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E10-4 (a,b)

Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
Indirect labor $1.00
Indirect materials 0.50
Utilities 0.40
Fixed overhead costs per month are: Supervision $4,000, Depreciation $1,500, and Property Taxes $800. Assume that in July 2008, Raney Company incurs the following manufacturing overhead costs.
Variable Costs Fixed Costs
Indirect labor $8,700 Supervision $4,000
Indirect materials 4,300 Depreciation 1,500
Utilities 3,200 Property taxes 800

Prepare a flexible budget performance report, assuming that the company worked 9,000 direct labor hours during the month. (If answer is zero, please enter 0. Do not leave any fields blank.)
RANEY COMPANY
Manufacturing Overhead Flexible Budget Report
For the Month Ended July 31, 2008
Difference
Budget Actual Costs Favorable F
Direct labor hours 9,000 DLH 9,000 DLH Unfavorable U
Variable costs
Indirect labor $
$
$

Indirect materials

Utilities

Total variable costs

Fixed costs
Supervision

Depreciation

Property taxes

Total fixed costs

Total costs $
$
$

Prepare a flexible budget performance report, assuming that the company worked 8,500 direct labor hours during the month.
RANEY COMPANY
Manufacturing Overhead Flexible Budget Report
For the Month Ended July 31, 2008
Difference
Budget Actual Costs Favorable F
Direct labor hours 8,500 DLH 8,500 DLH Unfavorable U
Variable costs
Indirect labor $
$
$

Indirect materials

Utilities

Total variable costs

Fixed costs
Supervision

Depreciation

Property taxes

Total fixed costs

Total costs $
$
$

E10-7

Pletcher Company's manufacturing overhead budget for the first quarter of 2008 contained the following data.
Variable Costs Fixed Costs
Indirect materials $12,000 Supervisory salaries $36,000
Indirect labor 10,000 Depreciation 7,000
Utilities 8,000 Property taxes and insurance 8,000
Maintenance 6,000 Maintenance 5,000
Actual variable costs were: indirect materials $13,800, indirect labor $9,600, utilities $8,700, and maintenance $4,900. Actual fixed costs equaled budgeted costs except for property taxes and insurance, which were $8,200. The actual activity level equaled the budgeted level.
All costs are considered controllable by the production department manager except for depreciation, and property taxes and insurance.

Prepare a flexible manufacturing overhead budget report for the first quarter. (If answer is zero, please enter 0. Do not leave any fields blank.)
PLETCHER COMPANY
Manufacturing Overhead Flexible Budget Report
For the Quarter Ended March 31, 2008
Difference
Favorable F
Budget Actual Unfavorable U
Variable costs
Indirect materials $
$
$

Indirect labor

Utilities

Maintenance

Total variable costs

Fixed costs
Supervisory salaries

Depreciation

Prop. taxes & ins.

Maintenance

Total fixed costs

Total costs $
$
$

Prepare a responsibility report for the first quarter. (If answer is zero, please enter 0. Do not leave any fields blank.)
PLETCHER COMPANY
Manufacturing Overhead Responsibility Report
For the Quarter Ended March 31, 2008
Difference
Favorable F
Controllable Costs Budget Actual Unfavorable U
Indirect materials $
$
$

Indirect labor

Utilities

Maintenance

Supervisory salaries

Total costs $
$
$

E10-9 (a)

Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business. The owner, Paul Pronto, had divided the company into two segments: Home Plumbing Services and Business Plumbing Services. Each segment is run by its own supervisor, while basic selling and administrative services are shared by both segments.
Paul has asked you to help him create a performance reporting system that will allow him to measure each segment's performance in terms of its profitability. To that end, the following information has been collected on the Home Plumbing Services segment for the first quarter of 2008.
Budgeted Actual
Service revenue $25,000 $26,000
Allocated portion of:
Building depreciation 11,000 11,000
Advertising 5,000 4,200
Billing 3,500 3,000
Property taxes 1,200 1,000
Material and supplies 1,500 1,200
Supervisory salaries 9,000 9,400
Insurance 4,000 3,500
Wages 3,000 3,300
Gas and oil 2,700 3,400
Equipment depreciation 1,600 1,300
Prepare a responsibility report for the first quarter of 2008 for the Home Plumbing Services segment. (List budget amounts from largest to smallest eg 10, 5, 3, 2.)
PRONTO PLUMBING COMPANY
Home Plumbing Services Segment
Responsibility Report
For the Quarter Ended March 31, 2008
Difference
Favorable F
Budget Actual Unfavorable U

$
$
$

Variable costs:

Total variable costs

Contribution margin

Controllable fixed costs:

Tot. controll. fixed costs

Controllable margin $
$
$

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E10-14

The Sports Equipment Division of Brandon McCarthy Company is operated as a profit center. Sales for the division were budgeted for 2008 at $900,000. The only variable costs budgeted for the division were cost of goods sold ($440,000) and selling and administrative ($60,000). Fixed costs were budgeted at $100,000 for cost of goods sold, $90,000 for selling and administrative and $70,000 for noncontrollable fixed costs. Actual results for these items were:
Sales $880,000
Cost of goods sold
Variable 409,000
Fixed 105,000
Selling and administrative
Variable 61,000
Fixed 67,000
Noncontrollable fixed 80,000

Prepare a responsibility report for the Sports Equipment Division for 2008.
BRANDON McCARTHY COMPANY
Sports Equipment Division
Responsibility Report
2008
Budget Actual Difference
Sales $
$
$

Variable costs
Cost of goods sold

Selling and administrative

Total

Contribution margin

Controllable fixed costs
Cost of goods sold

Selling and administrative

Total

Controllable margin $
$
$

Assume the division is an investment center, and average operating assets were $1,000,000. Compute ROI. (Round answer to 1 decimal place, e.g. 10.5.)
%

P10-3A

Zelmer Company uses budgets in controlling costs. The August 2008 budget report for the company's Assembling Department is as follows.
ZELMER COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2008
Difference
Favorable F
Manufacturing Costs Budget Actual Unfavorable U
Variable costs
Direct materials $ 48,000 $ 47,000 $1,000 F
Direct labor 54,000 51,300 2,700 F
Indirect materials 24,000 24,200 200 U
Indirect labor 18,000 17,500 500 F
Utilities 15,000 14,900 100 F
Maintenance 9,000 9,200 200 U
Total variable 168,000 164,100 3,900 F
Fixed costs
Rent 12,000 12,000 -0-
Supervision 17,000 17,000 -0-
Depreciation 7,000 7,000 -0-
Total fixed 36,000 36,000 -0-
Total costs $204,000 $200,100 $3,900 F
The monthly budget amounts in the report were based on an expected production of 60,000 units per month or 720,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August, because only 58,000 units were produced.

State the total monthly budgeted cost formula.
The formula is fixed costs $ plus variable costs of $ per unit.

Prepare a budget report for August using flexible budget data. (If answer is zero, please enter 0. Do not leave any fields blank.)
ZELMER COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended August 31, 2008
Difference
Budget Actual Costs Favorable F
Units

Unfavorable U
Variable costs
Direct materials $
$
$

Direct labor

Indirect materials

Indirect labor

Utilities

Maintenance

Tot. variable costs

Fixed costs
Rent

Supervision

Depreciation

Tot. fixed costs

Total costs $
$
$

In September, 64,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August.
ZELMER COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended September 30, 2008
Difference
Budget Actual Costs Favorable F
Units

Unfavorable U
Variable costs
Direct materials $
$
$

Direct labor

Indirect materials

Indirect labor

Utilities

Maintenance

Tot. variable costs

Fixed costs
Rent

Supervision

Depreciation

Tot. fixed costs

Total costs $
$
$

P10-5A (a,c)

Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2008, and relevant budget data are as follows.
Actual Comparison
with Budget
Sales $1,500,000 $100,000 favorable
Variable cost of goods sold 700,000 60,000 unfavorable
Variable selling and administrative expenses 125,000 25,000 unfavorable
Controllable fixed cost of goods sold 170,000 On target
Controllable fixed selling and administrative expenses 80,000 On target
Average operating assets for the year for the Home Division were $2,500,000 which was also the budgeted amount.

Prepare a responsibility report for the Home Division. (If answer is zero, please enter 0. Do not leave any fields blank.)
DINKLE MANUFACTURING COMPANY
Home Division
Responsibility Report
For the Year Ended December 31, 2008
Difference
Favorable F
Budget Actual Unfavorable U
Sales $
$
$

Variable costs
Cost of goods sold

Selling & admin.

Tot. variable costs

Contribution margin

Contr. direct fixed costs
Cost of goods sold

Selling & admin.

Tot. fixed costs

Controllable margin $
$
$

ROI %
%
%

Compute the expected ROI in 2009 for the Home Division, assuming the following independent changes to actual data. (Round answers to 1 decimal place, e.g. 10.5.)
1. Variable cost of goods sold is decreased by 6%.
2. Average operating assets are decreased by 10%.
3. Sales are increased by $200,000, and this increase is expected to increase contribution margin by $90,000.
1. %

2 %

3. %

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Solution Summary

The solution answer Cost accounting problems E10-4 (a,b);E10-7;E10-9 (a);E10-14;P10-3A,

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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:
Adding Subtracting
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.
b. Manufacturing Overhead.
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
Answer the following independent questions and show computations to support your answers.

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
Overhead controllable 500 F
Overhead volume 3,000 U

In addition, 15,000 units of product were sold at $18 per unit. Each unit sold had a standard cost of $12. Selling and administrative expenses for the month were $10,000.

Instructions
Prepare an income statement for management for the month ending January 31, 2006.

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