Concept explainers
Incomplete Data:
Chelsea Household Renovations (CHR) is a rapidly growing company that has not been profitable despite increases in sales. It has hired you as a consultant to find ways to improve profitability. You believe that the problem results from poor cost control and inaccurate cost estimation on jobs. The company has essentially no accounting system from which to collect data. You are able, however, to piece together the following information for June:
- Production
-
- 1. Completed Job 61.
- 2. Started and completed Job 62.
- 3. Started Job 63.
- Inventory values
-
- 1. Work-in-process inventory (excluding applied
overhead ):
- 1. Work-in-process inventory (excluding applied
- Each job in work-in-process inventory was exactly 50 percent completed as to labor-hours; however, all direct materials necessary to do the entire job were charged to each job as soon as it was started.
- There were no direct materials inventories or finished goods inventories at either May 31 or June 30.
- Actual overhead was $80,000.
- Cost of goods sold (before adjustment for over- or underapplied overhead):
- Overhead was applied to jobs using a predetermined rate per labor dollar that has been used since the company began operations.
- All direct materials were purchased for cash and charged directly to Work-in-Process Inventory when purchased. Direct materials purchased in June amounted to $18,400.
- Direct labor costs charged to jobs in June were $128,000. All labor costs were the same per hour for all laborers for June.
Required
Write a report to management to show:
- a. The cost elements (material, labor, and overhead) of cost of goods sold before adjustment for over- or underapplied overhead for each job sold.
- b. The value of each cost element (material, labor, and overhead) for each job in work-in-process inventory at June 30.
- c. Over- or underapplied overhead for June.
a.
Determine cost elements (material, labor, and overhead) of the cost of goods sold before adjustment for over-or under-applied overhead for each job sold.
Explanation of Solution
T-accounts in job costing: The ledger accounts are also termed as T-accounts which are prepared after the recording of the journal entry of the transactions. The balances of raw materials, work-in-process, finished goods inventory and overheads from the journal book are transferred to the respective T-accounts.
Under-applied overheads: It is the amount of overhead cost which is not applied to the jobs during the period. Under-applied overheads occur when the actual overheads are more than the applied overheads.
Over-applied overheads: This is the amount of overhead which arises when the amount of actual overheads is less than the amount of overheads applied.
Unadjusted cost of goods: It means the cost of goods determined without taking under applied costs or over-applied cost into consideration.
Adjusted cost of goods: It means the cost of goods determined by taking under-applied costs or over-applied cost into consideration.
T-account for work-in-process for job no. 61:
Cost of goods sold job no. 61 | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
Materials | $ 8,000 | ||||
Labor | $ 76,800 (1) | ||||
Applied overhead | $ 38,400 (2) | ||||
$ 123,200 |
T-account for work-in-process for the job no. 62:
Cost of goods sold job no. 62 | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
Materials | $ 12,000 (3) | ||||
Labor | $ 48,000 (4) | ||||
Applied overhead | $ 24,000 (5) | ||||
$ 84,000 |
Working note 1:
Compute the labor for job number 61:
Working note 2:
Compute the applied overhead for job number 61:
Working note 3:
Compute the materials for job number 62:
Working note 4:
Compute the labor for job number 62:
Working note 5:
Compute the overhead applied for job number 62:
b.
Determine the value of each cost element (material, labor, and overhead) for each job in work-in-process inventory.
Explanation of Solution
Work-in-process: Work-in-process refers to those units which are incomplete in respect or materials cost or conversion cost or both. These units are not complete enough to treat as completed goods.
T-account of work-in-process for job number 61:
Work-in-process job no. 61 | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
Materials | $ 8,000 | $ 8,000 | |||
Labor | $ 38,400 | $ 76,800 | |||
Overhead | $ 19,200 (6) | $ 38,400 | |||
Balance | $ 65,600 | ||||
Labor | $ 38,400 | ||||
Overhead | $ 19,200 |
T-account of work-in-process for job number 62:
Work-in-process job no. 62 | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
Material | $ 12,000 (7) | $ 12,000 | |||
Labor | $ 48,000 (8) | $ 48,000 | |||
Overhead | $ 24,000 (9) | $ 24,000 | |||
T-account of work-in-process for job number 63:
Work-in-process job no. 63 | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
Material | $ 6,400 | ||||
Labor | $ 41,600 | ||||
Overhead | $ 20,800 (10) | ||||
$ 68,800 |
Working note 6:
Compute the overhead beginning inventory for job number 61:
Working note 7:
Compute the materials for job number 62:
Working note 8:
Compute the labor for job number 62:
Working note 9:
Compute the overhead for job number 62:
Working note 10:
Compute the overhead for job number 63:
c.
Determine the over- or under-applied overhead for June.
Explanation of Solution
Under-applied overheads: It is the amount of overhead cost which is not applied to the jobs during the period. Under-applied overheads occur when the actual overheads are more than the applied overheads.
Over-applied overheads: This is the amount of overhead which arises when the amount of actual overheads is less than the amount of overheads applied.
Compute the value of under-applied overhead for June:
Thus, the value of under-applied overhead for June is $16,000.
Working note 11:
Compute the applied overhead:
Want to see more full solutions like this?
Chapter 7 Solutions
Fundamentals Of Cost Accounting (6th Edition)
- Ventana Window and Wall Treatments Company provides draperies, shades, and various window treatments. Ventana works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Ventanas income statement for last year is as follows: Ventana wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year. Required: 1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round the percentage to two significant digits.) 2. A customer orders draperies and shades for a remodeling job. The job will have the following costs: What is the price that Ventana will quote given the markup percentage calculated in Requirement 1? (Round the price to the nearest dollar.) 3. What if Ventana wants to calculate a markup on direct materials cost, since it is the largest cost of doing business? What is the markup on direct materials cost that will maintain the same profit as last year? (Round the percentage to two significant digits.) What is the bid price Ventana will use for the job given in Requirement 2 if the markup percentage is calculated on the basis of direct materials cost? (Round to the nearest dollar.)arrow_forwardNutts management is very concerned about the cost of overhead on its jobs. When jobs are complete, overhead costs should be between 15% and 20% of total costs. For example, the labor cost on Job 8958 is 25% of total costs, higher than the norm. Open Job 8961 and click the Chart sheet tab. A pie chart appears showing the cost components on that job. Record the labor cost percentage in the space provided. Repeat this for each of the jobs worked on in August. Did Nutt maintain good cost control on all its jobs? Explain. Worksheet. During September, Job 8963 required two additional material requisitions to complete the job. Open JOB8963 and modify the job cost sheet to include an area for four direct material requisition entries instead of three. Then enter the following two materials requisitions onto the worksheet: Preview the printout to make sure it will print neatly on one page, and then print the worksheet. Save the completed worksheet as JOBT. Chart. Open JOB8964 and click the Chart sheet tab. Prepare a bar chart for JOB8964 showing the amount of material, labor, and overhead required to complete the job. Use the Chart Data Table found in rows 4246 as a basis for preparing the chart. Enter your name somewhere on the chart. Save the file again as J0B8964. Print the chart.arrow_forwardDarnell Poston, owner of Poston Manufacturing, Inc., wants to determine the cost behavior of labor and overhead. Darnell pays his workers a salary; during busy times, everyone works to get the orders out. Temps (temporary workers hired through an agency) may be hired to pack and prepare completed orders for shipment. During slower times, Darnell catches up on bookkeeping and administrative tasks while the salaried workers do preventive maintenance, clean the lines and building, etc. Temps are not hired during slow times. Darnell found that workers salaries, temp agency payments, rentals, utilities, and plant and equipment depreciation are the largest dollar accounts. He believes that workers salaries and plant and equipment depreciation are fixed, temp agency payments are associated with the number of orders (since temp workers are used to pack and prepare completed orders for shipment), and electricity is associated with the number of machine hours. When the number of different parts stored by Poston exceeds the space in the materials storeroom, Darnell rents nearby warehouse space. He can rent as much or as little space as he wants on a month-to-month basis. Therefore, he believes warehouse rental payments are variable with the number of parts purchased and stored. The account balances for the past six months as well as the six-month total are as follows: Information on number of machine hours, orders, and parts for the six-month period follows: Required: 1. Calculate the monthly average account balance for each account. Calculate the average monthly amount for each of the three drivers. 2. Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse rent, and electricity. Express the results in the form of an equation for total cost. 3. In July, Darnell predicts there will be 420 orders, 250 parts, and 5,900 machine hours. What is the total labor and overhead cost for July? 4. What if Darnell buys a new machine in July for 24,000? The machine is expected to last 10 years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in July?arrow_forward
- Markup on Cost, Job Pricing Privacy Window and Wall Treatments Company provides draperies, shades, and various window treatments. Privacy works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Privacy's income statement for last year is as follows: Revenues $236,500 Cost of goods sold: Direct materials $120,615 Direct labor 40,205 Overhead 28,380 189,200 Gross profit $47,300 Selling and administrative expenses 28,900 Operating income $18,400 Privacy wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year. Required: 1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round to the nearest whole percent. Use this amount for future…arrow_forwardMarkup on Cost, Job Pricing Ventana Window and Wall Treatments Company provides draperies, shades, and various window treatments. Ventana works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Ventana’s income statement for last year is as follows: Ventana wants to find a markup on cost of goods sold that will allow them to earn about thesame amount of profit on each job as was earned last year.Required:1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as lastyear? (Round the percentage to two significant digits.) 2. A customer orders draperies and shades for a remodeling job. The job will have the following costs: Direct materials $1,230Direct labor 250Applied overhead 175Total cost $1,655 What is the price that Ventana will quote given the markup percentage calculated in Requirement 1? (Round the price to the…arrow_forwardPareto Chart and Cost of Quality Report for a Manufacturing Company The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The result of the activity analysis is summarized as follows: Activities Activity Cost Correcting invoice errors $11,250 Disposing of incoming materials with poor quality 9,000 Disposing of scrap 31,500 Expediting late production 27,000 Final inspection 22,500 Inspecting incoming materials 4,500 Inspecting work in process 22,500 Preventive machine maintenance 15,750 Producing product 67,500 Responding to customer quality complaints 13,500 Total $225,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Required: 1. On paper or in a spreadsheet program, prepare a Pareto chart for each of the…arrow_forward
- Auditor labour costs Auditor hours (a) $5,570 Cost of each job $ 80 Determine the cost assigned to each job. eTextbook and Media Save for Later $6,700 Overhead costs are applied to jobs on the basis of auditor hours, and the predetermined overhead rate is $60 per auditor hour. The Koppel job is the only incomplete job at the end of November. Actual overhead for the month was $13,060. 94 Koppel $3,575 46 $ Dupont $ Rojas Attempts: 0 of 3 used Submit Answerarrow_forwardCost Classification and Behaviour—Spark Electrical Company Spark Electrical Company manufactures electrical components. Plant management has experienced difficulties with fluctuating monthly overhead costs. Management wants to be able to estimate overhead costs to plan its operations and financial needs. A trade association publication reports that for companies manufacturing electrical components, overhead tends to vary with machine hours. Monthly data was gathered on machine hours and overhead costs for the past two years. There were no major changes in operations over this period of time. The raw data is: Month Number Machine Hours Overhead Costs ($) 1 20,000 84,000 2 25,000 99,000 3 22,000 89,500 4 23,000 90,000 5 20,000 81,500 6 19,000 75,500 7 14,000 70,500 8 10,000 64,500 9 12,000 69,000 10 17,000 75,000 11 16,000 71,500 12 19,000 78,000 13 21,000 86,000 14 24,000 93,000 15 23,000 93,000 16 22,000 87,000 17 20,000 80,000…arrow_forwardSaved Required information [The following information applies to the questions displayed below.] Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. The company has two manufacturing departments-Molding and Fabrication. It started, completed, and sold only two jobs during March- Job P and Job Q. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March): Estimated total machine-hours used Estimated total fixed manufacturing overhead Estimated variable manufacturing overhead per machine- Molding Fabrication Total 3,100 $ 12,400 1,860 $ 18,600 4,960 $ 31,000 hour $ 1.40 $ 2.20 Job P $ 16,120 $ 26,040 Job Q Direct materials Direct labor cost Actual machine-hours used: Molding $ 9,920 $ 9,300 2,160 990 Fabrication 740 1,070 2,900 2,060 Total Sweeten Company had no underapplied or overapplied manufacturing overhead costs during the month. Required: For…arrow_forward
- The computer workstation furniture manufacturing that Santana Rey started in January is progressing well. As of the end of June, Business Solutions's job cost sheets show the following total costs accumulated on three furniture jobs. Job 602 Job 603 Job 604 Direct $1,800 $3,300 $2,700 materials Direct 900 1,480 2,300 labor Overhead 450 740 1,150 Job 602 was started in production in May, and these costs were assigned to it in May: direct materials, $600; direct labor, $250; and overhead, $125. Jobs 603 and 604 were started in June. Overhead cost is applied with a predetermined rate based on direct labor costs. Jobs 602 and 603 are finished in June, and Job 604 is expected to be finished in July. No raw materials are used indirectly in June. (Assume this company's predetermined overhead rate did not change over these months.) Required: 1. What is the cost of the raw materials used in June for each of the three jobs and in total? 2. How much total direct labor cost is incurred in June? 3.…arrow_forwardThe computer workstation furniture manufacturing that Santana Rey started is progressing well. As of the end of June, Business Solutions's job cost sheets show the following total costs accumulated on three furniture jobs. Job 602 $ 1,400 Job 603 $ 3,600 Direct materials Direct labor Overhead applied Job 604 $ 2,600 2,300 1,150 1,000 1,480 740 500 Job 602 was started in May, and the following costs were assigned to it in May: direct materials, $500; direct labor, $250; and overhead, $125. Jobs 603 and 604 were started in June. Overhead cost is applied with a predetermined rate as a percent of direct labor costs. Jobs 602 and 603 are finished in June, and Job 604 is expected to be finished in July. The company's predetermined overhead rate did not change over these months. Required: 1. What is the cost of direct materials used in June for each of the three jobs and in total? 2. What is the cost of direct labor used in June for each of the three jobs and in total? 3. What predetermined…arrow_forwardAssume it is the beginning of the month, using the estimates and a job-order costing system, what price would you recommend Lina quote for each of the above two jobs to ensure profitability in the long term? 2. Assume it is the end of the month, determine the amount of under- or over-applied overhead and recommend to Lina how the amount should be accounted for. 3. Prepare a schedule of cost of goods manufactured for the month - these were the only two jobs started and sold (zero beginning and ending work-in-process inventory). Assume that actual materials used and the labour rate/hours are the same as estimated. Hint: refer to Exhibit 5.11 on page 213 of text for suggested format.arrow_forward
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,