COST ACCOUNTING OBJECTIVE The objective of this graded project is to allow you to demonstrate your ability to perform cost accounting computations and analysis related to the concepts covered in this course. PURPOSE The purpose of this project is to give you practical experience with financial computations and decision making in the cost accounting field. In this project you'll calculate and analyze costs in the role of a cost accountant. Your assignment is to analyze the financial situations described and make the appropriate reports and computations. Show all calculations or calculator inputs for credit (Round to two digits after the decimal point when necessary). Part 1: Job Costing Crandall Corporation makes portable enclosures for festivals, concerts, and other events. Its products aren't mass produced—each unit is made to customer specifications. Crandall employs a normal job costing system. Direct labor at the company is compensated at a rate of $21 per hour; however, employees receive no pay when they aren't working on jobs. A predetermined rate based on direct labor-hours is used to assign manufacturing overhead to jobs. In the past two years, the company incurred manufacturing overhead costs (adjusted for price-level changes using current prices and wage rates) as follows: Year 1 Year 2 Direct labor-hours worked 144,000 118,000 Manufacturing overhead costs incurred: Indirect labor $4,580,000 $5,603,340 Employee benefits 2,204,000 3,134,000 Supplies 858,000 1,367,400 Power 620,000 987,420 Heat and light 244,000 210,870 Supervision 598,000 721,970 Depreciation 2,370,000 2,370,000 Property taxes and insurance 945,000 945,000 Total manufacturing overhead costs $12,419,000 $15,340,000 © PENN FOSTER, INC. 2017 COST ACCOUNTING PAGE 3 Graded Project At the start of Year 3, Crandall has two jobs not yet delivered to customers. Job AT-360 was completed on December 15, Year 2. It's scheduled to ship out on January 21, Year 3. Job AT-365 is still in progress. The predetermined rate in Year 2 was $155 per direct labor-hour. Data on direct material costs and direct labor-hours for these jobs in Year 2 was as follows: Job AT-360 Job AT-365 Direct material costs $680,000 $947,000 Direct labor-hours 4,800 hours 6,200 hours During Year 3, Crandall incurred direct material costs and direct labor-hours for all jobs worked in Year 3, including the completion of Job AT-365, as follows: Direct material costs $15,780,000 Direct labor-hours 150,000 Actual manufacturing overhead $18,609,400 To compute the predetermined overhead rate, Crandall uses the previous year's actual overhead rate. At the end of Year 3, three jobs had not been shipped. Data on these jobs is as follows: AT-285 AT-288 AT-292 Direct materials $154,000 $224,500 $112,400 Direct labor-hours 2,600 hours 3,400 hours 7,500 hours Job status Finished Finished In progress A. What was the amount in the beginning Finished Goods and beginning Work-inProcess accounts for Year 3? B. Crandall incurred direct materials costs of $210,000 and used an additional 800 hours in Year 3 to complete Job AT-365. What was the final (total) cost charged to Job AT-365? C. What was the overapplied or underapplied overhead for Year 3? D. Crandall prorates any overapplied or underapplied overhead to Cost of Goods Sold, Finished Goods Inventory, and Work-in-Process Inventory. Prepare a | properly formatted journal entry to prorate the Overapplied or Underapplied Overhead calculated in requirement. As an allocation basis, use the direct labor hours in each account from Year 3. E. A customer requested that Crandall bid on a job to be finished in Year 4. Crandall has estimated that the job will need approximately $156,000 in direct materials and 8,000 direct labor-hours. Due to the condition of the economy, Crandall believes demand for its services will be below average in Year 4, and the CEO therefore would like to bid aggressively, but doesn't want to lose money on the project. Crandall estimated essentially no sales or administrative costs connected with this job. What is the minimum amount the company can bid on the job and not incur a loss? (In order to perform an estimation of the variable portion of overhead, use the high-low method.) © PENN FOSTER, INC. 2017 COST ACCOUNTING PAGE 4 Graded Project Part 2: Process Costing Intrepid Industries manufactures sterile parts used in medical equipment. The company uses the weighted-average process costing method to account for production costs. It produces parts in three different departments: Forming, Sterilization, and Assembling. The following information was reported for the Assembling Department for the month of June: Beginning work-in-progress inventory on June 1 had 250,000 units made up of the following: Amount Degree of Completion Prior department costs transferred in from the Forming Department $387,600 100% Costs added by the Sterilization Department: Direct materials 317,200 100% Direct labor 120,050 40% Manufacturing overhead 67,100 30% $504,350 Work in process, June 1 $891,950 During June, 580,000 units were transferred in from the Forming Department at a cost of $1,870,000. The Assembling Department added the following costs: Direct materials $974,800 Direct labor 318,600 Manufacturing overhead 202,000 Total costs added $1,495,400 Assembling finished 480,000 units and transferred them to the Sterilization Department. At June 30, the number of units in ending work-in-progress inventory was 350,000. The degree of completion of work-in-process inventory at June 30 was as indicated below: Direct materials 80% Direct labor 65 Manufacturing overhead 30 A. Prepare a correctly formatted (including heading) production cost report (see Exhibit 8.11 as a example report) using the weighted-average method. B. Management wants to lower the costs of manufacturing the parts. It has established the following per unit targets for this product in the Assembling Department: materials, $1.65; labor, $.62; and manufacturing overhead $0.48. Has the product achieved management's cost targets in the Assembling Department? Write a short report to management containing your answer(s). © PENN FOSTER, INC. 2017 COST ACCOUNTING PAGE 5 Graded Project C. Prepare a correctly formatted (including heading) production cost report (see Exhibit 8.12 as a example report) using the FIFO method using the data given in Question A with one exception: the beginning direct materials costs as of June 1 listed in work-in-process should be $315,700 instead of $317,200. D. Using data from the FIFO report, write a short report to management addressing the issues raised in Question B. Part 3: Activity-Based Costing Wayfarer Corporation is contemplating changing its cost system to an activity-based costing system and wants to know more about the effects of doing so. The corporation's cost accountant has identified three overhead cost pools along with the cost drivers associated with each pool as follows: Cost Pools Costs Activity Drivers Utilities $5,420,000 180,000 machine hours Delivery 5,420,000 10,000 deliveries Assembly 10,940,000 2,000,000 pounds of material The corporation makes three models of kitchen sinks (Deluxe, Premium, and Standard). The plans for production for the next year and the direct costs that have been budgeted for activity by product are listed below: Products Deluxe Premium Standard Total direct costs (material and labor) $850,000 850,000 850,000 Total machine-hours 210,000 95,000 154,000 Total deliveries 310 620 480 Total pounds of material 1,800,000 1,200,000 2,600,000 Total direct labor-hours 12,400 8,500 18,600 Number of units produced 18,000 12,000 24,000 A. The current cost accounting system charges overhead to products on the basis of direct labor-hours. What unit product costs will be reported for the three products assuming the current cost system continues to be used? B. What are the cost driver rates associated with the three cost pools specified by the cost accountant? C. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's categorization of cost pools is utilized?