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RECAP
Three types of Manufacturing costs
1. Direct Material (DM) Can be traced directly and conveniently to products
Employees who work directly on the goods being manufactured
3. Manufacturing Overhead (MOH) All manufacturing cost other than direct materials and direct labor. Indirect material Indirect labor Overhead
RECAP
What are the three types of Inventories?
Raw material Inventory - Inventory on hand and available for use
RECAP
Manufacturing Cost Flow
Material Inventory
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QUESTION 1
The flow of manufacturing costs through the ledger accounts of Superior Locks, Inc., in the current years is illustrated below in summarized form.
QUESTION 1
a. Purchases of Direct Materials
Material Inventory
Beg. Balance $13000
Purchases of DM
$269000
QUESTION 1
b. Cost of Direct Materials used
Material Inventory
B. Balance $13000
Purchases of DM
$269000
?
Cost of Direct Material used
End Balance = Beg. Balance + Purchases of DM - Cost of Direct Material used Cost of Direct Material used = Beg. Balance + Purchase of DM End Balance = $13000 + $269000 - $17000 = $265000
QUESTION 1
c. Direct Labor costs assigned to production
Direct Labor
131300 134000 End Balance 2700 Direct Labor costs
QUESTION 1
d. The year-end liability for direct wages payable
Direct Labor
131300 134000 End Balance 2700
Direct Labor costs
End balance represent the amount owned to employee for work already performed. Therefore, its wages payable, a current liability
QUESTION 1
e. Total manufacturing costs charged to the Work in Process Inventory account during the current year.
Direct Material Beg bal. 13000 269000 265000
End Balance
Manufacturing costs = Direct Material costs + Direct Labor costs + Manufacturing Overhead costs = $265000 + $134000 + $214400 = $613400
QUESTION 1
f. The cost of finished goods manufactured Work in Process Inventory Beg. Balance $19000
$265000
$134000 $214400 End Balance ? $614400
QUESTION 1
g. The year-end balance in the Work in Process Inventory account Work in Process Inventory
End Balance
?
Cost of finished goods (Completed jobs)
Work in Process End Balance = Beg. Bal. + Manufacturing Costs Cost of finished goods
QUESTION 1
h. The cost of goods sold
Work in Process Beg bal. 19000
265000
134000 614400 214400 End bal. 18000
Cost of Goods Sold ? Cost of goods sold = Beg. Bal. + Cost of finished goods End Bal. = $46000 + $614400 - $53400 = $607000
QUESTION 1
i. The total amount of inventory listed in the year-end balance sheet
Material Inventory
Beg. Balance $13000 $269000 End Balance $17000 $265000
$214400
End Balance $18000
QUESTION 1
Overall flow of manufacturing costs Material Inventory
Beg. Balance $13000 $269000 End Balance $17000 $265000
Direct Labor
$131300 $134000
End bal. $2700
$214400
End Balance $18000
Manufacturing Overhead
$214400 $214400
QUESTION 2
QUESTION 2
Note: Entertainment and travelling expenses were incurred by Headquarter and Marketing staff.
QUESTION 2
Apply
overhead rate
Reconcile
Budget Overhead: $1.2 Million Budgeted direct labor hours: 200,000 Overhead Rate = Estimated Annual Overhead Estimated Annual Activity Level = 1.2 Million 200,000 = 600% of direct labor cost Applied Overhead Rate in 2009: 600% x 180,000 = 1.08 Million
102,000
90,000 78,000
0.75x240,000=180,000
25,000 166,000 $1.126 Million
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ADDITIONAL QUESTION:
A) Added
+ Purchases-
Total Manufacturing cost Work in process, Jan 1 Work in Process, Dec 31 Cost of goods manufactured
Note: Always use the estimated overhead and not the actual overhead in finding total manufacturing cost.
QUESTION 3
QUESTION 3
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Production Cost = Direct Material + Direct Labor + Manufacturing Overhead. In this question, predetermined overhead rate is 50% of Direct Labor Cost.
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Applied Overhead for Job 307: $150,000 x 0.5= $75,000 Applied Overhead for Job 308: $105,000 x 0.5= $52,500
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Job 306: Beginning Bal. of April $29,000 + $20,000 + $10,000= $59,000 Cost During April $135,000+$85,000+$42,500=$262,500 Production Cost for Job 306 = $59,000+ $262,500 = $321,500
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Job 307: Beginning Bal. of April $35,000 + $18,000 + $9,000= $62,000 Cost During April $220,000+$150,000+$75,000=$445,000 Production Cost for Job 307 = $62,000+ $445,000 = $507,000
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Job 308: Cost During April $100,000+$105,000+$52,500=$257,500 Production Cost for Job 308 =$257,500
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
Raw Material: Beginning Balance =$80,000 Purchases= $500,000 Indirect Material= $50,000 Used material for Job 306, 307, 308 during April= $135,000 + $220,000 + $100,000 = $455,000 Left Over Material = $500,000 + $80,000 - $50,000 - $455,000 = $75,000
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
Finished Goods:
Beginning Balance of Job 307 = $35,000+ $18,000+ $9,000 = $62,000 Cost for Job 307 during April = $220,000 + $150,000 + $75,000= $445,000
QUESTION 4
Watersport Company
Overhead rate: $13 per DLH Estimated manufacturing overhead: $143,000 Estimated DLH: 11,000 hours
Actual Operating Info 2010 For ABC
Question 4a
How?
Step
CALCULATE THE OVERAPPLIED OR UNDERAPPLIED MANUFACTURING OVERHEAD UNDER THE TRADITIONAL COSTING SYSTEM.
1: Calculate the applied overhead Step 2: Calculate the actual overhead Step 3: Compare
Question 4a
Recreation Canoe: Competition Canoe:
They take 10 hours per unit ($100 $10 per hour) They take 10 hours per unit ($100 $10 per hour) 20 hours
Actual Activity
Manufacturing overhead(Recreation Canoe) = Overhead Rate Actual Activity Level = $13 per DLH (10 800) DLH = $104,000 Manufacturing overhead(Competition Canoe) = Overhead Rate Actual Activity Level = $13 per DLH (10 200) DLH = $26,000 Total Applied Manufacturing overhead = $104,000+$26,000 = $130,000
Question 4a
Overapplied or Underapplied?
Total Actual Manufacturing overhead = $25,000+$20,000+$15,000+$10,000+$10,000+$20,000+$30,000 = $130,000 Step 3: Compare = $260,000 (Applied MOH)
Question 4b
CALCULATE THE GROSS PROFIT PER UNIT FOR RECREATION CANOE AND COMPETITION CANOE UNDER THE TRADITIONAL COSTING SYSTEM.
Sales Price Per Canoe
Question 4b
Recreation Canoe
Direct Materials Direct Labour Manufacturing Overhead: $13 per DLH 10 hours $13 per DLH 10 hours Total unit cost $380 $130 $150 $100
Competition Canoe
$200 $100
$130 $430
Step 2: Calculate gross profit per unit
Recreation Canoe:
Competition Canoe:
Gross profit per unit = Sales Price per Canoe Unit Cost = $500-$380 = $120
Gross profit per unit = $550-$430 = $120
Question 4c
How?
CALCULATE THE GROSS PROFIT PER UNIT FOR RECREATION CANOE AND COMPETITION CANOE UNDER THE ACTIVITY-BASED COSTING SYSTEM.
ABC(RECAP)
Definition: A costing method that first assigns costs to activities & then to goods and services based on how much each good or services uses the activities.
Traditional Costing ABC
Multiple POHR
ABC(RECAP)
Question 4c
Step 1: Identify Activities Activity Cost Pool
Building Depreciation Equipment Depreciation Material Ordering Quality Control Maintenance & Security Setup & Drafting Supervision
Units of Activity
5,000 4,000 300 250 5,000 50 100%
Rate
$5 per square footage $5 per machine hour $50 per order $40 per inspect. $2 per square footage $400 per setup $3 per DLC
Question 4c
Units of Activity = Activity Level For Recreation Canoe + Activity Level For Competition Canoe Activity Cost Pool
Building Depreciation Equipment Depreciation Material Ordering Quality Control Maintenance & Security Setup & Drafting Supervision
Cost Driver
Square Footage Machine Hours No. of Orders No. of Inspections Square Footage No. of Setups Dir. Labour Costs
Units of Activity
5,000 4,000 300 250 5,000 50 100%
Rate
$5 per square footage $5 per machine hour $50 per order $40 per inspect. $2 per square footage $400 per setup $3 per DLC
Question 4c
Cost Driver
Square Footage Machine Hours No. of Orders No. of Inspections Square Footage No. of Setups Dir. Labour Costs
Units of Activity
5,000 4,000 300 250 5,000 50 100%
Question 4c
Rate
Competition Canoe COST COST ACTUAL ACTUAL UNITS OF ALLOCATED UNITS OF ALLOCATED ACTIVITY TO PRODUCT ACTIVITY TO PRODUCT 4,000 3,400 200 $20,000 $17,000 $10,000 1,000 600 100 $5,000 $3,000 $5,000
Recreation Canoe
Quality Control
Maintenance & Security Setup & Drafting Supervision
Total Overhead
160
4,000 20 90%
$6,400
$8,000 $8,000 $27,000 $96,400
90
1,000 30 100%
$3,600
$2,000 $12,000 $3,000 $33,600
Question 4c
Recreation Canoe COST ALLOCATED TO PRODUCT Total Overhead $96,400
Overhead Costs Assigned to Products: Recreation Canoe = $96,400 800 Units = $120.50 Competition Canoe = $33,600 200 Units = $168 Recreation Canoe Competition Canoe
Direct Materials
Direct Labor Manufacturing Overhead Total Unit Cost
$150
$100 $120.50 $370.50
$200
$100 $168 $468
Question 4c
Recreation Canoe
Direct Materials Direct Labor Manufacturing Overhead Total Unit Cost $150 $100 $120.50 $370.50
Competition Canoe
$200 $100 $168 $468
For Recreation Canoe : Gross Profit per unit = $500 - $370.50 = $129.50 For Competition Canoe:
Gross Profit per unit = $550 - $468 = $82
Question 4c
Question 4d
DISCUSS HOW THE ACTIVITY-BASED COSTING SYSTEM WOULD AFFECT THE PRICING DECISION OF WATERSPORTS FOR THE TWO PRODUCTS.
Traditional Costing
Recreation Competition $130 $120 Recreation $120.50 $129.50
ABC
Competition $168 $82
$130 $120
By using ABC, the low-volume, specialized products would have greater overhead costs.
Hence, in order for the company to cover this higher overhead costs, it would have to set a higher selling price for the Competition Canoe.