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Exam 6: Fundamentals of Product and Service Costing

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Question 41

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Smooth Sailing Company,experienced the following events during 2016: Purchased $1,800,000 of lumber and other materials for building boats.Incurred $200,000 for advertising.Paid $60,000 to have lumber transported to its factory.Had sales revenue of $6,000,000 during the year.Incurred $400,000 of general and administrative expenses.Took a periodic inventory at year-end and determined that material costing $400,000 was on hand.The inventory at the beginning of the year was $200,000.All costs incurred were added to the appropriate accounts.All sales were on credit.Required: Solve for the following items in Smooth Sailing Company's Raw-Material inventory account: a)Transfers in (TI).b)Beginning balance (BB).c)Transfers out (TO).d)Ending balance (EB).

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Transfers in = $1,860,000 ($1,800,000 of...

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Question 42

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It is important that cost management systems are designed using the cost-benefit principle so that the costs of gathering additional information are balanced against the benefits of that information.

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Savor Flavor Supplies applies manufacturing overhead to its products on the basis of 50% of direct material cost.If a job had $35,000 of manufacturing overhead applied to it during May,the direct materials assigned to the job was:

Tidy Furniture Company uses a job-order cost system.The following debits (credits)appeared in the Work-in-Process account for February 2016: $\begin{array} { | l | l | r | r | } \hline & \text { Description } & \text { Debits } & \text { Credits } \\\hline \text { June 1 } & \text { Balance } & \$ 20,000 & \\\hline \text { Entire month } & \text { Direct Materials } & 80,000 & \\\hline \text { Entire month } & \text { Direct Labor } & 60,000 & \\\hline \text { Entire month } & \text { Manufacturing overhead } & 45,000 & \\\hline \text { Entire month } & & & \$ 120,000 \\\hline\end{array}$ Tidy applies overhead to production at a predetermined rate of 75%,based on direct labor cost.Job 1000,the only job still in process at the end of June,has been charged with direct labor of $30,000.Tidy's Manufacturing Overhead account showed a credit balance of $10,000 at the end of February 2016. Required: (a)Calculate the amount of direct materials charged to Job 1000. (b)Compute the actual overhead for February 2016. (c)Assume that Tidy closes its Manufacturing Overhead account each month.Tidy does not prorate the manufacturing overhead variance.Prepare the entry to close the overhead account at the end of February,2016.

The basic cost flow model is:

Buster Corporation,a manufacturing company,has provided data concerning its operations for September.The beginning balance in the raw materials account was $37,000 and the ending balance was $29,000.Raw materials purchases during the month totaled $57,000.Manufacturing overhead cost incurred during the month was $102,000,of which $2,000 consisted of raw materials classified as indirect materials.The direct materials cost for September was:

Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate.In computing the predetermined overhead rate for 2016,the company misclassified a portion of direct labor cost as indirect labor.The effect of this misclassification will be to:

Cost management systems should be designed to report the same costs to each decision-maker.

Briefly discuss the issue of the choice of an activity measure for setting overhead rates.

The management of Norbert Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year.The company's controller has provided an example to illustrate how this new system would work.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 70,000 machine-hours.In addition,capacity is 82,000 machine-hours and the actual activity for the year is 72,900 machine-hours.All of the manufacturing overhead is fixed and is $4,132,800 per year.For simplicity,it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.Job O65A,which required 300 machine-hours,is one of the jobs worked on during the year.Required: a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.b.Determine how much overhead would be applied to Job O65A if the predetermined overhead rate is based on the amount of the allocation base at capacity.

For Case (A) above,what is the Beginning Balance (BB) ? $\begin{array} { | l | r | r | r | } \hline & \text { Case } ( A ) & \text { Case } ( B ) & \text { Case } ( C ) \\\hline \text { Beginning Balance (BB) } & ? & \$ 8,630 & \$ 71,600 \\\hline \text { Ending Balance (EB) } & 34,360 & ? & 75,100 \\\hline \text { Transterred In } ( T ) ) & 194,600 & 42,600 & ? \\\hline \text { Transterred Out } ( T O ) & 192,800 & 46,500 & 181,900 \\\hline\end{array}$

Process costing systems do not separate and record direct material and direct labor costs for each individual unit of product.

Pierce Carts produces three models of push carts,the Economy,the Standard,and the Deluxe.Data on operations and costs for the month are: Required: Compute the total cost for each model,assuming Pierce Carts uses: (a)Direct labor hours to allocate overhead costs.(b)Direct labor costs to allocate overhead costs.(c)Machine hours to allocate overhead costs.

The following direct labor information pertains to the manufacture of product Scour: What is the standard direct labor cost per unit of product Scour? (CPA adapted) $\begin{array} { | l | l | } \hline \text { Time required to make one unit } & 2 \text { direct labor } \\\text { hours } \\\hline \text { Number of direct workers } & 50 \\\hline \text { Number of productive hours per week, } & 40 \\\text { per worker } & \$ 500 \\\hline \text { Weekly wages per worker } & 20 \% \text { of wages } \\\hline \text { Workers' benefits treated as direct labor } \\\text { costs } & \\\hline\end{array}$

QuikCard processes credit card receipts for local banks.QuikCard processed 1,400,000 receipts in October.All receipts are processed the same day they are received.October costs were labor of $14,000 and overhead of $28,000.What is the cost to process 1,000 receipts?

Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e. ,capital-intensive) manufacturing company?

Which of the following statements regarding the two-stage cost allocation process is (are) false? (A) If a company has three cost pools,then it should also have three different cost allocation bases.(B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.

If the Beginning Balance (BB)equals the Ending Balance (EB),then the Transfers In (TI)equal the Transfers Out (TO).

Assume that the following events occurred at a division of Sawyer Enterprises for the current year.(1)Purchased $900,000 in direct materials.(2)Incurred direct labor costs of $520,000.(3)Determined that manufacturing overhead was $820,000.(4)Transferred 75% of the materials purchased to Work-in-Process Inventory.(5)Completed work on 60% of the work in process.Costs assigned equally across all work-in-process.(6)The inventory accounts have no beginning balances.All costs incurred were debited to the appropriate account and credited to Accounts Payable.Required: Compute the following amounts in the Work-in-Process Inventory account: (a)Transfers-in (TI).(b)Transfers-out (TO).(c)Ending balance (EB).

Regression analysis can be used to estimate the strength of the relationship between a cost and potential allocation bases for that cost.