Chapter 4, Problem 47E

Cost Flows

Consider the following independent jobs. Overhead is applied in Department 1 at the rate of $6 per direct labor hour. Overhead is applied in Department 2 at the rate of $8 per machine hour.

Direct labor wages average $10 per hour in each department.

Required:

Fill in the missing data for each job.

To determine

Complete the table by finding the missing amounts.

Explanation of Solution

Cost Flow:

A method which describes the way of accounting costs from the time of their occurrence to the time of their recognition as an expense on the income statement is known as cost flow.

	Job 213	Job 214	Job 217	Job 225
Total sales revenue	$1,200	$4,375	$5,600	$1,150
Price per unit	$12	$8.78	$14	$5
Materials used in production	$365	$1,453	$488	$207
Department 1, direct labor cost	$150	$700	$2,000	$230
Department 1, machine hours	15	35	50	12
Department 2, direct labor cost	$50	$100	$100	$0
Department 2, machine hours	25	50	20	0
Department 1, overhead applied	$90	$420	$1,200	$138
Department 2, overhead applied	$200	$400	$160	$0
Total manufacturing cost	$855	$3,073	$3,948	$575
Number of units	100	350	400	230
Unit cost	$8.55	$12.50	$9.87	$2.50

Table (1)

Working Note:

1. Job 213:

Calculation of number of units

$\begin{array}{c}\mathrm{Number}ofunits=\frac{\mathrm{Total}\mathrm{manufaturing}\mathrm{cost}}{\mathrm{Unit}\cos t}\\ =\frac{\$855}{\$8.55}\\ =100\mathrm{units}\end{array}$

Calculation of total sales revenue:

$\begin{array}{c}\mathrm{Total}salesrevenue=\mathrm{Number}of\mathrm{units}\times \mathrm{Unit}price\\ =100\mathrm{units}\times \$12\\ =\$1200\end{array}$

Calculation of department 1, direct labor hours:

$\begin{array}{c}\mathrm{Department}1,directlaborhours=\frac{\mathrm{Department}1,overheadapplied}{\mathrm{Department}1,overhead\mathrm{rate}}\\ =\frac{\$90}{\$6}\\ =15\mathrm{DLH}\end{array}$

Calculation of department 1, direct labor cost:

$\begin{array}{c}\mathrm{Department}1,directlabor\mathrm{cost}=\mathrm{Direct}laborhours\times \mathrm{Wage}rate\\ =15\mathrm{DLH}\times \$10\\ =\$150\end{array}$

Calculation of department 2, overhead applied:

$\begin{array}{c}\mathrm{Department}2,overheadapplied=\mathrm{Actual}activity\times \mathrm{Overhead}rate\\ =25\mathrm{mhrs}\times \$8\\ =\$200\end{array}$

2. Job 214:

Calculation of price per unit:

$\begin{array}{c}\mathrm{Unit}price=\frac{\mathrm{Total}salesrevenue}{\mathrm{Number}ofunits}\\ =\frac{\$4,375}{350\mathrm{units}}\\ =12.50\end{array}$

Calculation of department 1, direct labor hours:

$\begin{array}{c}\mathrm{Department}1,directlaborhours=\frac{\mathrm{Department}1,\mathrm{direct}labor\cos t}{\mathrm{Department}1,\mathrm{direct}labor\mathrm{rate}}\\ =\frac{\$700}{\$10}\\ =70\mathrm{DLH}\end{array}$

Calculation of department 1, overhead applied:

$\begin{array}{c}\mathrm{Department}1,overheadapplied=\mathrm{Actual}activity\times \mathrm{Overhead}rate\\ =70\mathrm{DLH}\times \$6\\ =\$420\end{array}$

Calculation of material used:

$\begin{array}{c}\mathrm{Material}used=\left(\begin{array}{l}Totalmanufaturing\cos t-Directlabor\cos t\\ -Department1,labor\cos t-Department2,labor\cos t\\ -Department1,overheadapplied-Department2,overheadapplied\end{array}\right)\\ =\$3,073-\$700-\$100-\$420-\$400\\ =\$1,453\end{array}$

Calculation of unit cost:

$\begin{array}{c}\mathrm{Unit}\mathrm{cost}=\frac{\mathrm{Total}\mathrm{manufaturing}\mathrm{cost}}{\mathrm{Number}ofunits}\\ =\frac{\$3,073}{350\mathrm{units}}\\ =\$8.78\end{array}$

3. Job 217:

Calculation of department 2, machine hours:

$\begin{array}{c}\mathrm{Department}2,\mathrm{machine}hours=\frac{\mathrm{Department}2,overheadapplied}{\mathrm{Overhead}\mathrm{rate}}\\ =\frac{\$160}{\$8}\\ =20\mathrm{mhrs}\end{array}$

Calculation of manufacturing cost:

$\begin{array}{c}\mathrm{Total}\mathrm{manufaturing}\mathrm{cost}=\mathrm{Number}ofunits\times \mathrm{Unit}\cos t\\ =400\mathrm{units}\times \$9.87\\ =\$3,948\end{array}$

Calculation of department 2, labor cost:

$\begin{array}{c}Department2,labor\cos t=\left(\begin{array}{l}Totalmanufaturing\cos t-\mathrm{Material}used\\ -Directlabor\cos t-Department1,labor\cos t\\ -Department1,overheadapplied-Department2,overheadapplied\end{array}\right)\\ =\$3,948-\$488-\$2,000-\$12,00-\$160\\ =\$100\end{array}$

4. Job 225:

Calculation of number of units:

$\begin{array}{c}\mathrm{Number}of\mathrm{units}=\frac{\mathrm{Total}salesrevenue}{\mathrm{Unit}price}\\ =\frac{\$1,150}{\$5}\\ =\$230\mathrm{units}\end{array}$

Calculation of unit cost:

$\begin{array}{c}\mathrm{Unit}\mathrm{cost}=\frac{\mathrm{Total}\mathrm{manufaturing}\mathrm{cost}}{\mathrm{Number}ofunits}\\ =\frac{\$575}{230\mathrm{units}}\\ =\$2.50\end{array}$

Calculation of department 2, machine hours:

$\begin{array}{c}\mathrm{Department}2,\mathrm{machine}hours=\frac{\mathrm{Department}2,overheadapplied}{\mathrm{Overhead}\mathrm{rate}}\\ =\frac{\$0}{\$8}\\ =0\mathrm{mhrs}\end{array}$