AFM102 Lecture Notes - Lecture 2: Marginal Revenue, Financial Statement, Sunk Costs

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tealskunk19

27 Mar 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Bable

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Document Summary

Janitorial wages, payroll costs for supervisors, security personnel, and maintenance workers= overhead (indirect cost) Overtime premiums=extra hourly wage rate paid to production workers who are required to work additional hours A job specific reason for overtime is a direct job cost. Normal overtime cost from general conditions is an overhead charge (indirect) Employment benefits such as employment taxes, medical coverage and pension costs= classified as additional indirect overhead. Direct employee benefits are calculate in total direct labour cost. Divided into 2 categories: 1) marketing/ selling costs 2) administrative. Cost classifications on financial statements: financial statements are more complex for manufacturing as they must account for production and marketing of goods. Balance sheet: merchandising and manufacturing have same accounts (assets, liabilities, key difference is inventory accounts, merchandising company has only one class of inventory- goods purchased from suppliers that are awaiting resale to customers. Manufacturing companies have three classes of inventories: raw (direct) materials inventory.

Related Questions

1. Process costing is normally used when:

a. large numbers of different products are manufactured

b. large numbers of nearly identical products aremanufactured

c. small numbers of nearly identical products aremanufactured

d. the fixed costs of manufacturing exceed the variable cost ofmanufacturing

2. Manufacturing overhead:

a. consists of direct material and direct labour costs

b. is easily traced to jobs

c. should not be assigned to individual jobs because it bears noobvious relationship to them

d. is a heterogeneous pool of indirect production costs that caninclude gas and electricity costs and depreciation

orchidelk884

Looking to achieve the highest grade possible, please see below. Please indicate if this answer is correct. IF I have left a calcuation out, please include.

Thank you,

The Big Bus Company manufactures two products, Product 1 and Product 2. Product 2 was developed as an attempt to enter a market closely related to that of Product 1. Product 2 is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture compared to one and one-half hours of direct labour time for Product 1. Product 2 is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 units of Product 2 and 22,000 units of Product 1 during the current year. Unit costs for materials and direct labour are:

			Product 1	Product 2
	Direct Labour		$7	$15
	Direct material		$9	$20


Required:

a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. (5 marks)

			Product 1	Product 2	Total		Allocation
Direct Labour hour / unit			1.5	3			396,000 / 49,500
units produced			22,000	5,500			8
total labour hour			33,000	16,500	49,500
overhead/unit			12	24			overhead/unit is calculated by direct LH x 8

		Product 1	Product 2
Direct material		9	20
Direct labour		7	15
overhead/unit		16	35
cost/unit		32	70





b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: (5 marks)


					Expected Activity
		Activity Costs Pools		Estimated Overhead Costs	Product 1	Product 2	Total
		Machine set-ups required		$170,000	700	1,000	1,700
		Purchase orders issued		37,000	300	200	500
		Machine-hours required		91,000	4,000	9,000	13,000
		Maintenance requests issued		98,000	400	600	1,000
				$396,000


	Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

			Total Cost	Product A	Product B
	Machine Setups		170,000	70,000	100,000
	purchase order		37,000	22,200	14,800
	machine hours		91,000	28,000	63,000
	maintenance requests		98,000	39,200	58,800
	Total		396,000	159,400	236,600
				22,000	5,500
	overhead /cost			7..25	43..02

			product 1	product 2
	Direct Labour		9	20
	direct material		7	15
	overhead / unit		7..25	43.02.
	Unit/ cost		23..25	78.020.

1. ABC generally causes the least amount of cost distortionamong products because indirect costs are allocated to the productsbased on

types of activities used by theproduct.

the extent to which the activitiesare used.

both A and B.

none of the above.

Chicago Steel's operating activities for the year are listedbelow:

Beginning inventory	$1,000,800
Ending inventory	$350,500
Purchases	$750,300
Sales revenue	$1,500,400
Operating expenses	$700,200

What is the cost of goods sold for the year?

$1,751,100

$1,400,600

$750,100

$50,100

The following is selected financial data from Turtle BayManufacturing for the most recent year:

Ending raw materials inventory	$21,200
Ending work in process inventory	$44,900
Ending finished goods inventory	$53,200
Amount of underallocated manufacturing overhead	$5,100
Cost of goods sold for year	$85,500
Cost of raw materials purchased during year	$45,700
Cost of direct materials requisitioned during year	$44,300
Cost of indirect materials requisitioned during year	$7,200
Cost of goods completed during year	$120,200
Manufacturing overhead allocated	$60,400
Manufacturing overhead % of direct labor cost	135%

What is the beginning raw materials inventory?

$27,000

$51,500

$19,800

$5,800

4. Which of the following is not an activity inan ABC system that determines the cost of a manufacturedproduct?

Materials handling

Inspecting

Machining

Accounting

5. Which type of company utilizes managerialaccounting?

Manufacturers

Service

Retailers

All of the above

6. On a traditional income statement, all manufacturing-relatedcosts, whether fixed or variable, are listed

above the gross profit line.

below the operating incomeline.

above the sales line.

above the contribution margin line.

7. In a process costing system, direct labor and manufacturingoverhead are normally

incurred evenly throughout theprocess.

incurred at the end of theprocess.

incurred in full at the beginningof the process.

not recorded.

8. Manufacturing overhead costs for a productinclude

operating expenses.

indirect manufacturing costs.

direct material.

prime costs.

Here are selected basic data for Wilson Company:

Estimated manufacturing overhead	$243,750	Factory utilities	$30,900
Estimated labor hours	35,000	Indirect labor	$22,600
Actual direct labor hours	36,000	Sales commissions	$54,600
Estimated direct labor cost	$325,000	Factory rent	$47,800
Actual direct labor cost	$320,000	Factory property taxes	$28,700
Factory depreciation	$65,600	Indirect materials	$33,300

If the company allocates overhead based on direct labor cost,what are the total actual manufacturing overhead costs?

$173,000

$283,500

$228,900

$260,900

10. ERP stands for

	Enterprise Resource Planning.
	Enclosed Resource Placement.
	Edwin R. Perry, the man thatcreated the first system.
	Entity Replacement Product.

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AFM102 Lecture Notes - Lecture 2: Marginal Revenue, Financial Statement, Sunk Costs

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