4-45 (25–30 min.) Job costing, ethics. Joseph Underwood joined Anderson Enterprises as controller in October 2016. Anderson Enterprises manufactures and installs home greenhouses. The company uses a normal-costing system with two direct-cost pools, direct materials and direct manufacturing labor, and one indirect-cost pool, manufacturing overhead. In 2016, manufacturing overhead was allocated to jobs at 150% of direct manufacturing labor cost. At the end of 2016, an immaterial amount of underallocated overhead was closed out to cost of goods sold, and the company showed a small loss. Underwood is eager to impress his new employer, and he knows that in 2017, Anderson’s upper management is under pressure to show a profit in a challenging competitive environment because they are hoping to be acquired by a large private equity firm sometime in 2018. At the end of 2016, Underwood decides to adjust the manufacturing overhead rate to 160% of direct labor cost. He explains to the company president that, because overhead was underallocated in 2016, this adjustment is necessary. Cost information for 2017 follows: Direct materials control, 1/1/2017 25,000 Direct materials purchased, 2017 650,000 Direct materials added to production, 2017 630,000 Work in process control, 1/1/2017 280,000 Direct manufacturing labor, 2017 880,000 Cost of goods manufactured, 2017 2,900,000 Finished goods control, 1/1/2017 320,000 Finished goods control, 12/31/2017 290,000 Manufacturing overhead costs, 2017 1,300,000 Anderson’s revenue for 2017 was $5,550,000, and the company’s selling and administrative expenses were $2,720,000. 1. Insert the given information in the T-accounts below. Calculate the following amounts to complete the T-accounts: a. Direct materials control, 12/31/2017 b. Manufacturing overhead allocated, 2017 c. Cost of goods sold, 2017 Direct Materials Control Work-in-Process Control Finished Goods Control Manufacturing OH Control Manufacturing OH Allocated Cost of Goods Sold 2. Calculate the amount of under- or overallocated manufacturing overhead. 3. Calculate Anderson’s net operating income under the following: a. Under- or overallocated manufacturing overhead is written off to cost of goods sold. b. Under- or overallocated manufacturing overhead is prorated based on the ending balances in work in process, finished goods, and cost of goods sold. 4. Underwood chooses option 3a above, stating that the amount is immaterial. Comment on the ethical implications of his choice. Do you think that there were any ethical issues when he established the manufacturing overhead rate for 2017 back in late 2016? Refer to the IMA Statement of Ethical Professional Practice.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
4-45 (25–30 min.)
October 2016. Anderson Enterprises manufactures and installs home greenhouses. The company uses a
normal-costing system with two direct-cost pools, direct materials and direct manufacturing labor, and one
indirect-
of direct manufacturing labor cost. At the end of 2016, an immaterial amount of underallocated overhead
was closed out to cost of goods sold, and the company showed a small loss.
Underwood is eager to impress his new employer, and he knows that in 2017, Anderson’s upper management
is under pressure to show a profit in a challenging competitive environment because they are hoping
to be acquired by a large private equity firm sometime in 2018. At the end of 2016, Underwood decides to
adjust the manufacturing overhead rate to 160% of direct labor cost. He explains to the company president
that, because overhead was underallocated in 2016, this adjustment is necessary. Cost information for 2017
follows:
Direct materials control, 1/1/2017 25,000
Direct materials purchased, 2017 650,000
Direct materials added to production, 2017 630,000
Work in process control, 1/1/2017 280,000
Direct manufacturing labor, 2017 880,000
Cost of goods manufactured, 2017 2,900,000
Finished goods control, 1/1/2017 320,000
Finished goods control, 12/31/2017 290,000
Manufacturing overhead costs, 2017 1,300,000
Anderson’s revenue for 2017 was $5,550,000, and the company’s selling and administrative expenses were
$2,720,000.
1. Insert the given information in the T-accounts below. Calculate the following amounts to complete the
T-accounts:
a. Direct materials control, 12/31/2017
b. Manufacturing overhead allocated, 2017
c. Cost of goods sold, 2017
Direct Materials Control Work-in-Process Control Finished Goods Control
Manufacturing OH Control Manufacturing OH Allocated Cost of Goods Sold
2. Calculate the amount of under- or overallocated manufacturing overhead.
3. Calculate Anderson’s net operating income under the following:
a. Under- or overallocated manufacturing overhead is written off to cost of goods sold.
b. Under- or overallocated manufacturing overhead is prorated based on the ending balances in
work in process, finished goods, and cost of goods sold.
4. Underwood chooses option 3a above, stating that the amount is immaterial. Comment on the ethical
implications of his choice. Do you think that there were any ethical issues when he established the
manufacturing overhead rate for 2017 back in late 2016? Refer to the IMA Statement of Ethical Professional
Practice.
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