Chapter 9
Recording and Evaluating Conversion Process Activities
Questions
- Which account represents the costs of products started but not completed?
- Which account represents the costs of products completed but not yet sold?
- Which system assigns costs to cost objects?
- Which system applies all productions costs to the products manufactured during the period?
- What is the difference between the standard amounts of inputs and the actual amounts of inputs?
- Which variance indicates the difference in labor costs due to a change in the average wage rate paid to direct labor?
- Which variance indicates the difference in labor costs due to a change in the number of hours worked per unit produced?
- Which variance indicates the difference in material cost due to a change in the amount paid to purchase materials?
- Which variance indicates the difference in material cost due to a change in the amount of materials used per unit produced?
- Which variance indicates the change in direct material cost due to purchasing a different quantity of materials than what was used?
Exercises
E9.1Backpackers, Inc. plans to manufacture packs for hiking and camping. The following costs will be incurred in the manufacturing process. Classify each cost as one of the following four options by placing the number of the correct answer in the space provided.
- Direct materials cost
- Direct labor cost
- Manufacturing overhead cost
- Selling and administrative cost
______A.Cost of fabric
______B.Cost of the factory building
______C.Cost of advertising in various outdoor magazines
______D.Cost of thread used to sew packs together
______E.Cost of shelving to store production supplies
______F.Salary of the vice president of sales
______G.Cost of zippers
______H.Wages of sales personnel (salary plus commission)
______I.Cost of delivery vehicle
______J.Cost of utilities used in the factory building
______K.Cost of utilities used in the corporate office
______L.Production supervisor’s salary
______M.Setup costs to change production from one style pack to another
______N.Depreciation on delivery vehicle
______O.Wages of employees working on the assembly line
E9.2Rogers Company had inventories at the beginning and end of 2006 as follows:
______
January 1, 2006December 31, 2006
Raw materials inventory$49,000$63,000
Work-in-process inventory106,40084,000
Finished goods inventory42,00091,000
______
During 2006, Rogers Company purchased direct materials of $560,000, incurred direct labor costs of $280,000, and applied manufacturing overhead of $462,000 to production. Show the flow of costs through the company’s inventory account during 2006.
E9.3Prepare journal entries for these transactions of Morgan Manufacturing using the gross price method and the perpetual inventory system.
July 5Purchased $2,550 in direct materials; terms 3/10, n/30, FOB shipping point.
July 9$1,540 direct materials were requisitioned from the raw materials warehouse.
July 10Requisitioned indirect materials (supplies), $400.
July 17$190 in direct materials requisitioned on July 9 were not used in production and were returned to the warehouse.
July 19Paid for raw materials purchased on July 5.
E9.4Given the following information, prepare journal entries for Morgan Manufacturing to record the monthly payroll at July 31, 2007 (ignore payroll withholding).
Chief executive officer$8,500
Production supervisor4,000
Assembly line worker2,000
E9.5Morgan Manufacturing incurred the following manufacturing overhead costs during the month of July 2007. Prepare the journal entry to record the costs.
Depreciation on factory building$15,600
Janitor’s wages, earned but not paid $1,000
Electricity used and paid $700
Rent on equipment previously paid$580
E9.6A toothpaste manufacturer incurs the following types of costs. Classify the costs (A-G) as one of the following four options (1-4) by placing the number of the correct answer in the space provided.
- Unit-related
- Batch-related
- Product-sustaining
- Facility-sustaining
______A.Cost of flouride
______B.Research costs to develop a new flavor
______C.Set-up cost to switch from tubes to dispensers
______D.Advertising
______E.Insurance on the factory building
______F.Commission paid on each tube of toothpaste sold
______G.Property taxes on the factory building
E9.7Gable Manufacturing has identified the following operating activities for its company, estimated overhead costs associated with each activity, appropriate cost driver for each activity, and the estimated usage of the cost driver for the coming period. Using this information, determine the appropriate overhead rates.
______
ActivityCostCost DriverEstimated Usage
Maintaining factory$400,000Square feet50,000
Designing product$96,000Design hours480
Handling materials$3,000Number of moves30
Electricity cost$6,400Machine hours used10,000
______
E9.8Use the following information for the month of May 2007 to determine the cost of goods manufactured for Kacey Manufacturing Company. Assume that over- or underapplied manufacturing overhead is closed to Cost of Goods Sold at the end of the period.
Direct materials inventory, May 1, 2007$31,500
Direct materials inventory, May 31, 2007?
Work-in-process inventory, May 1, 20076,000
Work-in-process inventory, May 31, 200748,000
Finished goods inventory, May 1, 200724,000
Finished goods inventory, May 31, 200716,500
Direct materials used30,000
Direct labor used45,000
Direct materials purchased97,500
Indirect materials used (supplies)9,000
Indirect labor used37,500
Other manufacturing overhead43,500
Administrative salaries22,500
Sales salaries and commissions15,000
Depreciation on sales and office equipment21,000
Applied manufacturing overhead 97,500
E9.9Based on the standard set by Hillman Company, 2,250 direct labor hours should have been used in production this period at a cost of $15 per hour. The actual results indicate that 2,200 hours were used at a total cost of $35,200. What are the direct labor price and direct labor usage variances?
E9.10Hillman Company’s actual direct materials costs and standard costs are as follows. What are the direct materials price, usage, and inventory variances?
Actual quantity purchased3,600 pounds
Actual quantity used in production3,500 pounds
Quantity allowed for production3,400 pounds
Actual price per pound$11
Standard price per pound$12
Problems
P9.1Riley Company has set the following standard material costs for the product it manufactures:
Material A5 pounds at $4.00 per pound
Material B12 pounds at $2.50 per pound
During the month of August, 5,500 pounds of material A were purchased at a cost of $4.25 per pound, of which 4,800 were used in production. During the period, 13,000 pounds of material B were purchased at a cost of $2.00 per pound, of which 12,750 were used in production. The actual production for the month of August was 1,000 units.
Required:
- Compute the direct materials price variance for each material.
- Compute the direct materials usage variance for each material.
- Compute the direct materials inventory variance for each material.
- Interpret each of these variances and determine who is responsible for them.
P9.2Stutzman Corporation produces a product that requires two types of labor: production and packaging. The standard and actual cost data for the month of November are as follows:
______
Standard Cost per UnitActual Hours Actual Cost
Production2 hours at $12 per hour3,040$38,000 Packaging 1 hour at $8 per hour 750 $6,750
______
A total of 1,500 units of finished product were produced during November.
Required:
- Compute the direct labor price variance for each type of labor.
- Compute the direct labor usage variance for each type of labor.
- Interpret each variance and determine who is responsible for them.
P9.3Dudley Company manufactures bed and bathroom accessories. Prepare the appropriate journal entries for the following events that occurred during the month of April. Dudley uses the perpetual inventory system and the gross price method.
- Purchased $66,000 of direct materials and $54,000 of indirect materials (supplies), both on account.
- Borrowed $75,000 from the bank.
- Direct materials of $57,600 were issued into production.
- Indirect materials of 43,200 were issued into production.
- Received $14,400 from customers on account.
- Paid $13,800 in wages to employees; $8,600 was direct labor and $5,200 was indirect labor. (Ignore payroll taxes).
- Paid the utilities for the factory when bill was received, $3,840.
- Manufacturing overhead of $32,640 was applied to production.
- Paid selling and administrative expenses of $20,400
- Paid $15,000 in wages to employees: $9,450 was direct labor and $5,550 was indirect labor. (Ignore payroll taxes).
- Manufacturing overhead of $42,480 was applied to production.
- Completed jobs costing $210,000.
P9.4The following information was obtained from the Foster Company.
Direct materials inventory, beginning$94,500
Direct materials inventory, ending78,750
Work-in-process inventory, beginning-0-
Work-in-process inventory, ending52,500
Finished goods inventory, beginning47,250
Finished goods inventory, ending52,500
Direct materials purchased787,500
Indirect materials used (supplies)57,750
Direct labor514,500
Indirect labor68,000
Depreciation on factory70,000
Depreciation on equipment43,500
Utilities needed for factory and equipment84,000
Insurance on factory and equipment40,000
Selling and administrative294,000
Property taxes on factory75,000
Applied manufacturing overhead445,000
Required:
- Determine the over- or underapplied overhead for the period.
- Prepare a cost of goods manufactured report.
P9.5The following information was provided by the Redmond Co. for the month of February 2007.
______
Beginning BalanceEnding Balance
Direct materials inventory$40,000$30,000
Work-in-process inventory50,00060,000
Finished goods inventory70,00055,000
______
Additional information:
Direct materials purchased$225,000
Direct labor costs incurred$75,000
Machine hours worked16,000
Actual unit-related manufacturing overhead$170,000
Applied unit-related manufacturing overhead$11.00 per machine hour
Required: Calculate the following amounts.
- Direct materials used in production.
- Applied manufacturing overhead
- Cost of goods manufactured
- Over- or underapplied manufacturing overhead.
Case
Rees Luggage Co. manufactures garment bags, carry-on, and weekender luggage. The following information was determined during the annual budgeting process.
Ordering materials$120,000Number of orders240
Carrying inventory48,000Pounds of material9,600
Setting up equipment72,000Number of production runs120
Using equipment144,000Number of hours equipment used16,000
Testing product12,000Number of tests50
Packing and shipping96,000Number of units shipped24,000
Maintaining building500,000Number of square feet250,000
During the current month, the following cost drivers were used:
Garment BagsCarry-onsWeekenders
Number of orders4106
Pounds of material320160220
Number of production runs433
Equipment hours used400240240
Number of test222
Number of units shipped800700500
Square feet occupied100,00070,00080,000
- Determine the overhead applied to each product line.
- Determine the overhead cost per unit assuming the number of units produced equaled the number of units shipped.