Problem 1:
Widget Co. has the following data available relative to its investment in materials:
| Number of units of material used annually |
20,000 |
| Number of workdays in a year |
|
250 |
| Cost of placing an order |
|
$20 |
| Annual carrying cost per unit of inventory |
$5 |
Requirements:
1. Compute the economic order quantity (please show your work).
2. Give some examples of order costs and carrying costs.
Order costs:
Carrying costs:
3. Using the above data, compute the order size that results in the minimum total order and carrying cost by completing the following table.
| Order Size |
Number of Orders |
Total Order Cost |
Average Inventory |
Total Carrying Cost |
Total Order and Carrying Costs |
| 100 |
|
|
|
|
|
| 200 |
|
|
|
|
|
| 300 |
|
|
|
|
|
| 400 |
|
|
|
|
|
| 500 |
|
|
|
|
|
| 600 |
|
|
|
|
|
| 700 |
|
|
|
|
|
| 800 |
|
|
|
|
|
4. If the company requires a safety stock of 200 units and has an anticipated lead time of 5 days, what is the order point (please show your work)?
Problem 2:
Widget Construction, Inc., is a home builder in New Mexico. Widget uses a job order costing system in which each house is a job. Because it constructs houses, the company uses accounts titled Construction wages and Construction overhead. The following events occurred during August:
a. Purchased Materials on account $470,000
b. Incurred Contrstucion wages of $230,000. Requisitioned direct materials and used direct labor in construction:
| |
|
Direct Materials |
Direct Labor |
|
| House 402 |
$ 58,000 |
|
$ 40,000 |
|
|
| House 403 |
$ 63,000 |
|
$ 34,000 |
|
$ 177,000 |
| House 404 |
$ 60,000 |
|
$ 52,000 |
|
$ 221,000 |
| House 405 |
$ 89,000 |
|
$ 51,000 |
|
|
c. Deprectaion of construction equipment $6,800
d. Other overhead costs incurred on houses 402 through 405.
| Indirect Labor |
|
|
$ 44,000 |
| Equipment rentals in cash |
|
|
$ 33,000 |
| Worker liability insurance expired |
|
$ 7,000 |
Indirect Labor
Equipment rentals in cash
Worker liability insurance expired
e. Allocated overhead to jobs at the predetermined rate of 40% of direct labor cost
f. Houses completed 402 and 404
g. House 404 Sold for $220,000
Deliverables
1. Record the events in the general journal
2. Post the appropriate entries to the T-accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
3. Add the costs of the unfinished houses, and show that this total amount equals the ending balances in the Work in process inventory account.
4. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished goods inventory.
5. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction?
Post the appropriate entries to the Work in process inventory and Finished goods inventory T-accounts. Identify each entry by letter and determine the ending account balances. The sharded area is for the letter.
Show how the costs of the unfinished houses equals the ending balance in Work in process inventory.
Show how the costs of the completed houses equals the ending balance in Finished goods inventory.
Compute the gross profit for the house that was sold.
Problem 3:
Widget Design, Inc., is a web site design and consulting firm. The firm uses a job order costing system, in which each client is a different job. Widget Design traces direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate, computed as a percentage of direct labor costs.
At the beginning of 2011, managing partner Judi Johnson prepared the following budget:
| Direct Labor Hours |
|
10,000 |
hours |
| Direct Labor Costs |
|
$ 1,400,000 |
|
| Support Staff Salaries |
$ 170,000 |
|
| Computer Leases |
|
$ 49,000 |
|
| Office Supplies |
|
$ 29,000 |
|
| Office Rent |
|
$ 60,000 |
|
In November 2011, Widget Design served several clients. Records for two clients appear here:
| |
|
|
|
Dining Coop |
Root Chocolates |
| Direct labor hours |
|
|
740 hours |
|
65 |
hours |
| Software licensing costs |
|
$ 2,100 |
|
$ 300 |
|
| Travel costs |
|
|
$ 9,000 |
|
$ - |
|
Deliverables
1. Compute Widget Design's predetermined indirect cost allocation rate for 2011.
2. Compute the total cost of each job.
3. If Widget wants to earn profits equal to 20% of sales revenue, how much (what fee) should it charge each of these two clients?
4. Why does Widget Design assign costs to jobs?
Deliverable 1
The predetermined indirect cost allocation rate =
Deliverable 2
First enter in the direct costs for each job. Then enter in the indirect costs and total costs for the jobs.
Make sure to enter "0" in the appropriate column. Enter percentage amounts as a whole number. Round your answers to the nearest whole dollar.
Deliverable 3
Determine the amount Robin Design, Inc. should charge these clients.
Deliverable 4
Widget Designs, Inc. assigns costs to jobs to help the company
Problem 4:
Statement of cost of goods manufactured
The following data relate to Widget Company:
|
|
|
|
|
Inventories |
|
|
|
|
|
Ending |
Beginning |
| Work in Process |
|
|
|
$ 30,000 |
$ 25,000 |
| Materials* |
|
|
|
$ 10,000 |
$ 15,000 |
|
|
|
|
|
|
|
| Costs incurred during the period: |
|
|
|
|
Materials purchases |
|
|
$ 22,000 |
|
|
Indirect materials used |
|
$ 3,000 |
|
|
Direct Labor |
|
|
$ 30,000 |
|
|
indirect Labor |
|
|
$ 8,000 |
|
|
Other Factory overhead |
|
$ 7,500 |
|
| *Includes both direct and indirect |
|
|
|
Instructions: Prepare a statement of cost of goods manufactured for Widget Company for the year ended December 31, 2011.
Attachment:- Problems - Job Order Costing.xlsx