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 1 Department A

Department A purchases the sheet metal externally. The Department typically begins the period with some raw materials on hand, although management tries to minimize the raw materials inventory, and never has any work in process as the production process only takes a full day to perform. The department began the month with no finished product inventory. Three accounts are maintained for this: 6 x 5 Inventory, 6 x 6 Inventory, and 4 x 16 Inventory. Aside from raw materials, labor and overhead (machine depreciation, primer and other indirect materials, supervision, rent) are also incurred in this department. The raw materials are purchased in rolls of 10ft x 32ft sheets. To begin the month, the Department began with 1,027 sheets of raw material at an average cost of $96 per sheet. Raw materials are accounted for using a weighted average system. Aside from the 2ft x 16ft portion of fragment from each sheet of raw materials, the company expects, on average, to have 2% of full sheets result in fragment due to production errors, inconsistency in materials, etc. Since the fragment has insignificant monetary value, it is treated as a by-product, is not immediately inventoried, and is recognized as other income when fragment is sold. The company began the period with 315 square feet of fragment. Indirect materials (primer, treatment chemicals) are not inventoried as they are a small cost of the production process and very little is typically on hand from one period to the next. Below is the layout of how the sheets are cut.

For the sake of manufacturing efficiency, the entire sheet is treated and primed before it is cut. This causes the manufacturing process to be much more efficient but also makes the value of the fragment lower. In regard to the joint costing system, the company currently employs a physical measure method for costing utilizing square footage. The Company has considered using a sales price at split off method since external pricing is available for all of the companys components. Since the production process is fairly quick and overall production and overhead is fairly level from one period to the next, the company uses actual overhead for costing purposes.

During the month, the Department A incurred the following events:

1. On the first of the month, the company purchased, on account, 1,500 sheets of raw material at a cost of $100 per sheet.

2. On the fifteenth of the month, the company purchased, on account, an additional 2,000 sheets of raw material at a cost of $102 per sheet.

3. Throughout the month, 4,124 sheets were moved from raw materials and put into production (cutting, priming, treatment). 74 of these sheets were damaged at some point in the production phase and were completely fragmented. Finished and cut sheets were placed into the three inventory accounts of 6 x 5 Inventory, 6 x 6 Inventory, and 4 x 16 Inventory.

4. At the end of month, all of the fragment on hand (including beginning fragment and the fragment produced during the month) was sold on account for $0.06 per square foot.

5. Depreciation of the painting and cutting equipment amounted to $15,000 for the month.

6. Supervisory wages and benefits for the department amounted to $15,134 for the month. These will be paid on the first of the following month.

7. Production labor and benefits for the department amounted to $101,324 for the month. These will also be paid on the first of the following month.

8. Indirect materials (primer and treatment chemicals) were purchased, on account, in the amount of $7,798 and used in production.

9. Rent for Department As facility amounted to $25,000 for the month. This rent was prepaid at the end of the prior month.

10. Payables totaling $12,245, the prior months accrued direct labor of $105,345, the prior months accrued supervision of $16,767, and the next months rent of $25,000 were all paid with cash during the month.

11. All work in process inventory was completed and transferred to the 3 finished goods accounts before month end.

12. 3,500 sheets of the 6 x 6 finished metal were sold on account to the external vendor at a price of $20.45 per sheet.

13. Receivables totaling $35,167 were collected.

Required

A. Calculate the total manufacturing costs incurred for the month for the joint costing system. Be sure to include all raw materials, direct labor, and overhead costs. Show work.

B. Draw a diagram detailing the physical flow of materials into production for month and the outputs from the production process and the associated costs.

C. For each of the three final products, allocate the costs incurred from A using the physical measures method (sq foot). Break these allocations down into a cost per sheet as well.

D. The CFO has asked you to also perform a sales price at split-off analysis to allocate joint costs to see how that method might differ. For this method, assume a 6 x 6 sheet has an external sales price of $20.45, a 6 x 5 sheet has an external sales price of $19.95, and the 4 x 16 sheet has an external sales price of $35.12. Repeat what you did in C using this methodology.

E. Was the companys spoilage or fragment within standards? Would it be considered normal or abnormal? How is this being accounted for? How should it be accounted for if it were the opposite case?

F. Record double-sided entries for events 1 13. What are the ending balances of raw materials inventory and the three finished goods inventory accounts?

G. The Departments accounting system basically utilizes actual direct materials, labor and overhead for costing measurement. Discuss how this system would differ if the company used a normal cost system. Discuss how the companys methodology would differ if it employed a standard cost 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.

( 3 different parts, jounral entries in all 3 and then based of the different costing methods, requirements are under required for each part)

2 x16 Suap 6x5 Internal Use 6x5 Internal Use Extemal Sale 4x 16 Internal Use 4x16 Internal Use 4x16 Internal Use