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Job order costing and process costing

Please, see attached file.

4-3
Why might an advertising agency use job costing for an advertising campaign by Pepsi, whereas a bank uses process costing to determine the cost of checking accounts withdrawals?
4-14
When Might a company use budgeting cost rather actual costs to compute direct labor rates?
17-3
Explain equivalent units. Why are equivalent-unit calculations necessary in process costing?
17-6
Name the three inventory methods commonly associated with process costing.
17-11
Identify the main difference between journal entries in process costing and job costing.
17-14
"Transferred-in costs are those incurred in the preceding accounting period" Do you agree? Explain
5-4
What is an activity-based approach to design a costing system?
5-7
What are the key reasons for product cost differences between traditional costing systems and ABC systems?
5-13
"Activity-based costing is the wave of the present and the future. All companies should adopt it" Do you agree? Explain
? Exercises: 4-18
Job-costing, normal and actual costing. Anderson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2003, Anderson budgets 2004 assembly-support costs to be $8,000,000 and 2004 direct labor-hours to be 160,000.
At the end of 2004, Anderson is comparing the costs of several jobs that were started and completed in 2004.
Laguna Model Mission Model
Construction period Feb-June 2004 May-Oct 2004
Direct materials $106,450 $127,604
Direct labor $36,276 $41,410
Direct-labor -hours 900 1,010
Direct materials and direct labor are paid for on a contract basis. The costs of ech are know when direct materials are used or direct labor-hours are worked. The 2004 actual assembly-support costs were $6,888,000, and the actual direct labor cost were 164,000.
Compute:
1. Compute the
a. budgeted
b. b. actual indirect-cost rates
Why do they differ?
2. What is the job cost of the Laguna Model and the Mission Model using
a. normal costing
b. actual costing
3. Why might Anderson Construction prefer normal costing over actual costing?
4-29
Job costing, service industry, actual, normal, variation from normal costing. Web creation, a Web-site design and maintenance company, uses job-costing. Its job-costing system has a single direct-cost category (professional services) and a single indirect-cost pool (client support). Client support costs are allocated to individual jobs using actual professional service-hours. Budgeted and actual amounts for 2004 are as follows:
Budget for 2004
Professional services staff compensation $10,000,000
Client support costs $6,500,000
Professional service-hours billed to clients 50,000 hours
Actual results for 2004
Client support costs $6,220,000
Professional service-hours bulled to clients 55,000 hours
Actual professional services staff rate $225 per hour
1. Compute the direct-cost rate per professional service-hour and the indirect-cost rate per professional service-hour for 2004 under
a. actual costing
b. normal costing
c. the variation from normal costing that uses budgeted rates for direct costs.
2. In 2004, Web Creation provided services to Amazing.com. Web Creation budgeted to spend 500 professional service-hours. Actual professional service-hours were 575. Compute the job cost of Amazing.com project using
a. actual costing
b. normal costing
c. the variation from normal costing that uses budgeted rates for direct costs. Explain any differences in the job cost.
17-16
Equivalent units, zero beginning inventories. International Electronics manufactures microchips in large quantities. Each microchip undergoes assembly and testing. The total assembly costs during January 2004 were
Direct material used $720,000
Conversion costs $760,000
Total manufacturing costs $1,480,000
1. Assume there was no beginning inventory on January 1, 2004. During January 10,000 microchips were placed into production and all 10,000 were fully completed at the end of the month. What is the unit cost of an assembled microchip in January?
2. Assume that during February 10,000 microchips are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9,000 microchips are fully completed at the end of the month. All direct materials have been added to the remaining 1,000 microchips. However, on average, these remaining 1,000 microchips are only 50% complete as to conversion costs. A. What are the equivalent units for direct materials and conversion costs and their respective equivalent-units costs for February? B. What is the unit cost of an assembled microchip in February 2004?
3. Explain the difference in your answers to requirements 1 and 2.

5-23
ABC, process costing. Parker Company produces mathematical and financial calculators. Data related to the two products is presented below
Mathematical Financial
Annual production in units 50,000 100,000
Direct material costs $150,000 $300,000
Direct manufacturing labor costs $50,000 $100,000
Direct manufacturing labor-hours 2,500 5,000
Machine-hours 25,000 50,000
Number of production runs 50 50
Inspection hours 1,000 500
Both products pass through Department 1 and Department 2. The departments' combined manufacturing overhead costs are
Total
Machining costs $375,000
Setup costs 120,000
Inspection costs 105,000
1. Compute the manufacturing overhead cost per unit for each product.
2. Compute the manufacturing cost per unit for each product.

5-27
Activity-based costing, job-costing system. The Hewlett-Packard (HP) plants in Roseville, California, assembles and tests printer-circuit (PC) boards. The job-costing system at this plant has two direct-cost categories (direct materials and direct manufacturing labor) and seven indirect-cost pools. These indirect-cost pools represent the seven activity areas that operating personnel at the plant determined are sufficiently different (in terms of cost-behavior patterns or individual products being assembled) to warrant separate cost pools. The cost-allocation base chosen for each activity area is the cost driver at that activity area.
Debbie Berlant, a new appointed marketing manager at HP, is attended a training session that describes how an activity-based costing approach was used to design the Roseville plant's job-costing system. Berlant is provided with the following incomplete information for a specific job (an order for a single PC board, No A82):
Direct materials $75.00
Direct manufacturing labor 15.00 $90.00
Manufacturing overhead (see below) ?
Total manufacturing cost $ ??

Manufacturing Overhead cost Pool Cost-Allocation Base Cost-Allocation Rate Units of Cost-Allocation Base Used on Job No A82 Manufactured Overhead Allocated to Job
1. Axial insertion Axial insertions 0.08 45 ?
2. Dip insertion Dip insertion 0.25 ? 6.00
3. Manual insertion Manual insertion ? 11 5.50
4. Wave solder Boards soldered 3.5 ? 3.5
5. Backload Backload insertion ? 6 4.20
6. Test Budgeted time board is test activity 90.00 0.25 ?
7. Defect analysis Budgeting time for defect analysis and repair ? 0.10 8.00
1. Present an overview diagram of the activity -based job-costing system at the Roseville plant
2. Fill in blanks (noted by question marks) in the cost information provided to Berlant for Job No. A82
3. Why might manufacturing managers and marketing manager favor this ABC job-costing system over the previous costing system, which had the same two direct-cost categories but only a single indirect-cost pool (manufacturing overhead allocated using direct manufacturing labor costs)?
4-41
Service industry, job costing, accounting for overhead costs, budgeted rates. Jefferson Company, a painting contactor, uses normal costing to cost each job. Jefferson's job-costing system has two direct-cost categories (direct materials and direct labor) and one indirect-cost pool called overhead costs. Jefferson's budgeted overhead rate for allocation overhead costs to job is 80% of direct labor costs.
Jefferson provides the following additional information:
1. As of January 31, 2004, Job A21 was the only job in process, with direct materials costs of $30,000 and direct labor costs of $50,000
2. Jobs A22, A23, and A24 were started during February.
3. Direct material used during February were $150,000
4. Direct-labor costs for February were $120,000
5. Actual overhead costs for February were $102,000
6. The only job still in process February 29,2004, was job A24, with direct materials costs of $20,000 and direct labor costs of $40,000.

Jefferson maintains a "Job-in process Control" account unit's general ledger. When a job is completed, Jefferson transfers the costs of the completed job to "Cost of Job Billed" account. Each month, Jefferson closes any under allocated or over allocated overhead to "Cost of Jobs Billed".
1. Calculate the overhead allocated to Job A21 as of January 31, 2004, and the overhead allocated to Job A24 as February 29, 2004.
2. Calculate the underalllocated or overallocated overhead for February 2004
3. Calculate the Cost of Billed for February 2004.

17-44
Transferred-in costs, equivalent-unit costs, working backward. Lennox Plastics has two processes: extrusion and thermo-assembly. Consider the June 2004 data for physical units in the thermo-assembly process: beginning work in process, 15,000 units; transferred in from the Extruding Department during June, 9,000; ending work in process, 5,000. Direct materials are added when the process in the Thermo-assembly Department is 80% complete. Conversion costs are added evenly during the process. Lenox Plastics uses the FIFO method of process costing. The following information is available.

Transferred-In costs Direct Materials Conversion Costs
Beginning work in process $90,000 ------------------ $45,000
Percentage completion of beginning work in process 100% ---------------------- 60%
Costs added in current period $58,500 $57,000 $57,200
Cost per equivalent unit of work done in current period $6.50 $3.00 $5.20

1. For each cost category, compute equivalent units of work done in the current period.
2. For each cost category, compute separately the equivalent units of work done to complete beginning work-in-process inventory, to start and complete new units, and to produce ending work in process.
3. For each cost category, calculate the percentage of completion of ending work-in-process inventory.
4. Summarize total costs to account for, and assign these costs to units

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? Questions:
4-3
Why might an advertising agency use job costing for an advertising campaign by Pepsi, whereas a bank uses process costing to determine the cost of checking accounts withdrawals?
The advertising agency would use Job order costing since each campaign would be different and customized for the cloned. In the bank, the process is the same for each withdrawal and so process costing is used.
4-14
When Might a company use budgeting cost rather actual costs to compute direct labor rates?
This would be in a situation when it is difficult to trace the direct labor cost to the jobs or the direct labor cost may have annual bonus which is only at the end of the year. Using actual costs during the year would not give the correct estimate.
17-3
Explain equivalent units. Why are equivalent-unit calculations necessary in process costing?
Equivalent units are units which are not fully complete but are taken as equivalent units of finished product. For example, if there are 1,000 units which are 50% complete this would make them equivalent to 500 100% complete units, so equivalent units are 500. Equivalent units are necessary to calculate the per unit cost. The per unit cost would be for 100% finished units. Since units may be at different stages of completion, taking the equivalent units makes all units as 100% complete and so unit costs can be calculated.
17-6
Name the three inventory methods commonly associated with process costing.
Three inventory methods associated with process costing are:
? Weighted average.
? First-in, first-out.
? Standard costing.

17-11
Identify the main difference between journal entries in process costing and job costing.
The entries are basically similar. The main difference is that in process costing each process would have its own work in process account.
17-14
"Transferred-in costs are those incurred in the preceding accounting period" Do you agree? Explain
No. Transferred-in costs are costs which are transferred from the preceding department. It is not necessary for these costs to be incurred in the prior period. These could be incurred in the current period also and transferred to the next department.
5-4
What is an activity-based approach to design a costing system?
In activity based approach, the cost objects are activities and all costs are traced to the activities. Then using proper cost drivers, the activity costs are assigned to the products.
5-7
What are the key reasons for product cost differences between traditional costing systems and ABC systems?
The key reason is the use of activities as cost objects. This ensures that cost is allocated to products based on the use of resources by the activity. In a traditional system, the usually a single driver is used and that is volume based and so the cost allocated is based on the volume usage that may not relate at all to the usage of resources.
5-13
"Activity-based costing is the wave of the present and the future. All companies should adopt it" Do you agree? Explain
Yes, Activity based costing could be the wave of present and future, but not all companies should adopt it. The adoption should depend on the cost benefit analysis. ABC systems are expensive and take time to set up. If the benefits are less, if the company does not produce many products or the products are homogenous, then ABC may not be good.
? Exercises: 4-18
Job-costing, normal and actual costing. Anderson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2003, Anderson budgets 2004 assembly-support costs to be $8,000,000 and 2004 direct labor-hours to be 160,000.
At the end of 2004, Anderson is comparing the costs of several jobs that were started and completed in 2004.
Laguna Model Mission Model
Construction period Feb-June 2004 May-Oct 2004
Direct materials $106,450 $127,604
Direct labor $36,276 $41,410
Direct-labor -hours 900 1,010
Direct materials and direct labor are paid for on a contract basis. The costs of ech are know when direct materials are used or direct labor-hours are worked. The 2004 actual assembly-support costs were $6,888,000, and the actual direct labor cost were 164,000.
Compute:
1. Compute the
a. budgeted
b. b. actual indirect-cost rates
a. = =
= $50 per direct labor-hour
= =
= $42 per direct labor-hour

Why do they differ?
These rates differ because both the numerator and the denominator in the two calculations are different?one based on budgeted numbers and the other based on actual numbers.
2. What is the job cost of the Laguna Model and the Mission Model using
a. normal costing
b. actual costing

2a. Laguna
Model Mission
Model
Normal costing
Direct costs
Direct materials
Direct labor

Indirect costs
Assembly support ($50  900; $50  1,010)
Total costs

$106,450
36,276
142,726

45,000
$187,726

$127,604
41,410
169,014

50,500
$219,514
2b. Actual costing
Direct costs
Direct materials
Direct labor

Indirect costs
Assembly support ($42  900; $42  1,010)
Total costs

$106,450
36,276
142,726

37,800
$180,526

$127,604
41,410
169,014

42,420
$211,434

3. Why might Anderson Construction prefer normal costing over actual costing?

Normal costing enables Anderson to report a job cost as soon as the job is completed, assuming that both the direct materials and direct labor costs are known at the time of use. Once the 900 direct labor-hours are known for the Laguna Model (June 2004), Anderson can compute the $187,726 cost figure using normal costing. Anderson can use this information to manage the costs of the Laguna Model job as well as to bid on similar jobs later in the year. In contrast, Anderson has to wait until the December 2004 year-end to compute the $180,526 cost of the Laguna Model using actual ...

Solution Summary

The solution explains various questions relating to job order costing and process costing.

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