Solution to Chapter 3 

E3‐23,24,26,28,30, E3‐38,31,33, P3‐45 
 
EXERCISE 3-23 (10 MINUTES)

1. Process
2. Job-order
3. Job-order (contracts or projects)
4. Process
5. Process
6. Job-order
7. Process
8. Job-order (contracts or projects)
9. Process
10. Job-order
EXERCISE 3-24 (20 MINUTES)

1. Raw-material inventory, January 1......................................................................... $174,200

Add: Raw-material purchases................................................................................. 248,300
Raw material available for use................................................................................ $422,500
Deduct: Raw-material inventory, January 31 ........................................................ 161,200
Raw material used in January................................................................................. $261,300
Direct labor ............................................................................................................... 390,000
Total prime costs incurred in January ................................................................... $651,300

2. Total prime cost incurred in January ..................................................................... $651,300

Applied manufacturing overhead (70% × $390,000)............................................. 273,000
Total manufacturing cost for January.................................................................... $924,300
 
EXERCISE 3-24 (CONTINUED)

3. Total manufacturing cost for January....................................................................$ 924,300

Add: Work-in-process inventory, January 1.......................................................... 305,500
Subtotal.....................................................................................................................$1,229,800
Deduct: Work-in-process inventory, January 31 .................................................. 326,300
Cost of goods manufactured ..................................................................................$ 903,500

4. Finished-goods inventory, January 1 ....................................................................$ 162,500

Add: Cost of goods manufactured ......................................................................... 903,500
Cost of goods available for sale .............................................................................$1,066,000
Deduct: Finished-goods inventory, January 31 .................................................... 152,100
Cost of goods sold...................................................................................................$ 913,900

Since the company accumulates overapplied or underapplied overhead until the end of
the year, no adjustment is made to cost of goods sold until December 31.

5. Applied manufacturing overhead for January ...................................................... $273,000

Actual manufacturing overhead incurred in January........................................... 227,500
Overapplied overhead as of January 31 ................................................................ $ 45,500

The balance in the Manufacturing Overhead account on January 31 is a $45,500 credit

balance.

NOTE: Actual selling and administrative expense, although given in the exercise, is
irrelevant to the solution.

EXERCISE 3-26 (15 MINUTES)

1. Applied manufacturing overhead = total manufacturing costs 30%

= $1,250,000 30%
= $375,000

Applied manufacturing overhead = direct-labor cost 80%

Direct-labor cost = applied manufacturing overhead 80%

= $375,000 .8
= $468,750
 
2. Direct-material used = total manufacturing cost
 – direct labor cost
– applied manufacturing overhead
= $1,250,000 – $468,750 – $375,000
= $406,250

3. Let X denote work-in-process inventory on December 31.

Total work-in-process work-in-process cost of

manufacturing + inventory, – inventory, = goods
cost Jan. 1 Dec. 31 manufactured

$1,250,000 + .75X – X = $1,212,500

.25X = $1,250,000 – $1,212,500
X = $150,000

Work-in-process inventory on December 31 amounted to $150,000.

 
EXERCISE 3-28 (15 MINUTES)

1.

(a) At 100,000 chicken volume:

(b) At 200,000 chicken volume:

(c) At 300,000 chicken volume:

2. The predetermined overhead rate does not change in proportion to the change in
production volume. As production volume increases, the $150,000 of fixed
overhead is allocated across a larger activity base. When volume rises by 100%,
from 100,000 to 200,000 chickens, the decline in the overhead rate is 45.45%
[($1.65 – $.90)/$1.65]. When volume rises by 50%, from 200,000 to 300,000
chickens, the decline in the overhead rate is 27.78% [($.90 – $.65)/$.90].

EXERCISE 3-30 (20 MINUTES)

1. Raw-Material Inventory Work-in-Process Inventory

295,100 23,400
226,200 226,200
68,900 421,200
234,000
Wages Payable 156,000
421,200 748,800

Manufacturing Overhead Finished-Goods Inventory

234,000 39,000
156,000
Sales Revenue 171,600
253,500 23,400

Accounts Receivable Cost of Goods Sold

253,500 171,600

2. JAY SPORTS EQUIPMENT COMPANY, INC.

PARTIAL BALANCE SHEET
AS OF DECEMBER 31, 20X2
Current assets
Cash ........................................................................................................................ XXX
Accounts receivable.............................................................................................. XXX
Inventory
Raw material......................................................................................................$ 68,900
Work in process................................................................................................ 748,800
Finished goods ................................................................................................. 23,400

JAY SPORTS EQUIPMENT COMPANY, INC.

PARTIAL INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X2
Sales revenue........................................................................................................... $253,500
 Less: Cost of goods sold........................................................................................ 171,600
Gross margin ........................................................................................................... $ 81,900

EXERCISE 3-38 (15 MINUTES)

Work-in-Process Inventory: Tanning Department ..................................... 11,000a

Manufacturing Overhead ................................................................... 11,000
a11,000 = 25 sets x 110 sq. ft. x $4 per sq. ft.

Work-in-Process Inventory: Assembly Department .................................. 1,100b

Manufacturing Overhead ................................................................... 1,100
b$1,100 = 25 sets x 4 MH x $11 per MH

Work-in-Process Inventory: Saddle Department ....................................... 5,625c

Manufacturing Overhead ................................................................... 5,625
c$5,625 = 25 sets x 45 DLH x $5 per DLH

EXERCISE 3-31 (20 MINUTES)

1. Raw material:

Beginning inventory ................................................................................... $142,000

Add: Purchases .......................................................................................... ?
Deduct: Raw material used........................................................................ 652,000
Ending inventory ........................................................................................ $162,000

Therefore, purchases for the year were ................................................... $672,000

2. Direct labor:

Total manufacturing cost........................................................................... $1,372,000

Deduct: Direct material .............................................................................. 652,000
Direct labor and manufacturing overhead ............................................... $ 720,000

Direct labor + manufacturing overhead = $720,000

Direct labor + (60%) (direct labor) = $720,000
(160%) (direct labor) = $720,000

Direct labor = $720,000

1.6
 Direct labor = $450,000

3. Cost of goods manufactured:

Work in process, beginning inventory ................................................. $ 160,000

Add: Total manufacturing costs............................................................ 1,372,000
Deduct: Cost of goods manufactured .................................................. ?
Work in process, ending inventory....................................................... $ 60,000

Therefore, cost of goods manufactured was ....................................... $1,472,000

EXERCISE 3-31 (CONTINUED)

4. Cost of goods sold:

Finished goods, beginning inventory....................................................... $ 180,000

Add: Cost of goods manufactured............................................................ 1,472,000
Deduct: Cost of goods sold....................................................................... ?
Finished goods, ending inventory ............................................................ $ 220,000

Therefore, cost of goods sold was ........................................................... $1,432,000

EXERCISE 3-33 (20 MINUTES)

NOTE: Budgeted sales revenue, although given in the exercise, is irrelevant to the
solution.

1. Predetermined overhead rate =

(a) = $32.50 per machine hour

(b) = $26.00 per direct-labor hour

$2.00 per direct-labor dollar or 200%

(c) =
of direct-labor cost

*Budgeted direct-labor cost = 25,000 × $13

2. Actual applied overapplied or
manufacturing – manufacturing = underapplied
overhead overhead overhead

(a) $690,000 – (22,000)($32.50) = $25,000 overapplied overhead

(b) $690,000 – (26,000)($26.00) = $14,000 underapplied overhead

(c) $690,000 – ($364,000†)(200%) = $38,000 overapplied overhead

†Actual
direct-labor cost = 26,000 × $14
PROBLEM 3-45 (25 MINUTES)

The completed T-accounts are shown below. (Missing amounts in problem are italicized.)

Raw-Material Inventory Accounts Payable

Bal. 1/1 29,400 3,500 Bal. 1/1
189,000 168,000 191,100 189,000
Bal. 12/31 50,400 1,400 Bal. 12/31

Work-in-Process Inventory Finished-Goods Inventory

Bal. 1/1 23,800 Bal. 1/1 16,800
Direct 168,000 1,005,200 994,000
material Bal. 12/31 28,000
Direct 210,000 1,005,200
labor
Mfg. 630,000
overhead
Bal. 12/31 26,600 Cost of Goods Sold
994,000
Manufacturing Overhead
633,500 630,000 Sales Revenue
1,134,000
Wages Payable
2,800 Bal. 1/1 Accounts Receivable
205,800 210,000 Bal. 1/1 15,400
7,000 Bal. 12/31 1,134,000 1,128,400
Bal. 12/31 21,000