Managerial Accounting

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly EXERCISE 12-20 (a) Material variance = (AQ × AP) – (SQA × SP) (29,000 × $4.70) – [(9,500 × 3) × $5.00] = $136,300 – $142,500 = $6,200 F Materials price variance: = (AQ × AP) – (AQ × SP) (29,000 × $4.70) – (29,000 × $5.00) = $136,300 – $145,000 = $8,700 F Materials quantity variance: = (AQ × SP) – (SQA × SP) (29,000 × $5.00) – (28,500 × $5.00) = $145,000 – $142,500 = $2,500 U Material Variances Price Variance Quantity Variance (AQ × AP) (AQ × SP) (SQA × SP) 29,000 × $4.70 29,000 × $5.00 28,500 × $5.00 $136,300 $145,000 $142,500 $8,700F $2,500U $6,200F Total Material Variance (b) Material variance = (AQ × AP) – (SQA × SP) (28,000 × $5.15) – [(9,500 × 3) × $5.00] = $144,200 – $142,500 = $1,700 U Materials price variance: = (AQ × AP) – (AQ × SP) (28,000 × $5.15) – (28,000 × $5.00) = $144,200 – $140,000 = $4,200 U Materials quantity variance: = (AQ × SP) – (SQ × SP) (28,000 × $5.00) – (28,500 × $5.00) Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 12-14 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly = $140,000 – $142,500 = $2,500 F EXERCISE 12-20 (Continued) Material Variances Price Variance Quantity Variance (AQ × AP) (AQ × SP) (SQA × SP) 28,000 × $5.15 28,000 × $5.00 28,500 × $5.00 $144,200 $140,000 $142,500 $4,200U $2,500F $1,700U Total Material Variance EXERCISE 12-21 (a) Total labour variance: (AH × AR) – (SHA × SR) (40,800 × $12.10) – [(10,000 × 4) × $12.00] = $493,680 – $480,000 = $13,680 U (b) Labour price variance: (AH × AR) – (AH × SR) (40,800 × $12.10) – (40,800 × $12.00) = $493,680 – $489,600 = $4,080 U Labour quantity variance: (AH × SR) – (SHA × SR) (40,800 × $12.00) – (40,000 × $12.00) = $489,600 – $480,000 = $9,600 U Labour Variances Price Variance Quantity Variance (AH × AR) (AH × SR) (SHA × SR) 40,800 × $12.10 40,800 × $12.00 40,000 × $12.00 $493,680 $489,600 $480,000 $4,080 U $9,600 U $13,680 U Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 12-15 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly Total Labour Variance Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 12-16

COMM | 305 | Managerial Accounting | lecture notes | Managerial Accounting: Tools f

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly BRIEF EXERCISE 11-3 (Continued) (b) HINSDALE COMPANY Flexible Direct Labour Budget Report For the Month Ended January 31, 2016 Budget Actual Difference Direct Labour $208,000 (10,400 × $20) $204,000 $4,000 F The static budget does not provide a proper basis for evaluating performance because the budget is not based on the hours actually worked. In contrast, the flexible budget provides the proper basis for evaluating performance because the budget is based on the hours actually worked. BRIEF EXERCISE 11-4 DUKANE COMPANY Monthly Flexible Manufacturing Budget For the Year 2016 Activity level: units 80,000 100,000 120,000 Variable costs: Direct materials ($4) $320,000 $400,000 $480,000 Direct labour ($6) 480,000 600,000 720,000 Overhead ($8) 640,000 800,000 960,000 Total variable costs 1,440,000 1,800,000 2,160,000 Fixed costs: Depreciation 1 200,000 200,000 200,000 Supervision 2 100,000 100,000 100,000 Total fixed costs 300,000 300,000 300,000 Total costs $1,740,000 $2,100,000 $2,460,000 1 $2 × 1,200,000 ÷ 12 2 $1 × 1,200,000 ÷ 12 __________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 11-6 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly BRIEF EXERCISE 11-5 DUKANE COMPANY Manufacturing Budget Report For the Month Ended March 31, 2016 Budget Actual Difference Favourable F Unfavourable U Units produced 100,000 100,000 Variable costs Direct materials $400,000 $425,000 $25,000 U Direct labour 600,000 590,000 10,000 F Overhead 800,000 805,000 5,000 U Total variable costs 1,800,000 1,820,000 20,000 U Fixed costs: Depreciation 200,000 200,000 — Supervision 100,000 100,000 — Total fixed costs 300,000 300,000 — Total costs $2,100,000 $2,120,000 $20,000 U Costs were not entirely controlled as evidenced by the unfavourable difference between budgeted and actual for variable costs. BRIEF EXERCISE 11-6 OSAKA COMPANY Assembly Department Manufacturing Overhead Cost Responsibility Report For the Month Ended April 30, 2016 Favourable F Unfavourable U Controllable Cost Budget Actual Difference Indirect materials $16,000 $14,300 $1,700 F Indirect labour 20,000 20,600 600 U Utilities 10,000 10,850 850 U Supervision 5,000 5,000 — Total $51,000 $50,750 $250 F __________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 11-7

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO DO IT! REVIEW DO IT! REVIEW 5-13 (a) True. (b) False. Activity-based costing is an approach for allocating overhead to products or services. (c) False. Direct labour is an appropriate basis for allocating costs to products if it represents the best-cost driver for that cost. (d) True. (e) True. DO IT! REVIEW 5-14 (a) Estimated Estimate d Cost Pool MOH Usage Rate Machine set-up $16,000 40 $400 per set-up Machinin g 110,000 5,000 22 per machine hr. Packing 30,000 500 60 per order (b) Usage Cost Pool Rate BC113 AD908 Machine set-up $400 per set-up 25 15 Machinin g 22 per machine hr. 1,000 4,000 Packing 60 per order 150 350 Assignment of overhead: BC113 AD908 Machine set-up ($400 × 25; 15) $10,000 $6,000 Machining ($22 × 1,000; 4,000) 22,000 88,000 Packing ($60 × 150; 350) 9,000 21,000 Overhead assigned $41,000 $115,000 Solutions Manual © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 5-9 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly DO IT! REVIEW 5-14 (Continued) (c) Overhead cost per unit: BC113 AD908 Total overhead assigned $41,000 $115,000 Number of units produced 3,000 1,400 $13.67 $82.14 (d) The data shows that while the total overhead assigned to the lower- volume product is about three times the total amount assigned to the higher-volume product, the per unit cost ends up being almost six times more. DO IT! REVIEW 5-15 (a) unit-level (e) unit-level (b) product-level (f) batch-level (c) facility-level (g ) facility-level (d) batch-level (h ) unit-level DO IT! REVIEW 5-16 (a) Estimated Estimated Cost Pool MOH Usage Rate Loading/Unloading $90,000 90,000 $1.00 per piece Travel 450,000 600,000 0.75 per km driven Logistics 75,000 3,000 25.00 per hour (b) Assignment of overhead: XZ3275 Loading/Unloading ($1.00 × 150 pieces) $150.00 Travel ($0.75 × 200 kilometers) 150.00 Logistics ($25 × 0.75 hour) 18.75 Overhead assigned $318.75 Solutions Manual © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 5-10 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO EXERCISES EXERCISE 5-17 (a) Estimated overhead = Predetermined overhead rate Direct labour costs $277,500 = 185% of direct labour cost $50,000 + $100,000 (b) Estimated Estimated Cost Pool MOH Usage Rate Machining $177,000 1,500 $118.00 per machine hr. Machine set-up $100,500 500 $201.00 per set-up (c) Traditional costing Standard Custom $ 50,000 × 185% $92,500 $100,000 × 185% $185,000 $92,500 $185,000 Activity-based costing Machining: 500 × $118 $59,000 1,000 × $118 $118,000 Machine set-up: 100 × $201 20,100 400 × $201 80,400 $79,100 $198,400 The difference between the two systems illustrates that under a traditional system more overhead is often allocated to the high-volume standard product, when, in fact, the custom product consumes more resources. Solutions Manual © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 5-11

CHAPTER 8 Alternative Inventory Costing Methods: A Decision-Making Perspective ASSIGNMENT CLASSIFICATION TABLE Study Objectives Self-Study Questions Brief Exercises Do It! Review Exercises A & B Problems 1. Explain the difference between absorption costing and variable costing. 1, 2 1, 2, 4, 5, 7, 8, 10, 11 12, 14, 15 16, 17, 18, 19, 20, 22, 23, 24, 25 26A, 27A, 28A, 29A, 31A, 32A, 34A, 35A, 36B, 38B – 44B 2. Discuss the effect that changes in the production level and sales level have on net income measured under absorption costing versus under variable costing . 3, 4, 5 10, 11 13 22, 23, 24, 25 26A, 27A, 28A, 29A, 31A, 32A, 34A, 35A, 36B, 38B – 42B, 44B 3. Discuss the advantages of variable costing versus absorption costing for management decision- making. 6, 7 12, 13 19, 22 27A, 28A, 29A, 31A, 32A, 34A, 35A, 38B, 39B, 40B, 41B, 42B, 44B *4. Discuss the effect of a normal costing method on income reported under absorption costing and variable costing (Appendix 8A). 10 9 14 18, 21 30A, 33A, 37B *5. Discuss the effect of the throughput costing method on income reported under variable costing (Appendix 8A). 8, 9 3, 6, 7 15 16, 25 26A, 28A, 29A, 32A, 36B, 40B Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 8-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 26A Calculate the product cost; prepare an income statement under variable costing, absorption costing and throughput costing and reconcile the differences. Easy 30-40 27A Prepare income statements under absorption costing and variable costing for a company with beginning inventory. Moderate 40-50 28A Prepare absorption- and variable-costing income statements; reconcile the differences between absorption- and variable-costing income statements when sales and production levels change; and discuss the usefulness of absorption costing versus variable costing. Easy 30-40 29A Prepare an income statement under variable costing, absorption costing, and throughput costing and reconcile the differences; discuss the usefulness of absorption costing versus variable costing. Moderate 30-40 30A Calculate the product cost; and prepare an income statement under normal costing. Moderate 20-30 31A Calculate product cost; prepare income statements under variable costing and absorption costing and reconcile the difference when sales and production levels change. Easy 20-30 32A Calculate the product cost; prepare income statements under variable costing, absorption costing, and throughput costing, and reconcile the differences. Moderate 30-40 33A Calculate the product cost; and prepare an income statement under normal costing. Easy 20-30 34A Explain variable costing and absorption costing and reconcile the differences when sales and production levels change. Moderate 20-30 35A Prepare income statements under variable costing and absorption costing, and reconcile the differences when sales and production levels change; discuss the usefulness of absorption costing versus variable costing. Challenging 40-50 36B Calculate the product cost; prepare income statements under variable costing, absorption costing, and throughput costing, and reconcile the differences. Moderate 30-40 37B Calculate the product cost; and prepare an income statement under normal costing. Moderate 15-20 38B Prepare income statements under absorption costing and variable costing for a company with beginning inventory. Moderate 50-60 39B Prepare absorption- and variable-costing income statements; reconcile the differences between the two income statements when sales and production levels change; discuss the usefulness of the two approaches to costing. Moderate 30-40 Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 8-2

COMM | 305 | Managerial Accounting | lecture notes | CHAPTER 8 Alternative Inventor

Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly SOLUTIONS TO DO IT! REVIEW DO IT! REVIEW 3-13 Raw Materials Inventory ........................................................ 16,000 Accounts Payable ................................................. 16,000 Factory Labour ....................................................................... 40,000 Factory Wages Payable ........................................ 31,000 Employer Payroll Taxes Payable ......................... 9,000 Manufacturing Overhead ....................................................... 15,000 Utilities Payable ..................................................... 3,100 Prepaid Factory Property Taxes .......................... 2,400 Accumulated Depreciation—Factory Building... 9,500 DO IT! REVIEW 3-14 Work in Process Inventory ($7,200 + $9,000) .................. 16,200 Raw Materials Inventory .................................. 16,200 Work in Process Inventory ($4,000 + $6,000) .................. 10,000 Factory Labour ................................................. 10,000 Work in Process Inventory ($5,200 + $9,800) .................. 15,000 Manufacturing Overhead ................................. 15,000 __________________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 3-11 Managerial Accounting: Tools for Business Decision-Making, Fourth Canadian Edition Weygandt, Kimmel, Kieso, Aly DO IT! REVIEW 3-15 Finished Goods Inventory ($60,000 + $40,000) ............... 100,000 Work in Process Inventory .............................. 100,000 Accounts Receivable ......................................................... 90,000 Sales .................................................................. 90,000 Cost of Goods Sold (Job 312) .......................................... 40,000 Finished Goods Inventory ............................... 40,000 DO IT! REVIEW 3-16 Manufacturing overhead applied = $85,000 × 1.5 = $127,500 MOH applied – MOH actual = over-applied overhead $127,500 – $120,000 = $7,500 over-applied __________________________________________________________________________________________________________________________ Solutions Manual © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 3-12

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