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Introduction to Managerial Accounting, 4th Edition, by Brewer, Garrison, and NoreenSolutions Manual, Alternate Problems—Set B, Chapter 2

Problem 2-16B (45 minutes)1.

Alpha BetaGamm

aDesigner-hours........................... 25 30 15Predetermined overhead rate.... ×$60 ×$60 ×$60Overhead applied....................... $1,500 $1,800 $900

2. Alpha BetaDirect materials cost $2,300 $2,000Direct labor cost....... 4,800 5,100Overhead applied..... 1,500 1,800 Total cost................. $8,600 $8,900

Completed Projects......................... 17,500*Work in Process.......................... 17,500*

* $8,600 + $8,900 = $17,500

3. The balance in the Work in Process account consists entirely of the costs associated with the Gamma project:Direct materials cost.......... $ 900Direct labor cost................. 1,800Overhead applied............... 900 Total cost in work in

process............................ $3,600

4. The balance in the Overhead account is determined as follows:Overhead

Actual overhead costs

6,000 Applied overhead costs

4,200

Underapplied overhead

1,800

As indicated above, the debit balance in the Overhead account is called underapplied overhead.

1 © The McGraw-Hill Companies, Inc., 2008. All rights reserved.


Problem 2-17B (30 minutes)1. Cutting Department:

Finishing Department:

2.Overhead Applied

Cutting Department: 140 MHs × $9.00 per MH............................................................. $1,260

Finishing Department: $200 × 130%.......... 260 Total overhead cost applied........................ $1,520

3. Yes; if some jobs required a large amount of machine time and little labor cost, they would be charged substantially less overhead cost if a plantwide rate based on direct labor cost were being used. It appears, for example, that this would be true of job L26 which required considerable machine time to complete, but required only a small amount of labor cost.



Problem 2-18B (75 minutes)1. a. Raw Materials.................................... 200,000

Cash............................................. 200,000b. Work in Process................................. 150,000

Manufacturing Overhead................... 45,000Raw Materials............................... 195,000

c. Work in Process................................. 130,000Manufacturing Overhead................... 50,000Sales Commissions Expense............. 20,000Salaries Expense............................... 40,000

Salaries and Wages Payable........ 240,000d. Manufacturing Overhead................... 20,000

Rent Expense.................................... 15,000Cash............................................. 35,000

e. Manufacturing Overhead................... 77,000Accounts Payable......................... 77,000

f. Advertising Expense.......................... 80,000Accounts Payable......................... 80,000

g. Manufacturing Overhead................... 72,000Depreciation Expense....................... 18,000

Accumulated Depreciation........... 90,000h. Work in Process................................. 260,000

Manufacturing Overhead.............. 260,000

$130,000 actual direct labor cost × 200% = $260,000.



Problem 2-18B (continued) i. Finished Goods.................................. 530,000

Work in Process............................ 530,000j. Accounts Receivable......................... 750,000

Sales............................................. 750,000Cost of Goods Sold............................ 560,000

Finished Goods............................. 560,000

2.Raw Materials Work in Process

Bal. 19,000 (b)

195,000 Bal. 25,000 (i)

530,000

(a) 200,000 (b) 150,000Bal. 24,000

(c)130,000

(h) 260,000Bal. 35,000

Finished Goods Manufacturing OverheadBal.

50,000 (j) 560,000 (b) 45,000 (h) 260,000

(i) 530,000 (c) 50,000Bal.

20,000 (d) 20,000

(e) 77,000(g) 72,000Bal. 4,000

Cost of Goods Sold(j) 560,000

3. Manufacturing overhead is underapplied by $4,000 for the year. The entry to close this balance to Cost of Goods Sold would be:

Cost of Goods Sold......................................4,00

0



Manufacturing Overhead........................ 4,000



Problem 2-18B (continued) 4.

Productos Elina S.A.Income Statement

Sales.................................................... $750,000Cost of goods sold ($560,000 +

$4,000).............................................. 564,000 Gross margin....................................... 186,000Selling and administrative expenses:

Sales commissions............................ $20,000Administrative salaries...................... 40,000Rent expense.................................... 15,000Advertising expense.......................... 80,000Depreciation expense....................... 18,000 173,000

Net operating income.......................... $ 13,000



Problem 2-19B (45 minutes)

2. The amount of overhead cost applied to Work in Process for the year would be: 49,000 machine-hours × $7.00 per machine-hour = $343,000. This amount is shown in entry (a) below:

Manufacturing Overhead(Maintenance) 50,000 (a) 343,000(Indirect

materials) 29,000(Indirect labor) 109,000(Utilities) 76,000(Insurance) 30,000(Depreciation) 70,000Balance 21,000

Work in Process(Direct

materials) 735,000(Direct labor) 180,000(Overhead) (a) 343,000

3. Overhead is underapplied by $21,000 for the year, as shown in the Manufacturing Overhead account above. The entry to close out this balance to Cost of Goods Sold would be:

Cost of Goods Sold.......................... 21,000Manufacturing Overhead........... 21,000



Problem 2-19B (continued)4. When overhead is applied using a predetermined rate based on

machine-hours, it is assumed that overhead cost is proportional to machine-hours. When the actual level of activity turns out to be 49,000 machine-hours, the costing system assumes that the overhead will be 49,000 machine-hours × $7.00 per machine-hour, or $343,000. This is a drop of $24,500 from the initial estimated total manufacturing overhead cost of $367,500. However, the actual total manufacturing overhead did not drop by this much. The actual total manufacturing overhead was $364,000—a drop of only $3,500 from the estimate. The manufacturing overhead did not decline by the full $24,500 because of the existence of fixed costs and/or because overhead spending was not under control. These issues will be covered in more detail in later chapters.



Problem 2-20B (90 minutes)1. a. Raw Materials......................... 68,000

Accounts Payable.............. 68,000

b. Work in Process...................... 52,500Manufacturing Overhead........ 17,500

Raw Materials.................... 70,000

c. Work in Process...................... 67,000Manufacturing Overhead........ 29,000Salaries Expense.................... 26,000

Salaries and Wages Payable........................... 122,000

d. Manufacturing Overhead........ 19,000Accounts Payable.............. 19,000

e. Advertising Expense............... 30,000Accounts Payable.............. 30,000

f. Manufacturing Overhead........ 7,200Insurance Expense................. 1,800

Prepaid Insurance.............. 9,000

g. Manufacturing Overhead........ 35,000Depreciation Expense............. 15,000

Accumulated Depreciation 50,000

h. Work in Process...................... 107,200Manufacturing Overhead... 107,200

$67,000 actual direct labor cost × 160% = $107,200 overhead applied.i. Finished Goods.................... 215,000

Work in Process.............. 215,000

j. Accounts Receivable........... 300,000Sales............................... 300,000



Cost of Goods Sold.............. 218,000Finished Goods............... 218,000



Problem 2-20B (continued)2. Raw Materials Finished Goods

Bal. 15,200 (b) 70,000 Bal. 24,000 (j) 218,000(a) 68,000 (i) 215,000Bal. 13,200 Bal. 21,000

Work in Process Manufacturing OverheadBal. 17,000 (i) 215,000 (b) 17,500 (h) 107,200(b) 52,500 (c) 29,000(c) 67,000 (d) 19,000(h) 107,200 (f) 7,200Bal. 28,700 (g) 35,000

Bal. 500

Cost of Goods Sold(j) 218,000

3. Manufacturing overhead is underapplied by $500. The journal entry to close this balance to Cost of Goods Sold is:Cost of Goods Sold.............. 500

Manufacturing Overhead 500

4. Basin ProductsIncome Statement

For the Year Ended December 31 Sales.......................................................... $300,000Cost of goods sold ($218,000 + $500)...... 218,500 Gross margin............................................. 81,500Selling and administrative expenses:

Salaries expense.....................................$ 26,00

0Advertising expense................................ 30,000Insurance expense.................................. 1,800Depreciation expense............................. 15,000 72,800

Net operating income................................ $ 8,700



Problem 2-21B (75 minutes)a.

b. Before the under- or overapplied overhead can be computed, we must determine the amount of direct materials used in production for the year.Raw materials inventory, beginning....... $ 30,000Add, Purchases of raw materials............. 310,000 Raw materials available.......................... 340,000Deduct: Raw materials inventory,

ending.................................................. 20,000 Raw materials used in production........... $320,000Since no indirect materials are identified in the problem, these would all be direct materials. With this figure, we can proceed as follows:Actual manufacturing overhead costs:

Indirect labor........................................ $140,000 Property taxes...................................... 40,000 Depreciation of equipment................... 125,000 Maintenance......................................... 70,000 Insurance, factory................................. 5,000 Rent, building....................................... 90,000

Total actual costs.................................... 470,000 Applied manufacturing overhead costs:

$320,000 × 150%................................ 480,000 Overapplied Overhead............................ $(10,000)



Problem 2-21B (continued)2.

Timeless ProductsSchedule of Cost of Goods Manufactured

Direct materials:Raw materials inventory, beginning.. $ 30,000Add purchases of raw materials........ 310,000 Total raw materials available............ 340,000Deduct raw materials inventory,

ending............................................ 20,000 Raw materials used in production....... $320,000Direct labor.......................................... 80,000Manufacturing overhead applied to

work in process................................. 480,000 Total manufacturing costs................... 880,000Add: Work in process, beginning......... 50,000

930,000Deduct: Work in process, ending......... 60,000 Cost of goods manufactured............... $870,000

3. Cost of goods sold:Finished goods inventory, beginning.... $ 90,000Add: Cost of goods manufactured......... 870,000 Goods available for sale........................ 960,000Deduct: Finished goods inventory,

ending................................................ 100,000 Cost of goods sold................................. $860,000

4. Direct materials....................................... $ 5,600Direct labor............................................. 3,000Overhead applied ($5,600 × 150%)........ 8,400 Total manufacturing cost........................ $17,000$17,000 × 125% = $21,250 price to the customer.



Problem 2-21B (continued)5. The amount of overhead cost in Work in Process was:

$20,000 direct materials cost × 150% = $30,000.The amount of direct labor cost in Work in Process was:

Total ending work in process..... $60,000

Deduct: Direct materials............$20,00

0 Manufacturing overhead 30,000 50,000 Direct labor cost........................ $10,000

The completed schedule of costs in Work in Process was:Direct materials............... $20,000Direct labor...................... 10,000Manufacturing overhead. 30,000 Work in process

inventory....................... $60,000



Problem 2-22B (75 minutes)1. The cost of raw materials put into production was:

Raw materials inventory, 1/1................. $ 15,000Debits (purchases of materials)............. 170,000 Materials available for use..................... 185,000Raw materials inventory, 12/31............. 20,000 Materials requisitioned for production... $165,000

2. Of the $165,000 in materials requisitioned for production, $150,000 was debited to Work in Process as direct materials. Therefore, the difference of $15,000 ($165,000 − $150,000) would have been debited to Manufacturing Overhead as indirect materials.

3. Total factory wages accrued during the year (credits to the Factory Wages Payable account)...................................................... $230,000

Less direct labor cost (from Work in Process) 180,000 Indirect labor cost.......................................... $ 50,000

4. The cost of goods manufactured for the year was $640,000—the credits to the Work in Process account.

5. The Cost of Goods Sold for the year was:Finished goods inventory, 1/1....... $ 30,000Add: Cost of goods manufactured

(from Work in Process)................ 640,000 Goods available for sale................ 670,000Finished goods inventory, 12/31. . . 50,000

Cost of goods sold.........................$620,00

0

6. The predetermined overhead rate was:



Problem 2-22B (continued)7. Manufacturing overhead was underapplied by $9,000,

computed as follows:Actual manufacturing overhead cost for the

year (debits)................................................ $315,000Applied manufacturing overhead cost (from

Work in Process—this would be the credits to the Manufacturing Overhead account). . . 306,000

Underapplied overhead................................. $ 9,000

8. The ending balance in Work in Process is $21,000. Direct materials make up $7,500 of this balance, and manufacturing overhead makes up $8,500. The computations are:Balance, Work in Process, 12/31........................... $21,000Less: Direct labor cost (given).............................. 5,000

Manufacturing overhead cost ($5,000 × 170%)......................................................... 8,500

Direct materials cost (remainder)......................... $ 7,500



Problem 2-23B (45 minutes)1. Molding Department predetermined overhead rate:

Painting Department predetermined overhead rate:

2. Molding Department overhead applied:105 machine-hours × $8.00 per machine-

hour.......................................................... $ 840Painting Department overhead applied:

$970 direct labor cost × 160%................... 1,552 Total overhead cost....................................... $2,392

3. Total cost of Job 435:Department

Molding Painting TotalDirect materials...................... $ 180 $ 150 $ 330Direct labor............................. 350 970 1,320Manufacturing overhead

applied................................. 840 1,552 2,392 Total cost................................ $1,370 $2,672 $4,042Unit product cost for Job 435:



Problem 2-23B (continued)4. Department

Molding PaintingManufacturing overhead incurred..... $310,000 $730,000Manufacturing overhead applied:

40,000 machine-hours × $8.00 per machine-hour......................... 320,000

$445,000 direct labor cost × 160% 712,000 Underapplied (or overapplied)

overhead......................................... $(10,000) $ 18,000


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