Larry M. Walther & Christopher J. Skousen
Managerial and Cost Accounting Exercises IV
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2
Managerial and Cost Accounting Exercises IV
© 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 978-87-7681-877-7
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Managerial and Cost Accounting Exercises IV
Contents
Contents
Problem 1
Worksheet 1
6
7
Solution 1
8
Problem 2
9
Worksheet 2
10
Solution 2
11
Problem 3
12
Worksheet 3
13
Solution 3
14
Problem 4
15
Worksheet 4
16
Solution 4
17
Problem 5
18
Worksheet 5
Solution 5
19
20
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Managerial and Cost Accounting Exercises IV
Worksheet 6
22
Solution 6
23
Problem 7
24
Worksheet 7
25
Solution 7
26
Problem 8
27
Worksheet 8
Solution 8
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Managerial and Cost Accounting Exercises IV
Problem 1
Problem 1
Amsterdam Corporation produces medical grade isotopes. The isotopes are produced in a single continuous process and
Amsterdam uses the weighted-average process costing method of accounting for production.
The production process requires constant utilization of facilities and equipment, as well as direct labor by skilled technicians.
As a result, direct labor and factory overhead are both deemed to be introduced uniformly throughout production.
Amsterdam Corporation prepared the following “unit reconciliation” for the month of April:
UNIT RECONCILIATION
QUANTITY
SCHEDULE
Beginning Work in Process
7,500
Started into Production
9,000
Total Units into Production
EQUIVALENT UNITS CALCULATIONS:
16,500
CONVERSION
DIRECT
MATERIALS
To Finished Goods
Ending Work in Process
Total Units Reconciled
12,000
12,000
DIRECT LABOR
12,000
FACTORY
OVERHEAD
12,000
4,500
3,150
2,250
2,250
16,500
15,150
14,250
14,250
The above beginning work in process inventory had an assigned cost of $4,500,000, divided between direct materials
(50%), direct labor (30%), and factory overhead (20%).
Additional costs incurred during April were $15,000,000, divided between direct materials (15%), direct labor (20%),
and factory overhead (65%).
Prepare a schedule showing the calculation of cost per equivalent unit.
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Managerial and Cost Accounting Exercises IV
Problem 1: Worksheet
Worksheet 1
COST PER EQUIVALENT UNIT:
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Beginning Work in Process
Cost incurred during period
Total cost
Equivalent units
Costs per equivalent unit
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Managerial and Cost Accounting Exercises IV
Problem 1: Solution
Solution 1
COST PER EQUIVALENT UNIT:
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Beginning Work in Process
$
4,500,000
$
2,250,000 $
1,350,000 $
Cost incurred during period
15,000,000
2,250,000
3,000,000
Total cost
$
19,500,000
900,000
9,750,000
$
4,500,000 $
4,350,000 $
10,650,000
Equivalent units
÷
15,150 ÷
14,250 ÷
14,250
Costs per equivalent unit
$
297.03 $
305.26 $
747.37
$1,052.63
$1,349.66
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Managerial and Cost Accounting Exercises IV
Problem 2
Problem 2
Amsterdam Corporation produces medical grade isotopes. The isotopes are produced in a single continuous process and
Amsterdam uses the FIFO process costing method of accounting for production.
The production process requires constant utilization of facilities and equipment, as well as direct labor by skilled technicians.
As a result, direct labor and factory overhead are both deemed to be introduced uniformly throughout production.
Amsterdam Corporation prepared the following “unit reconciliation” for the month of April:
UNIT RECONCILIATION
QUANTITY
SCHEDULE
Beginning Work in Process
7,500
Started into Production
9,000
Total Units into Production
EQUIVALENT UNITS CALCULATIONS:
16,500
CONVERSION
DIRECT
MATERIALS
DIRECT LABOR
FACTORY
OVERHEAD
To Finished Goods
From beginning WIP
7,500
2,250
2,625
2,625
Started and completed
4,500
4,500
4,500
4,500
4,500
3,150
2,250
2,250
16,500
9,900
9,375
9,375
Ending Work in Process
Total Units Reconciled
The above beginning work in process inventory had an assigned cost of $4,500,000, divided between direct materials
(30%), direct labor (35%), and factory overhead (35%).
Additional costs incurred during April were $15,000,000, divided between direct materials (15%), direct labor (20%),
and factory overhead (65%).
Prepare a schedule showing the calculation of cost per equivalent unit.
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Managerial and Cost Accounting Exercises IV
Problem 2: Worksheet
Worksheet 2
COST PER EQUIVALENT UNIT:
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Beginning Work in Process
Cost incurred during period
Total cost
Equivalent units
Costs per equivalent unit
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Managerial and Cost Accounting Exercises IV
Problem 2: Solution
Solution 2
COST PER EQUIVALENT UNIT:
CONVERSION
TOTAL COST
Beginning Work in Process
$
4,500,000
Cost incurred during period
15,000,000
Total cost
$
19,500,000
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
$
2,250,000 $
3,000,000 $
9,750,000
Equivalent units
÷
9,900 ÷
9,375 ÷
9,375
Costs per equivalent unit
$
227.27 $
320.00 $
1.040.00
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Managerial and Cost Accounting Exercises IV
Problem 3
Problem 3
Amsterdam Corporation produces medical grade isotopes. The isotopes are produced in a single continuous process and
Amsterdam uses the FIFO process costing method of accounting for production.
The production process requires constant utilization of facilities and equipment, as well as direct labor by skilled technicians.
As a result, direct labor and factory overhead are both deemed to be introduced uniformly throughout production.
At the beginning of April, 20X7, 7,500 isotopes were in process. During April, an additional 9,000 isotopes
were started. 12,000 isotopes were completed and transferred to finished goods.
As of the beginning of the month, work in process was 75% complete with respect to materials and 50%
complete with respect to conversion costs.
As of the end of the month, work in process was 80% complete with respect to materials and 60% complete
with respect to conversion costs.
Prepare a “unit reconciliation” schedule that includes calculations showing the equivalent units of materials, direct labor,
and factory overhead for April.
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Managerial and Cost Accounting Exercises IV
Problem 3: Worksheet
Worksheet 3
UNIT RECONCILIATION
QUANTITY
SCHEDULE
Beginning Work in Process
Started into Production
EQUIVALENT UNITS CALCULATIONS:
Total Units into Production
CONVERSION
DIRECT
MATERIALS
DIRECT LABOR
FACTORY
OVERHEAD
To Finished Goods
From beginning WIP
Started and completed
Ending Work in Process
Total Units Reconciled
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Managerial and Cost Accounting Exercises IV
Problem 3: Solution
Solution 3
UNIT RECONCILIATION
QUANTITY
SCHEDULE
Beginning Work in Process
7,500
Started into Production
9,000
Total Units into Production
EQUIVALENT UNITS CALCULATIONS:
16,500
CONVERSION
DIRECT
MATERIALS
DIRECT LABOR
FACTORY
OVERHEAD
To Finished Goods
From beginning WIP
7,500
1,875
3,750
3,750
Started and completed
4,500
4,500
4,500
4,500
4,500
3,600
2,700
2,700
16,500
9,975
10,950
10,950
Ending Work in Process
Total Units Reconciled
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Managerial and Cost Accounting Exercises IV
Problem 4
Problem 4
Amsterdam Corporation produces medical grade isotopes. The isotopes are produced in a single continuous process and
Amsterdam uses the weighted-average process costing method of accounting for production.
Below is the company’s calculation of cost per equivalent unit for September. During September, the company completed
and transferred 12,000 isotopes to finished goods. An additional 6,000 units were still in process at the end of the month.
The ending work in process was 70% complete with respect to direct materials and 30% complete with respect to both
elements of conversion cost.
Prepare a schedule showing the allocation of total cost between finished goods and ending work in process.
COST PER EQUIVALENT UNIT:
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Beginning Work in Process
$
5,850,000
$
1,462,500 $
1,170,000 $
3,217,500
Cost incurred during period
13,950,000
2,790,000
4,185,000
6,975,000
Total cost
$
19,800,000
$
4,252,500 $
5,355,000 $
10,192,500
Equivalent units
÷
16,200 ÷
13,800 ÷
13,800
Costs per equivalent unit
$
262.50 $
388.04 $
738.59
$1,126.63
$1,389.13
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Managerial and Cost Accounting Exercises IV
Problem 4: Worksheet
Worksheet 4
COST ALLOCATION:
EQUIVALENT UNITS
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Transferred to Finished Goods
Ending Work in Process
Total Ending Work in Process
Total Cost Allocation
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Managerial and Cost Accounting Exercises IV
Problem 4: Solution
Solution 4
EQUIVALENT UNITS
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Transferred to Finished Goods
(12,000 units @ $1,389.13 each)
$
16,669,560
12,000
Incurred (Material @ $262.50)
$
1,223,670
4,200
Incurred (Conversion @ $1,126.63)
2,027,934
$
3,251,604
$
19,921,164
12,000
12,000
1,800
1,800
Ending Work in Process
Total Ending Work in Process
Total Cost Allocation
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Managerial and Cost Accounting Exercises IV
Problem 5
Problem 5
Amsterdam Corporation produces medical grade isotopes. The isotopes are produced in a single continuous process and
Amsterdam uses the FIFO process costing method of accounting for production.
Below is the company’s calculation of cost per equivalent unit for September. During September, the company completed
and transferred 12,000 isotopes to finished goods. An additional 6,000 units were still in process at the end of the month.
The beginning work in process consisted of 6,000 units that were 50% complete with respect to direct materials and 40%
complete with respect to both elements of conversion cost. The ending work in process was 70% complete with respect
to direct materials and 30% complete with respect to both elements of conversion cost.
Prepare a schedule showing the allocation of total cost between finished goods and ending work in process.
CONVERSION
TOTAL COST
Beginning Work in Process
$
5,850,000
Cost incurred during period
13,950,000
Total cost
$
19,800,000
DIRECT MATERIALS
$
DIRECT LABOR
2,790,000 $
FACTORY OVERHEAD
3,487,500 $
7,672,500
Equivalent units
÷
13,200 ÷
10,200 ÷
10,200
Costs per equivalent unit
$
211.36 $
341.91 $
752.21
$1,094.12
$1,305.48
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Managerial and Cost Accounting Exercises IV
Problem 5: Worksheet
Worksheet 5
COST ALLOCATION:
EQUIVALENT UNITS
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
Transferred to Finished Goods
From Beginning Inventory
Cost in Beginning Inventory
To complete (Material @ $217.40)
To complete (Conver. @ $1,003.42)
Started and Comp. (@ $1,220.82)
Total Cost to Finished Goods
Ending Work in Process
Incurred (Material @ $217.40)
Incurred (Conversion @ $1,003.42)
Total Ending Work in Process
Total Cost Allocation
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Managerial and Cost Accounting Exercises IV
Problem 5: Solution
Solution 5
COST ALLOCATION:
EQUIVALENT UNITS
CONVERSION
TOTAL COST
DIRECT MATERIALS
DIRECT LABOR
FACTORY OVERHEAD
2,400
2,400
6,000
6,000
1,800
1,800
Transferred to Finished Goods
From Beginning Inventory
Cost in Beginning Inventory
$
5,850,000
2,625,882
$
9,109,973
To complete (Material @ $211.36)
To complete (Conver. @ $1,094.12)
Started and Comp. (@ $1,305.48)
Total Cost to Finished Goods
634,091
7,832,888
$
16,942,861
3,000
6,000
Ending Work in Process
Incurred (Material @ $211.36)
$
887,727
Incurred (Conversion @ $1,094.12)
1,969,412
Total Ending Work in Process
$
2,857,139
Total Cost Allocation
$
19,800,000
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Managerial and Cost Accounting Exercises IV
Problem 6
Problem 6
Cambridge Office Furniture produces high-quality desks. Each desk is produced from a single large tree in a 3-step process
consisting of milling, sanding, and cutting. All raw material is introduced at the start of the milling process. The company
uses a process costing system for all costs incurred throughout the production cycle. The following data were extracted
from each department’s cost of production report prepared for November:
Milling Dept.The beginning balance of work in process was $550,000. During November, additional costs of
$990,000 were incurred. The additional costs were attributable to direct materials (80%), direct labor
(15%), and factory overhead (5%). The ending balance of work in process was $265,000.
Sanding Dept.The beginning balance of work in process was $305,000. During November, additional costs of
$600,000 were incurred. The additional costs were attributable to direct labor (75%) and factory
overhead (25%). The ending balance of work in process was $420,000.
Cutting Dept.The beginning balance of work in process was $490,000. During November, additional costs of
$175,000 were incurred. The additional costs were attributable to direct labor (65%) and factory
overhead (35%). The ending balance of work in process was $260,000.
Prepare summary journal entries to reflect costs incurred by each department during November, as well as the transfer
of costs between departments and into finished goods.
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Managerial and Cost Accounting Exercises IV
Problem 6: Worksheet
Worksheet 6
GENERAL JOURNAL
Date
Accounts
Debit
Credit
April
To record material, labor, and overhead for
Milling
April
To transfer completed units from Milling to
Sanding ($550,000 + $990,000 - $265,000)
April
To record labor and overhead for Sanding
April
To transfer completed units from Sanding to
Cutting
April
To record labor and overhead for Cutting
April
To transfer completed units to finished goods
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Managerial and Cost Accounting Exercises IV
Problem 6: Solution
Solution 6
GENERAL JOURNAL
Date
April
Accounts
Debit
Work in Process Inventory - Mill
Credit
990,000
Raw Materials Inventory
792,000
Salaries Payable
148,500
Factory Overhead
49,500
To record material, labor, and overhead for
Milling
April
Work in Process Inventory - Sand
1,275,000
Work in Process Inventory - Mill
1,275,000
To transfer completed units from Milling to
Sanding ($550,000 + $990,000 - $265,000)
April
Work in Process Inventory - Sand
600,000
Salaries Payable
450,000
Factory Overhead
150,000
To record labor and overhead for Sanding
April
Work in Process Inventory - Cut
1,760,000
Work in Process Inventory - Sand
1,760,000
To transfer completed units from Sanding to
Cutting ($305,000 + $1,275,000 + 600,000 $420,000)
April
Work in Process Inventory - Cut
175,000
Salaries Payable
113,750
Factory Overhead
61,250
To record labor and overhead for Cutting
April
Finished Goods Inventory
2,165,000
Work in Process Inventory - Cut
2,165,000
To transfer completed units to finished
goods ($490,000 + $1,760,000 + 175,000 $260,000)
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Managerial and Cost Accounting Exercises IV
Problem 7
Problem 7
Carpet Clean produces carpet cleaning products. Ultimate Clean is a one-step cleaner that is produced in a three-step
process. The three phases of production consist of mixing, blending, and bottling. Below is a partial schedule of December’s
costs for each phase of production. Complete the schedule and respond to the questions that follow.
Beginning
Balance
Mixing
$
518,580
Blending
Bottling
December Costs
$
570,060
818,820
?
2,599,963
Cost Transfers
$
1,717,200
$
8,477,984
(1,834,357)
?
?
Ending Balance
(6,082,036)
?
?
$
(7,480,217)
?
?
?
?
a) Which department experienced a decrease in work-in-process during December?
b) How much was transferred to finished goods inventory?
c) What will be reported as “work in process” at the end of December?
d) If total finished goods inventory decreased by $180,000, and the selling price is equal to 200% of cost of
goods sold, how much would be reported for Carpet Clean sales during December?
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Managerial and Cost Accounting Exercises IV
Problem 7: Worksheet
Worksheet 7
Beginning
Balance
Mixing
$
518,580
Blending
Bottling
December Costs
$
570,060
818,820
?
2,599,963
Cost Transfers
$
?
?
1,717,200
$
8,477,984
(1,834,357)
(6,082,036)
?
?
?
?
?
$
Ending Balance
(7,480,217)
?
a)
b)
c)
d)
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Managerial and Cost Accounting Exercises IV
Problem 7: Solution
Solution 7
Beginning
Balance
Mixing
$
Blending
Bottling
518,580
December Costs
$
570,060
$
818,820
1,907,460
2,599,963
Cost Transfers
$
1,717,200
$
8,477,984
$
1,834,357
4,160,821
(1,834,357)
Ending Balance
483,202
(6,082,036)
6,082,036
(7,480,217)
$
(7,480,217)
1,284,186
1,137,839
$
2,905,227
a) Blending experienced a decrease in work in process.
b) $7,480,217 was transferred from bottling to finished goods inventory.
c) Work in process inventory will be reported at $2,905,227.
d) If total finished goods inventory decreased by $180,000, the cost of goods sold would equal $7,660,217
($7,480,217 + $180,000). The selling price would be $15,320,434 (200% X $7,660,217).
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26
Managerial and Cost Accounting Exercises IV
Problem 8: Worksheet
Problem 8
Backyard Playground produces childrens swing-sets. 4,500 swing-sets were produced in a recent production run. The
run required 1,500 machine hours, and also required four “set-ups” of equipment. Final inspection required 75 hours
of inspection activity. Estimated overhead is estimated at $25 per machine hour, plus $3,500 per “set-up” and $20 per
inspection hour. Direct materials and direct labor total $500 per swing-set.
a) Apply activity-based costing and determine the amount assigned to a swing-set.
b) For GAAP purposes, Backyard Playground applies traditional costing methods, and allocates overhead at
$40 per machine hour. How much cost would be assigned to the 4,500 swing-sets? What is the per unit cost
of a swing-set under the traditional approach? What might explain the higher cost assignment, and how
could this influence business decision making?
Worksheet 8
a)
b)
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Managerial and Cost Accounting Exercises IV
Problem 8: Solution
Solution 8
a)
Direct material/labor
Machine hours
"Set ups"
Inspection
Units
Per Unit Cost
Total Cost
4,500 swing-sets
$500
1,500 hours
$25
37,500
4
$3,500
14,000
75 hours
$20
1,500
$
2,250,000
$
2,303,000
$2,303,000 ÷ 4,500 seahorses = $511.78 per swing-set
b) A traditional approach would assign $2,310,000 to the swing-sets (($500 X 4,500 swing-sets) + ($40 X 1,500
machine hours)). This yields a per unit cost of $513.33 per swing-set.
The traditional method results in a slightly higher assigned cost, possibly because of the averaging of all
overhead costs into a single cost pool that is allocated based only on machine hours. ABC divides the
process into specific activities, with a goal of determining how much of each specific activity is consumed. In this problem, ABC produced a lower overall cost, possibly because the swing-sets did not involve as many
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