ch-3 To ch-5

CHAPTER: 3
EXERCISE 3-25
1
.
2
.
3
.
4
.
Raw-material inventory, January 1
$134,000
Add: Raw-material purchases
191,000
Raw material available for use
$325,000
Deduct: Raw-material inventory, January 31
124,000
Raw material used in January
$201,000
Direct labor
300,000
Total prime costs incurred in January
$501,000
Total prime cost incurred in January
$501,000
Applied manufacturing overhead (60% $300,000)
180,000
Total manufacturing cost for January
$681,000
Total manufacturing cost for January
$681,000
Add: Work-in-process inventory, January 1
235,000
Subtotal
$916,000
Deduct: Work-in-process inventory, January 31
251,000
Cost of goods manufactured
$665,000
Finished-goods inventory, January 1
$125,000
Add: Cost of goods manufactured
665,000
Cost of goods available for sale
$790,000
Deduct: Finished-goods inventory, January 31
117,000
Cost of goods sold
$673,000
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
$180,000
Actual manufacturing overhead incurred in January
175,000
Overapplied overhead as of January 31
$ 5,000
The balance in the Manufacturing Overhead account on January 31 is a $5,000 credit

balance.
NOTE: Actual selling and administrative expense, although given in the exercise, is
irrelevant to the solution.
EXERCISE 3-26
1
.
total manufacturing costs 30%
$2,500,000 30%
$750,000
Applied manufacturing
overhead
direct-labor cost 80%
Direct-labor cost
applied manufacturing overhead 80%
$750,000 .8
total manufacturing cost
Applied manufacturing
overhead
2
.
Direct-material cost
direct labor cost

applied manufacturing overhead
3
.
$2,500,000 $937,500 $750,000
$812,500
Let X denote work-in-process inventory on December 31.
Total
manufacturin
g
work-inprocess
+
cost
$2,500,000
inventory,
work-inprocess
inventory,
Jan.1
.75X
cost of
=
Dec. 31
goods
manufactured
$2,425,000
.25X
$2,500,000
$2,425,000
$300,000
Work-in-process inventory on December 31 amounted to $300,000.
EXERCISE 3-28
1
.
CRUNCHEM CEREAL COMPANY

SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 20X1
Direct material:
Raw-material inventory, January 1
$30,000
Add: Purchases of raw material
278,000
$308,000
Deduct: Raw-material inventory, December 31
33,000
Raw material used
$275,000
Direct labor
120,000
Manufacturing overhead
252,000
Total manufacturing costs
$647,000
Add: Work-in-process inventory, January 1
39,000
Subtotal
$686,000
Deduct: Work-in-process inventory, December 31
42,900
$643,100
*Applied manufacturing overhead is $252,000 ($120,000 210%). Actual

manufacturing overhead is also $252,000, so there is no overapplied or underapplied
overhead.
2
.
Finished-goods inventory, January 1
$42,000
Add: Cost of goods manufactured
643,100
$685,100
Deduct: Finished-goods inventory, December 31
46,200
Cost of goods sold
$638,900
PROBLEM 3-38
1
.
TWISTO PRETZEL COMPANY

Direct material:
Raw-material inventory, 12/31/x0
$10,100
39,000
$49,100
Deduct: Raw-material inventory, 12/31/x1
11,000
Raw material used
$38,100
Direct labor
79,000
Manufacturing overhead:
Indirect material
$4,900
Indirect labor
29,000
Depreciation on factory building
3,800
Depreciation on factory equipment
2,100
Utilities
6,000
Property taxes
2,400
Insurance
3,600
Rental of warehouse space
3,100
Total actual manufacturing overhead
$54,900
Add: Overapplied overhead*
3,100
Overhead applied to work in process
58,000
$175,100
Add: Work-in-process inventory, 12/31/x0
8,100
Subtotal
$183,200
Deduct: Work-in-process inventory, 12/31/x1
8,300
$174,900
*The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to
work in process. Therefore, the overapplied overhead, $3,100, must be added to total
actual overhead to arrive at the amount of overhead applied to work in process. If there
had been underapplied overhead, the balance would have been deducted from total
actual manufacturing overhead. The amount of overapplied overhead is found by
subtracting actual overhead, $54,900 (as computed above), from applied overhead,
$58,000 (given).
2
.

SCHEDULE OF COST OF GOODS SOLD
Finished-goods inventory, 12/31/x0
$14,000
Add: Cost of goods manufactured*
174,900
$188,900
Deduct: Finished-goods inventory, 12/31/x1
15,400
Cost of goods sold
$173,500
Deduct: Overapplied overhead
3,100
Cost of goods sold (adjusted for overapplied overhead)
$170,400
*The cost of goods manufactured is obtained from the Schedule of Cost of Goods
Manufactured.
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.
3
.

INCOME STATEMENT
Sales revenue
$205,800
Less: Cost of goods sold
170,400
Gross margin
$35,400
Selling and administrative expenses:

Salaries
$13,800
Utilities
2,500
Depreciation
1,200
Rental of office space
1,700
Other expenses
4,000
Total
23,200
Income before taxes
$12,200
Income tax expense
5,100
Net income
$7,100
PROBLEM 3-40
Traceable costs total $2,500,000, computed as follows:
Percent
Traceab
le
Traceab
le
Cost
$2,500,0
00
300,000
80%
60
$2,000,0
00
180,000
250,000
90
225,000
50,000
90
45,000
100,000
50
50,000
Total
Cost
Professional staff
salaries
Administrative support
staff
Travel
.
Photocopying
..
Other operating
costs
Total.
$3,200,0
00
$2,500,0
00
JLRs overhead (i.e., the nontraceable costs) total $700,000 ($3,200,000 - $2,500,000).
Predetermined overhead rate = budgeted overhead traceable costs
= $700,000 $2,500,000 = 28% of traceable costs
Target profit percentage = target profit total cost
= $640,000 $3,200,000 = 20% of cost
The total cost of the Martin Manufacturing project is $64,000, and the billing is $76,800,
as follows:
Professional staff salaries
Administrative support
staff
Travel.
.
Photocopying
Other operating
costs.
Subtotal
Overhead ($50,000 x 28%)
$41,0
00
2,600
4,500
500
1,400
$50,0
00
14,00
.
Total cost.
Markup ($64,000 x 20%)
.
Billing to
Martin
0
$64,0
00
12,80
0
$76,8
00
Possible nontraceable costs include utilities, rent, depreciation, advertising, top

management salaries, and insurance.
6.
Professional staff members are compensated for attending training sessions
and firm-wide planning meetings, paid vacations, and completion of general, non-clientrelated paperwork and reports. These activities benefit multiple clients, the consultant,
and/or the overall firm, making traceability to specific clients difficult if not impossible.
PROBLEM 3-42
1
.
HURON CORPORATION
Direct material:
Raw material inventory, 12/31/x1
$89,000
731,000
$820,000
Deduct: Raw-material inventory, 12/31/x2
59,000
Raw material used
$761,000
Direct labor
474,000
Manufacturing overhead:
Indirect material
$45,000
Indirect labor
150,000
Depreciation on factory building
125,000
Depreciation on factory equipment
60,000
Utilities
70,000
Property taxes
90,000
Insurance
40,000
Total actual manufacturing overhead
$580,000
Deduct: Underapplied overhead*
2,500
Overhead applied to work in process
577,500
$1,812,500
Add: Work-in-process inventory, 12/31/x1
-0-
Subtotal
$1,812,500
Deduct: Work-in-process inventory, 12/31/x2
40,000
$1,772,500
*The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to
work in process. Therefore, the underapplied overhead, $2,500, must be deducted from
total actual overhead to arrive at the amount of overhead applied to work in process. If
there had been overapplied overhead, the balance would have been added to total
manufacturing overhead.
The amount of underapplied overhead is found by subtracting the applied
manufacturing overhead, $577,500, from the total actual manufacturing overhead,
$580,000.
2
.
HURON CORPORATION
SCHEDULE OF COST OF GOODS SOLD
Finished-goods inventory, 12/31/x1
$ 35,000
Add: cost of goods manufactured
1,772,500
$1,807,500
10
Deduct: Finished-goods inventory, 12/31/x2
40,000
Cost of goods sold
$1,767,500
Add: Underapplied overhead*
2,500
Cost of goods sold (adjusted for underapplied overhead)
$1,770,000
*The company closes underapplied or overapplied overhead into cost of goods sold.
Hence the $2,500 balance in underapplied overhead is added to cost of goods sold for
the month.
3
.
HURON CORPORATION
INCOME STATEMENT
Sales revenue
$2,105,000
Less: Cost of goods sold
1,770,000
Gross margin
$335,000
Selling and administrative expenses
269,000
Income before taxes
$ 66,000
Income tax expense
25,000
Net income
$ 41,000
PROBLEM 3-44
1
.
MARCO POLO MAP COMPANY

FOR THE MONTH OF MARCH
Direct material:
11
Raw-material inventory, March 1
$17,000
Add: March purchases of raw material
113,000
$130,000
Deduct: Raw-material inventory, March 31
26,000
Raw materials used
$104,000
Direct labor
160,000
Manufacturing overhead applied (50% of direct labor)
80,000
$344,000
Add: Work-in-process inventory, March 1
40,000
Subtotal
$384,000
Deduct: Work-in-process inventory,

March 31 (90%$40,000)
36,000
$348,000
*Work upward from the bottom of the statement, using the information available. Direct
labor + manufacturing overhead = total manufacturing costs direct material cost =
$344,000 $104,000 = $240,000. Since manufacturing overhead = 50% of direct labor,
then manufacturing overhead = $80,000 and direct labor = $160,000.
Cost of goods manufactured = cost of goods sold + increase in finished-goods

inventory
= $345,000 + $3,000 = $348,000.
SCHEDULE OF PRIME COSTS
Raw material:
Beginning inventory
$17,000
Add: Purchases
113,000
12
3
.
$130,000
Deduct: Ending inventory
26,000
Raw material used
$104,000
Direct labor
160,000
Total prime costs
$264,000

SCHEDULE OF CONVERSION COSTS
Direct labor
$160,000
Manufacturing overhead applied (50% of direct labor)
80,000
Total conversion cost
$240,000
PROBLEM 3-48
1
.
Predetermined overhead rate:
Budgeted manufacturing overhead $606,000*
Budgeted direct-labor hours

120,000
$5.05 per direct-labor hour
*Budgeted manufacturing overhead = variable overhead + fixed overhead

$606,000 =
$390,000
+ $216,000
Cost of job 77:
13
Cost in beginning work-in-process inventory
$54,000
Direct material
45,000
Direct labor (3,500 hours$24.00 per hour)*
84,000
Applied manufacturing overhead

(3,500 hours$5.05 per hour)
17,675
Total cost
$200,675
*Direct-labor rate
3
.
direct-labor wages
$204,000
$24.00 per hour

direct-labor hours
8,500
Manufacturing overhead applied to job 79:
Direct-labor hourspredetermined overhead rate 2,000 hours$5.05 per

hour
$10,100
4
.
Total manufacturing overhead applied during November:
Units started during April25000..

Total units to account for..29000
Units completed and transferred

out during April..24000 100% 24000
Work in process, April 30..5000 40% 5000
Total units accounted for...29000
14
Total equivalent units..
Work in process, April 1

Costs incurred during April.
Total costs to account for.
Equivalent units...
Cost per equivalent unit
Direct
Material
Conversion
$ 220,000
1,404,000
$1,624,000
29,000
$56a
$ 66,000
506,000
$572,000
26,000
$22b
$1,624,000 29,000 = $56

$572,000 26,000 = $22
c
$56 + $22 = $78
b
3.
The cost of the ending work-in-process inventory is $324,000:

Direct material (5,000 x $56)..
Conversion cost (2,000 x $22)..
Total.
4.
$280,000
44,000
$324,000
(a) No material would be added during May. All material is introduced at the start of
Goodsons manufacturing process, and these units were begun in April.
(b) Since the work-in-process inventory is 40% complete at the end of April, 60% of
the conversion would be done in May.
1.
Given that the ending work-in-process inventory is at the 40% stage of completion,
these units would not have reached the 70% point in April where HH887 is added.
Therefore, there would be zero equivalent units with respect to part HH887 in the
ending work-in-process inventory.
PROBLEM 4-32
1.
The ending work-in-process inventory consisted of 500 units (300 + 900 700).
2.
The cost of goods completed during June totaled $57,400 (700 units x $82):
Physical
Units
Work in process, June 1.
Units started during June..
15
300
900
Percentage
Of
Completion
With
Respect to
Conversion
30%
Equivalent Units
Direct
Material Conversion
Total units to account for...
1,200

during June..
Work in process, June 30...
Total units accounted for
Total equivalent units..
700
500
1,200
Work in process, June 1

Costs incurred during June.
Total costs to account for.
Equivalent units...
Cost per equivalent unit.
100%
60%
700
500
700
300
1,200
1,000
Direct
Material
Conversion
Total
$15,000
45,000
$60,000
1,200
$50a
$ 6,300
25,700
$32,000
1,000
$32b
$21,300
70,700
$92,000
$60,000 1,200 = $50

$32,000 1,000 = $32
c
$50 + $32 = $82
b
Finished-Goods Inventory
57,400
Work-in-Process Inventory.
57,400
3.
The cost of the June 30 work-in-process inventory is $34,600:

Direct materials (500 x $50)...
Conversion cost (300 x $32)..
Total
4.
$25,000
9,600
$34,600
Equivalent units measure the amount of manufacturing activity (i.e., for direct
material or conversion) that has been applied to a batch of physical units. If, for
example, a company has 600 physical units in process that are 40% complete as to
conversion, the firm has done the equivalent amount of conversion activity as would
be required to do all of the conversion work for 240 units (600 x 40%).
Equivalent units are needed to state manufacturing activity on a common
measurement scale. One cannot add completed units to units in process. Such a
combination is like adding apples and oranges, as some units are complete and
some are incomplete. Instead, these units are first converted to equivalent units,
and the latter are then used in unit-cost calculations.
16
$82c
PROBLEM 4-35 (50 MINUTES)

The missing amounts are shown below. A completed production report follows.
Work in process, May 1 (in units)......................................................................................
15,000
Units completed and transferred out during May............................................................
65,000
Total equivalent units: conversion....................................................................................
71,000
Work in process, May 1: conversion.................................................................................
$ 37,500
Costs incurred during May: direct material......................................................................
570,000
Cost per equivalent unit: conversion................................................................................
12.25
Cost of goods completed and transferred out during May............................................
1,407,250
Cost remaining in ending work-in-process inventory: direct material.........................
94,000
PRODUCTION REPORT: HERCULES TIRE AND RUBBER COMPANY

Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material
Work in process, May 1......................
15,000
Units started during May....................
60,000
Total units to account for...................
75,000
17
20%
Conversion
out during May.........................
65,000
100%
65,000
65,000
Work in process, May 31....................
10,000
60%
10,000
6,000
Total units accounted for....................
75,000
_____
_____
75,000
71,000
Total equivalent units..........................
Direct
Material
Conversion
Total
Work in process, May 1......................
$135,000
$37,500
$172,500
Costs incurred during May.................
570,000
832,250
1,402,250
Total costs to account for...................
$705,000
$869,750
$1,574,750
Equivalent units...................................
75,000
71,000
Costs per equivalent unit...................
$9.40*
$12.25
$21.65**
*$9.40 = $705,000 75,000
$12.25 = $869,750 71,000

**$21.65 = $9.40 + $12.25
Cost of goods completed and transferred out during May:
number of units
total cost per

equivalent unit ..................................65,000$21.65

transferred out
Cost remaining in May 31 work-in-process inventory:
Direct material:
18
$1,407,250
number of
cost per
equivalent
equivalent
units of
unit of
direct
material
direct
material
.....................................10,000$9.40
$94,000
Conversion:
number of
cost per
equivalent
equivalent
units of
unit of
conversion
conversion
................................................6,000$12.25
73,500
Total cost of May 31 work-in-process............................................................................
$167,500
Check: Cost of goods completed and transferred out...............
$1,407,250
Cost of May 31 work-in-process inventory...................
167,500
Total costs accounted for...............................................
$1,574,750
CHAPTER:5
EXERCISE 5-27
REDWOOD COMPANY
COMPUTATION OF SELLING COSTS
BY ORDER SIZE AND PER SKEIN WITHIN EACH ORDER SIZE
1.
Order Size
Small
Sales commissionsa
19
Medium
Large
Total
(Unit cost: $675,000/225,000

= $3.00 per box)............................................................
$ 6,000
$135,000
box)...................................................................................
$534,000
$ 675,000
62,600
295,400
26,400
105,000
31,000
60,000
Total cost for all orders of a

given size size.......................................................................
$185,400
$296,000
$654,000
$1,135,400
Units (skeins) solde..............................................................

103,000
592,000
2,180,000
Catalogsb
(Unit cost: $295,400/590,800
= $.50 per catalog)........................................................
127,150
105,650
catalog).............................................................................
Costs of catalog salesc

(Unit cost: $105,000/175,000
= $.60 per skein)...........................................................
47,400
31,200
skein).................................................................................
Credit and collectiond

(Unit cost: $60,000/6,000
= $10.00 per order).......................................................
4,850
24,150
order).................................................................................
Unit cost per order of a given sizef.....................................

$1.80
Retail sales in boxesunit cost:

Small, 2,000$3
Medium, 45,000$3
Large, 178,000$3
20
$.50
$.30
Catalogs distributedunit cost
Catalog salesunit cost

Number of retail ordersunit cost
Small: (2,00012) + 79,000 = 103,000
Medium: (45,00012) + 52,000 = 592,000

Large: (178,00012) + 44,000 = 2,180,000
f
Total cost for all orders of a given size units sold
2.
The analysis of selling costs shows that small orders cost more than large orders. This fact
could persuade management to market large orders more aggressively and/or offer
discounts for them.
PROBLEM 5-28
1.
Manufacturing overhead costs include all indirect manufacturing costs (all production
costs except direct material and direct labor). Typical overhead costs include:
a.
Indirect labor (e.g., a lift-truck driver, maintenance and inspection labor, engineering
labor, and supervisors).
Indirect material.
Other indirect manufacturing costs (e.g., building maintenance, machine and tool
maintenance, property taxes, insurance, depreciation on plant and equipment, rent, and
utilities).
Companies develop overhead rates before production to facilitate the costing of
products as they are completed and shipped, rather than waiting until actual costs are
accumulated for the period of production.
b.
2.
The increase in the overhead rate should not have a negative impact on the company,
because the increase in indirect costs was offset by a decrease in direct labor.
3.
Rather than using a plantwide overhead rate, Borealis Manufacturing could implement
separate activity cost pools. Examples are as follows:
Separate costs into departmental overhead accounts (or other relevant pools), with
one account for each production and service department. Each department would
allocate its overhead to products on the basis that best reflects the use of these
21
overhead services.
4.
Treat individual machines as separate cost centers, with the machine costs collected
and charged to the products using machine hours.
An activity-based costing system might benefit Borealis Manufacturing because it
assigns costs to products according to their usage of activities in the production
process. More accurate product costs are the result.
22
23
24

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CHAPTER: 3

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

Total prime costs incurred in January

Total prime cost incurred in January

Applied manufacturing overhead (60% $300,000)

Total manufacturing cost for January

Total manufacturing cost for January

Add: Work-in-process inventory, January 1

Deduct: Work-in-process inventory, January 31

Cost of goods manufactured

Finished-goods inventory, January 1

Add: Cost of goods manufactured

Cost of goods available for sale

Deduct: Finished-goods inventory, January 31

Cost of goods sold

Applied manufacturing overhead for January

Actual manufacturing overhead incurred in January

Overapplied overhead as of January 31

The balance in the Manufacturing Overhead account on January 31 is a $5,000 credit

total manufacturing costs 30%

direct-labor cost 80%

applied manufacturing overhead 80%

total manufacturing cost

direct labor cost

$2,500,000 $937,500 $750,000

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

Work-in-process inventory on December 31 amounted to $300,000.

CRUNCHEM CEREAL COMPANY

Add: Purchases of raw material

Raw material available for use

Deduct: Raw-material inventory, December 31

Raw material used

Total manufacturing costs

Add: Work-in-process inventory, January 1

Deduct: Work-in-process inventory, December 31

Cost of goods manufactured

*Applied manufacturing overhead is $252,000 ($120,000 210%). Actual

Finished-goods inventory, January 1

Add: Cost of goods manufactured

Cost of goods available for sale

Deduct: Finished-goods inventory, December 31

Cost of goods sold

TWISTO PRETZEL COMPANY

Add: Purchases of raw material

Raw material available for use

Deduct: Raw-material inventory, 12/31/x1

Raw material used

Depreciation on factory building

Depreciation on factory equipment

Rental of warehouse space

Total actual manufacturing overhead

Add: Overapplied overhead*

Overhead applied to work in process

Total manufacturing costs

Add: Work-in-process inventory, 12/31/x0

Deduct: Work-in-process inventory, 12/31/x1

Cost of goods manufactured

TWISTO PRETZEL COMPANY

Finished-goods inventory, 12/31/x0