Acct 203 Ch 17 – Ch 22

Simon Company’s year-end balance sheets follow.
At December 31 2017 2016 2015
Assets
Cash $ 33,317 $ 38,945 $ 40,981
Accounts receivable, net 89,200 62,200 53,900
Merchandise inventory 111,000 82,000 59,000
Prepaid expenses 10,729 10,223 4,553
Plant assets, net 331,975 303,374 263,966
Total assets $ 576,221 $ 496,742 $ 422,400
Liabilities and Equity
Accounts payable $ 140,609 $ 82,270 $ 54,642
Long-term notes payable secured by
mortgages on plant assets 106,163 111,966 91,483
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 166,949 140,006 113,775
Total liabilities and equity $ 576,221 $ 496,742 $ 422,400
________________________________________
The company’s income statements for the years ended December 31, 2017 and 2016, follow. Assume that all sales are on credit:

For Year Ended December 31 2017 2016
Sales $ 749,087 $ 591,123
Cost of goods sold $ 456,943 $ 384,230
Other operating expenses 232,217 149,554
Interest expense 12,734 13,596
Income taxes 9,738 8,867
Total costs and expenses 711,632 556,247
Net income $ 37,455 $ 34,876
Earnings per share $ 2.30 $ 2.15
________________________________________

1. Compute days end sales uncollected (365 days): Acct Rec / Net Sales *365 = Days Sales Uncollected 2017: $89,200 × 365 = 43.5 days $749,087 2016: $62,200 × 365 = 38.4 days 2. Compute account receivable turnover: Account Sales / Average Acct Rec (aka acct rec net) current and prior yr added together / 2 = AR (Acct Rec) Turnover Do (### + ###) /2 all under average acct rec Example 2017: (749,087 (Sales) / (89,200 + 62,200)) / 2= 2.47 Example 2016: (591,123 (Sales) / (62,200 + 53,900)) / 2= 2.55 2017: $749,087 = 9.9 times ($89,200 + $62,200) / 2 2016: $591,123 = 10.2 times ($62,200 + $53,900) / 2 3. Compute Inventory Turnover Cost of goods sold / Average (Merchandise) Inventory Example 2017: (456,943 / (111,000 + 82,000)) / 2= 1.183 Times per year Example 2016: (384,230 / (82,000 + 59,000)) / 2= 1.362 Times per year 2017: $456,943 = 4.7 times ($111,000 + $82,000) / 2 2016: $384,230 = 5.5 times ($82,000 + $59,000) / 2 4. Compute Days sales in inventory (365 days) Merchandise Ending inventory / Cost of goods sold * 365 days 2017: 111,000 / 456,943 * 365= 88.67 Days sales in inventory 2016: 82,000 / 384,230) * 365= 77.896 Days sales in inventory 2017: $111,000 × 365 = 88.7 days $456,943 2016: $82,000 × 365 = 77.9 days $384,230

17-9 Simon Company’s year-end balance sheets follow.
At December 31 2017 2016 2015
Assets
Cash $ 25,547 $ 29,258 $ 30,173
Accounts receivable, net 72,546 52,786 42,304
Merchandise inventory 92,153 71,845 44,616
Prepaid expenses 8,061 7,680 3,353
Plant assets, net 239,059 215,471 193,754
Total assets $ 437,366 $ 377,040 $ 314,200
Liabilities and Equity
Accounts payable $ 107,815 $ 64,357 $ 41,060
Long-term notes payable secured by
mortgages on plant assets 81,403 88,454 71,521
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 85,648 61,729 39,119
Total liabilities and equity $ 437,366 $ 377,040 $ 314,200
________________________________________

The company’s income statements for the years ended December 31, 2017 and 2016, follow.
For Year Ended December 31 2017 2016
Sales $ 568,576 $ 448,678
Cost of goods sold $ 346,831 $ 291,641
Other operating expenses 176,259 113,516
Interest expense 9,666 10,320
Income taxes 7,391 6,730
Total costs and expenses 540,147 422,207
Net income $ 28,429 $ 26,471
Earnings per share $ 1.75 $ 1.63
________________________________________

Calculate the company’s long-term risk and capital structure positions at the end of 2017 and 2016 by computing the following ratios.

Debit Ratio + Equity Ratio will always = 100% for each individual year.

1. Debit and Equity Ratios: Debit Ratio: Total Debit ( Acct Payable + Long Term Notes payable)/ Total Assets 2017: (107,815 + 81,403) / 437,366= 43.26% = 43.3% Debit Ratio 2016: (64,357 + 88,454) / 377,040 = 40.529% = 40.5% Debit Ratio Equity Ratio: Total Equity (Common Stock + Retained Earnings) / Total Assets 2017: (162,500 + 85,648) / 437,366= 56.74% = 56.7% Equity Ratio 2016: (162,500 + 61,729) / 377,040= 59.47%= 59.5% Equity Ratio 2. Debit-To-Equity Ratio: Total debit (Acct Payable + Long Term Notes Payable) / Total Equity (Common Stock + Retained Earnings) 2017: (107,815 + 81,403) / (162,500 + 85,648) = 0.76 to 1 2016: (64,357 + 88,454) / (162,500 + 61,729) = 0.68 to 1 3. Times Interest Earned: Take Income before interest and taxes (IBIT) / Interest Expenses (Sales – Cost of Goods Sold – Other Operating Expenses) = IBIT / Interest Expense 2017: (568,576 – 346,831 – 176,259) / 9,666 = 4.7 Times Interest Earned 2016: (448,678 – 291,641 – 113,516) / 10,320 = 4.2 Times Interest Earned

17-10
Simon Company’s year-end balance sheets follow.
At December 31 2017 2016 2015
Assets
Cash $ 30,200 $ 36,000 $ 38,200
Accounts receivable, net 88,500 61,000 49,000
Merchandise inventory 110,500 80,600 53,000
Prepaid expenses 10,450 9,250 5,500
Plant assets, net 278,000 249,000 231,000
Total assets $ 517,650 $ 435,850 $ 376,700
Liabilities and Equity
Accounts payable $ 128,400 $ 75,000 $ 50,200
Long-term notes payable secured by
mortgages on plant assets 97,500 101,250 83,400
Common stock, $10 par value 162,000 162,000 162,000
Retained earnings 129,750 97,600 81,100
Total liabilities and equity $ 517,650 $ 435,850 $ 376,700
________________________________________

The company’s income statements for the years ended December 31, 2017 and 2016, follow.
For Year Ended December 31 2017 2016
Sales $ 675,000 $ 550,000
Cost of goods sold $ 405,000 $ 352,000
Other operating expenses 189,000 137,500
Interest expense 11,900 13,000
Income taxes 9,600 8,850
Total costs and expenses 615,500 511,350
Net income $ 59,500 $ 38,650
Earnings per share $ 3.67 $ 2.39
Evaluate the company’s efficiency and profitability by computing the following for 2017 and 2016.

1. Profit Margin Ratio: Net Income / Net Sales = PMR 2017: 59,500 / 675,000= 8.81% 2016: 38,650 / 550,000= 7.027% 2. Total Asset Turnover Net Sales / Average Total Assets= TAT 2017: 675,000 / ((517,650 + 435,850) / 2) = 1.4158 Times 476,750 2016: 550,000 / ((435,850 + 376,700) / 2) = 1.3537 Times 406,275 3. Return on Total Assets Net Income / Average Total Assets 2017: 59,500 / 476,750 = 12.48% Return 2016: 38,650 / 406,275 = 9.51% Return

17-11
Simon Company’s year-end balance sheets follow. At December 31 2017 2016 2015
Assets
Cash $ 31,900 $ 34,400 $ 37,000
Accounts receivable, net 89,200 63,300 53,600
Merchandise inventory 101,109 84,800 54,900
Prepaid expenses 10,334 9,104 3,966
Plant assets, net 322,457 233,396 200,534
Total assets $ 555,000 $ 425,000 $ 350,000
Liabilities and Equity
Accounts payable $ 136,813 $ 70,389 $ 46,200
Long-term notes payable secured by
mortgages on plant assets 104,340 98,728 79,671
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 151,347 93,383 61,629
Total liabilities and equity $ 555,000 $ 425,000 $ 350,000
________________________________________

The company’s income statements for the years ended December 31, 2017 and 2016, follow.
For Year Ended December 31 2017 2016
Sales $ 721,500 $ 505,750
Cost of goods sold $ 440,115 $ 328,738
Other operating expenses 223,665 127,955
Interest expense 12,266 11,632
Income taxes 9,380 7,586
Total costs and expenses 685,426 475,911
Net income $ 36,074 $ 29,839
Earnings per share $ 2.22 $ 1.84
________________________________________

Additional information about the company follows.

Common stock market price, December 31, 2017 $ 32.00
Common stock market price, December 31, 2016 30.00
Annual cash dividends per share in 2017 0.36
Annual cash dividends per share in 2016 0.18
________________________________________

To help evaluate the company’s profitability, compute the following ratios for 2017 and 2016:

1. Return on common stockholder’s equity: Net Income – Preferred Dividends = Return on common / Average Stockholders’ Equity Net Income – Pref Div ((Common Stock + Retained Earnings) /2) / Average Stockholders’ Equity Add up for 2 years (2017: 162,500+93,383= 255,883 & 2017: 162,500+151,347= 313,847) Preferred Stock: 0 Because there isn’t any 2017: 36,074 – 0 / ((255,883 + 313,847)/2) = 12.66% = 12.7% 284,865 2016: 29,839 – 0 / ((224,129 + 255,883)/2) = 12.43% = 12.4% 240,006 2. Price-Earnings ratio on Dec. 31: Market Price Per Common Share / Earnings Per Share 2017: 32.00 / 2.22 = 14.41 = 14.4% Price Earnings Ratio 2016: 30.00 / 1.84 = 16.30 = 16.3% Price Earnings Ratio 3. Dividend Yield: Annual Cash Dividends Per Share / Market Price Per Share 2017: 0.36 / 32.00 = 1.1% DY 2016: 0.18 / 30.00 = 0.6% DY

17-14 In 2017, Randa Merchandising, Inc., sold its interest in a chain of wholesale outlets, taking the company completely out of the wholesaling business. The company still operates its retail outlets. A listing of the major sections of an income statement follows:
Item Debit Credit
1. Net sales $ 3,020,000
2. Gain on state’s condemnation of company property, net of tax 242,000
3. Cost of goods sold $ 1,541,241
4. Income taxes expense 207,000
5. Depreciation expense 242,500
6. Gain on sale of wholesale business segment, net of tax 782,500
7. Loss from operating wholesale business segment, net of tax 443,000
8. Loss of assets from meteor strike, net of tax 662,000
Prepare the income statement for calendar year 2017. (Loss amounts should be indicated with a minus sign.)

Net Sales: 3,020,000 Expenses: (Cost of goods sold + Salaries expense + Depreciation) Income from continuing operations before tax (Net Sales – Expenses) Income from Continuing Operations (I.C.O. before tax – Income Taxes Expense) Discontinuing Segment (Loss from operating wholesale business seg Net of tax + Gain on sale of wholesale business seg Net of tax)= Gain of discontinuing Segment (add totals of Income from C.O. + Gain to = the income before extraordinary Gain) Add Income before extraordinary gain + Extraordinary gain on condemnation of co prop= Net Income

Georgia Pacific, a manufacturer, incurs the following costs. (1) Classify each cost as either a product or a period cost. If a product cost, identify it as direct materials, direct labor, or factory overhead, and then as a prime and/or conversion cost. (2) Classify each product cost as either a direct cost or an indirect cost using the product as the cost object. (Leave no cell blank if there is no effect select "NA – Not a product cost".)

Current assets for two different companies at fiscal year-end 2017 are listed here. One is a manufacturer, Rayzer Skis Mfg., and the other, Sunrise Foods, is a grocery distribution company.
Account Company 1 Company 2
Cash $ 12,000 $ 10,000
Raw materials inventory — 46,750
Merchandise inventory 49,750 —
Work in process inventory — 34,000
Finished goods inventory — 54,000
Accounts receivable, net 64,000 81,000
Prepaid expenses 3,500 700
________________________________________

Required:
(1) Identify which set of numbers relates to the manufacturer and which to the merchandiser. Company with Merchandise Inventory is a Merchandiser… Company with Raw, Work in process, and Finished goods are Manufacturer
(2) Prepare the current asset section for each company from this information. Example below with different numbers

18-8 The following data is provided for Garcon Company and Pepper Company.
Garcon Company Pepper Company
Beginning finished goods inventory $ 12,700 $ 17,950
Beginning work in process inventory 17,500 22,800
Beginning raw materials inventory 10,900 10,200
Rental cost on factory equipment 29,000 24,550
Direct labor 22,600 43,800
Ending finished goods inventory 20,750 14,800
Ending work in process inventory 23,200 21,600
Ending raw materials inventory 8,000 9,400
Factory utilities 11,850 14,250
Factory supplies used 13,300 5,800
General and administrative expenses 22,500 59,000
Indirect labor 1,400 7,720
Repairs—Factory equipment 5,780 2,200
Raw materials purchases 39,000 64,500
Selling expenses 51,600 54,400
Sales 249,030 322,510
Cash 35,000 21,200
Factory equipment, net 267,500 148,825
Accounts receivable, net 15,000 21,950
________________________________________
1. Complete the table to find the cost of goods manufactured for both Garcon Company and Pepper Company for the year ended December 31, 2017.

2. Complete the table to calculate the cost of goods sold for both Garcon Company and Pepper Company for the year ended December 31, 2017.

1. Complete the table to find the cost of goods manufactured for both Garcon Company and Pepper Company for the year ended December 31, 2017. Direct Materials Beginning Raw Materials Inventory: 10,900 Add: Raw materials purchase: 39,000 = Raw Materials for use: 49,900 – Ending Raw materials: (-8,000) = Direct materials Used: 41,900 Direct Labor: 22,600 Factory Overhead (All factory costs other than direct materials or direct labor) Rental Cost on Factory Equip: 29,000 Factory Utilities: 11,850 Factory Supplies Used: 13,300 Indirect Labor: 1,400 Repairs-Factory Equip: 5,780 Total Factory Overhead: 61,330 Total Manufacturing Costs (Total FO + Direct Materials Used + Direct Labor) = 125,830 Add: Beginning work in process inventory: 17,500 = Total Cost of Work in Process: 143,330 – Ending Work in process inventory: 23,200 = Cost of Goods manufactured: 120,130 2. Complete the table to calculate the cost of goods sold for both Garcon Company and Pepper Company for the year ended December 31, 2017. Schedule of Cost of Goods Sold: Beginning Finished Goods Inventory: 12,700 Add Cost of goods Manufactured (Total Cost of work in process – ending work in process inventory): 120,130 = Costs of goods available for sale: 132,830 Less: Ending Finished Goods Inventory: 20,750 = Costs of Goods Sold: 112,080

18-9 The following data is provided for Garcon Company and Pepper Company.

Garcon Company Pepper Company
Beginning finished goods inventory $ 13,900 $ 18,100
Beginning work in process inventory 17,800 20,700
Beginning raw materials inventory 11,100 10,200
Rental cost on factory equipment 33,000 24,850
Direct labor 19,800 44,600
Ending finished goods inventory 20,150 15,900
Ending work in process inventory 25,000 19,600
Ending raw materials inventory 7,100 8,000
Factory utilities 11,250 13,500
Factory supplies used 9,100 5,100
General and administrative expenses 28,000 48,500
Indirect labor 1,350 9,460
Repairs—Factory equipment 5,660 2,700
Raw materials purchases 43,500 54,000
Selling expenses 54,400 58,900
Sales 211,530 310,010
Cash 32,000 15,700
Factory equipment, net 277,500 115,825
Accounts receivable, net 16,800 21,700
________________________________________
Required:
1-a. Prepare income statements for both Garcon Company and Pepper Company.

Excel sheet saved as Income Stmt & Prtl Bal Sheet in folder.

1-b. Prepare the current assets section of the balance sheet for each company.

18-11
Unimart Precision
Manufacturing
Beginning inventory
Merchandise $ 227,000
Finished goods $ 454,000
Cost of purchases 400,000
Cost of goods manufactured 770,000
Ending inventory
Merchandise 127,000
Finished goods 121,000
________________________________________
Compute cost of goods sold for each of these two companies for the year ended December 31, 2017.
Excel sheet saved as Income Stmt & Prtl Bal Sheet in folder T- Chart Merchandise Inventory… Merchandise Beg + Cost of purchases = Avail 4 Sale – Merch End = Cost of Goods Sold

Merch Beg + Merch Purch (AKA Cost of purch)= Goods Avail 4 Sale – Merch Ending= Cost of Goods sold

8-12
For each of the following accounts for a manufacturing company, select yes in the appropriate column indicating that it appears on the balance sheet, the income statement, the schedule of cost of goods manufactured, and/or a detailed listing of factory overhead costs. Assume that the income statement shows the calculation of cost of goods sold and the schedule of cost of goods manufactured shows only the total amount of factory overhead. (An account can appear on more than one report. Be certain to select "No" wherever required.)

Account Bal Sheet Income Stmt Sched of COGM Overhead Report Comments Accounts Receivable Yes No No No Current Asset – So only in Balance Sheet Computer Supplies Used (Office) No Yes No No Non Factory exp – So only in Income Stmt Beginning Finished Goods Inventory No Yes No No Income Stmt Beginning Work in Process Inventory No No Yes No Used in Calculation of COGM Cash Yes No No No Current Asset – So only in Balance Sheet Depreciation – Factory Building No No No Yes Factory OH – Only in OH Report Depreciation – Office Building No Yes No No Non Factory exp – So only in Income Stmt Direct labor No No Yes No Used in Calculation of COGM Ending Work in Process Inventory Yes No Yes No Used in Calculation of COGM Ending Raw Materials Inventory Yes No Yes No Used in Calculation of COGM Factory Maintenance wages No No No Yes Factory OH – Only in OH Report Income Taxes No Yes No No Non Factory exp – So only in Income Stmt Insurance on Factory Building No No No Yes Factory OH – Only in OH Report Property Taxes on Factory Building No No No Yes Factory OH – Only in OH Report Raw Material Purchases No No Yes No Used in Calculation of COGM Sales No Yes No No Revenue – Income Stmt

18-13
The following selected account balances are provided for Delray Mfg. (Note: Work in process inventory Cost of Goods Manufactured = Finished Goods Inventory

Sales $ 1,167,000
Raw materials inventory, Dec. 31, 2016 40,000
Work in process inventory, Dec. 31, 2016 50,500
Finished goods inventory, Dec. 31, 2016 66,200
Raw materials purchases 190,500
Direct labor 233,000
Factory computer supplies used 15,700
Indirect labor 42,000
Repairs—Factory equipment 5,250
Rent cost of factory building 59,000
Advertising expense 98,000
General and administrative expenses 132,000
Raw materials inventory, Dec. 31, 2017 45,500
Work in process inventory, Dec. 31, 2017 38,800
Finished goods inventory, Dec. 31, 2017 68,700
________________________________________
Prepare its schedule of cost of goods manufactured for the year ended December 31, 2017.

See Excel Spreadsheet Tab 3

As of the end of June, the job cost sheets at Racing Wheels, Inc., show the following total costs accumulated on three custom jobs.
Job 102 Job 103 Job 104
Direct materials $ 19,000 $ 72,000 $ 54,000
Direct labor 19,000 27,900 46,000
Overhead applied 6,080 8,928 14,720
________________________________________
Job 102 was started in production in May and the following costs were assigned to it in May: direct materials, $8,000; direct labor, $3,500; and overhead, $1,120. Jobs 103 and 104 were started in June. Overhead cost is applied with a predetermined rate based on direct labor cost. Jobs 102 and 103 were finished in June, and Job 104 is expected to be finished in July. No raw materials were used indirectly in June. Using this information, answer the following questions. (Assume this company’s predetermined overhead rate did not change across these months.)

1&2. Complete the table below to calculate the cost of the raw materials requisitioned and direct labor cost incurred during June for each of the three jobs?
3. Using the accumulated costs of the jobs, what predetermined overhead rate is used?
4. How much total cost is transferred to finished goods during June? See Tab 4

In December 2016, Shire Computer’s management establishes the 2017 predetermined overhead rate based on direct labor cost. The information used in setting this rate includes estimates that the company will incur $780,000 of overhead costs and $600,000 of direct labor cost in year 2017. During March 2017, Shire began and completed Job 13-56.

1. What is the predetermined overhead rate for 2017? Est OH Cost / Est Labor Cost
780,000/600,000= 1.3= 130% Overhead is applied at 130% of direct labor costs

2. Using the information on the following job cost sheet, determine the total cost of the job

Lorenzo Company uses a job order costing system that charges overhead to jobs on the basis of direct materials cost. At year-end, the Work in Process Inventory account shows the following.
Date Explanation Debit Credit Balance
2017
Dec. 31 Direct materials cost 1,300,000 1,300,000
31 Direct labor cost 240,000 1,540,000
31 Overhead applied 390,000 1,930,000
31 To finished goods 1,854,000 76,000
________________________________________
1. Determine the predetermined overhead rate used (based on direct materials cost). Overhead Applied Cost / Direct Material Cost
390,000 / 1,300,000 = 0.3 = 30% Of Direct Material Cost

2. Only one job remained in work in process inventory at December 31, 2017. Its direct materials cost is $30,000. How much direct labor cost and overhead cost are assigned to this job?
Direct Materials + Direct Labor + OH Applied= Total To Finished Goods 76,000
DM + DL + 30% DM= 76,000
30,000 + DL + (30% * 30,000)= 76,000
30,000 + DL + 9,000= 76,000
39,000 + DL = 76,000
DL= 37,000

DM 30,000 + DL 37,000 + Applied OH (30%*30,000) 9,000= Total Cost of Job= 76,000

1. Determine the predetermined overhead rate used (based on direct materials cost). Overhead Applied Cost / Direct Material Cost 390,000 / 1,300,000 = 0.3 = 30% Of Direct Material Cost 2. Only one job remained in work in process inventory at December 31, 2017. Its direct materials cost is $30,000. How much direct labor cost and overhead cost are assigned to this job? Direct Materials + Direct Labor + OH Applied= Total To Finished Goods 76,000 DM + DL + 30% DM= 76,000 30,000 + DL + (30% * 30,000)= 76,000 30,000 + DL + 9,000= 76,000 39,000 + DL = 76,000 DL= 37,000 DM 30,000 + DL 37,000 + Applied OH (30%*30,000) 9,000= Total Cost of Job= 76,000

Starr Company reports the following information for August.

Raw materials purchased on account $ 79,400
Direct materials used in production $ 59,000
Factory wages earned (direct labor) $ 21,200
Overhead rate 125 % of direct labor cost
________________________________________

Prepare journal entries to record the following events.
1. Raw materials purchased. Debit to asset account and credit to Liability Account
2. Direct materials used in production.
3. Direct labor used in production.
4. Applied overhead. (For every 1.00 of direct labor used on a job + the job will be charged with 1.25 of Applied OH ) 21,200 * 125%= 26,500

19-7 The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system.

April 30 May 31
Inventories
Raw materials $ 49,000 $ 56,000
Work in process 9,500 18,900
Finished goods 56,000 34,500
Activities and information for May
Raw materials purchases (paid with cash) 174,000
Factory payroll (paid with cash) 200,000
Factory overhead
Indirect materials 13,000
Indirect labor 46,000
Other overhead costs 90,500
Sales (received in cash) 1,300,000
Predetermined overhead rate based on direct labor cost 55 %
________________________________________
Compute the following amounts for the month of May using T-accounts.
1. Cost of direct materials used.
2. Cost of direct labor used.
3. Cost of goods manufactured. Beg Work in Proc + DM + DL + OH Applied = Cost of WIP Avail – Ending WIP = Cost of Goods Manufactured
4. Cost of goods sold.*
5. Gross profit.
6. Overapplied or underapplied overhead.

*Do not consider any underapplied or overapplied overhead. Excel Sheet

19-8 The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system.

April 30 May 31
Inventories
Raw materials $ 43,000 $ 46,000
Work in process 9,000 20,400
Finished goods 56,000 34,600
Activities and information for May
Raw materials purchases (paid with cash) 193,000
Factory payroll (paid with cash) 150,000
Factory overhead
Indirect materials 10,000
Indirect labor 34,500
Other overhead costs 115,500
Sales (received in cash) 1,000,000
Predetermined overhead rate based on direct labor cost 55 %
1. Raw materials purchases for cash.
2. Direct materials usage.
3. Indirect materials usage.
Prepare journal entries for the above transactions for the month of May.

Raw Materials Raw Mat Beg $ 43,000 RM Purch $ 193,000 $ (10,000) Indirect Materials $ 180,000 DM Used Less Ending Raw Material Bal $ (46,000) General Journal 1 Raw Material Inventory 193,000 Cash 193,000 2 Work In Process 180,000 All indirect factory costs are accumulated in the factory Overhead account RM Inventory 180,000 3 Factory OverHead 10,000 RM Inventory 10,000

19-9 The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system.

April 30 May 31
Inventories
Raw materials $ 29,000 $ 33,000
Work in process 10,000 20,000
Finished goods 64,000 34,400
Activities and information for May
Raw materials purchases (paid with cash) 173,000
Factory payroll (paid with cash) 250,000
Factory overhead
Indirect materials 14,000
Indirect labor 57,500
Other overhead costs 95,000
Sales (received in cash) 1,600,000
Predetermined overhead rate based on direct labor cost 55 %
________________________________________
1. Direct labor usage.
2. Indirect labor usage.
3. Total payroll paid in cash.
Prepare journal entries for the above transactions for the month of May.

Note: Total Factory Payroll= Direct labor used + Indirect Labor Used 250,000= DL Used + 57,500 Indirect Labor 250,000 – 57,500= 192,500 In DL Used

19-12 The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system. See Excel Sheet 19-12

April 30 May 31
Inventories
Raw materials $ 44,000 $ 54,000
Work in process 10,400 21,700
Finished goods 64,000 37,600
Activities and information for May
Raw materials purchases (paid with cash) 212,000
Factory payroll (paid with cash) 349,000
Factory overhead
Indirect materials 17,000
Indirect labor 82,000
Other overhead costs 122,000
Sales (received in cash) 1,420,000
Predetermined overhead rate based on direct labor cost 70 %
________________________________________
Determine whether there is over or underapplied overhead.

All Factory costs other than direct materials and direct labor are accumulated in the factory overhead account. Ind Materials: 17,000 Ind Labor: 82,000 = 221,000 Other OH: 122,000 Total Factory Payroll: 349,000 = 82,000 Indirect labor + X Direct Labor Direct Labor (349,000-82,000)= 267,000 OH Applied Direct Labor 267,000 * 0.70= 186,900 OH Applied

19-13 Prepare summary journal entries to record the following transactions for a company in its first month of operations.

a. Raw materials purchased on account, $86,000.
b. Direct materials used in production, $38,500. Indirect materials used in production, $23,000.
c. Paid cash for factory payroll, $50,000. Of this total, $38,000 is for direct labor and $12,000 is for indirect labor.
d. Paid cash for other actual overhead costs, $7,375.
e. Applied overhead at the rate of 125% of direct labor cost.
f. Transferred cost of jobs completed to finished goods, $62,600.
g. Sold jobs on account for $90,000. The jobs had a cost of $62,600.

20-1 For each of the following products and services, indicate whether it is more likely produced in a process operation or in a job order operation.

1. Beach towels Process operations 2. Bolts and nuts Process operations 3. Lawn chairs Process operations 4. Headphones Process operations 5. Designed patio Job order operations 6. Door hardware Process operation 7. Cut flower arrangements Job order operation 8. House paints Process operation 9. Concrete swimming pools Job order operation 10. Custom tailored dresses Job order operation 11. Grand pianos Job order operations 12. Table lamps Process operation

20-2
Indicate each item a through h below as a feature of either a job order or process operation.

a Heterogeneous products and services Job order operations b. Custom orders Job order operations c. Low production volume Job order operations d. Routine, repetitive procedures Process operations e. Focus on individual batch Job order operations f. Low product standardization Job order operations g. Low product flexibility Process operations h. Focus on standardized units Process operation

20-3 Select each of the items with the best description of its purpose.

1. Notifies the materials manager to send materials to a production department. Materials requisition 2. Holds costs of indirect materials, indirect labor, and similar costs until assigned to production. Factory overhead accounts 3. Holds costs of direct materials, direct labor, and applied overhead until products are transferred from production to finished goods (or another department). Work in process inventory account 4. Standardizes partially completed units into equivalent completed units. Equivalent units of production 5. Holds costs of finished products until sold to customers. Finished goods inventory account 6. Describes the activity and output of a production department for a period. Process cost summary 7. Holds costs of materials until they are used in production or as factory overhead. Raw materials inventory account

20-4
The production department in a process manufacturing system completed 84,000 units of product and transferred them to finished goods during a recent period. Of these units, 33,600 were in process at the beginning of the period. The other 50,400 units were started and completed during the period. At period-end, 17,700 units were in process.
Weighted Average Method values units based on the percentage of completion as of the end of the month. Units are in either of the 2 places: Work in process or are transferred to finished goods.

Prework Units < 100% Completed 100% Complete Beginning inventory 84,000 84,000 Started and Completed 50,400 50,400 Ending Inventory 17,700 17,700 152,100 17,700 134,400 1) All Direct materials are added to products when processing begins Units % of materials EUP- Materials (B*C) Ignore the sentence: Beginning inventory is 30% complete as to materials and conversion costs, because it is not material Goods Completed & Trans 84,000 100% 84,000 Ending work in process 17,700 100% 17,700 Total EUP 101,700 101,700 2) Beginning inventory is 30% complete as to materials and conversion costs. Ending inventory is 80% complete as to materials and conversion costs. Units % of materials EUP- Materials (B*C) Ignore First sentence because it is not material: Beginning inventory is 60% complete as to materials and 40% complete as to conversion costs Goods Completed & Trans 84,000 100% 84,000 Ending work in process 17,700 80% 14,160 Total EUP 101,700 98,160 3) Beginning inventory is 60% complete as to materials and 40% complete as to conversion costs. Ending inventory is 30% complete as to materials and 60% complete as to conversion costs. Units % of materials EUP- Materials (B*C) Goods Complete & Trans 84,000 100% 84,000 Ending Work In Process 17,700 30% 5,310 Total EUP 101,700 89,310

20-5 The production department in a process manufacturing system completed 82,000 units of product and transferred them to finished goods during a recent period. Of these units, 32,800 were in process at the beginning of the period. The other 49,200 units were started and completed during the period. At period-end, 17,600 units were in process.
FIFO Method the focus is on the current months work and current months costs.
First must finish the in-process items of 32,800 that were started at the beginning of the prior month and to be completed this month (their materials are counted in prior month). Then production can work on the 49,200 units. Then production starts the 17,600 units but does not finish them.

1) All Direct materials are added to products when processing begins (Beginning WIP was counted in last month’s Material costs) Units % of materials EUP- Materials (B*C) To complete beginning Work in process 32,800 0% 0 Units Started & Completed 49,200 100% 49,200 Ending Work In Process 17,600 100% 17,600 Total EUP 99,600 66,800 2) Beginning inventory is 40% complete as to materials (100%-40%= 60%) and conversion costs. Ending inventory is 75% complete as to materials and conversion costs. Units % of materials EUP- Materials (B*C) To complete beginning Work in process 32,800 60% 19,680 Units Started & Completed 49,200 100% 49,200 Ending Work In Process 17,600 75% 13,200 Total EUP 99,600 82,080 3) Beginning inventory is 70% complete as to materials (100%-70%= 30%) and 30% complete as to conversion costs. Ending inventory is 20% complete as to materials and 70% complete as to conversion costs. Units % of materials EUP- Materials (B*C) To complete beginning Work in process 32,800 30% 9,840 Units Started & Completed 49,200 100% 49,200 Ending Work In Process 17,600 20% 3,520 Total EUP 99,600 62,560

20-6 The Fields Company has two manufacturing departments, forming and painting. The company uses the weighted-average method of process costing. At the beginning of the month, the forming department has 32,000 units in inventory, 80% complete as to materials and 20% complete as to conversion costs. The beginning inventory cost of $74,100 consisted of $53,200 of direct materials costs and $20,900 of conversion costs.

During the month, the forming department started 440,000 units. At the end of the month, the forming department had 40,000 units in ending inventory, 90% complete as to materials and 40% complete as to conversion. Units completed in the forming department are transferred to the painting department.

SEE EXCEL 20-620.6

Cost information for the forming department is as follows:

Beginning work in process inventory $ 74,100
Direct materials added during the month 1,650,320
Conversion added during the month 1,099,100

1. Calculate the equivalent units of production for the forming department.
(Under the weighted average method of process costing equivalent units are calculated based on % completion units at the end of the month. (Units transferred out is always 100%)
2. Calculate the costs per equivalent unit of production for the forming department
3. Using the weighted-average method, assign costs to the forming department’s output—specifically, its units transferred to painting and its ending work in process inventory.

1. Direct Materials 468,000 Conversion 448,000 Equivalent Units of Production—Weighted Average Direct Materials Conversion Units completed & transferred out (432,000 × 100%) 432,000 432,000 Units of ending work in process Direct materials (40,000 × 90%) 36,000 Conversion (40,000 × 40%) 16,000 Equivalent units of production 468,000 448,000 2. Direct Materials $3.64 per EUP Conversion $2.50 per EUP Cost per Equivalent Unit—Weighted Average Direct Materials Conversion Costs of beginning work in process $ 53,200 $ 20,900 Costs incurred this period 1,650,320 1,099,100 Total costs $ 1,703,520 1,120,000 ÷ Equivalent units of production (from part 1) 468,000 448,000 Cost per equivalent unit of production $ 3.64 per EUP $ 2.50 per EUP 3. Cost Assignment and Reconciliation Costs of units transferred out Direct materials (432,000 EUP × $3.64 per EUP) $ 1,572,480 Conversion (432,000 EUP × $2.50 per EUP) 1,080,000 Total costs transferred out $ 2,652,480 Costs of ending work in process Direct materials (36,000 EUP × $3.64 per EUP) 131,040 Conversion (16,000 EUP × $2.50 per EUP) 40,000 Total costs of ending work in process 171,040 Total costs assigned $ 2,823,520 Equals costs to account for of $2,823,520, computed as $74,100 + $1,650,320 + $1,099,100.

20-8
During April, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of these transferred units, 63,000 were in process in the production department at the beginning of April and 252,000 were started and completed in April. April’s beginning inventory units were 75% complete with respect to materials and 25% complete with respect to conversion. At the end of April, 85,000 additional units were in process in the production department and were 80% complete with respect to materials and 30% complete with respect to conversion.

1. Compute the number of units transferred to finished goods.

2. Compute the number of equivalent units with respect to both materials used and conversion used in the production department for April using the weighted-average method (Column by Column)

1. Compute the number of units transferred to finished goods. Units in Beginning Inventory: 63,000 Units Started & Completed: 252,000 Total Units Trans to Finished Goods: 252,000+63,000= 315,000 2. Compute the number of equivalent units with respect to both materials used and conversion used in the production department for April using the weighted-average method (Column by Column) Units completed & Trans Out: 315,000 Units in ending work in process: 85,000 Total: 400,000 % Materials: Units completed & Trans Out: 100% Units in ending work in process: 80% EUP MTLS: Units Complete & Trans Out: 315,000(100%)= 315,000 Units In Ending WIP: 85,000(80%)= 68,000 TOTAL: 315,000+68,000= 383,000 % Conversion Units completed & Trans Out: 100% Units in ending work in process: 30% EUP. Conversion: Units Complete & Trans Out: 315,000(100%)= 315,000 Units In Ending WIP: 85,000(30%)= 25,500 Total: 25,500+315,000=340,500

20-10
During April, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of these transferred units, 79,000 were in process in the production department at the beginning of April and 316,000 were started and completed in April. April’s beginning inventory units were 80% complete with respect to materials and 20% complete with respect to conversion. At the end of April, 101,000 additional units were in process in the production department and were 85% complete with respect to materials and 35% complete with respect to conversion.

Prepare the number of equivalent units with respect to both materials used and conversion costs in the production department for April using the FIFO method.

Equivalent Units of Production – FIFO
Units % Materials EUP- Materials % Conversion EUP-Conversion
Units to complete beginning work in process 79,000 20% 15,800 80% 63,200
Units started and completed 316,000 100% 316,000 100% 316,000
Units in ending work in process 101,000 85% 85,850 35% 35,350
Equivalent units of production 496,000 417,650 414,550

Explanation: Equivalent units of production – FIFO Equivalent Units of Production Direct Materials Conversion Complete beginning inventory (79,000 × 20% Mtl, 80% Conv.) 15,800 63,200 Units started and completed (316,000 × 100%) 316,000 316,000 Units of ending work in process Direct materials (101,000 × 85%) 85,850 Conversion (101,000 × 35%) 35,350 Equivalent units of production 417,650 414,550 ________________________________________

21-5.

Period Unit Sales Cost of Sales Period Unit Sales Cost of Sales
1 760 $ 590 9 580 $ 390
2 800 560 10 320 240
3 200 230 11 240 230
4 400 400 12 720 550
5 480 390 13 280 260
6 620 550 14 440 410
7 680 590 15 380 260
8 540 430
________________________________________
Hint: Use the above information about unit sales and total cost of sales to prepare a scatter diagram offline. Draw a cost line (offline) that reflects the behavior displayed by this cost.
Determine whether the cost is variable, step-wise, fixed, mixed, or curvilinear.

The scatter diagram and its estimated line of cost behavior appear below. The cost pattern appears to exhibit a step-wise pattern.

21-8:

A jeans maker is designing a new line of jeans called Slims. The jeans will sell for $320 per pair and cost $220.80 per pair in variable costs to make. (Round your answers to 2 decimal places.) To calculate the contribution margin per pair take the sales $320 – Variable cost 220.80= 99.20 contribution margin. To compute the contribution margin ratio: Take the Contribution Margin $99.20 / Sell price $320= 31%

Answer is complete and correct. (1) Compute the contribution margin per pair. Sales= answer correct $320.00 answer correct per pair Less: -Subtract Variable cost= answer correct $220.80 answer correct per pair Contribution margin $99.20 answer correct per pair (2) Compute the contribution margin ratio. Choose Numerator: / Choose Denominator: = Contribution Margin Ratio Contribution margin per unit selected answer correct / Selling price per unit selected answer correct = Contribution margin ratio $99.20 selected answer correct / $320.00 selected answer correct = 31.00%

21-9
Blanchard Company manufactures a single product that sells for $215 per unit and whose total variable costs are $172 per unit. The company’s annual fixed costs are $597,700.

A. Contribution Margin Per Unit: $215 Per unit – $172 Per Unit= $43 Contribution Margin B. Contribtuion Margin Ratio: $43 Contribution Margin / $215 Selling Price= 20% CMR C. Break-even Point in Units: (at point where total contribution is = to toal fixed costs net income is 0) Fixed Costs $597,700 / $43 CMR = 13,900 Units D. Break-even Point in Sales Dollars: (every $1 contributes 0.20 (20%) towards covering fixed costs) $597,700 / 20% = $2,988,500 Blanchard Co Contribution Margin Income Statement Sales (C 13,900 Units @ $215 Per unit) 2,988,500 Variable Costs (13,900 Units @ $172) 2,390,800 Contribution Margin (13,900 @ $43 each) 597,700 Fixed Costs 597,700 Net Income 0

21-12
Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $90 per unit. The company’s annual fixed costs are $432,000. Management targets an annual pretax income of $750,000. Assume that fixed costs remain at $432,000.
1. Compute the unit sales to earn the target pretax income:
2. Compute the dollar sales to earn the target pretax income:

1. Compute the unit sales to earn the target pretax income: Unit Sales to achieve target net income…… Fixed costs + pretax income / Contribution Margin Per Unit (sales – Variable Costs). 432,000 + 750,000 / (120-90) = 39,400 Unit sales to achieve target net income of $750,000 2. Compute the dollar sales to earn the target pretax income: (Fixed Costs + Pretax Income / Contribution Margin Ratio) 432,000 + 750,000 / 25%= $4,728,000 Dollar sales to earn the target pretax income Sales 120= 100% Variable Costs 90/120= 75% Contribution Margin 30/120= 25% Unit Sales to achieve target net income 39,400 * Selling price per unit $120 Dollar Sales to earn the target pretax income $4,728,000 Sales (39,400 * 120) $4,728,000 Variable (39,400 * 90) 3,546,000 Contribution Margin (39,400 * (120-90)) 1,182.000 Fixed Costs $432,000

21-14
Bloom Company management predicts that it will incur fixed costs of $263,000 and earn pretax income of $381,100 in the next period. Its expected contribution margin ratio is 57%.

Required:
1. Compute the amount of total dollar sales.
2 Compute the amount of total variable costs.

1. Compute the amount of total dollar sales. (Fixed Costs + Targeted Pretax Income / CMR) 263,000+381,100= $644,100 / 57% = $1,130,000 Yeilds $ sales 2 Compute the amount of total variable costs. Sales 1,130,000 100% Variable Costs (1,130,000*0.43) 485,900 43% = Contribution Margin (1,130,000-485,900) 644,100 57% Fixed Costs 263,000 = Pretax Income 381,100 Total variable costs can also be done by taking the sales 1,130,000 – Fixed costs 263,000 – Pretax income 381,100= Variable costs of 485,900

22-4
Required information
Ruiz Co. provides the following sales forecast for the next four months:
April May June July
Sales (units) 600 680 630 720

The company wants to end each month with ending finished goods inventory equal to 20% of next month’s forecasted sales. Finished goods inventory on April 1 is 120 units. Assume July’s budgeted production is 630 units. In addition, each finished unit requires six pounds (lbs.) of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month’s production needs. Beginning raw materials inventory for April was 1,109 pounds. Assume direct materials cost $5 per pound. Prepare a direct materials budget for April, May, and June. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

Excel Sheet

22-6
The production budget for Manner Company shows units to be produced as follows: July, 570; August, 630; and September, 490. Each unit produced requires one hour of direct labor. The direct labor rate is currently $16 per hour but is predicted to be $16.75 per hour in September.

Prepare a direct labor budget for the months July, August, and September.

Direct Labor Budget July Aug Sept Budgeted production (Units) 570 630 490 Units Labor Requirement Per Unit (Hour) 1.00 1.00 1.00 Total Labor Hours Needed 570 630 490 Labor Rate Per Hour $16.00 $16.00 $16.75 The direct labor rate is currently $16 per hour but is predicted to be $16.75 per hour in September Budgeted Labor Costs $9,120.00 $10,080.00 $8,207.50

22-6
Addison Co. budgets production of 2,460 units during the second quarter. Other information is as follows:

Direct labor Each finished unit requires 4 direct labor hours, at a cost of $10 per hour.
Variable overhead Applied at the rate of $12 per direct labor hour.
Fixed Overhead Budgeted at $510,000 per quarter.

1. Prepare a direct labor budget.
2. Prepare a factory overhead budget.

1. Take Budgeted production units * Labor Requirements per unit (hrs)= Total Labor hours needed. 2,460 units 4 hrs= 9,840 hrs total Labor hours needed Labor Rate per Hour $10= 98,400 Budgeted Direct Labor 2. Variable Overhead Fluctuates with production levels. Total labor Hours Needed 9,840 * 12.00 Per DLH Variable Overhead Rate per hour= 118,080 Budgeted Variable overhead + Budgeted Fixed Overhead 510,000= 628,080 Budget Total Overhead

22-9
Required information
Ramos Co. provides the following sales forecast and production budget for the next four months:

April May June July
Sales (units) 640 720 670 740
Budgeted production (units) 580 710 680 680
________________________________________

The company plans for finished goods inventory of 260 units at the end of June. In addition, each finished unit requires 5 pounds of direct materials and the company wants to end each month with direct materials inventory equal to 20% of next month’s production needs. Beginning direct materials inventory for April was 580 pounds. Direct materials cost $2 per pound. Each finished unit requires 0.20 hours of direct labor at the rate of $13 per hour. The company budgets variable overhead at the rate of $17 per direct labor hour and budgets fixed overhead of $9,400 per month.
1. Prepare a direct labor budget.
2. Prepare a factory overhead budget for April, May, and June.

1. Prepare a direct labor budget. 580 Budgeted Production (Units) 0.20 (DL Hours Required Per Unit) = 116 Total Direct Labor Hrs Needed Direct Labor Rate Per Hr $13= $1,508 Total budgeted Direct Labor 2. Prepare a factory overhead budget for April, May, and June. Total direct labor hours needed (116) * Variable Overhead (VOH) $17= $1,972 Budgeted Variable OH + Budgeted Fixed Overhead of 9,400 = 11,372 Total Budgeted Factory OH.

22-12
Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 75,300 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 251,000 units; third quarter, 228,000 units; and fourth quarter, 291,500 units. Company policy calls for the ending finished goods inventory of a quarter to equal 30% of the next quarter’s budgeted sales.

Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture.

22-13
Electro Company budgets production of 660,000 transmissions in the second quarter and 735,000 transmissions in the third quarter. Each transmission requires 0.8 pounds of a key raw material. Electro Company aims to end each quarter with an ending inventory of direct materials equal to 20% of next quarter’s budgeted materials requirements. Beginning inventory of this raw material is 105,600 pounds. Direct materials cost $1.91 per pound.

Prepare a direct materials budget for the second quarter.

Direct Materials Second Quarter Q2 Budgeted Production (Units) 660,000 Materials Required Per Unit 0.80 Materials Needed for Production (1*2) 528,000 Add: Budgeted ending Inventory (775,0000.820%) 117,600 Total Material Requirements (3+4) 645,600 Deduct: Beginning Inventory (105,600) Materials to be purchased (5-6) 540,000 Material cost per unit 1.91 Total Cost of direct materials purchased (7*8) 1,031,400

22-15
MCO Leather Goods manufactures leather purses. Each purse requires 2 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $20 per hour. Variable manufacturing overhead is charged at a rate of $2 per direct labor hour. Fixed manufacturing overhead is $13,000 per month. The company’s policy is to end each month with direct materials inventory equal to 40% of the next month’s materials requirement. At the end of August the company had 2,980 pounds of direct materials in inventory. The company’s production budget reports the following.
Production Budget September October November
Units to be produced 5,600 7,000 6,600
________________________________________
(1) Prepare direct materials budgets for September and October.
(2) Prepare direct labor budgets for September and October.
(3) Prepare factory overhead budgets for September and October.