wk 2 homework

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Central Michigan University *

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Apr 3, 2024

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MBA 620 Week 2 Homework 1. Burns Company incurred costs for the following items. • Salary of chief financial officer • Factory Insurance • Salary for salespeople • Raw materials used in production easily be traced to the product • Insurance for headquarters building • Production line workers’ wages a. Indicate whether each item should be categorized as a product or period cost. Salary of chief financial officer – Period Cost Factory Insurance – Product Cost Salary for salespeople - Period Cost Raw materials used in production easily traced to the product – Product Cost Insurance for headquarters building – Period Cost Production line workers’ wages – Product Cost b. Indicate whether each item should be categorized as direct materials, direct labor, manufacturing overhead, selling, or general and administrative. Salary of chief financial officer – G&A Factory insurance – MO Salary for salespeople – Selling Costs Raw materials used in production easily traced to the product – DM Insurance for headquarters building – G&A Production line workers wages – DL 2. Indicate whether each of the firms listed in the following would use job costing or process costing. a. Oil refinery – Process Costing b. Builder of pools – Job Costing c. Cereal producer – Process Costing d. Legal firm – Job Costing

3. Manufacturing overhead costs totaling $1,000,000 are expected for this coming year. The company also expects to use 20,000 in direct labor hours. Calculate the predetermined overhead rate and provide a one-sentence description of how the rate will be used in a job costing system. POHR = 1,000,000 = $50 Every job will be assigned $50 in overhead costs for every 20,000 direct labor hours charged to the job. 4. Classic Boats, Inc., produces custom wood boats. Each boat is built to customer specifications. During April, its first month of operations, Classic Boats began production of a customer order. This order used $38,800 in direct materials and $7,400 in direct labor. Classic Boats applies overhead using a predetermined rate of $1.60 per direct labor dollar. The customer order was delivered and billed at $70,000. a. Calculate the production cost incurred in April for this custom order.  Direct labor X POHR = Overhead 7,400 X 1.60 = 11,840  Total cost: (38,800 + 7,400 + 11,840) = $58,040 b. How much gross profit did Classic Boats earn from this custom order? GP: 70,000 – 58,040 = $11,960 c. Assume selling costs totaled $2,000 and general and administrative costs totaled $5,500. Prepare an income statement for Classic Boats for the month of April. (Assume there is no adjustment to cost of goods sold for underapplied or overapplied overhead.) Olympia Company incurred actual manufacturing overhead costs of $630,000 during the year ended December 31, 2012. A total of $570,000 in overhead was applied to jobs. At December 31, 2012, work- in-process inventory totals $200,000, and finished goods inventory totals $400,000. Cost of goods sold before adjustments totals $1,400,000 for the year. Is overhead underapplied or overapplied? By how much? o Actual Manufacturing Overhead – Applied Overhead  630,000 – 570,000 = 60,000 o The overhead is underapplied. It is underapplied by 60,000. 5. Ehrman Company identified the activities listed in the following as being most important (step 1 and step 2 of activity-based costing), and it formed cost pools for each activity. Perform step 3 of the activity-based costing process by identifying a possible cost driver for each activity. a. Purchasing raw materials – Purchase requisitions b. Maintaining production equipment – Maintenance Hours c. Setting up machines to produce batches of product – Machine Setups d. Testing finished products – Testing Hours

6. Novak Corporation manufactures custom-made kayaks and accessories. The company performs the following activities. Label each activity as value-added or non-value-added. a. Assembling kayaks – Value-Added b. Waiting for materials to arrive to continue production – Non-Value-Added c. Painting kayaks – Value-Added d. Designing kayaks to maximize comfort – Value-Added 7. Hodges and Associates is a small firm that provides structural engineering services for its clients. The company performs structural engineering services for both residential and commercial buildings. Last year, total overhead costs of $330,000 were allocated based on direct labor costs. A total of $300,000 in direct labor costs were incurred in the following areas: $120,000 in the residential segment and $180,000 in the commercial segment. Direct materials used were negligible and are included in overhead costs. Sales revenue totaled $450,000 for residential services and $330,000 for commercial services. The management of Hodges and Associates would like to use activity-based costing to allocate overhead rather than a plantwide rate based on direct labor costs. The following estimates are for the activities and related cost drivers identified as having the greatest impact on overhead costs. a. Using the plantwide allocation method, calculate the total cost and the profit for each product. (Hint: Don’t forget to include all types of product costs in your total cost calculation, similar to #4a above. Product costs for this service company include direct labor and overhead.) POHR: (330,000/300,000) = $1.1 Residential Commercial Overhead: 120,000 X 1.1 = 132,000 Overhead: 180,000 X 1.1 = 198,000 Sales: 450,000 Sales: 330,000 Direct labor: 120,000 Direct labor: 180,000 Overhead: 132,000 Overhead: 198,000 Total Costs: 252,000 Total Costs: 378,000 Gross Profit: 198,000 Gross Profit: -48,000

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