ACCT 5302
Review Questions
Question 1:
Nish Corporation has provided the following data for the month of April:
Sales $220,000
Raw materials purchases $50,000
Direct labor cost $23,000
Manufacturing overhead cost $59,000
Selling expense $18,000
Administrative expense $43,000
Inventories: Beginning Ending
Raw materials $26,000 $35,000
. Work in process $18,000 $22,000
Finished goods $42,000 $29,000
Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good form for April.
b. Prepare Income Statement in good form for April.
Question 2:
Dodge Products uses a job-costing system for its units, which pass from the Machining
Department, to the Assembly Department, to finished-goods inventory.
The Machining Department is heavily automated; in contrast, the Assembly Department
performs a number of manual-assembly activities. The following information relates to the
Machining Department for the year just ended:
Budgeted manufacturing overhead $12,000,000
Actual manufacturing overhead 12,142,000
Budgeted machine hours 800,000
Actual machine hours 794,000
The Machining Department data that follow pertain to job no. 775, the only job in production
at year-end.
Direct materials $125,000
Direct labor cost 61,800
Machine hours 550
Required:
A. Assuming the use of normal costing, calculate the predetermined overhead rate that is
used in the Machining Department.
B. Compute the cost of the Machining Department's year-end work-in-process inventory.
C. Determine whether overhead was under- or over-applied during the year in the
Machining Department.
D. If Dodge disposes of the Machining Department's under- or over-applied overhead as an
adjustment to Cost of Goods Sold, would the company's Cost-of-Goods-Sold account
increase or decrease? Explain.
E. How much overhead would have been charged to the Machining Department's Work-in-
Process account during the year?
F. Comment on the appropriateness of direct labor cost to apply manufacturing overhead in
the Assembly Department.
Question 3:
Pitney Corporation manufactures two types of transponders -- no. 156 and no. 157 – and
applies manufacturing overhead to all units at the rate of $76.50 per machine hour.
Production information follows.
No. 156 No. 157
Anticipated volume (units) 6,000 14.000
Direct material cost $40 $65
Direct labor cost $25 $25
The controller, who is studying the use of activity-based costing, has determined that the
firm's overhead can be identified with three activities: manufacturing setups, machine
processing, and product shipping. Data on the number of setups, machine hours worked, and
outgoing shipments, the activities' three respective cost drivers, follow.
No. 156 No. 157 Total
Setups 60 40 100
Machine hours worked 15,000 25,000 40,000
Outgoing shipments 120 80 200
The firm's total overhead of $3,060,000 is subdivided as follows: manufacturing setups,
$260,000; machine processing, $2,400,000; and product shipping, $400,000.
Required:
A. Compute the pool rates that would be used for manufacturing setups, machine processing,
and product shipping in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit overhead costs of product nos.
156 and 157 if the expected manufacturing volume is attained.
C. Assuming use of activity-based costing, compute the total cost per unit of product no. 156.
D. If the company's selling price is based heavily on cost, would a switch to activity-based
costing from the current traditional system result in a price increase or decrease for product
no. 156? Show computations.
Question 4:
Lewis Company needs to determine the variable utilities rate per machine hour in order to
estimate cost for August. Relevant information is as follows.
Machine
Hours Utilities
Month Worked Cost
April 4,500 $ 9,560
May 4,200 9,440
June 6,500 10,725
July 7,000 11,400
Lewis anticipates producing 5,000 units in August, each unit requiring 1.5 hours of machine
time. The company uses the high-low method to analyze costs.
Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1) number of
data observations used in the analysis and (2) objectivity of the results.
Question 5:
Belli-Pitt, Inc. produces a single product. The results of the company's operations for a
typical month are summarized in contribution format as follows:
Sales $540,000
Variable expenses 360.000
Contribution margin 180,000
Fixed expenses 120.000
Net operating income $ 60.000
The company produced and sold 120,000 kilograms of product during the month. There were
no beginning or ending inventories.
Required:
a. Given the present situation, compute
1. The break-even sales in kilograms.
2. The break-even sales in dollars.
3. The sales in kilograms that would be required to produce net operating income of
$90,000.
4. The margin of safety in dollars.
b. An important part of processing is performed by a machine that is currently being leased
for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay
$0.10 royalty per kilogram processed by the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the royalty plan compute break-even point in kilograms.
3. Under the royalty plan compute break-even point in dollars.
4. Under the royalty plan determine the sales in kilograms that would be required to
produce net operating income of $90,000.
Question 6:
Beachcraft Corporation has fixed manufacturing cost of $12 per unit. Consider the three
independent cases that follow.
Case A: Absorption- and variable costing net income each totaled $240,000 in a period when
the firm produced 18,000 units.
Case B: Absorption-costing net income totaled $320,000 in a period when finished-goods
inventory levels rose by 7,000 units.
Case C: Absorption-costing net income and variable-costing net income respectively totaled
$220,000 and $250,000 in a period when the beginning finished-goods inventory was 14,000
units.
Required:
A. In Case A, how many units were sold during the period?
B. In Case B, how much income would Beachcraft report under variable costing?
C. In Case C, how many units were in the ending finished-goods inventory?