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Jimmy Jims, Inc., which uses a job-costing system, began business on January 1, 20x3 and applies manufacturing overhead on the basis of direct-labor...

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1. Jimmy Jims, Inc., which uses a job-costing system, began business on January 1, 20x3 and applies manufacturing overhead on the basis of direct-labor cost. The following information relates to 20x3:

Budgeted direct labor and manufacturing overhead were anticipated to be $200,000 and $250,000, respectively.

Job nos. 1, 2, and 3 were begun during the year and had the following charges for direct material and direct labor:

Job No.

Direct Materials

Direct Labor

1

$145,000

$35,000

2

320,000

65,000

3

55,000

80,000

- Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of cost. Job no. 3 remained in production.

- Actual manufacturing overhead by year-end totaled $233,000. Rock Star adjusts all under- and overapplied overhead to cost of goods sold.

Required:

A. Compute the company's predetermined overhead application rate.

B. Compute Rock Star's ending work-in-process inventory.

C. Determine Rock Star's sales revenue.

D. Was manufacturing overhead under- or over-applied during 20x3? By how much?

E. Does the presence of under- or over-applied overhead at year-end indicate that Rock Star's accountants made a serious error? Briefly explain. 


2. Homestead Corporation sells a line of power tools to home improvement chains, generating a cost of goods sold equal to 70% of net sales. The selected data that follow relate to the period just ended for the company's three largest customers: Weekend Project, Tool Mart, and Fix-It City.

 Weekend Project

Tool Mart

Fix-It City

Cross sales volume:

Dollars

$2,000,000

$4,900,000

$4,600,000

Number of orders

50

175

125

Type of order:

Regular

40

135

110

Rush

10

40

15

Sales return:

Dollars

$100,000

$400,000

$240,000

Number of returns

3

20

8

Total customer-related costs

$245,100

$918,000

$457,800

Homestead's management recently attended a seminar and learned that customers with excessive requests and demands can have a significant, negative impact on corporate profitability.

Required:

A. For each of the three chains, compute:

1. Total customer-related costs as a percentage of gross margin.

2. The average order size (ignoring sales returns).

3. The ratio of regular orders to rush orders.

4. The number of sales returns as a percentage of the number of total orders.

B. Prepare a brief summary of your findings. Should Homestead work with any of the chains in an effort to improve results? Explain. 


3. Boston Electronics, Inc. manufactures gauges for automobile dashboards. The company has two production departments, Molding and Assembly. There are three service departments: Human Resources, Maintenance, and Engineering. Usage of services by the various departments follows. 

Human Resources

Maintenance

Engineering

Human Resources

--

--

--

Maintenance

5%

--

--

Engineering

5%

10%

--

Molding

40%

40%

75%

Assembly

505

50%

25%

The budgeted costs in Detroit's service departments are: Human Resources, $180,000; Maintenance, $270,000; and Engineering, $200,000. The company rounds all calculations to the nearest dollar.


Required:

A. Use the direct method to allocate Detroit's service department costs to the production departments.

B. Determine the proper departmental sequence to use in allocating the company's service costs by the step-down method.

C. Ignoring your answer in part "B," assume that Human Resources costs are allocated first, Maintenance costs second, and Engineering costs third. Use the step-down method to allocate Detroit's service department costs. 

4. Cambridge Company makes two products and uses a conventional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor hours. Data for the two products for the upcoming year follow:


X

Y

Direct materials cost per unit

$70

$20

Direct labor hour per unit

0.4 hours

0.6 hours

Number of units produced

10,000 units

35,000 units

Additional information is given for the two products.

  • The direct labor is $60 per hour.
  • The manufacturing overhead cost is estimated to be $720,000 for the upcoming year.


Required:

  1. What is the pre-determined plantwide rate per direct labor hour? 
  2. Using the plantwide overhead rate, compute the unit product costs for the two products.                                                  


Management is considering an activity-based costing (ABC) system in which one-third of the overhead would continue to be allocated on the basis of direct labor-hours, one-third allocated on the basis of product testing hours and one-third allocated on the basis of machine hours. The activity data are shown below:


X

Y

Total

Product testing hours

4,000

2,000

6,000

Machine hours

6,000

4,000

10,000

  1. Determine the total amount of manufacturing overhead cost that would be assigned to each product using the ABC system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each product.                                         
  2. Compute the unit product costs of each product.
  3. Compare product costs under the two costing systems. Explain why the product costs differ between the two systems.


5. CA Bank is investigating the profitability of its Premier Account. Depositors receive a 3% annual interest rate on their average deposit. The bank earns an interest rate spread of 2% by lending money to home buyers at 5%. Depositors with premier account balances of $1,000 or more receive unlimited free use of services such as deposits, withdrawals, checking accounting, and foreign currency drafts etc. Otherwise, depositors pay a $20-a-month service charge for their account.


CA Bank recently collected activity information about costs of four individual services using activity-based costing system. The usage of these services in 20x9 by three clients is as follows:

Activity-based cost Account usage

per transaction  Abe Bob Carl

Deposit/withdrawal with teller  $5.00  30  50   6

Deposit/withdrawal with ATM   0.40  10  15  20

Bank checks written   6.00   6   2   1

Foreign currency drafts  10.00   8   1   5

Average balance for 20x9 $10,000 $600 $2,000


Assume that Abe and Carl always maintain a balance above $1,000, whereas Bob always has a balance below $1,000.

Requirements:

  1. Calculate the 20x9 profitability of the Abe, Bob, and Carl Premier Accounts at CA Bank.
  2. What recommendations would you make for CA Banks' Premier Account?

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