Solution manual managerial accounting by cabrera 2010 chapter 10 answer

MANAGEMENT ACCOUNTING (VOLUME I) - Solutions Manual

CHAPTER 10
SYSTEMS DESIGN: JOB-ORDER COSTING AND
PROCESS COSTING
I.

Questions
1. Job-order costing is used in those manufacturing situations where there
are many different products produced each period. Each product or job
is different from all others and requires separate costing. Process
costing is used in those manufacturing situations where a single,
homogeneous product, such as cement, bricks, or gasoline, is produced
for long periods at a time.
2. The job cost sheet is used in accumulating all costs assignable to a
particular job. These costs would include direct materials cost
traceable to the job, and manufacturing overhead cost allocable to the
job. When a job is completed, the job cost sheet is used to compute the
cost per completed unit. The job cost sheet is then used as a control
document for: (1) determining how many units have been sold and
determining the cost of these units; and (2) determining how many
units are still in inventory at the end of a period and determining the
cost of these units on the balance sheet.
3. Many production costs cannot be traced directly to a particular product
or job, but rather are incurred as a result of overall production
activities. Therefore, in order to be assigned to products, such costs
must be allocated to the products in some manner. Examples of such
costs would include utilities, maintenance on machines, and
depreciation of the factory building.
These costs are indirect
production costs.

4. A firm will not know its actual manufacturing overhead costs until after
a period is over. Thus, if actual costs were used to cost products, it
would be necessary either (1) to wait until the period was over to add
overhead costs to jobs, or (2) to simply add overhead cost to jobs as the
overhead cost was incurred day by day. If the manager waits until after
the period is over to add overhead cost to jobs, then cost data will not
be available during the period. If the manager simply adds overhead
cost to jobs as the overhead cost is incurred, then unit costs may
fluctuate from month to month. This is because overhead cost tends to
be incurred somewhat evenly from month to month (due to the presence
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Chapter 10 Systems Design: Job-Order Costing and Process Costing

of fixed costs), whereas production activity often fluctuates. For these
reasons, most firms use predetermined overhead rates, based on
estimates of overhead cost and production activity, to apply overhead
cost to jobs.
5. An allocation base should act as a cost driver in the incurrence of the
overhead cost; that is, the base should cause the overhead cost. If the
allocation base does not really cause the overhead, then costs will be
incorrectly attributed to products and jobs and their costs will be
distorted.
6. A process costing system is appropriate in those situations where a
homogeneous product is produced on a continuous basis.
7. In a process costing system, costs are accumulated by department.
8. First, the activity performed in a department must be performed
uniformly on all units moving through it. Second, the output of the
department must be homogeneous.

9. The reason cost accumulation is simpler is that costs only need to be
identified by department - not by separate job. Usually there will be
only a few departments in a company, whereas there can be hundreds
or even thousands of jobs in a job-order costing system.
10. A quantity schedule shows the physical flow of units through a
department during a period. It serves several purposes. First, it
provides the manager with information relative to activity in his or her
department and also shows the manager the stage of completion of any
in-process units. Second, it serves as an essential guide in computing
the equivalent units and in preparing the other parts of the production
report.
II. Exercises
Exercise 1 (Process Costing and Job Order Costing)
b.
c.
d.
e.

a. Job-order costing
Process costing
Process costing *
Job-order costing
Job-order costing

g.
h.
i.
j.

f. Process costing

Process costing
Job-order costing
Job-order costing
Job-order costing

* Some of the listed companies might use either a process costing or a joborder costing system, depending on how operations are carried out and
how homogeneous the final product is. For example, a plywood
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Systems Design: Job-Order Costing and Process Costing Chapter 10

manufacturer might use job-order costing if plywoods are constructed of
different woods or come in markedly different sizes.
Exercise 2 (Applying Overhead with Various Bases)
Requirement 1
Predetermined overhead rates:
Company X:
Predetermined
overhead rate

=

Estimated total manufacturing overhead cost
Estimated total amount of the allocation base

=

P432,000
60,000 DLHs

=

Estimated total manufacturing overhead cost
Estimated total amount of the allocation base

=

P270,000
90,000 DLHs

=

Estimated total manufacturing overhead cost
Estimated total amount of the allocation base

=

P384,000
P240,000 materials cost

=

P7.20 per DLH

Company Y:
Predetermined
overhead rate

=

P3.00 per MH

Company Z:
Predetermined
overhead rate

= 160% of materials cost

Requirement 2
Actual overhead costs incurred.........................................
Overhead cost applied to Work in Process:......................
58,000* actual hours × P7.20 per hour.......................
Underapplied overhead cost..............................................

P420,000
417,600
P  2,400

* 7,000 hours + 30,000 hours + 21,000 hours = 58,000 hours
Exercise 3 (Departmental Overhead Rates)
Requirement 1
Milling Department:
Predetermined
overhead rate

=
=

Estimated total manufacturing overhead cost

Estimated 10-3
total amount of the allocation base
P510,000
60,000 machine-hours

= P8.50 per machine-hour


Chapter 10 Systems Design: Job-Order Costing and Process Costing

Assembly Department:
Predetermined
overhead rate

=

Estimated total manufacturing overhead cost
Estimated total amount of the allocation base

=

P800,000
P640,000 direct labor cost

= 125% of direct labor cost

Requirement 2
Milling Department: 90 MHs × P8.50 per MH
Assembly Department: P160 × 125%
Total overhead cost applied

Overhead Applied
P765
200
P965

Requirement 3
Yes; if some jobs required a large amount of machine time and little labor
cost, they would be charged substantially less overhead cost if a plantwide
rate based on direct labor cost were being used. It appears, for example,
that this would be true of job 123 which required considerable machine
time to complete, but required only a small amount of labor cost.
Exercise 4 (Process Costing Journal Entries)
Work in Process—Mixing.........................................................................................
330,000
Raw Materials Inventory...................................................................................
330,000

Work in Process—Mixing.........................................................................................
260,000
Work in Process—Baking.........................................................................................
120,000
Wages Payable...................................................................................................
380,000
Work in Process—Mixing.........................................................................................
190,000
Work in Process—Baking.........................................................................................
90,000
Manufacturing Overhead...................................................................................
280,000

Work in Process—Baking.........................................................................................
760,000
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Systems Design: Job-Order Costing and Process Costing Chapter 10

Work in Process—Mixing.................................................................................
760,000
Finished Goods...........................................................................................................
980,000
Work in Process—Baking.................................................................................
980,000
Exercise 5 (Quantity Schedule, Equivalent Units, and Cost per
Equivalent Unit – Weighted Average Method)
Requirement 1

Weighted-Average Method
Quantity
Schedule
Gallons to be accounted for:
Work in process, May 1 (materials 80%
complete, labor and overhead 75%
complete)
Started into production
Total gallons accounted for

80,000
760,000
840,000

Equivalent Units
Materials
Labor
Overhead

Gallons accounted for as follows:
Transferred to the next department.............
Work in process, May 31 (materials 60%
complete, labor and overhead 20%
complete)................................................
Total gallons accounted for..............................

790,000

790,000

790,000

790,000

50,000
840,000

30,000
820,000

10,000
800,000

10,000

800,000

Requirement 2
Total Costs Materials
Cost to be accounted for:
Work in process, May 1................................................
P 146,600
P 68,600
Cost added during the month........................................
1,869,200
907,200
Total cost to be accounted for (a)........................................
P2,015,800
P975,800
Equivalent units (b).............................................................
—
820,000
Cost per equivalent unit (a) ÷ (b)........................................
P1.19

Labor
P 30,000
370,000
P400,000
800,000
+ P0.50

Overhead
P 48,000
592,000

P640,000
800,000
+ P0.80

Whole Unit

=

P2.49

Exercise 6 (Quantity Schedule, Equivalent Units, and Cost per
Equivalent Unit – FIFO Method)
Requirement 1
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Chapter 10 Systems Design: Job-Order Costing and Process Costing

FIFO

Method
Quantity
Schedule

Gallons to be accounted for:
Work in process, May 1 (materials 80%
complete, labor and overhead 75%
complete)
Started into production
Total gallons accounted for

80,000
760,000
840,000
Equivalent Units
Material
s
Labor
Overhead

Gallons accounted for as follows:
Transferred to the next department:
From the beginning inventory...............
Started and completed this month**.....
Work in process, May 31 (materials 60%
complete, labor and overhead 20%
complete)................................................
Total gallons accounted for..............................

80,000
710,000

16,000*
710,000

20,000*
710,000

20,000*
710,000

50,000
840,000

30,000
756,000

10,000
740,000

10,000
740,000

* Work required to complete the beginning inventory.
** 760,000 gallons started – 50,000 gallons in ending work in process = 710,000 gallons
started and completed.

Requirement 2
Total Costs Materials
Cost to be accounted for:
Work in process, May 31..............................................
P 146,600
Cost added during the month (a)...................................
1,869,200
P907,200
Total cost to be accounted for..............................................
P2,015,800
Equivalent units (b)............................................................. 756,000
Cost per equivalent unit (a) ÷ (b)........................................
P1.20

Labor

Overhead

P370,000
+

740,000
P0.50

P592,000
+

740,000
P0.80

III. Problems
Problem 1
Requirement 1
a. Raw Materials Inventory.............................................. 210,000
10-6

Whole Unit

=

P2.50

Systems Design: Job-Order Costing and Process Costing Chapter 10

Accounts Payable......................................................

210,000

b. Work in Process............................................................ 178,000
Manufacturing Overhead.............................................. 12,000
Raw Materials Inventory..........................................
190,000
c. Work in Process............................................................ 90,000
Manufacturing Overhead.............................................. 110,000
Salaries and Wages Payable.....................................
200,000
d. Manufacturing Overhead.............................................. 40,000
Accumulated Depreciation.......................................

40,000

e. Manufacturing Overhead.............................................. 70,000
Accounts Payable......................................................

70,000

f.

Work in Process............................................................ 240,000
Manufacturing Overhead..........................................
240,000
30,000 MH x P8 per MH = P240,000.

g. Finished Goods.............................................................. 520,000
Work in Process........................................................
520,000
h. Cost of Goods Sold....................................................... 480,000
Finished Goods..........................................................
480,000
Accounts Receivable.................................................... 600,000
Sales...........................................................................
600,000
P480,000 × 1.25 = P600,000
Requirement 2
(b)
(c)
(d)
(e)

Manufacturing Overhead
12,000
240,000
(f)
110,000
40,000
70,000
8,000
(Overapplied
overhead)

Problem 2
10-7

Bal.
(b)
(c)
(f)
Bal.

Work in Process
42,000
510,000
178,000
90,000
240,000
30,000

(g)


Chapter 10 Systems Design: Job-Order Costing and Process Costing

Requirement 1
The costing problem does, indeed, lie with manufacturing overhead cost, as
suggested. Since manufacturing overhead is mostly fixed, the cost per unit
increases as the level of production decreases. The problem can be solved
by use of predetermined overhead rates, which should be based on
expected activity for the entire year. Many students will use units of
product in computing the predetermined overhead rate, as follows:
Estimated manufacturing overhead cost, P840,000 = P4.20 per unit.
Estimated units to be produced,
200,000

The predetermined overhead rate could also be set on the basis of either direct
labor cost or direct materials cost. The computations are:
Estimated manufacturing overhead cost, P840,000 = 350% of direct
Estimated direct labor cost,
P240,000
labor cost
Estimated manufacturing overhead cost, P840,000
140% of direct
Estimated direct materials cost,
P600,000 = materials cost
Requirement 2
Using a predetermined overhead rate, the unit costs would be:
Quarter
First
Second
Third
Direct materials................... P240,000 P120,000 P 60,000
Direct labor.........................
96,000
48,000
24,000
Manufacturing overhead:
Applied at P4.20 per
units; 350% of direct
labor cost, or 140% of
direct materials cost
336,000
168,000
84,000
Total cost....................... P672,000

Number of units
produced...........................
80,000
Estimated cost per unit.......
P8.40
Problem 3
Weighted-Average Method
10-8

Fourth
P180,000
72,000

252,000

P336,000

P168,000

P504,000

40,000
P8.40

20,000
P8.40

60,000
P8.40

Systems Design: Job-Order Costing and Process Costing Chapter 10

Pounds to be accounted for:
Work in process, May 1
(all materials, 55% labor and
overhead added last month).........
Started into production during
May..............................................
Total pounds...........................

Quantity
Schedule

30,000
480,000
510,000
Equivalent Units
Labor &
Materials
Overhead

Pounds accounted for as follows:
Transferred to Department 2...........
Work in process, May 31
(all materials, 90% labor and
overhead added this month).........
Total pounds...........................

490,000*

490,000

490,000

20,000
510,000

20,000
510,000

18,000
508,000

* 30,000 + 480,000 - 20,000 = 490,000.

Problem 4 (Weighted-Average Method; Interpreting a Production
Report)
Requirement 1
Weighted-Average Method
The equivalent units for the month would be:

Units accounted for as follows:
Transferred to next department. .
Work in process, April 30
(75% materials, 60%
conversion cost added this
month).......................................
Total units and equivalent units
of production.............................

Quantity
Schedule

Equivalent Units
Materials Conversion

190,000

190,000

190,000

40,000

30,000

24,000

230,000

220,000

214,000

Conversion
P 30,200

Whole Unit

Requirement 2
Work in process, April 1......

Total Cost
P 98,000

10-9

Materials
P 67,800


Chapter 10 Systems Design: Job-Order Costing and Process Costing
Cost added during the
month...............................
Total cost (a).....................
Equivalent units of
production (b)
..........................................
Cost per EU (a)  (b)...........

827,000
P925,000

579,000
P646,800

248,000
P278,200

–

220,000

214,000

–

P2.94

+

P1.30

=
P4.24

Requirement 3
Total units transferred........................................................
Less units in the beginning inventory...............................
Units started and completed during April.........................

190,000
30,000
160,000

Requirement 4
No, the manager should not be rewarded for good cost control. The reason
for the Mixing Department’s low unit cost for April is traceable to the fact
that costs of the prior month have been averaged in with April’s costs in

computing the lower, P2.94 per unit figure. This is a major criticism of the
weighted-average method in that the figures computed for product costing
purposes can’t be used to evaluate cost control or measure performance for
the current period.
Problem 5 (Preparation of Production Report from Analysis of Work in
Process T-account – Weighted-Average Method)
Requirement 1
Weighted-Average Method
Quantity Schedule and Equivalent Units
Quantity
Schedule
Pounds to be accounted for:
Work in process, May 1
(materials all complete, labor
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Systems Design: Job-Order Costing and Process Costing Chapter 10

and overhead 4/5 complete).....
Started into production................
Total pounds to be accounted for....

35,000
280,000
315,000
Equivalent Units (EU)
Labor &
Materials
Overhead

Pounds accounted for as follows:
Transferred to Blending*............
Work in process, May 31
(materials all complete, labor
and overhead 2/3 complete).....
Total pounds accounted for..............

270,000

270,000

270,000

45,000
315,000

45,000
315,000

30,000
300,000

Whole
Unit

* 35,000 + 280,000 – 45,000 = 270,000.
Cost per Equivalent Unit
Cost to be accounted for:
Work in process, May 1.. .

Cost added during the
month
......................................
Total cost to be accounted
for (a)
..........................................

Total

Materials

Labor &
Overhead

P 63,700

P 43,400

P 20,300

587,300

397,600

189,700

P651,000

P441,000

P210,000

315,000

300,000

Equivalent units (b).............
Cost per equivalent unit
(a)  (b)............................

P1.40

+

P0.70

=

P2.10

Cost Reconciliation
Total
Cost
Cost accounted for as follows:
Transferred to Blending:
270,000 pounds x P2.10
per pound..............................
Work in process, May 31:
Materials, at P1.40 per EU.....
Labor and overhead, at P0.70

per EU....................................
Total work in process, May 31...
10-11

Equivalent Units (EU)
Materials Conversion

P567,000

270,000

63,000

45,000

21,000
84,000

270,000

30,000


Chapter 10 Systems Design: Job-Order Costing and Process Costing

Total costs accounted for.................

P651,000

Requirement 2

In computing unit costs, the weighted-average method mixes costs of the
prior period with current period costs. Thus, under the weighted-average
method, unit costs are influenced to some extent by what happened in a
prior period. This problem becomes particularly significant when
attempting to measure performance in the current period. Good (or bad)
cost control in the current period might be concealed to some degree by the
costs that have been brought forward in the beginning inventory.

IV. Multiple Choice Questions
1.
2.
3.
4.
5.

D
D
D
C
D

6.
7.
8.
9.
10.

D
A
C

C
B

11.
12.
13.
14.
15.

A
D
B
D
C

10-12

16.
17.
18.
19.
20.

A
D
A
C
D