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120 Practice Material Process StandardVariances ABC
120 Practice Material Process StandardVariances ABC
PROBLEM 1
Tip Top Painting Company has the following production data for January:
Beginning work in process, 0 units
Units transferred out, 35,000
Units in ending work in process, 4,000, which are 30% complete for conversion
costs
Materials are added only at the beginning of the process. Compute equivalent units of
production for both materials and conversion costs.
Solution
Equivalent Units
QUANTITIES Physical Units Materials Conversion Costs
PROBLEM 2
The Kirkland Department of Delta Manufacturing began the month of December with
beginning work in process of 4,000 units that are 100% complete as to materials and
30% complete as to conversion costs. Units transferred out are 10,000 units. Ending
work in process contains 1,000 units that are 100% complete as to materials and 60%
complete as to conversion costs. Compute the equivalent units of production for
materials and conversion costs for the month of December.
Solution
Equivalent Units
QUANTITIES Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, December 14,000
Started into production 7,000
Total units 11,000
Units accounted for
Transferred out 10,000 10,000 10,000
Work in process, December 31 1,000 1,000 600(1,000 × 60%)
Total units 11,000 11,000 10,600
PROBLEM 3
White Supplies’ total material costs are P50,000 and total conversion costs are
P65,000. Equivalent units of production for materials are 10,000, and 3,250 for
conversion costs. Compute the unit costs for materials, conversion costs, and total
manufacturing costs for the month.
Solution
COSTS
Unit costs MaterialsConversion Costs Total
Costs incurred P50,000 P65,000 P115,000
Equivalent units 10,000 3,250
Unit costs P5.00 P 20.00 P25.00
PROBLEM 4
Apoly Manufacturing Company has the following production data for January.
Ending Work in Process
Beginning Units Started into % Complete as to
Work in Process Production Units Conversion Cost
-0- 6,500 700 30%
Compute the physical units for January.
Solution
Beginning work in process -0-
Started into production 6,500
Total units to be accounted for 6,500
PROBLEM 4
Sequal Company has the following production data for June: units transferred out
46,000, and ending work in process 4,000 units that are 100% complete for materials
and 30% complete for conversion costs. Unit materials cost is P5 and unit conversion
cost is P11. Determine the costs to be assigned to the units transferred out and the
units in ending work in process.
Solution
Work in process, June 30
Materials (4,000 × P5) P20,000
Conversion costs (4,000 × 30% × P11) 13,200
Total cost of work in process P33,200
PROBLEM 5
Dirt Cleaners, Inc. has the following production data for January:
Transferred out 50,000 units
Ending work in process 6,000 units
The units in ending work in process are 100% complete for materials and 60%
complete for conversion costs. There is no beginning work in process. Materials cost is
P10 per unit and conversion costs are P11 per unit. Determine the costs to be
assigned to the units transferred out and the units in ending work in process.
Solution
Cost Reconciliation Schedule
Costs accounted for
Transferred out (50,000 × P21) P1,050,000
Work in process, June 30
Materials (6,000 × P10) P 60,000
Conversion costs (3,600* × P11) 39,600 99,600
Total costs P1,149,600
*(6,000 x 60%)
PROBLEM 6
Baez Manufacturing Company produces a product in two departments: (1) Mixing and
(2) Finishing. The company uses a process cost accounting system.
(e) Manufacturing overhead is applied to the product based on machine hours used in
each department:
Mixing department—600 machine hours at P45 per machine hour.
Finishing department—500 machine hours at P30 per machine hour.
(f) Units costing P66,000 were completed in the Mixing Department and were
transferred to the Finishing Department.
(g) Units costing P60,000 were completed in the Finishing Department and were
transferred to finished goods.
(h) Finished goods costing P30,000 were sold on account for P45,000.
Instructions
Prepare the journal entries to record the preceding transactions for Baez
Manufacturing Company.
Solution
(a) Raw Materials Inventory.......................................... 50,000
Accounts Payable............................................. 50,000
(Purchase of raw materials on account)
PROBLEM 7
The Pasta Factory manufactures spaghetti sauce through two production departments:
Cooking and Packaging. For the month of February, the work in process accounts
show the following debits:
Cooking Packaging
Beginning work in process P -0- P 6,000
Materials 40,000 21,000
Labor 21,000 9,000
Overhead 25,000 14,000
Costs transferred in 50,000
Instructions
Journalize the February transactions that involved the work in process accounts.
Solution
Work in Process—Cooking............................................ 40,000
Work in Process—Packaging......................................... 21,000
Raw Materials Inventory.......................................... 61,000
Work in Process—Cooking............................................ 21,000
Work in Process—Packaging......................................... 9,000
Factory Labor.......................................................... 30,000
Work in Process—Cooking............................................ 25,000
Work in Process—Packaging......................................... 14,000
Manufacturing Overhead......................................... 39,000
Work in Process—Packaging......................................... 50,000
Work in Process—Cooking..................................... 50,000
PROBLEM 8
Hardy Company manufactures a single product by a continuous process, involving two
production departments. The records indicate that P120,000 of direct materials were
issued to and P200,000 of direct labor was incurred by Department 1 in the
manufacture of the product. The factory overhead rate is P15 per machine hour;
machine hours were 6,000 in Department 1. Work in process in the department at the
beginning of the period totaled P35,000; and work in process at the end of the period
was P25,000.
Instructions
Prepare entries to record
(a) The flow of costs into Department 1 for
(1) direct materials
(2) direct labor
(3) overhead
(b) The transfer of production costs to Department 2.
Solution
(a) (1) Work in Process—Dept. 1................................ 120,000
Raw Materials Inventory............................ 120,000
PROBLEM 9
Muffy Painting Company has the following production data for March.
Instructions
Compute equivalent units of production for March for both materials and conversion
costs. Materials are entered at the beginning of the process.
Solution
Equivalent Units
Quantities Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, March 12,000
Started into production 48,000
Total units 50,000
Units accounted for
Transferred out 42,000 42,000 42,000
Work in process, March 31 8,000 8,000 6,400 (8,000 × 80%)
Total units 50,000 50,000 48,400
PROBLEM 10
The Nitrogen Fixation Department of Tomco Manufacturing began the month of
December with beginning work in process of 4,000 units that are 100% complete as to
materials and 30% complete as to conversion costs. Units transferred out are 10,000
units. Ending work in process contains 3,000 units that are 100% complete as to
materials and 60% complete as to conversion costs.
Instructions
Compute the equivalent units of production for materials and conversion costs for the
month of December.
Solution
Equivalent Units
Quantities Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, December 14,000
Started into production 9,000
Total units 13,000
Units accounted for
Transferred out 10,000 10,000 10,000
Work in process, December 31 3,000 3,000 1,800(3,000 × 60%)
Total units 13,000 13,000 11,800
PROBLEM 11
At Crenshaw Company, materials are entered at the beginning of each process. Work
in process inventories, with the percentage of work done on conversion, and
production data for its Painting Department in selected months are as follows:
Beginning Work In Process Ending Work In Process
Percentage Units Completed Percentage
Month Units Completed and Transferred Out Units Completed
July -0- — 10,000 500 90%
Sept. 2,500 20% 9,000 4,000 70%
Ex. 160 (cont.)
Instructions
(a) Compute the physical units for July.
(b) Compute the equivalent units of production for materials and conversion costs for
September.
Solution
(a) COMPUTATION OF PHYSICAL UNITS
July
Beginning work in process -0-
Started into production 10,500
Total units to be accounted for 10,500
Transferred out 10,000
Ending work in process 500
Total units accounted for 10,500
PROBLEM 12
The Assembly Department uses a process cost accounting system and a weighted-
average cost flow assumption. The department adds materials at the beginning of the
process and incurs conversion costs uniformly throughout the process. During July,
P190,000 of materials costs and P133,000 in conversion costs were charged to the
department. The beginning work in process inventory was P108,000 on July 1,
comprised of P80,000 of materials costs and P28,000 of conversion costs.
Instructions
Answer the following questions and show computations to support your answers.
1. How many physical units have to be accounted for in July?
2. What are the equivalent units of production for materials and for conversion costs
for the month of July?
3. What is the total cost assigned to the 90,000 units that were transferred out of the
process in July?
4. What is the total cost of the July 31 inventory?
Solution
1. Units transferred out 90,000
Work in process, July 31 10,000
Units accounted for 100,000
PROBLEM 13
The Finishing Department of Edwards Manufacturing has the following production and
cost data for July:
Materials are entered at the beginning of the process. Conversion costs are incurred
uniformly during the process.
Instructions
(a) Compute the equivalent units of production for materials and conversion costs for
the month of July.
(b) Compute unit costs and prepare a cost reconciliation schedule.
Solution
(a) Equivalent Units
Physical Units Materials Conversion Costs
Transferred Out 3,000 3,000 3,000
Work in Process, July 31 5,000 5,000 2,000*
Total 8,000 8,000 5,000
*(5,000 × .40)
PROBLEM 14
Massey Corporation uses a process cost system and the weighted-average cost flow
assumption. Production begins in the Fabricating Department where materials are
added at the beginning of the process and conversion costs are incurred uniformly
throughout the process. On March 1, the beginning work in process inventory
consisted of 20,000 units which were 60% complete and had a cost of P125,000,
P95,000 of which were materials costs. During March, the following occurred:
Materials added P230,000
Conversion costs incurred P129,000
Units completed and transferred out in March 50,000
Units in ending work in process March 31 (20% complete) 15,000
Instructions
Answer the following questions and show the computations that support your answers.
1. What are the equivalent units of production for materials and conversion costs in the
Fabricating Department for the month of March?
2. What are the costs assigned to the ending work in process inventory on March 31?
3. What are the costs assigned to units completed and transferred out during March?
Solution
1. Equivalent units of production:
Equivalent Units
Physical Units Materials Conversion Costs
Transferred out 50,000 50,000 50,000
Work in process, March 31 15,000 15,000 3,000*(15,000 × .20)
Total 65,000 65,000 53,000
PROBLEM 15
Given below are the production data for Department No. 1 for the first month of
operation:
Costs charged to Department 1:
Materials P12,000
Labor 2,800
Overhead 12,400
During this first month of operations, 4,000 units were started into production; 3,500
units were transferred out; and the remaining 500 units are 100% completed with
respect to materials and 60% complete with respect to conversion costs.
Instructions
Compute the following:
(a) Unit materials cost.
(b) Equivalent units of conversion costs.
(c) Unit conversion cost.
(d) Total cost of 500 units in process at end of month.
(e) Total cost of 3,500 units transferred out.
Solution
(a) Unit materials cost: P12,000 ÷ 4,000 equivalent units for materials = P3.00.
(b) Equivalent units of conversion costs: 3,500 completed + (60% × 500) = 3,800
equivalent units of conversion costs.
(c) Unit conversion cost: (P2,800 + P12,400) ÷ 3,800 equivalent units = P4.00.
(e) Total cost of 3,500 transferred out units: 3,500 × (P3.00 + P4.00) = P24,500.
PROBLEM 16
The Assembly Department of Lynn Company has the following production and cost
data at the end of May, 2008.
Production:35,000 units started into production; 25,000 units transferred out and
10,000 units 100% completed as to materials and 40% completed as to
conversion costs.
Instructions
Prepare a production cost report for the month of May.
Equivalent Units
Physical Units Materials Conversion Costs
QUANTITIES
Units to be accounted for
Work in process, May 1 0
Started into production 35,000
Total units 35,000
COSTS
Unit costs Materials Conversion Costs
Total
Costs in May P70,000 P174,000 P244,000
Equivalent units 35,000 29,000
Unit costs P2.00 P6.00 P8.00
Costs to be accounted for
Work in process, May 1 P 0
Started into production 244,000
Total costs P244,000
PROBLEM 1
The company estimates that production for the year will be 250,000 units of Product
Fast. To produce these units of Product Fast, the company expects to spend P600,000
for materials and P800,000 for labor. Compute the estimates for (a) a standard cost
and (b) a budgeted cost.
Solution
(a) Standards are stated as a per unit amount. Thus, the standards are materials
P2.40, (P600,000 ÷ 250,000), and labor P3.20, (P800,000 ÷ 250,000).
(b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are
materials P600,000 and labor P800,000.
PROBLEM 2
Labor data for making one pound of finished product in Perez Company are as follows:
(1) Price—hourly wage rate P10.00, payroll taxes P0.80, and fringe benefits P1.20. (2)
Quantity—actual production time 1.1 hours, rest periods and clean up 0.25 hours, and
setup and downtime 0.15 hours.
Instructions
Compute the following.
(a) Standard direct labor rate per hour.
(b) Standard direct labor hours per pound.
(c) Standard cost per pound.
Solution
Standard direct labor rate per hour = P12.00 (P10.00 + P.80 + P1.20).
Standard direct labor hours per pound = 1.5 hours (1.1 +.25 +.15).
Standard labor cost per pound = P18.00 (P12.00 × 1.5).
PROBLEM 3
During March, Tile Company purchases and uses 6,600 pounds of materials costing
P26,730 to make 3,000 tiles. Tile Company’s standard material cost per tile is P8 (2
pounds of material × P4.00). Compute the total, price, and quantity material variances
for Tile Company for March.
Solution
Total materials variance = P2,730 U, (6,600 × P4.05) – (6,000 × P4.00).
Materials price variance = P330 U, (6,600 × P4.05) – (6,600 × P4.00).
Materials quantity variance = P2,400 U, (6,600 × P4.00) – (6,000 × P4.00).
PROBLEM 4
During January, Ray Company incurs 1,850 hours of direct labor at an hourly cost of
P9.60 in producing 1,000 units of its finished product. Ray’s standard labor cost per
unit of output is P18 (2 hours x P9.00). Compute the total, price, and quantity labor
variances for Ray Company for January.
Solution
Total labor variance = P240 F, (1,850 × P9.60) – (2,000 × P9.00).
Labor price variance = P1,110 U, (1,850 × P9.60) – (1,850 × P9.00).
Labor quantity variance = P1,350 F, (1,850 × P9.00) – (2,000 × P9.00
PROBLEM 5
Manufacturing overhead data for the production of Product B by Barkley Company are
as follows.
Overhead incurred for 68,000 actual direct labor hours worked P206,000
Overhead rate (variable P2.00; fixed P1.00) at normal capacity of
72,000 direct labor hours P3.00
Standard hours allowed for work done 68,000
Instructions
Compute the controllable and volume overhead variances.
Solution
Overhead controllable variance:
Actual Overhead – Overhead Budgeted
P206,000 – P208,000 = P2,000 F [(68,000 × P2) + P72,000]
PROBLEM 6
In October, Halo Inc. reports 42,000 actual direct labor hours, and it incurs P192,000 of
manufacturing overhead costs. Standard hours allowed for the work done is 40,000
hours. Halo’s predetermined overhead rate is P5.00 per direct labor hour. Compute the
total manufacturing overhead variance.
Solution
Actual Overhead – Overhead Applied = Total overhead Variance
P192,000 – P200,000* = P8,000 F
*40,000 × P5 = P200,000
PROBLEM 7
Overhead data for Halo Inc. are given in BE 155. In addition, the flexible manufacturing
overhead budget shows that budgeted costs are P3.50 variable per direct labor hour
and P75,000 fixed.
Compute the manufacturing overhead controllable variance.
Solution
Actual overhead – Overhead Budgeted = Overhead Controllable Variance
P192,000 –P215,000* = P23,000 F
*(40,000 × P3.50) + P75,000 = P215,000
PROBLEM 8
Using the data in Problem 6 and 7, compute the manufacturing overhead volume
variance. Normal capacity was 50,000 direct labor hours.
Solution
Fixed Overhead Rate × (Normal Capacity Hours – Standard Hours Allowed)= Overhead Volume Variance
P1.50/hr. × (50,000 – 40,000) =P15,000 U
PROBLEM 9
Auction Company purchased 6,000 units of raw material on account for P11,700, when
the standard cost was P12,000. Later in the month, Auction Company issued 5,600
units of raw materials for production, when the standard units were 5,800.
Instructions
Journalize the transactions for Auction Company to account for this activity.
a
Solution
(a) Raw Materials Inventory......................................... 12,000
Materials Price Variance................................. 300
Accounts Payable........................................... 11,700
PROBLEM 10
Red Rope Co. incurred direct labor costs of P48,000 for 6,000 hours. The standard
labor cost was P48,600. During the month, Red Rope assigned 6,000 direct labor
hours costing P48,000 to production. The standard hours were 6,200.
Instructions
Journalize the transactions for Red Rope Co. to account for this activity.
a
Solution
(a) Factory Labor........................................................ 48,600
Labor Price Variance..................................... 600
Wages Payable.............................................. 48,000
Jane estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and
10% of the kiwis cannot be used. Compute the standard cost of the ingredients for one
gallon of the nutrition drink.
Solution
Ingredient Amount Per Gallon Standard Waste
Lime Kool-Drink 19.6 oz. 2%
Sugar .40 lb. 20%
Kiwis .63 10%
Protein Tablets 1 0%
Water 40 oz. 0%
PROBLEM 12
Deines, Inc. manufactures one product called tybos. The company uses a standard
cost system and sells each tybo for P8. At the start of monthly production, Deines
estimated 8,000 tybos would be produced in March. Deines has established the
following material and labor standards to produce one tybo:
During March 2009, the following activity was recorded by the company relating to the
production of tybos:
Solution
(a) Materials price variance
= (Actual quantity purchased × Actual price) – (Actual quantity purchased ×
Standard price)
= (20,000 × P2.75) – (20,000 × P3) = P5,000 favorable
(d) Labor quantity variance = (Actual hours × Standard rate) – (Standard hours ×
Standard rate)
= (4,000 × P10) – [(0.6 × 7,500) × P10] = P5,000 favorable
PROBLEM 13
Addison Industries provided the following information about its standard costing system
for 2009:
Standard Data Actual Data
Materials 10 lbs. @ P4 per lbs. Produced 6,000 units
Labor 3 hrs. @ P21 per hr. Materials purchased
75,000 lbs. for P315,000
Budgeted fixed overhead P100,000 Materials used 61,500 lbs.
Budgeted variable overhead P30 per unit Labor worked 16,500 hrs.
costing P330,000
Budgeted production 5,000 units Actual overhead P355,000
Instructions
Calculate the labor price variance and the labor quantity variance.
Solution
Labor price (rate) variance = (Actual hours x Actual rate) – (Actual hours x Standard
rate)
= (16,500 × P20) – (16,500 × P21) = P16,500 favorable
Solution
Identification of price variances at the time of purchase:
Materials price variance = (Actual quantity purchased × Actual price) – (Actual
quantity purchased x Standard price)
= (75,000 × P4.20) – (75,000 × P4) = P15,000 Unfavorable
PROBLEM 15
Chee See Company estimated it would produce 6,200 buckets, though actual
production was 6,000 during August. The standard labor cost is 2 buckets per hour at
P24.00 per hour. Actual cost per hour was P24.50 with a total labor cost of P71,050.
Determine the amounts of the labor price and the labor quantity variances for August.
Solution
Labor price (rate) variance = (Actual hours × Actual rate) – (Actual hours × Standard
rate)
= (2,900 × P24.50) – (2,900 × P24) = P1,450 Unfavorable
PROBLEM 16
Hite Company has developed the following standard costs for its product for 2009:
HITE COMPANY
Standard Cost Card
Product A
Cost Element Standard Quantity ×Standard Price = Standard Cost
Direct materials 4 pounds P3 P12
Direct labor 3 hours 8 24
Manufacturing overhead 3 hours 4 12
P48
The company expected to produce 25,000 units of Product A in 2009 and work 75,000
direct labor hours.
Instructions
Compute the following variances showing all computations to support your answers.
Indicate whether the variances are favorable or unfavorable.
(a) Materials quantity variance.
(b) Total direct labor variance.
(c) Direct labor quantity variance.
(d) Direct materials price variance.
(e) Total overhead variance.
Solution
(a) Materials quantity variance = P3,000 unfavorable.
(AQ × SP) – (SQ × SP) = Materials quantity variance
(105,000 × P3) – (104,000 × P3) = P315,000 – P312,000 = P3,000 unfavorable
SQ = 26,000 × 4 = 104,000 pounds
PROBLEM 17
Feeney Company developed the following standard costs for its product for 2009:
FEENEY COMPANY
Standard Cost Card
Instructions
Compute the following variances for Feeney Company for 2009 and indicate whether
the variance is favorable or unfavorable.
1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
5. Overhead controllable variance.
6. Overhead volume variance.
Solution
1. Direct materials price variance = P23,100 favorable.
(AQ × AP) – (AQ × SP) = Materials price variance
(115,500 × P4.80) – (115,500 × P5) = P554,400 – P577,500 = P23,100 favorable
Solution
1. Labor quantity variance = (Actual hours × Standard rate) – (Standard hours ×
Standard rate)
= (3,200 × P12) – [(3/4 × 4,000) × P12] = P2,400 Unfavorable
2. Total labor variance = (Actual hours × Actual rate) – (Standard hours × Standard
rate)
= (3,200 × P11.80) – [(3/4 × 4,000) × P12] = P1,760 Unfavorable
PROBLEM 19
Thomas, Inc. manufactures widgets for distribution. The standard costs for the
manufacture of widgets follow:
Standard Costs Actual Costs
Direct materials 3 lbs. per widget at 15,500 lbs. at P34
P35 per pound per pound
Instructions
Calculate the following amounts.
1. Rate at which total factory overhead is applied
2. Materials price variance
3. Total materials variance
4. Overhead volume variance
5. Overhead controllable variance
Solution
1. Budgeted overhead cost/budgeted activity = P320,000 ÷ 5,000 = P164 per widget
PROBLEM 20
American Sporting Goods Company manufactures aluminum baseball bats that it sells
to university athletic departments. It has developed the following per unit standard
costs for 2009 for each baseball bat:
Manufacturing
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour
Standard Price P4.00 P10.00 P6.00
Unit Standard Cost P8.00 P5.00 P3.00
In 2009, the company planned to produce 80,000 baseball bats at a level of 40,000
hours of direct labor.
Instructions
(a) Compute the following variances:
1. Direct materials price.
2. Direct materials quantity.
3. Direct labor price.
4. Direct labor quantity.
5. Total overhead variance.
a
(b)Prepare the journal entries to record the transactions and events in 2009.
Solution
(a) 1. Direct materials price variance = P32,800 Unfavorable.
(AQ × AP) – (AQ × SP)
(164,000 × P4.20) – (164,000 × P4.00) = P688,800 – P656,000 = P32,800
2. Direct materials quantity variance = P28,000 Favorable.
(AQ × SP) – (SQ × SP)
(145,000 × P4.00) – (152,000* × P4.00) = P580,000 – P608,000 = P28,000
*SQ = 76,000 × 2 pounds = 152,000 pounds
3. Direct labor price variance = P11,730 Favorable.
(AH × AR) – (AH × SR)
(39,100 × P9.70) – (39,100 × P10.00) = P379,270 – P391,000 = P11,730
4. Direct labor quantity variance = P11,000 Unfavorable.
(AH × SR) – (SH × SR)
(39,100 × P10.00) – (38,000* × P10.00) = P391,000 – P380,000 = P11,000
*SH = 76,000 × 1/2 hour = 38,000 hours
5. Actual overhead – Overhead applied = Total overhead variance.
P235,000 – P228,000* = P7,000 Unfavorable
*SH = 38,000 × P6.00 = P228,000
Solution
a
(b)1. Raw Materials Inventory...................................... 656,000
Materials Price Variance...................................... 32,800
Accounts Payable.......................................... 688,800
(To record purchase of materials)
PROBLEM 1
Beckley Corporation has provided the following data from its activity-based
costing accounting system:
Customer Product
Activity Cost Pools Orders Processing Other Total
Indirect factory wages 48% 47% 5% 100%
Factory equipment
depreciation.................... 61% 25% 14% 100%
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of indirect factory wages and factory equipment
depreciation costs that would be allocated to the Product Processing activity
cost pool. Show your work!
b. Determine the total amount of indirect factory wages and factory equipment
depreciation costs that would NOT be assigned to products. Show your work!
Ans:
PROBLEM 2
Desilets Corporation has provided the following data from its activity-based
costing accounting system:
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of supervisory wages and factory utilities costs
that would be allocated to the Unit Processing activity cost pool. Show your
work!
b. Determine the total amount of supervisory wages and factory utilities costs
that would NOT be assigned to products. Show your work!
Ans:
b. As stated in the problem, the costs allocated to the “Other” cost pool
are not assigned to products.
PROBLEM 3
. The following data have been provided by Hooey Corporation from its activity-
based costing accounting system:
Product
Change-
Activity Cost Pools Overs Machining Other Total
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of supervisory wages and factory utilities costs
that would be allocated to the Machining activity cost pool. Show your work!
b. Determine the total amount of supervisory wages and factory utilities costs
that would NOT be assigned to products. Show your work!
Ans:
b. As stated in the problem, the costs allocated to the “Other” cost pool
are not assigned to products.
Total...................................... P29,550
PROBLEM 4
Fidler & Jenkins PLC, a consulting firm, uses an activity-based costing in which
there are three activity cost pools. The company has provided the following data
concerning its costs and its activity based costing system:
Costs:
Wages and salaries P620,000
Travel expenses... 140,000
Other expenses.... 120,000
Total..................... P880,000
Working Business
On Engage Develop
Activity Cost Pools ments ment Other Total
Wages and salaries 60% 10% 30% 100%
Travel expenses 50% 40% 10% 100%
Other expenses 35% 25% 40% 100%
Required:
a. How much cost, in total, would be allocated to the Working On Engagements
activity cost pool?
b. How much cost, in total, would be allocated to the Business Development
activity cost pool?
c. How much cost, in total, would be allocated to the Other activity cost pool?
Ans:
Working On Business
Engagemen Developme
ts nt Other Total
Wages and
salaries......... P372,000 P 62,000 P186,000 P620,000
Travel expenses 70,000 56,000 14,000 140,000
Other expenses 42,000 30,000 48,000 120,000
Total................ P484,000 P148,000 P248,000 P880,000
PROBLEM 5
. Dane Housecleaning provides housecleaning services to its clients. The
company uses an activity-based costing system for its overhead costs. The
company has provided the following data from its activity-based costing system.
Activity Cost Pool Total Cost Total Activity
Cleaning............ P263,784 34,800 hours
Job support........ 145,180 7,000 jobs
Client support.... 4,774 220 clients
Other.................. 170,000 Not applicable
Total................... P583,738
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
One particular client, the Hoium family, requested 45 jobs during the year that
required a total of 90 hours of housecleaning. For this service, the client was
charged P2,000.
Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost
pools. Round off all calculations to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the
Hoium family. Round off all calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in
which ALL costs are allocated to customers on the basis of cleaning hours.
Compute the margin for the Hoium family. Round off all calculations to the
nearest whole cent.
Ans:
PROBLEM 6
The Kamienski Cleaning Brigade Company provides housecleaning services to
its clients. The company uses an activity-based costing system for its overhead
costs. The company has provided the following data from its activity-based
costing system.
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
One particular client, the Whiddon family, requested 15 jobs during the year that
required a total of 60 hours of housecleaning. For this service, the client was
charged P1,170.
Required:
a. Using the activity-based costing system, compute the customer margin for the
Whiddon family. Round off all calculations to the nearest whole cent.
b. Assume the company decides instead to use a traditional costing system in
which ALL costs are allocated to customers on the basis of cleaning hours.
Compute the margin for the Whiddon family. Round off all calculations to the
nearest whole cent.
Ans:
b. The margin if all costs are allocated on the basis of cleaning hours:
PROBLEM 7
Cabio Company manufactures two products, Product C and Product D. The
company estimated it would incur P119,100 in manufacturing overhead costs
during the current period. Overhead currently is applied to the products on the
basis of direct labor hours. Data concerning the current period's operations
appear below:
Product C Product D
Estimated volume......... 400 units 3,000 units
Direct labor hours per unit 1.20 hours 1.30 hour
Direct materials cost per unit P4.00 P22.80
Direct labor cost per unit P12.00 P13.00
Required:
a. Compute the predetermined overhead rate under the current method, and
determine the unit product cost of each product for the current year.
b. The company is considering using an activity-based costing system to
compute unit product costs for external financial reports instead of its
traditional system based on direct labor hours. The activity-based costing
system would use three activity cost pools. Data relating to these activities for
the current period are given below:
Expected Activity
Estima
Ted
Overhea Product Product
Activity Cost Pool d Costs C D Total
Machine setups P 10,440 60 120 180
Purchase orders 78,000 820 1,180 2,000
General factory 30,660 480 3,900 4,380
Total P119,100
Determine the unit product cost of each product for the current period using the
activity-based costing approach.
Ans:
a. The expected total direct labor hours during the period are
computed as follows:
Product C: 400 units × 1.2 hours per unit 480 hours
Product D: 3,000 units × 1.3 hours per unit 3,900 hours
Total direct labor hours 4,380 hours
b. The activity rates for each activity cost pool are as follows:
Estimated
Overhead Expected Activity
Costs Activity Rate
Machine setups P10,440 180 P58.00
Purchase orders P78,000 2,000 P39.00
General factory P30,660 4,380 P7.00
Using activity based costing, the unit product cost of each product
would be:
Product C Product D
Direct materials............ P 4.00 P22.80
Direct labor................... 12.00 13.00
Manufacturing overhead 97.05 26.76
Total unit product cost. . P113.05 P62.56
PROBLEM 8
Using the activity-based costing approach, determine the overhead cost per unit
for each product.
Ans:
The activity rates for each activity cost pool are as follows:
Overhead
Estimated Expected Activity
Activity Cost Pool Costs Activity Rate
Machine setups P13,720 280 P49.00
Purchase orders P74,730 1,590 P47.00
General factory. P15,000 3,000 P5.00
Product F Product G
Activity Amount Activity Amount
Machine setups 140 P 6,860 140 P 6,860
Purchase orders 630 29,610 960 45,120
General factory. 600 3,000 2,400 12,000
P39,47
Total overhead cost 0 P63,980
PROBLEM 9
Kretlow Corporation has provided the following data from its activity-based
costing accounting system:
Compute the activity rates for each of the three cost pools. Show your work!
Ans:
Total Activity
Activity Cost Pools Total Cost Activity Rate
Designing products P700,502 3,746 P187
Setting up batches P12,400 620 P20
Assembling products P125,440 8,960 P14
PROBLEM 10
Data concerning three of Kilmon Corporation's activity cost pools appear below:
Compute the activity rates for each of the three cost pools. Show your work!
Ans:
Total Activity
Activity Cost Pools Total Cost Activity Rate
Assembling products P150,300 8,350 P18
P1,177,53
Designing products 5 7,597 P155
Setting up batches P14,400 600 P24
PROBLEM 11
Doles Corporation uses the following activity rates from its activity-based costing
to assign overhead costs to products.
Required:
How much overhead cost would be assigned to each of the two products using
the company's activity-based costing system?
Ans:
Product K52W Product X94T
Setting up batches...... P5,419.70 P7,193.42
Processing customer orders 378.00 714.00
Assembling products. . 2,460.41 1,419.06
Total overhead cost.... P8,258.11 P9,326.48
PROBLEM 12
Desjarlais Corporation uses the following activity rates from its activity-based
costing to assign overhead costs to products.
Activity Cost Pools Activity Rate
Setting up batches........ P32.22 per batch
Assembling products.... P6.13 per assembly hour
Processing customer orders P72.75 per customer order
Required:
a. How much overhead cost would be assigned to Product S96U using the
company's activity-based costing system? Show your work!
b. How much overhead cost would be assigned to Product Q06F using the
company's activity-based costing system? Show your work!
Ans:
a. Product S96U
Setting up batches (78 batches × P32.22 per
batch)................................................ P2,513.16
Assembling products (412 assembly hours ×
P6.13 per assembly hour)................ 2,525.56
Processing customer orders (53 customer
orders × P72.75 per customer order) 3,855.75
Total overhead cost............................ P8,894.47
b. Product Q06F
Setting up batches (24 batches × P32.22 per
batch) P 773.28
Assembling products (178 assembly hours ×
P6.13 per assembly hour) 1,091.14
Processing customer orders (18 customer
orders × P72.75 per customer order) 1,309.50
Total overhead cost P3,173.92
PROBLEM 13
Archie Corporation uses the following activity rates from its activity-based costing
to assign overhead costs to products.
Last year, Product X26X involved 18 batches, 4 customer orders, and 103
assembly hours.
Required:
How much overhead cost would be assigned to Product X26X using the
company's activity-based costing system? Show your work!
Ans:
Setting up batches (18 batches × P16.68 per
batch)................................................ P 300.24
Processing customer orders (4 customer orders ×
P98.60 per customer order)............. 394.40
Assembling products (103 assembly hours ×
P7.89 per assembly hour)................ 812.67
Total overhead cost............................ P1,507.31
PROBLEM 14
IGL Draperies makes custom draperies for homes and businesses. The company
uses an activity-based costing system for its overhead costs. The company has
provided the following data concerning its annual overhead costs and its activity
cost pools.
Overhead costs:
Production overhead P140,000
Office expense. 140,000
Total................. P280,000
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs. The amount of activity for the year is as
follows:
Activity Cost Pool Annual Activity
Making drapes 3,000 yards
Job support. . 140 jobs
Other............ Not applicable
Required:
a. Prepare the first-stage allocation of overhead costs to the activity
cost pools by filling in the table below:
Job
Making Suppo
Drapes rt Other Total
Production
overhead........
Office expense.
Total.................
b. Compute the activity rates (i.e., cost per unit of activity) for the
Making Drapes and Job Support activity cost pools by filling in the
table below:
Making Job
Drapes Support
Production
overhead........
Office expense.
Total.................
c. Prepare an action analysis report in good form of a job that involves making
85 yards of drapes and has direct materials and direct labor cost of P2,990.
The sales revenue from this job is P6,000. For purposes of this action analysis
report, direct materials and direct labor should be classified as a Green cost;
production overhead as a Red cost; and office expense as a Yellow cost.
Ans:
a. First-stage allocation
Making Job
Drapes Support Other Total
Production P140,0
overhead........ P84,000 P28,000 P28,000 00
Office expense. 21,000 77,000 42,000 140,000
P105,00 P280,0
Total................. P105,000 0 P70,000 00
Activity.............. 3,000 yards 140 jobs
b. Activity rates (costs divided by activity)
Making Job
Drapes Support
Activity.............. 3,000 yards 140 jobs
Production overhead P28.00 P200.00
Office expense. 7.00 550.00
Total................. P35.00 P750.00
Sales............................. P6,000
Green costs:
Direct materials and labor 2,990
Green margin................ 3,010
Yellow costs:
Office expense........... 1,145
Yellow margin............... 1,865
Red costs:
Production overhead. . 2,580
Red margin................... (P 715)