Problem 1 Job Cost System 25 Points The Dougherty Furniture

Problem 1 Job Cost System 25 Pointsthe Dougherty Furniture Compan

The Dougherty Furniture Company manufactures tables. In March, the two production departments had budgeted allocation bases of 4,000 machine-hours in Department 100 and 8,000 direct manufacturing labor-hours in Department 200. The budgeted manufacturing overheads for the month were $57,500 and $62,500, respectively. For Job A, the actual costs incurred in the two departments were as follows: Department 100: direct materials $110,000, used $32,500; direct labor $52,500; indirect labor $11,000; indirect materials $7,500; lease on equipment $16,250; utilities $1,000; Department 200: direct materials $177,500, used $13,500; direct labor $53,500; indirect labor $9,000; indirect materials $4,750; lease on equipment $3,750; utilities $1,250. Job A incurred 800 machine-hours in Department 100 and 300 labor-hours in Department 200. The company uses a budgeted overhead rate for applying overhead to production.

Paper For Above instruction

a. Determine the budgeted manufacturing overhead rate for each department.

To calculate the budgeted manufacturing overhead rate for each department, divide the total budgeted overhead by the respective allocation base. For Department 100, the overhead rate per machine-hour is calculated as:

Overhead rate = Budgeted overhead / Budgeted machine-hours = $57,500 / 4,000 hours = $14.375 per machine-hour.

For Department 200, the overhead rate per direct labor-hour is:

Overhead rate = $62,500 / 8,000 hours = $7.8125 per labor-hour.

b. Prepare the necessary journal entries to summarize the March transactions for Department 100.

In March, the journal entries for Department 100 would include recording direct materials purchased, direct labor, indirect costs, and application of manufacturing overhead:

Debit: Raw Materials Inventory $110,000


Credit: Accounts Payable $110,000


Debit: Work-in-Process Inventory (Job A) $32,500


Credit: Raw Materials Inventory $32,500


Debit: Wages Expense (Direct) $52,500


Credit: Wages Payable $52,500


Debit: Manufacturing Overhead $11,000


Credit: Indirect Wages Payable $11,000


Debit: Work-in-Process Inventory $11,500


Credit: Manufacturing Overhead $11,500

Here, the $11,500 applied overhead is calculated as:

Applied Overhead = Actual machine-hours x rate = 800 hours x $14.375 = $11,500.

c. What is the total cost of Job A?

The total cost includes direct materials, direct labor, and allocated overhead from both departments.

Department 100: Direct materials used ($32,500) + direct labor ($52,500) + applied OH ($11,500) = $96,500

Department 200: Direct materials used ($13,500) + direct labor ($53,500) + applied OH (calculated as 300 hours x $7.8125 = $2,343.75) = $69,343.75

Total cost of Job A = $96,500 + $69,343.75 = $165,843.75

Note: The total includes all direct costs plus applied manufacturing overhead.

Problem 2 Process Cost System 25 POINTS

Four Seasons Company makes snow blowers. Materials are added at the beginning of the process and conversion costs are uniformly incurred. The beginning work-in-process (WIP) inventory contains 1,600 units that are 40% complete; at the end of the month, the ending WIP inventory contains units that are 60% complete. Other data for the month include: beginning WIP inventory valued at $154,000 for materials and $82,080 for conversion; units started during the month: 2,000; units transferred to finished goods: 3,200; conversion costs incurred during the month: $200,000; and direct materials costs for the period: $260,000.

Preparation of a Production Cost Worksheet (Weighted-Average Method)

Using the weighted-average method, the first step is to find the total equivalent units for both materials and conversion costs:

  • Units completed and transferred out: 3,200 units
  • Equivalent units in ending WIP: 2,000 units x 60% = 1,200 units
  • Equivalent units in beginning WIP: 1,600 units x 40% = 640 units

Total equivalent units for materials include all units worked on: 3,200 units transferred + ending WIP units (since materials are added at the start, all units during the period are considered 100% complete for materials):

Materials: 3,200 units + 1,200 units (ending WIP) = 4,400 units

Conversion costs: (Units transferred + ending WIP units x % completion): 3,200 + 1,200 = 4,400 units (since conversion costs are spread evenly, we need to adjust for % completion).

Next, calculate total costs:

  • Beginning WIP costs: Materials $154,000, Conversion $82,080
  • Costs added during the period: Materials $260,000, Conversion $200,000

Total materials costs: $154,000 + $260,000 = $414,000

Total conversion costs: $82,080 + $200,000 = $282,080

Compute the cost per equivalent unit:

Materials: $414,000 / 4,400 units = approximately $94.09 per unit

Conversion: $282,080 / 4,400 units = approximately $64.11 per unit

Apply these costs to units transferred and ending WIP, calculating the cost of units completed and in ending inventory.

Purchasing Journal Entries

To record transferring materials to processing:

Debit: Work-in-Process Inventory $260,000


Credit: Raw Materials Inventory $260,000

To record transferring completed units to finished goods:

Debit: Finished Goods Inventory $X


Credit: Work-in-Process Inventory $X

Where $X is the cost of goods transferred, calculated based on equivalent units and unit costs.

Problem 3 Special Order 25 POINTS

Parker and Spitzer Manufacturing is approached by a European customer for a one-time order for a product similar to that sold domestically. The per-unit costs for regular customers include direct materials $66, direct labor $30, variable support $48, fixed support $104, totaling $248 with a markup of 50%, resulting in a selling price of $372. They have excess capacity.

Calculations and Analysis

a. The full cost per unit includes all manufacturing costs: $248.

b. Contribution margin per unit is the selling price minus variable costs: $372 – ($66 + $30 + $48) = $372 – $144 = $228.

c. Relevant costs for decision-making include all variable costs and any avoidable fixed costs. Fixed manufacturing support costs ($104 per unit) are typically fixed in total and may not vary with the order, thus often partly irrelevant unless they are avoidable.

d. The minimum acceptable price should cover the full variable cost per unit, i.e., $144, plus any additional relevant costs.

e. Considering a price of $200 per unit is above the variable cost and contributes to covering fixed costs, so it could be acceptable if it exceeds the incremental costs.

Problem 4 Scarce Resources 25 POINTS

Ralph's Mufflers manufactures three models: X, Y, Z, with data as follows:

  • Model X: Price $160, Materials $20, Variable support $10, Fixed support (per unit) not specified.
  • Model Y: Price $180, Materials $20, Variable support $10
  • Model Z: Price $200, Materials $20, Variable support $10

Assuming direct labor costs are $20/hr and variable support costs are $10 per machine-hour, and fixed support costs are fixed in total, the following calculations are made:

Contribution Margin Calculations

Contribution margin per unit is Selling price minus variable costs:

  • Model X: $160 – ($20 + $10) = $130
  • Model Y: $180 – ($20 + $10) = $150
  • Model Z: $200 – ($20 + $10) = $170

Contribution margin per machine-hour involves dividing contribution margin per unit by machine-hours per unit (assuming production data). The most profitable model depends on the capacity constraints and profit optimization, whether excess capacity exists or there is machine downtime.

Conclusion

This comprehensive analysis of various manufacturing cost accounting scenarios emphasizes the importance of accurate cost calculation, working with manufacturing overhead, process costing, special order pricing, and resource allocation. Strategic decision-making relies heavily on understanding costs behavior, capacity constraints, and market conditions to maximize profitability and operational efficiency.

References

  • Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost Accounting: A Managerial Emphasis. Pearson.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
  • Drury, C. (2013). Management and Cost Accounting. Cengage Learning.
  • Hilton, R. W., & Platt, D. (2015). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
  • Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson.
  • Blocher, E., Stout, D. E., Juras, P. E., & Cokins, G. (2019). Cost Management: A Strategic Emphasis. McGraw-Hill Education.
  • Steinbart, P. J., & Nilsen, J. (2019). Accounting Information Systems. Pearson.
  • Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems. McGraw-Hill Education.
  • Anthony, R. H., et al. (2013). Management Control Systems. McGraw-Hill Education.
  • Weygandt, J. J., Kimmel, P. D., & Kimmel, M. (2018). Financial & Managerial Accounting. Wiley.

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