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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
Depreciation of administrative building 41,000
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


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
Overhead 90,000
Selling expenses 50,000
Administrative expenses 70,000


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.


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 manufacturing overhead $240,000
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
Manufacturing overhead costs incurred 210,000


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


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.


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:


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
Actual variable overhead $238,000


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.

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Solution Summary

The solution has various problems in cost accounting.