COST ACCOUNTING – Odd 2020/2021

Parallel Quiz 2 – Take Home

Answers is to be made in handwriting ONLY
Deadline: Wednesday Dec 30, 10am. Submit trough emas2.ui.ac.id and MsTeams

Question #1 (20%)
Artistic Stone produces memorial monuments and architectural slabs. The company excavates blocks of
granite from its joint processes of Quarry and Cutting. Two joint products (memorial monuments and
architectural slabs) are produced from the process. There is also a by-product generated, which is called grit.
Memorial monuments are processed in a variety of standard shapes, sizes, and patterns and sold to
funeral homes. Architectural slabs are cut and polished to specifications from special-order for contractors of
office buildings. The small pieces of granite resulting from the cutting process are crushed and sold to a farm
as poultry grit at $40 per ton.
Below is the information provided by Artistic Stone:
Process Cost Tons of Output
Quarry $350,000 100,000
Cutting 250,000 90,000
Monuments 300,000 25,000
Slabs 400,000 60,000
Grit 10,000 5,000
Quarry and Cutting are joint processes. Assume that the company uses the physical unit method to allocate
joint costs.
Required:
Compute the cost per ton of monuments and slabs under the following condition:
1. The grit is accounted for as “Other Income”. (10 points)
2. The grit is accounted for as by-product revenue deducted from the main product cost. (10 points)

Question #2 (20%)
Maricopa Corporation is developing departmental overhead rates based on direct labor hours for its two
production departments; Molding and Assembly. The molding department employs 20 people, and the
assembly department employs 80 people. Each person in these two departments works 2,000 hours per year.
The production-related overhead costs for the molding department are budgeted at $200,000, and the
assembly department costs are budgeted at $320,000.
Two support departments; Repair and Power, directly support the two production departments and
have budgeted costs of $48,000 and $250,000, respectively. The production departments’ overhead rates
cannot be determined until the support departments’ costs are properly allocated. The following schedule
reflects the use of the repair department’s and power department’s output by the various departments.

Repair Power Molding Assembly

Repair hours NA 1,000 1,000 8,000
Kilowatt-hours 240,000 NA 840,000 120,000

Required:
1. Calculate the overhead rates per direct labor hour for the molding department and the assembly
department using the step-down method to charge support department costs to each other and to the
production departments. The allocation policy is firstly allocate the service department with the highest
percentage of interdepartmental support.(10 points)
2. Calculate the overhead rates per direct labor hour for the molding department and the assembly
department using the reciprocal method to charge support department costs to each other and to the
production departments. (10 points)

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Question #3 (20%)
Glencoe Medical Clinic operates a cardiology care unit (CCU) and a maternity care unit (MCU). Currently, all
cardiology patients are charged the same rate per patient day for daily care services, which consists of
occupancy, feeding and nursing care. Recent study reveals that:
 Demand patients place on daily service vary with severity of the case
 Occupancy is combination of two activities: lodging and use of monitoring equipment.
 Cost of monitoring activity were directly traceable. The lodging costs shared by two activities: lodging
cardiology patients and lodging maternity care with total cost $5,700,000 per year consists of
building depreciation, maintenance, and utilities. Lodging costs would be assigned to each unit based
on square feet. The cardiology floor and maternity floor each occupy 20,000 square feet.
 Daily rate should reflect the difference in demand resulting from difference in patient type

To compute a daily rate, the following annual data were collected:

Activity Cost of Activity Activity Driver Quantity
Lodging $2,850,000 Patients Day 22,500
Monitoring $2,100,000 Monitoring hours used 30,000
Feeding $450,000 Patients Day 22,500
Nursing Care $4,500,000 Nursing Hours 225,000
Total $9,900,000

The demands associated with patient severity are as follow:

Severity Patient Days Monitoring Hours Nursing Hours
High 7,500 15,000 135,000
Medium 11,250 12,000 75,000
Low 3,750 3,000 15,000

Required:
1. Suppose that the costs of daily care are assigned using only patient days as the activity driver. Compute
the daily rate (4 points)
2. Compute activity rate using given activity drivers (combine activities with the same driver) (6 points)
3. Compute the charge per patient day for each patient type based on rate in question 2 (6 points)
4. Compare your answer in no 1 and 3. Comment the result (4 points)

Question #4 (8%)
BGH company attempts to apply an activity based management (ABM) system. The company’s ABM analyst
of identifies the following two situations:
a) A manual insertion process takes 30 minutes and eight pounds of material to produce a product.
Automating the insertion process requires 15 minutes of machine time and 7.5 pounds of material.
The cost per labour hour is $12, the cost per machine hour is $8, and the cost per pound of materials
is $10.
b) A plant produces 100 different electronic products. Each product requires an average of eight
components that are purchased externally. The components are different for each part. By
redesigning the products, it is possible to produce the 100 products so that they all have four
components in common. This will reduce the demand for purchasing, receiving, and paying bills.
Estimated savings from the reduced demand are $900,000 per year.

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Required:
1. Calculate the non-value-added cost caused by each activity. (4 points)
2. Identify the root cause(s) of the activity cost (e.g., plant layout, process design, and product design).
(2 points)
3. Identify the most appropriate cost reduction measure (i.e., activity elimination, activity reduction, activity
sharing, or activity selection). (2 points)

Question #5 (12%)
Mitsu Corporation assembles motorcycles with special speed. Pullout Corporation uses a JIT production
system and a backflush costing system with two trigger points:
 Purchase of direct materials and incurring of conversion costs
 Sale of finished goods
The Inventory Control account will include direct materials purchased but not yet in production, materials in
work in process, and materials in finished goods but not sold. No conversion costs are inventoried. Any under-
or overallocated conversion costs are written off monthly to Cost of Goods Sold.
There are no beginning inventories of materials or finished goods and no beginning or ending work-in-process
inventories. The following data are for July 2019:
Direct materials purchased $1,200,000 Conversion costs incurred $600,600
Direct materials used $1,375,000 Conversion costs allocated $625,000
Mitsu Corporation records direct materials purchased, and conversion costs incurred at actual costs. It has no
direct materials variances. When finished goods are sold, the backflush costing system “pulls through”
standard direct material cost ($50 per unit) and standard conversion cost ($25 per unit). Grand Devices
produced 25,000 finished units in July 2019 and sold 24,000 units. The actual direct material cost per unit in
July 2019 was $50, and the actual conversion cost per unit was $27.

Required:
Prepare journal entries for the period (without disposing of under- or overallocated conversion costs). (12
points)

Question #6 (20%)
In 2018, PT Sepatu Cileumbeut initiated a quality improvement program. The program is aimed at reducing
scrap and rework costs. To help assess the impact of the quality improvement program, the following data
were collected for the years 2018 and 2019:

2018 2019
Sales $ 2,400,000 $2,400,000
Scrap $ 40,000 30,000
Rework $ 100,000 70,000
Product inspection $ 12,000 18,000
Quality training $ 14,000 15,000
Material inspections $ 8,000 13,000
Product warranty $ 80,000 50,000

Required:
1. Classify each quality cost as prevention costs, appraisal costs, internal failure costs, and external failure
costs. (6 points)
2. Calculate the relative distribution of quality costs (based on sales) for 2018 and 2019. (9 points)
3. Provide an analysis of the distribution of quality costs. (5 points)

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