ACCTG 231 Chapter Notes - Chapter 2: Finished Good, Expense, Cost Driver
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AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.
For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:
Activity | Cost Driver | Allocation Rate |
Material handling | Parts handled | $0.40 |
Lathe work | No. of lathe turns | $0.20 |
Milling | Machine hours | $20.00 |
Grinding | No. of parts ground | $0.80 |
Testing | No. of units tested | $15.00 |
For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:
Job 100 | Job 200 | |
Direct materials cost | $9,700 | $59,900 |
Direct labor cost | $750 | $11,250 |
No. of direct manufacturing labor hours | 25 | 375 |
No. of parts ground | 500 | 2,000 |
No. of lathe turns | 20,000 | 60,000 |
Machine hours | 150 | 1,050 |
No. of units produced during period (all are tested) | 10 | 200 |
Required
1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.
2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.
3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).
4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?
GIVEN: X Manufacturing Company uses a job order costing system.The following information summarizes its operations related toproduction for January, its first month of operations.
A. Purchased production materials on account, $85,000.
B. Production materials of $90,000 were requisitioned to thefactory for the five jobs started in January and for generalfactory use as follows:
Job | Materials |
Job No. 1001 | $15,000 |
Job No. 1002 | 14,000 |
Job No. 1003 | 11,800 |
Job No. 1004 | 20,200 |
Job No. 1005 | 22,000 |
General factory use | 7,000 |
$90,000 |
C. Factory labor costs of $71,000 were incurred. The employeetime tickets provided the following:
Job | Factory Labor |
Job No. 1001 | $ 10,000 |
Job No. 1002 | 11,750 |
Job No. 1003 | 10,250 |
Job No. 1004 | 14,800 |
Job No. 1005 | 18,200 |
General factory use | 6,000 |
$71,000 |
D. Factory overhead is allocated to jobs at a rate of $50 permachine hour. Machine hours used were:
Job | Machine Hours |
Job No. 1001 | 105 |
Job No. 1002 | 110 |
Job No. 1003 | 95 |
Job No. 1004 | 150 |
Job No. 1005 | 120 |
580 |
E. Depreciation on the factory machinery and equipment was$6,500.
F. Factory overhead costs incurred on account were $9,800.
G. Jobs 1001, 1002 and 1004 were completed.
H. Jobs 1001 and 1002 were shipped and the customers were billed$100,000 for job 1001 and $111,000 for job 1002.
REQUIRED:
Part 1: Prepare a schedule summarizing manufacturing costs byjob incurred in January. Use the following columns and providecolumn totals.
Job DirectMaterials DirectLabor FactoryOverhead Total
Part 2: What are the January 31 balances for each ofthe following accounts? Support your answers by indicating the jobsin that balance.
Work in ProcessInventory
Finished GoodsInventory
Cost of GoodsSold
Part 3: What was cost of goods manufactured forJanuary? (Show supporting work.)
Part 4: What was gross profit for January? (Showsupporting work.)
Part 5: Prepare summary journal entries forinformation a through h given above.