Chapter 2- Costs Concepts; Information Systems

EXERCISE

1.Manufacturing costs. The estimated unit costs for a company operating at a production and
sales level of 12,000 units are as follow;

Estimated
Cost item Unit cost

Direct materials……………………. $32

Direct labor……………………….....20

Variable factory overhead……………15

Fixed factory overhead……………....6

Variable marketing……………………3

Fixed marketing……………………...4

Required:

1) Identify the estimated conversion cost per unit.

2) Identify the estimated prime cost per unit.
3) Determine the estimated total variable cost per unit.
4) Compute the total cost that would be incurred during a month with a production
level of 12,000 units and a sales level of 8,000 units.

2. Fixed and variable costs. In 19A, the Mercaldo Company had sales of 19,950,000 with
$11,571,000 variable and 7,623,000 fixed costs. 19B sales are expected to decrease 15% and
cost relationship is expected to remain constant (the fixed costs will not change).

Required: Determine Mercaldo Company’s expected operating income or loss for

19B.
3.Manufacturing costs; cost of goods manufactured; costs of goods sold. The December
31, 19B trial balance of Crockett Company Showed:

Sales…………………. $ 14,500,500 Sales returns and

allowances………............... $ 25,200
Purchases (net)………….......2,400,000 Factory overhead…………..1,885,600
Transportation in…………….32,000 Advertising expense………. 155,000
Direct labor………………….3,204,000 Delivery expense…………...65,000
Sales salaries…………………200,000

Inventories: December31, 19B December 31, 19A

Finished goods $567,400 $620,000
Work in progress 136,800 129,000
Materials 196,000 176,000

Required: Determine (1) the total manufacturing cost, (2) the cost of goods manufactured, and
(3) the cost of goods sold.

8. Cost of goods sold statement. The following data are provided by the controller of
Pensacola Corporation:

Cash……………………………………………………………………. $ 240,000

Account receivable…………………………………………………….... 348,000

Inventories:

January 1 December 31

Finished goods…………………………….. $ 54,200 $66,000

Work in progress…………………………... 29,800 38,800

Materials…………………………………… 88,000 64,000

Material purchased………………………………………… 366,000

Sales discounts…………………………………………………….. 8,000

Factory overhead (excluding depreciation)………………………… 488, 400

Marketing and administrative expenses (excluding depreciation) …… 344,200

Depreciation (90% manufacturing, 10% marketing and administrative

expenses) ……………………………………………………………... 116,000

Sales…………………………………………………………………. 1,844,000

Direct labor…………………………………………………………… 523,600

Freight on materials purchased………………………………………... 6,600

Rental income ………………………………………………………… 64,000

Interest on bonds payable……………………………………………… 16,000

Required: Prepare a cost of goods sold statement.

PROBLEMS

2-1. Cost of goods manufactured; prime and conversion costs. Mat Company’s purchases
of materials during March totaled $110,000 and the cost of goods sold for March was
$345,000. Factory overhead was 50% of direct labor cost. Other information pertaining to Mat
Company’s inventories and production for March is as follows:

Inventories: Beginning Ending

Finished goods ………$102,000 $105,000

Work in process……… 40,000 36,000

Materials…………….. 20,000 26,000

Required:

1) Prepare a schedule of cost of goods manufactured for March.

2) Compute the prime cost charged to work in process during March.
 3) Compute the conversion cost charged to work in process during March.

2-2. Income statement relationships. The following information is available for three
companies at the end of their fiscal years:

Company A: Finished goods, January 1……………………… $ 600,000

Cost of goods manufactured…………………… 38, 00,000

Sales……………………………………………. 4, 000,000

Gross profit on sales……………………………. 20%

Finished goods inventory, December ………….. ?

Company B: Freight in……………………………………….. $ 20,000

Purchases returns and allowances………………. 80,000

Marketing expense……………………………… 200,000

Finished goods, December 31…………………… 190,000

Cost of goods sold………………………………. 1,300,000

Cost of goods available for sale…………………. ?

Company C: Gross profit …………………………………….. $ 96,000

Cost of goods manufactured …………………… 340,000

Finished goods, January 1 ……………………… 45,000

Finished goods, December 31 ………………….. 52,000

Work in process, January 1 …………………….. 28,000

Work in process, December 31…………………. 38,000

Sales…………………………………………….. ?

Required: Determine the amounts indicated by the question marks for each company.
2-6. Cost of goods sold statement; Income statement. The following data are available for
Mandmeyer Company for the year ended November 30, 19B:

Sales…………………………………… $ 56,000

Finished goods inventory:

November 30, 19B……………………… 5,100

December 1, 19A……………………….. 3,500

Work in process inventory:

November 30, 19B……………………… 7,500

December 1 19A………………………… 4,000

Materials inventory:

November 30, 19B……………………… 4,250

December 1, 19A……………………… 4,000

Materials purchased………………………18,000

Direct labor……………………………… 7,500

Factory overhead charged to production, $5,000.

Marketing expenses, 5% of sales.

Administrative expenses, 2% of sales.

Other expenses, 1% of sales.

Required:

1) Prepare a cost of goods sold statement.

2) Prepare an income statement.
Chapter 3: Job Order Costing

EXERCISES

1. Manufacturing costs. A schedule of cost of goods manufactured shows:

Materials used…………………………….. $300,000

Direct labor……………………………….. $800,000
Overhead costs………………………….... $640,000
Work in process, ending inventory……….. $140,000
Required:
1) Calculate the rate of factory overhead to direct labor cost.
2) Determine the cost of direct materials included in the work in process ending
inventory, assuming that the direct labor cost included in the inventory of work
in process is $50,000.

2. Manufacturing costs. The payroll records of the E.W. Grant Company show payments
for labor of $400,000, of which $80,000 is indirect labor. Materials requisitions show
$300,000 for materials used, of which $280,000 represents direct materials. Other
manufacturing expenses total $124,000. Finished goods on hand at the end of the period
are stated at cost, $176,000, of which $40,000 is direct materials cost. Factory overhead
is allocated on the basis of direct labor cost.

Required: Determine the amount of direct labor and the amount of factory overhead in
Finished Goods.

3. Manufacturing costs. Selected data concerning last year’s operations of Televans

Company are as follows (000s omitted):
Inventories

Beginning Ending

Finished Goods………………………. $90 $110

Work in Process……………………….. 80 30
 Materials……………………………….. 75 85

Other data:

Materials used…………………………………………………………………. $326

Total manufacturing costs charged to jobs during the year (includes materials, direct

labor and factory overhead applied at a rate of 60% if direct labor cost) ……… 686

Cost of goods available for sale………………………………………………… 826

Marketing and administrative expenses………………………………………… 25

Required: Compute the following:

(1) Cost of materials purchased.

(2) Direct labor cost charged to production.
(3) Cost of goods manufactured.
(4) Cost of goods sold.

4. Manufacturing costs. Krieger Company is to submit a bid on the production of 11,250

ceramic plates. It is estimated that the cost of materials will be $13,000, and the cost of
direct labor will be $15,000. Factory overhead is applied at $2.70 per direct labor hour
in the Molding Department and at 35% of the direct labor cost in the Decorating
Department. It is estimated that 1,000 direct labor hours at a cost of $9,000 will be
required in Molding.

The company wishes a markup of 45% of its total production cost.

Required: Determine the following:

(1) Estimated cost to produce.

(2) Estimated prime cost.
(3) Estimated conversion cost.
(4) Bid price.

5. Income statement. Hansford Inc. submits the following data for September:
 Direct labor cost, $30,000.
Cost of goods sold, $111,000, before adjusting for over or under applied overhead.
Factory overhead is applied at the rate of 150% of direct labor cost. Over or under
applied factory overhead is closed to the cost of goods sold account.
Inventory accounts showed these beginning and ending balances:
September 1 September 30
Finished goods………………… $15,000 $17,500
Work in process……………….. 9,600 13,000
Materials………………………. 7,000 7,4000

Other data:

Factory overhead (actual)………………………..$ 48,200

Marketing expense……………………………… 14,100

General and administrative expense…………….. 22,900

Sales for the month…………………………….. 182,000

Required: Prepare an income statement with a schedule showing the cost of goods
manufactured and sold.

6. Job order cost sheet. Wadsworth Machine Works collects its cost data by the job order
cost accumulation procedure. For Job 909, the following data are available:
Direct Materials Direct labor

9/14 Issued………………$600 Week of Sept. 20………… 90 hrs. @ $6.20/hr.

9/20 issued………………. 331 Week of Sept. 26………… 70 hrs. @ $7.30/hr.

9/22 Issued………………. 200

Factory OH is applied at the rate of $5 per direct labour Hour.

Required: Prepare an income statement with a schedule showing the cost of goods
manufactured and sold.
 7. Job order costing. The following job order cost detail pertains to the three jobs that
were in process at Dandy Machine Company during January;
Job 36 Job 37 Job 38
Cost charged in prior period…………………. $36,000 $18,000 -----
Costs added in January:
Direct materials……………………………. 44,000 34,000 32,000

Direct labor………………………………... 40,000 48,000 42,000

Factory overhead (60% of direct labor) …... 24,000 28,800 25,200

Required: Prepare the appropriate journal entry (including subsidiary ledger detail for
job orders) to record each of the following transactions:
(1) Direct materials were issued from the materials storeroom to work in process.
(2) The payroll was distributed to work in process.
(3) Factory overhead was applied to production for the period.
(4) Jobs 36 and 37 were completed and transferred to the finished goods storeroom.
8. Job order costing. The following job order cost sheets were prepared for three jobs
that were in production during January:

Job 97 Job 98 Job 99

Materials……………………………………… $ 60,000 $30,000 $40,000

Labor…………………………………………. 120,000 70,000 80,000

Applied factory overhead……………………. 60,000 35,000 40,000

Gross profit margin…………………………... 60,000

On January 1, Job 97 was 40 % complete as to materials, labor, and factory overhead and was
completed and sold on account during the month. Job 98 was started and completed during
January but was not sold, and Job 99 was started but not completed during the month.

Required: Prepare the Journal entries for January to record job costs in Work in Process and
Finished Goods and to record the sale Show subsidiary record detail for job orders.
 9. Journal entries for the cost accounting cycle; predetermined overhead rate. The
following account balances were selected from the general ledger accounts of Thornton
Manufacturing Company.
December 1 December 31

Finished Goods……………………………… $ 40,000 $55,000

Work in process……………………………… 35,000 15,000

Materials……………………………………... 5,000

Factory Overhead Control……………………

Applied Factory Overhead (applied at a rate of

75% of direct labor cost)…………………….

Cost of goods sold……………………………

Thornton’s accounting year is the calendar year.

Required:

(1) Prepare journal entries for the transactions that were entered in the above accounts for
December.
(2) Close over or under applied factory overhead to Cost of Goods Sold.

PROBLEMS

3-1. Manufacturing costs. Last month, Hulse Company put into process $60,000 of the
materials. The Grinding Department used 8,000 labor hours at $5.60 per hour, and the
Machining Department used 4,600 hours at a cost of $6 per hour. Factory overhead is applied
at a rate of $6 per labor hour in the Grinding Department and $8 per labor hour in the Machining
Department. Inventory accounts had the following beginning and ending balances:

Beginning Ending

Finished goods……………………… $22,000 $17,000

Work in process…………………….. 15,000 17,600

Materials……………………………. 20,000 18,000

Required: Without preparing a formal income statement, compute the following:

(1) Total cost of work put into process.

(2) Cost of goods manufactured.
(3) Cost of goods sold.
(4) Conversion cost.
(5) Cost of materials purchased.

3-2. Manufacturing costs. The following account balances and the other information for
Saskatoon Company pertain to November operations:

Account Balances

November 1 November 30

Finished Goods……………………………… $70,000 $60,000

Work in process……………………………… 50,000 ?

Direct Materials……………………………... 10,000 25,000

Account Payable……………………………... ? 15,000

Accrued Payroll……………………………… 10,000 20,000

Accumulated Depreciation-

Factory Equipment………………………….. 80,000 90,000

Other information:

a) Direct materials purchased on account during November, $50,000.

b) Saskatoon Company applies factory overhead at a predetermined rate of $3 per direct
labor hour.
c) During November, direct labor employees worked 25,000 hours at a rate of $4 per hour.
d) Jobs 385, 386, and 387 were still in process at the end of November

$5,000 of direct materials has been charged to these jobs and direct labor hours have
been worked on these jobs.
 e) The accrued payroll account is used for factory employees only. Assuming no payroll
deductions, payment to factory employees during the month totaled $140,000.
f) Factory overhead was under applied by $5,000.
g) Payments on account totaled $55,000.

Required: Compute the following:

(1) Direct materials charged to production.

(2) Factory overhead applied during the month.
(3) Ending inventory of work in process.
(4) Cost of goods manufactured.
(5) Cost of goods sold, before disposition of under applied factory overhead.
(6) Indirect labor.
(7) Miscellaneous factory overhead.
(8) Accounts payable, November 1.

3-3. Income statement; cost of goods sold statement; factory overhead analysis. On
October 1, the accountant of Columbus Company prepared a trial balance from which the
following accounts were extracted.

Finished Goods (2,800 units) ……………………………… $ 9,800

Work in Process (1,200 units) ……………………………... 4,070

Materials and Supplies……………………………………… 40,700

Buildings……………………………………………………. 48,000

Accumulated Depreciation- Buildings………………………. $6,000

Machinery and Equipment………………………………….. 96,000

Accumulated Depreciation-Machinery and Equipment……... 37,500

Office Equipment……………………………………………. 3,200

Accumulated Depreciation-Office Equipment………………. 1,000

Accrued Payroll……………………………………………… 650

The following transactions and other data have been made available for October:
Purchased materials and supplies………………………………….... $24,800

Paid factory overhead………………………………………………. 20,100

Paid marketing expenses……………………………………………. 25,050

Paid administrative expenses……………………………………….. 19,700

Requisitions for:

Direct materials……………………………………………………… 29,800

Indirect materials……………………………………………………. 3,950

Depreciation:

Building, 5% (75% to manufacturing, 15% to marketing, and 10 % to administrative expenses)

Machinery and equipment, 10%

Office equipment, 15% (40% to marketing and 60% to administrative expenses)

Sales (20,700 units)………………………………………………… 144,900

Sales returns and allowances………………………………………. 1,300

Cash payments for:

Account payable…………………………………………………… 75,000

Payroll……………………………………………………………… 21,800

Distribution of payroll earned:

Direct labor………………………………………………………… 18,600

Indirect labor………………………………………………………. 4,400

Cash collected from customers……………………………………. 116,900

Applied factory overhead…………………………………………. 27,450

Units transferred to finished goods, 20,400

Cost of goods sold is calculated on the fifo basis.

Work in process inventory on October 31………………………... 4,440

Required:

(1) Prepare in detail the cost of goods sold section of the income statement for October,
assuming that over- or under applied factory overhead is deferred until the end of the
calendar year.
(2) Prepare the income statement for October.
(3) Calculate the amount of over or under applied factory overhead for October.