Assignment for Cost and Management Accounting I

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ADMAS UNIVERSITY, MEGENAGNA ADEBABAY CAMPUS, DEPARTMENT OF ACCT & FIN

Cost & Management Accounting-I Group Assignment

1. Brody Company makes industrial cleaning solvents. Various chemicals, detergent, and water are
mixed together and then bottled in 10-gallon drums. Brody provided the following information for last
year:

Raw materials purchases $250,000

Direct labor 140,000
Depreciation on factory equipment 45,000
Depreciation on factory building 30,000
Depreciation on headquarters building 50,000
Factory insurance 15,000
Property taxes:
Factory 20,000
Headquarters 18,000
Utilities for factory 34,000
Utilities for sales office 1,800
Administrative salaries 150,000
Indirect labor salaries 156,000
Sales office salaries 90,000
Beginning balance, Raw Materials 124,000
Beginning balance, WIP 124,000
Beginning balance, Finished Goods 84,000
Ending balance, Raw Materials 102,000
Ending balance, WIP 130,000
Ending balance, Finished Goods 82,000
Last year, Brody completed 100,000 units. Sales revenue equaled $1,200,000, and Brody paid a sales
commission of 5 percent of sales.
Required:

1. Calculate the direct materials used in production for last year.

124,000 + 250,000 – 102,000 = 272,000

2. Calculate total prime cost.

272,000 + 140,000 = 412,000

3. Calculate total conversion cost.

45,000 + 30,000 + 15,000 +20,000 + 34,000 + 156,000 = 300,000

300,000 + 140,000 = 440,000

4. Prepare a cost of goods manufactured statement for last year. Calculate the unit product cost.

Direct materials:

Beginning inventory 124,000

Purchases 250,000
Materials available 374,000
Ending inventory (102,000)
Direct materials used 272,000
Direct labor 140,000
Overhead 300,000
Beginning work in process 124,000
Ending work in process (130,000)
Cost of goods manufactured 706,000
5. Prepare a cost of goods sold statement for last year.

Costs of goods sold

Cost of goods manufactured 706,000

Beginning finished goods 84,000
Costs of goods available 990,000
Ending finished goods (82,000)
Cost of goods sold 708,000
6. Prepare an income statement for last year. Show the percentage of sales that each line item
Represents

1,800 + 90,000 + 60,000 = 151,800

50,000 + 18,000 + 150,000 = 218,000

Income statement

Revenue 1,200,000 100%

Cost of goods sold 708,000 59%
Gross margin 492,000 41%
Operating expenses:
Selling expenses 151,800 12.6%
Administrative expenses 218,000 18.2%
Operating income 122,200 10.2%
Job order costing

2. Assume that the following transactions were received from the record of Almda Textile Factory for
the month of June, 2014.

a. Purchase of materials (Direct and indirect) Br. 89,000 on account

b. Materials sent to mfg plant floor – Direct materials Br. 81,000, indirect materials Br. 4000
c. Manufacturing wages incurred: Direct Br. 39,000, Indirect Br. 15,000
d. Payment of Total manufacturing payroll for the month Br. 54,000
e. Additional manufacturing overhead costs incurred during the month consists of utilities and repairs
Br. 25,000 and accumulated depreciation on factory plant Br. 50,000
f. Allocation of manufacturing OH to production Br. 80,000
g. Goods costing Br. 188,000 were completed during the period
h. Goods costing Br. 180,000 were sold on account for Br. 220,000
i. The factory incurred the following nonmanufacturing expenses last month: Br. 2, 000 commissions to
sales agent, Br. 1,000 advertising expenses, Br. 3,000 depreciation on office equipment and Br.
1,500 other selling and administrative expenses.
Instruction: Prepare the necessary Journal entries from the above information.

DATE Description Debit credit

A Raw material 89,000
A/P 89,000
B WIP 81,000
MOH 4,000
Raw material 85,000
C WIP 39,000
MOH 15,000
Salaries and wages payable 54,000
D Salaries and wages payable 54,000
Cash 54,000
E MOH 25,000
Cash 25,000
MOH 50,000
Depreciation 50,000
F WIP 80,000
MOH 80,000
G F/G 188,000
WIP 188,000
H Cash 220,000
sales 220,000
I WIP 7,500
Commission to sales agent 2,000
Advertising expense 1,000
Selling and administrative expense 4,500

3. H2M manufacturing company uses job order costing system. The company uses machine hours to
apply overhead cost to jobs. At the beginning of 2012, the company estimated that 150,000 machine
hours would be worked and $900,000 overhead cost would be incurred during 2012. The balances of
raw materials, work in process (WIP), and finished goods at the beginning of 2012 were as follows:

 Raw materials: $40,000

 Work in process: $30,000
 Finished goods: $60,000

H2M manufacturing company recorded the following transactions during 2012:

a) Raw materials purchased on account, $820,000.

b) Raw materials were requisitioned for use in production, $760,000 ($720,000 direct materials and
$40,000 indirect materials).
c) Direct labor, $150,000; indirect labor, $220,000; sales commission, $180,000; and administrative
salaries, $400,000.
d) Sales travel costs were $34,000.
e) Utility costs incurred in the factory, $86,000.
f) Advertising expenses were $360,000.
g) Depreciation for the year was $700,000 ($560,000 relates to factory and $140,000 relates to selling
and administrative activities).
h) Insurance expired during the year, $20,000 ($14,000 relates to factory operations and $6,000 relates
to selling and administrative activities).
i) Fine manufacturing company worked 160,000 machine hours. Manufacturing overhead was applied to
production.
j) Goods costing $1,800,000 were completed during the year.
k) The goods costing $1,740,000 were sold to customers for $3,000,000.
Required:

1. Prepare journal entries, T-accounts and income statement from the above information.

2. Prepare a journal entry to close the balance in manufacturing overhead account (over or under
applied manufacturing overhead) to cost of goods sold

4. 2C Company uses job-order costing. It applies overhead cost to jobs on the basis of direct laborhours.
The following transactions took place during the year:

a) $300,000 of raw materials were purchased on account

b) Raw materials were issued into production: $90,000 direct materials and $40,000 indirect materials
c) Labor costs incurred: $40,000 direct, $130,000 indirect, sales commissions $50,000, administrative
salaries $100,000
d) Utility costs for the factory were $60,000
e) Depreciation recorded was $300,000 (70% related to factory; 30% related to administrative offices)
f) Manufacturing overhead of $715,000 was applied to production. Actual direct labor-hours incurred
were 22,000.
g) Jobs costing $300,000 were completed and transferred into the finished goods inventory.
h) Jobs with a cost of $150,000 were sold on account for $200,000.
i) Closed the under/over applied overhead for the year.
Required: Prepare the necessary journal entries and summarize their balance using T-Account

Solution

a) Raw materials 300,000

Accounts payable 300,000

b) Work in process 90,000

Manufacturing overhead 40,000
Raw materials 130,000
c) Work in process 40,000
Manufacturing overhead 130,000
Sales commission expense 50,000
Administrative salaries expense 100,000
Salaries and wage payable 320,000

d) Manufacturing overhead 60,000

Accounts payable 60,000

e) Manufacturing overhead 210,000

Depreciation expense 90,000
Accumulated depreciation 300,000

f) Work in process 715,000

Manufacturing overhead 715,000

g) Finished goods 300,000

Work in process 300,000

h) Accounts receivable 200,000

Sales 200,000
Cost of goods sold 150,000
Finished goods 150,000

i) Manufacturing overhead 275,000

Cost of goods sold 275,000

Manufacturing Overhead
Actual applied
40,000
130,000 715,000
60,000
210,000
275,000 overapplied

5. QRS Company has two support departments (Administration and Janitorial) and three producing
departments (Fabricating, Assembly, and Finishing). Costs and activities are as follows:

Administration Janitorial Fabricating Assembly Finishing

Direct costs ..................... $50,000 $30,000 $40,000 $50,000 $25,000
Number of employees..... 10 30 40 20
Square feet ..................... 2,000 10,000 28,000 15,000
Direct labor hours............ 5,000 6,000 2,000
Administrative services are allocated based on the number of employees; janitorial services are
allocated based on square footage. Overhead rates for the three producing departments are based on
direct labor hours.
Required:
Determine the overhead application rates for the producing departments using each of the three
allocation methods:
A. Direct allocation method

B. Sequential allocation method

C. Reciprocal allocation method

1. Direct Method

Fabricating Assembly Finishing Total

No. of employees............................. 30 40 20 90
Service percentage ..................... 33.33% 44.44% 22.22% 100.00%
Square feet ...................................... 10,000 28,000 15,000 53,000
Service percentage ..................... 18.87% 52.83% 28.30% 100.00%
Administrative cost allocation*......... $16,666.67 $22,222.22 $11,111.11 $50,000.00
Janitorial cost allocation**................ 5,660.38 15,849.06 8,490.57 30,000.00
Direct overhead cost........................ 40,000.00 50,000.00 25,000.00
Total overhead cost ......................... $62,327.05 $88,071.28 $44,601.68
Divided by direct labor hours ........... ÷ 5,000 ÷ 6,000 ÷ 2,000
Departmental OH rate per DLH ....... $ 12.47 $ 14.68 $ 22.30
**Departmental employee % × $50,000
**Departmental square feet % × $30,000

2. Sequential Method

As indicated in the service proportion table, the Administration Department provides the highest
percentage of service to other service departments. Thus, the administrative costs will be allocated first,
then followed by the Janitorial Department cost allocation.

Service Proportion Table

Admin. Janitorial Fabricating Assembly Finishing Total

No. of employees..................... 10 30 40 20 100
Service percentage.................. 10.00% 30.00% 40.00% 20.00% 100.00%
Square feet.............................. 2,000 10,000 28,000 15,000 55,000
Service percentage................. 3.64% 18.18% 50.91% 27.27% 100.00%
Sequential Cost Allocation
Admin. Janitorial Fabricating Assembly Finishing Total
Direct overhead cost........... $ 50,000) $30,000) $40,000 $50,000 $25,000
First step: Allocate admin.
costs......... $(50,000) $ 5,000) $15,000 $20,000 $10,000
Second step: Allocate
janitorial costs
Determine allocation
percentages:
Square feet ......................... 10,000 28,000 15,000 53,000
Allocation percentage ............ 18.87% 52.83% 28.30% 100.00%
Janitorial cost allocation .......... $(35,000) $6,604 $18,491 $9,906 $35,000
Total overhead costs ................ $0) $0) $61,604 $88,491 $44,906
Divided by direct labor hours ............... ÷ 5,000 ÷ 6,000 ÷ 2,000
Departmental OH rate per DLH........... $ 12.32 $ 14.75 $ 22.45

3. Reciprocal Method

Service Proportion Table

Admin. Janitorial Fabricating Assembly Finishing Total
No. of employees.................. 10 30 40 20 100
Service percentage................ 10.00% 30.00% 40.00% 20.00% 100.00%
Square feet.............................2,000 10,000 28,000 15,000 55,000
Service percentage.................3.64% 18.18% 50.91% 27.27% 100.00%
Simultaneous equations can be created based on the service proportion table above.
A = $50,000 +.0364J J = $30,000 + 0.1A
Where A = Administration Department total costs
J = Janitorial Department total costs
A = $50,000 + .0364 × ($30,000 + 0.1A)
A = $50,000 + $1,092 + 0.00364A J = $30,000 + (0.1 × $51,279)
0.99636A = $51,092 J = $30,000 + $5,128
A = $51,279 J = $35,128
Reciprocal Cost Allocation
Admin. Janitorial Fabricating Assembly Finishing
Direct overhead cost............. $50,000 $30,000 $40,000 $50,000 $25,000
Administrative cost allocation. (51,279.00) 5,127.90 15,383.70 20,511.60 10,255.80
Janitorial cost allocation .......... 1,277.38) (35,128.00) 6,386.91 17,883.35 9,580.36
Total overhead costs ................ 0 0 $61,770.61 $88,394.95 $44,836.16
Direct labor hours.................... ÷ 5,000 ÷ 6,000 ÷ 2,000
Departmental overhead rate.... $ 12.35 $ 14.73 $ 22.42

Process costing

6. Suppose that Peace Corporation, chemical manufacturing Company, has two production departments
using sequential production flow: the Mixing Department and the Bottling Department. In the Mixing
Department direct material consisting ingredient chemicals is added at the beginning of the production
process. Direct labor and manufacturing overhead costs are incurred evenly throughout the production
process. Predetermined overhead rate is used in the mixing department using direct labor cost as a cost
allocation base and at 125% overheads per $1 direct labor cost. The following table presents the
summary activity performed in Mixing Department during March. The direct material and conversion
costs listed under beginning work in process section represent the work done during February.

Work in process, March 1: 20,000 Units

Direct material, 100% Complete, cost of* $50,000
Conversion costs, 10% Complete, cost of* 7,200
 Balance in work in process, March 1* $57,200
Units started in March 30,000 Units
Units completed during March and transferred out of the Mixing department 40,000 Units
Work in process, March 31: 10,000 Units
Direct material, 100% Complete
Conversion costs, 50% Complete
Costs incurred During March:
Direct material $90,000
Conversion costs:
Direct labor $86,000
Applied Manufacturing Overhead** 107,500
Total Conversion Costs $193,500
*These costs were incurred during the month of February
**Overhead is allocated at 125% of Direct Labor cost
Required: prepare the cost production report based on FIFO and Weighted Average method and record
the necessary Entries.

Accounting for spoilage under process costing

7. Anzio Co. manufactures a wooden recycling container in its Forming Department. Direct materials for
this product are introduced at the beginning of the production cycle. At the start of production, all direct
materials required to make one output unit are bundled in a single kit. Conversion costs are added
evenly during the cycle. Some units of this product are spoiled as a result defects only detectable at
inspection of finished units. Normally spoiled units are 10% of the goods output.

Summary of data for July 2004 are:

Physical Units for July 2004

Work in Process, beginning inventory (July 1) 1,500 units
Direct Materials (100% complete)
Conversion costs (60% complete)
Started during July 8,500 units
Completed and transferred out during July 7,000 good units
Work in Process, ending inventory (July 31) 2,000 units
Direct Materials (100% complete)
Conversion costs (50% complete)
Total Costs for July 2004
Work in process, beginning inventory
Direct materials (1,500 equivalent units * Br. 8) Br. 12,000
Conversion costs (900 equivalent units * Br.10) 9,000 Br. 21,000
Direct materials costs added during July 76,500
Conversion costs added during July 89,100
Total costs to account for Br.186, 600
Required: prepared the cost of production report using FIFO and weighted average Method and
record the necessary entry.
Step 1: Summarize the Flow of Physical Units of Output. Identify units of both normal and abnormal
spoilage.

Spoiled Units= (Beginning units + Units started)-(Goods units transferred out+ending units)

= (1,500+8,500) – (7,000 + 2,000)

= 1,000 units

Normal Spoilage is 10% of the 7,000 units of good output, or 700 units. Thus,

Abnormal Spoilage = Total Spoilage – Normal Spoilage

= 1,000-700

= 300units

Step 2: Compute output interims of Equivalent Units.

Step 3: Compute Equivalent unit costs.

Step 4: summarize Total Costs to Account for.

Step 5: Assign Total Costs to units completed, to spoiled units, and to units in ending work-in process.

A. Weighted Average

Physical units and Equivalent units (Step 1&2)

Equivalent Units

Flow of Production Physical Units Direct Materials Conversion costs

Work in process, beginning 1,500
Started during current period 8,500
To account for 10,000
Goods units completed and transferred
Out During current period: 7,000 7,000 7,000
Normal Spoilage 700 700 700
700*100%; 700*100%
Abnormal Spoilage 300 300 300
300*100%; 300*100%
Work in process, ending 2,000 2,000 1,000
2,000*100%; 2,000*50%
Accounted for 10,000
Work done in current period 10,000 9,000

Total Production Costs Direct Materials Conversion costs

(Step 3) Work in process, beginning br.21,000 br.12,000 br.9,000
Costs added during the current period 165,600 76,500 89,100
Costs incurred to date divided by br.88,500/ br.98,100/
 Equivalent units of work done to date 10,000 9,000
Cost per equivalent unit of work done br.8.85 br.10.90
(Step 4) Total costs to account for br.186,000
(Step 5) Assignment of Costs Goods units completed and transferred out (7,000 units)
Costs before adding normal spoilage 138,000 (7,000*8.85) (7,000*10.9)
Normal Spoilage (700 units) 13,825 700*8.85 700*10.9
Total cost of goods completed and 152,075
transferred out
Abnormal Spoilage (300 units) 5,925 300*8.85 300*10.9
Work in process, ending (2,000 units) 17,700 2,000*8.85
Direct Materials 10,900 1,000*10.9
Conversion costs 28,600
Total work in process br.186,600
Total costs accounted for

B. FIFO method

Equivalent Units

Flow of Production Physical Units Direct Materials Conversion costs

Work in process, beginning 1,500
Started during current period 8,500
To account for 10,000
Good units completed and transferred
outduring current period
From beginning work in process 1,500
1,500*(100%-100%); 1,500*(100%-60%) 0 600
Started and Completed 5,500
5,500*100%, 5,500*100% 5,500 5,500
Normal Spoilage 700
700*100%;700*100% 700 700
Abnormal Spoilage 300
300*100%; 300*100% 300 300
Work in process, ending 2,000
2,000*100%; 2,000*50% 10,000 2,000 1,000
Accounted for 8,500 8,100
Work done in current period
Calculation of Product Costs (Steps 3, 4, and 5)

Total Production Direct Materials Conversion costs

costs
(Step 3) Work in process, beginning br.21,000
Costs added current period 165,600 76,500/ 89,100/
Divided by equivalent units of workdone 8,500 8,100
in current period
Costs per equivalent unit of work done in br.9 br.11
the current period
(Step 4) Total costs to account for br,186,600
(Step 5) Assignment of Costs Good units
completed and transferred out(7,000 units)
Work in process, beginning (1,500 units) br.21,000
Direct Materials added in current period 0 0*9
Conversion costs added in current period 6,600 600*11
Total from beginning inventory before 27,600
spoilage
Started and completed BNS(5,500units) 110,000 5,500*9 5,500*11
Normal Spoilage (700 units) 14,000 700*9 700*11
Total costs of goods units transferred out 151,600
Abnormal Spoilage (300 units) 6,000 300*9 300*11
Work in process, ending (2000 units)
Direct Materials 18,000 2,000*9
Conversion costs 11,000 1,000*11
Total work in process, ending 29,000
Total costs accounted for br.186,600

Journal entries

Weighted average FIFO

F/G 152,075 151,600
WIP forming 152,075 151,600
(to transfer good units completed in July)
Loss from abnormal spoilage 5,925 6,000
WIP forming 5,925 6000
(to recognize abnormal spoilage detected in July)

8. Assume that the Dream Corporation has two processing departments using sequential production
flow: the Cleaning Department and the Milling Department. In the Cleaning Department direct material
is introduced in the production process at the beginning of the production process. Conversion costs are
incurred evenly throughout the production process. According to past experience of the company
normal spoilage accounts 10% of good units completed and transferred out. The following table
presents the summary activity performed in Cleaning Department during May.

Work in process, May 1: 1,000 Units

 Direct material, 100% Complete, cost of* $4,000
Conversion costs, 80% Complete, cost of* 400
Balance in work in process, May 1* $4,400
Units started in May 9,000 Units
Units completed during May and transferred out of the Cleaning department 7,400 Units
Work in process, May 31: 1,600 Units
Direct material, 100% Complete
Conversion costs, 25% Complete
Costs incurred During May:
Direct material $27,000
Conversion costs $48,000
*These costs were incurred during the month of April
Required:

i. Determine the amount of normal and abnormal spoilage, and

ii. Show the treatment of both using weighted average and First-in, First-out methods of process costing
and pass the necessary journal entries