Revision Week 1. Questions.

Question 1. Cost of goods manufactured, Cost of goods sold, Income statement.

(A)
The following data (in thousands of dollars) have been taken from the accounting records of Larder
Corporation for the just completed year.

Sales ........................................................................... $950

Purchases of raw materials ........................................ $170
Direct labor ................................................................ $210
Manufacturing overhead ............................................ $200
Administrative expenses ............................................ $180
Selling expenses ......................................................... $140
Raw materials inventory, beginning .......................... $70
Raw materials inventory, ending ............................... $80
Work in process inventory, beginning ....................... $30
Work in process inventory, ending ............................ $20
Finished goods inventory, beginning ........................ $100
Finished goods inventory, ending .............................. $70

Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good form.
b. Compute the Cost of Goods Sold.
c. Using data from your answers above as needed, prepare an Income Statement.

(B)
Messinger Manufacturing Company had the following account balances for the quarter ending
March 31, unless otherwise noted:

Work-in-process inventory (January 1) $ 140,400

Work-in-process inventory (March 31) 171,000
Finished goods inventory (January 1) 540,000
Finished goods inventory (March 31) 510,000
Direct materials used 378,000
Indirect materials used 84,000
Direct manufacturing labor 480,000
Indirect manufacturing labor 186,000
Property taxes on manufacturing plant building 28,800
Salespersons' company vehicle costs 12,000
Depreciation of manufacturing equipment 264,000
Depreciation of office equipment 123,600
Miscellaneous plant overhead 135,000
Plant utilities 92,400
General office expenses 305,400
Marketing distribution costs 30,000

Required:
a. Prepare a cost of goods manufactured schedule for the quarter.
b. Prepare a cost of goods sold schedule for the quarter.
Question 2. Job Order Costing.

(A)
Apple Valley Corporation uses a job cost system and has two production departments, A and B.
Budgeted manufacturing costs for the year are:
Department A Department B
Direct materials $700,000 $100,000
Direct manufacturing labor $200,000 $800,000
Manufacturing overhead $600,000 $400,000

The actual material and labor costs charged to Job #432 were as follows:

Total
Direct materials: $25,000
Direct labor:
Department A $ 8,000
Department B $12,000
$20,000

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor
cost using departmental rates determined at the beginning of the year.

Required:
a) Compute the manufacturing overhead allocation rate for Department A
b) Compute the manufacturing overhead allocation rate for Department B
c) Compute total manufacturing overhead costs allocated to Job #432
d) Compute total manufacturing costs estimated for Job #432 total:

(B)

Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to
products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining
Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of
20X5, the following estimates were provided for the coming year:
Machining Assembly
Direct labor-hours 10,000 dlh 90,000 dlh
Machine-hours 100,000 mh 5,000 mh
Direct labor cost $ 80,000 $720,000
Manufacturing overhead costs $250,000 $360,000

The accounting records of the company show the following data for Job #846:
Machining Assembly
Direct labor-hours 50 dlh 120 dlh
Machine-hours 170 mh 10 mh
Direct material cost $2,700 $1,600
Direct labor cost $ 400 $ 900

Required:
a. Compute the manufacturing overhead allocation rate for each department.
b. Compute the total cost of Job #846.
c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.
Question 3. Process costing with beginning and ending work in process.

Bae Inc. uses the weighted-average method in its process costing system. The following data
concern the operations of the company's first processing department for a recent month.

Work in process, beginning:

Units in process ........................................................... 100
Stage of completion with respect to materials ............ 70%
Stage of completion with respect to conversion.......... 90%

Costs in the beginning inventory:

Materials cost ........................................................... $182
Conversion cost ........................................................ $3,429

Units started into production during the month .............. 10,000

Units completed and transferred out .............................. 9,700

Costs added to production during the month:

Materials cost .............................................................. $27,986
Conversion cost ........................................................... $373,815

Work in process, ending:

Units in process ........................................................... 400
Stage of completion with respect to materials ............ 90%
Stage of completion with respect to conversion.......... 70%

Required:
Using the weighted-average method:
a. Determine the equivalent units of production for materials and conversion costs.
b. Determine the cost per equivalent unit for materials and conversion costs.
c. Determine the cost of units transferred out of the department during the month.
d. Determine the cost of ending work in process inventory in the department.

Question 4. Activity-Based Costing as an Alternative to Traditional Product Costing.

Erte, Inc., manufactures two models of high-pressure steam valves, the XR7 model and the ZD5 model.
Data regarding the two products follow:

Total Direct Labor-

Product Direct Labor-Hours Annual Production
Hours
XR7 . . . . . . . . . . 0.2 DLHs per unit 20,000 units 4,000 DLHs
ZD5 . . . . . . . . . . 0.4 DLHs per unit 40,000 units 16,000 DLHs
20,000 DLHs

Additional information about the company follows:

a. Product XR7 requires $35 in direct materials per unit, and product ZD5 requires $25.
b. The direct labor rate is $20 per hour.
c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost
to products. Manufacturing overhead totals $1,480,000 per year.
d. Product XR7 is more complex to manufacture than product ZD5 and requires the use of a special
milling machine.
e. Because of the special work required in (d) above, the company is considering the use of activity based
costing to apply overhead cost to products. Three activity cost pools have been identified and the first-
stage allocations have been completed. Data concerning these activity cost pools appear below:

Estimated Estimated Total Activity

Activity Cost Pool Activity Measure
Total Cost XR7 ZD5 Total
Machine setups . . . . . . . Number of setups $ 180,000 150 100 250
Special milling . . . . . . . Machine-hours 300,000 1,000 0 1,000
General factory . . . . . . Direct labor-hours 1,000,000 4,000 16,000 20,000
$1,480,000

Required:
1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to
products.
a. Compute the predetermined overhead rate.
b. Determine the unit product cost of each product.
2. Assume that the company decides to use activity-based costing to apply overhead cost to products.
a. Compute the activity rate for each activity cost pool. Also compute the amount of overhead
cost that would be applied to each product.
b. Determine the unit product cost of each product.
3. Explain why overhead cost shifted from the high-volume product to the low-volume product under
activity-based costing.

Question 5. Variable and Absorption Costing Unit Product Costs and Income Statements;
Explanation of Difference in Net Operating Income

Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just
opened a new plant to manufacture the antenna, and the following cost and revenue data have
been provided for the fi rst month of the plant’s operation in the form of a worksheet.

Beginning inventory 0
Units produced 40,000
Units sold 35,000
Selling price per unit $ 60

Selling and administrative expenses

Variable per unit $2
Fixed (total) $ 560,000
Manufacturing costs:
Direct materials cost per unit $ 15
Direct labor cost per unit $7
Variable manufacturing overhead cost per unit $2
Fixed manufacturing overhead cost (total) $ 640,000

Since the new antenna is unique in design, management is anxious to see how profi table it will
be and has asked that an income statement be prepared for the month.

Required:
1. Assume that the company uses absorption costing.
 a. Determine the unit product cost.
b. Prepare an income statement for the month.
2. Assume that the company uses variable costing.
a. Determine the unit product cost.
b. Prepare a contribution format income statement for the month.
3. Explain the reason for any difference in the ending inventory balances under the two costing
methods and the impact of this difference on reported net operating income.