Solution manual introduction to management accounting 14e by horngren ch14

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CHAPTER 14
COVERAGE OF LEARNING OBJECTIVES

LEARNING OBJECTIVE
LO1: Distinguish between
job-order costing and
process costing.
LO2: Prepare summary
journal entries for the
typical transactions of a jobcosting system.
LO3: Use an activity-basedcosting system in a joborder environment.
LO4: Show how service
organizations use job
costing.
LO5: Explain the basic ideas
underlying process costing
and how they differ from
job costing.
LO6: Compute output in
terms of equivalent units.
LO7: Compute costs and
prepare journal entries for
the principal transactions in
a process-costing system.
LO8: Demonstrate how the
presence of beginning
inventories affects the
computation of unit costs
under the weighted-average

method.
LO9: Use backflush costing
with a JIT production
system.

FUNDAMENTAL
ASSIGNMENT
MATERIAL
A1,B1

CRITICAL
THINKING
EXERCISES
AND
EXERCISES
16,18,20,29

PROBLEMS

22,25

41

17,23

42

30

52

A2,B2

31,32,33,36

44,45,46,47

A2,B2

32,33,34,35,3
7,38

43,45,46,47

A3,B3

A4,B4

48

19

841

CASES,
NIKE 10K,
EXCEL,
COLLAB. &
INTERNET
EXERCISES

49,51,52

50


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JOB-COSTING AND PROCESS-COSTING SYSTEMS
14-A1 (15-20 min.) Answers are in thousands.
1.

a.

b.

c.

d.

e.

f.

g.

Direct materials inventory
Cash

360

Work in process inventory
Direct materials inventory

330

Work in process inventory
Accrued payroll

125

Factory department overhead control
Various accounts
(80 + 55 + 40 = 175)

175

Work in process inventory
Factory department overhead
control
(180% x 125)

225

Finished goods inventory
Work in process inventory

625

Cost of goods sold
Finished goods inventory

400

842

360

330

125

175

225

625

400


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2.
Direct Materials Inventory _
Finished Goods Inventory ___
a.
360 b.
330 f.
625 g.
400

* Bal.
30
* Bal.
225
Work in Process Inventory
b.
330 f.
625
c.
125
e.
225
680
* Bal.
55
d.
* 12/31/X7 Balance

843

Cost of Goods Sold____
g.
400
Factory Department
Overhead Control _____
175 e.
225


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14-A2 (10-15 min.)
1.

Flow of Production
Started and completed
Work in process, ending inventory
Direct materials added: 2,000 x 1
Conversion costs added: 2,000 x .5
Total accounted for

(Step 2)
(Step 1)
Equivalent Units
Physical Direct Conversion
Units Materials Costs
17,000
17,000 17,000
2,000
2,000
1,000
19,000

Total work done
Total costs to account for (Step 3):
Divide by equivalent units (Step 4)
Unit costs
$
2.

19,000 18,000
$150,800 $60,800 $90,000
19,000 18,000
8.20 $ 3.20 $ 5.00

Totals

Application of costs (Step 5):
To units completed and transferred to
Testing, 17,000 units ($8.20)
To units not completed and still in
process, Feb. 28, 2,000 units:
Direct materials
Conversion costs
Work in process, Jan. 31
Total costs accounted for

844

Details

$139,400

$ 6,400 2,000($3.20)
5,000
1,000($5.00)
$ 11,400
$150,800

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14-A3

(25-30 min.)
(Step 2)
(Step 1)
_ Equivalent Units___
Physical
Direct Conversion
Flow of Production
Units
Materials Costs
Work in process, beg. inv.
10,000 (25%)*
Started
80,000
To account for
90,000
Completed and transferred out
during current period
70,000
70,000 70,000
Work in process, end. inv.
20,000 (50%)*20,000 10,000
Units accounted for
90,000
Work done to date
90,000 80,000
___ _Details

__
Direct Conversion
Totals Materials
Costs

Costs
Work in process, beg. inv.
Costs added currently
(Step 3) Total costs to account for
(Step 4) Divisor, equivalent units for
work done to date
Cost per equivalent unit
$
(Step 5) Application of Costs
Completed and transferred
(70,000 units)
Work in process, ending inv.
(20,000 units):
Direct materials
Conversion costs
Total work in process
Total costs accounted for
*Degree of completion for conversion costs.

845

$ 175,500 $138,000 $ 37,500
1,486,500 852,000 634,500
$1,662,000$990,000$672,000
÷ 90,000 ÷ 80,000

19.40 $ 11.00 $ 8.40

$1,358,00070,000 ($19.40)

$ 220,000 20,000($11.00)
84,000
10,000($8.40)
$ 304,000
$1,662,000


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14-A4 (15-20 min.)
1.

2.

Materials inventories
Accounts payable

45,000

Conversion costs
Accrued payroll
Miscellaneous accounts

30,000

Finished goods inventories (2,000 x $37)

Materials inventories (2,000 x $22)
Conversion costs (2,000 x $15)

74,000

Cost of goods sold (1,980 x $37)
Finished goods inventories

73,260

45,000

Cost of goods sold
Conversion costs
To recognize actual conversion costs that were
$3,000 greater than the amount applied to the
products.

846

11,000
19,000

44,000
30,000

73,260
3,000
3,000

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14-B1

(20-25 min.) Entries are in British pounds (£).

1.

Direct materials inventory
Accounts payable

a.

b.

c.

d.

e.

f.

g.

h.

Work in process inventory
Direct materials inventory

Work in process inventory
Accrued payroll
Factory department overhead control
Various accounts, such as cash or
accounts payable

109
109
95
95
105
105
90
90

Work in process inventory
84
Factory department overhead control
Finished goods inventory
Work in process inventory

280

Cost of goods sold
Finished goods inventory

350

Accounts receivable
Sales

600

84

280

350

600

847


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2.
Direct Materials Inventory
* Bal.
18
b. 95
a.
109
* Bal.
32

Finished Goods Inventory_
* Bal.
100 g.
350

f.
280
* Bal.
30

Work in Process Inventory
* Bal.
25 f.
280
b.
95
c.
105
e.
84
309
* Bal.
29

Cost of Goods Sold
g.
350

Factory Department
Overhead Control
d.
90 e.
84

* 12/31/X7 Balance

848


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14-B2

(10-15 min.)

1.

(Step 2)
Equivalent Units
(Step 1)

Flow of Production
Started and completed
Work in process, ending inv.
Units accounted for
Units work done to date
Total costs to account
for (Step 3)
$675,000
Divide by equivalent
units (Step 4)
Unit costs

Physical
Units

Direct Conversion
Materials Costs

600,000
300,000
900,000

600,000
300,000

600,000
150,000*

900,000

750,000

$2,295,000 $1,620,000

$2.70

900,000 750,000
$1.80
$ .90

*300,000 x .5

2.
Application of costs (Step 5):

Totals
To units completed and
transferred to Finishing,
600,000 units ($2.70)
$1,620,000
To units not completed and still
in process, end, 300,000 units:
Direct materials
$ 540,000
Conversion costs
135,000
Work in process, end
$ 675,000
Total costs accounted for
$2,295,000

849

Details

300,000 ($1.80)
150,000($.90)


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14-B3

(25-35 min.)
(Step 1)

Flow of Production
Work in process, beg. inv.
Started
To account for
Completed and transferred
out during current period,
550 + 7,150 – 400
Work in process, end. inv.
Units accounted for
Work done to date

Costs

Work in process, beg. inv.
Costs added currently
(Step 3) Total costs to account for
(Step 4) Divisor, equivalent units
For work done to date
Cost per equivalent unit

(Step 2)
____Equivalent Units____
Physical
Direct
Conversion
Units
Materials
Costs
550 (40%)*

7,150
7,700

7,300
400 (20%)*
7,700

7,300
400

7,300
80

7,700

7,380

__Details _____
Direct Conversion
__Totals_ Materials
Costs

$ 5,104
101,064
$106,168

$ 3,190
65,340
$68,530

$ 1,914
35,724
$37,638

$14.00

÷ 7,700
$8.90

÷ 7,380
$5.10

(Step 5)
Application of Costs
Completed, (7,300 units)
$102,200
Work in process, ending inventory
(400 units):
Direct materials (400)
$ 3,560
Conversion costs (80)
408
Total work in process
$ 3,968
Total costs accounted for
$106,168
*Degree of completion for conversion costs.
850

7,300 ($14.00)

400($8.90)
80($5.10)


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14-B4
1.

(15 min.)

Materials inventories
Accounts payable

15,500
15,500

Conversion costs
Accrued payroll and
mscellaneous accounts

6,300

Cost of goods sold (1,500 x $14)
21,000
Materials inventories (1,500 x $9.80)
Conversion costs (1,500 x $4.20)
2.

Conversion costs
300
Cost of goods sold
To recognize actual conversion costs that were
$300 less than the amount applied to the products.

851

6,300

14,700
6,300

300


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14-1 Three purposes of product costing are to satisfy differing
demands for (a) inventory valuation and income determination in
accordance with generally accepted accounting principles, (b)
income tax reporting, and (c) guiding strategic and operational
decision-making.
14-2 The distinction between the job cost and the process cost
methods centers largely around how product costing is
accomplished. Unlike process costing, which deals with broad
averages and great masses of like units, the essential feature of the
job-cost method is the attempt to apply costs to specific jobs that
may consist of either a single physical unit (a custom sofa) or a few
like units (a dozen tables) in a distinct batch or job lot.

14-3 The basic record for the accumulation of job costs is the jobcost sheet or job-cost record. Exhibit 14-1 shows a Job-Cost Sheet,
and it also shows the related source documents. A file of current
job-cost sheets becomes the supporting details for the Work-inProcess Inventory account.
14-4 Source documents include materials requisitions and labor
time tickets (time cards).
14-5 Examples of service industries that use the job-costing
approach include repairing, consulting, legal, accounting, painting,
dentistry, and income tax preparation.
14-6 No, the amount of value-chain activity not captured in either
job-cost or process-cost systems is independent of the type of
operating system used.
14-7 Examples of process costing include flour, glass, paint, and
beer.

852


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14-8 Examples of process costing include handling of mail, income
tax returns, automobile registrations, and drivers license
examinations.
14-9 Five key steps in process cost accounting are
Step 1:
Summarize the flow of physical units
Step 2:
Calculate output in terms of equivalent units
Step 3:
Summarize the total costs to account for, which are
the total debits in Work in Process (that is, the costs applied to

Work in Process)
Step 4:
Calculate unit costs
Step 5:
Apply costs to units completed and to units in
ending work in process
14-10 The first two steps concentrate on what is occurring in
physical or engineering terms. The financial impact of the
production process is measured in the final three steps.
14-11 (1 x 10,000) + (.5 x 5,000) = 12,500 full-time-equivalent
students.
14-12 Beginning inventories + Units started = Units transferred out
+ Ending inventories.
14-13 Transferred-in costs are accounted for operationally the same
as direct materials added at the beginning of a production process.
They differ from direct material costs because they are a
combination of direct material and conversion costs from a previous
department; thus, calling them a direct-material cost is
inappropriate.
14-14 When actual conversion costs exceed the amount applied, the
excess in the conversion cost account is charged directly to cost of
goods sold; the treatment is similar to accounting for underapplied
overhead.
853


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14-15 In addition to inventory valuation and income determination,
managers want accurate job costs as guides to pricing and to

allocating effort among particular products, services, or customers.
They are also necessary in contracts that reimburse the cost of a
product or service.
14-16 The most important point is that product costing is an
averaging process. The unit cost used for inventory purposes is the
result of taking some accumulated cost and dividing it by some
measure of production. The basic distinction between job order
costing and process costing is the breadth of the denominator: in
job order costing, it is small (for example, one painting, 100
advertising circulars, or one special packaging machine); but in
process costing, it is large (for example, thousands of pounds,
gallons, or board feet).
14-17 No. Some service firms trace only direct-labor costs to
individual jobs. However, with advances in computer technology
and needs for better job-cost information because of competition,
more service firms are tracing additional costs to jobs. The more
costs that are traced to jobs instead of being allocated, the more
accurate are the job costs.
14-18 The central product costing problem in process costing is how
each department should compute the cost of goods transferred out
and the cost of goods remaining in the department.
14-19 No, but they are especially appropriate for companies with
just-in-time systems. Any company with small inventories might
find backflush costing appealing.
14-20 (5 min.)
a. and d. are service-sector companies
b. is merchandising
854

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c. is manufacturing
14-21 (10-15 min.) You may wish to use T-accounts. Amounts are
in millions of dollars. You can also use the expression: ending
balance (of any account) equals the beginning balance plus additions
less subtractions or EB = BB + A - S. In this case “Purchased” is
“additions” and “Used” is “subtractions.”
1.

8 + 5 - 7 = 6 (BB + A - S = EB)

2.

8 + 9 - 6 = 11 (BB + A - EB = S)

3.

5 + Purchases - 7 = 8. Purchases = 10

4.

Beginning inventory + 8 - 3 = 7.

Beginning inventory = 2

14-22 (10-15 min.) Amounts are in thousands of dollars.
1.

Finished goods inventory

Work in process inventory
Finished goods = 72 + 56 = 128

2.

Debits: 12 + 50 + 25 + 55 =
Credits: 72 + 56 =
Balance, April 30

3.

Accounts receivable
Sales
Sale of Job A13

128
128

142
128
14
101
101

Cost of goods sold
Finished goods inventory
Cost of Job A13 sold

855

72
72


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14-23 (10-15 min.)
Cancer Research Project
Medical School
Unit
Reference

Date

Quantity Cost Amount Summary

Direct Materials:
Var. medical supplies Jan. 5
Various chemicals
Jan. 7
Direct Labor:
Research associates
Research assistants
Project overhead
applied
Total costs

$ 925
780

$ 1,705

Jan. 5-12 120 hrs. $32 $3,840
Jan. 7-12 180 hrs. $19 3,420

7,260

Jan. 12

14-24 (10 min.)
1.

$6,500 + $3,900 = $10,400

2.

$8,100

3.

$3,200 + $8,800 = $12,000

856

$7,260 x .70 $5,082

5,082
$14,047

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14-25 (15 min.) Answers are in thousands of dollars.
1.

a
b
c
a
b
c
Construction Finished Cost of Construction Finished Cost of
in Process Houses, Houses in Process Houses, Houses
Job No. Sept. 30 Sept. 30 Sold Sept. Oct. 31
Oct. 31 Sold Oct.
43
180
51
170
52
150
150
53
200
2501
61
115
1352
62
180

2053
71
118
1544
81
106
___
___
1545
___
___
719
150
350
308
135
605
1

200 + 50

2

115 + 20

3

180 + 25

2.

Finished houses inventory
Construction in process
Sept.: 180 + 170 + 150 = 500
Oct.: 250 + 135 + 205 = 590
3.

Cash

4

118 + 36

5

106 + 48

Sept. __ Oct.__
500
590
500
590

345

Sales
To record sale of Job 53

345

Cost of houses sold

Finished houses inventory
To record cost of Job 53 sold

857

250
250


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14-26 (30 min.)
The answers (in millions) are $15, $5, and $240.
Step-by-step entries are keyed alphabetically. The sequence
depends on where the student prefers to start. You may wish to
raise the question of whether the underapplied overhead should be
prorated among the affected accounts at the end of the year.
__Direct Materials__
Bal.
15 (a) 210
(b)
225
240
210
Bal.
30

Finished Goods
Bal. 240 (f)
500

(e) 420
___
660
500
Bal. 160

Work in Process
Bal.
5 (e) Completed 420
(a) Dir. Materials
210
(c) Dir. Labor
125*
(d) Applied overhead 200
___
540
420
Bal.
120
Cost of Goods Sold
(f)
500

* $200  160% = $125

858


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14-27 (30 min.)
The answers (in millions) are $25, $22, and $32.
Step-by-step entries are keyed alphabetically. The sequence
depends on where the student prefers to start. You may wish to
raise the question of whether the underapplied overhead should be
prorated among the affected accounts at the end of the year. Note
the heavy ending Finished Goods.
Direct Materials
Bal.* 25 (a) 235
(b) 275
300
235
Bal. 65

Work in Process
Bal.*
22 (e) Completed 493
(a) Dir. Materials
235
(c) Dir. Labor
100
(d) Applied overhead 150
507
493
Bal.
14

Finished Goods
Cost of Goods Sold
Bal.* 32 (f)

350
(f)
350
(e) 493
525
350
Bal. 175
* Let BB = beginning balance
Direct materials: BB + 275 – 235 = 65
BB = 25
Work in process: BB + 235 + 100 + 150 – 493 = 14
BB = 22
Finished goods: BB + 493 – 350 = 175
BB = 32

14-28 (5-10 min.)
Case A, $3,600,000 ÷ $2,000,000 = 180% of direct-labor cost
Case B, $5 x 450,000 = $2,250,000
Case C, $1,500,000 ÷ 250,000 = $6 per machine hour

859


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14-29 (5 min.)
Coca-Cola and Nally and Gibson are manufacturing companies. U.
S. Post Office and Mckensey and Co. are service companies.
14-30 (5 min.)
(1) The debit to the work in process account when

transferring a subcomponent from Process A to the assembly
process is a transferred-in cost.
(2) The direct materials used in process A and assembly are
variable-cost resources.
(3) Direct labor costs in process A and assembly are directly
traced fixed- cost resources.
(4) An example of an indirect resource cost is the indirect
material and indirect labor used for process A and the assembly
process.

14-31 (5 min.)
The direct material is the limestone rock that is delivered to
the plant. Because crushing and screening the rock can begin
immediately, we assume that direct material is always 100%
completed. Thus, the equivalent units of direct material is the entire
400 tons. The 320 tons of rock that have been stocked are 100%
complete with respect to both direct labor and overhead.
The 80 tons of rock that are in process at the end of March are 40%
complete. This is 32 equivalent tons (80 tons x .40). Thus, the total
work done during March is 400 tons of direct material and 352 (that
is, 320 + 32) equivalent tons of direct labor and overhead.

860


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14-32 (10-15 min.)
1.

(Step 2)
(Step 1)
Equivalent Units
Physical
Direct Conversion
Units
Materials
Costs
650,000
650,000
650,000
220,000
220,000
132,000*
870,000
870,000
782,000

Flow of Production
Started and completed
Work in process, ending inv.
Units accounted for
Work done to date
Total costs to account
for (Step 3)
$4,514,200 $3,654,000
Divide by equivalent
units (Step 4)
870,000
Unit costs

$5.30
$4.20

$860,200
782,000
$1.10

*220,000 x .60

2.
Totals
Details
Application of costs (Step 5):
To units completed and transferred,
650,000 units ($5.30)
$3,445,000
To units still in process, end,
220,000 units:
Direct materials
$ 924,000 220,000($4.20)
Conversion costs
145,200
132,000($1.10)
Work in process, end
$1,069,200
Total costs accounted for
$4,514,200

861

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14-33 (15-20 min.)
1.

Flow of Production
Units started and completed
Work in process, end:
Materials added: 6,000 x .90
Conversion costs: 6,000 x .70
Units accounted for

(Step 2)
Equivalent Units
(Step 1)
Physical Direct Conversion
Units Materials Costs
68,000
68,000
68,000
6,000
5,400
4,200
74,000

Work done to date

73,400

2.
Total
Costs
Costs to account for (Step 3)
$602,620
Divide by equivalent units (Step 4)
Unit costs
$8.30
Application of costs (Step 5):
To units completed and
transferred, 68,000($8.30)
To units still in process, end,
6,000 units:
Direct materials
Conversion costs
Work in process, end
Total costs accounted for

72,200

Details
Direct Conversion
Materials Costs
$205,520 $397,100
73,400
72,200
$2.80
$5.50

$564,400

$ 15,120 5,400($2.80)
23,100
4,200($5.50)
$ 38,220
$602,620

862


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14-34 (10-15 min.)
1.

2.

3.

4.

Work in process -- Assembly
Direct materials inventory
Materials added to production in February

60,800

Work in process -- Assembly
Accrued payroll
Direct labor in February

50,000

Work in process -- Assembly
Factory overhead
Factory overhead applied in February

40,000

60,800

50,000

40,000

Work in process -- Testing
139,400
Work in process -- Assembly
139,400
Cost of goods completed and transferred in
February from Assembly to Testing
The Key T-account would show:

Work in Process -- Assembly
1. Direct materials
60,800 4. Transferred out
2. Direct labor
50,000
to Testing
139,400

3. Factory overhead
40,000
Costs to account for
150,800
Bal. February 28

11,400

863


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14-35 (10-15 min.)
1.

2.

3.

4.

Work in process -- Assembly
Direct materials inventory
Materials added to production

1,620,000
1,620,000

Work in process -- Assembly

Accrued payroll
Direct labor

415,000

Work in process -- Assembly
Factory overhead
Factory overhead applied

260,000

415,000

260,000

Work in process -- Finishing
1,620,000
Work in process -- Assembly
1,620,000
Cost of goods completed and transferred
from Assembly to Finishing
The key T-account would show:

Work in Process -- Assembly
1. Direct materials
1,620,000 4. Transferred out
2. Direct labor
415,000
to Finishing
1,620,000

3. Factory overhead
260,000
costs to account for 2,295,000
Balance

675,000

864


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14-36 (10-15 min.)

Flow of Production
Work in process, beg. inventory*
Started
To account for
Completed and transferred out
(100,000-10,000)
Work in process, ending inventory**
1,000a
Units accounted for
Work done to date

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Units Materials
Costs

20,000
80,000
100,000
90,000
10,000

90,000 90,000
2,000a

100,000
92,000 91,000

*Degree of completion: materials, 80%; conversion costs, 40%
**Degree of completion: materials, 20%; conversion costs, 10%
a
.20 x 10,000 and .10 x 10,000

865