Morton Buildings is a manufacturer of steel buildings. They close their books at the end of the month
and prepare financial statements. The statement of cost of goods sold for April is below:
Statement of Cost of Goods Sold
For the Month Ending April 30, 2016
oods, March 31
Cost of Goods Manufactured
Cost of Goods Available for Sale
Less Inventory of Finished Goods, April 30
t of Goods Sold
Of the utilities, 80% is for the manufacturing plant; the remaining 20% is for the
All rent is for the office building.
Property taxes are assessed on the manufacturing plant.
Of the insurance, 60
% is related to manufacturing the steel; the remaining 40% is related to the
sales and administrative functions.
Depreciation expense includes the following:
The company manufactured 7,825 tons of steel during May.
The inventory balances at May 31, follow:
Direct materials inventory $23,000
process inventory $220,000
Finished goods inventory $175,000
Account Balances, May 31,
Direct materials inventory (April 30)
process inventory (April 30)
Finished goods inventory (April 30)
Purchases of direct materials
in for materials purchases
tatement of cost of goods manufactured for
Morton Buildings for May.
ncome statement for Morton Buildings for May.
Job Costing System
Company uses a job costing system, and factory overhead is applied on the basis of machine
hours. At the beginning of the
year, management estimated that the company would incur $1,050,000
of factory overhead costs and use 70,000 machine hours.
Company recorded the following events during the month of March.
(a) Purchased 200,000 pounds of materials on account. The
cost was $4.00 per pound.
(b) Issued 150,000 pounds of materials to production, of which 20,000 pounds were used as indirect
materials. Assume all materials are at $4 per pound.
(c) Incurred $250,000 of direct labor costs and $50,000 of indirect labor c
(d) Recorded depreciation on equipment for the month, $18,000.
(e) Recorded $4,000 of insurance costs for the manufacturing property.
(f) Paid $8,000 cash for utilities and other miscellaneous items for the manufacturing plant.
(g) Completed job
M11 costing $17,000 and job M12 costing $80,000 during the month and transferred
them to Finished Goods inventory account.
(h) Shipped job M12 to the customer during the month. The job was invoiced at 40 percent above cost.
(i) Used 10,000 machine hours
Company’s predetermined overhead rate for the year.
(2) Prepare journal entries to record the events that occurred during March.
(3) Compute the amount of overapplied or underapplied
overhead and prepare a journal entry to close
overapplied or underapplied overhead into cost of goods sold on March 31.
The O’Donnell Company uses volume
based costing system. They apply overhead
on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity
based costing system with the following data:
Cost Driver Rate
Number of parts
Number of turns
Number of machine
Number of parts
Number of units tested
The two jobs processed in the month of June had the following characteristics:
Direct labor costs
Number of direct labor hours
Number of parts
Number of turns
Number of machine hours
Number of units in each job
1. Compute the unit manufacturing cost of each job under the firm’s current volume
2. Compute the unit manufacturing cost of each job under the activity
based costing system.
3. Compare the unit manufacturing cost for Jobs A and B
computed in requirements 1 and 2.
(a) Why do the two cost systems differ in their total cost for each job?
(b) Why might these differences be important to the Company?
Williams Co. manufactures a
single product that goes through two processes
mixing and cooking. The
following data pertains to the Mixing Department for September.
process inventory, September 1
Units started into production
Units completed and transferred out
process inventory, September 1
Costs added during September:
Material R is added at the beginning of work in the Mixing Department. Material S is also added
Mixing Department, but not until units of product are thirty percent completed with regard to
conversion. Conversion costs are incurred uniformly during the process.
(1) Calculate the equivalent units for Material R using the weighted
(2) Calculate the equivalent units for Material S using the weighted
(3) Calculate the equivalent units for conversion using the weighted
(4) Calculate the unit costs using the weighted
(5) Calculate the cost of units completed and transferred out using the weighted
(6) Calculate the cost of ending work in process using the weighted
The Thompson Manufacturing Company has two service departments
manufacturing support and
facilities management, and two production departments
assembly and packing/shipping. The
distribution of each service departme
nt’s efforts to the other departments is shown below:
The direct operating costs of the departments (including both variable and fixed costs) were as follows:
(Calculate all ratios and
percentages to 4 decimal places, for example 33.3333%, and round all dollar
amounts to the nearest whole dollar.):
(1) Allocate the service department costs to the production departments using the direct method.
(2) Allocate the service department cost
s to the production departments using the step method with
the support department going first.
(3) Allocate the service department costs to the production departments using the reciprocal method.
Learning Curve Analysis
Equipment Inc. produced a pilot run of 20 units of a recently developed motor used in the
finished products. The pilot run required an average of 12 direct labor hours per motor.
learning curve on the direct labor hours needed to produ
ce new motors.
Calculate the average direct labor hours per unit for the first 640 motors (including the pilot run)
manufactures locomotive engines
is attempting to predict its
maintenance costs more accurately. Maintenance costs are a mixed cost. Maintenance costs and
machine hours for the first
are as follows:
Using the high
low method, calculate unit variable cost and monthly fixe
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