BA-216 MIDTERM
Which of the following statements is true? A. ABC systems apply equally well to manufacturing, merchandising and service companies. Your answer is correct. B. ABC systems only apply to manufacturing companies. C. ABC systems apply equally well to manufacturing and merchandising companies, but not to service companies. Service companies generally carry no inventory, and therefore, an ABC system would provide little, if any, benefit. D. ABC systems apply equally well to manufacturing and retail-oriented merchandising companies, but not to distribution-oriented merchandising companies, which carry only finished goods inventory, or to service companies, which do not carry inventory.
A. ABC systems apply equally well to manufacturing, merchandising and service companies.
"CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your decisions, look beyond CVP analysis." Do you agree? Explain. A. CVP analysis is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. It is not necessarily simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex decision-making cases. This is the correct answer. B. CVP analysis is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. Because CVP analysis is so simplistic, it provides very little value in more complex decision-making cases. Your answer is not correct. C. CVP analysis is not simple or simplistic. It's assumption of output as just one of many revenue and cost drivers, and its non-linear revenue and cost relationships creates a complexity which makes it very difficult to understand and useful only in very complex decision-making cases. D. CVP analysis is simple, with its assumption of fixed costs as the only revenue and cost driver, and linear revenue and cost relationships. It is not necessarily simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex decision-making cases.
A. CVP analysis is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. It is not necessarily simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex decision-making cases.
Where does the management accounting function fit into an organization's structure? A. The controller is the chief management accounting executive. The corporate controller reports to the chief financial officer, a staff function. Companies also have business unit controllers who support business unit managers or regional controllers who support regional managers in major geographic regions. Your answer is correct. B. The external auditor is the chief management accounting executive. The external auditor reports to the internal auditor, a staff function. Companies also have business unit auditors or regional auditors who support regional managers in major geographic regions. C. The internal auditor is the chief management accounting executive. The internal auditor is the highest position within an organization. The internal auditor does not report to anyone. D. The internal auditor is the chief management accounting executive. The internal auditor reports to the external auditor, a staff function. Companies also have business unit auditors or regional auditors who support regional managers in major geographic regions.
A. The controller is the chief management accounting executive. The corporate controller reports to the chief financial officer, a staff function. Companies also have business unit controllers who support business unit managers or regional controllers who support regional managers in major geographic regions. Your answer is correct.
What is the advantage of using computerized source documents to prepare job-cost records? A. accuracy of the records and the ability to provide managers with instantaneous feedback to help control job costs Your answer is correct. B. safeguarding the records from events such as theft or fire C. process is more efficient requiring less hours of labor by employees D. none of the above
A. accuracy of the records and the ability to provide managers with instantaneous feedback to help control job costs Your answer is correct.
Factors affecting the classification of a cost as direct or indirect include A. materiality of the cost, available information-gathering technology, and design of operations. Your answer is correct. B. unit costs, inventory production stage, and contractual agreements. C. materials, labor, and factory overhead. D. cost behavior patterns, cost drivers, and relevant ranges.
A. materiality of the cost, available information-gathering technology, and design of operations. Your answer is correct.
What are the four levels of a cost hierarchy? A. 1. Direct materials 2. Direct labor 3. Direct manufacturing overhead 4. Indirect manufacturing overhead B. 1. Output unit-level costs 2. Batch-level costs 3. Product-sustaining costs or service-sustaining costs 4. Facility-sustaining costs Your answer is correct. C. 1. Design costs 2. Manufacturing costs 3. Distribution costs 4. Customer service costs D. 1. Direct costs 2. Indirect costs 3. Variable costs 4. Fixed costs
B. 1. Output unit-level costs 2. Batch-level costs 3. Product-sustaining costs or service-sustaining costs 4. Facility-sustaining costs Your answer is correct.
Choose an example of how a manager can decrease variable costs while increasing fixed costs. A. Using hourly wage workers to replace a robotic machine. B. Changing a sales force compensation plan from a percent of sales dollars to a fixed salary. Your answer is correct. C. Hiring a subcontractor to do repairs on a per-visit basis rather than on an annual retainer basis. D. None of the above.
B. Changing a sales force compensation plan from a percent of sales dollars to a fixed salary. Your answer is correct.
How does management accounting differ from financial accounting? A. Management accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. B. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). Your answer is correct. C. Management accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). D. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization.
B. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). Your answer is correct.
Determine whether this statement is true or false. "In a normal-costing system, the amounts in the Manufacturing Overhead Control account will always equal the amounts in the Manufacturing Overhead Allocated account." A. The statement is true. B. The statement is false.
B. The statement is false.
The Deli−Sub owns and operates six doughnut outlets in and around Minneapolis. You are given the following corporate budget data for next year: Variable costs change based on the number of doughnuts sold. Requirement Compute the budgeted operating income for each of the following deviations from the original budget data. (Consider each case independently.) Begin by completing the table for the original information provided, then complete the table for each case, one at a time. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.) Revenues $11,000,000 Fixed costs $3,000,000 Variable costs $7,500,000 1. A 10% increase in contribution margin, holding revenues constant 2. A 10% decrease in contribution margin, holding revenues constant 3. A 5% increase in fixed costs 4. A 5% decrease in fixed costs 5. A 5% increase in units sold 6. A 5% decrease in units sold 7. A 10% increase in fixed costs and an 10% increase in units sold 8. A 5% increase in fixed costs and a 5% decrease in variable costs 9. Which of these alternatives yields the highest budgeted operating income? Explain why this is the case.
Begin by completing the table for the original information provided, then complete the table for each case, one at a time. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.) Contribution Budgeted Revenues Variable costs margin Fixed costs operating income Original $11,000,000 $7,500,000 $3,500,000 $3,000,000 $500,000 1. 11,000,000 7,150,000 3,850,000 3,000,000 850,000 2. 11,000,000 7,850,000 3,150,000 3,000,000 150,000 3. 11,000,000 7,500,000 3,500,000 3,150,000 350,000 4. 11,000,000 7,500,000 3,500,000 2,850,000 650,000 5. 11,550,000 7,875,000 3,675,000 3,000,000 675,000 6. 10,450,000 7,125,000 3,325,000 3,000,000 325,000 7. 12,100,000 8,250,000 3,850,000 3,300,000 550,000 8. 11,000,000 7,125,000 3,875,000 3,150,000 725,000 9. Which of these alternatives yields the highest budgeted operating income? Explain why this is the case. Alternative 1 yields the highest budgeted operating income because it has the highest increase in contribution margin without increasing fixed costs.
Define product cost. Describe three different purposes for computing product costs. A. A product cost is the sum of all indirect costs assigned to a product. Purposes for computing a product cost include (1) valuing inventory, (2) product mix decisions, and (3) analyzing production efficiencies. B. A product cost is the sum of all direct material costs and direct labor costs assigned to a product. Purposes for computing a product cost include (1) choosing a supplier with competitive prices, (2) employee wage-rate analysis, and (3) analyzing fluctuations in material and labor costs. C. A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include (1) pricing and product mix decisions, (2) contracting with government agencies, and (3) preparing financial statements for external reporting under GAAP. Your answer is correct. D. A product cost is the sum of all manufacturing costs other than direct materials assigned to a product. Purposes for computing a product cost include (1) analyzing fluctuations in the non-material costs of a product, (2) product pricing decisions, and (3) preparing financial statements for internal reporting purposes.
C. A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include (1) pricing and product mix decisions, (2) contracting with government agencies, and (3) preparing financial statements for external reporting under GAAP. Your answer is correct.
What is broad averaging, and what consequences can it have on costs? What is broad averaging? A. Broad averaging describes a costing approach that allocates indirect costs to cost objects based on the budgeted average indirect cost rates multiplied by the budgeted quantities of the cost-allocation bases. B. Broad averaging describes the method of calculating the average fixed manufacturing overhead cost of each unit produced or service performed. C. Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects. Your answer is correct. D. Broad averaging describes a costing system that uses direct costs to assign the cost of resources directly to cost objects. What is a possible consequence of using broad averaging to calculate unit costs? A. By ignoring the allocation of indirect costs to the cost objects, broad averaging can lead to product overcosting. B. By ignoring the variation in the consumption of resources by different cost objects, broad averaging can lead to inaccurate product costing. Your answer is correct. C. Broad averaging, which ignores actual average indirect cost rates, can lead to product overcosting or product undercosting. D. Broad averaging does not take into account variable cost components, and therefore, this method is unable to provide meaningful data when estimating costs across various levels of activity.
C. Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects. Your answer is correct. B. By ignoring the variation in the consumption of resources by different cost objects, broad averaging can lead to inaccurate product costing. Your answer is correct.
What is the relevant range? What role does the relevant-range concept play in explaining how costs behave? A. The relevant range is the band of normal activity level or volume in which there is an abnormal relationship between the level of activity or volume and the variable cost per unit. Costs are described as relevant or irrelevant with respect to a particular relevant range. B. The relevant range is the band of normal activity level or volume in which there is no relationship between the level of activity or volume and the cost in question. Costs are described as relevant or irrelevant with respect to a particular relevant range. C. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. Your answer is correct. D. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the related fixed costs. Costs are described as direct or indirect with respect to a particular relevant range.
C. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. Your answer is correct.
"In CVP analysis, gross margin is a less-useful concept than contribution margin." Do you agree? Explain briefly. A. No, gross margin calculations emphasize the distinction between fixed and variable costs. Contribution margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Hence, gross margin is a more useful concept than contribution margin in CVP analysis. B. No, gross margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, gross margin is a more useful concept than contribution margin in CVP analysis. C. Yes, gross margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis. Your answer is correct. D. Yes, gross margin calculations emphasize the distinction between fixed and variable costs. Contribution margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis.
C. Yes, gross margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis. Your answer is correct.
Define cost object and give three examples. A. A cost object is a cost incurred (historical or past cost), as distinguished from a budgeted cost, which is a predicted or forecasted cost (a future cost). Examples include materials, labor, and overhead. B. A cost object is a resource sacrificed or forgone to achieve a specific objective. Examples include direct materials, direct labor, and advertising. C. A cost object is the collection of cost data in some organized way by means of an accounting system. Examples include accumulated costs, overhead, and direct labor. D. A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, and a customer.
D. A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, and a customer.
"Knowledge of technical issues such as computer technology is a necessary but not sufficient condition to becoming a successful management accountant." Do you agree? Why? A. Agree. A successful management accountant requires a CMA certificate as well as technical skills. B. Disagree. Virtually all of the management accountant's role is technical-based. Thus, knowledge of technical issues such as computer technology is a necessary and sufficient condition to becoming a successful management accountant. C. Agree. A successful management accountant requires a CMA certificate and a CFA certificate in addition to proficient technical skills. D. Agree. A successful management accountant requires general business skills and people skills as well as technical skills.
D. Agree. A successful management accountant requires general business skills and people skills as well as technical skills.
Why is it more accurate to describe the subject matter of this chapter as CVP analysis rather than as breakeven analysis? A. The breakeven point is an incidental part of the relationship between cost, volume, and profit. B. Cost-volume-profit is a more comprehensive term than breakeven analysis. C. The breakeven analysis only denotes the study of the breakeven point. D. All of the above.
D. All of the above.
"Department indirect-cost rates are never activity-cost rates." Is this statement true or false? Explain. A. False. Department indirect-cost rates are similar to activity-cost rates if a single activity accounts for a sizable fraction of the department's costs. B. False. Department indirect-cost rates are similar to activity-cost rates if significant costs are incurred on different activities with different cost-allocation bases within a department but different products use resources from the different activity areas in the same proportions. C. False. Department indirect-cost rates are similar to activity-cost rates if significant costs are incurred on different activities within a department but each activity has the same cost-allocation base. D. All of the above. Your answer is correct. E. None of the above. This statement is true. Each department covers a broad range of activities where activity-based costing systems focus on specific activities. Therefore, department indirect-cost rates can never be activity-cost rates.
D. All of the above. Your answer is correct.
Why might an advertising agency use job costing for an advertising campaign by PepsiCo, whereas a bank might use process costing to determine the cost of checking account deposits? A. An advertising agency provides the same service to all its clients, while a bank supplies its customers with specialized services. For that reason an advertising agency would use job costing to monitor the costs of an advertising campaign by PepsiCo. B. Whenever a product or service is unique or distinct, process costing is the most efficient way to assign costs. Therefore since each banking transaction is unique, the banks use process costing to determine the cost of checking account deposits. C. Job costing can be used to compute the cost of masses of similar services, in contrast process costing enables all the specific aspects of each job to be identified individually. D. Job costing enables all the specific aspects of each job to be identified, whereas process costing can be used to compute the cost of numerous identical or similar services.
D. Job costing enables all the specific aspects of each job to be identified, whereas process costing can be used to compute the cost of numerous identical or similar services.
Distinguish planning decisions from control decisions. A. Planning decisions focus on examining past performance and systemically exploring alternative ways to make better-informed decisions and plans in the future. Control decisions focus on taking actions that implement the planning decisions, deciding how to evaluate performance, and what related feedback to provide that will help future decision making. B. Planning decisions focus on organizational goals without consideration of past performance. Control decisions focus on predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and deciding how to evaluate performance. C. Planning decisions are budget oriented, where control decisions focus on financial reporting. D. Planning decisions focus on selecting organization goals, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and communicating the goals and how to attain them to the entire organization.Control decisions focus on taking actions that implement the planning decisions, deciding how to evaluate performance, and what related feedback to provide that will help future decision making.
D. Planning decisions focus on selecting organization goals, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and communicating the goals and how to attain them to the entire organization.Control decisions focus on taking actions that implement the planning decisions, deciding how to evaluate performance, and what related feedback to provide that will help future decision making.
The business functions in the value chain include: A. Manufacturing, Packaging, and Distribution. B. Identifying the problem and uncertainties, Obtaining information, Making predictions about the future, Making decisions by choosing among alternatives, and Implementing the decision. C. Research and development, Making decisions by choosing among alternatives, Production, Distribution, and Customer service. D. Research and development, Design of products and processes, Production, Marketing, Distribution, and Customer service.
D. Research and development, Design of products and processes, Production, Marketing, Distribution, and Customer service.
E5-26 (book/static) Decorative Doors, Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect costs on the basis of machine-hours. Recently, the owners of Decorative Doors have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to Decorative Doors production for the most recent year follows: Interior Exterior Units sold 3,200 1,800 Selling price $125 $200 Direct material cost per unit $30 $45 Direct manufacturing labor cost per hour $16 $16 Direct manufacturing labor-hours per unit 1.50 2.25 Production runs 40 85 Material moves 72 168 Machine setups 45 155 Machine-hours 5,500 4,500 Number of inspections 250 150 The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for Decorative Doors, the owners identify six activities as generating indirect costs: production scheduling, material handling, machine setup, assembly, inspection, and marketing. Decorative Doors collected the following data related to the indirect cost activities: Activity Activity Cost Activity Cost Driver Production scheduling $95,000 Production runs Material handling $45,000 Material moves Machine setup $25,000 Machine setups Assembly $60,000 Machine-hours Inspection $8,000 Number of inspections Marketing costs were determined to be 3% of the sales revenue for each type of door.
Requirement 1. Calculate the cost of an interior door and an exterior door under the existing simple costing system. Before calculating the cost of an interior and exterior door, begin by calculating the overhead rate under the simple costing system. First select the formula, then enter the applicable amounts and calculate the rate. (Round your answer to the nearest cent. Abbreviations used: bgt. = budgeted, qty = quantity.) Budgeted overhead rate Bgt. total costs in indirect cost pool ÷ Bgt. total qty of cost allocation base = Simple costing system $255,800 ÷ 10,000 = $25.58 per machine-hour Now calculate the cost of an interior door and an exterior door under the existing simple costing system. Start by calculating total costs and then calculate the cost per unit for each product. (Round interim calculations to the nearest cent and your final answers to the nearest whole dollar.) Simple costing system Interior Direct materials cost $96,000 Direct manufacturing labor cost 76,800 Indirect cost allocated 140,690 Total costs $313,490 Exterior $81,000 64,800 115,110 $260,910 Now calculate the cost per unit for each product under the simple costing system. (Round your answers to the nearest cent.) Simple costing system Interior Exterior Total cost per unit $97.97 $144.95 Requirement 2. Calculate the cost of an interior door and an exterior door under an activity-based costing system. Begin by calculating the ABC allocation rate for each activity. First select the formula, then enter the applicable amounts and calculate the rates. (Round your answers to the nearest cent. Abbreviations used: Bgt. = Budgeted, mach. = machine, mat. = material, prod. = production, sch. = scheduling, qty. = quantity.) Bgt. cost of activity ÷ Bgt. total qty. of cost allocation base = ABC allocation rate Prod. sch. $95,000 ÷ 125 = $760.00 per prod. run Mat. handling $45,000 ÷ 240 = $187.50 per mat. move Mach. setup $25,000 ÷ 200 = $125.00 per mach. setup Assembly $60,000 ÷ 10,000 = $6.00 per mach. hour Inspection $8,000 ÷ $400 = $20.00 per inspection Now calculate the cost of an interior door and an exterior door under an activity-based costing system. (Round interim calculations to the nearest cent and your final answers to the nearest whole dollar.) ABC costing system Interior Direct materials cost $96,000 Direct manufacturing labor cost 76,800 Indirect costs allocated: Production scheduling 30,400 Materials handling 13,500 Machine setup 5,625 Assembly 33,000 Inspection 5,000 Marketing 12,000 Total costs $272,325 Exterior $81,000 64,800 64,600 31,500 19,375 27,000 3,000 10,800 $302,075 Now calculate the cost per unit for each product under ABC. (Round your answers to the nearest cent.) ABC costing system Interior Exterior Total cost per unit $85.10 $167.82 Requirement 3. Compare the costs of the doors in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of an interior and exterior door? Relative to the ABC system, the simple costing system overcosts interior doors and undercosts exterior doors. Under the simple costing system, the volume of the production of interior doors is driving the amount of overhead allocated to the interior doors. The ABC study reveals that each exterior door requires more production runs, material moves, and setups. This is reflected in the higher indirect costs allocated to exterior doors in the ABC system. Requirement 4. How might Decorative Doors, Inc., use the new cost information from its activity-based costing system to address the declining market share for interior doors? (Select all choices that apply.) A. Decorative Doors should consider increasing the price of its exterior doors, depending on the competition it faces in this market. This is the correct answer. B. Decorative Doors, Inc. can use the information revealed by the ABC system to change its pricing based on the ABC costs. This is the correct answer. C. Decorative Doors can use the ABC information to improve its own operations. It could examine each of the indirect cost categories and analyze whether it would be possible to deliver the same level of service, but consume fewer indirect resources, or find a way to reduce the per-unit-cost-driver cost of some of those indirect resources. This is the correct answer. D. Decorative Doors, Inc. should consider decreasing the price of its exerior doors to be more competitive. E. Decorative Doors, Inc. should consider decreasing the price of its interior doors to be more competitive. This is the correct answer. F. Decorative Doors, Inc. should consider increasing the price of its interior doors depending on the competition it faces in this market.
The following items (in millions) pertain to Choice Corporation: For Specific Date For Year 2017 Work-in-process inventory, Jan. 1, 2017 $20 Plant utilities $5 Direct materials inventory, Dec. 31, 2017 6 Indirect manufacturing labor 25 Finished goods inventory, Dec. 31, 2017 11 Depreciation—plant and equipment 7 Accounts payable, Dec. 31, 2017 23 Revenues 352 Accounts receivable, Jan. 1, 2017 51 Miscellaneous manufacturing overhead 16 Work-in-process inventory, Dec. 31, 2017 8 Marketing, distribution, and customer-service costs 95 Finished goods inventory, Jan 1, 2017 49 Direct materials purchased 89 Accounts receivable, Dec. 31, 2017 33 Direct manufacturing labor 41 Accounts payable, Jan. 1, 2017 46 Plant supplies used 4 Direct materials inventory, Jan. 1, 2017 39 Property taxes on plant 3 Partial Schedule of Cost of Goods Manufactured (in millions) Direct materials used $122 Direct manufacturing labor costs 41 Total indirect manufacturing overhead costs 60 Manufacturing costs incurred during 2017 223 Add: Beginning work-in-process inventory, Jan. 1, 2017 20 Total manufacturing costs to account for 243 Less: Ending work-in-process inventory, Dec. 31, 2017 8 Cost of goods manfactured $235
Requirement 1. Calculate total prime costs and total conversion costs. Total prime costs $163 million Total conversion costs $101 million Requirement 2. Calculate total inventoriable costs and period costs. Total inventoriable costs $223 million Period costs $95 million Requirement 3. Design costs and R&D costs are not considered product costs for financial statement purposes. When might some of these costs be regarded as product costs? Give an example. A. Contracting with government agencies. For example, if the Department of Energy negotiated a project with a contractor and the design costs and R&D costs are not closely related to delivering products under the contract. B. Preparing financial statements for external reporting under Generally Accepted Accounting Principles (GAAP). Under GAAP, design costs and R&D costs can be assigned to inventories although internal management reports must exclude these nonmanufacturing costs. C. Contracting with government agencies. For example, if the Air Force negotiated to contract with a company to build a new type of supersonic fighter plane, design costs and R&D costs may be included in the contract as product costs. This is the correct answer. D. None of the above. Design costs and R&D costs can never be regarded as product costs. Requirement 4. Suppose that both the direct materials used and the depreciation on plant and equipment are related to the manufacture of 1 million units of product. Determine the unit cost for the direct materials assigned to those units and the unit cost for depreciation on plant and equipment. Assume that yearly depreciation is computed on a straight-line basis. Begin by determining the formula used to calculate the unit cost for direct materials. Direct materials used ÷ Units = Unit cost Now calculate the unit cost for direct materials and the unit cost for depreciation on plant and equipment. Use the same logic that you used in determining the formula for direct materials unit cost, when you calculate the depreciation unit cost. (Enter unit cost in dollars. Round your answers to the nearest cent.) Direct materials used unit cost $122.00 Depreciation unit cost $7.00 Requirement 5. Assume that the implied cost-behavior patterns in requirement 4 persist. That is, direct material costs behave as a variable cost and depreciation on plant and equipment behaves as a fixed cost. Repeat the computations in requirement 4, assuming that the costs are being predicted for the manufacture of 2 million units of product. Determine the effect on total costs. Repeat the computations in requirement 4, assuming that the costs are being predicted for the manufacture of 2 million units of product. (Enter unit cost in dollars. Round your answers to the nearest cent.) Direct materials used unit cost $122.00 Depreciation unit cost $3.50 Determine the effect on total costs. Total direct materials would increase and total depreciation costs would remain unchanged. Requirement 6. Assume that depreciation on the equipment (but not the plant) is computed based on the number of units produced because the equipment deteriorates with units produced. The depreciation rate on equipment is $6.00 per unit. Calculate the depreciation on equipment assuming (a) 1 million units of product are produced and (b) 2 million units of product are produced. Begin by determining the formula used to calculate the depreciation on equipment. Depreciation rate on equipment × Units = Depreciation on equipment Calculate the depreciation on equipment assuming: (Do not round intermediary calculations. Enter answers in millions rounded to two decimal places, $X.XX million.) (a) 1 million units of product are produced, the depreciation would be $ $6 million. (b) 2 million units of product are produced, the depreciation would then be $ 12 million.
Minnesota Office Products(MOP) produces three different paper products at its Vaasa lumberplant: Supreme,Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the followingthree-part classification for its manufacturingcosts: directmaterials, direct manufacturinglabor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2017 are $150 million ($15 million of which arefixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data(in millions) for July 2017 are asfollows: Supreme Deluxe Regular Direct material costs $89 $57 $60 Direct manufacturing labor costs $16 $26 $8 Manufacturing overhead costs $48 $78 $24 Units produced 125 150 140
Requirement 1. Compute the manufacturing cost per unit for each product produced in July . Begin by determining the formula needed to calculate the total manufacturing cost per unit. Total manufacturing costs ÷ Units produced = Total manufacturing cost per unit Using the formula you determined above, calculate the company's total manufacturing cost per unit for each type of product produced in July . (Round your answers to the nearest cent.) Supreme Deluxe Regular Total manufacturing cost per unit produced in July $1.22 $1.07 $0.66 Requirement 2. Suppose that, in August , production was million units of Supreme, million units of Deluxe, and million units of Regular. Why might the July information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August ? During July , the company incurred million of manufacturing overhead costs, which includes a $ 15 million fixed cost component that will not fluctuate with changes in monthly production volume. This amount, which has been allocated to the total manufacturing costs of producing each product, affects the total manufacturing cost per unit amounts as calculated in requirement 1. Given the production volume increase in August , using the total manufacturing cost per unit amounts calculated for July will result in an overestimation of total manufacturing costs for August.
DLN is an architectural firm that designs and builds buildings. It prices each job on a cost plus20% basis. Overhead costs in 2017 are $8,100,000. DLN's simple costing system allocates overhead costs to its jobs based on number of jobs. There were three jobs in 2017. Onecustomer, Chandler, has complained that the cost and price of its building in Chicago was not competitive. As aresult, the controller has initiated a detailed review of the overhead allocation to determine if overhead costs should be charged to jobs in proportion to consumption of overhead resources by jobs. She gathers the followinginformation: Quantity of Cost Drivers Used by Each Project Department Cost Driver Overhead Costs in 2017 Chandler Henry Manley Design Design department hours $3,000,000 2,000 10,000 8,000 Engineering Number of engineering hours 1,000,000 4,000 4,000 4,500 Construction Labor-hours 4,100,000 29,000 27,000 26,000 Total $8,100,000
Requirement 1. Compute the overhead allocated to each project in 2017 using the simple costing system that allocates overhead costs to jobs based on the number of jobs. Determine the formula needed to calculate overhead using the simple costing method and then calculate the overhead rate for 2017. (Round your answer to the nearest dollar.) Total overhead ÷ Number of jobs = Overhead cost per project $8,100,000 ÷ 3 = $2,700,000 per project Requirement 2. Compute the overhead allocated to each project in 2017 using department overhead cost rates. Determine the formula used to calculate the cost driver rates: Cost ÷ Total quantity of cost driver = Cost driver rate The 2017 department overhead cost rates by department are as follows: Department Overhead Cost Rate Department (by Department) Design $150 per design hour Engineering $80 per engineering hour Construction $50 per labor hour Calculate the overhead allocated to each customer, by department, using the department overhead cost rates calculated in the previous step. Calculate the total overhead cost for each department and each customer. Department Chandler Henry Manley Total Design $300,000 $1,500,000 $1,200,000 $3,000,000 Engineering 320,000 320,000 360,000 1,000,000 Construction 1,450,000 1,350,000 1,300,000 4,100,000 Total $2,070,000 $3,170,000 $2,860,000 $8,100,000 Requirement 3. Do you think Chandler had a valid reason for dissatisfaction with the cost and price of its buillding? How does the allocation based on department rates change costs for each project? Under the simple-costing system, Chandler was likely unhappy about its bill, because the contract appears to have been overcosted. If the new department-based rates are used to price contracts, Chandler will likely be happier about its bill. If the new department-based rates are used to price contracts, Henry and Manley will likely be unhappy. This is because their bills under the simple-costing system appear to have been undercosted. Using the department-based rates, their bills will be higher. If the new department-based rates are used, DLN should explain to the unhappy customers how the calculation was done, and point out their high use of design resources relative to engineering and construction hours. Requirement 4. What value, if any, would DLN get by allocating costs of each department based on the activities done in that department? (Select three benefits of the ABC system.) A. There is no value to allocating costs of each department based on activities done in that department. Costs will always be lower when using the simple costing method. B. The system will assist in price setting that more accurately reflect the cost of the product. This is the correct answer. C. For the long term, activity-based costing can assist management in making decisions regarding the viability of product lines, distribution channels, marketing strategies, etc. This is the correct answer. D. Managers can allocate overhead costs broadly in an easy, inexpensive, and reasonably accurate way. E. When allocating the costs of each department based on the activities done in that department, only the direct costs are allocated and these costs are more easily identified. F. Managers can better allocate costs due to identifiying cost drivers.
The following data are for Mama Retail Outlet Stores. The account balances (in thousands) are for 2017. Marketing and advertising costs $54,000 Merchandise inventory, January 1, 2017 93,000 Shipping of merchandise to customers 7,000 Depreciation on Store Fixtures 8,700 Purchases 528,000 General and administrative costs 60,000 Merchandise inventory, December 31, 2017 109,000 Merchandise freight-in 25,000 Purchase returns and allowances 28,000 Purchase discounts 25,000 Revenues 700,000 Requirements 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2017.
Requirement 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. (a) Begin by completing the schedule of cost of goods purchased. Mama Retail Outlet Stores Schedule of Cost of Goods Purchased For the Year Ended December 31, 2017 (in thousands) Purchases $528,000 Add: Freight-in 25,000 553,000 Deduct: Purchase returns and allowances $28,000 Purchase discounts 25,000 53,000 Cost of goods purchased $500,000 (b) Now complete the schedule cost of goods sold. Mama Retail Outlet Stores Schedule of Cost of Goods Sold For the Year Ended December 31, 2017 (in thousands) Merchandise inventory, January 1, 2017 $93,000 Cost of goods purchased 500,000 Cost of goods available for sale 593,000 Merchandise inventory, December 31, 2017 109,000 Cost of goods sold $484,000 Requirement 2. Prepare the income statement for 2017. (Use a minus sign or parentheses for an operating loss.) Mama Retail Outlet Stores Income Statement For the Year Ended December 31, 2017 (in thousands) Revenues $700,000 Cost of goods sold 484,000 Gross margin 216,000 Operating costs: Marketing and advertising costs $54,000 Depreciation on store fixtures 8,700 Shipping of merchandise to customers 7,000 General and administrative costs 60,000 Total operating costs 129,700 Operating income/(loss) $86,300
Diego Motors is a small car dealership. Onaverage, it sells a car for $31,000, which it purchases from the manufacturer for $27,000. Eachmonth, Diego Motors pays $51,600 in rent and utilities and $73,000 forsalespeople's salaries. In addition to theirsalaries, salespeople are paid a commission of $600 for each car they sell. Diego Motors also spends $8,000 each month for local advertisements. Its tax rate is 40%.
Requirement 1. How many cars must Diego Motors sell each month to break even? Let's begin by determining the formula for the breakeven number of cars. Breakeven number of cars = Fixed costs ÷ Contribution margin per unit Diego Motors must sell 39 each month to break even. Requirement 2. Diego Motors has a target monthly net income of $65,280. What is its targeted monthly operating income? How many cars must be sold each month to reach the target monthly net income of $65,280? Determine the formula to calculate the target operating income. Target Targeted net income ÷ ( 1 - Tax rate ) = operating income The target monthly operating income is $108,800 . Finally determine the formula to calculate the number of cars that are required to be sold. Quantity of cars ( Fixed costs + Target operating income ) ÷ Contribution margin per unit = required to be sold They would need to sell 71 cars to reach the target monthly income of $65,280. Worked Solution Requirement 1 Fixed costs Variable costs Purchase price of car $27,000 Rent and utilities $51,600 Salespeople's salaries 73,000 Commission paid per car 600 Advertisements 8,000 Total $132,600 $27,600 Breakeven number of units: Fixed Contribution margin per unit Breakeven costs ÷ ( Sales price - Variable cost per unit ) = number of units $132,600 ÷ ( $31,000 - $27,600 ) = 39 Requirement 2 Target operating income: Targeted net income ÷ ( 1 - Tax rate ) = Targeted operating income $ 65,280 ÷ ( 1 - 0.40 ) = 108,800 Contribution margin per unit = $31,000 - $27,600 = $3,400 Quantity of units ( Fixed costs + Target operating income ) ÷ Contribution margin per unit = required to be sold ( $132,600 + $108,800 ) ÷ $ 3,400 = 71
Frontier Partners, a management consulting firm, has the following condensed budget for 2017: Frontier has a single direct-cost category (professional labor) and a single indirect-cost pool (client support). Indirect costs are allocated to jobs on the basis of professional labor costs. Data Table Revenues $50,000,000 Total costs: Direct costs Professional labor $20,000,000 Indirect costs Client support 25,000,000 45,000,000 Operating income $5,000,000
Requirement 1. Identify the components of the overview diagram of the job-costing system. Calculate the 2017 budgeted indirect-cost rate for Frontier Partners. Begin by identify the components of the overview diagram of the job-costing system. A } B ↓ A Indirect Cost Pool B Client Support C } D ↓ C Cost Allocation Base D Professional Labor Costs E } F G E Cost Object: Job for Consulting Client F Indirect Costs G Direct Costs H } ↑ I H Direct Costs I Professional Labor Calculate the markup rate as a percentage of professional labor costs. Determine the formula, then compute the 2017 budgeted indirect-cost rate for Frontier Partners. (Round the percentage to the nearest hundredth percent, X.XX%.) ( Budgeted client support costs / Allocation base ) = Budgeted indirect-cost rate ( $25,000,000 / $20,000,000 ) = 125 % Requirement 2. The markup rate for pricing jobs is intended to produce operating income equal to 10% of revenues. Calculate the markup rate as a percentage of professional labor costs. Determine the formula, then compute the markup rate as a percentage of professional labor costs. (Round the percentage to the nearest hundredth percent, X.XX%.) ( Revenues / Budgeted professional labor costs ) = Markup rate ( $50,000,000 / $20,000,000 ) = 250 % Requirement 3. Frontier is bidding on a consulting job for Sentinel Communications, a wireless communications company. They have completed a budgeted breakdown of professional labor for the jobLOADING.... Calculate the budgeted cost of the Sentinel Communications job. How much will Frontier bid for the job if it is to earn its target operating income of 10% of revenues? Budgeted professional labor costs $15,800 Budgeted consulting support costs 19,750 Budgeted total costs $35,550 (Round your answer to the nearest cent.) Frontier will need to bid $ 39,500.00 for the job if it is to earn its target operating income of 10% of revenues. Move your pointer over or tap on the cells with red arrows to see incorrect answers.
Jason Hickey, the new plant manager of Old Lake Manufacturing Plant Number 7, has just reviewed a draft of his year-end financial statements. Hickey receives a year-end bonus of 8% of the plant's operating income before tax. The year-end income statement provided by the plant's controller was disappointing to say the least. After reviewing the numbers, Hickey demanded that his controller go back and "work the numbers" again. Hickey insisted that if he didn't see a better operating income number the next time around he would be forced to look for a new controller. Old Lake Manufacturing classifies all costs directly related to the manufacturing of its product as product costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold. All other expenses, including finished goods warehousing costs of $3,600,000, are classified as period expenses. Hickey had suggested that warehousing costs be included as product costs because they are "definitely related to our product." The company produced 240,000 units during the period and sold 220,000 units. As the controller reworked the numbers he discovered that if he included warehousing costs as product costs, he could improve operating income by $300,000. He was also sure these new numbers would make Hickey happy.
Requirement 1. Show numerically how operating income would improve by $300,000 just by classifying the preceding costs as product costs instead of period expenses. Begin by determining the formula to compute how the controller was able to improve operating income, then enter the appropriate amounts and compute the increase in operating income. Warehousing costs as period costs - Warehousing costs as product costs = Increase in operating income $3,600,000 - $3,300,000 = $300,000 Requirement 2. Is Hickey correct in his justification that these costs "are definitely related to our product"? The controller is not correct in his justification with respect to classifying costs as product or period costs; this determination is made by Generally Accepted Accounting Principles (GAAP). Research and development, as well as all costs related to warehousing and distribution of goods, should be classified as period costs, and be expensed as incurred. Requirement 3. By how much will Hickey profit personally if the controller makes the adjustments in requirement 1? Jason Hickey will profit personally by $24,000 if the controller makes the adjustments. Requirement 4. What should the plant controller do? The controller should not reclassify costs as product costs so the plant manager can reap short-term benefits. The idea of correctly classifying costs is to properly reflect on the income statement those costs that are directly related to manufacturing and to properly reflect on the balance sheet those costs that will provide a future benefit. Worked Solution Requirement 1 Warehousing costs÷Units produced=Unit cost $3,600,000÷240,000=$15 Unit cost×Units sold=Cost of goods expensed $15×220,000=$3,300,000 Requirement 3 Increase in operating income×Bonus percent=Bonus increase $300,000×8% =$24,000
1-2-3 is a top-selling electronic spreadsheet product. Chartz is about to release version 5.0. It divides its customers into two groups: new customers and upgrade customers (those who previously purchased Chartz 1-2-3, 4.0 or earlier versions). Although the same physical product is provided to each customer group, sizable differences exist in selling prices and variable marketing costs: New Customers Upgrade Customers Selling price $195 $115 Variable costs Manufacturing $15 $15 Marketing 50 65 20 35 Contribution margin $130 $80 The fixed costs of Chartz 1-2-3 5.0 are $16,500,000. The planned sales mix in units is 60% new customers and 40% upgrade customers.
Requirement 1. What is the Chartz 1-2-3 5.0 breakeven point in units, assuming that the planned 60% / 40% sales mix is attained? Begin by determining the sales mix. For every bundle, 3 units are sold to new customers, and 2 units are sold to customer who bought upgrades. Determine the formula used to calculate the breakeven point when there is more than one product sold, then enter the amounts in the formula to calculate the breakeven point in bundles. Fixed costs ÷ Contribution margin per bundle = Breakeven point in bundles $16,500,000 ÷ $550 = 30,000 The breakeven point is 90,000 units for new customers and 60,000 units for upgrade customers. Requirement 2. If the sales mix is attained, what is the operating income when 170,000 units are sold? New customers Upgrade customers Total Units sold 102,000 68,000 170,000 Total revenue $19,890,000 $7,820,000 $27,710,000 Total variable costs 6,630,000 2,380,000 9,010,000 Contribution margin $13,260,000 $5,440,000 18,700,000 Fixed costs 16,500,000 Operating income $2,200,000 Requirement 3. Show how the breakeven point in units changes with the following customer mixes: a. New 40% and Upgrade 60% and b. New 80% and Upgrade 20%. a. Begin by determining the sales mix for scenario "a". For every bundle, 2 units are sold to new customers, and 3 units are sold to customers who bought upgrades. Calculate the breakeven point in bundles for scenario "a", then determine the breakeven point for new customers and upgrade customers. The breakeven point is 33,000 bundles. This translates to a breakeven point of 66,000 units for new customers and 99,000 units for upgrade customers. b. Now determine the sales mix for scenario "b". For every bundle, 4 units are sold to new customers, and 1 units are sold to customers who bought upgrades. Calculate the breakeven point in bundles for scenario "b", then determine the breakeven point for new customers and upgrade customers. The breakeven point is 27,500 bundles. This translates to a breakeven point of 110,000 units for new customers and 27,500 units for upgrade customers. c. Comment on the results. As Chartz increases its percentage of new customers, which have a higher contribution margin per unit than upgrade customers, the number of bundles required to break even decreases.
Ellsbury Associates is a recently formed law partnership. Sydney Hayes, the managing partner of Ellsbury Associates, has just finished a tense phone call with John Graham, president of Graham Enterprises. John strongly complained about the price Ellsbury charged for some legal work done for his company. Hayes also received a phone call from its only other client, Magnet, Inc., which was very pleased with both the quality of the work and the price charged on its most recent job. Ellsbury Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following: Graham Enterprises Magnet Inc. Professional labor 3,200 hours 1,800 hours Professional labor costs at Ellsbury Associates are $150 an hour. Indirect costs are allocated to cases at $90 an hour. Total indirect costs in the most recent period were $450,000.
Requirement 1. Why is it important for Ellsbury Associates to understand the costs associated with individual jobs? A. Operating at or above capacity for the company lowers overall costs to individual jobs. B. Pricing decisions are heavily influenced by reported cost numbers. Your answer is correct. C. Overstaffing any job would be detrimental to the company's bottom line. D. All of the above. Requirement 2. Compute the costs of the Graham Enterprises and Magnet Inc. jobs using Ellsbury's simple costing system. (Abbreviation used: prof. = professional.) Begin by determining the formula used to calculate the direct costs for each job. Prof. labor hours for job × Prof. labor hourly rate = Direct costs of job Now determine the formula used to calculate the indirect costs for each job. Prof. labor hours for job × Indirect cost rate per hour = Indirect costs allocated to job Now compute the cost of the jobs using the simple costing system. Graham Enterprises Direct professional labor $480,000 Indirect costs allocated 288,000 Total $768,000 Magnet Inc. $270,000 162,000 $432,000 Worked Solution Requirement 2 Graham Enterprises total Magnet Inc. total Total professional professional labor hours + professional labor hours = labor hours 3,200 + 1,800 = 5,000 Professional labor Professional labor Direct cost hours for job × hourly rate = of job Graham Enterprises 3,200 × $150 = $480,000 Magnet Inc. 1,800 × $150 = $270,000 Professional labor Indirect cost Indirect costs hours for job × rate per hour = allocated to job Graham Enterprises 3,200 × $90 = $288,000 Magnet Inc. 1,800 × $90 = $162,000
Torrance Technology Company (TTC) is developing a new touch-screen smartphone to compete in the cellular phone industry. The company will sell the phones at wholesale prices to cell phone companies, which will in turn sell them in retail stores to the final customer. TTC has undertaken the following activities in its value chain to bring its product to market: A. Perform market research on competing brands B. Design a prototype of the TTC smartphone C. Market the new design to cell phone companies D. Manufacture the TTC smartphone E. Process orders from cell phone companies F. Deliver the TTC smartphones to the cell phone companies G. Provide online assistance to cell phone users for use of the TTC smartphone H. Make design changes to the smartphone based on customer feedback During the process of product development, production, marketing, distribution, and customer service, TTC has kept track of the following cost drivers: Number of smartphones shipped by TTC Number of design changes Number of deliveries made to cell phone companies Engineering hours spent on initial product design Hours spent researching competing market brands Customer-service hours Number of smartphone orders processed Machine hours required to run the production equipment
Requirements 1 and 2. Identify each value chain activity with one of the value-chain categories. Select a cost driver for each of the activities in TTC's value chain. Begin with category a. design of products and processes, then b. production, c. marketing, d. distribution, and finally e. customer service. (Select only one cost driver for each activity. Choose the best possible cost driver from the choices available. If a box is not used in the table, leave the box empty; do not select a label.) Value-chain category Activity Cost driver a. Design of products and processes A. Hours spent researching competing market brands B. Engineering hours spent on initial product design H. Number of design changes b. Production D. Machine hours required to run the production equipment c. Marketing C. Number of smartphone orders processed d. Distribution E. Number of smartphone orders processed F. Number of deliveries made to cell phone companies e. Customer service G. Customer-service hours
Visual Company produces gadgets for the coveted small appliance market. The following data reflect activity for the year 2017: Costs incurred: Purchases of direct materials (net) on credit $121,000 Direct manufacturing labor cost 87,000 Indirect labor 54,400 Depreciation, factory equipment 53,000 Depreciation, office equipment 7,700 Maintenance, factory equipment 46,000 Miscellaneous factory overhead 9,100 Rent, factory building 99,000 Advertising expense 97,000 Sales commissions 39,000 Inventories: January 1, 2017 December 31, 2017 Direct materials $9,400 $18,000 Work in process 6,500 26,000 Finished goods 60,000 31,000 Visual Company produces gadgets for the coveted small appliance market. The following data reflect activity for the year 2017: LOADING... (Click the icon to view the data.) Visual Co. uses a normal-costing system and allocates overhead to work in process at a rate of $3.10 per direct manufacturing labor dollar. Indirect materials are insignificant so there is no inventory account for indirect materials.
Worked Solution Requirement 1 (2.) Beg. materials inv. + Purchases - End. materials inv. = Direct materials used $9,400 + $121,000 - $18,000 = $112,400 (3.) Work-in-Process Control 87,000 Manufacturing Overhead Control 54,400 Wages Payable Control 141,400 (4.) Wages Payable Control 46,000 Accounts Payable Control 9,100 Accumulated Depreciation Control 53,000 Rent Payable Control 99,000 Manufacturing Overhead Control 207,100 (5.) Budgeted Actual direct Manufacturing indirect cost rate x labor costs = overhead allocated $3.10 x $87,000 = $269,700 (6.) Direct materials used $112,400 Direct labor $87,000 Manufacturing overhead allocated $269,700 Increases to work-in-process $469,100 Beginning WIP + Cost of goods manufactured - Ending WIP = Finished goods $6,500 + $469,100 - $26,000 = $449,600 (7.) Beginning FG + Account increases - Ending FG = Cost of goods sold $60,000 + $449,600 - $31,000 = $478,600 (9.) Indirect labor $54,400 Various manufacturing overhead costs $207,100 Actual manufacturing overhead $261,500 Underallocated/ Actual manufacturing overhead - Allocated manufacturing overhead = (Overallocated) $261,500 - $269,700 = $(8,200) Requirement 1. Prepare journal entries to record the transactions for including an entry to close out over- or underallocated overhead to cost of goods sold. For each journal entry indicate the source document that would be used to authorize each entry. Also note which subsidiary ledger, if any, should be referenced as backup for the entry. (Record debits first, then credits. Exclude explanations from any journal entries.) Record the purchase of direct materials, . Journal Entry Accounts Debit Credit (1.) Materials Control 121,000 Accounts Payable Control 121,000 Now select the appropriate source documents and subledgers for the purchase of direct materials. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (1.) purchase invoice direct material records receiving report accounts payable Record the direct materials used. Journal Entry Accounts Debit Credit (2.) Work-in-Process Control 112,400 Materials Control 112,400 Now select the appropriate source documents and subledgers for the direct materials used. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (2.) materials requisition records direct material records job cost records work-in-process inventory records by job Record the direct and indirect labor payable in a single entry, and respectively. Journal Entry Accounts Debit Credit (3.) Work-in-Process Control 87,000 Manufacturing Overhead Control 54,400 Wages Payable Control 141,400 Now select the appropriate source documents and subledgers for the direct and indirect labor transactions. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (3.) work-in-process inventory records by job labor time records manufacturing overhead records job cost records employee labor records Prepare a consolidated entry to record the depreciation on factory equipment, the maintenance wages on factory equipment, the prepaid factory rent expired and the miscellaneous factory overhead payable. Journal Entry Accounts Debit Credit (4.) Manufacturing Overhead Control 207,100 Wages Payable Control 46,000 Accounts Payable Control 9,100 Accumulated Depreciation Control 53,000 Rent Payable Control 99,000 Now select the appropriate source documents and subledgers for the depreciation on factory equipment, the maintenance wages on factory equipment, the prepaid factory rent expired and the miscellaneous factory overhead transactions. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (4.) depreciation schedule rent schedule maintenance wage records vendor invoices manufacturing overhead records Record the manufacturing overhead allocated. Journal Entry Accounts Debit Credit (5.) Work-in-Process Control 269,700 Manufacturing Overhead Allocated 269,700 Now select the appropriate source documents and subledgers for the manufacturing overhead allocated transactions. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (5.) labor- time record job cost record work-in-process inventory records by job Record the transfer of completed jobs. Journal Entry Accounts Debit Credit (6.) Finished Goods Control 449,600 Work-in-Process Control 449,600 Now select the appropriate source documents and subledgers for the transfer of completed job transaction. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (6.) job cost records work-in-process inventory records by job completed job cost records finished goods inventory records by job Record the cost of goods sold. Journal Entry Accounts Debit Credit (7.) Cost of Goods Sold 478,600 Finished Goods Control 478,600 Now select the appropriate source documents and subledgers for the cost of goods sold transactions. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (7.) sales invoices completed job cost records finished goods inventory records by job Prepare a consolidated entry to record the depreciation on office equipment, the commissions payable and the advertising payable. Journal Entry Accounts Debit Credit (8.) Administrative Expense 7,700 Advertising Expense 97,000 Salary Expense (Sales Commissions) 39,000 Salary Payable Control 39,000 Accounts Payable Control 97,000 Accumulated Depreciation Control 7,700 Now select the appropriate source documents and subledgers for the depreciation on office equipment, the commissions and the advertising transactions. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (8.) depreciation schedule cost records for advertising payroll request employee salary records sales commissions schedule cost records for commissions vendor invoices cost records for administrative Dispose of over- or underallocated manufacturing overhead. Journal Entry Accounts Debit Credit (9.) Manufacturing Overhead Allocated 269,700 Manufacturing Overhead Control 261,500 Cost of Goods Sold 8,200 Now select the appropriate source documents and subledgers for the over- or underallocated manufacturing overhead transaction. (Only complete the necessary answer boxes.) Source documents Subsidiary ledgers (9.) prior journal entries Requirement 2. Post the journal entries to T-accounts for all of the inventories, Cost of Goods Sold, the Manufacturing Overhead Control Account, and the Manufacturing Overhead Allocated Account. Post entries (1) through (9) to the accounts below, then calculate the ending balance in each account. (For accounts with a $0 balance, leave the balance cells blank.) Review the journal entriesLOADING... from requirement 1. Materials Work-in-Process Manufacturing Control Control Overhead Control Bal. 9,400 Bal. 6,500 (2) 112,400 (3) 87,000 (3) 54,400 (1) 121,000 (2) 112,400 (5) 269,700 (6) 449,600 (4) 207,100 (9) 261,500 Bal. 18,000 Bal. Bal. 26,000 Bal. Bal. Bal. Manufacturing Overhead Allocated Finished Goods Cost of Goods Sold Bal. 60,000 (9) 269,700 (5) 269,700 (6) 449,600 (7) 478,600 (7) 478,600 (9) 8,200 Bal. Bal. Bal. 31,000 Bal. Bal. 470,400 Bal.
Fill in the blanks for each of the following independent cases. Case Revenues Variable Costs Fixed Costs Total Costs Operating Income Contribution Margin Percentage Case a. $600 $800 $1,600 Case b. $2,500 $200 $900 Case c. $500 $300 $500 Case d. $1,200 $200 25%
Worked Solution a. Revenues = Operating income + Total costs = ($1,600 + $800) = $2,400 Fixed costs = Total costs - Variable costs = ($800 - $600) = $200 Contribution margin = Revenues - Variable costs = ($2,400 - $600) = $1,800 Contribution margin % = Contribution margin ÷ Revenues = ($1,800 ÷ $2,400) = 75% b. Total costs = Revenues - Operating income = ($2,500 - $900) = $1,600 Variable costs = Total costs - Fixed costs = ($1,600 - $200) = $1,400 Contribution margin = Revenues - Variable costs = ($2,500 - $1,400) = $1,100 Contribution margin % = Contribution margin ÷ Revenues = ($1,100 ÷ $2,500) = 44% c. Fixed costs = Total costs - Variable costs = ($500 - $300) = $200 Operating income = Revenues - Total costs = ($500 - $500) = $0 Contribution margin = Revenues - Variable costs = ($500 - $300) = $200 Contribution margin % = Contribution margin ÷ Revenues = ($200 ÷ $500) = 40% d. Contribution margin = Revenues × Contribution margin % = ($1,200 × 25%) = $300 Variable costs = Revenues - Contribution margin = ($1,200 - $300) = $900 Total costs = Variable costs + Fixed costs = ($900 + $200) = $1,100 Operating income = Revenues - Total costs = ($1,200 - $1,100) = 100 Variable Fixed Total Operating Contribution Case Revenues Costs Costs Costs Income Margin Percentage a. $2,400 $600 $200 $800 $1,600 75 % b. $2,500 $1,400 $200 $1,600 $900 44 % c. $500 $300 $200 $500 $0 40 % d. $1,200 $900 $200 $1,100 $100 25 %
