Chapter 4 Homework

1. The two choices for cost accumulation are the job order and process costing systems. A company should use job order costing when it is necessary and possible to trace costs to products made for individual customers, and when the products made for one customer are very different from those made for other customers. A process costing system is appropriate for those production environments that make homogeneous products, usually in large quantities, in batch or continuous flow systems. 2. The three valuation methods are actual, normal, and standard costing. In actual costing, only the actual amounts of material, labor, and overhead costs are assigned to production. Normal costing differs from actual costing in that an amount of overhead is applied to products using a predetermined overhead rate rather than the actual amount. Standard costing differs from actual and normal costing in that a per-unit amount (standard) is established for direct material, direct labor and manufacturing overhead. These predetermined amounts are charged to production rather than the actual or normal costs. 5. If normal spoilage is generally anticipated on all jobs in a job order costing system, the estimated overhead used in setting the predetermined overhead rate should include an amount for the net cost of the spoilage. This treatment allows the cost of normal spoilage to be spread over all jobs produced. In contrast, if spoilage is related to a single job, the cost of that spoilage should be assigned to the job that gave rise to the spoilage.

7.

8.

a. b. c. d. e. f. g. h. i. j. k. l. a.

job order job order process job order process process job order job order process job order job order process Raw Material Inventory Accounts Payable Work in Process Inventory Raw Material Inventory Work in Process Inventory Cash (3,400 x $15) Manufacturing Overhead Cash ($18,000 + $7,200 + $9,500) Accumulated Depreciation Supplies Inventory Work in Process Inventory

174,000 174,000 163,800 163,800 51,000 51,000 68,700 34,700 21,500 12,500 68,000

Manufacturing Overhead b. Raw Material = $4,300 + $174,000 - $163,800 = $14,500

68,000

c. Cost of Goods Manufactured = Beginning WIP + Current period costs Ending WIP = $22,400 + $163,800 + $51,000 + $68,000 - $4,700 = $300,500 Unit cost = $300,500 10,000 = $30.05 d. Applied OH Actual OH = $68,000 - $68,700 = $700 underapplied 14.
Case #1 Case #2 Case #3 Case #4

21.

Direct material $ 120 $2,400 $ 1,350 $ 210 DL ($90 per hour) 900 2,250 1,620 270 OH ($100 per court hour) 300 4,500 15,000 2,000 Totals $1,320 $9,150 $17,970 $2,480 Material price variance = Actual cost for paper purchased Standard cost for paper purchased = ($0.016 x 490,000) ($0.018 x 490,000) = $7,840 - $8,820 = -$980. Since the actual paper cost was less than the standard, the $980 variance is favorable. Material quantity variance = Actual cost for paper used Standard cost for paper that should have been used = ($0.018 x 490,000) ($0.018 x 492,000) = $8,820 - $8,856 = -$36. Since the actual paper usage was less than the standard allowed, the $36 variance is favorable. a. WIP - Job #BA468 850 Raw Material Inventory 150 Wages Payable 700 b. Manufacturing Overhead Raw Material Inventory Wages Payable 850 150 700

24.

27.

c. Loss on Abnormal Rework 850 Raw Material Inventory 150 Wages Payable 700 Each student will have a different answer, but should address the following issues. a. Basically, SOX indicates that there are certain services that can no longer be provided to audit clients; these services include management consulting, internal audit, bookkeeping, etc. An exception exists if the total amount of non-audit services is less than five percent of the annual revenues obtained from a client firm.

b. Joint ventures and other cooperative arrangements require accountants to develop systems that can account both for costs that are generated within a given firm and costs that are incurred in the joint ventures and other entities. In addition to the bookkeeping challenge, accountants must be able to provide managers with information about where to source conversion activities (in-house or otherwise) so that competitive bids can be made and costs can be effectively managed. c. Historically, accounting systems have been inwardly focused on financial information of single firms. Increasingly in the future, accounting systems must be adapted and developed to look outwardly as well as inwardly. Joint ventures are very common for job shop environments. In these situations, managers must have the information and tools to wisely determine what conversion activities should be done in-house and which should be accomplished by another firm. To obtain the overall lowest bid and win contracts, firms must exploit both their own core competencies and those of other firms, including competitors. d. A large CPA firm in such an alliance might want to establish a job order system to track the actual services used by the various smaller CPA firms, so as to make certain that abuses of the alliance conditions do not occur and/or to track and analyze the fees generated by non-audit services provided by the smaller firms to the larger firms clients relative to the fees generated from the audit services. 28. a. Some of the companies that have been found to engage in this practice are Family Dollar, Pep Boys, Taco Bell, Toys-R-Us, and Wal-Mart. b. It is easier to doctor the records now than in the past because records are computerized and managers generally have access to the files. Previously, managers would have had to conspire with payroll clerks or accountants to change paper or punch-card records. c. Each student will have a different answer. However, most students will probably indicate that store managers making such changes would be fired (short-run). For the long-run, ethics training would probably be recommended and possibly a change in the way store managers bonuses are computed. 39. a. DM cost DL cost ($20 x (6 60)) Total standard prime costs $4.50 2.00 $6.50

b. Job #918 DM cost ($4.50 x 1,200) DL cost ($2.00 x 1,200) Total standard direct cost Job #2002 DM cost ($4.50 x 2,000) DL cost ($2.00 x 2,000) Total standard direct cost c. Job #918 DM DL Total Job #2002 DM DL Total

$ 5,400 2,400 $ 7,800 $ 9,000 4,000 $13,000 Variance $150 F 70 U $ 80 F $440 U 255 U $695 U

Standard Actual $ 5,400 $ 5,250 2,400 2,470 $ 7,800 $ 7,720 $ 9,000 4,000 $13,000 $ 9,440 4,255 $13,695

d. By computing variances for each job, managers become aware of any trends in costs. If costs are aggregated across jobs, any trends may be obscured.