ࡱ> egd 1bjbjWW Fj=='^448Thr6j///5555555$7:b6/W,.///644E ,6m3m3m3/^4"5m3/5m3m34Vr4@5W/45B60r64:0:4:4//m3/////662///r6////:///////// : Making the Connection: Integrative Exercise Part 2: chapters 510 1. a. Physical units method of allocation: Grades Board Feet Percent of Units Allocation* Firsts and seconds 1,500,000 0.20 $180,000 No. 1 common 3,000,000 0.40 360,000 No. 2 common 1,875,000 0.25 225,000 No. 3 common 1,125,000 0.15 135,000 Totals 7,500,000 1.00 $900,000 *Percentage $900,000 Unit cost: Firsts and seconds $0.12 ($180,000/1,500,000) No. 1 common 0.12 ($360,000/3,000,000) No. 2 common 0.12 ($225,000/1,875,000) No. 3 common 0.12 ($135,000/1,125,000) b. Sales-value-at-split-off method: Note: Market value is calculated by dividing board feet produced by 1,000 and multiplying by the sales price (e.g., [(1,500,000/1,000) $300] = $450,000). Next, the percentage of market value is multiplied by $900,000 for the allocation. Market Value Percentage Grades (MV) of MV Allocation Firsts and seconds $ 450,000 0.300 $270,000 No. 1 common 675,000 0.450 405,000 No. 2 common 262,500 0.175 157,500 No. 3 common 112,500 0.075 67,500 Totals $1,500,000 1.000 $900,000 Unit cost: Firsts and seconds $0.180 ($270,000/1,500,000) No. 1 common 0.135 ($405,000/3,000,000) No. 2 common 0.084 ($157,500/1,875,000) No. 3 common 0.060 ($67,500/1,125,000) Comp. Prob. 2 (Continued) The physical units method, often used in the lumber industry, essentially assumes that it costs the same to produce each board foot of lumber regardless of grade. Thus, the same cost of lumber would be assigned to a sofa or chair regardless of which grade is used. This approach has some drawbacks. Intuitively, the higher grades should cost more. Certainly, if the company was buying this input from suppliers, there would be a cost difference for sofas and chairs depending on the grade of lumber purchased, because the higher grades have a higher selling price. The relative sales value method assigns higher costs to grades that have higher market values. Thus, the cost of sofas and chairs using different grades of lumber would differ according to the grade of lumber used. The costing issue foreshadows the transfer pricing dilemma (discussed in a later section) that companies face. Since lumber has an outside market, opportunity costs are being incurred by the company. Perhaps a better solution is to transfer the lumber at market price per board foot. Effect on Job A500 (the cost per board foot increases from $0.12 to $0.135): Cost thus increases by $300 [($0.135 $0.12)20,000 board feet]. Effect on Job B75 (the cost per board foot increases from $0.12 to $0.18): Cost thus increases by $132 [($0.18 $0.12)2,200 board feet]. 2. Rate = $1,200,000/120,000 hours = $10/hour 3. Applied overhead = Rate Actual hours = $10 118,000 hours = $1,180,000 Overhead variance = Actual overhead Applied overhead = $1,150,000 $1,180,000 = $30,000 overapplied Comp. Prob. 2 (Continued) 4. Weaving and Pattern Department: a. Physical flow schedule (measured in yards): BWIP 20,000 Units started 80,000 Total 100,000 Units completed 80,000 EWIP 20,000 Total 100,000 b. Equivalent units schedule: Materials Conversion Costs Units completed 80,000 80,000 EWIP 20,000 8,000 Total 100,000 88,000 c. Unit cost: ($400,000/100,000) + ($528,000/88,000) = $10 Note: Total cost of materials = BI + Costs added = $80,000 + $320,000; Total conversion costs = BI + Costs added = ($18,000 + $22,000 + $208,000) + ($10 28,000 hours) = $528,000. d. Cost of goods transferred out: $10 80,000 = $800,000 Comp. Prob. 2 (Continued) Coloring and Bolting Department: a. Physical flow schedule (measured in bolts): BWIP 400 Units started 3,200 (80,000/25) Total 3,600 Units completed 3,200 EWIP 400 Total 3,600 Note: EWIP = Total units to account for less units completed. b. Equivalent units schedule: Transferred-in Materials Materials Conversion Costs Units completed 3,200 3,200 3,200 EWIP 400 400 200 Total 3,600 3,600 3,400 c. Note: Transferred-in cost = BI + Costs added = $100,000 + $800,000 = $900,000; Materials = BI + Costs added = $8,000 + $82,000 = $90,000; Conversion costs = BI + Costs added = ($15,600 + $99,400) + ($10 14,000) = $255,000. Unit cost = ($900,000/3,600) + ($90,000/3,600) + ($255,000/3,400) = $250 + ($25 + $75) = $350 Thus, the unit cost of a bolt of Fabric FB70 is $350. 5. Process costing would not be appropriate. Operation costing is the approach that should be used. Operation costing assigns material costs to batches using job-order procedures. Conversion costs are assigned using process-costing procedures. Work orders are used to collect production costs for each batch. Using work orders to initiate and track costs to each batch is a job-costing characteristic. As batches pass through the same operation, each product is treated as a homogeneous unit for purposes of assigning conversion costs. Typically, conversion costs are assigned using a predetermined conversion cost rate. Thus, we would have a hybrid of job-order and process-costing procedures. Comp. Prob. 2 (Continued) 6. a. MPV = (AP SP)AQ = ($0.205 $0.20)400,000 = $2,000 U where AP = $82,000/400,000 b. MUV = (AQ SQ)SP = (400,000 320,000)$0.20 = $16,000 U where SQ = 100 3,200 equivalent units (FIFO)see FIFO schedule in 6d. c. LRV = (AR SR)AH = ($7.10 $8.00)14,000 = $12,600 F where AR = $99,400/14,000 d. LEV = (AH SH)SR = (14,000 10,044)$8.00 = $31,648 U where SH = 3.1 3,240 equivalent units (FIFO)see FIFO schedule below. FIFO must be used because it measures output of the period: Materials Conversion Costs Units started and completed 2,800 2,800 BWIP (to complete) 0 240 EWIP 400 200 Total 3,200 3,240 Standard costing simplifies process costing because the unit cost is the standard cost and need not be calculated. The unit standard cost can be used to value goods transferred out and EWIP. Thus, all that is needed are the physical flow schedule and the FIFO equivalent units schedule. Comp. Prob. 2 (Continued) 7. a. and b. Fixed overhead variances:    *0.50 $1,150,000 c. and d. Variable overhead variances:    *0.50 $1,150,000 8. a. Sales budget: Units (3,000 + 2,000) 5,000 Selling price $400 Sales $2,000,000 b. Production budget: Unit sales 5,000 Desired ending inventory 1,000 Total needed 6,000 Less: Beginning inventory 500 Units produced 5,500 Comp. Prob. 2 (Continued) c. Direct labor budget: Units produced 5,500 Direct labor hours per unit 3.1 Direct labor hours needed 17,050 Cost per hour $8 Total direct labor cost $136,400 d. Cost of goods sold budget: Units to be sold 5,000 Unit standard cost $325.80 Cost of goods sold $1,629,000 9. (1) Plantwide rate: OH rate = $3,000,000/250,000 hrs. = $12 per DLH Note: The total overhead of $3,000,000 is the sum of the overhead for the service and producing departments: $450,000 + $600,000 + $300,000 + $525,000 + $750,000 + $375,000. (2) Departmental rates: Cutting Assembly Direct cost $ 750,000 $375,000 Receiving: 0.6 $450,000 270,000 0.4 $450,000 180,000 Power: 0.8 $600,000 480,000 0.2 $600,000 120,000 Maintenance: 0.8 $300,000 240,000 0.2 $300,000 60,000 General Factory: 0.6 $525,000 315,000 0.4 $525,000 210,000 Total $2,055,000 $945,000 Driver 60,000 200,000 Rate (Cost/Driver) $34.25 per MHr $4.73* per DLH *Rounded. Comment: Receiving orders were used to allocate the receiving costs, machine hours for power costs, machine hours for maintenance costs, and square feet were used to allocate the general factory costs. Comp. Prob. 2 (Continued) 10. Plantwide rate bids: Job A500: Direct materials $ 92,000 [($350 180) + $29,000]* Direct labor 18,000 [($10 400) + ($8.75 1,600)] Prime costs $110,000 Overhead 24,000 ($12 2,000) Total cost $134,000 Markup 67,000 Total bid $201,000 Units 500 Unit bid $ 402 *($0.12 20,000) + $26,600 Job B75: Direct materials $12,600 [($350 26) + $3,500]* Direct labor 2,800 [($10 70) + ($8.75 240)] Prime costs $15,400 Overhead 3,720 ($12 310) Total cost $19,120 Markup 9,560 Total bid $28,680 Units 75 Unit bid $382.40 *($0.12 2,200) + $3,236 Departmental rate bids: Job A500: Prime costs $110,000 Overhead 19,556* [($34.25 350) + ($4.73 1,600)] Total cost $129,556 Markup 64,778 Total bid $194,334 Units 500 Unit bid $ 388.67* *Rounded. Comp. Prob. 2 (Concluded) Job B75: Prime costs $15,400 Overhead 4,218* [($34.25 90) + ($4.73 240)] Total cost $19,618 Markup 9,809 Total bid $29,427 Units 75 Unit bid $392.36 *Rounded. Departmental rates decrease the bid for the more easily produced Job A500 and increase the bid for the more difficult to produce Job B75. This appears to be in the right direction. (It makes sense that the more demanding job ought to cost more.) We would recommend using the departmental rates in place of the plantwide rate. Using the standard cost would decrease the cost of Fabric FB70 for both jobs. For Job A500, prime costs will decrease by $4,356 ($350 $325.80) 180. And for Job B75, prime costs will decrease by $629 ($350 $325.80) 26. Thus, the bid for Job A500 will decrease by $6,534 (1.5 $4,356) in total, or $13.07 per unit ($6,534/500). Similarly, the bid for Job B75 will decrease by $943.50 (1.5 $629) in total, or $12.58 per unit ($943.50/75). This tells us that we can apparently avoid including waste in our bid by using standard costs and improve our bidding. It also tells us that we need to focus on becoming more efficient. 11. The minimum transfer price would be standard variable cost: $325.80 $15.50 = $310.30 (the out-of-pocket costs). The joint benefit is $89.70 ($400.00 $310.30). If split evenly, the transfer price would be $355.15 ($310.30 + $44.85).      MTC2-PAGE 1 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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