Unformatted text preview: A. COST CLASSIFICATIONS (DIRECT vs. INDIRECT, VARIABLE vs. FIXED) (Horngren, 13th edition, 218) Classify each of the following cost items as: a. Direct or indirect (D or I) costs with respect to each individual focus group. b. Variable or fixed (V of F) costs with respect to how the total costs of Consumer Focus change as the number of focus groups conduct changes. D or I V or F A. Payment to individuals in each focus group to provide comments on new products. B. Annual subscription of Consumer Focus to Consumer Reports magazine. C. Phone calls made by Consumer Focus staff members to confirm individuals will attend a focus group session. (Records of individual calls are not kept.) D. Retainer paid to focus group leader to conduct 20 focus groups per year on new medical products. E. Meals provided to participants in each focus groups. F. Lease payment by Consumer Focus for the corporate office. G. Cost of tapes used to record comments made by individuals in a focus group session. (These tapes are sent to the company whose products are being tested.) H. Gasoline costs of Consumer Focus staff for companyowned vehicles (staff members submit monthly bills with no mileage breakdowns.) Mgmt. 201 Review Problems for Midterm Problems Fall 2010 Review Problems for Midterm 1 page 1 B. FLOW OF COSTS (Horngren, 13th edition, 229) Hofstra Plastics' selected data for August 2008 are presented here (in millions): Direct materials inventory, 8/1/2008 $ 90 Direct materials purchased 360 Direct materials used 375 Total manufacturing overhead costs 480 Variable manufacturing overhead costs 250 Total manufacturing costs incurred during August 2008 1,600 Workinprocess inventory 8/1/2008 200 Cost of goods manufactured 1,650 Finished goods inventory 8/1/2008 125 Cost of goods sold 1,700 Required: Calculate the following costs: 1. Direct materials inventory 8/31/2008 2. Fixed manufacturing overhead costs for August 3. Direct manufacturing labor costs for August 4. Workinprocess inventory 8/31/2008 5. Cost of goods available for sale in August 6. Finished goods inventory 8/31/2008 Review Problems for Midterm 1 page 2 C. INCOME STATEMENT AND SCHEDULE OF COST OF GOODS MANUFACTURED (Horngren, 13th edition, 232) The Howell Corporation has the following account balances (in millions): For Specific Date For Year 2009 Direct materials inventory, Jan. 1, 2009 $ 15 Purchases of direct materials $ 325 Workinprocess inventory, Jan. 1, 2009 10 Direct manufacturing labor 100 Finished goods inventory, Jan. 1, 2009 70 Depreciation--plant and equipment 80 Direct materials inventory, Dec. 31, 2009 20 Plant supervisory salaries 5 Workinprocess inventory, Dec. 31, 2009 5 Miscellaneous plant overhead 35 Finished goods inventory, Dec. 31, 2009 55 Revenues 950 Marketing and distribution costs 240 Plant supplies used 10 Plant utilities 30 Indirect manufacturing labor 60 Required: Prepare an income statement and a supporting schedule of cost of goods manufactured for the year ended December 31, 2009. Review Problems for Midterm 1 page 3 D. INCOME STATEMENT (ETC.) Continuation of problem C above(Horngren, 13th edition, 233) Required: 1. How would the answer to the above problem be modified if you were asked for a Schedule of Cost of Goods Manufactured and Sold instead of just a Cost of Schedule of Cost of Goods Manufactured? 2. Would the sales manager's salary (included in marketing, distribution, and customerservice costs) be accounted for any differently if the Howell Corporation were a merchandisingsector company instead of a manufacturingsector company? Using the flow of manufacturing costs, outlined in the text (p. 42), describe how the wages of an assembler in the plant would be accounted for in this manufacturing company. 3. Plant supervisory salaries are usually regarded as manufacturing overhead costs. When might some of these costs be regarded as direct manufacturing costs? Given an example. 4. Suppose that both the direct materials used and the plant and equipment depreciation are related to the manufacture of 1 million units of product. What is the unit cost for the direct materials assigned to those units? What is the unit cost for plant and equipment depreciation? Assume that yearly plant and equipment depreciation is computed on a straightline basis. 5. Assume that the implied costbehavior patterns in requirement 4 persist. That is, direct material costs behave as a variable cost, and plant and equipment depreciation behaves as a fixed cost. Repeat the computations in part 4, assuming that the costs are being predicted for the manufacture of 1.2 million units of product. How would the total costs be affected? 6. As a management accountant, explain concisely to the president why the unit costs differed in requirement 4 and 5 above. Review Problems for Midterm 1 page 4 E. JOB COSTING, NORMAL AND ACTUAL COSTING (Horngren, 13th edition, 418) Anderson Construction assembles residential houses. It uses a jobcosting system with two directcost categories (direct materials and direct labor) and one indirectcost pool (assembly support). Direct laborhours is the allocation base for assembly support costs. In December 2007, Anderson budgets 2008 assemblysupport costs to be $8,000,000 and 2008 direct laborhours to be 160,000. At the end of 2008, Anderson is comparing the costs of several jobs that were started and completed in 2008: Laguna Model Mission Model Construction period FebJune 2008 MayOct 2008 Direct materials costs $106,450 $127,604 Direct labor costs $ 36,276 $ 41,410 Direct labor hours 900 DLH 1,010 DLH Direct materials and direct labor are paid for on a contract basis. The costs of each are known when direct materials are used or when direct laborhours are worked. The 2008 actual assembly support costs were $6,888,000, and the actual direct laborhours were 164,000. Required: 1. Compute: (a) budgeted indirect cost rate, and (b) actual indirectcost overhead rate. Why do they differ? 2. What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing? 3. Why might Anderson Construction prefer normal costing over actual costing? Review Problems for Midterm 1 page 5 F. ACCOUNTING FOR MANUFACTURING OVERHEAD (Horngren, 13th edition, 423) Consider the following selected cost data for the Pittsburgh Forging Company for 2008: Budgeted manufacturing overhead costs $ 7,500,000 Budgeted machine hours 250,000 MH Actual manufacturing overhead costs $7,300,000 Actual machine hours 245,000 MH The company uses normal costing. Its jobcosting system has a simple manufacturing overhead cost pool. Costs are allocated to jobs using a budgeted machinehour rate. Any amount of under or over applied overhead is written off to Cost of Goods sold. Required: 1. Compute the budgeted manufacturing overhead rate. 2. Compute the amount of under or overapplied overhead. Review Problems for Midterm 1 page 6 G. ABC COSTING (Horngren, 13th edition, 517) Plymouth Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Plymouth aggregates all operating costs of $1,280,000 into a single overhead cost pool. Plymouth calculates a rate per test hour of $16 ($1,280,000/80,000 total test hours). HT uses 50,000 test hours, and ST uses 30,000 testhours. Gary Celeste, Plymouth's controller, believes that there is enough variation in test procedures and cost structures to establish separate costing and billing rates for HT and ST. The market for test services is becoming competitive. Without this information, any miscasting and mispricing of its services could cause Plymouth to lose business. Celeste divides Plymouth's costs into four activitycost categories. a. Directlabor costs, $243,000. These costs can be directly traced to HT, $183,000, and ST $50,000. b. Equipmentrelated costs (rent, maintenance, energy, and so on), $400,000. These costs are allocated to HT and ST on the basis of testhours. c. Setup costs, $385,000. These costs are allocated to HT and St on the basis of the number of setup hours required. HT requires 13,500 setup hours, and ST requires 4,000 setup hours. d. Costs of designing tests, $252,000. These costs are allocated to HT and ST on the basis of the time required to design the tests. HT requires 2,800 hours, and ST requires 1,400 hours. Required: 1. Classify each activity as unit based, batchlevel based, productlevel based, or facility sustaining. Explain each answer. 2. Calculate the cost per testhour for HT and ST. Explain briefly the reasons why these numbers differ from the $18 per testhour that Plymouth calculated using its simple costing system. 3. Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. How might Plymouth's management use the cost hierarchy and ABC information to better manage its business? Review Problems for Midterm 1 page 7 H. ABC COSTING and CUSTOMER PROFITABILITY (Horngern, 13th edition, 524) Villeagas Wholesalers operates at capacity and sells furniture items to four departmentstore chains (customers). Mr. Villeagas commented: "We apply ABC to determine productline profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well." Villeagas Wholesalers sends catalogs to corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a sixmonth period from the purchase date and receive a full purchase price refund. The following data were collected from last year's operations. Chain 1 2 3 4 Gross sales $50,000 $30,000 $100,000 $70,000 Sales returns: Number of items 100 items 26 items 60 items 40 items Amount $10,000 $ 5,000 $ 7,000 $ 6,000 Number of orders Regular 40 orders 150 orders 50 orders 70 orders Rush 10 orders 50 orders 10 orders 30 orders Villeagas has calculated the following rates: Activity Costdriver rate Regular order processing $20 per regular order Rush order processing $100 per rush order Returned items processing $10 per item Catalogs and customer support $1,000 per customer Customers pay the transportation costs. The cost of goods sold averages 80% of sales. Required: Determine the contribution to profit from each chain last year. Comment on your solution. Review Problems for Midterm 1 page 8 I. ACCOUNT ANALYSIS QUESTION (Horngren, 13th edition, 1021) Raymondo's Restaurant wants to find an equation to estimate monthly utility costs. Raymondo's has only been in business for one month, January 2008, and has the following information for utilities: a. Electricity is billed by kilowatthour. According to its first bill, Raymondo's paid $573 for 3,000 kilowatt hours in January. b. Raymondo's contract with Waste Management for garbage pickup has Raymondo's paying $270 once a quarter. c. Raymondo's phone contract includes a flat monthly fee of $20 and an additional charge of $0.03 per call. Raymondo's made 1,200 calls in January. Required: 1. Which of the above costs is variable? Fixed? Mixed? Explain. 2. Combine the information above to get a utility cost function for January. 3. If Raymondo's expects to use 4,000 kilowatt hours of electricity in February, and makes the same number of calls as in January, estimate total utilities costs for February. Review Problems for Midterm 1 page 9 J. COST ESTIMATION REGRESSION ANALYSIS (Horngren, 13th edition, 1034) Newroute Manufacturing has been using activitybased costing to determine the cost of product X678. One of the activities, "Inspection," occurs just before the product is finished. Newroute inspects every 10th unit, and has been using "number of units inspected" as the cost driver for inspection costs. A significant component of inspection costs is the cost of the testkit used in each inspection. Neela McFeen, the line manager, is wondering if inspection laborhours might be a better cost driver for inspection costs. Neela gathers information for weekly inspection costs, units inspected, and inspection laborhours as shown below: Week 1 2 3 4 5 6 7 Units Inspected 1,500 500 1,800 2,500 2,200 800 1,000 Inspection LaborHours 200 80 240 250 220 90 120 Inspection Costs $3,900 2,000 4,700 6,000 5,500 2,600 3,100 Neela runs regressions on each of the possible cost drivers and estimates these cost functions: Inspection Costs = $1,004 + ($2.02 X Number of units inspected) Inspection Costs = $626 + ($19.51 X Inspection laborhours) Required: 1. Explain why the number of units inspected and inspection laborhours are plausible cost drivers of inspection costs. 2. Plot the data and regression line for units inspected and inspection costs. Plot the data and regression line for inspection laborhours and inspection costs. Which cost driver of inspection costs would you choose? Explain. 3. Neela expects inspectors to work 150 hours next period and to inspect 1,200 units. Using the cost driver you choose in question 2, what amount of inspection costs should Neela budget? Explain any implications of Neela choosing the cost driver you did not choose in question 2 to budget inspection costs. Review Problems for Midterm 1 page 10 ...
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This note was uploaded on 03/27/2012 for the course MGMT 201 taught by Professor Rowe during the Fall '08 term at Purdue.
- Fall '08