Deck 9: Absorption Cost Systems

Question 1

Barbara Karloff Inc.recently set up as a microbrewery to manufacture a variety of beers,ales and stouts to customer specifications.The standard sizes per batch are as follows: stout,5,000 gallons;ale,8,000 gallons;and beer,10,000 gallons.A beer batch takes six days to process,ale ten days and stout 14 days,the difference primarily attributable to the number of steps in the brewing process and the amount of time needed to mature the brew to the intended flavor specifications.By tradition,a new batch is started at 7 a.m. ,the start of a work day.It costs $1,800 in labor and variable overhead to set up each batch.The brewery's monthly fixed overhead is $220,000,which is allocated to products based on gallons.Other costing data appears below. Basic direct materials are applied at the start of the process.Direct materials costs are charged when used in production and variable conversion costs are applied evenly throughout the production process.There are 128 fluid ounces in a gallon and all products are sold in 12-ounce bottles.Beer is sold with 24 bottles per case,but ale is packed by the dozen in mini-crates,and stout in 6-packs.
In April,the first month of operations,BKI finished five batches of beer,three of ale and one of stout.Dribbles of liquids from one batch that do not completely fill a bottle are poured away.Bottles from a batch that do not make up a complete case,crate or pack are donated to the company monthly picnic.In reviewing the production records,you find that a batch of stout was started on the 23^rd,a batch of ale on the 27^th,and a batch of beer on the 29^th.These batches constitute ending work in process (EWIP).
Which is true as far as equivalent units of output are concerned? (Do not round your intermediate calculations. )

A)53,333 gallons of beer are complete with respect to materials
B)1,280,000 fluid ounces of ale and 8,888 packs of stout were completed
C)24,000 gallons of ale have been completed with respect to conversion costs
D)7,857 gallons of stout have been completed with respect to conversion costs
E)None of the choices are correct

Answer 1

D

Question 2

Duff's Baking Company (DBC)produces Monster cookies.DBC's beginning inventory has 22,000 Monster cookies that are 100% complete as to materials and 30% complete as to conversion costs.During the month,380,000 Monster cookies were started into production.Ending inventory is 35,000 cookies which are 100% complete as to materials and 40% complete as to conversion costs.Beginning work in process inventory consisted of $78,450 of which $31,600 was materials and $46,850 was conversion costs.Materials added during the month were $290,000 while conversion costs during the month totaled $353,200.Which is not true for DBC for the month?

A)The units accounted for total 402,000
B)The unit cost for materials is $0.80
C)Equivalent units for materials total 402,000
D)Equivalent units for conversion costs total 381,000
E)The unit cost for conversion costs is $.995

Answer 2

E

Question 3

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below.
The firm uses absorption costing and allocates overhead on the basis of January's actual expenses and direct labor hours.For batches made in January,which is true? (Do not round your intermediate calculations. )

A)Direct materials costs total $192,200
B)Direct labor and direct material cost per batch is $192,900
C)Overhead per direct labor hour amounts to $41.09
D)The full cost of 20 bottles is $393.80
E)None of the choices are correct

Answer 3

D

Question 4

Barbara Karloff Inc.recently set up as a microbrewery to manufacture a variety of beers,ales and stouts to customer specifications.The standard sizes per batch are as follows: stout,5,000 gallons;ale,8,000 gallons;and beer,10,000 gallons.A beer batch takes six days to process,ale ten days and stout 14 days,the difference primarily attributable to the number of steps in the brewing process and the amount of time needed to mature the brew to the intended flavor specifications.By tradition,a new batch is started at 7 a.m. ,the start of a work day.It costs $1,800 in labor and variable overhead to set up each batch.The brewery's monthly fixed overhead is $220,000,which is allocated to products based on gallons.Other costing data appears below. Basic direct materials are applied at the start of the process.Direct materials costs are charged when used in production and variable conversion costs are applied evenly throughout the production process.All products are sold in 12-ounce bottles.Beer is sold with 24 bottles per case,but ale is packed by the dozen in mini-crates,and stout in 6-packs.
In April,the first month of operations,BKI finished five batches of beer,three of ale and one of stout.Dribbles of liquids from one batch that do not completely fill a bottle are poured away.Bottles from a batch that do not make up a complete case,crate or pack are donated to the company monthly picnic.In reviewing the production records,you find that a batch of stout was started on the 23^rd,a batch of ale on the 27^th,and a batch of beer on the 29^th.These batches constitute ending work in process (EWIP).
With respect to conversion costs,which is true for the first month of operations? (Do not round your intermediate calculations. )

A)The conversion costs traced directly to stout are $11,226
B)Total conversion costs are $320,895
C)Beer's direct conversion costs amount to $1.016 per gallon
D)$3.945 is ale's conversion cost per gallon
E)None of the choices are correct

Question 5

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below. If overhead for January is calculated per machine hour,which is false? (Do not round your intermediate calculations. )

A)The hourly overhead absorption rate will be $275.17 per machine hour
B)The overhead per bottle remain the same
C)The full cost of 20 bottles is $385.80
D)The hourly overhead absorption rate will increase to $2,201.33
E)(c)and (d)only

Question 6

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below. Hercules Hair Restorer Inc.(HHRI)appoints a new CEO,who decides to increase production targets to 200 batches per year.She also hires a management accountant who decides to apply fixed overhead based on normal capacity and does some research into cost behavior.Basic product data still applies.New information appears below.
The new CEO has decided that 25% of the production target of 200 batches per year will be a new product,whose information appears below.
If HHRI uses for overhead allocation a dual rate system,whereby fixed overhead is allocated on the basis of direct labor hours and variable overhead is allocated on the basis of machine hours,which is true? (Do not round your intermediate calculations. )

A)The introduction of the Jove product will not affect the costing of the Zeus product
B)The introduction of the Jove product will cause the rate per labor hour to increase
C)The introduction of the Jove product will cause the rate per machine hour to fall
D)Full cost for the Zeus product will change by less than 2 cents per bottle
E)None of the choices

Question 7

Micro Enterprises planned to produce 120,000 lerts per year.Annual overhead,of which 32.5% is variable,is estimated at $320,400.Each lert takes 1.2 machine hours and 3 labor hours to produce.The firm allocates overhead by direct labor hours. In March,when 11,500 lerts were produced,33,500 direct labor hours were recorded and expenditures on overhead amounted to $31,200.Which is true for this month?

A)Over-applied overhead is $495
B)Under-applied overhead is $495
C)Under-applied overhead is $1,385
D)Over-applied overhead is $1,385
E)None of the choices are correct

Question 8

Micro Enterprises planned to produce 120,000 lerts per year.Annual overhead,of which 32.5% is variable,is estimated at $320,400.Each lert takes 1.2 machine hours and 3 labor hours to produce.The firm allocates overhead by direct labor hours. You review the accounting records at the end of the year.You learn that Micro made 125,000 lerts in the year,using 356,000 direct labor hours.Actual overhead expenditures totaled $333,333.Which is true with respect to Under/Over-applied overhead?

A)Under-applied overhead is $417 and should be credited to Cost of Goods Sold
B)Under-applied overhead is $12,933 and should be prorated across Raw Materials,Work in Process,and Finished Goods inventories and Cost of Goods Sold
C)Under-applied overhead is $16,493 and should be charged to Cost of Goods Sold
D)Over-applied overhead is $417 and should be credited to Cost of Goods Sold
E)None of the choices are correct

Question 9

Which of the following statements is incorrect?

A)External financial reporting requirements call for allocating manufacturing overhead to work-in-process inventory.
B)Variable overhead is allocated on the basis of production expected to be achieved over a number of periods after taking planned maintenance into consideration (normal capacity).
C)Over/underabsorbed overhead can be reported on the income statement or allocated among inventory accounts on the balance sheet.
D)Proration of over/underabsorbed overhead is chosen when it will alter an investment decision.
E)Firms involved in cost-plus projects will choose to recost each job because the firm's revenue is tied to its costs.

Question 10

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below. HHRI appoints a new CEO,who decides to increase production targets to 200 batches per year.She also hires a management accountant who decides to apply fixed overhead based on normal capacity and does some research into cost behavior.Basic product data still applies.New information appears below.
If HHRI uses a plant-wide rate based on a single cost pool,which of the following statements is true? (Do not round your intermediate calculations. )

A)The overhead rate is $35.564 per hour
B)If machine hours are used as the cost driver,the overhead rate is $41.254 per hour
C)If machine hours are used as the cost driver,the full cost per bottle is $19.676
D)If direct labor hours are used as the cost driver,the full cost per batch $196,762.70
E)(c)and (d)only

Question 11

Micro Enterprises planned to produce 120,000 lerts per year.Annual overhead,of which 32.5% is variable,is estimated at $320,400.Each lert takes 1.2 machine hours and 3 labor hours to produce.The firm allocates overhead by direct labor hours. In February,when 11,000 lerts were produced,32,000 direct labor hours were recorded and expenditures on overhead amounted to $29,650.Which is true for this month? (Do not round your intermediate calculations. )

A)The overhead absorption rate is $0.9266 per DLH
B)Overhead applied is $29,370
C)Overhead applied is $29,650
D)Overhead applied is $28,480
E)None of the choices are correct

Question 12

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below. Hercules Hair Restorer Inc.(HHRI)appoints a new CEO,who decides to increase production targets to 200 batches per year.She also hires a management accountant who decides to apply fixed overhead based on normal capacity and does some research into cost behavior.Basic product data still applies.New information appears below.
If HHRI uses for overhead allocation a dual rate system,whereby fixed overhead is allocated on the basis of direct labor hours and variable overhead is allocated on the basis of machine hours,which is true? (Do not round your intermediate calculations. )

A)If this scheme is employed,the full cost per batch is $196,762.70
B)The overhead rate per DLH is $29.743
C)The hourly variable overhead rate is $34.502
D)The hourly fixed overhead rate is $215.638
E)None of the choices are correct

Question 13

Barbara Karloff Inc.recently set up as a microbrewery to manufacture a variety of beers,ales and stouts to customer specifications.The standard sizes per batch are as follows: stout,5,000 gallons;ale,8,000 gallons;and beer,10,000 gallons.A beer batch takes six days to process,ale ten days and stout 14 days,the difference primarily attributable to the number of steps in the brewing process and the amount of time needed to mature the brew to the intended flavor specifications.By tradition,a new batch is started at 7 a.m. ,the start of a work day.It costs $1,800 in labor and variable overhead to set up each batch.The brewery's monthly fixed overhead is $220,000,which is allocated to products based on gallons.Other costing data appears below. Basic direct materials are applied at the start of the process.Direct materials costs are charged when used in production and variable conversion costs are applied evenly throughout the production process.There are 128 fluid ounces in a gallon and all products are sold in 12-ounce bottles.Beer is sold with 24 bottles per case,but ale is packed by the dozen in mini-crates,and stout in 6-packs.
In April,the first month of operations,BKI finished five batches of beer,three of ale and one of stout.Dribbles of liquids from one batch that do not completely fill a bottle are poured away.Bottles from a batch that do not make up a complete case,crate or pack are donated to the company monthly picnic.In reviewing the production records,you find that a batch of stout was started on the 23^rd,a batch of ale on the 27^th,and a batch of beer on the 29^th.These batches constitute ending work in process (EWIP).
With respect to direct materials,which is true for the first month of operations? (Do not round your intermediate calculations. )

A)A total of 102,000 gallons was completed
B)A total of 16 bottles was donated to the picnic
C)Fifty-eight bottles were donated to the picnic
D)Basic direct materials cost $38,900
E)None of the choices are correct

Question 14

Which of the following statements is incorrect?

A)An input measure rather than an output measure is selected when computing an overhead rate.
B)A debit balance in the overhead account indicates that overhead is overabsorbed.
C)Job order costing accumulates all indirect costs in an overhead account and distributes these costs to individual jobs through the use of an overhead rate.
D)A prospective overhead rate is set at the beginning of the year and is used to charge overhead to jobs.
E)Most manufacturing firms will use direct labor hours or direct labor costs to allocate at least a portion of overhead.

Question 15

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below. Hercules Hair Restorer Inc.(HHRI)appoints a new CEO,who decides to increase production targets to 200 batches per year.She also hires a management accountant who decides to apply fixed overhead based on normal capacity and does some research into cost behavior.Basic product data still applies.New information appears below.
The new CEO has decided that 25% of the production target of 200 batches per year will be a new product,whose information appears below.
If HHRI makes 204 batches in the planned sales mix,which is true (to nearest $)? (Do not round your intermediate calculations. )

A)Product Jove's total variable costs are $9,092,000
B)Product Jove's total variable costs are $9,273,840
C)Product Jove's total full costs are $9,386,191
D)Product Jove's total full costs are $9,388,163
E)None of the choices are correct