Taylor Inc. produces summer dresses for women. Their dresses are made of cotton fabrics. The line workers are paid an hourly wage and the production supervisor is paid an annual salary. The products are tested for quality control by an independent party which charges a set price per month and an additional charge for each item tested. The machineries are depreciated on a straight-line basis. Which of the following items should be classified as a mixed cost? Group of answer choices Quality control costs Depreciation of the machineries Production supervisor’s salary Cotton fabrics
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Taylor Inc. produces summer dresses for women. Their dresses are made of cotton fabrics. The line workers are paid an hourly wage and the production supervisor is paid an annual salary. The products are tested for quality control by an independent party which charges a set price per month and an additional charge for each item tested. The machineries are
Which of the following items should be classified as a mixed cost?
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- One of the tennis rackets that Ace Sporting Goods manufactures is a titanium model (Slam) that sells for 149. The cost of each Slam consists of: Job 100 produced 100 Slams, of which six were spoiled and classified as seconds. Seconds are sold to discount stores for 50 each. Required: 1. Under the assumption that the loss from spoilage will be distributed to all jobs produced during the current period, use general journal entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the cash sale of spoiled units. 2. Under the assumption that the loss due to spoilage will be charged to Job 100, use general journal entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the cash sale of spoiled units.A local barbershop cuts the hair of 1,200 customers per month. The clients are men, and the barbers offer no special styling. During the month of May, 1,200 customers were serviced. The cost of haircuts includes the following: Required: 1. Explain why process costing is appropriate for this haircutting operation. 2. Calculate the cost per haircut. 3. Can you identify some possible direct materials used for this haircutting service? Is the usage of direct materials typical of services? If so, provide examples of services that use direct materials. Can you think of some services that would not use direct materials?Pinter Company had the following environmental activities and product information: 1. Environmental activity costs 2. Driver data 3. Other production data Required: 1. Calculate the activity rates that will be used to assign environmental costs to products. 2. Determine the unit environmental and unit costs of each product using ABC. 3. What if the design costs increased to 360,000 and the cost of toxic waste decreased to 750,000? Assume that Solvent Y uses 6,000 out of 12,000 design hours. Also assume that waste is cut by 50 percent and that Solvent Y is responsible for 14,250 of 15,000 pounds of toxic waste. What is the new environmental cost for Solvent Y?
- Mott Company recently implemented a JIT manufacturing system. After one year of operation, Heidi Burrows, president of the company, wanted to compare product cost under the JIT system with product cost under the old system. Motts two products are weed eaters and lawn edgers. The unit prime costs under the old system are as follows: Under the old manufacturing system, the company operated three service centers and two production departments. Overhead was applied using departmental overhead rates. The direct overhead costs associated with each department for the year preceding the installation of JIT are as follows: Under the old system, the overhead costs of the service departments were allocated directly to the producing departments and then to the products passing through them. (Both products passed through each producing department.) The overhead rate for the Machining Department was based on machine hours, and the overhead rate for assembly was based on direct labor hours. During the last year of operations for the old system, the Machining Department used 80,000 machine hours, and the Assembly Department used 20,000 direct labor hours. Each weed eater required 1.0 machine hour in Machining and 0.25 direct labor hour in Assembly. Each lawn edger required 2.0 machine hours in Machining and 0.5 hour in Assembly. Bases for allocation of the service costs are as follows: Upon implementing JIT, a manufacturing cell for each product was created to replace the departmental structure. Each cell occupied 40,000 square feet. Maintenance and materials handling were both decentralized to the cell level. Essentially, cell workers were trained to operate the machines in each cell, assemble the components, maintain the machines, and move the partially completed units from one point to the next within the cell. During the first year of the JIT system, the company produced and sold 20,000 weed eaters and 30,000 lawn edgers. This output was identical to that for the last year of operations under the old system. The following costs have been assigned to the manufacturing cells: Required: 1. Compute the unit cost for each product under the old manufacturing system. 2. Compute the unit cost for each product under the JIT system. 3. Which of the unit costs is more accurate? Explain. Include in your explanation a discussion of how the computational approaches differ. 4. Calculate the decrease in overhead costs under JIT, and provide some possible reasons that explain the decrease.Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for 66 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Prior to making a decision, the companys CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups1,160 each (The setups would be avoided, and total spending could be reduced by 1,160 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is 12,300 and could be totally avoided if the part were purchased. Engineering work: 470 hours, 45/hour. (Although the work decreases by 470 hours, the engineer assigned to the track assembly line also spends time on other products, and there would be no reduction in his salary.) 75 fewer material moves at 30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. 2. Now, using the special study data, repeat the analysis. 3. Discuss the qualitative factors that would affect the decision, including strategic implications. 4. After reviewing the special study, the controller made the following remark: This study ignores the additional activity demands that purchasing would cause. For example, although the demand for inspecting the part on the production floor decreases, we may need to inspect the incoming parts in the receiving area. Will we actually save any inspection costs? Is the controller right?Leather Works is a family-owned maker of leather travel bags and briefcases located in the northeastern part of the United States. Foreign competition has forced its owner, Heather Gray, to explore new ways to meet the competition. One of her cousins, Wallace Hayes, who recently graduated from college with a major in accounting, told her about the use of cost variance analysis to learn about efficiencies of production. In May of last year, Heather asked Matt Jones, chief accountant, and Alfred Prudest, production manager, to implement a standard costing system. Matt and Alfred, in turn, retained Shannon Leikam, an accounting professor at Hardings College, to set up a standard costing system by using information supplied to her by Matts and Alfreds staff. To verify that the information was accurate, Shannon visited the plant and measured workers output using time and motion studies. During those visits, she was not accompanied by either Matt or Alfred, and the workers knew about Shannons schedule in advance. The cost system was implemented in June of last year. Recently, the following dialogue took place among Heather, Matt, and Alfred: HEATHER: How is the business performing? ALFRED: You know, we are producing a lot more than we used to, thanks to the contract that you helped obtain from Lean, Inc., for laptop covers. (Lean is a national supplier of computer accessories.) MATT: Thank goodness for that new product. It has kept us from sinking even more due to the inroads into our business made by those foreign suppliers of leather goods. HEATHER: What about the standard costing system? MATT: The variances are mostly favorable, except for the first few months when the supplier of leather started charging more. HEATHER: How did the union members take to the standards? ALFRED: Not bad. They grumbled a bit at first, but they have taken it in stride. Weve consistently shown favorable direct labor efficiency variances and direct materials usage variances. The direct labor rate variance has been flat. MATT: It should be since direct labor rates are negotiated by the union representative at the start of the year and remain the same for the entire year. HEATHER: Matt, would you send me the variance report for laptop covers immediately? The following chart summarizes the direct materials and direct labor variances from November of last year through April of this year (extracted from the report provided by Matt). Standards for each laptop cover are as follows: a. Three feet of direct materials at 7.50 per foot b. Forty-five minutes of direct labor at 14 per hour In addition, the data for May of this year, but not the variances for the month, are as follows: Actual direct labor cost per hour exceeded the budgeted rate by 0.10 per hour. Required: 1. For May of this year, calculate the price and quantity variances for direct labor and direct materials. 2. Discuss the trend of the direct materials and labor variances. 3. What type of actions must the workers have taken during the period they were being observed for the setting of standards? 4. What can be done to ensure that the standards are set correctly? (CMA adapted)
- Miller Minerals Co. manufactures a product that requires the use of a considerable amount of natural gas to heat it to a desired temperature. The process requires a constant level of heat, so the furnaces are maintained at a set temperature for 24 hours a day. Although units are not continuously processed, management desires that the variable cost be charged directly to the product and the fixed cost to the factory overhead. The following data have been collected for the year: Required: 1. Separate the variable and fixed elements, using the high-low method. 2. Determine the variable cost to be charged to the product for the year. (Hint: First determine the number of annual units produced.) 3. Determine the fixed cost to be charged to factory overhead for the year.Otero Fibers, Inc., specializes in the manufacture of synthetic fibers that the company uses in many products such as blankets, coats, and uniforms for police and firefighters. Otero has been in business since 1985 and has been profitable every year since 1993. The company uses a standard cost system and applies overhead on the basis of direct labor hours. Otero has recently received a request to bid on the manufacture of 800,000 blankets scheduled for delivery to several military bases. The bid must be stated at full cost per unit plus a return on full cost of no more than 10 percent after income taxes. Full cost has been defined as including all variable costs of manufacturing the product, a reasonable amount of fixed overhead, and reasonable incremental administrative costs associated with the manufacture and sale of the product. The contractor has indicated that bids in excess of 30 per blanket are not likely to be considered. In order to prepare the bid for the 800,000 blankets, Andrea Lightner, cost accountant, has gathered the following information about the costs associated with the production of the blankets. Direct machine costs consist of items such as special lubricants, replacement of needles used in stitching, and maintenance costs. These costs are not included in the normal overhead rates. Otero recently developed a new blanket fiber at a cost of 750,000. In an effort to recover this cost, Otero has instituted a policy of adding a 0.50 fee to the cost of each blanket using the new fiber. To date, the company has recovered 125,000. Lightner knows that this fee does not fit within the definition of full cost, as it is not a cost of manufacturing the product. Required: 1. Calculate the minimum price per blanket that Otero Fibers could bid without reducing the companys operating income. 2. Using the full-cost criteria and the maximum allowable return specified, calculate Otero Fibers bid price per blanket. 3. Without prejudice to your answer to Requirement 2, assume that the price per blanket that Otero Fibers calculated using the cost-plus criteria specified is greater than the maximum bid of 30 per blanket allowed. Discuss the factors that Otero Fibers should consider before deciding whether or not to submit a bid at the maximum acceptable price of 30 per blanket. (CMA adapted)Young Company is beginning operations and is considering three alternatives to allocate manufacturing overhead to individual units produced. Young can use a plantwide rate, departmental rates, or activity-based costing. Young will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected? a. All production costs approach those costs that were budgeted. b. The sales mix does not vary from the mix that was budgeted. c. All manufacturing overhead is a fixed cost. d. All ending inventory balances are zero.
- Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for each treadmill is as follows: All of the activity costs are related to labor. Management must remove 2.00 of activity cost from the product in order to remain competitive. Rework involves disassembling and repairing a unit that fails testing. Not all units require rework, but the average is 0.40 hour per unit. Presently, the testing is done on the completed assembly; but much of the rework has been related to motors, which can be tested independently prior to adding the motor to the treadmill during final assembly. Thus, motor issues can be diagnosed and solved without having to disassemble the complete treadmill. This change will reduce the average rework per unit by one-quarter. a.Determine the new activity cost per unit under the rework improvement scenario. b.If management had the choice of doing the rework improvement in (a) or cutting the moving activity in half by improving the product flow, which decision should be implemented? Why?Anderson Company has the following departmental manufacturing structure for one of its products: After some study, the production manager of Anderson recommended the following revised cellular manufacturing approach: Required: 1. Calculate the total time it takes to produce a batch of 20 units using Andersons traditional departmental structure. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. What if the processing times of molding, welding, and assembly are all reduced to six minutes each? What is the production rate now, and how long will it take to produce a batch of 20 units?Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below. At the zero-defect state, Nabors expects to spend 375,000 on quality engineering, 75,000 on vendor certification, and 50,000 on packaging inspection. Assume sales to be 25,000,000. Required: 1. Prepare a long-range performance report for 20x5. What does this report tell the management of Nabors? 2. Explain why quality costs still are present for the zero-defect state. 3. What if Nabors achieves the zero-defect state reflected in the report? What are some of the implications of this achievement?
