ACC 403

Cost Accounting

Tutorials with solutions

Prof. Dr. Jannis Bischof

University of Mannheim

FSS 2023

The tutorial questions are partly based on:

- Bhimani, A., C.T. Horngren, S.M. Datar and M.V. Rajan (2018): Management and Cost Accounting,
7th edition, Harlow / UK: Pearson Education.
- Datar, S. M., Rajan, M. (2021): Horngren’s Cost Accounting: A Managerial Emphasis. 17th edition
(global edition), Harlow / UK: Pearson Education.

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 1

 Session 4
Question 1

Furniturefactory GmbH assembles tables. It uses a job-costing system with two direct-cost categories
(direct materials and direct labor) and one indirect cost pool (assembly support). Direct labor-hours is the
allocation base for assembly support costs. In December 2021, Furniturefactory budgets 2022 assembly
support costs to be 8,000,000 € and 2019 direct labor-hours to be 160,000.

At the end of 2022, Furniturefactory is comparing the costs of several jobs that were started and com-
pleted in 2022.

Construction period Model 1 Model 2

February-June 2022 May-October 2022
Direct materials 106,450 € 127,604 €
Direct labor 36,276 € 41,410 €
Direct labor-hours 900 1,010

Direct materials and direct labor are paid for on a contract basis. The costs of each are known when direct
materials are used or direct labor-hours are worked. The 2022 actual assembly support costs were
6,888,000 € while the actual direct labor hours were 164,000.

a) Please calculate the budgeted and actual indirect cost rates. Why do they differ?

b) What is the job cost of Model 1 and Model 2 using normal costing and actual costing?

c) Why might Furniturefactory prefer normal costing over actual costing?

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 2

Solution:

a) Budgeted indirect-cost rates = 8,000,000 € / 160,000 = 50 € per direct labor-hour

Actual indirect-cost rate = 6,888,000 € / 164,000 = 42 € per direct labor-hour

They differ because (1) the actual costs are smaller than the budgeted costs (numerator reason) and (2)
are divided by more hours (denominator reason).

b)
Normal costing Model 1 Model 2
Direct costs (€)
Direct materials 106,450 127,604
Direct labor 36,276 41,410
= 142,726 =169,014
Indirect costs (€)
Assembly support (50 € x 900; 50 € x 1,010) 45,000 50,500

Total costs (€) 187,726 219,514

Actual costing
Direct costs (€) 142,726 169,014
Indirect costs (€)
Assembly support (42 € x 900; 42 € x 1,010) 37,800 42,420

Total costs (€) 180,526 211,434

c) Normal costing enables Furniturefactory to report a job cost as soon as the job is completed, assuming
that both the direct materials and direct labor costs are known at the time of use/work. Once the 900 direct
labor-hours are known for the Model 1 (June 2022), Furniturefactory can calculate the 187,726 € cost
figure using normal costing. In contrast, Furniturefactory has to wait until the December 2022 year-end to
calculate the 180,526 € cost figure using actual costing.

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 3

Question 2

Below you will find some cost data for Waltzwerk AG for 2022.

Budgeted manufacturing overhead 7,000,000 €

Budgeted machine-hours 200,000
Actual manufacturing overhead 6,800,000 €
Actual machine-hours 195,000

Waltzwerk’s job-costing system has a single manufacturing overhead cost pool and allocates costs using
normal costing.

a) Please calculate the budgeted manufacturing overhead rate.

b) How much of the overhead is allocated?

c) Please calculate the amount of under- or overallocation of manufacturing overhead.

d) Please discuss different approaches to dispose the under- or overallocated amount.

Solution:

a) Budgeted manufacturing overhead rate = 7,000,000 € / 200,000 = 35 € per machine-hour

b) 35 € per machine-hour x 195,000 = 6,825,000 €

c) 6,825,000 € - 6,800,000 € = 25,000 € overallocated

d) (1) The adjusted allocation rate approach restates the indirect costs allocated to each job using actual
indirect cost rates rather than budgeted indirect cost rates. Hence, every single job cost record accurately
represents actual indirect costs incurred.

(2) The proration approach spreads under- or overallocated overhead among cost of goods sold and
closing stocks. There are three methods for proration:
(i) Proration is based on the total amount of indirect costs allocated (before proration) in the closing bal-
ances. This method restates cost of goods sold and closing stocks to what they would have been had
actual indirect cost rates rather than budgeted indirect cost rates been used (same closing balances as
under the adjusted allocation rate approach).
(ii) Proration is based on total closing balances (before proration). This method restates cost of goods
sold and closing stocks in proportion to their total closing balances.
(iii) Proration is based on year-end write-off to cost of goods sold (write-off approach). The total under- or
overallocated overhead is included in cost of goods sold.

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 4

Question 3

Ti-Enne Srl uses a normal costing system with a single manufacturing overhead cost pool and machine-
hours as the allocation base. The following data are for 2022:

Budgeted manufacturing overhead 4,800,000 €

Overhead allocation base Machine hours
Budgeted machine-hours 80,000
Manufacturing overhead incurred 4,900,000 €
Actual machine-hours 75,000

Machine-hours data and the closing balances (before proration of under- or overallocated overhead) are
as follows:

Actual machine-hours 2022 end of year balance

Cost of Goods Sold 60,000 8,000,000 €
Finished Goods 11,000 1,250,000 €
Work in Progress 4,000 750,000 €

a) Please calculate the budgeted manufacturing overhead rate for 2022.

b) Please calculate the under- or overallocated manufacturing overhead of Ti-Enne in 2022. Prorate the
under- or overallocated amount using:

1. Immediate write-off to Cost of Goods Sold

2. Proration based on closing balances (before proration) in Work in Progress, Finished Goods, and
Cost of Goods Sold
3. Proration based on the allocated overhead amount (before proration) in the closing balances of
Work in Progress, Finished Goods, and Cost of Goods Sold

c) Which proration method used in b) do you prefer? Explain.

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 5

Solution:

a) Budgeted manufacturing overhead rate = 4,800,000 € ÷ 80,000 = 60 € per machine-hour

b) 4,500,000 € * - 4,900,000 € = - 400,000 € underallocated

* 60 € per machine-hour × 75,000 actual machine-hours = 4,500,000 €

(1) Immediate write-off to COGS

Account End-of-year balance Proration of 400,000 € under- Balance (after pro-

(before proration) (€) allocated manufacturing over- ration) (€)
head (€)
Work in progress 750,000 0 750,000
Finished goods 1,250,000 0 1,250,000
Cost of goods sold 8,000,000 400,000 8,400,000
Total 10,000,000 400,000 10,400,000

(2) Proration based on closing balances (before proration)

Account End-of-year balance (be- Proration of 400,000 € under-allocated Balance (after

fore proration) (€) manufacturing overhead (€) proration) (€)

Work in progress 750,000 (7.5%) 0.075 × 400,000 = 30,000 780,000

Finished goods 1,250,000 (12.5%) 0.125 × 400,000 = 50,000 1,300,000
Cost of goods sold 8,000,000 (80.0%) 0.800 × 400,000 = 320,000 8,320,000
Total 10,000,000 (100.0%) 400,000 10,400,000

(3) Proration based on the allocated overhead amount (before proration)

Account End-of-year Allocated overhead com- Proration of 400,000 € under-al- Balance (af-
balance ponent of end-of-year located manufacturing over- ter prora-
(before pro- balance (before prora- head (€) tion) (€)
ration) (€) tion) (€)
Work in progress 750,000 240,000 (5.33%) 0.0533 × 400,000 = 21,320 771,320
Finished goods 1,250,000 660,000 (14.67%) 0.1467 × 400,000 = 58,680 1,308,680
Cost of goods sold 8,000,000 3,600,000 (80.00%) 0.800 × 400,000 = 320,000 8,320,000
Total 10,000,000 4,500,000 (100%) 400,000 10,400,000

c) Alternative (3) is theoretically preferred to (1) and (2). Alternative (3) yields the same closing balances
in work in progress, finished goods, and cost of goods sold that would have been reported had actual
indirect-cost rates been used. Lecture 3 also discusses an adjusted allocation rate approach that results
in the same closing balances as does alternative (3). This approach operates via a restatement of all the
individual jobs worked on during the year rather than a restatement of closing balances.

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 6

Question 4

BlueZone Inc. uses a job-costing system with two direct-cost categories (direct materials and direct man-
ufacturing labor) and one indirect cost pool (manufacturing overhead). BlueZone allocates manufacturing
overhead costs using direct manufacturing labor costs. Information on the cost items for 2022 is as fol-
lows:

Budget Actual
Direct material costs (€) 2,000,000 1,950,000
Direct manufacturing labor costs (€) 1,550,000 1,475,000
Manufacturing overhead costs (€) 2,790,000 2,876,250

During November, the job-cost record for Job 317 contained the following information: Direct materials
used €35,000 and direct manufacturing labor costs €30,000.

a) Please compute the actual manufacturing overhead rate for 2022.

b) Please compute the budgeted manufacturing overhead rate for 2022.
c) Please compute the total direct manufacturing costs of Job 317 at year-end using actual costing.
d) Please compute the total indirect manufacturing costs of Job 317 at year-end using actual costing.
e) Please compute the total manufacturing costs of Job 317 at year-end using actual costing.
f) Please compute the total direct manufacturing costs of Job 317 during November using normal
costing.
g) Please compute the total indirect manufacturing costs of Job 317 during November using normal
costing.
h) Please compute the total manufacturing costs of Job 317 during November using normal costing.
i) Have manufacturing overheads been overallocated or underallocated if normal costing had been
used in 2022?
j) Please compute the total under- or overallocated manufacturing overhead (for all jobs) under
normal costing at the end of 2022.

Note: 4e) has been corrected from an earlier version.

Solution:

a) 2,876,250 / 1,475,000 = 1.95

b) 2,790,000 / 1,550,000 = 1.8
c) 35,000 + 30,000 = 65,000
d) 1.95 * 30,000 = 58,500
e) 65,000 + 58,500 = 123,500
f) 35,000 + 30,000 = 65,000
g) 1.8 * 30,000 = 54,000
h) 65,000 + 54,000 = 119,000
i) Underallocated
j) 1.8 * 1,475,000 – 2,876,250 = - 221,250

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 7

Question 5
Luxor AG designs and manufactures high-quality, custom-made furniture for B2B customers. After receiv-
ing an order and before starting production, Luxor purchases all the necessary material at once at the
beginning of the period. There are no further purchases and no sales transactions during the month. There
may be material left over from previous orders. The table provides detailed data related to Luxor’s inven-
tory management under different scenarios. Please replace the letters A – O (in bold) with the correct
information.
Pur- Pur-
Con- chase of chase of
Con-
Begin- Begin- Ending Ending sump- Inven- Inven-
sump-
Inventory ning In- ning In- Inven- Inven- tion tory at tory at
tion Dur-
Valuation ventory ventory tory Bal- tory Bal- During the Be- the Be-
ing the
Method Balance Balance ance ance the Pe- ginning ginning
Period
(units) (€/unit) (units) (€/unit) riod of the of the
(€/unit)
(units) Month Month
(units) (€/unit)

LIFO 2,200 6.60 4,000 6.78 A B 5,500 C

FIFO 0 0.00 6,300 D 4,670 2.50 E F

G 300 6.00 H I 400 5.00 500 4.40

Weighted
1,000 J 2,000 6.10 3,500 K L 6.00
Average

FIFO M 4.15 25 N O 4.80 90 5.00

Solution:

A: (2,200 + 5,500) – 4,000 = 3,700

B: (2,200 * 6.60) + (5,500 * x) – (3,700 * x) = 4,000 * 6.78 => x = 7
C: 7
D: 2.5
E: 6,300 + 4,670 = 10,970
F: 2.5
G: Weighted Average
H: (300 + 500) – 400 = 400
I: 5
J: [(5,500 * 6.1) – (4,500 * 6)] / 1,000 = 6.55
K: 6.1
L: (2,000 + 3,500) – 1,000 = 4,500

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 8

M: O = M + 65 and 4.15M + 450 - 4.8O = 125 => M = 20
N: 5
O: 20 + 65 = 85

Prof. Dr. Jannis Bischof – ACC 403 Cost Accounting 9