Solutions - Chapter 5

12. a. CGS is the amount credited to Finished Goods Inventory for the year =
$685,000.

b. Beg. FG + CGM – End. FG = CGS

$45,000 + CGM - $42,000 = $685,000
CGM + $3,000 = $685,000
CGM = $682,000

c. Applied OH = $90,000 × 1.20 = $108,000

d. Beg. WIP + DM used + DL + OH – End. WIP = CGM

$28,000 + DM + $90,000 + $108,000 - $24,000 = $682,000
DM + $202,000 = $682,000
DM = $480,000

e. Beg. DM + P – DM used = End. DM

$12,300 + P - $480,000 = $4,100
P - $467,700 = $4,100
P = $471,800

21. Material price variance = Actual cost for paper purchased – Standard cost for
paper purchased = ($0.016 x 490,000) – ($0.018 x 490,000) = $7,840 - $8,820 =
-$980. Since the actual paper cost was less than the standard, the $980 variance
is favorable.

Material quantity variance = Actual cost for paper used – Standard cost for paper
that should have been used = ($0.018 x 490,000) – ($0.018 x 492,000) = $8,820
- $8,856 = -$36. Since the actual paper usage was less than the standard
allowed, the $36 variance is favorable.

22. a. Total payroll = 49,500 × $9.25 = $457,875

b. Labor rate variance = Actual payroll – Standard cost for actual hours worked
= $457,875 – ($9.75 x 49,500) = $457,875 - $482,625 = -$24,750. Since
direct labor employees were paid less than the standard rate, the $24,750
variance is favorable.

c. Labor quantity variance = Standard cost for actual hours worked – Standard
cost for standard hours allowed for production = ($9.75 x 49,500) – ($9.75 x
46,200) = $482,625 - $450,450 = $32,175. Since the number of hours worked
was greater than the standard hours allowed, the $32,175 variance is
unfavorable.

d. One concern would be the reason the company was paying its workers less
than the standard rate per hour. The other concern would be that the workers,

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 recognizing that they were being paid less than the standard, chose to work
more slowly than they normally would, to compensate (relative to total wages)
for the reduced wage. If this situation is the case, the company would have
been better off paying the standard rate because the actual payroll was
$7,425 greater than the standard would have been.

23. Each student will have a different answer, but the memo should address the
following issue:
Budgeted cost is far below each job’s actual cost, which indicates that the company
is not using past job information as a basis for either controlling costs or increasing
future bid prices. By not using available historical information to adjust operations,
the company is accepting marginal jobs. Although each job generated a positive
gross margin, the actual gross margin is only a small fraction of the budgeted gross
margin. It is important that a company learn from past mistakes.

31. a. Sept. 1 Raw Material Inventory 970,000

Accounts Payable 970,000

4 Work in Process Inventory 923,400

Manufacturing Overhead 26,600
Raw Material Inventory 950,000
Issuances made to jobs as follows:
#75, $144,800; #78, $126,300;
#82, $496,100; #86, $156,200

15 Work in Process Inventory 332,800

Manufacturing Overhead 45,700
Cash 378,500
Labor charged to jobs as follows:
#75, $42,300; #78, $133,600;
#82, $101,500; #86, $55,400

15 Work in Process Inventory 282,880

Manufacturing Overhead 282,880
Overhead applied to jobs as follows:
#75, $41,055; #78, $111,860;
#82, $86,275; #86, $43,690.

15 Finished Goods Inventory 521,355

Work in Process Inventory 521,355

Accounts Receivable 651,694

Sales 651,694

Cost of Goods Sold 521,355

Finished Goods Inventory 521,355

20 Manufacturing Overhead 55,100

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 Accounts Payable 98,400
Cash 153,500

24 Raw Material Inventory 312,000

Accounts Payable 312,000

25 Work in Process Inventory 358,200

Manufacturing Overhead 27,900
Raw Material Inventory 386,100
Issuances made to jobs as follows:
#78, $77,400; #82, $106,300; #86, $174,500

30 Manufacturing Overhead 153,400

Accumulated Depreciation 104,500
Prepaid Insurance 32,700
Taxes & Licenses Payable 16,200

30 Work in Process Inventory 324,700

Manufacturing Overhead 32,500
Cash 357,200
Labor charged to jobs as follows:
#78, $88,700; #82, $114,200; #86, $121,800

30 Work in Process Inventory 276,845

Manufacturing Overhead 276,845
To apply overhead to jobs as follows:
#78, $75,990; #82, $116,025; #86, $84,830

b. Raw Material Inventory

Bal. 166,200 950,000 9/4
9/1 970,000 386,100 9/25
9/24 312,000
Bal. 112,100

Work in Process
Bal. 756,300 521,355 Completed
DM 1,281,600
DL 657,500
OH 559,725
Bal. 2,733,770

Cost of Goods Sold

Bal. 2,432,000

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 #75 521,355
Bal. 2,953,355

Job #75 Job #78

Bal. 293,200 521,355 Bal. 116,800
DM 144,800 DM 203,700
DL 42,300 DL 222,300
OH 41,055 OH 187,850
Bal. 0 Bal 730,650

Job #82 Job #86

Bal. 346,300 Bal. 0
DM 602,400 DM 330,700
DL 215,700 DL 177,200
OH 202,300 OH 128,520
Bal. 1,366,700 Bal. 636,420

c. Schedule of Job Cost Records

September 30, 2008
Job #78 $ 730,650
Job #82 1,366,700
Job #86 636,420
Total $2,733,770

d. Actual overhead for September

9/4 $ 26,600
9/15 45,700
9/20 55,100
9/25 27,900
9/30 153,400
9/30 32,500 $341,200

Applied overhead for September

9/15 $282,880
9/30 276,845 (559,725)
Overrapplied overhead $218,525

34. a. Using any of the jobs, one can determine that the relationship between direct
labor and applied overhead is that overhead is about 115% of direct labor
cost. To illustrate, using job #67: $7,960 ÷ $6,920 = 1.15. (rounded)

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 b. Direct material $12,900
Direct labor 3,600
Applied overhead 4,140
Total $20,640

c. Total direct material $256,917

Less direct material in BI (12,900) $244,017

Total direct labor $ 46,860

Less direct labor in B (3,600) 43,260
Total direct cost added during May $287,277

d. Work in process - beginning $ 20,640

Costs added during May:
Direct material $244,017
Direct labor 43,260
Applied overhead ($43,260 x 1.15) 49,749 337,026
$357,666
Work in process - ending
($154,215 + $28,500 + ($28,500 × 1.15) (215,490)
Cost of goods manufactured $142,176

36. a. Job Cost Sheet - Job #515

Customer Name and Address: Description of Job: Prepare

City of Gulfport site, build and install
Gulfport, Mississippi a pedestrian overpass in .
Gulfport: see bid .
specifications for details .

Contract Agreement Date: 5/08

Scheduled Starting Date: 7/08
Agreed Upon Completion Date: 12/15/08 Contract Price: $1,650,000
Actual Completion Date: _______________________
Special Instructions: None

Direct Material (Est. $620,000)

Date Source Cost
2008
July 31 Summary of material req. $60,900

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 Direct Labor (Est. $335,000) Overhead (Est. $201,000) .
Date Source Cost Date Source Cost .
2008 2008
July 31 Summary of time July 31 Journal entry
sheets for direct of 7/31/08 $52,512
labor $87,520

Summary (as of 7/31/08)

Actual Budget Under(Over)

Direct material $ 60,900 $ 620,000
Direct labor 87,520 335,000
Overhead 52,512 201,000
Totals $200,932 $1,156,000

b. Work in Process - Job #515 60,900

Work in Process – other jobs 228,750
Direct Material Inventory 289,650

Work in Process - Job #515 87,520

Work in Process - other jobs 204,480
Manufacturing Overhead 27,900
Salaries and Wages Expense 19,800
Cash/Wages Payable 339,700

Manufacturing Overhead 25,200

Depreciation Expense 3,900
Utilities Expense 900
Accumulated Depr. - Const. Assets 13,200
Accumulated Depr. - Office Assets 3,900
Supplies Inventory 9,300
Utilities Payable 3,600

Sales Promotion Expense 5,550

Accounts Payable 5,550

Advertising Expense 3,300

Cash 3,300

Miscellaneous Expense 5,100

Accounts Payable 5,100

Work in Process - Job #515 52,512

Work in Process - other jobs 122,688
Manufacturing Overhead 175,200

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 Cash/Accounts Receivable 612,000
Sales 612,000

Finished Goods Inventory 414,500

Work in Process Inventory 414,500

Cost of Goods Sold 414,500

Finished Goods Inventory 414,500

c. Work in Process - beginning $ 435,900

Production costs:
Direct material $289,650
Direct labor 292,000
Applied overhead 175,200 756,850
$1,192,750
Work in process - ending (778,250)
Cost of goods manufactured $ 414,500

d. Jackson Construction Company

Income Statement
For the Month Ended July 31, 2008

Revenues from completed projects $612,000

Less Cost of Goods Sold (414,500)
Gross Margin on Completed Jobs $197,500
Non-Production Expenses:
Salaries and Wages Expense $19,800
Depreciation Expense 3,900
Utilities Expense 900
Sales Promotion Expense 5,550
Advertising Expense 3,300
Miscellaneous Expense 5,100 (38,550)
Income Before Income Taxes $158,950
Income Taxes (63,580)
Net Income $ 95,370