1) horton company uses a job costing system, and factory overhead is applied on the
basis of machine hours. at the beginning of the year, management estimated that the
company would incur $1,050,000 of factory overhead costs and use 70,000 machine
hours.
horton company recorded the following events during the month of march.
(a) purchased 200,000 pounds of materials on account. the cost was $4.00 per pound.
(b) issued 150,000 pounds of materials to production, of which 20,000 pounds were
used as indirect materials. assume all materials are at $4 per pound
(c) incurred $250,000 of direct labor costs and $50,000 of indirect labor costs.
(d) recorded depreciation on equipment for the month, $18,000.
(e) recorded $4,000 of insurance costs for the manufacturing property.
(f) paid $8,000 cash for utilities and other miscellaneous items for the manufacturing
plant.
(g) completed job m11 costing $17,000 and job m12 costing $80,000 during the month
and transferred them to finished goods inventory account.
(h) shipped job m12 to the customer during the month. the job was invoiced at 40
percent above cost.
(i) used 10,000 machine hours during march.
required:
(1) compute horton company’s predetermined overhead rate for the year.
(2) prepare journal entries to record the events that occurred during march.
(3) compute the amount of overapplied or underapplied overhead and prepare a journal
entry to close overapplied or underapplied overhead into cost of goods sold on march
31 .
2) which of the following has the weakest linkage between activity and cost driver?
a.option a
b.option b
c.option c
d.option d
e.option e
3) information pertaining to yekstop corp.’s sales revenue is presented below.
management estimates that 4% of credit sales are eventually uncollectible. of the
collectible credit sales, 65% are likely to be collected in the month of sale and the
remainder in the month following the sale. the company desires to begin each month
with an inventory equal to 75% of the sales projected for the month. all purchases of
inventory are on open account; 30% will be paid in the month of purchase, and the
remainder paid in the month following the month of purchase. the purchase costs are
approximately 60% of the selling prices.
total budgeted inventory purchases in november by yekstop corp. are:
a.$258,750
b.$316,350
c.$384,000
d.$489,150
e.$527,250
4) in a manufacturing environment the best short-term profit-maximizing approach
would be to:
a.maximize unit gross profit times the number of units sold
b.minimize variable cost per unit times the number of units produced
c.minimize fixed overhead (i.e., fixed manufacturing support) cost per unit by
producing to capacity
d.maximize the contribution margin per unit times the number of units sold
e.maximize sales volume time selling price
5) capital one produces a single product, which it sells for $8.00 per unit. variable costs
per unit equal $3.20. the company expected total short-term fixed costs to be $7,200 for
the coming month, at the projected sales level of 20,000 units. management is
considering several alternative actions designed to improve operating results. in
conjunction with this, they have created a profit-planning model, which can be used to
evaluate different scenarios.
what is capital one’s current break-even point in terms of number of units for the
month?
a.1,500 units
b.2,250 units
c.3,330 units
d.4,000 units
6) all indirect manufacturing costs are commonly combined into a single cost pool
called:
a.activity cost pools
b.value streams
c.resources
d.overhead
e.other manufacturing costs
7) _________ is a process of varying key estimates to identify those variables that are
most critical to a decision (or a model, such as a budget):
a.a demand forecast
b.sensitivity analysis
c.regression analysis
d.pareto analysis
e.linear optimization analysis
8) theoretically, a decision maker would probably be willing to buy cost management
information if:
a.it is accurate
b.it is consistent with management objectives
c.it is timely
d.its value is equal to or greater than its cost
9) worton distributing expects its september sales to be 25% higher than its august sales
of $150,000.purchases were $100,000 in august and are expected to be $120,000 in
september. all sales are on credit and are expected to be collected as follows: 30% in the
month of the sale and 70% in the following month. purchases are paid 25% in the
month of purchase and 75% in the following month. the beginning cash balance on
september 1 is $10,000. the ending cash balance on september 30 would be:
a.$56,250
b.$56,500
c.$65,250
d.$66,250
e.$76,250
10) the institute of management accountants’ statement of ethical professional practice
for management accountants includes the elements of:
a.competence, confidentiality, integrity, and relevance
b.competence, confidentiality, integrity, and credibility
c.competence, confidentiality, independence, and objectivity
d.competence, accuracy, integrity, and independence
11) abc, inc. is considering whether to repair a five-year-old fork lift or purchase a used
one as a replacement. the company estimates that it would take $3,000 to repair the
existing fork lift, which is the same amount needed to purchase the used fork lift.
cost-related information for both assets is as follows:
under the assumption that the company would like to minimize total cost, what should
the company do, and what are the total cost savings in the first year?
a.option a
b.option b
c.option c
d.option d
12) in process costing, unit product cost is calculated by dividing process cost in each
department by the equivalent units produced:
a.less beginning inventory
b.plus beginning inventory
c.in the prior period
d.in the following period
e.during the period
13) luther company, located in largeville, kansas, is a retailer of durable, light-weight
luggage products known for their high-quality and innovation. recently, the firm
conducted a relevant cost analysis of one of its product lines that has only two products,
kryptonite and meteoerite. the sales for meteorite are decreasing and the purchase costs
are increasing. the firm is considering dropping meteorite products and only selling
kryptonite. luther company allocates fixed costs to products on the basis of sales
revenue. when the president of luther saw the income statement, he agreed that
meteorite should be dropped. if this is done, sales of kryptonite are expected to increase
by 15% next year; the firm’s cost structure will remain the same.
required:
1> find the expected change in annual operating income by dropping meteorite and
selling only kryptonite.
2> what strategic factors should be considered?
14) exeter industries produces and markets several lines of food and beverage products.
the company plans to expand its market to cover a new geographical area, and the first
products to be introduced into this new market are three of exeter’s coffees. a meeting of
the marketing committee has been called to determine the pricing and promotional
strategy for the introduction of these coffees. exeter has adopted the differentiation
strategy and is using the marketing committee to come up with the proper way to
execute this strategy in the firm’s pricing and promotional policy.
mark williams, vice president of marketing, has suggested that exeter continue its
policy of premium pricing for rich roast coffee in the new market. “rich roast is a
superior blend of brazilian coffees and should have little difficulty gaining customer
acceptance. the use of other promotional strategies doesn’t appear necessary at this
time.”
carol randolph, general sales manager, agreed with this strategy for rich roast but
recommended a different approach for vitality coffee, exeter’s brand of decaffeinated
coffee. “vitality is an unknown name in this region and will require a determined
promotional effort to gain market share from other very competitive products. we could
try penetration pricing or packaging options combined with either manufacturer’s
coupons or rebates. whatever strategy we select, we should hit the market hard if we
want to be successful.”
dan felton has been appointed regional sales manager for the new geographical area and
is concerned about the acceptance of mellow roast coffee, a blend of regular and
decaffeinated coffees. “this is a brand new type of coffee in this region and may just sit
on the shelf unless we develop an effective advertising campaign. pricing or packaging
options will be worthless unless the product gains some visibility and the targeted
customer base is made aware of the benefits of mellow roast. we need a good slogan
like “a gentle wakeup without caffeine stress!”
required:
mark williams has suggested the continuance of premium pricing for rich roast coffee.
explain the strategic role of premium pricing, and describe the economic circumstances
in the marketplace that would encourage the use of this pricing strategy.
(cma adapted)
15) a portion of the costs incurred by business organizations is designated as direct
labor cost. as used in practice, the term direct labor cost has a wide variety of meanings.
unless the meaning intended in a given context is clear, misunderstanding and confusion
are likely to ensue. if a user does not understand the elements included in direct labor
cost, erroneous interpretations of the numbers might occur and could result in poor
management decisions. measurement of direct labor costs has two aspects: (1) the
quantity of labor effort that is to be included, that is, the types of hours or other units of
time that are to be counted; and (2) the unit price by which each of these quantities is
multiplied to arrive at a monetary cost.
required:
1) distinguish between direct labor and indirect labor.
2) presented below are labor cost elements that a company has been classified as direct
labor, factory overhead, or either direct labor or factory overhead depending upon the
situation.
direct labor-included in the company’s direct labor are cost production efficiency
bonuses and certain benefits for direct labor workers such as fica (employer’s portion),
group life insurance, vacation pay, and workers’ compensation insurance.
factory overhead-the company’s calculation of manufacturing overhead includes the
cost of the following: wage continuation plans, the company sponsored cafeteria, the
personnel department, and recreational facilities.
direct labor or factory overhead-the costs that the company includes in this category are
maintenance expense, overtime premiums, and shift premiums.
explain the reasoning used by the company in classifying the cost elements in each of
the three categories.
16) required: identify two of the most successful companies or organizations in today’s
business environment, in your opinion. explain why they are so successful.
17) young fashions company produces children’s clothing. during 2013, the company
incurred the following costs:
inventories for the year were:
required:
prepare a statement of cost of goods manufactured and cost of goods sold.
18) willard company anticipates that its fixed manufacturing overhead costs will be
$50,000 during the next period. its variable manufacturing overhead is expected to be
$8 per unit produced.
required
1> what amount of overhead should be budgeted if the production budget shows that
40,000 units are to be produced?
2> what amount of overhead should be budgeted if the production budget shows that
50,000 units are to be produced?
3> compute the total overhead cost per unit for requirements 1 and 2 .
19) swenson company manufactures 4,000 units of deluxe product and 20,000 units of
regular product each year. the company currently uses direct labor-hours to assign
overhead cost to products. the pre-determined overhead rate is:
suppose, however, that factory overhead costs are actually caused by the five activities
listed below:
also suppose the following transaction data has been collected:
required:
using the activity-based costing method to calculate unit costs of deluxe and regular
products, and compare them with the current direct labor hours-based costing system.
20) “what’s the big fuss about learning three different methods of cost allocation for
joint products? the total cost doesn’t change, and the real question that needs answering
is whether to further process joint products or sell right away. besides, our firm uses jit
inventory, so there aren’t any ending inventories to cost.”
required:
comment on these ideas.
21) in 2003 the premier auto manufacturer, bmw, introduced a new compact suv (the
x3) in an effort to grab a greater share of the overall luxury car market. because its own
resources were pretty well tapped out by a large number of new vehicles bmw had
already introduced, the automaker decided to have the new suv built by the parts
manufacturer, magma international, based in toronto. the vehicles would be
manufactured by magma in an austrian plant.
required: comment on the strategic issues surrounding bmw’s introduction of this new
suv. do you think the company made the right decisions? why or why not?