Assignment

Instructions for the assignment:

Clearly identify the answer to each question. You may want to use Excel for any questions requiring calculations. Copy and paste the material from Excel into your Word doc as a picture.

Question No. 1

Gem Potato Processors produces three products: fries, nuggets and crunchy peels. They are all made from cull potatoes they purchase from sorting sheds. Follow is information about each product.

Joint Costs before Split-off Point is $200,000.

Required:

1. Allocate the joint costs using the NRV method.
2. Allocate the joint costs using the physical units method.
3. What is the other acceptable method used to allocate joint costs?
4. Which is the best method and why?

Question No. 2

Community Recovery Clinic offers two types of services: inpatient and outpatient. They have two types of service departments: administration and housekeeping. Direct costs of nursing care and supplies can be traced directly to the patient.

Departments    Number of Employees       Square Footage
Inpatient                   40                              20,000
Outpatient                 20                              10,000
Administration            10                              5,000
Housekeeping             5                                5,000

Overhead costs for each department are as follows:

Administration     $500,000
Housekeeping      $200,000

Administration is allocated based on number of employees and housekeeping is based on square footage. Carry out calculations to four decimal places.

Required:

1. Allocate service department costs using the direct method.
2. Allocate service department costs using the reciprocal method.
3. What is the other method of allocation?
4. Briefly discuss the pros and cons of each method and select the best one. Question No. 3

Tots Toys Inc. manufactures a wooden model wagon. The departments are cutting, assembly and painting. Following is the information for the assembly department for the month of September 2013.

Costs:

Beginning WIP:
Transferred In               $1,000
Direct materials             2,000
Conversion costs          6,000
Total                           $9,000

Added during the Month:
Transferred In              10,000
Direct materials            15,000
Conversion costs         25,000
Total                          $50,000
Total Costs Incurred    $59,000

Units:

Beginning WIP           200 units
Started                     1000 units
Completed                 950 Units
Ending WIP                ? units

Ending WIP was 50% complete for direct materials and 40% for conversion cost.

Required:

1. Calculate the equivalent units.
2. Compute the cost per unit,
3. Price the inventories (Reconciliation)
4. In what industries might one find process costing being used?
5. Define an equivalent unit,

Question No. 4

Central Redi-Mix Concrete, Inc. applies manufacturing overhead based on number of yards of concrete produced. At the beginning of 2014 management estimated the plant would produce 100,000 yards of concrete during the coming year. At the same time manufacturing overhead was budgeted to be $500,000. At the end of the year the firm had produced 110,000 yards of concrete and incurred $550,000 of manufacturing overhead.

Required:

1. Compute the overhead application rate for 2014.

2. Calculate the amount of overhead applied to work-in-process during the year.

3. Compute the overhead variance. Was it favorable or unfavorable and why?

4. Explain why we use a predetermined rate to apply manufacturing overhead to work-in-process versus the way a company accounts for direct labor and direct material.

Question No. 5

Pacific Sports, Inc. makes surf boards. Following are inventory and cost figures relative to the year ended June 30 2013:

Beginning inventory      1,000 units
Produced                     10,000 units
Sold                            8,000 units

Sales price per unit                            $500
Variable production costs per unit       $200
Fixed production costs unit                $100
SG&A Expenses                                $1,000,000

Required,

1. Compute the operating income using the absorption method.
2. Compute the operating income using the variable costing method,
3. Reconcile the difference.
4. Why might a company choose to use variable costing for management purposes?

Question No. 6

Summer Fun Products makes a large beach umbrella. It consists of a canvas top that is sewn together from precut pieces plus a wood pole and arch structure. Below is information relative to the canvas process for the month of June 2014.

Standard material cost per yard                            $5.00
Standard labor rate per hour                                $25.00
Standard variable overhead rate per DLH               $2.00
Standard Material to make one umbrella                 3 Yards
Standard Labor Hours to make one umbrella          2 Hours

During the month of June, the firm made 1,000 umbrellas. They paid $57,600 in direct labor for 1800 hours of labor. They actually purchased 3,500 yards of material for $15,995. Actual variable overhead was $4,500. They actually used 3200 yards of material.

Required:

1. Compute the material quantity and price variances.
2. Compute the labor rate and efficiency variances.
3. Compute the actual variable overhead rate.
4. Compute the variable overhead spending and efficiency variances.
5. To what general ledger account does a company close variances?
6. Discuss any relationships you might see between the various components of the direct labor and direct material variances.

Question No. 7

Chicago Computing Corporation manufactures two remote Internet communication devices: Personal and DeLuxe, Below is the information relative to their costs:

Labor rate is $20.00 per hour.

Following is information relative to the two products:

Required:

1. Compute the total cost of making the personal device and the deluxe device using the single driver approach with labor hours being the cost driver. Also, compute the unit cost of each device

2. Compute the total cost of making the personal device and the deluxe device using the ABC approach. Also, compute the unit cost of each device.

3. What are the three environmental factors that normally exist where a company is using ABC costing?

4. Discuss some of the reasons firms have not adopted ABC costing.