ADM 3346 Lecture Notes - Lecture 6: Standard Cost Accounting, Income Statement

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greenscorpion188

14 Feb 2017

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Spoilage: units of production, either fully, or partially completed, that do not meet the specifications required by customers for good units that are discarded or sold for reduced prices. Rework: unacceptable units of production that do not meet the specifications required by customers that are subsequently repaired and sold as finished goods of the same or lower quality. Scrap: residual material that results from manufacturing a product. Has a low total sales value, often zero, compared with the total sales value of the product. Inherent in a particular production process that arises under efficient operating conditions. Costs of normal spoilage are typically included as a component of the costs of goods unit manufactured because good units cannot be made without also making some units that are spoiled. Management makes a conscious decision about the production rate per hour which will generate a certain level of normal spoilage: abnormal spoilage.

Related Questions

18-36 Spoilage injob costing. Jellyfish Machine Shop is a manufacturer of motorizedcarts for vacation
resorts.
Patrick Cullin, the plantmanager of Jellyfish, obtains the following information for Job #10in August
2014. A total of 46 units werestarted, and 6 spoiled units were detected and rejected at finalinspection,
yielding 40 good units. Thespoiled units were considered to be normal spoilage. Costs assignedprior to the
inspection point are $1,100per unit. The current disposal price of the spoiled units is $235per unit. When
the spoilage is detected, thespoiled goods are inventoried at $235 per unit.

1. What is the normal spoilagerate?
2. Prepare the journal entriesto record the normal spoilage, assuming the following:
a. The spoilage is related toa specific job.
b. The spoilage is common toall jobs.
c. The spoilage isconsidered abnormal.

18-37 Rework injob costing, journal entry (continuation of 18-36). Assume that the6 spoiled units of

Jellyfish Machine Shopâs Job#10 can be reworked for a total cost of $1,800. A total cost of$6,600 associated

with these units has alreadybeen assigned to Job #10 before the rework.

Prepare the journal entriesfor the rework, assuming the following:

a. The rework is related to aspecific job.

b. The rework is common to alljobs.

c. The rework is considered to be abnormal.

18-38 Scrap attime of sale or at time of production, journal entries(continuation of 18-36). Assume that
Job #10 of Jellyfish MachineShop generates normal scrap with a total sales value of $700 (it isassumed
that the scrap returned to thestoreroom is sold quickly).
Prepare the journal entriesfor the recognition of scrap, assuming the following:

a. The value of scrap isimmaterial and scrap is recognized at the time of sale.
b. The value of scrap ismaterial, is related to a specific job, and is recognized at thetime of sale.
c. The value of scrap ismaterial, is common to all jobs, and is recognized at the time ofsale.
d. The value of scrap ismaterial, and scrap is recognized as inventory at the time ofproduction and is
recorded at its net realizablevalue.

coralantelope314

Show your work

Preparing a Comprehensive Budget

Ginnie Springs Company has been bottling and selling water since1940. The companyâs current owner would like to know how a newproduct would affect the companyâs rent income in the comingyear.

Required

Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.

Sales budget

Ginnie Springs Company

Sales Budget

Forthe year Ended December 31

Quarter

	1	2	3	4	Year
Sales in Units	40,000	30,000	50,000	55,000	175,000
Selling price per unit	X $1	X ?	X ?	X ?	X ?
Totals Sales	40,000	$ ?	X ?	X ?	X ?

2. Production Budget:

Ginnie SpringsCompany

ProductionBudget

For the year Ended December31_____________

Quarter

	1	2	3	4	Year
Sales in Units	40,000	?	?	?	?
Plus desired units of ending finished goods inventory*	30,000	?	?	6000	6000
Desired total Units	43000	?	?	?	?
Less desired units of ending finished goods inventory*	4000	?	?	?	4000
Total Production units	39,000	?	?	?	?

*Desired units of ending finished goods inventory = 10% of nextquarterâs budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.

3.DirectMaterials Purchases budget

Ginnie SpringsCompany

Direct Materials PurchaseBudget

For the year Ended December31_____________

Quarter

	1	2	3	4	Year
Total production units	39,000	32,000	50,500	55,500	?
Ounces per unit	X 20	X 20	X 20	X 20	X 20
Total production needs in ounces	780,000	?	?	?	?
Plus desired ounces of ending direct materials inventory*	128,000 908,000	? ?	? ?	240,000 ?	240,000 ?
Less desired ounces of ending direct materials inventory*	156,000	?	?	?	156,000
Total ounces of direct material to be purchased	752,000	?	?	?	?
Cost per ounce	X $0.01	X ?	X ?	X ?	X ?
Total cost of direct materials purchases	$7520	?	?	?	?

Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.

Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.

4.Directlabor budget:

Ginnie SpringsCompany

Direct LaborBudget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Total production units	39,000	?	?	?	?
Direct labor hours per units	X 0.001	X ?	X ?	X ?	X ?
Total direct labor hours	39.0	?	?	?	?
Direct labor cost per hour	X $8	X ?	X ?	X ?	X ?
Total direct labor cost	$312	$ ?	$ ?	$ ?	$ ?

5.Overheadbudget

Ginnie SpringsCompany

Overhead Budget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Variable overhead costs:
Factory supplies ($0.01)	$ 390	$ ?	$ ?	$ ?	$ ?
Employee benefits ($0.05)	1,950	?	?	?	?
Inspection ($0.01)	390	?	?	?	?
Maintenance and repairs($0.02)	780	?	?	?	?
Utilities ($0.01)	390	?	?	?	?
Total Variable overheadcosts	$3900	$ ?	$ ?	$ ?	$ ?
Total fixed overhead costs	1416	?	?	?	?
Total overhead costs	$5,316	$ ?	$ ?	$ ?	$ ?

Note: The figures in parentheses are variable costs perunit.

6.Sellingand administrative expenses budget:

Ginnie SpringsCompany

Selling and Administrative Expenses Budget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Variable Selling and Administrative expenses
Delivery expenses ($0.01)	$ 400	$ ?	$ ?	$ ?	$ ?
Sales Commission ($0.02)	800	?	?	?	?
Accounting ($0.01)	400	?	?	?	?
Other administrative expenses($0.01)	400	?	?	?	?
Total Variable selling and administrative exp.	$2,000	$ ?	$ ?	$?	$?
Total fixed selling and administrative exp.	5000	?	?	$?	?
Total selling and administrative expenses	$ 7,000	$ ?	$ ?	$ ?	$ ?

Note: The figures in parentheses arevariable costs per unit

7. Cost of goods manufactured budget:

Ginnie SpringsCompany

Cost of Goods Manufactured Budget

For the year EndedDecember 31_____________

Direct Material Used:

Direct Material Inventory,Beginning

Purchases

Cost of Direct materials available foruse

Less: Direct materials Inventory,ending

Cost of Direct Materialsused

Direct laborcosts:

Overhead costs:

Total manufacturing costs

Work in Process Inventory,beginning*

Less: work in process inventory,ending*

Cost of Goods Manufactured

Units produced

Manufactured cost perunit

It is the companyâs policy to have no units in process at theend of theyear.

8. Budgeted income statement

Ginnie Springs Company

Selling and Administrative Expenses Budget

For the year EndedDecember 31_____________

Sales

Cost of goods sold

Finished goods inventory beginning

Cost of goods manufactured

Cost of Goods available for sale

Less finished goods inventory, ending

Cost of good sold

Gross margin

Selling and administrative expenses

Income from operations

Income taxes expenses (30% tax rate)

Net Income

lemonhamster976

The Electronics Division of Far North Telecom, Ltd., of Canadamanufactures an electrical switching unit that can be sold eitherto outside customers or to the Fiber Optics Division of Far NorthTelecom. Selected operating data on the two divisions are givenbelow:

Electronics Division

Unit selling price to outside customers 80

Variable production cost per unit 52

Variable selling and administrative

Expense per unit 9

Fixed production cost in total 300,000*

Fiber Optics Division:

Outside purchase price per unit (before any quantity discount)80

*Capacity 25, 000 units per year.

The Fiber Optics Division now purchases the switch from anoutside supplier at the regular $80 intermediate price less a 5%quantity discount. Since the switch manufactured by the ElectronicsDivision is of the same quality and type used by the Fiber OpticsDivision, consideration is being given to buying internally ratherthan from the outside supplier. As the company's president stated,"It's just plain smart to buy and sell within the corporatefamily."

A study has determined that the variable selling andadministrative expenses of the Electronics Division would be cut byone-third for any sales to the Fiber Optics Division. Topmanagement wants to treat each division as an autonomous unit withindependent profit responsibility.

1.Assume that the Electronics Division is currently selling only20,000 units per year to outside customers and that the FiberOptics Division needs 5,000 units per year.

c.Assume that the Fiber Optics Division finds an outsidesupplier that will sell the electrical unit for only $65 per unit.Should the Electronics Division be required to meet this price?Explain.

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ADM 3346 Lecture Notes - Lecture 6: Standard Cost Accounting, Income Statement

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