Enos Inc. is a construction company specializing in custom patios

P2-3A Enos Inc. is a construction company specializing in custom patios. The patios are constructed of concrete, brick, fiberglass, and lumber, depending upon customer preference. On June 1, 2008, the general ledger for Enos Inc. contains the following data.

Raw Materials Inventory $4,200
Work in Process Inventory $5,540
Manufacturing Overhead Applied (during the month) $32,640
Manufacturing Overhead Incurred (during the month) $31,650

Subsidiary data for Work in Process Inventory on June 1 are as follows.

Job Cost Sheets
Customer Job
Cost Element Fowler (No.101) Haines (No.102) Krantz (No.103)
Direct materials $ 600 $ 800 $ 900
Direct labor 320 540 580
Manufacturing overhead 400 675 725
$1,320 $2,015 $2,205

During June, raw materials purchased on account were $3,900, and all wages were paid. Additional overhead costs consisted of depreciation on equipment $700 and miscellaneous costs of $400 incurred on account.

A summary of materials requisition slips and time tickets for June shows the following.

Customer Job Materials
Requisition Slips Time Tickets
Fowler (No.101) $ 800 $ 450
Elgin (No.104) 2,000 800
Haines (No.102) 500 360
Krantz (No.103) 1,300 1,600
Fowler (No.101) 300 390
4,900 3,600
Indirect materials 1,500 1,200
$6,400 $4,800

Overhead was charged to jobs at the same rate of $1.25 per dollar of direct labor cost. The patios for customers Fowler (No.101), Haines (No.102), and Krantz (No.103) were completed during June and sold for a total of $18,900. Each customer paid in full.

Required:
a) Journalize the June transactions: (i) for purchase of raw materials, factory labor costs incurred, and manufacturing overhead costs incurred; (ii) assignment of direct materials, labor, and overhead to production; and (iii) completion of jobs and sale of goods.
b) Post the entries to Work in Process Inventory.
c) Reconcile the balance in Work in Process Inventory with the costs of unfinished jobs.
d) Prepare a cost of goods manufactured schedule for June.

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Maher Drapery Inc. specializes in making custom draperies for both commercial and residential customers

Job-Order costing in a manufacturing company

Maher Drapery Inc. specializes in making custom draperies for both commercial and residential customers.  It began business on August 1, 2004, by acquiring $40,000 cash through issuing common stock. In August 2004, Maher accepted drapery orders, Jobs 801 and 802, for two new commercial buildings. The company paid cash for the following costs related to the orders:

Job 801
Raw materials $ 7,360
Direct labor (512 hours at $20 per hour) 10,240

Job 802
Raw materials 5,200
Direct labor (340 hours at $20 per hour) 6,800

During the same month, Maher paid $14,400 for various indirect costs such as utilities, equipment leases, and factory-related insurance. The company estimated its annual manufacturing overhead cost would be $240,000 and expected to use 20,000 direct labor hours in its first year of operation. It planned to allocate overhead based on direct labor hours. On August 31, 2004, Maher completed Job 801 and collected the contract price of $28,000. Job 802 was still in process. Maher uses a just-in-time inventory management system. Consequently, it has no raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.

Required
a. Use a horizontal financial statements model as follows to record Maher’s accounting events for August 2004. The first event is shown as an example.

ASSETS = EQUITY

CASH + MANUF. OVERHEAD + WK IN PROGRESS + FINISH GOODS = COM.STK + RET.EARN. I REV. – EXP. = NET INC. I CASH FLOW I
$40,000 + N/A + N/A + N/A = $40,000 + N/A I N/A – N/A = N/A I $40,000 FA I

b. What was Maher’s ending inventory on August 31, 2004? Is this amount the actual or the estimated inventory cost?

c. When is it appropriate to use estimated inventory cost on a year-end balance sheet?


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Bair Company is a manufacturer of standard and custom-designed bottling equipment

Bair Company is a manufacturer of standard and custom-designed bottling equipment. Early in December 20x0 Lyan Company asked Bair to quote a price for a custom-designed bottling machine to be delivered in April. Lyan intends to make a decision on the purchase of such a machine by January 1, so Bair would have the entire first quarter of 20x1 to build the equipment. Bair’s pricing policy for custom-designed equipment is 50 percent markup on absorption manufacturing cost. Lyan’s specifications for the equipment have been reviewed by Bair’s Engineering and Cost Management departments, which made the following estimates for direct material and direct labor.

Direct material ............................................ $307,200
Direct labor (11,000 hours at $18) .................. 198,000

Manufacturing overhead is applied on the basis of direct-labor hours. Bair normally plans to run
its plant at a level of 15,000 direct-labor hours per month and assigns overhead on the basis of 180,000 direct-labor hours per year. The overhead application rate for 20x1 of $10.80 per hour is based on the following budgeted manufacturing overhead costs for 20x1.

Variable manufacturing overhead ......................... $1,166,400
Fixed manufacturing overhead .............................. 777,600
Total manufacturing overhead ................... $1,944,000

Bair’s production schedule calls for 12,000 direct-labor hours per month during the first quarter. If Bair is awarded the contract for the Lyan equipment, production of one of its standard products would have to be reduced. This is necessary because production levels can only be increased to 15,000 direct labor hours each month on short notice. Furthermore, Bair’s employees are unwilling to work overtime.

Sales of the standard product equal to the reduced production would be lost, but there would be no permanent loss of future sales or customers. The standard product for which the production schedule would be reduced has a unit sales price of $14,400 and the following cost structure.

Direct material ....................................................................... $ 3,000
Direct labor (250 hours at $18) .............................................. 4,500
Manufacturing overhead (250 hours at $10.80) .................. 2,700
Total cost ...................................................................... $10,200

Lyan needs the custom-designed equipment to increase its bottle-making capacity so that it will not have to buy bottles from an outside supplier. Lyan Company requires 5,000,000 bottles annually. Its present equipment has a maximum capacity of 4,500,000 bottles with a directly traceable cash outlay cost of 18 cents per bottle. Thus, Lyan has had to purchase 500,000 bottles from a supplier at 48 cents each. The new equipment would allow Lyan to manufacture its entire annual demand for bottles at a direct-material cost savings of 1.2 cents per bottle. Bair estimates that Lyan’s annual bottle demand will continue to be 5,000,000 bottles over the next five years, the estimated life of the special-purpose equipment.

Required:
Bair Company’s management plans to submit a bid to Lyan Company for the manufacture of the special-purpose bottling equipment.
1. Calculate the bid Bair would submit if it follows its standard pricing policy for special-purpose equipment.
2. Calculate the minimum bid Bair would be willing to submit on the Lyan equipment that would result in the same total contribution margin as planned for the first quarter of 20x1.
3. Suppose Bair has submitted a bid slightly above the minimum calculated in requirement (2). Upon receiving Bair’s bid, Lyan’s assistant purchasing manager telephoned his friend at Tygar Corporation: “Hey Joe, we just got a bid from Bair on some customized equipment. I think Tygar would stand a good chance of beating it. Stop by the house this evening, and I’ll show you the details of Bair’s bid and the specifications on the machine.” Is Lyan Company’s assistant purchasing manager acting ethically? Explain.


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(White Collar Crime) Helm Instruction Co. in Maumee, Ohio, makes custom electrical control systems

7-5A. White Collar Crime. Helm Instruction Co. in Maumee, Ohio, makes custom electrical control systems. In September 1998, Helm hired Patrick Walsh to work as comptroller. Walsh soon developed a close relationship with Richard Wilhelm, Helm’s president, who granted Walsh’s request to hire Shari Price as an assistant. Wilhelm was not aware that Walsh and Price were engaged in a extramarital affair. Over the next five years, Walsh and Price spent more than $200,000 of Helm’s money on themselves. Among other things, Walsh drew unauthorized checks on Helm’s accounts to pay his personal credit cards and issued to Price and himself unauthorized salary increases, overtime payments, and tuition reimbursement payments, altering Helm’s records to hide the payments. After an investigation, Helm officials confronted Walsh. He denied the affair with Price, claimed that his unauthorized use of Helm’s funds was an “interest-free loan,” and argued that it was less of a burden on the company to pay his credit cards than to give him the salary increases to which he felt he was entitled. Did Walsh commit a crime? If so, what crime did he commit? Discuss. [State v. Walsh, 113 Ohio App. 3d 1515, 866 N.E.2d 513 (6 Dist. 2007)]


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Nottaway Flooring produces custom-made floor tiles

Nottaway Flooring produces custom-made floor tiles. The company's Raw Material Inventory account contains both direct and indirect materials. Until the end of April 2010, the company worked solely on a large job (#4263) for a major client. Near the end of the month, Nottaway began Job #4264. The following information was obtained relating to April production operations.

Raw material purchased on account, $204,000.
Direct material issued to Job #4263 cost $163,800; indirect material issued for that job cost $12,460. Direct material costing $1,870 was issued to start production of Job #4264.
Direct labor hours worked on Job #4263 were 3,600. Direct labor hours for Job #4264 were 120. All direct factory employees were paid $15 per hour.
Actual factory overhead costs incurred for the month totaled $68,700. This overhead consisted of $18,000 of supervisory salaries, $21,500 of depreciation charges, $7,200 of insurance, $12,500 of indirect labor, and $9,500 of utilities. Salaries, insurance, and utilities were paid in cash, and indirect labor charges were accrued.
Overhead is applied to production at the rate of $18 per direct labor hour.
Beginning balances of Raw Material Inventory and Work in Process Inventory were, respectively, $4,300 and $11,400. Of the beginning WIP balance, $800 was related to Job #4263. Job #4263 was completed during April.

a. Prepare journal entries for each transaction.

1. Raw material purchased on account, $204,000.
2. Direct material issued to Job #4263 cost $163,800; indirect material issued for that job cost $12,460. Direct material costing $1,870 was issued to start production of Job #4264.
3. Direct labor hours worked on Job #4263 were 3,600. Direct labor hours for Job #4264 were 120. All direct factory employees were paid $15 per hour.
4. Actual factory overhead costs incurred for the month totaled $68,700. This overhead consisted of $18,000 of supervisory salaries, $21,500 of depreciation charges, $7,200 of insurance, $12,500 of indirect labor, and $9,500 of utilities. Salaries, insurance, and utilities were paid in cash, and indirect labor charges were accrued.
5. Overhead is applied to production at the rate of $18 per direct labor hour.

b. Determine the balance in Raw Material Inventory at the end of the month.
c. Determine the balance in Work in Process Inventory at the end of the month.
d. Determine the cost of the goods manufactured during April. If completed goods consist of 10,000 similar units, what was the cost per unit?
e. What is the amount of underapplied or overapplied overhead at the end of April?


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Maxley Markets Company sells logo sports merchandise and does custom embroidery

Maxley Markets Company sells logo sports merchandise and does custom embroidery. They are trying to decide whether or not to continue embroidery. The following information is available for the segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if the embroidery were dropped.

Embroidery Apparel Sales
Sales $120,000 $420,000
Variable Costs $90,000 $220,000
Contribution Margin $30,000 $200,000
Direct Fixed Costs $18,000 $70,000
Allocated Common Fixed Costs $20,000 $70,000
Net Income ($ 8,000) $ 60,000

(a) What would be the impact on profits if embroidery was dropped?
(b) Assume that if embroidery was dropped, apparel sales would increase 20%. What is the impact on contribution margin and net income?
(c) Give an example of a cost that is not relevant in this analysis.


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