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Cost Accounting

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1. Compare and contrast income statements prepared for managerial use and those prepared for external reporting.

2. Michael Visual Works, Inc. uses a normal costing system and estimated its overhead costs for the current year to be as follows: fixed, $525,000; variable, $4 per unit. Michael expected to produce 350,000 units during the year. During the year, the company incurred overhead costs of $2,100,000 and produced 400,000 units.Calculate the rate to be used to apply manufacturing overhead costs to products.

3. Pete's PCs, Inc. budgeted manufacturing overhead costs for the year are: Type of Cost Cost Pools Electric Power $2,500,000 Inspection $1,500,000 Budgeted overhead costs $4,000,000 Under a traditional cost system, the company estimated the budgeted capacity for machine hours to be 40,000 hours. Bill is considering changing to an activity-based cost system. Thus, the following estimates were provided: Type of Cost Activity-based cost drivers Electric power 50,000 kilowatt hours Inspection 10,000 inspections The following information was provided concerning the production of 1,000 units of model #1040: Direct materials cost $50,000 Direct labor costs $75,000 Machine hours 10,000 Direct labor hours 5,000 Electric power - kilowatt hours 20,000 No. of inspections 1,000 REQUIRED: a. What are the manufacturing costs per PC under the traditional cost system that applies manufacturing overhead costs based on machine hours? b. What are the manufacturing costs per PC if the activity-based costing system is implemented?

4. Explain the costs, benefits, and weaknesses of the various cost estimation methods

5. What are the incentives for committing financial fraud?

6. Describe the use of spreadsheets in financial modeling

7. Latway Company is considering opening a new sales territory. Management expects the initial investment to be $150,000 and subsequent investments of $100,000 and $50,000 at the end of the first and second years. Net cash flow from the sales territory is expected to yield after-tax cash inflow for 5 more years: $75,000 for the first two years and $60,000 for the remaining years. The company's cost of capital is 12 percent. Calculate the net present value of this project.

8. Ben's Delivery Company reports the following information for 2010: Actual: Output: 6,000 parcels picked up or delivered Fuel required: 500 Gallons Cost per gallon: $2.25 per gallon Standard: Fuel allowed: 0.10 gallon per parcel picked up or delivered Cost per gallon: $2.00 per gallon REQUIRED: What was the actual fuel cost, flexible budget for fuel cost, and the fuel cost variance?

9. How do you apply activity-based costing to variance analysis?

10. Compare and discuss the advantages and disadvantages of the following performance measures: ROI and EVA.

11. The Worldwide Computer Retailing Division had the following data: Year Sales Profit Investment 2008 $1,000,000 $100,000 $ 500,000 2009 2,000,000 160,000 1,000,000 2010 4,000,000 400,000 2,500,000 What is the return on investment (ROI), profit margin percentage, and investment turnover ratio for Years 2008, 2009, and 2010?

Solution Preview

1. Compare and contrast income statements prepared for managerial use and those prepared for external reporting.

The income statements prepared for managerial use are for decision making purposes, while to for external reporting are based on GAAP.
While both the statements would have the same total revenue, cost and the net income, the bifurcation of costs differs.
In managerial use, the costs are separated by behavior and so the income statement would show costs as fixed and variable. In external reporting the costs are separated by function and so the income statement would have cost of goods sold, selling expenses and general and administrative expenses.

2. Michael Visual Works, Inc. uses a normal costing system and estimated its overhead costs for the current year to be as follows: fixed, $525,000; variable, $4 per unit. Michael expected to produce 350,000 units during the year. During the year, the company incurred overhead costs of $2,100,000 and produced 400,000 units.Calculate the rate to be used to apply manufacturing overhead costs to products.

The rate to be applied would be fixed overhead rate + variable overhead rate. The variable overhead rate is given as $4 per unit
The fixed overhead rate = Total expected fixed overhead/total expected units = 525,000/350,000 = $1.5 per unit
Total overhead rate = 4+1.5 = $5.5 per unit
This rate would be used to apply the overhead to units.

3. Pete's PCs, Inc. budgeted manufacturing overhead costs for the year are: Type of Cost Cost Pools Electric Power $2,500,000 Inspection $1,500,000 Budgeted overhead costs $4,000,000 Under a traditional cost system, the company estimated the budgeted capacity for machine hours to be 40,000 hours. Bill is considering changing to an activity-based cost system. Thus, the following estimates were provided: Type of Cost Activity-based cost drivers Electric power 50,000 kilowatt hours Inspection 10,000 inspections The following information was provided concerning the production of 1,000 units of model #1040: Direct materials cost $50,000 Direct labor costs $75,000 Machine hours 10,000 Direct labor hours 5,000 Electric power - kilowatt hours 20,000 No. of inspections 1,000 REQUIRED: a. What are the manufacturing costs per PC under the traditional cost system that applies manufacturing overhead costs based on machine hours?

In the traditional costing the overhead is applied based on pre-determined overhead rate
Predetermined overhead rate = Estimated overhead/Estimated ...

Solution Summary

The solution explains some questions in cost accounting

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