ACCG 2000 Week 1 Homework Questions (Due in Week 2)

Discussion Questions:
1. Explain the difference between a cost and an expense.
2. What is meant by meant by the phrase different costs for different purposes.
Exercises:
1. Classify the following items as either product costs or period costs:
a) depreciation on a vehicle used by the entity’s general manager
b) containers used to package finished goods
c) salaries of workers handling inventory during production
d) general manager’s salary
e) lease payments on a motor vehicle used by sales representatives
f) superannuation contributions for production workers by the entity.
Problems:
1. Swan Ltd is a manufacturer with the following information available at year-end:
Direct material used $ 400,000
Salary of the managing director 70,000
Direct labour 180,000
Administrative cost 140,000
Manufacturing overhead 40,000

Required
a) Calculate the total prime costs for the year.
b) Calculate the total conversion costs for the year.
c) Calculate the total period costs for the year.
d) Calculate the total product costs for the year.

2. Information from the records of Kerley & Co. for the year ended 30 June 2018 is given
below.
Factory overhead , 100% of direct labour cost $120,000
Direct labour 109,091
Raw materials inventory, 1 July 2017 18,000
Cost of goods manufactured 520,800
Raw materials inventory, 30 June 2018 15,500
Work in process inventory, 30 June 2018 50,500
Raw materials purchased during the year 210,000

Required
Prepare the Cost of Goods manufactured Statement and calculate the cost of work in
process inventory on 1 July 2017.
3. Jetboats Ltd uses the high‐low method to estimate the cost function. Jetboat operates jet boat
rides on Sydney Harbour. The number of hours the engines are run in each month is provided
below along with the labour costs for maintaining the jet boats for 2018.
Month Machine (engine) Hours Labour costs
January 180 $4,300
February 110 $2,510
March 140 $3,040
April 120 $2,780
May 80 $1,750
June 50 $1,200
July 60 $1,500
August 110 $2,470
September 155 $3,480
October 160 $3,590
November 170 $3,800
December 175 $3,950

Required
a) What is the cost function?
b) What is the estimate of Jetboats’s labour costs when:
i) 130 machine hours are used?
ii) 220 machine hours are used?