record the transaction, wor- in
process >and the specifc 6o+s 6o+ order cost sheet? should +e
credited *or the cost o* the spoilage and the e;pected, net
salvage o* the spoilage should +e de+ited >Disposal value o*
de*ective wor-?. : loss account >e.g., &oss *rom a+normal
spoilage? should +e de+ited to +alance the transaction.
12
Chapter 5
.ro+lems
#). %aw 3aterial /nventory B$9,999
:ccounts .aya+le B$9,999
,or- in .rocess /nventory )B9,999
%aw 3aterial /nventory )B9,999
3anu*acturing 5verhead 1"9,999
%aw 3aterial /nventory 1"9,999
,or- in .rocess /nventory B$@,999
3anu*acturing 5verhead 89,999
,ages .aya+le 8B@,999
,or- in .rocess /nventory >!B$@,999 ; .))? @#7,B99
3anu*acturing 5verhead @#7,B99
1inished 2oods /nventory 1,9@7,999
,or- in .rocess /nventory 1,9@7,999
0ost o* 2oods Sold 1,9@7,999
1inished 2oods /nventory 1,9@7,999
0ash 1,#@",999
Sales 1,#@",999
#7. a. !8",999 I 8,999 D&' E !19.") per D&'
+. Direct 3aterial /nventory $9,999
:ccounts .aya+le $9,999
,or- in .rocess /nventory B),799
0ash B),799
3anu*acturing 5verhead 8",999
Larious accounts 8",999
,or- in .rocess /nventory 8",999
3anu*acturing 5verhead 8",999
,or- in .rocess /nventory 88,)99
Direct 3aterial /nventory 88,)99
>!",999 C !$9,999 A !#,)99?
13
Chapter 5
1inished 2oods /nventory "@8,8)9
,or- in .rocess /nventory "@8,8)9
023 E F,/. C D3 C D& C 5' G E,/.
023 E !19,)99 C !88,)99 C !B),799
C
!8",999 G!B,B)9 E !"@8,8)9
:ccounts %eceiva+le #)9,@99
Sales #)9,@99
0ost o* 2oods Sold "@#,B99
1inished 2oods /nventory "@#,B99
c. Feginning 12 ! 7,)99
023 "@8,8)9
02S >"@#,B99?
Ending 12 ! 11,7)9
#B. a. $U1 %aw 3aterial /nventory 1,$@9,999
:ccounts .aya+le 1,$@9,999
$U@ ,or- in .rocess /nventory 1,8@7,899
3anu*acturing 5verhead )#,"99
%aw 3aterial /nventory 1,$99,999
/ssuances made to 6o+s as *ollowsK
(B), !"8$,799; (B8, !")",799; (8", !$$","99; (87,
!#1",@99

$U1) ,or- in .rocess /nventory 77),799
3anu*acturing 5verhead $1,@99
0ash B)B,999
&a+or charged to 6o+s as *ollowsK
(B), !8@,799; (B8, !"7B,"99; (8", !"9#,999;
(87, !119,899
$U1) ,or- in .rocess /nventory 8#",999
3anu*acturing 5verhead 8#",999
5verhead applied to 6o+s as *ollowsK
(B), !1"9,B)9; (B8, !#"$,999; (8", !")#,B)9;
(87, !1"8,)99.
$U1) 1inished 2oods /nventory 1,981,#)9
,or- in .rocess /nventory 1,981,#)9
>!)87,@99 C !"8$,799 C !8@,799 C !1"9,B)9?
14
Chapter 5
:ccounts %eceiva+le 1,@9),B))
Sales 1,@9),B))
>!1,981,#)9 ; 1.#?
0ost o* 2oods Sold 1,981,#)9
1inished 2oods /nventory 1,981,#)9
$U"9 3anu*acturing 5verhead 119,"99
:ccounts .aya+le 1$7,899
0ash #9B,999
$U"@ %aw 3aterial /nventory 7"@,999
:ccounts .aya+le 7"@,999
$U") ,or- in .rocess /nventory B17,@99
3anu*acturing 5verhead )),899
%aw 3aterial /nventory
BB","99
/ssuances made to 6o+s as *ollowsK
(B8, !1)@,899; (8", !"1",799; (87, !#@$,999
$U#9 3anu*acturing 5verhead 1,"97,899
:ccumulated Depreciation 89$,999
.repaid /nsurance 17),@99
a;es N &icenses .aya+le "#",@99
$U#9 ,or- in .rocess /nventory 7@$,@99
3anu*acturing 5verhead 7),999
0ash B1@,@99
&a+or charged to 6o+s as *ollowsK
(B8, !1BB,@99; (8", !""8,@99; (87, !"@#,799
$U#9 ,or- in .rocess /nventory @9B,1")
3anu*acturing 5verhead @9B,1")
o apply overhead to 6o+s as *ollowsK
(B8, !111,B)9; (8", !1B9,7"); (87, !1"@,B)9
+. %aw 3aterial /nventoryVVVVV
Fal. ##",@99 $U@ 1,$99,999
$U1 1,$@9,999 $U") BB","99
$U"@ 7"@,999
Fal. ""@,"99
,or- in .rocess
15
Chapter 5
Fal. 1,)1",799 $U1) 1,981,#)9
$U@ 1,8@7,899
$U1) 77),799
$U1) 8#",999
$U") B17,@99
$U#9 7@$,@99
$U#9 @9B,1")
Fal. ),)@8,)B)
0ost o* 2oods SoldVVVVVVVV
Fal. @,87@,999
(B) 1,981,#)9
Fal. ),$@),#)9
4o+ (B) 4o+ (B8
Fal. )87,@99 1,981,#)9 Fal. "77,799
D3 "8$,799 D3 ")",799
D& 8@,799 D& "7B,"99
5' 1"9,B)9 5' #"$,999
Fal. 9 D3 1)@,899
D& 1BB,@99
5' 111,B)9
Fal 1,))$,#)9
4o+ (8" 4o+ (87
Fal. 7)$,799 D3 #1",@99
D3 $$","99 D& 119,899
D& "9#,999 5' 1"8,)99
5' ")#,B)9 D3 #@$,999
D3 "1",799 D& "@#,799
D& ""8,@99 5' 1"@,B)9
5' 1B9,7")
Fal. ",B"9,1B) Fal.1,"7$,9)9
c. Schedule o* 4o+ 0ost %ecords
Septem+er #9, "919
4o+ (B8
!1,))$,#)9
4o+ (8" ",B"9,1B)
4o+ (87 1,"7$,9)9
otal !),)@8,)B)
d. :ctual overhead *or Septem+er
16
Chapter 5
$U@ ! )#,"99
$U1) $1,@99
$U"9 119,"99
$U") )),899
$U#9 1,"97,899
$U#9 7),999 !1,)8",@99
:pplied overhead *or Septem+er
$U1) ! 8#",999
$U#9 @9B,1") >1,"#$,1")?
Hnderapplied overhead ! #@#,"B)
#8. a. %aw 3aterial /nventory )@",999
0ash
)@",999
3anu*acturing 5verhead )@,999
,or- in .rocess /nventory 79",899
,agesUSalaries .aya+le >or 0ash? 7)7,899
o record D& *or 6o+s >4o+ ("@B, !1B,@99; (")1, !8,899;
(")#, !"1,999; (")@, !1#7,799; (")), !1@),999;
(")7, !$@,799; and (")B, !1B$,@99?
3anu*acturing 5verhead B7,999
,or- in .rocess /nventory @77,@99
%aw 3aterial /nventory )@",@99
o record D3 *or 6o+s >4o+ ("@B, !1",@99; (")1, !7,"99;
(")#, !17,899; (")@, !19),"99; (")), !11$,899;
(")7, !B",899; and (")B, !1##,"99?
3anu*acturing 5verhead 11@,@99
Larious accounts 11@,@99
o record 5' costs other than indirect la+or and
indirect materials >!"@@,@99 A !)@,999 A !B7,999?
,or- in .rocess /nventory "@1,1"9
3anu*acturing 5verhead "@1,1"9
o apply 5' at a rate o* !9.@9 per D&! >4o+ ("@B, !7,$79;
(")1, !#,)"9; (")#, !8,@99; (")@, !)@,7@9; (")), !)8,999;
(")7, !#B,8@9; and (")B, !B1,B79?
1inished 2oods /nventory 1,BB$,9@9
,or- in .rocess /nventory 1,BB$,9@9
>See schedule +elow.?
0ash ","7@,BB@
Sales ","7@,BB@
17
Chapter 5
0ost o* 2oods Sold 1,BB$,9@9
1inished 2oods /nventory 1,BB$,9@9

Schedule o* 0ompleted 4o+s
4o+ Direct 3aterial Direct &a+or :pplied 5' otal
"@B ! 8$,799 !198,899 ! @#,)"9 ! "@1,$"9
")1 18",899 "18,799 8B,@@9 @88,8@9
")# 17","99 1$9,799 B7,"@9 @"$,9@9
")@ 19),"99 1#7,799 )@,7@9 "$7,@@9
")) 11$,899 1@),999 )8,999 #"",899
otals !7)$,799 !B$$,799 !#1$,8@9 !1,BB$,9@9
+. 4o+ Direct 3aterial Direct &a+or :pplied 5' otal
")7 ! B",899 ! $@,799 !#B,8@9 !"9),"@9
")B 1##,"99 1B$,@99 B1,B79 #8@,#79
otals !"97,999 !"B@,999 !19$,799 !)8$,799
c. :ctual overhead ! "@@,@99
:pplied overhead "@1,1"9
Hnderapplied overhead ! #,"89
Hnad6usted cost o* 6o+s completed 1,BB$,9@9
:d6usted cost o* 6o+s completed !1,B8",#"9
#$. a. :luminum Steel 5ther otal
F/ ! 8,#99 !1",899 ! ),899 ! "7,$99
.urchases $8,#99 "7,)99 "#,))9 1@8,#)9
:vaila+le !197,799 !#$,#99 !"$,#)9 !1B),")9
/ssuances >)8,B99? >#@,"99? >"),$99? >118,899?
E/ ! @B,$99 ! ),199 ! #,@)9 ! )7,@)9
+. Direct material ! 7"9
Direct la+or >8 ; !1)? 1"9
5verhead >17 ; !#9? @89
otal !1,""9
c. ,/. G +eginning
W
! 7,"#9
Direct material >total issuances? 118,899
Direct la+or >789 M !1)? 19,"99
5verhead >1,"99 M !#9? #7,999
otal manu*acturing costs !1B1,"#9
,/. A ending >1,""9?
0ost o* goods manu*actured !1B9,919
12 A +eginning "#,899
0ost o* goods availa+le *or sale !1$#,819
12 A ending >9?
18
Chapter 5
0ost o* goods sold !1$#,819
W
4o+ ( 3aterial &a+or 5' otal
@11 !1,$99 ! )@9 !1,)99 !#,$@9
@1" 1,"@9 1)9 $99 ","$9
!#,1@9 ! 7$9 !",@99 !7,"#9
@9. a. Hsing any o* the 6o+s, one can determine that the relationship
+etween direct la+or and applied overhead is that overhead is
11)J o* direct la+or cost. 1or e;ample, using 6o+ (7BK
!1),$17 I !1#,8@9 E 1.1).
+. Direct material !"),899
Direct la+or B,"99
:pplied overhead 8,"89
otal !@1,"89
c. otal direct material !)1#,8#@
&ess direct material in F/ >"),899?!@88,9#@
otal direct la+or ! $#,B"9
&ess direct la+or in F/ >B,"99? 87,)"9
otal direct cost added during 3ay !)B@,))@
d. ,or- in process A +eginning ! @1,"89
0osts added during 3ayK
Direct material !@88,9#@
Direct la+or 87,)"9
:pplied overhead >!87,)"9 ; 1.1)? $$,@$8 7B@,9)"
!B1),##"
,or- in process A ending
>!#98,@#9 C !)B,999 C >!)B,999 M 1.1)? >@#9,$89?
0ost o* goods manu*actured !"8@,#)"
@1. a. 1a+ricationK !1,)79,999 I 19@,999 3&'s E !1) per 3'
:ssem+lyK !1,B79,999 I #"9,999 D&'s E !).)9 per D&'
+. 4o+ (""$7K 1a+rication >$99 hours X !1"? !19,899
:ssem+ly >8)9 hours X !19? 8,)99
otal D& !1$,#99
4o+ (""$BK 1a+rication >@79 hours X !1"? !),)"9
:ssem+ly >@99 hours X !19? @,999
19
Chapter 5
otal D& !$,)"9
c. 4o+ (""$7K 1a+rication >1,899 hours X !1)?
!"B,999
:ssem+ly >8)9 hours X !).)9? @,7B)
otal 5' applied !#1,7B)
4o+ (""$BK 1a+rication >$99 hours X !1)? !1#,)99
:ssem+ly >@99 hours X !).)9? ","99
otal 5' applied !1),B99
d. 4o+ (""$7 4o+ (""$B
Direct 3aterial !118,)99 !1@B,"99
Direct &a+or 1$,#99 $,)"9
5verhead #1,7B) 1),B99
otal !17$,@B) !1B",@"9
e. 1a+ricationK :pplied >19#,"99 M !1)?!1,)@8,999
:ctual >1,)"8,999?
5verapplied ! "9,999
:ssem+lyK :pplied >#"@,999 M !).)9?!1,B8",999
:ctual >1,B$9,999?
Hnderapplied ! 8,999
he company has overapplied overhead o* !1",999 *or the
year.
@". a. 4o+ 0ost Sheet A 4o+ ()1)
0ustomer =ame and :ddressK Description o* 4o+K .repare
site,
0ity o* 2ul* Shores +uild and install a pedestrian
2ul* Shores, :la+ama overpass in 2ul* ShoresK see
+id
specifcations *or details
0ontract :greement DateK )U19
Scheduled Starting DateK BU19
:greed Hpon 0ompletion DateK 1"U1)U19
0ontract .riceK !#,#99,999
20
Chapter 5
:ctual 0ompletion DateK VVVVVVVVVVVVVVVV
Special /nstructionsK =one

Direct 3aterial >Est. !1,"@9,999?
Date Source 0ost
"919
4uly #1 Summary o* material req. !1"1,899
Direct &a+or >Est. !7B9,999? 5verhead >Est. !@9",999?
.
Date Source 0ost Date Source
0ost
"919 "919
4uly #1 Summary o* time 4uly #1 4ournal entry
sheets *or direct o* BU#1U19
!19),9"@
la+or !1B),9@9
Summary >as o* BU#1U19?
:ctual Fudget
Hnder>5ver?
Direct material !1"1,899 !1,"@9,999
Direct la+or 1B),9@9 7B9,999
5verhead 19),9"@ @9",999
otals !@91,87@ !",#1",999
+. ,or- in .rocess A 4o+ ()1) 1"1,899
,or- in .rocess G other 6o+s @)B,)99
Direct 3aterial /nventory )B$,#99
,or- in .rocess A 4o+ ()1) 1B),9@9
,or- in .rocess A other 6o+s @98,$79
3anu*acturing 5verhead )),899
Salaries and ,ages E;pense #$,799
Salaries and ,ages .aya+le 7B$,@99
3anu*acturing 5verhead "7,@99
Depreciation E;pense B,899
:ccumulated Depr. A 0onst. :ssets "7,@99
:ccumulated Depr. A 5Yce :ssets B,899
21
Chapter 5
Sales .romotion E;pense 11,199
:ccounts .aya+le 11,199
:dvertising E;pense 7,799
0ash 7,799
3anu*acturing 5verhead 18,799
Supplies /nventory 18,799
3iscellaneous E;pense 19,"99
:ccounts .aya+le 19,"99
Htilities E;pense 1,899
3anu*acturing 5verhead ),@99
Htilities .aya+le B,"99
,or- in .rocess A 4o+ ()1) 19),9"@
,or- in .rocess A other 6o+s "@),#B7
3anu*acturing 5verhead #)9,@99
:ccounts %eceiva+le 1,""@,999
Sales 1,""@,999
1inished 2oods /nventory 8"$,999
,or- in .rocess /nventory
8"$,999
0ost o* 2oods Sold 8"$,999
1inished 2oods /nventory 8"$,999
c. ,or- in .rocess A +eginning ! 8B1,899
.roduction costsK
Direct material
!)B$,#99
Direct la+or )8@,999
:pplied overhead
#)9,@99 1,)1#,B99
!",#8),)99
,or- in process G ending >1,))7,)99?
0ost o* goods
manu*actured ! 8"$,999
d. Firmingham 0ontractors
/ncome Statement
1or the 3onth Ended 4uly #1, "919
22
Chapter 5
%evenues *rom completed pro6ects !1,""@,999
&ess 0ost o* 2oods Sold >8"$,999?
2ross 3argin on 0ompleted 4o+s ! #$),999
=onA.roduction E;pensesK
Salaries and ,ages E;pense !#$,799
Depreciation E;pense B,899
Htilities E;pense 1,899
Sales .romotion E;pense 11,199
:dvertising E;pense 7,799
3iscellaneous E;pense 19,"99 >BB,199?
/ncome Fe*ore /ncome a;es !#1B,$99
/ncome a;es >@9J? >1"B,179?
=et /ncome !1$9,B@9
@#. a. 4o+ ("91$K
Design >!81,799 M #9J? !"@,@89
.roduction >B"9 M !1)? 19,899
/nstallation >!19,989 M $9J? $,9B"
otal overhead applied !@@,#)"
4o+ ("9"9K
Design >!7$,#79 M #9J? !"9,898
.roduction >",@99 M !1)? #7,999
/nstallation >!11,)"9 M $9J? 19,#78
otal overhead applied !7B,1B7
4o+ ("9"1K
Design >!B#,@@9 M #9J? !"",9#"
.roduction >$79 M !1)? 1@,@99
/nstallation >!1),"99 M $9J? 1#,789
otal overhead applied !)9,11"
Design .roduction
/nstallation
:ctual !19),799 !79,999 !#1,"99
:pplied >7B,#"9? >71,"99? >##,1"9?
>5ver?Uunder applied ! #8,"89 ! >1,"99? ! >1,$"9?
:ctual 5' *or company !1$7,899
:pplied 5' *or company >171,7@9?
otal company underapplied 5' ! #),179
+. ,or- in .rocess >Design? G 4o+ ("91$ $,799
23
Chapter 5
,or- in .rocess >Design? G 4o+ ("9"9 8,"99
,or- in .rocess >Design? G 4o+ ("9"1 1B,799
%aw 3aterial /nventory #),@99
,or- in .rocess >Design? G 4o+ ("91$ 81,799
,or- in .rocess >Design? G 4o+ ("9"9 7$,#79
,or- in .rocess >Design? G 4o+ ("9"1 B#,@@9
,ages .aya+le ""@,@99
,or- in .rocess >Design? G 4o+ ("91$ "@,@89
,or- in .rocess >Design? G 4o+ ("9"9 "9,898
,or- in .rocess >Design? G 4o+ ("9"1 "",9#"
3anu*acturing 5verhead 7B,#"9
,or- in .rocess >.rod.? G 4o+ ("91$ 117,@99
,or- in .rocess >.rod.? G 4o+ ("9"9 "78,899
,or- in .rocess >.rod.? G 4o+ ("9"1 "#",999
%aw 3aterial /nventory 71B,"99
,or- in .rocess >.rod.? G 4o+ ("91$ #@,999
,or- in .rocess >.rod.? G 4o+ ("9"9 )$,799
,or- in .rocess >.rod.? G 4o+ ("9"1 "1,799
,ages .aya+le 11),"99
,or- in .rocess >.rod.? G 4o+ ("91$ 19,899
,or- in .rocess >.rod.? G 4o+ ("9"9 #7,999
,or- in .rocess >.rod.? G 4o+ ("9"1 1@,@99
3anu*acturing 5verhead 71,"99
,or- in .rocess >/nst.? G 4o+ ("91$ 19,@99
,or- in .rocess >/nst.? G 4o+ ("9"9 #7,899
,or- in .rocess >/nst.? G 4o+ ("9"1 19,@99
%aw 3aterial /nventory )B,799
,or- in .rocess >/nst.? G 4o+ ("91$ 19,989
,or- in .rocess >/nst.? G 4o+ ("9"9 11,)"9
,or- in .rocess >/nst.? G 4o+ ("9"1 1),"99
,ages .aya+le #7,899
,or- in .rocess >/nst.? G 4o+ ("91$ $,9B"
,or- in .rocess >/nst.? G 4o+ ("9"9 19,#78
,or- in .rocess >/nst.? G 4o+ ("9"1 1#,789
3anu*acturing 5verhead ##,1"9
c. 4o+ ("91$K
24
Chapter 5
Direct material !1#7,@99
Direct la+or 1"),789
5verhead @@,#)"
otal cost !#97,@#"
4o+ ("9"9K
Direct material !#1#,899
Direct la+or 1@9,@89
5verhead 7B,1B7
otal cost !)"1,@)7
4o+ ("9"1K
Direct material !"79,999
Direct la+or 119,"@9
5verhead )9,11"
otal cost !@"9,#)"
@@. a. %eliantK !),)89 I !@) E 1"@ D&' wor-ed
DumasK !18,999 I !@) E @99 D&' wor-ed
5mahaK !"8,#)9 I !@) E 7#9 D&' wor-ed
%eliantK 1"@ D&' ; !)8 E !B,1$" 5' applied
DumasK @99 D&' ; !)8 E !"#,"99 5' applied
5mahaK 7#9 D&' ; !)8 E !#7,)@9 5' applied
%eliant Dumas 5maha
Direct material ! B,899 !1@,"99 ! 1$,899
Direct la+or ),)89 18,999 "8,#)9
5verhead B,1$" "#,"99 #7,)@9
otal cost !"9,)B" !)),@99 !8@,7$9
+. %eliantK !"9,)B" I # E !7,8)B per ad
DumasK !)),@99 I 19 E !),)@9 per ad
5mahaK !8@,7$9 I 8 E !19,)87 per ad
c. Sales >"1 ads Z !8,799? !189,799
0ostsK
Direct material !@1,899
Direct la+or )1,$#9
:pplied overhead 77,$#"
5verapplied overhead >17,$#"? >1@#,B#9?
=et income ! #7,8B9
d. SalesK %eliant >!"9,)B" ; 1.#?!"7,B@#.79
Dumas >!)),@99 ; 1.#? B",9"9.99
5maha >!8@,7$9 ; 1.#? 119,9$B .99 !"98,879.79
25
Chapter 5
0ostsK
Direct material !@1,899.99
Direct la+or )1,$#9.99
:pplied overhead 77,$#".99
5verapplied overhead >17,$#" .99? >1@#,B#9 .99?
=et income ! 7),1#9 .79
/ncome using a costAplus +asis is su+stantially higher than
that which is o+tained using a Qat rate selling price. Dumas
3anu*acturing will +e more pleased with the system; rather
than paying a rate o* !8,799 per ad, Dumas would +e paying
!B,"9". 5n the other hand, %eliants and 5mahas costs per
ad would increase *rom !8,799 per ad to !8,$1) and !1#,B7",
respectively.
:ds shouldnRt +e +illed at a Qat rate +ecause some may ta-e
much longer to develop than others. he 8 ads *or 5maha
too- 7#9 hours to develop or a+out B$ hours each. /n contrast,
the # ads were developed *or %eliant in 1"@ hours >@1 hours
each? and the 19 ads were developed *or Dumas in only @99
hours >@9 hours each?.
:nother possi+ility *or &eFlanc is to +ill +ased on a standard
charge per la+or hour[especially i* clients tend to change
their minds a*ter the ad development process +egins.
@). a. 5ct. 1 %aw 3aterial /nventory 1,1)9,999
:ccounts .aya+le 1,1)9,999
1 ,or- in .rocess A . 7)9,999
3anu*acturing 5verhead A . )99,999
%aw 3aterial /nventory 1,1)9,999
) 3anu*acturing 5verhead A 0 "),999
:ccounts .aya+le "),999
8 3anu*acturing 5verhead A . ),999
0ash ),999
1) =o entry needed.
"9 3anu*acturing 5verhead A 0 79,999
0ash 79,999
"@ %aw 3aterial /nventory 1,@8),999
:ccounts .aya+le 1,@8),999
26
Chapter 5
#1 3anu*acturing 5verhead G . #7,#"9
,or- in .rocess G . @),999
0ash 77,1"9
:ccumulated Depr. A . 1),"99
#1 3anu*acturing 5verhead G
0 18,7)9
,or- in .rocess G 0 17,#99
0ash "7,"99
:ccumulated Depr. A 0 8,B)9
#1 :ccounts .aya+le ",7#),999
0ash ",7#),999
#1 ,or- in .rocess G . 1)9,999
3anu*acturing 5verhead G . 1)9,999
>7,999 3' ; !")?
#1 ,or- in .rocess G 0 "7,8$)
3anu*acturing 5verhead G 0 "7,8$)
>!17,#99 ; 1.7)?
=ov. 1 3anu*acturing 5verhead G 0 ),999
0ash ),999
@ ,or- in .rocess A . 8"),999
3anu*acturing 5verhead A . 1B),999
%aw 3aterial /nventory 1,999,999
8 3anu*acturing 5verhead G . ),999
0ash ),999
1) ,or- in .rocess G 0 "99,999
3anu*acturing 5verhead A 0 ""),999
%aw 3aterial /nventory @"),999
18 =o entry needed.
"@ =o entry needed.
"$ =o entry needed.
#9 3anu*acturing 5verhead G . )@,9)9
,or- in .rocess G . 11),999
27
Chapter 5
0ash 1)#,8)9
:ccumulated Depr. G . 1),"99
#9 3anu*acturing 5verhead G 0 @#,8)9
,or- in .rocess G 0 1#@,#99
0ash 1)$,899
:ccumulated Depr. A 0 18,#)9
#9 ,or- in .rocess G . $8,B)9
3anu*acturing 5verhead G . $8,B)9
>#,$)9 ; !")?
#9 ,or- in .rocess G 0 ""1,)$)
3anu*acturing 5verhead A 0 ""1,)$)
>!1#@,#99 ; 1.7)?
#9 0ompleted .ro6ects /nventory ",@8",8@9
,or- in .rocess A . 1,88#,B)9
,or- in .rocess A 0 )$$,9$9
#9 :ccounts %eceiva+le #,@)9,999
0onstruction %evenue #,@)9,999
#9 0ost o* 0ontracts Sold ",@8",8@9
0ompleted .ro6ects /nventory ",@8",8@9
+. .recast 0onstruction
%aw 3aterial 5verheadG . 5verhead A 0
1,1)9,999 1,1)9,999 )99,999 1)9,999 "),999
"7,8$)
1,@8),999 1,999,999 ),999 $8,B)9 79,999
""1,)$)
@"),999 #7,#"9 18,7)9
1B),999 ),999
),999 ""),999
)@,9)9 @#,8)9
+al 79,999 +al )"7,7"9 +al 1"$,919
28
Chapter 5
,/. G .recast ,/. A 0onstruction
7)9,999 1,88#,B)9 17,#99 )$$,9$9
@),999 "7,8$)
1)9,999 "99,999
8"),999 1#@,#99
11),999 ""1,)$)
$8,B)9
+al 9 +al 9
0ompleted .ro6ects /nv. 0ost o* 0ontracts Sold
",@8",8@9 ",@8",8@9 ",@8",8@9
+al 9 +al ",@8",8@9
c. >+ottom section o* 6o+ cost sheet?
.recast Department
D3 >Est. !1,))9,999? D& >Est. !""9,999? 5' >Est.
!"B),999?
Date :mount Date :mount Date
:mount
5ct. 1 ! 7)9,999 5ct. #1 ! @),999 5ct. #1
!1)9,999
=ov. @ 8"),999 =ov. #9 11),999 =ov. #9 $8,B)9
!1,@B),999 !179,999
!"@8,B)9
0onstruction Department
D3 >Est. !#)9,999? D& >Est. !1#9,999? 5' >Est.
!"1@,)99?
Date :mount Date :mount Date
:mount
=ov. 1) ! "99,999 5ct. #1 ! 17,#99 5ct. #1 ! "7,8$)
=ov. #9 1#@,#99 =ov. #9 ""1,)$)
!1)9,799
!"@8,@$9
d. &incoln 0onstruction 0ompany does not seem to have a good
estimation system in place *or its +id process, especially in its
29
Chapter 5
.recast Department. he company may +e losing a signifcant
num+er o* +ids +ecause o* inQated cost estimates.
@7. a. : 6o+ order cost system is appropriate in any environment in
which costs can +e readily identifed with specifc products,
+atches, contracts, or pro6ects. 1or adopting this system there
should +e a 6ustifcation on a costA+eneft +asis to trace costs
to those specifc products, +atches, contracts, or pro6ects.
+. he only 6o+ remaining in ,/. at )U#1 is D%S11@K
D%S11@ +alance, @U#9 !1,)B9,999
3ay additionsK
%aw material !1"@,999
.urchased parts 8B,999
Direct la+or "99,)99
5verhead >1$,)99 hrs. X !B.)9W? 1@7,")9 ))B,B)9
,/. +alance, )U#1 !",1"B,B)9
W5' rate E !@,)99,999 I 799,999 hrs. E !B.)9 per hour
c. 12 inventory o* playpens, @U#9 1$,@99
Hnits completed in 3ay 1),999
Hnits availa+le #@,@99
Hnits shipped in 3ay >"1,999?
12 inventory, )U#1 1#,@99
Since .ip Squea-s uses the 1/15 inventory method, all units
remaining in 12 inventory were completed in 3ay.
,or- in process inventory, @U#9 !@"9,999
3ay additionsK
%aw material ! #,999
.urchased parts 19,899
Direct la+or @#,"99
5verhead >@,@99 Z !B.)9? ##,999 $9,999
otal cost !)19,999
Hnit cost E !)19,999 I 1),999 units completed E !#@ per unit
12 inventory E !#@ Z 1#,@99 E !@)),799
d. /* the amount o* overapplied or underapplied 5' is not
material or the result o* an error in the 5' application rate,
the amount is normally charged directly to 02S. /* the amount
is signifcant, the amount should +e prorated over the
relevant accounts >i.e., ,/., 12, and 02S?.
>03:
adapted?
30
Chapter 5
@B. a., +. :pplied 5' rate E !#9",@99 I 199,899 E !# per D&'
0ost o* goods manu*actured ! $7,999
:dd ending wor- in processK
wo 6o+s open have D3 o* ! @,899
wo 6o+s open have D& o* $,999
wo 6o+s open have applied 5'
o* >!# M ",1@@? 7,@#"
"9,"#"
otal costs accounted *or !117,"#"
&ess +eginning wor- in process >1),@99?
0ost o* production inputs !199,8#"
&essK Direct la+or !#7,@99
:pplied 5' >!#.99 M 8,899? "7,@99
>7",899?
0ost o* direct material used ! #8,9#"
0ost o* indirect material issued 11,799
otal cost o* raw material used ! @$,7#"
c. Feginning raw material ! $,799
%aw material purchased )7,999
otal raw material availa+le !7),799
%aw material issued >@$,7#"?
Ending raw material !1),$78
d. 5verhead applied >!# M 8,899? ! "7,@99
:ctual overhead chargesK
/ndirect la+or !19,899
/ndirect material 11,799
:ll other ),999 >"B,@99?
Hnderapplied overhead in :pril ! 1,999
e. Feginning fnished goods ! 17,899
:dd cost o* goods manu*actured $7,999
0ost o* goods availa+le !11",899
&ess ending fnished goods >1#,"99?
0ost o* goods sold ! $$,799
@8. a. :ctual D3 cost !11,799,999
Standard D3 cost >!)7,999 M "99? >11,"99,999?
3aterial .rice Lariance ! @99,999 H
:ctual D& cost !7,$)B,799
Standard D& cost >!#@,@99 M "99? >7,889,999?
Direct &a+or %ate Lariance ! BB,799 H
:ctual 5' cost !1@,899,999
31
Chapter 5
Standard 5' cost >!B7,999 M "99? >1),"99,999?
5' Lariance ! >@99,999? 1
+. 3aterialK
!11,799,999 I 7,999,999 E !1.$# >rounded? actual cost per
l+. vs. !".99 standard cost per l+.; !9.9B ; 7,999,999 E
!@"9,999 1 price variance
7,999,999 l+s. used vs. >"8,999 ; "99? standard E 7,999,999 G
),799,999 E @99,999 l+s. more than standard; @99,999 ; !" E
!899,999 H quantity variance
he primary cause o* the un*avora+le material variance is
+ecause o* e;cess usage.
@$. a. D3 cost !18.99
D& cost >!"9 ; >1" I 79?? @ .99
otal standard prime costs !"" .99
+. 4o+ ($18
D3 cost >!18 ; 1,"99? !"1,799
D& cost >!@ ; 1,"99? @,899
otal standard direct cost !"7,@99
4o+ ("99"
D3 cost >!18 ; ",999? ! #7,999
D& cost >!@ ; ",999? 8,999
otal standard direct cost !@@,999
c. 4o+ ($18 Standard :ctual Lariance
D3 ! "1,799 !"#,)") !1,$") H
D& @,899 @,8@9 @9 H
otal !"7,@99 !"8,#7) !1,$7) H

4o+ ("99"
D3 !#7,999 !#B,@@9 !1,@@9 H
D& 8,999 B,8)9 1)9 1
otal !@@,999 !@),"$9 !1,"$9 H
d. Fy computing variances *or each 6o+, managers +ecome
aware o* any trends in costs. /* costs are aggregated across
6o+s, any trends may +e o+scured.
32
Chapter 5
)9. a. .roft on the f;edAprice contracts is constrained +y the
contract price. .roft can only +e increased i* ways are *ound
to reduce costs. 5ne way that costs can +e reduced is to shi*t
them to other contracts. his is a particularly efective
strategy i* the costs that are shi*ted to another contract can
+e recouped under the terms o* that other contract. Fy
shi*ting some costs o* the f;edAprice contracts to the costA
plus contracts, the proft on the f;edAprice contracts rises and
the shi*ted costs can +e recovered under the terms o* the
costAplus contracts. 1urther, this strategy may have the efect
o* increasing costs under the costAplus contracts i* those
contracts determine proft as a percentage o* total costs.
+. his type o* cost shi*ting is dishonest and unethical. /t has the
efect o* increasing the total prices o* costAplus contracts, and,
i* those contracts are government related, those prices are
typically +orne +y ta;payers. /n a sense it is a way *or the
stoc-holders and managers o* the de*ense contractors to
steal *rom the ta;payers. /t is diYcult to imagine a setting in
which this process could +e la+eled ethical.
)1. a. Each student will have a diferent answer.
+. he company is utilizing the +enefts o* automation to reduce
the costs o* handling so many parts. Fy standardizing
processes, the company can assem+le a messenger +ag with
a diverse set o* parts in an amount o* time that is similar to
that required *or massAproduced ones. :ccordingly, although
the company is pro+a+ly paying, on average, more *or parts
on custom messenger +ags than massAproduced ones; it is
holding the line on direct la+or and production overhead. Fy
holding costs down *or la+or and overhead, the total cost o*
the custom produced messenger +ags is not signifcantly
higher than that o* the mass produced messenger +ags.
c. <uality as viewed *rom the perspective o* the consumer
should +e much higher with the customAmade messenger
+ags +ecause customers are a+le to speci*y the various parts
they want included. Fy getting the e;act com+ination o* parts
the customers desire, they will perceive the quality o* the
product to +e very high relative to the premium in price they
pay over the massAproduced messenger +ags.
33
Chapter 5
d. he answer is mostly revealed in part >c?. Fy containing costs
to levels close to those o* massAproduced messenger +ags,
+ut allowing the customer to choose the parts they desire, a
su+stantial gross proft can +e achieved. he higher gross
proft reQects the customersR willingness to pay a premium *or
the e;act com+ination o* parts desired, even though the
companyRs costs are not signifcantly greater than those
incurred to mass produce messenger +ags.
)". a. /t is li-ely that the least popular thoughts and opinions would
not +e heard on campus. Students would naturally support
those ideas and positions that were consistent with their own
ethics, philosophies, and sel* interests. :s a consequence, the
overall diversity o* ideas would pro+a+ly decline.
+. :ssuming diversity o* opinions ultimately +enefts all
students, the Hniversity o* ,isconsin is possi+ly supporting
diversity with the only means availa+le[student dollars.
'owever, this approach may not +e ethical +ecause it *orces
students to support opinions, +elie*s, and ideas that may
violate their personal ethics. :lthough the Supreme 0ourt o*
the Hnited States will ultimately determine whether this is a
legal practice, each individual student can reach hisUher own
conclusion as to whether the practice is ethical.
)#. a. 5verhead other than spoilage !799,999
Estimated spoilage cost !)9,999
&ess salvage value "9,999 #9,999
:d6usted estimated overhead cost !7#9,999
.5% E !7#9,999 I @9,999 E !1).B) per D&'
+. Disposal value o* chemical @$7
3anu*acturing 5verhead 1,"#@
,or- in .rocess[4o+ (B88 1,B#9
)@. a. .redetermined rate E !$"),999 I 199,999 E !$.") per 3'
+. otal cost o* direct material !78B,199
otal cost o* direct la+or 1)B,B)9
:pplied 5' >#,989 ; !$.")? "8,@$9
otal cost o* 4o+ F#17 !8B#,#@9
c. he rewor- cost is de+ited to the manu*acturing overhead
account since the company uses a predetermined rate that
includes rewor- costs to apply overhead.
34
Chapter 5
3anu*acturing 5verhead B),)99
Larious accounts B),)99
d. .redetermined rate E !8)9,999 I 199,999 E !8.)9 per 3'
otal cost o* direct material !78B,199
otal cost o* direct la+or 1)B,B)9
:pplied 5' >#,989 ; !8.)9? "7,189
otal cost o* 4o+ F#17 !8B1,9#9
e. otal cost o* direct material !78B,199
otal cost o* direct la+or 1)B,B)9
:pplied 5' >#,989 ; !8.)9? "7,189
%ewor- cost >!B),)99 ; ."9? 1),199
Sale o* rewor-ed pipe >"99 ; !#.)9? >B99?
otal cost o* 4o+ F#17 !88),@#9
35