Background - ACME Trailers, Inc. builds tow-behind trailers for business and recreational use. The dimensions of the trailers are 6ft wide by 12ft long by 5ft tall. The trailers are primarily constructed using sheet metal (from cold rolled steel), metal framing materials, door hardware and pre-fabricated axle floor - hitch combinations. The top and sides of the trailers are made with 3 sheets of sheet metal measuring 4ft x 16ft (the sheets are wrapped around the top of the frame and down the sides of the trailer and are riveted, sealed, and fastened together at the seams). The front and back door of the trailer are each made with a 6ft by 5ft piece of sheet metal. Each trailer uses 4 metal U frames, one pre-fabricated axle floor - hitch combination, and one set of door hardware. The frames, pre-fabricated axle floor - hitch combination, and door hardware are all outsourced and produced externally. The sheet metal is cut, primed, and treated by the companys internal manufacturing operations.

The Company has three manufacturing operations. Department A is responsible for the sheet metal fabrication. It utilizes a joint costing system as one large, externally supplied, roll of sheet metal is transformed into the five pieces of sheet metal needed for each trailer, plus an additional 6ft x 6ft sheet that is sold externally to a competitor for their trailer fabrication, plus a 2ft x 16ft sheet of fragment metal that is sold externally before for fragment. The metal is weather treated and primed in this department, aside from being cut. Department B is the assembly department, it takes the sheet metal produced by Department A and combines it with the externally purchased metal U frames, pre-fabricated axle floor - hitch combinations, and door hardware. Various screws, rivets, glue, paint and other miscellany (indirect materials) are also used in this process. These are lumped with other conversion costs. Since the products of the assembly process are uniform, this department utilizes a weighted average process costing system. The final department (Department C) is the customization department. In this department, special customized features are made to trailers based upon the customers order. Typical customization includes customized paint jobs, modifications to the interior of the trailer (e.g., installation of peg board, storage compartments, and specialized electrical outlets), and other external modifications. Some trailers are sold to the mass-market as is after completion in Department B while others are transferred to Department C for customization. Since Department C produces unique products, it utilizes a job costing system.

Part 2 Department B

Department B is responsible for assembling the trailers. Since all assembled trailers are identical after Department B has assembled them, a process costing system is employed in this department. Labor and overhead are tracked together as conversion costs while direct materials are separately tracked. A weighted average system for cost measurement is employed. The department maintains 4 different inventory accounts for its raw materials (i.e., Sheet Metal Inventory, Axle Inventory, Frame Inventory, and Hardware Inventory). Actual direct materials, labor, and overhead are used to measure costs.

Department began the period with 500 trailers in process. These were deemed to be 75% complete for direct materials and 50% complete for conversion costs. This beginning work in process inventory had a cost of $95,124 for direct materials and $105,764 for conversion costs. Additional sheet metal inventory for 1,000 trailers were put into process during the month (at the costs determined in Part 1, C) and this was transferred in from Department A. In addition, $22,125 of trailer frames, $9,995 of axles, and $7,450 of hardware were put into process. During the month, the Department purchased, on account, $29,621 of frames, $12,569 of axles, and $6,230 of hardware. The departmental raw materials accounts for sheet metal, frames, axles, and hardware had beginning account balances of $0, $2,512, $1,562 and $711, respectively.

During the month, Department incurred $207,851 of direct labor. It also incurred $5,020 of equipment depreciation, $15,000 of rent, $20,144 of supervisory costs and $45,128 of other indirect overhead. At the end of the period, the department had 800 trailers in process, which were deemed to be 50% complete for direct materials and 35% complete for conversion costs. Any completed trailers are transferred to an inventory account called Finished Trailers, Uncustomized.

Required

A. Calculate the equivalents units produced for both direct materials and conversion costs under the weighted average method of process costing. Calculate the number of finished units transferred out of the department during the month.

B. Calculate the costs to account for both direct materials and conversion costs under the weighted average method of process costing.

C. Calculate unit costs for both direct materials and conversion costs under the weighted average method of process costing.

D. Determine the value of the finished trailers transferred out to both finished goods and Department C. Determine the value of ending work in process within the department.

E. Record double sided entries for the following activities within the department:

1. The purchase of the raw materials (trailer frames, axles, and hardware only).

2. The raw materials that were put into production during the month, including those requisitioned from Department As finished goods accounts.

3. The direct labor that was incurred. Assume any incurred direct labor will be paid on the first of the next month.

4. The overhead that was incurred. Assume these are all paid on account, except rent, which was prepaid.

5. The transfer of completed trailers to the departmental finished goods account, Finished Trailers, Uncustomized.

F. Repeat steps A through D assuming that all facts remain the same but the department now utilizes a FIFO process costing system.

Part 3 Department C

Department C is the customization department. It receives some, but not all, of the finished trailers from Department B and makes customized alterations to them. As a result, this department employs a job costing system. Since each customization is unique, the workflow is a little more uneven for this department, and management needs timely information to make decisions, a normal costing system is employed within this department. The work is very labor intensive direct labor hours are thus used as an allocation base. In order to determine a rate, management has estimated that the company will incur $2,154,000 in overhead for the year and expects to incur 97,154 direct labor hours.

To begin the month, the Department had two jobs in process from the previous month. Job #1 consisted of 50 trailers that had an average cost of $653 each after they were transferred from Department B. Job #1 had also incurred 202 hours of direct labor at a cost of $3,150. Overhead had been properly applied to that point at the standard overhead rate. Job #1 had also incurred additional external direct materials amounting to $1,245. Job #2 consisted of 300 trailers that had an average cost of $675 each after they were transferred from Department B. Job #2 had incurred 5,016 hours of direct labor at a cost of $73,467. Overhead had been properly applied to that point at the standard overhead rate. Job #2 had also incurred additional external direct materials amounting to $25,645. The department began the period with no other trailers that were not already allocated to a job.

During the month, the Department had the following transactions:

1. 100 of the Finished Trailers, Uncustomized from Part 2 were requisitioned and allocated to Job #3. Their cost was the cost determined in C of part 2.

2. Additional direct materials totaling $25,135 were purchased on account and added to Job #3.

3. The department incurred 3,155 direct labor hours on Job #3 at a cost of $48,082. The wages will be paid in the following month.

4. 51 additional direct labor hours were incurred for Job #2 at a cost of $756. The wages will be paid the following month.

5. Job #2 was deemed to be complete and moved to the Finished Trailers, Customized account.

6. The finished goods associated with Job #2 were shipped to the customer. The customer was billed $600,000 for the trailers, on account. There were no beginning accounts receivable.

7. 703 additional direct labor hours were incurred for Job #1 at a cost of $11,615. The wages will be paid the following month.

8. Job # 1 was deemed complete and moved to finished goods storage.

9. The finished goods associated with Job #1 were shipped to the customer. The customer was billed $120,000 for the trailers, on account.

10. Accounts payable in the amount of $55,678 were paid. Beginning payables were $153,345. Beginning cash was $76,567

11. The accrued wages from the prior period (attributable to the beginning balances in Jobs #1 and #2) were paid.

12. The receivables attributable to Job #2 were collected.

13. 350 of the Finished Trailers, Uncustomized from Part 2 were requisitioned for Job #4.

14. Additional direct materials totaling $86,757 were purchased on account and added to Job #4.

15. The department incurred 10,050 direct labor hours on Job #4 at a cost of $157,888. The wages will be paid in the following month.

16. Job #3 was completed and transferred to finished goods.

17. The following additional costs were incurred (when applicable on account) during the month.

a. Manufacturing supervision of $65,758.

b. Utilities of $15,788.

c. Manufacturing equipment depreciation of $95,231.

d. Sales wages of $35,733.

e. Factory rent of $71,145 (will be paid in arrears next month).

f. Sales office equipment depreciation of $5,321.

Required

A. Calculate the overhead application rate for the department.

B. Record double sided journal entries for transactions 1 through 17. Develop t-accounts to track all entries. Be sure to include any appropriate beginning balances and maintain separate work-in-process accounts for each job. Any materials transferred in from Department B should be maintained in an account labeled Raw materials finished trailers. Be sure to apply overhead, when applicable.

C. Determine if overhead is over or under applied for the period. What should be done about this?

D. Discuss whether or not you think the allocation base (direct labor hours) is an actual cost driver for the overhead costs in transaction #17.