Problem 1 (8 points)

Snow Products Corporation makes two products, titanium Rims and Posts. Additional
information about the company follows:
a. Rims require $17 in direct materials per unit, and Posts require $10.
b. The direct labor wage rate is $16 per hour.
Following are the data regarding the two products and ABC costing:

Data Regarding the two product follows

Direct Labor-hour Annual

per unit Production

Rims 0.5 20,000

Posts 0.3 80,000

Activity Cost pool:

Activity
Activity cost pool
(and activity Estimated
measure) Overhead costs Rims Posts Total
Machine setups
(number of
setups) 20,000 70 90 160
Special
Processing
(machine hours) 200,000 3,000 1,000 4,000
General factory
(direct labor
hours) 300,000 10,000 24,000 34,000

Required:
Determine the total cost of Rims according to the ABC system. Show details of your working.

1
Problem 2 (12 points)
Tyrion Company has the following budgeted production for the 2nd quarter ending in June 30.

April May June Quarter

Budgeted Production 40,000 50,000 60,000 150,000

Each unit requires 3 pounds of raw material that costs $5.00 per pound. Management desires to
end each month with an inventory of raw materials equal to 20% of the following month’s
production needs. The desired ending inventory for June is 40,000 pounds. Management plans
to pay for 60% of raw material purchases in the month acquired and 40% in the following
month.

In addition, the beginning raw materials inventory for April is budgeted to be 24,000 pounds and
the beginning accounts payable for the April is budgeted to be $50,820.

Required:
a. Prepare the company’s direct materials budget and schedule of expected cash
disbursements for purchases of materials for the 2nd quarter ending in June.

b. If the actual cost of material purchased is $4.5 per pound and 4 pounds of raw
materials were purchased to manufacture each unit of product. Compute the
materials price variance for one unit of product from the budgeted standard.

2
Problem 3 (5 points)

Joseph Company has just completed its first year of operations. The company’s
absorption costing income statement for the year appears below:
Joseph Company
Income Statement

The company’s selling and administrative expenses consist of $210,000 per year
in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit
product cost given above is computed as follows:

Direct Material 6
Direct labor 4
Variable Manufacturing overhead 3
Fixed manufacturing overhead (120,000/40,000) 3
16

Instructions:
a. Redo the company’s income statement in the contribution format using
variable costing.