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# Cost Accounting

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1. (Chapter 2) The following information has been extracted from the records of Haverhill Company:

Sales \$400,000
Purchases of direct materials 70,000
Indirect labor 10,000
Indirect materials 4,000
Depreciation of factory equipment 15,000
Depreciation of factory buildings 11,000
Marketing costs 25,000
Direct labor 180,000
Direct materials inventory, 12-31-04 14,000
Work in process, 1-1-04 31,000
Direct materials inventory, 1-1-04 10,000
Work in process, 12-31-04 23,000
Finished goods inventory, 1-1-04 49,000
Finished goods inventory, 12-31-04 44,000

Required:

a. Prepare a statement of cost of goods manufactured.

2. (Chapter 2) Madisen Consulting, Inc., experienced the following results in the current year (2004):

Sales \$500,000
Beginning work in process 10,000
Ending work in process 20,000
Direct materials 50,000
Direct labor 100,000
Selling expenses 50,000

Required:

Prepare an income statement for Madisen Consulting for the year 2004.

3. (Chapter 3) Koch, Inc., believes their electricity costs are affected by the number of machine hours worked. Machine hours and electricity costs for the past year were as follows:

Month Machine Hours Electricity Costs
January 300 \$ 6,000
February 240 4,250
March 580 7,750
April 860 9,750
May 1,040 11,250
June 940 11,000
July 1,140 14,000
August 900 12,250
September 1,240 14,250
October 740 7,750
November 480 7,000
December 380 6,500

Using the high-low method,

a. Develop an estimate of variable electricity costs per machine hour.

b. Develop an estimate of fixed electricity costs per month.

c. Develop a cost function for monthly electricity costs.

d. Estimate electricity costs for a month in which 500 machine hours are worked using the cost function in requirement c above.

4. (Chapter 4) The Oakland plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance \$240,000
Inspection 500,000

The plant currently applies overhead using direct labor hours and expected capacity of 100,000 direct labor hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus 20 percent markup.

Direct materials \$2,800
Direct labor \$7,500
Machine hours 900
Number of inspections 8
Direct labor hours 1,100

Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000.

Required:

a. Compute the total cost of the potential job using direct labor hours to assign overhead.

Also determine the bid price for the potential job.

b. Compute the total cost of the job using activity-based costing and the appropriate cost drivers.

Also determine the bid price if activity-based costing is used.

5. (Chapter 5) The Dewey Company uses a predetermined overhead rate to apply manufacturing overhead to production. The rate is based on direct labor hours. Estimates for the year just ended are as follows:

Estimated direct labor hours 40,000

During the year Dewey Company used 37,000 direct labor hours.

At the end of the year, Dewey Company records revealed the following information:

Raw materials inventory \$ 35,000
Work-in-process inventory 60,000
Finished goods inventory 105,000
Cost of goods sold 400,000

Required:

a. Calculate the predetermined overhead rate for the year.

b. Determine the amount of overhead applied during the year.

c. Determine the amount of underapplied or overapplied manufacturing overhead for the year.

6. (Chapter 6) AL Corporation produces a product that passes through two departments. For January, the following equivalent unit schedule was prepared for the first department:

Materials Conversion Cost
Units completed 120,000 120,000
Units in EWIP x Fraction complete:
Materials (10,000 x 100%) 10,000
Conversion (10,000 x 40%) 4,000
Equivalent units of output 130,000 124,000

Costs assigned to beginning work in process:

Materials: \$68,000
Conversion: \$33,000

Manufacturing costs incurred during the month:

Materials: \$75,000
Conversion: \$60,000

Required:

a. Compute the unit cost for January using the weighted average method.

b. Determine the cost of goods transferred out.

c. Determine the cost of ending work in process.

7. (Chapter 8) The Good As Old Company manufactures antique-looking, oak rocking chairs. Budgeted sales for the first five months of the year are as follows:

Budgeted Sales (Units)
January 200
February 240
March 180
April 160
May 240

Each rocking chair requires 10 square feet of oak, at a cost of \$20 per square foot.

The company wants to maintain an inventory of chairs equal to 25 percent of the following month's sales. At the beginning of the year, 40 chairs are on hand.

Assume the company maintains an inventory of oak equal to 10 percent of the next month's needs. At the beginning of the year, 240 square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 180 square feet.

Required:

a. Prepare a production budget, in units, for each of the first four months of the year.

b. Prepare a purchases budget, in dollars, for each of the first three months of the year.

8. (Chapter 9) Fosse Manufacturing Company has developed the following standards for one of their products:

STANDARD VARIABLE COST CARD
ONE UNIT OF PRODUCT

Direct materials: 20 square feet x \$10 per square foot \$200.00
Direct labor: 8 hours x \$12 per hour 96.00
Variable overhead: 8 hours x \$6 per hour 48.00
Total standard variable cost per unit \$344.00

The company records materials price variances at the time of purchase.

The following activities occurred during the month of May:

Materials purchased 150,000 square feet at \$10.50 per sq. foot
Materials used 96,000 square feet
Units produced 5,000 units
Direct labor 41,000 hours at \$13.10 per hour

Required:

a. Calculate the materials price variance and indicate whether it is favorable or unfavorable.

b. Calculate the materials usage variance and indicate whether it is favorable or unfavorable.

c. Calculate the labor rate variance and indicate whether it is favorable or unfavorable.

d. Calculate the labor efficiency variance and indicate whether it is favorable or unfavorable.

#### Solution Summary

The solution has various problems in cost accounting.

\$2.19

## Cost Accounting Questions and 3 Cost Analysis Problems

1. Cost of goods manufactured during a period is obtained by taking the total manufacturing costs incurred during the period, adding, and subtracting the following inventories:
a. Beginning finished goods inventory Ending finished goods inventory
b. Beginning work in process inventory Ending finished goods inventory
c. Beginning raw materials inventory Ending work in process inventory
d. Beginning work in process inventory Ending work in process inventory

2. Cost of goods sold is equal to
a. total manufacturing costs plus beginning work in process less ending work in process.
b. cost of goods sold plus beginning work in process less ending work in process.
c. total manufacturing costs plus ending work in process less beginning work in process.
d. cost of goods manufactured plus beginning finished goods less ending finished goods.

3. Inventory accounts for a manufacturer consist of
a. direct materials, work in process, and finished goods.
b. direct labor, work in process, and finished goods.
c. manufacturing overhead, direct materials, and direct labor.
d. work in process, direct labor, and manufacturing overhead.

4. In a process cost system, equivalent units of production are the
a. work done on physical units expressed in fully completed units.
b. units that are transferred to the next processing department.
c. units completed and transferred to finished goods.
d. units that are incomplete at the end of a period.

Use the following information for questions 5 and 6.

In the month of November, a department had 500 units in the beginning work in process inventory that were 60% complete. These units had \$8,000 of materials cost and \$6,000 of conversion costs. Materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During November, 10,000 units were completed and transferred to the finished goods inventory and there were 2,000 units that were 25% complete in the ending work in process inventory on April 30. During November, manufacturing costs charged to the department were: Materials \$184,000; Conversion costs \$204,000.

5. The cost assigned to the units transferred to finished goods during November was
a. \$360,000.
b. \$362,000.
c. \$376,000.
d. \$358,000.

6. The cost assigned to the units in the ending work in process inventory on November 30 was
a. \$72,000.
b. \$42,000.
c. \$32,000.
d. \$58,000.

7. An appropriate cost driver for ordering and receiving materials cost is the
a. direct labor hours.
b. machine hours.
c. number of parts.
d. number of purchases orders.

8. Benefits of activity-based costing include all of the following except
a. more accurate product costing.
b. fewer cost pools used to assign overhead costs to products.
c. enhanced control over overhead costs.
d. better management decisions.

9. An example of a value-added activity in a manufacturing operation is
a. machine repair.
b. inventory control.
c. engineering design.
d. building maintenance.

10. Assigning manufacturing costs to work in process results in credits to all of the following accounts except
a. Factory Labor.
c. Raw Materials Inventory.
d. Work in Process Inventory.

11. Juniper, Inc. sells a single product with a contribution margin of \$12 per unit and fixed costs of \$74,400 and sales for the current year of \$100,000. How much is Juniper's break even point?

a. 4,600 units
b. \$25,600
c. 6,200 units
d. 2,133 units

12. Homer Company's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost \$22,000. If sales are expected to increase \$40,000, by how much will the company's net income increase?
a. \$18,000
b. \$6,000
c. \$12,000
d . \$12,000

13. Twix Company sells two products, beer and wine. Beer has a 10 percent profit margin and wine has a 12 percent profit margin. Beer has a 27 percent contribution margin and wine has a 25 percent contribution margin. If other factors are equal, which product should Twix push to customers?
a. Beer
b. Wine
c. Selling either results in the same additional income for the company
d. It should sell an equal quantity of both.

14. Monroe Company manufactures a product with a unit variable cost of \$42 and a unit sales price of \$75. Fixed manufacturing costs were \$80,000 when 10,000 units were produced and sold, equating to \$8 per unit. The company has a one-time opportunity to sell an additional 1,000 units at \$55 each in an international market which would not affect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order?
a. \$42,000
b. \$5,000
c. \$50,000
d. \$13,000

15. Beavers, Inc. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is \$16, while the cost of assembling each unit is estimated at \$17. Unassembled units can be sold for \$55, while assembled units could be sold for \$71 per unit. What decision should Beavers make?
a. Sell before assembly, the company will save \$1 per unit.
b. Sell before assembly, the company will save \$15 per unit.
c. Process further, the company will save \$1 per unit.
d. Process further, the company will save \$16 per unit.

16. Lion Company sells office chairs with a selling price of \$25 and a contribution margin per unit of \$15. It takes 3 machine hours to produce one chair. How much is the contribution margin per unit of limited resource?
a. \$5
b. \$3.33
c. \$45
d. \$10

Use the following information for items 17 -19.

Dustin Company sells its product for \$40 per unit. During 2005, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials \$10, direct labor \$6, and variable overhead \$2. Fixed costs are: \$480,000 manufacturing overhead, and \$60,000 selling and administrative expenses.

17. The per unit manufacturing cost under absorption costing is:
a. \$16.
b. \$18.
c. \$26.
d. \$27.

18. The per unit manufacturing cost under variable costing is:
a. \$16.
b. \$18.
c. \$26.
d. \$27.

19. Cost of goods sold under absorption costing is:
a. \$ 900,000.
b. \$1,080,000.
c. \$1,300,000.
d. \$1,560,000.

20. A company developed the following per-unit standards for its product: 2 pounds of direct materials at \$6 per pound. Last month, 2,000 pounds of direct materials were purchased for \$11,400. The direct materials price variance for last month was
a. \$11,400 favorable.
b. \$600 favorable.
c. \$300 favorable.
d. \$600 unfavorable.

21. The per-unit standards for direct materials are 2 gallons at \$4 per gallon. Last month, 11,200 gallons of direct materials that actually cost \$42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was
a. \$3,200 favorable.
b. \$2,400 favorable.
c. \$3,200 unfavorable.
d. \$5,600 unfavorable.

22. The per-unit standards for direct labor are 2 direct labor hours at \$12 per hour. If in producing 2,400 units, the actual direct labor cost was \$51,200 for 4,000 direct labor hours worked, the total direct labor variance is
a. \$1,920 unfavorable.
b. \$6,400 favorable.
c. \$4,000 unfavorable.
d. \$6,400 unfavorable.

23. The standard rate of pay is \$5 per direct labor hour. If the actual direct labor payroll was \$19,600 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. \$800 unfavorable.
b. \$800 favorable.
c. \$1,000 unfavorable.
d. \$400 favorable.

24. The standard number of hours that should have been worked for the output attained is 8,000 direct labor hours and the actual number of direct labor hours worked was 8,400. If the direct labor price variance was \$8,400 unfavorable, and the standard rate of pay was \$18 per direct labor hour, what was the actual rate of pay for direct labor?
a. \$17.00 per direct labor hour
b. \$15.00 per direct labor hour
c. \$19.00 per direct labor hour
d. \$18.00 per direct labor hour

Problem 1 - Activity-Based Costing (16 points)

Tuttle Manufacturing Company manufactures two products: radiators and gas tanks. During June, 200 radiators and 400 gas tanks were produced and overhead costs of \$54,000 were incurred. The following information related to overhead costs was available:

Activity Cost Driver Total Cost
Materials handling Number of requisitions \$24,000
Machine setups Number of setups 18,000
Quality inspections Number of inspections 20,000

The cost driver volume for each product was as follows:

Cost Driver Radiators Gas Tanks Total
Number of requisitions 300 500 800
Number of setups 140 220 360
Number of inspections 190 310 500

Instructions
a) Compute the overhead rate for each activity.
b) Assign the manufacturing overhead costs for June to the two products using activity-based costing.

Problem 2 - Cost-Volume-Profit (20 points)

Reavis Company prepared the following income statement for 2005:

REAVIS COMPANY
Income Statement
For the Year Ended December 31, 2005

Sales (20,000 units) \$600,000
Variable expenses 360,000
Contribution margin 240,000
Fixed expenses 180,000
Net income \$ 60,000

Instructions

1) What is the company's break-even point in units?
2) How many more units would the company have had to sell to earn net income of \$90,000 in 2005?
3) If the company expects a 25% increase in sales volume in 2006, what would be the expected net income in 2006?
4) How much sales dollars would the company have to generate in order to earn a target net income of \$110,000 in 2006?
Problem 3 - Standard Costing ( 16 points)

Beachwalk Company uses a standard cost accounting system. During January, 2006, the company reported the following manufacturing variances:

Material price variance \$2,000 F
Material quantity variance 2,400 U
Labor price variance 800 U
Labor quantity variance 1,200 U