The Accounting Records of Idaho Paper Company Include the Following Information Relating

Problem 16.7A

The accounting records of Idaho Paper Company include the following information relating to the current year:

Dec. 31 Jan. 1

Manufactured

Materials inventory…………………………………………………… $ 20,000 $ 25,000

Work in process inventory………………………………………….. 37,500 40,000

Finished goods inventory, Jan. 1 (10,000 units @ 21 per unit)… ? 210,000

Purchases of direct material during year………………………….. 330,000

Direct labor costs assigned to production……………………….... 375,000

Manufacturing overhead…………………………………………….. 637,500

The company manufactures a single product; during the current year, 45,000 units were manufactured and 40,000 units were sold.

Instructions

a. Prepare a schedule of the cost of finished goods manufactured for the current year. (Show a supporting computation of the cost of direct materials used during the year)

b. Compute the average per-unit cost of production during the current year.

c. Compute the cost of goods sold during the year, assuming that the FIFO (first-in, first –out) method of inventory costing is used.

d. Compute the cost of the inventory of finished goods at December 31 of the current year, assuming that the FIFO (first-in, first-out) method of inventory costing is used.

Exercise 17.3 – Journal Entries in Job Order Costing

Riverside Engineering is a machine shop that uses job order costing. Overhead is applied to individual jobs at a predetermined rate based on direct labor costs. The job no. 321 appears below.

Job Cost Sheet

Job Number: 321 Date Started: May 10

Product: 2” Brass Check ValvesDate Completed: May 21

Units Completed: 4,000

Direct Materials Used………………………………………………………. $ 7,720

Direct Labor…………………………………………………………………….. 1,400

Manufacturing overhead applied……………………………………. 3,080

Total cost of job no. 321………………………………………………… $ 12,200

Unit cost ($12,200 / 4,000 units)………………………………………. $ 3.05

Prepare general journal entries to:

a. Summarize the manufacturing costs charged to job no. 321. (Use one compound entry.)

b. Record the completion of job no. 321.

c. Record the credit sale of 2,100 units from job no. 321 at a unit sale price of $5. Record in a separate entry the related cost of goods sold.

Problem 18.1

Listed below are six technical accounting terms introduced or emphasized in this chapter:

Job order costingEquivalent

Process costingCost of finished goods manufactured

Conversion costsProduction cost report

Each of the following statements may or may not describe these technical terms. For each statement, indicate the term described, or answer “none” if the statement does not correctly describe any of the terms.

a. The type of cost accounting method likely to be used in a coca cola bottling plant.

b. Direct labor and overhead consumed in a production process.

c. A measure of the quantity of production work done during a time period, including work on partially completed units.

d. Process cost information for the period, including physical flow and total cost to account for.

e. The type of cost accounting method likely to be used by a construction company.

Problem 18.2

Starr scopes, Inc., produces telescopes for use by high school students. All direct materials used in the production of telescopes are added at the beginning of the manufacturing process. Labor and overhead are added evenly thereafter, as each unit is assembled, adjusted, and tested. Starr Scopes uses process costing and had the following unit production information available for the month of January and February.

Jan. Feb

Number of units in beginning work in process inventory 0 50

Number of units started during the month 200 300

Total number of units transferred to finished goods 150 250

The units remaining in work in process at the end of January were approximately 40 percent complete. During the month of February, all of the beginning work in process units were completed and the units remaining in work in process at the end of the month were approximately 75 percent complete.

1. For the month of January, calculate the equivalent units produced for each of the two cost categories – direct materials and labor and overhead.
2. For the month of February, calculate the equivalent units produced for each of the two cost categories – direct materials and labor and overhead.

Problem 20.3

City Ambulance Service estimates the monthly cost of responding to emergency Using a Cost calls to be $19,500 plus $110 per call.
a. In a month in which the company responds to 125 emergency calls, determine the estimated:
1. Total cost of responding to emergency calls.
2. Average cost of responding to emergency calls.

b. Assume that in a given month, the number of emergency calls was unusually low. Would you expect the average cost of responding to emergency calls during this month to be higher or lower than in other months? Explain.

EX. 20.2

The following information is available regarding the total manufacturing overhead of Bursa Mfg. Co. for a recent four-month period:

Machine-Hours / Manufacturing Overhead
Jan. / 5,500 / $311,500
Feb. / 3,200 / 224,000
Mar. / 4,900 / 263,800
Apr. / 2,800 / 184,600

1. Use the high-low method to determine:
2. The variable element of manufacturing overhead costs per machine-hour.
3. The fixed element of monthly overhead cost.
4. Bursa expects machine-hours in May to equal 5,300. Use the cost relationships determined in part a to forecast May's manufacturing overhead costs.
5. Suppose Bursa had used the cost relationships determined in part a to estimate the total manufacturing overhead expected for the months of February and March. By what amounts would Bursa have over- or underestimated these costs?

EX. 20.8

Arrow Products typically earns a contribution margin ratio of 25 percent and has current fixed costs of $80,000. Arrow's general manager is considering spending an additional $20,000 to do one of the following:
1. Start a new ad campaign that is expected to increase sales revenue by 5%.
2. License a new computerized ordering system that is expected to increase Arrow’s contribution margin ratio to 30%.
Sales revenue for the coming year was initially forecast to equal $1,200,000 (that is, without implementing either of the above options)
a.For each option, how much will projected operating income increase or decrease relative to initial predictions?
b.By what percentage would sales revenue need to increase to make the ad campaign as attractive as the ordering system?

EX. 20.9

Easy Writer Manufactures an erasable ball point pen, which sells for $1.75 per unit. Management recently fished analyzing the results of the company’s operations for the current month. At a break-even point of 40,000 units, the company’s totally variable costs are $50,000 and its total fixed costs amount to $20,000.

a. Calculate the contribution margin per unit.

b. Calculate the company’s margin of safety if monthly sales totally 45,000 units.

c. Estimate the company’s operating loss if it sells only 38,000 units.

d. Compute the total cost per unit at a production level of (1) 40,000 pens per month and (2) 50,000 pens per month. Explain the reason for the change in unit costs.