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Problem 2-16B (45 minutes) 1.

Alpha 25 ×$60 $1,500

Designer-hours............................... Predetermined overhead rate........... Overhead applied............................ 2. Direct materials cost.... Direct labor cost.......... Overhead applied......... Total cost....................

Alpha $2,300 4,800 1,500 $8,600

Beta Gamma 30 15 ×$60 ×$60 $1,800 $900

Beta $2,000 5,100 1,800 $8,900

Completed Projects............................... Work in Process...............................

17,500*

17,500*

* $8,600 + $8,900 = $17,500 3. The balance in the Work in Process account consists entirely of the costs associated with the Gamma project: Direct materials cost............... Direct labor cost..................... Overhead applied................... Total cost in work in process...

$ 900 1,800 900 $3,600

4. The balance in the Overhead account is determined as follows: Actual overhead costs Underapplied overhead

Overhead 6,000 Applied overhead costs 1,800

4,200

As indicated above, the debit balance in the Overhead account is called underapplied overhead.

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Problem 2-17B (30 minutes) 1. Cutting Department: Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base =

$315,000 =$9.00 per MH 35,000 MHs

Finishing Department: Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base =

$182,000 $140,000 direct labor cost

=130% of direct labor cost 2. Cutting Department: 140 MHs × $9.00 per MH.... Finishing Department: $200 × 130%.................. Total overhead cost applied...............................

Overhead Applied $1,260 260 $1,520

3. Yes; if some jobs required a large amount of machine time and little labor cost, they would be charged substantially less overhead cost if a plantwide rate based on direct labor cost were being used. It appears, for example, that this would be true of job L26 which required considerable machine time to complete, but required only a small amount of labor cost.

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Problem 2-18B (75 minutes) 1. a. Raw Materials......................................... Cash.................................................

200,000

b. Work in Process...................................... Manufacturing Overhead......................... Raw Materials....................................

150,000 45,000

c. Work in Process...................................... Manufacturing Overhead......................... Sales Commissions Expense.................... Salaries Expense..................................... Salaries and Wages Payable...............

130,000 50,000 20,000 40,000

d. Manufacturing Overhead......................... Rent Expense......................................... Cash.................................................

20,000 15,000

e. Manufacturing Overhead......................... Accounts Payable..............................

77,000

f. Advertising Expense................................ Accounts Payable..............................

80,000

g. Manufacturing Overhead......................... Depreciation Expense.............................. Accumulated Depreciation..................

72,000 18,000

h. Work in Process...................................... Manufacturing Overhead....................

260,000

200,000

195,000

240,000

35,000 77,000 80,000

90,000 260,000

Estimated manufacturing overhead cost $240,000 = = 200% of direct labor cost. Estimated direct labor cost $120,000 $130,000 actual direct labor cost Ă— 200% = $260,000.

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Problem 2-18B (continued) i. Finished Goods....................................... Work in Process.................................

530,000

j. Accounts Receivable................................ Sales.................................................

750,000

Cost of Goods Sold.................................. Finished Goods..................................

560,000

2. Bal. (a) Bal.

Raw Materials 19,000 (b) 200,000 24,000

Bal. (i) Bal.

Finished Goods 50,000 (j) 560,000 530,000 20,000

(j)

Cost of Goods Sold 560,000

195,000

530,000 750,000 560,000

Bal. (b) (c) (h) Bal.

Work in Process 25,000 (i) 530,000 150,000 130,000 260,000 35,000

(b) (c) (d) (e) (g) Bal.

Manufacturing Overhead 45,000 (h) 260,000 50,000 20,000 77,000 72,000 4,000

3. Manufacturing overhead is underapplied by $4,000 for the year. The entry to close this balance to Cost of Goods Sold would be: Cost of Goods Sold............................................ Manufacturing Overhead...............................

4

4,000

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4,000


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Problem 2-18B (continued) 4.

5

Productos Elina S.A. Income Statement Sales........................................................ Cost of goods sold ($560,000 + $4,000)..... Gross margin............................................ Selling and administrative expenses: Sales commissions.................................. Administrative salaries............................ Rent expense......................................... Advertising expense................................ Depreciation expense.............................. Net operating income................................

$750,000 564,000 186,000 $20,000 40,000 15,000 80,000 18,000

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173,000 $ 13,000


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Problem 2-19B (45 minutes) Predetermined = Estimated total manufacturing overhead cost 1 overhead rate Estimated total amount of the allocation base . $367,500 = =$7.00 per machine-hour 52,500 machine-hours 2. The amount of overhead cost applied to Work in Process for the year would be: 49,000 machine-hours Ă— $7.00 per machine-hour = $343,000. This amount is shown in entry (a) below: Manufacturing Overhead (Maintenance) 50,000 (a) (Indirect materials) 29,000 (Indirect labor) 109,000 (Utilities) 76,000 (Insurance) 30,000 (Depreciation) 70,000 Balance 21,000

343,000

Work in Process (Direct materials) 735,000 (Direct labor) 180,000 (Overhead) (a) 343,000 3. Overhead is underapplied by $21,000 for the year, as shown in the Manufacturing Overhead account above. The entry to close out this balance to Cost of Goods Sold would be: Cost of Goods Sold............................... Manufacturing Overhead.................

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21,000

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21,000


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Problem 2-19B (continued) 4. When overhead is applied using a predetermined rate based on machine-hours, it is assumed that overhead cost is proportional to machine-hours. When the actual level of activity turns out to be 49,000 machine-hours, the costing system assumes that the overhead will be 49,000 machine-hours × $7.00 per machine-hour, or $343,000. This is a drop of $24,500 from the initial estimated total manufacturing overhead cost of $367,500. However, the actual total manufacturing overhead did not drop by this much. The actual total manufacturing overhead was $364,000—a drop of only $3,500 from the estimate. The manufacturing overhead did not decline by the full $24,500 because of the existence of fixed costs and/or because overhead spending was not under control. These issues will be covered in more detail in later chapters.

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Problem 2-20B (90 minutes) 1. a. Raw Materials............................. Accounts Payable...................

68,000

b. Work in Process.......................... Manufacturing Overhead.............. Raw Materials........................

52,500 17,500

c. Work in Process.......................... Manufacturing Overhead.............. Salaries Expense......................... Salaries and Wages Payable....

67,000 29,000 26,000

d. Manufacturing Overhead.............. Accounts Payable...................

19,000

e. Advertising Expense.................... Accounts Payable...................

30,000

f. Manufacturing Overhead.............. Insurance Expense...................... Prepaid Insurance..................

7,200 1,800

g. Manufacturing Overhead.............. Depreciation Expense.................. Accumulated Depreciation......

35,000 15,000

h. Work in Process.......................... Manufacturing Overhead........

107,200

68,000

70,000

122,000 19,000 30,000

9,000

50,000 107,200

$67,000 actual direct labor cost Ă— 160% = $107,200 overhead applied.

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i. Finished Goods........................ Work in Process..................

215,000

j. Accounts Receivable................. Sales.................................. Cost of Goods Sold................... Finished Goods...................

300,000 218,000

215,000 300,000 218,000

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Problem 2-20B (continued) 2. Bal. (a) Bal.

Raw Materials 15,200 (b) 68,000 13,200

70,000

Bal. (b) (c) (h) Bal.

Work in Process 17,000 (i) 215,000 52,500 67,000 107,200 28,700

(j)

Cost of Goods Sold 218,000

Bal. (i) Bal.

Finished Goods 24,000 (j) 218,000 215,000 21,000

(b) (c) (d) (f) (g) Bal.

Manufacturing Overhead 17,500 (h) 107,200 29,000 19,000 7,200 35,000 500

3. Manufacturing overhead is underapplied by $500. The journal entry to close this balance to Cost of Goods Sold is: Cost of Goods Sold................... Manufacturing Overhead..... 4.

500

500

Basin Products Income Statement For the Year Ended December 31 Sales............................................................... Cost of goods sold ($218,000 + $500).............. Gross margin................................................... Selling and administrative expenses: Salaries expense........................................... Advertising expense...................................... Insurance expense........................................ Depreciation expense.................................... Net operating income.......................................

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$300,000 218,500 81,500 $ 26,000 30,000 1,800 15,000

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72,800 $ 8,700


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Problem 2-21B (75 minutes) 1 .

a.

Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base =

$495,000 $330,000 direct materials cost

=150% of direct materials cost b. Before the under- or overapplied overhead can be computed, we must determine the amount of direct materials used in production for the year. Raw materials inventory, beginning............... Add, Purchases of raw materials.................... Raw materials available................................. Deduct: Raw materials inventory, ending....... Raw materials used in production..................

$ 30,000 310,000 340,000 20,000 $320,000

Since no indirect materials are identified in the problem, these would all be direct materials. With this figure, we can proceed as follows: Actual manufacturing overhead costs: Indirect labor............................................. Property taxes............................................ Depreciation of equipment.......................... Maintenance.............................................. Insurance, factory...................................... Rent, building............................................ Total actual costs.......................................... Applied manufacturing overhead costs: $320,000 × 150%...................................... Overapplied Overhead...................................

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$140,000 40,000 125,000 70,000 5,000 90,000 470,000 480,000 $(10,000)

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Problem 2-21B (continued) 2.

Timeless Products Schedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning......... Add purchases of raw materials............... Total raw materials available................... Deduct raw materials inventory, ending... Raw materials used in production............... Direct labor............................................... Manufacturing overhead applied to work in process.................................................. Total manufacturing costs.......................... Add: Work in process, beginning................

$ 30,000 310,000 340,000 20,000

$320,000 80,000 480,000 880,000 50,000 930,000 60,000 $870,000

Deduct: Work in process, ending................ Cost of goods manufactured...................... 3. Cost of goods sold: Finished goods inventory, beginning............ Add: Cost of goods manufactured................ Goods available for sale.............................. Deduct: Finished goods inventory, ending.... Cost of goods sold......................................

$ 90,000 870,000 960,000 100,000 $860,000

4. Direct materials............................................. Direct labor................................................... Overhead applied ($5,600 × 150%)............... Total manufacturing cost...............................

$ 5,600 3,000 8,400 $17,000

$17,000 × 125% = $21,250 price to the customer.

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Problem 2-21B (continued) 5. The amount of overhead cost in Work in Process was: $20,000 direct materials cost Ă— 150% = $30,000. The amount of direct labor cost in Work in Process was: Total ending work in process........... Deduct: Direct materials.................. Manufacturing overhead..... Direct labor cost.............................

$20,000 30,000

$60,000 50,000 $10,000

The completed schedule of costs in Work in Process was: Direct materials.................... Direct labor.......................... Manufacturing overhead....... Work in process inventory....

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$20,000 10,000 30,000 $60,000

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Problem 2-22B (75 minutes) 1. The cost of raw materials put into production was: Raw materials inventory, 1/1....................... Debits (purchases of materials).................... Materials available for use............................ Raw materials inventory, 12/31.................... Materials requisitioned for production...........

$ 15,000 170,000 185,000 20,000 $165,000

2. Of the $165,000 in materials requisitioned for production, $150,000 was debited to Work in Process as direct materials. Therefore, the difference of $15,000 ($165,000 − $150,000) would have been debited to Manufacturing Overhead as indirect materials. 3. Total factory wages accrued during the year (credits to the Factory Wages Payable account). . Less direct labor cost (from Work in Process)........ Indirect labor cost................................................

$230,000 180,000 $ 50,000

4. The cost of goods manufactured for the year was $640,000—the credits to the Work in Process account. 5. The Cost of Goods Sold for the year was: Finished goods inventory, 1/1.............. $ 30,000 Add: Cost of goods manufactured (from Work in Process)..................... 640,000 Goods available for sale...................... 670,000 Finished goods inventory, 12/31.......... 50,000 Cost of goods sold.............................. $620,000 6. The predetermined overhead rate was: Manufacturing overhead cost applied $306,000 170% of direct = = Direct labor cost $180,000 labor cost.

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Problem 2-22B (continued) 7. Manufacturing overhead was underapplied by $9,000, computed as follows: Actual manufacturing overhead cost for the year (debits)............................................................ Applied manufacturing overhead cost (from Work in Process—this would be the credits to the Manufacturing Overhead account)...................... Underapplied overhead........................................

$315,000 306,000 $ 9,000

8. The ending balance in Work in Process is $21,000. Direct materials make up $7,500 of this balance, and manufacturing overhead makes up $8,500. The computations are: Balance, Work in Process, 12/31.................................. Less: Direct labor cost (given)...................................... Manufacturing overhead cost ($5,000 × 170%).... Direct materials cost (remainder).................................

14

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$21,000 5,000 8,500 $ 7,500


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Problem 2-23B (45 minutes) 1. Molding Department predetermined overhead rate: Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base =

$360,000 =$8.00 per MH 45,000 MHs

Painting Department predetermined overhead rate: Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base =

$688,000 $430,000 direct labor cost

=160% of direct labor cost 2. Molding Department overhead applied: 105 machine-hours × $8.00 per machine-hour. . . Painting Department overhead applied: $970 direct labor cost × 160%........................... Total overhead cost............................................. 3. Total cost of Job 435: Direct materials........................... Direct labor................................. Manufacturing overhead applied... Total cost................................... Unit product cost for Job 435: Average cost per unit =

15

$ 840 1,552 $2,392

Department Molding Painting $  180 $  150 350 970 840 1,552 $1,370 $2,672

Total $  330 1,320 2,392 $4,042

$4,042 = $101.05 per unit 40 units

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Problem 2-23B (continued) 4. Manufacturing overhead incurred............. Manufacturing overhead applied: 40,000 machine-hours × $8.00 per machine-hour.................................... $445,000 direct labor cost × 160%....... Underapplied (or overapplied) overhead...

16

Department Molding Painting $310,000 $730,000 320,000 $(10,000)

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712,000 $ 18,000

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