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# Cost accounting problems for Valdez Company

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BE22- 1 Valdez Company uses both standards and budgets. For the year, estimated production of Product X is 500,000 units. Total estimated cost for materials and labor are \$ 1,000,000 and \$ 1,600,000. Compute the estimates for (a) a standard cost and (b) a budgeted cost.

BE22- 2 Hideo Company accumulates the following data concerning raw materials in making one gallon of finished product: (1) Price? net purchase price \$ 3.20, freight- in 0.20 and receiving and handling \$ 0.10.
(2) Quantity? required materials 2.6 pounds, allowance for waste and spoilage 0.4 pounds. Compute the following.
( a) Standard direct materials price per gallon.
( b) Standard direct materials quantity per gallon.
( c) Total standard cost per gallon.

BE22- 3 Labor data for making one gallon of finished product in Hideo Company are as follows: ( 1) Price? hourly wage rate \$ 10.00, payroll taxes \$ 0.80, and fringe benefits \$ 1.20. ( 2) Quantity? actual production time 1.2 hours, rest periods and clean up 0.25 hours, and setup and downtime 0.15 hours. Compute the following.
( a) Standard direct labor rate per hour.
( b) Standard direct labor hours per gallon.
( c) Standard labor cost per gallon.

BE22- 4 Sprague Company's standard materials cost per unit of output is \$ 10 (2 pounds \$ 5). During July, the company purchases and uses 3,300 pounds of materials costing \$ 16,731 in making 1,500 units of finished product. Compute the total, price, and quantity materials variances.

BE22- 5 Talbot Company's standard labor cost per unit of output is \$ 20 (2 hours \$ 10 per hour). During August, the company incurs 1,900 hours of direct labor at an hourly cost of \$ 9.60 per hour in making 1,000 units of finished product. Compute the total, price, and quantity labor variances.

BE22- 6 In October, Russo Company reports 21,000 actual direct labor hours, and it incurs \$ 96,000 of manufacturing overhead costs. Standard hours allowed for the work done is 20,000 hours. The predetermined overhead rate is \$ 5 per direct labor hour. Compute the total overhead variance.

BE22- 7 Some overhead data for Russo Company are given in BE22-6. In addition, the flexible manufacturing overhead budget shows that budgeted costs are \$ 4 variable per direct labor hour and \$ 25,000 fixed. Compute the overhead controllable variance.

BE22- 8 Using the data in BE22-6 and BE22-7, compute the overhead volume variance. Normal capacity was 25,000 direct labor hours.

BE22- 9 The four perspectives in the balanced scorecard are (1) financial, (2) customer, (3) internal process, and (4) learning and growth. Match each of the following objectives with the perspective it is most likely associated with: (a) Plant capacity utilization. (b) Employee work days missed due to injury. (c) Return on assets. (d) Brand recognition.

* BE22- 10 Journalize the following transactions for McBee Manufacturing.
( a) Purchased 6,000 units of raw materials on account for \$ 11,500. The standard cost was \$ 12,000.
( b) Issued 5,600 units of raw materials for production. The standard units were 5,800. *

BE22- 11 Journalize the following transactions for Worrel Manufacturing.
( a) Incurred direct labor costs of \$ 24,000 for 3,000 hours. The standard labor cost was \$ 24,600.
( b) Assigned 3,000 direct labor hours costing \$ 24,000 to production. Standard hours were 3,100.

P22- 4A Crede Manufacturing Company uses a standard cost accounting system. In 2007, 33,000 units were produced. Each unit took several pounds of direct materials and 11/ 3 standard hours of direct labor at a standard hourly rate of \$ 12.00. Normal capacity was 42,000 direct labor hours. During the year, 132,000 pounds of raw materials were purchased at \$ 0.90 per pound. All pounds purchased were used during the year.

Instructions
( a) If the materials price variance was \$ 3,960 unfavorable, what was the standard ma-terials price per pound?
( b) If the materials quantity variance was \$ 2,871 favorable, what was the standard ma-terials quantity per unit?
( c) What were the standard hours allowed for the units produced?
( d) If the labor quantity variance was \$ 8,400 unfavorable, what were the actual direct la-bor hours worked?
( e) If the labor price variance was \$ 4,470 favorable, what was the actual rate per hour?
( f) If total budgeted manufacturing overhead was \$ 327,600 at normal capacity, what was the predetermined overhead rate per direct labor hour?
( g) What was the standard cost per unit of product?
( h) How much overhead was applied to production during the year?
( i) If the standard fixed overhead rate was \$ 2.50, what was the overhead volume variance?
( j) If the overhead controllable variance was \$ 3,000 favorable, what were the total vari-able overhead costs incurred? ( Assume that the overhead controllable variance re-lates only to variable costs.)
( k) Using selected answers above, what were the total costs assigned to work in process?

BE23- 1 The steps in management's decision- making process are listed in random or-der below. Indicate the order in which the steps should be executed. ? Make a decision. ? Review results of the decision. ? Identify the problem and ? Determine and evaluate assign responsibility. possible courses of action.

BE23- 2 Ming Company is considering two alternatives. Alternative A will have sales of \$ 150,000 and costs of \$ 100,000. Alternative B will have sales of \$ 180,000 and costs of \$ 120,000. Compare Alternative A to Alternative B showing incremental revenues, costs, and net income.

BE23- 3 In Karnes Company it costs \$ 30 per unit (\$ 20 variable and \$ 10 fixed) to make a product that normally sells for \$ 45. A foreign wholesaler offers to buy 4,000 units at \$ 23 each. Karnes will incur special shipping costs of \$ 1 per unit. Assuming that Karnes has excess operating capacity, indicate the net income ( loss) Karnes would realize by accepting the special order.

BE23- 4 Bartley Manufacturing incurs unit costs of \$ 8 (\$ 5 variable and \$ 3 fixed) in making a sub- assembly part for its finished product. A supplier offers to make 10,000 of the part at \$ 5.30 per unit. If the offer is accepted, Bartley will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Bartley will realize by buying the part.

BE23- 5 Stanton Inc. makes unfinished bookcases that it sells for \$ 60. Production costs are \$ 30 variable and \$ 10 fixed. Because it has unused capacity, Stanton is considering finishing the bookcases and selling them for \$ 72. Variable finishing costs are expected to be \$ 8 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Stanton should sell unfinished or finished bookcases.

BE23- 6 Felton Company has a factory machine with a book value of \$ 90,000 and a re-maining useful life of 4 years. A new machine is available at a cost of \$ 200,000. This machine will have a 4- year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from \$ 600,000 to \$ 440,000. Prepare an analysis showing whether the old machine should be retained or replaced.

BE23- 7 Derby, Inc. manufactures golf clubs in three models. For the year, the Eagle line has a net loss of \$ 20,000 from sales \$ 200,000, variable expenses \$ 180,000, and fixed expenses \$ 40,000. If the Eagle line is eliminated, \$ 34,000 of fixed costs will remain. Pre-pare an analysis showing whether the Eagle line should be eliminated.

BE23- 8 In Nevitt Company, data concerning two products are: Contribution margin per unit? Product A \$ 11, Product B \$ 12; machine hours required for one unit? Product A 2, Prod-uct B 2.5. Compute the contribution margin per unit of limited resource for each product.

P23- 2A The management of Martinez Manufacturing Company has asked for your as-sistance in deciding whether to continue manufacturing a part or to buy it from an out-side supplier. The part, called Tropica, is a component of Martinez's finished product. An analysis of the accounting records and the production data revealed the follow-ing information for the year ending December 31, 2007.

1. The Machinery Department produced 36,000 units of Tropica.
2. Each Tropica unit requires 10 minutes to produce. Three people in the Machinery De-partment work full time ( 2,000 hours per year) producing Tropica. Each person is paid \$ 11.00 per hour.
3. The cost of materials per Tropica unit is \$ 2.00.
4. Manufacturing costs directly applicable to the production of Tropica are: indirect la-bor, \$ 5,500; utilities, \$ 1,300; depreciation, \$ 1,600; property taxes and insurance, \$ 1,000. All of the costs will be eliminated if Tropica is purchased.
5. The lowest price for a Tropica from an outside supplier is \$ 3.90 per unit. Freight charges will be \$ 0.30 per unit, and a part- time receiving clerk at \$ 8,500 per year will be required.
6. If Tropica is purchased, the excess space will be used to store Martinez's finished prod-uct. Currently, Martinez rents storage space at approximately \$ 0.60 per unit stored per year. Approximately 6,000 units per year are stored in the rented space.

Instructions
( a) Prepare an incremental analysis for the make- or- buy decision. Should Martinez make or buy the part? Why?
( b) Prepare an incremental analysis, assuming the released facilities can be used to pro-duce \$ 10,000 of net income in addition to the savings on the rental of storage space. What decision should now be made?
( c) What nonfinancial factors should be considered in the decision?

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#### Solution Summary

Cost accounting for Valdez Company is provided.

\$2.19