Fakulty of Economic and Business

Universitas Singaperbangsa
Undergraduate Program

Exercise

Subject : Cost Accounting

Time Frame : 120 Minutes
Rule : Opened Book
Lecturer : Prof.Wahyudin Zarkasyi, CPA

Question 1 (Job Order Costing)

Amesbury Construction assembles residential houses. It usesa 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
2010, Amesbury budgets 2011 assembly-support costs (overhead cost) to be $8,300,000 and
2011 direct labor-hours to be 166,000.
At the end of 2011, Amesbury is comparing the costs of several jobs that were started and
completed in 2011.

Laguna Model Mission Model

Construction Period Feb-June 2011 May-Oct 2011
Direct Material Costs $106,760 $127,550
Direct Labor Costs $ 36,950 $ 41,320
Direct Labor Hours 960 1,050

A. Compute the a) budgeted indirect-cost rate and b) actual indirect cost rate.
B. What are the job costs of the Laguna Model and the Mission Model using (a) normal
costing and (b) actual costing?
C. Why might Amesbury Construction prefer normal costing over actual costing?

Question 2 ( Process Costing – Weighted Average Method)

Consider the following data for the assembly division of Fenton Watches, Inc. The assembly
division uses the weighted-average method of process costing.

Physical Units Direct Conversion

(Watches) Materials Costs
Beginning work in process 80 $ 493,360 $ 91,040
Started in Production 500
Completed and transferred to finished goods 460
Ending work in process 120
Total Cost Added During Production Process $3,220,000 $1,392,000

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Degree of completion: direct materials, 90%; conversion costs, 40%.
Degree of completion: direct materials, 60%; conversion costs, 30%

Required:
A. Compute equivalent units for materials and conversion costs.
B. Compute cost per equivalent unit for materials and conversion costs.
C. Compute cost of units completed and transferred out as finish goods
D. Determine cost of ending work in process inventory.

Question 3 ( Spoilage, Scrap and Rework)

Crystal Clear Machine Shop is a manufacturer of motorized carts for vacation resorts. Peter
Cruz, the plant manager of Crystal Clear, obtains the following information for Job #10 in August
2010. A total of 32 units were started, and 7 spoiled units were detected and rejected at final
inspection, yielding 25 good units. The spoiled units were considered to be normal spoilage.
Costs assigned prior to the inspection point are $1,450 per unit. The current disposal price of
the spoiled units is $230 per unit. When the spoilage is detected, the spoiled goods are
inventoried at $230 per unit.

Required:
1. Explain, what is spoilage, Scrap and Rework
2. Based on ilustration above, what is the normal spoilage rate?
3. Prepare the journal entries to record the normal spoilage, assuming the following:
a. The spoilage is related to a specific job.
b. The spoilage is common to all jobs.

Question 4 – (Joint Costing)

The Wood Spirits Company produces two products—turpentine and methanol (wood alcohol) by
a joint process. Joint costs amount to $120,000 per batch of output. Each batch totals 10,000
gallons: 25% methanol and 75% turpentine. Both products are processed further without gain or
loss in volume. Separable processing costs are methanol, $3 per gallon; turpentine, $2 per
gallon. Methanol sells for $21 per gallon. Turpentine sells for $14 per gallon.

Required:

A. How much of the joint costs per batch will be allocated to turpentine and to methanol,
assuming that joint costs are allocated based on the number of gallons at splitoff point?
B. If joint costs are allocated on an NRV basis, how much of the joint costs will be
allocated to turpentine and to methanol?
C. Prepare product-line income statements per batch for requirements 1 and 2. Assume no
beginning or ending inventories.

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 ANSWER SHEET

Name : Imam Fadilah

NPM : 1910631030017
Class : 3B Cost Accounting
Subject : Cost Accounting
Time Frame : 120 Minutes
Rule : Opened Book
Lecturer : Prof.Wahyudin Zarkasyi, CPA

Question 1.

A. (a) Budgeted indirect-cost rate

Budgeted indirect costs $8,300,000
Budgeted indirect − cost rate = = =
Budgeted direct labor − hours 166,000

= $50 𝑝𝑒𝑟 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 − ℎ𝑜𝑢𝑟.

(b) Actual indirect-cost rate
Actual indirect costs $8,300,000
Actual indirect − cost rate = = =
Actual direct labor − hours 166,000

= $50 𝑝𝑒𝑟 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 − ℎ𝑜𝑢𝑟

* Because the Actual Indirect Costs and Actual Direct Labor are unidentification, then
element of Budgeted Indirect Cost assumed by Actual Indirect Cost.

B. (a) Normal Costing

Laguna Model :
Direct cost :
Direct materials $ 106,760
Direct labor $ 36,950
Total $ 143,710
Indirect costs : $ 48,000*
Total costs $ 191,710

*Indirect Cost on Laguna Model :

= Budgeted indirect − cost rate x Direct Labor Hour
= $ 50 per direct labor hour x 960 labor hour
= $ 48.000

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 Mission Model :
Direct costs :
Direct materials $ 127,550
Direct labor $ 41,320
Total $ 168,870
Indirect Costs: $ 52,500*
Total costs $ 221,370

*Indirect Cost on Mission Model :

= Budgeted indirect − cost rate x Direct Labor Hour
= $ 50 per direct labor hour x 1.050 labor hour
= $ 52.500

(b) Actual Costing

*Both of Laguna Model and Mission Model can’t be calculated because Actual Indirect –
Cost Rate is not identified.

C. Why might Amesbury Construction prefer normal costing over actual costing? Because
normal costing enables Amesbury to report a job cost as soon as the job is completed. But
with actual costing Amesbury has to wait until December 2011 year end.

Question 2.

Physical Units Direct Conversion

(Watches) Materials Costs
Beginning work in process 80 $ 493,360 $ 91,040
Started in Production 500
Completed and transferred to finished goods 460
Ending work in process 120
Total Cost Added During Production Process $3,220,000 $1,392,000

A. Compute equivalent units for materials and conversion costs.

*Degree of Complretion for Ending Work in Process on Direct Material and Conversion Cost
are 60% and 30%.

Equivalent Unit for Direct Material :

= Physical Unit of Ending Work in Process x Degree of Completion for Direct Material
= 120 Unit (Watches) x 60% = 72 Unit
= 460 + 72 = 𝟓𝟑𝟐 𝐮𝐧𝐢𝐭

Equivalent Unit for Conversion Cost :

= Physical Unit of Ending Work in Process x Degree of Completion for Convrsion Cost
= 120 Unit (Watches) x 30% = 36 Unit
= 460 + 36 = 𝟒𝟗𝟔 𝐮𝐧𝐢𝐭

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B. Compute cost per equivalent unit for materials and conversion costs.

Physical Units Direct Conversion

(Watches) Materials Costs
Beginning work in process 80 $ 493,360 $ 91,040
Started in Production 500
Completed and transferred to finished goods 460 460 460
Ending work in process 120 72 36
Work Done To Date 580 532 496
Total Cost Added During Production Process $3,220,000 $1,392,000

Cost per Equivalent Unit For Direct Material :

𝐴𝑚𝑜𝑢𝑛𝑡 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑊𝑜𝑟𝑘 𝐼𝑛 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 (𝐷𝑀) + 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝐴𝑑𝑑𝑒𝑑 𝐷𝑢𝑟𝑖𝑛𝑔 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 (𝐷𝑀)
=
𝑊𝑜𝑟𝑘 𝐷𝑜𝑛𝑒 𝑡𝑜 𝐷𝑎𝑡𝑒 (𝐷𝑀)
$ 493,360 + $ 3,220,000
=
532 𝑈𝑛𝑖𝑡
= $ 𝟔, 𝟗𝟖𝟎 𝒑𝒆𝒓 𝑼𝒏𝒊𝒕

Cost per Equivalent Unit For Conversion Cost :

𝐴𝑚𝑜𝑢𝑛𝑡 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑊𝑜𝑟𝑘 𝐼𝑛 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 (𝐶𝐶) + 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝐴𝑑𝑑𝑒𝑑 𝐷𝑢𝑟𝑖𝑛𝑔 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 (𝐶𝐶)
=
𝑊𝑜𝑟𝑘 𝐷𝑜𝑛𝑒 𝑡𝑜 𝐷𝑎𝑡𝑒 (𝐶𝐶)
$ 91,040 + $ 1,392,000
=
496 𝑈𝑛𝑖𝑡
= $ 𝟐, 𝟗𝟗𝟎 𝒑𝒆𝒓 𝑼𝒏𝒊𝒕

C. Compute cost of units completed and transferred out as finish goods.

Beginning work in process $ 584,400

($ 493,360 + $ 91,040)
Cost Added During Production Process $ 4,612,000
($ 3,220,000 + $ 1,392,000)
Total Cost $ 5,196,400

D. Determine cost of ending work in process inventory.

Direct Materials $ 3,713,360

(532 unit x $ 6,980)
Conversion Cost $ 1,483,040
(496 unit x $ 2,990)
Total Cost $ 5,196,400

Question 3.

1. Spoilage, Scrap and Rework

Spoilage is units of production—whether fully or partially completed—that do not meet
the specifications required by customers for good units and that are discarded or sold
at reduced prices. Some examples of spoilage are defective shirts, jeans, shoes, and

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 carpeting sold as “seconds,” or defective aluminum cans sold to aluminum manufacturers
for remelting to produce other aluminum products. *Reduced Price

Scrap is residual material that results from manufacturing a product. Examples are
short lengths from woodworking operations, edges from plastic molding operations, and
frayed cloth and end cuts from suit-making operations. Scrap can sometimes be sold for
relatively small amounts. In that sense, scrap is similar to byproducts, which we studied in
Chapter 16. The difference is that scrap arises as a residual from the manufacturing
process, and is not a product targeted for manufacture or sale by the firm. *Residual

Rework is units of production that do not meet the specifications required by cus-
tomers but that are subsequently repaired and sold as good finished units. For example,
defective units of products (such as pagers, computers, and telephones) detected during or
after the production process but before units are shipped to customers can sometimes be
reworked and sold as good products. *Same Price

2. Normal spoilage rate

Normal spoilage rate is spoilage inherent in a particular production process. In
particular, it arises even when the process is operated in an efficient manner.

Spilage rate = Spoiled units/Good units

= 7/25
= 28%

3. Prepare the journal entries to record the normal spoilage, assuming the following:
a. The spoilage is related to a specific job.
When normal spoilage occurs because of the specifications of a particular job,
that job bears the cost of the spoilage minus the disposal value of the spoilage. The
journal entry to recognize disposal value (items in parentheses indicate subsidiary
ledger postings) is as follows:

Materials Control $ 1.610

(spoiled goods at current net disposal value): 7 units * $ 230 per unit
Work-in-Process Control $ 1.610
(specific job): 7 units * $230 per unit

b. The spoilage is common to all jobs.

In some cases, spoilage may be considered a normal characteristic of the
production process. The spoilage inherent in production will, of course, occur when a
specific job is being worked on. But the spoilage is not attributable to, and hence
is not charged directly to, the specific job. Instead, the spoilage is allocated
indirectly to the job as manufacturing overhead because the spoilage is common to
all jobs. The journal entry is as follows:

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 Materials Control $ 1.610
(spoiled goods at current disposal value): 7 units * $230 per unit
Manufacturing Overhead Control $ 8.540
(normal spoilage): ($10.150 - $ 1610)
Work-in-Process Control $ 10.150
(specific job): 7 units * $1,450 per unit

Question 4.

A. How much of the joint costs per batch will be allocated to turpentine and to methanol,
assuming that joint costs are allocated based on the number of gallons at splitoff point?

. Methanol Turpentine Total

Physical measure of total production (gallons) 2.500 7.500 10.000
Weighting (÷ 10.000) 0,25 0,75
Amount of Join Cost $ 30.000 $ 90.000 $ 120.000

B. If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to
turpentine and to methanol?

. Methanol Turpentine Total

Final Sales value of Total Production $ 52,500 $ 105,000 $ 157,500
2.500 x $ $ 21,00 ; 7.500 x $ 14,00
Deduct the Separable Cost $ 7,500 $ 15,000 $ 22,500
2,500 x $ 3,00 ; 7,500 x $ 2,00
Net Realizable value of Slitoff Point $ 45,000 $ 90,000 $ 135,000

Weighting 1/3 2/3

Join Cost Allocated (From Total Amount of $ 40.000 $ 80.000 $ 120,000

Join Cost)

C. Prepare product-line income statements per batch for requirements 1 and 2. Assume no
beginning or ending inventories.

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 a.Physical-Measure :

. Methanol Turpentine Total

Revenues $ 52,500 $ 105,000 $ 157,500
COGS :
Joint Cost $ 30,000 $ 90,000 $ 120,000
Separable Cost $ 7,500 $ 15,000 $ 22.500
Total COGS ($ 37,500) ($ 90,000) ($ 135,000)
Gross Margin $ 15,000 $0 $ 15,000

b. Estimeted Net Realizable Value :

. Methanol Turpentine Total
Revenues $ 52,500 $ 105,000 $ 157,500
COGS :
Joint Cost $ 40,000 $ 80,000 $ 120,000
Separable Cost $ 7,500 $ 15,000 $ 22.500
Total COGS ($ 47,500) ($ 95,000) ($ 145,000)
Gross Margin $ 5,000 $ 10,000 $ 15,000