Solutions manual for cost accounting foundations and evolutions 9th edition by kinney by Horngrenn

SOLUTIONS MANUAL for Cost Accounting Foundations and Evolutions 9th Edition by Kinney Download at: http://downloadlink.org/p/solutions-manual-for-cost-accountingfoundations-and-evolutions-9th-edition-by-kinney/ TEST BANK for Cost Accounting Foundations and Evolutions 9th Edition by Kinney Download at: http://downloadlink.org/p/test-bank-for-cost-accounting-foundationsand-evolutions-9th-edition-by-kinney/ CH APTER 2 COST TERM I NOLOGY AN D COST BEH AVI ORS QUESTI ONS 1. The term cost is used to refe r to so man y diff eren t concepts that an adjecti ve mustbe attachedtoidentifywhich particul ar t ype of co st is being discussed.Forexample, therearefix ed costs , va riab le costs , pe riod cost s, product costs , ex pired costs , and opportun i ty costs , to nam e just a few. 2. A cost obje ct is an ythi n g for which man a gement wants to coll e ct or ac cu mul ate costs . Befo re a cost can be spe cified as direct or indi rec t, the cost object must be identified. Sincedirectcostsmustbe convenientl y and econ omi call y tra ceabletothecostobject, notknowing wh at the co st object in questi on is w ould makeitimpossibletoidentify direct costs . For ex ampl e , if mul ti ple products are made in the sam e producti on area, thesalaryoftheareaâ&#x20AC;&#x2122;smanager would be direct to the producti on are a but indi rect to the different products. In direct costs must be all ocated in some rati onal and s yst ema t- ic manner to the cost obj ect. 3. The assum ed ran ge of a cti vit y th at re flects the compan yâ&#x20AC;&#x2122;s normal oper ati ng ran ge is refe rred to as the rel evan t range. Outsi de the rele vant ran ge, costsmaybecurvilinear becauseof purch ase di scounts , im proved wor ker skil l and producti vit y, worke r crowdin g, loss in empl oye e effi cienc y durin g ov ertime hours, etc. Although a curvi- li near graph is more indicati ve of reali t y,

it is not as eas y to use in planningorcon- trollingcosts.Acco rdin gl y, account ants choos e t he r an ge inwhichthesefixedand variablecosts are assum ed to behave as th ey are defined (linea r) and, as such, repre- sent an approx im ati on of reali t y. 4. It is not ne cessa r y for a c ausal r elations hip to ex ist between the cost pr edictorandthe cost.Allthatis required is that there is a stron g c orrelation betw een move ment in the predictor and the cost. Alternati vel y, a cost driver is an acti vit y that act uall y caus es costs to be incurred. The dist inction betw een cost drivers and predi ctors is im portant b ecaus e it relates to one of the obje cti ves of mana gers: to control cos ts. By focusin g cost controlefforts oncostdrivers, manage r s can ex ert control over costs . Ex erting control over predi c- tors that are not cost driv ers will have no cost cont rol effe ct. 5. A product cost is one that is associated with inventor y. In a manufa ctu rin g company, productcostswouldinclude direct material , dire c t labor, and overhead. In a merchan- di s ing compan y, produ ct costs are the costs of p urchasin ginventoryandtherelated freight-in costs . In a serv ice compan y, produ ct co stsarethosecoststhatareincurred to gener ate th e se rvices provided such as suppl ie s, servic e labor , and serv ice-r elated overhead costs . 13

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In all three t yp es of o r ga niz ati ons, a period cost is an y cost that is not a p r oductcost. Thesecostsarenoninven toriable and ar e incu rred i n the nonfa ctoryornonproduction areasofamanuf acturin g compan y or in the nonsales or nonservice ar eas, respecti v e- l y, of a r etailer or se rvice compan y. In gener al, the se costs are incur red fo r sell ing and admi nist rati ve acti vit ies. Man y period costs ar e ex pensed when incurre d,although somemaybecapitalizedas prepaid ex penses or other nonfa ctor y ass ets. 6. C onversion costs are all producti on costs other than direct material costs ; thus,conversioncostsincludethe costs of direct l abor a nd manufa cturin g overhead.These itemsarecalled conversi on costs because the y ar e neededtoconvertdirectmaterial into a salable product. 7. Factor y ov erhe ad has be en growin g most rapidl y because of the costs of technolo g y. This cost cate gor y inclu des depre ciation of fa cto r y and plant equipm ent, machinery maintenancecost,repair cost, some traini ng costs , uti li ties ex pense to operate the m a- chiner y, and man y costs related to quali t y control. 8. The onl y diffe renc e betw een the two s ystems is in their treatm ent of overh ead.Under anactualcostsystem,a ctual overh ead is added to producti on. B ec ause a ctual ove rhead cannot be det ermined unti l the period ends, the overhead all oc ati on occurs and product cost can b e dete rmined onl y at p eriod -e nd. Under a no rmal cost s ystem, a predete rmined overhe ad rate is calculated befo re a period begins and is thenusedto applyoverheadtoproducts as producti on occurs. The major advanta ge of using a normal cost s yst em is that it all ows a productâ&#x20AC;&#x2122;s cost tobedetermined(estimated)at the t ime of prod ucti on. Another major a dvanta ge is that a normal cost s yste m provides a product cos t that is stable acrossfluctuatinglev- elsof producti on and sal es. 9. The cost of goods manufactur ed is the tot al producti on cost of the goods that were compl eted and t ransf err ed to Fini shed Goods Inv entor y durin g th e p eriod. This amount is sim il ar to the cost of n et pur chases in t he cost of goods sold sch edule fora retailer.SinceCGMisusedin comput ing cost of goods sold, it appears on the income stat ement.

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EXERCI SES 10.

a. Direct b. Direct c. Direct d. Indir ect e. Direct f. Direct g. Indir ect h. Direct i. Direct

11. C OST OBJ ECT Notebook P lant Touch pad and bu t tons Direct Direct GlueIndirectDirect Network conn ector Direct Direct Batt er y Direct Direct P aper towels used b y li ne empl o ye es Indir ect Direct CDdrive ACadapterDirectDirect DirectDirect Motherboard DirectDirect ScrewsIndirect Direct Oilforproductionmachi ner y Indi r ect Direct 12.

C OST OBJ ECT

Kenned y Tax S Firm ervices a. Four hours of P e rki ns’s time Direct Unrelated Direct b. S ix hours of assi stant’s tim e Direct Direct Direct c. Three hours o f Morris’s t im e Indir ect Indir ect Direct d. Eight hours of CP E for T ompki Indir ect Direct Direct n e. One hour at l unch Unrelated Unrelated Unrelate d f. Two hours of Perkins’s t i me Direct Unrelated Direct g. One-half hou r of Tompki n’s Direct Direct Direct tim e h. J anit orial wages Indir ect Indir ect Direct i. S even hours of Tompki n ’s Direct Direct Direct tim e 13. a. C ardboard, $0.40; clot h, $1; plastic, $0.50; depreci ati on, $0.60; superviors’ sal a- ries, $1.60; and uti li ti es, $0.30; tot al cost, $4.40. b. C ardboard, va riable; clot h, variable; plastic, varia ble; depreciation, fix ed; superv isors’ salaries, fix ed; and util i ti es, mix ed.

Ch apt er 2 c. If the

compan y produ ce s 10,000 caps thi s month, the tot al cost per unit will increase.Thevariablecosts(ca rdboard, clot h, plast ic) will r emain constantperunit. Thetotalcostfor depreciation and supervisors â&#x20AC;&#x2122; salaries will remain fixed, and,

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thus, will result in a higher cost per unit . The uti li t y cost will go down in t otalbut, becauseitismixed,itisim possi ble (wit hout other information) toestimateitstotal orper-unit cost. W it hout knowing the cost formul a forutilitycosts,itisimpossible to determi ne the tot al cos t of making 10,000 c aps. 14. a. and b. C ardboard box es ($1,000 2,000) Mall ets ($12,000 4,000) C roquet balls ($9,000 12,000) W ire hoops ($3,600 24,000) P roducti on worker w a ges ($8,400 2,000) S upervisorâ&#x20AC;&#x2122;s salar y ($2,6 00 2,000) Buil ding and equipm ent rental ($2,800 2,000) Util it ies ($1,300 2,000) Total

P er Unit $0.50 3.00 0.75 0.15 ? ? ? ?

c. Esti mated cost per set in March is C ardboard box es ($1,000 2,000) Mall ets ($12,000 4,000; $3 2) C roquet balls ($9,000 12,000; $0.75 6) W ire hoops ($3,600 24,000; $0.15 12) P roducti on worker w a ges ($8,400 2,000) S upervisorâ&#x20AC;&#x2122;s salar y ($2,6 00 2,500) Buil ding and equipm ent rental ($2,800 2,500) Util it ies ($1,400 2,500) Total 15. a.

Total fix ed cost Total variable cost (15,0 00 ti ckets $10) Total cost b. Total cost Desired pro fit m ar gin (1 5,000 ti ckets $8) Total sales price Divided b y assum ed number of tickets s old S ell ing price p er ticket c. Total revenu e (5,000 ti c kets $20.50) Total cost: Fix ed $37,500 Variable (5,000 $10) 50,000 Net profit

P er Set $ 0.50 6.0 0 4.5 0 1.8 0 4.2 0 1.3 0 1.4 0 0.65 $20.3 5 $ 0.50 6.00 4.50 1.80 4.20 1.04 1.12 0.56 $19.72

$ 37,500 150,000 $187,500 $187,500 120,000 $307,500 Ăˇ 15,000 $ 20.50 $102,500

(87,500 ) $ 15,000

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c. The assum pti on made w as that 15,000 ti ckets wo uld be sold. The frate rnity should havebeeninformedthatthefix ed cost per ticket would var y, dependin gonthe numberofticketssold.Byspre adin g the fix ed cost over fewe r ti ckets, the fraterni- ty would make l ess profit as ti cket sales de cli ned . e. Total revenu e (20,000 ti c kets $20.50) $ 410,000 Total cost: Fix ed $ 37,500 200,000 Variable (20,000 $10) Net profit

(237,500 )$ 172,500

16. a. (1) 200 r eturns: Total cost = $2,000 + ($9 200) = $3,800 C ost per unit = $3,800 ÷ 200 = $19.00 (2) 500 returns: Total cost = $2,000 + ($9 500) = $6,500 C ost per unit = $6,500 ÷ 500 = $13.00 (3) 800 returns: Total cost = $2,000 + ($9 800) = $9,200 C ost per unit = $9,200 ÷ 800 = $11.50 b. The fix ed cost per unit v aries inve rsel y with acti v it y. Th ere fore, as the activity(tax returnsprepared)incr eas es, the fix ed cost per unit decre ases. c. $15,000 ÷ 200 = $75; $75 + $19 = $94 f ee to cha r ge p er r eturn $94 800 = $75,200 tot al fees; $75,200 – $9,200 = $66,000 17. a. (1) Number of cli ents cont acted, number of n ew cli ents gen erat ed, number of mi les traveled (if drivin g), number of ni ghts aw a y from home. (2) Number of suppl ies req uisi ti ons, number of hours worked, number of c opies made (3) P urchase pric e of comput ers and depre ciation method chosen (number ofhours ofcomputerusage,numberof hours wo rked, ex pected yea rs of servi ce) (4) Number of hours worke d, number of ti mes maintenance c rew visi ts the ac- counti ng firm, number of mont hs in period (i f maintenance is a strict fix ed cost per mont h) b. The dist inction betwe en a cost p redictor and a c ost driver is whethe r theactivity measureactuallycauses t he cost to be in curr ed. A cost

Ch apt er 2 predictorismerelyanactiv-

itythat chan ges with cha nges in the cost. A cost drivercausescoststobeincurred. Of the costs addr essed in (a), cost driv ers that cou ld also be cost predi ctors would be(1)numberofmilestraveled, (2) number of ti mes suppl ies are r equisitioned,(3) numberofhours work e d, and (4) number of ti mes maintenanc e visi ted the ac- counti ng firm.

18. a. Number of pati ents pro ce ssed b. Number of pati ents sch e duled

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c. Number of sur geries sch eduled d. Number of sur geries sch eduled e. Number of tests ord ered f. Number of pati ents gett i ng tests (if all tests are performed in same lab at thesame time)ornumberoftests ordered (if pati ent h as to be moved to mul ti ple la bs or fo r mul ti ple tests) g. Number of lab tests admi nist ered h. Number of pati ents move d i. Number of sur geries pe rf ormed j. Number of sur geries pe rf ormed k. Number of medic ati ons a dmi nist ered l. Number of pati ents move d m. Number of pati ents disch ar ged (it is possi ble that not all pati ents are discha rged) n. Number of insuran ce co mpanies to be bil led 19. a. V, PT (could be mi x ed) b. V, PD c. F, PD d. V, PT e. F, PT f. V, PT (could be fix ed if paper towel rolls are r epl aced at specific int e rvals re gard- less of need) g. F, PD (could be p roduct if assi stants are assi gn ed to work on speci fic projec ts) h. V, PT (could be fix ed) i. V, PT j. V, PT k. F, PT (would be fix ed b ecause it w as cha r ged fo r the truckload rather th a n for an indi vidual piece of fu rniture; ma y be consi dered a period cost and not att ached to the indi vidual pieces of f urniture) 20. a. F, OH b. V, DM c. V, DM d. V, OH (assum in g cost is insi gnificant)

e. V, DM f. F, OH g. V, DM h. F, OH i. F, OH j. V, DM k. V, DL l. V, DM m. V, DM n. V, DM

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21. a. $600,000 – $60,000 = $540,000 depre ciable cos t $540,000 ÷ 10 ye ars = $ 54,000 depreci ati on per year (480 ÷ 600) ($54,000) = $43,200 is ex pired cost (part of product OH) b. C ost of goods sol d $43,200 Fini shed goods i nventor y $10,800 22. a. One mont h of insuranc e ( $18,600 ÷ 6) Bonus t o corpor ate pr esident Util it y cost on headqua rt ers ($20,000 0.40) Total b. Five months of insuranc e ($18,600 5/6) S emi nar fee Total

$ 3,100 10,00 08,000 $21,10 0 $15,50 01,000 $16,50 0

c. P ropert y ta x es ($15,000 1/3) $ 5,000 Util it y cost on factor y ($ 20,000 0.60) 12,000 Total $17,000 d. P roduct costs are assi gne d to products made; thus, the costs cannot be classified as ex pired or unex pired because it is not known whether the associatedproducts madeduringMay we re sold. If sold, the costs would be ex pired;ifunsold,the costswouldbe unex pired and be a ccumul ated in t he Fini shed Goods a ccou nt. 23. a. Mfg. b. Mfg., M er., S er. c. Mfg., Mer., S er. d. Mer. (alt hou gh manuf act urers mi ght ref er to Fini s hed Goods Inventor y in t his manner) e. Mfg., M er., S er. f. Mfg. g. S er. h. Mfg., M er. i. Mfg., S e r. 24. a. high b. low c. low d.

Ch apt er 2 high e.

high f. high g. moderate h. high i. high j. moderate or low

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25. a. R ivets and alum inum = $12,510 + $1,683,000 = $ 1,695,510 The janitorial suppl ies an d the sealant a re indi re ct materials. b. Alumi num cutt ers and w elders = $56,160 + $156, 000 = $212,160 The janitorial wa ges and factor y supe rvisors ’ sal ar ies are indi re ct l abor. The salespeople ’s salari e s are pe riod costs . 26. a. S tainless steel, plastic, and wood blocks = $800,000 + $5,600 + $24 ,800 = $830,400 b. $500,000 (equipm ent operators) c. $6,000 indi rect material ( equipm ent oil and gr eas e ) $82,000 + $272,000 = $3 54,000 i ndirect labor (me chanics and s up ervisors) 27. Direct m ate rial: Mulch $ 320 Lan dscapin g ro ck 1,580 P lants and pots 1,950 Direct l abor: Trumbl e’s salar y ($3,000 ÷ 20 = $150 per da y; $150 2 d a ys to d esi gn) $ 300 Garden ers’ w a ges ($3,8 40 ÷ 20 = $192 per da y; $192 5 da ys to compl et e) 960 $1,260 Overhe ad: Allocated depr eciation ($ 200 ÷ 20 work da ys) $ 10 C onst ructi on permit 95 Allocated rent (15 0 ÷ 3,000 = 5%; $2,400 0.05 = $120; $120 ÷ 30 = $4 p er da y 2 da ys ) 8* Allocated util it y bil ls ($1,800 0.05 = $90; $90 ÷ 30 =$3 per da y 2 da ys ) 6* $ 119

$3,85 0

*N ote: The rent and uti li t y bil ls were all ocated on l y be cause of th e desi gne r’suseof spaceinthecompanyoffices. Given the im material amount of these all ocations, CarolynGardensmaysimply want to tr eat these costs as period costs rath er than at- tempti ng to trace them to indi vidual jobs. Thus, an answer of $105foroverhead wouldalsobere asonable .

28. a. 6,000 tot al hours â&#x20AC;&#x201C; 5,000 re gular hours = 1,000 ov ertime hours b. Direct labor: 5,000 hours $9 per hour = $45,000 Overhe ad: $54,000 â&#x20AC;&#x201C; $45 ,000 = $9,000

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c. S hift premi ums: S econd -shift premi um : 10% $9 = $0.90 Overtime premi um: 75% $9 = $6.75 Overhe ad costs : S econd -shift premi um: 2,500 hours $0.90 = $2,2 50 Overtime premi um: 1,00 0 hours $6.75 = $6,750 29. a. 32,000 tot al hours – 27,000 re gular hou rs = 5,000 overtime hours b. Direct labor: 32,000 hour s $12 per hour = $384, 000 Overhe ad: $435,600 – $3 84,000 = $51,600 c. S hift premi ums: S econd -shift premi um : 8% $12 = $0.96 Third-shift premi um : 12% $12 = $1.44 Overtime premi um: 50% $12 = $6.00 Manufacturin g ov erhe ad costs : S econd -shift premi um: 9,000 hours $0.96 = $8,6 40 Third-shift premi um: 9,000 hours $1.44 = $12,9 60 Overtime premi um: 5,00 0 hours $6.00 = $30,00 0 30. a. P ropert y t ax overhead co st for Feb ruar y = $48,00 0 ÷ 12 = $4,000 P ropert y t ax OH cost for remainder of 2013 = $44, 000 Actual Feb. OH costs = $ 530,000 – $124,000 – $44,000 + $81,000 = $443, 000 b. Febru ar y OH cost per uni t = $443,000 ÷ 50,000 = $8.86 Total product cost in Feb ruar y = $24.30 + $10.95 + $8.86 = $44.11 c. If a ctual costs are used, p roduct costs will diff er e ach pe riod. Fo r ex ample,January utilitycostperunit was ($124,000 ÷ 50,000), or $2.48, comparedtoFebruary’s costperunit of ($81,000 ÷ 50,000), or $1.62. However,anormalcostsystemuses a predet ermined overh ea d rate that provides a s moot hing eff ect to over head co st vari ati ons over an annual period. 31. Direct m ate rial use d Direct l abor Overhe ad C urrent m anufa ctur ing costs

$ 24,000 126,000 42,000 $192,00 0

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i n cre ase in w o rk in process i nventor y C ost of goods m an ufactur ed

(23,000) $169,00 0 S ince W ork in P roc ess Inventor y incr eased by $ 23,000, curr ent manu fact uring costs must have been $23,000 more than cost of goods manufactur ed.

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32. a. Be ginni n g W IP i nv entor y R aw material used Direct l abor Manufactu ring ov er head Total cost t o account fo r Ending W IP i nventor y C ost of goods m anuf ac tured

$ 372,000 $612,000 748,000 564,000

1,924,000 $ 2,296,000 (436,000) $ 1,860,000

N ote: The be ginni n g and ending b alanc es of R aw Material Invento r y ar e not used becausenoinformationisgiven on raw material purchases for the mont h butthe amountofRMusedis specificall y provide d. b. Be ginni n g F G i nvento r y $ 224,000 C ost of goods m anuf act ured 1,860,000 C ost of goods avail abl e for sale $2,084,000 Ending FG i nventor y (196,000) C ost of goods sol d $1,888,000 33. a. Irresis ti ble Art S chedule of C ost of Goo ds Manufactur ed For the Mont h Ended J ul y 31, 2013 Be ginni n g W IP i nventor y $ 146,400 Be ginni n g R M i nventor y $ 93,200 R aw material pur chased 656,000 R aw material av ail able $ 749,200 Ending R M i nventor y (69,600) R aw material used $ 679,600 Indir ect m ate rial used (pl ugged ) (175,600 ) Direct m ate rial used ( giv en) 504,000 Direct l abor ($788,000 Ă&#x2014; 0.75) 591,000 Overhe ad: Various ( given) $ 600,000 Indir ect m ate rial (from a bove) 175,600 Indir ect l abor ($788,000 Ă&#x2014; 0.25) 197,000 972,600 Total cost t o account fo r $2,214,00 0(120,000 Ending W IP i nventor y ) C ost of goods m anuf actu red $2,094,00 0 b. Irresis ti ble Art S chedule of C ost of Go ods S old For the Mont h Ended J uly 31, 2013 Be ginni n g F G i nventor y $ 72,000 C ost of goods m anuf actu red 2,094,000

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Goods avail able fo r sale Ending FG i nventor y C ost of goods sol d

$2,166,00 2 0 (104,800 ) $2,061,20 0

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34. a. Tar gé C o. C ost of Goods S old S chedule For the Mont h Ended M a rch 31, 2013 Be ginni n g F G i nventor y (giv en ) C ost of goods m anuf actu red C ost of goods avail abl e f or sale Ending FG i nventor y (gi ven ) C ost of goods sol d (given )

$ 125,000 2,537,500 $2,662,500 (18,400 ) $2,644,100

b. Tar gé C o. C ost of Goods Manufact ured S chedule For the Mont h Ended M arch 31, 2013 Be ginni n g W IP i nventor y (giv en ) $ 90,000 Direct m ate rial: Be ginni n g DM i nventor y (giv en ) $ 30,000 Direct m ate r ial purch ase d 1,182,000 Direct m ate rial avail able $1,212,000 Ending DM i nventor y (given ) (42,000 ) Direct m ate rial used 1,170,000 Direct l abor 400,000 Overhe ad 900,000 Total cost t o account fo r $2,560,000* EndingWIPinventory( $90,000 0.25) (22,500) Costof goods m anuf actu red [ from (a)] $2,537,500 *Total cost to account fo r = B e g. W IP + DM used + DL + OH $2,560,000 = $90,000 + $1,170,000 + DL + OH DL + OH = $2,560,000 – $90,000 – $1,170,000 DL + OH = $1,300,000 OH = 225% of DL = 2.2 5 DL DL + 2.25 DL = $1,300, 000 3.25 DL = $1,300,000 DL = $400,000 OH = $400,000 × 2.25 = $900,000 c. P rime cost = DM + DL = $1,170,000 + $400,000

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= $1,570,000

d. C onversion cost = DL + OH = $400,000 + $900,000 = $1,300,000

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35. a. W ork in P rocess Inve ntor y 5,000 S uppli es Inventor y 5,000 T o record suppl ies usage for a udit e ngagements Travel Ex pense 8,000 C ash 8,000 T o record t ravel exp ense s for part ner Fix ed Overhe ad C ontrol 6,500 Accumul ated D epre ciati on â&#x20AC;&#x201D; Laptops 6,500 T o record l aptop depreci ati on Depre ciation Ex pense Fix ed Overhe ad C ontrol Accumul ated D epre ciati on â&#x20AC;&#x201D;Buil T oding record depreciat ion o n NY C buil ding W ork in P rocess Inv ent or y 200,000 S alaries Pa yable 200,000 T o accrue part ner sal aries

52,500 97,500 150,00 0

W ork in P rocess Inv 257,900 ent or y 257,90 0 S alaries Pa yable W ork in P rocess Inv en tor y 19,400 T o accrue audit sal 19,40 C ash aries 0 T o record audi t -relat ed travel costs Insu ranc e Ex pense 6,055 Fix ed Overhe ad C ontrol 11,245 P repaid Insuran ce and Ta x es 17,30 0 T o record expirat ion of prepaid i nsurance and property taxes on do w ntow n buil ding Variable Ov erh ead C ontrol 3,400 W ages P a yabl e 3,400 T o accrue secr etari al w ages S alaries Pa yable W ages P a ya ble C ash T o pay accrued sal aries and w ages

457,900 3,400 461,30 0

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b. C ost of S ervices R ender e d: S uppli es used $ 5,000 Labo r: P artner sala ries Audit s alaries Overhe ad: Laptop depr e ciation $ 6,500 Depre ciation on bui ldi ng 97,500 Travel 19,400 Insu ranc e and tax es 11,245 Indir ect l abor 3,400 138,045 Total cost of servic es ren dered $600,945 36. Direct l abor ($8,1 00 + $3 ,140) $11,240 Overhe ad: S uppli es ($2, 400 â&#x20AC;&#x201C; $1,200) $1,200 Util it ies ($ 2,000 0.90) 1,800 Office s alaries ($1,900 0.20) 380 Depre ciation 3,700 Buil ding r ental ($3,100 0.80) 2,480 9,560 C ost of services r ender ed $20,800

$200,000 257,900

457,90 0

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PROBLEM S 37. T ype o f C ost P aint S pirits Brushes Overall s Ad Assist ant Oper. Cost s* Map Tolls Phone

Variable X X X

Fix ed

Direct X X X

X X X X

Indir ect P eriod

P roduct X X X X

X X X X

X X

X X X X X

*S ome variable costs wo uld be direct if mi les to a nd from particula r jobs ar e reco rded. 38. a. At 80,000 box es per month: Material and labo r costs ($79,000 ÷ 500) $158.00 Overhe ad ($408,000 ÷ 8 0,000) 5.10 Total cost per box $163.10 b. At 120,000 box es per month: Material and labo r costs ( $79,000 ÷ 500) $158.00 Overhe ad ($408,000 ÷ 1 20,000) 3.40 Total cost per box $161.40 c. Material and labo r (ex clu ding labor d esign ) $118.00 Overhe ad 3.40 Total $121.40 C ost at 80,000 box es $163.10 C ost at 120,000 box es (ex cludi ng labor desi gn) (121.40 ) Max im um labor design c osts $ 41.70 d. At 80,000 box es: S ales ($195 × 80,000 bo x es) $ 15,600,000 C ost of sales ($163.10 80,000 box es) (13,048,000 ) Gross m ar gin $ 2,552,000 Desired gross ma r gin $ 2,552,000 C ost of sales ($161.40 120,000 box es) 19,368,000 S ales needed $ 21,920,000 $21,920,000 ÷ 120,000 box es = $182.67 sales price pe r box

Ch ap t er 2 e. No, the variable costs per box are const ant and the fix ed costs remain the same in tot al at an y le vel of prod ucti on.

Ch apt er 2

39. a. At 150,000 meals per mont h: Material and labo r costs ( $9,320 ÷ 2,000) Overhe ad ($1,200,000 ÷ 150,000) Total cost per meal

$ 4.66 8.00 $12.6 6

b. At 300,000 meals per mo nth: Material and labo r costs ( $9,320 ÷ 2,000) Overhe ad ($1,200,000 ÷ 300,000) Total cost per meal c. Material and labor (ex cludi ng meat) ($5,720 ÷ 2,000) Overhe ad at 300,0 00 meals Total cost wit hout m eat C ost at 150,000 meals C ost at 300,000 meals (ex cludi ng me at) Max im um meat cost per meal C urrent m eat cost ( $3,600 ÷ 2,000) P otential increase i n meat cost

$ 4.66 4.00 $ 8.66 $ 2.86 4.00 $ 6.86 $12.66 (6.86) $ 5.80 (1.80) $ 4.00

d. $21.92 ÷ 2 = $10.96 max im um cost per meal Max im um meal cost C urrent costs for material and labor C ost per unit for overhead

$10.96 (4.66) $ 6.30

Overhe ad ÷ C ost per unit = Total meals $1,200,000 ÷ $6.30 = 190,476 or 192,000 if meals must be produced in 2,000 unit batches e. The firm would be less profit able if the mana ger decided to produc e 192, 000 din- nersbutcouldsellonlythesame 150,000 the compan y is currentl y sell ing.The managermightacceptr etaining the busi ness to boost his reputationasa“deal- maker”soasto obtain an other pos i ti on before the financial r esult s were rep orted. C urrent profitabil it y: S ales (150,000 $25.32) Variable cost of meals (1 50,000 $4.66) Fix ed overhead P rofit abil it y 40. a. printi ng invi tations : step fix ed preparin g the th ea ter: step fix ed post age: variable buil ding stage sets : fix ed printi ng pro gr ams: fix ed securit y: fix ed

$ 3,798,000 (699,000 ) $(1,200,000) 1,899,000

Ch apt er 2 script:

fix

Ch ap t er 2

b. Members att endin g = 30 0 0.60 = 180 members Attendance esti mate = 18 0 + [ (90 1) + (90 2)] = 450 people Fix ed and step fix ed costs = $360 + $900 + $1,80 0 + $350 + {3 × [ $110 + (5  $30)] } + $2,000 = $6,190 Variable cost = $0.60 4 50 = $270 Total cost = $6,190 + $2 70 = $6,460 c. $6,460 ÷ 450 = $14.36 (r ounded) d. Member att end ance = 30 0 0.90 = 270 Attendance esti mate = 27 0 + (270 2) = 810 p eop le Fix ed and step fix ed costs = $450 + $1,200 + $1,8 00 + $350 + {3 × [ $110 + (5  $30)] } + $2,000 = $6,580 Variable cost = $0.60 8 10 = $486 Total cost = $6,580 + $4 86 = $7,066 C ost per person = $7,066 ÷ 810 = $8.72 (rounded ) The redu cti on in per-p er son cost is caused by th e fa ct that, even thou gh some of the step fix ed costs incre ase, the tot al fix ed costs are spr ead ove r more att e ndees. 41. 1. C 2. H 3. D 4. L 5. E 6. G 7. A 8. F (A ICPA adapted 9. J ) 42. a. Determi ning the cost of a product merel y invol ves tracin g direct costs to producti on and finding some s ystemati c method of all oc at ing indi re ct produ cti on costs to products. C ontroll ing these costs invol ves compl etel y diff erent iss ues. C ontrol of producti on costs require s a focus on both the

Ch ap t er 2

product costs and the related cost drivers.Suchcostscanbe controll ed onl y by con trolli ng the a ctivitylevelsofthe mainproduction cost drivers. b. The advanc ement of tec hnolog y do es make cos ts more difficult to control. As technologyhasbecomemore pervasive in manuf acturin g, the indi rect ma nufactu r- ing costs have grown r elative to producti on volume. Hence, controllingproduction volumehas little to do with the control of more and more produ cti on co sts . Fur- ther, with the growth in the indi rect costs (such as autom ated technolo g y d epreci a- ti on), it is more difficult to trace producti on costs to specific products.This difficultyaddstothe co mpl ex it y of cost control because the relationshipbetween production volum e and s pecific produ cts and their product costs is less obvious .

Ch apt er 2

c. P roducti on volum e is no longe r as signifi cant a c ost driver as it was two decades ago.Thegrowthinbothfixed costs and indi r e ct costs su ggest s that production volumecannotbeusedasan e ffe cti ve co ntrol for a subst anti al setofproduction- relatedcosts.How ever, producti on volum e ma y st il l be a vali d predictor be cause it ma y be r easonabl y well corr elated with the act ual cost drivers of thes e indi rect costs and it is sti ll the most significant cost drive r f or direct produ cti on costs . 43. a. To remain competit ive in the global mark etpl ac e, busi nesses must control costs . P rovision of healt h car e is creati n g a crisis for A merican busi nesses. In m an y cas- es, healt h - car e costs ar e twice as high for U.S. in dust ries as fo r their for eign co m- peti tors. There is nothi ng unethi cal about busi ne sses being concernedaboutthese costsand seekin g w a ys to control them. Howev e r, befor e cutt in g cove ra ge, bus i- nesses hav e an ethi cal o bli gati on to identif y alt e rnati ves. Fo r ex ampl e, e mergin g alt ernati ves include man aged healt h ca re, sharin g insuranc e premi ums with em- plo ye es, and formi n g all i ances with other busi ness es to directl y contractforhealth- careservices. Business es shoul d be car eful to gat her employeeinputonsolutions beforem aking an y de cisi ons that will adversel y af fect he alt h -ca re co v era ge . b. There ar e no corre ct or incorre ct answers to thi s questi on. It is ex pected that each student will have a relati vel y unique rankin g of th e alt ernatives.Thissubpartisin- tended to demons trate to the students how difficult it is to cut healt h -care in surance coveragebecauseeachworker has dif fer ent needs and differ ent priorit ies. c. By brin gin g some he alt h -car e se rvices in -hous e, a firm can repla ce a portionofthe variablecosts(per empl oye e ) with fix ed costs . A co m pan y maybeabletoachieve similar benefits by dire ctl y cont racti n g with he alt h car e servi ce provid ers on a (partl y) fix ed -fee b asis . Lik ewise, companies c an im plement he alt h a waren ess campaignsandprovidefitness facil it ies that will generat e long-te rmhealthbenefits andlowerhealth-c are c osts . S uch appro ach es will result inanincreaseinfixed costsandlower v ariable costs . 44. a. (1) W ork in P roces s Inv entor y 800,000 R aw Material Inv entor y 800,000 T o iss ue direct material to pr oducti on

Ch apt er 2 (2)

W ork in P rocess Inv ento r y C ash (40,000 Ă&#x2014; $18) T o pay direct aboread C ontrol (3) Manufacturin g O lverh payroll W ages P a yabl e (15,500 Ă&#x2014; $15) T o accrue indi rect l abor costs (4) Manufacturin g Overh ead C ontrol 102,100 Accumul ated D epre ciati on 102,100 T o depreciat e factory ass ets

720,000 720,00 0 232,500 232,50 0

Ch ap t er 2

(5) Manufacturin g Overh ead C ontrol 32,800 S alaries Pa yable 32,800 T o accrue supervisor sâ&#x20AC;&#x2122; s alari es (6) Manufacturin g Overh ead C ontrol 25,400 S uppli es Inventor y 25,400 T o iss ue indi rect material to pr oducti on (7) Fini shed Goods Inventor y 1,749,300 W ork in P rocess Inv ento r y 1,749,300 T o tran sfer completed work to FG b. Be ginni n g balan ce of W IP $ 18,900 Direct m ate rial 800,000 Direct l abor 720,000 Manufacturin g ov erhe ad for J anuar y (plug ) 270,000 C ost t o account for $ 1,808,900 Goods compl eted (1,749,300) Ending balan ce o f W IP $ 59,600 45. a. Direct labor is labo r that can be sp ecific all y identi fied with, or ph ys i callytracedto, acostobjector finished product in an economi ca ll y feasibl e mann er (suc h as m a- chine operator labor in a producti on environment). Indir ect labor is all factor y l a- bor that is not classified as direct labor. b. C ertain nonproducti ve time ma y be a normal an d unavoidable part of tot al labor time.Insuchcases,aprorata shar e of nonprodu cti ve ti me shoul d be classified as direct labor ti me. In many cas es, nonprodu cti ve time is classifiedasindirectlabor because it cannot be identified with a cost obj ect. Fo r ex ampl e, the a mount of downtim e usuall y cannot be identified with a spe cific c ause or particular costob- ject;itmayresultfroma parts shortage or a broken machine. W henthereisa shortageofworkandem plo ye es would therefor e be idl e, thi s time can be used for traini ng. c. Direct labor : The it ems classified as dire ct labor can usuall y be specifi call y ident i- fied with a quanti t y of la bor. Fu rthermor e, other d irect costs , suchaspayrolltaxes, areincurredby the o r gan iz ati on because of its use of labor. Manufacturi ng overhead : The it ems classified as manufacturin g overhe ad usually cannotbespecificallyide nti fied with direct labor q uanti ti es. Direct labor or manufac turi ng overhead: S ome c ost it ems can be classifie d as ei- ther direct labor or manufacturin g overh ead, depe nding on thesizeofthecostob- ject.Forex ampl e, for v e r y l ar ge projects , empl o yeetimecanbeeasilyassociated with the projects (such as the time of specific

Ch ap t er

m a nagers, en gin eers, d rafts persons, janitors,andmaterial handlers). Ther 2 efor e, all costs associated with these empl o y- ees c an be cl assi fied as d irect labo r costs . For sma ll er cost obje cts, such as a vari ety of products or subass embl ies, costs are more difficult to identif y with the cost objects and ther efor e ar e classified as manuf acturi ng ove rhead.

Ch apt er 2

d. The quanti t y of labor ho urs that shoul d be included as direct labor o r man ufactu r- ing overh ead refle cts a m easure of acti vit y. The ac ti vit y that w as per formed was ei- ther directl y r elated to the product or indi rectl y r e lated (or not easil y trac e able) to the product. The doll ar a mount assi gned measur e s the cost of the acti vit y. W ages andsalariesarenotnecessarily dir ectl y ti ed to producti on acti vit y. Forexample, assumeadirectlabor empl o ye e makes $10 per hour and time-and -a-h alf f or over- ti me. This empl o yee ’s a c ti vit y is no dif fer ent duringtheovertimehours—onlythe wa ge rate dif fers. Thus, measurement of a cti vit y and measur ement of cost must be separat ed. (C MA adapt ed ) 46. a. Overhe ad costs ar e the easiest to assi gn to othe r classificati ons since th ose costs are not dire ctl y related to the producti on of the go ods. b. Each student will have a different answer, but the following shoul d be considered: thereasonforthebank’s loan-gr anti ng c riteria; t he effe ct on the compan y’ s sup- pli ers, empl o yees, and cu stom ers shoul d thi s loan not be gr anted; the abil it y to m a- ni pulate financial income ; and the inappropriate “t one at the top” that the president is sugges t in g. c. The memo shoul d cont ain information as to th e n ature of costs and the f ac t thatthe “cost”ofaproductcan,inman y inst ances, h a ve man y dif fer ent mean ings . It shoul d indi cate the need for the loan, the abil it y to provide coll ateral(ifany),and informationasto pa yb ac k. The memo shoul d ind icate that the “bott om li ne” is in ex cess of the bank’s criteria and how thi s fact could influence the abil it y to repa y. C ash flow from product sales shoul d also be discussed becaus e, without cash flow, income cannot pa y b ack l oan amount s. 47. a. If GP rate is 35 pe rc ent of sales, then C GS is 65 percent of sales. C GS = 0.65 $ 1,431,000 = $930,150 b. Direct m ate rial u sed Direct l abor Overhe ad: Indir ect l abor Factor y insu ranc e Factor y uti li ti es Factor y d epr eciation Factor y rent Total costs t o account for Ending W IP i nventor y

$ 447,000 322,500 $ 93,000 3,000 21,450 32,550 126,000

276,000 $1,045,500 (15,750)

Ch apt er C ost 2

of goods m anuf actu red

$1,029,750

c. Ending FG i nventor y = B eginni n g FG i nventor y + C GM – C GS = $0 + $1,029,750 – $93 0,150 = $99,600

Ch ap t er 2

d. Gross profit = 0 .35 $1, 431,000 = $500,850 S &A ex penses = G ross profit â&#x20AC;&#x201C; Net income = $500,850 â&#x20AC;&#x201C; $125,000 = $375,850 e. R aw Material Inv entor y 555,000 Accounts P a yable 555,000 T o purchase direct mater ial on account W ork in P rocess Inv ento r y 447,000 R aw Material Inv entor y 447,000 T o iss ue direct material to pr oducti on W ork in P rocess Inv ento r y W ages P a yabl e T o accrue direct l abor p ayroll Manufacturin g Overh ead C ontrol W ages P a yabl e T o accrue indi rect payro ll

322,500 322,50 0 93,000

Manufacturin g Overh ead C ontrol 3,000 P repaid Insu ran ce 3 ,000 T o record expirat ion of prepaid i nsurance on factory Manufacturin g Overh ead C ontrol 21,450 C ash 21,450 T o pay factory uti li ti es Manufacturin g Overh ead C ontrol 32,550 Accumul ated D epre ciati on 32,5 50 T o record depreciat io n o n factory equipment Manufacturin g Overh ead C ontrol 126,000 C ash 126,000 T o pay factory rent W ork in P rocess Inv ento r y 276,000

93,00 0

Manufacturin g Overh ead C ontrol 276,000 T o assi gn actual overhead to WIP [ s ee (b)] Fini shed Goods Inventor y 1,029,750 W ork in P rocess Inv ento r y 1,029,750 T o tran sfer completed good s to FG [ see (b)]

Ch ap t er 2

Ch apt er 2

S &A Ex penses 375,850 Accounts P a yable (or C a sh) 375,850 T o record S &A expens e [ see (c)] C ost of Goods S old 930,150 Fini shed Good s Inventor y 930,150 T o record cost of goods sol d [ see (a)] Accounts R ec eivable 1,431,000 S ales 1,431,000 T o record sal es on accou nt 48. a. Number of unit s sold = 6 48,000 รท $24 = 27,000 Number of unit s c ompl eted = Units in FG i nventor y + Units s old = 3,000 + 27,00 0 = 30,000 b. Direct m ate rial used Direct l abor Overhe ad: Factor y rent Factor y uti li ti es Factor y d epr eciation S upervisor salar y Total costs t o account for Ending W IP i nventor y C ost of goods m anuf actu red

$186,000 134,000 $ 3,600 16,200 15,800 6,400

42,000 $362,000 (35,000 )$327,000

c. $327,000 รท 30,000 = $10.90 per unit d. R aw Materi al Inv entor y 248,000 Accounts P a yable 248,000 T o purchase direct mater ial on a ccount W ork in P rocess Inv ento r y 186,000 R aw Material Inv entor y 186,000 T o iss ue direct material to pr oducti on W ork in P rocess Inv ento r y W ages P a yabl e T o accrue direct l abor p ayroll

134,000 134,00 0

Ch apt er 2 Manufacturin

g Overh ead C ontrol

C ash T o pay factory rent

3,600 3,60 0

Ch ap t er 2

Manufacturin g Overh ead C ontrol 16,200 Util it ies Pa yable 16,200 T o accrue factory uti li ti es Manufacturin g Ov erh ead C ontrol 15,800 Accumul ated D epre ciati on 15,800 To record depreciat ion o n factory equi p ment Manufacturin g Overh ead C ontrol 6,400 C ash 6,400 T o pay supervisor â&#x20AC;&#x2122;s salary W ork in P rocess Inv ento r y 42,000 Manufacturin g Overh ead C on trol 42,000 T o assi gn actual overhead to WIP [ s ee (b)] Fini shed Goods Inventor y 327,000 W ork in P rocess Inv ento r y 327,000 T o tran sfer completed good s to FG [ see (b)] C ost of Goods S old 294,300 Fini shed Goods Inventor y 294,300 T o record cost of goods sol d ($10.90 Ă&#x2014; 27,000 ) Accounts R ec eivable 648,000 S ales 648,000 T o record sal es on accou nt ($24 27,000 )

Ch apt er 2

49. C ase 1 $9,300

C ase 2 $19,700g

C ase 3 $112,000

Direct m ate rial used

1,200

6,100h

18,200

Direct l abor

2,500a

4,900

32,100

P rime cost

3,700

11,000i

C onversion cost

4,800

8,200

49,300

Manufactu ring o v erh ead

2,300b

3,300j

17,200

C ost of goods m anuf a ctured

6,200

14,000

68,900o

Be ginni n g W IP inven tor y

500

900

5,600

Ending W IP inventor y

300c

1,200

4,200

Be ginni n g F G inventor y

800d

1,900

7,600

1,200

3,700

4,300p

S ales

Ending FG inventor y

50,300n

C ost of goods sol d

5,800e

12,200

72,200

Gross profit

3,500

7,500l

39,800q

Operati n g ex penses

1,300f

3,500

18,000

Net i ncome

2,200

4,000

21,800r

P rime cost = DM + DL $3,700 = $1,200 + X; X = $2,500

C onversion cost = DL + OH $4,800 = $2,500 + X; X = $2,300

Be g. W IP + DM + DL + OH – C GM = End. W IP $500 + $1,200 + $2,500 + $2,300 – $6,200 = X; X = $300 S ales – Gross pro fit = C GS $9,300 – $3,500 = X; X = $5,800

Beg. FG + C GM – End. FG = C GS X + $6,200 – $1,200 = $5,800; X = $800

Gross profit – Ope rati n g ex penses = NI $3,500 – X = $2,200; X = $1,300 S ales – C GS – Operati n g ex penses = NI X – $12,200 – $3,500 = $4,000; X = $19,700

C GM = Be g. W IP + DM + DL + OH – End. W IP $14,000 = $900 + X + $ 4,900 + $3,300 – $1,200; X = $6,100

Ch ap t er 2 i

P rime cost = DM + DL X = $6,100 + $4,900; X = $11,000

C onversion cost = DL + OH $8,200 = $4,900 + X; X = $3,300

Beg. FG + C GM – End. FG = C GS $1,900 + $14,000 – X = $12,200; X = $3,700

S ales – C GS = Gross pro fit $19,700 – $12,200 = X; X = $7,500

C onversion cost = DL + OH $49,300 = X + $17,200; X = $32,100

P rime cost = DM + DL X = $32,100 + $18,200; X = $50,300

C GM = B e g. W IP + DM + DL + OH – End. W IP X = $5,600 + $32,100 + $18,200 + $17,200 – $4,200; X = $68,900

Beg. FG + C GM – End. FG = C GS $7,600 + $68,900 – X = $72,200; X = $4,300

S ales – C GS = Gross profit $112,000 – $72,200 = X; X = $39,800

Gross profit – Ope rati n g ex penses = NI $39,800 – $18,000 = X; X = $21,800

50. a. Under GAAP, product c ost consi sts of all amou nts that are necessa r y to manufac- ture a p roduct. Althou gh direct mat erial and dire ct labor are clearlytraceabletoa productand thus shoul d be consi dered part of p roductcost,aproductcouldalso not be produced without the costs of overh ead. In a manufa cturin g plant, empl o y- ees need to have some level of supervision and perform some cl ean up tasks.Glue, screws,andnailsareco mm onl y used to secu re p arts to gether. Equipm ent and uti l i- ti es must be used. Thus, indirect labo r, indi re ct ma terial, dep reci ati on , and e lectri c- it y ar e requir ed to manuf acture a product and shoul d be part of that produ c t’s cost. b. It does not se em reason a ble to all ocate the depr e ciation overhe ad cost ofthenew equipmenttothedogca rriers b ecaus e that equip ment is not requiredforthepro- ductionofthe carriers. F or thi s reason , overhead costs shoul d be separated int o di f- ferent all oc ati on “pools ” and all ocated to

Ch ap t er

the two product groups based onthecost driversassociatedwithe ach2all oc ati on pool. This concept is ex plained in more d e- tail i n C hapter 4.

Ch apt er 2

c. A normal cost s ystem us es a pred etermi ned cha r ge for ove rhead r ather tha n using theactualamountsthatare incur red. On e primar y component of ove rheadisutility cost.InMichigan, the uti li t y cost for winter o perati ons couldbesubstantially greaterthan during the summ er. In Ha waii , the cli mateisconsistentyear-round, and thus, uti li t y c osts shoul d be fairl y const ant. Be cause of th e lar ge fluctu a ti ons in uti li t y costs , a Michigan busi ness mi ght be more li kel y to want to “smooth”that partofoverheadthrou gh out the ye ar by usin g a pr edetermi ned ov erhe ad rat e. 51. a. Be ginni n g inventor y of dir ect mate rial Direct m ate rial purch ase d Materials avail abl e for us e Ending inventor y of di re ct m aterial Direct m ate rial used X= $208,600 – $195,800 X = $12,800 b. Direct m ate rial used Direct l abor Factor y o verh ead Total product costs c.

$ 12,300 196,300 $208,60 0 X $195,80 0 $195,80 0182,40 0 205,700 $583,90 0

P etersham C ompan y S chedule of C ost of Goo ds Man ufactur Be ginni n g W IP i nventor y ed Direct m ateFor rial the used Mont h Ended Au gust 31, Direct l abor 2013 Overhe ad Total costs t o account for Ending W IP i nventor y C ost of good s manuf actu red

$ 25,900 195,800 182,400 205,700 $609,800 (33,300) $576,500

P etersham C ompan y C ost of Goods S old S Be ginni n g F G i nventorchedule y C ost of goods anuf actu red Formthe Mont h Ended Au gust 31, Goods avail able fo r sale 2013 Ending FG i nventor y C ost of goods sol d

$ 62,700 576,500 $639,200 (55,500) $583,700

Ch ap t er 2

e. P etersham C ompan y In come S tatement For the Mont h Ended Au gust 31, 2013 S ales C ost of goods sol d Gross profit S ell ing and admi nist rati ve ex penses In come be fore incom e ta x es In come tax ex pense ($230,100 0.40) Net i ncome

$ 985,000 (583,700) $ 401,300 (171,200) $ 230,100 (92,040) $ 138,060

52. a. $1,040,000 ÷ $5,200 = 200 unit s sold b. Flex -Em S chedule of C ost of Goo ds Manufactur ed For t he Mont h Ended J uly 31, 2013 Be ginni n g W IP i nvent or y $0 Direct m ate rial used $377,000 Direct l abor 126,800 Overhe ad: Indir ect l abor $ 40,600 Insu ranc e 6,000 Util it ies 17,800 Depre ciation 230,300 294,700 798,500 Total m anufacturin g c osts $798,500 Ending W IP i nventor y (51,000 ) C ost of goods m anuf a $747,500 ctured c. Units compl eted = Unit s sol d + Unit s in ending F G inventor y = 200 + ($97,500 ÷ $3,2 50) = 200 + 30 = 230 unit s compl eted d. $747,500 ÷ 230 uni ts = $3,250 e. 200 $3,250 = $650,000 f. S ales – C GS = Gross ma rgin $1,040,000 – $650,000 = $390,000

Ch apt er 2

53. a. and b. BB (1) P urch . EB

R aw Material Inv entor y 72,000 (2) DM and IM is sued 570,00 136,200 0 505,800

W ork in P rocess Inv ento r y BB 108,000 C GM 532,140 (2) DM 121,200 (2) IM 15,000 (3) D L 180,000 (3) IL 42,000 (5) Uti l. 28,140 (6) Dep r. 48,000 (7) Rent 39,600 EB 49,800 Fini shed Goods Inventor y BB 24,000 C GS 502,740 EB 53,400 Total product cost = C ost of goods m anuf actu red = $532,140 P eriod costs for Au gu st (all on income stateme nt): Office s alaries ex pense ( 4) $144,60 0 12,06 Util it ies ex pense (5) 0 Depre ciation ex pense (6) 12,00 0 R ent ex pense ( 7) 26,400 Total period cost $195,06 0 54. a. C ost of goods sold for th e first 18 da ys of J une: $230,000 (1 â&#x20AC;&#x201C; 0.40) = $138,000 C ost of goods sol d for the first 18 da ys o f J une: Be ginni n g F G i nventor y $ 29,000 C ost of go ods m anuf actu red 151,500b Goods avail able fo r sale $180,500a Ending FG i nventor y (42,500) C ost of goods sol d $138,000 a C GA = $138,000 + $42, 500 = $180,500 b C GM = $180,5 00 â&#x20AC;&#x201C; $29,000 = $151,500

Ch ap t er 2

C os t of goods m anuf actu red for the first 18 da ys o f J une: Be ginni n g W IP i nventor y $ 48,000 Direct m ate rial used 76,000 Direct l abor 44,000 Manufacturin g ov erhe ad 42,000 Total cost t o account fo r $210,000 Ending W IP i nventor y (58,500)c C ost of goods m anuf actu red $151,500 c Ending W IP Inv entor y = $210,000 â&#x20AC;&#x201C; $151 ,500 = $58,500 b. The insuranc e compan y would want to subst anti a te the quanti t y and cost of thein- ventory.Thecompanywould require nonfinan cial reco rds includin g labo r, material, and p roducti on. The i nsurance comp any mi ght also r equire som e ve rificati on of the market value (curr en t value or replacement value) of the inventor y. F urther, it mi ght require the compa n y to subst anti ate the number of unit s in the WIPinvento- ryandtheaverageperce ntage of compl eti on. Th e market value d atacouldbeob- tainedfromindustryp ubli cati ons and the uni t data mi ght be obtainedfrom productionrecordsor int ernal r eceivi n g and shi pp ing documents.

cost accounting foundations and evolutions 9th edition test bank

Ch ap t er 2