ACC 369/Brewer Ch 4 Solutions Copyright 2009 by Pearson Edu ation!

"n # 4-1 Cost pool$$a grouping o% indi&idual ost ite's# Cost tracing$$the assigning o% dire t osts to the hosen ost ob(e t# Cost allocation$$the assigning o% indire t osts to the hosen ost ob(e t# Cost-allocation basea %a tor that lin)s in a syste'ati way an indire t ost or group o% indire t osts to a ost ob(e t#

4-2 "n a job-costing system, osts are assigned to a distin t unit! bat h! or lot o% a produ t or ser&i e# "n a process-costing system, the ost o% a produ t or ser&i e is obtained by using broad a&erages to assign osts to 'asses o% identi al or si'ilar units# 4-6 *hree 'a(or sour e do u'ents used in (ob+ osting syste's are ,-. (ob ost re ord or (ob ost sheet! a do u'ent that re ords and a u'ulates all osts assigned to a spe i%i (ob! starting when wor) begins ,2. 'aterials re/uisition re ord! a do u'ent that ontains in%or'ation about the ost o% dire t 'aterials used on a spe i%i (ob and in a spe i%i depart'ent0 and ,3. labor+ti'e re ord! a do u'ent that ontains in%or'ation about the labor ti'e used on a spe i%i (ob and in a spe i%i depart'ent# 4-7 *he 'ain on ern with the sour e do u'ents o% (ob ost re ords is the a ura y o% the re ords# Proble's o urring in this area in lude in orre t re ording o% /uantity or dollar a'ounts! 'aterials re orded on one (ob being 1borrowed2 and used on other (obs! and erroneous (ob nu'bers being assigned to 'aterials or labor inputs# 4-9 A tual osting and nor'al osting di%%er in their use o% a tual or budgeted indire t ost rates3 Actual Normal Costing Costing 4ire t+ ost rates A tual rates A tual rates "ndire t+ ost rates A tual rates Budgeted rates Ea h osting 'ethod uses the a tual /uantity o% the dire t+ ost input and the a tual /uantity o% the ost+allo ation base#

4#-6 a# b# # d# e# %#

,-0 'in. Job order costing, process costing. osting ess osting osting ess osting osting ess osting l# '# n# o# p# /# 5ob Pro 5ob 5ob 5ob 5ob osting ess osting osting osting osting osting

5ob Pro 5ob Pro 5ob Pro

g# h# i# (# )#

5ob 5ob Pro Pro 5ob

osting osting ,but so'e pro ess osting. ess osting ess osting osting

r# s# t# u#

Pro 5ob Pro 5ob

ess osting osting ess osting osting

4-17

,20 'in#. Actual costing, normal costing, accounting for manufacturing o er!ead. Budgeted 'anu%a turing o&erhead rate
Budgeted 'anu%a turing o&erhead osts Budgeted dire t 'anu%a turing labor osts

-#

72! 800! 000 6 -#:0 or -:9; 7-!900! 000

A tual 'anu%a turing o&erhead osts A tual dire t 'anu%a turing labor osts

A tual 'anu%a turing o&erhead rate

2#

72! 899! 000 6 -#9 or -90; 7-! 490! 000 Costs o% 5ob 626 under a tual and nor'al osting %ollow3 6 Actual Costing Normal Costing 7 40!000 30!000 94!000 7-24!000

4ire t 'aterials 4ire t 'anu%a turing labor osts <anu%a turing o&erhead osts 730!000 -#900 730!000 -#:0 *otal 'anu%a turing osts o% 5ob 626

7 40!000 30!000 98!000 7-28!000

3#

*otal 'anu%a turing o&erhead allo ated under nor'al osting 6

A tual 'anu%a turing Budgeted o&erhead rate labor osts

6 7-!490!000 -#:0 6 72!6-0!000 =nderallo ated 'anu%a turing 6 o&erhead A tual 'anu%a turing <anu%a turing $ o&erhead allo ated o&erhead osts

6 72!899!000 72!6-0!000 6 7-49!000 *here is no under+ or o&erallo ated o&erhead under a tual osting be ause o&erhead is allo ated under a tual osting by 'ultiplying a tual 'anu%a turing labor osts and the a tual 'anu%a turing o&erhead rate# *his! o% ourse e/uals the a tual 'anu%a turing o&erhead osts# All a tual o&erhead osts are allo ated to produ ts# >en e! there is no under+ or o&erallo atead o&erhead#

4-19 -#

,-0 'in#. "udgeted manufacturing o er!ead rate, allocated manufacturing o er!ead. Budgeted 'anu%a turing o&erhead rate 6 6 Budgeted 'anu%a turing o&erhead Budgeted 'a hine hours 74! 000! 000 6 720 per 'a hine+hour 200! 000 'a hine+hours

2#

<anu%a turing o&erhead allo ated 6 A tual 'a hine+hours ? Budgeted 'anu%a turing o&erhead rate 6 -99!000 ? 720 6 73!900!000

3# Sin e 'anu%a turing o&erhead allo ated is greater than the a tual 'anu%a turing o&erhead osts! @aheed o&erallo ated 'anu%a turing o&erhead3 <anu%a turing o&erhead allo ated A tual 'anu%a turing o&erhead osts A&erallo ated 'anu%a turing o&erhead 73!900!000 3!:60!000 7 40!000

4-2# -#

,20+30 'in#. Job costing, accounting for manufacturing o er!ead, budgeted rates. An o&er&iew o% the produ t osting syste' is
IN D IR E C T C O S T P O O L

M a c h in in gD e p a rtm e n t A s s e m b lyD e p a rtm e n t M a n u fa c tu rin gO v e rh e a d M a n u fa c tu rin gO v e rh e a d

C O S T A L L O C A T IO N B A S E

} } }

M a c h in e -H o u rs

D ire c tM a n u f. L a b o rC o s t

C O S TO B J E C T : P R O D U C T

In d ire c tC o s ts D ire c tC o s ts

D IR E C T C O S T

D ire c t M a te ria ls

D ire c t M a n u fa c tu rin g L a b o r

Budgeted 'anu%a turing o&erhead di&ided by allo ation base3 <a hining o&erhead Asse'bly o&erhead3 2#
7-!:00!000 6 736 per 'a hine+hour 90!000 73!600!000 6 -:0; o% dire t 'anu%# labor osts 72!000!000

<a hining depart'ent! 2!000 hours 736 Asse'bly depart'ent! -:0; 7-9!000 *otal 'anu%a turing o&erhead allo ated to 5ob 494 A tual 'anu%a turing o&erhead <anu%a turing o&erhead allo ated! 99!000 736 -:0; 72!200!000 =nderallo ated ,A&erallo ated. $ac!ining 72!-00!000 -!9:0!000 B 7 -20!000

782!000 28!000 799!000 Assembl% 7 3!800!000 B 3!960!000 7 ,260!000.

3#

4-24

,3949 'in#. Job costing, &ournal entries.

So'e instru tors 'ay also want to assign ECer ise 4+29# "t de'onstrates the relationships o% the general ledger to the underlying subsidiary ledgers and sour e do u'ents# -# An o&er&iew o% the produ t osting syste' is3

"E4"DEC* CAS* PAAF

<anu%a turing A&erhead

CAS* AFFACA*"AE BASE

} } }

4ire t <anu%a turing Fabor Costs

CAS* AB5EC*3 PD"E* 5AB

"ndire t Costs 4ire t Costs

4"DEC* CAS*

4ire t <aterials

4ire t <anu% # Fabor

2# G 3# *his answer assu'es CAHS gi&en o% 74!020 does not in lude the writeo%% o% o&erallo ated 'anu%a turing o&erhead# 2#
,-. ,2. ,3. ,4. ,9. <aterials Control A ounts Payable Control @or)+in+Pro ess Control <aterials Control <anu%a turing A&erhead Control <aterials Control @or)+in+Pro ess Control <anu%a turing A&erhead Control @ages Payable Control <anu%a turing A&erhead Control Accumulated Depreciation buildings and 'anu%a turing e/uip'ent <anu%a turing A&erhead Control <is ellaneous a ounts @or)+in+Pro ess Control Manufacturing Overhead Allocated ,-#60 7-!300 6 72!0:0. Iinished Hoods Control @or)+in+Pro ess Control A ounts De ei&able Control ,or Cash. De&enues Cost o% Hoods Sold Iinished Hoods Control <anu%a turing A&erhead Allo ated <anu%a turing A&erhead Control Cost o% Hoods Sold :00 :00 8-0 8-0 -00 -00 -!300 900 2!200 400 400 990 990 2!0:0 2!0:0

,6. ,8.

,:. ,9. ,-0. ,--.

4!-20 4!-20 :!000 :!000 4!020 4!020 2!0:0 -!990 -30

3#
Bal# -2/3-/200: ,-. Pur hases Bal# -2/3-/2009 Bal# -2/3-/200: ,2. 4ire t 'aterials ,4. 4ire t 'anu%# labor ,8. <anu%# o&erhead allo ated Bal# -2/3-/2009 Bal# -2/3-/200: ,:. Hoods o'pleted Bal# -2/3-/2009 ,-0. Hoods sold Bal# -2/3-/2009 ,3. ,4. ,9. ,6. Bal# "ndire t 'aterials "ndire t 'anu%# labor 4epre iation <is ellaneous <aterials Control -00 ,2. "ssues :00 ,3. "ssues 90 @or)+in+Pro ess Control 60 ,:.Hoods o'pleted 8-0 -!300 2!0:0 30 Iinished Hoods Control 900 ,-0. Hoods sold 4!-20 600 Cost o% Hoods Sold 4!020 ,--. Ad(ust %or o&erallo ation 3!:90 <anu%a turing A&erhead Control -00 ,--. *o lose 900 400 990 0 <anu%a turing A&erhead Allo ated 2!0:0 ,8. <anu%# o&erhead allo ated Bal# -!990 4!020 8-0 -00

4!-20

-30

,--. *o lose

2!0:0 0

4-'1 ,2030 'in. -# 2#

Job costing, accounting for manufacturing o er!ead, budgeted rates.

An o&er&iew o% the (ob+ osting syste' is3 Budgeted 'anu%a turing o&erhead di&ided by allo ation base3 a# <a hining 4epart'ent3 7-0!000!000 6 790 per 'a hine+hour 200!000 b# Iinishing 4epart'ent3 7:!000!000 74!000!000 6 200; o% dire t 'anu%a turing labor osts
COST OBJECT: JOB

3#

<a hining 4epart'ent o&erhead! 790 -30 hours Iinishing 4epart'ent o&erhead! 200; o% 7-!290 *otal 'anu%a turing o&erhead allo ated *otal osts o% 5ob 43-3 4ire t osts3 4ire t 'aterials$$<a hining 4epart'ent $$Iinishing 4epart'ent 4ire t 'anu%a turing labor B<a hining 4epart'ent BIinishing 4epart'ent "ndire t osts3 <a hining 4epart'ent o&erhead! 790 -30 Iinishing 4epart'ent o&erhead! 200; o% 7-!290 *otal osts

76!900 2!900 79!000

4#

7-4!000 3!000 600 -!290 76!900 2!900

7-:!:90 9!000 728!:90

*he per+unit produ t ost o% 5ob 43- is 728!:90 J 200 units 6 7-39#29 per unit *he point o% this part is ,a. to get the de%initions straight and ,b. to unders ore that o&erhead is allo ated by 'ultiplying the a tual a'ount o% the allo ation base by the budgeted rate# 9# <anu%a turing o&erhead in urred ,a tual. <anu%a turing o&erhead allo ated 220!000 hours 790 --!000!000 200; o% 74!-00!000 =nderallo ated 'anu%a turing o&erhead 7 200!000 A&erallo ated 'anu%a turing o&erhead *otal o&erallo ated o&erhead 6 7300!000 $ 7200!000 6 7-00!000 $ac!ining 7--!200!000 (inis!ing 78!900!000

:!200!000 7 300!000

6# A ho'ogeneous ost pool is one where all osts ha&e the sa'e or a si'ilar ause+and+ e%%e t or bene%its+re ei&ed relationship with the ost+allo ation base# Solo'on li)ely assu'es that all its 'anu%a turing o&erhead ost ite's are not ho'ogeneous# Spe i%i ally! those in the <a hining 4epart'ent ha&e a ause+and+e%%e t relationship with 'a hine+hours! while those in the Iinishing 4epart'ent ha&e a ause+and+e%%e t relationship with dire t 'anu%a turing labor osts# Solo'on belie&es that the bene%its o% using two ost pools ,'ore a urate produ t osts and better ability to 'anage osts. eC eeds the osts o% i'ple'enting a 'ore o'pleC syste'#

4-'4

,2029 'in#. )roration of o er!ead.

-# Budgeted 'anu%a turing o&erhead rate is 74!:00!000 J :0!000 hours 6 760 per 'a hine+hour# <anu%a turing o&erhead <anu%a turing o&erhead <anu%a turing o&erhead 6 $ underallo ated in urred allo ated 6 74!900!000 $ 74!900!000K 6 7400!000 K760 89!000 a tual 'a hine+hours 6 74!900!000 2# a# @rite+o%% to Cost o% Hoods Sold
Account "alance *"efore )roration+ *2+ 7 890!000 -!290!000 :!000!000 7-0!000!000 ,rite-off of -4##,### .nderallocated $anufacturing / er!ead *'+ 7 0 0 400!000 7400!000 Account "alance *After )roration+ *4+ 0 *2+ 1 *'+ 7 890!000 -!290!000 :!400!000 7-0!400!000

Account *1+ @or) in Pro ess Iinished Hoods Cost o% Hoods Sold *otal

b# Proration based on ending balan es ,be%ore proration. in @or) in Pro ess! Iinished Hoods and Cost o% Hoods Sold#
Account "alance *"efore )roration+ *2+ 7 890!000 , 8#9;. 0#089 7400!000 6 7 30!000 -!290!000 ,-2#9;. 0#-29 7400!000 6 90!000 :!000!000 ,:0#0;. 0#:00 7400!000 6 320!000 7-0!000!000 -00#0; 7400!000 )roration of -4##,### .nderallocated $anufacturing / er!ead *'+ Account "alance *After )roration+ *4+ 0 *2+ 1 *'+ 7 8:0!000 -!300!000 :!320!000 7-0!400!000

Account *1+ @or) in Pro ess Iinished Hoods Cost o% Hoods Sold *otal

# Proration based on the allo ated o&erhead a'ount ,be%ore proration. in the ending balan es o% @or) in Pro ess! Iinished Hoods! and Cost o% Hoods Sold# Account Allocated / er!ead Account )roration of -4##,### "alance 2ncluded in "alance *"efore t!e Account "alance .nderallocated *After Account )roration+ *"efore )roration+ $anufacturing / er!ead )roration+ *1+ *2+ *'+ *4+ *3+ *6+ 0 *2+ 1 *3+ @or) in Pro ess 7 890!000 7 240!000a , 9#33;. 0#0933 7400!000 6 7 2-!320 7 88-!320 660!000b ,-4#68;. 0#-468 7400!000 6 9:!6:0 -!30:!6:0 Iinished Hoods -!290!000 :!320!0 0#:000 7400!000 6 320!000 00 Cost o% Hoods Sold :!000!000 3!600!000 ,:0#00;. *otal 7-0!000!000 74!900!000 -00#00; 7400!000 7-0!400!000
a

760 4!000 'a hine+hours0 b760 --!000 'a hine+hours0 760 60!000 'a hine+hours

3# Alternati&e , . is theoreti ally pre%erred o&er ,a. and ,b.# Alternati&e , . yields the sa'e ending balan es in wor) in pro ess! %inished goods! and ost o% goods sold that would ha&e been reported had a tual indire t ost rates been used# Chapter 4 also dis usses an ad(usted allo ation rate approa h that results in the sa'e ending balan es as does alternati&e , .# *his approa h operates &ia a restate'ent o% the indire t osts allo ated to all the indi&idual (obs wor)ed on during the year using the a tual indire t ost rate#

4#36 ,40 'in#. )roration of o er!ead 4it! t4o indirect cost pools. -#a# C G A depart'ent3 A&erhead allo ated 6 740 4!000 <a hine hours 6 7-60!000 =nderallo ated o&erhead 6 A tual o&erhead osts $ A&erhead allo ated 6 7-63!000 $ -60!000 6 73!000 underallo ated -#b# Iinishing depart'ent3 A&erhead allo ated 6 790 per dire t labor+hour 2!000 dire t labor+hours 6 7-00!000 A&erallo ated o&erhead 6 A tual o&erhead osts $ A&erhead allo ated 6 7:8!000 $ -00!000 6 7-3!000 o&erallo ated 2a# All o&erallo ated o&erhead is written o%% to ost o% goods sold# Both @or) in Pro ess and Iinished goods in&entory re'ain un hanged# 5ec. '1, 2##6 "alance *"efore )roration+ *1+ 7 -90!000 290!000 -!600!000 72!000!000 )roration of -1#,### / erallocated / er!ead *2+ 0 0 L73!000 $7-3!000 7 -0!000 5ec. '1, 2##6 "alance *After )roration+ *'+ 0 *1+ 1 *2+ 7 -90!000 290!000 -!990!000 7-!990!000

Account @"P Iinished Hoods Cost o% Hoods Sold *otal

2b# A&erallo ated o&erhead prorated based on ending balan es 5ec. '1, 2##6 "alance *"efore )roration+ *1+ 7 -90!000 Iinished Hoods 290!000 Cost o% Hoods Sold -!600!000 0#-29 0#:00 "alance as a )ercent of 7otal *2+ 0 *1+ 8 -2,###,### 0#089 )roration of -1#,### / erallocated / er!ead *'+ 0 *2+ 1#,### 0#089 ? 7-0!000 6 7 890 0#-29 ? 7-0!000 6 -!290 0#:00 ? 7-0!000 6 :!000

5ec. '1, 2##6 "alance *After )roration+ *4+ 0 *1+ 9 *'+ 7 -49!290 24:!890 -!992!0 00

Account @"P

*otal

72!000!000

-#000

7-0! 000

7-!990!000

2 # A&erallo ated o&erhead prorated based on o&erhead in ending balan es# ,Eote3 o&erhead 'ust be allo ated separately %ro' ea h depart'ent# *his an be done using the nu'ber o% 'a hine hours/dire t labor hours as a surrogate %or o&erhead in ending balan es#.

Ior C G A depart'ent3
Allocated / er!ead in 5ec. '1, 2##6 "alance *1+ 200 740 6 7 :!000 600 740 6 24!000 3!200 740 6 -2:!000 7-60!000 Allocated / er!ead in 5ec. '1, 2##6 "alance as a )ercent of 7otal *2+ 0 *1+ 8 -16#,### 0#09 0#-9 0#:0 -#00 )roration of -',### .nderallocated / er!ead *'+ 0 *2+ -'### 0#09 73!000 6 7 -90 0#-9 73!000 6 490 0#:0 73!000 6 2!400 73!000

Account @"P Iinished Hoods Cost o% Hoods Sold *otal

Ior %inishing depart'ent3

Allocated / er!ead in 5ec. '1, 2##6 "alance as a )ercent of 7otal *3+ 0 *4+ 8 -1##,### 0#09 0#20 0#89 -#00

Account @"P Iinished Hoods Cost o% Hoods Sold *otal

Allocated / er!ead in 5ec. '1, 2##6 "alance *4+ -00 790 6 7 9!000 400 790 6 20!000 -!900 790 6 89!000 7-00!000 5ec. '1, 2##6 "alance *"efore )roration+ *7+ 7 -90!000 290!000 -!600!000 72!000!000

)roration of -1',### .nderallocated / er!ead *6+ 0 *3+ -1',### 0#09 7-3!000 6 7 690 0#20 7-3!000 6 2!600 0#89 7-3!000 6 9!890 7-3!000 5ec. '1, 2##9 "alance *After )roration+ *9+ 0 *7+ 1 *6+ 7 -49!900 248!:90 -!992!690 7-!990!000

Account @"P Iinished Hoods Cost o% Hoods Sold *otal

.nderallocated: / erallocated / er!ead *6+ 0 *'+ 9 *6+ 7-90 9 7690 6 7 ,900. 7490 $ 72!600 6 *2!-90. 72!400 $ 79!890 6 ,8!390. 7,-0!000.

3# *he %irst 'ethod is si'ple and Cost o% Hoods Sold a ounts %or :0; o% the three a ount a'ounts# *he a'ount o% o&erallo ated and underallo ated o&erhead is also i''aterial# Allo ation to the other two a ounts is 'ini'al# *here%ore! write+o%% to ost o% goods sold is the 'ost ost e%%e ti&e alternati&e#