Chapter 6 - Fundamentals Of Product And Service Costing
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6 Fundamentals of Product and Service Costing
Solutions to Review Questions 6-1. Cost allocation is the assignment of costs in cost pools to cost objects. The cost objects may be products, services, customers, processes, or anything for which we want to know the cost. Product costing uses cost allocation to calculate product costs. Product costing is an application of cost allocation where products are the cost objects. 6-2. Cost management systems should satisfy the following criteria: •
Cost systems should have a decision focus.
•
Different cost information is used for different purposes.
•
Cost information for managerial purposes must meet the cost-benefit test.
6-3. Cost flow diagrams serve two purposes. First, they help describe how a cost management system works, just like a flow chart helps you understand how a process works. Second, cost flow diagrams help managers identify and understand quickly the effect of changes in the system design on reported costs. 6-4. A job costing accounting system traces costs to individual units or to specific jobs (typically custom products). A process costing accounting system is used when identical units are produced through a series of uniform production steps. Operation costing is used when goods have some common characteristics (process costing) and some individual characteristics (job costing). 6-5. The predetermined overhead rate is the value at which overhead is applied to one unit of the cost allocation base. It is used in product costing to apply the overhead to the units produced. Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 165
6-6. Continuous flow processing is used when a single product is mass produced in a continuing process. Examples would include products such as paint, gasoline, paper, or any others that are mass produced in a continuing process. 6-7. The basic cost flow model appears as follows: Beginning balance + Transfers in – Transfers out = Ending balance Beginning balance is the balance of inventory at the beginning of the period. Transfers in represent inventory purchased or transferred in from another department (for example, raw materials would be goods transferred in to work in process) for the period. Transfers out are goods transferred from one department to another (for example, work in process would be transferred out to finished goods). Ending balance represents the amount of inventory in a department at the end of the accounting period.
©The McGraw-Hill Companies, Inc., 2008 166
Fundamentals of Cost Accounting
Solutions to Critical Analysis and Discussion Questions 6-8. Although there may be no one correct way to allocate cost, cost allocation can provide managers with information about the costs of the resources they use. Ignoring costs that cannot be directly assigned leads to the possibility that managers forget that it is a real resource that is being used. 6-9. There are three important points to consider: 1. The cost system should meet the needs of the users (the decision makers). 2. The cost system must provide the appropriate data for its intended purpose. Different cost information is used for different purposes. 3. Cost information for managerial purposes must meet the cost-benefit test. The costs of implementing the system should be less than the benefits derived from the system (i.e. better decisions). 6-10. The basic cost flow model is as follows: Beginning balance + Transfers in – Transfers out = Ending balance This model is used for finding one unknown or for comparing perpetual inventory system output to a physical inventory count. An example of finding one unknown is if the beginning balance is known (from the previous period ending balance), transfers in are known, and ending inventory is counted physically—and we are asked to find the cost of goods sold for the period (transfers out). 6-11. It is sometimes difficult (and frustrating) for managers when the cost accountant says that the cost depends on the decision being made. Many people feel that there is one cost that is “correct.” However, as we saw in Chapter 2, costs behave in different ways and this behavior is affected by the decision being made.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 167
6-12. Reasons to agree with approach: If the products are not contributing to company profits, then the customers should be eliminated. This will increase overall company profits. Reasons not to agree with approach: The reported product costs and the associated product profits depend on the allocation of indirect costs. Under a different allocation process, the results could be very different. In addition, many of the indirect costs are unavoidable. If the products are eliminated, the costs will be allocated to the remaining products. 6-13. The way the “products” are defined will depend, at least in part, on the decision the dean is interested in making. They may be defined as degree programs vs. non-degree programs. They may be the different degree programs. They might be the credit hour (although it is unlikely you would be able to get much information at this level). You might ask about the time frame of the analysis (to determine fixed and variable costs), the source of the data, and how to treat costs that the school does not directly pay for but where the school consumes the resources (e.g., university buildings). This is a very difficult analysis in a university setting because of the high proportion of common costs and the difficulty in defining products. 6-14. The two most important criteria in determining an allocation base are (1) causality and (2) measurability. We would like an allocation base that “causes” costs. This is rarely possible, but it is a good criterion to use. Second, we need to be able to measure the allocation base at reasonable cost. 6-15. The allocation base determines the costs assigned to the cost objects. If these costs are used to make decisions and if they are based on inappropriate or improper allocation bases, they could lead the manager to make bad decisions. 6-16. There are many reasons why two companies may have different cost systems. First, they may be in different industries. We saw in the chapter that firms in continuous process industries have different cost systems than those in discrete manufacturing industries. Firms may be pursuing different strategies (cost containment versus product differentiation) and want different information from the cost system. A third reason is that some firms may be subject to regulations (for example, utilities) and the regulations dictate the information needed from the cost system. ©The McGraw-Hill Companies, Inc., 2008 168
Fundamentals of Cost Accounting
6-17. A firm can have a two-stage system and use the same allocation base to allocate costs in the second stage. There will be different costs reported if the allocation base (direct labor, say) is used differently by the products in the second stage cost pools.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 169
Solutions to Exercises 6-18. (20 min.) Basic Cost Flow Model: Office Mart. a. $300,000 (see item 5) b. $1,240,000 = $1,200,000 + $40,000 (see items 2 & 3) c. $200,000 (see item 5) d. $1,340,000. BB + TI – TO = EB $300,000 + $1,240,000 – X = $200,000 X = $300,000 + $1,240,000 – $200,000 X = $1,340,000
6-19. (20 min.) Basic Cost Flow Model: General Electric a. $67 million = $16 million + $27 million + (.8 x $30 million) b. $50.25 million = .75 x $67 million c. BB + TI – TO = EB 0 + $67 million – $50.25 million = EB EB = $16.75 million 6-20. (20 min.) Basic Cost Flow Model. Based on the basic formula: BB + TI – a. $51,000 + $48,000 – b.
$28,400 +
X
–
c.
$67,000 + $170,000 –
TO $57,000 X $88,000 X X X X X
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= = = = = = = = =
EB X $42,000 $24,800 $24,800 – $28,400 + $88,000 $84,400 $56,000 $67,000 + $170,000 – $56,000 $181,000
Fundamentals of Cost Accounting
6-21. (20 min.) Basic Cost Flow Model. Based on the basic formula: BB + TI – TO A. $250,000 + $260,000 – $270,000 X B. $7,100 + X – $22,000 X X C. $156,000 + $280,000 – X X X
= = = = = = = = =
EB X $240,000 $6,200 $6,200 – $7,100 + $22,000 $21,100 $128,000 $156,000 + $280,000 – $128,000 $308,000
6-22. (20 min.) Basic Cost Flow Model. Based on the basic formula: BB + TI – TO A. $14,000 + $12,000 – $18,000 X B. $90,000 + X – $330,000 X X C. $65,000 + $230,000 – X X X
Solutions Manual, Chapter 6
= = = = = = = = =
EB X $8,000 $93,000 $93,000 – $90,000 + $330,000 $333,000 $30,000 $65,000 + $230,000 – $30,000 $265,000
©The McGraw-Hill Companies, Inc., 2008 171
6-23. (10 min.) Basic Product Costing: Enviro Corporation. Materials............................................ Labor................................................. Manufacturing overhead.................... Total cost...................................... ÷ Gallons produced ........................... = Cost per gallon ...............................
$595,000 51,000 204,000 $850,000 ÷ 1,700,000 $0.50
6-24. (10 min.) Basic Product Costing: Big City Bank. Labor.................................................. Manufacturing overhead..................... Total .............................................. ÷ Checks processed........................... = Cost per check ................................
©The McGraw-Hill Companies, Inc., 2008 172
$ 17,000 67,000 $ 84,000 ÷ 1,400,000 $0.06
Fundamentals of Cost Accounting
6-25. (20 min.) Basic Cost Flow Model: Kim and Smith Refiners a.
Total Production: Gallons ......................................... Percentage complete................... Equivalent gallons ....................... Costs: Materials ...................................... Labor .......................................... Manufacturing overhead .............. Total cost incurred ....................... Cost per equivalent barrel............... Cost assigned to product ................
180,000
Sold
b. Work-inProcess, March 31
176,000
160,000 100% 160,000
20,000 80% 16,000
$ 94,000 24,200 49,000 $167,200 $0.95a $167,200
$152,000b
$15,200c
a $0.95
= $167,200 ÷ 176,000 equivalent units. $152,000 = 160,000 equivalent units x $0.95. c $15,200 = 16,000 equivalent units x $0.95. b
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 173
6-26. (20 min.) Basic Cost Flow Model—Ethical Issues: Old Tyme Soda a. and b. a.
Production: Barrels.............................................. Percentage complete ...................... Equivalent barrels............................ Costs: Materials.......................................... Manufacturing overhead.................. Total cost incurred........................... Cost per equivalent barrel .................. Cost assigned to product....................
b. Work-inProcess, November 30
Total
Sold
10,000
8,800 100% 8,800
1,200 30% 360
$36,960b
$1,512c
9,160 $18,072 20,400 $38,472 $4.20a $38,472
a
$4.20 = $38,472 ÷ 9,160 equivalent units. $36,960 = 8,800 equivalent units x $4.20. c $1,512 = 360 equivalent units x $4.20. b
c. (1) The change in the estimate will cause more cost to be assigned to work-inprocess inventory and less to finished goods. As the finished goods are sold, cost of goods will be lower and income higher. (2) Unless the production supervisor’s estimates are incorrect, the controller should not change the estimates. He or she has an ethical (and legal) obligation to ensure that the estimates reflect fairly the results of operations.
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Fundamentals of Cost Accounting
6-27. (15 min.) Process Costing: Van Goe. a. and b.
Total Production: Gallons ......................................... Percentage complete................... Equivalent gallons ....................... Costs: Materials ...................................... Conversion costs ......................... Total cost incurred ....................... Cost per equivalent barrel............... Cost assigned to product ................
100,000
a. Transferred to Finished Goods
b. Work-inProcess, January 31
96,000
80,000 100% 80,000
20,000 80% 16,000
$219,200 280,000 $499,200 $5.20a $499,200
$416,000b
$83,200c
a $5.20
= $499,200 ÷ 96,000 equivalent units. $416,000 = 80,000 equivalent units x $5.20. c $83,200 = 16,000 equivalent units x $5.20. b
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 175
6-28. (15 min.) Process Costing: Opech, Inc. a. and b. a.
Total Production: Barrels (millions).......................... Percentage complete................... Equivalent barrels (millions)......... Costs: Materials (millions)....................... Conversion costs (millions).......... Total cost incurred (millions)........ Cost per equivalent barrel............... Cost assigned to product ................
200
Shipped
b. Work-inProcess, May 31
194
180 100% 180
20 70% 14
$2,500 3,320 $5,820 $30a $5,820
$5,400b
$420c
a $30
= $5,820 ÷ 194 equivalent units. $5,400 = 180 equivalent units x $30. c $420 = 14 equivalent units x $30. b
©The McGraw-Hill Companies, Inc., 2008 176
Fundamentals of Cost Accounting
6-29. (15 min.) Process Costing: Oholics, Ltd. a. and b. a.
Total Production: Pounds ........................................ Percentage complete................... Equivalent pounds ....................... Costs: Materials ...................................... Conversion costs ......................... Total cost incurred ....................... Cost per equivalent pound.............. Cost assigned to product ................
40,000
Sold
b. Work-inProcess, April 30
39,200
38,000 100% 38,000
2,000 60% 1,200
$44,000 54,000 $98,000 $2.50a $98,000
$95,000b
$3,000c
a $2.50
= $98,000 ÷ 39,200 equivalent units. $95,000 = 38,000 equivalent units x $2.50. c $3,000 = 1,200 equivalent units x $2.50. b
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 177
6-30. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings Predetermined overhead rate = $34.82 per direct labor hour.
Units produced ...................... Machine-hours....................... Direct labor-hours.................. Direct materials ..................... Direct labor............................ Manufacturing overhead........ Total Costs ............................
Basic 1,000 4,000 3,000 $10,000 64,500
Burden Rate: ......................... Total overhead .................. ÷ Direct labor-hours............
Dominator 250 2,000 2,000 $3,750 35,500
$174,100 ÷ 5,000
Total 1,250 6,000 5,000 $13,750 100,000 174,100 $287,850
= $34.82
6-31. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings Predetermined overhead rate = 174.1% of direct labor cost.
Units produced ...................... Machine-hours....................... Direct labor-hours.................. Direct materials ..................... Direct labor............................ Manufacturing overhead........ Total Costs ............................ Burden Rate: ......................... Total overhead .................. ÷ Direct labor cost ..............
©The McGraw-Hill Companies, Inc., 2008 178
Basic 1,000 4,000 3,000 $10,000 64,500
Dominator 250 2,000 2,000 $3,750 35,500
$174,100 ÷ $100,000
Total 1,250 6,000 5,000 $13,750 100,000 174,100 $287,850
=174.1%
Fundamentals of Cost Accounting
6-32. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings Predetermined overhead rate = $29.0167 per machine-hour (rounded).
Units produced .................. Machine-hours................... Direct labor-hours.............. Direct materials ................. Direct labor........................ Manufacturing Overhead... Total Costs ........................ Burden Rate: ..................... Total overhead .............. ÷ Machine-hours.............
Basic 1,000 4,000 3,000 $10,000 64,500
Dominator 250 2,000 2,000 $3,750 35,500
$174,100 ÷ 6,000
Total 1,250 6,000 5,000 $13,750 100,000 174,100 $287,850
=$29.0167
6-33. (20 Minutes) Cost Flow Diagram: Tiger Furnishings
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 179
6-34. (30 Minutes) Operation Costing: Howrey-David, Inc. The unit costs are: Fatboy:............ Screamer: .......
$3,700 $4,700
Number of units ......................... Materials cost per unit ............... Costs ......................................... Operation costs: Direct Labor.......................... Indirect materials .................. Other overhead .................... Total operation cost.........
Fatboy 1,000 $2,000 $2,000,000
Screamer 2,000 $3,000 $6,000,000
Total 3,000 $ 8,000,000 $ 3,000,000 800,000 1,300,000 $ 5,100,000
Cost per unit in plant ................. ($5,100,000 ÷ 3,000 units) = $1,700 per unit. Operation cost (@ $1,700 per unit) ................... $1,700,000a Material cost.............................. 2,000,000 Total cost................................... $3,700,000 Number of units ......................... 1,000 Unit cost .................................... $3,700 a
$1,700,000 = 1,000 units x $1,700 per unit.
b
$3,400,000 = 2,000 units x $1,700 per unit.
©The McGraw-Hill Companies, Inc., 2008 180
$3,400,000b 6,000,000 $9,400,000 2,000 $4,700
$5,100,000
Fundamentals of Cost Accounting
6-35. (30 Minutes) Operation Costing: Organic Grounds. The unit costs are: Star: ................ $8.96 Bucks: ............. $10.96 Number of units ......................... Materials cost per unit ............... Costs ......................................... Operation costs: Direct Labor.......................... Indirect materials .................. Other overhead .................... Total operation cost.........
Star 10,000 $5.00 $50,000
Bucks 40,000 $7.00 $280,000
Total 50,000 $ 330,000 $ 60,000 17,000 121,000 $198,000
Cost per unit in plant ................. ($198,000 ÷ 50,000 units) = $3.96 per pound. Operation cost (@ $3.96 per unit) ..................... Material cost.............................. Total cost................................... Number of units ......................... Unit cost ....................................
$39,600a 50,000 $89,600 10,000 $8.96
a
$39,600 = 10,000 units x $3.96 per unit.
b
$158,400 = 40,000 units x $3.96 per unit.
Solutions Manual, Chapter 6
$158,400b 280,000 $438,400 40,000 $10.96
$198,000
©The McGraw-Hill Companies, Inc., 2008 181
Solutions to Problems 6-36. (30 Minutes) Product Costing: Tiger Furnishings The unit costs are: Basic: $186.79 and Dominator: $404.22 Basic Dominator Total Direct materials ............................................................ $10,000 $3,750 $13,750 Direct labor...................................................................64,500 35,500 100,000 Manufacturing overhead a (@174.1% of Direct labor cost) .................................. 112,295 61,806 174,100b Total costs.................................................................... $186,795 $101,056 $287,850b Units produced ............................................................. 1,000 250 Unit cost ....................................................................... $186.795 $404.22 a
174.1% = $174,100 ÷ $100,000.
b
Adjusted for rounding error.
6-37. (30 Minutes) Product Costing: Tiger Furnishings The unit costs are: Basic: $190.57 and Dominator: $389.13 Basic Dominator Direct materials ...................................................... $ 10,000 $3,750 Direct labor.............................................................64,500 35,500 Manufacturing overhead a (@29.0167 per machine-hour) ............................ 116,067b 58,033c Total costs.............................................................. $ 190,567 $97,283 Units produced ....................................................... 1,000 250 Unit cost ................................................................. $ 190.57 $389.13 a
$29.0167 per machine-hour = $174,100 ÷ 6,000 machine-hours.
b
$116,067 = 4,000 machine-hours x $29.0167 per machine-hour.
c
$58,033 = 2,000 machine-hours x $29.0167 per machine-hour.
©The McGraw-Hill Companies, Inc., 2008 182
Total $13,750 100,000 174,100 $287,850
Fundamentals of Cost Accounting
6-38. (30 Minutes) Product Costing—Ethical Issues: Tiger Furnishings a. The unit costs are different because the two products use the machine hours and direct labor costs in different proportions. The Basic model is more machine intensive (it uses relatively more machine hours than labor compared to the Dominator model). This means that when the company moves to machine hours to allocate costs, the Basic model will be assigned more overhead costs resulting in higher reported product costs. b. Without knowing more about the production process at Tiger Furnishings, it is not possible to say which of these is better. Because you get different results, it may pay to use a two stage system to split overhead between that which is driven more by machine hours and that driven more by direct labor. c. The allocation base should be chosen on the basis of how overhead is related to cost. Income is the result of this decision and not the basis for the decision.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 183
6-39. (30 Minutes) Two-Stage Allocation and Product Costing: Mets Products a. The overhead rates are $9 per machine hour and 30% of direct-materials cost.
Account Utilities …………………………. ................. Supplies .................................................... Machine depreciation and maintenance ... Purchasing and storing materials ............. Miscellaneous............................................ Total overhead ........................................ ÷ Total machine hours ............................... ÷ Total materials cost ................................ Overhead rate ...........................................
Machine-Hour Related $ 4,000
Materials Related $2,800
8,800 3,400 $ 16,200 ÷ 1,800 hours $9 / hour
3,200 __________________________ $ 6,000 ÷ $20,000 30%
b. Baseball Caps Machine hours used........................................... 1,000
T-shirts 800
Total 1,800
$8,000 2,400
$20,000 6,400
7,200 2,400 $20,000 5,000 $4.00
16,200 6,000 $48,600 15,000
Direct materials costs …………………. $12,000 Direct labor costs ……………………… 4,000 Manufacturing overhead costs ………. a Machine-hour related overhead ...................... 9,000 b Materials-related overhead ............................. 3,600 Total cost ........................................................... $28,600 Units produced ……………………….. 10,000 Cost per unit....................................................... $2.86 a
$9,000 = 1,000 machine hours x $9 per machine hour; $7,200 = 800 machine hours x $9 per machine hour.
b
$3,600 = $12,000 materials cost x 30%; $2,400 = $8,000 materials cost x 30%.
©The McGraw-Hill Companies, Inc., 2008 184
Fundamentals of Cost Accounting
6-40. (30 Minutes) Two-Stage Allocation and Product Costing: Owl-eye Radiologists a. The overhead rates are $46 per equipment hour and $50 per direct labor hour.
Account Utilities …………………………. .................... Supplies ....................................................... Indirect labor and supervision ...................... Equipment depreciation and maintenance ... Miscellaneous............................................... Total overhead ........................................... ÷ Total equipment hours ............................... ÷ Total labor hours........................................ Overhead rate ..............................................
EquipmentHour Related $ 4,800
Direct-Labor Hour Related $12,600 20,400
8,400 3,360 $ 16,560 ÷ 360 hours $46 per hour
__________________________ $ 33,000 ÷ 660 hours $50 per hour
b.
a
Hospital Patients Equipment hours used .......................................240 Direct labor-hours...............................................480
Other Patients 120 180
Total 360 660
Direct labor costs ……………………… $38,400 Overhead costs ………. a Equipment-hour related overhead .................. 11,040 b Direct labor-hours related overhead ............... 24,000 Total cost ........................................................... $73,440 Patients ………………………………….. 640 Cost per patient.................................................. $114.75
$10,800
$49,200
5,520 9,000 $25,320 860 $29.44
16,560 33,000 $98,760 1,500
$11,040 = 240 equipment hours x $46 per equipment hour; $5,520 = 120 equipment hours x $46 per equipment hour.
b
$24,000 = 480 direct labor-hours x $50 per direct labor-hour; $9,000 = 180 direct labor-hours x $50 per direct labor-hour.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 185
6-41. (40 Minutes) Operation Costing: Vermont Instruments The unit costs are: Fin-X: ....... Sci-X: .......
$23 $28
Number of units ......................... Parts cost per unit ..................... Costs ......................................... Operation costs: Direct Labor.......................... Parts..................................... Overhead ............................. Total operation cost......... Cost per unit in plant ................. Operation cost (@ $3 per unit) .. Material cost.............................. Total cost................................... Number of units ......................... Unit cost ....................................
Fin-X 10,000 $20 $200,000
Total 50,000 $ 1,200,000 62,000 17,500 70,500 $ 150,000
($150,000 ÷ 50,000 units) = $3 per unit. $ 30,000a $ 120,000b 200,000 1,000,000 $ 230,000 $1,120,000 10,000 40,000 $23 $28
a
$30,000 = 10,000 units x $3 per unit.
b
$120,000 = 40,000 units x $3 per unit.
©The McGraw-Hill Companies, Inc., 2008 186
Sci-X 40,000 $25 $1,000,000
$150,000
Fundamentals of Cost Accounting
6-42. (45 Minutes) Accounts Analysis, Two-Stage Allocation, and Product Costing: Tiger Furnishings a. Cost Flow Diagram
Overhead
First Stage
Machine-Related Overhead
Second Stage
Machine Hours
Basic
Solutions Manual, Chapter 6
Direct Labor Cost Related Overhead Direct Labor Cost
Dominator
©The McGraw-Hill Companies, Inc., 2008 187
6-42 (continued) b. Basic Dominator
$188.00 $400.00
Units Produced........................................... Machine hours............................................ Direct labor hours.......................................
Basic 1,000 4,000 3,000
Direct materials .......................................... Direct labor.................................................
$10,000 64,500
Manufacturing Overhead Utilities................................................... Supplies ................................................ Training ................................................. Supervision ........................................... Machine depreciation ............................ Plant depreciation.................................. Miscellaneous ....................................... Total ................................................. Total Costs ................................................. Burden Rates Machine hour rate ................................. Direct labor cost rate .............................
©The McGraw-Hill Companies, Inc., 2008 188
Dominator 250 2,000 2,000
Total 1,250 6,000 5,000
$3,750 $ 13,750 35,500 100,000
Machine-hour Direct labor related cost related $1,800 $0 0 5,000 0 10,000 0 25,800 32,000 0 14,200 0 0 85,300 $48,000 $126,100
($48,000 ÷ 6,000 hours =) ($126,100 ÷ $100,000) =
$1,800 5,000 10,000 25,800 32,000 14,200 85,300 174,100 $287,850 $8.00 126.1%
Fundamentals of Cost Accounting
6-42 (continued) Product Costing Direct material ......................................... $ 10,000 Direct labor.............................................. 64,500 Overhead Machine-related (@$8 per machine-hour)...... 32,000a Labor-related (@126.1% direct labor cost) 81,335c Total overhead ....................................... $113,335 Total cost.................................................... $187,835 ÷ Units produced ........................................ ÷ 1,000 = Unit cost ................................................. = $188 a
$32,000 = 4,000 machine-hours x $8 per machine-hour.
b
$16,000 = 2,000 machine-hours x $8 per machine-hour.
c
$81,335 = $64,500 x 126.1% direct labor cost.
d
$44,766 = $35,500 x 126.1% direct labor cost
Solutions Manual, Chapter 6
$ 3,750 35,500
$ 13,750 100,000
16,000b 48,000 d 44,766 126,100 $60,766 $174,100 $100,016 $287,850 ÷ 250 1,250 = $400
©The McGraw-Hill Companies, Inc., 2008 189
©The McGraw-Hill Companies, Inc., 2008 190
Fundamentals of Cost Accounting
Solutions to Review Questions 6-1. Cost allocation is the assignment of costs in cost pools to cost objects. The cost objects may be products, services, customers, processes, or anything for which we want to know the cost. Product costing uses cost allocation to calculate product costs. Product costing is an application of cost allocation where products are the cost objects. 6-2. Cost management systems should satisfy the following criteria: •
Cost systems should have a decision focus.
•
Different cost information is used for different purposes.
•
Cost information for managerial purposes must meet the cost-benefit test.
6-3. Cost flow diagrams serve two purposes. First, they help describe how a cost management system works, just like a flow chart helps you understand how a process works. Second, cost flow diagrams help managers identify and understand quickly the effect of changes in the system design on reported costs. 6-4. A job costing accounting system traces costs to individual units or to specific jobs (typically custom products). A process costing accounting system is used when identical units are produced through a series of uniform production steps. Operation costing is used when goods have some common characteristics (process costing) and some individual characteristics (job costing). 6-5. The predetermined overhead rate is the value at which overhead is applied to one unit of the cost allocation base. It is used in product costing to apply the overhead to the units produced. Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 165
6-6. Continuous flow processing is used when a single product is mass produced in a continuing process. Examples would include products such as paint, gasoline, paper, or any others that are mass produced in a continuing process. 6-7. The basic cost flow model appears as follows: Beginning balance + Transfers in – Transfers out = Ending balance Beginning balance is the balance of inventory at the beginning of the period. Transfers in represent inventory purchased or transferred in from another department (for example, raw materials would be goods transferred in to work in process) for the period. Transfers out are goods transferred from one department to another (for example, work in process would be transferred out to finished goods). Ending balance represents the amount of inventory in a department at the end of the accounting period.
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Fundamentals of Cost Accounting
Solutions to Critical Analysis and Discussion Questions 6-8. Although there may be no one correct way to allocate cost, cost allocation can provide managers with information about the costs of the resources they use. Ignoring costs that cannot be directly assigned leads to the possibility that managers forget that it is a real resource that is being used. 6-9. There are three important points to consider: 1. The cost system should meet the needs of the users (the decision makers). 2. The cost system must provide the appropriate data for its intended purpose. Different cost information is used for different purposes. 3. Cost information for managerial purposes must meet the cost-benefit test. The costs of implementing the system should be less than the benefits derived from the system (i.e. better decisions). 6-10. The basic cost flow model is as follows: Beginning balance + Transfers in – Transfers out = Ending balance This model is used for finding one unknown or for comparing perpetual inventory system output to a physical inventory count. An example of finding one unknown is if the beginning balance is known (from the previous period ending balance), transfers in are known, and ending inventory is counted physically—and we are asked to find the cost of goods sold for the period (transfers out). 6-11. It is sometimes difficult (and frustrating) for managers when the cost accountant says that the cost depends on the decision being made. Many people feel that there is one cost that is “correct.” However, as we saw in Chapter 2, costs behave in different ways and this behavior is affected by the decision being made.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 167
6-12. Reasons to agree with approach: If the products are not contributing to company profits, then the customers should be eliminated. This will increase overall company profits. Reasons not to agree with approach: The reported product costs and the associated product profits depend on the allocation of indirect costs. Under a different allocation process, the results could be very different. In addition, many of the indirect costs are unavoidable. If the products are eliminated, the costs will be allocated to the remaining products. 6-13. The way the “products” are defined will depend, at least in part, on the decision the dean is interested in making. They may be defined as degree programs vs. non-degree programs. They may be the different degree programs. They might be the credit hour (although it is unlikely you would be able to get much information at this level). You might ask about the time frame of the analysis (to determine fixed and variable costs), the source of the data, and how to treat costs that the school does not directly pay for but where the school consumes the resources (e.g., university buildings). This is a very difficult analysis in a university setting because of the high proportion of common costs and the difficulty in defining products. 6-14. The two most important criteria in determining an allocation base are (1) causality and (2) measurability. We would like an allocation base that “causes” costs. This is rarely possible, but it is a good criterion to use. Second, we need to be able to measure the allocation base at reasonable cost. 6-15. The allocation base determines the costs assigned to the cost objects. If these costs are used to make decisions and if they are based on inappropriate or improper allocation bases, they could lead the manager to make bad decisions. 6-16. There are many reasons why two companies may have different cost systems. First, they may be in different industries. We saw in the chapter that firms in continuous process industries have different cost systems than those in discrete manufacturing industries. Firms may be pursuing different strategies (cost containment versus product differentiation) and want different information from the cost system. A third reason is that some firms may be subject to regulations (for example, utilities) and the regulations dictate the information needed from the cost system. ©The McGraw-Hill Companies, Inc., 2008 168
Fundamentals of Cost Accounting
6-17. A firm can have a two-stage system and use the same allocation base to allocate costs in the second stage. There will be different costs reported if the allocation base (direct labor, say) is used differently by the products in the second stage cost pools.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 169
Solutions to Exercises 6-18. (20 min.) Basic Cost Flow Model: Office Mart. a. $300,000 (see item 5) b. $1,240,000 = $1,200,000 + $40,000 (see items 2 & 3) c. $200,000 (see item 5) d. $1,340,000. BB + TI – TO = EB $300,000 + $1,240,000 – X = $200,000 X = $300,000 + $1,240,000 – $200,000 X = $1,340,000
6-19. (20 min.) Basic Cost Flow Model: General Electric a. $67 million = $16 million + $27 million + (.8 x $30 million) b. $50.25 million = .75 x $67 million c. BB + TI – TO = EB 0 + $67 million – $50.25 million = EB EB = $16.75 million 6-20. (20 min.) Basic Cost Flow Model. Based on the basic formula: BB + TI – a. $51,000 + $48,000 – b.
$28,400 +
X
–
c.
$67,000 + $170,000 –
TO $57,000 X $88,000 X X X X X
©The McGraw-Hill Companies, Inc., 2008 170
= = = = = = = = =
EB X $42,000 $24,800 $24,800 – $28,400 + $88,000 $84,400 $56,000 $67,000 + $170,000 – $56,000 $181,000
Fundamentals of Cost Accounting
6-21. (20 min.) Basic Cost Flow Model. Based on the basic formula: BB + TI – TO A. $250,000 + $260,000 – $270,000 X B. $7,100 + X – $22,000 X X C. $156,000 + $280,000 – X X X
= = = = = = = = =
EB X $240,000 $6,200 $6,200 – $7,100 + $22,000 $21,100 $128,000 $156,000 + $280,000 – $128,000 $308,000
6-22. (20 min.) Basic Cost Flow Model. Based on the basic formula: BB + TI – TO A. $14,000 + $12,000 – $18,000 X B. $90,000 + X – $330,000 X X C. $65,000 + $230,000 – X X X
Solutions Manual, Chapter 6
= = = = = = = = =
EB X $8,000 $93,000 $93,000 – $90,000 + $330,000 $333,000 $30,000 $65,000 + $230,000 – $30,000 $265,000
©The McGraw-Hill Companies, Inc., 2008 171
6-23. (10 min.) Basic Product Costing: Enviro Corporation. Materials............................................ Labor................................................. Manufacturing overhead.................... Total cost...................................... ÷ Gallons produced ........................... = Cost per gallon ...............................
$595,000 51,000 204,000 $850,000 ÷ 1,700,000 $0.50
6-24. (10 min.) Basic Product Costing: Big City Bank. Labor.................................................. Manufacturing overhead..................... Total .............................................. ÷ Checks processed........................... = Cost per check ................................
©The McGraw-Hill Companies, Inc., 2008 172
$ 17,000 67,000 $ 84,000 ÷ 1,400,000 $0.06
Fundamentals of Cost Accounting
6-25. (20 min.) Basic Cost Flow Model: Kim and Smith Refiners a.
Total Production: Gallons ......................................... Percentage complete................... Equivalent gallons ....................... Costs: Materials ...................................... Labor .......................................... Manufacturing overhead .............. Total cost incurred ....................... Cost per equivalent barrel............... Cost assigned to product ................
180,000
Sold
b. Work-inProcess, March 31
176,000
160,000 100% 160,000
20,000 80% 16,000
$ 94,000 24,200 49,000 $167,200 $0.95a $167,200
$152,000b
$15,200c
a $0.95
= $167,200 ÷ 176,000 equivalent units. $152,000 = 160,000 equivalent units x $0.95. c $15,200 = 16,000 equivalent units x $0.95. b
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 173
6-26. (20 min.) Basic Cost Flow Model—Ethical Issues: Old Tyme Soda a. and b. a.
Production: Barrels.............................................. Percentage complete ...................... Equivalent barrels............................ Costs: Materials.......................................... Manufacturing overhead.................. Total cost incurred........................... Cost per equivalent barrel .................. Cost assigned to product....................
b. Work-inProcess, November 30
Total
Sold
10,000
8,800 100% 8,800
1,200 30% 360
$36,960b
$1,512c
9,160 $18,072 20,400 $38,472 $4.20a $38,472
a
$4.20 = $38,472 ÷ 9,160 equivalent units. $36,960 = 8,800 equivalent units x $4.20. c $1,512 = 360 equivalent units x $4.20. b
c. (1) The change in the estimate will cause more cost to be assigned to work-inprocess inventory and less to finished goods. As the finished goods are sold, cost of goods will be lower and income higher. (2) Unless the production supervisor’s estimates are incorrect, the controller should not change the estimates. He or she has an ethical (and legal) obligation to ensure that the estimates reflect fairly the results of operations.
©The McGraw-Hill Companies, Inc., 2008 174
Fundamentals of Cost Accounting
6-27. (15 min.) Process Costing: Van Goe. a. and b.
Total Production: Gallons ......................................... Percentage complete................... Equivalent gallons ....................... Costs: Materials ...................................... Conversion costs ......................... Total cost incurred ....................... Cost per equivalent barrel............... Cost assigned to product ................
100,000
a. Transferred to Finished Goods
b. Work-inProcess, January 31
96,000
80,000 100% 80,000
20,000 80% 16,000
$219,200 280,000 $499,200 $5.20a $499,200
$416,000b
$83,200c
a $5.20
= $499,200 ÷ 96,000 equivalent units. $416,000 = 80,000 equivalent units x $5.20. c $83,200 = 16,000 equivalent units x $5.20. b
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 175
6-28. (15 min.) Process Costing: Opech, Inc. a. and b. a.
Total Production: Barrels (millions).......................... Percentage complete................... Equivalent barrels (millions)......... Costs: Materials (millions)....................... Conversion costs (millions).......... Total cost incurred (millions)........ Cost per equivalent barrel............... Cost assigned to product ................
200
Shipped
b. Work-inProcess, May 31
194
180 100% 180
20 70% 14
$2,500 3,320 $5,820 $30a $5,820
$5,400b
$420c
a $30
= $5,820 ÷ 194 equivalent units. $5,400 = 180 equivalent units x $30. c $420 = 14 equivalent units x $30. b
©The McGraw-Hill Companies, Inc., 2008 176
Fundamentals of Cost Accounting
6-29. (15 min.) Process Costing: Oholics, Ltd. a. and b. a.
Total Production: Pounds ........................................ Percentage complete................... Equivalent pounds ....................... Costs: Materials ...................................... Conversion costs ......................... Total cost incurred ....................... Cost per equivalent pound.............. Cost assigned to product ................
40,000
Sold
b. Work-inProcess, April 30
39,200
38,000 100% 38,000
2,000 60% 1,200
$44,000 54,000 $98,000 $2.50a $98,000
$95,000b
$3,000c
a $2.50
= $98,000 ÷ 39,200 equivalent units. $95,000 = 38,000 equivalent units x $2.50. c $3,000 = 1,200 equivalent units x $2.50. b
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 177
6-30. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings Predetermined overhead rate = $34.82 per direct labor hour.
Units produced ...................... Machine-hours....................... Direct labor-hours.................. Direct materials ..................... Direct labor............................ Manufacturing overhead........ Total Costs ............................
Basic 1,000 4,000 3,000 $10,000 64,500
Burden Rate: ......................... Total overhead .................. ÷ Direct labor-hours............
Dominator 250 2,000 2,000 $3,750 35,500
$174,100 ÷ 5,000
Total 1,250 6,000 5,000 $13,750 100,000 174,100 $287,850
= $34.82
6-31. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings Predetermined overhead rate = 174.1% of direct labor cost.
Units produced ...................... Machine-hours....................... Direct labor-hours.................. Direct materials ..................... Direct labor............................ Manufacturing overhead........ Total Costs ............................ Burden Rate: ......................... Total overhead .................. ÷ Direct labor cost ..............
©The McGraw-Hill Companies, Inc., 2008 178
Basic 1,000 4,000 3,000 $10,000 64,500
Dominator 250 2,000 2,000 $3,750 35,500
$174,100 ÷ $100,000
Total 1,250 6,000 5,000 $13,750 100,000 174,100 $287,850
=174.1%
Fundamentals of Cost Accounting
6-32. (15 Minutes) Predetermined Overhead Rates: Tiger Furnishings Predetermined overhead rate = $29.0167 per machine-hour (rounded).
Units produced .................. Machine-hours................... Direct labor-hours.............. Direct materials ................. Direct labor........................ Manufacturing Overhead... Total Costs ........................ Burden Rate: ..................... Total overhead .............. ÷ Machine-hours.............
Basic 1,000 4,000 3,000 $10,000 64,500
Dominator 250 2,000 2,000 $3,750 35,500
$174,100 ÷ 6,000
Total 1,250 6,000 5,000 $13,750 100,000 174,100 $287,850
=$29.0167
6-33. (20 Minutes) Cost Flow Diagram: Tiger Furnishings
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 179
6-34. (30 Minutes) Operation Costing: Howrey-David, Inc. The unit costs are: Fatboy:............ Screamer: .......
$3,700 $4,700
Number of units ......................... Materials cost per unit ............... Costs ......................................... Operation costs: Direct Labor.......................... Indirect materials .................. Other overhead .................... Total operation cost.........
Fatboy 1,000 $2,000 $2,000,000
Screamer 2,000 $3,000 $6,000,000
Total 3,000 $ 8,000,000 $ 3,000,000 800,000 1,300,000 $ 5,100,000
Cost per unit in plant ................. ($5,100,000 ÷ 3,000 units) = $1,700 per unit. Operation cost (@ $1,700 per unit) ................... $1,700,000a Material cost.............................. 2,000,000 Total cost................................... $3,700,000 Number of units ......................... 1,000 Unit cost .................................... $3,700 a
$1,700,000 = 1,000 units x $1,700 per unit.
b
$3,400,000 = 2,000 units x $1,700 per unit.
©The McGraw-Hill Companies, Inc., 2008 180
$3,400,000b 6,000,000 $9,400,000 2,000 $4,700
$5,100,000
Fundamentals of Cost Accounting
6-35. (30 Minutes) Operation Costing: Organic Grounds. The unit costs are: Star: ................ $8.96 Bucks: ............. $10.96 Number of units ......................... Materials cost per unit ............... Costs ......................................... Operation costs: Direct Labor.......................... Indirect materials .................. Other overhead .................... Total operation cost.........
Star 10,000 $5.00 $50,000
Bucks 40,000 $7.00 $280,000
Total 50,000 $ 330,000 $ 60,000 17,000 121,000 $198,000
Cost per unit in plant ................. ($198,000 ÷ 50,000 units) = $3.96 per pound. Operation cost (@ $3.96 per unit) ..................... Material cost.............................. Total cost................................... Number of units ......................... Unit cost ....................................
$39,600a 50,000 $89,600 10,000 $8.96
a
$39,600 = 10,000 units x $3.96 per unit.
b
$158,400 = 40,000 units x $3.96 per unit.
Solutions Manual, Chapter 6
$158,400b 280,000 $438,400 40,000 $10.96
$198,000
©The McGraw-Hill Companies, Inc., 2008 181
Solutions to Problems 6-36. (30 Minutes) Product Costing: Tiger Furnishings The unit costs are: Basic: $186.79 and Dominator: $404.22 Basic Dominator Total Direct materials ............................................................ $10,000 $3,750 $13,750 Direct labor...................................................................64,500 35,500 100,000 Manufacturing overhead a (@174.1% of Direct labor cost) .................................. 112,295 61,806 174,100b Total costs.................................................................... $186,795 $101,056 $287,850b Units produced ............................................................. 1,000 250 Unit cost ....................................................................... $186.795 $404.22 a
174.1% = $174,100 ÷ $100,000.
b
Adjusted for rounding error.
6-37. (30 Minutes) Product Costing: Tiger Furnishings The unit costs are: Basic: $190.57 and Dominator: $389.13 Basic Dominator Direct materials ...................................................... $ 10,000 $3,750 Direct labor.............................................................64,500 35,500 Manufacturing overhead a (@29.0167 per machine-hour) ............................ 116,067b 58,033c Total costs.............................................................. $ 190,567 $97,283 Units produced ....................................................... 1,000 250 Unit cost ................................................................. $ 190.57 $389.13 a
$29.0167 per machine-hour = $174,100 ÷ 6,000 machine-hours.
b
$116,067 = 4,000 machine-hours x $29.0167 per machine-hour.
c
$58,033 = 2,000 machine-hours x $29.0167 per machine-hour.
©The McGraw-Hill Companies, Inc., 2008 182
Total $13,750 100,000 174,100 $287,850
Fundamentals of Cost Accounting
6-38. (30 Minutes) Product Costing—Ethical Issues: Tiger Furnishings a. The unit costs are different because the two products use the machine hours and direct labor costs in different proportions. The Basic model is more machine intensive (it uses relatively more machine hours than labor compared to the Dominator model). This means that when the company moves to machine hours to allocate costs, the Basic model will be assigned more overhead costs resulting in higher reported product costs. b. Without knowing more about the production process at Tiger Furnishings, it is not possible to say which of these is better. Because you get different results, it may pay to use a two stage system to split overhead between that which is driven more by machine hours and that driven more by direct labor. c. The allocation base should be chosen on the basis of how overhead is related to cost. Income is the result of this decision and not the basis for the decision.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 183
6-39. (30 Minutes) Two-Stage Allocation and Product Costing: Mets Products a. The overhead rates are $9 per machine hour and 30% of direct-materials cost.
Account Utilities …………………………. ................. Supplies .................................................... Machine depreciation and maintenance ... Purchasing and storing materials ............. Miscellaneous............................................ Total overhead ........................................ ÷ Total machine hours ............................... ÷ Total materials cost ................................ Overhead rate ...........................................
Machine-Hour Related $ 4,000
Materials Related $2,800
8,800 3,400 $ 16,200 ÷ 1,800 hours $9 / hour
3,200 __________________________ $ 6,000 ÷ $20,000 30%
b. Baseball Caps Machine hours used........................................... 1,000
T-shirts 800
Total 1,800
$8,000 2,400
$20,000 6,400
7,200 2,400 $20,000 5,000 $4.00
16,200 6,000 $48,600 15,000
Direct materials costs …………………. $12,000 Direct labor costs ……………………… 4,000 Manufacturing overhead costs ………. a Machine-hour related overhead ...................... 9,000 b Materials-related overhead ............................. 3,600 Total cost ........................................................... $28,600 Units produced ……………………….. 10,000 Cost per unit....................................................... $2.86 a
$9,000 = 1,000 machine hours x $9 per machine hour; $7,200 = 800 machine hours x $9 per machine hour.
b
$3,600 = $12,000 materials cost x 30%; $2,400 = $8,000 materials cost x 30%.
©The McGraw-Hill Companies, Inc., 2008 184
Fundamentals of Cost Accounting
6-40. (30 Minutes) Two-Stage Allocation and Product Costing: Owl-eye Radiologists a. The overhead rates are $46 per equipment hour and $50 per direct labor hour.
Account Utilities …………………………. .................... Supplies ....................................................... Indirect labor and supervision ...................... Equipment depreciation and maintenance ... Miscellaneous............................................... Total overhead ........................................... ÷ Total equipment hours ............................... ÷ Total labor hours........................................ Overhead rate ..............................................
EquipmentHour Related $ 4,800
Direct-Labor Hour Related $12,600 20,400
8,400 3,360 $ 16,560 ÷ 360 hours $46 per hour
__________________________ $ 33,000 ÷ 660 hours $50 per hour
b.
a
Hospital Patients Equipment hours used .......................................240 Direct labor-hours...............................................480
Other Patients 120 180
Total 360 660
Direct labor costs ……………………… $38,400 Overhead costs ………. a Equipment-hour related overhead .................. 11,040 b Direct labor-hours related overhead ............... 24,000 Total cost ........................................................... $73,440 Patients ………………………………….. 640 Cost per patient.................................................. $114.75
$10,800
$49,200
5,520 9,000 $25,320 860 $29.44
16,560 33,000 $98,760 1,500
$11,040 = 240 equipment hours x $46 per equipment hour; $5,520 = 120 equipment hours x $46 per equipment hour.
b
$24,000 = 480 direct labor-hours x $50 per direct labor-hour; $9,000 = 180 direct labor-hours x $50 per direct labor-hour.
Solutions Manual, Chapter 6
©The McGraw-Hill Companies, Inc., 2008 185
6-41. (40 Minutes) Operation Costing: Vermont Instruments The unit costs are: Fin-X: ....... Sci-X: .......
$23 $28
Number of units ......................... Parts cost per unit ..................... Costs ......................................... Operation costs: Direct Labor.......................... Parts..................................... Overhead ............................. Total operation cost......... Cost per unit in plant ................. Operation cost (@ $3 per unit) .. Material cost.............................. Total cost................................... Number of units ......................... Unit cost ....................................
Fin-X 10,000 $20 $200,000
Total 50,000 $ 1,200,000 62,000 17,500 70,500 $ 150,000
($150,000 ÷ 50,000 units) = $3 per unit. $ 30,000a $ 120,000b 200,000 1,000,000 $ 230,000 $1,120,000 10,000 40,000 $23 $28
a
$30,000 = 10,000 units x $3 per unit.
b
$120,000 = 40,000 units x $3 per unit.
©The McGraw-Hill Companies, Inc., 2008 186
Sci-X 40,000 $25 $1,000,000
$150,000
Fundamentals of Cost Accounting
6-42. (45 Minutes) Accounts Analysis, Two-Stage Allocation, and Product Costing: Tiger Furnishings a. Cost Flow Diagram
Overhead
First Stage
Machine-Related Overhead
Second Stage
Machine Hours
Basic
Solutions Manual, Chapter 6
Direct Labor Cost Related Overhead Direct Labor Cost
Dominator
©The McGraw-Hill Companies, Inc., 2008 187
6-42 (continued) b. Basic Dominator
$188.00 $400.00
Units Produced........................................... Machine hours............................................ Direct labor hours.......................................
Basic 1,000 4,000 3,000
Direct materials .......................................... Direct labor.................................................
$10,000 64,500
Manufacturing Overhead Utilities................................................... Supplies ................................................ Training ................................................. Supervision ........................................... Machine depreciation ............................ Plant depreciation.................................. Miscellaneous ....................................... Total ................................................. Total Costs ................................................. Burden Rates Machine hour rate ................................. Direct labor cost rate .............................
©The McGraw-Hill Companies, Inc., 2008 188
Dominator 250 2,000 2,000
Total 1,250 6,000 5,000
$3,750 $ 13,750 35,500 100,000
Machine-hour Direct labor related cost related $1,800 $0 0 5,000 0 10,000 0 25,800 32,000 0 14,200 0 0 85,300 $48,000 $126,100
($48,000 ÷ 6,000 hours =) ($126,100 ÷ $100,000) =
$1,800 5,000 10,000 25,800 32,000 14,200 85,300 174,100 $287,850 $8.00 126.1%
Fundamentals of Cost Accounting
6-42 (continued) Product Costing Direct material ......................................... $ 10,000 Direct labor.............................................. 64,500 Overhead Machine-related (@$8 per machine-hour)...... 32,000a Labor-related (@126.1% direct labor cost) 81,335c Total overhead ....................................... $113,335 Total cost.................................................... $187,835 ÷ Units produced ........................................ ÷ 1,000 = Unit cost ................................................. = $188 a
$32,000 = 4,000 machine-hours x $8 per machine-hour.
b
$16,000 = 2,000 machine-hours x $8 per machine-hour.
c
$81,335 = $64,500 x 126.1% direct labor cost.
d
$44,766 = $35,500 x 126.1% direct labor cost
Solutions Manual, Chapter 6
$ 3,750 35,500
$ 13,750 100,000
16,000b 48,000 d 44,766 126,100 $60,766 $174,100 $100,016 $287,850 ÷ 250 1,250 = $400
©The McGraw-Hill Companies, Inc., 2008 189
©The McGraw-Hill Companies, Inc., 2008 190
Fundamentals of Cost Accounting
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