2.16 Cost Concepts and Cost Allocation.handout both in class and pencast
LO2
Income Statement for a Manufacturing Organization
SE 2. Using the following information from Char Company, prepare an income statement
through operating income for the year:
Sales
Finished goods inventory, beginning
Cost of goods manufactured
Finished goods inventory, ending
Operating expenses
LO3
$900,000
45,000
585,000
60,000
275,000
Cost Flow in a Manufacturing Organization
SE 3. Given the following information, compute the ending balances of the Materials
Inventory, Work in Process Inventory, and Finished Goods Inventory accounts:
Materials Inventory, beginning balance
Work in Process Inventory, beginning balance
25,750
Finished Goods Inventory, beginning balance
38,000
Direct materials purchased
85,000
Direct materials placed into production
74,000
Direct labor costs
97,000
Overhead costs
35,000
Cost of goods manufactured
Cost of goods sold
LO4
$ 23,000
123,000
93,375
Computation of Product Unit Cost
SE 6. What is the product unit cost for Job 14, which consists of 300 units and has total
manufacturing costs of direct materials, $4,500; direct labor, $7,500; and overhead, $3,600?
What are the prime costs and conversion costs per unit?
LO5
Calculation of Underapplied or Overapplied Overhead
SE 7. At year end, records show that actual overhead costs incurred were $25,870 and the
amount of overhead costs applied to production was $27,000. Identify the amount of under- or
overapplied overhead, and indicate whether the Cost of Goods Sold account should be increased
or decreased to reflect actual overhead costs.
LO5
Computation of Overhead Rate
SE 8. Compute the overhead rate per service request for the Maintenance Department if
estimated overhead costs are $18,290 and the number of estimated service requests is 3,100.
LO5
Allocation of Overhead to Production
SE 9. Calculate the amount of overhead costs applied to production if the predetermined
overhead rate is $4 per direct labor hour and 1,200 direct labor hours were worked.
LO2
Comparison of Income Statement Formats
E 3. Indicate whether each of these equations applies to a service organization (SER), a retail
organization (RET), or a manufacturing organization (MANF):
1. Cost of Goods Sold = Beginning Merchandise Inventory + Net Cost of Purchases – Ending
Merchandise Inventory
2. Cost of Sales = Net Cost of Services Sold
3. Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured –
Ending Finished Goods Inventory
LO5
Computation and Application of Overhead Rate
E 14. Compumatics specializes in the analysis and reporting of complex inventory costing
projects. Materials costs are minimal, consisting entirely of operating supplies (DVDs, inventory
sheets, and other recording tools). Labor is the highest single expense, totaling $693,000 for
75,000 hours of work last year. Overhead costs for last year were $916,000 and were applied to
specific jobs on the basis of labor hours worked. This year the company anticipates a 25 percent
increase in overhead costs. Labor costs will increase by $130,000, and the number of hours
worked is expected to increase by 20 percent.
1. Determine the total amount of overhead anticipated this year.
2. Compute the overhead rate for this year. (Round your answer to the nearest cent.)
3. During April of this year, 11,980 labor hours were worked. Calculate the overhead amount
assigned to April production.
LO5
Disposition of Overapplied Overhead
E 15. At the end of this year, Compumatics had compiled a total of 89,920 labor hours worked.
The actual overhead incurred was $1,143,400.
1. Using the overhead rate computed in E 14, determine the total amount of overhead applied to
operations during the year.
2. Compute the amount of overapplied overhead for the year.
3. Will the Cost of Goods Sold account be increased or decreased to correct the overapplication
of overhead?
LO5
Allocation of Overhead
P 7. Lund Products, Inc., uses a predetermined overhead rate in its production, assembly, and
testing departments. One rate is used for the entire company; it is based on machine hours. The
rate is determined by analyzing data from the previous year to determine the percentage change
in costs. Thus this year’s overhead rate will be based on the percentage change multiplied by last
year’s costs. Lise Jensen is about to compute the rate for this year using the following data:
Last Year’s
Costs
Machine hours
41,800
Overhead costs
Indirect materials
$57,850
Indirect labor
25,440
Supervision
$ 41,580
Utilities
11,280
Labor-related costs
9,020
Depreciation, factory
10,780
Depreciation, machinery
27,240
Property taxes
2,880
Insurance
1,920
Miscellaneous overhead
4,840
Total overhead
$192,830
This year the cost of indirect materials is expected to increase by 30 percent over the
previous year. The cost of indirect labor, utilities, machinery depreciation, property taxes, and
insurance is expected to increase by 20 percent over the previous year. All other expenses are
expected to increase by 10 percent over the previous year. Machine hours for this year are
estimated at 45,980.
Required
1. Compute the projected costs and the overhead rate for this year using the information about
expected cost increases. (Round your answer to three decimal places.)
2. During this year, Lund Products completed the following jobs using the machine hours
shown:
Job No.
Machine Hours
Job No.
Machine Hours
H–142
7,840
H–201
10,680
H–164
5,260
H–218
12,310
H–175
8,100
H–304
2,460
Determine the amount of overhead applied to each job. What was the total overhead applied
during this year? (Round answers to the nearest dollar.)
3. Actual overhead costs for this year were $234,485. Was overhead under applied or
overapplied this year? By how much? Should the Cost of Goods Sold account be increased or
decreased to reflect actual overhead costs?
4. At what point during this year was the overhead rate computed? When was it applied?
Finally, when was underapplied or overapplied overhead determined and the Cost of Goods
Sold account adjusted to reflect actual costs?
LO5
Allocation of Overhead
P 8. Fraser Products, Inc., which produces copy machines for wholesale distributors in the
Pacific Northwest, has just completed packaging an order from Kent Company for 150 Model 14
machines. Direct materials, purchased parts, and direct labor costs for the Kent order are as
follows:
Cost of direct materials
$17,450.00
Cost of purchased parts
$14,800.00
Direct labor hours
Average direct labor pay rate
140
$16.50
Other operating costs are as follows:
Traditional costing data:
Overhead costs were applied at a single, plantwide overhead rate of 240 percent of direct labor
dollars.
Required
Using the traditional costing approach, compute the total cost of the Kent order.