Question 1
MR Company produced 4,000 office chairs during the year. The office chairs sell for $800 each. MR Company had 600 office chairs in finished inventory at the beginning of the year. At the end of the year there were 800 office chairs in finished good inventory. MR Company's accounting records provide the following information.
|
Purchase of materials
|
$640,000
|
|
Direct materials inventory, 1 January, 2017
|
93,600
|
|
Direct materials inventory, 31 December 2017
|
133,600
|
|
Direct labour
|
400,000
|
|
Indirect labour
|
80,000
|
|
Rent, factory building
|
84,000
|
|
Depreciation, factory equipment
|
120,000
|
|
Utilities, factory
|
23,912
|
|
Salary, sales supervisor
|
180,000
|
|
Commissions, salespersons
|
360,000
|
|
General administration
|
600,000
|
|
Work in process inventory, 1 January 2017
|
126,080
|
|
Work in process inventory, 31 December 2017
|
159,992
|
|
Finished goods inventory, 1 January 2017
|
160,000
|
|
Finished goods inventory, 31 December 2017
|
228,200
|
Required:
1. Prepare a Schedule of cost of goods manufactured.
2. Compute the cost of producing one office chair in 2017.
3. Prepare an income statement for the current year.
Question 2
Teer Electronics manufactures various computer hardware products. The company estimated it would incur $165,000 in manufacturing overhead costs during the current period. At present, Teer currently uses a single overhead rate that is applied to the products on the basis of direct labour-hours. Data concerning the current period's operations appear below:
|
|
Sound card
|
Video Card
|
|
Estimated volume
|
3,400 units
|
4,800 units
|
|
Direct labour-hours per unit
|
1.40 hour
|
1.90 hours
|
|
Direct materials cost per unit
|
$7.40
|
$12.70
|
|
Direct labour cost per unit
|
$14.00
|
$19.00
|
The company is considering using an activity-based costing system (ABC) to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Expected actual data relating to these activities for the current period are given below:
|
Activity
Cost Pool
|
Expected
Overhead
Costs
|
Expected Activity
|
|
Sound Card
|
Video Card
|
Total
|
|
Machine setups
|
$ 15,000
|
80
|
170
|
250
|
|
Purchasing
|
80,000
|
700
|
900
|
1,600
|
|
General factory
|
70,000
|
5,000
|
9,000
|
14,000
|
|
|
$165,000
|
|
|
|
|
Activity
Cost Pool
|
Actual
Overhead
Costs
|
Actual Activity
|
|
Sound Card
|
Video Card
|
Total
|
|
Machine setups
|
$ 12,190
|
80
|
150
|
230
|
|
Purchasing
|
79,200
|
730
|
920
|
1,650
|
|
General factory
|
69,400
|
4,760
|
9,120
|
13,880
|
|
|
$160,790
|
|
|
|
| |
|
|
|
|
|
|
Required:
1. Compute the predetermined overhead rate under the present method and determine the unit product cost of each product for the current year.
2. Calculate the activity rate for each of the activities.
3. Determine the unit product costs of each product using ABC. Assume that the company is using a normal costing system and allocates overheads on the basis of actual activity levels.
4. Suggest one possible cost driver for each of the following activities, machine set up and purchasing.
Question 3
Waterloo Company is considering to manufacture a new product. Direct materials and direct labour cost for the new product would be $50 per unit. In order to have a place to store finished units of the new product, the company would have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the company an additional $4,000 each month to advertise the new product. A new production supervisor would be hired to oversee production of the new product who would be paid $3,000 per month. The company would pay a sales commission of $10 for each unit of product that is sold.
Required:
Complete the chart below by placing an "X" under each column heading that helps to identify the costs listed to the left. There can be "X's" placed under more than one heading for a single cost. For example, a cost might be a product cost, a fixed cost and a conversion cost; there would be an "X" placed under each of these headings on the answer sheet opposite the cost.
|
|
Variable
Cost
|
Fixed
Cost
|
Product
Cost
|
Conversion costs
|
|
Direct labour cost
|
|
|
|
|
|
Depreciation on the factory space
|
|
|
|
|
|
Direct material
|
|
|
|
|
|
Rental cost of the small warehouse
|
|
|
|
|
|
Advertising cost
|
|
|
|
|
|
Production supervisor's salary
|
|
|
|
|
|
Sales commissions
|
|
|
|
|
Question 4
Panama Ltd is a manufacturer of a single product. The company prepares its financial statements using absorption costing.The company's revenues and expenses for the last two months are given below:
|
Panama Ltd
|
|
Comparative Income Statements
|
|
For the Months of April and May
|
|
|
|
|
|
|
|
April
|
May
|
|
|
Production in units
|
4,800
|
5,000
|
|
|
Sales in units
|
4,500
|
5,250
|
|
|
Sales revenue
|
$630,000
|
$735,000
|
|
|
Less cost of goods sold (Mixed expense)
|
297,000
|
344,520
|
|
|
Gross Margin
|
333,000
|
390,480
|
|
|
Less operating expenses:
|
|
|
|
|
Shipping expense (Mixed expense)
|
56,000
|
63,500
|
|
|
Salaries and commissions (Mixed expense, fixed component = $30,500)
|
143,000
|
161,750
|
|
|
Other fixed expenses
|
73,000
|
73,000
|
|
|
Total operating expenses
|
272,000
|
298,250
|
|
|
Net income
|
mce_markernbsp; 61,000
|
mce_markernbsp; 92,230
|
|
Additional information:
Beginning inventory for April in units: 0
June production in units: 6,400
June sales in units: 6,000
Fixed production costs per month: $48,000; Variable production costs per unit: $56
Required:
1. Separate the shipping expense into its variable and fixed components. State the cost formula for shipping expense.
2. Prepare an income statement for the month of June using the same format as the April and May statements and assuming no changes in fixed costs.
3. Recast the May income statement using a variable costing format.