Solution manual introduction to management accounting 14e by horngren ch14

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 14 COVERAGE OF LEARNING OBJECTIVES LEARNING OBJECTIVE LO1: Distinguish between job-order costing and process costing LO2: Prepare summary journal entries for the typical transactions of a jobcosting system LO3: Use an activity-basedcosting system in a joborder environment LO4: Show how service organizations use job costing LO5: Explain the basic ideas underlying process costing and how they differ from job costing LO6: Compute output in terms of equivalent units LO7: Compute costs and prepare journal entries for the principal transactions in a process-costing system LO8: Demonstrate how the presence of beginning inventories affects the computation of unit costs under the weighted-average method LO9: Use backflush costing with a JIT production system FUNDAMENTAL ASSIGNMENT MATERIAL A1,B1 CRITICAL THINKING EXERCISES AND EXERCISES 16,18,20,29 PROBLEMS 22,25 41 17,23 42 30 52 A2,B2 31,32,33,36 44,45,46,47 A2,B2 32,33,34,35,3 7,38 43,45,46,47 A3,B3 A4,B4 48 19 841 CASES, NIKE 10K, EXCEL, COLLAB & INTERNET EXERCISES 49,51,52 50 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com JOB-COSTING AND PROCESS-COSTING SYSTEMS 14-A1 (15-20 min.) Answers are in thousands a b c d e f g Direct materials inventory Cash 360 Work in process inventory Direct materials inventory 330 Work in process inventory Accrued payroll 125 Factory department overhead control Various accounts (80 + 55 + 40 = 175) 175 Work in process inventory Factory department overhead control (180% x 125) 225 Finished goods inventory Work in process inventory 625 Cost of goods sold Finished goods inventory 400 842 360 330 125 175 225 625 400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Direct Materials Inventory _ Finished Goods Inventory _ a 360 b 330 f 625 g 400 * Bal 30 * Bal 225 Work in Process Inventory b 330 f 625 c 125 e 225 680 * Bal 55 d * 12/31/X7 Balance 843 Cost of Goods Sold g 400 Factory Department Overhead Control _ 175 e 225 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-A2 (10-15 min.) Flow of Production Started and completed Work in process, ending inventory Direct materials added: 2,000 x Conversion costs added: 2,000 x Total accounted for (Step 2) (Step 1) Equivalent Units Physical Direct Conversion Units Materials Costs 17,000 17,000 17,000 2,000 2,000 1,000 19,000 Total work done Total costs to account for (Step 3): Divide by equivalent units (Step 4) Unit costs $ 19,000 18,000 $150,800 $60,800 $90,000 19,000 18,000 8.20 $ 3.20 $ 5.00 Totals Application of costs (Step 5): To units completed and transferred to Testing, 17,000 units ($8.20) To units not completed and still in process, Feb 28, 2,000 units: Direct materials Conversion costs Work in process, Jan 31 Total costs accounted for 844 Details $139,400 $ 6,400 2,000($3.20) 5,000 1,000($5.00) $ 11,400 $150,800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-A3 (25-30 min.) (Step 2) (Step 1) _ Equivalent Units _ Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beg inv 10,000 (25%)* Started 80,000 To account for 90,000 Completed and transferred out during current period 70,000 70,000 70,000 Work in process, end inv 20,000 (50%)*20,000 10,000 Units accounted for 90,000 Work done to date 90,000 80,000 _ _Details Direct Conversion Totals Materials Costs Costs Work in process, beg inv Costs added currently (Step 3) Total costs to account for (Step 4) Divisor, equivalent units for work done to date Cost per equivalent unit $ (Step 5) Application of Costs Completed and transferred (70,000 units) Work in process, ending inv (20,000 units): Direct materials Conversion costs Total work in process Total costs accounted for *Degree of completion for conversion costs 845 $ 175,500 $138,000 $ 37,500 1,486,500 852,000 634,500 $1,662,000$990,000$672,000 ÷ 90,000 ÷ 80,000 19.40 $ 11.00 $ 8.40 $1,358,00070,000 ($19.40) $ 220,000 20,000($11.00) 84,000 10,000($8.40) $ 304,000 $1,662,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-A4 (15-20 min.) Materials inventories Accounts payable 45,000 Conversion costs Accrued payroll Miscellaneous accounts 30,000 Finished goods inventories (2,000 x $37) Materials inventories (2,000 x $22) Conversion costs (2,000 x $15) 74,000 Cost of goods sold (1,980 x $37) Finished goods inventories 73,260 45,000 Cost of goods sold Conversion costs To recognize actual conversion costs that were $3,000 greater than the amount applied to the products 846 11,000 19,000 44,000 30,000 73,260 3,000 3,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-B1 (20-25 min.) Entries are in British pounds (£) Direct materials inventory Accounts payable a b c d e f g h Work in process inventory Direct materials inventory Work in process inventory Accrued payroll Factory department overhead control Various accounts, such as cash or accounts payable 109 109 95 95 105 105 90 90 Work in process inventory 84 Factory department overhead control Finished goods inventory Work in process inventory 280 Cost of goods sold Finished goods inventory 350 Accounts receivable Sales 600 84 280 350 600 847 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Direct Materials Inventory * Bal 18 b 95 a 109 * Bal 32 Finished Goods Inventory_ * Bal 100 g 350 f 280 * Bal 30 Work in Process Inventory * Bal 25 f 280 b 95 c 105 e 84 309 * Bal 29 Cost of Goods Sold g 350 Factory Department Overhead Control d 90 e 84 * 12/31/X7 Balance 848 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-B2 (10-15 min.) (Step 2) Equivalent Units (Step 1) Flow of Production Started and completed Work in process, ending inv Units accounted for Units work done to date Total costs to account for (Step 3) $675,000 Divide by equivalent units (Step 4) Unit costs Physical Units Direct Conversion Materials Costs 600,000 300,000 900,000 600,000 300,000 600,000 150,000* 900,000 750,000 $2,295,000 $1,620,000 $2.70 900,000 750,000 $1.80 $ 90 *300,000 x Application of costs (Step 5): Totals To units completed and transferred to Finishing, 600,000 units ($2.70) $1,620,000 To units not completed and still in process, end, 300,000 units: Direct materials $ 540,000 Conversion costs 135,000 Work in process, end $ 675,000 Total costs accounted for $2,295,000 849 Details 300,000 ($1.80) 150,000($.90) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-B3 (25-35 min.) (Step 1) Flow of Production Work in process, beg inv Started To account for Completed and transferred out during current period, 550 + 7,150 – 400 Work in process, end inv Units accounted for Work done to date Costs Work in process, beg inv Costs added currently (Step 3) Total costs to account for (Step 4) Divisor, equivalent units For work done to date Cost per equivalent unit (Step 2) Equivalent Units Physical Direct Conversion Units Materials Costs 550 (40%)* 7,150 7,700 7,300 400 (20%)* 7,700 7,300 400 7,300 80 7,700 7,380 Details _ Direct Conversion Totals_ Materials Costs $ 5,104 101,064 $106,168 $ 3,190 65,340 $68,530 $ 1,914 35,724 $37,638 $14.00 ÷ 7,700 $8.90 ÷ 7,380 $5.10 (Step 5) Application of Costs Completed, (7,300 units) $102,200 Work in process, ending inventory (400 units): Direct materials (400) $ 3,560 Conversion costs (80) 408 Total work in process $ 3,968 Total costs accounted for $106,168 *Degree of completion for conversion costs 850 7,300 ($14.00) 400($8.90) 80($5.10) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-37 (5-10 min.) Work in process, Department A Direct-materials inventory 65,340 Work in process, Department A Various accounts 35,724 Work in process, Department B Work in process, Department A 65,340 35,724 102,200 102,200 14-38 (5-10 min.) Work in process, Assembly Department Direct materials inventory 852,000 Work in process, Assembly Department Various accounts 634,500 Work in process, Finishing Dept Work in process, Assembly Dept 852,000 634,500 1,358,000 1,358,000 14-39 (10-15 min.) Dell would most likely use a job-cost system with each order considered a job Because each order is assembled from a set of common parts, there is a single cost for each part Most of the parts are purchased, so the cost is the purchase price If some parts are made, the production cost would be used as the cost of the part Each order would call for several materials, and each would be added to the order's job-cost sheet Labor would be incurred in assembly, so the direct-labor cost could be allocated to each order based on the number of hours used for assembly If assembly is highly automated, it is possible that no labor is considered "direct", and labor becomes one more overhead item 866 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Overhead costs would be allocated based on one or more cost drivers Possible drivers include direct-labor hours or cost (if direct labor is measured separately), hours in assembly, or number of component parts For a highly automated process, that latter would be a likely cost driver Testing and quality control costs might be part of overhead Alternately, costs of testing final computers could be charged directly to the order (job) If different types of computers require different amounts of testing, this is a logical allocation method 14-40 (15-25 min.) Ending inventory = Beginning inventory + Purchases - Usage 90 = 70 + Purchases - 468 Purchases = 488 Total manufacturing costs = Direct + Direct + Factory charged to production materials labor overhead 864 = 468 + DL + DL 864 - 468 = 1.8 DL 1.8 DL = 396 DL = 220 Cost of goods = Cost of goods available - Beginning finished manufactured for sale goods = 1,004 - 100 = 904 Cost of goods = Cost of goods available sold for sale = 1,004 - 120 = 884 867 - Ending finished goods To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-41 (25-35 min.) Job 412 ($ 9,000 + $4,000 + $8,000) Job 413 ($12,000 + $5,000 + $10,000) Work-in-process inventory, April 30 The job-cost records indicate an overhead application rate of $8,000 ÷ $4,000 = 200% or $10,000 ÷ $5,000 = 200% a Work-in-process inventory 15,500 Direct materials inventory 15,500 Job 412 of $2,500 + Job 414 of $13,000 b Work-in-process inventory Accrued payroll $1,500 + $2,500 + $2,000 $21,000 27,000 $48,000 6,000 6,000 c Work-in-process inventory 12,000 Factory department overhead control 12,000 $6,000 x 200% d Finished goods inventory (Job 412) 28,000 Work-in-process inventory 28,000 $21,000 + $2,500 + $1,500 + 200% of $1,500 e Cost of goods sold Finished goods inventory The $33,000 amount is given 868 33,000 33,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Direct Materials Inventory Bal 19,000 (a) 15,500 Bal 3,500 Accrued Payroll (b) 6,000 Fact Dept Overhead Control (c) 12,000 Work-in-Process Inventory Bal 48,000 (d) 28,000 (a) 15,500 (b) 6,000 (c) 12,000 81,500 Bal 53,500 Finished Goods Inventory Bal 18,000 (e) 33,000 (d) 28,000 Bal 13,000 Cost of Goods Sold Bal 450,000 (e) 33,000 Bal 483,000 Job 413 ($27,000 + $2,500 + 200% of $2,500) Job 414 ($13,000 + $2,000 + 200% of $2,000) Work-in-process inventory, May 31 869 $34,500 19,000 $53,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-42 (20 min.) Overhead Compensation for nonchargeable time, 15 x $3,600,000 Other costs (a) Total overhead (b) Direct labor, 85 x $3,600,000 Overhead application rate, (a) ÷ (b) Hourly rate: $60,000 ÷ (48 x 40) = $60,000 ÷ 1,920 $ 540,000 1,449,000 $1,989,000 $3,060,000 65% $31.25 Many students will forget that "his work there" includes an overhead application: Direct labor, 10 x $31.25 $312.50 Applied overhead, $312.50 x 65 203.13 Total costs applied $515.63 We point out that direct-labor time on a job is usually compiled for all classes of engineers and then applied at their different compensation rates Overhead is usually not applied on the piecemeal basis demonstrated here Instead, it is applied in one step after all the labor costs of the job have been accumulated 870 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-43 (30-40 min.) See details below $265 per ton $2,525 This requirement cannot be answered directly from the data using the weighted average process cost method We must look at the equivalent units of conversion work done in May only: Work done through the end of May 302 tons Work done before May (3/4 x 24 tons) 18 tons Work done in May 284 tons Budget for 284 tons: $16,000 + ($80 x 284) = $38,720 Budget - Actual = $38,720 - $40,670 = $1,950 unfavorable During May, conversion costs were $1,950 (or 5%) above budget (Step 2) (Step 1) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beg inv 24 (3/4)* Started 288 To account for 312 Completed and transferred out during current period 297 297 297 Work in process, end inv 15 (1/3)* 15 Units accounted for 312 Work done to date 312 302 *Degree of completion for conversion costs 871 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Costs Details Direct Conversion Totals Materials Costs $ 6,000 $ 2,880* $ 3,120 75,230 34,560* 40,670 $81,230 $37,440 $43,790 Work in process, beg inv Costs added currently (Step 3) Total costs to account for (Step 4) Divisor, equivalent units for work done to date Cost per equivalent unit $ 265 (Step 5) Application of Costs Completed and transferred (297 tons) Work in process, end inv (15 tons): Direct materials Conversion costs Total work in process Total costs accounted for ÷ 312 $ 120 ÷ 302 $ 145 $78,705 297 ($265) $ 1,800 725 $ 2,525 $81,230 * $120 x 24 = $2,880; $120 x 288 = $34,560 872 15($120) 5($145) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-44 (15-20 min.) Potato chips are a homogeneous product with low unit cost that must be processed through a sequence of continuous steps (sequential processing) Potato chips are produced continuously rather than to order As a result, a process-cost system is the most logical cost accounting system to use for product-costing purposes Activity-based accounting systems are most beneficial when products and/or processes are characterized by diversity Diversity can be in the volume of product produced or the degree of complexity in the production process across product lines Since neither of these forms of diversity characterize the potato chip industry, it is doubtful that activity-based accounting would pass the cost-benefit test It may be that some specialty producers of gourmet potato chips (for example, Saratoga Potato Chip Company in New York) may have sufficient diversity to warrant use of an activity-based accounting system Frito-Lay produces over 6,000 pounds of potato chips each hour, 24 hours a day This translates into more than 52 million pounds per year Since at any point in time the workin-process amounts to no more that one-half an hour (it takes 30 minutes to completely produce the end product), work-inprocess accounts for about 3,000/52,000,000 or 006 percent of total annual production The implication is that work-inprocess can be ignored for product-costing purposes due to its immaterial amount 873 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-45 (15-20 min.) Units started and completed Work in process, end Units accounted for Work done to date (Step 1) Physical Units 1,800,000 1,200,000 3,000,000 (Step 2) Equivalent Units MaterialsConversion & Supplies Costs 1,800,000 1,800,000 1,200,000 960,000* 3,000,000 2,760,000 * 1,200,000 x Total Costs Cost to account for (Step 3) Divide by equivalent units (Step 4) Unit costs Details Materials Conversion & Supplies Costs $5,430,000 $ 600,000 $4,830,000 3,000,000 $1.95 $.20 2,760,000 $1.75 Ending work in process, 1,200,000 units: Materials and supplies, 1,200,000 x $.20 Conversion costs, 960,000 x $1.75 Cost of 1,200,000 returns not yet completed 874 $ 240,000 1,680,000 $1,920,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-46 (20 min.) (Step 2) Equivalent Units Softening Conversion Plastic Compound Costs (Step 1) Physical Flow of Production Units Work in process, beginning Started 60,000 To account for 60,000 Completed 40,000 40,000 40,000 Work in process, ending 20,000 (40%)20,000 Units accounted for 60,000 Work done to date 60,000 40,000 40,000 8,000 48,000 Total Costs Costs Costs to account for (Step 3) $572,000 $300,000 $80,000 $192,000 Divide by equivalent units (Step 4) ÷ 60,000 ÷ 40,000 ÷ 48,000 Cost per equivalent unit $11.00 $5.00 $2.00 $4.00 Application of Costs (Step 5)Totals Details Units completed (40,000 x $11) $440,000 Work in process, ending: Material Plastic $100,000 20,000($5) Conversion costs 32,000 8,000($4) Total work in process, ending $132,000 Total costs accounted for $572,000 875 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-47 (20-30 min.) Flow of Production Units started and completed Work in process, end Direct materials added: 5,000 x 1.00 Cartons added: none Conversion costs: 5,000 x 95 Units accounted for Work done to date (Step 1) Physical Flow 145,000 5,000 Step Equivalent Units Direct Conversion Materials Cartons Costs 145,000 145,000 145,000 - - 5,000 - - 150,000 150,000 145,000 4,750 149,750 Details Total Costs Costs accounted for (Step 3) Divide by equivalent units (Step 4) Unit costs Application of costs (Step 5): To units completed, 145,000 (£25.20) Work in process, end, 5,000 units: Direct materials Conversion costs Work in process, end Total costs accounted for Direct Conversion Materials Cartons Costs £3,767,000 £2,250,000£319,000 £1,198,000 £25.20 150,000 145,000 £15.00 £2.20 149,750 £8.00 3,654,000 75,000 5,000(£15.00) 38,000 113,000 £3,767,000 876 4,750(£8.00) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-48 (15-20 min.) Materials and parts inventory Accounts payable or cash Conversion costs Accrued payroll, accounts payable, accumulated depreciation, etc 287,000 287,000 92,000 92,000 Finished goods inventory (11,500 x $32) Materials and parts inventory (11,500 x 24) Conversion costs (11,500 x $8) 368,000 Cost of goods sold Finished goods inventory 368,000 276,000 92,000 368,000 All costs incurred during April are charged to cost of goods sold in April This assumes that all altimeters are sold and shipped immediately upon production Therefore, the balance in Finished Goods Inventory is zero at the end of the month Because the balance in the Conversion Costs account must be zero at the end of the month, and because only $92,000 was transferred out of the Conversion Costs account while $95,000 was added to the account, the remaining $3,000 must be transferred to Cost of Goods Sold: Cost of goods sold Conversion costs ,000 3,000 877 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-49 (20-25 min.) Contract manufacturers make apparel, footware, and equipment products for Nike Almost all these products would be made through process manufacturing so the costing system would be a process-cost system Nike distribution centers would probably use a job-order system based on retail account orders Nike operates distribution centers in the United States Four centers are located in California, in Oregon, in Tennessee, and in New Hampshire There are about 27,000 retail accounts (customers) in the United States The choice of cost-allocation base is a key to accurate costing of products and customers Managers at the various distribution centers give much thought to the selection of plausible and reliable cost-allocation bases since there are many from which to choose for a specific activity- or cost-resource pool The suggestions below should serve as a starting point for discussion The cost of the forklift resource could be allocated to the listed activities using the number of hours the forklift is used for each activity The ABC system designer would ask a knowledgable manager for a percentage breakdown of the time the forklift is used for each of the activities Then these percentages would be multiplied times the total cost of operating the forklift to calculate the allocation Occupancy costs could be allocated using the square feet of space used by each activity Variable computer costs could be allocated using number of lines entered on the related source document (purchase order for supplies, sales order from customers, and invoices for payment from customers) 878 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-50 (30-40 min.) For the solution, see the Prentice Hall Web site, www.prenhall.com/ 14-51 (45 or more) The purpose of this exercise is to make students think about the characteristics of real production processes and how to account for them Depending on the assumptions students make about the type of production process used in each of these examples, they may suggest a different type of accounting system than those listed below These are just suggestions about what the groups might conclude a b c d e f g Process costing, because there are large volumes of identical product Process costing Although each application is unique, it is likely that identifying the differences and trying to account for them is not cost-benefit efficient Probably job costing It depends on how many identical couches students think that Ethan Allan makes at one time If each is unique, or if small batches are produced, a job-costing system is most likely used Job costing Major construction projects are generally treated as a single job Process costing Refining oil into gasoline is a classic processcosting environment, where there is a single continuous process Job costing Each order at Kinko’s is unique The only question is whether it is cost-benefit efficient to determine job costs for each order Job costing Each ship built is a single job, although there may be parts that are produced in a process that allows process costing 879 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14-52 (30-40 min.) NOTE TO INSTRUCTOR This solution is based on the Web sites as they were in early 2007 Be sure to examine the current Web sites before assigning this problem, as the information there may have changed Land’s End is mainly a merchandising firm The main activity of the firm is selling clothing to individuals, although the firm also engages in some corporate sales Process-costing systems are used to determine the average cost of like products that are produced Land’s End purchased large quantities of finished products but the costs are readily determinable so averaging is not really necessary La-Z-Boy is a manufacturing firm Its main activity is manufacturing furniture The firm states that it has an extensive line of furniture products – in many types and designs The decision by La-Z-Boy to use a job-order cost system or a process-costing system (or some hybrid) depends on the nature of the products and production system If the company produces large enough quantities of a type of furniture using the same processes, a process-cost system might be best For small quantities of products that are custom manufactured for a specific customer, a job-order costing system might be best Tasty Baking Company is a manufacturing firm The firm makes large volumes of snack cakes in a continuous process The cakes are moving in a continuous flow through the factory Because each cake is alike, produced in large volumes with small unit costs, a process-costing system would be ideal In the 2006 annual report, the types of inventories included finished goods, work-in-process, and raw materials This information was found in the footnotes to the annual report From the information in the financial statements and footnotes, it is not possible to determine what type of costing system the company uses 880 ... 32 equivalent tons (80 tons x 40) Thus, the total work done during March is 400 tons of direct material and 352 (that is, 320 + 32) equivalent tons of direct labor and overhead 860 To download... Work in process inventory Factory department overhead control (180% x 125) 225 Finished goods inventory Work in process inventory 625 Cost of goods sold Finished goods inventory 400 842 360 330... 1,000 19,000 Total work done Total costs to account for (Step 3): Divide by equivalent units (Step 4) Unit costs $ 19,000 18,000 $150,800 $60,800 $90,000 19,000 18,000 8.20 $ 3.20 $ 5.00 Totals Application