ACCT 434 Final Exam Essay

Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

* The variances are due to the Mile High Cycle company not forecasting for increased production. The company budgeted for the production of 10,000 cycles but the actual production was 10,800 units. When the company increased production, the production efficiency decreased. The company had to use or rework parts that added extra cost to the expenses; the reworked parts added $25,000 of extra expenses to the wheel assembly production and $45,000 to the final assembly process. The material,

Glaser Health Products manufactures medical items for the health care industry. Production involves machining, assembly and painting. Finished units are then packed and shipped. The financial controller is interested to introduce an activity-based costing (ABC) system to allocate (or distribute) indirect costs to products. Indirect costs, as distinct from direct costs, cannot be unambiguously linked to specific products. The controller would like to calculate product costs based on ABC for planning and control, not inventory valuation.

The Ilarion Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $117,000 of manufacturing overhead for an estimated allocation base of $90,000 direct labor dollars. The company has provided the following data in the form of an Excel worksheet:

Blanco Company estimates that its variable manufacturing overhead (all requiring cash expenditures) is $32 per direct labor hour. The total fixed manufacturing overhead of $1,881,120 per month includes depreciation on the factory building of $120,000 per month and depreciation on the factory equipment of $30,000 per month for total depreciation of $150,000 per month. (Thus, the cash spent for fixed manufacturing overhead is $1,731,120 ($1,881,120 – $120,000 – $30,000) per month.) Cash disbursements for manufacturing overhead occur in the same month in which the company incurs the cost. Be sure to show the calculation of the average predetermined overhead rate for the quarter as a whole only—total budgeted manufacturing overhead cost

(TCO 6) What is an operating budget? What does it result in? What is the first step in completing an operating budget?

Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.

Hannon Company expects to produce 1,200,000 units of Product XX in 2010. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted variable manufacturing costs per unit are: direct materials $4, direct labor $6, and overhead $8. Budgeted fixed manufacturing costs per unit for depreciation are $2 and for supervision are $1. Complete the flexible manufacturing budget for the relevant range value using 20,000 unit increments.

7. Explain why the results in Requirement 1, Part D, and Requirement 6 differ. Be specific.

8. (TCO 3) The Marinade Department began the period with 150,000 units. During the period the department received another 180,000 units from the prior department and at the end of the period 112,000 units remained which were 17% complete. How much are equivalent units in The Marinade Department’s work in process inventory at the end of the period? (Points : 2)

10.  (TCO F) Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501: Direct materials used: $4,200Direct labor hours worked: 300Direct labor rate per hour: $8.00Machine hours used: 200Predetermined overhead rate per machine hour: $15.00What is the total manufacturing cost recorded on Job 1501? (Points : 7)

• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.

| (TCO F) For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system?

Q3. How were the limitations of the existing cost system overcome by the ABC Cost System? What are the implications of the ABC system?

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production