Professional Documents
Culture Documents
Jessica Company started operations on January 2, 20x6. The company manufactures custom
products and uses a job order system. Overhead is allocated to jobs based on direct labour costs.
The budgeted manufacturing overhead for 20x6 was $396,900 and the direct labour costs were
budgeted at $567,000. At the end of 20x6, there were two jobs in work in process:
Actual manufacturing overhead for the year amounted to $350,000 and total direct labour
charges for the year amounted to $550,000. The year-end finished good inventory balance was
$175,000 and included direct labour costs of $48,000. Cost of goods sold for the year amounted
to $1,750,000.
Required -
1. Prepare a schedule showing the detailed cost of the ending work-in-process, and finished
goods inventory.
2. Compute the over/under –applied overhead for the year.
3. Allocate the balance in the manufacturing overhead account using each of the 4
approaches discussed in class.
Deterra, Inc., uses three departments to produce a detergent. The Finishing Department is the
third and last step before the product is transferred to storage. All materials needed to give the
detergent its final composition are added at the beginning of the process in the Finishing
Department. The company uses FIFO costing. The following data for the Finishing Department
for October have been made available:
Production data:
In process, October 1 (labor and factory overhead, 75% complete) 10,000 litres
Transferred in from preceding department 40,000 litres
Finished and transferred to storage 35,000 litres
In process, October 31 (labor and factory overhead, 50% complete) 15,000 litres
Additional data:
Required:
Calculate the cost of the units transferred out to finished goods inventory and the value of the
ending WIP under both the FIFO method and the weighted average method.
Spoilage!
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Spoilage Terminology!
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Kristina Company, which manufactures quality paint sold at premium prices, uses a single
production department. Production begins with the blending of various chemicals, which are
added at the beginning of the process, and ends with the canning of the paint. Canning occurs
when the mixture reaches the 90% stage of completion. The gallon cans are then transferred to
the Shipping Department for crating and shipment. Labor and overhead are added continuously
throughout the process.
Prior to May, when a change in the process was implemented, WIP inventories were
insignificant. The change in the process enables greater production but results in material
amounts of WIP for the first time. The company has always used the WA method to determine
equivalent production and unit costs. Now, production management is considering changing
from the WA method to the FIFO method.
Spoilage is detected when the mixture reaches the 60% stage of completion. Normal spoilage is
equal to 2% of units transferred out.
The following data relate to actual production during the month of May:
Required –
Calculate the cost of units transferred out and the cost of abnormal spoilage using (a) FIFO and
(b) weighted average.
The Dangelo Company manufactures products that often require specification changes or
modifications to meet its customers' needs. Still, Dangelo has been able to establish a normal
spoilage rate of 2.5% of normal input. Normal spoilage is recognized during the budgeting
process and classified as a component of manufacturing overhead when determining the
overhead rate.
One of Dangelo's inspection managers, obtains the following information for Job No. A604 that
was recently completed. A total of 122,000 units were started, and 5,000 units were rejected at
final inspection yielding 117,000 good units. Nine hundred of the first units produced were
rejected because of a design defect that was considered very unusual; this defect was corrected
immediately, and no further units were rejected for this reason. These units were disposed of
after incurring an additional cost of $1,200. The inspection department was unable to identify a
rejection pattern for the remaining 4,100 rejected units. These units can be sold at $7 per unit.
The total costs for all 122,000 units of Job No. A604 are presented here. The job has been
completed, but the costs have yet to be transferred to finished goods.
Required -
Cost Estimation!
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• plot the data - a plot will reveal whether the cost relation is
indeed linear, and whether there are any outliers!
• high-low method: makes use of the costs and activity levels
for the high and low activity levels in a set of data!
– variable cost = ∆ in cost / ∆ in activity level between the
highest and lowest points of activity!
– relies only on two data points!
• visual fit (scattergraph) method: visually fit a straight line
in a scatter plot of data!
• regression analysis: most reliable, as it uses all data points
in calculating the best fitting line!
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Regression Analysis!
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The following selected data were taken from the accounting records of Daviault Manufacturing
Company. The company uses direct-labor hours as its cost driver for overhead costs.
Direct-Labor Manufacturing
Month Hours Overhead
January 26,000 $749,250
February 25,000 720,000
March 28,000 772,500
April 23,000 681,000
May 30,000 775,500
June 34,000 879,000
June's cost consisted of machine supplies ($153,000), depreciation ($22,500), and plant
maintenance ($703,500). These costs exhibit the following respective behavior: variable, fixed,
and semivariable (mixed).
The manufacturing overhead figures presented in the preceding table do not include supervisory
labor cost, which is step-fixed in nature. For volume levels of less than 15,000 hours, supervisory
labor amounts to $67,500. The cost is $135,000 from 15,000-29,999 hours and $202,500 when
activity reaches 30,000 hours or more.
Required:
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Resource
Drivers
Activity COST
Drivers MANAGEMENT
Direct Cost 57
Costs Objects
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Mona Loa, Inc. (MLI), is a distributor and processor of a variety of different brands of coffee.
The company buys coffee beans from around the world and roasts, blends, and packages them
for resale. MLI currently has 10 different coffees that it offers to gourmet
shops in one kilogram bags. The major cost is direct materials, however, there is a substantial
amount of factory overhead in the predominantly automated roasting and packing process. The
company uses relatively little direct labor.
Some of the coffees are very popular and sell in large volumes, while a few of the newer brands
have very low volumes. MLI prices its coffee at full product cost, including allocated overhead,
plus a markup of 25 percent. If prices for certain coffees are significantly higher than the market,
the prices are lowered. The company competes primarily on the quality of its products, but
customers are price conscious as well.
Data for the 20x8 budget include factory overhead of $3,500,000, which has been allocated in its
current costing system on the basis of each product's direct labor cost. The budgeted direct labor
cost for 20x8 totals $700,000. Budgeted purchases and use of direct materials (mostly coffee
beans) will total $6,000,000.
Budgeted direct costs for one kg. bags of two of the company's products are as follows:
Italian French
Roast Roast
Direct materials $3.20 $2.80
Direct labor 0.30 0.30
MLI's controller believes the current traditional product costing system may be providing
misleading cost information. He has developed this analysis of the 20x8 budgeted factory
overhead costs:
Budgeted Budgeted
Activity Cost Driver Activity Cost
Purchasing Purchase order 1,150 $575,000
Material handling Setups 1,750 612,500
Quality control Batches 500 150,000
Roasting Roasting-hours 100,000 950,000
Blending Blending-hours 23,125 462,500
Packaging Packaging-hours 30,000 750,000
$3,500,000
Data regarding the 20x8 production of Italian Roast and French Roast coffee follow. Assume no
beginning or ending direct materials inventory for either of these coffees.
Required –
Avid Assemblers uses job-order costing to assign costs to products. The company assembles and
packages 20 different products to customer specifications. Products are worked on in batches of
30 to 50 units. Each batch is assigned a job number.
Shown below are the direct cost data related to jobs started in October:
Other information:
1. Direct materials and direct labour added to beginning work in process in October
were as follows:
5. Only Jobs 207 and 208 are still in process at closing on October 31. Finished
goods consisted only of Job 205 at month end.
6. Avid writes off any over- or underapplied overhead to Cost of Goods Sold in the
month it is incurred.
Required:
1. What is the predetermined overhead rate used by Avid to apply overhead to jobs?
2. What is the unit cost of Job 204 ?
3. What are the October 31 balances for the following inventory accounts?
a. Direct Materials
b. Work in Process
c. Finished Goods
4. What is the cost of goods manufactured in October? (You do not have to prepare
a statement as part of this Requirement.)
5. Determine the over- or underapplied overhead for October.
Jamieson Steel has two profit centres: Ingots and Stainless Steel. These profit centres rely
on services provided by two service departments, electricity and water. Ingots’ and
Stainless’ consumption of the service departments’ output (in millions) is given in the
following table:
Required -
Calculate the unit cost per kwh and gallon for each of the 4 methods.
Accelerated Program
Week 15
2. Spoilage (ch 4)
MCQ 7-8, Q9, Q10, Q5, Q6, Q7, Q8
For each of the following independent cases, determine the information requested.
a. Beginning inventory amounted to 500 units. This period 2,250 units were started and
completed. At the end of the period, the 1,500 units in inventory were 30 percent complete.
Using FIFO costing, the equivalent production for the period was 2,800 units. What was the
percentage of completion of the beginning inventory?
b. The ending inventory included $8,700 for conversion costs. During the period, 4,200
equivalent units were required to complete the beginning inventory, and 6,000 units were
started and completed. The ending inventory represented 1,000 equivalent units of work
this period. FIFO costing is used. What were the total conversion costs incurred this
period?
c. In the beginning inventory, 1,000 units were 40 percent complete with respect to materials.
During the period, 8,000 units were transferred out. Ending inventory consisted of 1,400
units that were 70 percent complete with respect to materials. How many units were started
and completed during the period? Assume FIFO costing.
d. At the start of the period, 8,000 units were in the work in process inventory and 6,000 units
were in the ending inventory. During the period, 19,000 units were transferred out to the
next department. Materials and conversion costs are added evenly throughout the
production process. FIFO costing is used. How many units were started this period?
e. In the beginning inventory 4,100 units were 40 percent complete with respect to conversion
costs. During the period, 3,500 units were started. In the ending inventory, 3,250 units were
20 percent complete with respect to conversion costs. How many units were transferred
out? Weighted average costing is used.
f. The beginning inventory consisted of 4,000 units with a direct materials cost of $14,200.
The equivalent work represented by all of the direct materials costs in the WIP Inventory
account amounted to 18,000 units. There were 6,000 units in ending inventory that were 20
percent complete with respect to materials. The ending inventory had a direct materials cost
assigned of $4,500. What was the total materials cost incurred this period? Weighted
average costing is used.
g. The WIP Inventory account had a beginning balance of $1,900 for conversion costs on
items in process and during the period $18,100 in conversion costs were charged to it. Also
during the period, $19,200 in costs were transferred out. There were 400 units in the
beginning inventory, and 4,800 units were transferred out during the period. How many
equivalent units are in the ending inventory? Weighted average costing is used.
h. During the period, 1,050 units were transferred to the department. The 1,600 units
transferred out were charged to the next department at an amount that included $3,360 for
direct materials costs. The ending inventory was 25 percent complete with respect to direct
materials and had a cost of $630 assigned to it. How many units are in the ending
inventory? Weighted average costing is used.
The following data pertain to the operations of Department B for the month of July:
Normal spoilage is equal to 2% of the good units transferred out. Spoilage is detected at
90% of the conversion process
Required –
Calculate the cost of goods manufactured and cost of abnormal spoilage assuming that
the Richard Company uses (a) FIFO and (b) Weighted Average.