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Acct 3270 Chapter 2 Answers

Acct 3270 Chapter 2 Answers - 2—18(15e20 min...

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Unformatted text preview: 2—18 (15e20 min.) Classification of costs, service sector. Cost object: Each individual focus group Cost variability: With respect to the number of focus groups There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item D or I V or F A D V B F C I V3 D I F E D V F I F G D V H 1 V" ISome students will note that phone call costs are variable when each call has a separate charge. It may be a fixed cost if Consumer Focus has a flat monthly charge for a line, irrespective of the amount of usage. bGasoiine costs are likely to vary with the number of focus groups. However, vehicles likely serve multiple purposes, and detailed records may be required to examine how costs vary with changes in one of the many purposes served. - 2-2:) (15—20 min.) Classification of costs, manufacturing sector. Cost object: Type of car assembled (Corolla or Geo Prism) Cost variability: With respect to changes in the number of cars assembled There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item D or I V or F A D V B I F C D F D D F E D V F I V G D V . H I F 2-23 (15 min) Cost drivers and the value chain. 1. Business Function Representative Cost Driver Production - Hours the Tylenol packaging line is in operation Research and development - Number of patents filed with US. Patent office Marketing - Minutes of TV advertising time on “60 Minutes“ Distribution . Number of packages shipped Design ofproducts/processes - Hours spent designing tamper-proof bottles Customer service . Number of calls to toll—free customer phone line Business Function Representative Cost Driver Research and development - Hours of laboratory work ° Number of new drugs in development Design ofproducts/processes - Number of focus groups on alternative package designs - Hours of process engineering work Production - Number of units packaged 0 Number of tablets manufactured Marketing . Number of promotion packages mailed - Number of sales personnel Distribution - Weight of packages shipped - Number of supermarkets on delivery route Customer service ' Number of units of a product recalled ' Number of personnel on toll—free customer phone lines 2-27 (20—30 min.) Inventoriabie costs versus period costs. 1. Manufacturing-sector companies purchase materials and components and convert them into different finished goods. Merchandisingdector companies purchase and then sell tangible products without changing their basic form. Service-sector companies provide services or intangible products to their customers—for example, legal advice or audits. Only manufacturing and merchandising companies have inventories of goods for sale. 2. Inventoriable costs are all costs of a product that are regarded as an asset when they are incurred and then become cost of goods sold when the product is sold. These costs for a manufacturing company are included in work—in—process and finished goods inventory (they are “inventoried”) to build up the costs of creating these assets. Period costs are all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the period in which they are incurred because they are presumed not to benefit future periods (or because there is not sufficient evidence to conclude that such benefit exists). Expensing these costs immediately best matches expenses to revenues. 3. (a) Mineral water purchased for resale by Safeway—inventoriable cost of a merchandising company. It becomes part of cost of goods sold when the mineral water is sold. (b) Electricity used at GE assembly plant—inventoriable cost of a manufacturing company. It is part of the manufacturing overhead that is included in the manufacturing cost of a refrigerator finished good. (c) Depreciation on Google’s computer equipment-“period cost of a service company. Googie has no inventory of goods for sale and, hence, no inventoriable cost. (d) Electricity for Safeway’s store aisles-“period cost of a merchandising company. It is a cost that benefits the current period and it is not traceable to goods purchased for resale. (e) Depreciation on GE’s assembly testing equipment—inventoriable cost of a manufacturing company. It is part of the manufacturing overhead that is included in the manufacturing cost of a refiigerator finished good. (i) Salaries of Safeway‘s marketing personnel—period cost of a merchandising company. it is a cost that is not traceable to goods purchased for resale. It is presumed not to benefit future periods (or at least not to have sufficiently reliable evidence to estimate such future benefits). (g) Bottled water consumed by Googlc’s engineers—period cost of a service company. Google has no inventory of goods for sale and, hence, no inventoriable cost. (h) Salaries of Google‘s marketing personnel—period cost of a service company. Google has no inventory of goods for sale and, hence, no inventoriable cost. 1. Finished goods inventory, 2/26/2007 = $50,000 2. Work-in-process inventory, 2/26/2007 3 $28,000 3 Direct materials inventory, 2/26/2007 : $62,000 This problem is not as easy as it first appears. These answers are obtained by working from the known figures to the unknowns in the schedule below. The basic reiationships between categories of costs are: Prime costs (given) : $294,000 $294,000 w Direct manufacturing labor costs $294,000 m $180,000 = $114,000 Conversion costs = Direct manufacturing 1abor costs + 0.6 $180,000 + 0.6 m $300,000 $300,000 — $180,000 : $120,000 (or 0.40 x $300,000) 11 Direct materials used 1] Indirect manuf. costs 2—36 (30410 min.) Fire loss, computing inventory costs. Schedule of Computations r Direct materials, 1/1/2007 3 16,000 Direct materials purchased 160,000 Direct materials available for use 176,000 j: Direct materials, 2/26/2007 3 : 62,000 E Direct materials used ($294,000 — $180,000) _ . 114,000 _ . E Direct manufacturing labor costs 180,000 E Prime costs 294,000 : Indirect manufacturing costs 120,000 Manufacturing costs incurred during the current period - 414,000 Add work in process, 1/1/2007 34,000 Manufacturing costs to account for 448,000 Deduct work in process, 2/26/2007 2 a 28,000 Cost of goods manufactured 420,000 Add finished goods, 1/1/2007 30,000 Cost of goods avaiiabie for saie (given) 450,000 Deduct finished goods, 2/26/2007 1 = 50,000 Cost of goods sold (80% of $500,000) £400,000 Some instructors may wish to place the key amounts in a Work in Process T—account. This I problem can be used to introduce students to the flow of costs through the general ledger (amounts in thousands): Cost of Work in Process Finished Goods Goods Sold 131 34 El 30 DM used 114 COGM 420 ---—---> @ COGS 400 ---->400 DL 130 011 l_20 Avaiiable To account for 443 for sale 450 E1 28 E1 50 2-22 ...
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