ACCG200 SolutionCh 04 PDF

CHAPTER 4
PRODUCT COSTING SYSTEMS

ANSWERS TO QUESTIONS
4.1 The statement is incorrect. Product costing systems are as applicable to services as they are to products.. While
there is no inventory to cost in a service business, service costs can be useful for range of management decisions.
These decisions include the pricing of services, determining the optimal mix of services to offer, determining the
impact on profits of dropping a service or adding a new service, and controlling costs.
4.2
Purpose Current / Future product costs
Short-term decisions: product mix, pricing Future
Longer-term strategic decisions Future
Long-term pricing Future
Plan future product-related costs Future
Control of product costs Current
Reimbursement contracts Current
External reporting (inventory calculation) Current
All of the information cannot come from one source. The accounting system may accumulate current and past
product costs but for some decision-making and planning, estimates of future costs will need to be generated
outside of the accounting system.
4.3 Product costs can be used to understanding the costs and profitability of products. The Winemakers Federation
of Australia has developed cost models which can be used by wineries to assess the costs of producing and
selling Australia-made wine. In this product costing all costs of production are included.
Cost estimates can be important in developing project proposals. The Department of Defence has a three stage
process which is used to support a case for a project which will be sourced from an outside supplier. In the first
stage a choice of options is put to the National Security Committee and this includes initial cost estimates for
each option. Projects that are selected are then fully costed to demonstrate that they meet a strategic need and fall
within a budget. The third stage involves competitive tendering for the project. Outside suppliers will submit a
full tender which includes costs. It is unclear what costs are included in each stage, but one would expect that all
costs associated with a project should be included.
Product cost can be used to set prices and determining product profitability. The Department of State
Development in Tasmania recommends that prices should be set to cover direct material, direct labour and
manufacturing overhead. Coopers Brewery takes a more inclusive approach to tracking product profitability by
including upstream and downstream costs in product costs.
4.4
Purpose Frequency
Short-term decisions: product mix, pricing Ad hoc
Longer-term strategic decisions Ad hoc
Long-term pricing For each new product development
Plan future product-related costs Monthly for current products or ad hoc
for each new product development
Control of product costs Monthly, sometimes more frequently
Reimbursement contracts Whenever invoicing is required
External reporting (inventory calculation) Annually, and possibly monthly
A product costing system developed to meet financial reporting requirements will provide routine information
on some costs. However, other information will be required on an ad hoc basis. It may be possible to design a
product costing approach, to provide at least some of this information.
4.5 This is not entirely satisfactory. Product costs may be useful for a range of decisions. Even though the business
is a price taker, it may well need to consider whether it should be making all of the products in the range, as
some may be unprofitable. A wrong decision may cost the firm more than it does to run a product costing
system. A product costing system may help to control production costs and highlight problems. The firm will
need some product costs at year-end to value inventory, even if it is minimal.
Chapter 4 Solutions Manual t/a Management Accounting: Information for Creating and Managing Value 5e
by Langfield-Smith, Thorne and Hilton 1
4.6 When direct material, direct labour and manufacturing overhead costs are incurred, they are applied to work in
process inventory by debiting the account. When goods are finished, the costs are removed from the work in
process account with a credit, and are then transferred to finished goods inventory by debiting that account.
Subsequently, when the goods are sold, the finished goods inventory is credited and the costs are added to the
cost of goods sold, with a debit.
4.7 For external reporting purposes, only manufacturing costs are included in product cost, which includes direct
material, direct labour and manufacturing overhead. For management decision-making purposes, product costs
may include non-manufacturing costs that are associated with certain products.
4.8 Manufacturing overhead is indirect costs attributed to manufacturing activities. Some examples of
manufacturing overhead costs are depreciation of production machinery, quality inspectors salary, local council
rates for the factory, and electricity costs. These costs cannot be easily traced to particular products so a
proportion of these costs must be assigned to each product. The easiest way to do this is to accumulate overhead
costs in one or more cost pools and then allocate these costs to products using cost drivers.
4.9 The four steps followed when applying manufacturing overhead to products are:
(a) identifying the overhead cost driver, which is the factor that causes the overhead costs to be incurred
(b) calculating the overhead rate, which is usually based on the budgeted annual manufacturing overhead
cost, divided by the budgeted annual volume of cost driver, and
(c) applying manufacturing overhead costs to products, by multiplying the predetermined overhead rate by
the amount of cost driver consumed by the product.
(d) overapplied or underapplied overhead is closed into cost of goods sold at year end.
4.10 Overapplied or underapplied overhead is caused by errors in estimating the predetermined overhead rate. These
errors can occur in the numerator (budgeted manufacturing overhead), or in the denominator (budgeted level of
the cost driver). It can also be caused by using inappropriate cost drivers to allocate the overheads to products.
Overapplied or underapplied overhead should be closed at year end because month-to-month variations are
likely to average out over the year.
4.11 Overapplied or underapplied overhead can be closed directly into cost of goods sold, or it can be prorated among
work in process inventory, finished goods inventory and cost of goods sold. If the amount of underapplied or
overapplied overhead is significant, it should be prorated.
4.12 In Exhibit 4.15, underapplied overhead is deducted from the actual overheads to estimate the amount of
overhead applied to production during the period. As a result of this calculation the total manufacturing cost
reflects the actual material and labour costs, plus applied overhead. These costs form part of the cost of goods
sold manufactured. In the Income Statement, the cost of goods sold expense is then adjusted by adding in the
amount of underapplied overhead, to reflect the part of the actual overhead that has not been recognised in the
manufacturing cost.
4.13 In a job costing system, costs are assigned to batches or job orders of production. Job costing systems are used
by firms that produce relatively small numbers of dissimilar products. Job costing would be used in any situation
where products are produced to customers specifications, such as in a dress making business, an architectural
firm, or in a panel-beating shop. In a process costing system, production costs are averaged over a large number
of product units. Process costing systems are used by firms that produce large numbers of nearly identical
products, such as paint, beer or bricks.
In job costing situations, the job has specific characteristics that allow it to be identified from the outset, and
direct costs can be traced to the job. In a process costing environment, such as producing paint, each litre of paint
is identical to every other litre and cannot be distinguished. This means that direct costs must be traced to the
production process and then averaged across all units produced.
4.14 The two main steps in process costing are:
estimating the costs of the production process
calculating an average cost per unit by dividing the cost of the process by the number of units produced.
Note that in the next chapter (see Question 5.9) these steps are explained more comprehensively where there are
four steps.
4.15 (a) The steps in describing the flow of costs through a single-department process costing system are as
follows:
As raw material, direct labour and manufacturing overhead are introduced into production, their costs are
debited to the work in process inventory account.
As the goods are completed their costs are credited from the work in process inventory account and
debited into the finished goods inventory account.
As the goods are sold their costs are credited from the finished goods inventory account and debited into
the cost of goods sold account.
(b) In a two-stage production process, when goods are finished in production department (A), the costs
accumulated in the work in process inventory account are transferred to the work in process inventory
account for production department B.
4.16 In the Real life scenario describing the cost of Australian wine, the Australian winemakers would probably use
either process or a hybrid costing system (a combination of job costing and process costing). There are some
processes (such as de-stemming, crushing, filtering, bottling, labelling and packaging process) that are common
to production of all types of wine, but some other processes (such as fermentation, maturation and stabilisation
process) would be different for different types of wine (such as red, white sparkling or fortified wine). In other
words, the winemaker would use hybrid costing system if they are producing different types of wine and use
process costing if they are producing only wine that undergoes common processes.
4.17 (a) The job costing sheet is used to summarise the costs of direct material, direct labour, and manufacturing
overhead that relates to a particular job.
(b) A material requisition form authorises the transfer of raw material from the warehouse to the production
department, and is used to record the cost of materials for jobs.
(c) A labour time-sheet is used to record the amount of time spent on each job.
4.18 (a) Total manufacturing cost is the cost of materials and labour used, and the overhead applied for the period.
(b) Manufacturing costs to account for, include the cost of opening inventory for work in process.
(c) Cost of goods manufactured is the total manufacturing cost adjusted for opening and closing inventory.
4.19 In process costing, large quantities of identical (or nearly identical) units are produced, therefore it is neither
possible, nor necessary, to trace costs to each individual unit. Instead, production costs are traced to a process or
a department, and the average unit cost is determined by dividing the total process costs by the total number of
units produced. The costs of producing each unit are determined by progressively accumulating the costs for
each process.
4.20 Production costs are tracked to each production department for two reasons:
Department managers are held responsible for cost control, and so the costs for each department must be
identifiable.
When there are work in process inventories at the end of an accounting period, separate costs are
necessary for each department in order to calculate the value of work in process for that department.
4.21 Process costing is appropriate to industries where large quantities of identical units are produced. The system of
costing used in these industries is simplified when there are no goods in process at the end of the accounting
period and, therefore, no need to value the closing inventory in process. Industries in which this is applicable are
those where a batch of production is completed entirely and no part of it can be held over for further processing.
This is well illustrated in the example for Spritz given in the chapter, because any material left in the mixing tank
is discarded. Other industries which are similar are petroleum refining, beer brewing and paint manufacture. In
the real world, firms sometimes close off their books at the completion of the last batch for the accounting
period, rather than commence a fresh batch a few hours before the closing date, and then be confronted by the
problem of having to value the work in process. Chapter 5 explains how industries deal with this complexity
where work in process at the end of the accounting period is unavoidable.
4.22 Australian accounting standard AASB 102 has several requirements relating to inventories arising from
production:
The cost of inventories produced are to include the costs of:
direct materials
direct labour and on-costs
sub-contracted work, and
a systematic allocation of production overheads.
The balance sheet must disclose separately the accounting policies adopted for measuring inventories, including
work in process and finished goods. Both of these requirements involve costs determined using job costing systems
and process costing systems. The valuing of work in process using process costing is not dealt with until Chapter 5.
4.23 An advantage of prorating overapplied or underapplied overhead is that it results in the adjustment of all the
accounts affected by misestimating the overhead rate. These accounts include the work in process inventory
account, the finished goods inventory account, and the cost of goods sold account. The resulting balances in
these accounts are more accurate when proration is used than when overapplied or underapplied overhead is
closed directly into cost of goods sold. The primary disadvantage of prorating overapplied or underapplied
overhead is that it is more complicated and time consuming than the simpler alternative of closing overapplied or
underapplied overhead directly into cost of goods sold.
SOLUTIONS TO EXERCISES
EXERCISE 4.24 (15 minutes) Job versus process costing
1 A manufacturer of swimming pool chemicals would use process costing, as there are a limited number of
products which are produced in large quantities in similar production processes. Direct costs can be traced to
each production process and then averaged across all units produced.
2 A manufacturer of custom hot tubs and spas would use job costing, as the custom made hot tubs and spas are
produced to customer specifications, and direct costs (direct materials and direct labour) can be traced to each
job easily and economically.
3 An architectural firm would use job costing, as each design is unique and the direct costs (such as professional
fee and drawings printing costs) can be traced to each design / job.
4 A manufacturer of ceramic tiles would use process costing, as the different types of ceramic tiles are produced in
batches in large quantities across similar production processes.
5 A producer of yogurt would use process costing, as the production process for each type of yogurt would be very
similar and involve similar production processes.
6 A manufacturer of custom built tool sheds would use job costing, as custom built products are produced to
customers specifications, and direct costs (direct materials and direct labour) can be traced to each job.
7 A manufacturer of paper clips would use process costing, as different types of paper clips would be very similar
and they would be mass produced using the same processes.
8 An engineering consulting firm would use job costing, as each engineering project is unique and would use
different amounts of resources, which can be traced to each job.
9 A manufacturer of balloons would use process costing, as the production of balloons would involve only a few
types products produced in large quantities using a number of similar production processes.
10 A manufacturer of custom built emergency rescue vehicles would use job costing, as custom built vehicles are
produced to specified customer needs. Direct costs (direct materials and direct labour) will vary and could be
traced to each job.
EXERCISE 4.25 (25 minutes) Job cost sheet: manufacturer
1
Job cost sheet
Job number TB78 Description Teddy bears
Date started 1 April Date completed 15 April
Number of units completed 1000
Direct material
Date Requisition number Quantity Unit price Cost

1 April 101 450 $0.80 $360
5 April 108 600 $0.30 $180
Direct labour
Date Time sheet number Hours Rate Cost

15 April 72 500 $19 $9 500
Manufacturing overhead
Date Cost driver Quantity Application rate Cost

15 April Direct labour hours 500 $12 $6 000
Cost summary
Cost item Amount

Total direct material $ 540
Total direct labour 9 500
Total manufacturing overhead 6 000
Total cost $16 040
Unit cost $16.04
Delivery summary
Date Units shipped Units remaining in Cost balance

inventory
30 April 700 300 $4 812*
* 300 remaining in inventory $16.04 = $4 812
2 Managers may use this information to make pricing decisions, assess product profitability, control product costs,
and to estimate inventory values.
EXERCISE 4.26 (20 minutes) Schedule of cost of goods manufactured
1
Sanitarium Cereal Company
Schedule of Cost of Goods Manufactured
for the year ended December 31
Direct material:
Raw material inventory, January 1 ......................................... $30 000
Add: Purchases of raw material.............................................. 275 000
Raw material available for use ............................................... 305 000
Deduct: Raw material inventory, December 31 ..................... 33 000
Raw material used................................................................... $275 000
Direct labour ...................................................................................... 120 000
Manufacturing overhead 252 000*
Total manufacturing costs ................................................................. 647 000
Add: Work in process inventory, January 1...................................... 39 000
Subtotal .............................................................................................. 686 000
Deduct: Work in process inventory, December 31........................... 42 900
Cost of goods manufactured.............................................................. $643 100
*Applied manufacturing overhead is $252 000 ($120 000 210%). Actual manufacturing overhead is also $252 000, so
there is no overapplied or underapplied overhead.
2
Finished goods inventory, January 1............................................................................... $2 000
Add: Cost of goods manufactured................................................................................... 643 100
Cost of goods available for sale....................................................................................... 685 100
Deduct: Finished goods inventory, December 31........................................................... 46 200
Cost of goods sold............................................................................................................ $638 900
EXERCISE 4.27 (20 minutes) Manufacturing cost flows
1
Raw Materials Inventory
227 000
174 000
53 000
Wages Payable
324 000
Manufacturing Overhead
180 000
Work in Process Inventory

18 000
174 000
324 000
180 000
120 000
576 000
Finished Goods Inventory

30 000
120 000
132 000
18 000
Sales Revenue
195 000
Accounts Receivable
195 000
Cost of Goods Sold

132 000
2
Fitzgeralds Fine Furniture
Partial Balance Sheet
as at December 31
Current assets
Cash XXX
Accounts receivable XXX
Inventory
Raw materials $ 53 000
Work in process 576 000
Finished goods 18 000
Fitzgeralds Fine Furniture
Partial Income Statement
Sales revenue $195 000
Less: Cost of goods sold 132 000
Gross margin $63 000
EXERCISE 4.28 (20 minutes) Manufacturing cost flows
1 Raw material:
Beginning inventory ..................................................................................... $142 000
Add: Purchases ?
Deduct: Raw material used........................................................................... 652 000
Ending inventory $162 000
Therefore, raw material purchases for the year were................................... $672 000
2 Direct labour:
Total manufacturing cost .............................................................................. $1 372 000
Deduct: Direct material................................................................................. 652 000
Direct labour and manufacturing overhead.................................................. $ 720 000
Direct labour + manufacturing overhead = $720 000

Direct labour + (60%) (direct labour) = $720 000
(160%) (direct labour) = $720 000
$720 000
Direct labour =
1.6
Direct labour = $450 000
3 Cost of goods manufactured:

Work in process, beginning inventory ......................................................... $ 160 000
Add: Total manufacturing costs ................................................................... 1 372 000
Deduct: Cost of goods manufactured ........................................................... ?
Work in process, ending inventory............................................................... $ 60 000
Therefore, cost of goods manufactured was ................................................ $1 472 000
4 Cost of goods sold:

Finished goods, beginning inventory ........................................................... $ 180 000
Add: Cost of goods manufactured................................................................ 1 472 000
Deduct: Cost of goods sold........................................................................... ?
Finished goods, ending inventory................................................................. $ 220 000
Therefore, cost of goods sold was ................................................................ $1 432 000
EXERCISE 4.29 (15 minutes) Overapplied or underapplied overhead: manufacturer
1 Predetermined overhead rate = $993 300 / 77 000 hours = $12.90 per hour
2 To calculate actual manufacturing overhead:
Depreciation......................................................................................... $225 000
Property taxes ...................................................................................... 19 000
Indirect labour...................................................................................... 79 000
Supervisory salaries............................................................................. 210 000
Utilities................................................................................................. 58 000
Insurance.............................................................................................. 32 000
Rental of space..................................................................................... 295 000
Indirect material:
Beginning inventory, January 1.................................................. $ 46 000
Add: Purchases............................................................................ 95 000
Indirect material available for use .............................................. $141 000
Deduct: Ending inventory, December 31................................... 62 000
Indirect material used ................................................................. 79 000
Actual manufacturing overhead .......................................................... $997 000
Actual Applied
Overapplied
= manufacturing manufacturing
overhead
overhead overhead
= $997 000 ($12.90 x79 000 DLH)
= $997 000 1 019 100
= $22 100 over applied
3
Manufacturing overhead.................................... 22 100
Cost of goods sold................................. 22 100
4 The overapplied overhead was caused by the mis-estimated manufacturing overhead rate. The budgeted
overhead costs, $993 300, were below the actual costs of $1 019 100. However, the actual hours were 79 000
hours, 2 000 hours above budget. This caused overhead to be overapplied.
EXERCISE 4.30 (10 minutes) Basic journal entries in job costing: manufacturer
Work in process inventory $4 454

Raw material inventory $3 200
Wages payable (38 x $22) 836
Manufacturing overhead (38 x $11) 418
Finished goods inventory $4 454

The cost per puzzle for job number B67 is $8.908 (4 454 / 500).
EXERCISE 4.31 (20minutes) Manufacturing overhead: manufacturer
1 In each case, the predetermined manufacturing overhead rate is calculated by dividing the budgeted overhead by
the budgeted activity driver.
(a) Machine hours $728 000/20 000 hours $36.40 per machine hour
(b) Direct labour hours $728 000/40 000 hours $18.20 per direct labour hour
(c) Direct labour cost $728 000/(40 000 hours @ $28 per hour) 65% of direct labour cost
2 The actual manufacturing overhead is $680 000. The results of using the three methods are shown below.
Method Overhead applied Over/under-applied
(a) Machine hours 22 000 hrs @ $36.40 = $800 800 $120 800 over
(b) Direct labour hours 36 000 hrs @ $18.20 = $655 200 $24 800 under
(c) Direct labour cost 65% of (36 000 hrs @ $30) = $702 000 $22 000 over
3 The most appropriate method is that based on direct labour cost, since the difference between actual and applied
manufacturing overhead is the lowest. It might be useful to monitor each of the methods over a longer period,
before any method is chosen.
4 Journal entries for each of the methods:

No Detail Dr Cr
(a) Work in process $800 800
Manufacturing overhead control $800 800
Applying manufacturing overhead to work in process
(b) Work in process $655 200
(c) Work in process $702 000
EXERCISE 4.32 (15 minutes) Process costing; no work in process: manufacturer
1
Mixing department costs = $88 400 / 70 000 = $1.263
Packing department costs = $22 800 / 70 000 = $0.326
Total cost per container = $111 200 / 70 000 = $1.589
2
Dr. Work in process mixing $88 400
Cr. Raw materials inventory $50 000
Wages payable 24 000
Manufacturing overhead 14 400
Dr. Work in process packing 88 400

Cr. Work in process mixing 88 400
Dr. Work in process packing 22 800
Cr. Raw materials inventory 10 000
Wages payable 8 000
Dr. Finished goods $111 200

Cr. Work in process packing $111 200
EXERCISE 4.33 (20 minutes) Process costing; no work in process: brewer
1 The cost per bottle is calculated as follows:

Mixing department $150 000/150 000 bottles = $1.00
Bottling department $33 000/150 000 bottles = $0.22
Total cost per bottle $1.22
2 Journal entries:
Dr. Work in process mixing $150 000
Cr. Raw materials inventory $112 500
Dr. Work in process bottling 150 000

Cr. Work in process mixing 150 000
Dr. Work in process bottling 33 000

Cr. Raw materials inventory 18 000
Wages payable 6 000
Dr. Finished goods $183 000

Cr. Work in process bottling $183 000
3 Process costing is the correct costing system to use where large quantities of identical units are produced. Where
production takes place in more than one department, the costs are progressively accumulated as production
moves from one department to the next. It is normal to record the costs of each department separately as these
are used for control purposes. South Brew Ltd is following conventional process costing procedures.
EXERCISE 4.34 (20 minutes) Proration of underapplied overhead: manufacturer
1 Applied manufacturing overhead $145 000

Actual manufacturing overhead $167 000
Therefore, overhead has been underapplied by $22 000.
2 Calculation of proration amounts:
Calculation of
Account Amount Percentage Percentage
Work in process $ 29 000 20% 29 000 $145 000
Finished goods 50 750 35% 50 750 $145 000
Cost of goods sold 65 250 45% 65 250 $145 000
Total $145 000 100%
Underapplied Amount to be added

Account Overhead Percentage to account
Work in process $22 000 20% $4 400
Finished goods 22 000 35% 7 700
Cost of goods sold $22 000 45% $9 900
Journal entry:
Finished goods inventory 7 700
Cost of goods sold $ 9 900
Manufacturing overhead $22 000
3 If all of the underapplied overhead had been closed to cost of goods sold, rather than being prorated, cost of
goods sold would have been increased by $22 000 instead of $9 900. Thus, profit would have been $12 100
lower under this approach.
SOLUTIONS TO PROBLEMS
PROBLEM 4.35 (35 minutes) Job costing; journal entries
1 Predetermined overhead rate = budgeted overhead budgeted machine hours

= $1 680 000 32 000
= $52.50 per machine hour
2 (a)
Work in process inventory $160 000*
Raw material inventory $160 000
Work in process inventory $261 600**

Wages payable $261 600
* $42 000 + $88 000 + $30 000 = $160 000
** $70 000 + $44 000 + $130 000 + $17 600 = $261 600
(b)
Accumulated depreciation $68 000
Manufacturing supplies inventory 10 000
Miscellaneous accounts $279 000
(c)
Work in process inventory $462 000*
* (2 400 + 1 400 + 4 000 + 1 000) $52.50 = $462 000
(d)
Finished goods inventory $630 500*
* Job 101: $168 000 + $42 000 + $70 000 + (2 400 $52.50) = $406 000
Job 102: $107 000 + $44 000 + (1 400 $52.50) = $224 500
$630 500 = $406 000 + $224 500
(e)
Accounts receivable $293 900*
Sales revenue $293 900
* $224 500 + $69 400 = $293 900
Cost of goods sold $224 500

3 Job no. 103 and no. 104 are in production as of March 31:
Job 103: $88 000 + $130 000 + (4 000 $52.50) $428 000
Job 104: $30 000 + $17 600 + (1 000 $52.50) 100 100
Total $528 100
4 There was no finished goods inventory on 1 January and at the end of March the only completed job remaining
in finished goods inventory was Job 101, which totalled $406 000.
PROBLEM 4.36 (25 minutes) Predetermined overhead rate; journal entries
budgeted manufacturing overhead

1 Predetermined overhead rate =
budgeted machine hours
$1 464 000
= = $20 per machine hour
73 200
2 Journal entries:
(a) Raw material inventory ................................................... $7 850
Accounts payable ................................................ $7 850
(b) Work in process............................................................... 180

Raw material inventory....................................... 180
(c) Manufacturing overhead ................................................. 30

Manufacturing supplies inventory ...................... 30
(d) Manufacturing overhead ................................................. 800

Cash ..................................................................... 800
(e) Work in process inventory .............................................. 75 000

Wages payable .................................................... 75 000
(f) Selling and administrative expense................................. 1 800

Prepaid insurance ................................................ 1 800
(g) Raw material inventory ................................................... 3 000

Accounts payable ................................................ 3 000
(h) Accounts payable............................................................. 1 700

Cash ..................................................................... 1 700
(i) Manufacturing overhead ................................................. 21 000

Wages payable .................................................... 21 000
(j) Manufacturing overhead ................................................. 7 000

Accumulated depreciation: equipment ............... 7 000
(k) Finished goods inventory ................................................ 1 100

Work in process inventory.................................. 1 100
(l) Work in process inventory .............................................. 140 000*

Manufacturing overhead..................................... 140 000
*Applied manufacturing overhead = 7000 machine hours x $20 per hour
(m) Accounts receivable ........................................................ 176 000
Sales revenue ...................................................... 176 000
Cost of goods sold ........................................................... $139 000

Finished goods inventory.................................... $139 000
PROBLEM 4.37 (45 minutes) Basic job costing; journal entries; ledger accounts; job cost card
1 Journal entries:
(a) Raw material inventory $33 000
Accounts payable 33 000
(b) Work in process inventory 66 000

Raw material inventory 66 000
Job G60 1000 $11 = 11 000
Job C81 5000 $11 = 55 000
(c) Manufacturing supplies inventory 100

Accounts payable 100
Manufacturing overhead 100

Manufacturing supplies inventory 100
(d) Manufacturing overhead 8 000

Accumulated depreciation: equipment 8 000
(e) Manufacturing overhead 400

Cash 400
(f) Work in process inventory 16 000

Job G60 100 $20 = 2000
Job C81 700 $20 = 14 000
Work in process inventory 9 600

Job G60 100 $12 = 1 200
Job C81 700 $12 = 8 400
$240 000
Predetermined overhead rate = = $12 per hour
$(2000)(10)
(g) Manufacturing overhead 910

Council rates payable 910
(h) Manufacturing overhead 2 500

Wages payable 2 500
(i) Finished goods inventory 17 900
Work in process inventory 17 900*
* cost amount derived in part 3
(j) Accounts receivable 15 000

Sales revenue 15 000
Cost of goods sold 12 000

2 Ledger accounts
Bal. 1/10 55 000 66 000
33 000 22 000 Bal. 31/10 (cf)
88 000 88 000
Bal 1/11 (bf) 22 000

Bal. 1/10 G60 3 700
DM G60 11 000
DM C81 55 000 17 900 G60
DL G60 2 000 77 400 Bal. 31/10 (cf)

DL C81 14 000 95 300
MOH G60 1 200
MOH C81 8 400
95 300
Bal.1/11 (bf) 77 400

Bal. 1/10 B50 12 000 12 000 B50
G60 17 900 17 900 Bal 31/10 (cf)
29 900 29 900
Bal.1/11 (bf) 17 900
3 Job cost card for Job G60

Job cost sheet
Job number G60 Description Jewellery box
Date started July Date completed October
Number of units completed xxx
Direct material
July September xxx xxx xxx $500
October xxx 1000 $11 $11 000
Direct labour
July September xxx xxx xx $2 000
October xxx 100 $20 $2 000
July September Direct labour hours xxx xxxx $1 200
October Direct labour hours 100 $12 $1 200
Cost summary
Cost Item Amount
Total direct material $11 500
Total cost $17 900
PROBLEM 4.38 (25 minutes) Manufacturing cost flows; analysis of ledger accounts
The completed ledger accounts are shown below (missing amounts in bold):
Bal. 1 Jan 29 400 168 000
189 000 50 400 Bal. 31 Dec (cf)
218 400 218 400
Bal 1 Jan (bf) 50 400

Bal. 1 Jan 23 800
Direct material 168 000
Direct labour 210 000 1 005 200
Mfg. overhead 630 000 26 600 Bal. 31 Dec (cf)
1 031 800 1 031 800
Bal.1 Jan (bf) 26 600
Manufacturing Overhead
633 500 630 000
Wages Payable
205 800 2 800 Bal. 1 Jan
Bal 31 Dec(cf) 7 000 210 000
212 800 212 800
7 000 Bal. 1 Jan (bf)
Accounts Payable
191 100 3 500 Bal. 1 Jan
Bal 31Dec(cf) 1 400 189 000
192 500 192 500
1 400 Bal. 1 Jan (bf)
Bal. 1 Jan 16 800 994 000
1 005 200 28 000 Bal 31 Dec (cf)
1 022 000 1 022 000
Bal.1 Jan (bf) 28 000
Cost of Goods Sold

994 000
Sales Revenue
1 134 000
Accounts Receivable
Bal. 1 Jan 15 400 1 128 400
1 134 000 21 000 Bal 31 Dec (cf)
1 149 400 1 149 400
Bal. 1 Jan (bf) 21 000
PROBLEM 4.39 Flow of manufacturing costs; incomplete data
1 The answers to the questions are as follows:

(a) $648 000 (f) $180 000
(b) $57 000 (g) $450 000
(c) $210 000 (h) $120 000
(d) $114 000 (i) $45 000
(e) $240 000 (j) Zero
2 The completed ledger accounts (in bold), along with supporting calculations, follow.
Raw-Material Inventory Accounts Payable

Bal. 1/11 45 000 36 000 Bal. 1/11
210 000 120 000 243 000 210 000
Bal.30/11 135 000 3 000 Bal. 30/11
Work in process Inventory Finished goods Inventory

Bal. 1/11 24 000 Bal. 1/11 105 000
Direct 450 000 450 000 540 000
material 120 000 Bal. 30/11 15 000
Direct
labour 240 000 Cost of Goods Sold
Overhead 180 000 540 000
Bal. 30/11 114 000
Manufacturing Overhead Sales Revenue

180,000 180 000 648 000
Wages Payable Accounts Receivable
3 000 Bal. 1/11 Bal. 1/11 24 000
238 500 240 000 648 000 615 000
4 500 Bal. 30/11 Bal. 30/11 57 000
Supporting Calculations:
(a) Sales revenue = cost of goods sold x 120%

= $540 000 x 120% = $648 000
(b) Ending balance in accounts receivable = beginning balance + sales revenue

collections
= $24 000 + $648 000 $615 000
= $57 000
(c) Purchases of raw material = addition to accounts payable
Addition to accounts payable = ending balance + payments

beginning balance
= $3 000 + $243 000 $36 000
= $210 000
(d) November 30 balance in work in direct direct manufacturing

= + +
process inventory material labour overhead
= $61 500 + (1 500)($20) + (1 500)($15*)
= $114 000
budgeted overhead
*Predetermined overhead rate =
budgeted direct labour hours
$2 160 000
=
144 000
= $15 per direct labour hour
budgeted direct labour cost $2 880 000

Budgeted direct-labour hours = = = 144 000
direct labour rate $20
(e) Addition to work in process November credit to

for direct labour = wages payable
November credit to
wages payable = ending balance + payments beginning balance
= $4 500 + $238 500 $3 000 = $240 000
(f) November applied overhead = direct labour hours x predetermined overhead rate
= 12 000* x $15
= $180 000
addition to work in process for direct labour

*Direct labour hours = direct labour rate
$240 000
= 12 000 hours
= $20
beginning balance in ending balance in work in

(g) Cost of goods completed during work in process additions process
November = + during
November
= $24 000 + ($120 000 + $240 000 + $180 000) $114 000
= $450 000
(h) Raw material used in November November credit to raw-material

= inventory = $120 000 (given)
(i) October 31 balance in November 30 balance in direct

raw-material inventory = raw-material inventory + material purchases
used
= $135 000 + $120 000 $210 000
= $45 000
(j) Overapplied or underapplied overhead = actual overhead applied overhead

= $180 000 $180 000 = 0
PROBLEM 4.40 (30 minutes) Cost of goods manufactured; prime and conversion costs
1
McKinlay Maps Ltd
Schedule of cost of goods manufactured
for the month of March
Direct material:
Raw materials inventory, March 1 $ 20 400
Add: March purchases of raw material 135 600
Raw material available for use 156 000
Less: Raw materials inventory, March 31 31 200
Raw materials used $124 800

Direct labour 192 000*
Manufacturing overhead applied (50% of direct labour) 96 000
Total manufacturing costs 412 800
Add: Work in process inventory, March 1 48 000
Subtotal 460 800
Less: Work in process inventory
March 31 (90% $48 000) 43 200
Cost of goods manufactured $417 600
* Work upward from the bottom of the statement, using information available. Direct labour + manufacturing overhead = total
manufacturing costs direct material cost = $412 800 $124 800 = $288 000. Since manufacturing overhead = 50% of direct labour, then
manufacturing overhead = $96 000 and direct labour = $192 000.
To calculate cost of goods manufactured:
Cost of goods sold = beginning inventory finished goods + cost of goods manufactured ending inventory finished goods.
414 000 = 122 400 + cost of goods manufactured 126 000
Cost of goods manufactured = $417 600
2
McKinlay Maps Ltd
Schedule of prime costs
Raw material:
Beginning inventory $ 20 400
Add: Purchases 135 600
Raw materials available 156 000
Less: Ending inventory 31 200
Raw materials used 124800
Direct labour 192 000
Total prime cost 316 800
3
McKinlay Maps Ltd
Schedule of conversion costs
Direct labour $192 000
Manufacturing overhead applied (50% of direct labour) 96 000
Total conversion cost $288 000
PROBLEM 4-41 (45 minutes) Schedules of cost of goods manufactured and sold; income
statement: manufacturer
1
Kinnears Precision Machining Pty Ltd
For the Year Ended December 31
Direct material:
Raw materials inventory 1 Jan $ 89 000
Add: Purchases of raw material 731 000
Raw material available for use 820 000
Less: Raw materials inventory, 31 Dec 59 000
Raw material used $761 000
Manufacturing overhead:
Indirect material $ 45 000
Indirect labour 150 000
Depreciation on factory building 125 000
Depreciation on factory equipment 60 000
Electricity for factory 70 000
Council rates 90 000
Insurance 40 000
Total actual manufacturing overhead 580 000
Less: Underapplied overhead* 2 500
Overhead applied to work in process 577 500
Total manufacturing costs 1 812 500
Add: Work in process inventory, 1 Jan 0
Subtotal 1 812 500
Less: Work in process inventory, 31 Dec 40 000
Cost of goods manufactured 1 772 500
*The Schedule of Costs of Goods Manufactured lists the manufacturing costs applied to work in process. Therefore, the underapplied
overhead, $2 500, must be deducted from total actual overhead to arrive at the amount of overhead applied to work in process. If there had
been overapplied overhead, the balance would have been added to total manufacturing overhead.
The amount of underapplied overhead is found by subtracting the applied manufacturing overhead, $577 500, from the total actual
manufacturing overhead, $580 000.
2
Schedule of Cost of Goods Sold
Finished goods inventory, 1 Jan $35 000

Add: Cost of goods manufactured 1 772 500
Cost of goods available for sale 1 807 500
Finished goods inventory, 31 Dec 40 000
Cost of goods sold 1 767 500
Add: Underapplied overhead* 2 500
Cost of goods sold (adjusted for underapplied overhead) $1 770 000
*The company closes underapplied or overapplied overhead into cost of goods sold. Hence the $2,500 balance in underapplied overhead is
added to cost of goods sold for the month.
3
Income Statement
Sales revenue $2 105 000

Less: cost of goods sold 1 770 000
Gross margin 335 000
Selling and administrative expenses 269 000
Profit before taxes 66 000
Income tax expense 25 000
Net profit $ 41 000
4 (a) The direct material cost would have been larger, probably by (roughly) 20 per cent, because direct material is a
variable cost.
(b) Depreciation is a fixed cost, so it would not have been any larger if the firms production volume had
increased.
(c) Only the $30,000 of equipment depreciation would have been included in manufacturing overhead on the
schedule of cost of goods manufactured. The $30,000 of depreciation related to selling and administrative
equipment would have been treated as a period cost and expensed during the year. However, the cost of goods
manufactured would not have been affected. This difference would have been taken up in underapplied or
overapplied overhead.
PROBLEM 4.42 (20 minutes) Ethical issues; underapplication of manufacturing overhead:

manufacturer
1 Drawing on the Code of Ethics for Professional Accountants issued by the Professional and Ethical Standards
Board (APESB), outlined in Chapter 1, the appropriateness of Tom Savin's three alternative courses of action is
described as follows:
Follow Brown's directive and do nothing further: This action is inappropriate as Savin has ethical
responsibilities to take further action in accordance with the following principles of the Code: integrity,
professional competence and care, and professional behaviour.
Attempt to convince Brown to make the proper adjustments, and advise the external auditors of her
actions: This action is appropriate as Savin should discuss this first with Brown to attempt to resolve the
issue. Savin should not advise the external auditor but should ask Brown to do this. If Brown does not
agree to do this then Savin should ask Browns superiors to take action. If this does not happen then Savin
should talk to the external auditor.
Tell the Audit Committee about the problem: This action is not appropriate as a first step, because Savin
should approach his immediate superior first.
2 Savin should inform Brown that he is planning to discuss the conflict with Brown's superior. He should pursue
discussions with successively higher levels of management including the Audit Committee and the Board of
Directors until the matter is satisfactorily resolved. At the same time, he should seek confidential advice from
an objective adviser to clarify the relevant concepts and obtain an understanding of possible courses of action. If
the ethical conflict still exists after exhausting all levels of internal review, Savin may have no alternative other
than to resign from the business.
PROBLEM 4.43 (40 minutes) Schedule of cost of goods manufactured
1
Norton Industries
Schedule of cost of goods manufactured
for the month ended May 31 (in thousands)
Direct material:
Inventory of raw material, April 30 $ 28
Purchases of raw materials 525
Total raw material available for use 553
Inventory of raw material, May 31 23
Raw material used in production $530
Direct labour 260
Manufacturing overhead incurred
Indirect factory labour $ 90
Utilities ($135 .8) 108
Property taxes 60
Insurance ($20 .6) 12
Depreciation ($20 + $30) 50
Actual manufacturing overhead 320
Less: Underapplied manufacturing overhead* 7
Manufacturing overhead applied to work in process 313
Total manufacturing costs 1 103
Add: Inventory of work in process, April 30 150
Subtotal 1 253
Less: Inventory of work in process, May 31 220
Cost of goods manufactured $1 033
* Actual manufacturing overhead $ 320

Applied manufacturing overhead (7825 tonnes at $40 per tonne) 313
Underapplied manufacturing overhead $ 7
2 An alternative treatment for closing underapplied or overapplied manufacturing overhead is to prorate the
amount of underapplied or overapplied manufacturing overhead, over the accounts that contain the
manufacturing overhead applied to production. These accounts include work in process, finished goods, and the
cost of goods sold. This proration should be in proportion to the unadjusted overhead component in each
account.
3 Closing overhead at the end of the month may be unhelpful as the under or overapplied overhead may be
balanced out by variations in the following month. It is best to close off the total variation at year end. The
predetermined overhead rate is usually set for a 12 month period so it is not unreasonable to find that there are
under or over applications at the end of each month. This can be a result of actual overhead items not being
incurred smoothly over the year.
PROBLEM 4.44 (30 minutes) Process costing; journal entries: manufacturer
1, 2 & 3
Mixing Bottling Packaging

Department costs $163 000 $13 700 $22 900
Output 25 000 litres 5 000 drums (@ 5 litres) 1 250 packs (20 litres)
Cost per unit $6.52 per litre $2.74 per drum or $0.548 per $18.32 per pack or 0.916
litre per litre
Total cost = $0.548 + 6.52 Total cost = 0.916 + 7.068
= $7.068 per litre = $7.984 per litres
4 The method described in the chapter calculates the cost per unit by dividing the total production costs by the
total output. However, in many businesses (such as Eliminater Ltd) products are processed through a number of
separate production processes. In this question, the total cost per unit can be separated into the costs for the three
production departments. This assists in cost control and cost accountability.
5 Journal entries
Date Details Dr Cr
April 30 Work in Process Mixing $163 000
Raw Materials Inventory $112 600
Direct Labour 33 600
Manufacturing Overhead Control 16 800
April 30 Work in Process Bottling 163 000
Work in Process Mixing 163 000
Transfer of April production costs from Mixing Department
to Bottling Department
April 30 Work in Process Bottling 13 700
Raw Materials Inventory 5 000
Direct Labour 5 800
April 30 Work in Process Packaging 176 700
Work in Process Bottling 176 700
Transfer of April production costs from Bottling
Department to Packaging Department
April 30 Work in Process Packing 22 900
Raw Materials Inventory 10 000
Direct Labour 8 600
April 30 Finished Goods Inventory 199 600
Work in Process Packaging 199 600
Transfer of April production costs from Packaging
Department to Finished Goods Inventory
6 The approach of keeping separate work in process accounts for each department is preferable to aggregating
production costs for all processes/departments in one work in process account as it gives department production
managers more information for controlling costs.
PROBLEM 4.45 (30 minutes) (appendix) Proration of overapplied or underapplied overhead:
manufacturer
1
Predetermined overhead rate =
budgeted machine hours
$235 000
= = $5 per machine hour
$47 000
2
machine predetermined

Applied manufacturing overhead = hours overhead
used
rate

= 4 000 hours $5 per hour
= $20 000
3
Underapplied overhead = actual overhead applied overhead
= $26 000 $20 000
= $6 000
4
5 (a) Calculation of proration amounts:

Account Explanation Amount* Percentage Calculation of percentage
Work in process Job P82 only $ 2 500 12.5% 2 500 20 000
Finished goods Job N08 only 12 500 62.5% 12 500 20 000
Cost of goods sold Job A79 only 5 000 25.0% 5 000 20 000
Total $20 000 100.0%
* Machine hours used on job predetermined overhead rate
Account Underapplied overhead Percentage Amount added to account

Work in process $6 000 12.5% $ 750
Finished goods 6 000 62.5% 3 750
Cost of goods sold 6 000 25.0% 1 500
Total $6 000
(b) Journal entry:
Work in process inventory 750
Finished goods inventory 3 750
SOLUTIONS TO CASES
CASE 4.46 (75 minutes) Comprehensive job costing problem: manufacturer
1
Predetermined overhead rate =
budgeted direct labour hours
$426 300
= = $21 per direct labour hour
20 300
2
Job cost sheet
Job number T81 Description Trombones
Date started March Date completed 20 March
Number of units completed 76
Direct material
5/3 112 250 $5.00 $1 250
Direct labour
8/3 to 12/3 308 to 312 800 $20 $16 000
8/3 to 12/3 Direct labour hours 800 $21 $16 800
Cost summary
Cost item Amount
Total direct material $1 250
Total cost $34 050

Unit cost $448.0263
Delivery summary
Date Units shipped Units remaining in inventory Cost balance
March 38 38 $17 025
3 Journal entries:
(a) Raw material inventory........................................................ $5 000
Accounts payable..................................................... $5 000
(b) Raw material inventory........................................................ 4 000

Accounts payable..................................................... 4 000
(c) Work in process inventory................................................... 11 250*

Raw material inventory ........................................... 11 250
* (250 sq. metres $5.00 per sq. metres) + (1000 kg $10 per kg.)
Manufacturing overhead** .................................................. 100

Manufacturing supplies inventory........................... 100
** Valve lubricant is an indirect material, so it is considered an overhead cost

(10 litres x $10 per litre)
(d) Work in process inventory................................................... 34 000

Manufacturing overhead ...................................................... 13 000
Wages payable ......................................................... 47 000
Work in process inventory................................................... 35 700*

Manufacturing overhead.......................................... 35 700
* Applied manufacturing overhead = 1700 direct-labour hours $21 per hour.
(e) Manufacturing overhead ...................................................... 12 000

Accumulated depreciation: Building and
equipment............................................................. 12 000
(f) Manufacturing overhead ...................................................... 1 200

Cash.......................................................................... 1 200
(g) Manufacturing overhead ...................................................... 2 100

Accounts payable..................................................... 2 100
(h) Manufacturing overhead ...................................................... 2 400

Cash.......................................................................... 2 400
(i) Manufacturing overhead ...................................................... 3 100

Prepaid insurance..................................................... 3 100
(j) Selling and administrative expenses.................................... 8 000

Cash.......................................................................... 8 000
(k) Selling and administrative expenses.................................... 4 000

Accumulated depreciation: Buildings and
equipment .............................................................. 4 000
(l) Selling and administrative expenses.................................... 1 000
Cash.......................................................................... 1 000
(m) Finished goods inventory................................................... 34 050*

Work in process inventory .................................... 34 050
* Cost of Job T81:
Direct material (250 $5.00).............................. $ 1 250
Direct labour (800 $20)..................................... 16 000
Manufacturing overhead (800$21) ................... 16 800
Total cost ............................................................. $34 050
(n) Accounts Receivable.......................................................... 26 600*

Sales Revenue.......................................................... 26 600
* (76 2) $700 per trombone
Cost of Goods Sold ............................................................ $17 025**

Finished Goods Inventory ....................................... $17 025
** 17 025 = $34 050 2.
4 Ledger accounts and posting of journal entries:

Cash Accounts Payable
Bal 10 000 13 000 Bal
1 200 (f) 5 000 (a)
2 400 (h) 4 000 (b)
8 000 (j) 2 100 (g)
1 000 (l)
Accounts Receivable Wages Payable

Bal. 21 000 8 000 Bal.
(n) 26 600 47 000 (d)
Accumulated Depreciation: Buildings and

Prepaid Insurance Equipment
Bal. 5 000 102 000 Bal.
3 100 (i) 12 000 (e)
4 000 (k)
Manufacturing Supplies Inventory Manufacturing Overhead

Bal. 500 (c) 100 35 700 (d)
100 (c) (d) 13 000
(e) 12 000
(f) 1 200
(g) 2 100
(h) 2 400
(i) 3 100
Raw Material Inventory Cost of Goods Sold
Bal. 149 000 (n) 17 025
(a) 5 000 11 250 (c)
(b) 4 000
Work in Process Inventory Selling and Administrative Expenses

Bal. 91 000 (j) 8 000
(c) 11 250 34 050 (m) (k) 4 000
(d) 34 000 (l) 1 000
(d) 35 700
Finished Goods Inventory Sales Revenue

Bal. 220 000 26 600 (n)
(m) 34 050 17 025 (n)
5
(a) Calculation of actual overhead:
Indirect material (valve lubricant) ................................................................. $ 100

Indirect labour ................................................................................................ 13 000
Depreciation: factory building and equipment.............................................. 12 000
Rent: warehouse............................................................................................. 1 200
Utilities ........................................................................................................... 2 100
Property taxes................................................................................................. 2 400
Insurance ........................................................................................................ 3 100
Total actual overhead..................................................................................... $33 900
actual manufacturing applied manufacturing
(b) Overapplied overhead =
overhead overhead
= $33 900 $35 700*
= $1 800 overapplied
* $35 700 = 1700 direct-labour hours$21 per hour.
(c) Manufacturing Overhead 1 800
Cost of Goods Sold ............................................................. 1 800
6
Brass Design Ltd
Direct material:
Raw material inventory, March 1.................................. $149 000
Add: March purchases of raw material ......................... 9 000
Raw material available for use ...................................... 158 000
Deduct: Raw material inventory, March 31 .................. 146 750
Raw material used.......................................................... $11 250
Direct labour ........................................................................... 34 000
Indirect material ............................................................. $100
Indirect labour................................................................ 13 000
Depreciation on factory building and equipment.......... 12 000
Rent: warehouse............................................................. 1 200
Utilities........................................................................... 2 100
Property taxes................................................................. 2 400
Insurance ........................................................................ 3 100
Total actual manufacturing overhead..................... 33 900
Add: overapplied overhead .................................... $1 800*
Overhead applied to work in process ............................ 35 700
Total manufacturing costs ...................................................... 80 950
Add: Work in process inventory, March 1............................. 91 000
Subtotal 171 950
Deduct: Work in process inventory, March 31...................... 137 900
Cost of goods manufactured................................................... $34 050
* The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to work in process. Therefore, the
overapplied overhead, $1800, must be added to actual overhead to arrive at the amount of overhead applied to work in
process during March.

Cost of Job T81, which was completed during March.
7
Brass Design Ltd
Schedule of Cost of Goods Sold
Finished goods inventory, March 1..................................................................................... $220 000

Add: Cost of goods manufactured....................................................................................... 34 050
Cost of goods available for sale .......................................................................................... 254 050
Deduct: Finished goods inventory, March 31..................................................................... 237 025
Cost of goods sold ............................................................................................................... 17 025
Deduct: Overapplied overhead*.......................................................................................... 1 800
Cost of goods sold (adjusted for overapplied overhead) .................................................... $ 15 225
* The company closes underapplied or overapplied overhead into cost of goods sold. Hence the balance in overapplied
overhead is deducted from cost of goods sold for the month.
8
Brass Design Ltd
Income Statement
Sales revenue....................................................................................................................... $26 600

Less: Cost of goods sold ..................................................................................................... 15 225
Gross margin ....................................................................................................................... 11 375
Selling and administrative expenses................................................................................... 13 000
Profit (loss).......................................................................................................................... $ (1625)
CASE 4.47 (45 minutes) Interpreting information from a job costing system: manufacturer
1 A job costing system is appropriate where each product, batch of products or order is different and costs can be
readily identified with that specific product, batch, or order.
2 The only job remaining in Babypals work in process inventory on December 31 is CHT114. The dollar value of
CHT114 is calculated as follows:
CHT114 balance November 30 $250 000
December additions:
Raw material $124 000
Purchased parts 87 000
Manufacturing overhead (19 500 $7.50*) 146 250 557 750
Work in process inventory December 31 $807 750
*Manufacturing overhead rate = $4 500 000
600 000 hours
= $7.50 per hour
3 The dollar value of the playpens remaining in Babypals finished goods inventory on December 31 is $455 600,
calculated as follows:
Playpen units
Finished goods inventory November 30 19 400
Units completed in December 15 000
Units available for sale 34 400
Units shipped in December 21 000
Finished goods inventory December 31 13 400
Assuming that the units produced first are sold first, all units remaining in finished goods inventory were
completed in December.
Unit costs of playpens completed in December:
Work in process inventory November 30 $420 000

December additions:
Raw material $ 3 000
Purchased parts 10 800
Manufacturing overhead (4400 hours $7.50) 33 000 90 000
Total cost $510 000
total cost
Unit cost = = $34 per unit
units completed
Value of finished goods inventory on
= Unit cost quantity
December 31
= $34 13 400
= $455 600
CASE 4.48 (50 minutes) Cost flows in a job costing system; schedule of cost of goods
manufactured; automation: manufacturer
1 The manufacturing overhead applied through November 30 is calculated as follows:

Machine hours predetermined overhead rate = overhead applied
73 000 $30 = $2 190 000
2 The manufacturing overhead applied in December is calculated as follows:

Machine hours predetermined overhead rate = overhead applied
6 000 $30 = $180 000
3 Underapplied manufacturing overhead through December 31 is calculated as follows:
Actual overhead ($2 200 000 + $192 000) ................................................... $2 392 000
Applied overhead ($2 190 000 + $180 000) ................................................. (2 370 000)
Underapplied overhead.................................................................................. $ 22 000
4 The balance in the Finished Goods Inventory account on December 31 is comprised only of Job No. N11-013
and is calculated as follows:
November 30 balance for Job No. N11-013 ................................................. $110 000
December direct material .............................................................................. 8 000
December direct labour ................................................................................. 24 000
December overhead (1 000 $30)................................................................. 30 000
Total finished goods inventory 31 December............................................... $172 000
5 Optic Visions Schedule of Cost of Goods Manufactured for the year just completed is constructed as follows:
Optic Vision Pty Ltd
Direct material:
Raw material inventory, 1/1 .............................................. $ 210 000
Raw material purchases ($1 930 000 + $196 000)............ 2 126 000
Raw material available for use .......................................... 2 336 000
Deduct: Indirect material used ($250 000 + $18 000) ...... $268 000
Raw material inventory 12/31 ......................... 170 000 438 000
Raw material used.............................................................. 1 898 000
Direct labour ($1 690 000 + $160 000).................................. 1 850 000
Indirect material ($250 000 + $18 000) ............................ $268 000
Indirect labour ($690 000 + $60 000) ............................... 750 000
Utilities ($490 000 + $44 000) .......................................... 534 000
Depreciation ($770 000 + $70 000) .................................. 840 000
Total actual manufacturing overhead ................................ 2 392 000
Deduct: Underapplied overhead ........................................ 22 000
Overhead applied to work in process* ................................... 2 370 000
Total manufacturing costs ...................................................... 6 118 000
Add: Work in process inventory, 1/1 ..................................... 120 000
Subtotal $6 238 000
Deduct: Work in process inventory, 12/31** ........................ 300 400
Cost of goods manufactured................................................... $5 937 600
* Overhead applied = (73 000+6 000) x $30
= 79 000 x $30
= $2 370 000
* Supporting calculations for work in process 12/31:

D12-002 D12-003 Total
Direct material................................. $75 800 $52 000 $127 800
Direct labour ................................... 40 000 33 600 73 600
Applied overhead:
2 500 hrs.$30 ........................... 75 000 75 000
800 hrs. $30 ............................. ______ 24 000 24 000
Total ................................. $190 800 $109 600 $300 400

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CHAPTER 4

PRODUCT COSTING SYSTEMS

EXERCISE 4.25 (25 minutes) Job cost sheet: manufacturer

Date Requisition number Quantity Unit price Cost

Date Time sheet number Hours Rate Cost

Date Cost driver Quantity Application rate Cost

Cost item Amount

Total cost $16 040

Unit cost $16.04

Date Units shipped Units remaining in Cost balance

EXERCISE 4.26 (20 minutes) Schedule of cost of goods manufactured

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

EXERCISE 4.28 (20 minutes) Manufacturing cost flows

Direct labour + manufacturing overhead = $720 000

Direct labour = $450 000

3 Cost of goods manufactured:

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

4 Cost of goods sold:

Therefore, cost of goods sold was ................................................................ $1 432 000

Work in process inventory $4 454

Finished goods inventory $4 454

4 Journal entries for each of the methods:

EXERCISE 4.32 (15 minutes) Process costing; no work in process: manufacturer

Dr. Work in process packing 88 400

Dr. Finished goods $111 200

EXERCISE 4.33 (20 minutes) Process costing; no work in process: brewer

1 The cost per bottle is calculated as follows:

Dr. Work in process bottling 150 000

Dr. Work in process bottling 33 000

Dr. Finished goods $183 000

EXERCISE 4.34 (20 minutes) Proration of underapplied overhead: manufacturer

1 Applied manufacturing overhead $145 000

Underapplied Amount to be added

PROBLEM 4.35 (35 minutes) Job costing; journal entries

1 Predetermined overhead rate = budgeted overhead budgeted machine hours

Work in process inventory $261 600**

Cost of goods sold $224 500

budgeted manufacturing overhead

(b) Work in process............................................................... 180

(c) Manufacturing overhead ................................................. 30

(d) Manufacturing overhead ................................................. 800

(e) Work in process inventory .............................................. 75 000

(f) Selling and administrative expense................................. 1 800

(g) Raw material inventory ................................................... 3 000

(h) Accounts payable............................................................. 1 700

(i) Manufacturing overhead ................................................. 21 000

(j) Manufacturing overhead ................................................. 7 000

(k) Finished goods inventory ................................................ 1 100

(l) Work in process inventory .............................................. 140 000*

(m) Accounts receivable ........................................................ 176 000

Cost of goods sold ........................................................... $139 000

(b) Work in process inventory 66 000

(c) Manufacturing supplies inventory 100

Manufacturing overhead 100

(d) Manufacturing overhead 8 000

(e) Manufacturing overhead 400

(f) Work in process inventory 16 000

Work in process inventory 9 600

(g) Manufacturing overhead 910

(h) Manufacturing overhead 2 500

(j) Accounts receivable 15 000