Exam 3: Product Costing and Cost Accumulation in a Batch Production Environment

Farnham & Associates is a literary consulting firm in New York. The following costs were incurred in a project to design a dust cover for a new novel: The firm's budget for the year included the following estimates: Overhead is applied to contracts by using a predetermined overhead rate that is based on direct professional labor cost. Actual professional labor during the year was $655,000 and actual overhead was $793,000. Required: A. Determine the total cost to design the cover of the novel. B. Calculate the under- or overapplied overhead for the year. Be sure to label your answer.

Gonzales Company has developed an integrated system that coordinates the flow of all goods, services, and information into and out of the organization, working with raw material vendors as well as customers to improve service and reduce costs. The firm is said to be using:

The process of assigning overhead costs to the jobs that are worked on is commonly called:

Manufacturing overhead is a pool of indirect production costs that must somehow be attached to each unit manufactured.

Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited to Work-in-Process Inventory.

Farmington and Associates designs relatively small sports stadiums and arenas at various sites throughout the country. The firm's accountant prepared the following budget for the upcoming year: Eighty percent of professional staff salaries are directly traceable to client projects, a figure that falls to 60% for the administrative support staff and other operating costs. Traceable costs are charged directly to client projects; nontraceable costs, on the other hand, are treated as firm overhead and charged to projects by using a predetermined overhead application rate. Farmington had one project in process at year-end: an arena that was being designed for Toll County. Costs directly chargeable to this project were: Required: A. Determine Farmington's overhead for the year and the firm's predetermined overhead application rate. The rate is based on costs directly chargeable to firm projects. B. Compute the cost of the Toll County arena project as of year-end. C. Present three examples of "other operating costs" that might be directly traceable to the Toll County project.

Terrence Industries charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of labor hours. The following data pertain to the current year: Which of the following choices is the correct status of manufacturing overhead at year-end?

Use the following labor budget data for Roy & Miller Accounting, LLP to answer the following Questions The budgeted overhead cost for the year is $1,260,000. The company has estimated that one-third of the budgeted over¬head cost is incurred to support the firm’s two partners, and two-thirds goes to support the staff accountants. The current audit bid for Monoco Industries requires $18,000 in direct partner professional labor, $30,000 in direct staff accountant professional labor, $5,000 in direct material, -What is the overhead rate for staff accountants, if separate rates are used for partners and staff accountants?

A predetermined overhead rate is calculated by dividing actual overhead cost by the actual amount of a cost driver used in the process.

In a public accounting firm, for example, costs are assigned to an audit engagement in much the same way they are assigned to a single batch of tables by a furniture manufacturer.

When selecting a volume-based cost driver, the goal is to:

Blakely charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of machine hours. The following data pertain to the current year: Budgeted manufacturing overhead: $480,000 Actual manufacturing overhead: $440,000 Budgeted machine hours: 20,000 Actual machine hours: 16,000 Overhead applied to production totaled:

Altman Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow. The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Altman adjusts under- or overapplied overhead at year-end to Cost of Goods Sold. Required: A. Determine the company's predetermined overhead application rate. B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied. C. Compute the company's adjusted cost of goods sold. D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

The selected data that follow relate to the Underwood Furniture Company. Required: During the year, products costing $310,000 were completed, and products costing $316,000 were sold on account for $455,000.

Which of the following statements is true?

The two-stage cost allocation actually has three types of allocation involved.

When using normal costing, the total production cost of a job is composed of:

As soon as products are completed, their product costs are transferred from Raw Materials Inventory to Finished-Goods Inventory.

Armour, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated to be 15,000, and direct professional labor cost was projected to be $225,000. During the year, Armour incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500, and actual direct labor cost of $222,000. By year-end, the firm's overhead was:

Mountain Man Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at year-end. On the basis of this information, one can conclude that: