Accounting Chapters 18-19 Study Guide

ABC Company uses activity-based costing. Two of ABC Company's production activities are spinning and molding. Assume the company estimates manufacturing overhead costs to be $10,000 per month for spinning and $25,000 per month for molding. ABC Company allocates spinning costs based on the number of machine hours used. Molding costs are allocated based on number of batches. Suppose ABC Company estimates it will use 40,000 machine hours and have 50,000 batches. What is the predetermined overhead allocation rate for spinning?

= $10,000 / 40,000 machine hours = $0.25 per machine hour

Burk Company uses activity-based costing. Two of Burk Company's production activities are spinning and molding. Assume the company estimates manufacturing overhead costs to be $20,000 per month for spinning and $35,000 per month for molding. Burk Company allocates spinning costs based on the number of machine hours used. Molding costs are allocated based on number of batches. Suppose Burk Company estimates it will use 50,000 machine hours and have 60,000 batches. What is the predetermined overhead allocation rate for spinning?

= $20,000 / 50,000 machine hours = $0.40 per machine hour

Jones Company has the following information: Total estimated manufacturing overhead costs $200,000 Total estimated direct labor costs 800,000 Actual direct labor costs 50,000 Actual manufacturing overhead costs 210,000 What is the predetermined overhead allocation rate based on direct labor costs as a single plantwide rate?

= $200,000 / $800,000 = .25 or 25%

Jones Company has the following information: Total estimated manufacturing overhead costs $200,000 Total estimated machine hours 100,000 hours Actual machine hours for month 5,000 hours Actual manufacturing overhead costs $210,000 What is the allocated manufacturing overhead costs for the month based on machine hours as a single plantwide rate?

= $200,000 / 100,000 est. machine hours = $2.00 per machine hour = $2.00 X 5,000 machine hours = $10,000

Tampa Company has the following information: Total estimated manufacturing overhead costs $300,000 Total estimated direct labor costs 900,000 Actual direct labor costs 60,000 Actual manufacturing overhead costs 310,000 What is the predetermined overhead allocation rate based on direct labor costs as a single plantwide rate?

= $300,000 / $900,000 = .333 or 33.3%

Deluxe Company has the following information: Total estimated manufacturing overhead costs $300,000 Total estimated machine hours 100,000 hours Actual machine hours for month 6,000 hours Actual manufacturing overhead costs $310,000 What is the allocated manufacturing overhead costs for the month based on machine hours as a single plantwide rate?

= $300,000 / 100,000 est. machine hours = $3.00 per machine hour = $3.00 X 6,000 machine hours = $18,000

Assume that direct material costs in beginning Work-in-Process Inventory is $500 and an additional $1,500 worth of materials is added during the month. Equivalent units for direct materials is 500 units. What is the cost per equivalent unit for direct materials?

= Total direct materials costs / Equivalent units of production for direct materials ($500 + $1,500) / 500 units = $4.00 per unit.

Zink Company uses the weighted average method for process costing. The cost per equivalent unit for direct materials is $5.00. The cost per equivalent unit for conversion cost is $3.00. The company completed and transferred out is 40,000 units. The equivalent units of ending work-in-process for materials is an additional 3,000 units, for conversion is an additional 2,000 units. What is the total cost accounting for conversion?

= (40,000 x $3.00) + (2,000 x $3.00) = $126,000

Buckman Company uses the weighted average method for process costing. The cost per equivalent unit for direct materials is $5.00. The cost per equivalent unit for conversion costs is $3.00. The company completed and transferred out is 40,000 units. The equivalent units of ending work-in-process for materials is an additional 3,000 units, for conversion is an additional 2,000 units. What is the total cost accounting for direct materials?

= (40,000 x $5.00) + (3,000 x $5.00) = $215,000

Jones Company uses the weighted-average method in its process costing system. The Packaging Department started the month with 400 units in process that were 70% complete, receiving 2,500 units from the Cutting Department. Jones Company had 200 units in process at the end of the period that are 40% complete. All materials are added at the beginning of the process and conversion is added uniformly. From the Packaging Department, units are transferred to Finished Goods. How many units were completed and transferred out of the Packaging Department?

= Beginning work-in-process + Transferred in - Ending work-in-process = 400 + 2,500 - 200 = 2,700 units completed and transferred

Thompson Company uses the weighted-average method in its process costing system. The Cutting Department has 6,000 units in beginning Work-in-Process Inventory. The Cutting Department completed 42,000 units and transferred those units to Finished Goods Inventory. Cutting Department has ending Work-in-Process Inventory of 7,000 units. How many total units will be accounted for in the Cutting Department?

= Transferred out + In process = 42,000 + 7,000 = 49,000 units

Which of the following is true of a process cost system?

A company manufactures homogenous products through a series of uniform steps or processes.

Which of the following is true for a service company?

ABC will provide more accurate cost per service.

Baxter Company uses the weighted-average method in its process costing system. The Packaging Department started the month with 300 units in process that were 70% complete, receiving 2,000 units from the Cutting Department. The packaging department had 200 units in process at the end of the period that are 40% complete. All materials are added at the beginning of the process and conversion is added uniformly. From the Packaging Department, units are transferred to Finished Goods. For conversion costs, the equivalent units of production for the Packaging Department is ________.

Completed & transferred out = Beginning work-in-process + Transferred in - Ending work-in-process = 300 + 2,000 - 200 = 2,100 units completed and transferred Next, calculate the equivalent units of production for conversion costs: Completed units: 2,100 units x 100% = 2,100 EUP for conversion costs In process units: 200 units x 40% = 80 EUP for conversion costs Total EUP for conversion costs = 2,180 EUP for conversion costs

What is the journal entry to record inventory costing $1,300 being transferred from the Molding Department to Finished Goods Inventory?

Finished Goods Inventory 1,300 Work-in-Process Inventory - Molding 1,300

Which statement is true about just-in-time costing?

It is also sometimes called backflush costing because it works backwards

ABC Company uses activity-based costing. Assume the predetermined overhead allocation rates are $0.80 per machine hour for mixing department and $1.20 per test for sampling department. Assume that each unit requires 2 machine hours and 1 test. What is the mixing and sampling cost assigned to one unit?

It would cost a $1.60 for mixing ($0.80 per machine hour * 2 machine hours) and $1.20 for sampling (1 test * $1.20 per test).

Which is a benefit of a JIT (just-in-time) system?

Lower inventory costs Ability to respond quickly to changes in customer needs More space available for production ALL THE ABOVE ^^^^^^

Depreciation on factory equipment would be recorded as a debit to ________ and credit to ________.

Manufacturing Overhead; Accumulated Depreciation

ones Company has the following information: Direct materials cost per unit $10.00 Direct labor cost per unit $12.00 Total manufacturing overhead $50,000 Number of units produced 10,000 units What is the total cost per unit?

Manufacturing overhead per unit is $50,000 / 10,000 units = $5.00 per unit. Add direct materials cost per unit + direct labor cost per unit + manufacturing overhead per unit = total cost per unit. In this case, $10.00 + $12.00 + $5.00 = $27.00 per unit.

Smith Furniture Manufacture makes the Venza model chair with a target selling price of $300. Smith Furniture wants a desired net profit of 40%. What is the target cost per chair?

The target cost would be calculated by $300 - ($300 * .40) = $180.

The Mixing Department has 5,000 units in process at the end of August that are 100% complete for direct materials. The units are 60% complete for direct labor and manufacturing overhead which is added uniformly. What are the equivalent units of production for direct materials?

There are 5,000 units x 100% complete for materials = 5,000 equivalent units.

The Mixing Department has 5,000 units in process at the end of August that are 100% complete for direct materials. The units are 60% complete for direct labor and manufacturing overhead which is added uniformly. What are the equivalent units of production for conversion costs?

There are 5,000 units x 60% complete for conversion costs = 3,000 equivalent units.

The Cutting Department has 6,000 units in process at the end of September that are 100% complete for direct materials. The units are 70% complete for direct labor and manufacturing overhead, which is added uniformly. What are the equivalent units of production for direct materials?

There are 6,000 units x 100% complete for materials = 6,000 equivalent units.

The Cutting Department has 6,000 units in process at the end of September that are 100% complete for direct materials. The units are 70% complete for direct labor and manufacturing overhead which is added uniformly. What are the equivalent units of production for conversion costs?

There are 6,000 units x 70% complete for conversion costs = 4,200 equivalent units.

Jones company sold 100 chairs for $120 each. The cost to produce each chair is $70. For what amount should Cost of Goods Sold be debited?

To calculate Cost of Goods Sold take the cost per chair of $70 * 100 chairs sold = $7,000 total.

Bell Repair Service allocates overhead based on $50 per trip to each home that requests repair work, plus $1.20 per mile driven to the home. During the past week, Bell provided repair services for 20 customers with average driving distance of 15 miles each. What is the amount of overhead allocated for the week?

To calculate the overhead take (20 customers * $50 trip fee) + (15 miles * $1.20 per mile * 20 customers) = $1,360

Simons Taxi Services allocates overhead based on $5 per trip plus $1.20 per mile. During the past week, Simons provided taxi service for 21 customers with average driving distance of 11 miles each. What is the amount of overhead allocated for the week?

To calculate the overhead take (21 customers * $5 trip fee) + (11 miles * $1.20 per mile * 21 customers) = $382.20

Which of the following is true for a service company?

Will follow the same four steps as a merchandising company when using activity-based costing.

Cutting Department completed work on 1,000 units and transferred them to the Molding department. The cost of the units was $1,500. What is the journal entry to record the transfer?

Work-in-Process Inventory - Molding Department 1,500 Work-in-Process Inventory - Cutting Department 1,500

Which cost calculation is most accurate?

activity based cost

Inspections on a product at various stages of production are an example of __________.

an appraisal cost

ABC Company found a defect in a chair before being sold to a customer. This is an example of __________.

an internal failure cost

Using a JIT system, to record the amount incurred for direct labor and overhead, the debit entry would be to __________.

conversion costs

Conversion costs include __________.

direct labor and manufacturing overhead

All of the following would likely use a process costing system EXCEPT:

house builder

For a manufacturer, when indirect labor costs are recorded, the debit entry is to ________.

manufacturing overhead

A cost production report is being used to help managers set a selling price high enough to cover the manufacturing cost of each unit, plus include the selling and administrative costs. This is an example of using reports to ________.

price products

In a process costing system, costs are accumulated by __________.

process or department

A report prepared by a processing department for equivalent units of production, production costs, and the assignment of those costs to the completed and in process units is called a __________.

production cost report

A company can use activity-based management in making decisions on all of the following EXCEPT:

quality control

Using a JIT system, to record the purchase of raw materials on account, the debit entry would be to __________.

raw and in process inventory

Value engineering is __________.

reevaluating activities to reduce costs while satisfying customer needs

The target cost is __________.

the maximum cost to develop, produce, and deliver the product or service and earn the desired profit

Activity-based management __________.

uses activity-based costs to make decisions that increase profits while meeting customer needs