Reference no: EM13689666
Write a 350-word paper that compares and contrasts the approaches to costing in E17.15 and E18.10 (See attachment for these questions). Distinguish production procedures that match with process costing from those that correspond with job order costing. Additionally, explain how job order costing, when used in conjunction with activity-based costing, can contribute to the allocation of indirect costs.Exercise 17.15
Spear Custom Furniture uses an activity-based cost accounting system to apply overhead to production. The company maintains four overhead costs pools. The four cost pools, and their budgeted amounts for the upcoming period, are as follows:
Maintenance.......................................................................................... $40,000
Materials............................................................................................. $20,000
Set-ups................................................................................................ $10,000
Quality Control....................................................................................... $45,000
Four cost drivers are used by Spear to allocate its overhead cost pools to production. The four cost drivers, and their budgeted total level of activity for the upcoming period, are shown below:
Machine hours (to allocate maintenance costs)....................................... 600 hours
Material moves (to allocate materials handling costs)................................ 400 moves
Set-ups (to allocate set-up costs)........................................................ 100 set-ups
Number of inspections (to allocate quality control costs)........................... 300 inspections
The company has been asked by Cosmopolitan University to submit a bid for tables to be used in a new computer lab. The plant manager feels that obtaining this job would result in new business in future years. Estimate for the Cosmopolitan University project are as follows:
Direct materials................................................................................... $14,000
Direct labor (500 hours)......................................................................... $15,000
Number of machine hours....................................................................... $60
Number of material moves...................................................................... $20
Number of set-ups............................................................................... $4
Number of inspections.......................................................................... $2
a. Estimate the total cost of manufacturing the tables for Cosmopolitan University
Direct materials................................................................................... $14,000
Direct labor........................................................................................ $15,000
Maintenance ($40,000 x 60/600 machine hours)............................................ $4,000
Materials handling ($20,000 x 20/400 moves)................................................ $1,000
Set-ups ($10,000 x 4/100 setups)............................................................... $400
Quality control ($45,000 x 2/300 inspections)............................................... $300
Estimate total cost of job........................................................................ $34,700
b. Determine the company's bid price if bids are based upon the total estimated manufacturing cost of a particular project, plus 75 percent.
Bid price: $34,700 x 175% = $60,725
Exercise 18.10
Accessory World makes floor mats for the automobile industry. Finished sets of mats must pass through two departments. Cutting and Coating. Large sheets of synthetic material are cut to size in the Cutting Department and then transferred to the Coating Department, where each set is sprayed with a chemical coating for improved durability. The following information pertains to May activity in the Cutting Department:
Cost data:
Total cost of beginning inventory on May 1............................ $44,800
Direct materials costs incurred in May.................................. $200,000
Conversion costs incurred in May........................................ $87,200
Physical units data:
Units in process, May 1.................................................... 8,000 sets
Units started in May....................................................... 50,000 sets
Units in process, May 31.................................................. 10,000 sets
Percentage of completion data:
Direct materials, May 1.................................................... 100%
Conversion, May 1......................................................... 80
Direct materials, May 31.................................................. 100%
Conversion, May 31........................................................ 20
a. Prepare a schedule showing: (1) the number of mat sets transferred from the Cutting Department to the Coating Department in May, and (2) the number of mat sets started and completed by the Cutting Department in May.
(1)
Sets
Inputs
Beginning Work in Process .............................................. 8,000 sets
Start new units in May...................................................... 50,000 sets
Total 58,000 sets
Outputs
Ending Work in Process ................................................... (10,000) sets
Completed and Transferred mat sets................................. 48,000 sets
(2)
Sets
Total Input units 58,000 sets
Ending Work in Process................................................... (10,000) sets
Beginning Work in Process................................................ 8,000 sets
Units completed and transferred 40,000 sets
b. Compute the equivalent units of input resources for the Cutting Department in May.
Input Particulars Output Equivalent Material Equivalent Conversion cost
% Completed Sets % Completed Sets
8,000 Beginning work in process
50,000 Introduced during the period
Sets completed & transferred 48,000 8,000 0% 0 20% 1,600
40,000 100% 40,000 100% 40,000
Closing work in process 10,000 10,000 100% 10,000 20% 2,000
58,000 58,000 58,000 50,000 43,600
Total Cost incurred for the period
Equivalent units
c. Compute the costs per equivalent unit of input resource for the Cutting Department in May.
Equivalent cost per unit =
By substituting values in equation, equivalent cost per direct material and conversion is calculated:
Total Set Cost Direct Materials Conversion Costs
Cost of input resources, May $200,000 $87,200
Equivalent units, May +50,000 +43,600
Cost per equivalent unit, May $6.00 $4.00 $2.00
d. Prepare the summary journal entry required to transfer the cost of completed mat sets from the Cutting Department to the Coating Department in May.
Account Title & Explanation Debit $ Credit $
Work in Process - Cutting Department $287,200
Direct Material $200,000
Conversion Cost $87,200
(To record the costs incurred in cutting department for producing 48,000 mat sets in the month of May.)
Account Title & Explanation Debit $ Credit $
Work in Process - Coating Department $288,000
Direct Material $288,000
(To transfer the cost incurred by cutting department to coating department.)
e. Compute the total costs assigned to the Cutting Department's ending inventory on May 31.
Total Cost Direct Materials Conversion Costs
Costs to account for:
Cost of beginning Work in Process, May 1 $6,000
Cost added in May $66,500
Total cost to account for, May $72,500
Cost accounted for:
- Cost of sets transferred in May:
Beginning Work in Process $6,000 $0 $0
Cost to complete beginning Work in Process $6,000 $0 $6,000
($15 x 0 sets) ($25 x 240 sets)
Cost of units introduced and completed $48,000 $18,000 $30,000
Total cost transferred in May $60,000 $18,000 $36,000
- Add ending Work in Process, May 31 $12,500 $7,500 $5,000
Total cost accounted for in May $72,500 $25,500 $41,000