2. ACECO Continuing Problem
ACECO 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 2012.
Raw materials were requisitioned from the company’s inventory on December 2 for $5,061; on
December 8 for $1,059; and on December 14 for $3,459. 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 machine 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 237 sprinkler
heads for J57 and 142 sprinkler heads for K52.
Additional job order activities during this period of time included:
Dec. 1 Purchased raw materials from Durbin Supply Company on account for $53,200.
Dec. 2 Issued $40,000 of direct materials from the company’s inventory to jobs other than K52 and J57
and $3,000 of indirect materials.
Dec.12 Paid ACECO factory salaries and wages in the amount of $65,000.
Dec.13 Paid the factory’s water bill of $9,000.
Dec.18 Transferred $50,000 of costs from other completed jobs to finished goods.
Dec.21 Paid the factory’s electric bill of $12,000 for ACECO’ factory.
Dec.31 Made adjusting entries for the factory that included accrued property taxes of $12,000, prepaid
insurance of $8,800, and accumulated depreciation of $16,000. 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.)
(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.
(c) Assuming that Manufacturing Overhead has a debit balance of $3,600, determine whether
overhead has been under/over applied and make the adjusting entry.
(d) Why would ACECO choose machine hours as the cost driver for the overhead rather than
direct labor cost? 3. ACECO Continuing Problem
Because most of the parts for its irrigation systems are standard, ACECO 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 22,000 Stage of completion for materials 80% Stage of completion for labor and overhead 30% Costs in work in process inventory:
Materials $168,360 Labor 67,564 Overhead 17,270 Total costs in beginning work in process $253,194 Units started into production in January 60,000 Units completed and transferred in January 58,000 Costs added to production:
Materials
Labor
Overhead
Total costs added into production in January $264,940
289,468
60,578
$614,986 Work in process ending:
Units in process 24,000 Stage of completion for materials 50% Stage of completion for labor and overhead 10% Instructions
(a) Prepare a Equivalent Units of Production report for ACECO using the weighted-average
method.
(b) Prepare a Cost Per Equivalent Unit report for ACECO using the weighted-average method.
(c) Prepare a Costs of Ending Work in Process Inventory and Units Transferred Out report for
ACECO using the weighted-average method. 4. ACECO Continuing Problem
Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of
manufacturing due to the complexities of many manufacturing processes. Many companies use activitybased costing (ABC) which uses multiple drivers (items that consume resources) rather than just one
driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct
cause/effect relationship in its applied overhead costs.
ACECO looked into ABC as a method of costing because of the variety of items it produces and the
many different activities in which it is involved. The activities listed below are a sample of possible cost
pools for ACECO.
Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Instructions
(a) For each of these cost pools, what would be the likely activity cost driver?
(b) Using the following information, determine the overhead rates and the actual cost assigned for each
of the activity cost pools in a possible ABC system for ACECO.
ACECO CORPORATION Activity Cost Pools
Irrigation installation
Machining (all machine use)
Customer orders
Shipping
Design
Selling Cost Drivers
Labor cost
Machine hours
Number of orders
none (direct)
Cost per design
Number of sales calls 3 Estimated
Overhead
$1,998,432
1,670,400
30,636
820
350,400 Expected
Use of Cost
Drivers per
Activity
12,960
33,408,000
2,553
N/A
8
21,900 Actual Use of
Drivers
12,941
33,409,000
2,520
traced directly
7
22,100
