The Polaris Company uses a job-order costing system. The following transactions occurred in October:

1. Raw materials purchased on account, $210,000.
2. Raw materials used in production, $190,000 ($152,000 direct materials and $38,000 indirect materials).
3. Accrued direct labor cost of $49,000 and indirect labor cost of $20,000.
4. Depreciation recorded on factory equipment, $106,000.
5. Other manufacturing overhead costs accrued during October, $129,000.
6. The company applies manufacturing overhead cost to production using a predetermined rate of $7 per machine-hour. A total of 76,300 machine-hours were used in October.
7. Jobs costing $512,000 according to their job cost sheets were completed during October and transferred to Finished Goods.
8. Jobs that had cost $451,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 34% above cost.

Required:

1. Prepare journal entries to record the transactions given above.

2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $34,000.

Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $34,000.

Manufacturing overhead

Work in process

Product Costing and Decision Analysis for a Service Company

Blue Star Airline provides passenger airline service, using small jets. The airline connects four major cities: Charlotte, Pittsburgh, Detroit, and San Francisco. The company expects to fly 170,000 miles during a month. The following costs are budgeted for a month:

Blue Star management wishes to assign these costs to individual flights in order to gauge the profitability of its service offerings. The following activity bases were identified with the budgeted costs:

The size of the company's ground operation in each city is determined by the size of the workforce. The following monthly data are available from corporate records for each terminal operation:

Three recent representative flights have been selected for the profitability study. Their characteristics are as follows:

Required:

1. Determine the fuel, crew, and depreciation cost per mile flown.
$ per mile

2. Determine the cost per arrival or departure by terminal city.

3. Use the information in (1) and (2) to construct a profitability report for the three flights. Each flight has a single arrival and departure to its origin and destination city pairs. Enter all amounts as positive numbers, except for a negative income from operations.

Star Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1 are given below.

Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company’s predetermined overhead rate for the year ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year:

1. Film, costumes, and similar raw materials purchased on account, $229,000.
2. Film, costumes, and other raw materials issued to production, $230,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
3. Utility costs incurred (on account) in the production studio, $92,600.
4. Depreciation recorded on the studio, cameras, and other equipment, $104,400. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
5. Advertising expense incurred (on account), $143,000.
6. Salaries and wages paid in cash as follows:

7. Prepaid insurance expired during the year, $7,450 (70% related to production of videos, and 30% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred (on account), $13,850.
9. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
10. Videos that cost $578,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
11. Sales for the year totaled $954,000 and were all on account.
12. The total cost to produce the videos that were sold according to their job cost sheets was $623,910.
13. Collections from customers during the year totaled $904,000.
14. Payments to suppliers on account during the year, $608,000.
15. Underapplied or overapplied overhead $__?__.

Prepare a schedule of cost of goods manufactured for the year.

Prepare a schedule of cost of goods sold for the year.

Prepare an income statement for the year.

Question CT 15.7, Considering Your Costs and Benefits, is the basis for discussion pertaining to chapter 15. What are your thoughts? Would you include charges for those costs, or would you not include them? Please provide support for your view.

CT15.7 After graduating, you might decide to start a small business. As discussed in this chapter, owners of any business need to know how to calculate the cost of their products. In fact, many small businesses fail because they don't accurately calculate their product costs, so they don't know if they are making a profit or losing money—until it's too late.

Suppose that you decide to start a landscape business. You use an old pickup truck that you've fully paid for. You store the truck and other equipment in your parents' barn, and you store trees and shrubs on their land. Your parents will not charge you for the use of these facilities for the first two years, but beginning in the third year they will charge a reasonable rent. Your mother helps you by answering phone calls and providing customers with information. She doesn't charge you for this service, but she plans on doing it for only your first two years in business. In pricing your services, should you include charges for the truck, the barn, the land, and your mother's services when calculating your product cost? The basic arguments for and against are as follows.

• YES: If you don't include charges for these costs, your costs are understated and your profitability is overstated.
• NO: At this point, you are not actually incurring costs related to these activities; therefore, you shouldn't record charges.

Instructions

Write a response indicating your position regarding this situation. Provide support for your view.

Need Help any this and please share your thought about this. Very appreciate who help share their thought. Thank you!!

Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses

Naper Inc. manufactures power equipment. Naper has two primary products—generators and air compressors. The following report was prepared by the controller for Naper's senior marketing management for the year ended December 31:

The marketing management team was concerned that the selling and administrative expenses were not traced to the products. Marketing management believed that some products consumed larger amounts of selling and administrative expense than did other products. To verify this, the controller was asked to prepare a complete product profitability report, using activity-based costing.

The controller determined that selling and administrative expenses consisted of two activities: sales order processing and post-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as follows:

The controller determined the following activity-base usage information about each product:

a. Determine the activity cost of each product for sales order processing and post-sale customer service activities.

Feedback

a. Calculate for each product:
Activity-Base Usage x Activity Rate = Activity Cost. Add both costs to obtain the total for each activity.

Learning Objective 5.

b. Use the information in (a) to prepare a complete product profitability report dated for the year ended December 31. Calculate the gross profit to sales and the income from operations to sales percentages for each product. Round percentages to two decimal places. Enter all amounts as positive numbers.

The units of Manganese Plus available for sale during the year were as follows: Mar. 1 Inventory 23 units @ $29 $667 June 16 Purchase 33 units @ $34 1,122 Nov. 28 Purchase 38 units @ $35 1,330 94 units $3,119 There are 16 units of the product in the physical inventory at November 30. The periodic inventory system is used. Determine the difference in gross profit between the LIFO and FIFO inventory cost systems. Enter the answer as a positive number.

Melissa recently paid $760 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses: $370 fee to register for the conference, $365 per night for three nights’ lodging, $250 for meals, and $300 for cab fare. (Leave no answers blank. Enter zero if applicable.) (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)

A. What amount of the travel costs can Melissa deduct as business expenses?
Deductible Amount:

B. Suppose that while Melissa was on the coast, she also spent two days sightseeing the national parks in the area. To do the sightseeing, she paid $1,710 for transportation, $1,285 for lodging, and $475 for meals during this part of her trip, which she considers personal in nature. What amount of the travel costs can Melissa deduct as business expenses?
Deductible Amount:

C. Suppose that Melissa made the trip to San Francisco primarily to visit the national parks and only attended the business conference as an incidental benefit of being present on the coast at that time. What amount of the airfare can Melissa deduct as a business expense?
Deductible Amount:

D. Suppose that Melissa’s permanent residence and business was located in San Francisco. She attended the conference in San Francisco and paid $370 for the registration fee. She drove 153 miles over the course of three days and paid $190 for parking at the conference hotel. In addition, she spent $430 for breakfast and dinner over the three days of the conference. She bought breakfast on the way to the conference hotel and she bought dinner on her way home each night from the conference. What amount of these costs can Melissa deduct as business expenses? (Use standard mileage rate.)
Deductible Amount:

Problem 1:

West Coast Board Manufacturing Inc. produces and sells surf boards in Southern California. The company expected the following revenues and costs in 2018 for its Premium surf boards:

Revenue (750 boards @ $300 per board) $225,000

Variable costs 105,000

Fixed costs 60,000

a) How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point? (show your calculation)

b) How many boards must be sold to earn a target operating income of $100,000? (show your calculation)

c) What amount of sales must the company have to earn a target net income of $100,000 if they have a tax rate of 30%? (show your calculation)

Problem 2:

Donna Corporation manufactures custom cabinets for kitchens. It uses a normal-costing system with two direct-cost categories-direct materials and direct manufacturing labor-and one indirect-cost pool, manufacturing overhead costs. It provides the following information for 2017.

Budgeted manufacturing overhead costs $960,000

Budgeted direct manufacturing labor-hours 32,000 hours

Actual manufacturing overhead costs $992,000

Actual direct manufacturing labor-hours 31,000 hours

Calculate: a) the Budgeted indirect cost rate (show your calculation) and b) the total manufacturing costs (show your calculation) of job 102 using normal costing based on the following information:

Actual direct material costs $3,500

Actual direct manufacturing labor 160 hours

Actual direct manufacturing labor rate $ 20 per hour

The following data were extracted from the income statement of Martin Solutions, Inc.:

Required:

Assume a 365-day year.

Determine for each year:

a. Inventory turnover. Round your answers to one decimal place.

b. Number of days' sales in inventory. Round your final answer to one decimal place.

Corporations investing in both debt and equity securities. But, one interesting activity in the current investment world is corporate “stock buybacks.” Do a little research and see if you can find out why corporations are doing this at such a frenzied pace and what the effect is on both the corporation and the stockholders who are selling their stock back. Do you have any feelings either way on this practice? (Short paragraph please)

Cost of Units Completed and in Process

The charges to Work in Process—Assembly Department for a period, together with information concerning production, are as follows. All direct materials are placed in process at the beginning of production.

a. Based on the above data, determine the different costs listed below.

The following is a series of transactions for Berkeley City. Indicate how Berkeley reports each transaction within the government-wide financial statements and then on the fund financial statements. Assume that Berkeley follows a policy of considering resources as available if they will be received within 60 days. Incurred Liabilities are assumed to be claims to current resources if they will be paid within 60 days.

1. Borrowed money by issuing a 20-year bond for $5 million, its face value. This money is to be used to construct a highway around Berkeley.

2. Transferred cash of $110,000 from the general fund to the debt service funds to make the first payment of principal and interest on the bond in (1).

3. Paid the cash in (2) on the bond. Of this total, $80,000 represents interest; the remainder reduces the principal of the bond payable.

4. Completed construction of the highway and paid the entire $5 million.

5. The highway (in 4) is expected to last 30 years. However, the government qualifies to use the modified approach, which it has adopted for this system. A $400,000 cost is incurred during the year to maintain the highway at an appropriate, predetermined condition. Of this amount, $300,000 was paid immediately but the other $100,000 will not be paid until the sixth month of the subsequent year.

6. Received lights for the new highway donated from a local business. The lights are valued at $300,000 and should last 30 years. The modified approach is not used for this network of infrastructure. Straight-line depreciation is applied using the half-year convention.

7. Agreed to stop collecting property taxes from the Charlie Company for eight years in exchange for the promise that a small manufacturing plant will be built within Berkeley to generate capital investment and new job opportunities for the residents.

8. Recorded cash revenues of $3 million from the local subway system and made salary expense payments of $400,000 to its employees.

9. Opened a solid waste landfill at the beginning of the year that will be used for 25 years. This year an estimated 5 percent of the capacity was filed. The city anticipates closure, and postclosure requirements will be $3 million based on current cost figures although no costs have been incurred to date.

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Inc. Income Statement Sales $ 1,774,100 Cost of goods sold 1,232,931 Gross margin 541,169 Selling and administrative expenses 640,000 Net operating loss $ (98,831 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $21 per unit and 12,800 units of T500 at a price of $40 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below: B300 T500 Total Direct materials $ 400,100 $ 163,000 $ 563,100 Direct labor $ 120,400 $ 42,800 163,200 Manufacturing overhead 506,631 Cost of goods sold $ 1,232,931 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $58,000 and $108,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below: Manufacturing Overhead Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 208,651 90,000 62,300 152,300 Setups (setup hours) 136,080 74 250 324 Product-sustaining (number of products) 101,000 1 1 2 Other (organization-sustaining costs) 60,900 NA NA NA Total manufacturing overhead cost $ 506,631 Required: 1. Compute the product margins for the B300 and T500 under the company’s traditional costing system. 2. Compute the product margins for B300 and T500 under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

The Cutting Department of Tangu Carpet Company provides the following data for December 2016. Assume that all materials are added at the beginning of the process.

a. Prepare a cost of production report for the Cutting Department. If an amount is zero or a blank, enter in "0". For the cost per equivalent unitcomputations, round your answers to two decimal places.

b. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (November). If required, round your answers to two decimal places.