Discussion Section exercises

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Whirly Corporation's contribution format income statement for the most recent month is shown below: Total | Per Unit Sales (10,000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 | $ 35.00 Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 20.00 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 | $ 15.00 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 1. What would be the revised net operating income per month if the sales volume increases by 100 units?

1. Approach 2: Calculating the change in contribution margin Original Net Operating income = $15,000 Change in Contribution margin = (100 units x $15.00 per unit) = $1,500 New Net Operating Income = $16,500

Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 4. Assume that Kubin Company produced 20,000 units and expects to sell 19,800 of them. If a new customer unexpectedly emerges and expresses interest in buying the 200 extra units that have been produced by the company and that would otherwise remain unsold, what incremental selling and administrative cost per unit is incurred to sell these units to the customer?

1 + 0.50 = $1.50

Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 Assume the cost object is units of production: 1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 20,000 units? b. What is the total indirect manufacturing cost incurred to make 20,000 units? 2. Assume the cost object is the Manufacturing Department and that its total output is 20,000 units. a. How much total manufacturing cost is directly traceable to the Manufacturing Department? b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?

1). a. ($7.00 + $4.00) x 20,000 = $220,000 b. ($1.50 + $5.00) x 20,000 = $130,000 2). a. (7.00 + 4.00 + 1.50 + 5.00) x 20,000 = $350,000 b. None of the manufacturing costs should be treated as indirect costs when the cost object is the Manufacturing Department

Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000. 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase sales volume by 250 units and total sales by $1,000?

1. CM Ratio: CM / Sales Total sales (b): $200,000 Total variable expenses: 120,000 Total contribution margin (a): $ 80,000 CM ratio (a) ÷ (b): 40% 2. Change in total sales (a): $1,000 CM ratio (b): 40% Estimated change in net operating income (a) ×(b): $400

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: (1/2) Amount | Percent of Sales Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000 | 100% Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 | 40% Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . 48,000 | 60% Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000 Net operating income . . . . . . . . . . . . . . . . . . . . . . $10,000 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in unit sales

1. Contribution margin (a) $48,000 Net operating income (b) $10,000 Degree of operating leverage (a) ÷ (b) 4.8 2. Degree of operating leverage (a):4.8 Percent increase in unit sales (b): 5% Estimated percent increase in net operating income (a) × (b): 24% A 5% increase in unit sales should result in a 24% increase in net operating income, computed as follows:

Osborn Manufacturing uses a predetermined overhead rate of $18.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $218,400 of total manufacturing overhead for an estimated activity level of 12,000 direct labor-hours. The company actually incurred $215,000 of manufacturing overhead and 11,500 direct labor-hours during the period. 1. Determine the amount of underapplied or overapplied manufacturing overhead for the period. 2. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company's gross margin? By how much?

1. Manufacturing overhead incurred (a): $215,000 Actual direct labor-hours: 11,500 × Predetermined overhead rate: $ 18.20 Manufacturing Overhead Applied (b): $209,300 Manufacturing overhead underapplied (a) - (b): $5,700 -------- 2. Because manufacturing overhead is underapplied, the journal entry would increase cost of goods sold by $5,700 and the gross margin would decrease by $5,700.

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: (1/2) Claimjumper | Makeover | Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 | $70,000 | $100,000 Variable expenses. . . . . . . . . . . . . . . . 20,000 | 50,000 | 70,000 Contribution margin . . . . . . . . . . . . . . $10,000 | $20,000 | 30,000 Fixed expenses . . . . . . . . . . . . . . . . . . 24,000 Net operating income. . . . . . . . . . . . . $ 6,000 1. What is the overall contribution margin (CM) ratio for the company? 2. What is the company's overall break-even point in dollar sales?

1. Overall CM ratio = Total contribution margin / Total sales = $30,000 / $100,000 =30% 2. Overall break even = Total fixed expenses / overall cm ratio =$24,000 / 30% = $80,000

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200. 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales.

1. Profit = Unit CM × Q − Fixed expenses $0 = ($15 − $12) × Q − $4,200 $0 = ($3) × Q − $4,200 $3Q = $4,200 Q = $4,200 ÷ $3 Q = 1,400 baskets ------------- 2. Unit sales to break even (a): 1,400 Selling price per unit (b): $15 Dollar sales to break even (a) ×(b): $21,000

Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column Cost | Cost Object | Direct Cost | Indirect Cost Ex. Catered food served to patients A particular patient X 1. The wages of pediatric nurses | The pediatric department 2. Prescription drugs | A particular patient 3. Heating the hospital | The pediatric department 4. The salary of the head of pediatrics | The pediatric department 5. The salary of the head of pediatrics | A particular pediatric patient 6. Hospital chaplain's salary | A particular patient 7. Lab tests by outside contractor | A particular patient 8. Lab tests by outside contractor | A particular department

1. Direct Cost 2. Direct Cost 3. Indirect Cost 4. Direct Cost 5. Indirect Cost 6. Indirect Cost 7. Direct Cost 8. Direct Cost

Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 1. For financial accounting purposes, what is the total amount of product costs incurred to make 20,000 units? 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 20,000 units? 3. For financial accounting purposes, what is the total amount of product costs incurred to make 22,000 units? 4. For financial accounting purposes, what is the total amount of period costs incurred to sell 18,000 units?

1. For financial accounting purposes, what is the total amount of product costs incurred to make 20,000 units? (7+4+1.50+5)*20000 = $350,000 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 20,000 units? (3.50+2.50+1+0.50)*20000 = $150,000 3. For financial accounting purposes, what is the total amount of product costs incurred to make 22,000 units? (7+4+1.50)*22000 + 5*20000 = $375,000 4. For financial accounting purposes, what is the total amount of period costs incurred to sell 18,000 units? (1 + 0.50)*18000 + (3.50 + 2.50)*20000 = $147,000

Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold? 2. If 22,000 units are produced and sold, what is the variable cost per unit produced and sold? 3. If 18,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold? 4. If 22,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?

1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold? (7+4+1.50+ 1 + 0.5) = $14 2. If 22,000 units are produced and sold, what is the variable cost per unit produced and sold? (7+4+1.50+ 1 + 0.5) = $14 3. If 18,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold? (7+4+1.50+ 1 + 0.5)*18000 = $252,000 4. If 22,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold? (7+4+1.50+ 1 + 0.5)* 22000 = $308,000

Cherokee Inc. is a merchandiser that provided the following information: Amount Number of units sold . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . $30 Variable selling expense per unit . . . . . . . . . . . . . . . $4 Variable administrative expense per unit . . . . . . . . . $2 Total fixed selling expense . . . . . . . . . . . . . . . . . . . . . $40,000 Total fixed administrative expense . . . . . . . . . . . . . . $30,000 Beginning merchandise inventory . . . . . . . . . . . . . $24,000 Ending merchandise inventory . . . . . . . . . . . . . . . . . $44,000 Merchandise purchases . . . . . . . . . . . . . . . . . . . . . . . $180,000 Required: 1. Prepare a traditional income statement.

1. Prepare a traditional income statement Sales ($30 per unit × 20,000 units) $600,000 Cost of goods sold ($24,000 + $180,000 - $44,000) 160,000 Gross margin 440,000 Selling and administrative expenses: Selling expenses (($4 per unit × 20,000 units) + $40,000) $120,000 (lhs) Administrative expenses (($2 per unit × 20,000 units) + $30,000) 70,000 (lhs) 190,000 (rhs) Net operating income $250,000

Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 1. What is the incremental manufacturing cost incurred if the company increases production from 20,000 to 20,001 units? 2. What is the incremental cost incurred if the company increases production and sales from 20,000 to 20,001 units? 3. Assume that Kubin Company produced 20,000 units and expects to sell 19,800 of them. If a new customer unexpectedly emerges and expresses interest in buying the 200 extra units that have been produced by the company and that would otherwise remain unsold, what is the incremental manufacturing cost per unit incurred to sell these units to the customer?

1. What is the incremental manufacturing cost incurred if the company increases production from 20,000 to 20,001 units? 7 + 4 + 1.50 = $12.50 2. What is the incremental cost incurred if the company increases production and sales from 20,000 to 20,001 units? 7 + 4 + 1.50 + 1 + 0.50 = $14 3. Because the 200 units to be sold to the new customer have already been produced, the incremental manufacturing cost per unit is zero. The variable manufacturing costs incurred to make these units have already been incurred and, as such, are sunk costs

Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 Assume the cost object is units of production: 3. Assume the cost object is the company's various sales representatives. Furthermore, assume that the company spent $50,000 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company's sales representatives' compensation. a. When the company sells 20,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives? b. When the company sells 20,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives? 4. Are Kubin's administrative expenses always going to be treated as indirect costs in its internal management reports?

3. a. ($3.50x 20,000) - $50.000 = $20,000 - Portion of sales rep. compensation ($1.00 x 20.000) = $20.00 - Sales commission --> Total direct selling expense = $40,000 b. Advertisement expense that is spent by the company will be considered as the total indirect selling expense because this is the only selling expense that cannot be easily traced to individual sales representatives. $50,000 of advertisement expense. 4. No. Kubin's administrative expenses could be direct or indirect depending on the cost object. For example, the chief financial officer's salary would be an indirect cost if the cost object is units of production; however, his salary would be a direct cost if the cost object is the Finance Department that he oversees.

Average Cost per Unit Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.00 Variable manufacturing overhead . . . . . . . . . $1.50 Fixed manufacturing overhead . . . . . . . . . . . $5.00 Fixed selling expense . . . . . . . . . . . . . . . . . . . $3.50 Fixed administrative expense . . . . . . . . . . . . $2.50 Sales commissions . . . . . . . . . . . . . . . . . . . . . . $1.00 Variable administrative expense . . . . . . . . . . $0.50 5. If 18,000 units are produced, what is the average fixed manufacturing cost per unit produced? 6. If 22,000 units are produced, what is the average fixed manufacturing cost per unit produced? 7. If 18,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production? 8. If 22,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?

5. If 18,000 units are produced, what is the average fixed manufacturing cost per unit produced? Fixed manu OH for 20000 units / 18000 = (5*20000)/18000 = $5.56 6. If 22,000 units are produced, what is the average fixed manufacturing cost per unit produced? 100000 / 22000 = $4.55 7. The total fixed manufacturing overhead remains unchanged at $100,000 8. The total fixed manufacturing overhead remains unchanged at $100,000

Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision- making purposes. The company has four activity cost pools as listed below: Activity Cost | Pool Activity | Measure Activity Rate Order size . . . . . . . . . . . . . . . . Number of direct labor-hours | $16.85 per direct labor-hour Customer orders . . . . . . . . . . . Number of customer orders | $320.00 per customer order Product testing . . . . . . . . . . . . Number of testing hours | $89.00 per testing hour The managing director of the company would like information concerning the cost of a recently completed order for heavy duty trailer axles. The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls. What is the total overhead cost assigned to the order for heavy-duty trailer axles?

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount | Percent of Sales Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000 | 100% Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 | 40% Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . 48,000 | 60% Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000 Net operating income . . . . . . . . . . . . . . . . . . . . . . $10,000 3. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in unit sales.

Amount | Percent of Sales Sales: $84,000 | 100% Variable expenses: 33,600 | 40% Contribution margin: 50,400 | 60% Fixed expenses: 38,000 Net operating income: $12,400 Net operating income reflecting change in sales: $12,400 Original net operating income (a): 10,000 Change in net operating income (b): $ 2,400 Percent change in net operating income (b) ÷ (a): 24%

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 2. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. d) What is Delph's cost of goods sold for the year?

Because the company has no beginning or ending inventories and only Jobs D-70 and C-200 were started, completed, and sold during the year, the cost of goods sold is equal to the sum of the manufacturing costs assigned to both jobs of $3,010,000 (= $1,460,000 + $1,550,000).

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 1. Assume Delph uses departmental predetermined overhead rates based on machine-hours. d) What is Delph's cost of goods sold for the year?

Primare Corporation has provided the following data concerning last month's manufacturing operation (1/2): Purchases of raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 Indirect materials used in production . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,000 Manufacturing overhead applied to work in process . . . . . . . . . . . . . . $87,000 Underapplied overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000 Inventories | Beginning | Ending Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . $12,000 | $18,000 Work in process . . . . . . . . . . . . . . . . . . . . . . . . $56,000 | $65,000 Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . $35,000 | $42,000 2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.

Beginning finished goods inventory: $ 35,000 (lhs) Add: Cost of goods manufactured: 155,000 (lhs) Cost of goods available for sale: 190,000 (rhs) Deduct: Ending finished goods inventory: 42,000 (lhs) Unadjusted cost of goods sold: 148,000 (rhs) Add: Underapplied overhead: 4,000 (lhs) Adjusted cost of goods sold: $152,000 (rhs)

Primare Corporation has provided the following data concerning last month's manufacturing operation (1/2): Purchases of raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 Indirect materials used in production . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,000 Manufacturing overhead applied to work in process . . . . . . . . . . . . . . $87,000 Underapplied overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000 Inventories | Beginning | Ending Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . $12,000 | $18,000 Work in process . . . . . . . . . . . . . . . . . . . . . . . . $56,000 | $65,000 Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . $35,000 | $42,000 1. Prepare a schedule of cost of goods manufactured for the month

Beginning work in process inventory: $56,000 (rhs) Direct materials: Beginning raw materials inventory: $12,000 (lhs) Add: Purchases of raw materials: 30,000 (lhs) Total raw materials available: 42,000 (lhs) Deduct: Ending raw materials inventory: 18,000 (lhs) Raw materials used in production: 24,000 (lhs) Deduct: indirect materials used in production: 5,000 (lhs) Direct materials used in production: $19,000 (middle) Direct labor: 58,000 (middle) Manufacturing overhead applied to work in process: 87,000 (middle) Total manufacturing costs added to production: 164,000 (rhs) Total manufacturing costs to account for: 220,000 (rhs) Deduct: Ending work in process inventory: 65,000 (rhs) Cost of goods manufactured: $155,000 (rhs)

Whirly Corporation's contribution format income statement for the most recent month is shown below: Total | Per Unit Sales (10,000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 | $ 35.00 Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 20.00 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 | $ 15.00 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 3. What would be the revised net operating income per month if the sales volume is 9,000 units?

Contribution Margin | Total amount Sales (9,000 units x $35): $346,500 Variable expenses (9,000 units x $20): 198,000 Contribution margin: 151,500 Fixed expenses: 135,000 Net operating income: $ 13,500

Whirly Corporation's contribution format income statement for the most recent month is shown below: Total | Per Unit Sales (10,000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 | $ 35.00 Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 20.00 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 | $ 15.00 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 2. What would be the revised net operating income per month if the sales volume decreases by 100 units?

Contribution Margin | Total amount Sales (9,900 units x $35): $315,500 Variable expenses (9,900 units x $20): 180,000 Contribution margin: 135,000 Fixed expenses: 135,000 Net operating income: $ 0

Data for Hermann Corporation (shown in the table). Fixed expenses are $30,000 per month and the company is selling 2,000 units per month (1/2) Per Unit | Percent of Sales Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90 | 100% Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 63 | 70 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . $27 | 30% 1. How much will net operating income increase (decrease per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000?

Current Sales | Advertising Budget | Difference Sales: $180,000 | $189,000 | $9,000 Variable expenses: 126,000 | 132,300 | 6,300 Contribution margin: 54,000 | 56,700 | 2,700 Fixed expenses: 30,000 | 35,000 | 5,000 Net operating income: 24,000 | 21,700 | -2,300

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 1. Assume Delph uses departmental predetermined overhead rates based on machine-hours. b) Compute the total manufacturing cost assigned to Job D-70 and Job C-200.

D-70 | C-200 Direct materials: $ 700,000 | $ 550,000 Direct labor 360,000 | 400,000 Molding Department: (14,000 MHs × $38 per MH; 6,000 MHs × $38 per MH): 532,000 | 228,000 Fabrication Department: (6,000 MH × $8 per MH; 24,000 MH × $8 per MH): 48,000 | 192,000 Total manufacturing cost: $1,640,000 | $1,370,000

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 2. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. b) Compute the total manufacturing cost assigned to Job D-70 and Job C-200.

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 2. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. c) If Delph establishes bid prices that are 150% of total manufacturing costs, what bid prices would it have established for Job D-70 and Job C-200?

D-70 | C-200 Total manufacturing cost (a): $1,460,000 | $1,550,000 Markup percentage (b): 150% | 150% Bid price (a) × (b): $2,190,000 | $2,325,000

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 1. Assume Delph uses departmental predetermined overhead rates based on machine-hours. c) If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C- 200?

D-70 | C-200 Total manufacturing cost (a): $1,640,000 | $1,370,000 Markup percentage (b): 150% | 150% Bid price (a) × (b): $2,460,000 | $2,055,000

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 1. The cost of a hard drive installed in a computer. 2. The cost of advertising in the Puget Sound Computer User newspaper. 3. The wages of employees who assemble computers from components. 4. Sales commissions paid to the company's salespeople. 5. The salary of the assembly shop's supervisor. 6. The salary of the company's accountant. 7. Depreciation on equipment used to test assembled computers before release to customers. 8. Rent on the facility in the industrial park.

Direct material: 1 The prime business of the company is to assemble the computer parts, and the cost of a hard drive, which is installed in the computer, is direct material cost. Direct labor: 3 Wages are related to employees who are involved in the assembly process, and thus, it is a direct labor cost. Manufacturing overhead: 5, 7, 8 Salary is related indirectly to the assembly process; thus, it falls under the manufacturing overhead. Depreciation cannot be directly associated with any particular assembly process and is an indirect cost, i.e., manufacturing overhead. The facility is also used as the assembly shop, thus, it falls under manufacturing overhead. Selling cost: 2, 4, 8 The advertising cost is incurred to increase the sales and, thus, falls under selling expenses. The sales commission is paid on sales made by the salesperson; thus, it is related to selling expenses. The facility is utilized as an assembly shop and retail sales store; thus, a part of the facility cost comes under the selling cost. Administrative cost: 6, 8 The accounting process is the support activity, and cost related to accounting comes under the administrative cost. The facility is utilized as an assembly shop and retail sales store; thus, a part of the facility cost comes under the administrative overhead.

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: (1/5): Machine-hours required to support estimated production . . . . . . . . . . . 100,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000 Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $3.00 2. During the year, Job 400 was started and completed. The following information was available with respect to this job: Compute the total manufacturing cost assigned to Job 400.

Direct materials: $ 450 Direct labor: 210 Manufacturing overhead applied ($9.50 per MH × 40 MHs) : 380 Total manufacturing cost: $1,040

Yancey Productions is a film studio that uses a job-order costing system. The company's direct materials consist of items such as costumes and props. Its direct labor includes each film's actors, directors, and extras. The company's overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. (1/2) Direct labor-dollars to support all productions . . . . . . $8,000,000 Fixed overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,800,000 Variable overhead cost per direct labor-dollar . . . . . . $0.05 2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs: Compute the total job cost for this particular film. Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,259,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,400,000

Direct materials: $1,259,000 Direct labor: 2,400,000 Overhead applied ($0.65 per DL$ × $2,400,000): 1,560,000 Total job cost: $5,219,000

Data for Hermann Corporation (shown in the table). Fixed expenses are $30,000 per month and the company is selling 2,000 units per month Per Unit | Percent of Sales Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90 | 100% Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 63 | 70 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . $27 | 30% 2. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $2 per unit and increase unit sales by 10%.

Expected total contribution margin with the higher-quality components: 2,000 units × 1.1 × $25 per unit: $55,000 (rhs) Present total contribution margin: 2,000 units × $27 per unit: 54,000 (lhs) Change in total contribution margin: $ 1,000 (lhs)

Karlik Enterprises distributes a single product whose selling price is $24 per unit and whose variable expense is $18 per unit. The company's monthly fixed expense is $24,000 (1/2) 1. Prepare a cost-volume-profit graph for the company up to a sales volume of 8,000 units.

Fixed expenses: Horizontal straight line. Total cost: Sloping upwards. Starts at fixed cost Sales: Sloping upwards and starts at 0.

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22. Required: 1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity. Round off the average cost per cup of coffee to the nearest tenth of a cent Required: 1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity. Round off the average cost per cup of coffee to the nearest tenth of a cent. Cups of Coffee Served in a Week 2,000 | 2,100 | 2,200 Fixed cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? Variable cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? Average cost per cup of coffee served . . . . . . . ? ? ? 2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases? Explain. Global Explanation:

Global Explanation: Fixed cost remains the same for any changes in the level of production or sales, whereas variable cost increases with an increase in the level of output. Step 1: Fixed costs: $1,200 Total variable cost is calculated by multiplying the per unit variable cost with number of units. Variable Cost = Variable Cost per Unit × Number of Units For 2,000 Units = $0.22 × 2,000= $440 For 2,100 Units =$0.22 * $2100 = $462 For 2,200 Units = $0.22 * $2,200 = $684 ---------------- Total Cost: For 2,000 Units = $440 + 1,200: $1,640 For 2,100 Units = $462 + 1,200: $1,662 For 2,200 Units = $684 + 1,200: $1,684 ---------------- Average cost is calculated by dividing the total cost by the number of cups of coffee sold. Average Cost = Total Cost / Number of Units For 2,000 Units = $1,64 / 2,000 =$0.82 For 2,100 Units = $1,662 / 2,100= $0.79 For 2,200 Units = $1,684 / 2,200 = $0.77 --------------------- The average cost of a cup of coffee decreases as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee.

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear (1/2) Selling price per unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30 Variable expense per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20 Fixed expense per month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,500 Unit sales per month. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1. What is the company's margin of safety?

Margin of Safety = Sales - Break even sales Profit = Unit CM × Q − Fixed expenses $0 = ($30 − $20) × Q − $7,500 $0 = ($10) × Q − $7,500 $10Q = $7,500 Q = $7,500 ÷ $10 Q = 750 units; or, at $30 per unit, $22,500 Sales (at the budgeted volume of 1,000 units) $30,000 Less break-even sales (at 750 units) 22,500 Margin of safety (in dollars) $ 7,500 It means that we can lose $7500 and still not lose money

Margin of safety (in dollars) (a): $7,500 Sales (b): $30,000 Margin of safety percentage (a) ÷ (b): 25%

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 1. Assume Delph uses departmental predetermined overhead rates based on machine-hours. a) Compute the departmental predetermined overhead rates.

Molding Department: total manufacturing overhead cost = $700,000 + ($3.00 per MH)(20,000 MHs) = $760k The predetermined overhead rate is computed as follows: Estimated total manufacturing overhead (a): $760,000 Estimated total machine-hours (b): 20,000 MHs Predetermined overhead rate (a) ÷ (b): $38.00 per MH ---------- Fabrication Department: total manufacturing overhead cost = $210,000 + ($1.00 per MH)(30,000 MHs) = $240k The predetermined overhead rate is computed as follows: Estimated total manufacturing overhead (a): $240,000 Estimated total direct labor-hours (b): 30,000 MHs Predetermined overhead rate (a) ÷ (b): $8.00 per MH

Lin Corporation has a single product whose selling price is $120 per unit and whose variable expense is $80 per unit. The company's monthly fixed expense is $50,000. 2. Calculate the dollar sales needed to attain a target profit of $15,000.

Profit = Unit CM × Q − Fixed expenses $15,000 = ($120 − $80) × Q − $50,000 $15,000 = ($40) × Q − $50,000 $40 × Q = $15,000 + $50,000 Q = $65,000 ÷ $40 Q = 1,625 units Unit sales to attain the target profit (a): 1,625 Selling price per unit (b): $120 Dollar sales to attain target profit (a) × (b): $195,000

The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bank's operations. She has been particularly concerned about the costs of handling routine transactions at the bank and would like to compare these costs at the bank's various branches. (1/2): If the branches with the most efficient operations can be identified, their methods can be studied and then replicated elsewhere. While the bank maintains meticulous records of wages and other costs, there has been no attempt thus far to show how those costs are related to the various services provided by the bank. The operations vice president has asked your help in conducting an activity-based costing study of bank operations. In particular, she would like to know the cost of opening an account, the cost of processing deposits and withdrawals, and the cost of processing other customer transactions. The Westfield branch of Security Home Bank has submitted the following cost data for last year: Teller wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000 Assistant branch manager salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 Branch manager salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $315,000 Virtually all other costs of the branch—rent, depreciation, utilities, and so on—are organizationsustaining costs that cannot be meaningfully assigned to individual customer transactions such as depositing checks. In addition to the cost data above, the employees of the Westfield branch have been interviewed concerning how their time was distributed last year across the activities included in the activity-based costing study. The results of those interviews appear below: Opening Accounts | Processing Deposits and Withdrawals | Processing Other Customer Transactions | Other Activities | Total Teller wages . . . . . . . . . . . . . . . . . . . . . 5% | 65% | 20% | 10% | 100% Assistant branch manager salary . . . . 15% | 5% | 30% | 50% | 100% Branch manager salary . . . . . . . . . . . . 5% | 0% | 10% | 85% | 100% Prepare the first-stage allocation for the activity-based costing study. (See Exhibit 7-6 for an example of a first-stage allocation.)

Opening Accounts | Processing Deposits and Withdrawals | Processing Other Customer Transactions | Other Activities | Total Teller wages . . . . . . . . . . . . . . . . . . . . . $8,000 | $104,000 | $32,000| $16,000 | $160,000 Assistant branch manager salary . . . . $11,250 | $3,750 | $22,500 | 37,500 | $75,000 Branch manager salary . . . . . . . . . . . . $4,000 | 0 | $8,000 | $68,000 | $80,000 Total cost: $23,250 | $107,750 | $62,500 | $121,500 | $315,000 Teller wages are $160,000 and 65% of the tellers' time is spent processing deposits and withdrawals: $160,000 × 65% = $104,000.

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: (1/5): Machine-hours required to support estimated production . . . . . . . . . . . 100,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000 Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $3.00 5. If Moody hired you as a consultant to critique its pricing methodology, what would you say?

Possible critiques of Moody's pricing tactics include (1) relying on a plantwide overhead rate to allocate overhead costs to jobs may distort the cost base used for cost-plus pricing, (2) relying on an absorption approach may allocate unused capacity costs to jobs thereby distorting the cost base for cost-plus pricing (3) relying on absorption cost-plus pricing ignores the customers' willingness to pay based on their perceived value of the product or service.

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 10. Workers' compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom. 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the company's executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company's product.

Product cost: 10, 15, 2, 3, 5, 6, 7 Product costs are expenses connected with manufacturing or purchase of a product. Direct materials, direct labor, manufacturing overheads such as depreciation on factory' assets, assembling, packaging, etc., are product costs. ------------------- Period cost: 1, 12, 13, 14, 4, 8, 9 Costs that are not required for manufacturing or purchasing a product are known as period costs, and they will be charged as expenses in the same period when they are incurred. Only the depreciation on fixed assets used in a factory is a manufacturing overhead; salesmen's cars are therefore a period cost. A warehouse is used to store finished goods and other inventory and is not required to manufacture a product; therefore, it is a period cost.

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200. 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales?

Profit = Unit CM × Q − Fixed expenses $0 = ($15 − $12) × Q − $4,800 $0 = ($3) × Q − $4,800 $3Q = $4,800 Q = $4,800 ÷ $3 Q = 1,600 baskets Unit sales to break even (a): 1,600 Selling price per unit (b): $15 Dollar sales to break even (a) × (b): $24,000

Lin Corporation has a single product whose selling price is $120 per unit and whose variable expense is $80 per unit. The company's monthly fixed expense is $50,000. 1. Calculate the unit sales needed to attain a target profit of $10,000.

Profit = Unit CM × Q − Fixed expenses $10,000 = ($120 − $80) × Q − $50,000 $10,000 = ($40) × Q − $50,000 $40 × Q = $10,000 + $50,000 Q = $60,000 ÷ $40 Q = 1,500 units

Sales ($30 per unit × 20,000 units): $600,000 Variable expenses: Cost of goods sold ($24,000 + $180,000 - $44,000): $160,000 (lhs) Selling expenses ($4 per unit × 20,000 units): 80,000 (lhs) Administrative expenses ($2 per unit × 20,000 units): 40,000 (lhs) 280,000(rhs) Contribution margin 320,000 (rhs) Fixed expenses: Selling expenses 40,000 (lhs) Administrative expenses 30,000(lhs) 70,000(rhs) Net operating income $250,000 (rhs)

Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below Activity Cost Pool | Activity Measure | Total Cost | Total Activity Serving a party of diners . . . . . . . . . . Number of parties served | $33,000 | 6,000 parties Serving a diner . . . . . . . . . . . . . . . . . . Number of diners served | $138,000 | 15,000 diners Serving drinks . . . . . . . . . . . . . . . . . . . Number of drinks ordered | $24,000 | 10,000 drinks The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and Page 339 top-management salaries. Some costs, such as the cost of cleaning the linens that cover the restaurant's tables, vary with the number of parties served. Other costs, such as washing plates and glasses, depend on the number of diners served or the number of drinks served. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15.000 diners had been served. Therefore, the average cost per diner was $16. 3. Why do the costs per diner for the three different parties differ from each other and from the overall average cost of $16 per diner?

The average cost per diner differs from party to party under the activity-based costing system for two reasons. First, the cost of serving a party ($5.50) does not depend on the number of diners in the party. Therefore, the average cost per diner of this activity decreases as the number of diners in the party increases. With only one diner, the cost is $5.50. With two diners, the average cost per diner is cut in half to $2.75. With five diners, the average cost per diner would be only $1.10, and so on. Second, the average cost per diner differs also because of the differences in the number of drinks ordered by the diners. If a party does not order any drinks, as was the case with the party of two, no costs of serving drinks are assigned to the party. The average cost per diner differs from the overall average cost of $16 per diner for several reasons. First, the average cost of $16 per diner includes organization-sustaining costs that are excluded from the computations in the activity-based costing system. Second, the $16 per diner figure does not recognize differences in the diners' demands on resources. It does not recognize that some diners order more drinks than others nor does it recognize the economies of scale in serving larger parties. (The batch-level costs of serving a party can be spread over more diners if the party is larger.) We should note that the activity-based costing system itself does not recognize all of the differences in diners' demands on resources. For example, there are undoubtedly differences in the costs of preparing the various meals on the menu. It may or may not be worth the effort to build a more detailed activity-based costing system that would take such nuances into account.

Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below Activity Cost Pool | Activity Measure | Total Cost | Total Activity Serving a party of diners . . . . . . . . . . Number of parties served | $33,000 | 6,000 parties Serving a diner . . . . . . . . . . . . . . . . . . Number of diners served | $138,000 | 15,000 diners Serving drinks . . . . . . . . . . . . . . . . . . . Number of drinks ordered | $24,000 | 10,000 drinks The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and Page 339 top-management salaries. Some costs, such as the cost of cleaning the linens that cover the restaurant's tables, vary with the number of parties served. Other costs, such as washing plates and glasses, depend on the number of diners served or the number of drinks served. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15.000 diners had been served. Therefore, the average cost per diner was $16. 2. Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? a) A party of four diners who order three drinks in total. b) A party of two diners who do not order any drinks. c) A party of one diner who orders two drinks.

The average cost per diner for each party can be computed by dividing the total cost of the party by the number of diners in the party as follows: a. $49.50 ÷ 4 diners = $12.375 per diner b. $23.90 ÷ 2 diners = $11.95 per diner c. $19.50 ÷ 1 diner = $19.50 per diner

Karlik Enterprises distributes a single product whose selling price is $24 per unit and whose variable expense is $18 per unit. The company's monthly fixed expense is $24,000 (2/2) Estimate the company's break-even point in units sales using your cost-volume-profit graph.

The break-even point is the point where the total sales revenue and the total expense lines intersect. Which means, when Profit = 0 Profit = Unit CM × Q − Fixed expenses = ($24 − $18) × 4,000 − $24,000 = $6 × 4,000 − $24,000 = $24,000 − $24,000 = $ 0 4,000 units is the break-even point

The Manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year: (1/2) Activity | Total Activity at the Westfield Branch Opening accounts . . . . . . . . . . . . . . . . . . . . . . 500 new accounts opened Processing deposits and withdrawals . . . . . 100,000 deposits and withdrawals processed Processing other customer transactions . . . 5,000 other customer transactions processed The lowest costs reported by other branches for these activities are displayed below: Activity | Lowest Cost among All Security Home Bank Branches Opening accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.75 per new account Processing deposits and withdrawals . . . . . . . . . . . . $1.24 per deposit or withdrawal Processing other customer transactions . . . . . . . . . . $11.86 per other customer transaction 2. What do these results suggest to you concerning operations at the Westfield branch?

The cost of opening an account at the Westfield branch is much higher than at the lowest cost branch ($46.50 versus $26.75). On the other hand, the cost of processing deposits and withdrawals is lower than at the lowest cost branch ($1.08 versus $1.24). And the cost of processing other customer transactions is higher at the Westfield branch ($12.50 versus $11.86). The other branches may have something to learn from Westfield concerning processing deposits and withdrawals and Westfield may benefit from learning about how some of the other branches open accounts and process other transactions. It may be particularly instructive to compare the details of the activity rates. For example, is the cost of opening accounts at Westfield high because of the involvement of the assistant branch manager in this activity? Perhaps tellers open new accounts at other branches.

Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: (1/5) Quarter First | Second | Third | Fourth Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $240,000 | $120,000 | $ 60,000 | $180,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,000 | 64,000 | 32,000 | 96,000 Manufacturing overhead . . . . . . . . . . . . . . . . . 300,000 | 220,000 | 180,000 | ? Total manufacturing costs (a) . . . . . . . . . . . . . . $668,000 | $404,000 | $272,000 | $ ? Number of units to be produced (b) . . . . . . . . 80,000 | 40,000 | 20,000 | 60,000 Estimated unit product cost (a) ÷ (b) . . . . . . . . $8.35 | $10.10 | $13.60 | ? 1. Assuming the estimated variable manufacturing overhead cost per unit is $2.00, what must be the estimated total fixed manufacturing overhead cost per quarter?

The estimated total fixed manufacturing overhead can be computed using the data from any of quarters 1-3. For illustrative purposes, we'll use the first quarter as follows: Total overhead cost (First quarter): $300,000 Variable cost element ($2.00 per unit × 80,000 units): 160,000 Fixed cost element: $140,000 Management finds the variation in quarterly unit product costs to be confusing. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product.

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: (1/5): Machine-hours required to support estimated production . . . . . . . . . . . 100,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000 Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $3.00 1. Compute the plantwide predetermined overhead rate.

The estimated total manufacturing overhead cost is computed as follows: Y = $650,000 + ($3.00 per MH)(100,000 MHs) Estimated fixed manufacturing overhead: $650,000 Estimated variable manufacturing overhead: $3.00 per MH × 100,000 MHs= 300,000 Estimated total manufacturing overhead cost: $950,000 The plantwide predetermined overhead rate is computed as follows: Estimated total manufacturing overhead (a): $950,000 Estimated total machine-hours (b): 100,000 MHs Predetermined overhead rate (a) ÷ (b): $9.50 per MH

The estimated total overhead cost is computed as follows: Y = $4,800,000 + ($0.05 per DL$)($8,000,000) Estimated fixed overhead: $4,800,000 Estimated variable overhead: $0.05 per DL$ × $8,000,000 DL$: 400,000 Estimated total overhead cost: $5,200,000 ---------- The predetermined overhead rate is computed as follows: Estimated total overhead (a): $5,200,000 Estimated total direct labor-dollars (b): 8,000,000 DL$ Predetermined overhead rate (a) ÷ (b): $0.65 per DL$

Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below Activity Cost Pool | Activity Measure | Total Cost | Total Activity Serving a party of diners . . . . . . . . . . Number of parties served | $33,000 | 6,000 parties Serving a diner . . . . . . . . . . . . . . . . . . Number of diners served | $138,000 | 15,000 diners Serving drinks . . . . . . . . . . . . . . . . . . . Number of drinks ordered | $24,000 | 10,000 drinks The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and Page 339 top-management salaries. Some costs, such as the cost of cleaning the linens that cover the restaurant's tables, vary with the number of parties served. Other costs, such as washing plates and glasses, depend on the number of diners served or the number of drinks served. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15.000 diners had been served. Therefore, the average cost per diner was $16. 1. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? a) A party of four diners who order three drinks in total. b) A party of two diners who do not order any drinks. c) A party of one diner who orders two drinks.

Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: (2/5) Quarter First | Second | Third | Fourth Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $240,000 | $120,000 | $ 60,000 | $180,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,000 | 64,000 | 32,000 | 96,000 Manufacturing overhead . . . . . . . . . . . . . . . . . 300,000 | 220,000 | 180,000 | ? Total manufacturing costs (a) . . . . . . . . . . . . . . $668,000 | $404,000 | $272,000 | $ ? Number of units to be produced (b) . . . . . . . . 80,000 | 40,000 | 20,000 | 60,000 Estimated unit product cost (a) ÷ (b) . . . . . . . . $8.35 | $10.10 | $13.60 | ? 2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter?

The fixed and variable cost estimates from requirement 1 can be used to estimate the total manufacturing overhead cost for the fourth quarter as follows: Y = $140,000 + ($2.00 per unit)(60,000 units) Estimated fixed manufacturing overhead: $140,000 Estimated variable manufacturing overhead $2.00 per unit × 60,000 units: 120,000 Estimated total manufacturing overhead cost: $260,000 ---------------- The estimated unit product cost for the fourth quarter is computed as follows: Direct materials: $180,000 Direct labor: 96,000 Manufacturing overhead: 260,000 Total manufacturing costs (a): $536,000 Number of units to be produced (b): 60,000 Unit product cost (rounded) (a) ÷ (b): $8.93

Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: (3/5) Quarter First | Second | Third | Fourth Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $240,000 | $120,000 | $ 60,000 | $180,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,000 | 64,000 | 32,000 | 96,000 Manufacturing overhead . . . . . . . . . . . . . . . . . 300,000 | 220,000 | 180,000 | ? Total manufacturing costs (a) . . . . . . . . . . . . . . $668,000 | $404,000 | $272,000 | $ ? Number of units to be produced (b) . . . . . . . . 80,000 | 40,000 | 20,000 | 60,000 Estimated unit product cost (a) ÷ (b) . . . . . . . . $8.35 | $10.10 | $13.60 | ? 3. What is causing the estimated unit product cost to fluctuate from one quarter to the next?

The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the fixed overhead is spread over fewer units.

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. What managerial insights are revealed by the computations that you performed in this problem? (Hint: Do the cost of goods sold amounts that you computed in requirements 1 and 2 differ from one another? Do the bid prices that you computed in requirements 1 and 2 differ from one another? Why?)

The plantwide and departmental approaches for applying manufacturing overhead costs to products produce identical cost of goods sold figures. However, these two approaches lead to different bid prices for Jobs D-70 and C-200. The bid price for Job D-70 using the departmental approach is $270,000 (= $2,460,000 ‒ $2,190,000) higher than the bid price using the plantwide approach. This is because the departmental cost pools reflect the fact that Job D-70 is an intensive user of Molding machine hours. The overhead rate in Molding ($38) is much higher than the overhead rate in Fabrication ($8). Conversely, Job C-200 is an intensive user of the less-expensive Fabrication machine-hours, so its departmental bid price is $270,000 lower than the plantwide bid price. Whether a job-order costing system relies on plantwide overhead cost allocation or departmental overhead cost allocation does not usually have an important impact on the accuracy of the cost of goods sold reported for the company as a whole. However, it can have a huge impact on internal decisions with respect to individual jobs, such as establishing bid prices for those jobs. Job order costing systems that rely on plantwide overhead cost allocation are commonly used to value ending inventories and cost of goods sold for external reporting purposes, but they can create costing inaccuracies for individual jobs that adversely influence internal decision making.

Delph Company uses a job-order costing system and has two manufacturing departments-Molding and Fabrication. The company provided the following estimates at the beginning of the year: (1/10) Molding | Fabrication | Total Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 30,000 | 50,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . $700,000 | $210,000 | $910,000 Variable manufacturing overhead cost per machine-hour . . . $3.00 | $1.00 During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs: Job D-70 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,000 | $325,000 | $700,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 | $160,000 | $360,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 | 6,000 | 20,000 Job C-200 Molding | Fabrication | Total Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 | $250,000 | $550,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 | $225,000 | $400,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 | 24,000 | 30,000 Delph had no underapplied or overapplied manufacturing overhead during the year. 2. Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based on machine-hours. a) Compute the plantwide predetermined overhead rate.

The plantwide overhead rate of $20.00 per machine-hour is calculated by combining the estimated manufacturing overhead costs computed in requirement 1a for Molding and Fabrication ($760,000 + $240,000 = $1,000,000) and then dividing by the estimated total machine-hours (20,000 + 30,000 = 50,000): Estimated total manufacturing overhead (a): $1,000,000 Estimated total machine-hours (MHs) (b): 50,000 MHs Predetermined overhead rate (a) ÷ (b): $20.00 per MH

Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below: (4/5) Quarter First | Second | Third | Fourth Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $240,000 | $120,000 | $ 60,000 | $180,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,000 | 64,000 | 32,000 | 96,000 Manufacturing overhead . . . . . . . . . . . . . . . . . 300,000 | 220,000 | 180,000 | ? Total manufacturing costs (a) . . . . . . . . . . . . . . $668,000 | $404,000 | $272,000 | $ ? Number of units to be produced (b) . . . . . . . . 80,000 | 40,000 | 20,000 | 60,000 Estimated unit product cost (a) ÷ (b) . . . . . . . . $8.35 | $10.10 | $13.60 | ? 4. How would you recommend stabilizing the company's unit product cost? Support your answer with computations.

The unit product cost can be stabilized by using a predetermined overhead rate that is based on expected activity for the entire year. The cost formula created in requirement 1 can be adapted to compute the annual predetermined overhead rate. The annual fixed manufacturing overhead is $560,000 ($140,000 per quarter × 4 quarters). The variable manufacturing overhead per unit is $2.00. The cost formula is as follows: = $560,000 + ($2.00 per unit × 200,000 units) Estimated fixed manufacturing overhead: $560,000 Estimated variable manufacturing overhead $2.00 per unit × 200,000 units: 400,000 Estimated total manufacturing overhead cost: $960,000 Estimated total manufacturing overhead (a): $960,000 Estimated total units produced (b): 200,000 Predetermined overhead rate (a) ÷ (b): $4.80 per unit --------------- Using a predetermined overhead rate of $4.80 per unit, the unit product costs would stabilize as shown below: Quarter First | Second | Third | Fourth Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $240,000 | $120,000 | $ 60,000 | $180,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,000 | 64,000 | 32,000 | 96,000 Manufacturing overhead at $4.80 per unit. . . . . . . . . . . . . . . . . 384,000 | 192,000 | 96,000 | 288,000 Total manufacturing costs (a) . . . . . . . . . . . . . . $752,000 | $376,000 | $188,000 | $ 564,000 Number of units to be produced (b) . . . . . . . . 80,000 | 40,000 | 20,000 | 60,000 Estimated unit product cost (a) ÷ (b) . . . . . . . . $9.40 | $9.40 | $9.40 | 9.40

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: (2/2) Claimjumper | Makeover | Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 | $70,000 | $100,000 Variable expenses. . . . . . . . . . . . . . . . 20,000 | 50,000 | 70,000 Contribution margin . . . . . . . . . . . . . . $10,000 | $20,000 | 30,000 Fixed expenses . . . . . . . . . . . . . . . . . . 24,000 Net operating income. . . . . . . . . . . . . $ 6,000 Verify the overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products.

The Manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year: (1/2) Activity | Total Activity at the Westfield Branch Opening accounts . . . . . . . . . . . . . . . . . . . . . . 500 new accounts opened Processing deposits and withdrawals . . . . . 100,000 deposits and withdrawals processed Processing other customer transactions . . . 5,000 other customer transactions processed The lowest costs reported by other branches for these activities are displayed below: Activity | Lowest Cost among All Security Home Bank Branches Opening accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.75 per new account Processing deposits and withdrawals . . . . . . . . . . . . $1.24 per deposit or withdrawal Processing other customer transactions . . . . . . . . . . $11.86 per other customer transaction 1. Using the first-stage allocation from Exercise 7-7 and the above data, compute the activity rates for the activity-based costing system. Round all computations to the nearest whole cent.

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: (1/5): Machine-hours required to support estimated production . . . . . . . . . . . 100,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000 Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $3.00 3. If Job 400 includes 52 units, what is the unit product cost for this job?

Total manufacturing cost (a): $1,040 Number of units in the job (b): 52 Unit product cost (a) ÷ (b): $20

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: (1/5): Machine-hours required to support estimated production . . . . . . . . . . . 100,000 Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000 Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $3.00 4. If Moody uses a markup percentage of 120% of its total manufacturing cost, then what selling price per unit would it have established for Job 400?

Total manufacturing cost: $1,040 Markup (120% of manufacturing cost): 1,248 Selling price for Job 400 (a): $2,288 Number of units in Job 400 (b): 52 Selling price per unit (a) ÷ (b): $44

Learned Corporation recorded the following transactions for the just completed month: a. $80,000 in raw materials were purchased on account. b. $71,000 in raw materials were used in production. Of this amount, $62,000 was for direct materials and the remainder was for indirect materials. c. Total labor wages of $112,000 were paid in cash. Of this amount, $101,000 was for direct labor and the remainder was for indirect labor. d. Depreciation of $175,000 was incurred on factory equipment. Required: Record the above transactions in journal entries.

a. Raw Materials: dr. 80,000 Accounts Payable: cr. 80,000 b. Work in Process: dr. 62,000 Manufacturing Overhead: dr. 9,000 Raw Materials: cr. 71,000 c. Work in Process: 101,000 Manufacturing Overhead: 11,000 Cash: 112,000 d. Manufacturing Overhead: 175,000 Accumulated Depreciation: 175,000

Flash Express purchases USB flash drives from suppliers and then applies corporate logos to the exterior of those flash drives for its customers. The company maintains a dedicated piece of equipment for each type of product that is processes, such as "top hat" flash drives, credit card flash drives, swing flash drives, and wristband flash drives. The company defines its batches based on customer orders. For example, if one customer places an order for 1,000 credit card flash drives, then that order would be processed as one batch and it would be shipped as one batch. If another customer places and order for 100 "top hat" flash drives, 100 swing flash drives, and 100 wrist band flash drives, then that order would be processed as three batches and shipped as one batch. A number of activities carried out at Flash Express are listed below. a. Sales representatives' periodic visits to customers to keep them informed about the company's existing products and its new product introductions. b. Engaging in price negotiations with the company's supplier of credit card flash drives. c. Programming and calibrating the "top hat" logo application machine so that it properly applies the logo for a specific customer's production run. d. Visually inspecting each flash drive that has been produced to ensure that the logo has been applied in a defect-free manner. e. Preparing shipping documents and packaging for a customer order. f. Periodic maintenance of the equipment used to process wristband flash drives. g. Lighting and heating the company's production facility. h. Preparation of the company's quarterly financial reports. Classify each of the activities above as either a unit-level, batch-level, product-level, customerlevel, or organization-sustaining activity.

a. customer-level, b. Product level c. batch level d. unit level e. batch level f. product level g. organization sustaining h. organization sustaining

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