Seminar Practice 7 Solutions (Latest).ppt
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RECAPThree types of Manufacturing costs
1. Direct Material (DM)
• Can be traced directly and conveniently to products
2. Direct Labor (DL)
• Includes the payroll cost of the direct workers
3. Manufacturing Overhead (MOH)
• All manufacturing cost other than direct materials and direct labor.
Indirect material
Indirect labor
Overhead
Employees who work directly on the goods being manufactured
RECAPWhat are the three types of Inventories?
Raw material Inventory - Inventory on hand and
available for use
Work in process Inventory -Partially completed
goods
Finished goods Inventory- Completed goods
awaiting sale
RECAPManufacturing Cost Flow
Material Inventory
Work in ProcessInventory
Finished GoodsInventory
$$$ $$$
Direct Material Purchase
$$$ $$$
Direct Material used
Direct labor & Manufacturing overhead
$$$ $$$
Cost of GoodsSold
$$$
QUESTION 1The flow of manufacturing costs through the ledger accounts of Superior Locks, Inc., in the current years is illustrated below in summarized form.
QUESTION 1a. Purchases of Direct Materials
Beg. Balance $13000
$269000
End Balance $17000
Material Inventory
Purchases of DM ?
Purchase of Direct Material : $269000
QUESTION 1b. Cost of Direct Materials used
B. Balance $13000
$269000
End Balance $17000
Material Inventory
Purchases of DM ?
End Balance = Beg. Balance + Purchases of DM - Cost of Direct Material used
Cost of Direct Material used = Beg. Balance + Purchase of DM – End Balance
= $13000 + $269000 - $17000
= $265000
Cost of Direct Material used
QUESTION 1c. Direct Labor costs assigned to production
Direct Labor
131300 134000
End Balance 2700
Direct Labor costs
Direct Labor costs assigned to production : $134000
QUESTION 1d. The year-end liability for direct wages payable
Direct Labor
131300 134000
End Balance 2700
Direct wages payable : $2700
End balance represent the amount owned to employee for work already performed. Therefore, its wages payable, a current liability
Direct Labor costs
QUESTION 1e. Total manufacturing costs charged to the Work in Process Inventory account during the current year.
Work in Process Inventory
$614400
Beg. Balance $19000
$265000
$134000
$214400
End Balance ?
Manufacturing costs = Direct Material costs + Direct Labor costs + Manufacturing Overhead costs
= $265000 + $134000 + $214400
= $613400
Direct MaterialBeg bal. 13000
269000
End bal. 17000
265000
Direct Labor
131300 134000
End bal. $2700
Manufacturing Overhead
214400 214400
QUESTION 1f. The cost of finished goods manufactured
Work in Process Inventory
$614400
Beg. Balance $19000
$265000
$134000
$214400
End Balance ?
Cost of finished goods = $614400
Cost of finished goods (Completed jobs)
QUESTION 1g. The year-end balance in the Work in Process Inventory account
Work in Process Inventory
$614400
Beg. Balance $19000
$265000
$134000
$214400
End Balance ?
Work in Process End Balance = Beg. Bal. + Manufacturing Costs – Cost of finished goods
= $19000 + $613400 - $ 614400
= $18000
Cost of finished goods (Completed jobs)
Manufacturing Costs =
DM cost + DL cost + MOH cost
= 613400
QUESTION 1h. The cost of goods sold
Finished Goods Inventory
?Beg. Balance $46000
End Balance $53400
Cost of goods sold = Beg. Bal. + Cost of finished goods – End Bal.
= $46000 + $614400 - $53400
= $607000
Work in ProcessBeg bal. 19000
265000
134000
214400
End bal. 18000
614400Cost of finished goods $614400
Cost of Goods Sold
?
QUESTION 1i. The total amount of inventory listed in the year-end balance sheet
Material Inventory
Beg. Balance $13000
$269000
End Balance $17000
$265000
Work in Process Inventory
$614400
Beg. Balance $19000
$265000
$134000
$214400
End Balance $18000
Finished Goods InventoryBeg. Balance $46000
$614400
End Balance $53400
$607000
Total amount of Inventory = 17000 + 18000 + 53400
= $88400
QUESTION 1Overall flow of manufacturing costs
Material Inventory
Beg. Balance $13000
$269000
End Balance $17000
$265000
Work in Process Inventory
$614400
Beg. Balance $19000
$265000
$134000
$214400
End Balance $18000
Finished Goods InventoryBeg. Balance $46000
$614400
End Balance $53400
$607000
Direct Labor
Manufacturing Overhead
$131300 $134000
End bal. $2700
$214400 $214400 Cost of Goods Sold
$607000
QUESTION 2
Note: Entertainment and travelling expenses were incurred by Headquarter and Marketing staff.
QUESTION 2
Part a: Calculate the over/under application of overheads.
Part b: Prepare a schedule of cost of goods manufactured for the year ended 31 December 2009.
A)CALCULATE THE OVER/UNDER APPLICATION OF OVERHEADS.
Three Step Process:
Calculate Predetermined Overhead Rate (POHR)
Apply overhead rate
Reconcile differences between actual and predetermined rate
A)CALCULATE THE OVER/UNDER APPLICATION OF OVERHEADS.
Step 2:
Overhead Amount
Indirect labor cost 485,000
Depreciation on plant equipment
102,000
Plant Maintainance 90,000
Factory Insurance 78,000
Depreciation on building(75% for manufacturing)
0.75x240,000=180,000
Other factory overhead 25,000
Rent for special production equipment
166,000
Total $1.126 Million
A)CALCULATE THE OVER/UNDER APPLICATION OF OVERHEADS.
Step 3:
Actual Overhead:$1.126 Million
Applied Overhead: $1.08 Million
>
Overhead is under applied by: 1.126 Million – 1.08 Million = $46,000
ADDITIONAL QUESTION:
When overhead application is underapplied, the underapplied overhead would be:
A) Added to COGSB) Subtracted to COGS
Ans: A
B)PREPARE A SCHEDULE OF COST OF GOODS MANUFACTURED
Formula for direct materials used in production of year 2009:
Direct material used in production: 20,000+480,000-80,000=$420,000
Beginning Materials Inventory
Purchases
Ending Materials Inventory
Materials used in Production
+ - =
B)PREPARE A SCHEDULE OF COST OF GOODS MANUFACTURED
Direct Materials 420,000
Direct Labor 900,000
Overhead 1.08 Million
Total Manufacturing cost $2.4 Million
Work in process, Jan 1 150,000
Work in Process, Dec 31 (70,000)
Cost of goods manufactured
$2.48 Million
Note: Always use the estimated overhead and not the actual overhead in finding total manufacturing cost.
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Production Cost = Direct Material + Direct Labor + Manufacturing Overhead.
In this question, predetermined overhead rate is 50% of Direct Labor Cost.
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Applied Overhead for Job 306:$85,000 x 0.5= $42,500
Applied Overhead for Job 307:$150,000 x 0.5= $75,000
Applied Overhead for Job 308:$105,000 x 0.5= $52,500
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Job 306:Beginning Bal. of April$29,000 + $20,000 + $10,000= $59,000Cost During April $135,000+$85,000+$42,500=$262,500 Production Cost for Job 306 = $59,000+ $262,500
= $321,500
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Job 307:Beginning Bal. of April$35,000 + $18,000 + $9,000= $62,000Cost During April $220,000+$150,000+$75,000=$445,000Production Cost for Job 307 = $62,000+ $445,000
= $507,000
A. DETERMINE THE PRODUCTION COSTS ASSIGNED TO EACH JOB AT 30 APRIL, 2012 BY USING THE ABOVE TABLE FOR YOUR COMPUTATION.
Job 308:Cost During April$100,000+$105,000+$52,500=$257,500 Production Cost for Job 308 =$257,500
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
According to this figure,
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
Raw Material: Beginning Balance =$80,000 Purchases= $500,000 Indirect Material= $50,000 Used material for Job 306, 307, 308 during
April= $135,000 + $220,000 + $100,000 = $455,000
Left Over Material = $500,000 + $80,000 - $50,000 - $455,000= $75,000
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
Work In Process (Job 308)=$100,000 + $105,000 + $52,500=$257,500
B. SHOW HOW INVENTORIES WOULD BE REPORTED IN THE BALANCE SHEET AT 30 APRIL, 2012.
Finished Goods:Beginning Balance of Job 307 = $35,000+ $18,000+ $9,000 = $62,000Cost for Job 307 during April =$220,000 + $150,000 + $75,000= $445,000
Finished Goods but unsold at the end of April=$62,000+$445,000= $507,000
QUESTION 4
Watersport CompanyOverhead rate: $13 per DLHEstimated manufacturing overhead: $143,000Estimated DLH: 11,000 hours
Actual Operating Info 2010
For ABC
CALCULATE THE OVERAPPLIED OR UNDERAPPLIED MANUFACTURING OVERHEAD UNDER THE TRADITIONAL COSTING SYSTEM.
How?Step 1: Calculate the applied overheadStep 2: Calculate the actual overheadStep 3: Compare
Question 4aQuestion 4a
Manufacturing overhead(Recreation Canoe) = Overhead Rate × Actual Activity Level= $13 per DLH × (10 ×800) DLH = $104,000
Manufacturing overhead(Competition Canoe) = Overhead Rate × Actual Activity Level= $13 per DLH × (10 ×200) DLH = $26,000
Total Applied Manufacturing overhead = $104,000+$26,000= $130,000
Question 4aQuestion 4a
Step 1: Calculate the applied overhead
Recreation Canoe:
They take 10 hours per unit ($100 ÷ $10 per hour)
Competition Canoe:
They take 10 hours per unit ($100 ÷ $10 per hour)
20 hours
Actual Activity
Overapplied or Underapplied?
Question 4aQuestion 4a
Step 2: Calculate the actual overhead
Total Actual Manufacturing overhead = $25,000+$20,000+$15,000+$10,000+$10,000+$20,000+$30,000= $130,000 = $260,000 (Applied MOH)
Step 3: Compare
Neither Overapplied nor Underapplied
CALCULATE THE GROSS PROFIT PER UNIT FOR RECREATION CANOE AND COMPETITION CANOE UNDER THE TRADITIONAL COSTING SYSTEM.
Question 4bQuestion 4b
Gross Profit = Revenue-COGS(per unit)
Sales Price Per Canoe
How?Step 1: Calculate COGS (unit cost)Step 2: Calculate Gross Profit Per Unit
Recreation Canoe
Competition Canoe
Direct Materials $150 $200
Direct Labour $100 $100
Manufacturing Overhead:
$13 per DLH × 10 hours
$130
$13 per DLH × 10 hours
$130
Total unit cost $380 $430
Question 4bQuestion 4b
Step 1: Calculate unit cost
Step 2: Calculate gross profit per unit
Recreation Canoe:
Gross profit per unit = Sales Price per Canoe – Unit Cost = $500-$380 = $120
Competition Canoe:
Gross profit per unit = $550-$430 = $120
CALCULATE THE GROSS PROFIT PER UNIT FOR
RECREATION CANOE AND COMPETITION CANOE UNDER THE ACTIVITY-BASED COSTING SYSTEM.
Question 4cQuestion 4c
ABC:5-Step Computation
How?Similarly…Step 1: Calculate COGS (unit cost)
Step 2: Calculate Gross Profit Per Unit
ABC(RECAP)
Traditional Costing
ABCSame POHR
for manufacturing overhead
Multiple POHR(for the different cost
pool in manufacturing
overhead)
Definition: A costing method that first assigns costs to activities & then to goods and services based on how much each good or services uses the activities.
ActivityCost Pool
Overhead Cost For Activity
Cost Driver Units of Activity
Rate
Building Depreciation
$25,000 Square Footage
5,000 $5 per square footage
Equipment Depreciation
$20,000 Machine Hours
4,000 $5 per machine hour
Material Ordering
$15,000 No. of Orders 300 $50 per order
Quality Control
$10,000 No. of Inspections
250 $40 per inspect.
Maintenance & Security
$10,000 Square Footage
5,000 $2 per square footage
Setup & Drafting
$20,000 No. of Setups 50 $400 per setup
Supervision $30,000 Dir. Labour Costs
100% $3 per DLC
Question 4cQuestion 4c
Step 1: Identify
Activities
Step 3: Identify
Cost Driver
Step 2: Assign Cost to
Cost Pools
Step 1: Calculate COGS (unit cost)
ActivityCost Pool
Overhead Cost For Activity
Cost Driver Units of Activity
Rate
Building Depreciation
$25,000 Square Footage
5,000 $5 per square footage
Equipment Depreciation
$20,000 Machine Hours
4,000 $5 per machine hour
Material Ordering
$15,000 No. of Orders 300 $50 per order
Quality Control
$10,000 No. of Inspections
250 $40 per inspect.
Maintenance & Security
$10,000 Square Footage
5,000 $2 per square footage
Setup & Drafting
$20,000 No. of Setups 50 $400 per setup
Supervision $30,000 Dir. Labour Costs
100% $3 per DLC
Question 4cQuestion 4c Units of Activity =
Activity Level For Recreation Canoe + Activity Level For Competition Canoe
Step 1: Calculate COGS (unit cost)
ActivityCost Pool
Overhead Cost For Activity
Cost Driver Units of Activity
Rate
Building Depreciation
$25,000 Square Footage
5,000 $5 per square footage
Equipment Depreciation
$20,000 Machine Hours
4,000 $5 per machine hour
Material Ordering
$15,000 No. of Orders 300 $50 per order
Quality Control
$10,000 No. of Inspections
250 $40 per inspect.
Maintenance & Security
$10,000 Square Footage
5,000 $2 per square footage
Setup & Drafting
$20,000 No. of Setups 50 $400 per setup
Supervision $30,000 Dir. Labour Costs
100% $3 per DLC
Question 4cQuestion 4c
Step 4:Compute
POHRRate = Overhead Cost For Activity÷ Units of Activity
Step 1: Calculate COGS (unit cost)
ActivityCost Pool
Rate ACTUAL UNITS
OF ACTIVIT
Y
COST ALLOCATE
D TO PRODUCT
ACTUAL UNITS
OF ACTIVIT
Y
COST ALLOCATE
D TO PRODUCT
Building Depreciatio
n
$5 per square footage
4,000 $20,000 1,000 $5,000
Equipment Depreciatio
n
$5 per machine
hour
3,400 $17,000 600 $3,000
Material Ordering
$50 per order
200 $10,000 100 $5,000
Quality Control
$40 per inspection
160 $6,400 90 $3,600
Maintenance &
Security
$2 per square footage
4,000 $8,000 1,000 $2,000
Setup & Drafting
$400 per setup
20 $8,000 30 $12,000
Supervision $3 per DLC 90% $27,000 100% $3,000
Question 4cQuestion 4c
Step 1: Calculate COGS (unit cost)
Recreation Canoe Competition Canoe
Step 5:Allocate cost to Product
$96,400 $33,600Total Overhead
Cost Allocated to Product = Rate × Actual Units of
Activity
COST ALLOCATED TO PRODUCT
COST ALLOCATED TO PRODUCT
Total Overhead $96,400 $33,600
Step 1: Calculate COGS (unit cost)Question 4cQuestion 4c Recreation
CanoeCompetition
Canoe
Overhead Costs Assigned to Products:Recreation Canoe = $96,400 ÷ 800 Units = $120.50Competition Canoe = $33,600 ÷ 200 Units = $168
Recreation Canoe Competition Canoe
Direct Materials $150 $200
Direct Labor $100 $100
Manufacturing Overhead
$120.50 $168
Total Unit Cost $370.50 $468
Step 2: Calculate Gross Profit Per UnitQuestion 4cQuestion 4c
Recreation Canoe Competition Canoe
Direct Materials $150 $200
Direct Labor $100 $100
Manufacturing Overhead
$120.50 $168
Total Unit Cost $370.50 $468
For Recreation Canoe : Gross Profit per unit = $500 - $370.50 = $129.50
For Competition Canoe:Gross Profit per unit = $550 - $468 = $82
DISCUSS HOW THE ACTIVITY-BASED COSTING SYSTEM WOULD AFFECT THE PRICING DECISION OF WATERSPORTS FOR THE TWO PRODUCTS.
Traditional Costing ABC
Recreation
Competition
Recreation
Competition
Overhead Cost Per Unit
$130 $130 $120.50 $168
Gross Profit Per Unit
$120 $120 $129.50 $82
Question 4dQuestion 4d
By using ABC, the low-volume, specialized products would have greater overhead costs.
Hence, in order for the company to cover this higher overhead costs, it would have to set a higher selling price for the Competition Canoe.