STRATEGIC COST MANAGEMENT

LEARNING ACTIVITIES

Direction: Read and encircle the letter which corresponds to the correct answer
1. Which of the following costs would be included in manufacturing overhead for a computer
manufacturer?
a. The cost of the USB port hardware
b. The wages paid to hardware assemblers.
c. The cost of the circuit boards
d. Depreciation on assembly machinery
2. Which of the following is true regarding period and product costs?
a. Factory lease is a period cost, and sales commissions are a product cost.
b. Factory lease is a product cost, and sales commissions are a product cost.
c. Factory lease is a period cost, and sales commissions are a period cost.
d. Factory lease is a product cost, and sales commissions are a period cost.
3. Which of the following statements is incorrect regarding manufacturing overhead?
a. Manufacturing overhead is an indirect cost to units or products.
b. Manufacturing overhead includes both fixed and variable costs.
c. Actual overhead costs are used in the cost accounting process.
d. Actual overhead costs tend to remain relatively constant over various output levels.
4. Direct labor costs are.
a. nonmanufacturing costs
b. period costs
c. conversion costs
d. overhead costs
5. Direct materials are.
a. manufacturing cost, prime cost, and conversion cost
b. prime cost
c. manufacturing cost and prime cost
d. none of the above

ASSESSMENT

Direction: Read and answer the following requirements. Use a separate sheet for your solution.

Problem 1
Womble Inc. has beginning inventory of $200 and an ending inventory of $400 for a given period in
which it purchased $13,400 worth of materials. What is the dollar amount of materials used in this
period?

Answer: $13,200 dollar amount of materials used

Problem 2

Jordan Sports Inc. has labor costs and overhead totaling $2.6 million during a given period. The company
purchased $10.5 million of materials during the period and used $10 million of this amount. What is the
amount of total manufacturing cost for the period?

Answer: $12.6 million amount of total manufacturing cost for the period.

Problem 3

Lucas Diving Supplies Company, in its first year of business, had labor costs of $66,000, overhead costs
of $98,000, materials purchases of $22,000, and ending Materials and Work-in-Process Inventories of
$1,000 and $2,000, respectively. What is the amount of cost of goods manufactured in the first year of
operations?
Answer: $183,000 amount of cost of goods manufactured in the first year of operations.

Problem 4

The Walden Manufacturing Corp. has office support salaries of $4,000, factory supplies of $1,000,
indirect labor of $6,000, direct materials of $16,000, advertising expense of $2,500, office expense of
$14,000, and direct labor of $20,000. What is the total period cost?

Answer: $20,500 total period cost

Problem 5- Activity Levels and Cost Drivers

Zeller Manufacturing Company produces four lines of high-quality lighting fixtures in a single
manufacturing plant. Products are built to specific customer specifications. All products are made-to-
order. Management of the plant lists the following as the key activities at the plant:
1. Product design
2. Product testing
3. Developing marketing plan for new products
4. Purchasing, receiving, and inspecting materials for production
5. Manufacturing labor
6. Setups for machine
7. Product inspection, done for each product before packaging for shipment.
8. Packaging and shipping
9. Sales calls for new orders from existing customers.
10. Processing customer orders
11. Maintenance of plant and equipment
12. Plant security

Required: Identify a cost object and a cost driver for each activity

Activities Cost Object Cost Driver

1. Product design Product line or customer Directly trace to product line,
or each custom order
requiring design
2. Product testing Product line or customer Directly trace to product line,
or each custom order
requiring testing
3. Developing Product line Allocation base: product line
marketing plan for
new products
4. Purchasing, receiving, Product line Allocation base: number of
and inspecting purchase orders
materials for
production
5. Manufacturing labor Customer order Directly trace to customer
6. Setups for machine Customer order Directly trace to customer
7. Product inspection, Customer order Directly trace to customer
done for each
product before
packaging for
shipment
8. Packaging and Customer order Directly trace to customer
shipping
9. Sales calls for new Each customer Directly trace to customer
orders from existing
customers
10. Processing customer Customer order Directly trace to customer
 orders
11. Maintenance or plant Customer order Allocation base: number of
and equipment orders
12. Plant security Individual products Allocation base: number of
units produced