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ACC 311 - week2- 2-1 MyAccountingLab Homework -Chapter 4

1. E4-22

Desert Products uses a job-costing system with two direct-cost categories (direct materials and
direct manufacturing labor) and one manufacturing overhead cost pool.
Desert allocates manufacturing overhead costs using direct manufacturing labor costs.
Desert provides the following information:

Requirement 1. Compute the actual and budgeted manufacturing overhead rates for 2017.
(Enter your answer as a number [not as a percentage] rounded to two decimal places, X.XX.)

Actual manufacturing overhead rate = 1.90 = 2660k / 1400k

Budgeted manufacturing overhead rate = 1.70 = 2465k / 1450k

Requirement 2. During March, the job-cost record for Job 626 contained the following
information:

Compute the cost of Job 626 using (a) actual costing and (b) normal costing.

Actual: 30000* 1.9 = 57000;

Norma: 30000 *1.7 = 51000

Requirement 3. At the end of 2017, compute the under- or overallocated manufacturing

overhead under normal costing. Why is there no under- or overallocated overhead under
actual costing?
Actual manufacturing overhead costs - (Actual Direct manufacturing cost x budgeted
manufacturing overhead rate)
2660k – 1400k*1.7 = 280k
Under normal costing, manufacturing overhead is underallocated by $280,000.
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Why is there no under- or overallocated overhead under actual costing?

There is no under- or overallocated overhead under actual costing because overhead is
allocated under actual costing by multiplying actual manufacturing labor costs and the
Actual manufacturing overhead rate.

Requirement 4. Why might managers at Desert Products prefer to use normal costing?

Choose all that apply.)

A. Normal costing enables Products to use the budgeted manufacturing overhead rate
determined at the beginning of the year to estimate the cost of a job as soon as the job
is completed. Managers want to know job costs for ongoing uses, including pricing jobs,
monitoring and managing costs, evaluating the success of the job, learning about what
did and did not work, bidding on new jobs, and preparing interim financial statements.
B. Manufacturing costs of a job are available much earlier in a normal costing system.
Consequently, 's manufacturing and sales managers can evaluate the profitability of
different jobs, the efficiency with which the jobs are done, and the pricing of different jobs
as soon as they are completed, while the experience is still fresh in everyone's mind.
C. Normal costing allows managers to allocate overhead costs at the end of the accounting
year. This allows Products to use the normal costs incurred to provide an accurate
costing method so that adjustments will not need to be made at the end of the
accounting year.
D. Normal costing provides managers with information at the end of a fiscal year when they
know actual manufacturing overhead costs. This approach is preferable to managers to
improve the company's spending efficiency and increase overall profits.
E. Normal costing provides managers with information earlier-while there is still time to take
corrective actions, such as improving the company's labor efficiency or reducing the
company's overhead costs.

2. E4-33

Cheney & Partners, a Quebec-based public accounting partnership, specializes in audit

services. Its job-costing system has a single direct-cost category (professional labor) and a
single indirect-cost pool (audit support, which contains all costs of the Audit
Support Department). Audit support costs are allocated to individual jobs using actual
professional labor-hours.
Cheney & Partners employs 10 professionals to perform audit services. Budgeted and actual
amounts for
2017 are as follows:
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Requirement 1. Compute the direct-cost rate and the indirect-cost rate per professional labor-

hour for

2017 under (a) actual costing, (b) normal costing, and (c) the variation from normal costing that
uses budgeted rates for direct costs.

Begin by identifying the formula to calculate the actual indirect-cost rate.

735000/ 17500 = $42; 774000/18000 = 43; 990000/18000 = 55

Requirement 2. Which job-costing system would you recommend Cheney & Partners use?

Cheney & Partners should choose a job-costing system based on the direct cost information
available to them. If Cheney knows direct costs as the jobs are being done, I would recommend

Cheney use normal costing over actual costing by calculating a budgeted indirect cost rate

to cost jobs. Normal costing enables Cheney to use the budgeted indirect cost rate calculated
at the beginning of the year to estimate the cost of a job as soon as the job is completed.
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If Cheney does not know direct costs as the jobs are being completed, I would recommend that
Cheney use the variation of normal costing that calculates a budgeted direct cost rate.

This would allow Cheney to estimate costs on a more-timely basis.

Requirement 3.

Cheney's 2017 audit of Pierre & Co. was budgeted to take 140 hours of professional labor time.
The actual professional labor time spent on the audit was 160 hours. Compute the cost of the
Pierre & Co. audit using (a) actual costing, (b) normal costing, and (c) the variation from normal
costing that uses budgeted rates for direct costs. Explain any differences in the job cost.

Begin by identifying the formulas to calculate the direct and indirect-costs under actual costing.

Actual labor time 160 hours

(b) (c)
 
  (a) Normal Variation of
Cost of Pierre Actual Costing Normal Costing
audit: Costing
$9,280 = 160 *58 $8,800 = 160* 55
Direct-costs $9,280 = 160 * 58
6,880 = 160 * 43 6,880 = 160 * 43
Indirect costs 6,720 = 160 * 42
$16,160 $15,680
Total job costs $16,000

All three costing systems use the actual professional labor time of 160 hours. The budgeted
140 hours is not used in job costing

The actual costing 16,000 is less the normal costing figure 16,160 . This is because
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figure of $ than of $ the

actual indirect-cost is less the budgeted indirect-cost
rate of $ 42 than rate of $ 43 .

The normal costing the variation of normal costing . This is

figure of $ 16,160 exceeds figure of $ 15,680 because
the actual direct-cost the budgeted direct-cost
rate of $ 58 exceeds. . rate of $ 55 .

3. P4-37

Keating & Associates is a law firm specializing in labor relations and employee-related work. It
employs
30 professionals (5 partners and 25 associates) who work directly with its clients. The average
budgeted total compensation per professional for 2017 is $97,500. Each professional is
budgeted to have 1,500 billable hours to clients in 2017. All professionals work for clients to
their maximum 1,500
billable hours available. All professional labor costs are included in a single direct-cost category
and are traced to jobs on a per-hour basis. All costs of Keating & Associates other than
professional labor costs are included in a single indirect-cost pool (legal support) and are
allocated to jobs using professional labor-hours as the allocation base. The budgeted level of
indirect costs in 2017 is $2,475,000

Requirement 2. Compute the 2017 budgeted direct-cost rate per hour of professional labor.

Select the formula to compute the budgeted direct-cost rate, then enter the amounts and
calculate the rate.
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Requirement 3. Compute the 2017 budgeted indirect-cost rate per hour of professional labor.
Select the formula to compute the budgeted indirect-cost rate, then enter the amounts and
calculate the rate.

Requirement 4. Prepare a cost estimate for the Richardson, Inc. job, which requires 125
budgeted hours of professional labor and for the Punch, Inc. job, which requires 180 budgeted
hours of professional labor.

Punch
  Richardson
$11,700 = 66 * 180
Direct-costs $8,125 = 66* 125
9,900 = 180 * 55
Indirect-costs 6,875 = 55 *125
$21,600
Total costs $15,000

4. P4-40

Gaut Manufacturing uses normal costing for its job-costing system, which has two direct-cost
categories (direct materials and direct manufacturing labor) and one indirect-cost
category (manufacturing overhead). The following information is obtained for 2017:

Requirement 1. Use information in the first two bullet points to calculate (a) direct manufacturing
labor costs in 2017 and (b) cost of direct materials used in 2017. (Abbreviation used: Manuf. =
Manufacturing.)

(a) First identify the formula to calculate the direct manufacturing labor costs.

Manufacturing overhead allocated / Manufacturing overhead rate = Direct manufacturing labor costs

the direct manufacturing labor costs in 2017 is $ 1,900,000 = 3800,000 / 200%

(b) First identify the formula to calculate the cost of direct materials used in 2017.

The cost of direct materials used in 2017 is $ 2300,000 = 8000,000 – 3800,000 – 1900,000
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The ending work-in-process inventory on December 31, 2017 is $ 430,000 = 350,000 +

8000,000 – 7920,000

5. P4-42

Cole Company uses normal costing in its job-costing system. Partially completed T-accounts

and additional information for Cole for 2017 are as follows:

Requirement 1. What was the amount of direct materials issued to production during 2017?

Direct materials issued to production during 2017 was $ 234,000

Requirement 2. What was the amount of manufacturing overhead allocated to jobs during

2017?

First identify the formula to calculate the manufacturing overhead allocated.

Direct labor hour = direct labor cost / Direct manufacturing labor wage rate = 348000 /12
Manufacturing overhead allocated to jobs during 2017 was $ 464000 = 348000 /12 * 16

Requirement 3. What was the total cost of jobs completed during ?

The total cost of jobs completed during 2017 was $ 925000

Requirement 4. What was the balance of work-in-process inventory on December 31, 2017?
Post the entries during the year in the Work-in-process control account to determine the ending balance
on December 31, 2017.
Be sure to select reference labels for each of the entries.
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Requirement 5. What was the cost of goods sold before proration of under- or overallocated
overhead?

The cost of goods sold before proration of under- or overallocated overhead was $ 880000

Requirement 6. What was the under- or overallocated manufacturing overhead in 2017 ?

The under- or overallocated manufacturing overhead in 2017 was $ 50000= 514000 - 464000

Manufacturing overhead control – answer from requirement 2

Requirement 7a. Dispose of the under- or overallocated manufacturing overhead using the
write-off to Cost of Goods Sold.

The Cost of goods sold account balance after the write-off is $ 930000 = 880000+ 50000

Answer from requirement 5 plus answer from requirement 6

Requirement 7b. Dispose of the under- or overallocated manufacturing overhead using

proration based on ending balances (before proration) in Work-in-Process Control, Finished
Goods Control, and Cost of Goods Sold. Enter the account balances before proration, then the
adjustment amounts and finally, calculate the account balances after proration.

  Proration of Account Balance

Account Balance Over- or Underallocated (After Proration)
Account (Before Proration) Manufacturing Overhead
Work-in- + 7500 = 50,000 * (165,000/1100,000) = 172,500
Process $165,000
Finished + 2500=50,000 * (55000/1100,000) = 57500
Goods 55,000
Cost of Goods + 40,000=50,000 * (880,000/1100,000) = 920,000
Sold 880,000
Total $1,100,000 50000 1150,000

Requirement 8. Using each of the approaches in requirement 7, calculate Cole's operating income for
2017.

First calculate operating income or loss using the write-off to cost of goods sold approach and then using
the proration approach. (Use parentheses or a minus sign for an operating loss.)
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Requirement 9. Which approach in requirement 7 do you recommend Cole use? Explain your answer
briefly.

The recommended approach is the proration approach . This is preferred because of its
accuracy and the effect it has on operating income

6. P4-43
Bradford Company uses normal costing in its job-costing system. The company produces
custom bikes for toddlers. The beginning balances (December 1) and ending balances (as
of December 30) in their inventory accounts are as follows:

Requirement 1. Prepare journal entries for the December 31 payroll. (Record debits first, then credits.
Exclude explanations from any journal entries.)
Begin by preparing the journal entry to recognize indirect and direct payroll for the December 31 work
day.
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Now prepare the journal entry to allocate manufacturing overhead.

4350 *140% = 6090

Requirement 2. Use T-accounts to compute the following transactions.
For direct labor and manufacturing overhead in the Work-in-Process account, enter the amounts for 12/30
and 12/31 separately to get the correct ending balance for each date. (Abbreviation used: MOH =
Manufacturing overhead; Materials req. = Materials requisitioned; COGM = Cost of goods manufactured;
COGS = Cost of goods sold.)

b. The total amount of direct manufacturing labor recorded in work in process during December =78225 =
73875 + 4350
c. Total amount of manufacturing overhead recorded in work in process during December = 109515 =
103425 + 6090

Requirement 3. Prepare closing journal entries related to manufacturing overhead. Assume that
all under- or overallocated manufacturing overhead is closed directly to Cost of Goods Sold. (Record
debits first, then credits. Exclude explanations from any journal entries.)

94500 + 1450 indirect labor = 95950

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7. P4-44

Calico prints custom training material for corporations. The business was started January 1,
2017. The company uses a normal-costing system. It has two direct-cost pools, materials and
labor, and one indirect-cost pool, overhead. Overhead is charged to printing jobs on the basis of
direct labor cost. The following information is available for 2017.

There were two jobs in process on December 31, 2017:

Job 11 and Job 12. Costs added to each job as of December 31 are as follows:

Calico has no finished-goods inventories because all printing jobs are transferred to cost of
goods sold when completed.
Requirement 1. Compute the overhead allocation rate. Select the formula and enter the amounts to
calculate the overhead allocation rate. (Enter the rate in decimal format to one decimal place, X.X. Do not
enter the rate as a percentage.)

Requirement 2. Calculate the balance in ending work in process and cost of goods sold before any
adjustments for under- or overallocated overhead.
Begin by calculating ending work in process before any adjustments for under- or overallocated overhead.

6600 * 1.3 = 8580; 7400 *1.3 = 9620

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Before calculating the cost of goods sold, let's determine the total manufacturing costs incurred during the
period.

Overhead costs = Direct labor x overhead allocation rate

207000 * 1.3 = 269100

Now select the formula and enter the amounts to calculate cost of goods sold before any adjustments
for under- or overallocated overhead. (WIP = work in process. Enter a "0" for any zero balances.)

Requirement 3. Calculate under- or overallocated overhead.

Select the formula and enter the amounts to calculate under- or overallocated overhead. (Use a minus
sign or parentheses for overallocated overhead.)

Requirement 4. Calculate the ending balances in work in process and cost of goods sold if the under- or
overallocated overhead amount is as follows: (a) Written off to cost of goods sold (b) Prorated using the
overhead allocated in
2017
(before proration) in the ending balances of cost of goods sold and work-in-process control accounts.
(a) Complete the table below to show the ending balances in work in process and cost of goods sold if
the under- or overallocated overhead amount is written off to cost of goods sold. (Enter a "0" for any
zero balances.)
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(b) Complete the table below to show the ending balances in work in process and cost of goods sold if
the under- or overallocated overhead amount is prorated using the overhead allocated in
2017
(before proration) in the ending balances of cost of goods sold and work-in-process control accounts.
(Enter the percentages to the nearest tenth of a percent, X.X%, and round your final answers to the
nearest whole dollar.)

2nd column: WIP = total overhead costs of job 11 and job 12,

COGS = overhead allocated (269,100) – WIP

3rd column: Take WIP / total (16640/269100) and (252640/269100)

4th column: Take over/under allocated amount x 3rd column (2800 x 6.2%)

5th column: Add 4th column to 1st column

Requirement 5. Which of the methods in requirement 4 would you choose? Explain.

Writing off all of the over- or underallocated overhead to Cost of Goods Sold (CGS) is

Warranted when CGS is large relative to Work-in-Process Inventory and the over- or
underallocated overhead is immaterial. Both these conditions apply in this case. Company
should write off the over- or underallocated overhead to the Cost of Goods Sold account.

8. P4-45
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Requirement 1. Insert the given information in the T-accounts below. Calculate the following amounts to
complete the T-accounts: (a) Direct materials control, 12/31/2017, (b) Manufacturing overhead allocated,
2017, and (c) Cost of goods sold, 2017.
(Abbreviations used: COGM = cost of goods manufactured, COGS = cost of goods sold, Dir = direct, Dir.
Matls = direct materials, MOH = manufacturing overhead, and OH = overhead.)

Requirement 2. Calculate the amount of under- or overallocated manufacturing overhead.

Manufacturing overhead is Overallocated by $ 181,000 = 1581K -1400K

If the under- or overallocated manufacturing overhead is written off to cost of goods sold,
Walker's net income (loss) would be $ 19,160 = 5244K – (2875840-181000) - 2530000
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Requirement 3b. Calculate

Walker's net operating income under the following: Under- or overallocated manufacturing overhead is
prorated based on the ending balances in work in process, finished goods, and cost of goods sold.
First, determine how much of the under- or overallocated manufacturing overhead will be written off to
cost of goods sold. (Do not round intermediary calculations. Only round the amount you input in the cell to
the nearest dollar.)
Cost of goods sold will be adjusted by $ 147,877 = 181000 * 0.817

2875840 / (320,320 +323840 + 2875840) = 0.817

Now calculate the net income (loss). (Use parentheses or a minus sign for a net operating loss.)

If the under- or overallocated manufacturing overhead is prorated based on the ending balances
in work in process,

finished goods, and cost of goods sold, Walker's net income (loss) would be $ (13,963)

5244K – (2875840 – 147877)- 2530000 = -13963

While technically the difference in adjusted cost of goods sold may have been immaterial, the
difference caused to report a profit in the first instance, and a loss in the second. The
company is under pressure to report a profit in 2017 because it is preparing for an acquisition
by a private equity firm. The circumstances cause the amount to be material . Further, may
have been planning for this all along, when he increased the overhead allocation rate for 2017.
The ethical issue is that he may have planned for an

overallocation of overhead so that he would have the option of reducing cost of goods sold at
the end of the year in order to increase earnings. Such an intentional manipulation would be a
violation of the credibility principle of the IMA Statement of Ethical Professional Practice: "Each
practitioner has a responsibility to...communicate information fairly and objectively."

9. P4-46
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Overhead is Underallocated by $ 9,000 at the end of May. = 117940 – 108940

Requirement 4a. Calculate the ending balances in JIP and CCJ if the under- or overallocated overhead
amount is as follows: Written off to

Requirement 4b. Calculate the ending balances in JIP and CCJ if the under- or overallocated overhead
amount is as follows: Prorated based on the ending balances (before proration) in JIP and CCJ. (Round
intermediary calculations to three decimal places, .XXX or to the nearest tenth percent, X.X%. Round the
amount you input in the cell to the nearest dollar.)
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Requirement 4c. Calculate the ending balances in JIP and CCJ if the under- or overallocated overhead
amount is as follows: Prorated based on the overhead allocated in
May
in the ending balances of JIP and CCJ (before proration). (Round intermediary calculations to three
decimal places, .XXX or to the nearest tenth percent, X.X%. Round the amount you input in the cell to the
nearest dollar.)

The method chosen affects reported operating income. In the case of

underallocated overhead, writing off to CCJ results in

lower operating income compared to proration and lower taxes. In the case of
overallocated overhead, proration would result in lower operating income and lower taxes.

Despite the tax considerations, I would choose the proration method because it best
represents Effective Market's

performance during a period. I would use the simpler method of write off to CCJ only if the
amount were immaterial or if it represents inefficiency. I would

apply this method consistently from period to period.  

Question 8, P4-45
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