Managerial accounting garrison 16th edition pdf download

All rights reserved. In a mul- of Goods Sold and inventories. Some derapplied for several reasons. Control over over- companies use multiple overhead rates rather head spending may be poor. Or, some of the than plantwide rates to more appropriately allo- overhead may be fixed and the actual amount of cate overhead costs among products. Multiple the allocation base may be less than estimated at overhead rates should be used, for example, in the beginning of the period. In this situation, the situations where one department is machine in- amount of overhead applied to inventory will be tensive and another department is labor inten- less than the actual overhead cost incurred.

This results in an increase in the pre- derstated. Therefore, underapplied overhead is determined overhead rate—particularly if it is added to cost of goods sold. On the other hand, based on direct labor. The journal entries are recorded as follows: Raw Materials The journal entry is recorded as follows: Work in Process The journal entry is recorded as follows: Finished Goods The completed T-account is as follows: Work in Process Beg.

The journal entry is recorded as follows: Cost of Goods Sold The amount of underapplied overhead is computed as follows: Actual direct labor-hours a The income statement is as follows: Sales Total direct labor-hours required for Job A Direct labor cost a Unit product cost for Job A Total manufacturing cost a Raw Materials Work in Process Manufacturing Overhead Cash Raw Materials a 94, a 94, b 89, c , Bal.

Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning Cost of Goods Sold Finished goods inventory, beginning Manufacturing overhead incurred a Raw Materials Inventory Finished Goods Cost of Goods Sold Manufacturing Overhead Work in Process b 12, f , Bal.

Job W direct labor cost a Mason Company Income Statement Sales Actual manufacturing overhead costs Direct materials: Raw materials inventory, beginning This exercise can also be used as a launching pad for a discussion of Appendix 3B.

The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the fixed overhead is spread over few- er units.

The unit product cost can be stabilized by using a predetermined over- head rate that is based on expected activity for the entire year.

The cost formula created in requirement 1 can be adapted to compute the annual predetermined overhead rate. Total manufacturing cost assigned to Job Direct materials Yes; if some jobs require a large amount of machine time and a small amount of labor time, they would be charged substantially less overhead cost if a plantwide rate based on direct labor hours were used.

It ap- pears, for example, that this would be true of Job which required considerable machine time to complete, but required a relatively small amount of labor hours. Item a : Actual manufacturing overhead costs incurred for the year. Item b : Overhead cost applied to work in process for the year. Item c : Cost of goods manufactured for the year. Item d : Cost of goods sold for the year. The underapplied overhead will be allocated to the other accounts on the basis of the amount of overhead applied during the year in the end- ing balance of each account: Work in Process The plantwide and departmental approaches for applying manufacturing overhead costs to products produce identical cost of goods sold figures.

However, these two approaches lead to different bid prices for Jobs D- 70 and C This is because the departmental cost pools reflect the fact that Job D is an intensive user of Molding machine-hours. However, it can have a huge impact on internal decisions with respect to individual jobs, such as establishing bid prices for those jobs. These costs have been assigned according to the number of setups completed for each product. However, because a batch-level activity is involved, another factor affecting unit costs comes into play.

That factor is batch size. Some products are produced in large batches and some are produced in small batches. The smaller the batch, the higher the per unit cost of the batch activity. In the case at hand, the data can be ana- lyzed as follows: Model X Cost to complete one setup see requirement 2a Such differences in cost are obscured when direct labor-hours or any other volume measure is used as a basis for applying overhead cost to products. In sum, overhead cost has shifted from the high-volume product to the low-volume product as a result of more appropriately assigning some costs to the products on the basis of the activities involved, rather than on the basis of direct labor-hours.

Problem 2A-5 60 minutes 1. Problem 2A-5 continued 3. Problem 2A-5 continued b. Using activity-based absorption costing, the unit product cost of each model would be: Deluxe Regular Direct materials Unit costs appear to be distorted as a result of using direct labor-hours as the base for assigning overhead cost to products. Although the deluxe model requires twice as much labor time as the regular model, it still is not being assigned enough overhead cost, as shown in the analy- sis in part 3 a.

This suggests that less than half the overhead cost is being assigned to the deluxe model that ought to be assigned, and unit costs for the deluxe model are understated. If these costs are being used as a basis for pricing, then the selling price for the deluxe model may be too low.

This may be the reason why profits have been steadily declining over the last several years. It may also be the reason why sales of the deluxe model have been increasing rapidly. Overhead rates for each activity cost pool: a Before we can determine the amount of overhead cost to assign to the products we must first determine the activity for each of the products in the six activity centers. Activity Cost Pool Purchasing According to the activity-based absorption costing system, the manu- facturing overhead cost per pound is: Kenya Viet Dark Select Total overhead cost assigned above a The unit product costs according to the activity-based absorption costing system are: Kenya Viet Dark Select Direct materials given These activities include purchase orders issued, number of setups for material processing, and number of batches processed.

An implication of the activity-based approach is that our low-volume products may not be covering the costs of the manufacturing resources they use. Under our present costing and pricing system, our high-volume products, such as our Kenya Dark cof- fee, may be subsidizing our low-volume products.

Some adjustments in prices may be required. However, the per pound cost can also be computed as shown below. This alternative approach provides additional insight into the data and facilitates emphasis of some points made in the chapter. Twenty thousand pounds of the Kenya Dark coffee are purchased per order with four orders per year , and just pounds of the Viet Select coffee are purchased per order with eight orders per year. Thus, the purchase order cost per pound for the Kenya Dark coffee is just 1.

As stated in the text, this is one reason why unit costs of low-vol- ume products, such as the Viet Select coffee, increase so dramatically when activity-based costing is used. There were no beginning or ending inventories, so all of the jobs were started, finished, and sold during the month. Therefore cost of goods sold equals the total manufacturing cost. We can verify that by compu- ting the cost of goods sold as shown below: Manufacturing costs charged to jobs: Direct materials Consequently, the income statement, prepared for internal management purposes, would appear as follows: Wixis Cabinets Income Statement Sales When the predetermined overhead rate is based on capacity, unused capacity costs ordinarily arise because manufacturing overhead usually contains significant amounts of fixed costs.

Therefore, unused capacity costs will arise. Exercise 2B-2 30 minutes 1. The overhead applied to Mrs. If the actual overhead cost and the actual professional hours charged turn out to be exactly as estimated there would be no cost of unused capacity. Last Year This Year Predetermined overhead rate see above If the predetermined overhead rate is based on the professional staff hours available, the computations would be: Last Year This Year Estimated overhead cost a Amount of the allocation base at capacity a Last Year 6, This Year 6, Actual amount of the allocation base b Problem 2B-3 60 minutes 1.

The cost of unused capacity for both years is computed as follows: Amount of the allocation base at capacity a Last Year 1, This Year 1, Actual amount of the allocation base b Problem 2B-3 continued 4. The competition is able to offer the latest equipment, excellent service, and attractive prices. The company must do some- thing to counter this threat or it will ultimately face failure.

Under the conventional approach in which the predetermined overhead rate is based on the estimated studio hours, the apparent cost of the Verde Baja job has increased between last year and this year. This results in costs that seem to increase as the volume declines.

Under the conventional method, managers may be mis- led into thinking that they are actually losing money on the Verde Baja job and they might refuse such jobs in the future—another sure road to disaster.

It is true that the cost of unused capacity under the alterna- tive approach is much larger than under the conventional approach and is growing. However, if it is properly labeled as the cost of unused ca- pacity, management is much more likely to draw the appropriate conclu- sion that the real problem is the loss of business and therefore more idle capacity rather than an increase in costs.

Case 2B-4 minutes 1a. Vault Hard Drives, Inc. Case 2B-4 continued 2. Case 2B-4 continued 3. Net operating income is more volatile under the new method than under the old method. As a consequence, swings in sales in either di- rection will have a more dramatic impact on reported profits under the new method. Under the old method, the target net operating income can be attained by pro- ducing an additional 8, units. Add a review.

Garrison, Eric Noreen, Peter C. Managerial Accounting 16th Edition — eBook pdf quantity. Brewer , Ray H. General comments Introducing the financial statements Our overriding objective in this chapter is to introduce students to the balance sheet, income solutions manual Managerial Accounting Garrison Noreen Brewer 16th edition. All The Chapters Are Included. No Shipping Address Required.

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