ACTG 2300 Lecture 16: Day 16 Notes
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1) All of the following are examples of product costs except:
depreciation on the company's administrative offices.
salary of the plant manager.
insurance on the factory equipment.
rental costs of the factory facility.
2) Period costs:
are treated as expenses in the period they are incurred
are directly traceable to products
include direct labor
are also referred to as manufacturing overhead costs
.
3) Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
Direct materials $30
Direct manufacturing labor 5
Variable manufacturing overhead 10
Fixed manufacturing overhead 40
Total manufacturing costs $85
The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing 1,500 axles?
a. $85,000
b. $170,000
c. $107,500
d. $102,500
4) In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would:
overstate period expenses on the income statement.
overstate the cost of goods sold on the income statement.
understate the cost of goods manufactured.
have no effect on the cost of goods manufactured.
5) In CVP analysis, focusing on target net income rather than operating income:
a. will increase the breakeven point
b. will decrease the breakeven point
c. will not change the breakeven point
d. does not allow calculation of breakeven point
6) A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.
a. True
b. False
7) As activity increases within the relevant range, fixed costs remain constant on a per unit basis.
a. True
b. False
8) Which of the following statements is correct with regard to a CVP graph?
A CVP graph shows the maximum possible profit.
A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.
A CVP graph assumes that total expense varies in direct proportion to unit sales.
A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.
9) How would the following costs be classified (product or period) under variable costing at a retail clothing store?
Cost of purchasing clothing | Sales commissions | |
a. | Product | Product |
b. | Product | Period |
c. | Period | Product |
d. | Period | Period |
10) The principal difference between variable costing and absorption costing centers on:
whether variable manufacturing costs should be included as product costs.
whether fixed manufacturing costs should be included as product costs.
whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs.
none of these.
11) Joe has a hot dog cart that he parks on the NY sidewalk and sells hotdogs during the day. The variable cost of a hot dog is $.90. The selling price of the hot dog is $2.00. The fixed cost is $3,000 per month which covers the loan for the cart and the salary Joe needs to make to live. How many hotdogs must Joe sell in one month in order to break even?
3,300 hot dogs
3,000 hot dogs
2,727.27 hot dogs
2,728 hot dogs
12) Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:
Unit product cost under variable costing.......................... | $5.20 per unit | |
Fixed manufacturing overhead cost for the year.............. | $260,000 | |
Fixed selling and administrative cost for the year............ | $180,000 | |
Units (calculators) produced and sold.............................. | 400,000 |
What is Shun's unit product cost under absorption costing for last year?
$4.10
$4.55
$5.85
$6.30.
Use the following information to answer questions 13 to 15:
Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 14,000 units were started, 12,000 units were completed and transferred to the next department.
13) Calculate the number of equivalent units for materials.
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
14) Calculate the number of equivalent units for conversion?
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
15) An analysis of the costs relating to work in process at May 1 and to production activity for May follows:
Materials | Conversion | ||
Work in process 5/1....................... | $13,800 | $3,740 | |
Costs added during May................ | $42,000 | $26,260 |
The total cost per equivalent unit for May was:
$5.02
$5.10
$5.12
$5.25
The questions are to be answered based on the information ofdata below an dplease help to answer the question in detail.
The questions to concentrate on are as follows:
There are various costing methods available for companies toimplement. As a company grows, it may become beneficial to consideran alternate costing method.
A. Identify an alternative costing method that could benefitthis company, and describe the main characteristics of thatmethod.
B. What should a company look for when trying to determinewhether they should adopt such a system?
C. Should the company adopt this alternative costing method?Defend your response.
This is scenario :
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials:$3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
The data that is supposed to be usedto answer the questions mentioned on top is right below. Pleasehave a look at the calculations.
Cost InformationFrom Instructions | ||||
Stick | Collapsible | |||
Units Sold | 60,000 | 3,000 | ||
Selling Price | $12.50 | $14.00 | ||
Direct Material Cost Per Unit | $3.00 | $3.10 | ||
Direct Labor Cost Per Hour | $7.50 | $8.00 | ||
Variable MO | $0.40 | $0.40 | ||
Variable Selling Costs | $1.10 | $1.10 | ||
Labor Hours Per Unit | 0.2 | 0.2 | ||
Sales Orders | 120 | 1 | ||
Purchase Orders | 50 | 3 | ||
Production Runs | 45 | 6 | ||
Material Moves | 86 | 10 | ||
Machine Setups | 130 | 6 | ||
Machine Hours | 525 | 32 | ||
Inspections | 200 | 10 | ||
Shipments | 60 | 3 | ||
Activity Information fromInstructions | ||||
Activity | Activity Cost | Activity Cost Driver | ||
Order Processing | $35,000 | Number of Sales Orders | ||
Purchasing | $36,000 | Number of Purchase Orders | ||
Material Handing | $28,000 | Material Moves | ||
Machine Setup | $14,000 | Machine Setups | ||
Production | $99,000 | Production Runs | ||
Assembly | $80,000 | Machine Hours | ||
Inspecting | $11,000 | Number of Inspections | ||
Shipping | $7,500 | Number of Shipments | ||
Requirement 1 | ||||
Activity | Total Costs | Quantity of Cost Allocation Base | Overhead Allocation Rate | |
Order Processing | $35,000 | 121 | $289 | |
Purchasing | $36,000 | 53 | $679 | |
Material Handing | $28,000 | 96 | $292 | |
Machine Setup | $14,000 | 136 | $103 | |
Production | $99,000 | 51 | $1,941 | |
Assembly | $80,000 | 557 | $144 | |
Inspecting | $11,000 | 210 | $52 | |
Shipping | $7,500 | 63 | $119 | |
Requirement 2 | ||||
Traditional Costing | ||||
Stick Umbrella | Collapsible Umbrella | Total | ||
Revenues | $750,000 | $42,000 | $792,000 | |
Direct Materials | $180,000 | $9,300 | $189,300 | |
Direct Labor | $90,000 | $4,800 | $94,800 | |
Variable Overhead | $24,000 | $1,200 | $25,200 | |
Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
Allocated Fixed Overhead | $295,714 | $14,786 | $310,500 | |
Total Costs | $655,714 | $3,386 | $689,100 | |
Operating Income | $94,286 | $8,614 | $102,900 | |
Operating Income % | 13% | 21% | $13 | |
Per Unit Operating Income | $1.57 | $2.87 | ||
Requirement 3 | ||||
Activity-Based Costing | ||||
Stick Umbrella | Collapsible Umbrella | Total | ||
Revenues | $750,000 | $42,000 | $792,000 | |
Direct Materials | $180,000 | $9,300 | $189,300 | |
Direct Labor | $90,000 | $4,800 | $94,800 | |
Variable Overhead | $24,000 | $1,200 | $25,200 | |
Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
Order Processing Costs | $34,711 | $289 | $35,000 | |
Purchasing Costs | $33,963 | $2,038 | $36,000 | |
Material Handing Costs | $25,084 | $2,917 | $28,000 | |
Machine Setup Costs | $13,382 | $618 | $14,000 | |
Production Costs | $87,353 | $11,647 | $99,000 | |
Assembly Costs | $75,405 | $4,595 | $80,000 | |
Inspecting Costs | $10,476 | $524 | $11,000 | |
Shipping Costs | $7,143 | $357 | $7,500 | |
Total Costs | $647,516 | $41,584 | $689,100 | |
Operating Income | $102,484 | $416 | $102,900 | |
Operating Income % | 14% | 1% | 12.99 | |
Per Unit Operating Income | $1.71 | $0.14 | ||
Requirement 4 | ||||
Costs per Unit | Stick Umbrella | Collapsible Umbrella | ||
Traditional | $10.93 | $11.13 | ||
ABC | $10.79 | $13.86 | ||
Difference | $0.14 | $($2.73) | ||
Requirement 5 | ||||
Calculation ofLabour Hours (note): 1) Labor hour per unit of stick umbrella is0.2 and it is the same for the collapsible umbrella. While theunits sold for the stick umbrella are 60,000 and for thecollapsible umbrella are 3,000. Then multiply the labor hour perunit with the units sold, then the total amount for the stickumbrella is $12,000 and for the collapsible umbrella is $600.Adding these both amounts will total $12,600 | ||||