Langfieldsmith 6e SM ch04

CHAPTER 4
PRODUCT COSTING SYSTEMS

ANSWERS TO REVIEW QUESTIONS
4.1
Purpose Current/Future product costs
Short-term decisions: product mix, pricing Future
Longer-term strategic decisions Future
Long-term pricing Future
Plan future product-related costs Future
Control of product costs Current
Reimbursement contracts Current
External reporting (inventory calculation) Current
All of the information cannot come from one source. The accounting system may accumulate current and past
product costs but for some decision making and planning, estimates of future costs will need to be generated
outside of the accounting system.
4.2 The frequency with which managers require product cost information relates to the use to which the information
is to be put, i.e. the decision being made. You will recall from the chapter that managers need cost information to
value inventory, for short-term and strategic decision making, for planning and controlling costs, and sometimes
for claiming costs under cost reimbursement contracts. In these situations managers may focus primarily on
production costs, although the scope of the analysis can be extended to include product-related costs from other
areas of the value chain.
Hence the frequency with which managers require estimates of product costs varies. Estimates of product costs
for long-term decisions will be required infrequently—when strategic plans are being developed or revised.
Even short-term decisions about products may be made irregularly. In contrast, product costs for control and for
inventory valuation are required regularly, possibly monthly or weekly. Likewise, managers may choose to
monitor product profitability on a regular basis.
4.3 A recent survey of members of the Chartered Institute of Management Accountants (CIMA) found that less than
50 per cent of respondents had systems for costing products in their organisation, and in small organisations this
figure fell to 34 per cent (CIMA, 2009).
The range of costs included within a product costing system varies from one organisation to another. A
comprehensive picture of product costs requires the inclusion of upstream and downstream costs. In practice
many businesses confine their product costing systems to manufacturing costs. This is particularly true of small
to medium-sized manufacturing businesses since more comprehensive costing systems cost more to implement
and maintain. The costing systems that only include manufacturing costs produce the inventory valuations for
external financial reporting required by Australian accounting standards. Any additional product-related costs
must be identified through special studies. Often, smaller businesses do not have the resources for special
studies, and managers may rely on product costs developed for external reporting for making a whole range of
decisions. This does not seem ideal, although it must reflect management’s assessment of the costs and benefits
of obtaining more relevant product cost information!
4.4 Managers need cost information to support a range of managerial roles including short-term and strategic
decision making, planning and controlling costs, and sometimes for claiming costs under cost reimbursement
contracts, and while the production environment in small businesses may be less complex than in larger
businesses, these needs may be just as relevant. Managers in small businesses may also need to value their
inventory for inclusion in their financial reports. However, small businesses may be discouraged from
implementing a product costing system due to scarce resources. This attempt to contain costs can mean that,
when making operating decisions, they may rely on costing figures prepared for external reporting purposes.
Chapter 4 Solutions Manual to accompany Management Accounting: Information for Creating and Managing Value 6e
by Langfield-Smith, Thorne and Hilton. Copyright  2012 McGraw-Hill Australia Pty Ltd 1
Competitive pricing can result in them under-pricing products to the point that they sell at a loss. To evaluate
profitability of products the small business must add cost items such as transportation, insurance and customs
charges to its purchase or manufacturing costs. When selling price is dictated by the market it is vital to
accurately assess costs and, if profitability is lacking, work on reducing costs or move to different products or
markets.
4.5 This is not entirely satisfactory. Product costs may be useful for a range of decisions. Even though the business
is a ‘price taker’, it may well need to consider whether it should be making all of the products in the range, as
some may be unprofitable. A wrong decision may cost the firm more than it does to run a product costing
system. A product costing system may help to control production costs and highlight problems. The firm will
need some product costs at year-end to value inventory, even if it is minimal.
4.6 In making long-term decisions about products, such as which products to produce and what price to set,
managers need a complete picture of all the costs associated with the product. In the shorter term, particularly for
existing products, the manager may ignore research and development and design costs, since they have already
been incurred. In this case, the relevant product cost will include the manufacturing, marketing, distribution and
customer service costs associated with the product.
4.7 When direct material, direct labour and manufacturing overhead costs are incurred, they are applied to work in
process inventory by debiting the account. When goods are finished, the costs are removed from the work in
process account with a credit, and are then transferred to finished goods inventory by debiting that account.
Subsequently, when the goods are sold, the finished goods inventory is credited and the costs are added to the
cost of goods sold, with a debit.
4.8 The four steps followed when applying manufacturing overhead to products are:
(a) identifying the overhead cost driver, which is the factor that causes the overhead costs to be incurred
(b) calculating the overhead rate, which is usually based on the budgeted annual manufacturing overhead
cost, divided by the budgeted annual volume of cost driver
(c) applying manufacturing overhead costs to products, by multiplying the predetermined overhead rate by
the amount of cost driver consumed by the product
(d) overapplied or underapplied overhead is closed into cost of goods sold at year end.
4.9 Overapplied or underapplied overhead is caused by errors in estimating the predetermined overhead rate. These
errors can occur in the numerator (budgeted manufacturing overhead), or in the denominator (budgeted level of
the cost driver). It can also be caused by using inappropriate cost drivers to allocate the overheads to products.
Overapplied or underapplied overhead should be closed at year end because month-to-month variations are
likely to average out over the year.
4.10 Overapplied or underapplied overhead can be closed directly into cost of goods sold, or it can be prorated among
work in process inventory, finished goods inventory and cost of goods sold. If the amount of underapplied or
overapplied overhead is significant, it should be prorated.
4.11 In a job costing system, costs are assigned to batches or job orders of production. Job costing systems are used
by firms that produce relatively small numbers of dissimilar products. Job costing would be used in any situation
where products are produced to customers’ specifications, such as in a dressmaking business, an architectural
firm, or in a panel-beating shop. In a process costing system, production costs are averaged over a large number
of product units. Process costing systems are used by firms that produce large numbers of nearly identical
products, such as paint, beer or bricks.
In job costing situations, the job has specific characteristics that allow it to be identified from the outset, and
direct costs can be traced to the job. In a process costing environment, such as producing paint, each litre of paint
is identical to every other litre and cannot be distinguished. This means that direct costs must be traced to the
production process and then averaged across all units produced.
4.12 (a) The steps in describing the flow of costs through a single-department process costing system are as
follows:
 As raw material, direct labour and manufacturing overhead are introduced into production, their costs are
debited to the work in process inventory account.
 As the goods are completed their costs are credited from the work in process inventory account and
debited into the finished goods inventory account.
 As the goods are sold their costs are credited from the finished goods inventory account and debited into
the cost of goods sold account.
(b) In a two-stage production process, when goods are finished in production department A, the costs
accumulated in the work in process inventory account are transferred to the work in process inventory
account for production department B.
4.13 In the ‘Real life’ scenario describing the cost of Australian wine, the Australian winemakers would probably use
either process or a hybrid costing system (a combination of job costing and process costing). There are some
processes (such as de-stemming, crushing, filtering, bottling, labelling and packaging process) that are common
to production of all types of wine, but some other processes (such as fermentation, maturation and stabilisation
process) would be different for different types of wine (such as red, white sparkling or fortified wine). In
addition different types of wine use different varieties of grapes (direct materials), which may differ
considerably in purchase price. In other words, the winemaker would use hybrid costing system if they are
producing different types of wine and use process costing if they are producing only wine that undergoes
common processes and uses grape varieties with very similar costs.
4.14 (a) The job costing sheet is used to summarise the costs of direct material, direct labour and manufacturing
overhead that relates to a particular job.
(b) A material requisition form authorises the transfer of raw material from the warehouse to the production
department, and is used to record the cost of materials for jobs.
(c) A labour timesheet is used to record the amount of time spent on each job.
4.15 (a) Total manufacturing cost is the cost of materials and labour used, and the overhead applied for the period.
(b) Manufacturing costs to account for, include the cost of opening inventory for work in process.
(c) Cost of goods manufactured is the total manufacturing cost adjusted for opening and closing inventory.
4.16 Production costs are tracked to each production department for two reasons:
 Department managers are held responsible for cost control, and so the costs for each department must be
identifiable.
 When there are work in process inventories at the end of an accounting period, separate costs are
necessary for each department in order to calculate the value of work in process for that department.
4.17 Process costing is appropriate to industries where large quantities of identical units are produced. The system of
costing used in these industries is simplified when there are no goods in process at the end of the accounting
period and, therefore, no need to value the closing inventory of work in process. Industries in which this is
applicable are those where a batch of production is completed entirely and no part of it can be held over for
further processing. This is well illustrated in the example for Spritz given in the chapter, because any material
left in the mixing tank is discarded. Other industries which are similar are petroleum refining, beer brewing and
paint manufacture. In the real world, firms sometimes close off their books at the completion of the last batch for
the accounting period, rather than commence a fresh batch a few hours before the closing date, and then be
confronted by the problem of having to value the work in process. Chapter 5 explains how industries deal with
this complexity where work in process at the end of the accounting period is unavoidable.
4.18 Australian accounting standard AASB 102 has several requirements relating to inventories arising from
production:
The cost of inventories produced are to include the costs of:
 direct materials
 direct labour and on-costs
 sub-contracted work
 a systematic allocation of production overheads.
The balance sheet must disclose separately the accounting policies adopted for measuring inventories, including
work in process and finished goods. Both of these requirements involve costs determined using job costing systems
and process costing systems. The valuing of work in process using process costing is not dealt with until Chapter 5.
4.19 Under AASB 102, the cost of inventories is to exclude the cost of abnormal wastage, storage, administration and
selling cost.
4.20 An advantage of prorating overapplied or underapplied overhead is that it results in the adjustment of all the
accounts affected by misestimating the overhead rate. These accounts include the work in process inventory
account, the finished goods inventory account, and the cost of goods sold account. The resulting balances in
these accounts are more accurate when proration is used than when overapplied or underapplied overhead is
closed directly into cost of goods sold. The 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 cost of goods sold.
SOLUTIONS TO EXERCISES
EXERCISE 4.21 (20 minutes) Manufacturing cost flows
1
Raw Materials Inventory
227 000
174 000
53 000
Wages Payable
324 000
Manufacturing Overhead
180 000
Work in Process Inventory

18 000
174 000
324 000
180 000
120 000
576 000
Finished Goods Inventory

30 000
120 000
132 000
18 000
Sales Revenue
195 000
Accounts Receivable
195 000
Cost of goods Sold

132 000
2
Fitzgerald’s Fine Furniture
Partial Balance Sheet
as at 31 December
Current assets
Cash XXX
Accounts receivable XXX
Inventory
Raw materials $ 53 000
Work in process 576 000
Finished goods 18 000
Fitzgerald’s Fine Furniture
Partial Income Statement
for the year ended 31 December
Sales revenue $195 000
Less: Cost of goods sold 132 000
Gross margin $63 000
EXERCISE 4.22 (30 minutes) Job or process costing: film producer
Job-order costing is the appropriate product-costing system for feature film production, because a film is a unique
production. The production process for each film would use labour, material and support activities (i.e., overhead) in
different ways. This would be true of any type of film (e.g., filming on location, filming in the studio, or using
animation).
EXERCISE 4.23 (15 minutes) Job versus process costing
1 A manufacturer of swimming pool chemicals would use process costing, as there are a limited number of
products which are produced in large quantities in similar production processes. Direct costs can be traced to
each production process and then averaged across all units produced.
2 A manufacturer of custom hot tubs and spas would use job costing, as the custom made hot tubs and spas are
produced to customer specifications, and direct costs (direct materials and direct labour) can be traced to each
job easily and economically.
3 An architectural firm would use job costing, as each design is unique and the direct costs (such as professional
fee and drawings’ printing costs) can be traced to each design/job.
4 A manufacturer of ceramic tiles would use process costing, as the different types of ceramic tiles are produced in
batches in large quantities across similar production processes.
5 A producer of yogurt would use process costing as the production process for each type of yogurt would be very
similar and involve similar production processes.
6 A manufacturer of custom built tool sheds would use job costing, as custom built products are produced to
customers’ specifications, and direct costs (direct materials and direct labour) can be traced to each job.
7 A manufacturer of paper clips would use process costing, as different types of paper clips would be very similar
and they would be mass produced using the same processes.
8 An engineering consulting firm would use job costing, as each engineering project is unique and would use
different amounts of resources, which can be traced to each job.
9 A manufacturer of balloons would use process costing, as the production of balloons would involve only a few
types of products produced in large quantities using a number of similar production processes.
10 A manufacturer of custom built emergency rescue vehicles would use job costing, as custom built vehicles are
produced to specified customer needs. Direct costs (direct materials and direct labour) will vary and could be
traced to each job.
EXERCISE 4.24 (25 minutes) Job cost sheet: manufacturer
1
Job cost sheet
Job number TB78 Description Teddy bears
Date started 1 April Date completed 15 April
Number of units completed 1000
Direct material
Date Requisition number Quantity Unit price Cost

1 April 101 450 $0.80 $360
5 April 108 600 $0.30 $180
Direct labour
Date Time sheet number Hours Rate Cost

15 April 72 500 $19 $9500
Manufacturing overhead
Date Cost driver Quantity Application rate Cost

15 April Direct labour hours 500 $12 $6000
Cost summary
Cost item Amount

Total direct material $ 540
Total direct labour 9 500
Total manufacturing overhead 6 000
Total cost $16 040
Unit cost $16.04
Delivery summary
Date Units shipped Units remaining in Cost balance

inventory
30 April 700 300 $4812*
* 300 remaining in inventory  $16.04 = $4812
2 Managers may use this information to make pricing decisions, assess product profitability, control product costs,
and to estimate inventory values.
EXERCISE 4.25 (15 minutes) Overapplied or underapplied overhead: manufacturer
1 Predetermined overhead rate = $997 500/75 000 hours = $13.30 per hour
2 To calculate actual manufacturing overhead:

Depreciation........................................................................................................................$231 000
Property taxes...................................................................................................................... 21 000
Indirect labour..................................................................................................................... 82 000
Supervisory salaries............................................................................................................ 200 000
Utilities................................................................................................................................ 59 000
Insurance............................................................................................................................. 30 000
Factory rent......................................................................................................................... 300 000
Indirect material:
Beginning inventory, 1 January..................................................................................
$ 48 000
Add: Purchases...........................................................................................................
94 000
Indirect material available for use..............................................................................
$142 000
Deduct: Ending inventory, 31 December................................................................... 63 000
Indirect material used................................................................................................. 79 000
Actual manufacturing overhead.......................................................................................... $1 002 000
Actual Applied
Overapplied
= manufacturing – manufacturing
overhead
overhead overhead
= $1 002 000 – ($13.30 x 80 000 DLH)
= $1 002 000 – 1 064 000
= $62 000 overapplied
3
Manufacturing overhead..................................................................................
62 000
Cost of goods sold 62 000
4 The overapplied overhead was caused by the mis-estimated manufacturing overhead rate. The budgeted
overhead costs, $997 500, were below the actual costs of $1 002 000. However, the actual hours were 80 000
hours, 5000 hours above budget. This caused overhead to be overapplied.
EXERCISE 4.26 (10 minutes) Basic journal entries in job costing: manufacturer
Work in process inventory $4454

Direct material inventory $3200
Wages payable (38 x $22) 836
Manufacturing overhead (38 x $11) 418
Finished goods inventory $4454

The cost per puzzle for job number B67 is $8.908 ($4454/500).
EXERCISE 4.27 (20 minutes) Schedule of cost of goods manufactured
1
Crafted Furniture Ltd
Schedule of Cost of Goods Manufactured
Direct material:
Raw material inventory, 1 January................................................................. $45 000
Add: Purchases of raw material...................................................................... 417 000
Raw material available for use....................................................................... 462 000
Deduct: Raw material inventory, 31 December............................................. 49 500
Raw material used.......................................................................................... $412 500
Direct labour............................................................................................................. 180 000
Manufacturing overhead 378 000*
Total manufacturing costs......................................................................................... 970 500
Add: Work in process inventory, 1 January.............................................................. 58 500
Subtotal..................................................................................................................... 1 029 000
Deduct: Work in process inventory, 31 December .................................................. 64 350
Cost of goods manufactured..................................................................................... $964 650
*Applied manufacturing overhead is $378 000 ($180 000  210%). Actual manufacturing overhead is also
$378 000, so there is no overapplied or underapplied overhead.
2
Finished goods inventory, 1 January..................................................................................................
$63 000
Add: Cost of goods manufactured......................................................................................................
964 650
Cost of goods available for sale.........................................................................................................
1 027 650
Deduct: Finished goods inventory, 31 December.............................................................................. 69 300
$958 350
EXERCISE 4.28 (15 minutes) Process costing; no work in process: manufacturer
1
Mixing department costs = $132 600/70 000 = $1.894*
Packing department costs = $34 200/70 000 = $0.489*
Total cost per container = $166 800/70 000 = $2.383*
* corrected to 3 significant places
2
Dr. Work in process – mixing $132 600
Cr. Raw materials inventory $75 000
Wages payable 36 000
Manufacturing overhead 21 600
Dr. Work in process – packing 132 600

Cr. Work in process – mixing 132 600
Dr. Work in process – packing 34 200

Cr. Raw materials inventory 15 000
Dr. Finished goods $166 800

Cr. Work in process – packing $166 800
EXERCISE 4.29 (20 minutes) Process costing; no work in process: brewer
1 The cost per bottle is calculated as follows:

Mixing $150 000/150 000 bottles = $1.00
Bottling $33 000/150 000 bottles = $0.22
Total cost per bottle $1.22
2 Journal entries:
Dr. Work in process – mixing $150 000
Cr. Raw materials inventory $112 500
Dr. Work in process – bottling 150 000

Cr. Work in process – mixing 150 000
Dr. Work in process – bottling 33 000

Cr. Raw materials inventory 18 000
Wages payable 6 000
Dr. Finished goods $183 000

Cr. Work in process – bottling $183 000
3 Process costing is the correct costing system to use where large quantities of identical units are produced. Where
production takes place in more than one department, the costs are progressively accumulated as production
moves from one department to the next. It is normal to record the costs of each department separately as these
are used for control purposes. South Brew Ltd is following conventional process costing procedures.
EXERCISE 4.30 (20 minutes) Proration of underapplied overhead: manufacturer
1 Applied manufacturing overhead $145 000

Actual manufacturing overhead $167 000
Therefore, overhead has been underapplied by $22 000.
2 Calculation of proration amounts:

Calculation of
Account Amount Percentage percentage
Work in process $ 29 000 20% 29 000 $145 000
Finished goods 50 750 35% 50 750 $145 000
Cost of goods sold 65 250 45% 65 250 $145 000
Total $145 000 100%
Underapplied Amount to be added

Account Overhead  Percentage to account
Work in process $22 000  20% $4400
Finished goods 22 000  35% 7700
Cost of goods sold $22 000  45% $9900
Journal entry:
Finished goods inventory 7700
Cost of goods sold $ 9900
Manufacturing overhead $22 000
3 If all of the underapplied overhead had been closed to cost of goods sold, rather than being prorated, cost of
goods sold would have been increased by $22 000 instead of $9900. Thus, profit would have been $12 100
lower under this approach.
SOLUTIONS TO PROBLEMS
PROBLEM 4.31 (25 minutes) Predetermined overhead rate; journal entries
2 Journal entries:
(a) Raw material inventory....................................................... $7 850
Accounts payable.................................................... $7 850
(b) Work in process................................................................... 180

Raw material inventory........................................... 180
(c) Manufacturing overhead..................................................... 30

Manufacturing supplies inventory.......................... 30
(d) Manufacturing overhead..................................................... 800

Cash......................................................................... 800
(e) Work in process inventory.................................................. 75 000

Wages payable........................................................ 75 000
(f) Selling and administrative expense..................................... 1 800

Prepaid insurance.................................................... 1 800
(g) Raw material inventory....................................................... 3 000

Accounts payable.................................................... 3 000
(h) Accounts payable................................................................ 1 700

Cash......................................................................... 1 700
(i) Manufacturing overhead..................................................... 21 000

Wages payable........................................................ 21 000
(j) Manufacturing overhead..................................................... 7 000

Accumulated depreciation: equipment................... 7 000
(k) Finished goods inventory.................................................... 1 100

Work in process inventory...................................... 1 100
(l) Work in process inventory.................................................. 140 000*

Manufacturing overhead......................................... 140 000
*Applied manufacturing overhead = 7000 machine hours x $20 per hour
(m) Accounts receivable............................................................ 176 000
Sales revenue.......................................................... 176 000
Cost of goods sold............................................................... $139 000

Finished goods inventory........................................ $139 000
PROBLEM 4.32 (35 minutes) Job costing; journal entries
1 Predetermined overhead rate = budgeted overhead ÷ budgeted machine hours

= $840 000 ÷ 16 000
= $52.50 per machine hour
2 (a)
Work in process inventory $80 000*
Raw material inventory $80 000
Work in process inventory $130 800**

Wages payable $130 800
* $21 000 + $44 000 + $15 000 = $80 000
** $35 000 + $22 000 + $65 000 + $8 800 = $130 800
(b)
Manufacturing overhead $283 500
Accumulated depreciation $34 000
Manufacturing supplies inventory 50 000
Miscellaneous accounts 139 500
(c)
Work in process inventory $231 000*
Manufacturing overhead $231000
* (1200 + 700 + 2000 + 500)  $52.50 = $231 000
(d)
Finished goods inventory $315 250*
Work in process inventory $315 250
* Job 64: $84 000 + $21 000 + $35 000 + (1 200  $52.50) = $203 000
Job 65: $53 500 + $22 000 + (700  $52.50) = $112 250
$315 250 = $203 000 + $112 250
(e)
Accounts receivable $146 950*
Sales revenue $146 950
* $112 250 + $34 700 = $146 950
Cost of goods sold $112 250
Finished goods inventory $112 250
3 Job no. 66 and no. 67 are in production as of 31 March:
Job 66: $44 000 + $65 000 + (2000  $52.50) $214 000
Job 67: $15 000 + $8800 + (500  $52.50) 50 050
Total $264 050
4 There was a zero balance in Finished Goods inventory at the beginning of the period. During the first quarter
Jobs 64 and 65 were transferred in and Job 65 was sold. Finished goods inventory therefore increased by
$203 000 (i.e. $315 250 - $112 250).
PROBLEM 4.33 (45 minutes) Basic job costing; journal entries; ledger accounts; job cost card
1 Journal entries:
(a) Raw material inventory $33 000
Accounts payable 33 000
(b) Work in process inventory 66 000

Raw material inventory 66 000
Job G60 1000  $11 = 11 000
Job C81 5000  $11 = 55 000
(c) Manufacturing supplies inventory 100

Accounts payable (or cash) 100
Manufacturing overhead 100

Manufacturing supplies inventory 100
(d) Manufacturing overhead 8 000

Accumulated depreciation: equipment 8 000
(e) Manufacturing overhead 400

Cash 400
(f) Work in process inventory 16 000

Job G60 100  $20 = 2000
Job C81 700  $20 = 14 000
Work in process inventory 9 600

Job G60 100  $12 = 1 200
Job C81 700  $12 = 8 400
Predetermined overhead rate = = $12 per hour
(g) Manufacturing overhead 910

Council rates payable 910
(h) Manufacturing overhead 2 500

Wages payable 2 500
(i) Finished goods inventory 17 900
Work in process inventory 17 900*
* cost amount derived in requirement
(j) Accounts receivable 15 000

Sales revenue 15 000
Cost of goods sold 12 000

Finished goods inventory $12 000
2 Ledger accounts
Raw Materials Inventory
Bal. 1/10 55 000 66 000
33 000 22 000 Bal. 31/10 (cf)
88 000 88 000
Bal. 1/11 (bf) 22 000
Work in Process Inventory

Bal. 1/10 G60 3 700
DM G60 11 000
DM C81 55 000 17 900 G60
DL G60 2 000 77 400 Bal.. 31/10 (cf)

DL C81 14 000 95 300
MOH G60 1 200
MOH C81 8 400
95 300
Bal.1/11 (bf) 77 400
Finished Goods Inventory

Bal. 1/10 B50 12 000 12 000 B50
G60 17 900 17 900 Bal. 31/10 (cf)
29 900 29 900
Bal.1/11 (bf) 17 900
3 Job cost card for Job G60

Job cost sheet
Job number G60 Description Jewellery box
Date started July Date completed October
Number of units completed xxx
Direct material
July – September xxx xxx xxx $500
October xxx 1000 $11 $11 000
Direct labour
July – September xxx xxx xxx $2000
October xxx 100 $20 $2000
July – September Direct labour hours xxx xxx $1200
October Direct labour hours 100 $12 $1200
Cost summary
Cost Item Amount
Total direct material $11 500
Total cost $17 900
PROBLEM 4.34 (30 minutes) Cost of goods manufactured; overapplied or underapplied

overhead; journal entries
1 Cost added to work in process inventory during February:

Direct material $26 000
Direct labour 20 000
Manufacturing overhead* 30 000
Total costs added $76 000
Add: Work in process inventory 9 000
Subtotal 85 000
Less: Work in process inventory, February 28:
Direct material $ 2 800
Direct labour 1 800
Manufacturing overhead* 2 700
Total 7 300
Cost of goods manufactured $77 700
* 150% of direct labour cost.
2 Underapplied overhead = actual overhead – applied overhead

$2000 = $32 000 – $30 000
3 Journal entries:
Raw materials inventory 26 000


Manufacturing overhead 30 000*
* 150% of direct labour cost.
Various accounts† 32 000
†The credits to various accounts related to actual manufacturing overhead items were $32 000 in total.
Finished goods inventory 77 700
Work in process inventory** 77 700
Cost of goods sold 2000

**
Work in process inventory
31/1/X2 $9 000
26 000 77 700
20 000
30 000
28/2/X2 7 300
PROBLEM 4.35 Flow of manufacturing costs; incomplete data
1 The answers to the questions are as follows:

(a) $216 000 (f) $60 000
(b) $19 000 (g) $150 000
(c) $70 000 (h) $40 000
(d) $38 000 (i) $15 000
(e) $80 000 (j) Zero
2 The completed ledger accounts (in bold), along with supporting calculations, follow.
Raw-Material Inventory Accounts Payable

Bal. 1/11 15 000 12 000 Bal. 1/11
70 000 40 000 81 000 70 000
Bal.30/11 45 000 1 000 Bal. 30/11
Work in process Inventory Finished goods Inventory

Bal. 1/11 8 000 Bal. 1/11 35 000
Direct 150 000 150 000 180 000
material 40 000 Bal. 30/11 5 000
Direct
labour 80 000 Cost of Goods Sold
Overhead 60 000 180 000
Bal. 30/11 38 000
Manufacturing Overhead Sales Revenue
60,000 60 000 216 000
Wages Payable Accounts Receivable

1 000 Bal. 1/11 Bal. 1/11 8 000
79 500 80 000 216 000 205 000
1 500 Bal. 30/11 Bal. 30/11 19 000
Supporting Calculations:
(a) Sales revenue = cost of goods sold x 120%

= $180 000 x 120% = $216 000
(b) Ending balance in accounts receivable = beginning balance + sales revenue

– collections
= $8000 + $216 000 – $205 000
= $19 000
(c) Purchases of raw material = addition to accounts payable
Addition to accounts payable = ending balance + payments – beginning balance

= $1000 + $81 000 – $12 000
= $70 000
(d) 30 November balance in work in direct direct manufacturing

= + +
process inventory material labour overhead
= $20 500 + (500)($20) + (500)($15*)
= $38 000
*Predetermined overhead rate =
=
= $15 per direct labour hour
†
Budgeted direct-labour hours =
(e) Addition to work in process November credit to

for direct labour = wages payable
November credit to
wages payable = ending balance + payments – beginning balance
= $1 500 + $79 500  $1000 = $80 000
(f) November applied overhead = direct labour hours x predetermined overhead rate
= 4000* x $15
= $60 000
*Direct labour hours =
beginning balance in ending balance in work in

(g) Cost of goods completed during work in process additions process
November = + during –
November
= $8000 + ($40 000 + $80 000 + $60 000) – $38 000

= $150 000
(h) Raw material used in November November credit to raw material

= inventory = $40 000 (given)
(i) October 31 balance in 30 November balance in direct

raw-material inventory = raw material inventory + material – purchases
used
= $45 000 + $40 000 – $70 000
= $15 000
(j) Overapplied or underapplied overhead = actual overhead – applied overhead

= $60 000 – $60 000 = 0
PROBLEM 4.36 (30 minutes) Cost of goods manufactured; prime and conversion costs
1
Marco Polo Map Ltd
Schedule of cost of goods manufactured
for the month of March
Direct material:
Raw materials inventory, 1 March $ 17 000g
Add: March purchases of raw material 113 000 g
Raw material available for use 130 000 c
Less: Raw materials inventory, 31 March 26 000 g
Raw materials used $104 000 c

Direct labour 160000*
Manufacturing overhead applied (50% of direct labour) 80000*
Total manufacturing costs 344 000 c
Add: Work in process inventory, 1 March 40 000 g
Subtotal 384 000 c
Less: Work in process inventory
March 31 (90%  $40 000) 36 000 c
Cost of goods manufactured $348 000 †
g
These are given, so construct the statement with these inserted first
c
Calculate these in this order: raw material available for use; raw material used; cost of goods manufactured;
work in process inventory at the end; subtotal in the work in process inventory; combined direct labour and
overhead applied.
†To calculate cost of goods manufactured:
Cost of goods sold = beginning inventory finished goods + cost of goods manufactured – ending inventory
finished goods.
345 000 = 102 000 + cost of goods manufactured – 105 000
Cost of goods manufactured = $348 000
* Work upward from the bottom of the statement, using information available. Direct labour + manufacturing
overhead = total manufacturing costs – direct material cost = $344 000 – $104 000 = $240 000. Since
manufacturing overhead = 50% of direct labour, then manufacturing overhead = $80 000 and direct labour =
$160 000.
2
Marco Polo Map Ltd
Schedule of prime costs
Raw material:
Beginning inventory $ 17 000
Add: Purchases 113 000
Raw materials available 130 000
Less: Ending inventory 26 000
Raw material used 104 000
Total prime cost 264 000
3
Marco Polo Map Ltd
Schedule of conversion costs
Direct labour $160 000
Manufacturing overhead applied (50% of direct labour) 80 000
Total conversion cost $240 000
PROBLEM 4-37 (45 minutes) Schedules of cost of goods manufactured and sold; income
statement: manufacturer
Instructors should note that this problem is based on the data in Problems 2.39 and 2.40 in
Chapter 2, the only difference being that Problem 4.37 introduces the concept of applied
manufacturing overhead. If students have completed these two problems from Chapter 2
you could explore with them why the introduction of underapplied overhead in the current
problem has no effect on the net profit. (The explanation lies in the fact that the
underapplied overhead is closed to cost of goods sold. This could lead to a discussion of
the effect of prorating the underapplied overhead rather than closing it solely to COGS.)
1
Kinnear’s Precision Machining Pty Ltd
For the Year Ended 31 December
Direct material:
Raw materials inventory, 1 Jan $ 89 000
Add: Purchases of raw material 731 000
Raw material available for use 820 000
Less: Raw materials inventory, 31 Dec 59 000
Raw material used $761 000
Manufacturing overhead:
Indirect material $ 45 000
Indirect labour 150 000
Depreciation of factory building 125 000
Depreciation of factory equipment 60 000
Electricity for factory 70 000
Council rates 90 000
Insurance on factory and equipment 40 000
Total actual manufacturing overhead 580 000
Less: Underapplied overhead* 2 500
Overhead applied to work in process 577 500
Total manufacturing costs 1 812 500
Add: Work in process inventory, 1 Jan –0–
Subtotal 1 812 500
Less: Work in process inventory, 31 Dec 40 000
Cost of goods manufactured 1 772 500
*The Schedule of Costs of Goods Manufactured lists the manufacturing costs applied to work in process.
Therefore, the underapplied overhead, $2 500, must be deducted from total actual overhead to arrive at the
amount of overhead applied to work in process. If there had been overapplied overhead, the balance would have
been added to total manufacturing overhead.
The amount of underapplied overhead is found by subtracting the applied manufacturing overhead, $577 500,
from the total actual manufacturing overhead, $580 000.
2
Schedule of Cost of Goods Sold
Finished goods inventory, 1 Jan $35 000

Add: Cost of goods manufactured 1 772 500
Cost of goods available for sale 1 807 500
Finished goods inventory, 31 Dec 40 000
Cost of goods sold 1 767 500
Add: Underapplied overhead* 2 500
Cost of goods sold (adjusted for underapplied overhead) $1 770 000
*The company closes underapplied or overapplied overhead into cost of goods sold. Hence the $2500 balance in
underapplied overhead is added to cost of goods sold for the month.
3
Income Statement
Sales revenue $2 105 000

Less: Cost of goods sold 1 770 000
Gross margin 335 000
Selling and administrative expenses 269 000
Profit before taxes 66 000
Income tax expense 25 000
Net profit $ 41 000
4 (a) The direct material cost would have been larger, probably by (roughly) 20 per cent, because direct material is a
variable cost.
(b) Depreciation is a fixed cost, so it would not have been any larger if the firm’s production volume had
increased.
(c) Only the $30 000 of equipment depreciation would have been included in manufacturing overhead on the
schedule of cost of goods manufactured. The $30 000 of depreciation related to selling and administrative
equipment would have been treated as a period cost and expensed during the year. However, the cost of goods
manufactured would not have been affected. This difference would have been taken up in underapplied or
overapplied overhead.
PROBLEM 4.38 (20 minutes) Ethical issues; underapplication of manufacturing overhead:

manufacturer
1 Drawing on the Code of Ethics for Professional Accountants issued by the Professional and Ethical Standards
Board (APESB), outlined in Chapter 1, the appropriateness of Tom Savin's three alternative courses of action is
described as follows:
 Follow Brown's directive and do nothing further: this action is inappropriate as Savin has ethical
responsibilities to take further action in accordance with the following principles of the Code: integrity,
professional competence and due care, and professional behaviour.
 Attempt to convince Brown to make the proper adjustments and advise the external auditors of her actions:
This action is appropriate as Savin should discuss this first with Brown to attempt to resolve the issue.
Savin should not advise the external auditor but should ask Brown to do this. If Brown does not agree to do
this then Savin should ask Brown’s superiors to take action. If this does not happen then Savin should talk
to the external auditor.
 Tell the Audit Committee about the problem: this action is not appropriate as a first step because Savin
should approach his immediate superior first.
2 Savin should inform Brown that he is planning to discuss the conflict with Brown's superior. He should pursue
discussions with successively higher levels of management—including the Audit Committee and the Board of
Directors—until the matter is satisfactorily resolved. At the same time, he should seek confidential advice from
an objective adviser to clarify the relevant concepts and obtain an understanding of possible courses of action. If
the ethical conflict still exists after exhausting all levels of internal review, Savin may have no alternative other
than to resign from the business.
PROBLEM 4.39 (30 minutes) Process costing; journal entries: manufacturer
1, 2 & 3
Mixing (1) Bottling (2) Packaging (3)

Departmental costs $158 600 $49 800 $20 400
Output 5000 litres 20 000 filled bottles 20 000 packed bottles
Cost per unit $31.72 per litre (or $7.93 $2.49 per bottle + $7.93 $1.02 per package +
per 250 mls) for mixture = $10.42 per $10.42 per filled bottle =
filled bottle $11.44 per packaged,
filled bottle
4 The method described in the chapter (page 141) shows that the cost per unit ($0.15) is calculated by dividing
the total costs ($6000) by the total output (40 000 microchips). This aggregates the production cost for the
entire company, whereas in many process costing businesses (such as Eliminator Ltd) products undergo a
number of separate processes in different departments. In this question, the total cost per unit can be separated
into the costs for the mixture, the bottling activity and the packaging.
5 Journal entries
Date Details Dr Cr
April 30 Work in Process – Mixing $158 600
Raw Materials Inventory $86 000
Direct Labour 33 600
Manufacturing Overhead Control 39 000
April 30 Work in Process – Bottling 158 600
Work in Process – Mixing 158 600
Transfer of April production costs from Mixing
Department to Bottling Department
April 30 Work in Process – Bottling 49 800
Raw Materials Inventory 30 000
Direct Labour 15 800
April 30 Work in Process – Packaging 208 400
Work in Process – Bottling 208 400
Transfer of April production costs from Bottling
Department to Packaging Department
April 30 Work in Process – Packing 20 400
Raw Materials Inventory 10 000
Direct Labour 8 600
April 30 Finished Goods Inventory 228 800
Work in Process – Packaging 228 800
Transfer of April production costs from Packaging
Department to Finished Goods Inventory
6 The approach of keeping separate work in process accounts for each department is preferable to aggregating
production costs for all processes/departments in one work in process account as it gives department production
managers more information for controlling costs.
PROBLEM 4.40 (30 minutes) (appendix) Proration of overapplied or underapplied overhead:

manufacturer
Predetermined overhead rate =
= = $5 per machine hour
Applied manufacturing overhead = 
= 4000 hours  $5 per hour

= $20 000
3
Underapplied overhead = actual overhead – applied overhead
= $26 000 – $20 000
= $6000
4
5 (a) Calculation of proration amounts:

Account Explanation Amount* Percentage Calculation of percentage
Work in process Job P82 only $ 2 500 12.5% 2500  20 000
Finished goods Job N08 only 12 500 62.5% 12 500  20 000
Cost of goods sold Job A79 only 5 000 25.0% 5000  20 000
Total $20 000 100.0%
* Machine hours used on job  predetermined overhead rate
Account Underapplied overhead  Percentage Amount added to account

Work in process $6 000  12.5% $ 750
Finished goods 6 000  62.5% 3750
Cost of goods sold 6 000  25.0% 1500
Total $6000
(b) Journal entry:
Work in process inventory 750
Finished goods inventory 3750
SOLUTIONS TO CASES
CASE 4.41 (75 minutes) Comprehensive job costing problem: manufacturer
Predetermined overhead rate =
= = $21 per direct labour hour
Job cost sheet

Job number T81 Description Trombones
Date started March Date completed 20 March
Number of units completed 76
Direct material
5/3 112 250 $5.00 $1 250
Direct labour
8/3 to 12/3 308 to 312 800 $20 $16 000
8/3 to 12/3 Direct labour hours 800 $21 $16 800
Cost summary
Cost item Amount
Total direct material $1 250
Total cost $34 050

Unit cost $448.0263
Delivery summary
Date Units shipped Units remaining in inventory Cost balance
March 38 38 $17 025
3 Journal entries:
(a) Raw material inventory....................................................... $5 000

Accounts payable.................................................... $5 000
(b) Raw material inventory....................................................... 4 000

(c) Work in process inventory.................................................. 11 250*

Raw material inventory........................................... 11 250
* (250  $5.00 per sqm) + (1000 kg  $10 per kg).
Manufacturing overhead**................................................. 100

Manufacturing supplies inventory.......................... 100
** Valve lubricant is an indirect material, so it is considered an overhead cost

(10 litres x $10 per litre)
(d) Work in process inventory.................................................. 34 000

Manufacturing overhead..................................................... 13 000
Wages payable........................................................ 47 000
Work in process inventory.................................................. 35 700*

Manufacturing overhead......................................... 35 700
* Applied manufacturing overhead = 1700 direct labour hours $21 per hour.
(e) Manufacturing overhead..................................................... 12 000

Accumulated depreciation: Building and
equipment............................................................ 12 000
(f) Manufacturing overhead..................................................... 1 200

Cash......................................................................... 1 200
(g) Manufacturing overhead..................................................... 2 100

(h) Manufacturing overhead..................................................... 2 400

Cash......................................................................... 2 400
(i) Manufacturing overhead..................................................... 3 100

Prepaid insurance.................................................... 3 100
(j) Selling and administrative expenses................................... 8 000

Cash......................................................................... 8 000
(k) Selling and administrative expenses................................... 4 000

Accumulated depreciation: Buildings and
equipment............................................................. 4 000
(l) Selling and administrative expenses................................... 1 000
Cash......................................................................... 1 000
(m) Finished goods inventory.................................................. 34 050*

Work in process inventory.................................... 34 050
* Cost of Job T81:
Direct material (250  $5.00)...................... $ 1 250
Direct labour (800 $20)............................. 16 000
Manufacturing overhead (800$21)........... 16 800
Total cost..................................................... $34 050
(n) Accounts Receivable......................................................... 26 600*

Sales Revenue......................................................... 26 600
* (76 2)  $700 per trombone
Cost of Goods Sold............................................................ $17 025**

Finished Goods Inventory....................................... $17 025
** 17 025 = $34 050 2.
4 Ledger accounts and posting of journal entries:
Cash Accounts Payable
Bal. 10 000 13 000 Bal
1 200 (f) 5 000 (a)
2 400 (h) 4 000 (b)
8 000 (j) 2 100 (g)
1 000 (l)
Accounts Receivable Wages Payable

Bal. 21 000 8 000 Bal.
(n) 26 600 47 000 (d)
Accumulated Depreciation: Buildings and

Prepaid Insurance Equipment
Bal. 5 000 102 000 Bal.
3 100 (i) 12 000 (e)
4 000 (k)
Manufacturing Supplies Inventory Manufacturing Overhead

Bal. 500 (c) 100 35 700 (d)
100 (c) (d) 13 000
(e) 12 000
(f) 1 200
(g) 2 100
(h) 2 400
(i) 3 100
Raw Material Inventory Cost of Goods Sold

Bal. 149 000 (n) 17 025
(a) 5 000 11 250 (c)
(b) 4 000
Work in Process Inventory Selling and Administrative Expenses

Bal. 91 000 (j) 8 000
(c) 11 250 34 050 (m) (k) 4 000
(d) 34 000 (l) 1 000
(d) 35 700
Finished Goods Inventory Sales Revenue

Bal. 220 000 26 600 (n)
(m) 34 050 17 025 (n)
5
(a) Calculation of actual overhead:
Indirect material (valve lubricant)................................................................ $ 100

Indirect labour............................................................................................... 13 000
Depreciation: factory building and equipment............................................. 12 000
Rent: warehouse............................................................................................ 1 200
Utilities......................................................................................................... 2 100
Property taxes............................................................................................... 2 400
Insurance....................................................................................................... 3 100
Total actual overhead.................................................................................... $33 900
actual manufacturing applied manufacturing
(b) Overapplied overhead = –
overhead overhead
= $33 900 – $35 700*
= $1800 overapplied
* $35 700 = 1700 direct-labour hours  $21 per hour.
(c) Manufacturing Overhead 1800
Cost of Goods Sold.......................................................................... 1800
6
Brass Design Ltd

Direct material:
Raw material inventory, 1 March............................................... $149 000
Add: March purchases of raw material....................................... 9 000
Raw material available for use................................................... 158 000
Deduct: Raw material inventory, 31 March............................... 146 750
Raw material used....................................................................... $11 250
Direct labour........................................................................................ 34 000
Indirect material.......................................................................... $100
Indirect labour............................................................................. 13 000
Depreciation on factory building and equipment....................... 12 000
Rent: warehouse.......................................................................... 1 200
Utilities....................................................................................... 2 100
Property taxes............................................................................. 2 400
Insurance..................................................................................... 3 100
Total actual manufacturing overhead.................................. 33 900
Add: overapplied overhead.................................................. $1 800*
Overhead applied to work in process.......................................... 35 700
Total manufacturing costs................................................................... 80 950
Add: Work in process inventory, 1 March.......................................... 91 000
Subtotal 171 950
Deduct: Work in process inventory, 31 March................................... 137 900
Cost of goods manufactured................................................................ $34 050†
* The Schedule of Cost of Goods Manufactured lists the manufacturing costs applied to work in process.
Therefore, the overapplied overhead, $1800, must be added to actual overhead to arrive at the amount of
overhead applied to work in process during March.
†
Cost of Job T81, which was completed during March.
7
Brass Design Ltd
Schedule of Cost of Goods Sold
Finished goods inventory, 1 March................................................................................... $220 000

Add: Cost of goods manufactured..................................................................................... 34 050
Cost of goods available for sale......................................................................................... 254 050
Deduct: Finished goods inventory, 31 March.................................................................... 237 025
Cost of goods sold.............................................................................................................. 17 025
Deduct: Overapplied overhead*........................................................................................ 1 800
Cost of goods sold (adjusted for overapplied overhead)................................................... $ 15 225
* The company closes underapplied or overapplied overhead into cost of goods sold. Hence the balance in
overapplied overhead is deducted from cost of goods sold for the month.
8
Brass Design Ltd
Income Statement
Sales revenue..................................................................................................................... $26 600

Less: Cost of goods sold.................................................................................................... 15 225
Gross margin...................................................................................................................... 11 375
Selling and administrative expenses.................................................................................. 13 000
Profit (loss)........................................................................................................................ $ (1625)
CASE 4.42 (45 minutes) Interpreting information from a job costing system: manufacturer
1 A job costing system is appropriate where each product, batch of products or order is different and costs can be
readily identified with that specific product, batch, or order.
2 The only job remaining in CompuFurn’s work in process inventory on 31 December is PS812. The dollar value
of PS812 is calculated as follows:
PS812 balance, 30 November $250 000
December additions:
Raw material $124 000
Purchased parts 87 000
Manufacturing overhead (19 500  $5*) 97 500 509 000
Work in process inventory, 31 December $759 000
*Manufacturing overhead rate = $4 500 000
900 000 hours
= $5 per hour
3 The dollar value of the chairs remaining in CompuFurn’s finished goods inventory on 31 December is $455 600,
calculated as follows:
Chair units
Finished goods inventory, 30 November 19 400
Units completed in December 15 000
Units available for sale 34 400
Units shipped in December 21 000
Finished goods inventory, 31 December 13 400
Assuming that the units produced first are sold first, all units remaining in finished goods inventory were
completed in December.
Unit costs of chairs completed in December:
Work in process inventory, 30 November $431 000

December additions:
Raw material $ 3 000
Purchased parts 10 800
Manufacturing overhead (4400 hours  $5) 22 000 79 000
Total cost $510 000
= = $34
Unit cost =
per unit
Value of finished goods inventory on
= Unit cost  quantity
31 December
= $34  13 400
= $455 600
4 Overapplied overhead is $7 500, calculated as follows:
Machine hours used:

January – November 830 000
December 49 900
Total 879 900
Applied manufacturing overhead = 879 900 machine hours x $5 per machine hour = $4 399 500
Actual manufacturing overhead:

January – November $4 140 000
December 252 000
$4 392 000
Overapplied overhead = applied overhead – actual overhead

= $4 399 500 – $4 392 000
= $7500
5 If the amount of overapplied or underapplied overhead is not significant, the amount is generally treated as a
period cost and closed to cost of goods sold. If the amount is significant, the amount is sometimes prorated over
the relevant accounts, i.e., work-in-process inventory, finished-goods inventory, and cost of goods sold.
CASE 4.43 (50 minutes) Cost flows in a job costing system; schedule of cost of goods
manufactured; automation: manufacturer
1 The manufacturing overhead applied through 30 November is calculated as follows:

Machine hours  predetermined overhead rate = overhead applied
73 000  $30 = $2 190 000
2 The manufacturing overhead applied in December is calculated as follows:

Machine hours  predetermined overhead rate = overhead applied
6000  $30 = $180 000
3 Underapplied manufacturing overhead through 31 December is calculated as follows:

Actual overhead ($2 200 000 + $192 000)............................................................................
$2 392 000
Applied overhead ($2 190 000 + $180 000)..........................................................................
(2 370 000)
Underapplied overhead..........................................................................................................
$ 22 000
4 The balance in the Finished Goods Inventory account on 31 December is comprised only of Job No. N11-013
and is calculated as follows:
30 November balance for Job No. N11-013........................................................................ $110 000
December direct material.....................................................................................................
8 000
December direct labour........................................................................................................
24 000
December overhead (1000 $30)........................................................................................ 30 000
Total finished goods inventory, 31 December.....................................................................
$172 000
5 Optic Vision’s Schedule of Cost of Goods Manufactured for the year just completed is constructed as follows:
Optic Vision Pty Ltd
Direct material:
Raw material inventory, 1/1............................................................... $ 210 000
Raw material purchases ($1 930 000 + $196 000)............................ 2 126 000
Raw material available for use........................................................... 2 336 000
Deduct: Indirect material used ($250 000 + $18 000)....................... $268 000
Raw material inventory 12/31.......................................... 170 000 438 000
Raw material used.............................................................................. 1 898 000
Direct labour ($1 690 000 + $160 000).................................................. 1 850 000
Indirect material ($250 000 + $18 000)............................................. $268 000
Indirect labour ($690 000 + $60 000)................................................ 750 000
Utilities ($490 000 + $44 000)........................................................... 534 000
Depreciation ($770 000 + $70 000)................................................... 840 000
Total actual manufacturing overhead................................................. 2 392 000
Deduct: Underapplied overhead........................................................ 22 000
Overhead applied to work in process*................................................... 2 370 000
Total manufacturing costs...................................................................... 6 118 000
Add: Work in process inventory, 1/1...................................................... 120 000
Subtotal $6 238 000
Deduct: Work in process inventory, 12/31**......................................... 300 400
Cost of goods manufactured................................................................... $5 937 600
* Overhead applied = (73 000 + 6 000) x $30
= 79 000 x $30
= $2 370 000
* Supporting calculations for work in process 12/31:

D12-002 D12-003 Total
Direct material.............................. $75 800 $52 000 $127 800
Direct labour................................. 40 000 33 600 73 600
Applied overhead:
2500 hrs  $30.......................... 75 000 75 000
800 hrs  $30............................ ______ 24 000 24 000
Total................................ $190 800 $109 600 $300 400

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CHAPTER 4

PRODUCT COSTING SYSTEMS

EXERCISE 4.21 (20 minutes) Manufacturing cost flows

Work in Process Inventory

Finished Goods Inventory

Cost of goods Sold

EXERCISE 4.22 (30 minutes) Job or process costing: film producer

EXERCISE 4.23 (15 minutes) Job versus process costing

Date Requisition number Quantity Unit price Cost

Date Time sheet number Hours Rate Cost

Date Cost driver Quantity Application rate Cost

Cost item Amount

Total cost $16 040

Unit cost $16.04

Date Units shipped Units remaining in Cost balance

2 To calculate actual manufacturing overhead:

Work in process inventory $4454

Finished goods inventory $4454

EXERCISE 4.28 (15 minutes) Process costing; no work in process: manufacturer

Dr. Work in process – packing 132 600

Dr. Work in process – packing 34 200

Dr. Finished goods $166 800

EXERCISE 4.29 (20 minutes) Process costing; no work in process: brewer

1 The cost per bottle is calculated as follows:

Dr. Work in process – bottling 150 000

Dr. Work in process – bottling 33 000

Dr. Finished goods $183 000

1 Applied manufacturing overhead $145 000

2 Calculation of proration amounts:

Underapplied Amount to be added

(b) Work in process................................................................... 180

(c) Manufacturing overhead..................................................... 30

(d) Manufacturing overhead..................................................... 800

(e) Work in process inventory.................................................. 75 000

(f) Selling and administrative expense..................................... 1 800

(g) Raw material inventory....................................................... 3 000

(h) Accounts payable................................................................ 1 700

(i) Manufacturing overhead..................................................... 21 000

(j) Manufacturing overhead..................................................... 7 000

(k) Finished goods inventory.................................................... 1 100

(l) Work in process inventory.................................................. 140 000*

Cost of goods sold............................................................... $139 000

PROBLEM 4.32 (35 minutes) Job costing; journal entries

1 Predetermined overhead rate = budgeted overhead ÷ budgeted machine hours

Work in process inventory $130 800**

(b) Work in process inventory 66 000

(c) Manufacturing supplies inventory 100

Manufacturing overhead 100

(d) Manufacturing overhead 8 000

(e) Manufacturing overhead 400

(f) Work in process inventory 16 000

Work in process inventory 9 600

(g) Manufacturing overhead 910

(h) Manufacturing overhead 2 500

(j) Accounts receivable 15 000

Cost of goods sold 12 000

Work in Process Inventory

DL G60 2 000 77 400 Bal.. 31/10 (cf)

Finished Goods Inventory