CHAPTER 4 JOB COSTING 4-17 (20 min.) Actual costing, nor al costing, accounting !
or o"#r$#a%&
Budgeted manufacturing = overhead rate
anu!acturing
1.
Budgeted manufacturing overhead costs Budgeted direct manufacturing labor costs
$1,750,000 = 1.75 or 175 $1,000,000
!ctual manufacturing overhead rate
!ctual manufacturing overhead costs !ctual direct manufacturing labor costs
$1,#$2,000 = 1." or 1"0 $"#0,000
= 2.
%osts of &ob $2$ under actual and normal costing follo'( Actual Nor al Costing Costing
)irect materials )irect manufacturing labor costs ,anufacturing overhead costs $+0,000 1."0- $+0,000 1.75 .otal manufacturing costs of &ob $2$
$ *0,000 +0,000 57,000 $127,000
$ *0,000 +0,000 52,500 $122,500
+.
.otal manufacturing overhead allocated under normal costing =
!ctual manufacturing Budgeted overhead rate labor costs
= $"#0,000 1.75 = $1,715,000 /nderallocated manufacturing = overhead !ctual manufacturing ,anufacturing 0 overhead allocated overhead costs
= $1,#$2,000 $1,715,000 = $1*7,000 .here is no under1 or overallocated overhead under actual costing because overhead is allocated under actual costing b2 multi3l2ing actual manufacturing labor costs and the actual manufacturing overhead rate. .his, of course e4uals the actual manufacturing overhead costs. !ll actual overhead costs are allocated to 3roducts. 5ence, there is no under1 or overallocatead overhead. 4-1' 1. (20 1+0 min.) Jo( costing, nor al an% actual costing& Budgeted indirect1 cost rate = Budgeted indirect costs $#,000,000 = 1$0,000 hours Budgeted direct labor1hours
= $50 3er direct labor1hour !ctual indirect1 cost rate
$$,###,000 !ctual indirect costs = 1$*,000 hours !ctual direct labor1hours = $*2 3er direct labor1hour
.hese rates differ because both the numerator and the denominator in the t'o calculations are different6one based on budgeted numbers and the other based on actual numbers. 2a. 7ormal costing )irect costs )irect materials )irect labor 8ndirect costs !ssembl2 su33ort ($50 "00- $50 1,010) .otal costs )aguna *o%#l $10$,*50 +$,27$ 1*2,72$ *5,000 $1#7,72$ *ission *o%#l $127,$0* *1,*10 1$",01* 50,500 $21",51*
2b.
!ctual costing )irect costs )irect materials )irect labor 8ndirect costs !ssembl2 su33ort ($*2 "00- $*2 1,010) .otal costs
$10$,*50 +$,27$ 1*2,72$ +7,#00 $1#0,52$
$127,$0* *1,*10 1$",01* *2,*20 $211,*+*
+. 7ormal costing enables !nderson to re3ort a 9ob cost as soon as the 9ob is com3leted, assuming that both the direct materials and direct labor costs are :no'n at the time of use. ;nce the "00 direct labor1hours are :no'n for the <aguna ,odel (&une 2007), !nderson can com3ute the $1#7,72$ cost figure using normal costing. !nderson can use this information to manage the costs of the <aguna ,odel 9ob as 'ell as to bid on similar 9obs later in the 2ear. 8n contrast, !nderson has to 'ait until the )ecember 2007 2ear1end to com3ute the $1#0,52$ cost of the <aguna ,odel using actual costing. !lthough not re4uired, the follo'ing overvie' diagram summari=es !nderson %onstruction>s 9ob1costing s2stem.
4-+, 1.
(10015 min.) Accounting !or
anu!acturing o"#r$#a%&
$7,000,000 200,000
Budgeted manufacturing overhead rate =
= $+5 3er machine1hour 2. ?or:1in1@rocess %ontrol $,#25,000 ,anufacturing ;verhead !llocated $,#25,000 (1"5,000 machine1hours $+5 3er machine1hour = $$,#25,000) $$,#25,000 0 $$,#00,000 = $25,000 overallocated, an insignificant amount. ,anufacturing ;verhead !llocated $,#25,000 ,anufacturing )e3artment ;verhead %ontrol %ost of Aoods Bold 4-+4 (+5*5 min.) Jo( costing, -ournal #ntri#s& $,#00,000 25,000
+.
Bome instructors ma2 also 'ant to assign CDercise *125. 8t demonstrates the relationshi3s of the general ledger to the underl2ing subsidiar2 ledgers and source documents. 1. !n overvie' of the 3roduct costing s2stem is(
87)8EC%. %;B. @;;<
,anufacturing ;verhead
%;B. !<<;%!.8;7 B!BC
} } }
)irect ,anufacturing <abor %osts
%;B. ;B&C%.( @E87. &;B
8ndirect %osts )irect %osts
)8EC%. %;B.
)irect ,aterials
)irect ,anuf . <abor
2. F +. .his ans'er assumes %;AB given of $*,020 does not include the 'riteoff of overallocated manufacturing overhead. 2.
(1) (2) (+) (*) (5) ($) (7) (#) (") (10) (11) ,aterials %ontrol !ccounts @a2able %ontrol ?or:1in1@rocess %ontrol ,aterials %ontrol ,anufacturing ;verhead %ontrol ,aterials %ontrol ?or:1in1@rocess %ontrol ,anufacturing ;verhead %ontrol ?ages @a2able %ontrol ,anufacturing ;verhead %ontrol !ccumulated )e3reciation00buildings and manufacturing e4ui3ment ,anufacturing ;verhead %ontrol ,iscellaneous accounts ?or:1in1@rocess %ontrol ,anufacturing ;verhead !llocated (1.$0 $1,+00 = $2,0#0) Ginished Aoods %ontrol ?or:1in1@rocess %ontrol !ccounts Eeceivable %ontrol (or %ash) Eevenues %ost of Aoods Bold Ginished Aoods %ontrol ,anufacturing ;verhead !llocated ,anufacturing ;verhead %ontrol %ost of Aoods Bold #00 #00 710 710 100 100 1,+00 "00 2,200 *00 *00 550 550 2,0#0 2,0#0 *,120 *,120 #,000 #,000 *,020 *,020 2,0#0 1,"50 1+0
+.
Bal. 12H+1H200$ (1) @urchases Bal. 12H+1H2007 Bal. 12H+1H200$ (2) )irect materials (*) )irect manuf. labor (7) ,anuf. overhead allocated Bal. 12H+1H2007 Bal. 12H+1H200$ (#) Aoods com3leted Bal. 12H+1H2007 (10) Aoods sold Bal. 12H+1H2007 (+) (*) (5) ($) Bal. 8ndirect materials 8ndirect manuf. labor )e3reciation ,iscellaneous ,aterials %ontrol 100 (2) 8ssues #00 (+) 8ssues "0 ?or:1in1@rocess %ontrol $0 (#)Aoods com3leted 710 1,+00 2,0#0 +0 Ginished Aoods %ontrol 500 (10) Aoods sold *,120 $00 %ost of Aoods Bold *,020 (11) !d9ust for over1allocation +,#"0 ,anufacturing ;verhead %ontrol 100 (11) .o close "00 *00 550 0 ,anufacturing ;verhead !llocated 2,0#0 (7) ,anuf. overhead allocated Bal. 1,"50 *,020 710 100
*,120
1+0
(11) .o close
2,0#0 0
4-,. 1. 2.
(20+0 min) Jo( costing, accounting !or rat#s& !n overvie' of the 9ob1costing s2stem is(
anu!acturing o"#r$#a%, (u%g#t#%
Budgeted manufacturing overhead divided b2 allocation base( a. ,achining )e3artment( $10,000,000 = $50 3er machine1hour 200,000 b. Ginishing )e3artment( $#,000,000 $*,000,000 = 200 of direct manufacturing labor costs
COST OBJECT: JOB
+.
,achining )e3artment overhead, $50 1+0 hours Ginishing )e3artment overhead, 200 of $1,250 .otal manufacturing overhead allocated .otal costs of &ob *+1( )irect costs( )irect materials00,achining )e3artment 00Ginishing )e3artment )irect manufacturing labor 6,achining )e3artment 6Ginishing )e3artment 8ndirect costs( ,achining )e3artment overhead, $50 1+0 Ginishing )e3artment overhead, 200 of $1,250 .otal costs
$$,500 2,500 $",000
*.
$1*,000 +,000 $00 1,250 $$,500 2,500
$1#,#50 ",000 $27,#50
.he 3er1unit 3roduct cost of &ob *+1 is $27,#50 I 200 units = $1+".25 3er unit .he 3oint of this 3art is (a) to get the definitions straight and (b) to underscore that overhead is allocated b2 multi3l2ing the actual amount of the allocation base b2 the budgeted rate. 5. ,anufacturing overhead incurred (actual) *ac$ining /inis$ing $11,200,000 $7,"00,000
,anufacturing overhead allocated 220,000 hours $50 11,000,000 200 of $*,100,000 #,200,000 /nderallocated manufacturing overhead $ 200,000 ;verallocated manufacturing overhead +00,000 .otal overallocated overhead = $+00,000 0 $200,000 = $100,000
$. ! homogeneous cost 3ool is one 'here all costs have the same or a similar cause1 and1effect or benefits1received relationshi3 'ith the cost1allocation base. Bolomon li:el2 assumes that all its manufacturing overhead cost items are not homogeneous. B3ecificall2, those in the ,achining )e3artment have a cause1and1effect relationshi3 'ith machine1hours, 'hile those in the Ginishing )e3artment have a cause1and1effect relationshi3 'ith direct manufacturing labor costs. Bolomon believes that the benefits of using t'o cost 3ools (more accurate 3roduct costs and better abilit2 to manage costs) eDceeds the costs of im3lementing a more com3leD s2stem.
4-,, 1.
(2025 min.) Proration o! o"#r$#a%& Budgeted manufacturing overhead rate is $*,#00,000 I #0,000 = $$0 3er machine1hour.
2.
,anufacturing overhead ,anufacturing overhead = 0 underallocated incurred ,anufacturing overhead allocated = $*,"00,000 0 $*,500,000J = $*00,000 ?rite1off to %ost of Aoods Bold
Account Balanc# 0B#!or# Proration1 $ 750,000 1,250,000 #,000,000 $10,000,000 2rit#-o!! o! 34..,... 4n%#rallocat#% *anu!acturing O"#r$#a% $ 0 0 *00,000 $*00,000 Account Balanc# 0A!t#r Proration1 $ 750,000 1,250,000 #,*00,000 $10,*00,000
J$$0 75,000 actual machine1hours = $*,500,000
a.
Account ?or: in @rocess Ginished Aoods %ost of Aoods Bold .otal
b. @roration based on ending balances (before 3roration) in ?or: in @rocess, Ginished Aoods and %ost of Aoods Bold.
Account Balanc# 0B#!or# Proration1 $ 750,000 ( 7.5 ) 0.075 $*00,000 = $ +0,000 1,250,000 (12.5 ) 0.125 $*00,000 = 50,000 #,000,000 (#0.0 ) 0.#00 $*00,000 = +20,000 $10,000,000 100.0 $*00,000 Proration o! 34..,... 4n%#rallocat#% *anu!acturing O"#r$#a% Account Balanc# 0A!t#r Proration1 $ 7#0,000 1,+00,000 #,+20,000 $10,*00,000
Account ?or: in @rocess Ginished Aoods %ost of Aoods Bold .otal
c. @roration based on the allocated overhead amount (before 3roration) in the ending balances of ?or: in @rocess, Ginished Aoods, and %ost of Aoods Bold. Proration o! 34..,... Allocat#% O"#r$#a% Co 5on#nt in t$# Account Balanc# Underallocated 0B#!or# Proration1 *anu!acturing O"#r$#a% a 750,000 $ 2*0,000 ( 5.++ ) 0.05++ $*00,000 = $ 21,+20
b
Account
?or: in @rocess Ginished Aoods %ost of Aoods Bold .otal
a
Account Balanc# 0B#!or# Proration1
$
Account Balanc# 0A!t#r Proration1
$ 771,+20 1,+0#,$#0 #,+20,000 $10,*00,000
$$0,000 (1*.$7 ) 0.1*$7 $*00,000 = 5#,$#0 1,250,000 #,000,000 +,$00,000c (#0.00 ) 0.#000 $*00,000 = +20,000 $10,000,000 $*,500,000 100.00 $*00,000
$$0 *,000 machine1hours- b$$0 11,000 machine1hours- c$$0 $0,000 machine1hours
+. !lternative (c) is theoreticall2 3referred over (a) and (b). !lternative (c) 2ields the same ending balances in 'or: in 3rocess, finished goods, and cost of goods sold that 'ould have been re3orted had actual indirect cost rates been used. %ha3ter * also discusses an ad9usted allocation rate a33roach that results in the same ending balances as does alternative (c). .his a33roach o3erates via a restatement of the indirect costs allocated to all the individual 9obs 'or:ed on during the 2ear using the actual indirect cost rate.
