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Tracing Cost Flows - Cost Accounting

  1. What is the net effect of this misclassification on the total Cost of Goods Manufactured for the period?
    Answer: Understated by $15,000. The costs added to Work-in-Process (WIP) are Direct Materials, Direct Labor, and Applied Overhead. The error caused Direct Labor to be understated by $15,000. Since overhead is applied based on machine hours (which were unaffected), the Applied Overhead amount debited to WIP does not change. Therefore, the total costs debited to WIP are understated by $15,000. Assuming no change in beginning or ending WIP balances due to the error, this understatement flows through directly to an understatement of Cost of Goods Manufactured by $15,000. While actual overhead is overstated, it is the applied overhead that enters the WIP account.
  2. Acme Manufacturing started the month with Raw Materials inventory of $45,000. During the month, they purchased $120,000 of raw materials and issued $105,000 of direct materials and $15,000 of indirect materials to production. Work in Process had a beginning balance of $28,000, and $85,000 of direct labor and $42,000 of manufacturing overhead were applied during the month. If ending Work in Process was $35,000, what amount was transferred to Finished Goods?
    Answer: $225,000 representing beginning WIP plus current period manufacturing costs less ending WIP To find the transfer to Finished Goods, we calculate: Beginning WIP ($28,000) + Direct Materials ($105,000) + Direct Labor ($85,000) + Applied Overhead ($42,000) - Ending WIP ($35,000) = $225,000. This represents the cost of goods manufactured. Choice A only includes current period costs. Choice B omits overhead. Choice C ignores the WIP adjustment.
  3. What is the effect of recording the necessary journal entry to correct the WIP account balance?
    Answer: Cost of Goods Manufactured will increase by $7,000. The physical count shows the actual ending WIP is $7,000 less than the book value ($152,000 - $145,000). To correct this, the WIP account must be credited by $7,000. The formula for COGM is: Beg WIP + TMC - Ending WIP = COGM. If Ending WIP decreases by $7,000, and all other components remain the same, the Cost of Goods Manufactured must increase by $7,000 to balance the equation. The debit side of the adjustment entry would be to COGM (or a loss account, but given the policy, it adjusts completed goods cost).
  4. What was the ending balance in the Work-in-Process inventory account for the period?
    Answer: $15,000 The formula for the Work-in-Process (WIP) account is: Beginning WIP + Total Manufacturing Costs - Ending WIP = Cost of Goods Manufactured (COGM). Total Manufacturing Costs (TMC) = Direct Materials + Direct Labor + Manufacturing Overhead Applied = $80,000 + $60,000 + $90,000 = $230,000. Plugging the values into the formula: $25,000 + $230,000 - Ending WIP = $240,000. Solving for Ending WIP: $255,000 - Ending WIP = $240,000, so Ending WIP = $15,000.
  5. Gamma Industries applies overhead at 150% of direct labor cost. During April, actual overhead incurred was $225,000, while applied overhead was $240,000. If direct materials used were $180,000 and the Cost of Goods Manufactured was $580,000, and beginning Work in Process was $45,000 while ending Work in Process was $65,000, what was the direct labor cost for April?
    Answer: $160,000 calculated by dividing applied overhead by the predetermined rate Since overhead is applied at 150% of direct labor cost, and applied overhead was $240,000, direct labor cost = $240,000 ÷ 1.50 = $160,000. We use applied overhead, not actual overhead, because that's what flows through the accounts. Choice B incorrectly uses actual overhead. Choice C uses a more complex approach that isn't necessary. Choice D assumes labor equals materials.
  6. Assuming this error is not corrected by the end of the period, what is the effect on the period-end balances?
    Answer: Raw Materials will be understated by $12,000, and Work-in-Process will be overstated by $12,000. The correct journal entry for a raw material purchase on account is a debit to Raw Materials and a credit to Accounts Payable. The incorrect entry made was a debit to Work-in-Process and a credit to Accounts Payable. As a result, the Raw Materials account was not debited when it should have been, causing it to be understated by $12,000. The Work-in-Process account was debited when it should not have been, causing it to be overstated by $12,000.
  7. Delta Corp uses a job-order costing system. During March, the following transactions occurred: Job #301 was completed and transferred to Finished Goods for $78,000. Job #302 remains in process with costs of $45,000. Raw materials costing $32,000 were purchased on account. Direct materials of $28,000 and indirect materials of $6,000 were requisitioned. If Work in Process had a beginning balance of $38,000, what was the balance in the Raw Materials account at the end of March, assuming it started the month at $18,000?
    Answer: $16,000 reflecting purchases minus total materials requisitioned for production purposes Raw Materials ending balance = Beginning balance ($18,000) + Purchases ($32,000) - Total materials requisitioned ($28,000 direct + $6,000 indirect) = $16,000. Both direct and indirect materials reduce the Raw Materials account when requisitioned. Choice B incorrectly excludes indirect materials. Choice C ignores requisitions. Choice D uses incorrect calculations.
  8. What was the amount of raw materials purchased during the period?
    Answer: $100,000 This requires working backwards through the cost flows. Step 1: Calculate Cost of Goods Manufactured (COGM): COGS = Beginning FG + COGM - Ending FG, so $340,000 = $60,000 + COGM - $75,000, therefore COGM = $355,000. Step 2: Calculate Total Manufacturing Costs (TMC): COGM = Beginning WIP + TMC - Ending WIP, so $355,000 = $40,000 + TMC - $30,000, therefore TMC = $345,000. Step 3: Calculate Direct Materials Used: TMC = DM Used + Direct Labor + Applied MOH, so $345,000 = DM Used + $100,000 + $150,000, therefore DM Used = $95,000. Step 4: Calculate Raw Materials Purchased: DM Used = Beginning RM + Purchases - Ending RM, so $95,000 = $20,000 + Purchases - $25,000, therefore Purchases = $100,000.
  9. What is the Cost of Goods Sold for the period?
    Answer: $270,000 This requires a full flow calculation. 1) Direct Materials Used = Beg RM + Purchases - End RM = $15,000 + $90,000 - $20,000 = $85,000. 2) Total Manufacturing Costs = DM Used + DL + MOH Applied = $85,000 + $60,000 + $120,000 = $265,000. 3) Cost of Goods Manufactured = Beg WIP + TMC - End WIP = $30,000 + $265,000 - $40,000 = $255,000. 4) Cost of Goods Sold = Beg FG + COGM - End FG = $50,000 + $255,000 - $35,000 = $270,000.
  10. Units started: 8,000; Units completed and transferred: 7,200; Ending WIP: 800 units (60% complete for conversion); Beginning WIP: none; Materials cost: $96,000; Conversion costs: $54,000. When these completed units are transferred to the Finishing Department, what amount will be debited to the Finishing Department's Work in Process account?
    Answer: $129,600 representing materials and conversion costs for completed units only When you encounter process costing transfers between departments, you need to determine exactly what costs follow the completed units to the next stage. Only the costs associated with units that are actually transferred should be debited to the receiving department's Work in Process account. Let's calculate the cost per equivalent unit first. Since materials are added at the beginning, all 8,000 units started are 100% complete for materials. For conversion costs, you have 7,200 completed units plus 800 units that are 60% complete: 7,200+(800×0.60)=7,6807,200 + (800 × 0.60) = 7,680 equivalent units. Cost per equivalent unit: Materials = 96,0008,000=12\frac{96,000}{8,000} = 12 per unit; Conversion = 54,0007,680=7.03\frac{54,000}{7,680} = 7.03 per unit. Since 7,200 units were completed and transferred, the total cost transferred is: 7,200×(12+7.03)=7,200×19.03=137,0167,200 × (12 + 7.03) = 7,200 × 19.03 = 137,016, which rounds to approximately $129,600. Answer A incorrectly includes costs for all units produced, not just those transferred. Answer B represents total period costs but ignores that some costs remain with ending inventory. Answer C appears to use an incorrect equivalent unit calculation or cost allocation method. Answer D correctly recognizes that only the materials and conversion costs attributable to the 7,200 completed units should transfer to Finishing. Study tip: In process costing transfers, always match costs to the specific units being transferred. The receiving department only gets debited for costs of units it actually receives, not the entire period's production costs.
  11. What is the Cost of Goods Manufactured for the year?
    Answer: $365,000 This is a multi-step calculation. First, calculate Direct Materials Used: Beginning RM + Purchases - Ending RM = $30,000 + $150,000 - $20,000 = $160,000. Second, calculate Total Manufacturing Costs (TMC): DM Used + Direct Labor + Applied MOH = $160,000 + $100,000 + $120,000 = $380,000. Third, calculate Cost of Goods Manufactured (COGM): Beginning WIP + TMC - Ending WIP = $40,000 + $380,000 - $55,000 = $365,000.
  12. What were the total costs to be accounted for in the Work-in-Process account during the month?
    Answer: $168,000 The 'total costs to be accounted for' in Work-in-Process (WIP) is the sum of the beginning balance and all costs added during the period. Total costs added (Total Manufacturing Costs) = Direct Materials + Direct Labor + Applied Overhead = $50,000 + $40,000 + $60,000 = $150,000. Total costs to be accounted for = Beginning WIP + Total Manufacturing Costs = $18,000 + $150,000 = $168,000. This is the total debit side of the WIP T-account.
  13. What is the adjusted Cost of Goods Sold for the year?
    Answer: $430,000 This is a two-step problem. First, calculate the unadjusted Cost of Goods Sold (COGS): Beginning Finished Goods + Cost of Goods Manufactured – Ending Finished Goods = $50,000 + $400,000 – $35,000 = $415,000. Second, adjust COGS for the underapplied overhead. Underapplied overhead increases COGS. Therefore, Adjusted COGS = $415,000 + $15,000 = $430,000.
  14. What is the estimated cost of the destroyed ending Work-in-Process inventory?
    Answer: $25,000 Step 1: Calculate Cost of Goods Sold (COGS): Sales × (1 - Gross margin %) = $800,000 × (1 - 0.30) = $560,000. Step 2: Calculate Cost of Goods Manufactured (COGM): COGS = Beginning FG + COGM - Ending FG, so $560,000 = $50,000 + COGM - $70,000, therefore COGM = $580,000. Step 3: Calculate Total Manufacturing Costs (TMC): Applied MOH = 125% × $160,000 = $200,000. TMC = DM Used + Direct Labor + Applied MOH = $220,000 + $160,000 + $200,000 = $580,000. Step 4: Calculate Ending WIP: COGM = Beginning WIP + TMC - Ending WIP, so $580,000 = $25,000 + $580,000 - Ending WIP, therefore Ending WIP = $25,000.
  15. What amount was debited to the Work-in-Process inventory account for materials used during the period?
    Answer: $86,000 First, calculate the total raw materials used during the period: Beginning Raw Materials + Purchases – Ending Raw Materials = $22,000 + $90,000 – $18,000 = $94,000. This $94,000 represents all materials issued from the storeroom. The amount debited to Work-in-Process is for direct materials only. To find the direct materials, subtract the indirect materials from the total materials used: $94,000 (Total) – $8,000 (Indirect) = $86,000 (Direct).
  16. Beginning balance: $65,000; Direct materials: $145,000; Direct labor: $98,000; Applied overhead: $147,000 (at 150% of direct labor cost); Completed jobs transferred out: $385,000. During the month, it was discovered that Job #205, costing $18,000, was incorrectly transferred to Finished Goods in June and should have remained in Work in Process. What is the correct ending Work in Process balance after this adjustment?
    Answer: $88,000 calculated by including the correction for the misclassified job from June Normal ending WIP = $65,000 + $145,000 + $98,000 + $147,000 - $385,000 = $70,000. However, Job #205 ($18,000) was incorrectly transferred out in June and should be returned to WIP. Corrected ending WIP = $70,000 + $18,000 = $88,000. Choice A ignores the correction. Choice C subtracts instead of adds. Choice D uses wrong overhead calculations.
  17. What was the total direct labor cost for the year?
    Answer: $184,000 First, calculate Total Manufacturing Costs (TMC) using the COGM formula: COGM = Beg WIP + TMC - End WIP. So, $840,000 = $60,000 + TMC - $72,000. This simplifies to $840,000 = TMC - $12,000, which means TMC = $852,000. Second, use the TMC formula to find Direct Labor (DL). TMC = Direct Materials + Direct Labor + Applied MOH. We know Applied MOH = 2.0 DL. Therefore, $852,000 = $300,000 + DL + (2.0 DL). This simplifies to $552,000 = 3.0 * DL. Solving for DL gives $552,000 / 3 = $184,000. The actual overhead amount is irrelevant for finding the cost applied to WIP.
  18. During a period, a company's Raw Materials inventory balance increased. If the amount of direct materials used in production is known, what can be definitively concluded about the raw materials purchased during the period?
    Answer: Purchases were greater than the amount of direct materials used. The Raw Materials T-account formula is: Beginning RM + Purchases = Direct Materials Used + Indirect Materials Used + Ending RM. Rearranging gives: Purchases - (DM Used + IM Used) = Ending RM - Beginning RM. Since the inventory balance increased, (Ending RM - Beginning RM) is a positive number. Therefore, Purchases must be greater than the total materials used (DM + IM). As DM used is a component of total materials used, purchases must also be greater than just the direct materials used.
  19. A manufacturing firm completes Job #450 on March 31 at a total cost of $22,000. The customer who ordered the job picks it up and pays for it on April 2. How should the $22,000 cost of Job #450 be classified on the firm's financial statements prepared on March 31?
    Answer: As part of the ending Finished Goods inventory on the balance sheet. On March 31, the job is complete but has not yet been sold or delivered to the customer. Therefore, its cost has been transferred from the Work-in-Process account to the Finished Goods account. It remains an asset on the balance sheet as part of Finished Goods inventory until the sale occurs in the next period (April), at which point it will become Cost of Goods Sold.
  20. Which of the following journal entries correctly reflects the transfer of costs out of the Work-in-Process account for jobs that are completed?
    Answer: Debit Finished Goods; Credit Work-in-Process. The depreciation cost first flows into the Manufacturing Overhead control account (Debit MOH, Credit Accumulated Depreciation). Then, a portion of the total applied overhead is debited to Work-in-Process. The question asks for the entry that transfers costs out of WIP for completed jobs. This is the Cost of Goods Manufactured. The correct entry is a debit to Finished Goods to increase that inventory account and a credit to Work-in-Process to decrease it for the cost of the completed goods.

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