Activities for OM 103: Job order costing and Cost Behavior (Straight Problems)

Problem 1:

Data about Annabelle Company’s production and inventories for June are as follows:

Purchases – direct materials Php 143,440

Freight in 5,000
Direct Labor 175,000
Actual Factory Overhead 120,000

Inventories: June 1 June 30

Finished Goods 68,000 56,000
Work in Process 110,000 135,000
Direct Materials 52,000 44,000

Annabelle Company applies factory overhead to production at 80% of direct labor cost. Over- or
underapplied overhead is closed to cost of goods sold at year-end. The company’s accounting period is
on the calendar year basis.

Direct Material Let x be the value of total DM used:

Beg. 52,000
X = (52,000 + 143,440 + 5,000) – 44,000
143,440 x
5,000   = 200,440 – 44,000
End. 44,000
= 156,440

Work-In-Process X = (11,000 + 156,440 + 175,000 + 140,000) –

Beg. 110,000 135,000
156,440 x = 581,440 – 135,000
175,000
140,000   = 446,440
End. 135,000
Let x be the total Cost of goods manufactured:
Beg. 68,000
446,440 x
End. 56,000

Let x be the total cost of goods sold:

X = (68,000 + 446,440) – 56,000

Finished goods
 = 514,440 – 56,000

= 458,440

Factory overhead to production at 80% of direct labor cost:

Given:

Direct labor cost = 175,000

Factory overhead 80% of direct labor cost

Factory overhead applied = ?

Solution:

Factory overhead applied = Direct labor cost * 80%

= 175,000 * 0.8

= 140,000

Compute for:

1. Annabelle Company’s prime cost for June

Given:
Direct Material used = 156,440
Direct Labor = 175,000

Prime cost for June = ?

Solution:
Prime cost = Direct Material + Direct Labor
= 156,440 + 175,000
= Php 331,440

2. Annabelle Company’s conversion for June

Given:
Direct Labor = 175,000
Factory overhead applied = 140,000
Conversion cost for June = ?
Solution:
Conversion cost = Direct Labor + overhead applied
= 175,000 + 140,000
= Php 315,000

3. Annabelle Company’s total manufacturing cost for June

Given:
Direct Material used = 156,440
 Direct Labor = 175,000
Factory overhead applied = 140,000
Total manufacturing cost for June = ?
Solution:
Total manufacturing cost = Direct Material used + Direct Labor + Factory overhead
= 156,440 + 175,000 + 140,000
= Php 471,440

4. For June, Annabelle Company’s cost of goods transferred to the finished goods inventory
account
Given:
Total Manufacturing cost = 471,440
Work-In-Process Beginning = 110,000
Work-In-Process Ending = 135,000

Cost of goods manufactured = ?

Solution:

Cost of goods manufactured = Total Manufacturing cost + WIP Beginning – WIP Ending

= 471,440 + 110,000 - 135,000

= Php 446,440

5. Annabelle Company’s cost of goods sold for June

Given:
Cost of goods manufactured = 446,440
Finished goods beginning = 68,000
Finished goods ending = 56,000
Cost of goods sold for June = ?
Solution:
Cost of goods sold = Cost of goods manufactured + FG beginning - FG ending
= 446,440 + 68,000 - 56,000
= Php 458,440

6. The amount of over/under applied overhead factory for June

Given:
Direct labor cost = 175,000
Factory overhead 80% of direct labor cost
Factory overhead applied = ?
Solution:
Factory overhead applied = Direct labor cost * 80%
= 175,000 * 0.8
= 140,000
Problem 2

Meng Company is preparing a flexible budget for next year and requires a breakdown of the factory
maintenance cost into fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six months are as
follows:

Maintenance Cost Machine Hours

January 15,500 1,800
February 10,720 1,230
Maintenance Cost Machine Hours
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

Required:

1. If Meng Company uses the High-Low Method of analysis, the estimated variable rate of
maintenance cost per machine hour is?

Given:

Highest activity level = 2,190

Highest costs = 15,840

Lowest activity level = 1,230

Lowest costs = 10,720

Variable rate of maintenance cost per machine hour = ?

Solution:
Highest Activity Cost - Lowest Activity Cost
Variable Cost Per Unit =
Highest Activity Units - Lowest Activity Units

= 15,840 - 10,720 / 2,190 - 1,230

= 5, 120 / 960

= 5.333333333 0r 5.33 per unit or machine hour

2. Using the high-low method, compute the average fixed maintenance cost.

Given:

Variable cost per unit = 5.333333333 or 5.33

 Highest activity level = 2,190

Highest costs = 15,840

Average fixed maintenance cost = ?

Solution:

Fixed Cost   =   Highest Activity Cost - (Variable Cost Per Units x Highest Activity Units)

= 15,840 – (5.33333333 * 2,190)

= 15,840 – 11,680
= 4,160
3. Using the high-low method, what is the total cost maintenance at a level of 1,500 machine
hours?

Given:

Variable cost per unit = 5.333333333 or 5.33

New machine hours = 1,500

Fixed costs = 4,160

Total cost maintenance = ?

Solution:

Total Variable costs = variable costs per unit x new activity

= 5.333333333 * 1,500

= 8,000

Total Cost = Fixed cost + Variable cost

= 4,160 + 8,000

= 12,160