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1. Be familiar with manufacturing process of the Party Products, Inc. Consider that you are a cost accountant for the company. Your job is to
1. Be familiar with manufacturing process of the Party Products, Inc. Consider that you are a cost accountant for the company. Your job is to prepare the job cost sheets for each product. determine the product costs, and support management to make decisions. Required: (a) Identify the various costs involved in making and selling the products. (Do not concern yourself with dollar amounts at this point.) (b) Separate the list of costs identified as product or period costs. Further, classify product costs as direct material, direct labor, and manufacturing overhead. Please recall what we discuss in Chapter 2. Assignment 2. Your second assignment (individual) will be to play the role of a cost accountant responsible for determining the cost of each product and job given information. The Party Products Inc. uses a job costing system, whereby each job is the cost object. Costs are accumulated by job as follows: (1) Direct material and direct labor are traced to each job based on the information obtained from the materials requisition requests and factory employee time cards. (2) The company accumulates factory overhead into one Manufacturing Overhead cost pool. At the Party Products Inc. Manufacturing Overhead is applied using an application rate based on the total actual manufacturing overhead for the month divided by the total number of units produced for the month. This rate is then applied to each job by multiplying the rate times the units for each job. The Party Products Inc. targets its selling price at 120% of product cost. A partially completed job cost sheet is included in Exhibit 1. Actual levels of production and total manufacturing costs for the month of January are included on Exhibit 2. Required: (a) Using one overhead cost pool and units as the cost driver, compute the MFG overhead rate. (b) Complete the Job Cost sheets by tracing the direct material and direct labor amounts used and allocating overhead cost for each job. (c) Do you think that it is appropriate to use MFG overhead rate by total number of units produced? Explain. If not, offer alternatives. (You don't have to show detail calculation under alternative MFG overhead rates. In other words, your reasoning is more important than the calculation.) Exhibit 1. Job Cost Sheet Job # Amounts Ordered: HATS CHAINS Date Started Date completed 101 12 8 HATS CHAINS Direct material Cost per Direct Cost per # Total ($) # Total ($) each material each Paper 12 .05 127.06 Paper 8 .05 8x.05 Stickers 48 .01 48x.01 Stickers 64 01 643.3) Total Direct Total Direct material material #hrs Cost/hr. Total (5) #hrs Cost/hr. Total ($) Cutting Labor 0 18 Assembly Labor 0.25 18 0000 Cutting Labor 0.15 18 Assembly 18 Labor 0.3 Finishing Finishing Labor 0.25 18 18 Labor 0.15 Total Direct Total Direct Labor 0.5 18 Labor 0.6 18 Cost Cost/Unit Cost Cost /Unit of Driver of Cost driver Total ($) Total ($) Driver Cost driver Mfg Overhead 12 Mfg Overhead 8 00 Total MFG overhead Total Product Cost Cost per unit Selling Price per unit Overhead Calculation Total MFG overhead Total Product Cost Cost per unit Selling Price per unit Production and sales of Hats Production and sales of Chains Total Production and Sales Direct Material #Sheets of paper used to make HATS #Sheets of paper used to make CHAINS #stickers to make HATS #stickers to make CHAINS TOTAL DIRECT MATERIAL Direct Labor HOURS Cutting labor hours Assembly labor hours Finishing labor hours TOTAL DIRECT LABOR HOURS Direct Labor COSTS Cutting labor Assembly labor Finishing labor TOTAL DIRECT LABOR COSTS Exhibit 2 160,000 units 80,000 units 240,000 1 per unit $0.05 per sheet $8,000.00 1 per unit $0.05 per sheet $4,000.00 4 per unit $0.01 each $6,400.00 8 per unit $0.01 each $6,400.00 $24,800.00 Hats Chains Total 1,500 1,500 2,500 3,000 5,500 2,500 1,500 4,000 5,000 6,000 11,000 Cost per Hats Chains Total hour $18.00 27,000 $27,000.00 $18.00 45,000 $4,000 $99,000.00 $18.00 45,000 27,000 $72,000.00 $198,000.00 Manufacturing Overhead (TOTALS) Quality control hours Indirect labor-Supervisor Other indirect labor (stockroom, materials handling) Depreciation on tape machines 320 hours $40.00 per hour $12,800.00 360 $60.00 per hour $21,600.00 960 hours $18.00 per hour $17,280.00 $1,000 per month $1,000.00 Depreciation on stapling machines $2,000 per month $2,000.00 Depreciation on cutting machine Rent and taxes on the factory $3,000 per month $3,000.00 $10,000 per month $10,000.00 Utilities $1,500 per month $1,500.00 Staples Tape TOTAL MANUFACTURING OVERHEAD TOTAL PRODUCT COSTS $100.00 $150.00 $69,430.00 $292,230.00 Party Product Inc. - Job Costing Case The company The Party Products Inc. is a local manufacturer of two products: Paper Hats and Paper Chains. Figure 1 shows the description of manufacturing departments and building layout. Figure 1. Panel A- Description of Manufacturing Departments Warehouse Responsible for storing and distributing raw materials used in the manufacturing process Materials Handling Responsible for requesting materials from Warehouse for the day's jobs. Also responsible for moving items in process between departments and keeping factory clean during downtime. Cutting Responsible for cutting the paper sheets used in products. Assembly Responsible for fastening the product parts. Finishing Responsible for decorating the products. Quality Control Responsible for ensuring that products are made according to specification and checking the accuracy of the final jobs. Factory General Manager Responsible for setting the manufacturing schedule after consulting with the Sales Department, coordinating materials ordering with the Purchasing Department, and supervising the manufacturing process. Figure 1. Panel B- Building Layout WareHouse Offices-Sales, Purchase, Cutting Department Supervisors, QC, etc. Assembly Department Finishing Department The manufacturing process At the beginning of each day, the Factory General Manager consults with the sales department and determines which jobs will be completed for the day. The manufacturing process for each product is as follows: Paper chains: (1) Materials Handling picks up a job sheet (see Exhibit 1) from the General Manager then goes to the Warehouse to get materials. Next, he or she will distribute materials to the Cutting Department (for Chains) and the Assembly Department (for Hats). (2) The Cutting department cuts paper into 1.83" by 8 1/2" strips. You will be able to get six strips per sheet. Next move finished products to the Assembly department. (3) The Assembly department bend the strip, staple and tape the end. Loop the next strip through the previously completed strip, staple and tape. Continue until you have six loops on your chain. Next move finished products to the Finishing department. (4) The Finishing department decorates the chain with eight stickers. Move items to an area designated for completed units. Paper Hats: (6) Start with paper delivered by Materials Handling. (7) The Assembly department Bend the sheet of paper into a cone shape (using the marked line). staple and tape the end. Move to the Finishing Department. (8) The Finishing department decorates the hat with four stickers. Check to ensure that all items in the Job are finished and sign off on the competed Job Sheet. (9) Materials Handling moves finished products (paper hats and chains) to Quality Control office. (10) QC office will check all items and all jobs for completeness. The following raw materials are used in order to manufacture these products: Colored paper (for chains) Processed colored paper (for hats) Staples Tape Stickers. The following "manufacturing equipment" is used in this factory simulation: Stapler Tape dispenser Scissors Notes: The case is a modified version of a case written by Vinciguerra and Lafond (Vinciguerra, B and C.D., Lafond, "Using a hands-on exercise to teach cost accounting concepts," Journal of Business Cases and Applications, 2011, vol. 3.) Assignment 1. Be familiar with manufacturing process of the Party Products, Inc. Consider that you are a cost accountant for the company. Your job is to prepare the job cost sheets for each product, determine the product costs, and support management to make decisions. Required: (a) Identify the various costs involved in making and selling the products. (Do not concern yourself with dollar amounts at this point.) (b) Separate the list of costs identified as product or period costs. Further, classify product costs as direct material, direct labor, and manufacturing overhead. Please recall what we discuss in Chapter 2. Assignment 2. Your second assignment (individual) will be to play the role of a cost accountant responsible for determining the cost of each product and job given information. The Party Products Inc. uses a job costing system, whereby each job is the cost object. Costs are accumulated by job as follows: (1) Direct material and direct labor are traced to each job based on the information obtained from the materials requisition requests and factory employee time cards. (2) The company accumulates factory overhead into one Manufacturing Overhead cost pool. At the Party Products Inc. Manufacturing Overhead is applied using an application rate based on the total actual manufacturing overhead for the month divided by the total number of units produced for the month. This rate is then applied to each job by multiplying the rate times the units for each job. The Party Products Inc. targets its selling price at 120% of product cost. A partially completed job cost sheet is included in Exhibit 1. Actual levels of production and total manufacturing costs for the month of January are included on Exhibit 2. Required: (a) Using one overhead cost pool and units as the cost driver, compute the MFG overhead rate. (b) Complete the Job Cost sheets by tracing the direct material and direct labor amounts used and allocating overhead cost for each job. (c) Do you think that it is appropriate to use MFG overhead rate by total number of units produced? Explain. If not, offer alternatives. (You don't have to show detail calculation under alternative MFG overhead rates. In other words, your reasoning is more important than the calculation.) Production and sales of Hats Production and sales of Chains Total Production and Sales Direct Material a Sheets of paper used to make HATS #Sheets of paper used to make CHAINS #stickers to make HATS #stickers to make CHAINS TOTAL DIRECT MATERIAL Direct Labor HOURS Cutting labor hours Exhibit 2 160,000 units 80,000 units 240,000 1 per unit 50.05 per sheet $8,000.00 1 per unit $0.05 per sheet $4,000.00 4 per unit $0.01 each $6,400.00 8 per unit $0.01 each $6,400.00 $24,800.00 Assembly labor hours Finishing labor hours TOTAL DIRECT LABOR HOURS Hats Chains Total 1,500 1,500 2,500 3,000 5,500 2,500 1,500 4,000 5,000 6,000 11,000 Direct Labor COSTS Cost per hour Hats Chains Total Cutting labor $18.00 27,000 $27,000.00 Assembly labor $18.00 45,000 54,000 $99,000.00 Finishing labor TOTAL DIRECT LABOR COSTS Manufacturing Overhead (TOTALS) Quality control hours $18.00 45,000 27,000 $72,000.00 $198,000.00 Indirect labor-Supervisor 320 hours 360 $40.00 per hour $12,800.00 $60.00 per hour $21,600.00 Other indirect labor (stockroom, 960 hours $18.00 per hour $17,280.00 materials handling) Depreciation on tape machines $1,000 per month. $1,000.00 Depreciation on stapling machines $2,000 per month $2,000.00 Depreciation on cutting machine $3,000 per month $3,000.00 Rent and taxes on the factory $10,000 per month $10,000.00 $1,500 per month Utilities Staples Tape TOTAL MANUFACTURING OVERHEAD TOTAL PRODUCT COSTS $1,500.00 $100.00 $150.00 $69,430.00 $292,230,00 Exhibit 1. Job Cost Sheet Job # Amounts Ordered: HATS CHAINS Date Started Date completed 101 12 8 HATS CHAINS Direct material Cost per Direct Cost per # Total (5) Total (5) each material each Paper 12 05 12A.06 Paper 8 .05 8v.05 Stickers 48 01 48x.Ol Stickers 64 201 64413 Total Direct Total Direct material material #hrs Cost/hr. Total (5) #hrs Cost/hr. Total (5) Cutting Labor 0 18 Cutting Labor 0.15 18 Assembly Assembly Labor 0.25 18 18 Labor 0.3 Finishing Finishing Labor 0.25 18 18 Labor 0.15 Total Direct Total Direct Labor 0.5 18 Labor 0.6 18 Cost Cost/Unit Cost Cost Unit of of Cost Total (5) Total (S) Driver Driver Cost driver driver Mfg Overhead 12 Mfg Overhead 84 Total MFG overhead Total Product Cost Cost per unit Selling Price per unit Overhead Calculation Total MFG overhead Total Product Cost Cost per unit Selling Price per unit
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