Chapter 5

JOB ORDER COST SYSTEM

Exercises
10. Two characteristics of the proposal are critical in advising London
about a costing system:
a. the expected high sales volume and
b. the repetitive nature of production implied by that high sales
volume.
These characteristics indicate that Londons best choice would be to
use a process costing system and standard cost valuations.
Standard costing would benet London because it would help identify
ine!ciencies in production operations and help her identify ways
to reduce production costs.
The homogeneous nature of the product ma"es the use of #ob
order costing unnecessary $its higher cost is not #ustied%.
11. &ach student will have a di'erent answer( depending on the
particular yacht selected. Some will discuss the yachts si)e*
others will discuss the interior nishes* others will discuss the
navigation e+uipment. The ,-../ million 0ichmond Lady 1ull 23
provides numerous features upon which students can focus.

1-. a. &mployee time card
b. 4or" in 5rocess 6nventory 7ontrol or 8inished 9oods 6nventory
c. 0aw :aterial 6nventory
d. ;ob order cost sheet
e. :anufacturing <verhead 7ontrol
f. ;ob order cost sheet
g. 0aw :aterial 6nventory
h. 8inished 9oods 6nventory or 7ost of 9oods Sold
i. :anufacturing <verhead 7ontrol
#. 4or" in 5rocess 6nventory 7ontrol

1.. a. The direct material charge of ,=3>(000 is higher than the
estimate by ,13>(000. ?ssuming that there were no errors in
1
Chapter 5
the estimated and actual amounts( then either the price paid
for the material or the +uantity of material used was
sustantially !ig!er t!an expected. To begin the validation
process(
1. details of the original estimate to identify prices and
+uantities of materials for this #ob would need to be examined.
The starting point to validate the material prices and +uantities
purchased is to examine vendor invoices billed to @uindo.
These invoices will validate material purc!ase "uantities
and prices paid by @uindo.
-. ?dditionally( material re+uisition forms should be examined
to validate t!e "uantity o# material actually used in
production.
.. Aext( an examination of the material cost $material +uantity
multiplied by material price% on the $o order cost s!eet
should reconcile to the +uantity of material shown on the
material re+uisition forms.
b. The direct labor charge of ,=-3(000 is higher than the estimate
by ,--3(000. ?ssuming that there were no errors in the
estimated and actual amounts( then either the hourly rate paid
to or the number of hours wor"ed by employees was
substantially higher than expected.
To begin the validation process(
1. details of the original estimate to identify rates and hours for labor
on this #ob would need to be examined.
The starting point to validate the labor rates and hours wor"ed
is to
-. examine employee time sheets $or other labor accumulation
documents%. The time sheets will validate which employees
wor"ed on the #ob and for what period of time.
.. ? discussion with the payroll manager should help ascertain the
actual or average wage rates paid to employees.
B. 5ossibly some of @uindos employees who were listed as wor"ing on
the #ob should be interviewed to determine the accuracy of the
time sheets.
c. The predetermined overhead rate could have been manipulated
to a higher rate by using a lo%er denominator level of
2
Chapter 5
activity than was appropriate. ?dditionally( inappropriate costs
$such as period costs in addition to product overhead costs%
could have been included in the numerator. ? large estimate for
spoilage and defect costs might also have been included in the
numerator when( in fact( such costs rarely occur at @uindo
6ndustries.
d. The companys behavior is at best +uestionable. 9iven that the
di'erence between actual and estimated direct material cost
was li"ely "nown at the point of purchase( @uindo should have
notied Salem 7orp. immediately of the excessive increase in
cost. Similar notication should have been provided when it
was seen that direct labor and machine times were higher than
expected.
1B. a. 0aw :aterial 6nventory -0B(000
?ccounts 5ayable -0B(000
4or" in 5rocess 6nventoryC2B-=. 1=.(>00
4or" in 5rocess 6nventoryC2B-=B 1(>D0
:anufacturing <verhead 1-(B=0
0aw :aterial 6nventory 1D>(1.0
4or" in 5rocess 6nventoryC2B-=. 3B(000
4or" in 5rocess 6nventoryC2B-=B 1(>00
7ash $.(=00 x ,13% 33(>00
:anufacturing <verhead =>(D00
7ash $,1>(000 E ,D(-00 E ,/(300% .B(D00
?ccumulated Fepreciation -1(300
4ages 5ayable 1-(300
4or" in 5rocess 6nventoryC2B-=. =B(>00
4or" in 5rocess 6nventoryC2B-=B -(1=0
:anufacturing <verhead ==(/=0
b. 0: 6nventory G ,B(.00 E ,-0B(000 C ,1=.(>00 C ,1-(B=0 C
,1(>D0 G
,.0(1D0
c. Hecause the company wor"ed only on ;ob 2B-=. until the end
of ?pril( all costs in beginning 465 for other #obs are still in
that account at the end of the month.
Heginning 465 ,11(B00
Less costs associated with ;ob 2B-=. $>00%
3
Chapter 5
7osts associated with other #obs ,10(=00
7osts for ;ob 2B-=B $,1(>D0 E ,1(>00 E ,-(1=0% 3(>.0
&nding 465 ,1=(B.0
d. 79: G Heginning 465 E 7urrent period costs I &nding 465
G ,11(B00 E ,1=.(>00 E ,1(>D0 E ,33(>00 E ,==(/=0 C
,1=(B.0
G ,->.(B00
Jnit cost G ,->.(B00 K 10(000 G ,->..B
e. ?pplied <1 I ?ctual <1 G ,==(/=0 C ,=>(D00 G ,1(DB0
underapplied
13. a. <1 rate G ,-=>(>00 K ,1/-(000 G 1B0L of direct labor
b. &nding 465 Halance:
F: , D3(B30
FL .=(-00
<1 $,.=(-00 x 1.B0% 30(=>0
&nding balance ,1=-(..0
c. 79: G Heg. 465 E 7urrent costs I 7ost of #obs completed
G ,0 E ,-DD(-00 E ,1/-(000 E ,-=>(>00 C ,1=-(..0
G ,3D3(=D0
1=. a. 0aw :aterial 6nventory D=(000
?ccounts 5ayable D=(000
465 C ;ob 2-1D BB(>00
465 C ;ob 2-1> D(-00
465 C other #obs 3.(=00
Firect :aterial 6nventory 103(=00
465 C ;ob 2-1D 10(B00
465 C ;ob 2-1> 1B(000
465 C other #obs 1/(=00
7ash $or 4ages 5ayable% BB(000
:anufacturing <verhead --0(000
Marious accounts --0(000
465 C ;ob 2-1D 31(B>0
465 C ;ob 2-1> =/(.00
465 C other #obs /D(0-0
:anufacturing <verhead -1D(>00
4
Chapter 5
$?ctual rate per FL, G ,BB(000 x ,B./3%
8inished 9oods 6nventory 11D(>>0
465 6nventory C ;ob 2-1D 11D(>>0
$,11(-00 E ,BB(>00 E ,10(B00 E ,31(B>0 G ,11D(>>0%
7ash 13/(1.>
Sales 13/(1.>
$,11D(>>0 N 1..3 G ,13/(1.>%
7ost of 9oods Sold 11D(>>0
8inished 9oods 6nventory 11D(>>0
b. &nding 465 G Heg. 465 E 7urrent costs I 7ost of ;ob 2-1D
completed
G ,1=(>00 E ,103(=00 E ,BB(000 E ,-1D(>00 C
,11D(>>0
G ,-==(.-0
&nding balance in ;ob 2-1> G ,3(=00 E ,D(-00 E ,1B(000 E
,=/(.00 G
,/=(100
1D. a. <1 rate G ,1-D(=>0 K D(=00 G ,1=.>0 per FL1
b. ?verage FL rate G ,13/(=00 K D(=00 G ,-1 per FL1
c. 13(-00 x $,-1.00 E ,1=.>0% G 13(-00 x ,.D.>0 G ,3DB(3=0
FL O <1
,/1=(=30 C ,3DB(3=0 G ,.B-(0/0 F: in beginning 465
d. 6f wor"ers on the #ob in ending 465 are assumed to be paid
the average FL rate( then the ending 465 balance is:
F: , D.(-30
FL $-(>30 x ,-1% 3/(>30
<1 $-(>30 x ,1=.>0% BD(>>0
&nding balance ,1>0(/>0
e. 79: G Heg. 465 E 7urrent period costs I &nd. 465
G ,/1=(=30 E ,3>/(=D0 E ,13/(=00 E ,1-D(=>0 C
,1>0(/>0
G ,1(=1-(=-0
1>. a. 79S is the amount credited to 8inished 9oods 6nventory for
the year G ,1(>/0(000.
5
Chapter 5
b. Heg. 89 E 79: I &nd. 89 G 79S
,/0(000 E 79: C ,3D(000 G ,1(>/0(000
79: E ,..(000 G ,1(>/0(000
79: G ,1(>3D(000
c. ?pplied <1 G ,./3(000 N 1.B0 G ,33.(000
d. Heg. 465 E F: used E FL E <1 I &nd. 465 G 79:
,3=(000 E F: E ,./3(000 E ,33.(000 C ,-D(=B0 G
,1(>3D(000
F: E ,/D=(.=0 G ,1(>3D(000
F: G ,>>0(=B0
e. Heg. F: E 5 I F: used G &nd. F:
,-B(=00 E 5 C ,>>0(=B0 G ,B(100
5 C ,>3=(0B0 G ,B(100
5 G ,>=0(1B0
1/. a. 79S G .D3 x Sales G .D3$,1(3/>(000% G ,1(1/>(300.
b. Heg. 89 E 79: I &nd. 89 G 79S
,=>(/00 E 79: C ,1=3(=00 G ,1(1/>(300
79: C ,/=(D00 G ,1(1/>(300
79: G ,1(-/3(-00
c. ;ob H.-3: ?pplied <1 G >3L of FL, G .>3 $1-> x ,1-./0% G .
>3 x ,1(=31.-0 G ,1(B0..3-
;ob @B->: ?pplied <1 G >3L of FL, G .>3 $-B0 x ,1-./0% G .
>3 x ,.(0/=.00 G ,-(=.1.=0
d. ;ob H.-3 @B->
F: ,-1(/>0.00 ,1B(D00.00
FL 1(=31.-0 .(0/=.00
<1 1(B0. .3- -(=.1 .=0
,-3(0.B .D- ,-0(B-D .=0
e. 79: G Heg. 465 E F: used E FL E <1 I &nd. 465
,1(-/3(-00 G ,1B(=00 E F: used E ,1-./0$-3(D=0% E .
>3$,1-./0 x -3(D=0% I $,-3(0.B.D- E ,-0(B-D.=0%
,1(-/3(-00 G ,1B(=00 E F: used E ,..-(.0B E ,->-(B3>.B0
C ,B3(B=-..-
,1(-/3(-00 G ,3>.(/00.0> E F: used
6
Chapter 5
F: used G ,D11(-//./-
Heg. F: E 5urchases C F: used G &nd. F:
,1/(300 E ,>B.(-D= C ,D11(-//./- G &nd. F:
&nd. F: $destroyed% G ,131(BD=.0>
-0. a. 7ase 21 7ase 2- 7ase 2.
7ase 2B
F: , B>0 , >(>00
, .(D00 , >30
FL $,1/0 per hour% D(=00 1D(100 1.(.00 -(>30
<1 $,130 per court hour% 1(>00 /(D30 1>(000 =(000
Totals ,/(>>0 ,.3(=30
,.3(000 ,/(D00
b. F: ,10(100
FL $1DB x ,1/0% ..(0=0
<1 $D- x ,130% 10(>00
Total cost ,3.(/=0
:ar"up $B3L% -B(->-
Total billed to client ,D>(-B-
-1. a. <verhead rate G Hudgeted <1 K Hudgeted FL,
,B.-3 G ,1(-D3(000 K Hudgeted FL,
Hudgeted FL cost G ,1(-D3(000 K ,B.-3
Hudgeted FL cost G ,.00(000
<verhead rate G ,1(-D3(000 K ,.00(000 G ,B.-3 per FL,
b. 4or" in 5rocess 6nventory /=(BD3
:anufacturing <verhead /=(BD3
$,--(D00 x ,B.-3 G ,/=(BD3%
c. ,B.-3 x .(/00 G ,1=(3D3
d. Heginning balance ,1>(.30
Firect material -/(=00
Firect labor .(/00
:anufacturing overhead 1=(3D3
&nding balance ,=>(B-3
--. a. Firect material ,-(>30
Firect labor $,>00 K ,-0 G B0 FL1s% >00
?pplied overhead $,1D x B0% =>0
Total cost of ;ob 2/-0 ,B(..0
b. H6 of 465 $,>(-30 E ,300 E $,1D x -3% , /(1D3
7
Chapter 5
Firect material ,-1(=30
Firect labor $,=(.00 K ,-0 G .13 FL1s% =(.00
?pplied overhead $,1D x .13% 3(.33 ..(.03
,B-(B>0
&6 of 465 $B(..0%
7ost of goods manufactured ,.>(130
c. ?ctual overhead ,3(03B
?pplied overhead $3(.33%
<verapplied <1 , .01
-.. a. :ixing: ,B>0(000 K =0(000 G ,> per :1
5aving: ,D00(000 K ->(000 G ,-3 per FL1
b. :ixing $-/0 :1s x ,>%
, -(.-0
5aving $.B0 FL1s x ,-3% >(300
Total overhead applied ,10(>-0
c. $,B>0(000 E ,D00(000% K $=0(000 E 1-(000% G ,1(1>0(000 K
D-(000 G ,1=../
,1=../ x ..B G ,3(BDB.-= applied to ;ob 2--0
? plantCwide rate would not have been indicative of the actual
cost of each #ob because the :ixing department is very
machineCintensive while the 5aving department is very laborC
intensive.
-B. a. Fepartment 1 G ,B=3(000 K .0(000 :1s G ,13.30 per :1
Fepartment - G ,.>0(=00 K --(000 FL1s G ,1D..0 per FL1
b. 0aw :aterial 6nventory .B=(000
?ccounts 5ayable .B=(000
4or" in 5rocess 6nventory I ;ob 2B=- 1/(000
4or" in 5rocess 6nventory I other #obs.-1(000
0aw :aterial 6nventory .B0(000
4or" in 5rocess 6nventory I ;ob 2B=- -D3
4or" in 5rocess 6nventory I other #obs -(>=0
7ash $->3 x ,11% .(1.3
4or" in 5rocess 6nventory I ;ob 2B=- B(/=0
4or" in 5rocess 6nventory I other #obs.-(-B0
8
Chapter 5
<verhead 7ontrol $-(B00 x ,13.30% .D(-00
4or" in 5rocess 6nventory I ;ob 2B=- -(>BB
4or" in 5rocess 6nventory I other #obs--(>/=
7ash $1(B.0 x ,1>% -3(DB0
4or" in 5rocess 6nventory I ;ob 2B=- .B=
4or" in 5rocess 6nventory I other #obs -(D=>
<verhead 7ontrol $1>0 x ,1D..0% .(11B
8inished 9oods 6nventory I ;ob 2B=- -D(B-3
4or" in 5rocess 6nventory I ;ob 2B=- -D(B-3
$,1/(000 E ,-D3 E ,B(/=0 E ,-(>BB E ,.B=%
?ccounts 0eceivable I 5ower .-(/10
Sales $,-D(B-3 x 1.-0% .-(/10
7ost of 9oods Sold -D(B-3
8inished 9oods 6nventory I ;ob 2B=- -D(B-3
c. 7ost per unit G ,-D(B-3 K 300 G ,3B.>3
Selling price per unit G ,=3.>-
0aw material G ,1/(000 K 300 G ,.>
d. Total 0: issued ,.B0(000
Total units $300 E -0(000% K -0(300
0: cost per unit ,1=.3/ $rounded%
Total cost per unit G ,3B.>3 C ,.>.00 E ,1=.3/ G ,...BB
Selling price per unit G ,...BB x 1.- G ,B0.1. $rounded%
Sales without error ,.-(/10
Sales with error $300 x ,B0.1.% -0(0=3
Total PsavingsQ of the error ,1-(>B3
-3. ? standard costing system is most appropriate in production
settings in which activities are repetitive. That criterion is met in
the case of Latamore 6ndustries. Fevelopment of such standards
re+uires that reliable expectations about input cost amounts and
+uantities be determined for the more routine aspects of client
services. <nce the standards are developed( actual costs and
input +uantities can be compared against the standards to better
understand the causes of cost variability across the contracts.
Hetter identication and understanding of the causes of
variances will allow managers to manage costs more e'ectively
and price company services more appropriately.
9
Chapter 5
-=. :5M G ?ctual cost for paper purchasedI Standard cost for paper
purchased G $,0.0.- x />0(000% I $,0.0.= x />0(000% G ,.1(.=0
C ,.3(->0 G C,.(/-0.
Since actual cost was less than standard( the variance is
favorable.
:@M G ?ctual cost for paper used I Standard cost for paper that
should have been used G $,0.0.= x />0(000% I $,0.0.= x
/>B(000% G ,.3(->0 C ,.3(B-B G C,1BB.
Since actual paper usage was less than the standard allowed( the
variance is favorable.
-D. a. Total payroll G /(000 N ,/.=3 G ,>=(>30
b. L0M G ?ctual payroll I Standard cost for actual hours wor"ed
G ,>=(>30 I $,/.>3 x /(000% G ,>=(>30 C ,>>(=30 G C,1(>00.
Since direct labor employees were paid less than the standard
rate( the variance is favorable.
c. L@M G Standard cost for actual hours wor"ed I Standard cost
for standard hours allowed for production G ,>>(=30 I $,/.>3
x >(=00% G ,>>(=30 C ,>B(D10 G ,.(/B0.
Since the number of hours wor"ed was greater than the
standard hours allowed( the variance is unfavorable.
d. <ne concern would be the reason the company was paying its
wor"ers less than the standard rate per hour. The other
concern would be that the wor"ers( recogni)ing that they were
being paid less than the standard( chose to wor" more slowly
than they normally would( to compensate $relative to total
wages% for the reduced wage. 6f this situation is the case( the
company would have been better o' paying the standard rate
because the actual payroll was $,>=(>30 C ,>B(D10% or ,-(1B0
greater than the standard would have been.
->. a. 7urrently( Honivo has no data on the actual cost of building
any of the computers being congured. 7onse+uently( the
company is unable to determine the actual prot $loss%
generated on any sales transaction. The #ob order cost
system would allow Honivo to better understand what factors
drive costs in the rm( measure the prot on sales
transactions( and identify ways to better manage costs and
revenues.
10
Chapter 5
b. ? pricing policy that ignores the costs of direct labor and
overhead $in addition to mar"eting and administrative costs%
is Rawed. <nly if FL and <1 are strictly proportional to direct
material could their costs not be considered in determining
the price and prot of each computer. 1owever( in this case(
these costs are li"ely a ma#or portion of the cost of building a
madeCtoCorder computer.
-/. a. Secretary $,B(>00 K 1=0 hrs. x .3 hrs.% , 1(030
7opies $1(B30 pages x ,0.0= per page% >D
5hone calls 1B3
<verhead $,/(=00 K 1=0 hrs. x .3 hrs.% -(100
?ttorneySs time $,1/0 x /3 hrs.% 1>(030
Total charges ,-1(B.-
This means 7onroe would be charging ,-1(B.- K /3 G
,--3.=0 or ,-.0 per hour $rounded%.
Total bill to <livgra G /3 hours x ,-.0 G ,-1(>30
b. Firect costs $,>D E ,1B3 E ,1>(030% ,1>(->-
?llocated secretarial costs 1(030
?llocated overhead -(100
:argin T$,1>(030 E ,-(100% N 0.B0U >(0=0
Total billing ,-/(B/-

c. ? Rat charge per hour would be more li"ely to be acceptable
to clients because such a charge is more understandable than
being charged an hourly rate plus a charge for the time that is
not really being spent on their cases.
.0. &ach student will have a di'erent answer( but the memo should
address the following issue:
Hudgeted cost is far below each #obs actual cost( which indicates
that the company is not using past #ob information as a basis for
either controlling costs or increasing future bid prices. Hy not using
available historical information to ad#ust operations( the company
is accepting marginal #obs. ?lthough each #ob generated a positive
gross margin( the actual gross margin is only a small fraction of the
budgeted gross margin. 6t is important that a company learn from
past mista"es.
.1. a. Some of the companies that have been found to engage in
this practice are 8amily Follar( 5ep Hoys( Taco Hell( ToysC0CJs(
11
Chapter 5
and 4alC:art.
b. 6t is easier to doctor the records now than in the past because
records are computeri)ed and managers generally have access
to the les. 5reviously( managers would have had to conspire
with payroll cler"s or accountants to change paper or punchC
card records.
c. &ach student will have a di'erent answer. 1owever( most
students will probably indicate that store managers ma"ing
such changes would be red $shortCrun%. 8or the longCrun(
ethics training would probably be recommended and possibly
a change in the way store managers bonuses are computed.
.-. a. :anufacturing <verhead 1(130
0aw :aterial 6nventory -30
4ages 5ayable /00
b. 465 C ;ob 2H?B=> 1(130
0aw :aterial 6nventory -30
4ages 5ayable /00
9iven that the rewor" costs were not necessary to the
completion of the #ob( San ?ngelo 7orp. should probably not
charge its mar"up percentage on the ,1(130 of rewor" costs
unless the customer had already been informed that such
charges might be charged and the customer had agreed to
such charges.
c. Loss on ?bnormal 0ewor" 1(130
0aw :aterial 6nventory -30
4ages 5ayable /00
... a. 5redetermined <1 rate G ,1(B-1(000 K 1B3(000 G ,/.>0 per
:1
Firect material ,BD(300
Firect labor -1(>00
<verhead $.-3 x ,/.>0% .(1>3
Total cost ,D-(B>3
5er unit cost G ,D-(B>3 K 1(300 G ,B>..- $rounded%
b. The ,D30 rewor" cost is included in :anufacturing <verhead
7ontrol.
c. Total original cost ,D-(B>3
12
Chapter 5
7ost of new .0 units 1(./0
Less sale of defective units $-B0%
Total cost of ;ob 2>D= ,D.(=.3
.B. a. The estimated cost of the spoilage should be included in
calculating the predetermined overhead rate. This approach
spreads the cost of spoilage across all good units produced.
b. The cost of this spoilage should be charged to the specic #ob.
Since there is no salvage value for the spoilage( no #ournal
entry would be necessary as the cost of the spoiled units
would be included in the prior charges to the #ob for direct
materials( direct labor and manufacturing overhead.
c. 6n this case( the spoilage is unexpected and the net cost
should be recorded as a loss of the period in which it occurred.
?ny salvage value associated with the spoilage will reduce the
amount of the loss. To record the transaction( wor" in
process $and the specic #obs #ob order cost sheet% should be
credited for the cost of the spoilage and the expected( net
salvage of the spoilage should be debited $Fisposal value of
defective wor"%. ? loss account $e.g.( Loss from abnormal
spoilage% should be debited to balance the transaction.
5roblems
.3. 0aw :aterial 6nventory D/0(000
?ccounts 5ayable D/0(000
4or" in 5rocess 6nventory 3D0(000
0aw :aterial 6nventory 3D0(000
:anufacturing <verhead 1-0(000
0aw :aterial 6nventory 1-0(000
4or" in 5rocess 6nventory D/B(000
:anufacturing <verhead >0(000
4ages 5ayable >DB(000
4or" in 5rocess 6nventory $,D/B(000 x .33% B.=(D00
:anufacturing <verhead B.=(D00
8inished 9oods 6nventory 1(0B=(000
4or" in 5rocess 6nventory 1(0B=(000
7ost of 9oods Sold 1(0B=(000
8inished 9oods 6nventory 1(0B=(000
13
Chapter 5
7ash 1(.B-(000
Sales 1(.B-(000
.=. a. ,>-(000 K >(000 FL1 G ,10.-3 per FL1
b. Firect :aterial 6nventory /0(000
?ccounts 5ayable /0(000
4or" in 5rocess 6nventory D3(=00
7ash D3(=00
:anufacturing <verhead >-(000
Marious accounts >-(000
4or" in 5rocess 6nventory >-(000
:anufacturing <verhead >-(000
4or" in 5rocess 6nventory >>(300
Firect :aterial 6nventory >>(300
$,-(000 E ,/0(000 C ,.(300%
8inished 9oods 6nventory -B>(>30
4or" in 5rocess 6nventory -B>(>30
79: G H465 E F: E FL E <1 I &465
79: G ,10(300 E ,>>(300 E ,D3(=00
E
,>-(000 I,D(D30 G ,-B>(>30
?ccounts 0eceivable .30(B00
Sales .30(B00
7ost of 9oods Sold -B.(D00
8inished 9oods 6nventory -B.(D00
c. Heginning 89 , =(300
79: -B>(>30
79S $-B.(D00%
&nding 89 , 11(=30
.D. a. /V1 0aw :aterial 6nventory 1(/B0(000
?ccounts 5ayable 1(/B0(000
/VB 4or" in 5rocess 6nventory 1(>B=(>00
14
Chapter 5
:anufacturing <verhead 3.(-00
0aw :aterial 6nventory 1(/00(000
6ssuances made to #obs as follows:
2D3( ,->/(=00* 2D>( ,-3-(=00* 2>-( ,//-(-00* 2>=(
,.1-(B00

/V13 4or" in 5rocess 6nventory ==3(=00
:anufacturing <verhead /1(B00
7ash D3D(000
Labor charged to #obs as follows:
2D3( ,>B(=00* 2D>( ,-=D(-00* 2>-( ,-0.(000*
2>=( ,110(>00
/V13 4or" in 5rocess 6nventory >.-(000
:anufacturing <verhead >.-(000
<verhead applied to #obs as follows:
2D3( ,1-0(D30* 2D>( ,.-/(000* 2>-( ,-3.(D30*
2>=( ,1->(300.
/V13 8inished 9oods 6nventory 1(0>1(.30
4or" in 5rocess 6nventory 1(0>1(.30
$,3>=(B00 E ,->/(=00 E ,>B(=00 E ,1-0(D30%
?ccounts 0eceivable 1(B03(D33
Sales 1(B03(D33
$,1(0>1(.30 x 1..%
7ost of 9oods Sold 1(0>1(.30
8inished 9oods 6nventory 1(0>1(.30
/V-0 :anufacturing <verhead 110(-00
?ccounts 5ayable 1/=(>00
7ash .0D(000
/V-B 0aw :aterial 6nventory =-B(000
?ccounts 5ayable =-B(000
/V-3 4or" in 5rocess 6nventory D1=(B00
:anufacturing <verhead 33(>00
0aw :aterial 6nventory
DD-(-00
6ssuances made to #obs as follows:
2D>( ,13B(>00* 2>-( ,-1-(=00* 2>=( ,.B/(000
/V.0 :anufacturing <verhead 1(-0=(>00
?ccumulated Fepreciation >0/(000
5repaid 6nsurance 1=3(B00
Taxes O Licenses 5ayable -.-(B00
15
Chapter 5
/V.0 4or" in 5rocess 6nventory =B/(B00
:anufacturing <verhead =3(000
7ash D1B(B00
Labor charged to #obs as follows:
2D>( ,1DD(B00* 2>-( ,-->(B00* 2>=( ,-B.(=00
/V.0 4or" in 5rocess 6nventory B0D(1-3
:anufacturing <verhead B0D(1-3
To apply overhead to #obs as follows:
2D>( ,111(D30* 2>-( ,1D0(=-3* 2>=( ,1-B(D30
b. 0aw :aterial 6nventoryWWWWW
Hal. ..-(B00 /VB 1(/00(000
/V1 1(/B0(000 /V-3 DD-(-00
/V-B =-B(000
Hal. --B(-00
4or" in 5rocess
Hal. 1(31-(=00 /V13 1(0>1(.30
/VB 1(>B=(>00
/V13 ==3(=00
/V13 >.-(000
/V-3 D1=(B00
/V.0 =B/(B00
/V.0 B0D(1-3
Hal. 3(3B>(3D3
7ost of 9oods SoldWWWWWWWW
Hal. B(>=B(000
2D3 1(0>1(.30
Hal. 3(/B3(.30
;ob 2D3 ;ob 2D>
Hal. 3>=(B00 1(0>1(.30 Hal. -==(=00
F: ->/(=00 F: -3-(=00
FL >B(=00 FL -=D(-00
<1 1-0(D30 <1 .-/(000
Hal. 0 F: 13B(>00
FL 1DD(B00
<1 111(D30
Hal 1(33/(.30
16
Chapter 5
;ob 2>- ;ob 2>=
Hal. =3/(=00 F: .1-(B00
F: //-(-00 FL 110(>00
FL -0.(000 <1 1->(300
<1 -3.(D30 F: .B/(000
F: -1-(=00 FL -B.(=00
FL -->(B00 <1 1-B(D30
<1 1D0(=-3
Hal. -(D-0(1D3 Hal.1(-=/(030
c. Schedule of ;ob 7ost 0ecords
September .0( -010
;ob 2D>
,1(33/(.30
;ob 2>- -(D-0(1D3
;ob 2>= 1(-=/(030
Total ,3(3B>(3D3
d. ?ctual overhead for September
/VB , 3.(-00
/V13 /1(B00
/V-0 110(-00
/V-3 33(>00
/V.0 1(-0=(>00
/V.0 =3(000 ,1(3>-(B00
?pplied overhead for September
/V13 , >.-(000
/V.0 B0D(1-3 $1(-./(1-3%
Jnderapplied overhead , .B.(-D3
.>. a. 0aw :aterial 6nventory 3B-(000
7ash
3B-(000
:anufacturing <verhead 3B(000
4or" in 5rocess 6nventory =0-(>00
4agesVSalaries 5ayable $or 7ash% =3=(>00
To record FL for #obs $;ob 2-BD( ,1D(B00* 2-31( ,>(>00*
2-3.( ,-1(000* 2-3B( ,1.=(=00* 2-33( ,1B3(000*
2-3=( ,/B(=00* and 2-3D( ,1D/(B00%
:anufacturing <verhead D=(000
4or" in 5rocess 6nventory B==(B00
17
Chapter 5
0aw :aterial 6nventory 3B-(B00
To record F: for #obs $;ob 2-BD( ,1-(B00* 2-31( ,=(-00*
2-3.( ,1=(>00* 2-3B( ,103(-00* 2-33( ,11/(>00*
2-3=( ,D-(>00* and 2-3D( ,1..(-00%
:anufacturing <verhead 11B(B00
Marious accounts 11B(B00
To record <1 costs other than indirect labor and
indirect materials $,-BB(B00 C ,3B(000 C ,D=(000%
4or" in 5rocess 6nventory -B1(1-0
:anufacturing <verhead -B1(1-0
To apply <1 at a rate of ,0.B0 per FL, $;ob 2-BD( ,=(/=0*
2-31( ,.(3-0* 2-3.( ,>(B00* 2-3B( ,3B(=B0* 2-33( ,3>(000*
2-3=( ,.D(>B0* and 2-3D( ,D1(D=0%
8inished 9oods 6nventory 1(DD/(0B0
4or" in 5rocess 6nventory 1(DD/(0B0
$See schedule below.%
7ash -(-=B(DDB
Sales -(-=B(DDB
7ost of 9oods Sold 1(DD/(0B0
8inished 9oods 6nventory 1(DD/(0B0

Schedule of 7ompleted ;obs
;ob Firect :aterial Firect Labor ?pplied <1 Total
-BD , >/(=00 ,10>(>00 , B.(3-0 , -B1(/-0
-31 1>-(>00 -1>(=00 >D(BB0 B>>(>B0
-3. 1=-(-00 1/0(=00 D=(-B0 B-/(0B0
-3B 103(-00 1.=(=00 3B(=B0 -/=(BB0
-33 11/(>00 1B3(000 3>(000 .--(>00
Totals ,=3/(=00 ,D//(=00 ,.1/(>B0 ,1(DD/(0B0
b. ;ob Firect :aterial Firect Labor ?pplied <1 Total
-3= , D-(>00 , /B(=00 ,.D(>B0 ,-03(-B0
-3D 1..(-00 1D/(B00 D1(D=0 .>B(.=0
Totals ,-0=(000 ,-DB(000 ,10/(=00 ,3>/(=00
c. ?ctual overhead , -BB(B00
?pplied overhead -B1(1-0
Jnderapplied overhead , .(->0
Jnad#usted cost of #obs completed 1(DD/(0B0
?d#usted cost of #obs completed ,1(D>-(.-0
18
Chapter 5
./. a. ?luminum Steel <ther Total
H6 , >(.00 ,1-(>00 , 3(>00 , -=(/00
5urchases />(.00 -=(300 -.(330 1B>(.30
?vailable ,10=(=00 ,./(.00 ,-/(.30 ,1D3(-30
6ssuances $3>(D00% $.B(-00% $-3(/00% $11>(>00%
&6 , BD(/00 , 3(100 , .(B30 , 3=(B30
b. Firect material , =-0
Firect labor $> x ,13% 1-0
<verhead $1= x ,.0% B>0
Total ,1(--0
c. 465 I beginning
X
, =(-.0
Firect material $total issuances% 11>(>00
Firect labor $=>0 N ,13% 10(-00
<verhead $1(-00 N ,.0% .=(000
Total manufacturing costs ,1D1(-.0
465 C ending $1(--0%
7ost of goods manufactured ,1D0(010
89 C beginning -.(>00
7ost of goods available for sale ,1/.(>10
89 C ending $0%
7ost of goods sold ,1/.(>10
X
;ob 2 :aterial Labor <1 Total
B11 ,1(/00 , 3B0 ,1(300 ,.(/B0
B1- 1(-B0 130 /00 -(-/0
,.(1B0 , =/0 ,-(B00 ,=(-.0
B0. a. Jsing any of the #obs( one can determine that the relationship
between direct labor and applied overhead is that overhead is
113L of direct labor cost. 8or example( using #ob 2=D:
,13(/1= K ,1.(>B0 G 1.13.
b. Firect material ,-3(>00
Firect labor D(-00
?pplied overhead >(->0
Total ,B1(->0
c. Total direct material ,31.(>.B
Less direct material in H6 $-3(>00%,B>>(0.B
Total direct labor , /.(D-0
19
Chapter 5
Less direct labor in H6 $D(-00% >=(3-0
Total direct cost added during :ay ,3DB(33B
d. 4or" in process C beginning , B1(->0
7osts added during :ay:
Firect material ,B>>(0.B
Firect labor >=(3-0
?pplied overhead $,>=(3-0 x 1.13% //(B/> =DB(03-
,D13(..-
4or" in process C ending
$,.0>(B.0 E ,3D(000 E $,3D(000 N 1.13% $B.0(/>0%
7ost of goods manufactured ,->B(.3-
B1. a. 8abrication: ,1(3=0(000 K 10B(000 :L1s G ,13 per :1
?ssembly: ,1(D=0(000 K .-0(000 FL1s G ,3.30 per FL1
b. ;ob 2--/=: 8abrication $/00 hours Y ,1-% ,10(>00
?ssembly $>30 hours Y ,10% >(300
Total FL ,1/(.00
;ob 2--/D: 8abrication $B=0 hours Y ,1-% ,3(3-0
?ssembly $B00 hours Y ,10% B(000
Total FL ,/(3-0
c. ;ob 2--/=: 8abrication $1(>00 hours Y ,13%
,-D(000
?ssembly $>30 hours Y ,3.30% B(=D3
Total <1 applied ,.1(=D3
;ob 2--/D: 8abrication $/00 hours Y ,13% ,1.(300
?ssembly $B00 hours Y ,3.30% -(-00
Total <1 applied ,13(D00
d. ;ob 2--/= ;ob 2--/D
Firect :aterial ,11>(300 ,1BD(-00
Firect Labor 1/(.00 /(3-0
<verhead .1(=D3 13(D00
Total ,1=/(BD3 ,1D-(B-0
e. 8abrication: ?pplied $10.(-00 N ,13%,1(3B>(000
?ctual $1(3->(000%
20
Chapter 5
<verapplied , -0(000
?ssembly: ?pplied $.-B(000 N ,3.30%,1(D>-(000
?ctual $1(D/0(000%
Jnderapplied , >(000
The company has overapplied overhead of ,1-(000 for the
year.
B-. a. ;ob 7ost Sheet C ;ob 2313
7ustomer Aame and ?ddress: Fescription of ;ob: 5repare
site(
7ity of 9ulf Shores build and install a pedestrian
9ulf Shores( ?labama overpass in 9ulf Shores: see
bid
specications for details
7ontract ?greement Fate: 3V10
Scheduled Starting Fate: DV10
?greed Jpon 7ompletion Fate: 1-V13V10
7ontract 5rice: ,.(.00(000
?ctual 7ompletion Fate: WWWWWWWWWWWWWWWW
Special 6nstructions: Aone

Firect :aterial $&st. ,1(-B0(000%
Fate Source 7ost
-010
;uly .1 Summary of material re+. ,1-1(>00
Firect Labor $&st. ,=D0(000% <verhead $&st. ,B0-(000%
.
Fate Source 7ost Fate Source
7ost
-010 -010
;uly .1 Summary of time ;uly .1 ;ournal entry
sheets for direct of DV.1V10
,103(0-B
labor ,1D3(0B0
Summary $as of DV.1V10%
21
Chapter 5
?ctual Hudget
Jnder$<ver%
Firect material ,1-1(>00 ,1(-B0(000
Firect labor 1D3(0B0 =D0(000
<verhead 103(0-B B0-(000
Totals ,B01(>=B ,-(.1-(000
b. 4or" in 5rocess C ;ob 2313 1-1(>00
4or" in 5rocess I other #obs B3D(300
Firect :aterial 6nventory 3D/(.00
4or" in 5rocess C ;ob 2313 1D3(0B0
4or" in 5rocess C other #obs B0>(/=0
:anufacturing <verhead 33(>00
Salaries and 4ages &xpense ./(=00
Salaries and 4ages 5ayable =D/(B00
:anufacturing <verhead -=(B00
Fepreciation &xpense D(>00
?ccumulated Fepr. C 7onst. ?ssets -=(B00
?ccumulated Fepr. C <!ce ?ssets D(>00
Sales 5romotion &xpense 11(100
?ccounts 5ayable 11(100
?dvertising &xpense =(=00
7ash =(=00
:anufacturing <verhead 1>(=00
Supplies 6nventory 1>(=00
:iscellaneous &xpense 10(-00
?ccounts 5ayable 10(-00
Jtilities &xpense 1(>00
:anufacturing <verhead 3(B00
Jtilities 5ayable D(-00
4or" in 5rocess C ;ob 2313 103(0-B
4or" in 5rocess C other #obs -B3(.D=
:anufacturing <verhead .30(B00
?ccounts 0eceivable 1(--B(000
Sales 1(--B(000
22
Chapter 5
8inished 9oods 6nventory >-/(000
4or" in 5rocess 6nventory
>-/(000
7ost of 9oods Sold >-/(000
8inished 9oods 6nventory >-/(000
c. 4or" in 5rocess C beginning , >D1(>00
5roduction costs:
Firect material
,3D/(.00
Firect labor 3>B(000
?pplied overhead
.30(B00 1(31.(D00
,-(.>3(300
4or" in process I ending $1(33=(300%
7ost of goods
manufactured , >-/(000
d. Hirmingham 7ontractors
6ncome Statement
8or the :onth &nded ;uly .1( -010
0evenues from completed pro#ects ,1(--B(000
Less 7ost of 9oods Sold $>-/(000%
9ross :argin on 7ompleted ;obs , ./3(000
AonC5roduction &xpenses:
Salaries and 4ages &xpense ,./(=00
Fepreciation &xpense D(>00
Jtilities &xpense 1(>00
Sales 5romotion &xpense 11(100
?dvertising &xpense =(=00
:iscellaneous &xpense 10(-00 $DD(100%
6ncome Hefore 6ncome Taxes ,.1D(/00
6ncome Taxes $B0L% $1-D(1=0%
Aet 6ncome ,1/0(DB0
B.. a. ;ob 2-01/:
Fesign $,>1(=00 N .0L% ,-B(B>0
5roduction $D-0 N ,13% 10(>00
6nstallation $,10(0>0 N /0L% /(0D-
Total overhead applied ,BB(.3-
;ob 2-0-0:
Fesign $,=/(.=0 N .0L% ,-0(>0>
5roduction $-(B00 N ,13% .=(000
23
Chapter 5
6nstallation $,11(3-0 N /0L% 10(.=>
Total overhead applied ,=D(1D=
;ob 2-0-1:
Fesign $,D.(BB0 N .0L% ,--(0.-
5roduction $/=0 N ,13% 1B(B00
6nstallation $,13(-00 N /0L% 1.(=>0
Total overhead applied ,30(11-
Fesign 5roduction
6nstallation
?ctual ,103(=00 ,=0(000 ,.1(-00
?pplied $=D(.-0% $=1(-00% $..(1-0%
$<ver%Vunder applied , .>(->0 , $1(-00% , $1(/-0%
?ctual <1 for company ,1/=(>00
?pplied <1 for company $1=1(=B0%
Total company underapplied <1 , .3(1=0
b. 4or" in 5rocess $Fesign% I ;ob 2-01/ /(=00
4or" in 5rocess $Fesign% I ;ob 2-0-0 >(-00
4or" in 5rocess $Fesign% I ;ob 2-0-1 1D(=00
0aw :aterial 6nventory .3(B00
4or" in 5rocess $Fesign% I ;ob 2-01/ >1(=00
4or" in 5rocess $Fesign% I ;ob 2-0-0 =/(.=0
4or" in 5rocess $Fesign% I ;ob 2-0-1 D.(BB0
4ages 5ayable --B(B00
4or" in 5rocess $Fesign% I ;ob 2-01/ -B(B>0
4or" in 5rocess $Fesign% I ;ob 2-0-0 -0(>0>
4or" in 5rocess $Fesign% I ;ob 2-0-1 --(0.-
:anufacturing <verhead =D(.-0
4or" in 5rocess $5rod.% I ;ob 2-01/ 11=(B00
4or" in 5rocess $5rod.% I ;ob 2-0-0 -=>(>00
4or" in 5rocess $5rod.% I ;ob 2-0-1 -.-(000
0aw :aterial 6nventory =1D(-00
4or" in 5rocess $5rod.% I ;ob 2-01/ .B(000
4or" in 5rocess $5rod.% I ;ob 2-0-0 3/(=00
4or" in 5rocess $5rod.% I ;ob 2-0-1 -1(=00
4ages 5ayable 113(-00
24
Chapter 5
4or" in 5rocess $5rod.% I ;ob 2-01/ 10(>00
4or" in 5rocess $5rod.% I ;ob 2-0-0 .=(000
4or" in 5rocess $5rod.% I ;ob 2-0-1 1B(B00
:anufacturing <verhead =1(-00
4or" in 5rocess $6nst.% I ;ob 2-01/ 10(B00
4or" in 5rocess $6nst.% I ;ob 2-0-0 .=(>00
4or" in 5rocess $6nst.% I ;ob 2-0-1 10(B00
0aw :aterial 6nventory 3D(=00
4or" in 5rocess $6nst.% I ;ob 2-01/ 10(0>0
4or" in 5rocess $6nst.% I ;ob 2-0-0 11(3-0
4or" in 5rocess $6nst.% I ;ob 2-0-1 13(-00
4ages 5ayable .=(>00
4or" in 5rocess $6nst.% I ;ob 2-01/ /(0D-
4or" in 5rocess $6nst.% I ;ob 2-0-0 10(.=>
4or" in 5rocess $6nst.% I ;ob 2-0-1 1.(=>0
:anufacturing <verhead ..(1-0
c. ;ob 2-01/:
Firect material ,1.=(B00
Firect labor 1-3(=>0
<verhead BB(.3-
Total cost ,.0=(B.-
;ob 2-0-0:
Firect material ,.1.(>00
Firect labor 1B0(B>0
<verhead =D(1D=
Total cost ,3-1(B3=
;ob 2-0-1:
Firect material ,-=0(000
Firect labor 110(-B0
<verhead 30(11-
Total cost ,B-0(.3-
BB. a. 0eliant: ,3(3>0 K ,B3 G 1-B FL1 wor"ed
Fumas: ,1>(000 K ,B3 G B00 FL1 wor"ed
<maha: ,->(.30 K ,B3 G =.0 FL1 wor"ed
0eliant: 1-B FL1 x ,3> G ,D(1/- <1 applied
Fumas: B00 FL1 x ,3> G ,-.(-00 <1 applied
<maha: =.0 FL1 x ,3> G ,.=(3B0 <1 applied
25
Chapter 5
0eliant Fumas <maha
Firect material , D(>00 ,1B(-00 , 1/(>00
Firect labor 3(3>0 1>(000 ->(.30
<verhead D(1/- -.(-00 .=(3B0
Total cost ,-0(3D- ,33(B00 ,>B(=/0
b. 0eliant: ,-0(3D- K . G ,=(>3D per ad
Fumas: ,33(B00 K 10 G ,3(3B0 per ad
<maha: ,>B(=/0 K > G ,10(3>= per ad
c. Sales $-1 ads Z ,>(=00% ,1>0(=00
7osts:
Firect material ,B1(>00
Firect labor 31(/.0
?pplied overhead ==(/.-
<verapplied overhead $1=(/.-% $1B.(D.0%
Aet income , .=(>D0
d. Sales: 0eliant $,-0(3D- x 1..%,-=(DB..=0
Fumas $,33(B00 x 1..% D-(0-0.00
<maha $,>B(=/0 x 1..% 110(0/D .00 ,-0>(>=0.=0
7osts:
Firect material ,B1(>00.00
Firect labor 31(/.0.00
?pplied overhead ==(/.-.00
<verapplied overhead $1=(/.- .00% $1B.(D.0 .00%
Aet income , =3(1.0 .=0
6ncome using a costCplus basis is substantially higher than
that which is obtained using a Rat rate selling price. Fumas
:anufacturing will be more pleased with the system* rather
than paying a rate of ,>(=00 per ad( Fumas would be paying
,D(-0-. <n the other hand( 0eliants and <mahas costs per
ad would increase from ,>(=00 per ad to ,>(/13 and ,1.(D=-(
respectively.
?ds shouldnSt be billed at a Rat rate because some may ta"e
much longer to develop than others. The > ads for <maha
too" =.0 hours to develop or about D/ hours each. 6n contrast(
the . ads were developed for 0eliant in 1-B hours $B1 hours
each% and the 10 ads were developed for Fumas in only B00
hours $B0 hours each%.
?nother possibility for LeHlanc is to bill based on a standard
charge per labor hour[especially if clients tend to change
26
Chapter 5
their minds after the ad development process begins.
B3. a. <ct. 1 0aw :aterial 6nventory 1(130(000
?ccounts 5ayable 1(130(000
1 4or" in 5rocess C 5 =30(000
:anufacturing <verhead C 5 300(000
0aw :aterial 6nventory 1(130(000
3 :anufacturing <verhead C 7 -3(000
?ccounts 5ayable -3(000
> :anufacturing <verhead C 5 3(000
7ash 3(000
13 Ao entry needed.
-0 :anufacturing <verhead C 7 =0(000
7ash =0(000
-B 0aw :aterial 6nventory 1(B>3(000
?ccounts 5ayable 1(B>3(000
.1 :anufacturing <verhead I 5 .=(.-0
4or" in 5rocess I 5 B3(000
7ash ==(1-0
?ccumulated Fepr. C 5 13(-00
.1 :anufacturing <verhead I
7 1>(=30
4or" in 5rocess I 7 1=(.00
7ash -=(-00
?ccumulated Fepr. C 7 >(D30
.1 ?ccounts 5ayable -(=.3(000
7ash -(=.3(000
.1 4or" in 5rocess I 5 130(000
:anufacturing <verhead I 5 130(000
$=(000 :1 x ,-3%
.1 4or" in 5rocess I 7 -=(>/3
:anufacturing <verhead I 7 -=(>/3
$,1=(.00 x 1.=3%
Aov. 1 :anufacturing <verhead I 7 3(000
27
Chapter 5
7ash 3(000
B 4or" in 5rocess C 5 >-3(000
:anufacturing <verhead C 5 1D3(000
0aw :aterial 6nventory 1(000(000
> :anufacturing <verhead I 5 3(000
7ash 3(000
13 4or" in 5rocess I 7 -00(000
:anufacturing <verhead C 7 --3(000
0aw :aterial 6nventory B-3(000
1> Ao entry needed.
-B Ao entry needed.
-/ Ao entry needed.
.0 :anufacturing <verhead I 5 3B(030
4or" in 5rocess I 5 113(000
7ash 13.(>30
?ccumulated Fepr. I 5 13(-00
.0 :anufacturing <verhead I 7 B.(>30
4or" in 5rocess I 7 1.B(.00
7ash 13/(>00
?ccumulated Fepr. C 7 1>(.30
.0 4or" in 5rocess I 5 />(D30
:anufacturing <verhead I 5 />(D30
$.(/30 x ,-3%
.0 4or" in 5rocess I 7 --1(3/3
:anufacturing <verhead C 7 --1(3/3
$,1.B(.00 x 1.=3%
.0 7ompleted 5ro#ects 6nventory -(B>-(>B0
4or" in 5rocess C 5 1(>>.(D30
4or" in 5rocess C 7 3//(0/0
.0 ?ccounts 0eceivable .(B30(000
7onstruction 0evenue .(B30(000
.0 7ost of 7ontracts Sold -(B>-(>B0
28
Chapter 5
7ompleted 5ro#ects 6nventory -(B>-(>B0
b. 5recast 7onstruction
0aw :aterial <verheadI 5 <verhead C 7
1(130(000 1(130(000 300(000 130(000 -3(000
-=(>/3
1(B>3(000 1(000(000 3(000 />(D30 =0(000
--1(3/3
B-3(000 .=(.-0 1>(=30
1D3(000 3(000
3(000 --3(000
3B(030 B.(>30
bal =0(000 bal 3-=(=-0 bal 1-/(010
465 I 5recast 465 C 7onstruction
=30(000 1(>>.(D30 1=(.00 3//(0/0
B3(000 -=(>/3
130(000 -00(000
>-3(000 1.B(.00
113(000 --1(3/3
/>(D30
bal 0 bal 0
7ompleted 5ro#ects 6nv. 7ost of 7ontracts Sold
-(B>-(>B0 -(B>-(>B0 -(B>-(>B0
bal 0 bal -(B>-(>B0
c. $bottom section of #ob cost sheet%
5recast Fepartment
F: $&st. ,1(330(000% FL $&st. ,--0(000% <1 $&st.
,-D3(000%
Fate ?mount Fate ?mount Fate
29
Chapter 5
?mount
<ct. 1 , =30(000 <ct. .1 , B3(000 <ct. .1
,130(000
Aov. B >-3(000 Aov. .0 113(000 Aov. .0 />(D30
,1(BD3(000 ,1=0(000
,-B>(D30
7onstruction Fepartment
F: $&st. ,.30(000% FL $&st. ,1.0(000% <1 $&st.
,-1B(300%
Fate ?mount Fate ?mount Fate
?mount
Aov. 13 , -00(000 <ct. .1 , 1=(.00 <ct. .1 , -=(>/3
Aov. .0 1.B(.00 Aov. .0 --1(3/3
,130(=00
,-B>(B/0
d. Lincoln 7onstruction 7ompany does not seem to have a good
estimation system in place for its bid process( especially in its
5recast Fepartment. The company may be losing a signicant
number of bids because of inRated cost estimates.
B=. a. ? #ob order cost system is appropriate in any environment in
which costs can be readily identied with specic products(
batches( contracts( or pro#ects. 8or adopting this system there
should be a #ustication on a costCbenet basis to trace costs
to those specic products( batches( contracts( or pro#ects.
b. The only #ob remaining in 465 at 3V.1 is F0S11B:
F0S11B balance( BV.0 ,1(3D0(000
:ay additions:
0aw material ,1-B(000
5urchased parts >D(000
Firect labor -00(300
<verhead $1/(300 hrs. Y ,D.30X% 1B=(-30 33D(D30
465 balance( 3V.1 ,-(1-D(D30
X<1 rate G ,B(300(000 K =00(000 hrs. G ,D.30 per hour
c. 89 inventory of playpens( BV.0 1/(B00
Jnits completed in :ay 13(000
Jnits available .B(B00
Jnits shipped in :ay $-1(000%
30
Chapter 5
89 inventory( 3V.1 1.(B00
Since 5ip S+uea"s uses the 868< inventory method( all units
remaining in 89 inventory were completed in :ay.
4or" in process inventory( BV.0 ,B-0(000
:ay additions:
0aw material , .(000
5urchased parts 10(>00
Firect labor B.(-00
<verhead $B(B00 Z ,D.30% ..(000 /0(000
Total cost ,310(000
Jnit cost G ,310(000 K 13(000 units completed G ,.B per unit
89 inventory G ,.B Z 1.(B00 G ,B33(=00
d. 6f the amount of overapplied or underapplied <1 is not
material or the result of an error in the <1 application rate(
the amount is normally charged directly to 79S. 6f the amount
is signicant( the amount should be prorated over the
relevant accounts $i.e.( 465( 89( and 79S%.
$7:?
adapted%
BD. a.( b. ?pplied <1 rate G ,.0-(B00 K 100(>00 G ,. per FL1
7ost of goods manufactured , /=(000
?dd ending wor" in process:
Two #obs open have F: of , B(>00
Two #obs open have FL of /(000
Two #obs open have applied <1
of $,. N -(1BB% =(B.-
-0(-.-
Total costs accounted for ,11=(-.-
Less beginning wor" in process $13(B00%
7ost of production inputs ,100(>.-
Less: Firect labor ,.=(B00
?pplied <1 $,..00 N >(>00% -=(B00
$=-(>00%
7ost of direct material used , .>(0.-
7ost of indirect material issued 11(=00
Total cost of raw material used , B/(=.-
c. Heginning raw material , /(=00
0aw material purchased 3=(000
Total raw material available ,=3(=00
0aw material issued $B/(=.-%
&nding raw material ,13(/=>
31
Chapter 5
d. <verhead applied $,. N >(>00% , -=(B00
?ctual overhead charges:
6ndirect labor ,10(>00
6ndirect material 11(=00
?ll other 3(000 $-D(B00%
Jnderapplied overhead in ?pril , 1(000
e. Heginning nished goods , 1=(>00
?dd cost of goods manufactured /=(000
7ost of goods available ,11-(>00
Less ending nished goods $1.(-00%
7ost of goods sold , //(=00
B>. a. ?ctual F: cost ,11(=00(000
Standard F: cost $,3=(000 N -00% $11(-00(000%
:aterial 5rice Mariance , B00(000 J
?ctual FL cost ,=(/3D(=00
Standard FL cost $,.B(B00 N -00% $=(>>0(000%
Firect Labor 0ate Mariance , DD(=00 J
?ctual <1 cost ,1B(>00(000
Standard <1 cost $,D=(000 N -00% $13(-00(000%
<1 Mariance , $B00(000% 8
b. :aterial:
,11(=00(000 K =(000(000 G ,1./. $rounded% actual cost per
lb. vs. ,-.00 standard cost per lb.* ,0.0D x =(000(000 G
,B-0(000 8 price variance
=(000(000 lbs. used vs. $->(000 x -00% standard G =(000(000 I
3(=00(000 G B00(000 lbs. more than standard* B00(000 x ,- G
,>00(000 J +uantity variance
The primary cause of the unfavorable material variance is
because of excess usage.
B/. a. F: cost ,1>.00
FL cost $,-0 x $1- K =0%% B .00
Total standard prime costs ,-- .00
b. ;ob 2/1>
F: cost $,1> x 1(-00% ,-1(=00
FL cost $,B x 1(-00% B(>00
Total standard direct cost ,-=(B00
32
Chapter 5
;ob 2-00-
F: cost $,1> x -(000% , .=(000
FL cost $,B x -(000% >(000
Total standard direct cost ,BB(000
c. ;ob 2/1> Standard ?ctual Mariance
F: , -1(=00 ,-.(3-3 ,1(/-3 J
FL B(>00 B(>B0 B0 J
Total ,-=(B00 ,->(.=3 ,1(/=3 J

;ob 2-00-
F: ,.=(000 ,.D(BB0 ,1(BB0 J
FL >(000 D(>30 130 8
Total ,BB(000 ,B3(-/0 ,1(-/0 J
d. Hy computing variances for each #ob( managers become
aware of any trends in costs. 6f costs are aggregated across
#obs( any trends may be obscured.
30. a. 5rot on the xedCprice contracts is constrained by the
contract price. 5rot can only be increased if ways are found
to reduce costs. <ne way that costs can be reduced is to shift
them to other contracts. This is a particularly e'ective
strategy if the costs that are shifted to another contract can
be recouped under the terms of that other contract. Hy
shifting some costs of the xedCprice contracts to the costC
plus contracts( the prot on the xedCprice contracts rises and
the shifted costs can be recovered under the terms of the
costCplus contracts. 8urther( this strategy may have the e'ect
of increasing costs under the costCplus contracts if those
contracts determine prot as a percentage of total costs.
b. This type of cost shifting is dishonest and unethical. 6t has the
e'ect of increasing the total prices of costCplus contracts( and(
if those contracts are government related( those prices are
typically borne by taxpayers. 6n a sense it is a way for the
stoc"holders and managers of the defense contractors to
steal from the taxpayers. 6t is di!cult to imagine a setting in
which this process could be labeled ethical.
33
Chapter 5
31. a. &ach student will have a di'erent answer.
b. The company is utili)ing the benets of automation to reduce
the costs of handling so many parts. Hy standardi)ing
processes( the company can assemble a messenger bag with
a diverse set of parts in an amount of time that is similar to
that re+uired for massCproduced ones. ?ccordingly( although
the company is probably paying( on average( more for parts
on custom messenger bags than massCproduced ones* it is
holding the line on direct labor and production overhead. Hy
holding costs down for labor and overhead( the total cost of
the custom produced messenger bags is not signicantly
higher than that of the mass produced messenger bags.
c. @uality as viewed from the perspective of the consumer
should be much higher with the customCmade messenger
bags because customers are able to specify the various parts
they want included. Hy getting the exact combination of parts
the customers desire( they will perceive the +uality of the
product to be very high relative to the premium in price they
pay over the massCproduced messenger bags.
d. The answer is mostly revealed in part $c%. Hy containing costs
to levels close to those of massCproduced messenger bags(
but allowing the customer to choose the parts they desire( a
substantial gross prot can be achieved. The higher gross
prot reRects the customersS willingness to pay a premium for
the exact combination of parts desired( even though the
companySs costs are not signicantly greater than those
incurred to mass produce messenger bags.
3-. a. 6t is li"ely that the least popular thoughts and opinions would
not be heard on campus. Students would naturally support
those ideas and positions that were consistent with their own
ethics( philosophies( and self interests. ?s a conse+uence( the
overall diversity of ideas would probably decline.
b. ?ssuming diversity of opinions ultimately benets all
students( the Jniversity of 4isconsin is possibly supporting
diversity with the only means available[student dollars.
1owever( this approach may not be ethical because it forces
students to support opinions( beliefs( and ideas that may
violate their personal ethics. ?lthough the Supreme 7ourt of
the Jnited States will ultimately determine whether this is a
legal practice( each individual student can reach hisVher own
conclusion as to whether the practice is ethical.
34
Chapter 5
3.. a. <verhead other than spoilage ,=00(000
&stimated spoilage cost ,30(000
Less salvage value -0(000 .0(000
?d#usted estimated overhead cost ,=.0(000
5<0 G ,=.0(000 K B0(000 G ,13.D3 per FL1
b. Fisposal value of chemical B/=
:anufacturing <verhead 1(-.B
4or" in 5rocess[;ob 2D>> 1(D.0
3B. a. 5redetermined rate G ,/-3(000 K 100(000 G ,/.-3 per :1
b. Total cost of direct material ,=>D(100
Total cost of direct labor 13D(D30
?pplied <1 $.(0>0 x ,/.-3% ->(B/0
Total cost of ;ob H.1= ,>D.(.B0
c. The rewor" cost is debited to the manufacturing overhead
account since the company uses a predetermined rate that
includes rewor" costs to apply overhead.
:anufacturing <verhead D3(300
Marious accounts D3(300
d. 5redetermined rate G ,>30(000 K 100(000 G ,>.30 per :1
Total cost of direct material ,=>D(100
Total cost of direct labor 13D(D30
?pplied <1 $.(0>0 x ,>.30% -=(1>0
Total cost of ;ob H.1= ,>D1(0.0
e. Total cost of direct material ,=>D(100
Total cost of direct labor 13D(D30
?pplied <1 $.(0>0 x ,>.30% -=(1>0
0ewor" cost $,D3(300 x .-0% 13(100
Sale of rewor"ed pipe $-00 x ,..30% $D00%
Total cost of ;ob H.1= ,>>3(B.0
35