EXERCISE 3-24 (20 MINUTES)

1. Raw-material inventory, January 1.......................................................................................................... $174,200

Add: Raw-material purchases................................................................................................................. 248,300
Raw material available for use................................................................................................................ $422,500
Deduct: Raw-material inventory, January 31............................................................................................ 161,200
Raw material used in January................................................................................................................. $261,300
Direct labor........................................................................................................................................... 390,000
Total prime costs incurred in January...................................................................................................... $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

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 teddy bears

Date Started 8/11 Date Completed 8/20

Number of Units Completed 1,000

Direct Material
Date Requisition Number Quantity Unit Price Cost
8/11 201 500 $.90 $450
8/12 208 600  .40  240

Direct Labor
Date Time Card Number Hours Rate Cost
8/15 82 550 $14 $7,700

Manufacturing Overhead
Date Activity Base Quantity Application Rate Cost
8/15 direct-labor hours 550 $3 $1,650

Cost Summary
Cost Item Amount
 Total Direct Material $   690
Total Direct Labor 7,700
Total Manufacturing Overhead 1,650
Total Cost $10,040
Unit Cost $ 10.04

Shipping Summary
Units Remaining
Date Units Shipped In Inventory Cost Balance
8/30 800 200 $2,008*

*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%
= $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 work-in-process work-in-process cost of

manufacturing + inventory, – inventory, = goods
cost Jan. 1 Dec. 31 manufactured

$1,250,000 + .75 X – X = $1,212,500

.25 X = $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................................................................................... 6,060

Raw-Material Inventory............................................................................ 5,100
Wages Payable....................................................................................... 720
Manufacturing Overhead.......................................................................... 240

Finished-Goods Inventory.................................................................................... 6,060

Work-in-Process Inventory....................................................................... 6,060
EXERCISE 3-28 (15 MINUTES)

budgetedoverhead
1. Predetermined overheadrate 
budgetedproduction volume

(a) At 100,000 chicken volume:

$150,000 ($.15)(100
,000)
Overheadrate   $1.65per chicken
100,000

(b) At 200,000 chicken volume:

$150,000 ($.15)(200
,000)
Overheadrate   $.90per chicken
200,000

(c) At 300,000 chicken volume:

$150,000 ($.15)(300
,000)
Overheadrate   $.65per chicken
300,000

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 Work-in-Process Inventory

295,100 23,400
226,200 226,200
68,900 421,200
234,000
Wages Payable 156,000
421,200 748,800

Manufacturing Overhead Finished-Goods Inventory

234,000 39,000
156,000
Sales Revenue 171,600
253,500 23,400

Accounts Receivable Cost of Goods Sold

253,500 171,600

2.
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. Raw material:

Beginning inventory................................................................................................................ $142,000

Add: Purchases       ?
Deduct: Raw material used..................................................................................................... 652,000
Ending inventory $162,000

Therefore, purchases for the year were.................................................................................... $672,000

2. Direct labor:

Total manufacturing cost......................................................................................................... $1,372,000

Deduct: Direct material...........................................................................................................   652,000
Direct labor and manufacturing overhead................................................................................. $   720,000

Direct labor + manufacturing overhead = $720,000

Direct labor + (60%) (direct labor) = $720,000
(160%) (direct labor) = $720,000

$720,000
Direct labor = 1.6   

Direct labor = $450,000

3. Cost of goods manufactured:

Work in process, beginning inventory.................................................................................. $ 160,000

Add: Total manufacturing costs........................................................................................... 1,372,000
Deduct: Cost of goods manufactured...................................................................................     ?
Work in process, ending inventory....................................................................................... $ 60,000

Therefore, cost of goods manufactured was......................................................................... $1,472,000

EXERCISE 3-31 (CONTINUED)

4. Cost of goods sold:

Finished goods, beginning inventory........................................................................................ $ 180,000

Add: Cost of goods manufactured............................................................................................ 1,472,000
Deduct: Cost of goods sold.....................................................................................................     ?
Finished goods, ending inventory............................................................................................ $ 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   
Direct labor.................................................................................................................. 180,000   
Manufacturing overhead   378,000*
Total manufacturing costs............................................................................................. $ 970,500   
Add: Work-in-process inventory, January 1.....................................................................    58,500   
Subtotal....................................................................................................................... $1,029,000   
Deduct: Work-in-process inventory, December 31...........................................................    64,350   
Cost of goods manufactured.......................................................................................... $ 964,650   

*Applied manufacturing overhead is $378,000 ($180,000210%). 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.

budgeted manufacturing overhead

1. Predetermined overhead rate =
budgeted level of cost driver
$650,000
(a) = $32.50 per machine hour
20,000machine hours
$650,000
(b) = $26.00 per direct-labor hour
25,000direct - labor hours
$650,000 $2.00 per direct-labor dollar or 200%
(c) = of direct-labor cost
$325,000*

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

2. Actual applied overapplied or
manufacturing – manufacturing = underapplied
overhead overhead 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. Work-in-Process Inventory................................................................................. 690,000

Manufacturing Overhead........................................................................ 690,000

2. Work-in-Process Inventory................................................................................. 715,000*

Manufacturing Overhead........................................................................ 715,000

*Applied manufacturing overhead = $715,000

= 22,000 hours x $32.50 per machine hour

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.......................................................................................................................... $225,000
Property taxes....................................................................................................................... 19,000
Indirect labor......................................................................................................................... 79,000
Supervisory salaries............................................................................................................... 210,000
Utilities.................................................................................................................................. 58,000
Insurance.............................................................................................................................. 32,000
Rental of space...................................................................................................................... 295,000
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.................................................................................................... 79,000
Actual manufacturing overhead............................................................................................... $997,000

actual applied
Overapplied = manufacturing – manufacturing
overhead overhead overhead

= $997,000 – ($12.9079,000*) = $22,100

*Actual direct-labor hours.

3. Manufacturing Overhead...................................................................................... 22,100

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

Calculation of
Account Amount Percentage Percentage
Work in Process.......................................................$ 29,000  20% 29,000  $145,000
Finished Goods........................................................ 50,750  35% 50,750  $145,000
Cost of Goods Sold.................................................. 65,250   45% 65,250  $145,000
Total........................................................................$ 145,000 100%

Underapplied Amount Added

Account Overhead x Percentage to Account
Work in Process....................................................... $22,000* x 20% $4,400
Finished Goods........................................................ 22,000 x 35%  7,700
Cost of Goods Sold.................................................. 22,000 x 45%  9,900

*Underapplied overhead = actual overhead – applied overhead

$22,000 = $167,000 – $145,000

Journal entry:

Work-in-Process Inventory..................................................................... 4,400

Finished-Goods Inventory...................................................................... 7,700
Cost of Goods Sold............................................................................... 9,900
Manufacturing Overhead....................................................................... 22,000

37. Budgeted overhead rate = budgeted overhead / budgeted direct professional labor
170% = 510,000 euros / 300,000 euros

Contract to redecorate mayor’s offices:

Direct material..........................................................................................................................................  4,100 euros

Direct professional labor............................................................................................................................ 7,000 euros
Overhead (170%  7,000 euros )................................................................................................................. 11,900 euros
Total contract cost..................................................................................................................................... 23,000 euros

PROBLEM 3-43 (35 MINUTES)

1. Predetermined overhead rate = budgeted overhead ÷ budgeted direct-labor cost = $2,730,000 ÷

$2,100,000 = 130% of direct labor cost

2. Additions (debits) total $7,802,500 [$2,800,000 + $2,175,000 + ($2,175,000 x 130%)].

3. The finished-goods inventory consisted of job no. 3154, which cost $175,750 [$78,000 + $42,500 + ($42,500 x 130%)].

4. Since there is no work in process at year-end, all amounts in the Work-in-Process account must be transferred to Finished-
Goods Inventory. Thus:

Finished-Goods Inventory............................................................................... 7,880,900*

Work-in-Process Inventory............................................................. 7,880,900

*Beginning balance in Work-in-Process Inventory + additions to the account:

$78,400 + $7,802,500 = $7,880,900

5. BBBC’s applied overhead totals 130% of direct-labor cost, or $2,827,500 ($2,175,000 x 130%). Actual overhead was
$2,777,000, itemized as follows, resulting in overapplied overhead of $50,500.

Indirect materials used.................................................................................. $ 32,500

Indirect labor................................................................................................. 1,430,000
Factory depreciation..................................................................................... 870,000
Factory insurance......................................................................................... 29,500
 Factory utilities............................................................................................. 415,000
Total $2,777,000
.....................................................................................................................

Manufacturing Overhead 50,500

Cost of Goods Sold ..................................................................................... 50,500
6. The company’s cost of goods sold totals $7,654,650:

Finished-goods inventory, Jan. 1……………. $ 0

Add: Cost of goods manufactured………….. 7,880,900
Cost of goods available for sale……………... $ 7,880,900
Less: Finished-goods inventory, Dec. 31….. 175,750
Unadjusted cost of goods sold………………. $ 7,705,150
Less: Overapplied overhead…………………. 50,500
Cost of goods sold……………………………... $ 7,654,650

7. No, selling and administrative expenses are operating expenses of the firm and are treated as period costs rather than product
costs. Such costs are unrelated to manufacturing overhead and cost of goods sold.

PROBLEM 3-46 (35 MINUTES)

1. Predetermined overhead rate = budgeted overhead ÷ budgeted machine hours

= $1,925,000 ÷ 35,000 = $55.00 per machine hour

2. (a) Work-in-Process Inventory............................................................. 170,000*.................

Raw-Material Inventory............................ 170,000

Work-in-Process Inventory............................................................. 288,200**................

Wages Payable........................................................ 288,200

* $45,000 + $90,000 + $33,000 = $170,000

** $80,000 + $49,000 + $140,000 + $19,200 = $288,200

(b) Manufacturing Overhead................................................................................ 520,000.

Accumulated Depreciation.............................................................. 72,000

Wages Payable.............................................................................. 140,000

Manufacturing Supplies Inventory.................................................. 15,000

Miscellaneous Accounts................................................................ 293,000

(c) Work-in-Process Inventory.............................................................................. 605,000*.

Manufacturing Overhead............................................................... 605,000

* (2,500 + 1,500 + 5,000 + 2,000) x $55.00 = $605,000

(d) Finished-Goods Inventory.............................................................. 692,000*..................

Work-in-Process Inventory......................................................... 692,000

* Job 101: $182,000 + $45,000 + $80,000 + (2,500 x $55.00) = $444,500

Job 102: $116,000 + $49,000 + (1,500 x $55.00) = $247,500
$692,000 = $444,500 + $247,500

(e) Accounts Receivable. .................................................................... 319,800*.

Sales Revenue............................................................. 319,800
 * $247,500 + $72,300 = $319,800

Cost of Goods Sold.. ..................................................................... 247,500

Finished-Goods Inventory............................................. 247,500

3. Job no. 103 and no. 104 are in production as of March 31:
Job 103: $92,000 + $140,000 + (5,000 x $55.00)...........................$507,000
Job 104: $33,000 + $19,200 + (2,000 x $55.00)............................. 162,200
Total...............................................................................................................$669,200

4. Finished-goods inventory increased by $444,500 ($692,000 - $247,500).

The company’s actual overhead amounted to $520,000, whereas applied overhead totaled $6

PROBLEM 3-47

NOTE: Actual selling and administrative expense, although given in the exercise, is irrelevant to the solution.

1. Machining Dept. overhead rate = budgeted overhead ÷ budgeted machine hours

= $2,000,000 ÷ 200,000 = $10 per machine hour

Assembly Dept. overhead rate = budgeted overhead ÷ budgeted direct-labor cost

= $1,540,000 ÷ $2,800,000 = 55% of direct-labor cost

2. The ending work-in-process inventory is carried at a cost of $76,765, computed as follows:

Machining Department:
Direct material…………………………………… $12,250
Direct labor………………………………………. 13,950
Manufacturing overhead (180 x $10)………… 1,800 $ 28,000
Assembly Department:
Direct material…………………………………… $ 3,350
Direct labor………………………………………. 29,300
Manufacturing overhead ($29,300 x 55%)….. 16,115 48,765
Total cost……………………………………………... $ 76,765

3. Actual overhead in the Machining Department amounted to $2,130,000, whereas applied overhead totaled
$2,125,000 (212,500 hours x $10). Thus, overhead was underapplied by $5,000 during the year.

4. Actual overhead in the Assembly Department amounted to $1,525,000, whereas applied overhead totaled
$1,589,500 ($2,890,000 x 55%). Thus, overhead was overapplied by $64,500.

5. The company’s manufacturing overhead was overapplied by $59,500 ($64,500 - $5,000). As a result, excessive
overhead flowed from Work-in-Process Inventory, to Finished-Goods Inventory, to Cost of Goods Sold, meaning
that the Cost of Goods Sold account must be decreased at year-end.

6. The Work-in-Process account is charged with applied overhead, or $3,714,500 ($2,125,000 + $1,589,500).

PROBLEM 3-48

1. Traceable costs total $3,750,000, computed as follows:

Percent Traceable
Total Cost Traceable Cost

Professional staff salaries……… $3,750,000 80% $3,000,000

Administrative support staff…… 450,000 60 270,000
Photocopying…………………….. 75,000 90 67,500
Travel………………………………. 375,000 90 337,500
Other operating costs…………… 150,000 50 75,000
Total……………………………. $4,800,000 $3,750,000
 Golden State Enterprises’ overhead (i.e., the nontraceable costs) total $1,050,000 ($4,800,000 - $3,750,000).

2. Predetermined overhead rate = budgeted overhead ÷ traceable costs

= $1,050,000 ÷ $3,750,000 = 28% of traceable costs

3. Target profit percentage = target profit ÷ total cost

= $960,000 ÷ $4,800,000 = 20% of cost
4. The total cost of the Davis Manufacturing project is $96,000, and the billing is $115,200, as follows:

Professional staff salaries… ……… $61,500

Administrative support staff……… 3,900
Photocopying………………………… 750
Travel………………………………….. 6,750
Other operating costs………………. 2,100
Subtotal…………………………… $75,000
Overhead ($75,000 x 28%)…………. 21,000
Total cost…………………………. $96,000
Markup ($96,000 x 20%)……………. 19,200
Billing to Davis……………………… $115,200

5. 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-client-related 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 3-56 (25 MINUTES)

1.
Predetermined Overhead
Quarter Rate Calculations
1 st................................................................................ $8 per hour   $400,000/50,000
2 nd................................................................................ 10 per hour $320,000/32,000
3 rd................................................................................ 8 per hour $200,000/25,000
4 th................................................................................ 10 per hour $280,000/28,000

2.
February May
Direct material.............................................................. $600 $600
Direct labor...................................................................  340  340
Manufacturing overhead:
20 hrs$8 per hr................................................. 160
20 hrs$10 per hr............................................... 200
Total cost...................................................................... $1,100 $1,140

3.
February May
Total cost...................................................................... $1,100 $1,140
Markup (10%)............................................................... 110  114
Price............................................................................ $1,210 $1,254

annualbudgetedmanufacturing overhead
4. Predetermined rate 
annualbudgeteddirect-labor hours

$1,200,000
  $8.89per hour (rounded)
135,000
5.
February May
Direct material................................................................ $ 600.00 $ 600.00
Direct labor.....................................................................  340.00  340.00
Manufacturing overhead (20 hrs  $8.89)..........................  177 .80  177 .80
Total cost........................................................................ $1,117 .80 $1,117 .80
PROBLEM 3-56 (CONTINUED)

6. Total cost........................................................................ $1,117.80

Markup (10%).................................................................   111.78
Price.............................................................................. $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. $648,000 6. $180,000
2. $57,000 7. $450,000
3. $210,000 8. $120,000
4. $114,000 9. $45,000
5. $240,000 10. Zero

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

Raw-Material Inventory Accounts Payable

Bal. 8/31 45,000 36,000 Bal. 8/31
210,000 120,000 243,000 210,000
Bal. 9/30 135,000   3,000 Bal. 9/30

Work-in-Process Inventory Finished-Goods Inventory

Bal. 8/31 24,000 Bal. 8/31 105,000
Direct 450,000 450,000 540,000
material 120,000 Bal. 9/30 15,000
Direct
labor 240,000 Cost of Goods Sold
Overhead 180,000 540,000
Bal. 9/30 114,000

Manufacturing Overhead Sales Revenue

180,000 180,000 648,000

Wages Payable Accounts Receivable

  3,000 Bal. 8/31 Bal. 8/31 24,000
238,500 240,000 648,000 615,000
  4,500 Bal. 9/30 Bal. 9/30 57,000

Supporting Calculations:

1. Sales revenue = cost of goods sold120%

= $540,000120% = $648,000

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 direct direct manufacturing

inventory = material + labor + overhead
= $61,500 + (1,500)($20) + (1,500)($15*)
= $114,000
budgeted overhead
*Predetermined overhead rate =
†
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 September credit to

for direct labor = 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 hourspredetermined overhead rate

= 12,000*$15
= $180,000

addition to work in process for direct labor

*Direct labor hours =
direct-labor rate

$240,000
=  12,000hours
$20

beginning balance in ending balance in work in

7. Cost of goods completed during work in process additions process
September = + during –
November

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

= $450,000

8. Raw material used in September September credit to raw-material

= inventory = $120,000 (given)
9. August 31 balance in September 30 balance in direct
raw-material inventory = raw-material inventory + 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)

budgetedmanufacturing overhead
1. Predetermined overheadrate 
budgeteddirect - labor hours
$462,000
  $22 per direct - labor hour
21,000

2. Journal entries:

(a) Raw-Material Inventory........................................................... 6,000

Accounts Payable...................................................... 6,000

(b) Raw-Material Inventory........................................................... 5,200

Accounts Payable...................................................... 5,200

(c) Work-in-Process Inventory...................................................... 11,330*

Raw-Material Inventory............................................... 11,330

*(260 sq. ft.$5.50 per sq. ft.) + (1,100 lbs.$9 per lb.)

Manufacturing Overhead**...................................................... 120   

Manufacturing-Supplies Inventory................................ 120

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

(d) Work-in-Process Inventory...................................................... 36,000   

Manufacturing Overhead......................................................... 14,100   
Wages Payable.......................................................... 50,100

Work-in-Process Inventory...................................................... 39,600*

Manufacturing Overhead............................................. 39,600

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

(e) Manufacturing Overhead......................................................... 13,000

Accumulated Depreciation: Building and
Equipment............................................................. 13,000

(f) Manufacturing Overhead......................................................... 1,340

Cash......................................................................... 1,340

PROBLEM 3-58 (CONTINUED)

(g) Manufacturing Overhead......................................................... 2,400

Accounts Payable...................................................... 2,400

(h) Manufacturing Overhead......................................................... 2,370

Cash......................................................................... 2,370
 (i) Manufacturing Overhead......................................................... 2,900
Prepaid Insurance...................................................... 2,900

(j) Selling and Administrative Expenses........................................ 7,500

Cash......................................................................... 7,500

(k) Selling and Administrative Expenses........................................ 4,500

Accumulated Depreciation: Buildings and
Equipment............................................................. 4,500

(l) Selling and Administrative Expenses........................................ 1,150

Cash......................................................................... 1,150

(m) Finished-Goods Inventory...................................................... 37,130*

Work-in-Process Inventory........................................ 37,130

*Cost of Job T79:

Direct material (260$5.50).................................. $  1,430

Direct labor (850$20)......................................... 17,000
Manufacturing overhead (850$22).......................  18,700
Total cost............................................................... $37,130

(n) Accounts Receivable............................................................. 27,360*

Sales Revenue........................................................... 27,360

*(76  2)$720 per trombone .

Cost of Goods Sold............................................................... 18,565**

Finished-Goods Inventory...........................................
18,565
**18,565 = $37,130  2.

PROBLEM 3­58 (CONTINUED)

3. T-accounts and posting of journal entries:

Cash Accounts Payable

Bal 11,000 14,500 Bal
1,340 (f) 6,000 (a)
2,370 (h) 5,200 (b)
7,500 (j) 2,400 (g)
1,150 (l)

Accounts Receivable Wages Payable

Bal. 20,000 8,500 Bal.
(n) 27,360 50,100 (d)

Accumulated Depreciation:
Prepaid Insurance Buildings and Equipment
Bal. 6,000 99,000 Bal.
2,900 (i) 13,000 (e)
4,500 (k)
 Manufacturing-Supplies Inventory Manufacturing Overhead
Bal. 600 (c) 120 39,600 (d)
120 (c) (d) 14,100
(e) 13,000
(f) 1,340
(g) 2,400
(h) 2,370
(i) 2,900

Raw-Material Inventory Cost of Goods Sold

Bal. 150,000 (n) 18,565
(a) 6,000 11,330 (c)
(b) 5,200

Selling and Administrative

Work-in-Process Inventory Expenses
Bal. 89,000 (j) 7,500
(c) 11,330 37,130 (m) (k) 4,500
(d) 36,000 (l) 1,150
(d) 39,600
PROBLEM 3-58 (CONTINUED)

Finished-Goods Inventory Sales Revenue

Bal. 223,000 27,360 (n)
(m) 37,130 18,565 (n)

4. (a) Calculation of actual overhead:

Indirect material (valve lubricant)...................................................................... $    120

Indirect labor................................................................................................... 14,100
Depreciation: factory building and equipment..................................................... 13,000
Rent: warehouse.............................................................................................. 1,340
Utilities........................................................................................................... 2,400
Property taxes................................................................................................. 2,370
Insurance........................................................................................................   2,900
Total actual overhead....................................................................................... $36,230

actualmanufacturing ap lied manufacturing

(b) Overapplied overhead =

  
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................................................... $150,000
Add: October purchases of raw material...........................................   11,200
Raw material available for use........................................................ $161,200
Deduct: Raw-material inventory, October 31.....................................  149,870
Raw material used......................................................................... $ 11,330   
Direct labor............................................................................................ 36,000   
Manufacturing overhead:
Indirect material............................................................................. $    120   
Indirect labor................................................................................. 14,100   
Depreciation on factory building and equipment................................ 13,000   
Rent: warehouse............................................................................ 1,340   
Utilities......................................................................................... 2,400   
Property taxes............................................................................... 2,370   
Insurance......................................................................................   2,900   
Total actual manufacturing overhead........................................ $36,230   
Add: overapplied overhead......................................................   3,370*
Overhead applied to work in process...............................................   39,600   
Total manufacturing costs........................................................................ $  86,930   
Add: Work-in-process inventory, October 1...............................................   89,000   
Subtotal $175,930   
Deduct: Work-in-process inventory, October 31.........................................  138,800   
Cost of goods manufactured.................................................................... $  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....................................................................................... $223,000

Add: Cost of goods manufactured...........................................................................................   37,130
Cost of goods available for sale.............................................................................................. $260,130
Deduct: Finished-goods inventory, October 31.........................................................................  241,565
Cost of goods sold................................................................................................................ $  18,565
Deduct: Overapplied overhead*..............................................................................................    3,370
Cost of goods sold (adjusted for overapplied overhead)............................................................ $  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...................................................................................................................... $27,360

Less: Cost of goods sold.......................................................................................................  15,195
Gross margin........................................................................................................................ $12,165
Selling and administrative expenses.......................................................................................  13,150
Income (loss)........................................................................................................................ $ (985)
PROBLEM 3-59 (20 MINUTES)

JOB-COST RECORD

Job Number T79 Description Trombones

Date Started October 5 Date Completed October 20

Number of Units Completed 76

Direct Material
Date Requisition Number Quantity Unit Price Cost
10/5 112 260 $5.50 $1,430

Direct Labor
Date Time Card Number Hours Rate Cost
10/8 to 10-08 through 10-12 850 $20 $17,000
10/12

Manufacturing Overhead
Date Cost Driver (Activity Base) Quantity Application Rate Cost
10/8 to Direct-labor hours 850 $22 $18,700
10/12

Cost Summary
Cost Item Amount
Total direct material $ 1,430
Total direct labor 17,000
Total manufacturing overhead 18,700
Total cost $37,130
Unit cost $488.55*

Shipping Summary
Units Remaining
Date Units Shipped In Inventory Cost Balance
October 38 38 $18,565 †

*Rounded
†
$18,565 = $37,130 ÷ 2

PROBLEM 3-60 (50 MINUTES)

1. Schedule of budgeted overhead costs:

Department A Department B
Variable overhead
A  21,000 $17.......................................................................... $357,000
B  21,000 $5........................................................................... $105,000
Fixed overhead...................................................................................  210,000  210,000
Total overhead.................................................................................... $567,000 $315,000

Grand total of budgeted overhead (A + B): $882,000

total budgeted overheadrate

Predetermined overheadrate 
total budgeted direct - labor hours
$882,000
  $21per hour
42,000

2. Product prices:
 Basic Advanced System
System
Total cost......................................................................................... $1,190 $1,640
Markup, 10% of cost.........................................................................    119    164
Price................................................................................................ $1,309 $1,804

3. Departmental overhead rates:

Department A Department B
Budgeted overhead
(from requirement 1)..................................................................... $567,000 $315,000
Budgeted direct-labor hours...............................................................   21,000   21,000

Predetermined overhead rates........................................................... $567,000 $315,000

  21,000   21,000

$27 per $15 per

direct-labor direct-labor
hour hour

PROBLEM 3-60 (CONTINUED)

4. Revised product costs:

Basic Advanced
System System
Direct material.................................................................................. $  450 $  900
Direct labor......................................................................................   320   320
Manufacturing overhead:
Department A:
Basic system 5$27............................................................  135
Advanced system 15$27....................................................  405
Department B:
Basic system 15$15..........................................................  225
Advanced system 5$15..................................................... _ ____    75
Total $1,130 $1,700

5. Revised product prices:

Basic Advanced
System System
Total cost......................................................................................... $1,130 $1,700
Markup, 10% of cost.........................................................................    113    170
Price ........................................................................................... $1,243 $1,870

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.............................................................................. $250,000

December additions:
Direct material used......................................................................... $124,000
Purchased parts.............................................................................. 87,000
Direct labor..................................................................................... 200,500
Manufacturing overhead (19,500 hours$7.50*)...............................  146,250  557,750
Work-in-process inventory, 12/31................................................................. $807,750

$4,500,000
* Manufacturing overhead rate 
600,000 hours
 $7.50per hour

3. The dollar value of the playpens remaining in KidCo's finished-goods inventory on December 31 is $455,600, calculated
as follows:

Playpen Units
Finished-goods inventory, 11/30........................................................................................... 19,400
Units completed in December............................................................................................... 15,000
Units available for sale........................................................................................................ 34,400
Units shipped in December.................................................................................................. 21,000
Finished-goods inventory, 12/31........................................................................................... 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............................................................... $420,000

 December additions:
Direct material used........................................................................... $  3,000
Purchased parts................................................................................ 10,800
Direct labor....................................................................................... 43,200
Manufacturing overhead (4,400 hours$7.50)....................................  33,000   90,000
Total cost................................................................................................ $510,000

total cost
Unit cost =
units completed
$510,000
=
15,000
= $34 per unit

Value of finished-goods inventory on

12/31 = Unit costquantity
= $3413,400
= $455,600

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 hourspredetermined overhead rate = overhead applied

73,000$30 = $2,190,000

3. The manufacturing overhead applied in December is calculated as follows:

Machine hourspredetermined 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)................................................................................... $2,392,000

Applied overhead ($2,190,000 + $180,000)................................................................................. (2,370,000)
Underapplied overhead............................................................................................................. $    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............................................................................... $110,000

December direct material......................................................................................................... 8,000
December direct labor............................................................................................................. 24,000
December overhead (1,000$30)...........................................................................................  30,000
Total finished-goods inventory......................................................................................... $172,000
6. Opticom’s 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.................................................................... $  210,000
Raw-material purchases ($1,930,000 + $196,000)....................................  2,126,000
Raw material available for use............................................................... $2,336,000
Deduct: Indirect material used ($250,000 + $18,000).............................. $268,000
Raw-material inventory 12/31...............................................  170,000   438,000
Raw material used................................................................................. $1,898,000
Direct labor ($1,690,000 + $160,000).......................................................... 1,850,000
Manufacturing overhead:
Indirect material ($250,000 + $18,000).................................................... $268,000
Indirect labor ($690,000 + $60,000)........................................................ 750,000
Utilities ($490,000 + $44,000)................................................................ 534,000
Depreciation ($770,000 + $70,000).........................................................  840,000
Total actual manufacturing overhead....................................................... 2,392,000
Deduct: Underapplied overhead.............................................................    22,000
Overhead applied to work in process........................................................... $2,370,000
Total manufacturing costs........................................................................... $6,118,000
Add: Work-in-process inventory, 1/1............................................................   120,000
Subtotal $6,238,000
Deduct: Work-in-process inventory, 12/31*...................................................   300,400
Cost of goods manufactured....................................................................... $5,937,600

*Supporting calculations follow.

CASE 3-62 (CONTINUED)

*Supporting calculations for work in process 12/31:

D12-002 D12-003 Total

Direct material................................. $ 75,800 $ 52,000 $127,800
Direct labor......................................   40,000   33,600   73,600
Applied overhead:
2,500 hrs.$30..........................   75,000   75,000
800 hrs.$30............................ ______ 24,000   24,000
Total.................................. $190,800 $109,600 $300,400