Chapter 3 Solutions

Problem 3-24 (30 minutes)

1. Molding Department:
The estimated total manufacturing overhead cost in the Molding
Department is computed as follows:
Y = $497,000 + $1.50 per MH × 70,000 MH
Estimated fixed manufacturing overhead .................. $497,000
Estimated variable manufacturing overhead:
$1.50 per MH × 70,000 MHs ................................. 105,000
Estimated total manufacturing overhead cost ............ $602,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead ...... $602,000
÷ Estimated total machine-hours ................. 70,000 MHs
= Predetermined overhead rate ................... $8.60 per MH

Painting Department:
The estimated total manufacturing overhead cost in the Painting
Department is computed as follows:
Y = $615,000 + $2.00 per DLH × 60,000 DLH
Estimated fixed manufacturing overhead .................. $615,000
Estimated variable manufacturing overhead:
$2.00 per DLH × 60,000 DLHs .............................. 120,000
Estimated total manufacturing overhead cost ............ $735,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead ...... $735,000
÷ Estimated total DLHs ............................... 60,000 DLHs
= Predetermined overhead rate ................... $12.25 per DLH
Problem 3-24 (continued)

2. Molding Department overhead applied:

110 machine-hours × $8.60 per machine-hour $ 946
Painting Department overhead applied:
84 direct labor-hours × $12.25 per DLH .......... 1,029
Total overhead cost............................................. $1,975

3. Total cost of Job 205:

Molding Painting
Dept. Dept. Total
Direct materials .......................... $ 470 $ 332 $ 802
Direct labor ................................ 325 588 913
Manufacturing overhead applied.. 946 1,029 1,975
Total cost .................................. $1,741 $1,949 $3,690

Unit product cost for Job 205:

Total manufacturing cost ........................... $3,690
÷ Number of units in the job...................... 50 units
= Unit product cost ................................... $73.80 per unit

4. Molding Painting
Dept. Dept.
Manufacturing overhead incurred ............ $570,000 $750,000
Manufacturing overhead applied:
65,000 MHs × $8.60 per MH ................ 559,000
62,000 direct labor-hours × $12.25 per
direct labor-hour ............................... 759,500
Underapplied (or overapplied) overhead .. $ 11,000 $ (9,500)
Problem 3-25 (60 minutes)

1. a.

Predetermined = Estimated total manufacturing overhead cost

overhead rate Estimated total amount of the allocation base

$800,000
= =160%
$500,000 direct materials cost

b. Before the underapplied or overapplied overhead can be computed,

we must determine the amount of direct materials used in production
for the year.
Raw materials inventory, beginning ..................... $ 20,000
Add, Purchases of raw materials.......................... 510,000
Raw materials available ...................................... 530,000
Deduct: Raw materials inventory, ending ............. 80,000
Raw materials used in production ........................ $450,000

Actual manufacturing overhead costs:

Indirect labor................................................... $170,000
Property taxes ................................................. 48,000
Depreciation of equipment ............................... 260,000
Maintenance .................................................... 95,000
Insurance ........................................................ 7,000
Rent, building .................................................. 180,000
Total actual costs ............................................... 760,000
Applied manufacturing overhead costs:
$450,000 × 160% ........................................... 720,000
Underapplied overhead ....................................... $ 40,000
Problem 3-25 (continued)

2. Gitano Products
Schedule of Cost of Goods Manufactured

Direct materials:
Raw materials inventory, beginning ............... $ 20,000
Add purchases of raw materials..................... 510,000
Total raw materials available ......................... 530,000
Deduct raw materials inventory, ending ......... 80,000
Raw materials used in production .................... $ 450,000
Direct labor .................................................... 90,000
Manufacturing overhead applied to work in
process ........................................................ 720,000
Total manufacturing costs ............................... 1,260,000
Add: Work in process, beginning...................... 150,000
1,410,000
Deduct: Work in process, ending ..................... 70,000
Cost of goods manufactured ............................ $1,340,000

3. Unadjusted cost of goods sold:

Finished goods inventory, beginning .................. $ 260,000
Add: Cost of goods manufactured...................... 1,340,000
Goods available for sale .................................... 1,600,000
Deduct: Finished goods inventory, ending .......... 400,000
Unadjusted cost of goods sold ........................... $1,200,000
The underapplied overhead can either be closed out to Cost of Goods
Sold or allocated between Work in Process, Finished Goods, and Cost of
Goods Sold based on the overhead applied during the year in the ending
balance in each of these accounts.

4. Direct materials................................................... $ 8,500

Direct labor......................................................... 2,700
Overhead applied ($8,500 × 160%) ..................... 13,600
Total manufacturing cost ..................................... $24,800

$24,800 × 125% = $31,000 price to the customer

Problem 3-25 (continued)
5. The amount of overhead cost in Work in Process was:
$24,000 direct materials cost × 160% = $38,400
The amount of direct labor cost in Work in Process is:
Total ending work in process .............. $70,000
Deduct: Direct materials .................... $24,000
Manufacturing overhead........ 38,400 62,400
Direct labor cost ................................. $ 7,600
The completed schedule of costs in Work in Process was:
Direct materials .................................. $24,000
Direct labor ........................................ 7,600
Manufacturing overhead ..................... 38,400
Work in process inventory................... $70,000
Problem 3-26 (120 minutes)

1. a. Raw Materials.................................... 200,000

Accounts Payable ......................... 200,000
b. Work in Process................................. 185,000
Raw Materials .............................. 185,000
c. Manufacturing Overhead .................... 63,000
Utilities Expense ................................ 7,000
Accounts Payable ......................... 70,000
d. Work in Process................................. 230,000
Manufacturing Overhead .................... 90,000
Salaries Expense ............................... 110,000
Salaries and Wages Payable .......... 430,000
e. Manufacturing Overhead .................... 54,000
Accounts Payable ......................... 54,000
f. Advertising Expense .......................... 136,000
Accounts Payable ......................... 136,000
g. Manufacturing Overhead .................... 76,000
Depreciation Expense ........................ 19,000
Accumulated Depreciation............. 95,000
h. Manufacturing Overhead .................... 102,000
Rent Expense .................................... 18,000
Accounts Payable ......................... 120,000
i. Work in Process................................. 390,000
Manufacturing Overhead............... 390,000
Predetermined = Estimated total manufacturing overhead cost
overhead rate Estimated total amount of the allocation base
$360,000
= = $400 per DLH
900 DLHs
975 actual DLH × $400 per DLH = $390,000
Problem 3-26 (continued)

j. Finished Goods .................................. 770,000

Work in Process ............................ 770,000
k. Accounts Receivable........................... 1,200,000
Sales ............................................ 1,200,000
Cost of Goods Sold ............................. 800,000
Finished Goods ............................. 800,000
Problem 3-26 (continued)
2.
Accounts Receivable Sales
(k) 1,200,000 (k) 1,200,000

Raw Materials Cost of Goods Sold

Bal. 30,000 185,000 (k) 800,000
(a) 200,000 (b)
Bal. 45,000

Work in Process Manufacturing Overhead

Bal. 21,000 (j) 770,000 (c) 63,000 (i) 390,000
(b) 185,000 (d) 90,000
(d) 230,000 (e) 54,000
(i) 390,000 (g) 76,000
Bal. 56,000 (h) 102,000
Bal. 5,000

Finished Goods Advertising Expense

Bal. 60,000 (k) 800,000 (f) 136,000
(j) 770,000
Bal. 30,000

Accumulated Depreciation Utilities Expense

(g) 95,000 (c) 7,000

Accounts Payable Salaries Expense

(a) 200,000 (d) 110,000
(c) 70,000
(e) 54,000 Depreciation Expense
(f) 136,000 (g) 19,000
(h) 120,000

Salaries & Wages Payable Rent Expense

(d) 430,000 (h) 18,000
Problem 3-26 (continued)
3. Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning ........ $ 30,000
Purchases of raw materials ..................... 200,000
Materials available for use ...................... 230,000
Raw materials inventory, ending ............. 45,000
Materials used in production ................... $185,000
Direct labor .............................................. 230,000
Manufacturing overhead applied to work in
process ................................................. 390,000
Total manufacturing costs ......................... 805,000
Add: Work in process, beginning ............... 21,000
826,000
Deduct: Work in process, ending ............... 56,000
Cost of goods manufactured ..................... $770,000

4. Manufacturing Overhead ........................... 5,000

Cost of Goods Sold .............................. 5,000

Schedule of cost of goods sold:

Finished goods inventory, beginning ....... $ 60,000
Add: Cost of goods manufactured ........... 770,000
Goods available for sale ......................... 830,000
Deduct finished goods inventory, ending . 30,000
Unadjusted cost of goods sold ................ 800,000
Deduct: Overapplied overhead................ 5,000
Adjusted cost of goods sold .................... $795,000
Problem 3-26 (continued)

5. Froya Fabrikker A/S

Income Statement
Sales ..................................................... $1,200,000
Cost of goods sold.................................. 795,000
Gross margin ......................................... 405,000
Selling and administrative expenses:
Advertising expense ............................. $136,000
Utilities expense .................................. 7,000
Salaries expense .................................. 110,000
Depreciation expense........................... 19,000
Rent expense ...................................... 18,000 290,000
Net operating income ............................. $ 115,000

6. Direct materials.......................................................... $ 8,000

Direct labor................................................................ 9,200
Manufacturing overhead applied
(39 hours × $400 per hour) ..................................... 15,600
Total manufacturing cost ............................................ 32,800
Add markup (60% × $32,800) .................................... 19,680
Total billed price of Job 412 ........................................ $52,480
$52,480 ÷ 4 units = $13,120 per unit