ACC 312 Study Guide - Midterm Guide: Regional Policy Of The European Union, Reynolds Group Holdings, Weyerhaeuser
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AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.
For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:
Activity | Cost Driver | Allocation Rate |
Material handling | Parts handled | $0.40 |
Lathe work | No. of lathe turns | $0.20 |
Milling | Machine hours | $20.00 |
Grinding | No. of parts ground | $0.80 |
Testing | No. of units tested | $15.00 |
For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:
Job 100 | Job 200 | |
Direct materials cost | $9,700 | $59,900 |
Direct labor cost | $750 | $11,250 |
No. of direct manufacturing labor hours | 25 | 375 |
No. of parts ground | 500 | 2,000 |
No. of lathe turns | 20,000 | 60,000 |
Machine hours | 150 | 1,050 |
No. of units produced during period (all are tested) | 10 | 200 |
Required
1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.
2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.
3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).
4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?
CompuFurn, Inc. manufactures furniture for computer workstations. CompuFurn uses a job-order costing system and employs absorption costing. ComuFurnâs work-in-process inventory on November 30 consisted of the following jobs:
JOB NUMBER | DESCRIPTION | UNIT | ACCUMULATED COSTS |
CC723 | Computer Caddy | 20,000 | $900,000 |
CH291 | Chair | 15,000 | $431,000 |
PS812 | Printer Stand | 25,000 | $250,000 |
Total | $1,581,000 |
On November 30, the companyâs finished-goods inventory, which is evaluated using the first-in, first-out (FIFO) method, consisted of four items:
ITEM | QUANTITY & UNIT COSTS | ACCUMULATED COSTS | ||||||||
| 7,500 units @ $64 | $480,000 | ||||||||
| 19,400 units @ $35 each | $679,000 | ||||||||
Printer Stand | 21,000 units @ $55 each | $1,155,000 | ||||||||
Desk | 11,200 units @ $102 each | $1,142,400 | ||||||||
Total | $3,456,400 |
At the end of November, the balance in CompuFurnâs Materials Inventory account, which includes both raw materials and purchased parts, was $668,000. Additions to and requisitions from the materials inventory during the month of December included the following:
ADDITIONS | RAW MATERIALS | PURCHASED PARTS |
Purchases | $242,000 | $396,000 |
Requisitions: | ||
Job CC723 | $51,000 | $104,000 |
Job CH291 | $3,000 | $10,800 |
Job PS812 | $124,000 | $87,000 |
Job DS444 (5,000 desks) | $65,000 | 187,000 |
CompuFurn applies manufacturing overhead on the basis of machine hours. The companyâs manufacturing overhead budget for the year totaled $4,500,000. The company planned to use 900,000 machine hours during this period, which is the firmâs estimated practical capacity. Through the first 11 months of the year, a total of 830,000 machine hours were used, and actual manufacturing overhead amounted to $4,140,000.
During the month of December, machine hours and labor hours consisted of the following:
ACCOUNT | MACHINE HOURS | LABOR HOURS | COST |
CC723 | 12,000 | 11,600 | $122,400 |
CH291 | 4.400 | 3,600 | $43,200 |
PS812 | 19,500 | 14,300 | $200,500 |
DS444 | 14,000 | 12,500 | $138,000 |
Indirect Labor | --- | 3,000 | $29,400 |
Supervision | --- | --- | $57,600 |
Total | 49,900 | 45,000 | $591,100 |
The jobs completed in December and the unit sales for that month are as follows:
JOB NO. | PRODUCTION ITEMS | QUANTITY COMPLETED | ITEM | QUANTITY SHIPPED |
CC723 | Computer Caddy | 20,000 | Computer Caddy | 17,500 |
CH291 | Chair | 15,000 | Chair | 21,000 |
DS444 | Desks | 5,000 | Printer Stand | 18,000 |
Desks | 6,000 |
REQUIRED:
1. Describe when it is appropriate for a company to use a job-order costing system.
2. Calculate the balance in CompuFurn, Inc.âs Work-in-Process Inventory account as of December 31.
3. Calculate the cost of the chairs in CompuFurn, Inc.âs finished-goods Inventory as of December 31.
4. Actual manufacturing overhead incurred in December amounted to $252,000. Calculate CompuFurnâs overapplied or underapplied overhead for the year.
5. Explain two alternative accounting treatments for overapplied or underapplied overhead balances when using a job-order costing system.