Seminar 10 Week 11 - 0902

Seminar 10 Week 11 - 0902 - S OLUTIONS TO SELF STUDY...

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Unformatted text preview: S OLUTIONS TO SELF STUDY QUESTIONS 5. The features of process cost accounting are: • separate work-in-process accounts for each process • production cost reports • product costs calculated for each accounting period • unit costs calculated based on total manufacturing costs. 7 a) The principal differences are: Activity-Based Costing Traditional Costing Primary focus Bases of allocation Multiple cost drivers Single unit-level bases Total product costs b) Activities performed in making Units of production products Sum of costs of activities consumed in making product. Direct materials plus manufacturing overhead. There are two assumptions that must be met in using ABC: • All overhead costs related to the activity must be driven by the cost driver used to assign costs to products. • All overhead costs related to the activity should respond proportionally to changes in the activity level of the cost driver. Page 2 of 7 E xercise 14.1 Standish Ltd a) 1 The source documents are: • Direct materials – Materials requisition slips • Direct labour – Time tickets • Manufacturing overhead – Predetermined overhead rate. 2 $20,200 ($7,000 + $8,000 + $5,200). 3 Last year 65% ($5,200 ÷ $8,000) This year 70% (either $4,900 ÷ $7,000 or $3,500 ÷ $5,000) b) 31/7 31/7 31/7 31/7 Work in Process Inventory Raw Materials Inventory 9,000 Work in Process Inventory Factory Labour 12,000 Work in Process Inventory Manufacturing Overhead Applied 8,400 Finished Goods Inventory Work in Process Inventory 49,600 9,000 12,000 Page 3 of 7 8,400 49,600 E xercise 14.12 Stylish Clothing Ltd a) 1 Traditional product costing system $400,000 x 0.60 = $240,000 2 Activity-based costing system Activity Cost Pool Sales commissions Advertising-TV/Radio Advertising-Newspaper Catalogues Cost of catalogue sales Credit and collection Cost Driver x Overhead Rate 930,000 250 3,000 60,000 8,500 930,000 1,478,400 $.05 per sale $300 per min $10 per col $2.50 per cat $1.00 per order $.03 per sale = Overhead cost assigned $ 46,500 75,000 30,000 150,000 8,500 27,900 337,900 b) As compared to ABC, traditional costing grossly undercosts the selling costs assigned to the ‘high intensity’ product line. The difference of $97,900 ($337,900-$240,000) in the month of March is a 29% understatement. c) All six activities, as selling activities, are non-value-added activities. Page 4 of 7 P roblem Set A 14.2 Urbana Manufacturing Ltd a) Calculation of pre-determined overhead rate Dept. D = 78% of direct labour cost Dept. E 1,500,000 / 120,000 = $12.50 per direct labour hour Dept. K b) 1,170,000 / $1,500,000 1,248,000 / 156,000 = $8.00 per machine hour Manufacturing costs D $ 140,000 120,000 *93,600 353,600 Manufacturing costs Direct materials Direct labour Overhead applied Total Department E $ 126,000 110,000 **137,500 373,500 K $ 93,600 45,000 ***99,840 238,440 Department E $ 129,000 137,500 (8,500) K $ 96,000 99,840 (3,840) Calculations: * $120,000 x 78% **11,000 x $12.50 ***12,480 x $8.00 c) Under- or overapplied overhead Manufacturing overhead Incurred Applied Under(over) applied d) 93,600 137,500 99,840 D $ 98,000 93,600 4,400 The $7,940 over applied overhead is credited to the cost of goods sold section of the income statement. Page 5 of 7 P roblem Set B 14.1 Adelaide Manufacturing a) Work in Process Inventory i 1/1 Balance Direct materialsii Direct labouriii Mfting overh’div 31/12 Balance i ii iii iv v 128,400 122,000 139,000 166,800 556,200 169,000 Opening WIP Job 7650 Job 7651 Balance c/d 169,000 556,200 34,000 40,000 48,000 122,000 Direct Labour Job 7650 Job 7651 Job 7652 36,000 48,000 55,000 139,000 Manufacturing Overhead Job 7650 Job 7651 Job 7652 Completed jobs 1) Job 7650 Beginning balance Direct materials Direct labour Manufacturing overhead 3) 387,200 77,800 50,600 128,400 Direct materials Job 7650 Job 7651 Job 7652 2) Completed workv, 3 Job 7651 Beginning balance Direct materials Direct labour Manufacturing overhead Total cost of completed work Job 7650 Job 7651 Page 6 of 7 43,200 57,600 66,000 166,800 77,800 34,000 36,000 43,200 191,000 50,600 40,000 48,000 57,600 196,200 191,000 196,200 Work in process balance 387,200 169,000 Unfinished Job No. 7652* 169,000 *Current year’s cost Direct materials Direct labour Manufacturing overhead 48,000 55,000 66,000 169,000 Actual overhead costs Incurred on account Indirect materials Indirect labour Depreciation 115,000 14,000 20,000 8,000 157,000 Applied overhead costs Job 7650 Job 7651 Job 7652 43,200 57,600 66,000 166,800 Actual overhead Applied overhead Overapplied overhead 157,000 166,800 9,800 b) Manufacturing Overhead Applied Cost of Goods Sold (Manufacturing overhead adjusting entry) 9,800 9,800 c) Adelaide Manufacturing Gross Profit Sales (given) 530,000 Cost of goods sold Add: Job 7648 Job 7649 Job 7650 87,000 92,000 191,000 370,000 Deduct: Overapplied overhead Gross profit (9,800) 360,200 169,800 Page 7 of 7 ...
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