ACCT208 Lecture Notes - Lecture 3: Deutsche Luft Hansa, Direct Labor Cost, Cost Driver

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apricotguinea-pig271

11 Apr 2016

School

University of Delaware

Department

Accounting

Course

ACCT208

Professor

Best Joel

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Document Summary

Chapter 3 job order costing accounting 208. Different products or services produced in each period. Use jobs to collect costs and do the work. Each job is assigned a number so employees can charge dl & dm company assigns oh to the job. Simple: how would you determine what an item costs: trace dm & dl to each job; allocate oh because not directly traceable, total job cost/ # of units = unit cost of the job. Uses absorption costing: external reporting required by gaap. All factory costs are assigned to product units: Dm + dl + voh + foh absorbs all the overhead variable and fixed. Allocated & estimated usage: applied to job using predetermined overhead rate ( pohr ) ****actual oh costs are never assigned to a job or product in a normal cost system. Applied oh on a job = actual cost driver units used on the job x pohr.

Related Questions

1. T or F: Standardsare set for units; budgets are expressed in total dollars.

2. T or F: The standard cost per unit iscomputed by multiplying the standard quantity or hours by the

standard price or rate.

3. T or F: When actual revenue is above budgetor actual cost is below budget, a favorable variance

occurs.

4. T or F: Anunfavorable cost variance occurs when actual cost is higher thanbudget cost.

5. T or F With a flexible budget a manager can determine whatcosts should have been attained at a

given level of activity.

6. T or F : In a standard costing system wherethe denominator activity for the predetermined

overhead rate is labor-hours, overhead costs are applied to work inprocess on the basis of

actual hours worked.

7. T or F: A volumevariance and an efficiency variance are computed for fixed overheadcosts.

8. T or F: The budgetvariance represents the difference between the actual fixedoverhead cost

incurred during a period and the budgeted fixedoverhead cost.

9. T or F: Under theabsorption costing method, a company can increase profits byincreasing

production rather than by increasing sales.

10. T or F: Profitsmove in the same direction as sales when variable costing is usedif selling prices,

thesales mix, and the cost structure remain the same.

11. T or F: Thesalary of the CEO of Wal-Mart is a traceable fixed cost of thevarious WM stores.

12. T or F: Indirectcost is not traced directly to specific cost objects (products,jobs, or customers).

13. T or F: A costthat has already been incurred and therefore cannot be changed byany alternatives

issunk cost.

14. T or F:Generally, a product line should be dropped when the fixed coststhat can be avoided by dropping the product line are less than thecontribution margin that will be lost.

15. When the amount assigned to aresponsibility center is significantly influenced by the actions ofsomeone within the responsibility center, the item of cost is a_____________________.

16. In a _____________ cost system,every unit of product moving along the production line bears thesame amount of overhead cost, regardless of how much time itactually takes to process a particular unit.

17. In _______________ costing, nofixed overhead costs are charged to individual units of product, sono overhead rate for the fixed component of overhead costs need beused in the cost accounting system.

18. A cost that is incurred to supporta number of costing objects but cannot be traced to themindividually is a ___________________.

19. _______________is often regardedas the best approach to the transfer pricing problem, particularlyif transfer price negotiations routinely become bogged down.

20. A _______________ is simply thedifference between a predetermined norm or standard and the____________ results. Management wants to know not only what theamounts of the differences were but also, and more important, whythese occurred to take corrective action.

21. A _______________ center is anybusiness segment whose manger has control over both cost andrevenue. However, it generally does not have control overinvestment funds.

* Words banks for theabove Q15 through Q21: Absorbed, Actual, Budgeted, Common cost,Controllable cost, Cost, Full, Market price, Negotiated transferprice, Profit, Standards, Transfer price, Variable, &Variance.

goldwildebeest627

Exhibit 1Wilkerson Company: Operating Results (March 2000)

Direct Materials Expense

498,000

Manufacturing Overhead

Machine-relatedexpenses

$313,600

Setup labor

32,000

Receiving andproduction control

192,900

Engineering

100,000

Packaging andshipping

150,000

Total Manufacturing Overhead

788,500

Total cost of goods sold

General, Selling & Admin. Expense

559,650

Operating Income (pre-tax)

$35,100

Exhibit 2. ProductProfitability Analysis (March 2000)
	Valves	Pumps	Flow Controllers
Direct labor cost	$10.00	$12.50	$10.00
Direct material cost	18.00	22.00	22.00
Manufacturing overhead (@300%)	30.00	37.50	30.00
Standard unit costs	$58.00	$72.00	$62.00

Target selling price	$86.15	$107.69	$95.38
Planned gross margin (%)	35.0%	35.0%	35.0%

Actual selling price	$86.00	$87.00	$105.00
Actual gross margin (%)	32.6%	17.2%	41.0%

Exhibit 3 Product Data
	Valves	Pumps	Flow Controllers
Materials per unit
# ofcomponents	4	5	10
	3 @ $2 = $6	4 @ $2 = $8	4 @ $1 = $4
	2 @ $6 = $12	2 @ $7 = $14	5 @ $2 = $10
			1 @ $8 = $8
Materials cost per unit	$18.00	$22.00	$22.00
Direct labor per unit (in DL hrs)	0.4	0.5	0.4
Direct labor $/unit @ $25/DL hr	$10.00	$12.50	$10.00
including employeebenefits)
Machine hours per unit	0.50	0.50	0.30

Exhibit 4 MonthlyProduction and Operating Statistics (March 2000)
	Valves	Pumps	Flow Controllers	Total
Production (units)	7,500	12,500	4,000	24,000
Machine hours	3,750	6,250	1,200	11,200
Production runs	10	50	100	160
Number of shipments	10	70	220	300
Hours of engineering work	250	375	625	1,250

What is the competitive situation faced by Wilkerson?

Given some apparent problems with Wilkersonâs cost system,should executives abandon overhead assignment to products entirelyby adopting a contribution margin approach in which manufacturingoverhead is treated as a period expense? Why or why not?

Prepare the following calculations. Create a table using Excelto show your answers with details support your answer. Be sure touse $ signs where appropriate. Copy and paste as picture into Worddocument.

Calculate the unit product cost for each product using thedirect-labor-based cost allocation system.

Calculate the unit product cost for each product using activitybased costing to allocate the cost of manufacturing overhead, aswell as profitability for each product line. Overhead cost poolsinclude machine, setup, receiving/scheduling, engineering supportand packing/shipping products.

Compare your work in question 3a. and 3b. above. Why have costshifts occurred?

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1. Total assets turnover measures the ability of a firm to:

a. Generate profits on sales

b. Generates sales through the use of assets

C. Buy new Assets

D. Move inventory

E. Cover long term debt.

2.Managerial accounting :

a. focuses only on historical data

b. is govern by GAAP

c. focuses primarily on the needs of personnel within theorganization.

d. provides information for parties external to theorganization

e. focuses on the financial statement and other financialreports.

3. which of the following statement about similarities betweenprocess costing and job costing are true.

I. Both systems assign production costs to unit of output.

II. Both system require extensive knowledge of financialaccounting.

III. The flow of costs through the manaufacturing accopunts isessentially the same.

A. I only

B. I and III

C. II and III

D. III only

E. I,II, and III

4. The comprehensive set of budget that serves as a companyoverall financial plan si commonly known as:

A. Integrated budget

B. a Pro-forma budget

C. Master budget

D. a master budget

E. a rolling budget

5. A flexible budget:

A. classifies budget request by activity and estimates thebenefits arising from each activity.

B. presents a statement of expectations for a period of time butdoes not present a firm committment.

C. presents the plan for only one level of activity and does notadjust to changes in the level of activity.

D presents the plan for a range of activity so that the plan canbe adjust for changes in the activity level.

6. Which of the following is the correct method to calculate apredetermined overhead rate?

A. Budgeted total manufacturing cost budgeted amount of costdriver.

B. Budgeted overhead cost budgeted amount of cost driver

C. Budgeted amount of cost driver budgeted overhead cost

D. Actual overhead cost budgeted amount of cost driver

E. Actual overhead cost actual amount of cost driver.

7.Which of the following statements about joint-cost allocationis FALSE?

A. Joint cost allocation is useful in deciding whether tofurther process a product after split-off

B. Joint cost allocation is useful in making a profitdetermination about individual joint products

C. Joint cost allocation is helpful in inventory valuation

D. Joint cost allocation can be based on the number of unitsproduced.

E. Joint cost allocation can be accompanied by using differentmethods that focus on sale value and product worth.

8.The total production cost of a job is composed of:

A. Direct material and direct labor

B. direct material, direct labor, manufacturing overhead, andoutlays for selling costs.

C. direct material. direct labor, manufacturing overhead,andoutlays for both selling and administration costs.

D. direct materiaL, direct labor,and applied manufacturingoverhead

E. direct material, direct labor, and selling expenses.

9.What will cause the variable overhead efficiency variance?

A. Efficient or inefficient use of a specific component ofvariable overhead(e.g. electricity)

B. Full or partial utilization of major equipment resources

C. Production of unit in excess of the number of units sold.

D. Efficient or inefficient use of cost driver(e.g. machinehours) for variable overhead

E. Changes in the salary cost of manufacturing supervisors.

10. Which of the following is classified as an inventoryshortage cost?

A. Purchase order preparation

B. Production disruption

C. Lost sales and lost customers.

D. Spoilage

E. Production disruption, lost sales and lost customers.

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ACCT208 Lecture Notes - Lecture 3: Deutsche Luft Hansa, Direct Labor Cost, Cost Driver

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