Problem 1-18 (10 minutes) 1, The direct costs of the Apparel Department are as follows: Apparel Department cost of sales—Evendale Store $ 90,000 Appare! Department sales commission—Evendale ae 7,000 ry—Evendale . ~ __ 8,000 Total direct costs for the Apparel Department ~ $105,000 2. The direct costs of the Evendale Store are as follows: Apparel Department cost of sales—Evendale Store $ 90,000 Store manager's salary—Evendale Store... 12,000 Apparel Department sales commission—Evendale ; Store ... 7,000. Store utilities Evendale Store 11,000 — Apparel Department manager's salary—Evendale 3 Store ... s = 8,000 Janitorial costs—Evendale Store __9,000 Total direct costs for the Evendale Store $132,000 3, The direct costs in the Apparel Department that are also variable with respect to departmental sales is computed as follows: Apparel Department cost of sales—Evendale Store $90,000 Apparel Department sales commission—Evendale- Store... Total direct costs for the Apparel Deparment that are also variable costs... 2.000 | 36BP-4A Problem 1-19 (30 Te : se Subelenia 1. Contribution format income statement Todrick Company Contribution Format Income Statement i ver AS pew «$300,000 Variable expenses Cost of goods sold : ($20,000! + $200,000 — $7,000) * Selling expense .. Administrative expense Contribution margi Fixed expenses: Selling expense ..... Administrative expense Net operating income .. The Variable administrative expense shown above ($12, 000) i is computes r } as follows: Sales (a)... Contribution margin (b) . Total variable costs (a) — (b) - Total variable costs (a) Cost: of goods sold.. Variable selling expense Cost of goods sold plus wate expense (b).-. Variable admis aS one i 2G theyProblem 1-19 (continued) The fixed selling expense shown above ($30,000) is computed 2 . $60,000 $18,000 Contribution margin (a) Net operating income (b). Total fixed costs (a) — (b). Total fixed costs (a)... Fixed administrative expense (b) .. Fixed selling expense (a) - (b). 2. Traditional income statement Todrick Company Traditional Income Statement Selling expense ($15,000 + $30,000). Administrative expense ($12,000.+ $12,000), Net operating’income. 3. The selling price per unit is $300,000 + 1,000 units sold = $300 4. The variable cost per unit is $240, 000 = # 1,000 on sold = $240. 5. The contribution margin per unit is $300 - $240 = $60. 3 6. The contribution format is more useful because it organizes costs base d on their cost behavior. The contribution format enables managers to. in unit sales, .| f qued Bulnias JO 53602 299U1P Bq PINOD 51509 B5AUL« “5 x = wed ‘SPOUM-UO-SIEAW 34} 07 = ¢ Bee 3! <2 “suoheuop 6uAIHOs seal Buju Jo $3509 SUL, X x5 “UaUysIy OU} Ut suoneinbes a > Agayes Unteay unm BurAjduiod Jo syso9 eu “4 x. = ‘Sjeau aly SIAAl|ap Pue UeA aL ie S@AUP OYM JBAIB2IED SLA JO sabem Aunoy ey, “6. im xX x = wWesb01d SPOYM-UO-SI22W 247 = uy pasn quawidinba uaysIpy 843 UO UO} eidag . ‘} X ae = ureib01d $ja34M-UO-SIEOW Z § alp jouabeuew awin-yed aa jo Auejes aU “2 x e x K “wesboid sjaayM 5 -up-si@aW ata Surpnjout ‘48jU2D 2125 ‘S401U8S, uosipeW sasnoy jeu) 2y BUY UO JUS! BY “P= * YEE AK ek x ; “UBA S]RSUM i Roars ea aun Aq pawnsuc> seB JO SOD a4 *D. = X 7X an x “U0 0S pue ‘supjdeu ieddad t ‘ Jes se yons Sajjddns jeqUapIou! jo 3sO> SUL“ x a Yer UeA S[P2UM-UO-SIPAW 94} Guisea| JO sop eUL "e Pex aiqeueA_ —Paupuy Pag. - Palpur IG wondinseg ; Wea ——“ebog _ ~weiboig Seu —«.—«reIDOL ‘ seoym-uo-sean -uo-sieaw aut Aq S]BBUM-UO 21g Aq panies. panies sioluas —_-sjeay a2 J0 7509 ° suqjuas jo sequnN — Je|noiqled J 380]. Paspuy 410 I221G ay oy padsay YIM — PRNPUT 40 211g axa 40 21qeUEA (saynui 02) OZ-F weaIqoldProblem 1-21 (45 minutes) ny Marwick’s Pianos, Inc. Traditional Income Statement For the Month of August. Sales (40 pianos x $3,125 per piano).... Cost of goods sold (40 pianos x $2,450 per piano). Gross margi Selling and administrative expenses: Selling expenses; Advertising... Sales salaries and commissions [$950 + (8% x $125,000)}. Delivery of pianos (40 pianos x $30 per piano) Utilities Depreciation of sales facilities Total sellitig expenses Administrative expenss Executive salaries Insurance.. Clerical — [$1,000 +. (40 pianos x $20 per # aaol Depreciation of office equipment. Total administrative expenses... . Total selling and administrative expenses ts Net operating income. 40. =w . Fixed costs remain constant in total but vary on a’per unit basis | Problem 1-21 (continued) 2. : Marwick's Pianos, Inc. Contribution Format Income Statement, For the Month of August -. ; Inlar te 2gstne7e4 Per Total: Piano Sales (40 pianos x $3,125 per piano)... 1? $125,000" $3,125 Variable expenses: Cost of goods sold Seis (40 pianos x $2,450 per piano)... 98,000 ~~ 2,450 Sales commissions (8% x’ $125,000) “10,000 ° 250 Delivery of pianos (40 pianos x $30 per piano) 1,200 - 30 Clerical (40 pianos x $20 per piano} fy SEEN IE 20" Total variable expenses .. Contribution margin... Fixed expenses: Advertising . Sales 'salari Depreciation of office equipment Total fixed expenses, Net operating income. Inversely with changes in the activity level. ‘As the’activity level increases, for example, the fixed costs will decrease on a per unit basis. Showing fixed costs on a per unit basis on the income statement might ' mislead management into thinking that the fixed costs behave in the same way as the.variable costs. That is, management might be misled into thinking that the per unit fixed costs would be the same regardless of how many pianos were sold during the month. For this reason, fixed "costs generally are shown only in totals on a’contribution format income statement.’ ; 41NS hiner oe Problem 1-22 (45 minutes) i. The total manufacturing overhead cost Is computed as follows:. Direct labor cost (a) .... $15,000 Direct labor as a percentage of total conversion a costs (b) 30% Total conve (a) + (1 $50,000 os a Total conversion cost (a) $50,000, Direct labor cost (b) .... $15,000 4 ‘Total manufacturing overhead cost (a) — (b’ $35,000. 2. The total direct materials cost is computed as follows: > Direct labor cost (a) ... $15,000 Pees labor as a percentage of total prime ‘costs Total prime cost (a) + (b) ~ $37,500 ~ $15,000, $22,500, Total prime cost (a). Direct labor cost (b) Total direct materials cost (a) — (b). +3. The total amount of manufacturing cost is computed as follows: Direct materials cost $22,500 Direct labor cost. 15,000 Manufacturing overhead co: 35,000 | Total manufacturing cost: $22,500 - 4. The total variable. paling and augunistative cost is computed a follows: . 7 Total sales (eon. iueeastansesenney ~ Sales commission percentage | (b) + Total variable selling and administrative cost (a) » x (b) reaProblem 1-22 (continued) * 5, The total variable cost is computed as follows: Direct materials cost. Direct labor cost... Sales commissions . Total variable cost... 6. The total fixed cost is computed as follows: Sales commissions (b) Total fixed selling and administrative _- expense (a) — (b) Total fixed manufacturing overt Total fixed cost... 5 7. The total contribution margin is calculated as follows: $120,000 . $43,500. $76,500 > Sales (a)... . Variable costs (b) Contribution margin (a) — (b).| : 4 4 e x Sfp fej |> ju jal j>i>le|> | x 4 x PeNpur PeNT “OD 80D Pani 7507 (oMpold) aanensiuuipy Buyjes 10 aIqeLe, BuyngzejnueW “P2YISSE|D SI 1S0> se;NDIWeW plone 0} Ay ‘sasodnd yso2 pue Jojeyaq S02 ynoge 6: siuj Jo asodind aul “Mojaq Siamsue ay 0) suoRdaaxa 10) Pasn Saxog +z WRIT SOD ot “Aiopey"saxey Aadoig “04 jnoge SUOISSNDSIp Ain MA UeYS 0} UNS aL 396 Oy caer OS aq Aew aay) OqSnatsuT ay 0} Bon (Seqnum og) ez-r weiqoia3 = SP 3 3 , : g . =e $og Sea 3 3 a i: : z nes ts a ‘ 4 xX 4 "* SBOUJO SANNIOXO. 7sTuonda: fades JO 5 SSbem “Sr X : A jonanpoud JeyeOMS Ul PESM WIEX “ZT xX , & Siam Bul[puey sjevayeur kee abun “9T” x : - we BP A PaNpul PONG —_——- SOD. 1 PaXly, “B07 (PMpoig)- anReNsUNUpY =BuIJ]aS 10 2qeLIe) Buumpesnueyy- (penuquos) €z-T welqoidmeen aeRO Aan | Problem 1-24 (30 minutes) 1a. The total product cost is computed as follows: Direct materials. Direct labor.... Total manufacturing overhead Total product cost ........0600 1b. The total period cost is computed as follows: Total selling expense....... $30,000 Total administrative expense . 29,000 Total period cost... $59,000 2a. The total direct manufacturing cost is computed as follows: » Direct material $ 69,000 Direct labor.. 35,000 Total direct m 9 $104,000 - 2b. The total indirect manufacturing cost is computed as follows: Variable manufacturing overhead $15,000 Fixed manufacturing overhead . -28,000 $43,000 Total indirect manufacturing cost. 3a. The total manufacturing cost is computed as follows: © Direct materials. ~ $ 69,000 Direct labo 35,000 Total manufacturing overhea 43,000 $147,000 Total manufacturing cost... 46 aeProblem 1-24 (continued) 7 OSoker 3b. The total Nonmanufacturing cost is computed as follows: Total selling expense... Total administrative expense Total nonmanufacturing cost $30,000 --29,000- 3c. The total conversion eos is computed as follows: 3 sidenev Direct labor .. i : Total manufacturing overhead... + 43,000 Total conversion cost.:, $78,000 The total prime cost is computed as follows: ‘ : $69,000 + 9435,000 + Total panne 0: 2 $104, codes 4a. The total variable race cost'is-computed as 5 Fallows: Direct materials. $ 69,000 Direct labor... , 35,000 Variable manufacturing overhead 15,000 . Total variable manufacturing cost .. $119,000 4b.. The total amount of fixed cost for the company as a whole is computed as follows: $28,000 | Fixed manufacturing overhead Fixed selling expense. 18,000 Fixed administrative expense 25,000 Total fixed cost. $71,000 - ‘47aetna cana Problem 1-24 (continued) . paee 4c. The ese cost per unit produced and sold is computed as folloy Direct raters $63) 1000 Direct labor. ae Total variable manufacturing overhead 15) One f Variable selling expense... 12,0 ra Variable administrative expense 4,000 Total variable cost (a).....: $135,000 . Number of units produced and sold (t 1,00 £ vereble cost re unit produced and sold (a) (b) a neg1ODe 5a. The incremental manufacturing cost is js compute as 5s follows! Es $ 69, 000 ~35,000-" Variable manufacturing overhead .. 15,000: ; Total incremental cost (a) ..... ) y Number of units produced and sold (b) 1,000 Incremental cost per,unit produced (a) + $119 48Problem 1-25 (30 minutes) ayn Eas i Milden Company Contribution Format Income Statement For the Next Quarter Sales (12,000 units'x $100 per unit).:i.0.c.:. Variable expenses; Cost of goods sold (12,000 units x $35 unit) Sales commission (6% x $1,200,000) Shipping expense (12,000 units. x $9.10 per unit Total variable expenses .. Contribution margin... Fixed expenses; Advertising expense Shipping expense... Administrative salaries Insurance expense . Depreciation expense .. Total fixed expenses... Net operating income, $1,200,000 $420,000 72,000 * 601,200 598,800 210,000 - * 28,000 ° 145,000 © 9,000 49Problem 1-25 (continued) 2 Milden Company Traditional Format Income Statement For the Next Quarter: Sales (12,000 units x $100 per unit)... Cost of goods sold (12,000 units x $35 per unit). Gross margin... Selling and ochimsrate caress Advertising... Sales commissions (6% x $1,200,000)] Shipping expense [$28,000 + (12,000 units x $9. 10 per unit)]... Administrative salaries. Insurance expense.. Depreciation expense Total selling and administrative expenses Net operating income... $210,000, - 72,000 137,200 145,000. 30WO00z... = - 00070¢ 000'b6 f Bs 000'b6 000/09 000'09 : ; 000’E > 000'E 0000 : >... 000’0T 5 00/9. * ‘ . 000'9 000'2T ; 3 000’zt | ; : 000‘ 000'r, . . 00st ete: t : 00s’z g -000/08 2 . 000’08 oos‘€ = oos'e 000'0r$ - 000‘0r 5 oo0‘os$ o00‘ost . 000'sTT$ ; oo0‘ett$ Paupur peg 3509 Pexts __aiqeuen 350) PNPOLG engensiuiupy JOINEYER ISOD : ~ do Buyjas~ “$4809 [BIOL “A0qD2 24 ‘saniAA Pasn sjeayew 39911q “SBHE/S Bd1JO SAReNsiuiLUpY sarddns a21yo @ARESIUIUpYy ‘Buipling As0yDe ‘uoNer: aidaq Au0yDe4.‘sjeuayeus eu1puT "quauudinbe A1o;Dey “3503 aseaq juawdinba a2yjo eAHeNsiUuIWUpe ‘UOneIDa1daq *A1o;ey ’anueinsuy SUOISSILILUOD SajeS Ing A10}5e4 ‘saxey Apiadoig “uolsiMadns Auoyje4 * Bulsquaapy doge} De11q~ Weal ISOD a (soyriunu sp) 9z-T eseDCase 1-26 (continued) 2. The average product cost for one patio set wi $212,000. ould be: production 3. The average product cost per set would increase if the er fewer UN! drops. This is because the fixed costs would be spread ov! causing the average cost per unit to rise. 4, a. Yes, the president may expect a minimum price of $153, which is the average cost to manufacture one set. He might expect a price ever’ higher than this to cover a portion of the administrative costs as We” ‘The brother-in-law probably is thinking of cost as including only direst materials, or, at most, direct materials and direct labor. Direct “ materials alone would be only $47 per set ($94,000 ~ 2, 0 = $47 per set), and direct materials and direct labor would be only $106 Pel fet (($94,000 + $118,000) + 2,000 = $106 per set). b. The term is opportunity cost. The full, regular price of a set might appropriate here, because the company is operating at full capacity, and this is the amount that must be given up (benefit forgone) to a set to the brother-in-law.TheFoundational 15 1, Molding: Using the equation Y= a+ bx, the cated total manufac- turing overhead cost Is computed ES follows: . Ys $10,000 + ($1 “40 per (2 J Estimated fixed manufacturing overhead ... $10,000 Estimated variable manufacturing ove $1.40 pet MH x 2,500 MHs.. Estimated total ‘manufacturing overhead co: The predetermined overhead rate in Molding is computed as follows: * Estimated total manufacturing overhead (a) $13,500 itis Estimated total machine-hours (MHs) (b “7,500 or Predetermined overhead rate (a) + (b) $5.40 Fabrication: Using the equation Y= a + bx, the estimated total manu- facturing overhead cost is computed as follows:, - Y = $15,000 + (§2.20 per MH)(1,500 MHs) Estimated fixed manufacturing overhead $15,000 Estimated variable manufacturing overhead e $2.20 per MH x 1,500 MHS... 300 Estimated total manufacturing overhead cost: 18.300 The predetermined overhead rate in Fabrications computed as follows: Estimated total manufacturing overhead (a)... $18,300. Estimated total machine-hours (MHS) (b). , 1,500 MHs iy Predetermined overhad rate (a) (0) “$12: 20. ee fi 2. The applies overhead from Maling is computed as folows: Se : a -JobP J0bQ” Machine-hours worked on job (a) We 70. ~ 800 Molding overhead rate (b) .... $5.40 $9, "a0 * $4,320 ite Manufacturing overhead applied (a) x (b). :The Foundational 15 3. The applied overhead from Fabrication is computed as follows: JobP ~JobQ 600 900 $12.20 $12.20 $7,320 $10,980 Machine-hours worked oh job (a) Fabrication overhead rate (b). Manufacturing overhead applied (a) x (b) . 4. The total manufacturing cost assigned to Job P is computed as follows: Job P~ Ee “$13,000 21,000 9 16,500 “Total manufacturing cost..... $50,500 5. The unit product cost for Job P.is computed as follows: |, _ “Total'manufacturing cost (a). $50,500 , Number of units in the job (b).. 20 Unit product cost (a) + (b)’.... $2,525 | or aie | + The total manufacturing cost assigned to Job Q is computed as follows: a pote Job Q Direct materials. $ :8,000 Direct labor . 7,500 Manufacturing overhead applied ($4,320 + $10,980) 15,300 ” satch franufacturing cost - - $30,800 EE The unit roc eost for. Job Qis computed as flows: » | ; Total Penne cost (a). - $30,800 ~ Number of units in the job (b)... 30 Unit as cost (eae (a) = (0 $1,027 9to obs? and: Teal manufacturing cost asset Jb P . Total manufacturing east assigned to tb Q Cast of gods ~ 10. The planbide overhead rate of $7.95 ‘by combining the estimated manufactu Costs, Fequitement 1 for Molding and Fabrication (§13,500 + $18, $31,800) and then dividing by the estimated total machineThe Foundational 15° 12. Job P's unit product cost is computed as follows: Direct materials.. $13,000 Direct labor... 21,000 Manufacturing o1 + 18,285 Total manufacturing cost (a) $52,285 Number of units in the job (b).. 20 Unit product cost (rounded) (a) + (b). $2,614 13. Job Q’s unit product cost is computed as follows: Direct materials.. $8,000 Direct labor. sc... 7,500 Manufacturing overhead applie 13,515 _ Total manufacturing cost (a) $29,015 Number of units in the job (b).. 30 Unit product cost (rounded) (a; $967 14, The sélling prices are calculated as follows: JobP —JobQ” .. Total manufacturing cost "Markup (based on 80%) Totat price for the job (a) Number of units in the job (b! |‘ Selling price per unit (rounded) (a) $52,285 $29,015 41,828 23,212 $94,113 $52,227 30 $4,706 - -$1,741 ~ 15. The cost of goods sold is the sum of the manufacturing costs assigned _toJobsPandQ: ~ _ * Total manufacturing cost assigned to Job P.... $52,285 Total manufacturing cost assigned to Job Q 29,015 Cost of goods sold... $81,300 69.Exercise 2-4 (10 minutes) and 2. |< The total direct labor-hours required for Job N-60: Testing & Assembly . Packaging Direct labor-cogt (a) $180 $40 Direct labor wage rate per hour (b). $20 $20 Total direct labor hours (a) + (b) 9 2) The total manufacturing cost and unit product cost for Job N-60 is com- puted as follows: . Direct materials ($340 + $25) $365 Direct labor ($180 + $40)... 220 ‘Assembly Department ($16 per DLH x 9 DLHs) $144 ~ Testing & Packaging Department ($12 per DLH x 2 ~_ DLHS) 2dr 168 Total manufacturing cost s 753 Total manufacturing cost (a) $753 Number of units in the job (b) 10 Unit product cost (a) + (b).. $75.30 3B* Exercise 2-13 (20 minutes) 1, Cutting Department: The estimated total manufacturing overhead cost in the Cutting Depart- ment Is computed as follows: Y = $264,000 + ($2.00 per MH)(48,000 MHs) EStimated fixed manufacturing overhead ..........2.00.5. $264,000 Estimated variable manufacturing overhead $2.00 per MH x 48,000 MHs............ Estimated total manufacturing overhead cost. —26,000 * $360,000 _ The predetermined overhead rate is computed as follows: “Estimated total manufacturing overhead (a)..’ $360,000 Estimated total machine-hours (b) 48,000 MHs \ * Predetermined overhead rate (a) + $7.50 per MH __ Finishing Department: The estimated total manufacturing overhead cost in the Finishing De- "partment is computed as follows: -Y = $366,000 + ($4.00 per DLH)(30,000 DLHs) Estimated fixed manufacturing overhead teseaeeoea: $366,000 Estimated variable manufacturing overhead $4.00 per DLH x 30,000 DLHs ... 120,000 Estimated total manufacturing overhead cost. $486,000 » The predetermined overhead rate is computed as follows: “Estimated total manufacturing overhead (a)... $486,000 Estimated total direct labor-hours (b)... 30,000 DLHs __ Predetermined overhead rate (a) + (b) $16.20 per DLH as ‘Exercise 2-13 corte- 2. Total cost assigned to You Can Say That Again: _xercise 2-14 (10 minutes) 1. The estimated total overhead cost is computed as follows: Y¥ =/$4,800,000 + ($0.05 per DL$)($8, 000,000) Estimated fixed overhead... $4,800,000 Estimated variable overhead: $0.05 per DL$ x $8,000,000 DL$... 400,000 Estimated total oyerhead cost $5,200,000 ” -The predetermined overhead rate is computed as follows: Estimated total overhead (a) Estimated total direct labor-dollars (b) Predetermined overhead rate (a) + (b). $5,200,000 8,000,000:'DL$ * $0.65 per DL$ $1,259,000 Direct materials. * Direct labor... 2,400,000 Overhead = -Total manufacturing cost. 143, ie *| The Foundational 45 (continued) |12. The ending balance in Finished Goods is: i ee. Finished Goods Beg. Bal. 35,000 (g) 1,680,000 | (h 1,690,000 i End: Bal. ~ 25,000 | 113. The adjusted cost of goods sold is computed as follows: Beginning finished goods inventory $ 35,000 Cost of goods manufactured .. f 1,680,000 { Cost of goods available for sal 1,715,000 | Ending finished goods inventory. 25,01 Unadjusted cost of sgeds sold 1,690,000 Overapplied overheat (16,250) Adjusted cost of goods so! $1,673,750 14. and 15. The gross margin and net operating income are computed as follows: |. Sales... $2,800,000 * Cost of goods so 1,673,750 ~ Gross margin 1,126,250 Selling and administrative expenses ($240,000 + $367,000)... )7,,001 Net operating income... $519,250 te: The selling and administrative expenses ($607,000) include selling ~ and administrative salaries ($240,000) and various other selling and admin- istrative expenses ($367,000). » 145Exercise 3-6 (continued) ~ 2. Mason Company's scHedule of cost of goods sold is as follows: Beginning finished goods inventory $ 20,000 _ Add: Cost of goods manufactured * Cost of goods available for sale... a Deduct: Ending finished goods inventory 35.000 Unadjusted cost of goods sold. 260,000 Deduct: Overapplied overhead* . 10.000 Adjusted cost of goods sold .... $250,000 * Actual manufacturing overhead cost of $80,000 — Mai i lie 000 — Manuf Bs head’ applied of $90,000 = Overapplied overhead of Hoos over- 153$524,000 50 274,000aiuano GULINIWEsUeW dorset sees yoga) asd 00°09 ++ uonanpaud 11} Pas” sjejarew 328410 d uj pasn serve ypauiput :39nped uononpoud ul pasn sjeuayew Med aut sjevaqew med OulPUa sjonped s+ AOU + gigeyjene sieerew MEA {e101 see ge UB1eU es yo seSey2iNd :PPY conan AJOWUBAU sjeuatew Med sujuui6saExercise 3-8 (15 minutes) _ 1. Item (a): Actual manufacturing overhead costs incurred for the ee year. . : Item (b): . Overhead cost applied to Work in Process for the year. Item (c): Cost of goods manufactured for the year. ie Item (d): Cost of goods sold for the Year. ‘2. The journal entry to close the balance in the Manufacturing Overhead account to Cost of Goods Sold is: Cost of Goods Sold ..... 70,000 Manufacturing Overhead . 70,000 3. The underapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold based on the Percentage of total over- head applied during the year that resides in each account as of the end of the year: ‘ Work in Process $ 19,500 5% Finished Goods 58,500 15 Cost of Goods Sold 312,000 80 Total cost..... $390,000 100 % : Using these percentages, the journal entry: would be as follows: Work in Process (5% x $70,000) .. 3,500 _ Finished Goods (15% x $70,000). 10,500 2 _ Cost of Goods Sold (80% x $70,000 56,000 Manufacturing Overhead 70,000 157oblem 3-14 (60 minutes) 03), BI-E msidor4 ‘The predetermined overhead rate is computed as falone, fe outset ‘Preetermined_ Estimated total manufacturing GvSheas Steen rng overhead rate ; Estimated total amount of thé allocation: baetnnipsa , $800,000 4 16V10 esesriaw4 :bbA (= v8 160015 W7 I6t0T- / $500,000 direct materials cost; visi pribnd :toubsa 00,02? i if aig ni bseu alsiistsm tstid Ut:Before the underapplied or overapplied overhead: cam be‘cont| sid swe must determine the amount of direct mara ate is for the year, ‘Obs 23209 PANUIDBIUNGM IBJOT : 36 of 24203 pniwuietunem I6JoT epsoee-ni OW BAIBAG toubsa ‘borwioetuni : Yo #209 10 Beginning taw materials inventory, _ Add, Purchases of raw materials. ~ - Total raw materials available. & K Deduct: Ending raw materials inventory hire 2hcop 10 1280.80BuibsnU .P “Raw materials used in production ...sneyni-etoop-bartitiO MNAninea ‘ cogtgut6tunein eboop 0 $200 :bbA 62 101 sidslieve vy #00 Manufacturing overhead applied to work in pro- cess ($450,000 x 160%) Underapplied overhead.Problem 3-14 (continued) "3. Schedule of Cost of Goods Manufactured? . Beginning work in Process inventory... Direct materials: . = Beginning raw materials inventory Add: Purchases of raw materials Total raw materials available . Deduct: Ending raw materials Direct materials used in production Direct labor, seagdenneeee Manufacturing overhead applied to work in process Total manufacturing costs added to productioi Total manufacturing costs to account for . : Deduct: Ending work in process invent ry. ‘"'1,410,0 Cost of goods manufactured — 20,0 _ BNO.0e $1:340(0'' 4. Unadjusted ‘cost of goods sold: ieee Beginning finished goods inventory $ © 260,000 Add: Cost of goods manufactured. 41)-£2340,000 Cost of goods available for sale. 1,600,000, Deduct: ‘Ending finished goods in' — 400,000 Unadjusted cost of goods sold... $1,200,000 : S is The underapplied overhead can either be closed out to. Cost of Goods Sold or allocated. between.Work in Process, Finished Goods; and Cost of Goods Sold based on the overhead applied during the year in the ending balance in each of these accounts. al betigus bes a my H w Gi GOU, S 170lule’of costs in Work in Process was:430,000 54,000 "136,000 95,000(oauitthes} SEe mstént4Problem 3-15 (continued) 3, Schedule of Cost of Goods Manufactured ‘000 Beginning work in process inventory... zt Direct materials: Beginning raw materials inventory $ 30,000 ‘Add; Purchases of raw material - 200,000 © ‘Total raw materials available 230,000 Deduct: Ending raw materials 45,000 Direct materials used in production 185,000 Direct Jabor .. 2 - 230,000 Manufacturin: applied to work in process. 390,000 Total manufacturing costs.added to production 5 Total manufacturing costs to account for 805,0 Deduct: Ending work in process inventory. 826, 0 Cost of goods manufactured : 56.0 $770.0Problem 3-15 (continued) 4. Manufacturing Overhead .. Cost of Goods Sold. 5,000 Schedule of cost of goods sold: , % Beginning finished goods inventory $ 60,000 ‘Add: Cost of goods manufactured ty Cost of goods available for sale dist 830,000 Deduct: Ending finished goods inventory. 1 2)_30,000 _ Unadjusted cost of goods sol js »-800,000 3 225,000 $1,200,000 795,000 405,000 Selling and administrative expen: : Advertising expense .. $136,000 Utilities expense 7,000 Salaries expense 110,000 Depreciation expense 19,000 f Rent expense...... 18,000 290,000 $115,000 Net operating income. let275,000 220,000 60,000 72,000 _ 63,000 ~ 90,000 13,000 57,000 140,000 88,000 12,000 297,000 labor cost x 165% = $297, 000. 177 ~ 180,000 5,000° 275,000 280,000 405,000 18,000 _ 57,000 140,000 100,000 f 297,000 Estimated total manufacturing overhead cost Eeuinated BE amount of the allocation base fees SiS ts 165% of $200,000 direct labor cost direct labor cost- problem 3-17 (60 minutes) i and2. * $280,000 + 7,000 hours ='$40 per hour; 7,250 hours x $40 per hour = $290,000 vertising Expense ; Miscellaneous 5| 8,6003-17 (continued). ‘5 * i Sales Problem — sige Sas er — — a 7H 95,000 4 (k) ty a Accounts Payabl 00 O00 |) {ay 500,000 Fs Tay eS ae (a) ; moe; ~SOCS 10) 185tq (e) Lang ; ——Ta 32 ‘ 55,60) salaries & Wages Payable __ Tm)_ 285,000 287,000 ce 2,000 : x Diese: a Stock Retained Earnings 420,00. [eal 2 3, Overhead is overapplied for the year ty $9, 400, Entry (n) above r the closing of this is overapped overhead bal balance to Cost of eae Sa - ir i ‘ae os e2wf, uonpesued we seoibe (000’ ‘oss$) amnpewps ua ve Paarpe + paung2eJnuewu Spoob JO 3509 |OWUaAU! Ssad0d UI SOapIA BujpUy *NPeEd 40} }UNOIIE 0} SISOD Buynpeynuew je]01 =" uononpoid 03 pappe sso Buynyseynuew |E}OL 6uymaenuew pasn sjeyayew pau|pul “Nped * uononpoid ul pasn sjevayew Mey,Problem 3-17 (continued) iy aris: 5 .. Supreme Videos, Inc. © =" Schedule of Cast of Goods Sold Beginning finished goods invent + $ 81,000 - Add: Gost of goods manufactui 5 ~ Cost of goods available for sale 631,000 Deduct: Ending finished goods in 1, Unadjusted cost of goods sold. 600,000 - Deduct: Overapplied overhead 9,400 Adjusted cost of goods sold $590,600 The unadjusted cost of goods sold ($600, Ftransaction ‘ke 6. ¥ Supreme Videos, Inc. ; Income Statement : |: | End December 31 $925,000 ; 290,600 _ 334,400 Administrative salaries 5 ~ Insurance expenise ..:. =1,400 ~ Miscellaneous expense {600 |; 256,000 Net operating income “$78.00 $ ;iff. the estimated direct labor-hours in the Predetermined te will result in an artificially high overhead rate. The artifi- jetermined overhead rate is likely to result in ‘overapplied je year. The cumulative effect of overapplyirig the over- jhout the year Is all recognized in December when the bal= lanufacturing Overhead account is closed out to Cost of If the balance were closed out every month or every quar- would be dissipated over the course of the year. may generate lively debate. Where should Terri Ronsin’s ? Is she working for the general manager of the division or rate controller? Is there anything wrong with the “Christ- How far should Terri go in bucking her boss on a new job? luals can certainly disagree about what Terri should do, facts are indisputable. First, understating direct labor-hours jates the overhead rate. This has the effect of inflating the is Sold in all months prior to December and overstating the intories. In December, the huge adjustment for overapplied d provides a big boost to net operating income. Therefore, the Reacts in distortions in the pattern of net operating income over addition, because all of the adjustment is taken to Cost of inventories are still overstated at year-end. This means, of the net operating income for the entire year is also over- is in an extremely difficult Position, her responsibilities under 5 Statement of Ethical Professional Practice seem to be clear, “disclose all relevant information that could reasonably be influence an intended uset’s understanding of the reports, ir recommendations.” In our opinion, Terri should discuss this Nith her immediate supervisor in the controller's office at cor- luarters. This step may bring her into direct conflict with janager of the division, so it would be a very difficult deci- 185