# Week 5 Practice Text Exercises Acc 561

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Practice Text Exercises
Karen V. Lawrence, Charita Dixon, Brian Swift, Javon Lewis, Cecelia Byrd
ACC 561
June 21, 2011

Practice Text Exercises
Excel 12-59 Allocating Costs Using Direct and Step-Down Methods (p. 584)
Goal: Create an Excel spreadsheet to allocate costs using the direct method and the stepdown method. Use the results to answer questions about your findings.

Scenario: Antonio Cleaning has asked you to help them determine the best method for allocating costs from their service departments to their producing departments. Additional background information for your spreadsheet appears in Fundamental Assignment Material
12-B2. Exhibit 12-4 on page 532 illustrates the types of calculations that
Determine operating income for 20X7, assuming the firm uses the variable-costing approach to product costing. (Do not prepare a statement.)

Variable Manufacturing Cost per Unit = \$120,000 / 15,000 units = \$8 per unit
Variable Nonmanufacturing Cost per Unit = \$24,000 / 12,000 units = \$2 per unit
Operating Income = Sales – Variable manufacturing cost – variable non manufacturing cost – fixed manufacturing costs – fixed non manufacturing costs.
= (12,000 x \$17) – (12,000 x \$8) – (12,000 x \$2) – \$63,000 – \$18,000
= \$204,000 – \$96,000 – \$24,000 – \$63,000 – \$18,000
= \$3,000

2. Assume that there is no January 1, 20X7, inventory; no variances are allocated to inventory; and the firm uses a “full absorption” approach to product costing. Compute:

(a) the cost assigned to December 31, 20X7, inventory; and

Ending Inventory = 15,000 units – 12,000 units = 3,000 units
Cost of Ending Inventory = 3,000 units x (\$8 + \$63,000 / 18,000 units) = 3,000 units x \$11.50 = \$34,500

(b) operating income for the year ended December 31, 20X7. (Do not prepare a statement.)

Total Cost = \$120,000 + \$63,000 + \$24,000 + \$18,000 = \$225,000

Operating Income = (12,000x \$17) – (\$225,000 – \$34,500 = \$204,000 – \$190,500 = 13,500