(a)
Account
End-of-year
balance (before
proration) (€)
Proration of €400,000
underallocated
manufacturing overhead (€)
Balance (after
proration) (€)
Work in progress
750,000 Finished goods
1,250,000 Cost of goods sold
8,000,000 400,000 Total 10,000,000 400,000 10,400,000
(b)
Account End-of-year
balance
(before proration) (€)
Proration of €400,000
underallocated
manufacturing overhead (€)
Balance
(after
proration) (€)
Work in progress
750,000 (7.5%)
0.075 × €400,000 = €30,000 Finished goods
1,250,000 (12.5%)
0.125 × €400,000 = 50,000 Cost of goods sold
8,000,000 (80.0%)
0.800 × €400,000 = 320,000 Total 10,000,000 (100.0%)
€400,000 10,400,000
(c)
Account End-of-year
balance
(before
proration)
(€)
Allocated overhead
component of end-of-
year balance (before
proration) (€)
Proration of €400,000
underallocated
manufacturing overhead
Balance
(after
proration)
(€)
Work in progress
750,000 240,000 (5.33%)
0.0533 × €400,000 = €21,320 771,320 Finished goods
1,250,000 660,000 (14.67%) 0.1467 × €400,000 = 58,680 1,308,680 Cost of goods sold
8,000,000 3,600,000 (80.00%) 0.8000 × €400,000 = 320,000 8,320,000 Total 10,000,000 450,000,000
(100.00%) €400,000 10,400,000
3 Alternative (c) is theoretically preferred to (a) and (b. Alternative (c) yields the same closing balances in work in progress, finished goods and cost of goods sold that would have been reported had actual indirect-cost rates been used. The chapter also discusses an adjusted allocation rate approach that results in the same closing balances as does alternative (c. This approach operates via a restatement of all the individual jobs worked on during the year rather than a restatement of closing balances.
3.15
Job costing with single direct-cost category, single indirect-cost pool and law firm.
(15–20 min)
1 Pricing decisions at Tricheur are heavily influenced by reported cost numbers. Suppose Tricheur is bidding against Andrault & Maque fora client with a job similar to that of Morges-Guyère. If the costing system overstates the costs of these jobs, Tricheur may bid too high and fail to be hired by the client. If the costing system understates the costs of these jobs, Tricheur may bid low, be hired by the client and then lose money in handling the case.
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 2 Panel A of Solution Exhibit 3.15 at the end of this question presents an overview of the single direct/single indirect (SD/SI) costing approach. Share with your friends: |
