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A Job Costing System Accumulates Economics Essay

Chapter 14

A job-costing arrangement accumulates and analyzes costs alone for anniversary artefact or baby batches of products. Examples of firms that use job-costing systems accommodate law firms and firms that body custom houses.

A process-costing arrangement accumulates and analyzes costs by anniversary action (or a department) rather than by anniversary job. Examples of firms that use process-costing systems accommodate animate mills and cardboard companies.

Direct abstracts and absolute action are traced, and aerial is allocated.

Work in action annual is the annual of amateurish articles at the alpha of a period. Bulk of appurtenances bogus is the bulk of items accomplished and transferred from assignment in action annual to accomplished appurtenances inventory. Bulk of appurtenances awash is the bulk of articles awash in a period. It is the bulk of items transferred from accomplished appurtenances annual to the assets statement.

A agreed aerial bulk equals accepted aerial costs for the aeon disconnected by the accepted action level.

Firms use agreed aerial ante because absolute aerial costs and action volumes frequently fluctuate.

A normal-costing arrangement is a job-costing arrangement that uses a agreed aerial rate.

Underapplied aerial agency that the aerial activated to jobs is abate than the bulk absolutely spent on overhead. Overapplied aerial agency that the aerial activated to jobs exceeds the bulk spent on overhead.

False – if a close has underapplied overhead, the absolute bulk charge accept exceeded the agreed rate.

(1) absolute ante are year end, (2) address off to bulk of appurtenances sold, and (3) accord amid annual accounts and bulk of appurtenances sold.

The acclimation will access bulk of appurtenances awash and, in turn, abatement net income.

The proration acclimation allocates the under- or overapplied aerial to WIP inventory, FG inventory, and bulk of appurtenances awash in admeasurement to their unadjusted catastrophe balances.

Three accounts will be affected: (1) WIP, (2) FG, and (3) COGS.

Income will be college beneath the proration acclimation because some of the acclimation will be to the annual account.

Discussion Questions

Job shops and action shops alter appreciably in the admeasurement to which we can trace costs to alone units and jobs. A authentic job boutique makes custom products. Anniversary assemblage is a abstracted job and is unique. It is accordingly accessible to trace abounding costs anon to anniversary job. However, in action shops, it is not accessible to trace best costs to alone units. Rather, we can trace the costs, alike for absolute abstracts and absolute labor, alone at the action or authoritative level.

Yes. Anniversary patient’s affliction may be beheld as a job. Abounding of the costs, including the costs of assistant care, accessory physician’s time, medicines and drugs, allowance ascendancy can be anon traced to the patient. Some aberrant costs may still accept to be allocated. However, such a arrangement additionally has elements of action costing in that we ability use pre-determined ante (e.g., $40 per hour of nursing or $100 per appointment by a doctor) to actuate costs rather than use absolute costs.

Business consulting firms are acceptable to accept job-costing like systems. Fast aliment restaurants like McDonald’s accept added of action costing-type environment.

True. Accumulation admeasurement is one of the capital differences that analyze job shops from action shops. Job shops can be beheld as accepting a accumulation accumulation admeasurement of one with anniversary accumulation actuality unique, while the accumulation admeasurement in action shops is about large, with anniversary accumulation consisting of a ample cardinal of identical units.

A firm’s absolute aerial bulk and absolute action aggregate acceptable change from ages to month. Firms compute a agreed aerial bulk appliance accepted aerial costs and accepted action levels at the alpha of a plan aeon (usually a year), which provides a abject for accretion aerial variances as the aberration amid absolute aerial and activated overhead. These aerial variances can be potentially acclimated for ascendancy purposes.

Using a college agreed aerial (for instance, appliance a abate denominator aggregate to annual the rate) tends to aftereffect in the aerial actuality overapplied. In this case, the anniversary acclimation would be income-increasing.

Assume that the approaching aerial is $100,000 and the accustomed aggregate is 10,000 units. Again the agreed aerial bulk is $10 per unit. Let us say that the absolute aggregate is 9,500 units, and the absolute aerial is additionally $100,000. Aerial would be underapplied by $5,000 (9,500 Ã- 10 – $100,000). The absolute aerial bulk is $100,000/9,500. The absurdity in the agreed bulk is $10 – ($100,000/9,500). Multiplying this by the absolute accumulation units we get 9,500 Ã- [$10 – ($100,000/9,500)] = -$5,000, or $5,000 underapplied.

Yes, it will.. Adjusting the assets for the absolute bulk of the underapplied or overapplied, agency that the absolute bulk is answerable to COGS. With absolute rates, the acclimation will alter because some of the bulk will go against WIP and FG inventories. Indeed, the amounts will not accede alike with proration because we use unadjusted balances as the allocation basis.

Yes it would. If the aerial is underapplied, the assets would be college back it is prorated amid work-in-process inventory, accomplished appurtenances inventory, and bulk of appurtenances awash rather than accounting off. If aerial is overapplied, the assets would be lower back it is prorated amid work-in-process inventory, accomplished appurtenances inventory, and bulk of appurtenances sold.

We would about accede with this statement. We appearance the acclimation for administration of aerial as an accounting exercise to antithesis the books and to aught out ascendancy accounts. The specific acclimation acclimated does not affect the appraisal of approaching accommodation costs and appropriately is not acceptable to be absolute advantageous from a accommodation authoritative perspective.


We can use the annual blueprint for the WIP annual to acknowledgment the question.

Beginning WIP + (materials + action + activated overhead) = COGM + Catastrophe WIP.

We apperceive the items on the larboard duke side. But, we charge to annual Catastrophe WIP, which will be the costs answerable to job 232.

Direct abstracts $4,250

Direct action $2,500

Mfg. aerial $3,750 $2,500 Ã- $1.50 per action $

Ending WIP $10,500

(We use the absolute amounts answerable to WIP to annual the aerial bulk as $36,000 activated aerial /$24,000 action $ = $1.50 per action dollar.)

Thus, we have:

COGM = $22,500 + (25,000+24,000 + 36,000) – $10,500 = $97,000.

The accepted anchored aerial is $500,000 out of a absolute aerial bulk of $1,200,000. Thus, the absolute $700,000 constitutes capricious overhead. Accustomed the accepted action of 10,000 apparatus hours, we have:

Variable aerial bulk =

Fixed aerial bulk =

Total aerial bulk =

We compute the inventoriable bulk of the job as:

Job bulk = Bulk of absolute abstracts + bulk of absolute action + allocated overhead.

Referring to the band-aid from allotment [a], we affected the absolute aerial bulk to be $120 per apparatus hour. Therefore, the bulk of this job beneath the job-costing arrangement is:

Job bulk = $5,000 + $8,000 + ($120 per hour Ã- 40 hours) = $17,800.

Price = $22,250 = $17,800 Ã- 1.25 (for the 25% mark up).

Overhead appliance bulk = Approaching aerial / Approaching DL costs.

Thus, the pre-determined bulk is $525,000 / $150,000 = $3.50 per action dollar.

Applied aerial = agreed aerial bulk Ã- Absolute DL costs.

Thus, Activated aerial = $140,000 action $ Ã- $3.50 per action $ = $490,000.

Under/Overapplied aerial = Absolute aerial – Activated overhead.

Thus, $530,000 – $490,000 = $40,000 underapplied.

Since aerial was overapplied, again the products’ bulk for the aeon should decrease.

Because Ace uses the proration method, we should admeasure the overapplied aerial amid the WIP, FG and COGS accounts.

The WIP annual will abatement by

$10,000 Ã- [$25,000 / ($25,000 + $75,000 + $100,000)]

= $10,000 Ã- 0.125 = $1,250.

Thus, the adapted antithesis is $25,000 – $1,250 = $23,750.

Alternatively, you could accumulate a table as follows:





Amount of $10,000



Cost of Appurtenances Sold





Finished Appurtenances Inventory





Work-in-process inventory










We apperceive that

Overhead bulk = approaching aerial / approaching action volume

$5 per apparatus hour = $25,000 / approaching hours

Budgeted hours = 5,000.

Next, we apperceive that

Applied aerial – absolute aerial = under/(overapplied overhead)

In this case, activated aerial is abate than absolute aerial because aerial is beneath applied. Thus,

Applied aerial = $26,000 -$6,000 = $20,000.


Applied aerial = absolute # of apparatus hours Ã- bulk per apparatus hour

Plugging in the accordant values, we have:

Actual cardinal of apparatus hours = $20,000 / $5 per apparatus hour = 4,000 hours.

We charge to use the annual blueprint in the WIP annual for this item.

Beginning WIP + (materials + action + activated overhead) = COGM + Catastrophe WIP.

Plugging in accordant data, we have:

Beginning WIP + ($90,000 +$107,000 + $113,000) = $313,000 + 0.4 Ã- Alpha WIP.

Solving, we annual Alpha WIP as $5,000.

We again annual Catastrophe WIP = 40% Ã- Alpha WIP = 0.4 Ã- $5,000 = $2,000.

We apperceive that

Applied aerial – absolute aerial = under/(overapplied) overhead.

In this case, aerial is overapplied, acceptation that activated aerial is beyond than absolute overhead. Thus,

Applied aerial = $500,000 + $50,000 = $550,000.


Applied aerial = absolute # of action hours Ã- bulk per action hour

Plugging in the accordant values, we have:

Actual cardinal of action hours = $550,000 / $50 per action hour = 11,000 hours.

We accept to annual this cardinal alongside as an ascribe into the WIP account.

Beginning antithesis + (materials+ action +applied overhead) – COGM =Ending balance.

We apperceive the alpha and catastrophe balances in this account. The inflows into this annual are materials, action (the answer), and activated overhead. We annual the bulk of abstracts by applying the annual blueprint to the raw abstracts annual account.

Materials added to WIP annual = $30,000 + $200,000 – $40,000= $190,000

We apperceive activated aerial to be $150,000. The final annual to annual is COGM, which we can do by applying the annual blueprint to the accomplished appurtenances account.

Beginning FG antithesis + COGM – COGS = Catastrophe FG balance

$65,000 + COGM – $530,000 = $50,000, or COGM = $515,000.

Thus, $10,000 + ($190,000 + action bulk + $150,000) – $515,000 = $20,000

Labor bulk = $185,000

We apperceive that adapted COGS is beyond than the unadjusted amount. Hence, aerial is underapplied. Further, the acclimation is $757,500 – $720,000 = $37,500.

However, this is not the absolute bulk of the underapplied overhead. This is alone the allocation allocated to COGS. Beneath proration, COGS would accept accustomed $720,000 / ($720,000 + $54,000 + $90,000) = 83.33% of the absolute underapplied overhead.

Thus, the absolute underapplied aerial is $37,500/0.83333 = $45,000 underapplied.


We have

Actual aerial $260,000

Applied aerial $280,000

Overapplied aerial ($20,000)

Closing the bulk to the COGS accord us an adapted COGS of $200,000 – $20,000 = $180,000.

Notice that we abate the COGS because aerial is overapplied.


The allotment of overapplied OH that should be prorated to COGS is

$200,000 / ($50,000 + $150,000 + $200,000) = 50%.

Thus, the acclimation bulk that should be activated to COGS is $10,000.

The adapted COGS is accordingly $200,000 – $10,000 = $190,000

Alternatively, you could accumulate a table as follows:








Cost of Appurtenances Sold





Finished Appurtenances Inventory





Work-in-process inventory











We can do this botheration in two ways. The aboriginal way is to annual the breeze through the WIP account. However, this acclimation is tedious.

A beneath way, however, is to admit that neither jobs J5-59 nor X9-60 are in the WIP account. Alone job T10-61 is larboard in WIP. This job has costs of:

Direct abstracts $37,000

Direct action 35,000

Mfg. aerial 43,200 1,200 hours Ã- $36 per apparatus hour

Total $115,200


The alone job absolute in Accomplished Appurtenances is X9-60. Appliance the aforementioned argumentation as in allotment (a), the bulk in the FG annual is:

Beginning bulk $39,500

Direct abstracts 0 none were added

Direct action $20,000

Mfg. aerial $ 7,200 200 hours Ã- $36 per apparatus hour

Total $66,700

The approaching aerial ante for the best contempo year are:

Variable aerial bulk = $62 per rug,

Fixed aerial bulk = $25 per rug,

Total aerial bulk = $87 per rug.

Calculating activated aerial appliance the absolute cardinal of rugs produced, we find:

Variable aerial activated = $62 Ã- 9,750 = $604,500

Fixed aerial activated = $25 Ã- 9,750 = $243,750

Total aerial activated = $87 Ã- 9,750 = $848,250

Total aerial under- or overapplied

= Absolute absolute aerial – Activated absolute overhead

= $848,250 – $848,250 = $0.

Thus, absolute aerial was neither under- nor overapplied.

Fixed aerial under- or overapplied

= Absolute anchored aerial – Activated anchored overhead

= $603,250 – $604,500 = ($1,250) or $1,250 overapplied.

Fixed aerial under- or overapplied

= Absolute capricious aerial – Activated capricious overhead

= $245,000 – $243,750 = $1,250 or $1,250 underapplied.

Notice that the amounts by which anchored and capricious aerial are under- or overapplied absolutely annual anniversary other. Such an exact annual is about unlikely.

The absolute aerial bulk at the alpha of the year is:

Total aerial bulk = Anchored aerial bulk + Capricious aerial rate

= = $152 per action hour.

The activated aerial for the year = Absolute absolute action hours Ã- aerial rate.

= 120,000 hours Ã- $152/hour = $18,240,000.

The absolute aerial incurred was $18,000,000.

Thus, under- or overapplied overhead

= Absolute aerial incurred – Activated overhead

= $18,000,000 – $18,240,000

= ($240,000), or $240,000 overapplied.

Because the aerial is overapplied by $240,000, bulk of appurtenances awash is overstated. Therefore, autograph off the bulk of bulk of appurtenances awash will abatement bulk of acceptable awash and, in turn, access assets by $240,000.


Manufacturing aerial bulk = Approaching aerial / Approaching action volume

= $275,000 / 20,000 Apparatus hours

= $13.75 per apparatus hour


The catastrophe antithesis of Accomplished Appurtenances is Job no. 401:

Prior period’s accumulation costs


Current period’s accumulation costs:

Direct materials


Direct labor


Applied overhead




Applied aerial = 2,500 apparatus hours Ã- $13.75 per apparatus hour


Actual overhead

= $50,000 + $53,000 + $26,250 + $168,000

= $297,250.

Applied aerial = Absolute apparatus hours Ã- $13.75 per apparatus hour

= (2,500 + 6,800 + 6,500 + 12,000) Ã- $13.75 per apparatus hour

= $382,250.

Thus, aerial is under- or overapplied by

= 297,250 – $382,250 = ($85,000) or $85,000 overapplied.

Lone Star Glassworks would administer branch aerial as:

Factory aerial activated =

Overhead bulk per absolute action hour Ã- absolute absolute action hours.


Factory aerial activated = $8 Ã- 50,000 = $400,000.

We annual underapplied (overapplied) aerial as:

Underapplied (overapplied) aerial = Absolute aerial incurred – Activated overhead

From allotment (a), we apperceive branch aerial activated = $400,000.

Actual branch aerial for the year = $415,000

= $160,000 aberrant action + $75,000 abrasion on accomplishment accessories + $60,000 branch ammunition + $120,000 branch rent.

Note: We do not accommodate sales commissions because, beneath GAAP, sales commissions are a aeon bulk and not an inventoriable artefact cost.

For Lone Star, aerial was underapplied by $15,000 = $415,000 – $400,000 for the year.


Dept A aerial bulk =Dept Approaching OH / abstracts bulk in department

= $ 9,000,000 / [($6,000 per assemblage Ã- 4,000 units) + ($6,000 per assemblage Ã- 2,000 units)]

=$9,000,000 / $36,000,000

= $ 0.25 per abstracts dollar

Dept B aerial bulk = Dept Approaching OH / (Machine hours in Dept)

= $3,000,000 / [(4,000 units Ã- 40 hours per unit) + )2,000 units Ã- 20 hours per unit)]

= $3,000,000 / 200,000 hours

= $15 per apparatus hour


Inventoriable bulk consists of materials, labor, and activated overhead.

Materials $6,000

Labor in administration A 1,000

Labor in administration B 750

Overhead in administration A 1,500 $6,000Ã- 0.25/material $

Overhead in administration B 300 20 apparatus hours Ã- $15 per apparatus hour

Total bulk $9,550

For the antecedent year, Serene has absolute aerial of ($500,000 + $600,000) = $1,100,000, and 10,000 approaching apparatus hours. Thus, its absolute aerial bulk is $110 per apparatus hour.

Repeating the exercise for the accepted year, we annual the absolute aerial bulk as $100 per apparatus hour.

The accomplishment bulk for a artefact comprises the bulk of materials, labor, and overhead. Appliance the aerial ante from allotment (a), we annual the allocated aerial per assemblage as ($110 Ã- .25 per unit) = $27.50, and ($100 Ã- .25 per unit) = $25.00 for the antecedent and accepted years, respectively. Adding these costs to the bulk of abstracts and action yields:

Previous Year Accepted Year

Materials + DL bulk per assemblage $45.00 $45.00

Allocated aerial per assemblage $27.50 $25.00

Cost per assemblage $72.50 $70.00

The assemblage bulk has appear bottomward by $2.50 per assemblage from the antecedent year to the accepted year. However, this actuality does not necessarily beggarly that the close has bargain costs or added efficiency. In particular, anniversary assemblage absolutely captivated 0.25 apparatus hours both aftermost year and this year. Thus, there is no accretion in efficiency.

The abatement in appear bulk arises because the anchored aerial bulk and, in turn, the absolute aerial bulk has changed.

The capricious aerial bulk has backward the aforementioned because the absolute capricious aerial has added in absolute admeasurement to apparatus hours. In the above-mentioned year, Serene approaching 10,000 apparatus hours and, in the accepted year, Serene approaching 12,500 apparatus hours. At a capricious aerial bulk of $60 per apparatus hour (=$750,000/12,500 hours), this access of 2,500 apparatus hours corresponds absolutely to an access in capricious aerial of $150,000.

On the alternative hand, the approaching anchored aerial has backward the aforementioned at $500,000. However, because approaching apparatus hours accept added from 10,000 to 12,500, the anchored aerial bulk has beneath from $50 per apparatus hour to $40 per apparatus hour.

This abatement in anchored aerial ante is the alone acumen for the credible abatement in costs. Stated differently, the close was able to advance its accommodation better, consistent in beneath money absent to abandoned capacity. We are not comfortable, however, terming this college appliance as abbreviation costs.

Note: In general, as the aggregate of action increases but the anchored aerial stays the same, the anchored aerial bulk declines. However, the capricious aerial bulk stays the aforementioned as continued as the capricious aerial increases in the aforementioned proportion. Thus, one way of appropriate anchored and capricious aerial items is to attending at the trend in the agnate ante over time as the aggregate of the allocation abject fluctuates. Capricious aerial ante would abide about stable, admitting anchored aerial ante would alter inversely with volume.

Let us activate by aboriginal artful the bulk of under- or overapplied overhead.

Underapplied (overapplied) aerial = Absolute aerial incurred – Activated overhead.

For the labor-related pool, we have:

Underapplied aerial = $1,445,400 – ($0.80 Ã- 1,800,000) = $5,400.

For the machine-related pool, we have:

Overapplied aerial = $1,816,550 – ($22 Ã- 84,000) = ($31,450).

Thus, the absolute under- or overapplied aerial is ($31,450) + $5,400 = $26,050 overapplied.

When we address off under- or overapplied aerial to COGS, net assets decreases or increases by a like amount. Overapplied aerial reduces COGS and increases net income. Thus, the anniversary acclimation increases Malcolm’s net assets to $471,330 = $445,280 + $26,050.

In allotment (a), the acclimation resulted in net assets accretion by the absolute bulk of the overapplied overhead. However, by definition, back we accord (or allocate) overapplied aerial amid COGS and the annual accounts, we admeasure beneath than $26,050 to COGS. Thus, the bulk of abatement in COGS, and the agnate access in net income, would be lower than that in Allotment (a). Thus, Malcolm’s assets would be lower than the acknowledgment computed in allotment [a].


Underapplied (Overapplied) aerial = Absolute aerial – Activated overhead.

We apperceive that absolute aerial is $692,415. Further, activated aerial = $679,815, the sum of the activated aerial amounts in WIP, FG, and COGS (=$61,183.35+$95,174.10+$523,457.55, respectively). Thus,

$692,415 – $679,815 = $12,600 underapplied overhead.

Closing out the underapplied aerial to COGS would access COGS, thereby abbreviation income. Thus, the acclimation for underapplied aerial would abate Skoll’s net assets by $12,600, from $122,342 to $109,742.

Under pro-ration, the underapplied aerial would be allocated amid the WIP, FG, and COGS accounts. No acclimation would be fabricated to the Raw Abstracts annual because no aerial has been answerable to this annual in the aboriginal place. The acclimation in anniversary annual is proportional to the catastrophe balances as apparent below:

Work in process

Finished Goods

Cost of Appurtenances Sold


Unadjusted anniversary value





% of bulk in account





Allocation for underapplied overhead





Adjusted balance





We acquisition that COGS increases by $9,450, acceptation that net assets decreases by a like amount. We compute adapted net assets as $122,342 – $9,450 = $112,892.

This claim is agnate to claim [c] except that the allocation abject is different. We now admeasure based on the accepted aeon overhead, rather than the end of year balances, as apparent below.

Work in process

Finished Goods

Cost of Appurtenances Sold


Current aeon overhead





% of bulk in account





Unadjusted bulk at year end





Allocation for underapplied overhead





Adjusted balance





Thus, we acquisition that COGS increases by $9,702, acceptation that net assets decreases by a like amount. We accept the adapted net assets as: $122,342 – $9,702 = $112,640.

The after-effects alter because of the altered allocations of the underapplied aerial of $12,600. The methods in (b) – (d) use differing allocation basis: all to COGS, proportional to catastrophe balances, proportional to aerial activated during the year.

Intuitively, we ability apprehend the answers for genitalia (c) and (d) to be the aforementioned as we are administration aerial in both instances to the aforementioned accounts. However, the amounts allocated alter the arrangement of aerial to the catastrophe antithesis would alter beyond the accounts. For instance, for Skoll, WIP comprises 10% of the absolute bulk but alone 9% of the overhead. Such a alterity ability appear because we still accept to accomplish some assignment on the units in WIP (meaning that we would admeasure added aerial to these units).


Manufacturing OH bulk = $1,728,000 / (24 bodies * 2,000 artisan hours per person)

= $36 per artisan hour


The unadjusted antithesis of Bulk of Appurtenances Awash is the bulk of Job no. 101:

Prior period’s accumulation costs


Current period’s accumulation costs:

Direct materials


Direct action (1,000 DLHs Ã- $50)

$ 50,000

Overhead (1,000 DLHs Ã- $36)





First, let us annual the under- or overapplied overhead. We have:

Actual aerial = $187,500 + $50,000 + $30,000 + $108,500 = $376,000.

Applied aerial = $36 per artisan hour * (1,000 + 6,500 + 3,000) hours = $378,000.

Overapplied aerial = $378,000 – $376,000 = $2,000.

The adapted bulk of appurtenances awash is accordingly $446,000 – $2,000 = $444,000.


Let us activate by artful the aerial bulk as

Total aerial / absolute apparatus hour

= $4,000,000 / 200,000 = $20 per apparatus hour.

Thus, the job’s absolute bulk is:

Materials accustomed $5,000

Labor 250 hours Ã- $16 $4,000

Overhead 1,000 hours Ã-$20 $20,000

Total $29,000

Notice that we administer aerial based on the absolute apparatus hours, beyond both departments. Thus, 250 hours = 100 + 150 hours; 1,000 hours = 400 + 600 hours.


Let us activate by artful the aerial rates

Materials administration $1,500,000 / 150,000 = $10 per action hour

Assembly $2,500,000 / 100,000 = $25 per apparatus hour

Thus, the job’s absolute bulk is:

Materials accustomed $5,000

Labor 250 hours Ã- $16 $4,000

Overhead 100 action hours Ã-$10 $1,000

Overhead 600 apparatus hrs Ã- $25 /hr 15,000

` Absolute $25,000

Notice that we administer abstracts administration aerial alone on the action hours in that administration (100 hours), and the accumulation administration aerial alone on the machining costs in that department.

The accounting blueprint for the raw abstracts annual is:

Ending antithesis = Alpha antithesis + raw abstracts purchased – raw abstracts issued to production. Thus,

$80,000 = $60,000 + raw abstracts purchased – $225,000.

Therefore, raw abstracts purchased = $245,000.

Total costs answerable to accumulation = raw abstracts issued to accumulation captivated + absolute action bulk + (120% Ã- absolute action cost) = $885,000.

$225,000 + absolute action bulk + (1.2 Ã- absolute action cost) = $885,000.

2.2 Ã- absolute action bulk = $885,000 – $225,000 = $660,000.


Direct action bulk answerable to accumulation = $300,000.

The accounting blueprint for the work-in-process annual is:

Ending antithesis = Alpha antithesis + costs answerable to operations – bulk of appurtenances manufactured.

$105,000 = $80,000 + $885,000 – Bulk of appurtenances manufactured.

Cost of appurtenances bogus = $860,000.

Overhead activated during the aeon = 120% Ã- absolute action cost

= 1.2 Ã- $300,000 = $360,000.

Actual aerial incurred is $400,000.

Underapplied (overapplied) aerial = Absolute aerial incurred – Activated overhead

= $400,000 – $360,000 = $40,000,

= $40,000 underapplied.

We can accurate bulk flows through the accomplished appurtenances annual appliance the afterward accounting equation:

Ending antithesis = Alpha antithesis + Bulk of appurtenances bogus – Bulk of appurtenances sold.

$320,000 = $300,000 + $860,000 – Bulk of appurtenances sold.

Cost of appurtenances awash = $840,000

[Alternatively, we can annual bulk of appurtenances awash as bulk of appurtenances accessible for auction beneath catastrophe antithesis in accomplished goods, or $1,160,000 beneath $320,000, to get $840,000.]

Therefore, the antithesis in bulk of appurtenances awash afterwards autograph off the underapplied bulk of $40,000 is $840,000 + $40,000 = $880,000.

Given the assemblage data, we apperceive absolute aerial = (4,800 Ã- $48) + (3,200 Ã- $72) = $460,800.

Variable aerial = 40% of absolute action $ = .40 Ã- [(4,800 Ã- $24) + (3,200 Ã- $36)] = $92,160.

Thus, anchored aerial = $460,800 – $92,160 = $368,640.

We can annual the absolute accumulation hours appropriate to accomplish 4,800 units of Cavalier and 3,200 units of Classic as (4,800 Ã- 0.80) + (3,200 Ã- 2.40) = 11,520 accumulation hours.

Total approaching aerial = Approaching anchored aerial + Approaching capricious overhead

= $368,640 + (0.40 Ã- 230,400) = $460,800.

Therefore, the new aerial bulk = per accumulation hour.

With this rate, anniversary assemblage of Cavalier will be answerable ($40 Ã- 0.80) = $32 of overhead, and anniversary assemblage of Classic will be answerable ($40 per accumulation hours Ã- 2.40 accumulation hours) = $96 per unit. Therefore,

Unit accomplishment bulk of Cavalier = $20 + $24 + $32 = $76.

Unit accomplishment bulk of Classic = $30 + $36 + $96 = $162.

Note: With this new allocation scheme, the Classic appears alike added expensive. It takes 3 times as continued to accumulate anniversary Classic compared to anniversary Cavalier. In contrast, with action dollars as the allocation basis, the Classic admiring alone 1.5 times the aerial as the Cavalier because the action agreeable of the Classic was 1.5 times that of the Cavalier. The catechism of which of these two allocation bases is added appropriate

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