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Larry M. Walther & Christopher J. Skousen Managerial and Cost Accounting Exercises III Download free ebooks at bookboon.com 2 Managerial and Cost Accounting Exercises III © 2011 Larry M. Walther, Christopher J. Skousen & Ventus Publishing ApS. All material in this publication is copyrighted, and the exclusive property of Larry M. Walther or his licensors (all rights reserved). ISBN 978-87-7681-812-8 Download free ebooks at bookboon.com 3 Managerial and Cost Accounting Exercises III Contents Contents Problem 1 6 Worksheet 1 6 Solution 1 7 Problem 2 8 Worksheet 2 8 Solution 2 9 Problem 3 10 Worksheet 3 11 Solution 3 12 Problem 4 13 Worksheet 4 14 Solution 4 15 Problem 5 16 Worksheet 5 17 Solution 5 18 Please click the advert The next step for top-performing graduates Masters in Management Designed for high-achieving graduates across all disciplines, London Business School’s Masters in Management provides specific and tangible foundations for a successful career in business. This 12-month, full-time programme is a business qualification with impact. In 2010, our MiM employment rate was 95% within 3 months of graduation*; the majority of graduates choosing to work in consulting or financial services. As well as a renowned qualification from a world-class business school, you also gain access to the School’s network of more than 34,000 global alumni – a community that offers support and opportunities throughout your career. For more information visit www.london.edu/mm, email mim@london.edu or give us a call on +44 (0)20 7000 7573. * Figures taken from London Business School’s Masters in Management 2010 employment report Download free ebooks at bookboon.com 4 Managerial and Cost Accounting Exercises III Contents Problem 6 19 Worksheet 6 20 Solution 6 22 Problem 7 23 Worksheet 7 24 Solution 7 26 Please click the advert Teach with the Best. Learn with the Best. Agilent offers a wide variety of affordable, industry-leading electronic test equipment as well as knowledge-rich, on-line resources —for professors and students. We have 100’s of comprehensive web-based teaching tools, lab experiments, application notes, brochures, DVDs/ CDs, posters, and more. See what Agilent can do for you. www.agilent.com/find/EDUstudents www.agilent.com/find/EDUeducators © Agilent Technologies, Inc. 2012 u.s. 1-800-829-4444 canada: 1-877-894-4414 Download free ebooks at bookboon.com 5 Managerial and Cost Accounting Exercises III Problem 1: Worksheet Problem 1 Max Protect Armored Cars, a private-sector company, provided the following aggregated data for armored construction jobs during a recent period: Direct materials $ 4,480,923 Direct labor 7,296,518 Applied (and actual) factory overhead 2,741,151 Beginning work in process 4,850,032 Ending work in process 5,853,000 a) How much is cost of goods manufactured? Is this necessarily the same as cost of goods sold? Why or why not? Worksheet 1 a) Download free ebooks at bookboon.com 6 Managerial and Cost Accounting Exercises III Problem 1: Solution Solution 1 a) Direct materials $ 4,480,923 Direct labor 7,296,518 Factory overhead 2,741,151 $ Total manufacturing costs Add: Beginning work in process inventory 14,518,592 4,850,032 $ 19,368,624 $ 13,515,624 Less: Ending work in process 5,853,000 Cost of goods manufactured Cost of goods manufactured is not necessarily the same as cost of goods sold. The cost of goods manufactured is transferred to finished goods inventory. Cost of goods sold is calculated by adding cost of goods manufactured to beginning finished goods inventory, and then subtracting the ending finished goods inventory. Download free ebooks at bookboon.com 7 Managerial and Cost Accounting Exercises III Problem 2: Worksheet Problem 2 The Print Shop produces custom paintings. Costs are tracked for each painting, with shop overhead being applied at 125% of direct labor cost. Print Shop began July with one job in process. This job had beginning work in process which included total costs of $6,500 (direct labor, direct material, and applied overhead). During July, four new jobs were begun. These consisted of the Smith family portrait, the Wilde family reunion portrait, the county courthouse painting, and the Waterson baby painting. The only job remaining in process at the end of July was the Wilde family portrait. To date, $8,000 in direct labor and $2,500 of direct materials had been committed to the Wilde job. Total direct labor incurred on all jobs during July was $21,900. Total direct material incurred on all jobs during June was $6,900. a) Compute the ending work in process inventory balance and the total cost assigned to finished jobs. b) Why is it necessary to track costs to individual jobs? c) The overhead application rate is based on estimates. What happens if the amount of overhead applied to individual jobs differs from the amount of overhead actually incurred? Worksheet 2 a) b) c) Download free ebooks at bookboon.com 8 Managerial and Cost Accounting Exercises III Problem 2: Solution Solution 2 a) The ending work in process is $18,625 ($8,000 + $2,500 + ($6,500 X 125%)). Direct materials $ 6,900 Direct labor 21,900 Factory overhead (applied) 27,375 $ Total manufacturing costs Add: Beginning work in process inventory 56,175 6,500 $ 62,675 $ 44,050 Less: Ending work in process 18,625 Cost of goods manufactured The finished jobs are assigned a total cost of $44,050. b) Photo Shop may use the costing data to establish fair pricing for each job. In any event, it would be important to know if specific jobs are profitable or not, and monitor job performance and efficiency. Costing data are important in providing managerial insight over these and related issues. c) If more overhead is applied than actually incurred, or vice versa, the difference is frequently credited or charged to cost of goods sold. If the deviation is large, it is a signal that the application rate may be faulty. Download free ebooks at bookboon.com 9 Managerial and Cost Accounting Exercises III Problem 3 Problem 3 Prepare journal entries to reflect the following transactions for a textile company. After you complete the entries, determine the amount to include in raw materials, work in process, and finished goods. May 7, 20X7 Purchased fabric to be used in the manufacturing process. The purchase price was $7,000, on account. May 11, 20X7 Transferred 70% of the raw materials purchased on May 7 into production. May 11, 20X7 Incurred direct labor costs of $4,200. Factory overhead is applied at 30% of the direct labor cost. May 12, 20X7 Transferred completed product with total assigned costs of $5,700 to finished goods. Please click the advert You’re full of energy and ideas. And that’s just what we are looking for. © UBS 2010. All rights reserved. May 13, 20X7 Sold and delivered half of the finished goods (from May 12) to a customer for $9,000 cash. Looking for a career where your ideas could really make a difference? UBS’s Graduate Programme and internships are a chance for you to experience for yourself what it’s like to be part of a global team that rewards your input and believes in succeeding together. Wherever you are in your academic career, make your future a part of ours by visiting www.ubs.com/graduates. www.ubs.com/graduates Download free ebooks at bookboon.com 10