Exam 6: Fundamentals of Product and Service Costing

Linger Products uses a two-stage allocation method to assign costs to its products. The following information has been provided for March: Product 1 Product 2 Total Units 3,000 2,000 5,000 Machine hours 2,000 4,000 6,000 Direct labor hours 2,000 2,000 4,000 Direct materials \ 60,000 \ 60,000 \ 120,000 Direct labor 45,000 45,000 90,000 Manufacturing overhead Utilities (machine related) \3 ,000 Supplies (labor related) 8,000 Training (labor related) 20,000 Supervision (labor related) 17,000 Machine depreciation (machine related) 24,000 Lease on factory (machine related) 33,000 Miscellaneous (labor related) 5,000 Total manufacturing overhead \1 10,000 Required: (a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related. (b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases. (c) Compute the total costs of production for each of the two products.

Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and costs for November are: Basic Mega Total Machine hours 8,000 4,000 12,000 Direct labor hours 6,000 4,000 10,000 Units produced 1,000 250 1,250 Direct material costs \ 20,000 \ 7,500 \ 27,500 Direct labor costs 129,000 71,000 200,000 Manufacturing overhead costs 348,200 Total costs \5 75,700 Required: Compute the unit cost for each model, assuming Gentry Cabinetry uses: (a) Direct labor hours to allocate overhead costs. (b) Direct labor costs to allocate overhead costs. (c) Machine hours to allocate overhead costs.

Hindsville produces a cleaning solvent. Production of 200,000 gallons was started in February, 170,000 gallons were completed. Material costs were $138,220 for the month while conversion costs were $116,380. There was no beginning work-in-process; the ending work-in-process was 60% complete. Required: (a) What is the total cost of the product that was completed and transferred to finished goods? (b) What is the value of the ending work-in-process?

The basic cost flow model is:

Case (A) Case (B) Case (C) Beginning Balance (BB) ? \ 23,000 \ 7,900 Ending Balance (EB) \ 67,000 19,200 8,300 Transferred In (TI) 149,600 97,700 Transferred Out (TO) 164,600 ? ? - For Case (A) above, what is the Beginning Balance (BB)?

Under Pierre Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. During January, Pierre's transactions included the following: Direct materials issued to production \9 0,000 Indirect materials issued to production \8 ,000 Manufacturing overhead cost incurred \1 25,000 Manufacturing overhead cost applied \1 13,000 Direct labor cost incurred \1 07,000 Pierre Company had no beginning or ending inventories. What was the cost of goods manufactured for January? (CMA adapted)

The basic cost flow model is:

Markham Corporation uses a job-order costing system. The following data are for last year: Estimated direct labor-hours 12,000 Estimated manufacturing overhead costs \ 39,000 Actual direct labor-hours 11,000 Actual manufacturing overhead costs \ 37,000 Markham applies overhead using a predetermined rate based on direct labor-hours. What predetermined overhead rate was used last year?

What is each component of the basic cost flow model? Describe each component.

Logansville Manufacturing produces lamps for large department stores. For 2020, the two production departments had budgeted allocation bases of 100,000 machine hours in Department 1 and 50,000 direct labor hours in Department 2. The budgeted manufacturing overhead for 2020 was $1,200,000 for Department 1 and $1,000,000 for Department 2. For Job 100, the actual costs incurred in the two departments were as follows: Department 1 Department 2 Direct materials purchased \4 4,000 \ 1,000 Direct materials used 34,000 7,600 Direct labor 21,000 21,400 Indirect labor 4,400 3,600 Indirect materials used 3,000 1,900 Lease on equipment 6,500 1,500 Utilities 1,000 1,200 Job 100 incurred 700 machine hours in Department 1 and 75 in Department 2, and 200 direct labor hours in Department 1 and 250 in Department 2. The company uses a budgeted departmental overhead rate for applying overhead to production. Job 100 consisted of 3,000 lamps. Required: Calculate the total cost and per unit cost of Job 100.

Fender Magic produces a paint solvent. Production of 400,000 pounds was started in February, 350,000 pounds were completed. Material costs were $260,130 for the month while conversion costs were $312,620. There was no beginning work-in-process; the ending work-in-process was 90% complete. Required: (a) What is the total cost of the product that was completed and transferred to finished goods? (b) What is the value of the ending work-in-process?

Regression analysis can be used to estimate the strength of the relationship between a cost and potential allocation bases for that cost.

Determine the missing values from the table below:

Ashland Corporation estimates its manufacturing overhead costs to be $160,000 and its direct labor costs to be $320,000 for 2020. The actual manufacturing labor costs were $80,000 for job 1, $120,000 for job 2 and $160,000 for job 3 during 2020. Manufacturing overhead is applied to jobs on the basis of direct labor costs using a predetermined overhead rate. The actual manufacturing overhead cost for the year was $172,000. The amount of overhead assigned to Job 3 during 2020 was:

The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior period's allocation base (i.e., activity level).

The cost per unit of the allocation base used to charge overhead to products is the:

It is important that cost management systems are designed using the cost-benefit principle so that the costs of gathering additional information are balanced against the benefits of that information.

MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. -What is the material cost of the product that remains in work-in-process?

The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n):

Smooth Sailing Company experienced the following events during 2020: (1) Purchased $1,800,000 of lumber and other materials for building boats. (2) Incurred $200,000 for advertising. (3) Paid $60,000 to have lumber transported to its factory. (4) Had sales revenue of $6,000,000 during the year. (5) Incurred $400,000 of general and administrative expenses. (6) Took a periodic inventory at year-end and determined that material costing $400,000 was on hand. The inventory at the beginning of the year was $200,000. (7) All costs incurred were added to the appropriate accounts. All sales were on credit. Required: Solve for the following items in the company's Raw Materials inventory account: a) Transfers in (TI). b) Beginning balance (BB). c) Transfers out (TO). d) Ending balance (EB).