WCP19

Waterways Corporation is a private corporation formed for the purpose of providing the
products and the services needed to irrigate farms, parks, commercial projects, and private homes. It has
a centrally located factory in a U. S. city that manufactures the products it markets to retail outlets across
the nation. It also maintains a division that provides installation and warranty servicing in six metropolitan
areas.
The mission of Waterways is to manufacture quality parts that can be used for effective irrigation
projects that also conserve water. By that effort, the company hopes to satisfy its customers, provide rapid
and responsible service, and serve the community and the employees who represent them in each
community.
The company has been growing rapidly, so management is considering new ideas to help the
company continue its growth and maintain the high quality of its products.
Waterways was founded by Will Winkman who is the company president and chief executive officer
(CEO). Working with him from the companys inception was Wills brother, Ben, whose sprinkler designs
and ideas about the installation of proper systems have been a major basis of the companys success.
Ben is the vice president who oversees all aspects of design and production in the company.
The factory itself is managed by Todd Senter who hires his line managers to supervise the factory
employees. The factory makes all of the parts for the irrigation systems. The purchasing department is
managed by Hector Hines.
The installation and training division is overseen by vice president Henry Writer, who supervises the
managers of the six local installation operations. Each of these local managers hires his or her own local
service people. These service employees are trained by the home office under Henry Writers direction
because of the uniqueness of the companys products.
There is a small Human Resources department under the direction of Sally Fenton, a vice president
who handles the employee paperwork, though hiring is actually performed by the separate departments.
Sam Totter is the vice president who heads the sales and marketing area; he oversees 10 well-trained
salespeople.
The accounting and finance division of the company is headed by Abe Headman, who is the chief
financial officer (CFO) and a company vice president; he is a member of the Institute of
Management Accountants and holds a certificate in management accounting. He has a small staff of
Certified Public Accountants, including a controller and a treasurer, and a staff of accounting input
operators who maintain the financial records.

A partial list of Waterways accounts and their balances for the month of November follows.
Accounts Receivable
Advertising Expenses
Cash
DepreciationFactory Equipment
DepreciationOffice Equipment
Direct Labor
Factory Supplies Used
Factory Utilities
Finished Goods Inventory, November 30
Finished Goods Inventory, October 31
Indirect Labor
Office Supplies Expense
Other Administrative Expenses
Prepaid Expenses
Raw Materials Inventory, November 30
Raw Materials Inventory, October 31
Raw Materials Purchases
RentFactory Equipment
RepairsFactory Equipment
Salaries
Sales
Sales Commissions
Work In Process Inventory October 31
Work In Process Inventory, November 30

295,000
54,000
260,000
16,800
2,500
22,000
16,850
10,200
68,300
72,550
48,000
1,400
72,000
41,250
52,700
38,000
185,400
47,000
4,200
325,000
1,350,000
40,500
52,900
42,000

Instructions
(a)
(b)

Based on the information given, construct an organizational chart of Waterways Corporation.

A list of accounts and their values are given above. From this information, prepare a cost of goods
manufactured schedule, an income statement, and the current assets section of the balance sheet
for Waterways Corporation for the month of November.

Answer:
(i)

Cost of Goods Manufactured Schedule

Waterways Corporation
Cost of Good Manufacturing Schedule
For the Month Ended November 30,

Work in Process, October 31

$ 52,700

Direct materials
Raw materials inventory, October 31

$ 38,000

Raw materials purchases

184,500

Total raw materials available for use

222,500

Less: Raw materials inventory, November 30

52,700

Direct materials use

$ 169,800

Direct Labor

42,000

Manufacturing Overhead
Indirect labor

48,000

Factories supply used

16,800

Factory utilities

10,200

Depreciation - Factory equipment

16,800

Rent - Factory equipment

47,000

Repairs - Factory equipment

4,500

Total manufacturing overhead

143,300

Total manufacturing cost

355,100

Total cost of work in progress

407,800

Less: Work in process, November 30

42,000

Cost of goods manufactured

(ii)

$ 365,800

Income Statement (with Cost of Goods Manufactured in Details)

Waterways Corporation
INCOME STATEMENT
FOR THE MONTH ENDED MARCH, 30

Sales
Sales Commissions

1,350,000
(40,500)
1,309,50
0

Raw materials inventory, October 31

Raw materials purchases
Raw materials inventory, November 30

38,000
184,500
(52,700)
169,800
42,000

Total of Material
Direct labor
Indirect labor
Factories supply used
Factory utilities
Depreciation - Factory equipment
Rent - factory equipment
Repairs - factory equipment

48,000
16,800
10,200
16,800
47,000
4,500
143,300

Total manufacturing overhead

work in Process, October 31
Less: Work in Process, November 30
Total of WIP

52,700
(42,000)
10,700
365,800

Total Cost of Goods Manufactured

Finished goods inventory, October 31
Finished goods inventory, November 30

72,550
(68,800)
3,750

Total of finish goods

365,800

Cost of Goods Sold

943,700

Gross Profit

54,000
2,400
1,600
7,200
325,000

Advertising & Promotion

Depreciation - Office equipment
Office Supplies Expense
Other admin expense
Salaries
Operating cost

390,200

Net Profit

553,500

Current assets
Cash
Receivabes (net)

260,000
275,000

Inventories

68,800
42,000
52,700

Finished goods
Work in process
Raw materials
Prepaid expenses

163,500
41,250

Total current assets

739,750

(iii)

Current Asset Section of Balance Sheet

Waterways Corporation
Balance Sheet
November 30,

Current assets
Cash

$ 260,000

Receivables (net)

275,000

Inventories
Finished goods

68,800

Work in process

42,000

Raw materials

52,700

163,500

Prepaid expenses

41,250

Total current assets

$ 739,750

WATERWAYS CONTINUING PROBLEM

(This is a continuation of the Waterways Problem from Chapter 19)
WCP20
Waterways has two major public-park projects to provide with comprehensive irrigation in one
of its service locations this month. Job J57 and Job K52 involve 15 acres of landscaped terrain which will
require special-order sprinkler heads to meet the specifications of the project. Using a job cost system to
produce these parts, the following events occurred during December.
Raw materials were requisitioned from the companys inventory on December 2 for $5,202; on
December 8 for $1,200; and on December 14 for $3,600. In each instance, two-thirds (2/3) of these
materials were for J57 and the rest for K52.
Six time tickets were turned in for these two projects for a total amount of 18 hours of work. All the
workers were paid $16.50 per hour. The time tickets were dated December 3, December 9, and
December 15. On each of those days, 6 labor hours were spent on these jobs, two-thirds (2/3) for J57
and the rest for K52.
The predetermined overhead rate is based on machine hours. The expected machine hour use for
the year is 2,112 hours, and the anticipated overhead costs are $840,576 for the year. The machines
were used by workers on projects K52 and J57 on December 3, 9, and 15. Six machine hours were used
for project K52 (2 each day), and 8.5 machine hours were used for project J57 (2.5 the first day and 3
each of the other days). Both of these special orders were completed on December 15, producing 244
sprinkler heads for J57 and 142 sprinkler heads for K52.
Additional job order activities during this period of time included:
Dec.
Dec.

1
2

Dec.
Dec.
Dec.
Dec.
Dec.

12
13
18
21
31

Purchased raw materials from Durbin Supply Company on account for $50,320.
Issued $40,000 of direct materials from the companys inventory to jobs other than K52 and
J57 and $3,000 of indirect materials.
Incurred Waterways factory salaries and wages in the amount of $64,000.
Paid the factorys water bill of $9,000.
Transferred $49,000 of costs from other completed jobs to finished goods.
Paid the factorys electric bill of $12,000 for Waterways factory.
Made adjusting entries for the factory that included accrued property taxes of $12,000,
prepaid insurance of $8,000, and accumulated depreciation of $16,800.

Instructions
(a) Set up the job cost sheets for Job No. J57 and Job No. K52. Determine the total cost for each
manufacturing special order for these jobs. (Round unit cost to nearest cent.)
answer

Bangor Products
Cost of Production Report
For the Month of July 2008
Production Data
Units
800
11,400
12,200

Material

Beginning WIP inventory

800
Started & completed
11,000
Ending WIP inventory
400
Units accounted for
12,200

800
11,000
280
12,080

Beginning inventory
Units started
Units to account for

Labor

Overhead

800 800
11,000 11,000
360
320
12,160 12,120

Cost Data
Beginning WIP inventory
5,710
Current costs
188,210

Total
Material
$ 21,138
$ 6,748
505,422

259,012

Labor Overhead
$ 8,680
58,200

Total cost to account for

$193,920
Divided by EUP
12,120
Cost per EUP

$526,560

$265,760

$66,880

12,080

12,160

$22

$5.50

$43.50

Cost Assignment
Transferred out (11,800 units x $43.50)
Ending inventory:
Material (280 x $22)
$6,160
Labor (360 x $5.50)
1,980
Overhead (320 x $16)
5,120
Total cost accounted for

c.

$513,300

13,260
$526,560

Raw Material__________
Beg.
CGM
Purch

XXX Issued
513,300
XXX

259,012

Beg.

DM
DL
OH

259,012
58,200
188,210

End.

13,260

Wages Payable__________
58,200
Beg.
CGM
End.
XXX

XXX
513,300

End.
DL

WIP Inventory_________

XXX

Factory Overhead Control

Actual

XXX Applied

FG Inventory_________
CGS XXX

Accounts Payable_______
188,210

Cost of Goods Sold_______

CGS XXX

21,138

RM Purch. XXX
Act. OH
XXX

(b) Journalize the activities from these job cost sheets in the general journal. Also journalize the other
costs that occurred during this period of time.
Answer

b.Raw Material Inventory

Accounts Payable

XXX
XXX

WIP Inventory
Raw Material Inventory
WIP Inventory
Wages Payable
WIP Inventory
Factory Overhead Control
Factory Overhead Control
Accounts Payable

XXX
XXX

Finished Goods Inventory

WIP Inventory
Cost of Goods Sold
Finished Goods Inventory

XXX
XXX

(c) Assuming that Manufacturing Overhead has a debit balance of $3,500, determine whether
overhead has been under/over applied and make the adjusting entry.

(d)

Why would Waterways choose machine hours as the cost driver for the overhead rather than direct
labor cost? What would Waterways be likely to choose as the cost driver for the overhead for the
job of installing the irrigation system and why?

WATERWAYS CONTINUING PROBLEM

(This is a continuation of the Waterways Problem from Chapters 19 and 20).
WCP21
Because most of the parts for its irrigation systems are standard, Waterways handles the
majority of its manufacturing as a process cost system. There are multiple process departments. Three of
these departments are the Molding, Cutting, and Welding departments. All items eventually end up in the
Package department which prepares items for sale in kits or individually.
The following information is available for the Molding department for January.
Work in process beginning:
Units in process
Stage of completion for materials
Stage of completion for labor and overhead
Costs in work in process inventory:
Materials
Labor
Overhead
Total costs in beginning work in process
Units started into production in January
Units completed and transferred in January
Costs added to production:
Materials
Labor
Overhead
Total costs added into production in January
Work in process ending:
Units in process
Stage of completion for materials
Stage of completion for labor and overhead

24,000
70%
50%
$168,360
67,564
16,892
$252,816
60,000
58,000
$265,450
289,468
60,578
$615,496
26,000
70%
20%

Instructions
(a)

Prepare a production cost report for Waterways using the weighted-average method.

WATERWAYS CONTINUING PROBLEM

(This is a continuation of the Waterways Problem from Chapters 19 through 21.)
WCP22
Vice President for Sales and Marketing Sam Totter is trying to plan for the coming year in
terms of production needs to meet the sales demand. He is also trying to determine ways in which the
companys profits might be increased in the coming year.
Instructions
(a)

Waterways markets a simple water control and timer that it mass-produces. During the year, the
company sold 696,000 units at an average selling price of $4.22 per unit. The variable expenses
were $2,053,200, and the fixed expenses were $683,338.
(1) What is the products contribution margin ratio?
(2) What is the companys break-even point in units and in dollars for this product?
(3) What is the margin of safety, both in dollars and as a ratio?
(4) If management wanted to increase its income from this product by 10%, how many additional
units would have to be sold to reach this income level?
(5) If sales increase by 71,090 units and the cost behaviors do not change, how much will
income increase on this product?

(b)

Waterways is thinking of mass-producing one of its special-order sprinklers. To do so would

increase variable costs for all sprinklers by an average of $0.71 per unit. The company also
estimates that this change could increase the overall number of sprinklers sold by 10%, and the
average sales price would increase $0.25 per unit. Waterways currently sells 491,740 sprinkler
units at an average selling price of $26.50. The manufacturing costs are $6,863,512 variable and
$2,050,140 fixed. Selling and administrative costs are $2,661,352 variable and $794,950 fixed.
(1) If Waterways begins mass-producing its special-order sprinklers, how would this affect the
company?
(2) If the average sales price per sprinkler unit did not increase when the company began massproducing the special-order sprinkler, what would be the effect on the company?