Cost & Managerial Accounting - C250 All Questions

A company provides the following data: Net Income - $20,000 Sales - $70,000 Degree of operating leverage - 3.00 If sales go up by 10%, what would be the company's net income?

$26,000 Explanation: If sales increase by 10%, net income will increase by (10*DOL) = (10*3) = 30% Increase in net income = 0.30*20,000 = 6,000 Therefore, net income will be = current net income + increase in net income Net Income = 20,000+6,000 = 26,000 Cost Volume Profit Analysis PA

The monthly data for Wyatt Corporation is below: Unit selling price - $36 Unit variable expenses - $28 Total fixed expenses - $50,000 Actual sales for the month of May - 7,000 units The margin of safety in dollars for the company for May would be?

$27,000 Explanation: Unit sales to break even = Fixed expenses ÷ Unit CM = $50,000 ÷ ($36 per unit - $28 per unit) = 6,250 units Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales = ($36 per unit × 7,000 units) - ($36 per unit × 6,250 units) = $252,000 - $225,000 = $27,000 Cost Volume Profit Analysis

A company is projecting sales of $500,000 this year and profits of $180,000. How much does the firm need to sell to break even for the year?

$270,000 Explanation: M.S. (%) = (Budgeted sales - Breakeven sales)/Budgeted Sales M.S (%) = (500,000-270,000)/500,000 = 0.46 or 46% Cost Volume Profit Analysis PA Possibility

On November 1, Barnes Corporation has 8,000 units of Product A on hand. During the month, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at end of the month. How many units of Product A must be produced during the month?

$28,500 Explanation: Budgeted unit sales - 30,000 Add desired ending finished goods inventory - 6,500 Total needs - 36,500 Less beginning finished goods inventory - 8,000 Required production in units - 28,500 Budgeting

Fost Corporation's contribution margin ratio is 20%. If the degree of operating leverage is 15 at the $225,000 sales level, net operating income at the $225,000 sales level must equal:

$3,000 Explanation: Contribution margin = CM ratio × Sales = 0.20 × $225,000 = $45,000 Degree of operating leverage = Contribution margin ÷ Net operating income 15 = $45,000 ÷ Net operating income Net operating income = $45,000 ÷ 15 = $3,000 Cost Volume Profit Analysis

A candy factory makes one-pound boxes of candy. The factory expects to make 1,000 boxes of candy this month. The ingredients for the candy are expected to cost $3 per box. During November, the factory made 1,200 boxes of candy and used 1,300 pounds of candy at a total ingredients cost of $3,700. What is the material quantity variance and the reason for the variance?

$300 unfavorable Explanation: Material Quantity Variance (MQV) = (Actual Quantity (AQ) - Standard Quantity (SQ)) x Standard Price (SP) = (1,300 - (1,200 x 1)) x 3 = $300 unfavorable Variances PA

A manufacturing company has the following information available for the year: Work-in-process inventory, beginning balance - $ 71,850 Work-in-process inventory, ending balance - $ 74,290 Direct materials costs $ 182,430 Direct labor costs - $ 196,570 Actual manufacturing overhead costs - $ 138,000 Applied manufacturing overhead costs - $ 142,000 Finished goods inventory, beginning balance - $ 60,000 Finished goods inventory, ending balance - $ 72,000 What is the cost of goods manufactured?

COGM = 518,560 Explanation: COGM = 182,430+196,579+142,000+(71,850-74,290) = 518,560 Job Order Costing PA

Describe activity based costing

ABC considers nonmanufacturing and manufacturing costs. Activity Based Costing (ABC)

A hairstyling salon owner constructed a flexible budget projecting 1,000 and 1,100 customers for the month of June. The owner expects 1,000 customers but hopes for 1,100 customers. Average sale per customer is $40. Costs include rent of $5,000; payments to hairstylists of $20 per customer; and overhead of $10 per customer. In June, the owner had 1,000 customers, and the actual revenue was $45,000. What was the salon's revenue variance?

Actual Results (1,000 x 45) = $45,000 Flexible Budget (1,000 x 40) = $40,000 Revenue Variance = 45,000-40,000 = 5,000 Favorable Flexible Budgeting PA

Chibu sells its product for $120 per unit. The variable costs are $30 per unit and the fixed costs are $225,000. What would Chibu's total sales dollars have to be next year in order to generate $270,000 of net operating income?

$660,000 Explanation: CM ratio = Unit contribution margin ÷ Unit selling price = ($120 per unit - $30 per unit) ÷ $120 per unit = $90 per unit ÷ $120 per unit = 0.75 Dollar sales to attain a target profit = (Target profit + Fixed expenses) ÷ CM ratio = ($270,000 + $225,000) ÷ 0.75 = $660,000 Cost Volume Profit Analysis

The following data was recorded for Company A and for Job 383, which was recently completed: Direct materials = $5,330 Direct labor hours worked on the job = 170 Estimated annual total direct labor hours for the company = 30,000 Machine hours used on the job = 135 Estimated annual total machine hours for the company = 25,000 Direct labor wage rate = $12 per labor hour Estimated annual total overhead costs = $450,000 Number of units produced in job = 50 Note: Company A applies manufacturing overhead on the basis of machine hours. What is the total cost for Job 383? $8,990 $9,395 $9,800 $9,920

$9,800 PA

A company sells two different products with the following average monthly revenues and costs over the past year: Product A Sales quantity - 10,000 units Price per unit $12 Contribution margin percentage 30% Product B Sales quantity 20,000 Units Price per unit $4 Contribution margin percentage 40% Fixed costs are $306,000. What is the company's break-even point, assuming a constant product mix?

$900,000 Explanation: CM per unit (A) = $12 x .3 = 3.60 CM per unit (B) = $4 x .4 = 1.60 Overall Contribution Margin Ratio = ((3.60 x 10,000)+(1.60 x 20,000))/((10,000 x 12)+(20,000 x 4)) = 0.34 BEP ($) = Fixed costs / Overall Contribution Margin Ratio = 306,000/0.34 = $900,000 Cost Volume Profit Analysis PA

The Agate Corporation manufactures and sells two types of bookcases, standard and deluxe. Agate expects the following operating results next year for each type of bookcase: Description - Standard - Deluxe Sales - $450,000 - $50,000 Variable expenses (total) - $180,000 - $20,000 Agate expects to have a total of $57,600 in fixed expenses next year. What is Agate's break-even point next year in sales dollars?

$96,000 Explanation: Description - Standard - Deluxe - Total Sales - $450,000 - $50,000 - $500,000 Variable expenses - 180,000 - 20,000 - 200,000 Contribution margin - $270,000 - $30,000 - $300,000 Overall CM ratio = Overall Contribution margin ÷ Overall Sales = $300,000 ÷ $500,000 = 0.60 Dollar sales to break even = Fixed expenses ÷ Overall CM ratio = $57,600 ÷ 0.60 = $96,000 Cost Volume Profit Analysis

A ski retailer sells skis for an average cost of $100 a pair. All skis are purchased from a manufacturer for an average cost of $55 a pair. This company had 100 pairs in beginning inventory at the start of the month, purchased 1,000 pairs during the month, and had 25 pairs remaining at the end of the month. In addition, the company has variable selling expenses of $3 per pair and fixed costs of $5,000 for depreciation, $3,000 for taxes, and $40,000 for salaries. What is the net income or net loss? ($5,100) ($2,850) ($2,250) $375

($2850) PA

A corporation's three divisions had the following operating data last year: Description - Division A - Division B - Division C Total assets - $400,000 - $350,000 - $200,000 Variable costs - $ 85,000 - $130,000 - $100,000 Revenue - $210,000 - $240,000 - $190,000 Controllable fixed costs - $ 45,000 - $ 65,000 - $ 55,000 The required minimum rate of return is 15%. What is the residual income for Division B?

($7,500) Explanation: Net operating income for Division B = 240,000 - $130,000 - $65,000 = $45,000 Residual income for Division B = $45,000 - ($350,000 x .15) $45,000 - $52,500 = ($7,500) Performance Evaluation PA

The constraint at McGlathery Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: Description - Unit UE - Unit BI - Unit CR Selling price per unit - $334.96 - $228.24 - $198.99 Variable cost per unit - $259.70 - $173.52 - $160.05 Minutes on the constraint - 5.30 - 3.60 - 3.30 Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource for each of the three products? Question worded inconsistently. Rank the units from most to least profitable.

BI UE CR Explanation: See attached Differential Costs - Constrained Resources

A taxi company was just formed, and a taxi was bought for $30,000. The owner plans to depreciate this taxi over five years using the straight line method and depreciating $6,000 per year. The company calculates averages based on the beginning and the end-of-year balances. The owner expects to earn $30,000 of net income per year, but before taxes and interest, the net operating income (EBIT) will only be $40,000. What is the owner's return on investment at the end of Year 2?

190% Explanation: Assets: Year 1 begin $30,000; end $30,000 - 6,000 = $24,000 Year 2 begin $24,000; end $24,000 - 6,000 = $18,000 Average assets year 2= (24,000 + 18,000) / 2 = $21,000 Net operating income = $40,000 ROI = 40,000 / 21,000 = 1.90 or 190% Performance Evaluation PA

Last year the Uptown Division of Gorcen Enterprises had sales of $300,000 and a net operating income of $24,000. The average operating assets at Uptown last year amounted to $120,000. What was the turnover used to calculate ROI at Uptown last year?

2.5 Explanation: Turnover = Sales ÷ Average operating assets = $300,000 ÷ $120,000 = 2.5 Performance Evaluation

Last year the Uptown Division of Gorcen Enterprises had sales of $300,000 and a net operating income of $24,000. The average operating assets at Uptown last year amounted to $120,000. What was Uptowns ROI last year?

20% Explanation: ROI = Net operating income ÷ Average operating assets = $24,000 ÷ $120,000 = 20% Performance Evaluation

A quantity of a particular raw material was purchased for $43,250. The standard cost of the material was $2.00 per kilogram and there was an unfavorable materials price variance of $3,250. How many kilograms were purchased?

20,000 kilograms Explanation: MPV = (AP-SP) x AQ Materials price variance = (AP-SP) x AQ = (AQ × AP) - (AQ × SP) $3,250 U = $43,250 - (AQ × $2.00 per kilogram) $3,250 = $43,250 - (AQ × $2.00 per kilogram) AQ × $2.00 per kilogram = $43,250 - $3,250 AQ × $2.00 per kilogram = $40,000 AQ = $40,000 ÷ $2.00 per kilogram AQ = 20,000 kilograms Variances

It is January 1 of Year 2. Company sales for January. February, and March are forecasted as follows: January: $20,000 February: $40,000 March: $50,000 Seventy percent of sales are credit sales, and the remaining 30% of sales are cash sales. Of these credit sales. 40% are collected during the month of sale. 50% in the following month. 5% in the second following month, and 5% are never collected. Total sales for November and December of Year 1 were $20,000 and $40,000. respectively. What is the expected amount of total cash collections from sales in January?

26,300 Explanation: Cash Collections = Jan cash sales + Jan credit sales + Dec credit sales + Nov credit sales Cash collections = (20000*.30) + (20000*.70*.40)+(40000*.70*.50)+(20000*.70*.05) = 26,300 Budgeting PA

A break-even graph for Company A revealed the following information: Coordinates for the point where the lines of total costs and total revenues intersect are 20 units and $200 of revenue. The total costs line crosses the y-axis at the $80 point. (see attached) What is the contribution margin ratio for Company A?

40% Explanation: Break- even is 20 units sold for a total Revenue and Costs of $200 and fixed costs are $80 200-80 =120 variable costs in total 120/20 =6 VC per unit Sales Price per unit = 200/20 = 10 sales price per unit CM per unit = 10-6 = 4 CM ratio = Unit CM margin / Selling price 4/10 0.4 40% Cost Volume Profit Analysis PA

A company provides the data below: Contribution margin ratio 40% Fixed costs $200,000 Selling price in units $10 What is break-even sales amount in units?

50,000 units Explanation: CM/unit = $10 x 0.4 = $4 BEP (units) = 200,000/4 = 50,000 units Cost Volume Profit Analysis PA

Last year the Uptown Division of Gorcen Enterprises had sales of $300,000 and a net operating income of $24,000. The average operating assets at Uptown last year amounted to $120,000. What would be the margin used to calculate the Uptown ROI?

8% Explanation: Margin = Net operating income ÷ Sales = $24,000 ÷ $300,000 = 8% Performance Evaluation

Ricric Corporation has provided the following data for one of its products: Process time - 3.0 days Queue time - 4.0 days Inspection time - 0.7 days Move time - 0.3 days Wait time - 9.0 days What is the throughput time for this operation?

8.0 days Explanation: Throughput time = Process time + Inspection time + Move time + Queue time = 3.0 days + 0.7 days + 0.3 days + 4.0 days = 8.0 days Performance Evaluation

The following cost information is available for a company: Actual results Total cost of purchasing material - $16,000 Number of labor hours worked - 5000 hours Number of material pounds used in production - 2200 pounds Number of units produced - 210 units Number of material pounds purchased - 2400 pounds Total labor cost - $60,000 The company established the following standards: Price per pound of materials - $7.40 per pound Standard labor rate - $12.00 per hour During the year, the material quantity variance was debited for $3,148. What is the standard number of pounds of material needed to produce one unit?

8.45 lbs per unit Explanation: Material Quantity Variance = (AQ - SQ) x SP ((2,200)-(SQ x 210)) x 7.40 = 3,148 (2,200 x 7.40) - (SQ x 210 x 7.40) = 3,148 SQ=8.45 lbs. per unit Variances PA

A company provides the following labor-related data: Standard labor hours for output 16,000 hours Standard labor rate $11 per hour Actual labor rate $9 per hour Actual labor hours 18,500 hours What should the labor rate variance be recorded as?

=(37,000) favorable Explanation: Labor Rate Variance = (AR - SR) x AH (9-11) x 18,500 = (37,000) favorable Variances PA

A company expects to have sales of $1 million this quarter based on its per-unit wholesale selling price of $20. The firm tries to end each quarter with 15,000 units of finished inventory in case of large last-minute orders. At the start of the current quarter, the company has 12,800 finished units in inventory. How many units should the firm produce this quarter?

Budgeted Production - 52,200 Explanation: Budgeted Sales for the quarter in units = 1,000,000/20 = 50,000 Budgeted Production = 50,000+15000-12,800=52,200 Budgeting PA

On September 30 of Year 1. a company had finished goods inventory of 1,500 units. Starting in October, the company intends to have an inventory policy of maintaining ending inventory at the end of every month equal to the next month's sales. Forecasted sales for the months October. Year 1, through January. Year 2 are as follows: October 4,000 units November 5,500 units December 3,500 units January 2,000 units What is the amount of budgeted production units for November?

Budgeted Production for November - 3500 Explanation: Budgeted Production = Budgeted Sales + Desired Ending Inventory - Beginning Inventory Budgeted Production for November = 5500+3500-5500=3500 Budgeting PA

What is an opportunity cost? A difference in costs between any two alternatives A cost difficult to trace to a specified cost object A potential benefit lost by choosing an alternative A cost that has already been incurred

A potential benefit lost by choosing an alternative PA

Given the following data: Return on investment - 25% Turnover - 2.5 Margin - 10% Sales - $100,000 Average operating assets - $40,000 Minimum required rate of return - 18% What would the residual income be?

$2,800 Explanation: Net operating income = Margin x Sales 0.10 × $100,000 = $10,000 Margin = Net operating income ÷ Sales 10,000 ÷ 100,000 = 10% Residual income = Net operating income - (Average operating assets × Minimum required rate of return) = $10,000 - ($40,000 × 0.18) = $10,000 - $7,200 = $2,800 Performance Evaluation

A company estimates that it has $400,000 in variable overhead costs annually and $265,000 in fixed rate overhead costs annually. Last year the variable and fixed overhead costs were $300,000 and $200,000, respectively. The firm estimates that it will have 32,500 direct labor hours this year. What is the firm's predetermined overhead rate? $20.46 $15.38 $12.31 $8.15

$20.46 PA

A company is projecting sales of $500,000 this year and profits of $180,000. The firm needs to sell at least $270,000 to break even for the year. What is its margin of safety, in dollars? $90,000 $180,000 $230,000 $320,000

$230,000 M.S. ($) = (500,000 - 270,000) = 230,000 M.S. (%) = (500,000 - 270,000)/500,000 = 40% PA

A company forecasted the following purchases: January: $200,000 February: $400,000 March: $500,000 Thirty percent of purchases are for cash. Of the credit purchases. 40% are paid during the month of the purchase. 35% in the month following the purchase, and 25% in the second month following the purchase. Actual purchases for November and December of Year 1 were $300,000 and $350,000, respectively. What is the forecasted amount of total cash disbursements for purchases in March?

Cash disbursements for March - 423,000 Explanation: Cash disbursements for March = March cash purchases + March credit purchases + Feb credit purchases + Jan credit purchases Cash disbursements for March = (500,000*.30) + (500,000*.70*.40)+(400,000*.70*.35)+(200,000*.70*.25) = 423,000 Budgeting PA

The following work-in-process inventory information is provided for a company: All direct materials are added at the beginning of the production process. Beginning inventory is 70% complete for conversion, and ending inventory is 40% complete for conversion. Description - Units - DM Costs - Conversion Costs Beginning work in process - 8,000 - $11,000 - $29,000 Cost added - 0 - $74,000 - $161,000 Ending work in process - 12,000 - NA - NA Units completed/transferred - 33,000 - NA - NA What is the total production cost of the ending work in process using weighted average process costing?

Cost of ending WIP = 46,793.65 Explanation: See attached Process Costing PA

A manufacturer uses weighted average process costing. At the end of 2014, the manufacturer had work-in-progress (WIP) ending inventory of 1,000 units that were 30% complete. During 2014, all materials were added at the beginning of the process. Costs in WIP beginning inventory were $5,000 of materials and $21,350 of conversion costs. The manufacturer completed and transferred 5,000 units to finished goods. Costs added during the period were $4,000 of materials and $17,075 of conversion costs. What was the total cost of goods transferred out?

Costs of Goods Transferred = 43,750 Explanation: See attached Process Costing PA

In January, a processing department had a beginning work-in-process inventory of $24,000 and an ending work-in-process inventory of $39,000. During the month, $248,000 of costs were added to production and the cost of units transferred out from the department was $233,000. What is the total cost to be accounted for and costs accounted for in the department's cost reconciliation report for January using the weighted average processing method?

Costs to be accounted for = 272,000 Costs accounted for = 272,000 Explanation: Costs to be accounted for = Beginning WIP + Cost added during period = 24,000+248,000 = 272,000 Costs accounted for = Cost of units transferred out + Ending WIP = 233,000 + 39,000 = 272,000 Process Costing PA

A company has decided that direct labor hours are a good basis on which to apply overhead to production. The following data are for the most recent year: Budgeted number of direct labor hours worked = 20,000 hours Budgeted amount of manufacturing overhead = $100,000 Actual number of direct labor hours worked = 25,000 hours Actual amount of manufacturing overhead = $115,000 The company applied manufacturing overhead during the year. What should be included in the journal entry in order to record this application of manufacturing overhead? Credit to Manufacturing Overhead for $115,000 Credit to Manufacturing Overhead for $125,000 Credit to Work-in-Process Inventory for $115,000 Credit to Work-in-Process Inventory for $125,000

Credit to Manufacturing Overhead for $125,000 JE = WIP Inventory 125,000 Manufacturing Overhead 125,000 Explanation: Predetermined overhead rate = 100,000/20,000 = $5/hr Applied overhead = 25,000*5 = 125,000 Job Order Costing PA

The owner of a nail salon constructed a flexible budget projecting 1,000 and 1,100 customers for the month of June. The owner expects 1,000 customers but hopes for 1,100 customers. The average sale per customer is $40. Costs include rent of $5,000; payments to manicurists of $20 per customer; and overhead of $10 per customer. In June, the owner had 1,000 customers and the net income was $8,000. What is the correct activity variance for revenues?

Flexible Budget (1,000 customers x 40) = $40,000 Planning Budget (1,000 customer x 40) = $40,000 Activity Variance for Revenues = 40,000-40,000 = 0 Flexible Budgeting

Wexell Framing's cost formula for its supplies cost is $1,230 per month plus $10 per frame. For the month of October, the company planned for activity of 592 frames, but the actual level of activity was 597 frames. The actual supplies cost for the month was $7,050. What would be the activity variance for supplies cost in October be closest to?

Flexible Budget (1230 + (10 x 597)) = 7200 Planning budget (1230 + (10 x 592)) = 7150 Activity variance = 50 Because the flexible budget is greater than the planning budget, the variance is unfavorable (U). Flexible Budgeting

The manufacturing overhead budget at Amrein Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in August. The variable overhead rate is $9.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $96,040 per month, which includes depreciation of $7,350. All other fixed manufacturing overhead costs represent current cash flows. What should the August cash disbursements for manufacturing overhead on the manufacturing overhead budget be?

Manufacturing Overhead Budget Budgeted direct labor hours - 4,900 Variable manufacturing overhead rate - $9.40 Variable manufacturing overhead - $46,060 Fixed manufacturing overhead - 96,040 Total manufacturing overhead - 142,100 Less depreciation - 7,350 Cash disbursement for manufacturing overhead - $134,750 Budgeting

Which two types of companies should use job order costing? Choose 2 answers Soda bottler Meal catering company Paper towel manufacturer Commercial aircraft manufacturer

Meal catering company Commercial aircraft manufacturer PA

What is the formula for: Unadjusted COGS

Unadjusted COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory Job Order Costing

What is the formula for: Under/Over Applied Manufacturing Overhead

Under/Over Applied Manufacturing Overhead = Actual Manufacturing Overhead - Applied Manufacturing Overhead Job Order Costing

A manufacturing company provided the following data: Estimated Costs for Year 1: Direct labor - $ 31,000 Bonuses paid to factory supervisors - $ 9,000 Interest expense - $ 32,000 Depreciation on manufacturing equipment - $ 18,000 Indirect labor - $ 11,000 Direct materials - $ 36,000 Factory utilities - $ 26,000 Indirect materials - $ 14,000 Property taxes on the corporate office building - $ 18,000 Estimated Direct labor hours were 40,000. Actual Data for Year 1: Total manufacturing overhead - $ 120,000 Direct labor hours - 60,000 The predetermined manufacturing overhead rate is based on direct labor hours. What is the amount of overapplied or underapplied overhead for the company for Year 1?

Underapplied 3,000 Explanation: Pre-determined MOH rate = 78,000/40,000 = 1.95 per DLH Applied Overhead = 1.95 * 60,000 = 117,000 Under applied overhead = 120,000-117,000 = 3,000 underapplied. Job Order Costing

The records of the Dodge Corporation show the following results for the most recent year: Sales (16,000 units) - $256,000 Variable expenses - $160,000 Net operating income - $32,000 Given these data, what is the unit contribution margin?

Unit CM - $6 per unit Explanation: Selling price per unit = $256,000 ÷ 16,000 units = $16 per unit Variable expense per unit = $160,000 ÷ 16,000 units = $10 per unit Unit CM = Selling price per unit - Variable expense per unit Unit CM = $16 per unit - $10 per unit = $6 per unit Cost Volume Profit Analysis

Minist Corporation sells a single product for $15 per unit. Last year, the company's sales revenue was $225,000 and its net operating income was $18,000. If fixed expenses totaled $72,000 for the year, what is the break-even point in unit sales?

Unit sales to break even - 12,000 units Explanation: Units sold = $225,000/15 = 15,000 units Net operating income = (Sales - Variable expenses) - Fixed expenses $18,000 = ($225,000 - Variable expenses) - $72,000 Variable expenses = $225,000 - $72,000 - $18,000 = $135,000 Variable Cost/unit = 135,000/15,000 = $9/unit Unit sales to break even = $72,000 ÷ ($15 - $9) = 12,000 units Cost Volume Profit Analysis

A company incurred overhead costs of $14,000 during the month and applied overhead to jobs at a rate of $3 per machine hour. The company used 4,800 machine hours during the month. What adjustment is necessary to close the overhead account?

JE = Manufacturing overhead 400 COGS 400 Explanation: Applied overhead = (4800*3) = 14400 Actual overhead = 14,000 Overapplied overhead = 14400-14000= 400 Job Order Costing

What is the formula for: Job Order Cost

Job Order Cost = Direct Materials used + Direct Labor + Applied Manufacturing Overhead Job Order Costing

During the month, the following costs were incurred for Job A: Beginning raw materials - $5,000 Purchases - $18,000 Ending raw materials - $1,000 Administrative - $4,000 Selling - $2,000 Direct labor hours totaled 10,000 hours. The direct labor rate is $23 per hour. Overhead is applied at a rate of $25 per machine hour and Job A required 900 machine hours. What is the total cost of Job A if 2,000 units were produced?

Total Cost of Job A = 274,500 Explanation: Direct Materials used = Beginning raw materials + Purchases - Ending raw materials = 5000+18000-1000 = 22000 Total Cost of Job A =22,000+(10000*23)+(900*25)=274,500 Job Order Costing

The following information is provided for a company: • Equivalent units is 6,000 for materials and 5,000 for conversion. • Cost of beginning work in process included $12,000 of materials and $8,000 of conversion. • Cost added during the period included $85,200 of materials and $64,000 of conversion. What is the total cost per equivalent unit using the weighted average process method?

Total Cost per equivalent unit = 30.60 Description - Materials - Conversion Beg Costs - 12,000 - 8,000 Added - 85,200 - 64,000 Total Cost - 97,200 - 72,000 Equiv Units - 6,000 - 5,000 Per unit - 16.2 - 14.4 Total cost per equivalent unit = (16.2 + 14.4) 30.6 Process Costing PA

A company makes two products: Product A and Product B. Information for the two products is as follows: Description - Product A - Product B Selling Price - $ 50 - $ 125 Materials - $ 20 - $ 40 Labor - $ 7.50 - $ 22.50 Variable Costs - $ 5 - $ 12.50 Material is a scarce resource. Product A takes two pounds of material and Product B takes four pounds. Labor takes one hour for Product A and three hours for Product B. How much would the company be willing to pay for one more pound of materials?

$12.50 Explanation: Variable costs per UNIT of Manufacture: Description - Produce A - Product B Materials - 20 - 40 Labor - 7.5 - 22.5 Variable Costs - 5 - 12.5 Variable Cost per unit - 32.5 - 75 Description - Product A - Product B Selling price per unit - 50 - 125 Variable cost per unit - 32.5 - 75 Contribution margin per unit (a) - 17.5 - 50 Pounds of material required to produce one unit (b) - 2 - 4 Contribution margin per unit of the constrained resource (a)/(b) - 8.75 - 12.5 Differential Costs - Constrained Resources PA

Budgeted sales in Acer Corporation over the next four months are given below: Budgeted Sales September - $140,000 October - $150,000 November - $170,000 December - $130,000 Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder are uncollectible. Given these data, what should cash collections for December should be?

$136,375 Explanation: December cash sales ($130,000 x 25%) - $32,500 December credit sales collected in December ($130,000 x 75% x 50% - 48,750 November credit sales collected in December ($170,000 x 75% x 30%) - 38,250 October credit sales collected in December ($150,000 x 75% x 15%) - $16,875 Total cash collections in December - $136,375 Budgeting

The standard cost card for a product indicates that one unit of the product requires 8 kilograms of a raw material at $0.80 per kilogram. The production of the product in April was 870 units, but production had been budgeted for 850 units. During April, 8,200 kilograms of the raw material were purchased for $6,888 and 7,150 kilograms of the raw material were used in production. What would be the material variances for April?

$152 Unit Explanation: Materials price variance = AP - (AQ x SP) = (AQ × AP) - (AQ × SP) = $6,888 - (8,200 kilograms × $0.80 per kilogram) = $6,888 - $6,560 = $328 U Materials quantity variance = (AQ - SQ) × SP = [7,150 kilograms - (870 units × 8 kilograms per unit)] × $0.80 per kilogram = [7,150 kilograms - (6,960 kilograms)] × $0.80 per kilogram = [190 kilograms] × $0.80 per kilogram = $152 U Variances

The following standards for variable manufacturing overhead have been established for a company that makes only one product: Standard hours per unit of output - 7.8 hours Standard variable overhead rate - $12.55 per hour The following data pertain to operations for the last month: Actual hours - 2,900 hours Actual total variable manufacturing OH cost - $36,975 Actual output - 200 units What is the variable overhead efficiency variance for the month?

$16,817 U Explanation: SH = 200 units × 7.8 hours per unit = 1,560 hours Variable overhead efficiency variance = (AH - SH) × SR = (2,900 hours - 1,560 hours) × $12.55 per hour = (1,340 hours) × $12.55 per hour = $16,817 U Variances

The standard cost card of a particular product specifies that it requires 4.5 direct labor-hours at $12.80 per direct labor-hour. During March, 2,300 units of the product were produced and direct labor wages of $128,300 were incurred. A total of 11,700 direct labor-hours were worked. What would be the direct labor variances for the month?

$17,280 Unit Explanation: Labor rate variance = (AR - SR) x AH = (AH × AR) - (AH × SR) = $128,300 - (11,700 direct labor-hours × $12.80 per direct labor-hour) = $128,300 - ($149,760) = $21,460 F Labor efficiency variance = (AH - SH) × SR = [11,700 direct labor-hours - (2,300 units × 4.5 direct labor-hours per unit)] × $12.80 per direct labor-hour = [11,700 direct labor-hours - (10,350 direct labor-hours)] × $12.80 per direct labor-hour = [1,350 direct labor-hours] × $12.80 per direct labor-hour = $17,280 U Variances

Cowles Corporation, Inc. makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows: August - 13,000 units September - 13,500 units October - 14,500 units November - 13,600 units December - 12,900 units The company wants to maintain monthly ending inventories of Material K equal to 30% of the following month's production needs. On July 31, this requirement was not met because only 3,500 yards of Material K were on hand. The cost of Material K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year. What is the total cost of material K to be purchased in August?

$38,120 Explanation: Required production in units of finished goods - 13,000 Raw materials required per unit of finished goods - 3 Raw materials needed to meet the production schedule - 39,000 Add desired ending raw materials inventory (30% x 13,500 units x 3 yards per unit) - $12,150 Total raw materials needs - 51,150 Less beginning raw materials inventory - 3,500 Raw materials to be purchased - 47,650 Unit cost of raw materials - $0.80 Cost of raw materials to be purchased - $38,120 Budgeting

Sholette Manufacturing Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs) at $5.00 per MH. During the month, the actual total variable manufacturing overhead was $22,540 and the actual level of activity for the period was 4,600 MHs. What was the variable overhead rate variance for the month?

$460 F Explanation: Variable overhead rate variance = (AR - SR) x AH = (AH × AR) - (AH × SR) = $22,540 - (4,600 hours × $5.00 per hour) = $22,540 - $23,000 = $460 F Variances

A company has provided the following data for last month: Sales 6,000 units Sales price $25 per unit Variable cost $15 per unit Fixed cost $12,000 Assume the sales volume decreases by 20%, the variable cost per unit increases by 10%, and all other factors remain the same next month. How will break-even sales be affected next month?

$5,294 Explanation: Current BEP = Fixed Costs / Contribution Margin per Unit = 12,000/(25-15) = 1,200 units sold or (1,200 x 25) = $30,000 Projected BEP = 12,000/(25-(15 x 1.10)) = 1,411.76 units or (1,411.76 x 25) = $35,294 Increase in BEP($) = 35,294 - 30,000 = $5,294 Cost Volume Profit Analysis PA

Given the following data: Initial contribution margin ratio 20% Fixed costs $ 750,000 Initial break-even level of sales 60,000 units What selling price per unit is required to generate a profit of $300,000 with a sales volume of 100,000 units?

$60.50 per unit Explanation: Beginning Earnings Profit (BEP) ($) = 750,000/0.20 = $3,750,000 Selling Price (S.P) per unit = 3,750,000/60,000 = $62.50 per unit Volume Cost (V.C.) per unit = S.P x (1-Cost Margin ratio) = 62.50 x (1-0.20) = $50 per unit Sales Revenue - variable costs - fixed costs = Profit (100,000 x $X) - (100,000 x 50) - 750,000 = 300,000 X = $60.50 per unit Cost Volume Profit Analysis PA

Ricric Corporation has provided the following data for one of its products: Process time - 3.0 days Queue time - 4.0 days Inspection time - 0.7 days Move time - 0.3 days Wait time - 9.0 days What is the manufacturing cycle efficiency for this operation closest to?

0.375 Explanation: Throughput time = Process time + Inspection time + Move time + Queue time = 3.0 days + 0.7 days + 0.3 days + 4.0 days = 8.0 days MCE = Value-added time (Process time) ÷ Throughput (manufacturing cycle) time = 3.0 days ÷ 8.0 days = 0.375 Performance Evaluation

Given the following data: Average operating assets - $250,000 Total liabilities - $100,000 Sales - $600,000 Contribution margin - $150,000 Net operating income - $30,000 Return on investment (ROI) would be?

12% Explanation: ROI = Net operating income ÷ Average operating assets = $30,000 ÷ $250,000 = 12% Performance Evaluation

Tribley Inc. has an operating leverage of 8.0. If the company's sales increase by 19%, its net operating income should increase by about:

152% Explanation: Percentage change in net operating income = Degree of operating leverage × Percentage change in sales = 8.0 × 19% = 152.0% Cost Volume Profit Analysis

Ricric Corporation has provided the following data for one of its products: Process time - 3.0 days Queue time - 4.0 days Inspection time - 0.7 days Move time - 0.3 days Wait time - 9.0 days What is the delivery cycle time for this operation?

17.0 days Explanation: Throughput time = Process time + Inspection time + Move time + Queue time = 3.0 days + 0.7 days + 0.3 days + 4.0 days = 8.0 days Delivery cycle time = Wait time + Throughput time = 9.0 days + 8.0 days = 17.0 days Performance Evaluation

What is the formula for: Cost of Goods Manufactured

Cost of Goods Manufactured = Direct Materials used + Direct Labor + Applied Manufacturing Overhead + Beginning WIP - Ending WIP Job Order Costing

Corporation D uses an activity-based costing, (ABC) system with the following three activity cost pools: Activity Cost Pool - Total Activity Design - 300 orders Assembly - 21,000 machine hours Other - Not applicable The 'other* activity cost pool category is made up of the costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and Salaries - $320,000 Depreciation - $ 70,000 Building costs - $124,000 Total - $514,000 Distribution of resource consumption across activity cost pools: Description - Design - Assembly - Other Wages and Salaries - 50% - 40% - 10% Depreciation - 15% - 45% - 40% Building Costs - 25% - 50% - 25% What is the activity rate for the design activity cost pool?

Activity rate = ((320000 x .50)+(70000 x .15)+(124000 x .25))/300 = 671.67/order Activity Based Costing (ABC) PA

What is the formula for Activity Variance

Activity variance = Flexible budget - Planning Budget Planning Budget is based on expectations The units used for Flexible Budget is the same as actual units for the period. Flexible Budgeting

Perla Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During March, the kennel budgeted for 2,200 tenant-days, but its actual level of activity was 2,160 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March: Description - Fixed element per month - Variable element per tenant-day Revenue - 0 - 32.60 Wages and salaries - 2800 - 7.30 Food and supplies - 900 - 8.20 Facility expenses - 9000 - 4.80 Administrative expenses - 6200 - 0.20 Total expenses - 18,900 - 20.50 Actual results for March: Revenue - 69,996 Wages and salaries - 18,408 Food and supplies - 19,092 Facility expenses - 18,498 Administrative expenses - 6,652 What is the spending variance for food and supplies in March?

Actual results - 19,092 Flexible budget (900 + (8.20 x 2160)) - 18,612 Spending variance - 480 Because the actual expense is greater than the flexible budget, the variance is unfavorable (U). Flexible Budgeting

Perla Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During March, the kennel budgeted for 2,200 tenant-days, but its actual level of activity was 2,160 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March: Description - Fixed element per month - Variable element per tenant-day Revenue - 0 - 32.60 Wages and salaries - 2800 - 7.30 Food and supplies - 900 - 8.20 Facility expenses - 9000 - 4.80 Administrative expenses - 6200 - 0.20 Total expenses - 18,900 - 20.50 Actual results for March: Revenue - 69,996 Wages and salaries - 18,408 Food and supplies - 19,092 Facility expenses - 18,498 Administrative expenses - 6,652 What is the revenue variance for March?

Actual results - 69,996 Flexible budget (32.60 x 2160) - 70,416 Revenue variance - 420 Because the actual revenue is less than the flexible budget, the variance is unfavorable (U). Flexible Budgeting

What is the formula for: Adjusted COGS

Adjusted COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory +/- Under/Over Applied Manufacturing Overhead Job Order Costing

A company had the following information available at year end: Beginning raw material inventory - $20,000 Beginning work in process inventory - $12,500 Beginning finished goods inventory - $20,000 Costs of goods manufactured - $145,000 Underapplied overhead - $8,000 Ending raw material inventory - $8,000 Ending work in process inventory - $11,300 Ending finished good inventory - $22,000 What is the adjusted cost of goods sold?

Adjusted COGS = 151,000 Explanation: Adjusted COGS = (Beg FGI + COGM - End FGI) +underapplied overhead Adjusted COGS = (20000+145000-22000)+8000 = 151000 Job Order Costing

What is the formula for: Applied manufacturing overhead

Applied Manufacturing Overhead = Actual Units of Allocation Base * Pre-determined Manufacturing Overhead Rate Job Order Costing

A company uses direct labor hours to determine its predetermined overhead rate. The predetermined overhead rate is $29 per direct labor hour. The following actual information was available at the end of the year: Depreciation on factory equipment - $2,000,000 Chief financial officer salary - $90,000 Indirect materials used in factory - $100,000 Factory electricity - $750,000 Direct labor - $300,000 Direct material - $235,000 Rent on administrative offices - $100,000 Rent on factory building - $561,000 Actual direct labor hours - 116,700 What is the amount of the underapplied or overapplied overhead?

Applied Overhead = 3,384,300 Actual Overhead = 3,411,000 Underapplied Overhead = 26,700 Explanation: Applied overhead =(116700*29) = 3,384,300 Actual Overhead = 2000000+100000+750000+561000 = 3,411,000 Underapplied overhead = 3,411,000-3,384,300 = 26,700 Job Order Costing

A bookstore company, who buys and sells books, has the following information available: Number of books sold - 30,000 Selling price - $10 per book Cost = $4.00 per book Wages and salaries - $2.00 per book plus $10,000 Supplies - $1.00 per book plus $5,000 Selling and administrative expenses - $1.50 per book plus $20,000 What is the gross margin?

DGM $ = 180,000 Explanation: Description - Price - Number - Amount Sales - 10 - 30,000 - 300,000 Cost - 4 - 30,000 - 120,000 GM - NA - NA - 180,000 Job Order Costing PA

A company has the following work in process inventory information: 6,000 units were in beginning inventory. 12,000 units were started. 5,000 units were in ending inventory. Beginning inventory is 60% complete for materials and 40% complete for conversion. Ending inventory is 30% complete for materials and 80% complete for conversion. What is the number of equivalent units for materials using weighted average process costing?

Equivalent Units = 14,500 Explanation: Units Transferred = Beginning Inventory + Units Started - Ending Inventory = 6,000 + 12,000 - 5,000 = 13,000 Description - Materials Units Transferred - 13,000 Ending Inventory (5,000* .30) - 1,500 Equivalent Units - 14,500 Process Costing PA

Perla Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During March, the kennel budgeted for 2,200 tenant-days, but its actual level of activity was 2,160 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March: Description - Fixed element per month - Variable element per tenant-day Revenue - 0 - 32.60 Wages and salaries - 2800 - 7.30 Food and supplies - 900 - 8.20 Facility expenses - 9000 - 4.80 Administrative expenses - 6200 - 0.20 Total expenses - 18,900 - 20.50 Actual results for March: Revenue - 69,996 Wages and salaries - 18,408 Food and supplies - 19,092 Facility expenses - 18,498 Administrative expenses - 6,652 What is the activity variance for wages and salaries in March?

Flexible budget (2800 + (7.30 x 2160)) - 18,568 Planning budget (2800 + (7.30 x 2200)) - 18,860 Activity variance - 292 Because the flexible budget is less than the planning budget, the variance is favorable (F). Flexible Budgeting

A company's actual results for Year 1 are as follows: Income Statement Sales $ 2,000 Cost of goods sold $ 1,400 Gross profit $ 600 Depreciation expense $ (15) Other operating expenses $ (430) Income before taxes $ 155 Income taxes $ (62) Net income $ 93 In Year 2, sales are expected to increase by 50%. Management has made the following preliminary decisions: a. Gross profit percentage will decrease from 30% to 25%. b. Other operating expenses as a percentage of sales will decrease from 21.5% to 16.0%. c. The income tax rate will decrease from 40% to 20%. What is the forecasted net income for Year 2?

Forecasted Net Income = 204 Explanation: Sales - 3000 (150% of 2000) GP - 750 (25% of sales) Dep Exp - (15) Other Op Exp - (480) (16% of sales) IBT =255 Income before Taxes (IBT) = 255 less Income Taxes (20%) = (51) = Forecasted Net Income = 204 Budgeting PA

Part I51 is used in one of Pries Corporation's products. The company makes 18,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Description - Per Unit Direct Materials - $1.20 Direct Labor - $2.20 Variable Manufacturing overhead - $3.30 Supervisor's salary - $1.00 Depreciation of special equipment - $2.70 Allocated general overhead - $8.50 An outside supplier has offered to produce this part and sell it to the company for $15.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $26,000 of these allocated general overhead costs would be avoided. If management decides to buy part I51 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?

Higher cost to purchase - $119,800 Net operating income would decline by $119,800 per year if the part were purchased rather than made internally Explanation: Relevant Cost to make = Variable Costs + Avoidable Fixed Costs Relevant Cost to buy = Purchase cost Description - Make Direct materials (18,000 units x $1.20 per unit) - $21,600 Direct labor (18,000 units x $2.20 per unit) - 39,600 Variable OH (18,000 units x $3.30 per unit) - 59,400 Super salary (18,000 units x $1.00 per unit) - 18,000 Depreciation special equipment (not relevant) - 0 Allocated general OH (avoidable only) - 26,000 Total cost to make - $164,600 Total cost to purchase (18,000 units x $15.80 per unit - $284,400 Total cost to make - 164,600 Higher cost to purchase - $119,800 Differential Costs - Make or Buy

A company currently has three product lines: paper, stamps, and ink cartridges. The company is profitable overall but is considering discontinuing the stamp line because of losses from that line. The following is current data on the stamp line: Sales revenue $ 26,000 Variable costs $ 18,000 Direct avoidable fixed costs $ 6,000 Indirect allocated fixed costs $ 8,000 Net Income (Loss) on stamp line $ (6,000) How much will overall company net income change if the company decides to discontinue the stamp line?

If eliminated, net income will decrease by 2,000. Explanation: Segment margin = 26,000-18000-6,000 = 2,000 (positive - Keep it). Differential Costs - Product Elimination PA

A company is considering whether it should drop business segment A. After analyzing their cost structure, the company determines that it has $400,000 in total company-wide fixed costs and that $40,000 of these fixed costs are associated with segment A. Avoidable costs equal $30,000, and unavoidable costs equal $10,000. Should the company continue or discontinue Segment A if the segment's contribution margin is $25,000?

If eliminated, net income will increase by 5,000 Explanation: Contribution Margin = Sales Revenue - Variable Costs = 25,000 Segment Margin = Contribution Margin - Avoidable FC = 25,000 - 30,000 = -5,000 (negative should be eliminated) Differential Costs - Product Elimination PA

The management of Therriault Corporation is considering dropping product U51Y. Data from the company's accounting system appear below: Sales - $980,000 Variable expenses - $568,000 Fixed manufacturing expenses - $314,000 Fixed selling and administrative expenses - $196,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $280,000 of the fixed manufacturing expenses and $140,000 of the fixed selling and administrative expenses are avoidable if product U51Y is discontinued. What would be the effect on the company's overall net operating income if product U51Y were dropped? Should the product be dropped?

If eliminated, net income will increase by 8,000. Explanation: Segment Margin = Sales Revenue - Variable Costs - Avoidable Costs = positive => Keep it Segment Margin = 980,000 - 568,000 - 280,000-140,000 = -8,000 - should be dropped as it is negative. Differential Costs - Product Elimination

A company that currently produces final product A is considering stopping processing earlier in the production process and selling the intermediary product on the market. The final product sells for $110 per unit, whereas the firm believes it can sell the partially processed intermediary product for $90 per unit. The firm sells 1,000 units per quarter and faces a total finish processing cost of $50,000 per year after split- Should the firm sell the intermediary good or the final good?

Increase in annual income of 30,000 or 7,500 per quarter. Explanation: Incremental Profit = ((110-90)*4,000) - 50,000 = 30,000 (positive - should be processed further to final good) Differential Costs - Sell or Process Further PA

What is the Manufacturing Overhead abbreviation

MOH Job Order Costing

A company manufactures radars for ships and applies overhead to its products based upon labor hours. At the beginning of the year the following costs were estimated: Memory chips used in the radar - $ 125,000 Equipment maintenance in factory - $ 90,000 Heating costs in factory - $ 84,000 Salary of president - $ 120,000 Wages of workers who assemble the radar set - $ 140,000 Supervisor's salary in the factory to assemble the radar - $ 25,000 Factory management's telephone expense - $ 15,000 Depreciation of factory equipment - $ 32,000 Property taxes on the factory - $ 37,000 Estimated direct labor hours for the year are 10,000. What is the company's predetermined overhead rate per direct labor hour?

MOH rate = 28.30 Explanation: Equipment maintenance in factory - $ 90,000 Heating costs in factory - $ 84,000 Supervisor's salary in the factory to assemble the radar - $ 25,000 Factory management's telephone expense - $ 15,000 Depreciation of factory equipment - $ 32,000 Property taxes on the factory - $ 37,000 Estimated direct labor hours for the year are 10,000. (90000+84,000+25000+15000+32000+37000)/10,000 = 28.30 Job Order Costing

Bowe Corporation's fixed monthly expenses are $21,000 and its contribution margin ratio is 61%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $74,000?

Net Operating Income - $24,140 Explanation: Net operating income= (CM ratio × Sales) - Fixed expenses = (0.61 × $74,000) - $21,000 = $45,140 - $21,000 = $24,140 Cost Volume Profit Analysis

Maack Corporation's contribution margin ratio is 16% and its fixed monthly expenses are $44,000. If the company's sales for a month are $299,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.

Net Operating Income = $3,840 Explanation: Net Operating Income = (CM ratio × Sales) - Fixed expenses = (0.16 × $299,000) - $44,000 = $47,840 - $44,000 = $3,840 Cost Volume Profit Analysis

Wright Company produces products I, J, and K from a single raw material input. Budgeted data for the next month follows: Description - Product I - Product J - Product K Units produced - 1500 - 2000 - 3000 Per unit sales value at split-off - $10 - $12 - $15 Added processing costs per unit - $2 - $4 - $4 Per unit sales value if processed further - $15 - $15 - $20 If the cost of the raw material input is $78,000, which of the products should be processed beyond the split-off point?

Only Product I and Product K should be processed beyond the split-off point. Explanation: Incremental Profit = Incremental Revenue - Incremental Processing Cost = Positive (should be processed further) Description - Product I - Product J - Product K Final sales value after further processing - $15 - $15 - $20 Less sales value at split-off point - 10 - 12 - 15 Incremental revenue from further processing - 5 - 3 - 5 Less cost of further processing - 2 - 4 - 4 Profit (loss) from further processing - $3 - $(1) - $1 Differential Costs - Sell or Process Further

A company has the following three manufacturing overhead cost drivers: Cost Driver - Level of Activity - Overhead Cost Design changes - 100 changes per year - $ 5,000 Machine setups - 2,000 setups per year - $ 18,000 Electricity usage - 12,000 kilowatt hours per year - $ 36,000 The company started and completed work on 25 different jobs during the year. One of these jobs was Job 781. Job 781 required 8 design changes, 20 machine setups, and 700 kilowatt hours of electricity. How much manufacturing overhead should be allocated to Job 781 if the company uses activity-based costing?

Overhead allocated to Job 781 = ((5000/100) x 8) + ((18000/2000) x 20) + ((36000/12000) x 700) = $2,680 Activity Based Costing (ABC) PA

What is the formula for: Pre-determined Manufacturing Overhead Rate

Pre-determined Manufacturing Overhead Rate = Estimated Manufacturing Overhead/Estimated units of Allocation Base Job Order Costing

A company manufactures cement and applies overhead to its products based upon machine hours. At the beginning of the year the following costs were estimated: Sand used to manufacture concrete - $ 150,000 Supervisor salary, factory - $ 55,000 Utilities, factory - $ 25,000 Sales manager salary - $ 45,000 Hourly wage of employees making concrete - $ 140,000 Property taxes on the factory - $ 15,000 Depreciation, factory - $ 50,000 President's salary - $ 120,000 Factory maintenance workers salary - $ 40,000 Estimated machine hours for the year are - 18,000. Actual Machine hours for the year are 20,000 What is the company's predetermined overhead rate and the journal entry to apply to manufacturing overhead?

Predetermined Overhead Rate = 10.27 Applied Manufacturing Overhead = $205,400 JE= Work In Process Inventory 205,400 Manufacturing Overhead 205,400 Explanation: Supervisor salary, factory - $ 55,000 Utilities, factory - $ 25,000 Property taxes on the factory - $ 15,000 Depreciation, factory - $ 50,000 Factory maintenance workers salary - $ 40,000 Estimated machine hours for the year are - 18,000. Actual Machine hours for the year are 20,000 Predetermined overhead rate =(55000+25000+15000+50000+40,000)/18000 = 10.27 Applied Manufacturing overhead = (20,000)*10.27 = 205,400 Job Order Costing

A Company uses a job costing system. During the month of February, it spent most of its time on Job B2, which was started late in January. Following is cost information for Job B2, other February costs, and relevant annual estimates: Materials issued: $10,000 Direct materials used for Job B2 - $8,000 Direct labor for job B2: $5,000 (200 DLH@$25 per DLH) Overhead is applied on the basis of DLH Estimated annual overhead - $200,000 Estimated annual DLH - 10,000 Total number of units made - 1,000 What is the total cost of Job B2?

Predetermined Overhead Rate = 4000 Total Cost of Job B2 = 17,000 Explanation: Predetermined Overhead Rate = 200,000/10,000 = $20/hour Applied Manufacturing Overhead = 200*20 = 4,000 Total cost of Job B2 = 8000+5000+4,000=17,000 Job Order Costing

A company that currently makes a part for a total cost of $20 per unit has received an offer from an outside supplier to provide the part for $10 per unit. The company requires 1,000 units of the part per quarter. The total fixed costs associated with producing this part each quarter come to $8,000. What would be the net effect on profits annually from switching to the outside supplier?

Profits will increase by $8,000 annually as shown below Explanation: Make 4000 20 80000 32000 48000 Buy 4000 10 40000 Differential Costs - Make or Buy

A company plans on selling 200,000 items at $100 each. The selling and administrative expense budget is projected to be $3 million. The net income is projected to be $5 million. What is the projected cost of goods sold?

Projected COGS = 12,000,000 Explanation: Sales Revenue- COGS - SG&A = Net income (200,000*100) - COGS - 3,000,000 = 5,000,000 Budgeting PA

A company determines that it needs to produce 30,000 units of a given product this quarter. Each product requires 5 minutes of labor. and the company's labor cost is $20 per hour. However, the firm's workforce can only do 2,000 hours of labor in a standard quarter. Thus any time above this amount must come from overtime labor. which costs 50% more. What is the firm's projected total labor cost for the quarter?

Projected Labor Cost - 55,000 Explanation: Units - 30000 Minutes per product - 5 Total Minutes - 150000 1 hour - 60 Total hours - 2500 Regular rate - 2000 x 20 = 40000 1.5 rate - 500 x 30 = 15000 Projected labor costs - 55,000 Budgeting PA

What are two examples of a batch-level activity? Set up hours Purchase orders Factory administration Warehouse security

Purchase orders Set-up hours Activity Based Costing (ABC) PA

What is the formula for Revenue and Spending Variances?

Revenue and spending variances = Actual Results - Flexible Budget Flexible Budgeting

The selling and administrative expense budget of Ruffing Corporation is based on budgeted unit sales, which are 4,800 units for February. The variable selling and administrative expense is $8.10 per unit. The budgeted fixed selling and administrative expense is $71,520 per month, which includes depreciation of $16,800 per month. The remainder of the fixed selling and administrative expense represents current cash flows. What should the cash disbursements for selling and administrative expenses on the February selling and administrative expense budget be?

Selling and Administrative Expense Budget Budgeted unit sales - 4800 Variable selling and administrative expense per unit - 8.10 Variable selling and administrative expense - 38,880 Fixed selling and administrative expense - 71,520 Total selling and administrative expense - 110,400 Less depreciation - 16,800 Cash disbursements for selling and administrative expenses - 93,600 Budgeting

A company presently manufactures and assembles all parts for its toy truck product. Another toy company has offered to sell the parts for $3.00 per truck. If the company buys the truck parts instead of making them, the space used in producing the parts could be used for a new toy monster, which is scheduled to begin production next year. If the company continues to produce the parts, it will have to lease space in an adjacent building for $20,000 per year to produce the parts for the new toy monster. Cost information related to the production of the toy truck parts: Cost per unit: Direct materials $ 1.20 Direct labor $ 0.40 Variable manufacturing overhead $ 0.30 Fixed manufacturing overhead $ 0.20 Total manufacturing costs $ 2.10 The marketing department estimated that sales for the toy truck will be approximately 15,000 units per year for the next three years. The fixed manufacturing overhead is indirect and will still be incurred regardless of what decision is made. How much will overall annual net income change if this company decides to buy the parts?

The annual net income will increase by $3,500 as shown below Explanation: Make 15,000 1.90 28,500 20,000 48,500 Buy 15,000 3.00 45,000 Differential Costs - Make or Buy PA

Manufacturing Company A produces a single product and has provided the following data for last month: Selling price $150 Units in beginning inventory 0 Units produced 2,500 Units sold 1,800 Units in ending inventory 700 Variable cost per unit Direct materials $ 30 Direct labor $ 36 Variable manufacturing overhead S 8 Variable selling and administration S 6 Fixed costs: Fixed manufacturing overhead $ 36,000 Fixed selling and administration $ 10,000 Classify each income statement calculation with the method used to determine it.

Variable Costing Variable manufacturing cost/unit = 30+36+8 = 74/unit Sales Revenue 270,000 B.I. = 0 +Production (2,500 x 74) =185,000 -E.I. (700 x 74) -((51,800) =COGS (133,200) -Variable selling costs (1,800*6) (10,800) -Fixed manufacturing overhead (36,000) -Fixed selling and administrative (10,000) =Net Income 80,000 Absorption Costing Variable manufacturing cost/unit = 74/unit Fixed manufacturing cost/unit = 36,000/2,500 = 14.40/unit Absorption cost/unit = 74 + 14.40 = 88.40/unit Sales Revenue 270,000 B.I. = 0 +Production (2,500 x 88.40) =221,000 -E.I. (700 x 88.40) -((61,880) =COGS (159,120) -Variable selling costs (1,800*6) (10,800) -Fixed selling and administrative (10,000) =Net Income 90,080 Variable and Absorption Costing

Classify the factory cost as direct or indirect. Wood used to make a bookshelf Utilities Property taxes Wages of assembly line worker Building depreciation Freight cost of raw materials

Wood used to make a bookshelf - direct Utilities - indirect Property taxes - indirect Wages of assembly line worker - direct Building depreciation - indirect Freight cost of raw materials - direct (part of cost of material Job Order Costing PA