Part 1: Job Costing
Crandall Corporation makes portable enclosures for festivals, concerts, and other events.Its products aren’t mass produced—each unit is made to customer specifications. Crandallemploys a normal job costing system. Direct labor at the company is compensated at a rateof $21 per hour; however, employees receive no pay when they aren’t working on jobs. Apredetermined rate based on direct labor-hours is used to assign manufacturing overhead to jobs.
In the past two years, the company incurred manufacturing overhead costs (adjusted forprice-level changes using current prices and wage rates) as follows:
Direct labor-hours worked
Manufacturing overhead costs incurred:
Heat and light
Property taxes and insurance
Total manufacturing overhead costs
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At the start of Year 3, Crandall has two jobs not yet delivered to customers. Job AT-360 was completed on December 15, Year 2. It’s scheduled to ship out on January 21, Year 3. Job AT-365 is still in progress. The predetermined rate in Year 2 was $155 per direct labor-hour.Data on direct material costs and direct labor-hours for these jobs in Year 2 was as follows:
During Year 3, Crandall incurred direct material costs and direct labor-hours for all jobsworked in Year 3, including the completion of Job AT-365, as follows:
To compute the predetermined overhead rate, Crandall uses the previous year’s actual over-head rate. At the end of Year 3, three jobs had not been shipped. Data on these jobs is asfollows:
- What was the amount in the beginning Finished Goods and beginning Work-in-Process accounts for Year 3?
- Crandall incurred direct materials costs of $210,000 and used an additional 800hours in Year 3 to complete Job AT-365. What was the final (total) cost charged to Job AT-365?
- What was the overapplied or underapplied overhead for Year 3?
- Crandall prorates any overapplied or underapplied overhead to Cost of Goods Sold, Finished Goods Inventory, and Work-in-Process Inventory. Prepare a |properly formatted journal entry to prorate the Overapplied or UnderappliedOverhead calculated in requirement. As an allocation basis, use the direct laborhours in each account from Year 3.
- A customer requested that Crandall bid on a job to be finished in Year 4. Crandallhas estimated that the job will need approximately $156,000 in direct materials and 8,000 direct labor-hours. Due to the condition of the economy, Crandall believes demand for its services will be below average in Year 4, and the CEO thereforewould like to bid aggressively, but doesn’t want to lose money on the project.Crandall estimated essentially no sales or administrative costs connected with thisjob. What is the minimum amount the company can bid on the job and not incur a loss? (In order to perform an estimation of the variable portion of overhead, use thehigh-low method.)
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Direct material costs
Direct material costs
Actual manufacturing overhead
Part 2: Process Costing
Intrepid Industries manufactures sterile parts used in medical equipment. The company uses the weighted-average process costing method to account for production costs. It produces parts in three different departments: Forming, Sterilization, and Assembling. The following information was reported for the Assembling Department for the month of June:
Beginning work-in-progress inventory on June 1 had 250,000 units made up of the following:
Degree of Completion
Prior department costs transferred in from the Forming Department
Costs added by the Steril-ization Department:
Work in process, June 1
During June, 580,000 units were transferred in from the Forming Department at a cost of $1,870,000. The Assembling Department added the following costs:
Assembling finished 480,000 units and transferred them to the Sterilization Department. At June 30, the number of units in ending work-in-progress inventory was 350,000. The degree of completion of work-in-process inventory at June 30 was as indicated below:
- Prepare a correctly formatted (including heading) production cost report (seeExhibit 8.11 as a example report) using the weighted-average method.
- Managementwantstolowerthecostsofmanufacturingtheparts.Ithasestablished the following per unit targets for this product in the Assembling Department: materials,$1.65; labor, $.62; and manufacturing overhead $0.48. Has the product achievedmanagement’s cost targets in the Assembling Department? Write a short report tomanagement containing your answer(s).
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Total costs added
C. Prepare a correctly formatted (including heading) production cost report (seeExhibit 8.12 as a example report) using the FIFO method using the data given in Question A with one exception: the beginning direct materials costs as of June 1listed in work-in-process should be $315,700 instead of $317,200.
D. Using data from the FIFO report, write a short report to management addressingthe issues raised in Question B.
Part 3: Activity-Based Costing
Wayfarer Corporation is contemplating changing its cost system to an activity-based costing system and wants to know more about the effects of doing so. The corporation’s cost accountant has identified three overhead cost pools along with the cost drivers associatedwith each pool as follows:
The corporation makes three models of kitchen sinks (Deluxe, Premium, and Standard). The plans for production for the next year and the direct costs that have been budgeted for activity by product are listed below:
180,000 machine hours
2,000,000 pounds of material
Total direct costs (material and labor)
Total pounds of material
Total direct labor-hours
Number of units produced
- The current cost accounting system charges overhead to products on the basis of direct labor-hours. What unit product costs will be reported for the three productsassuming the current cost system continues to be used?
- What are the cost driver rates associated with the three cost pools specified by thecost accountant?
- What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant’s categorization of cost pools is utilized?