CHAPTER 3

Product Costing and Cost Accumulation in a

Batch Production Environment
ANSWERS TO REVIEW QESTIONS
3-1 (a) Use in financial accounting: In financial accounting, product costs are needed to
determine the value of inventory on the balance sheet and to compute the cost-of-
goods-sold expense on the income statement
(b) Use in managerial accounting: In managerial accounting, product costs are needed
for planning, for cost control, and for decision ma!ing
(c) Use in cost management: In order to manage, control, or reduce the costs of
manufacturing products or providing services, management needs a clear idea of
"hat those costs are
(d) Use in reporting to interested organi#ations: $roduct cost information is used in
reporting on relationships bet"een firms and various outside organi#ations %or
example, public utilities such as electric and gas companies record product costs
to &ustify rate increases that must be approved by state regulatory agencies
3-' In a &ob-order costing system, costs are assigned to batches or &ob orders of
production (ob-order costing systems are used by firms that produce relatively small
numbers of dissimilar products In a process-costing system, production costs are
averaged over a large number of product units $rocess-costing systems are used by
firms that produce large numbers of nearly identical products
3-3 )oncepts of product costing are applied in service industry firms to inform
management of the costs of producing services %or example, ban!s record the costs
of producing financial services for the purposes of planning, cost control, and
decision ma!ing
3-* a +aterial re,uisition form: - document upon "hich the production department
supervisor re,uests the release of ra" materials for production
b .abor time record: - document upon "hich employees record the time they spend
"or!ing on each production &ob or batch
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Managerial Accounting, 8/e 3- !
c (ob-cost record: - document on "hich the costs of direct material, direct labor,
and manufacturing overhead are recorded for a particular production &ob or batch
/he &ob-cost sheet is a subsidiary ledger account for the 0or!-in-$rocess
Inventory account in the general ledger
3-1 -lthough manufacturing-overhead costs are not directly traceable to products,
manufacturing operations cannot ta!e place "ithout incurring overhead costs
)onse,uently, overhead costs are applied to products for the purpose of ma!ing
pricing decisions, in order to ensure that product prices cover all of the costs of
production
3-2 /he primary benefit of using a predetermined overhead rate instead of an actual
overhead rate is to provide timely information for decision ma!ing, planning, and
control
3-3 -n advantage of prorating overapplied or underapplied overhead is that it results in
the ad&ustment of all the accounts affected by misestimating the overhead rate /hese
accounts include the 0or!-in-$rocess Inventory account, the %inished-4oods
Inventory account, and the )ost of 4oods 5old account /he resulting balances in
these accounts are more accurate "hen proration is used than "hen overapplied or
underapplied overhead is closed directly into )ost of 4oods 5old /he primary
disadvantage of prorating overapplied or underapplied overhead is that it is more
complicated and time-consuming than the simpler alternative of closing overapplied or
underapplied overhead directly into )ost of 4oods 5old
3-6 -n important cost-benefit issue involving accuracy versus timeliness in accounting for
overhead involves the use of a predetermined overhead rate or an actual overhead
rate 5ince an actual overhead rate is computed after costs have been incurred and
activity has been recorded, it is more accurate than a predetermined rate 7o"ever, a
predetermined overhead rate is more timely than an actual rate, since the
predetermined rate is computed earlier and in time to be used for ma!ing decisions,
planning, and controlling operations
3-8 /he difference bet"een actual and normal costing systems involves the procedure for
applying manufacturing overhead to 0or!-in-$rocess Inventory Under actual costing,
applied overhead is the product of the actual overhead rate (computed at the end of
the period) and the actual amount of the cost driver used Under normal costing,
applied overhead is the product of the predetermined overhead rate (computed at the
beginning of the period) and the actual amount of the cost driver used
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3"# Solutions Manual
3-19 0hen a single volume-based cost driver is used to apply manufacturing overhead, the
managerial accountant:s primary ob&ective is to select a cost driver that varies in a
pattern similar to the pattern in "hich manufacturing overhead varies +oreover, if a
single cost driver is used, it should be some productive input that is common to all of
the firm:s products
3-11 /he benefit of using multiple overhead rates is that the resulting product-costing
information is more accurate and more useful for decision ma!ing than is the
information that results from using a single overhead rate 7o"ever, the use of
multiple cost drivers and overhead rates is more complicated and more costly
3-1' /he development of departmental overhead rates involves a t"o-stage process In
stage one, overhead costs are assigned to the firm:s production departments %irst,
overhead costs are distributed to all departments, including both service and
production departments 5econd, costs are allocated from the service departments to
the production departments -t the end of stage one, all overhead costs have been
assigned to the production departments
In stage t"o, the costs that have been accumulated in the production departments
are applied to the production &obs that pass through the departments
3-13 a ;verhead cost distribution: -ssignment of all manufacturing-overhead costs to
department overhead centers
b 5ervice department cost allocation: -llocation of service department costs to
production departments on the basis of the relative proportion of each service
department:s output that is used by the various production departments
c ;verhead application (or overhead absorption): /he assignment of all
manufacturing overhead costs accumulated in a production department to the &obs
that the department has "or!ed on
/hese three processes are used in developing departmental overhead rates
3-1* (ob-order costing concepts are used in professional service firms 7o"ever, rather
than referring to production <&obs,= such organi#ations use terminology that reflects
their operations %or example, hospitals and la" firms assign costs to <cases,= and
governmental agencies often refer to <programs= or <missions= It is important in such
organi#ations to accumulate the costs of providing the services associated "ith a
case, pro&ect, contract, or program 5uch cost information is used for planning, cost
control, and pricing, among other purposes
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Managerial Accounting, 8/e 3- $
3-11 - cost driver is a characteristic of an event or activity that results in the incurrence of
costs by that event or activity - volume-based cost driver is one that is closely
associated "ith production activity, such as the number of units produced, direct-
labor hours, or machine hours
3-12 0hen direct material, direct labor, and manufacturing-overhead costs are incurred,
they are applied to 0or!-in-$rocess Inventory by debiting the account 0hen goods
are finished, the costs are removed from that account "ith a credit, and they are
transferred to %inished-4oods Inventory by debiting that account 5ubse,uently, "hen
the goods are sold, %inished-4oods Inventory is credited, and the costs are added to
)ost of 4oods 5old "ith a debit
3-13 7ospitals use &ob-order costing concepts to accumulate the costs associated "ith
each case treated in the hospital %or example, the costs of treating a heart patient
"ould be assigned to that patient:s case /hese costs "ould include the hospital
room, food and beverages, medications, and speciali#ed services such as diagnostic
testing and > rays
3-16 5ome manufacturing firms are s"itching from direct-labor hours to machine hours or
throughput time as the basis for overhead application as a result of increased
automation in their factories 0ith increased automation comes a reduction in the
amount of direct labor used in the production process In such cases, direct labor may
cease to be a cost driver that varies in a pattern similar to the "ay in "hich
manufacturing-overhead costs are incurred
3-18 ;verapplied or underapplied overhead is caused by errors in estimating the
predetermined overhead rate /hese errors can o ccur in the numerator (budgeted
manufacturing overhead), or in the denominator (budgeted level of the cost driver)
3-'9 ;verapplied or underapplied overhead can be closed directly into )ost of 4oods 5old,
or it can be prorated among 0or!-in-$rocess Inventory, %inished-4oods Inventory, and
)ost of 4oods 5old
3-'1 - large retailer could use ?@I to exchange such documents as purchase orders,
shipping and receiving notices, and invoices electronically "ith its suppliers
?lectronic data interchange (?@I) is the direct exchange of data via a computer-to-
computer interface
3-'' -n engineer could use bar code technology to record ho" she spends her time Aar
codes "ould be assigned to her and to each of her activities ?ach time she arrived at
"or!, left "or!, or changed activity at "or!, the engineer "ould scan her personal bar
code and the bar code of the appropriate action or activity ?xamples of activities are
designing, redesigning, or testing a productB change ordersB visiting the factory floorB
constructing a prototypeB and being trained
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3"% Solutions Manual
SO&TIONS TO E'ERCISES
?>?C)I5? 3-'3 (19 +IDU/?5)
1 $rocess
' (ob-order
3 (ob-order (contracts or pro&ects)
* $rocess
1 $rocess
2 (ob-order
3 $rocess
6 (ob-order (contracts or pro&ects)
8 $rocess
19 (ob-order
?>?C)I5? 3-'* ('9 +IDU/?5)
1 Ca"-material inventory, (anuary 1 E13*,'99
-dd: Ca"-material purchases '*6,399
Ca" material available for use E*'',199
@educt: Ca"-material inventory, (anuary 31 121,'99
Ca" material used in (anuary E'21,399
@irect labor 389,999
/otal prime costs incurred in (anuary E211,399
' /otal prime cost incurred in (anuary E211,399
-pplied manufacturing overhead (39F E389,999) '33,999
/otal manufacturing cost for (anuary E8'*,399
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Managerial Accounting, 8/e 3- (
?>?C)I5? 3-'* ();D/IDU?@)
3 /otal manufacturing cost for (anuaryE 8'*,399
-dd: 0or!-in-process inventory, (anuary 1 391,199
5ubtotal E1,''8,699
@educt: 0or!-in-process inventory, (anuary 31 3'2,399
)ost of goods manufacturedE 893,199
* %inished-goods inventory, (anuary 1E 12',199
-dd: )ost of goods manufactured 893,199
)ost of goods available for saleE1,922,999
@educt: %inished-goods inventory, (anuary 31 11',199
)ost of goods soldE 813,899
5ince the company accumulates overapplied or underapplied overhead until the end of
the year, no ad&ustment is made to cost of goods sold until @ecember 31
1 -pplied manufacturing overhead for (anuary E'33,999
-ctual manufacturing overhead incurred in (anuary ''3,199
;verapplied overhead as of (anuary 31 E *1,199
/he balance in the +anufacturing ;verhead account on (anuary 31 is a E*1,199 credit
balance
D;/?: -ctual selling and administrative expense, although given in the exercise, is
irrelevant to the solution
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3") Solutions Manual
?>?C)I5? 3-'1 ('1 +IDU/?5)
(;A-);5/ C?);C@
(ob Dumber /A36 @escription teddy bears
@ate 5tarted 6G11 @ate )ompleted 6G'9
Dumber of Units )ompleted 1,999
@irect +aterial
@ate Ce,uisition Dumber Huantity Unit $rice )ost
6G11 '91 199 E89 E*19
6G1' '96 299 *9 '*9
@irect .abor
@ate /ime )ard Dumber 7ours Cate )ost
6G11 6' 119 E1* E3,399
+anufacturing ;verhead
@ate -ctivity Aase Huantity -pplication Cate )ost
6G11 direct-labor hours 119 E3 E1,219
)ost 5ummary
)ost Item -mount
/otal @irect +aterial
/otal @irect .abor
/otal +anufacturing ;verhead
E 289
3,399
1,219
/otal )ost E19,9*9
Unit )ost E 199*
5hipping 5ummary
@ate Units 5hipped
Units Cemaining
In Inventory )ost Aalance
6G39 699 '99 E',996I
I'99 units remaining in inventory E199* J E',996
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Managerial Accounting, 8/e 3- *
?>?C)I5? 3-'2 (11 +IDU/?5)
1 -pplied manufacturing overhead J total manufacturing costs39F
J E1,'19,99939F
J E331,999
-pplied manufacturing overhead J direct-labor cost 69F
@irect-labor cost J applied manufacturing overhead 69F
J E331,999 6
J E*26,319
' @irect-material used J total manufacturing cost
K direct labor cost
K applied manufacturing overhead
J E1,'19,999 K E*26,319 K E331,999
J E*92,'19
3 .et X denote "or!-in-process inventory on @ecember 31
/otal "or!-in-process "or!-in-process cost of
manufacturing L inventory, K inventory, J goods
cost (an 1 @ec 31 manufactured
E1,'19,999 L 31X K X J E1,'1',199
'1X J E1,'19,999 K E1,'1',199
X J E119,999
0or!-in-process inventory on @ecember 31 amounted to E119,999
?>?C)I5? 3-'3 (1 +IDU/?5)
0or!-in-$rocess Inventory 2,929
Ca"-+aterial Inventory 1,199
0ages $ayable 3'9
+anufacturing ;verhead '*9
%inished-4oods Inventory 2,929
0or!-in-$rocess Inventory 2,929
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3"+ Solutions Manual
?>?C)I5? 3-'6 (11 +IDU/?5)
1
volume production budgeted
overhead budgeted
rate overhead ned $redetermi =
(a) -t 199,999 chic!en volume:
chic!en per E121
199,999
,999) (E11)(199 E119,999
rate ;verhead =
+
=
(b) -t '99,999 chic!en volume:
chic!en per E89
'99,999
,999) (E11)('99 E119,999
rate ;verhead =
+
=
(c) -t 399,999 chic!en volume:
chic!en per E21
399,999
,999) (E11)(399 E119,999
rate ;verhead =
+
=
' /he predetermined overhead rate does not change in proportion to the change in
production volume -s production volume increases, the E119,999 of fixed overhead is
allocated across a larger activity base 0hen volume rises by 199F, from 199,999 to
'99,999 chic!ens, the decline in the overhead rate is *1*1F M(E121 K E89)GE121N 0hen
volume rises by 19F, from '99,999 to 399,999 chic!ens, the decline in the overhead rate is
'336F M(E89 K E21)GE89N
?>?C)I5? 3-'8 (39 +IDU/?5)
(ob-order costing is the appropriate product-costing system for feature film production,
because a film is a uni,ue production /he production process for each film "ould use labor,
material and support activities (ie, overhead) in different "ays /his "ould be true for any
type of film (eg, filming on location, filming in the studio, or using animation)
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Managerial Accounting, 8/e 3- ,
?>?C)I5? 3-39 ('9 +IDU/?5)
1 Ca"-+aterial Inventory 0or!-in-$rocess Inventory
'81,199 '3,*99
''2,'99 ''2,'99
26,899 *'1,'99
'3*,999
0ages $ayable 112,999
*'1,'99 3*6,699
+anufacturing ;verhead %inished-4oods Inventory
'3*,999 38,999
112,999
5ales Cevenue 131,299
'13,199 '3,*99
-ccounts Ceceivable )ost of 4oods 5old
'13,199 131,299
' -A. SPORTS EQIP/ENT CO/PAN.0 INC1
PARTIA& BA&ANCE S2EET
AS O3 4ECE/BER $!0 #5'#
)urrent assets
)ash >>>
-ccounts receivable >>>
Inventory
Ca" material E 26,899
0or! in process 3*6,699
%inished goods '3,*99
-A. SPORTS EQIP/ENT CO/PAN.0 INC1
PARTIA& INCO/E STATE/ENT
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'#
5ales revenue E'13,199
.ess: )ost of goods sold 131,299
4ross margin E 61,899
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"!5 Solutions Manual
?>?C)I5? 3-31 ('9 +IDU/?5)
1 Ca" material:
Aeginning inventory E1*',999
-dd: $urchases O
@educt: Ca" material used 21',999
?nding inventory E12',999
/herefore, purchases for the year "ere E23',999
' @irect labor:
/otal manufacturing cost E1,33',999
@educt: @irect material 21',999
@irect labor and manufacturing overhead E 3'9,999
@irect labor L manufacturing overhead J E3'9,999
@irect labor L (29F) (direct labor) J E3'9,999
(129F) (direct labor) J E3'9,999
@irect labor J
E3'9,999
12
@irect labor J E*19,999
3 )ost of goods manufactured:
0or! in process, beginning inventory E 129,999
-dd: /otal manufacturing costs 1,33',999
@educt: )ost of goods manufactured O
0or! in process, ending inventory E 29,999
/herefore, cost of goods manufactured "as E1,*3',999
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Managerial Accounting, 8/e 3- !!
?>?C)I5? 3-31 ();D/IDU?@)
* )ost of goods sold:
%inished goods, beginning inventory E 169,999
-dd: )ost of goods manufactured 1,*3',999
@educt: )ost of goods sold O
%inished goods, ending inventory E ''9,999
/herefore, cost of goods sold "as E1,*3',999
?>?C)I5? 3-3' (39 +IDU/?5)
1 CRNC2E/ CEREA& CO/PAN.
SC2E4&E O3 COST O3 6OO4S /AN3ACTRE4
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
@irect material:
Ca"-material inventory, (anuary 1 E *1,999
-dd: $urchases of ra" material *13,999
Ca" material available for use E*2',999
@educt: Ca"-material inventory, @ecember 31 *8,199
Ca" material used E
*1',199

@irect labor 169,999

+anufacturing overhead 336,999I
/otal manufacturing costs E
839,199

-dd: 0or!-in-process inventory, (anuary 1 16,199

5ubtotal E1,9'8,999


@educt: 0or!-in-process inventory, @ecember 31 2*,319

)ost of goods manufactured E
82*,219

I-pplied manufacturing overhead is E336,999 (E169,999 '19F) -ctual manufacturing
overhead is also E336,999, so there is no overapplied or underapplied overhead
' %inished-goods inventory, (anuary 1 E 23,999
-dd: )ost of goods manufactured 82*,219
)ost of goods available for sale E1,9'3,219
@educt: %inished-goods inventory, @ecember 31 28,399
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3"!# Solutions Manual
)ost of goods sold E 816,319
3 /he electronic version of the 5olutions +anual <AUI.@ - 5$C?-@57??/ 5;.U/I;D5=
is available on your Instructors )@ and on the 7ilton, 6e "ebsite:
"""mhhecomGhilton6e
?>?C)I5? 3-33 ('9 +IDU/?5)
D;/?: Audgeted sales revenue, although given in the exercise, is irrelevant to the solution
1 $redetermined overhead rate J
driver cost of level budgeted
overhead ing manufactur budgeted
(a)
hours machine '9,999
E219,999
J E3'19 per machine hour
(b)
hours labor - direct '1,999
E219,999
J E'299 per direct-labor hour
(c)
I E3'1,999
E219,999
J
E'99 per direct-labor dollar or '99F
of direct-labor cost
IAudgeted direct-labor cost J '1,999 E13
' -ctual
manufacturing
overhead
K
applied
manufacturing
overhead
J
overapplied or
underapplied
overhead
(a) E289,999 K ('',999)(E3'19) J E'1,999 overapplied overhead
(b) E289,999 K ('2,999)(E'299) J E1*,999 underapplied overhead
(c) E289,999 K (E32*,999
P
)('99F) J E36,999 overapplied overhead
P
-ctual direct-labor cost J '2,999 E1*
?>?C)I5? 3-3* (1 +IDU/?5)
1 0or!-in-$rocess Inventory 289,999
+anufacturing ;verhead 289,999
' 0or!-in-$rocess Inventory 311,999I
+anufacturing ;verhead 311,999
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Managerial Accounting, 8/e 3- !$
I-pplied manufacturing overhead J E311,999
J '',999 hours x E3'19 per machine hour
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3"!% Solutions Manual
?>?C)I5? 3-31 (11 +IDU/?5)
1 $redetermined overhead rate J E883,399 G 33,999 hours J E1'89 per hour
' /o compute actual manufacturing overhead:
@epreciation E''1,999
$roperty taxes 18,999
Indirect labor 38,999
5upervisory salaries '19,999
Utilities 16,999
Insurance 3',999
Cental of space '81,999
Indirect material:
Aeginning inventory, (anuary 1 E *2,999
-dd: $urchases 81,999
Indirect material available for use E1*1,999
@educt: ?nding inventory, @ecember 31 2',999
Indirect material used 38,999
-ctual manufacturing overhead E883,999
actual applied
;verapplied J manufacturing K manufacturing
overhead overhead overhead
J E883,999 K (E1'89 38,999I) J E'',199
I-ctual direct-labor hours
3 +anufacturing ;verhead '',199
)ost of 4oods 5old '',199
* /he electronic version of the 5olutions +anual <AUI.@ - 5$C?-@57??/ 5;.U/I;D5=
is available on your Instructors )@ and on the 7ilton, 6e "ebsite:
"""mhhecomGhilton6e
D;/?: Audgeted selling and administrative expense, although given in the exercise, is
irrelevant to the solution
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Managerial Accounting, 8/e 3- !(
?>?C)I5? 3-32 ('9 +IDU/?5)
)alculation of proration amounts:
)alculation of
-ccount -mount $ercentage $ercentage
0or! in $rocess E '8,999 '9F '8,999 E1*1,999
%inished 4oods 19,319 31F 19,319 E1*1,999
)ost of 4oods 5old 21,'19 *1F 21,'19 E1*1,999
/otal E1*1,999 199F
Underapplied -mount -dded
-ccount ;verhead x $ercentage to -ccount
0or! in $rocessE'',999I x '9F E*,*99
%inished 4oods '',999 x 31F 3,399
)ost of 4oods 5old '',999 x *1F 8,899
IUnderapplied overhead J actual overhead K applied overhead
E'',999 J E123,999 K E1*1,999
(ournal entry:
0or!-in-$rocess Inventory *,*99
%inished-4oods Inventory 3,399
)ost of 4oods 5old 8,899
+anufacturing ;verhead '',999
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3"!) Solutions Manual
?>?C)I5? 3-33 (19 +IDU/?5)
Audgeted overhead rate J budgeted overhead G budgeted direct professional labor
139F J 119,999 euros G 399,999 euros
)ontract to redecorate mayorQs offices:
@irect material *,199 euros
@irect professional labor 3,999 euros
;verhead (139F 3,999 euros) 11,899 euros
/otal contract cost '3,999 euros
?>?C)I5? 3-36 (11 +IDU/?5)
0or!-in-$rocess Inventory: /anning @epartment11,999
a
+anufacturing ;verhead 11,999
a
11,999 J '1 sets x 119 s, ft x E* per s, ft
0or!-in-$rocess Inventory: -ssembly @epartment 1,199
b
+anufacturing ;verhead 1,199
b
E1,199 J '1 sets x * +7 x E11 per +7
0or!-in-$rocess Inventory: 5addle @epartment 1,2'1
c
+anufacturing ;verhead 1,2'1
c
E1,2'1 J '1 sets x *1 @.7 x E1 per @.7
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Managerial Accounting, 8/e 3- !*
?>?C)I5? 3-38 (11 +IDU/?5)
1 +emorandum
@ate: /oday
/o: $resident
%rom: I+ 5tudent
5ub&ect: )ost driver for overhead application
I recommend direct-labor hours as the best volume-based cost driver upon "hich to
base the application of manufacturing overhead 5ince our products are made by
hand, direct labor is a very significant production input +oreover, the incurrence of
manufacturing overhead cost appears to be related to the use of direct labor
' +emorandum
@ate: /oday
/o: $resident
%rom: I+ 5tudent
5ub&ect: )ost driver for overhead application
I recommend either machine hours or units of production as the most appropriate cost
driver for the application of manufacturing overhead 5ince our production process is
highly automated, machine hours are the most significant production input -lso, our
chips are nearly identical, so the amount of overhead incurred in their production does
not vary much across product lines /he incurrence of manufacturing overhead cost
appears to be related closely both to machine time and units of production
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3"!+ Solutions Manual
?>?C)I5? 3-*9 (19 +IDU/?5)
;verhead distribution: -llocation of the hospital:s building maintenance and custodial costs
to all of the hospital:s departments
5ervice-department cost allocation: -llocation of the hospital:s $ersonnel @epartment costs
to the direct-patient-care departments in the hospital
;verhead application: -ssignment of the overhead costs in the maternity "ard to each
patient-day of care provided to ne" mothers
?>?C)I5? 3-*1 (11 +IDU/?5)
1 /otal staff compensation J E'69,999 L E*'9,999 J E399,999
' ;verhead rate J total budgeted overheadGtotal budgeted staff compensation
J E312,999GE399,999
J 196F
3 -pplied overhead J 196F R total direct professional labor
J 196F R (E1,'99 L E',999)
J E3,*12
* -pplied overhead using single cost driver J E3,*12
-pplied overhead using t"o cost drivers J E3,*69 (E1,969 L E',*99)
5ee the illustration in the text
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Managerial Accounting, 8/e 3- !,
SO&TIONS TO PROB&E/S
$C;A.?+ 3-*' ('9 +IDU/?5)
1
hour per E13
(19) (',999)
E'29,999

hours labor - direct budgeted
overhead ing manufactur budgeted
rate overhead ned $redetermi
= =
=
' (ournal entries:
(a) Ca"-+aterial Inventory 3*,699
-ccounts $ayable 3*,699
(b) 0or!-in-$rocess Inventory 1*9
Ca"-+aterial Inventory 1*9
(c) +anufacturing ;verhead 1'1
+anufacturing-5upplies Inventory 1'1
(d) +anufacturing ;verhead 3,999
-ccumulated @epreciation: Auilding 3,999
(e) +anufacturing ;verhead 399
)ash 399
(f) 0or!-in-$rocess Inventory 31,899
0ages $ayable 31,899
/o record direct-labor cost
0or!-in-$rocess Inventory 16,619
+anufacturing ;verhead 16,619
/o apply manufacturing overhead to "or! in process (E16,619 J 1,*19 x E13 per hour)
(g) +anufacturing ;verhead 689
$roperty /axes $ayable 689
(h) +anufacturing ;verhead 3,199
0ages $ayable 3,199
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"#5 Solutions Manual
$C;A.?+ 3-*' ();D/IDU?@)
(i) %inished-4oods Inventory 11,199
0or!-in-$rocess Inventory 11,199
(&) -ccounts Ceceivable 1*,*99
5ales Cevenue 1*,*99
)ost of 4oods 5old 11,3'1I
%inished-4oods Inventory 11,3'1
IE11,3'1 J (8G1')(E11,199)
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- #!
$C;A.?+ 3-*3 (31 +IDU/?5)
1 $redetermined overhead rate J budgeted overhead S budgeted direct-labor cost
J E',339,999 S E',199,999 J 139F of direct labor cost
' -dditions (debits) total E3,69',199 ME',699,999 L E',131,999 L (E',131,999 x 139F)N
3 /he finished-goods inventory consisted of &ob no 311*, "hich cost E131,319 ME36,999
L E*',199 L (E*',199 x 139F)N
* 5ince there is no "or! in process at year-end, all amounts in the 0or!-in-$rocess
account must be transferred to %inished-4oods Inventory /hus:
%inished-4oods Inventory3,669,899I
0or!-in-$rocess Inventory 3,669,899
IAeginning balance in 0or!-in-$rocess Inventory L additions to the account:
E36,*99 L E3,69',199 J E3,669,899
1 AAA)Qs applied overhead totals 139F of direct-labor cost, or E',6'3,199 (E',131,999 x
139F) -ctual overhead "as E',333,999, itemi#ed as follo"s, resulting in overapplied
overhead of E19,199
Indirect materials used E 3',199
Indirect labor 1,*39,999
%actory depreciation 639,999
%actory insurance '8,199
%actory utilities *11,999
/otal

E',333,999
+anufacturing ;verhead 19,199
)ost of 4oods 5old 19,199
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3"## Solutions Manual
$C;A.?+ 3-*3 ();D/IDU?@)
2 /he companyQs cost of goods sold totals E3,21*,219:
%inished-goods inventory, (an 1TTTTT E 9
-dd: )ost of goods manufacturedTTTT 3,669,899
)ost of goods available for saleTTTTT E 3,669,899
.ess: %inished-goods inventory, @ec 31T 131,319
Unad&usted cost of goods soldTTTTTT E 3,391,119
.ess: ;verapplied overheadTTTTTTT 19,199
)ost of goods soldTTTTTTTTTTT E 3,21*,219
3 Do, selling and administrative expenses are operating expenses of the firm and are
treated as period costs rather than product costs 5uch costs are unrelated to
manufacturing overhead and cost of goods sold
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- #$
$C;A.?+ 3-** (*1 +IDU/?5)
D;/?: /he 1'G31Gx* balances for cash and accounts receivable, although given in the
problem, are irrelevant to the solution
1 /ISTER /NC2IE0 INC1
SC2E4&E O3 COST O3 6OO4S /AN3ACTRE4
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
@irect material:
Ca"-material inventory, 1'G31Gx3E 39,399
-dd: $urchases of ra" material 113 ,999
Ca" material available for useE1*3,399
@educt: Ca"-material inventory, 1'G31Gx* 33,999
Ca" material used E11*,399
@irect labor '33,999
+anufacturing overhead:
Indirect materialE 1*,399
Indirect labor 63,999
@epreciation on factory building 11,*99
@epreciation on factory e,uipment 2,399
Utilities 16,999
$roperty taxes 3,'99
Insurance 19,699
Cental of "arehouse space
P
8,399
/otal actual manufacturing overheadE12*,399
-dd: ;verapplied overheadI 8,399
;verhead applied to "or! in process 13* ,999
/otal manufacturing costs E1'1,399
-dd: 0or!-in-process inventory, 1'G31Gx3 '* ,399
5ubtotal E1*8,299
@educt: 0or!-in-process inventory, 1'G31Gx* '* ,899
)ost of goods manufactured E1'*,399
I/he 5chedule of )ost of 4oods +anufactured lists the manufacturing costs applied to "or!
in process /herefore, the overapplied overhead, E8,399, must be added to total actual
overhead to arrive at the amount of overhead applied to "or! in process If there had been
underapplied overhead, the balance "ould have been deducted from total actual
manufacturing overhead /he amount of overapplied overhead is found by subtracting actual
overhead, E12*,399 (as computed above), from applied overhead, E13*,999 (given)
P
5ee next page
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"#% Solutions Manual
$C;A.?+ 3-** ();D/IDU?@)
P
In some companies, the cost of renting "arehouse space to store ra" material might be added to
ra"-material cost /he most common treatment, ho"ever, is to include this cost in manufacturing
overhead as is done here
' /ISTER /NC2IE0 INC1
SC2E4&E O3 COST O3 6OO4S SO&4
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
%inished-goods inventory, 1'G31Gx3 E *',999
-dd: )ost of goods manufacturedI 1'*,399
)ost of goods available for sale E122,399
@educt: %inished-goods inventory, 1'G31Gx* *2,'99
)ost of goods sold E1'9,199
@educt: ;verapplied overhead
P
8,399
)ost of goods sold (ad&usted for overapplied overhead) E111,'99
I/he cost of goods manufactured is obtained from the 5chedule of )ost of 4oods
+anufactured
P
/he company closes underapplied or overapplied overhead into cost of goods sold 7ence,
the balance in overapplied overhead is deducted from cost of goods sold for the month
3 /ISTER /NC2IE0 INC1
INCO/E STATE/ENT
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
5ales revenue E213,*99
.ess: )ost of goods sold 111,'99
4ross margin E192,'99
5elling and administrative expenses:
5alaries E*1,*99
Utilities 3,199
@epreciation 3,299
Cental of office space 1,199
;ther expenses 1' ,999
/otal 28,299
Income before taxes E32,299
Income tax expense 1 1,399
Det income E ' 1,399
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- #(
$C;A.?+ 3-*1 ('1 +IDU/?5)
/he completed /-accounts are sho"n belo" (+issing amounts in problem are italici#ed)
Ca"-+aterial Inventory -ccounts $ayable
Aal 1G1 '8,*99 3,199 Aal 1G1
189,000 168,000 181,199 189,000
Aal 1'G31 19,*99 1,*99 Aal 1'G31
0or!-in-$rocess Inventory %inished-4oods Inventory
Aal 1G1 '3,699 Aal 1G1 12,699
@irect
material
168,000
Aal 1'G31
1,005,20
0
'6,999
994,000
@irect
labor
210,000 1,005,200
+fg
overhead
630,000
Aal 1'G31 '2,299 )ost of 4oods 5old
88*,999
+anufacturing ;verhead
633,500 630,000 5ales Cevenue
1,134,000
0ages $ayable
',699 Aal 1G1 -ccounts Ceceivable
'91,699 210,000 Aal 1G1 11,*99
3,999 Aal 1'G31 1,134,00
0
1,1'6,*99
Aal 1'G31 '1,999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"#) Solutions Manual
$C;A.?+ 3-*2 (31 +IDU/?5)
1 $redetermined overhead rate J budgeted overhead S budgeted machine hours
J E1,269,999 S 3',999 J E1'19 per machine hour
' (a) 0or!-in-$rocess Inventory 129,999I
Ca"-+aterial Inventory 129,999
0or!-in-$rocess Inventory '21,299II
0ages $ayable '21,299
I E*',999 L E66,999 L E39,999 J E129,999
II E39,999 L E**,999 L E139,999 L E13,299 J E'21,299
(b) +anufacturing ;verhead *33,999
-ccumulated @epreciation 26,999
0ages $ayable 1'9,999
+anufacturing 5upplies Inventory 19,999
+iscellaneous -ccounts '38,999
(c) 0or!-in-$rocess Inventory *2',999I
+anufacturing ;verhead *2',999
I (',*99 L 1,*99 L *,999 L 1,999) x E1'19 J E*2',999
(d) %inished-4oods Inventory 239,199I
0or!-in-$rocess Inventory 239,199
I (ob 191: E126,999 L E*',999 L E39,999 L (',*99 x E1'19) J E*92,999
(ob 19': E193,999 L E**,999 L (1,*99 x E1'19) J E''*,199
E239,199 J E*92,999 L E''*,199
(e) -ccounts Ceceivable '83,899I
5ales Cevenue '83,899
I E''*,199 L E28,*99 J E'83,899
)ost of 4oods 5old ''*,199
%inished-4oods Inventory ''*,199
3 (ob no 193 and no 19* are in production as of +arch 31:
(ob 193: E66,999 L E139,999 L (*,999 x E1'19)E*'6,999
(ob 19*: E39,999 L E13,299 L (1,999 x E1'19) 199,199
/otal E1'6,199
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Managerial Accounting, 8/e 3- #*
$C;A.?+ 3-*2 ();D/IDU?@)
* %inished-goods inventory increased by E*92,999 (E239,199 - E''*,199)
1 /he companyQs actual overhead amounted to E*33,999, "hereas applied overhead
totaled E*2',999 /hus, overhead "as underapplied by E11,999
$C;A.?+ 3-*3 (39 +IDU/?5)
D;/?: -ctual selling and administrative expense, although given in the exercise, is irrelevant
to the solution
1 +achining @ept overhead rate J budgeted overhead S budgeted machine hours
J E',999,999 S '99,999 J E19 per machine hour
-ssembly @ept overhead rate J budgeted overhead S budgeted direct-labor cost
J E1,1*9,999 S E',699,999 J 11F of direct-labor cost
' /he ending "or!-in-process inventory is carried at a cost of E32,321, computed as
follo"s:
+achining @epartment:
@irect materialTTTTTTTTTTTTTT E1','19
@irect laborTTTTTTTTTTTTTTT 13,819
+anufacturing overhead (169 x E19)TTTT 1,699 E '6,999
-ssembly @epartment:
@irect materialTTTTTTTTTTTTTT E 3,319
@irect laborTTTTTTTTTTTTTTT '8,399
+anufacturing overhead (E'8,399 x 11F)T 12,111 *6,321
/otal costTTTTTTTTTTTTTTTTT E 32,321
3 -ctual overhead in the +achining @epartment amounted to E',139,999, "hereas
applied overhead totaled E',1'1,999 ('1',199 hours x E19) /hus, overhead "as
underapplied by E1,999 during the year
* -ctual overhead in the -ssembly @epartment amounted to E1,1'1,999, "hereas
applied overhead totaled E1,168,199 (E',689,999 x 11F) /hus, overhead "as
overapplied by E2*,199
1 /he companyQs manufacturing overhead "as overapplied by E18,199 (E2*,199 -
E1,999) -s a result, excessive overhead flo"ed from 0or!-in-$rocess Inventory, to
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"#+ Solutions Manual
%inished-4oods Inventory, to )ost of 4oods 5old, meaning that the )ost of 4oods
5old account must be decreased at year-end
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Managerial Accounting, 8/e 3- #,
$C;A.?+ 3-*3 ();D/IDU?@)
2 /he 0or!-in-$rocess account is charged "ith applied overhead, or E3,31*,199
(E',1'1,999 L E1,168,199)
3 /he firmQs selection of cost drivers (or application bases) seems appropriate /here
should be a strong correlation bet"een the cost driver and the amount of overhead
incurred In the +achining @epartment, much of the overhead is probably related to
the operation of machines 5imilarly, in the -ssembly @epartment, a considerable
portion of the overhead incurred is related to manual assembly (ie, labor) operations
$C;A.?+ 3-*6 (39 +IDU/?5)
1 /raceable costs total E3,319,999, computed as follo"s:
/otal )ost
$ercent
/raceable
/raceable
)ost
$rofessional staff salariesTTT E3,319,999 69F E3,999,999
-dministrative support staffTT *19,999 29 '39,999
$hotocopyingTTTTTTTT 31,999 89 23,199
/ravelTTTTTTTTTTTT 331,999 89 333,199
;ther operating costsTTTTT 119,999 19 31,999
/otalTTTTTTTTTTT E*,699,999 E3,319,999
4olden 5tate ?nterprisesQ overhead (ie, the nontraceable costs) total E1,919,999
(E*,699,999 - E3,319,999)
' $redetermined overhead rate J budgeted overhead S traceable costs
J E1,919,999 S E3,319,999 J '6F of traceable costs
3 /arget profit percentage J target profit S total cost
J E829,999 S E*,699,999 J '9F of cost
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3"$5 Solutions Manual
$C;A.?+ 3-*6 ();D/IDU?@)
* /he total cost of the @avis +anufacturing pro&ect is E82,999, and the billing is E111,'99,
as follo"s:
$rofessional staff salariesTTTT E21,199
-dministrative support staffTTT 3,899
$hotocopyingTTTTTTTTTT 319
/ravelTTTTTTTTTTTTT 2,319
;ther operating costsTTTTTT ',199
5ubtotalTTTTTTTTTTT E31,999
;verhead (E31,999 x '6F)TTTT '1,999
/otal costTTTTTTTTTT E82,999
+ar!up (E82,999 x '9F)TTTTT 18,'99
Ailling to @avisTTTTTTTTT E111,'99

1 $ossible nontraceable costs include utilities, rent, depreciation, advertising, top
management salaries, and insurance
2 $rofessional staff members are compensated for attending training sessions and firm-
"ide planning meetings, paid vacations, and completion of general, non-client-related
paper"or! and reports /hese activities benefit multiple clients, the consultant, andGor
the overall firm, ma!ing traceability to specific clients difficult if not impossible
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- $!
$C;A.?+ 3-*8 (*1 +IDU/?5)
1 SPERIOR /ETA&S
SC2E4&E O3 COST O3 6OO4S /AN3ACTRE4
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
@irect material:
Ca" material inventory, 1'G31Gx3 E 22,319
-dd: $urchases of ra" material 1*6,'19
Ca" material available for use E211,999
@educt: Ca"-material inventory, 1'G31Gx* **,'19
Ca" material used E139,319
@irect labor 311,199
+anufacturing overhead:
Indirect material E 33,319
Indirect labor 11',199
@epreciation on factory building 83,319
@epreciation on factory e,uipment *1,999
Utilities 1',199
$roperty taxes 23,199
Insurance 39,999
/otal actual manufacturing overhead E*31,999
@educt: Underapplied overheadI 1,631
;verhead applied to "or! in process *33,1'1
/otal manufacturing costs E1,318,331
-dd: 0or!-in-process inventory, 1'G31Gx3 -9-
5ubtotal E1,318,331
@educt: 0or!-in-process inventory, 1'G31Gx* 39,999
)ost of goods manufactured E1,3'8,331
I/he 5chedule of )ost of 4oods +anufactured lists the manufacturing costs applied to "or!
in process /herefore, the underapplied overhead, E1,631, must be deducted from total actual
overhead to arrive at the amount of overhead applied to "or! in process If there had been
overapplied overhead, the balance "ould have been added to total manufacturing overhead
/he amount of underapplied overhead is found by subtracting the applied
manufacturing overhead, E*33,1'1, from the total actual manufacturing overhead, E*31,999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"$# Solutions Manual
$C;A.?+ 3-*8 ();D/IDU?@)
' SPERIOR /ETA&S
SC2E4&E O3 COST O3 6OO4S SO&4
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
%inished-goods inventory, 1'G31Gx3 E '2,'19
-dd: cost of goods manufactured 1,3'8,331
)ost of goods available for sale E1,311,2'1
@educt: %inished-goods inventory, 1'G31Gx* 39,999
)ost of goods sold E1,3'1,2'1
-dd: Underapplied overheadI 1,631
)ost of goods sold (ad&usted for underapplied overhead) E1,3'3,199
I/he company closes underapplied or overapplied overhead into cost of goods sold 7ence
the E1,631 balance in underapplied overhead is added to cost of goods sold for the month
3 SPERIOR /ETA&S
INCO/E STATE/ENT
3OR T2E .EAR EN4E4 4ECE/BER $!0 #5'%
5ales revenue E1,136,319
.ess: )ost of goods sold 1,3'3,199
4ross margin E '11,'19
5elling and administrative expenses '91,319
Income before taxes E *8,199
Income tax expense 16,319
Det income E 39,319
* /he electronic version of the 5olutions +anual <AUI.@ - 5$C?-@57??/ 5;.U/I;D5=
is available on your Instructors )@ and on the 7ilton, 6e "ebsite:
"""mhhecomGhilton6e
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- $$
$C;A.?+ 3-19 (11 +IDU/?5)
1 E39,999 5ince there "as no "or!-in-process inventory at the beginning of '9x*, all of the
costs in the year-end "or!-in-process inventory "ere incurred during '9x*
' /he direct-material cost "ould have been larger, probably by roughly 39 percent,
because direct material is a variable cost
3 @epreciation is a fixed cost, so it "ould not have been any larger if the firm:s volume
had increased
* ;nly the E'',199 of e,uipment depreciation "ould have been included in
manufacturing overhead on the 5chedule of )ost of 4oods +anufactured /he E'',199
of depreciation related to selling and administrative e,uipment "ould have been
treated as a period cost and expensed during '9x*
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"$% Solutions Manual
$C;A.?+ 3-11 ('1 +IDU/?5)
1
r hou machine per E''
28,199
E1,1'9,'99

hours machine budgeted
overhead ing manufactur budgeted
rate overhead ned $redetermi
= =
=
' (ournal entries:
(a) Ca"-+aterial Inventory 6,'*9
-ccounts $ayable 6,'*9
(b) 0or!-in-$rocess Inventory 182
Ca"-+aterial Inventory 182
(c) +anufacturing ;verhead 3'
+anufacturing-5upplies Inventory 3'
(d) +anufacturing ;verhead 899
)ash 899
(e) 0or!-in-$rocess Inventory 33,199
0ages $ayable 33,199
(f) 5elling and -dministrative ?xpense ',199
$repaid Insurance ',199
(g) Ca"-+aterial Inventory ',699
-ccounts $ayable ',699
(h) -ccounts $ayable 1,619
)ash 1,619
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- $(
$C;A.?+ 3-11 ();D/IDU?@)
(i) +anufacturing ;verhead 18,999
0ages $ayable 18,999
(&) +anufacturing ;verhead 6,199
-ccumulated @epreciation: ?,uipment 6,199
(!) %inished-4oods Inventory 1,'99
0or!-in-$rocess Inventory 1,'99
(l) 0or!-in-$rocess Inventory 1*3,999I
+anufacturing ;verhead 1*3,999
I-pplied manufacturing overhead J 2,199 machine hours E'' per hour
(m) -ccounts Ceceivable 161,999
5ales Cevenue 161,999
)ost of 4oods 5old 1*',199
%inished-4oods Inventory 1*',199
$C;A.?+ 3-1' (*9 +IDU/?5)
1 In accordance "ith the 5tandards of ?thical )onduct for +anagement -ccountants,
the appropriateness of +arc (ac!sonQs three alternative courses of action is described
as follo"s:
Follow Brown's directive and do nothing urther! /his action is inappropriate as
(ac!son has ethical responsibilities to ta!e further action in accordance "ith the
follo"ing standards of ethical conduct
"o#$etence! +anagement accountants have a responsibility to perform their
professional duties in accordance "ith relevant la"s, regulations, and technical
standards
%ntegrit&! +anagement accountants should (1) refrain from either actively or
passively subverting the attainment of the organi#ation:s legitimate and ethical
ob&ectives, (') communicate favorable as "ell as unfavorable information, and (3)
refrain from engaging in or supporting any activity that "ould discredit the
profession
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"$) Solutions Manual
$C;A.?+ 3-1' ();D/IDU?@)
'()ectivit&! +anagement accountants have a responsibility to communicate
information fairly and ob&ectively, and to disclose fully all relevant information that
could reasonably be expected to influence an intended user:s understanding of the
reports presented
*tte#$t to convince Brown to #a+e the $ro$er ad)ust#ents and to advise the
e,ternal auditors o her actions! /his action is appropriate as (ac!son has ta!en
the ethical conflict to his immediate superior for resolution Unless (ac!son
suspects that his superior is involved, this alternative is the first step for the
resolution of an ethical conflict
-ell the *udit "o##ittee o the Board o .irectors a(out the $ro(le# and give
the# the a$$ro$riate accounting data! /his action is not appropriate as a first step
since the resolution of ethical conflicts re,uires (ac!son to first discuss the matter
"ith his immediate superior
' /he next step that (ac!son should ta!e in resolving this conflict is to inform Aro"n
that he is planning to discuss the conflict "ith the next higher managerial level
(ac!son should pursue discussions "ith successively higher levels of management,
including the -udit )ommittee and the Aoard of @irectors, until the matter is
satisfactorily resolved -t the same time, (ac!son should <clarify relevant concepts by
confidential discussion "ith an ob&ective advisor to obtain an understanding of
possible courses of action= If the ethical conflict still exists after exhausting all levels
of internal revie", (ac!son may have no course other than to resign from the
organi#ation
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Managerial Accounting, 8/e 3- $*
$C;A.?+ 3-13 (39 +IDU/?5)
1 /ARVE&OS /ARS2/A&&OW CO/PAN.
SC2E4&E O3 COST O3 6OO4S /AN3ACTRE4
3OR T2E /ONT2 O3 -ANAR.
@irect material:
Ca"-material inventory, (anuary 1 E 3*,999
-dd: (anuary purchases of ra" material ''2,999
Ca" material available for use E'29,999
@educt: Ca"-material inventory, (anuary 31 1',999
Ca" materials used E'96,999

@irect labor 3'9,999I
+anufacturing overhead applied (19F of direct labor) 129,999

/otal manufacturing costs E266,999

-dd: 0or!-in-process inventory, (anuary 1 69,999

5ubtotal E326,999

@educt: 0or!-in-process inventory,
(anuary 31 (89F E69,999) 3',999

)ost of goods manufactured E282,999
P
I0or! up"ard from the bottom of the statement, using the information available @irect labor
L manufacturing overhead J total manufacturing costs K direct material cost J E266,999
K E'96,999 J E*69,999 5ince manufacturing overhead J 19F of direct labor, then
manufacturing overhead J E129,999 and direct labor J E3'9,999
P
)ost of goods manufactured J cost of goods sold L increase in finished-goods inventory
J E289,999 L E2,999 J E282,999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"$+ Solutions Manual
$C;A.?+ 3-13 ();D/IDU?@)
' /ARVE&OS /ARS2/A&&OW CO/PAN.
SC2E4&E O3 PRI/E COSTS
3OR T2E /ONT2 O3 -ANAR.
Ca" material:
Aeginning inventory E 3*,999
-dd: $urchases ''2,999
Ca" material available for use E'29,999
@educt: ?nding inventory 1',999
Ca" material used E'96,999
@irect labor 3'9,999
/otal prime costs E1'6,999
3 /ARVE&OS /ARS2/A&&OW CO/PAN.
SC2E4&E O3 CONVERSION COSTS
3OR T2E /ONT2 O3 -ANAR.
@irect labor E3'9,999
+anufacturing overhead applied (19F of direct labor) 129,999
/otal conversion cost E*69,999
$C;A.?+ 3-1* (39 +IDU/?5)
1
hour machine per E2
11,999
E392,999

hours machine budgeted
overhead ing manufactur budgeted
rate overhead ned $redetermi
= =
=
' )alculation of applied manufacturing overhead:
-pplied manufacturing overhead J machine hrs used x predetermined overhead rate
E32,999 J 2,999 hrs x E2 per hr
3 Underapplied overhead J actual overhead K applied overhead
E',999 J E36,999 K E32,999
* )ost of 4oods 5old ',999
+anufacturing ;verhead ',999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- $,
$C;A.?+ 3-1* ();D/IDU?@)
1 (a) )alculation of proration amounts:
-ccount ?xplanation -mountI $ercentage
)alculation
of $ercentage
0or! in $rocess (ob A18 only E19,699 39F 19,699 32,999
%inished 4oods (ob /'6 only 16,999 19F 16,999 32,999
)ost of 4oods
5old (ob +93 only 3,'99 '9 F 3,'99 32,999
/otal E32,999 199 F
I+achine hours used on &ob predetermined overhead rate
-ccount
Underapplied
;verhead $ercentage
-mount -dded
to -ccount
0or! in $rocess E',999 39F E 299
%inished 4oods ',999 19F 1,999
)ost of 4oods 5old ',999 '9F *99
/otal E',999
(b) (ournal entry:
0or!-in-$rocess Inventory 299
%inished-4oods Inventory 1,999
)ost of 4oods 5old *99
+anufacturing ;verhead ',999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"%5 Solutions Manual
$C;A.?+ 3-11 (*1 +IDU/?5)
1 $redetermined overhead rate:
111,999
E131,999

hours labor - direct Audgeted
overhead ing manufactur Audgeted
=

= E199 per direct-labor hour
IE131,999 J E3*1,999 L E'39,999
' )ost of &ob 13:
)ost in beginning "or!-in-process inventory E196,999
@irect material 89,999
@irect labor (3,999 hours E'*99 per hour)I 126,999
-pplied manufacturing overhead
(3,999 hours E199 per hour) 31,999
/otal cost E*91,999
hour per E'*99
13,999
E*96,999

hours labor - direct
"ages labor - direct
rate labor - @irect I = = =
3 +anufacturing overhead applied to &ob 18:
@irect-labor hours predetermined overhead rate = *,999 hours E199 per hour

= E'9,999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- %!
$C;A.?+ 3-11 ();D/IDU?@)
* /otal manufacturing overhead applied during Dovember:
/otal direct-labor hours predetermined overhead rate = 13,999 hours E199

= E61,999
1 -ctual manufacturing overhead incurred during Dovember:
Indirect material (supplies) E'*,999
Indirect-labor "ages 39,999
5upervisory salaries 1',999
Auilding occupancy costs, factory facilities 1',699
$roduction e,uipment costs 12,'99
/otal E81,999
2 Underapplied overhead for Dovember:
-ctual manufacturing overhead K applied manufacturing overhead
= E81,999 K E61,999
= E19,999 underapplied
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"%# Solutions Manual
$C;A.?+ 3-12 ('1 +IDU/?5)
1
Huarter
$redetermined
;verhead Cate )alculations
1
st
E6 per hour E*99,999G19,999
'
nd
19 per hour E3'9,999G3',999
3
rd
6 per hour E'99,999G'1,999
*
th
19 per hour E'69,999G'6,999
'
%ebruary +ay
@irect material E299 E299
@irect labor 3*9 3*9
+anufacturing overhead:
'9 hrs E6 per hr 129
'9 hrs E19 per hr '99
/otal cost E1,199 E1,1*9
3
%ebruary +ay
/otal cost E1,199 E1,1*9
+ar!up (19F) 119 11*
$rice E1,'19 E1,'1*
*
hours labor - direct budgeted annual
overhead ing manufactur budgeted annual
rate ned $redetermi =
(rounded) hour per E668
131,999
E1,'99,999
= =
1
%ebruary +ay
@irect material E 29999 E 29999
@irect labor 3*999 3*999
+anufacturing overhead ('9 hrs E668) 133 69 133 69
/otal cost E1,113 69 E1,113 69
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- %$
$C;A.?+ 3-12 ();D/IDU?@)
2 /otal cost E1,11369
+ar!up (19F) 111 36
$rice E1,''8 16
Dotice that "ith ,uarterly overhead rates, the firm may underprice its product in %ebruary and
overprice it in +ay
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"%% Solutions Manual
$C;A.?+ 3-13 (11 +IDU/?5)
/he ans"ers to the ,uestions are as follo"s:
1 E2*6,999 2 E169,999
' E13,999 3 E*19,999
3 E'19,999 6 E1'9,999
* E11*,999 8 E*1,999
1 E'*9,999 19 Uero
/he completed / accounts, along "ith supporting calculations, follo"
Ca"-+aterial Inventory -ccounts $ayable
Aal 6G31 *1,999 32,999 Aal 6G31
'19,999 1'9,999 '*3,999 '19,999
Aal 8G39 131,999 3,999 Aal 8G39
0or!-in-$rocess Inventory %inished-4oods Inventory
Aal 6G31 '*,999 Aal 6G31 191,999
@irect *19,999 *19,999 1*9,999
material 1'9,999 Aal 8G39 11,999
@irect
labor '*9,999 )ost of 4oods 5old
;verhead 169,999 1*9,999
Aal 8G39 11*,999
+anufacturing ;verhead 5ales Cevenue
169,999 169,999 2*6,999
0ages $ayable -ccounts Ceceivable
3,999 Aal 6G31 Aal 6G31 '*,999
'36,199 '*9,999 2*6,999 211,999
*,199 Aal 8G39 Aal 8G39 13,999
5upporting )alculations:
1 5ales revenue J cost of goods sold 1'9F
J E1*9,999 1'9F J E2*6,999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- %(
$C;A.?+ 3-13 ();D/IDU?@)
' ?nding balance in accounts receivable J beginning balance L sales revenue
K collections
J E'*,999 L E2*6,999 K E211,999
J E13,999
3 $urchases of ra" material J addition to accounts payable
-ddition to accounts payable J ending balance L payments
K beginning balance
J E3,999 L E'*3,999 K E32,999
J E'19,999
* 5eptember 39 balance in
"or!-in-process inventory
J
direct
material
L
direct
labor
L
manufacturing
overhead
J E21,199 L (1,199)(E'9) L (1,199)(E11I)
J E11*,999
I$redetermined overhead rate J
P
hours labor - direct budgeted
overhead budgeted
J
1**,999
E',129,999
J E11 per direct-labor hour
P
Audgeted direct-labor hours J
rate labor - direct
cost labor - direct budgeted
=
1**,999
E'9
E',669,999
=
1 -ddition to "or! in process
for direct labor
J
5eptember credit to
"ages payable
5eptember credit to
"ages payable
J ending balance L payments K beginning balance
J E*,199 L E'36,199 E3,999 J E'*9,999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"%) Solutions Manual
$C;A.?+ 3-13 ();D/IDU?@)
2 5eptember applied overhead J direct labor hours predetermined overhead rate
J 1',999I E11
J E169,999
I@irect labor hours J
rate labor - direct
labor direct for process in "or! to addition
J
hours 1',999
E'9
E'*9,999
=
3 )ost of goods completed
during 5eptember
J
beginning
balance in
"or! in
process
L
additions
during
Dovember
K
ending balance in
"or! in process
J E'*,999 L (E1'9,999 L E'*9,999 L E169,999) K E11*,999
J E*19,999
6 Ca" material used in
5eptember
J
5eptember credit to ra"-
material inventory
J E1'9,999 (given)
8 -ugust 31 balance in
ra"-material inventory J
5eptember 39
balance in ra"-
material inventory
L
direct
material
used
K purchases
J E131,999 L E1'9,999 K E'19,999
J E*1,999
19 ;verapplied or underapplied overhead J actual overhead K applied overhead
J E169,999 K E169,999 J 9
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- %*
$C;A.?+ 3-16 (31 +IDU/?5)
1
hour labor - direct per E''
'1,999
E*2',999

hours labor - direct budgeted
overhead ing manufactur budgeted
rate overhead ned $redetermi
= =
=
' (ournal entries:
(a) Ca"-+aterial Inventory 2,999
-ccounts $ayable 2,999
(b) Ca"-+aterial Inventory 1,'99
-ccounts $ayable 1,'99
(c) 0or!-in-$rocess Inventory 11,339I
Ca"-+aterial Inventory 11,339
I('29 s, ft E119 per s, ft) L (1,199 lbs E8 per lb)
+anufacturing ;verheadII 1'9

+anufacturing-5upplies Inventory 1'9
IIValve lubricant is an indirect material, so it is considered an overhead cost
(d) 0or!-in-$rocess Inventory 32,999

+anufacturing ;verhead 1*,199

0ages $ayable 19,199
0or!-in-$rocess Inventory 38,299I
+anufacturing ;verhead 38,299
I-pplied manufacturing overhead J 1,699 direct-labor hours E'' per hour
(e) +anufacturing ;verhead 13,999
-ccumulated @epreciation: Auilding and
?,uipment 13,999
(f) +anufacturing ;verhead 1,3*9
)ash 1,3*9
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"%+ Solutions Manual
$C;A.?+ 3-16 ();D/IDU?@)
(g) +anufacturing ;verhead ',*99
-ccounts $ayable ',*99
(h) +anufacturing ;verhead ',339
)ash ',339
(i) +anufacturing ;verhead ',899
$repaid Insurance ',899
(&) 5elling and -dministrative ?xpenses 3,199
)ash 3,199
(!) 5elling and -dministrative ?xpenses *,199
-ccumulated @epreciation: Auildings and
?,uipment *,199
(l) 5elling and -dministrative ?xpenses 1,119
)ash 1,119
(m) %inished-4oods Inventory 33,139I
0or!-in-$rocess Inventory 33,139
I)ost of (ob /38:
@irect material ('29 E119) E 1,*39
@irect labor (619 E'9) 13,999
+anufacturing overhead (619 E'') 16,399
/otal cost E33,139
(n) -ccounts Ceceivable '3,329I
5ales Cevenue '3,329
I(32 ') E3'9 per trombone
)ost of 4oods 5old 16,121II
%inished-4oods Inventory
16,121
II16,121 J E33,139 '
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- %,
$C;A.?+ 3-16 ();D/IDU?@)
3 /-accounts and posting of &ournal entries:
)ash -ccounts $ayable
Aal 11,999 1*,199 Aal
1,3*9 (f) 2,999 (a)
',339 (h) 1,'99 (b)
3,199 (&) ',*99 (g)
1,119 (l)
-ccounts Ceceivable 0ages $ayable
Aal '9,999 6,199 Aal
(n) '3,329 19,199 (d)
-ccumulated @epreciation:
$repaid Insurance Auildings and ?,uipment
Aal 2,999 88,999 Aal
',899 (i) 13,999 (e)
*,199 (!)
+anufacturing-5upplies Inventory +anufacturing ;verhead
Aal 299 (c) 1'9 38,299 (d)
1'9 (c) (d) 1*,199
(e) 13,999
(f) 1,3*9
(g) ',*99
(h) ',339
(i) ',899
Ca"-+aterial Inventory )ost of 4oods 5old
Aal 119,999 (n) 16,121
(a) 2,999 11,339 (c)
(b) 1,'99
5elling and -dministrative
0or!-in-$rocess Inventory ?xpenses
Aal 68,999 (&) 3,199
(c) 11,339 33,139 (m) (!) *,199
(d) 32,999 (l) 1,119
(d) 38,299
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"(5 Solutions Manual
$C;A.?+ 3-16 ();D/IDU?@)
%inished-4oods Inventory 5ales Cevenue
Aal ''3,999 '3,329 (n)
(m) 33,139 16,121 (n)
* (a) )alculation of actual overhead:
Indirect material (valve lubricant) E 1'9
Indirect labor 1*,199
@epreciation: factory building and e,uipment 13,999
Cent: "arehouse 1,3*9
Utilities ',*99
$roperty taxes ',339
Insurance ',899
/otal actual overhead E32,'39
(b)
;verapplied overhead J

overhead
ing manufactur applied

overhead
ing manufactur actual
J E32,'39 K E38,299I
J E3,339 overapplied
IE38,299 J 1,699 direct-labor hours E'' per hour
(c) +anufacturing ;verhead3,339
)ost of 4oods 5old 3,339
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- (!
$C;A.?+ 3-16 ();D/IDU?@)
1 BAN4WA. CO/PAN.
SC2E4&E O3 COST O3 6OO4S /AN3ACTRE4
3OR T2E /ONT2 O3 OCTOBER
@irect material:
Ca"-material inventory, ;ctober 1 E119,999
-dd: ;ctober purchases of ra" material 11,'99
Ca" material available for use E121,'99
@educt: Ca"-material inventory, ;ctober 31 1*8,639
Ca" material used E 11,339

@irect labor 32,999

+anufacturing overhead:
Indirect material E 1'9

Indirect labor 1*,199

@epreciation on factory building and e,uipment 13,999

Cent: "arehouse 1,3*9

Utilities ',*99

$roperty taxes ',339

Insurance ',899

/otal actual manufacturing overhead E32,'39

-dd: overapplied overhead

3,339I
;verhead applied to "or! in process 38,299

/otal manufacturing costs E 62,839

-dd: 0or!-in-process inventory, ;ctober 1 68,999

5ubtotal E131,839

@educt: 0or!-in-process inventory, ;ctober 31 136,699

)ost of goods manufactured E

33,139
P
I/he 5chedule of )ost of 4oods +anufactured lists the manufacturing costs a$$lied to "or!
in process /herefore, the overapplied overhead, E3,339, must be added to actual overhead to
arrive at the amount of overhead a$$lied to "or! in process during ;ctober
P
)ost of (ob /38, "hich "as completed during ;ctober
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"(# Solutions Manual
$C;A.?+ 3-16 ();D/IDU?@)
2 BAN4WA. CO/PAN.
SC2E4&E O3 COST O3 6OO4S SO&4
3OR T2E /ONT2 O3 OCTOBER
%inished-goods inventory, ;ctober 1 E''3,999
-dd: )ost of goods manufactured 33,139
)ost of goods available for sale E'29,139
@educt: %inished-goods inventory, ;ctober 31 '*1,121
)ost of goods sold E 16,121
@educt: ;verapplied overheadI 3,339
)ost of goods sold (ad&usted for overapplied overhead) E 11,181
I/he company closes underapplied or overapplied overhead into cost of goods sold 7ence
the balance in overapplied overhead is deducted from cost of goods sold for the month
3 BAN4WA. CO/PAN.
INCO/E STATE/ENT
3OR T2E /ONT2 O3 OCTOBER
5ales revenue E'3,329
.ess: )ost of goods sold 11,181
4ross margin E1',121
5elling and administrative expenses 13,119
Income (loss) E (861)
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- ($
$C;A.?+ 3-18 ('9 +IDU/?5)
(;A-);5/ C?);C@
(ob Dumber /38 @escription /rombones
@ate 5tarted ;ctober 1 @ate )ompleted ;ctober '9
Dumber of Units )ompleted 32
@irect +aterial
@ate Ce,uisition Dumber Huantity Unit $rice )ost
19G1 11' '29 E119 E1,*39
@irect .abor
@ate /ime )ard Dumber 7ours Cate )ost
19G6 to
19G1'
19-96 through 19-1' 619 E'9 E13,999
+anufacturing ;verhead
@ate )ost @river (-ctivity Aase) Huantity -pplication Cate )ost
19G6 to
19G1'
@irect-labor hours 619 E'' E16,399
)ost 5ummary
)ost Item -mount
/otal direct material
/otal direct labor
/otal manufacturing overhead
E 1,*39
13,999
16,399
/otal cost E33,139
Unit cost E*6611I
5hipping 5ummary
@ate Units 5hipped
Units Cemaining
In Inventory )ost Aalance
;ctober 36 36 E16,121
P
ICounded
P
E16,121 J E33,139 S '
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"(% Solutions Manual
$C;A.?+ 3-29 (19 +IDU/?5)
1 5chedule of budgeted overhead costs:
@epartment - @epartment A
Variable overhead
- '1,999 E13 E313,999
A '1,999 E 1 E191,999
%ixed overhead '19,999 '19,999
/otal overhead E123,999 E311,999
4rand total of budgeted overhead (- L A): E66',999
hour per E'1
*',999
E66',999

hours labor - direct budgeted total
rate overhead budgeted total
rate overhead ned $redetermi
= =
=
' $roduct prices:
Aasic
5ystem
-dvanced
5ystem
/otal cost E1,189 E1,2*9
+ar!up, 19F of cost 118 12*
$rice E1,398 E1,69*
3 @epartmental overhead rates:
@epartment - @epartment A
Audgeted overhead
(from re,uirement 1) E123,999 E311,999
Audgeted direct-labor hours '1,999 '1,999
$redetermined overhead rates E123,999 E311,999
'1,999 '1,999
E'3 per E11 per
direct-labor direct-labor
hour 7our
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- ((
$C;A.?+ 3-29 ();D/IDU?@)
* Cevised product costs:
Aasic -dvanced
5ystem 5ystem
@irect material E *19 E 899
@irect labor 3'9 3'9
+anufacturing overhead:
@epartment -:
Aasic system 1 E'3 131
-dvanced system 11 E'3 *91
@epartment A:
Aasic system 11 E11 ''1
-dvanced system 1 E11 W WWWW 31
/otal E1,139 E1,399
1 Cevised product prices:
Aasic -dvanced
5ystem 5ystem
/otal cost E1,139 E1,399
+ar!up, 19F of cost 113 139
$rice E1,'*3 E1,639
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"() Solutions Manual
$C;A.?+ 3-29 ();D/IDU?@)
2 );.;C/?)7 );C$;C-/I;D
+emorandum
@ate: /oday
/o: $resident, )olor/ech )orporation
%rom: I + 5tudent
5ub&ect: @epartmental overhead rates
Until no" the company has used a single, plant"ide overhead rate in computing product
costs /his approach resulted in a product cost of E1,189 for the basic system and a cost of
E1,2*9 for the advanced system Under the company:s pricing policy of adding a 19 percent
mar!up, this yielded prices of E1,398 for the basic system and E1,69* for the advanced
system
0hen departmental overhead rates are computed, it is apparent that the t"o
production departments have very different cost structures @epartment - is a relatively
expensive department to operate, "hile @epartment A is less costly It is important to
recogni#e the different rates of cost incurrence in the t"o departments, because our t"o
products re,uire different amounts of time in the t"o departments /he basic system spends
most of its time in @epartment A, the inexpensive department /he advanced system spends
most of its time in @epartment -, the more expensive department /hus, using departmental
overhead rates sho"s that the basic system costs less than "e had previously reali#edB the
advanced system costs more /he revised product costs are E1,139 and E1,399 for the basic
and advanced systems, respectively 0ith a 19 percent mar!up, these revised product costs
yield prices of E1,'*3 for the basic system and E1,639 for the advanced system 0e have been
overpricing the basic system and underpricing the advanced system
I recommend that the company s"itch to a product costing system that incorporates
departmental overhead rates
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- (*
SO&TIONS TO CASES
)-5? 3-21 (*1 +IDU/?5)
1 - &ob order costing system is appropriate in any environment "here costs can be
readily identified "ith specific products, batches, contracts, or pro&ects
' /he only &ob remaining in Xid)o:s 0or!-in-$rocess Inventory on @ecember 31 is
@C511* /he dollar value of @C511* is calculated as follo"s:
@C511* balance, 11G39 E'19,999
@ecember additions:
@irect material used E1'*,999
$urchased parts 63,999
@irect labor '99,199
+anufacturing overhead (18,199 hours E319I) 1*2,'19 113,319
0or!-in-process inventory, 1'G31 E693,319
hour per E319
hours 299,999
E*,199,999
rate overhead ing +anufactur I
=
=
3 /he dollar value of the playpens remaining in Xid)o:s finished-goods inventory on
@ecember 31 is E*11,299, calculated as follo"s:
$laypen Units
%inished-goods inventory, 11G39 18,*99
Units completed in @ecember 11,999
Units available for sale 3*,*99
Units shipped in @ecember '1,999
%inished-goods inventory, 1'G31 13,*99
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3"(+ Solutions Manual
)-5? 3-21 ();D/IDU?@)
5ince Xid)o uses the %I%; inventory method, all units remaining in finished- goods
inventory "ere completed in @ecember
Unit cost of playpens completed in @ecember:
0or! in process inventory, 11G39 E*'9,999
@ecember additions:
@irect material used E 3,999
$urchased parts 19,699
@irect labor *3,'99
+anufacturing overhead (*,*99 hours E319) 33,999 89,999
/otal cost E119,999
Unit cost J
completed units
cost total
J
11,999
E119,999
J E3* per unit
Value of finished-goods
inventory on 1'G31
J Unit cost ,uantity
J E3* 13,*99
J E*11,299
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- (,
)-5? 3-2' (19 +IDU/?5)
1 +anufacturers use predetermined overhead rates to allocate to production &obs the
production costs that are not directly traceable to specific &obs -s a result,
management "ill have timely and reasonably accurate &ob-cost information
$redetermined overhead rates are easy to apply and avoid fluctuations in &ob costs
caused by changes in production volume or overhead costs throughout the year
' /he manufacturing overhead applied through Dovember 39 is calculated as follo"s:
+achine hours predetermined overhead rate J overhead applied
33,999 E39 J E',189,999
3 /he manufacturing overhead applied in @ecember is calculated as follo"s:
+achine hours predetermined overhead rate J overhead applied
2,999 E39 J E169,999
* Underapplied manufacturing overhead through @ecember 31 is calculated as follo"s:
-ctual overhead (E','99,999 L E18',999) E',38',999
-pplied overhead (E',189,999 L E169,999) (',339,999)
Underapplied overhead E '',999
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3")5 Solutions Manual
)-5? 3-2' ();D/IDU?@)
1 /he balance in the %inished-4oods Inventory account on @ecember 31 is comprised
only of (ob Do D11-913 and is calculated as follo"s:
Dovember 39 balance for (ob Do D11-913 E119,999
@ecember direct material 6,999
@ecember direct labor '*,999
@ecember overhead (1,999 E39) 39,999
/otal finished-goods inventory E13',999
2 ;pticomQs 5chedule of )ost of 4oods +anufactured for the year &ust completed is
constructed as follo"s:
OPTICO/0 INC1
SC2E4&E O3 COST O3 6OO4S /AN3ACTRE4
3OR T2E .EAR EN4E4 4ECE/BER $!
@irect material:
Ca"-material inventory, 1G1 E '19,999
Ca"-material purchases (E1,839,999 L E182,999) ',1'2,999
Ca" material available for use E',332,999
@educt: Indirect material used (E'19,999 L E16,999) E'26,999
Ca"-material inventory 1'G31 139,999 *36,999
Ca" material used E1,686,999
@irect labor (E1,289,999 L E129,999) 1,619,999
+anufacturing overhead:
Indirect material (E'19,999 L E16,999) E'26,999
Indirect labor (E289,999 L E29,999) 319,999
Utilities (E*89,999 L E**,999) 13*,999
@epreciation (E339,999 L E39,999) 6*9,999
/otal actual manufacturing overhead ',38',999
@educt: Underapplied overhead '',999
;verhead applied to "or! in process E',339,999
/otal manufacturing costs E2,116,999
-dd: 0or!-in-process inventory, 1G1 1'9,999
5ubtotal E2,'36,999
@educt: 0or!-in-process inventory, 1'G31I 399,*99
)ost of goods manufactured E1,833,299
I5upporting calculations follo"
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- )!
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
3")# Solutions Manual
)-5? 3-2' ();D/IDU?@)
I5upporting calculations for "or! in process 1'G31:
@1'-99' @1'-993 /otal
@irect material E 31,699 E 1',999 E1'3,699
@irect labor *9,999 33,299 33,299
-pplied overhead:
',199 hrs E39 31,999 31,999
699 hrs E39 WWWWWW '*,999 '*,999
/otal E189,699 E198,299 E399,*99
3OCS ON ET2ICS (5ee page 198 in the text)
@id Aoeing exploit accounting rules to conceal cost overruns and production snafusO
-ccording to the circumstances alleged in the Business /ee+ article cited in the text
(page 191), Aoeing did not handle its cost overruns, production problems, and the merger
"ith +c@onnell-@ouglas in a transparent manner Aoeing allegedly acted to conceal its
"orsening operational problems through <earnings management= to ensure that the
merger "ould be approved by the stoc!holders of both companies 0hile the method of
<program accounting= is common in the aircraft industry, in this rather extreme case that
accounting method did not result in a fair portrayal of the companyQs financial and
operational situation -s a result, the merger "as approved on the basis of alleged
misleading information, and it is the investors "ho "ill bear the brunt of this action
/he companyQs top executives and their accountants must share the responsibility for
these actions, the former for providing the data and the latter for approving it for public
release Do accounting system should be used as a tool to cover up operational problems
and mislead shareholders ;ne "onders also "hat the auditors "ere doing to assess the
accuracy of the accounting information
McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.
Managerial Accounting, 8/e 3- )$