Purchase Solution

# Management Accounting for Cosco, Coral, Majestic, Solomon, Merry, Griffiths, Enola, Alana

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Management accounting problems

1. The Cosmo Company developed a cost function for manufacturing overhead costs of manufacturing overhead = \$30,000 + (\$4 &#61620; output). Estimated manufacturing overhead costs at 2,000 units of production would be

a. \$20,000
b. \$25,000
c. \$38,000
d. \$30,000

2. The following cost functions were developed for manufacturing overhead costs:

Electricity \$1,000 + \$2 per direct labor hour
Maintenance \$4,000 + \$5 per direct labor hour
Supervisors' salaries \$7,000 per month
Indirect materials \$4 per direct labor hour

If September production is expected to be 5,000 units requiring 4,000 direct labor hours, estimated manufacturing overhead costs would be

a. \$57,000
b. \$12,000
c. \$13,000
d. \$56,000

The following computer printout was generated using the least squares method for use in estimating overhead costs:

________________________________________________________
X Variable 30
Intercept 1,000
Coefficient of Determination .7
Activity variable Direct labor hours
_________________________________________________________

Figure 1

3. Refer to Figure 1. The cost formula (i.e. cost equation) would be

a. \$1,000 + (\$30 &#61620; .7)
b. \$1,000 &#61620; .7
c. \$1,000 - \$30X
d. \$1,000 + \$30X

4. Refer to Figure 1. An estimate of costs at an activity level of 1,000 direct labor hours would be

a. \$74,000
b. \$1,000
c. \$65,000
d. \$31,000

Problem 1
Coral Industries produces three products: Product X, Product Y, and
Product Z. Information for the products for the year is as follows

Product X Product Y Product Z
Units produced and sold 4,000 6,000 10,000
Selling price per unit \$20 \$9 \$22
Variable expenses per unit \$18 \$6 \$17

The company's total fixed costs totaled \$60,000, of which \$10,000 can be avoided if Product X is dropped, \$15,000 can be avoided if Product Y is dropped, and \$30,000 can be avoided if Product Z is dropped.

Required:
A. Prepare a segmented income statement using variable costing approach. Make sure you include a total column and differentiate between direct and common fixed costs.

B. Should any of the segments be dropped? Why?

Problem 2
Majestic Company manufactures a product which has the following unit costs: direct materials, \$3; direct labor, \$5; variable overhead, \$4; and general fixed overhead, \$6 (The total fixed costs will remain the same within the relevant range). Although production capacity is 80,000 units per year, the company expects to produce only 65,000 units next year. The product normally sells for \$25 each. A customer has offered to buy 10,000 units for \$14 each.

Required:

a. What is the relevant cost to make a unit for the special order?

b. What is the effect on Majestic's income if the special order is accepted? Another way to ask this question, what is the profit/loss on the special order?

c. Should the company accept the special order? Why

Problem 3
Solomon Company manufactures 6,000 XYZ components per year. The manufacturing cost per unit of the XYZ components follows:

Direct materials \$7
Direct labor 6
Total unit cost \$20
===

**Assume that the fixed overhead reflects the allocated cost of Solomon's manufacturing facility to this component. Solomon Company manufactures many different types of components, which will still be manufactured if Solomon Company buys the XYZ Component. An outside supplier has offered to sell the component to Solomon for \$19.

Required:

a. What is the relevant cost to make a unit?

b. What is the effect on income if Solomon purchases(buys) the 6,000 components from the outside supplier? (Give the total dollar amount of the change in income/loss and whether it is an increase or decrease in income) Should Solomon buy from the outsider or make it internally? Assume the manufacturing of other components will not change.

c. Assume that Solomon can avoid \$12,000 of the total general fixed overhead costs if it purchases(Buys) the components. Now what is the effect on income if Solomon purchases the component from the outside supplier? Give the total dollar amount of the change and whether it is an increase or decrease in income) Should Solomon buy from the outsider or make it internally?

Problem 4
Merry Manufacturing has three categories of overhead. The three categories and expected overhead costs for each category for next year are as follows:
Expected Cost Expected Activity
Maintenance \$120,000 Machine hours 20,000
Materials handling 50,000 Material moves 25,000
Setups 25,000 Setups 5,000
Total \$195,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 50,000 direct labor hours are budgeted for next year. The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 10%.

Estimates for the proposed job are as follows:

Direct materials \$10,000
Direct Labor (used 2,000 direct labor hours) \$20,000
Number of machine hours 300
Number of materials moves 40
Number of setups 5

In the past, manufacturing cost has been calculated by allocating overhead using one predetermined overhead rate based on direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.

Required:
Part 1
a. Determine the amount of overhead that would be allocated to the proposed job if direct labor hours are used to allocate overhead.

b. Determine the total cost of the proposed job.

c. Determine the company's bid if the bid is based upon full manufacturing cost plus 10%.

Part 2
a. Determine the amount of overhead that would be applied to the proposed project if activity based costing is used.

b. Determine the total cost of the proposed job if activity-based costing is used.

c. Determine the company's bid if activity based costing is used and the bid is based upon full manufacturing cost plus 10%.

Part 3
Which product costing method produces the more competitive bid? Why?

Problem 5
Griffiths Industries began operations on January 1. The company sells a
single product for \$41 per unit. During the year, 10,000 units were
produced and 9,700 units were sold. There was no work in process
inventory at December 31.
The company uses an actual cost system for product costing and actual costs for the year were as follows:

Fixed Costs Variable Costs
Direct materials -0- \$11.00 per unit produced
Direct labor -0- \$7.00 per unit produced
Manufacturing overhead \$80,000 \$3.00 per unit produced
expenses \$40,000 \$4.00 per unit sold
Required:

a. Determine the product cost(same thing as manufacturing cost) per unit using absorption costing.

b. Determine the product (same thing as manufacturing cost) cost per unit using variable costing.

c. Determine the finished goods inventory cost at December 31 using absorption costing.

d. Determine the finished goods inventory cost at December 31 using variable costing.

e. What would be the difference in income between using the absorption costing and variable costing approach? Give the dollar amount and which one of the two methods has the higher income. You should not prepare income statements. I am only asking for the difference in income and which one would be higher.

Problem 6
Enola, Inc. manufactures a product that sells for \$70. The variable costs per unit are:
Direct materials \$10
Direct labor \$12
Variable selling costs are \$2

During the year, the fixed manufacturing overhead is estimated to be \$300,000 and fixed selling and administrative costs are expected to be \$100,000.
Required:
a. Determine the contribution margin per unit.

b. Determine the break-even point in units.

c. What is the margin of safety in units if actual sales are 14,000 units.

d. Determine the number of units that must be sold to earn \$200,000 in profit before taxes.

Problem 7
Alana Company had three jobs in process during September. They were as follows:
Job No. 4 Job No. 5 Job. No. 6
Direct materials \$ 60,000 \$ 30,000 \$40,000
Direct labor \$ 25,000 \$ 10,000 \$20,000
Machine hours 1,000 2,000 3,000

Alana uses a predetermined overhead rate of \$8 per machine hour to apply overhead.
All three jobs were started during September. Job No. 4 and Job No. 5 were completed during the month and Job No. 5 was sold on September 20.

There was no beginning inventory balances.
Required: Give the Job number(s) and dollar amounts
a. Alana's ending work in process inventory for September would be
Give the Job number(s) and dollar amounts

b. Alana's ending finished goods inventory for September would be
Give the Job number(s) and dollar amounts

c. Alana's cost of goods sold for September would be
Give the Job number(s) and dollar amounts

d. If actual overhead is \$50,000, is the overhead over or underapplied and by how much? Make sure you state the dollar amount and whether it is over or undeerstated.

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