4_Introduction to Product Costing_Cost Allocation_QUESTIONS

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1 Introduction to Product Costing | Cost Allocation – QUESTIONS Part 1 1. The method of cost accounting that is most consistent with cost-volume-profit analysis is: a) Variable costing b) Process costing c) Absorption costing d) Activity based costing 2. The costing approach that charges all manufacturing costs to the product is referred to as: a) variable costing b) contribution margin costing c) direct costing d) absorption costing e) None of the above. 3. Manufacturing product costs typically consist of: a) direct materials, direct labor, and manufacturing overhead b) production and shipping costs c) production and marketing costs d) direct materials, direct labor, and administrative costs e) direct materials, direct labor, marketing and administrative costs

2 4. Company Z had the following sales and production data for the past four years: Year 1 Year 2 Year 3 Year 4 Production in units 6,000 9,000 4,000 5,000 Sales in units 6,000 6,000 5,000 7,000 Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which of the following statements is not correct ? a) Under variable costing, net operating income for Year 1 and Year 2 would be the same. b) Because of the changes in production levels, under variable costing the per-unit product cost in Cost of Goods Sold will change each year. c) The total net operating income for all four years combined would be the same under variable and absorption costing. d) Under absorption costing, net operating income in Year 4 would be less than the net operating income in Year 2. e) All of the above are true 5. In which order are costs of direct materials recorded? a) Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold. b) Raw Materials, Work in Process, Cost of Goods Sold, Finished Goods. c) Raw Materials, Overhead, Finished Goods, Cost of Goods Sold. d) Raw Materials, Finished Goods, Overhead, Cost of Goods Sold e) None of the above.

3 Part 2 Trucks and Company (TC) produces trucks and SUVs. Both vehicles are produced in the same plant using similar (but not identical) production processes. In 2017, TC produced 60,000 trucks and 40,000 SUVs. Direct Materials Costs Traced to Trucks $ 240,000,000 SUVs $ 100,000,000 Conversion Costs (direct labor plus indirect manufacturing costs) Total costs to be allocated $ 680,000,000 TC estimates that the production of one truck requires approximately 40% of the conversion costs used to produce one SUV. (a) What was the direct materials cost per truck for 2017? Direct materials cost per truck _______________ /truck

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4 (b) What was the total cost to produce a truck in 2017? Total cost per truck $_______________ /truck (c) What was the total cost to produce an SUV in 2017? Total cost per SUV $_______________ /SUV

5 TC faces increased pressure from competitors that sell trucks at lower prices. TC is concerned that it may be overpricing its trucks because its allocation of conversion costs between truck and SUVs is not as precise as is needed. As a consequence, it has been monitoring its production operations to determine the direct labor and overhead resources used by each type of vehicle. That examination has provided the following information. For 2017, i) the total conversion cost is composed of $170,000,000 for direct labor and $510,000,000 for manufacturing overhead; ii) each truck requires approximately 40% of the direct labor needed to produce a SUV; iii) the production of trucks accounted for 30% of the company’s total manufacturing overhead costs. (d) Using the information obtained from TC’s monitoring of its production operations, what was the total cost per truck produced in 2017? Total cost per truck $_______________ /truck

6 Part 3 Alpha Co. pays its workers $8.50 per hour and applies overhead on the basis of direct labor hours, using an actual costing system. At the end of fiscal year 2018, the company had only had one job in process with the following costs: Job #4 - Direct Materials: $3,400 - Direct Labor: $510 - Overhead: $255 (a) The Finished Goods inventory at the end of 2018 includes Job #3. For this job, Alpha used Direct Material worth $1,100 and needed 34 Direct Labor hours. What is the total cost of Job #3 in the Finished Goods inventory? Total cost of Job #3 $ ______________________

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7 (b) Cost of Goods Sold at the end of 2018 was $6,800. Among other jobs, Alpha had sold Job #1 in 2018; this job included $714 of applied overhead. All other sold jobs had a total cost of $3,981. What amount of Direct Material is included in Job #1? Direct Materials of Job #1 $ ______________________