CPA BEC B3

Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given below: Wall Specialty Mirrors Windows Units produced 25 25 Material moves per product line 5 15 Direct labor hours per unit 200 200 Budgeted materials handling costs $50,000 Under a costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of wall mirrors would be.

$1,000

Which of the following costs includes all the product costs?

Direct material and conversion costs. (Product costs consist of direct materials, direct labor, and factory (manufacturing) overhead. Materials and labor added together are prime costs, while labor and overhead are conversion costs- Direct materials plus conversion costs comprise all product costs.)

Conversion costs do not include:

Direct materials. (Conversion costs consist of direct labor and overhead. Accordingly, conversion costs include all product costs except direct materials.)

Activity based costing refines product cost information because the cost system:

Emphasizes long-term product analysis (when fixed costs become variable costs). (Activity-based costing refines product cost information because the cost system emphasizes long-term product analysis (when fixed costs become variable costs).

Smile Labs develops 35mm film using a four-step process that moves progressively through four departments. The company specializes in overnight service and has the largest drug store chain as its primary customer. Currently, direct labor, direct materials, and overhead are accumulated by department The cost accumulation system that best describes the system Smile Labs is using is:

Process costing. (Process costing is a method of allocating production costs to products and services by averaging the cost over the total units produced. Costs are usually accumulated by department rather than by job.)

Which of the following choices shows the proper treatment of sales commissions and abnormal spoilage charges when calculating a manufactured good's inventoriable cost?

Product (inventoriable) costs include direct labor, direct material, and applied overhead. Direct material costs anticipate a provision for normal spoilage. Sales commissions are selling and administrative expenses that are period (not product) costs, and abnormal spoilage is charged against income of the period as a separate component of cost of goods sold.

Which of the following is assigned to goods that were either purchased or manufactured for resale?

Product cost (Product cost is assigned to goods (products) that were either purchased or manufactured for resale.)

A basic assumption of activity-based costing (ABC) is that:

Products or services require the performance of activities, and activities consume resources. (Activity-based costing divides the production process into activities where costs are accumulated- The production process assumes activities consume resources (direct materials, direct labor, and manufacturing overhead), and that the outcome of the production process requires performance of the activities)

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:

Relative sales value at split-off. (Sales price less the cost to complete is defined as the relative sales value at split-off. In other words, this is the additional contribution to income generated by completing the product.)

A manufacturing company has several product lines. Traditionally, it has allocated manufacturing overhead costs between product lines based on total machine hours for each product line. Under a new activity-based costing system, which of the following overhead costs would be most likely to have a new cost driver assigned to it?

Employee benefits expense (Activity-based costing seeks to assign overhead costs in a manner that identifies consumption of resources. Employee salaries or even head count are more appropriate cost drivers than machine hours for employee expense. Machine hours would be more likely identified as cost drivers for electric, repairs and maintenance, and depreciation expense.)

A cost that bears an observable and known relationship to a quantifiable activity base is a(n):

Engineered cost. (An engineered cost bears an observable and known relationship to a quantifiable activity base. - Indirect costs (overhead costs) are all manufacturing costs other than direct material and direct labor. - A target cost is carefully predetermined standard cost that should be attained. - Fixed costs are all those organization and plant costs that continue to be incurred and cannot be reduced without damaging the organization's ability to meet long-range goals.)

The Homogenized Milk Company uses process costing to value the cost of its individual gallons of milk and its ending inventory. On August 1, the company had 10,000 gallons of milk on hand that were 75% complete as to conversion costs. During the month of August, the company completed and transferred 30,000 gallons of milk to finished goods inventory and still had 5,000 gallons remaining in inventory at August 31 that was 60% complete as to conversion costs. What are the equivalent units of production relative to conversion costs that Homogenized would use assuming either the FIFO or weighted- average methods?

FIFO $25,500; Weighted-average $33,000

In a traditional job order cost system, the issue of indirect materials to a production department increases.

Factory overhead control. (Indirect materials are included in factory overhead costs as they are used in the production process. Therefore, the issue of indirect materials would decrease stores control and increase factory overhead control. - Factory overhead applied is the allocated amount of factory overhead that is applied to work-in- process based on estimates of production and costs.

Which of the following costs would decrease if production levels were increased within the relevant range?

Fixed costs per unit. (In the relevant range, fixed costs are constant in total, but decrease per unit as production levels increase.)

Which of the following is not a basic approach to allocating costs for costing inventory in joint-cost situations?

Flexible budget amounts. (Joint costs will most likely be allocated based upon relative unit volume, relative sales value at split off, or net realizable value. Flexible budget amounts are not used to allocate joint costs. - Sales value at split-off, Physical measures, such as weights or volume, Constant gross margin percentage net realizable value method are all recognized method of allocating joint costs.)

In its April Year 1 production, Hern Corp., which does not use a standard cost system, incurred total production costs of $900, 000, of which Hern attributed $60,000 to normal spoilage and $30,000 to abnormal spoilage. Hern should account for this spoilage as:

Inventoriable cost of $60,000 and period cost of $30,000. (Normal spoilage is considered a necessary cost of production and is a product (inventoriable) cost. Abnormal spoilage is considered unnecessary and is a period cost.)

Which of the following is true regarding inventoriable costs?

Inventoriable costs are regarded as assets before the products are sold. (Inventoriable costs are assets until sold, when they become "cost of goods sold." - Prime costs include direct materials and direct labor, but not factory overhead. - Conversion costs are direct labor and overhead, but exclude direct material. - Fixed factory overhead is capitalized as part of inventoriable costs.

Which of the following is true about activity-based costing?

It can be used with either process or job costing. (Activity-based costing (ABC) assumes that the resource-consuming activities of an enterprise that generate costs are activities and not outputs. ABC is appropriate for all types of cost accumulation systems, including both job order and process costing.)

During May, Mercer Company completed 50,000 units costing $600,000, exclusive of spoilage allocation. Of these completed units, 25,000 were sold during the month. An additional 10,000 units, costing $80,000, were 50 percent complete at May 31. All units are inspected between the completion of manufacturing and transfer to finished goods inventory. Normal spoilage for the month was $20,000, and abnormal spoilage of $50,000 was also incurred during the month. The portion of total spoilage that should be charged against revenue in May is:

Normal spoilage is allocated to good production. Note that since inspection of units does not occur until the completion of manufacturing, none of the spoilage is allocated to the partially completed units.

The accountant for Champion Brake Inc. applies overhead based on machine hours. The budgeted overhead and machine hours for the year are $260,000 and 16,000, respectively. The actual overhead and machine hours incurred were $275,000 and 20,000. The cost of goods sold and inventory data compiled for the year is as follows: Direct Materials $50,000 COGS 450,000 WIP (units) 100,000 Finished Goods (units) 150,000 What is the amount of over/underapplied overhead for the year?

Overhead was over applied by $50,000. Champion Brake would have charged $275,000 to its actual overhead account (given) and applied 925,000 for a difference of $50,000. The amount applied is computed as follows:

Which of the following performance measures is nonfinancial?

Percentage of defective products. (Computation and reporting of a percentage of defective products is a nonfinancial measure. Typically financial measures deal with costs, revenues, or financial reports. Nonfinancial measures generally focus on operational statistics (such as defective products) rather than items measured in dollars.)

In order to increase the profit margin for a certain product, a company is planning to purchase a custom-made machine for $5,000 ,000. It is anticipated that the introduction of the new machine will reduce the product's variable costs of labor and maintenance by $5.50 per unit and $0.95 per unit, respectively. The product manager estimates that 500,000 units of the product will be manufactured and sold each year with a product life cycle of two years, at which time the machine will be discarded with no salvage value. What is the company's total cost savings over the products life cycle?

$1,450,000 (Variable cost savings total (500,000 units x ($5.50 + $0.95) * 2 years = $6,450,000. The machine will cost $5,000,000 to purchase, so the total cost savings = $6,450 ,000 - $5,000,000 = $1,450,000.

Listed below are selected line items from the Cost of Quality Report for Watson Products for last month Category Amount Rework $725 Equipment maintenance 1,154 Product testing 786 Product repair 695 What is Watson's total prevention and appraisal cost for last month?

$1,940 total prevention and appraisal cost. - Rework is an internal failure cost. - Product repair (warranty) is an external failure cost.

Fab Co. manufactures textiles. Among Fab's Year 1 manufacturing costs were the following salaries and wages: Loom operators $120,000 Factory foremen 45,000 Machine mechanics 30,000 What was the amount of Fab's Year 1 direct labor?

$120,000 (Direct labor represents the cost of labor directly associated with the manufacturing of the finished product. The loom operators would qualify as direct labor, while the factory foremen and the machine mechanics would qualify as indirect labor, or overhead. Total direct labor is $120,000.)

Because of changes that are occurring in the basic operations of many firms, all of the following represent trends in the way indirect costs are allocated, except:

Preferring plant-wide application rates that are applied to machine hours rather than incurring the cost of detailed allocations. (Plant-wide application rates applied to machine hours is a traditional costing approach. More detailed cost allocations are now preferred.)

Alex Company had the following inventories at the beginning and end of the month of January. January 1 January 31 Finished Goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Purchase returns and allowances 1,000 Transportation in 3,000 Direct labor 300,000 Actual factory overhead 175,000 Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's prime cost for January was:

Prime costs are direct materials and direct labor:

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, each CBL sells for $4 per unit. Assuming no further processing work is done after the split-off point, the amount of joint cost allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be:

$180,000. The question requires allocation based on physical quantity, as follows:

A company uses a procas costing system to record inventory costs. Data at the end of the month are as follows: DM Conversion Cost Units (% ) (% ) Work-in-process inventory 100 100% 80% Finished goods inventory 900 100% 100% The company uses the weighted average method to compute the costs. Its total costs for the month are $10,000 for direct materials and $19,600 for conversion costs. What is the total conversion cost per equivalent unit?

$20.00

Arbor Corporation uses a water cooling system in its manufacturing operations. Gallons of water purchased for engine cooling increases with manufacturing production. Water and sewer utility costs recorded by the Arbor Corporation are billed to the company based on a minimum charge plus a rate for utilization beyond the minimum charge for 5,000 gallons of usage. Arbor would most likely classify its utility costs as:

Semivariable (Utility costs are semivariable. Utility costs share the characteristics of both fixed and variable costs over the relevant range. They are unchanged for the first 5,000 gallons (fixed) and then increase per gallon used in excess of 5,000 gallons after the threshold (variable).

The use of activity-based costing normally results in:

Substantially greater unit costs for low-volume products than is reported by traditional product costing. (The use of activity-based costing normally results in substantially greater unit costs for low-volume products than is reported by traditional product costing.)

A CPA would recommend implementing an activity-based costing system under which of the following circumstances?

The client produced many different products that homogeneously consume resources. (ABC costing is recommended when more than one product is produced and those products do not uniformly consume indirect resources (heterogeneous consumption). Example: Suppose 50 kilowatts of electricity are used to produce a single unit of item A and 500 kilowatts of electricity are used to produce a single unit of item B. To assign the cost of electricity (an indirect cost) based on the number of items produced would not reflect the true costs of producing the items.)

Based on the following data, what is the cost of goods sold for the company? Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000 beg Inventory End Inventory Work in process $500,000 $400,000 Finished goods $100,000 $500,000

The cost of goods sold (COGS) is equal to the cost of goods manufactured (COGM), adjusted for the change in finished goods inventory. the cost of goods sold + cost of goods manufactured + beginning finished goods inventory - ending finished goods inventory. COGS = $800,000 + $100,000 - $500,000 = $400,000.

Which of the following nonvalue-added costs associated with manufactured work in process inventory is most significant?

The cost of moving, handling, and storing any individual product. (Value added costs are those resource uses that provide value to the consumer. The cost of inventorying products, generally moving, handling and storing them, does not add value to the product and is generally considered one of the most significant non-value activities/costs that a manufacturer should reduce because it can be controlled.)

is the cost of ending inventory given the following factors? Beginning inventory $5,000 Total production costs 60,000 Cost of goods sold 55,000 Direct labor 40,000

The ending inventory in a manufacturing environment is computed as follows (using the data from the fact pattern provided): Beginning inventory 5,000 Add: Production costs* 60,000 Total Manufacturing costs available $65,000 Subtract Cost of goods sold (55,000) Ending inventory $10,000 Total production costs include direct labor, direct material and applied overhead. The information provided regarding direct labor for $40,000 is a distracter.

Merry Co. has two major categories of factory overhead: material handling and quality control. The costs expected for these categories for the coming year are as follows. Material handling $120,000 Quality inspection 200,000 The plant currently applies overhead based on direct labor hours. The estimated direct labor hours are 80,000 per year. The plant manager is asked to submit a bid and assembles the following data on a proposed job: Direct materials $4,000 Direct labor (2,000 hours) 6,000 What amount is the estimated product cost on the proposed job?

The estimated product cost is equal to the sum of prime costs and applied overhead or $18,000

Limitations of an activity-based costing system include which of the following?

The expense of obtaining cost data is relatively high. (Activity based costs anticipates increased cost pools and increased allocation bases. The determination of the amounts that go in these pools and their related cost drivers will likely be more costly than traditional systems. Increased costs of ABC represent a limitation of the system.)

Which of the following statements about an organization's value chain is correct?

The value chain consists of the major value-added functions for an organization. (A value chain represents a series of activities in which elements useful to the customer are added to the product The value chain consists of primary activities (operations, inbound and outbound logistics, marketing and sales, and service) and support activities (procurement, human resources management, firm infrastructure, and technology development), all of which are designed to add value to the end customer.)

A company has two departments and allocates all overhead costs based on department revenues. The following information applies: Department 1 revenue $1,000,000 Department 2 revenue 1,500,000 Corporate overhead costs 250,000 Department overhead costs 175,000 What amount is the company's total overhead cost for Department 2?

Total overhead costs are $425,000 (Corporate costs of $250,000 + Department costs of $175,000). If overhead is allocated based on revenue, then Department I will receive 40% of the overhead allocation and Department 2 will receive of the allocation 60%). so for Department 2, $425,000 * 0.6 = $255,000.

Which of the following incentive designs will most likely encourage the use of nonfinancial measures by a manager?

Tying incentives to the manager's individual effort. (Managers are more likely to use nonfinancial measures if they are tied to the managers individual effort and, by extension, the manager can control the outcome.)

Each of the following should be considered in the selection of appropriate cost drivers for an activity based costing system, except:

Volume-based production. (Volume-based production (and the associated usage of each cost driver activity) will determine HOW you allocate costs once cost drivers have already been established; it will not be considered as a means for determining WHAT the appropriate cost drivers are for specific activities. Also, volume-based production is a hallmark of traditional costing where the volume alone is the essential driver of how costs are allocated. - Behavioral effects, costs of measurement, and degree of correlation are all factors that should be considered when selecting appropriate cost drivers to apply for activity based costing.)

A company would most benefit from using an activity-based costing (ABC) system as opposed to a traditional costing system under which of the following conditions?

When indirect costs are a high percentage of total costs. (Activity-based costing (ABC) is very beneficial for allocating indirect costs when there are multiple activities. Each activity is evaluated independently and assigned a cost driver, which results in an allocation rate unique to that activity. The greater the percentage of total costs that are considered "indirect," the greater the need for appropriate cost allocations for each activity.)

Alex Company had the following inventories at the beginning and end of the month of January. Jan. 1 Jan. 31 Finished Goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Purchase returns and allowances 1,000 Transportation in 3,000 Direct labor 300,000 Actual factory overhead 175,000 Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's cost of goods manufactured for January was.

$665,000. Total manufacturing cost $681,000[NoteA] Add: beginning WIP 235,000 Less: ending WIP -251,000 Cost of goods manufactured 665,000

Cost drivers are:

Activities that cause costs to increase as the activity increases. (Cost drivers are activities that cause costs to increase as the activity increases. The cost driver is often non-financial.)

Madtack Company's beginning and ending inventories for the month of November Year 1 are: November 1 November 30 Direct materials $67,000 $62,000 Work-in-process 145,000 171,000 Finished goods 85,000 78,000 Production data for the month of November follows. Direct labor $200,000 Actual factory overhead 132,000 Direct materials purchased 163,000 Transportation in 4,000 Purchase returns and allowances 2,000 Madtack uses one factory overhead control account and charges factory overhead to production at 70 percent of direct labor cost. The company does not formally recognize over/underapplied overhead until year-end. Madtack Company's prime cost for November is:

Prime costs are the sum of direct materials and direct labor. Direct material is found by squeezing out the cost of goods in the account analysis format

What is the process by which products and services of a business entity are measured and evaluated relative to the best possible levels of performance?

Benchmarking (Benchmarking involves identifying standards for critical success factors of a firm. This process will typically entail identifying peers and industry leaders whose practices represent best-in-class (or world-class) performance standards.)

Which one of the following best describes direct labor?

Both a product cost and a prime cost. (Direct labor is a prime cost, a conversion cost and a product cost. "D" is the best answer because it includes of these costs.)

Conversion cost pricing:

Could be used when the customer furnishes the material used in manufacturing a product. (Conversion cost pricing could be used when the customer furnishes the material used in manufacturing a product.)

Gram Co. develops computer programs to meet customers' special requirements. How should Gram categorize payments to employees who develop these programs?

Direct costs are easily traceable to a product. Payments to employees who develop computer programs are considered part of direct labor. Value-added costs increase the worth of the product or service to customers. Employees who develop these programs are adding value to the computer programs.

A company that produces a single product using a continuous process had no work in process on April 1. During the month of April, 10, 000 units were started and 9,000 completed units were transferred. The ending work-in-process inventory was complete as to materials and 50 percent complete as to conversion. The cost of direct materials was S114,000, and the cost of direct labor amounted to $38,000. Manufacturing overhead is assigned at the rate of 50 percent of direct materials. For the purpose of determining the cost of goods manufactured in April, what is the cost pr equivalent whole unit?

$21.40 (The cost per equivalent unit is equal to total costs divided by total equivalent units. The calculation involves components: direct materials and conversion costs (Direct labor + Overhead). Materials costs are $114,000. Equivalent units of materials will be 10,000, as 9,000 units were completed and the 1 ,000 units remaining in ending inventory are complete in regard to materials. $114,000 / 10,000 = $11.40 Labor costs are $38,000 and overhead costs, at 50 percent of materials costs of $114,000, are $57,000. Total conversion costs equal $95,000 ($38,000 + $57,000). Equivalent units of conversion costs will be 9,500, as 9,000 units were completed and the 1,000 units remaining in ending inventory are 50 percent complete in regard to conversion costs. $95,000/9,500 = $10.0 Adding the two components together, $11.40 + $10.00 = $21.40.

Based on the following data, what is the net income for the company? Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000 Beginning ending Inventory Inventory Work in process $500,000 $400,000 Finished goods 100,000 400,000

$250,000 (Net income for this question will be equal to sales less cost of goods sold and marketing and administrative expenses. The net purchases of raw materials and indirect (overhead) manufacturing costs are each components of cost of goods manufactured. Beginning finished goods inventory of $100,000 + Cost of goods manufactured of $800,000 — Ending finished goods inventory of $400,000 = Cost of goods sold (COGS) of $500,000 Sales $1,000,000 - COGS $500,000 - Marketing/admin. expenses $250,000 = Net income S250,000

Under Pick Co.'s job order costing system manufacturing overhead is applied to work in process using a predetermined annual overhead rate. During January Year 1, Pick's transactions included the following: Direct materials issued to production $90,000 Indirect materials issued to production 8,000 Manufacturing overhead incurred 125,000 Manufacturing overhead applied 113,000 Direct labor costs 107,000 Pick had neither beginning nor ending work-in process inventory. What was the cost of jobs completed in January Year 1?

$310,000 (Cost of jobs completed (or cost of goods manufactured) = direct materials used + direct labor + overhead applied + beginning WIP - ending WIP COGM = $90,000 + $107,000 + $113,000+ $0 - $0 = $310,000 Indirect materials ($8,000) are included in the actual overhead incurred. COGM uses applied overhead, not actual overhead. The underapplied overhead of $12,000 ($125,000 — $113,000) would normally be closed out to cost of goods sold unless considered material and then it would be allocated pro rata to the ending balances of WIP, finished goods inventory, and cost of goods sold.)

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May: Units Beg. WIP inventory, May 1 16,000 Started in production during May 100,000 Completed production during May 92,000 End. WIP inventory, May 31 24,000 The beginning inventory was 60 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 90 percent complete for materials and 40 percent complete for conversion costs. Costs pertaining to the month of May are as follows: • Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory overhead, $15,240. • Costs incurred during May are: materials used, $468,000; direct labor, $182,880; a

$4.50 equivalent unit cost of materials using the FIFO method. Under the FIFO method, the equivalent units of production is comprised of three parts: the completion of units on hand at the beginning of the period, the units started and completed during the period, and the units partially completed at the end of the period. Applying these principles to the given fact pattern, the total equivalent units of production for materials is determined as follows:

Below are data from the income statement of Brown Inc: Beginning inventory, finished goods $16,000 Ending inventory, finished goods 21,000 Cost of goods sold 43,000 Gross margin from sales 39,000 Operating expenses—marketing and selling 20,000 Net income 19,000 mat was Brown's cost of goods manufactured?

$48,000 (For a manufacturer, cost of goods manufactured (COGM) is a by-product of cost of goods sold (COGS) and the change in beginning and ending finished goods inventory. COGM = COGS + Ending finished goods inventory - Beginning finished goods inventory. COGM = COGS ($43, 000) + Ending finished goods inventory ($21,000) - Beginning finished goods inventory ($16,000) = $48,000

Madtack Company's beginning and ending inventories for the month of November Year 1 are: Nov. 1 Nov. 30 Direct materials $67,000 $62,000 Work-in-process 145,000 171,000 Finished goods 85,000 78,000 Production data for the month of November follows: Direct labor $200,000 Actual factory overhead 132,000 Direct materials purchased 163,000 Transportation in 4,000 Purchase returns and allowances 2,000 Madtack uses one factory overhead control account and charges factory overhead to production at 70 percent of direct labor cost. The company does not formally recognize over/underapplied overhead until year-end. Madtack Company's cost of goods transferred to finished goods inventory for Novembe

$484,000 (The cost of goods transferred to finished goods is the total manufacturing cost adjusted for the changes in the WIP account.)

Alex Company had the following inventories at the beginning and end of the month of January. Jan. 1 Jan. 31 Finished Goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Purchase returns and allowances 1,000 Transportation in 3,000 Direct labor 300,000 Actual factory overhead 175,000 Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's balance in factory overhead control for January was:

$5,000 credit-overapplied. (Actual factory overhead $175,000 Applied (300,000 * 0.06) (180,000) Overapplied $(5,000) When actual overhead expenses are incurred, the factory overhead control account is debited. As overhead is applied, the account is credited. In this case, the applied overhead exceeded the actual overhead by $5,000, resulting in a credit balance in the account.

Jonathon Manufacturing adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20 ,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overhead were S50,OOO and $25,000, respectively Actual costs and hours for the year were as follows: Direct labor hours 21 ,000 Direct labor costs $110,000 Machine hours 35,000 For a particular job, 1,500 direct-labor hours were used. Using direct-labor hours as the cost driver, what amount of overhead should be applied to this job?

$5,625 Using direct labor hours, the overhead applied consists of both variable overhead and fixed overhead. The calculation is as follows:

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May: Units Beg. WIP inventory, May 1 16,000 Started in production during May 100,000 Completed production during May 92,000 End. WIP inventory, May 31 24,000 The beginning inventory was 60 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 90 percent complete for materials and 40 percent complete for conversion costs. Costs pertaining to the month of May are as follows: • Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory overhead, $15,240. • Costs incurred during May are: materials used, $468,000; direct labor, $182,880; a

$5.83 equivalent unit conversion cost using the FIFO method. Under the FIFO method, the equivalent units of production is comprised of three parts: the completion of units on hand at the beginning of the period, the units started and completed during the period, and the units partially completed at the end of the period. Applying these principles to the given fact pattem, the total equivalent units of production for conversion costs is determined as follows:

On January 1 Maples had two jobs in process: #506 with assigned costs of $10,500 and #507 with assigned costs of $14,250. During January three new jobs, #508 through #510, were started and three jobs, #506, #507, and #508, were completed. Materials and labor costs added during January were as follows: Job Materials Labor 506 $0 $2,000 507 $0 1,500 508 4,000 3,600 509 3,800 2,000 510 2,600 3,100 Manufacturing overhead is assigned at the rate of 200 percent of labor. What is the January cost of goods manufactured and transferred from work-in-process?

$50,050 (The cost of goods manufactured is $50,050 and can computed based on beginning and ending inventory balances and manufacturing costs incurred. The CGM includes the cost of all jobs finished in January. Jobs 506 and 507 were finished in January, and Job 508 was started and finished in January. The total costs for each of these jobs is as follows:

Kerner Manufacturing uses a process costing system to manufacture laptop computers. The following information summarizes operations relating to laptop computer model No. KJK20 during the quarter ending March 31: Direct Units Materials Work-in-process inventory, January 1 100 $70,000 Started during the quarter 500 Completed during the quarter 400 Work-in-process inventory, March 31 200 Costs added during the quarter $750,000 Beginning work-in-process inventory was 50 percent complete for direct materials. Ending work-in-process inventory was 75 percent complete for direct materials. \Nhat were the equivalent units of production using the FIFO method, with regard to materials for the quarter ended Mar

$500 (Under the FIFO method, the equivalent units of production is composed of three parts: (i) the completion of units on hand at the beginning of the period; (ii) the units started and completed during the period; and (iii) the units partially completed at the end of the period. Applying these principles to the given fact pattern, the total equivalent units of production for the quarter is determined as follows:

Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given below. Wall Specialty Mirrors Windows Units produced 25 25 Material moves per product line 5 15 Direct labor hours per unit 200 200 Budgeted materials handling costs $50,000 Under activity-based costing (ABC), the materials handling costs allocated to one unit of wall mirrors would be:

$500. (Activity-based costing allocates costs based on the activity driving those costs (material moves in this example). In comparing the activity required for wall mirrors and specialty windows, an allocation factor can be developed:

Madtack Company's beginning and ending inventories for the month of November Year 1 are: Nov. 1 Nov. 30 Direct materials $67,000 $62,000 Work-in-process 145,000 171,000 Finished goods 85,000 78,000 Production data for the month of November follows: Direct labor $200,000 Actual factory overhead 132,000 Direct materials purchased 163,000 Transportation in 4,000 Purchase returns and allowances 2,000 Madtack uses one factory overhead control account and charges factory overhead to production at 70 percent of direct labor cost. The company does not formally recognize over/underapplied overhead until year-end. Madtack Company's total manufacturing cost for November is:

$510,000 (Total manufacturing cost is the sum of direct material. direct labor, and overhead applied.)

Alex Company had the following inventories at the beginning and end of the month of January. Jan. 1 Jan. 31 Finished Goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Purchase returns and allowances 1,000 Transportation in 3,000 Direct labor 300,000 Actual factory overhead 175,000 Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's total manufacturing cost for January was:

$681,000. (Note that applied overhead is determined as 60% of direct labor, and actual overhead is irrelevant until over- or underapplications are handled in December.) Direct materials used$201,000 [NoteA] Direct labor 300,000 Factory overhead (*0.6) 180,000 Total manufacturing cost 681,000 Note A: Beg inventory, DM $134,000 Purchases during January 189,000 Less: purchase returns and allowances (1,000) Add' transportation in 3,000 Total direct materials available $325,000 Less: ending inventory, direct materials (124,000) Direct materials used during January $201 ,000

Sonimad Sawmill manufactures two lumber products from a joint milling process. The products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300, 000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, each CBL sells for $4 per unit. If there are no further processing costs incurred after the split-off point, the amount of joint cost allocated to the mine support braces (MSB) on a relative sales value basis would be:

$75,000. The question requires allocation based on relative sales value, as follows:

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300 ,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, each CBL sells for $4 per unit. Assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $200,000 per production run. During this process, 10,000 units are unavoidably lost these spoiled units have no discernable value. The remaining units of commercial building lumber are saleable at $10.00 per unit The mine support braces, although saleable immediately at the split-off point, are coated with a tar-like preservative that costs $100,000 per production run. The braces are then sold for $5 each. If Sonimad Sawmill chose not to pr

$80,000 lower

Which one of the following alternatives correctly classifies the business application to the appropriate costing system?

- Job order costing is a method of allocating production costs to products and services that are identifiable as separate units and require greater or lesser amounts of work to complete. Examples of industries that use job order costing include furniture manufacturing, special-order printing, shipbuilding, Aircraft assembly, Public accounting firm and many types of service organizations. - Process costing is a method of allocating production costs to products and services by averaging the cost over the total units produced. Costs are usually accumulated by department rather than by job. Process costing is commonly used in industries that manufacture homogeneous products, such as soda or paper, on a continuous basis, Wallpaper manufacturer, Oil refinery, Paint manufacturer, Retail banking A print shop would use job costing due to the nature of its work that is customer specific; a beverage drink producer would use process costing due to the homogeneous nature of its product.

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May: Units Beg. WIP inventory, May 1 16,000 Started in production during May 100,000 Completed production during May 92,000 End. WIP inventory, May 31 24,000 The beginning inventory was 60 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 90 percent complete for materials and 40 percent complete for conversion costs. Costs pertaining to the month of May are as follows: • Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory overhead, $15,240. • Costs incurred during May are: materials used, $468,000; direct labor, $182,880; a

104,000 equivalent units for materials using FIFO (or 113,600 using weighted average). Under the FIFO method, the equivalent units of production is comprised of three parts: the completion of units on hand at the beginning of the period, the units started and completed during the period, and the units partially completed at the end of the period. Applying these principles to the given fact pattern, the total equivalent units of production for materials is determined as follows:

A company estimates that it will sell 100,000 units of finished goods in March. Each finished good requires 5 feet of raw materials. The projected March 1 inventory balances are 10,000 units of finished goods and 40,000 feet of raw materials. Desired March 31 inventory levels are 9,000 units of finished goods and 42,000 feet of raw materials. What amount of raw materials should the company plan to purchase during March?

497,000 feet (The company expects to begin March with 10,000 units of finished goods and end with 9,000 units. If the plan is to sell 100,000 units during March, they will need to produce 99,000 units of finished goods (10,000 + X - 100,000 = 9,000; X = 99,000). 99,000 units * 5 feet per unit = 495,000 feet Since beginning March inventory in terms of raw materials is 40,000 feet and ending March inventory is 42,000 feet, there are 2,000 more feet on hand at the end of the month than the beginning. So the 495, 000 feet needed for production + the 2,000 additional feet on hand needed by month end = 497,000 feet.

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May: Units Beg. WIP inventory, May 1 16,000 Started in production during May 100,000 Completed production during May 92,000 End. WIP inventory, May 31 24,000 The beginning inventory was 60 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 90 percent complete for materials and 40 percent complete for conversion costs. Costs pertaining to the month of May are as follows: • Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory overhead, $15,240. • Costs incurred during May are: materials used, $468,000; direct labor, $182,880; a

98,400 equivalent units for conversion costs using FIFO (or 101,600 using weighted average). Under the FIFO method, the equivalent units of production is comprised of three parts: the completion of units on hand at the beginning of the period, the units started and completed during the period, and the units partially completed at the end of the period. Applying these principles to the given fact pattern, the total equivalent units of production for conversion costs is determined as follows:

A cost driver is defined as:

A causal factor that increases the total cost of a cost objective. (A cost driver is a causal factor (the cause) that increases the cost (the effect) of a cost objective.)

The New Wave Co. is considering a new method for allocating overhead to its two products, regular and premium coffee beans. Currently New Wave is using the traditional method to allocate overhead, in which the cost driver is direct labor costs. However it is interested in using two different drivers; machine hours (MH) for separating and roasting beans, and pounds of coffee for packing and shipping. Machine hours for the current month are 700 hours, direct labor cost per pound of coffee is $1.25, and direct materials cost per pound of coffee is $1.50. There are 1,000 pounds of coffee packed and shipped for the current month. The following data are also available. Regular Premium Overhead for the current month $5,000 Cost pool for separating and roasting beans 3,500 150MH 550MH Cost pool fo

Activity based costing is a cost assignment concept that uses activity level as the fundamental cost object. Total cost per unit would be equal to the overhead allocated in accordance with the activity based cost object associated with each activity and the direct cost per unit. 1 The separating and roasting cost pool is allocated based upon man hours: 550 divided by a total of 700 hours (550 for premium and 150 for regular) 2 The packing and shipping cost pool is allocated based on pounds. Both quality beans are produced in the same amount, 500 pounds. Half of the packing and shipping costs go to each quality of bean.

What is the normal effect on the numbers of cost pools and allocation bases when an activity-based cost (ABC) system replaces a traditional cost system?

Activity-based costing (ABC) tends to increase both the number of cost pools and the number of allocation bases. ABC breaks down a production process into many activities. It then accumulates costs by activity (i.e., cost pools) using an appropriate allocation base for each activity. A traditional cost system would use one cost and one allocation base (i. e., for factory overhead). On the other hand, ABC would designate many activities within the process and allocate costs by activity using a different allocation base for each activity.

The costing method that is properly classified for both external and internal reporting purposes is:

Activity-based costing uses cause and effect relationships to capitalize costs to inventory. This is not acceptable for external reporting and useful for internal reporting to management.

An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is:

Activity-based costing. (Activity-based costing is an accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers.)

Lankip Company produces two main products and a byproduct out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Lankip has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the byproduct is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Lankip's operations for the current month are presented in the chart below During the month, Lankip incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further. First Second Byproduct Monthly output in pounds 90,000 150,000 60,000 Selling price per pound $30 $14 $2 Process costs

Choice is correct. $1,500,000 joint cost is allocated to the second main product by using the physical-volume method.

The following is selected information from the records of Ray, Inc. Purchases of raw materials $6,000 Raw materials, beginning 500 Raw materials, ending 800 Work-in-process, beginning 0 Work-in-process, ending 0 Cost of goods sold 12,000 Finished goods, beginning 1,200 Finished goods, ending 1,400 What is the total amount of conversion costs?

Conversion costs (labor and overhead) are equal to $6,500 and are derived from the relationship between the finished goods and work in process inventory. I. Beginning ($1,200) and ending ($1,400) finished goods inventory and cost of goods sold ($12,000) are used to squeeze costs of goods manufactured of $12,200 2. Cost of goods manufactured ($12,200) is then used in combination with beginning and ending WIP inventories of $0 to derive total costs incurred ($12,200) and then, in combination with materials ($5,700) the conversion costs of $6,500 as follows:

If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?

Conversion costs. (Conversion costs include both direct labor and overhead. Increases in crude oil prices are likely to impact the cost of generating electricity (and, by extension, the rate for electricity). Electricity is significant in manufacture of the product in the fact pattern and would likely increase the overhead costs of the manufacturer.)

The distribution of overhead costs is known as:

Cost allocation. (Cost allocation is the distribution of overhead or support costs based on any one of a variety of methods.)

Multiple or departmental overhead rates are considered preferable to a single or plant-wide overhead rate when:

Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques. (When various products are manufactured, multiple overhead rates are preferable to a single overhead rate. Activity-based costing would be better still.)

Kode Co. manufactures a major product that gives rise to a by-product called May. May's only separable cost is a SI selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a by-product to a joint product, what would be the effect on Kode's overall gross margin?

Gross margin increases by $1 for each unit of May sold. (Changing the accounting from by-product to joint product changes the computation of gross margin because the $1 selling cost is treated differently under each method. Using the by-product method, the $1 selling expense is netted against the $4 selling price to arrive at a $3 deduction from cost of goods sold. Since gross margin is calculated as sales less cost of goods sold, the $1 does flow into the gross margin amount using this method. Using the joint product method, the $1 cost would be a selling expense, which is not included in the calculation of gross margin. Instead, selling expenses are deducted from gross margin (after it is computed) to arrive at net income. Although the total net income is the same under both methods, the joint product method results in an increased gross margin of $1 per unit of May sold.

In a quality control program, which of the following is (are) categorized as internal failure costs? I. Rework. II. Responding to customer complaints. Ill. Statistical quality control procedures.

I only. (In a quality control program, internal failure costs are incurred because nonconforming products and services are detected prior to being shipped to customers. Examples are rework, scrap, reinspection, and retesting.)

Mighty, Inc. processes chickens for distribution to major grocery chains. The two major products resulting from the production process are white breast meat and legs. Joint costs of $600,000 are incurred during standard production runs each month, which produce a total of 100,000 pounds of white breast meat and 50,000 pounds of legs. Each pound of white breast meat sells for $2 and each pound of legs sells for $I. If there are no further processing costs incurred after the split-off point, what amount of the joint costs would be allocated to the white breast meat on a relative sales value basis?

Joint costs allocated based upon relative sales value at split off are allocated based upon the ratio of individual sales values to sales value at split off. The ratio is computed at 80% and 20% and applied to the S600,000 in joint cost to arrive at the joint cost allocation below Be careful of the question. This question asks for the amount of allocated joint costs, but others may ask for total costs. In those instances, you would add the allocated costs to the direct costs that can be traced to the product prior to split off.

Costs are allocated to cost objectives in many ways and for many reasons. Which one of the following is a purpose of cost allocation?

Measuring income and assets for external reporting. (Cost allocation is essential for measuring income and assets for external reporting.)

In an activity-based costing system, what should be used to assign a department's manufacturing overhead costs to products produced in varying lot sizes?

Multiple cause and effect relationships. (Activity-based costing assigns costs to activities or transactions and allocates them to products according to their use of each activity. This method means multiple cause and effect relationships may exist.)

Weighted-average and first in, first out (FIFO) equivalent units would be the same in a period when which of the following occurs?

No beginning inventory exists. (FIFO and weighted average produce the same equivalent units when there is no beginning inventory. FIFO is a three-step process, while weighted average is a two-step process. The major difference between the two methods is consideration of beginning inventory amounts by FIFO.

Nonfinancial performance measures are often preferable to financial performance measures as a means of constructively motivating operational managers since:

Nonfinancial measures are more easily associated with operational objectives. (Nonfinancial measures (such as delivery time, raw materials used or miles driven) are performance features that operational managers intuitively understand and can more easily manage than financial performance measures.)

Based on the following data, what is the gross profit for the company? Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000 beg Inventory End Inventory Work in process $500,000 $400,000 Finished goods $100,000 $500,000

The gross profit for the company is $600,000 computed as follows: Sales $1,000,000 Beg. inv. of finished goods $100,000 COGM 800,000 Less: End. finished goods inv.(500,000) Cost of goods sold 400,000 Gross profit $600,000 Note that significant irrelevant information was provided in the problem. Some of the information (e.g., the raw materials purchases, indirect costs and WIP) relate to data used to develop the relevant cost of goods manufactured. Other information (e.g., marketing and administrative expenses) relate to computation of operating income rather than gross profit.

LM Enterprises produces two products in a common production process, each of which is processed further after the split-off point. Joint costs incurred for the current month are $36,000. The following information for the current month was also gathered. Product Units Units Separable Selling produced sold costs price per unit L 10,000 9,500 $20,000 $8 M 5,000 4,000 $40,000 $20 Assuming that LM Enterprises uses the estimated net realizable value method to allocate costs, what amount would be the joint cost allocated to product M?

The joint cost allocated to product M, using the estimated net realizable value method is $18,000. The estimated net realizable value method assumes that the actual net realizable value of products is unknown at the split-off point. The net realizable value is estimated based on the difference between the final selling prices of the goods, net of the identifiable costs associated with each product after split-off. The ratio of the estimated net realizable value of each product to the total of all estimated net realizable values of all joint products is the basis for allocation. LM Enterprises would compute its allocation as follows:

Generally, individual departmental rates rather than a plant-wide rate for applying overhead would be used if:

The manufactured products differ in the resources consumed from the individual departments in the plant. (Generally, individual departmental rates (rather than a plant-wide rate for applying overhead) would be used if the manufactured products differ in the resources consumed from the individual departments in the plant.

Feline Fabrications produces two products, Me and Ow, with joint production costs of $60 ,000. The company elects to use the net realizable value method of allocating costs between the 15,000 units of Me and 30, 000 units of Ow produced during the year ended December 31, Year 1. Me has a selling price after split-off of $4.00 and separable costs of $30,000 while Ow has a selling price after split-off of $3.00 and separable costs after split-off of $20,000. What joint production costs will be allocated to each product?

The net realizable value method allocates joint costs based upon the ratio of each product's net realizable value as follows:

In managerial accounting, the term "relevant range" is often used to describe.

The range over which cost relationships are valid.(Relevant range is the range of activity within which the relationships of fixed costs and variable costs are meaningful and valid.)

Boyle, Inc. makes two products, X and Y that require allocation of indirect manufacturing costs. The following data was compiled by the accountant before making any allocations: Product X Product Y Quantity produced 10,000 20,000 Direct labor hours 15,000 5,000 Setup hours 500 1,500 The total cost of setting up manufacturing processes and equipment is $400,000. The company uses a job-costing system with a single indirect cost rate. Under this system, allocated costs were $300,000 and $100,000 for X and Y, respectively If an activity-based system is used, what would be the allocated costs for each product?

The setup hours are used because neither quantity produced nor direct manufacturing hours are activities. The calculation is as follows:

Huron Industries has recently developed new products, a cleaning unit for laser discs and a tape duplicator for reproducing home movies taken with a video camera. However, Huron has only enough plant capacity to introduce one of these products during the current year. The company controller has gathered the following data to assist management in deciding which product should be selected for production. Huron's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to products. The total overhead cost of $27.00 for Huron's laser disc cleaning unit is a:

The total overhead cost of $27.00 is a mixed cost because it includes fixed and variable components.

Mason Company uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200 percent of direct-labor dollars. This rate was calculated last December and will be used throughout the current year. Mason had one job, No. 150, in process on August 1 with raw materials costs of $2,000 and direct-labor costs of $3,000. During August, raw materials and direct labor added to jobs were as follows: No. 150 No. 151 No. 152 Raw materials $ 0 $4,000 $1,000 Direct labor 1,500 5,000 2,500 Actual manufacturing overhead for the month of August was $20,000. During the month, Mason completed Job No. 150 and 151. For August, manufacturing overhead was:

Underapplied by $2,000. (Since manufacturing overhead is applied on the basis of direct-labor dollars, the total of the direct- labor dollars for August must first determined: $1,500 + $5,000 + $2,500 = $9,000 Manufacturing overhead is applied at the rate of 200%, so $18,000 was applied for the month of August (200% * $9,000 = $18, 000). Actual manufacturing overhead for August was $20,000, so manufacturing overhead was underapplied by $2,000 [$20,000 - $18,000].

In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity base?

Units of electrical power consumed. (Units of electrical power consumed would be a good indication of producing departments' demand on the service department.)

The benefit that management can expect from traditional costing includes which of the following:

Uses a common departmental or factory wide measure of activity, such as direct labor hours or dollars to distribute manufacturing overhead to products. (The benefit that management can expect from traditional costing includes using a common departmental or factory wide measure of activity, such as direct labor hours or dollars, to distribute manufacturing overhead to products.)

A company manufactures M'O products, X and Y, through a joint process. The joint (common) costs incurred are $500,000 for a standard production run that generates 240,000 gallons of X and 160,000 gallons of Y. X sells for $4.00 per gallon, while Y sells for $6.50 per gallon. If there are no additional processing costs incurred after the split-off point, what is the amount of joint cost for each production run allocated to X on a physical-quantity basis?

Using a physical quantity basis with no additional processing costs after the split-off point, product X is 240,000 gallons and product Y is 160,000 gallons, for a total of 400,000 gallons. That means that product X is allocated 60% (240,000/400,000) of the joint costs and product Y is allocated 40% (160,000/400,000) of the joint costs. Product X is thus allocated 60% of the $500,000 joint costs, or $300,000. The data about selling costs is a distracter because the joint costs are allocated on a physical quantity basis.

During the current year, the following manufacturing activity took place for a company's products: Beg. WIP, 70% complete 10,000 units Units started into production during the year 150,000 units Units completed during the year 140,000 units End WIP, 25% complete 20,000 units What was the number of equivalent units produced using the first-in, first-out method?

Using the FIFO method of process costing, the equivalent units produced (EQU) are computed as follows: EQU = EQU Beg WIP + EQU started and completed + EQU ending WIP EQU = (10,000 *0.30) + (130,000* 1.00) + (20,000 * .25) EQU = 3,000 + 130,000 + 5,000 = 138,000 Note that the .30 is the percentage of Beg WIP completed in the period- It is the complement of the percent complete. Note that the 130,000 units started and completed is the 140,000 units started less the 10,000 units in the beginning inventory. An alternate computation (different from the formula in the text) is as follows (some people may be more familiar with this alternate): EQU = EQU End WIP + EQIJ completed — EQU ending WIP EQU = (20,000*.25) + (140,000*1.00) - (10,000*.70) EQU = 5,000 + 140,000 - 7,000 = 138,000

A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. The following details pertain to a batch produced at a $60, 000 joint cost before split-off. Separable Sales Product costs value Ajac $8,000 $80,000 Bjac 22,000 40,000 $30,000 $120,000 What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

Using the relative net realizable value method of allocating the joint costs, the net realizable value of both products is calculated as follows: The joint costs are allocated based on relative net realizable values. The two products together have a net realizable value of $90,000 ($72,000 + $18,000). Ajac contributes 80% of this total (72,000/$90,000 = 80%). 80% of the joint costs are thus allocated to Ajac 80% * $60,ooo = $48,ooo.

A cost that is fixed per unit is an example of a:

Variable cost. (A variable cost is one that varies in total but is fixed per unit. For example, if a starter is needed in the manufacture of an automobile, the cost of starters varies with the number of automobiles. The more automobiles, the greater the cost of starters. However, the cost for each starter remains constant.)