Concept explainers
RIRA Company makes attachments such as backhoes and grader and bulldozer blades for construction equipment. The company uses a job order cost system. Management is concerned about cost performance and evaluates the
Management is concerned about the increase in unit costs over the months from October to December. To understand what has occurred, management interviewed the purchasing manager and quality manager.
Purchasing Manager: Prices have been holding steady for our raw materials during the first half of the year. I found a new supplier for our bulk steel that was willing to offer a better price than we received in the past. I saw these lower steel prices and jumped on them, knowing that a reduction in steel prices would have a very favorable impact on our costs.
Quality Manager: Something happened around mid-year. All of a sudden, we were experiencing problems with respect to the quality of our steel. As a result, we’ve been having all sorts of problems on the shop floor in our foundry and welding operation.
- a. Analyze the two job cost sheets and identify why the unit costs have changed for the backhoe buckets. Complete the following schedule to help in your analysis:
- b.
How would you interpret what has happened in light of your analysis and the interviews?
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Chapter 2 Solutions
Managerial Accounting
- Gerken Fabrication Inc. uses the job order cost system of accounting. The following information was taken from the companys books after all posting had been completed at the end of March: a. Compute the total production cost of each job. b. Prepare the journal entries to charge the costs of materials, labor, and factory overhead to Work in Process. c. Prepare the journal entry to transfer the cost of jobs completed to Finished Goods. d. Compute the unit cost of each job. e. Compute the selling price per unit for each job, assuming a mark-on percentage of 50%.arrow_forwardThe following information, taken from the books of Herman Brothers Manufacturing represents the operations for January: The job cost system is used, and the February cost sheet for Job M45 shows the following: The following actual information was accumulated during February: Required: 1. Using the January data, ascertain the predetermined factory overhead rates to be used during February, based on the following: a. Direct labor cost b. Direct labor hours c. Machine hours 2. Prepare a schedule showing the total production cost of Job M45 under each method of applying factory overhead. 3. Prepare the entries to record the following for February operations: a. The liability for total factory overhead. b. Distribution of factory overhead to the departments. c. Application of factory overhead to the work in process in each department, using direct labor hours. (Use the predetermined rate calculated in Requirement 1.) d. Closing of the applied factory overhead accounts. e. Recording under- and overapplied factory overhead and closing the actual factory overhead accounts.arrow_forwardSultan, Inc. manufactures goods to special order and uses a job order cost system. During its first month of operations, the following selected transactions took place: Required: 1. Prepare a schedule reflecting the cost of each of the four jobs. 2. Prepare journal entries to record the transactions. 3. Compute the ending balance in Work in Process. 4. Compute the ending balance in Finished Goods.arrow_forward
- San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system. Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateos predetermined overhead rates for 20x1 and 20x2 were based on the following estimates. Jim Cimino, San Mateos controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateos management team, Cimino plans to convert the companys income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateos 20x1 and 20x2 comparative income statement. San Mateo Optics, Inc. Comparative Income Statement For the Years 20x1 and 20x2 San Mateos actual manufacturing data for the two years are as follows: The companys actual inventory balances were as follows: For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any over-or underapplied overhead as an adjustment to the cost of goods sold. Required: 1. For the year ended December 31, 20x2, prepare the revised income statement for San Mateo Optics, Inc., utilizing the variable-costing method. Be sure to include the contribution margin on the revised income statement. 2. Describe two advantages of using variable costing rather than absorption costing. (CMA adapted)arrow_forwardChannel Products Inc. uses the job order cost system of accounting. The following is a list of the jobs completed during March, showing the charges for materials issued to production and for direct labor. Assume that factory overhead is applied on the basis of direct labor costs and that the predetermined rate is 200%. Required: Compute the amount of overhead to be added to the cost of each job completed during the month. Compute the total cost of each job completed during the month. Compute the total cost of producing all the jobs finished during the month.arrow_forwardUse the space provided below to prepare six summary journal entries for the month of August. These entries record (1) cost of direct materials used, (2) cost of direct labor, (3) cost of applied overhead, (4) cost of jobs completed, (5) cost of goods sold, and (6) total sales on account. Then set up T-accounts for Work in Process, Finished Goods, Cost of Goods Sold, and Sales. Post the entries to the appropriate accounts and then balance each account. Finally, prepare a supporting schedule by job number showing the cost of ending work in process, finished goods, and cost of goods sold.arrow_forward
- Alvarez Manufacturing Inc. is a job shop. The management of Alvarez Manufacturing Inc. uses the cost information from the job sheets to assess cost performance. Information on the total cost, product type, and quantity of items produced is as follows: See Attachment a. Develop a graph for each product (three graphs) with Job Number (in date order) on the horizontal axis and Unit Cost on the vertical axis. Use this information to determine Alvarez Manufacturing Inc.’s cost performance over time for the three products.b. What additional information would you require in order to investigate Alvarez Manufacturing Inc.’s cost performance more precisely?arrow_forwardHallmark Furniture Company refinishes and reupholsters furniture. Hallmark Furniture uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On February 14, 20Y1, an estimate of $3,318 for reupholstering a chair and couch was given to Millard Schmidt. The estimate was based on the following data: Estimated direct materials: 30 meters at $30 per meter $ 900 Estimated direct labor: 28 hours at $30 per hour 840 Estimated factory overhead (75% of direct labor cost) 630 Total estimated…arrow_forwardUse the data below to create Pivot Table(s) in Excel. You will use the pivot table(s) to fill out your answers in the requirements (worksheets) in Part 2. Submit your Excel File containing the Pivot Tables in Part 3. Decker Screw Manufacturing Company produces special screws made to customer specifications. During June, the following data pertained to these costs: Summary of Direct Materials Requisitions Department Job Requisition Number Cost per Number Number Quantity Unit 1 2906 B9766 4,950 $ 1.30 2 2907 B9767 190 22.00 1 2908 B9768 1,160 9.00 1 2906 B9769 4,830 1.31 2 2908 B9770 31 48.00 Summary of Direct Labor Time Tickets Department Job Ticket Cost per Number Number Number Hours Unit 1 2906 1056-1168 1,118 $ 6.50 2 2907 2121-2130 152 9.00 1 2908 1169-1189 167 6.50 2 2908 2131-1239 48 9.00 1 2906 1190-1239 826 6.50 Department Number 2 Summary of Factory Overhead Application Rates Basis of Application Rates $3 per direct labor hour 150% of direct labor cost Decker had no beginning…arrow_forward
- High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. The company uses a job-order costing system in which predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based on machine-hours, and the rate in the Painting Department is based on direct labor-hours. At the beginning of the year, the company's management made the following estimates: Department Molding Painting Direct labor-hours 39,500 51,200 Machine-hours 87,000 33,000 Direct materials cost $186,000 $196,000 Direct labor cost $277,000 $513,000 Fixed manufacturing overhead cost $243,600 $465,920 Variable manufacturing overhead per machine-hour $2.60 - Variable manufacturing overhead per direct labor-hour - $4.60 Job 205 was started on August 1 and completed on August 10.…arrow_forwardMadani Sdn Bhd produces variety of furniture products that is sell to retailer such as Home Depot. The company use a job order costing system in which predetermined overheads rates are used to apply manufacturing overheads cost to jobs. The predetermined overhead rate in the Spraying Department based on machined hours, and the rate in the Assembly Department is based on direct labour hours. At the beginning of the year, the company’s management made the following estimate: Department Spraying Assembly Direct labour hours 12,000 60,000 Machine hours 70,000 8,000 Direct material cost RM510,000 RM650,000 Direct labour cost RM130,000 RM420,000 Fixed manufacturing overhead cost RM497,000 RM615,000 Variable manufacturing overhead per machine hour RM1.50 - Variable manufacturing…arrow_forwardMadani Sdn Bhd produces variety of furniture products that is sell to retailer such as Home Depot. The company use a job order costing system in which predetermined overheads rates are used to apply manufacturing overheads cost to jobs. The predetermined overhead rate in the Spraying Department based on machined hours, and the rate in the Assembly Department is based on direct labour hours. At the beginning of the year, the company’s management made the following estimate: Department Spraying Assembly Direct labour hours 12,000 60,000 Machine hours 70,000 8,000 Direct material cost RM510,000 RM650,000 Direct labour cost RM130,000 RM420,000 Fixed manufacturing overhead cost RM497,000 RM615,000 Variable manufacturing overhead per machine hour RM1.50…arrow_forward
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