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All Textbook Solutions for Managerial Accounting

1DQ 2DQ What manufacturing cost term is used to describe the cost of materials that are an integral part of the manufactured end product?Distinguish between prime costs and conversion costs.What is the difference between a product cost and a period cost?Name the three inventory accounts for a manufacturing business, and describe what each balance represents at the end of an accounting period.In what order should the three inventories of a manufacturing business be presented on the balance sheet?What are the three categories of manufacturing costs included in the cost of finished goods and the cost of work in process?How do the manufacturing costs incurred during a period differ from the cost of goods manufactured for a period?How does the Cost of goods sold section of the income statement differ between retail and manufacturing companies?Management process Three phases of the management process are planning, directing, and controlling. Match the following descriptions to the proper phase:2BE Prime and conversion costs Identify the following costs as a prime cost (P), conversion cost (C), or both (B) for a magazine publisher: A. Paper used for the magazine B. Wages of printing machine employees C. Glue used to bind magazine D. Maintenance on printing machines Product and period costs Identify the following costs as a product cost or a period cost for a magazine publisher: A. Sales salaries B. Paper used for the magazine C. Maintenance on printing machines D. Depreciation expensecorporate headquarters Cost of goods sold, cost of goods manufactured Glenville Company has the following information for April: For April, determine (A) the cost of goods manufactured and (B) the cost of goods sold.Jakes Cabins is a small motel chain with locations near the national parks of Utah, Wyoming, and Montana. The chain has a total of 500 guest rooms. The following operating data are available for June: a. Determine the guest nights for June. b. Determine the available room nights for June. c. Determine the occupancy rate for June. d. Assume that the occupancy rate for June of the prior year was 82%. Has the utilization rate for Jakes Cabins improved or declined?Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead cost: a. Automobile engine b. Brake pads c. Depreciation of robotic assembly line equipment d. Glass for front and rear windshields e. Safety helmets and masks for assembly line workers f. Salary of quality control inspector g. Steering wheel h. Tires i. Wages of assembly line workers Indicate whether the following costs of Procter Gamble (PG), a maker of consumer products, would be classified as direct materials cost, direct labor cost, or factory overhead cost: a. Depreciation on assembly line equipment in the Mehoopany, Pennsylvania, paper products plant b. Licensing payments for use of Disney characters on children products c. Maintenance supplies d. Packaging materials e. Paper used in bath tissue f. Plant manager salary for the Iowa City, Iowa, plant g. Resins for body wash products h. Salary of process engineers i. Scents and fragrances used in making soaps and detergents j. Wages of production line employees at the Pineville, Louisiana, soap and detergent plant 3E For apparel manufacturer Abercrombie Fitch, Inc. (ANF), classify each of the following costs as either a product cost or a period cost: a. Advertising expenses b. Chief financial officers salary c. Depreciation on office equipment d. Depreciation on sewing machines e. Fabric used during production f. Factory janitorial supplies g. Factory supervisors salaries h. Property taxes on factory building and equipment i. Oil used to lubricate sewing machines j. Repairs and maintenance costs for sewing machines k. Research and development costs l. Sales commissions m. Salaries of distribution center personnel n. Salaries of production quality control supervisors o. Travel costs of media relations employees p. Utility costs for office building q. Wages of sewing machine operators From the choices presented in parentheses, choose the appropriate term for completing each of the following sentences: a. A product, sales territory, department, or activity to which costs are traced is called a (direct cost, cost object). b. Advertising costs are usually viewed as (period, product) costs. c. Factory overhead costs combined with direct labor costs are called (prime, conversion) costs. d. Feedback is often used to (improve, direct) operations. e. A sacrifice made to obtain some benefit is a (cost, expense). f. The balance sheet of a manufacturer would include an account for (cost of goods sold, work in process inventory). g. The implementation of automatic, robotic factory equipment normally (increases, decreases) the direct labor component of product costs.6E Classifying costs In a service company A partial list of the costs for Wisconsin and Minnesota Railroad, a short hauler of freight, follows. Classify each cost as either indirect or direct. For purposes of classifying each cost, use the train as the cost object. a. Costs of accident cleanup b. Cost to lease (rent) locomotives and railroad cars c. Cost of track and bed (ballast) replacement d. Depredation of terminal facilities e. Diesel fuel costs f. Information technology support staff salaries g. Insurance costs h. Maintenance costs of right of way, bridges, and buildings i. Safety training costs j. Salaries of dispatching and communications personnel k. Wages of switch and classification yard personnel l. Wages of train engineers Classifying costs The following is a manufacturing cost report of Marching Ants Inc. a. List the errors in the preceding report. b. Prepare a corrected report.Financial statements of a manufacturing firm The following events took place for Sorensen Manufacturing Company during January, the first month of its operations as a producer of digital video monitors: a. Purchased 250,000 of materials. b. Used 180,000 of direct materials in production. c. Incurred 450,000 of direct labor wages. d. Incurred 180,000 of factory overhead. e. Transferred 760,000 of work in process to finished goods. f. Sold goods for 1,200,000. g. Sold goods with a cost of 675,000 h. Incurred 215,000 of selling expense i. Incurred 125,000 of administrative expense Using the information given, complete the following: a. Prepare the January income statement for Sorensen Manufacturing Company. b. Determine the inventory balances at the end of the first month of operations.Manufacturing company balance sheet Partial balance sheet data for Diesel Additives Company at August 31 are as follows: Prepare the Current assets section of Diesel Additives Companys balance sheet at August 31.Cost of direct materials used in production for a manufacturing company Walker Manufacturing Company reported the following materials data for the month ending June 30: Determine the cost of direct materials used in production by Walker during the month ended June 30.12E Cost of goods manufactured for a manufacturing company The following information is available for Fuller Manufacturing Company for the month ending October 31: Determine Fuller Manufacturings cost of goods manufactured for the month ended October 31.Income statement for a manufacturing company Two items are omitted from each of the following three lists of cost of goods sold data from a manufacturing company income statement. Determine the amounts of the missing items, identifying them by letter.Statement of cost of goods manufactured for a manufacturing company Cost data for Johnstone Manufacturing Company for the month ended March 31 are as follows: a. Prepare a cost of goods manufactured statement for March. b. Determine the cost of goods sold for March.Cost of goods sold, profit margin, and net income for a manufacturing company The following information is available for Bandera Manufacturing Company for the month ending January 31: For the month ended January 31, determine Bandera Manufacturings (A) cost of goods sold, (B) gross profit, and (C) net income.Cost flow relationships The following information is available for the first month of operations of Bahadir Company, a manufacturer of mechanical pencils: Using the information given, determine the following missing amounts: A. Cost of goods sold B. Finished goods inventory at the end of the month C. Direct materials cost D. Direct labor cost E. Work in process inventory at the end of the month The following is a list of costs that were incurred in the production and sale of large commercial airplanes: a. Annual bonus paid to the chief operating officer of the company b. Annual fee to a celebrity to promote the aircraft c. Cost of electronic guidance system installed in the airplane cockpit d. Cost of electrical wiring throughout the airplane e. Cost of miniature replicas of the airplane used to promote and market the airplane f. Cost of normal scrap from production of airplane body g. Cost of paving the headquarters employee parking lot h. Decals for cockpit door, the cost of which is immaterial to the cost of the final product i. Depreciation on factory equipment j. Hourly wages of employees that assemble the airplane k. Hydraulic pumps used in the airplanes flight control system l. Instrument panel installed in the airplane cockpit m. Interior trim material used throughout the airplane cabin n. Masks for use by painters in painting the airplane body o. Metal used for producing the airplane body p. Oil to lubricate factory equipment q. Power used by painting equipment r. Prebuilt leather seats installed in the first-class cabin s. Production Quality Control Department costs for the year t. Salaries of Marketing Department personnel u. Salaries of test pilots v. Salary of chief financial officer w. Salary of plant manager x. Special advertising campaign in Aviation World magazine y. Turbo-charged airplane engine z. Yearly cost of the maintenance contract for robotic equipment Instructions Classify each cost as either a product cost or a period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for your answer, placing an X in the appropriate column:The following is a list of costs incurred by several manufacturing companies: a. Annual picnic for plant employees and their families b. Cost of fabric used by clothing manufacturer c. Cost of plastic for a toy manufacturer d. Cost of sewing machine needles used by a shirt manufacturer e. Cost of television commercials f. Depreciation of copying machines used by the Marketing Department g. Depreciation of microcomputers used in the factory to coordinate and monitor the production schedules h. Depreciation of office building i. Depreciation of robotic equipment used to assemble a product j. Electricity used to operate factory machinery k. Factory janitorial supplies I. Fees charged by collection agency on past-due customer accounts m. Fees paid to lawn service for office grounds n. Maintenance costs for factory equipment o. Oil lubricants for factory plant and equipment p. Pens, paper, and other supplies used by the Accounting Department q. Repair costs for factory equipment r. Rent for a warehouse used to store work in process and finished products s. Salary of a physical therapist who treats plant employees t. Salary of the manager of a manufacturing plant u. Telephone charges by corporate office v. Travel costs of marketing executives to annual sales meeting w. Wages of a machine operator on the production line x. Wages of production quality control personnel Instructions Classify each of the preceding costs as a product cost or period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for preparing your answer, placing an X in the appropriate column:A partial list of Foothills Medical Centers costs follows: a. Advertising hospital services on television b. Blood tests c. Cost of drugs used for patients d. Cost of maintaining the staff and visitors cafeteria e. Cost of building a new heart wing f. Cost of X-ray test g. Depreciation of patient rooms h. Depreciation of X-ray equipment i. Doctors fee j. General maintenance costs of the hospital k. Improvements on the employee parking lot l. Intravenous solutions used for patients m. Laundry services for operating room personnel n. Operating room supplies used on patients (catheters, sutures, etc.) o. Overtime incurred in the Patient Records Department due to a computer failure p. Patient meals q. Nurses salaries r. Salary of the nutritionist s. Salary of intensive care personnel t. Training costs for nurses u. Utility costs of the hospital Instructions 1. What would be Foothills Medical Centers most logical definition for the final cost object? 2. Identify whether each of the costs is to be classified as direct or indirect. For purposes of classifying each cost as direct or indirect, use the patient as the cost object.Manufacturing income statement, statement of cost of goods manufactured Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of May: Instructions 1. For both companies, determine the amounts of the missing items (a) through (f), identifying them by letter. 2. Prepare Yakima Companys statement of cost of goods manufactured for May. 3. Prepare Yakima Companys income statement for May.Statement of cost of goods manufactured and income statement for a manufacturing company The following information is available for Robstown Corporation for 20Y8: Instructions 1. Prepare the 20Y8 statement of cost of goods manufactured. 2. Prepare the 20Y8 income statement.1PB The following is a list of costs incurred by several manufacturing companies: a. Bonus for vice president of marketing b. Costs of operating a research laboratory c. Cost of unprocessed milk for a dairy d. Depreciation of factory equipment e. Entertainment expenses for sales representatives f. Factory supplies g. First-aid nurse for factory workersh. Health insurance premiums paid for factory workers i. Hourly wages of warehouse laborers j. Lumber used by furniture manufacturer k. Maintenance costs for factory equipment l. Microprocessors for a microcomputer manufacturer m. Packing supplies for products sold, which are insignificant to the total cost of the product n. Paper used by commercial printer o. Paper used in processing various managerial reports p. Protective glasses for factory machine operators q. Salaries of quality control personnel r. Sales commissions s. Seed for grain farmer t. Television advertisement u. Prebuilt transmissions for an automobile manufacturer v. Wages of a machine operator on the production line w. Wages of secretary of company controller x. Wages of telephone operators for a toll-free, customer hotline Instructions Classify each of the preceding costs as a product cost or period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for preparing your answer. Place an X in the appropriate column.A partial list of The Grand Hotels costs follows: a. Advertising in local newspaper b. Bedding (sheets, blankets, pillows) c. Bellhop wages d. Champagne for special guest packages e. Coffee and tea for rooms f. Cost of customer surveys g. Depreciation of the hotel h. Desk clerk wages i. Guest long-distance telephone costs j. Kitchen employee wages k. Laundering towels and sheets l. Lobby furniture m. Maid wages n. Mini-bar supplies o. New carpeting p. Painting lobby q. Pay-per-view movie rental costs (in rooms) r. Salary of the hotel manager s. Soaps and shampoos for rooms t. Training for hotel restaurant servers u. Utility costs for hotel v. Valet parking services w. Wages of convention setup employees Instructions 1. What would be The Grand Hotels most logical definition for the final cost object? 2. Identify whether each of the costs is to be classified as direct or indirect. For purposes of classifying each cost as direct or indirect, use the hotel guest as the cost object.Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of December: Instructions 1. For both companies, determine the amounts of the missing items (a) through (f), identifying them by letter. 2. Prepare Yakima Companys statement of cost of goods manufactured for December. 3. Prepare Yakima Companys income statement for December.Statement of cost of goods manufactured and income statement for a manufacturing company The following information is available for Shanika Company for 20Y6: Instructions 1. Prepare the 20Y6 statement of cost of goods manufactured. 2. Prepare the 20Y6 income statement.Comfort Plus, Inc., has a hotel with 300 rooms in a metropolitan city. Its main competitor, Connors Hotel, has a hotel with 350 rooms in the same city. The following operating data are available for April for the two hotels: a. Determine the guest nights for each hotel in April. b. Determine the available room nights for each hotel in April. c. Determine the occupancy rate for each hotel in April. d. Which hotel has the better utilization of capacity in April?2MAD Comparing occupancy for two hotels Sunrise Suites and Nationwide Inns operate competing hotel chains across the region. Hotel capacity information for both hotels is as follows: Information on the number of guests for each hotel and the average length of visit for June were as follows: A. Determine the guest nights for each hotel in June. B. Determine the room nights for each hotel in June. C. Determine the occupancy rate of each hotel in June. D. Interpret the results in (C).4MAD 5MAD 1TIF Communication Todd Johnson is the Vice President of Finance for Boz Zeppelin Industries Inc. At a recent finance meeting, Todd made the following statement: The managers of a company should use the same information as the shareholders of the firm. When managers use the same information to guide their internal operations as shareholders use in evaluating their investments, the managers will be aligned with the stockholders profit objectives. Prepare a one-half page memo to Todd discussing any concerns you might have with his statement.For each of the following managers, describe how managerial accounting could be used to satisfy strategic or operational objectives: a. The vice president of the Information Systems Division of a bank. b. A hospital administrator. c. The chief executive officer of a food company. The food company is divided into three divisions: Nonalcoholic Beverages, Snack Foods, and Fast-Food Restaurants. d. The manager of the local campus copy shop.The following situations describe scenarios that could use managerial accounting information: a. The manager of High Times Restaurant wants to determine the price to charge for various lunch plates. b. By evaluating the cost of leftover materials, the plant manager of a precision tool facility wants to determine how effectively the plant is being run. c. The division controller of West Coast Supplies needs to determine the cost of products left in inventory. d. The manager of the Maintenance Department of a large manufacturing company wants to plan next years anticipated expenditures. For each situation, discuss how managerial accounting information could be used.Geek Chic Company provides computer repair services for the community. Obie Wons computer was not working, and he called Geek Chic for a home repair visit. Geek Chic Companys technician arrived at 2:00 PM to begin work. By 4:00 PM, the problem was diagnosed as a failed circuit board. Unfortunately, the technician did not have a new circuit board in the truck because the technicians previous customer had the same problem and a board was used on that visit. Replacement boards were available back at Geek Chic Companys shop. Therefore, the technician drove back to the shop to retrieve a replacement board. From 4:00 to 5:00 PM, Geek Chic Companys technician drove the round trip to retrieve the replacement board from the shop. At 5:00 PM, the technician was back on the job at Obies home. The replacement procedure is somewhat complex because a variety of tests must be performed once the board is installed. The job was completed at 6:00 PM. Obies repair bill showed the following: Obie was surprised at the size of the bill and asked for more detail supporting the calculations. Geek Chic Company responded with the following explanations: The labor charge per hour is detailed as follows: Further explanations in the differences in the hourly rates are as follows: a. If you were in Obies position, how would you respond to the bill? Are there parts of the bill that appear incorrect to you? If so, what argument would you employ to convince Geek Chic Company that the bill is too high? b. Use the headings that follow to construct a table. Fill in the table by listing the costs identified in the activity in the left-hand column. For each cost, place a check mark in the appropriate column identifying the correct cost classification. Assume that each service call is a job.Which of the following items would not be considered a manufacturing cost? Cream for an ice cream maker. Sales commissions for a car manufacturer. Plant property taxes for an ice cream maker. Tires for an automobile manufacturer. 2CMA A firm has 100,000 in direct materials costs, 50,000 in direct labor costs, and 80,000 in overhead. Which of the following is true? a. Prime costs are 150,000; conversion costs are 180,000. b. Prime costs are 130,000; conversion costs are 150,000. c. Prime costs are 150,000; conversion costs are 130,000. d. Prime costs are 180,000; conversion costs are 150,000.In practice, items such as wood screws and glue used in the production of school desks and chairs would most likely be classified as: a. period costs. b. direct labor. c. factory overhead. d. direct materials.A. Name two principal types of cost accounting systems. B. Which system provides for a separate record of each particular quantity of product that passes through the factory? C. Which system accumulates the costs for each department or process within the factory?What kind of firm would use a job order cost system?Which account is used in the job order cost system to accumulate direct materials, direct labor, and factory overhead applied to production costs for individual jobs?What document is the source for (A) debiting the accounts in the materials ledger and (B) crediting the accounts in the materials ledger?What is a job cost sheet?6DQ Discuss how the predetermined factory overhead rate can be used in job order cost accounting to assist management in pricing jobs.A. How is a predetermined factory overhead rate computed? B. Name three common bases used in computing the rate.9DQ Describe how a job order cost system can be used for professional service businesses.Issuance of materials On May 7, Bergan Company purchased on account 10,000 units of raw materials at 8 per unit. During May, raw materials were requisitioned for production as follows: 7,500 units for Job 200 at 8 per unit and 1,480 units for Job 305 at 5 per unit. Journalize the entry on May 7 to record the purchase and on May 31 to record the requisition from the materials storeroom.Direct labor costs During May, Bergan Company accumulated 2,500 hours of direct labor costs on Job 200 and 3,000 hours on Job 305. The total direct labor was incurred at a rate of 28 per direct labor hour for Job 200 and 24 per direct labor hour for Job 305. Journalize the entry to record the flow of labor costs into production during May.Factory overhead costs During May, Bergan Company incurred factory overhead costs as follows: indirect materials, 8,800; indirect labor, 6,600; utilities cost, 4,800; and factory depreciation, 9,000. Journalize the entry to record the factory overhead incurred during May.Applying factory overhead Bergan Company estimates that total factory overhead costs will be 620,000 for the year. Direct labor hours are estimated to be 80,000. For Bergan Company, (A) determine the predetermined factory overhead rate using direct labor hours as the activity base, (B) determine the amount of factory overhead applied to Jobs 200 and 305 in May using the data on direct labor hours from BE 16-2, and (C) prepare the journal entry to apply factory overhead to both jobs in May according to the predetermined overhead rate.Job costs At the end of May, Bergan Company had completed Jobs 200 and 305. Job 200 is for 2,390 units, and Job 305 is for 2,053 units. Using the data from BE 16-1, BE 16-2, and BE 16-4, determine (A) the balance on the job cost sheets for Jobs 200 and 305 at the end of May, and (B) the cost per unit for Jobs 200 and 305 at the end of May.Cost of goods sold Pine Creek Company completed 200,000 units during the year at a cost of 3,000,000. The beginning finished goods inventory was 25,000 units at 310,000. Determine the cost of goods sold for 210,000 units, assuming a FIFO cost flow.Transactions in a job order cost system Five selected transactions for the current month are indicated by letters in the following T accounts in a job order cost accounting system: Describe each of the five transactions.The following information is available for the first year of operations of Creston Inc., a manufacturer of fabricating equipment: Determine the following amounts: a. Cost of goods sold b. Direct materials cost c. Direct labor cost Cost of materials issuances under the FIFO method An incomplete subsidiary ledger of materials inventory for May is as follows: A. Complete the materials issuances and balances for the materials subsidiary ledger under FIFO. B. Determine the materials inventory balance at the end of May. C. Journalize the summary entry to transfer materials to work in process. D. Explain how the materials ledger might be used as an aid in maintaining inventory quantities on hand.Materials issued are as follows: Journalize the entry to record the issuance of materials.Kingsford Furnishings Company manufactures designer furniture. Kingsford Furnishings uses a job order cost system. Balances on April 1 from the materials ledger are as follows: The materials purchased during April are summarized from the receiving reports as follows: Materials were requisitioned to individual jobs as follows: The glue is not a significant cost, so it is treated as indirect materials (factory overhead). a. Journalize the entry to record the purchase of materials in April. b. Journalize the entry to record the requisition of materials in April. c. Determine the April 30 balances that would be shown in the materials ledger accounts.A summary of the time tickets is as follows: Journalize the entry to record the factory labor costs.Entry for factory labor costs The weekly time tickets indicate the following distribution of labor hours for three direct labor employees: The direct labor rate earned per hour by the three employees is as follows: The process improvement category includes training, quality improvement, and other indirect tasks. A. Journalize the entry to record the factory labor costs for the week. B. Assume that Jobs 301 and 302 were completed but not sold during the week and that Job 303 remained incomplete at the end of the week. How would the direct labor costs for all three jobs be reflected on the financial statements at the end of the week?Schumacher Industries Inc. manufactures recreational vehicles. Schumacher Industries uses a job order cost system. The time tickets from June jobs are summarized as follows: Factory overhead is applied to jobs on the basis of a predetermined overhead rate of 23 per direct labor hour. The direct labor rate is 29 per hour. a. Journalize the entry to record the factory labor costs. b. Journalize the entry to apply factory overhead to production for June.Eclipse Solar Company operates two factories. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine hours are as follows: a. Determine the factory overhead rate for Factory 1. b. Determine the factory overhead rate for Factory 2. c. Journalize the entries to apply factory overhead to production in each factory for August. d. Determine the balances of the factory overhead accounts for each factory as of August 31, and indicate whether the amounts represent over- or underapplied factory overhead.Exotic Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows: The average shop direct labor rate is 37.50 per hour. Determine the predetermined shop overhead rate per direct labor hour.Predetermined factory overhead rate Poehling Medical Center has a single operating room that is used by local physicians to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and includes the direct materials costs (drugs and medical devices), physician surgical time, and operating room overhead. On January 1 of the current year, the annual operating room overhead is estimated to be: The overhead costs will be assigned to procedures, based on the number of surgical room hours. Poehling Medical Center expects to use the operating room an average of eight hours per day, seven days per week. In addition, the operating room will be shut down two weeks per year for general repairs. A. Determine the predetermined operating room overhead rate for the year. B. Bill Harris had a five-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (A)? C. During January, the operating room was used 240 hours. The actual overhead costs incurred for January were 67,250. Determine the overhead under- or overapplied for the period.The following account appears in the ledger prior to recognizing the jobs completed in January: Jobs finished during January are summarized as follows: a. Journalize the entry to record the jobs completed. b. Determine the cost of the unfinished jobs at January 31.Collegiate Publishing Inc. began printing operations on March 1. Jobs 301 and 302 were completed during the month, and all costs applicable to them were recorded on the related cost sheets. Jobs 303 and 304 are still in process at the end of the month, and all applicable costs except factory overhead have been recorded on the related cost sheets. In addition to the materials and labor charged directly to the jobs, 4,500 of indirect materials and 8,200 of indirect labor were used during the month. The cost sheets for the four jobs entering production during the month are as follows, in summary form: Journalize the summary entry to record each of the following operations for March (one entry for each operation): a. Direct and indirect materials used. b. Direct and indirect labor used. c. Factory overhead applied to all four jobs (a single overhead rate is used based on direct labor cost). d. Completion of Jobs 301 and 302.The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes: Purchased 480,000 of materials. Used 434,500 of direct materials in production. Incurred 125,000 of direct labor wages. Applied factory overhead at a rate of 40% of direct labor cost. Transferred 578,000 of work in process to finished goods. Sold goods with a cost of 550,000. Revenues earned by selling bikes, 910,000. Incurred 185,000 of selling expenses. Incurred 90,000 of administrative expenses. a. Prepare the income statement for Rushmore Biking for the month ending February 28. b. Determine the inventory balances on February 28, the end of the first month of operations.Job order cost accounting for a service company The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July: A. Provide the journal entries for each of these transactions. B. How much office overhead is over- or underapplied? C. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.Job order cost accounting for a service company The Fly Company provides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The Fly Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 65% of media purchases. On August 1, the four advertising projects had the following accumulated costs: During August, The Fly Company incurred the following direct labor and media purchase costs related to preparing advertising for each of the four accounts: At the end of August, both the Vault Bank and Take Off Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of services account. Journalize the summary entry to record each of the following for the month: A. Direct labor costs B. Media purchases C. Overhead applied D. Completion of Vault Bank and Take Off Airlines campaigns Barnes Company uses a job order cost system. The following data summarize the operations related to production for October: a. Materials purchased on account, 315,500. b. Materials requisitioned, 290,100, of which 8,150 was for general factory use. c. Factory labor used, 489,500 of which 34,200 was indirect. d. Other costs incurred on account for factory overhead, 600,000; selling expenses, 150,000; and administrative expenses, 100,000. e. Prepaid expenses expired for factory overhead were 18,000; for selling expenses, 6,000; and for administrative expenses, 5,000. f. Depreciation of office building was 30,000; of office equipment, 7,500; and of factory equipment, 60,000. g. Factory overhead costs applied to jobs, 711,600. h. Jobs completed, 1,425,000. i. Cost of goods sold, 1,380,000. Instructions Journalize the entries to record the summarized operations.Entries and schedules for unfinished jobs and completed jobs Kurtz Fencing Inc. uses a job order cost system. The following data summarize the operations related to production for March, the first month of operations: A. Materials purchased on account, 45,000. B. Materials requisitioned and factory labor used: C. Factory overhead costs incurred on account, 1,800. D. Depreciation of machinery and equipment, 2,500. E. The factory overhead rate is 30 per machine hour. Machine hours used: F. Jobs completed: 301, 302, 303, and 305. G. Jobs were shipped and customers were billed as follows: Job 301, 8,500; Job 302, 16,150; Job 303, 13,400. Instructions 1. Journalize the entries to record the summarized operations. 2. Post the appropriate entries to T accounts for Work in Process and Finished Goods, using the identifying letters as transaction codes. Insert memo account balances as of the end of the month. 3. Prepare a schedule of unfinished jobs to support the balance in the work in process account. 4. Prepare a schedule of completed jobs on hand to support the balance in the finished goods account.Job cost sheet Remnant Carpet Company sells and installs commercial carpeting for office buildings. Remnant Carpet Company uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On October 1, Remnant Carpet Company gave Jackson Consulting an estimate of 9,450 to carpet the consulting firms newly leased office. The estimate was based on the following data: On October 3, Jackson Consulting signed a purchase contract, and the delivery and installation were completed on October 10. The related materials requisitions and time tickets are summarized as follows: Instructions 1. Complete that portion of the job cost sheet that would be prepared when the estimate is given to the customer. 2. Record the costs incurred, and prepare a job cost sheet. Comment on the reasons for the variances between actual costs and estimated costs. For this purpose, assume that the additional meters of material used in the job were spoiled, the factory overhead rate has proven to be satisfactory, and an inexperienced employee performed the work.Analyzing manufacturing cost accounts Fire Rock Company manufactures designer paddle boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for June: In addition, the following information is available: A. Materials and direct labor were applied to six jobs in June: B. Factory overhead is applied to each job at a rate of 140% of direct labor cost. C. The June 1 Work in Process balance consisted of two jobs, as follows: D. Customer jobs completed and units sold in June were as follows: Instructions 1. Determine the missing amounts associated with each letter. Provide supporting computations by completing a table with the following headings: 2. Determine the June 30 balances for each of the inventory accounts and factory overhead.5PA Entries for costs in a job order cost system Royal Technology Company uses a job order cost system. The following data summarize the operations related to production for March: A. Materials purchased on account, 770,000. B. Materials requisitioned, 680,000, of which 75,800 was for general factory use. C. Factory labor used, 756,000, of which 182,000 was indirect. D. Other costs incurred on account for factory overhead, 245,000; selling expenses, 171,500; and administrative expenses, 110,600. E. Prepaid expenses expired for factory overhead were 24,500; for selling expenses, 28,420; and for administrative expenses, 16,660. F. Depreciation of factory equipment was 49,500; of office equipment, 61,800; and of office building, 14,900. G. Factory overhead costs applied to jobs, 568,500. H. Jobs completed, 1,500,000. I. Cost of goods sold, 1,375,000. Instruction Journalize the entries to record the summarized operations.Entries and schedules for unfinished jobs and completed jobs Hildreth Company uses a job order cost system. The following data summarize the operations related to production for April, the first month of operations: A. Materials purchased on account, 147,000. B. Materials requisitioned and factory labor used: C. Factory overhead costs incurred on account, 6,000. D. Depreciation of machinery and equipment, 4,100. E. The factory overhead rate is 40 per machine hour. Machine hours used: F. Jobs completed: 101, 102, 103, and 105. G. Jobs were shipped and customers were billed as follows: Job 101, 62,900; Job 102, 80,700; Job 105, 45,500. Instructions 1. Journalize the entries to record the summarized operations. 2. Post the appropriate entries to T accounts for Work in Process and Finished Goods, using the identifying letters as transaction codes. Insert memo account balances as of the end of the month. 3. Prepare a schedule of unfinished jobs to support the balance in the work in process account. 4. Prepare a schedule of completed jobs on hand to support the balance in the finished goods account.Job cost sheet Stretch and Trim Carpet Company sells and installs commercial carpeting for office buildings. Stretch and Trim Carpet Company uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On May 9, Stretch and Trim gave Lunden Consulting an estimate of 18,044 to carpet the consulting firms newly leased office. The estimate was based on the following data: On May 10, Lunden Consulting signed a purchase contract, and the carpet was delivered and installed on May 15. The related materials requisitions and time tickets are summarized as follows: Instructions 1. Complete that portion of the job cost sheet that would be prepared when the estimate is given to the customer. (Round factory overhead applied to the nearest dollar.) 2. Record the costs incurred, and prepare a job cost sheet. Comment on the reasons for the variances between actual costs and estimated costs. For this purpose, assume that the additional meters of material used in the job were spoiled, the factory overhead rate has proven to be satisfactory, and an inexperienced employee performed the work.Analyzing manufacturing cost accounts Clapton Company manufactures custom guitars in a wide variety of styles. The following incomplete ledger accounts refer to transactions that are summarized for May: In addition, the following information is available: A. Materials and direct labor were applied to six jobs in May: B. Factory overhead is applied to each job at a rate of 50% of direct labor cost. C. The May 1 Work in Process balance consisted of two jobs, as follows: D. Customer jobs completed and units sold in May were as follows: Instructions 1. Determine the missing amounts associated with each letter. Provide supporting computations by completing a table with the following headings: 2. Determine the May 31 balances for each of the inventory accounts and factory overhead.Flow of costs and income statement Technology Accessories Inc. is a designer, manufacturer, and distributor of accessories for consumer electronic products. Early in 20Y3, the company began production of a leather cover for tablet computers, called the iLeather. The cover is made of stitched leather with a velvet interior and fits snugly around most tablet computers. In January, 750,000 was spent on developing marketing and advertising materials. For the first six months of 20Y3, the company spent an additional 1,400,000 promoting the iLeather. The product was ready for manufacture on January 21, 20Y3. Technology Accessories Inc. uses a job order cost system to accumulate costs for the iLeather. Direct materials unit costs for the iLeather are as follows: The actual production process for the iLeather is fairly straightforward. First, leather is brought to a cutting and stitching machine. The machine cuts the leather and stitches an exterior edge into the product. The machine requires one hour per 125 iLeathers. After the iLeather is cut and stitched, it is brought to assembly, where assembly personnel affix the velvet interior and pack the iLeather for shipping. The direct labor cost for this work is 0.50 per unit. The completed packages are then sold to retail outlets through a sales force. The sales force is compensated by a 20% commission on the wholesale price for all sales. Total completed production was 500,000 units during the year. Other information is as follows: Factory overhead cost is applied to jobs at the rate of 1,250 per machine hour. There were an additional 22,000 cut and stitched iLeathers waiting to be assembled on December 31, 20Y3. Instructions 1. Prepare an annual income statement for the iLeather product, including supporting computations, from the information provided. 2. Determine the balances in the finished goods and work in process inventories for the iLeather product on December 31, 20Y3.Antolini Enterprises produces mens sports coats that are sold by popular department stores. Each retail order is treated as a job that accumulates materials, labor, and overhead costs for a batch of sports coats. Management has obtained data on the labor costs for four selected jobs over a six-month period. Each selected job represents a similar style and size of sports coat. The data are as follows: a. Determine the direct labor cost per unit for each job. b. Interpret the trend in per-unit labor cost. c. Determine the direct labor hours per sports coat. d. Interpret what may be happening with Job 192.Alvarez Manufacturing Inc. is a job shop. The management of Alvarez Manufacturing Inc. uses the cost information from the job sheets to assess cost performance. Information on the total cost, product type, and quantity of items produced is as follows: a. Develop a graph for each product (three graphs), with Job Number (in date order) on the horizontal axis and Unit Cost on the vertical axis. Use this information to determine Alvarez Manufacturing Inc.s cost performance over time for the three products. b. What additional information would you require in order to investigate Alvarez Manufacturing Inc.s cost performance more precisely?3MAD 4MAD Ethics in Action TAC Industries Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost. Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve operating income. As Tandy reviewed the divisions job cost sheets, she realized that she could increase the divisions operating income by moving a portion of the direct labor hours that had been assigned to the job cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a winwin for the division by (1) reducing the cost of corporate jobs, and (2) increasing the cost of government jobs whose profit is based on a percentage of job cost. Tandy submitted this idea to her division manager, who was impressed by her creative solution for improving the divisions profitability. Is Tandys plan ethical?2TIF Communication Carol Creedence, the plant manager of the Clearwater Companys Revival plant, has prepared the following graph of the unit costs from the job cost reports for the plants highest volume product, Product CCR. Carol is concerned about the erratic and increasing cost of Product CCR and has asked for your help. Prepare a one-half page memo to Carol, interpreting this graph and requesting any additional information that might be needed to explain this situation.RIRA Company makes attachments such as backhoes and grader and bulldozer blades for construction equipment. The company uses a job order cost system. Management is concerned about cost performance and evaluates the job cost sheets to learn more about the cost effectiveness of the operations. To facilitate a comparison, the job cost sheets for Job 206 (for 50 backhoe buckets completed in October) and Job 228 (for 75 backhoe buckets completed in December) were pulled and presented as follows: Management is concerned about the increase in unit costs over the months from October to December. To understand what has occurred, management interviewed the purchasing manager and quality manager. Purchasing Manager: Prices have been holding steady for our raw materials during the first half of the year. I found a new supplier for our bulk steel that was willing to offer a better price than we received in the past. I saw these lower steel prices and jumped on them, knowing that a reduction in steel prices would have a very favorable impact on our costs. Quality Manager: Something happened around mid-year. All of a sudden, we were experiencing problems with respect to the quality of our steel. As a result, weve been having all sorts of problems on the shop floor in our foundry and welding operation. a. Analyze the two job cost sheets and identify why the unit costs have changed for the backhoe buckets. Complete the following schedule to help in your analysis: b. How would you interpret what has happened in light of your analysis and the interviews?Todd Lay just began working as a cost accountant for Enteron Industries Inc., which manufactures gift items. Todd is preparing to record summary journal entries for the month. Todd begins by recording the factory wages as follows: Then the factory depreciation: Todds supervisor, Jeff Fastow, walks by and notices the entries. The following conversation takes place: Jeff: Thats a very unusual way to record our factory wages and depreciation for the month. Todd: What do you mean? This is the way I was taught in school to record wages and depreciation. You know, debit an expense and credit Cash or payables or, in the case of depreciation, credit Accumulated Depreciation. Jeff: Well, its not the credits Im concerned about. Its the debitsI dont think youve recorded the debits correctly. I wouldnt mind if you were recording the administrative wages or office equipment depreciation this way, but Ive got real questions about recording factory wages and factory machinery depreciation this way. Todd: Now Im really confused. You mean this is correct for administrative costs but not for factory costs? Well, what am I supposed to doand why? a. Play the role of Jeff and answer Todds questions. b. Why would Jeff accept the journal entries if they were for administrative costs?Baldwin Printing Company uses a job order cost system and applies overhead based on machine hours. A total of 150,000 machine hours have been budgeted for the year. During the year, an order for 1,000 units was completed and incurred the following: The accountant computed the inventory cost of this order to be 4.30 per unit. The annual budgeted overhead in dollars was: a. 577,500. b. 600,000. c. 645,000. d. 660,000.John Sheng, a cost accountant at Starlet Company, is developing departmental factory overhead application rates for the companys Tooling and Fabricating departments. The budgeted overhead for each department and the data for one job are as follows: Using the departmental overhead application rates, total overhead applied to Job 231 in the Tooling and Fabricating departments will be: a. 225. b. 303. c. 537. d. 671.Lucy Sportswear manufactures a specialty line of T-shirts using a job order cost system. During March, the following costs were incurred in completing Job ICU2: direct materials, 13,700; direct labor, 4,800; administrative, 1,400; and selling, 5,600. Factory overhead was applied at the rate of 25 per machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be: a. 5.70. b. 6.50. c. 5.50. d. 6.30.Patterson Corporation expects to incur 70,000 of factory overhead and 60,000 of general and administrative costs next year. Direct labor costs at 5 per hour are expected to total 50,000. If factory overhead is to be applied per direct labor hour, how much overhead will be applied to a job incurring 20 hours of direct labor? a. 120 b. 260 c. 28 d. 140 Which type of cost system, process or job order, would be best suited for each of the following: (A) TV assembler, (B) building contractor, (C) automobile repair shop, (D) paper manufacturer, (E) custom jewelry manufacturer? Give reasons for your answers.In job order cost accounting, the three elements of manufacturing cost are charged directly to job orders. Why is it not necessary to charge manufacturing costs in process cost accounting to job orders?In a job order cost system, direct labor and factory overhead applied are debited to individual jobs. How are these items treated in a process cost system and why?Why is the cost per equivalent unit often determined separately for direct materials and conversion costs?What is the purpose for determining the cost per equivalent unit?Rameriz Company is a process manufacturer with two production departments, Blending and Filling. All direct materials are introduced in Blending from the materials store area. What is included in the cost transferred to Filling?What is the most important purpose of the cost of production report?How are cost of production reports used for controlling and improving operations?Job order versus process costing Which of the following industries would typically use job order costing, and which would typically use process costing?Kraus Steel Company has two departments, Casting and Rolling. In the Rolling Department, ingots From the Casting Department are rolled into steel sheet. The Rolling Department received 4,000 tons from the Casting Department in October. During October, the Rolling Department completed 3,900 tons, including 200 tons of work in process on October 1. The ending work in process inventory on October 31 was 300 tons. How many tons were started and completed during October?The Rolling Department of Kraus Steel Company had 200 tons in beginning work in process inventory (60% complete) on October 1. During October, 3,900 tons were completed. The ending work in process inventory on October 31 was 300 tons (25% complete). What are the total equivalent units for direct materials for October if materials are added at the beginning of the process?The Rolling Department of Kraus Steel Company had 200 tons in beginning work in process inventory (60% complete) on October 1. During October, 3,900 tons were completed. The ending work in process inventory on October 31 was 300 tons (25% complete). What are the total equivalent units for conversion costs?The cost of direct materials transferred into the Rolling Department of Kraus Company is 3,000,000. The conversion cost for the period in the Rolling Department is 462,600. The total equivalent units for direct materials and conversion are 4,000 tons and 3,855 tons, respectively. Determine the direct materials and conversion costs per equivalent unit.The costs per equivalent unit of direct materials and conversion in the Rolling Department of Kraus Steel Company are 750 and 120, respectively. The equivalent units to be assigned costs are as follows: The beginning work in process inventory on October 1 had a cost of 163,800. Determine the cost of completed and transferred-out production, the ending work in process inventory, and the total costs assigned by the Rolling Department.In October, the cost of materials transferred into the Rolling Department from the Casting Department of Kraus Steel Company is 3,000,000. The conversion cost for the period in the Rolling Department is 462,600 (275,000 factory overhead applied and 187,600 direct labor). The total cost transferred to Finished Goods for the period was 3,392,400. The Rolling Department had a beginning inventory of 163,800. a. Journalize for the Rolling Department (1) the cost of transferred-in materials, (2) the conversion costs, and (3) the costs transferred out to Finished Goods. b. Determine the balance of Work in ProcessRolling at the end of the period.8BE Entries for materials cost flows in a process cost system The Hershey Company manufactures chocolate confectionery products. The three largest raw materials are cocoa, sugar, and dehydrated milk. These raw materials first go into the Blending Department. The blended product is then sent to the Molding Department, where the bars of candy are formed. The candy is then sent to the Packing Department, where the bars are wrapped and boxed. The boxed candy is then sent to the distribution center, where it is eventually sold to food brokers and retailers. Show the accounts debited and credited for each of the following business events: A. Materials used by the Blending Department B. Transfer of blended product to the Molding Department C. Transfer of chocolate to the Packing Department D. Transfer of boxed chocolate to the distribution center E. Sale of boxed chocolate Flowchart of accounts related to service and processing departments Alcoa Inc. (AA) is the worlds largest producer of aluminum products. One product that Alcoa manufactures is aluminum sheet products for the aerospace industry. The entire output of the Smelting Department is transferred to the Rolling Department. Part of the fully processed goods from the Rolling Department are sold as rolled sheet, and the remainder of the goods are transferred to the Converting Department for further processing into sheared sheet. Prepare a chart of the flow of costs from the processing department accounts into the finished goods accounts and then into the cost of goods sold account. The relevant accounts are as follows:Radford Inc. manufactures a sugar product by a continuous process, involving three production departmentsRefining, Sifting, and Packing. Assume that records indicate that direct materials, direct labor, and applied factory overhead for the first department, Refining, were 1,250,000, 660,000, and 975,000, respectively. Also, work in process in the Refining Department at the beginning of the period totaled 328,000, and work in process at the end of the period totaled 295,000. Journalize the entries to record (a) the flow of costs into the Refining Department during the period for (1) direct materials, (2) direct labor, and (3) factory overhead, and (b) the transfer of production costs to the second department, Sifting.The cost accountant for River Rock Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning February 1 would be 3,150,000, and total direct labor costs would be 1,800,000. During February, the actual direct labor cost totalled 160,000, and factory overhead cost incurred totaled 283,900. a. What is the predetermined factory overhead rate based on direct labor cost? b. Journalize the entry to apply factory overhead to production for February. c. What is the February 28 balance of the account Factory OverheadBlending Department? d. Does the balance in part (c) represent over- or underapplied factory overhead?The Converting Department of Worley Company had 2,400 units in work in process at the beginning of the period, which were 35% complete. During the period, 10,800 units were completed and transferred to the Packing Department. There were 1,900 units in process at the end of the period, which were 60% complete. Direct materials are placed into the process at the beginning of production. Determine the number of equivalent units of production with respect to direct materials and conversion costs.Data for the two departments of Kimble Pierce Company for June of the current fiscal year are as follows: Production begins in the Drawing Department and finishes in the Winding Department. If all direct materials are placed in process at the beginning of production, determine the direct materials and conversion equivalent units of production for June for (a) the Drawing Department and (b) the Winding Department.The following information concerns production in the Baking Department for December. All direct materials are placed in process at the beginning of production. a. Determine the number of units in work in process inventory at December 31. b. Determine the equivalent units of production for direct materials and conversion costs in December.a. Based upon the data in Exercise 17-7, determine the following for December: 1. Direct materials cost per equivalent unit 2. Conversion cost per equivalent unit 3. Cost of the beginning work in process completed during December 4. Cost of units started and completed during December 5. Cost of the ending work in process b. Assuming that the direct materials cost is the same for November and December, did the conversion cost per equivalent unit increase, decrease, or remain the same in December?Equivalent units of production Kellogg Company manufactures cold cereal products, such as Frosted Flakes. Assume that the inventory in process on March 1 for the Packing Department included 1,200 pounds of cereal in the packing machine hopper (enough for 800 24-oz. boxes) and 800 empty 24-oz. boxes held in the package carousel of the packing machine. During March, 65,400 boxes of 24-oz. cereal were packaged. Conversion costs are incurred when a box is filled with cereal. On March 31, the packing machine hopper held 900 pounds of cereal, and the package carousel held 600 empty 24-oz. (1-pound) boxes. Assume that once a box is filled with cereal, it is immediately transferred to the finished goods warehouse. Determine the equivalent units of production for cereal, boxes, and conversion costs for March. An equivalent unit is defined as pounds for cereal and 24-oz. boxes for boxes and conversion costs.Costs per equivalent unit Georgia Products Inc. completed and transferred 89,000 particle board units of production from the Pressing Department. There was no beginning inventory in process in the department. The ending in-process inventory was 2,400 units, which were complete as to conversion cost. All materials are added at the beginning of the process. Direct materials cost incurred was 219,360, direct labor cost incurred was 28,100, and factory overhead applied was 12,598. Determine the following for the Pressing Department: A. Total conversion cost B. Conversion cost per equivalent unit C. Direct materials cost per equivalent unit The charges to Work in ProcessAssembly Department for a period, together with information concerning production, are as follows. All direct materials are placed in process at the beginning of production. Determine the following: a. The number of units in work in process inventory at the end of the period b. Equivalent units of production for direct materials and conversion c. Costs per equivalent unit for direct materials and conversion d. Cost of the units started and completed during the period a. Based on the data in Exercise 17-11, determine the following: 1. Cost of beginning work in process inventory completed this period 2. Cost of units transferred to finished goods during the period 3. Cost of ending work in process inventory 4. Cost per unit of the completed beginning work in process inventory b. Did the production costs change from the preceding period? Explain. c. Assuming that the direct materials cost per unit did not change from the preceding period, did the conversion costs per equivalent unit increase, decrease, or remain the same for the current period?Errors in equivalent unit computation Napco Refining Company processes gasoline. On June 1 of the current year, 6,400 units were completed in the Blending Department. During June, 55,000 units entered the Blending Department from the Refining Department. During June, the units in process at the beginning of the month were completed. Of the 55,000 units entering the department, all were completed except 5,200 units that were completed. The equivalent units for conversion costs for June for the Blending Department were computed as follows: List the errors in the computation of equivalent units for conversion costs for the Blending Department for June.Cost per equivalent unit The following information concerns production in the Forging Department for November. All direct materials are placed into the process at the beginning of production, and conversion costs are incurred evenly throughout the process. The beginning inventory consists of 9,000 of direct materials. A. Determine the number of units transferred to the next department. B. Determine the costs per equivalent unit of direct materials and conversion. C. Determine the cost of units started and completed in November.Costs per equivalent unit and production costs Based on the data in Exercise 17-14, determine the following: A. Cost of beginning work in process inventory completed in November B. Cost of units transferred to the next department during November C. Cost of ending work in process inventory on November 30 D. Costs per equivalent unit of direct materials and conversion included in the November 1 beginning work in process E. The November increase or decrease in costs per equivalent unit for direct materials and conversion from the previous month Cost of production report The debits to Work in ProcessRoasting Department for Morning Brew Coffee Company for August, together with information concerning production, are as follows: All direct materials are placed in process at the beginning of production. A. Prepare a cost of production report, presenting the following computations: 1. Direct materials and conversion equivalent units of production for August 2. Direct materials and conversion costs per equivalent unit for August 3. Cost of goods finished during August 4. Cost of work in process at August 31 B. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (July).Cost of Production report The Cutting Department of Karachi Carpet Company provides the following data for January. Assume that all materials are added at the beginning of the process. A. Prepare a cost of production report for the Cutting Department. B. Compute and evaluate the change in the costs per equivalent unit for direct materials and conversion from the previous month (December).18E 19E 20E The Converting Department of Tender Soft Tissue Company uses the weighted average method and had 1,900 units in work in process that were 60% complete at the beginning of the period. During the period, 15,800 units were completed and transferred to the Packing Department. There were 1,200 units in process that were 30% complete at the end of the period. a. Determine the number of whole units to be accounted for and to be assigned costs for the period. b. Determine the number of equivalent units of production for the period. Assume that direct materials are placed in process during production.Units of production data for the two departments of Atlantic Cable and Wire Company for July of the current fiscal year are as follows: Each department uses the weighted average method. For each department, assume that direct Materials are placed in process during production. a. Determine the number of whole units to be accounted for and to be assigned costs and the equivalent units of production for the Drawing Department. b. Determine the number of whole units to be accounted for and to be assigned costs and the equivalent units of production for the Winding Department.The following information concerns production in the Finishing Department for May. The Finishing Department uses the weighted average method. a. Determine the number of units in work in process inventory at the end of the month. b. Determine the number of whole units to be accounted for and to be assigned costs and the equivalent units of production for May. Assume that direct materials are placed in process during production.24E The following information concerns production in the Forging Department for June. The Forging Department uses the weighted average method. a. Determine the cost per equivalent unit. b. Determine cost of units transferred to Finished Goods. c. Determine the cost of units in ending Work in Process.26E Prepare a cost of production report for the Cutting Department of Dalton Carpet Company for January. Assuming that direct materials are placed in process during production, use the weighted average method with the following data:Entries for process cost system Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it U spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at I he beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories: Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows: Instructions 1. Journalize the entries to record the operations, identifying each entry by letter. 2. Compute the January 31 balances of the inventory accounts. 3. Compute the January 31 balances of the factory overhead accounts.Cost of production report Hana Coffee Company roasts and packs coffee beans. The process begins by placing coffee beans into the Roasting Department. From the Roasting Department, coffee beans are then transferred to the Packing Department. The following is a partial work in process account of the Roasting Department at July 31: Instructions 1. Prepare a cost of production report, and identify the missing amounts for Work in Process Roasting Department. 2. Assuming that the July 1 work in process inventory includes 119,400 of direct materials, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between June and July.Equivalent units and related costs; cost of production report;entries White Diamond Flour Company manufactures flour by a series of three processes, beginning with wheat grain being introduced in the Milling Department. From the Milling Department, the materials pass through the Sifting and Packaging departments, emerging as packaged refined flour. The balance in the account Work in ProcessSifting Department was as follows on July 1: The following costs were charged to Work in ProcessSifting Department during July: During July, 15,500 units of flour were completed. Work in ProcessSifting Department on July 31 was 1,100 units, completed. Instructions 1. Prepare a cost of production report for the Sifting Department for July. 2. Journalize the entries for costs transferred from Milling to Sifting and the costs transferred from Sifting to Packaging. 3. Determine the increase or decrease in the cost per equivalent unit from June to July for direct materials and conversion costs. 4. Discuss the uses of the cost of production report and the results of part (3).Work in process account data for two months; cost of production reports Hearty Soup Co. uses a process cost system to record the costs of processing soup, which requires the cooking and filling processes. Materials are entered from the cooking process at the beginning of the filling process. The inventory of Work in ProcessFilling on April 1 and debits to the account during April were as follows: During April, 800 units in process on April 1 were completed, and of the 7,800 units entering the department, all were completed except 550 units that were 90% completed. Charges to Work in ProcessFilling for May were as follows: During May, the units in process at the beginning of the month were completed, and of the 9,600 units entering the department, all were completed except 300 units that were 35% completed. Instructions 1. Enter the balance as of April 1, in a four-column account for Work in ProcessFilling. Record the debits and the credits in the account for April. Construct a cost of production report, and present computations for determining (A) equivalent units of production for materials and conversion, B) costs per equivalent unit, (C) cost of goods finished, differentiating between units started in the prior period and units started and finished in April, and (d) work in process inventory. 2. Provide the same information for May by recording the May transactions in the four-column work in process account. Construct a cost of production report, and present the May computations (A through D) listed in part (1). 3. Comment on the change in costs per equivalent unit for March through May for direct materials and conversion costs.Sunrise Coffee Company roasts and packs coffee beans. The process begins in the Roasting Department. From the Roasting Department, the coffee beans are transferred to the Packing Department. The following is a partial work in process account of the Roasting Department at December 31: Instructions Prepare a cost of production report, using the weighted average method, and identify the missing amounts for Work in ProcessRoasting Department. Assume that direct materials are placed in process during production.Entries for process cost system Preston Grover Soap Company manufactures powdered detergent. Phosphate is placed in process in the Making Department, where it is turned into granulars. The output of Making is transferred to the Packing Department, where packaging is added at the beginning of the process. On July 1, Preston Grover Soap Company had the following inventories: Departmental accounts are maintained for factory overhead, which both have zero balances on July 1. Manufacturing operations for July are summarized as follows: Instructions 1. Journalize the entries to record the operations, identifying each entry by letter. 2. Compute the July 31 balances of the inventory accounts. 3. Compute the July 31 balances of the factory overhead accounts.Cost of production report Bavarian Chocolate Company processes chocolate into candy bars. The process begins by placing direct materials (raw chocolate, milk, and sugar) into the Blending Department. All materials are placed into production at the beginning of the blending process. After blending, the milk chocolate is then transferred to the Molding Department, where the milk chocolate is formed into candy bars. The following is a partial work in process account of the Blending Department at October 31: Instructions 1. Prepare a cost of production report, and identify the missing amounts for Work in ProcessBlending Department. 2. Assuming that the October 1 work in process inventory includes direct materials of 38,295, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between September and October.Equivalent units and related costs; cost of production report; entries Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals. The balance in the account Work in ProcessFilling was as follows on January 1: The following costs were charged to Work in ProcessFilling during January: During January, 53,000 units of specialty chemicals were completed. Work in ProcessFilling Department on January 31 was 2,700 units, 30% completed. Instructions 1. Prepare a cost of production report for the Filling Department for January. 2. Journalize the entries for costs transferred from Reaction to Filling and the costs transferred from Filling to Finished Goods. 3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. 4. Discuss the uses of the cost of production report and the results of part (3).Work in process account data for two months; cost of production reports Pittsburgh Aluminum Company uses a process cost system to record the costs of manufacturing rolled aluminum, which consists of the smelting and rolling processes. Materials are entered from smelting at the beginning of the rolling process. The inventory of Work in ProcessRolling on September 1 and debits to the account during September were as follows: During September, 2,600 units in process on September 1 were completed, and of the 28,900 units entering the department, all were completed except 2,900 units that were 45 completed. Charges to Work in ProcessRolling for October were as follows: During October, the units in process at the beginning of the month were completed, and of the 31,000 units entering the department, all were completed except 2,000 units that were 25 completed. Instructions 1. Enter the balance as of September 1 in a four-column account for Work in ProcessRolling. Record the debits and the credits in the account for September. Construct a cost of production report and present computations for determining (A) equivalent units of production for materials and conversion, (B) costs per equivalent unit, (C) cost of goods finished, differentiating between units started in the prior period and units started and finished in September, and (D) work in process inventory. 2. Provide the same information for October by recording the October transactions in the four-column work in process account. Construct a cost of production report, and present the October computations (A through D) listed in part (1). 3. Comment on the change in costs per equivalent unit for August through October for direct materials and conversion cost.Blue Ribbon Flour Company manufactures flour by a series of three processes, beginning in the Milling Department. From the Milling Department, the materials pass through the Sifting and Packaging departments, emerging as packaged refined flour. The balance in the account Work in ProcessSifting Department was as follows on May 1: The following costs were charged to Work in ProcessSifting Department during May: During May, 18,000 units of flour were completed and transferred to finished goods. Work in ProcessSifting Department on May 31 was 1,800 units, 75% completed. Instructions Prepare a cost of production report for the Sifting Department for May, using the weighted average method. Assume that direct materials are placed in process during production.Dura-Conduit Corporation manufactures plastic conduit that is used in the cable industry. A conduit is a tube that encircles and protects the underground cable. In the process for making the plastic conduit, called extrusion, the melted plastic (resin) is pressed through a die to form a tube. Scrap is produced in this process. Information from the cost of production reports for three months is as follows, assuming that inventory remains constant: Assume that there is one-half pound of resin per foot of the finished product. a. Determine the resin materials cost per foot of finished product for each month. Round to the nearest whole cent. b. Determine the ratio of the number of resin pounds output in conduit by the number of pounds input into the process for each month. Round percentages to one decimal place. c. Interpret the resin materials cost per foot for the three months. Use the information in (a) and (b) to explain what is happening. d. Determine the conversion cost per foot of finished product for each month and interpret the result.Analyzing process cost elements across product types Mystic Bottling Company bottles popular beverages in the Bottling Department. The beverages are produced by blending concentrate with water and sugar. The concentrate is purchased from a concentrate producer. The concentrate producer sets higher prices for the more popular concentrate flavors. A simplified Bottling Department cost of production report separating the cost of bottling the four flavors follows: Beginning and ending work in process inventories are negligible, so they are omitted from the cost of production report. The flavor changeover cost represents the cost of cleaning the bottling machines between production runs of different flavors. A production ran of a new flavor is produced after a flavor changeover from the previous flavor. Higher-demand flavors are produced in larger production runs, while smaller-demand flavors are produced in smaller production runs. Prepare a memo to the production manager, analyzing this comparative cost information. In your memo, provide recommendations for further action, along with supporting schedules showing the total cost per case and cost per case by cost element. Round supporting calculations to the nearest cent.Analyzing process cost elements over time Pix Paper Inc. produces photographic paper for printing digital images. One of the processes for this operation is a coating (solvent spreading) operation, where chemicals are coated onto paper stock. There has been some concern about the cost performance of this operation. As a result, you have begun an investigation. You first discover that all materials and conversion prices have been stable for the last six months. Thus, increases in prices for inputs are not an explanation for increasing costs. However, you have discovered three possible problems from some of the operating personnel whose quotes follow: Operator 1: Ive been keeping an eye on my operating room instruments. I feel as though our energy consumption is becoming less efficient. Operator 2: Everyone the coating machine goes down, we produce waste on shutdown and subsequent startup. It seems like during the last half-year we have had more unscheduled machine shutdowns than m the past. Thus, I feel as though our yields must be dropping. Operator 3: My sense is that our coating costs are going up It seems to me like we are spreading a thicker coating than we should. Perhaps the coating machine needs to be recalibrated. The Coating Department had no beginning or ending inventories for any month during the study period. The following data from die cost of production report are made available: A. Prepare a table showing the paper cost per output pound, coating cost per output pound, conversion cost per output pound, and yield (pounds transferred out/pounds input) for each month. Round costs to the nearest cent and yield to the nearest whole percent. B. Interpret your table results.Determining cost relationships Midst ate Containers Inc. manufactures cans for the canned food industry. The operations manager of a can manufacturing operation wants to conduct a cost study investigating the relationship of tin content in the material (can stock) to the energy cost for enameling the cans. The enameling was necessary to prepare the cans for labeling. A higher percentage of tin content in the can stock increases the cost of material. The operations manager believed that a higher tin content in the can stock would reduce the amount of energy used in enameling. During the analysis period, the amount of tin content in the steel can stock was increased for every month, from April to September. The following operating reports were available from the controller: Differences in materials unit costs were entirely related to the amount of tin content. In addition, inventory changes are negligible and are ignored in the analysis. Interpret this information and report to the operations manager your recommendations with respect to tin content.Ethics in Action You are the Cookie division controller for Auntie Ms Baked Goods Company. Auntie M recently introduced a new chocolate chip cookie brand called Full of Chips, which has more than twice as many chips as any other brand on the market. The brand has quickly become a huge market success, largely because of the number of chips in each cookie. As a result of the brands success, the product manager who launched the Full of Chips brand has been promoted to division vice president. A new product manager, Brandon, has been brought in to replace the promoted manager. At Auntie Ms, product managers are evaluated on both the sales and profit margin of the products they manage. During his first week on the job, Brandon notices that the Full of Chips cookie uses a lot of chips, which increases the cost of the cookie. To improve the products profitability, Brandon plans to reduce the amount of chips per cookie by 10%. He believes that a 10% reduction in chips will not adversely affect sales, but will reduce cost and, hence, help him improve the profit margin. Brandon is focused on profit margins, because he knows that if he is able to increase the profitability of the Full of Chips brand, he will be in line for a big promotion. To confirm this plan, Brandon has enlisted you to help evaluate it. After reviewing the cost of production reports segmented by cookie brand, you notice that there has been a continual drop in the materials costs for the Full of Chips brand since its launch. On further investigation, you discover that chip costs have declined because the previous product manager continually reduced the number of chips in each cookie. Both you and Brandon report to the division vice president, who was the original product manager for the Full of Chips brand who was responsible for reducing the chip count in prior periods. 1. Is this an ethical strategy for Brandon to pursue? What are the potential implications of this strategy? 2. What options might you, as the controller, consider taking in response to Brandons plan?Communications Jamarcus Bradshaw, plant manager of Georgia Paper Companys papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following: Jamarcus was concerned about the increased cost per ton from the output of the department. As a result, he asked the plant controller to perform a study to help explain these results. The controller, Leann Brunswick, began the analysis by performing some interviews of key plant personnel in order to understand what the problem might be. Excerpts from an interview with Len Tyson, a paper machine operator, follow: Len: We have two papermaking machines in the department. I have no data, but I think paper machine No. 1 is applying too much pulp and, thus, is wasting both conversion and materials resources. We haven't had repairs on paper machine No. 1 in a while. Maybe this is the problem. Leann: How does too much pulp result in wasted resources? Len: Well, you see, if too much pulp is applied, then we will waste pulp material. The customer will not pay for the extra product; we just use more material to make the product. Also, when there is too much pulp, the machine must be slowed down in order to complete the drying process. This results in additional conversion costs. Leann: Do you have any other suspicions? Len: Well, as you know, we have two productsgreen paper and yellow paper. They are identical except for the color. The color is added to the papermaking process in the paper machine. I think that during August these two color papers have been behaving very differently. I don't have any data, but it just seems as though the amount of waste associated with the green paper has increased. Leann: Why is this? Len: I understand that there has been a change in specifications for the green paper, starting near the beginning of August. This change could be causing the machines to run poorly when making green paper. If this is the case, the cost per ton would increase for green paper. Leann also asked for a database printout providing greater detail on Augusts operating results. September 9 Requested by: Leann Brunswick Papermaking DepartmentAugust detail Prior to preparing a report, Leann resigned from Georgia Paper Company to start her own business. You have been asked to take the data that Leann collected, and write a memo to Jamarcus Bradshaw with a recommendation to management. Your memo should include analysis of the August data to determine whether the paper machine or the paper color explains the increase in the unit cost from July. Include any supporting schedules that are appropriate. Round any calculations to the nearest cent.Accounting for materials costs In papermaking operations for companies such as International Paper Company, wet pulp is fed into paper machines, which press and dry pulp into a continuous sheet of paper. The paper is formed at very high speeds (60 mph). Once the paper is formed, the paper is rolled onto a reel at the back end of the paper machine. One of the characteristics of papermaking is the creation of broke paper. Broke is paper that fails to satisfy quality standards and is therefore rejected for final shipment to customers. Broke is recycled back to the beginning of the process by combining the recycled paper with virgin (new) pulp material. The combination of virgin pulp and recycled broke is sent to the paper machine for papermaking. Broke is fed into this recycle process continuously from all over the facility. In this industry, it is typical to charge the papermaking operation with the cost of direct materials, which is a mixture of virgin materials and broke. Broke has a much lower cost than does virgin pulp. Therefore, the more broke in the mixture, the lower the average cost of direct materials to the department. Papermaking managers frequently comment on the importance of broke for keeping their direct materials costs down. a. How do you react to this accounting procedure? b. What hidden costs are not considered when accounting for broke as described?During December, Krause Chemical Company had the following selected data concerning the manufacture of Xyzine, an industrial cleaner: All materials are added at the beginning of processing in this department, and conversion costs are added uniformly during the process. The beginning work in process inventory had 120 of raw materials and 180 of conversion costs incurred. Materials added during December were 540, and conversion costs of 1,484 were incurred. Krause uses the first-in, first-out (FIFO) process cost method. The equivalent units of production used to compute conversion costs for December were: a. 110 units. b. 104 units. c. 100 units. d. 92 units.Jones Corporation uses a first-in, first-out (FIFO) process cost system. Jones has the following unit information for the month of August: The equivalent units of production for conversion costs for the month of August were: a. 87,300 units. b. 88,000 units. c. 92,300 units. d. 92,700 units.Kimbeth Manufacturing uses a process cost system to manufacture dust density sensors for the mining industry. The following information pertains to operations for the month of May: The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending inventory was 90% complete for materials and 40% complete for conversion costs. Costs pertaining to the month of May are: Beginning inventory costs: materials, 54,560; direct labor, 20,320; and factory overhead, 15,240. Costs incurred during May: materials used, 468,000; direct labor, 182,880; and factory overhead, 391,160. Using the first-in, first-out (FIFO) method, the equivalent units of production for conversion costs are: a. 101,600 units. b. 85,600 units. c. 98,400 units. d. 88,800 units.A company is using process costing with the first-in, first-out (FIFO) method, and all costs are added evenly throughout the manufacturing process. If there are 5,000 units in beginning work in process inventory (30% complete), 10,000 units in ending work in process inventory (60% complete), and 25,000 units started in process this period, how many equivalent units are there for this period? a. 22,500 units. b. 26,000 units. c. 24,500 units. d. 25,000 units.Why would management be concerned about the accuracy of product costs?Why would a manufacturing company with multiple production departments still prefer to use a single plantwide overhead rate?3DQ 4DQ How does activity-based costing differ from the multiple production department factory overhead rate method?6DQ 7DQ Under what circumstances might the activity-based costing method provide more accurate product costs than the multiple production department factory overhead rate method?9DQ 10DQ Single plantwide factory overhead rate The total factory overhead for Bardot Marine Company is budgeted for the year at 600,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboat and bass boat each require 12 direct labor hours for manufacture. Each product is budgeted for 250 units of production for the year. Determine (A) the total number of budgeted direct labor hours for the year, (B) the single plantwide factory overhead rate, and (C) the factory overhead allocated per unit for each product using the single plantwide factory overhead rate.Multiple production department factory overhead rates The total factory overhead for Bardot Marine Company is budgeted for the year at 600,000 divided into two departments: Fabrication, 420,000, and Assembly, 180,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboats require 8 direct labor hours in Fabrication and 4 direct labor hours in Assembly. The bass boats require 4 direct labor hours in Fabrication and 8 direct labor hours in Assembly. Each product is budgeted for 250 units of production for the year. Determine (A) the total number of budgeted direct labor hours for the year in each department, (B) the departmental factory overhead rates for both departments, and (C) the factory overhead allocated per unit for each product using the department factory overhead allocation rates.Activity-based costing: factory overhead costs The total factory overhead for Bardot Marine Company is budgeted for the year at 600,000, divided into four activities: fabrication, 204,000; assembly, 105,000; setup, 156,000; and inspection, 135,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The activity-base usage quantities for each product by each activity are as follows: Each product is budgeted for 250 units of production for the year. Determine (A) the activity rates for each activity and (B) the activity-based factory overhead per unit for each product.Activity-based costing: selling and administrative expenses Jungle Junior Company manufactures and sells outdoor play equipment. Jungle Junior uses activity-based costing to determine the cost of the sales order processing and the customer return activity. The sales order processing activity has an activity rate of 20 per sales order, and the customer return activity has an activity rate of 100 per return. Jungle Junior sold 2,500 swing sets, which consisted of 750 orders and 80 returns. Determine (A) the total and (B) the per-unit sales order processing and customer return activity cost for swing sets.Activity-based costing for a service business Sterling Hotel uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in, room cleaning, and meal service. The activity rates associated with each activity pool are 8 per guest check-in, 25 per room cleaning, and 4 per served meal (not including food). Ginny Campbell visited the hotel for a three-night stay. Campbell had three meals in the hotel during her visit. Determine the total activity-based cost for Campbells visit.Kennedy Appliance Inc.s Machining Department incurred 450,000 of factory overhead cost in producing hoses and valves. The two products consumed a total of 9,000 direct machine hours. Of that amount, hoses consumed 4,250 direct machine hours. Determine the total amount of factory overhead that should be allocated to hoses using machine hours as the allocation base.Bach Instruments Inc. makes three musical instruments: flutes, clarinets, and oboes. The budgeted factory overhead cost is 2,948,125. Overhead is allocated to the three products on the basis of direct labor hours. The products have the following budgeted production volume and direct labor hours per unit: a. Determine the single plant wide overhead rate. b. Use the overhead rate in (a) to determine the amount of total and per-unit overhead allocated to each of the three products, rounded to the nearest dollar.Scrumptious Snacks Inc. manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period: Factory overhead is allocated to the three products on the basis of processing hours. The Products had the following production budget and processing hours per case: a. Determine the single plantwide factory overhead rate. b. Use the overhead rate in (a) to determine the amount of total and per-case overhead allocated to each of the three products under generally accepted accounting principles.Isaac Engines Inc. produces three productspistons, valves, and camsfor the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows: The estimated direct labor rate is 20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Isaac Engines is 235,200. a. Determine the plantwide factory overhead rate. b. Determine the factory overhead and direct labor cost per unit for each product. c. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. d. What does the report in (c) indicate to you?Handy Leather, Inc., produces three sizes of sports gloves: small, medium, and large. A glove pattern is first stencilled onto leather in the Pattern Department. The stenciled patterns are then sent to the Cut and Sew Department, where the glove is cut and sewed together. Handy Leather uses the multiple production department factory overhead rate method of allocating factory overhead costs. Its factory overhead costs were budgeted as follows: The direct labor estimated for each production department was as follows: Direct labor hours are used to allocate the production department overhead to the products. The direct labor hours per unit for each product for each production department were obtained from the engineering records as follows: a. Determine the two production department factory overhead rates. b. Use the two production department factory overhead rates to determine the factory overhead per unit for each product.Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse: Direct machine hours were estimated as follows: In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows: a. Determine the per-unit factory overhead allocated to the commercial and residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base. b. Determine the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department. c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Nova: Direct labor hours were estimated as follows: In addition, the direct labor hours (dlh) used to produce a unit of each product in each department were determined from engineering records, as follows: a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate method, using direct labor hours as the activity base. b. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the multiple production department factory overhead rate method, using direct labor hours as the activity base for each department. c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.Comfort Foods Inc. uses activity-based costing to determine product costs. For each activity listed in the left column, match an appropriate activity base from the right column. You may use items in the activity-base list more than once or not at all.Nozama.com Inc. sells consumer electronics over the Internet. For the next period, the budgeted cost of the sales order processing activity is 250,000 and 50,000 sales orders are estimated to be processed. a. Determine the activity rate of the sales order processing activity. b. Determine the amount of sales order processing cost associated with 30,000 sales orders.Hercules Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows: The activity-base usage quantities and units produced for each product were as follows: Use the activity rate and usage information to determine the total activity cost and activity cost per unit for each product.Lonsdale Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated budgeted activity costs and activity bases are as follows: Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity-base usage quantities and units produced follow: a. Determine the activity rate for each activity. b. Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product. Round to the nearest cent.Activity cost pools, activity rates, and product costs using activity-based costing Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows: The estimated activity-base usage and unit information for two product lines was determined as follows: A. Determine the activity rate for each activity cost pool. B. Determine the activity-based cost per unit of each product.Handbrain Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 2,000 direct labor hours. The total indirect labor is budgeted to be 200,000. Time records from indirect labor employees revealed that they spent 30% of their time setting up production runs and 70% of their time supporting actual production. The following information about cell phones and tablet PCs was determined from the corporate records: a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base. b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activitiesone for setup and the other for production support. c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. d. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)?14E Activity-based costing and product cost distortion The management of Four Finger Appliance Company in Exercise 14 has asked you to use activity-based costing instead of direct labor hours to allocate factory overhead costs to the two products. You have determined that 81,000 of factory overhead from each of the production departments can be associated with setup activity (162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units. Determine the three activity rates (assembly, test and pack, and setup). Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (A).16E Evaluating selling and administrative cost allocations Gordon Gecco Furniture Company has two major product lines with the following characteristics: Commercial office furniture: Few large orders, little advertising support, shipments in full truckloads, and low handling complexity Home office furniture: Many small orders, large advertising support, shipments in partial truckloads, and high handling complexity The company produced the following profitability report for management: The selling and administrative expenses are allocated to the products on the basis of relative sales dollars. Evaluate the accuracy of this report and recommend an alternative approach.18E 19E Activity-based costing for a service company Crosswinds Hospital plans to use activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs: The activity usage information associated with the two patients is as follows: Determine the activity cost associated with each patient. Why is the total activity cost different for the two patients?Bounce Back Insurance Company carries three major lines of insurance: auto, workers compensation, and homeowners. The company has prepared the following report: Management is concerned that the administrative expenses may make some of the insurance lines unprofitable. However, the administrative expenses have not been allocated to the insurance lines. The controller has suggested that the administrative expenses could be assigned to the insurance lines using activity-based costing. The administrative expenses are comprised of five activities. The activities and their rates are as follows: Activity-base usage data for each line of insurance were retrieved from the corporate records as follows: a. Complete the product profitability report through the administrative activities. Determine the operating income as a percent of premium revenue, rounded to the nearest whole percent. b. Interpret the report.Gwinnett County Chrome Company manufactures three chrome-plated productsautomobile bumpers, valve covers, and wheels. These products are manufactured in two production departments (Stamping and Plating). The factory overhead for Gwinnett County Chrome is 239,200. The three products consume both machine hours and direct labor hours in the two production departments as follows: Instructions 1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (a) direct labor hours and (b) machine hours. 2. Determine the product factory overhead costs, using (a) the direct labor hour plantwide factory overhead rate and (b) the machine hour plantwide factory overhead rate.The management of Gwinnett County Chrome Company, described in Problem 1A, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: Instructions 1. Determine the multiple production department factory overhead rates, using direct labor hours for the Stamping Department and machine hours for the Plating Department. 2. Determine the product factory overhead costs, using the multiple production department rates in (1).Activity-based and department rate product costing and product cost distortions Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows: The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Instructions Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 315,000 and 540,000 for the Cutting and Finishing departments, respectively. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Determine the total and per-unit cost assigned to each product under activity-based costing. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.Activity-based product costing Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: The activity bases identified for each activity are as follows: The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Each product requires 40 minutes per unit of machine time. Instructions Determine the activity rate for each activity. Determine the total and per-unit activity cost for all three products. Round to nearest cent. Why arent the activity unit costs equal across all three products since they require the same machine time per unit?Allocating selling and administrative expenses using activity-based costing Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: In addition, the company incurs selling and administrative expenses of 226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are: Activity-base usage and unit volume information for the three customers is as follows: Instructions 1. Determine the activity rates for each of the three nonmanufacturing activity pools. 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). 3. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and operating income associated with each customer. 4. Provide recommendations to management, based on the profitability reports in (3).Product costing and decision analysis for a service company Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its products. The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Total patient days are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The average patient is expected to have a a little more than a four-day stay in the hospital.) During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows: Private insurance reimburses the hospital for these activities at a fixed daily rate of 406 per patient day for all three procedures. Instructions Determine the activity rates. Determine the activity cost for each procedure. Determine the excess or deficiency of reimbursements to activity cost. Interpret your results.Single plantwide factory overhead rate Spotted Cow Dairy Company manufactures three productswhole milk, skim milk, and creamin two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is 299,700. The three products consume both machine hours and direct labor hours in the two production departments as follows: Instructions Determine the single plantwide factory overhead rate, using each of the following allocation bases: (A) direct labor hours and (B) machine hours. Determine the product factory overhead costs, using (A) the direct labor hour plantwide factory overhead rate and (B) the machine hour plantwide factory overhead rate.Multiple production department factory overhead rates The management of Spotted Cow Dairy Company, described in Problem 1B, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: Instructions Determine the multiple production department factory overhead rates, using machine hours for the Blending Department and direct labor hours for the Packing Department. Determine the product factory overhead costs, using the multiple production department rates in (1).Activity-based department rate product costing and product cost distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: The activity-base usage quantities and units produced for the two products follow: Instructions Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 420,000 and 294,000 for the Subassembly and Final Assembly departments, respectively. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Determine the total and per-unit cost assigned to each product under activity-based costing. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods. production department factory overhead rate and activity-based costing methods.Activity-based product costing Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: The activity bases identified for each activity are as follows: The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Each product requires 0.5 machine hour per unit. Instructions Determine the activity rate for each activity. Determine the total and per-unit activity cost for all three products. Round to nearest cent. Why arent the activity unit costs equal across all three products since they require the same machine time per unit?Allocating selling and administrative expenses using activity-based costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: In addition, the company incurs selling and administrative expenses of 414,030. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related to its three major nonmanufacturing activities: customer service, sales order processing, and advertising support. The advertising support is in the form of advertisements that are placed by Shrute Inc. to support the retailers sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are: Activity-base usage and unit volume information for the three customers is as follows: Instructions Determine the activity rates for each of the three nonmanufacturing activities. Determine the activity costs allocated to the three customers, using the activity rates in (1). Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and operating income associated with each customer. Provide recommendations to management, based on the profitability reports in (3).Product costing and decision analysis for a service company Blue Star Airline provides passenger airline service, using small jets. The airline connects four major cities: Charlotte, Pittsburgh, Detroit, and San Francisco. The company expects to fly 170,000 miles during a month. The following costs are budgeted for a month: Blue Star management wishes to assign these costs to individual flights in order to gauge the profitability of its service offerings. The following activity bases were identified with the budgeted costs: The size of the companys ground operation in each city is determined by the size of the workforce. The following monthly data are available from corporate records for each terminal operation: Three recent representative flights have been selected for the profitability study. Their characteristics are as follows: Instructions Determine the fuel, crew, and depreciation cost per mile flown. Determine the cost per arrival or departure by terminal city. Use the information in (1) and (2) to construct a profitability report for the three flights. Each flight has a single arrival and departure to its origin and destination city pairs.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?2MAD 3MAD Production run size and activity improvement Littlejohn, Inc., manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows: Each unit requires 30 minutes of fabrication direct labor. Moreover, Part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and moves will double from 10 to 20. Such improvements are expected to speed the companys ability to respond to customer orders. Setup is reengineered so that it takes 60% of the original cost per setup. Production control software will allow production control effort and cost per production run to decline by 60%. Moving distance was reduced by 40%, thus reducing the cost per move by the same amount. A. Determine the revised activity cost per unit under the proposed changes. B. Did these improvements reduce the activity cost per unit? C. What cost per unit for setup would be required for the solution in (a) to equal the base solution?5MAD Ethics in Action The controller of Tri Con Global Systems Inc. has developed a new costing system that traces the cost of activities to products. The new system is able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in a manner that provides a more complete view of the companys product costs. This system produces better strategic information about the relative profitability of product lines. In the course of implementing the new costing system, the controller realized that the companys current-period GAAP net income would increase significantly if the new product cost information were used for inventory valuation on the financial statements. The controller has been under intense pressure to improve the companys net income, and this would be an easy and effective way for her to help meet the companys short-term net income goals. As a result, she has decided to use the new costing system to determine GAAP net income. Why does the companys net income increase when the new costing system is applied? Is the controller acting ethically by using the new costing system for GAAP net income? Explain your answer.Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who provided the following insight into the companys three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently launched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of operating income to sales for each product. 2. Write a brief (one-page) memo using the product profitability report and the calculations in (a) to make recommendations to management with respect to strategies for the three products.Pelder Products Company manufactures two types of engineering diagnostic equipment used in construction. The two products are based upon different technologies, X-ray and ultrasound, but are manufactured in the same factory. Pelder has computed the manufacturing cost of the X-ray and ultrasound products by adding together direct materials, direct labor, and overhead cost applied based on the number of direct labor hours. The factory has three overhead departments that support the single production line that makes both products. Budgeted overhead spending for the departments is as follows: Pelders budgeted manufacturing activities and costs for the period are as follows: The budgeted cost to manufacture one ultrasound machine using the activity-based costing method is: a. 225. b. 264. c. 293. d. 305.The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry White, the firms new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Following are activity and cost information relating to two of Chocolate Bakers major products: Using activity-based costing, which of the following statements is correct? a. The muffins are 2,000 more profitable. b. The cheesecakes are 75 more profitable. c. The muffins are 1,925 more profitable. d. The muffins have a higher profitability as a percentage of sales and, therefore, are more advantageous.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.Cynthia Rogers, the cost accountant for Sanford Manufacturing, is preparing a management report that must include an allocation of overhead. The budgeted overhead for each department and the data for one job are as follows: Using the departmental overhead application rates, and allocating overhead on the basis of direct labor hours, overhead applied to Job 231 in the Tooling Department would be: a. 44.00. b. 197.50. c. 241.50. d. 501.00.Why are support department costs difficult to apply to products?Why does support department cost allocation matter to service business (such as collage and universities)?What are some drawbacks of applying support department costs using a single plantwide rate?Why is the diect method of support department cost allocation less accurate than the sequential and reciproval services methods?How does management determine the order in which support department costs are allocated under the sequential method?Are large or small companies more likely to use the reciprocal services method to allocate support department costs production department? Why?What is the main difference between the physical units and weighted average methods of joint cost allocation?When would management most likely use the net realizable value method of joint cost allocation?What are the two most often used ways of accounting for revenue from by-products?How can support department and joint cost allocation affect production employee performance evaluations?Charlies Wood Works produces wood products (e.g., cabinets, tables, picture frames, and so on). Production departments include Cutting and Assembly. The Janitorial and Security departments support the Cutting and Assembly departments. The Assembly Department spans about 46,400 square feet and holds assets valued at about 60,000. The Cutting Department spans about 33,600 square feet and holds assets valued at about 140,000. Charlies Wood Works allocates support department costs using the direct method. If costs from the Janitorial Department are allocated based on square feet and costs from the Security Department are allocated based on asset value, determine (a) the percentage of Janitorial costs that should be allocated to the Assembly Department and (b) the percentage of Security costs that should be allocated to the Cutting Department.Bucknum Boys, Inc., produces hunting gear for buck hunting. The companys main production departments are Molding and Finishing. Production of the hunting gear cannot be accomplished without the supporting tasks of Materials Management and meals for production employees provided by the Cafeteria. Cafeteria costs are always higher than Materials Management costs. The company believes that the number of employees in each department is the best driver of Cafeteria costs. The number of employees in each department is as follows: The company also believes that the value of support materials used in each department is the best driver for Materials Management costs. The support materials used in the Molding and Finishing departments are valued at 1,800 and 2,700, respectively. Using the sequential method for support department cost allocation (allocating Cafeteria costs first), determine (a) the percentage of Cafeteria costs that should be allocated to the Molding Department and (b) the percentage of Materials Management costs that should be allocated to the Finishing Department.3BE Blakes Blacksmith Co. produces two types of shotguns, a 12-gauge and 20-gauge. The shotguns are made through a joint production process that ultimately produces 30 12-gauge shotguns and 20 20-gauge shotguns and costs a total of 4,000 per batch. After the split-off point, each type of shotgun goes through an additional crafting process before it is sold. The additional production process of the 12-gauge shotgun costs 30 per gun, after which it is sold for 180 per gun. The additional production process of the 20-gauge shotgun costs 25 per gun, after which it is sold for 150 per gun. Determine the amount of joint production costs allocated to each type of shotgun using the physical units method.Garys Grooves Co. produces two types of carving knives, one with a handle made of a polymer that looks like walnut wood and another with a handle made with a polymer that looks like red oak. The knives are made through a joint production molding process that produces 330 knife blades for red oak handle knives and 220 knife blades for walnut handle knives at the split-off point. The polymer for the red oak handle knife blades requires twice as much cooling time as the polymer for the walnut handle knife blades, although all knives are removed from the joint molding process at the same time (i.e., once the cooling for the red oak handle knives is complete). The joint production process costs a total of 6,500. Assuming the company allocates joint costs using the weighted average method based on the required cooling time of the two joint products, determine the amount of joint production costs allocated to each type of knife using the weighted average method.6BE Yo-Down Inc. produces yogurt. Information related to the companys yogurt production follows: Support Department 1s costs total 142,000. Using the direct method of support department cost allocation, determine the costs from Support Department 1 that should be allocated to each production department.2E Blue Africa Inc. produces laptops and desktop computers. The companys production activities mainly occur in what the company calls its Laser and Forming departments. The Cafeteria and Security departments support the companys production activities and allocate costs based on the number of employees and square feet, respectively. The total cost of the Security Department is 273,000. The total cost of the Cafeteria Department is 180,000. The number of employees and the square footage in each department are as follows: Using the reciprocal services method of support department cost allocation, determine the total costs from the Security Department that should be allocated to the Cafeteria Department and to each of the production departments.Christmas Timber, Inc., produces Christmas trees. The trees are produced through a cutting and pruning process. Machine maintenance and janitorial labors are performed throughout the production process by nonproduction employees. Maintenance and janitorial costs are allocated based on machine hours used and the number of trees in each department, respectively. The company estimates that the cutting and pruning areas typically have about 20 and 60 trees, respectively, in them at one time. The company also estimates that the cutting process requires about 9 times as many machine hours as the pruning process. The total costs of each department are as follows: Using the direct method of support department cost allocation, determine the total cost of each production department after allocating all support costs to the production departments.Crystal Scarves Co. produces winter scarves. The scarves are produced in the Cutting and Sewing departments. The Maintenance and Security departments support these production departments, and allocate costs based on machine hours and square feet, respectively. Information about each department is provided in the following table: Using the sequential method and allocating the support department with the highest costs first, allocate all support department costs to the production departments. Then compute the total cost of each production department.Davis Snowflake Co. produces Christmas stockings in its Cutting and Sewing departments. The Maintenance and Security departments support the production of the stockings. Costs from the Maintenance Department are allocated based on machine hours, and costs from the Security Department are allocated based on asset value. Information about each department is provided in the following table: Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method.7E 8E 9E Support department cost allocation comparison Refer to your answers to Exercises 7-9. Compare the total support department costs allocated to each production department under each cost allocation method. Which production department isallocated the most support department costs (a) under the direct method, (b) under the sequentialmethod, and (c) under the reciprocal services method? EX 19-7 Support department cost allocationdirect method Becker Tabletops has two support departments (Janitorial and Cafeteria) and two production departments (Cutting and Assembly). Relevant details for these departments are as follows: Allocate the support department costs to the production departments using the direct method. EX 19-8 Support department cost allocationsequential method Refer to the information provided for Becker Tabletops in Exercise 7. Allocate the support department costs to the production departments using the sequential method. Allocate the support department with the highest department cost first. EX 19-9 Support department cost allocation reciprocal services method Refer to the information provided for Becker Tabletops in Exercise 7. Allocate the support department costs to the production departments using the reciprocal services method.11E 12E Joint cost allocation market value at split-off method Sugar Sweetheart, Inc., jointly produces raw sugar, granulated sugar, and caster sugar. After the split-off point, raw sugar is immediately sold for 0.20 per pound, while granulated and castersugar are processed further. The market value of the granulated sugar and caster sugar is estimatedto both be 0.25 at the split-off point. One batch of joint production costs 1,640 and yields 3,000pounds of raw sugar, 3,600 pounds of granulated sugar, and 2,000 pounds of caster sugar at thesplit-off point. Allocate the joint costs of production to each product using the market value atsplit-off method.Joint cost allocation net realizable value method Natures Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logsproduces 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards ofwood pulp. The joint production process costs a total of 32,000 per batch. After the split-off point,wood chips are immediately sold for 25 per cubic yard while wood pulp and mulch are processedfurther. The market value of the wood pulp and mulch at the split-off point is estimated to be 22and 24 per cubic yard, respectively. The additional production process of the wood pulp costs 5per cubic yard, after which it is sold for 30 per cubic yard. The additional production process ofthe mulch costs 4 per cubic yard, after which it is sold for 32 per cubic yard. Allocate the jointcosts of production to each product using the net realizable value method.15E 16E Joint cost allocation-market value at split-off method Toil Oil processes crude oil to jointly produce gasoline, diesel, and kerosene. One batch produces 3,415 gallons of gasoline, 2,732 gallons of diesel, and 1,366 gallons of kerosene at a joint cost of 112,000. After the split-off point, all products are processed further, but the estimated market price for each product at the split-off point is as follows: Using the market value at split-off method, allocate the 12,000 joint cost of production to each product.Joint cost allocation net realizable value method Lilys Lemonade Stand makes three types of lemonade: pure, raspberry, and strawberry. The lemonade is produced through a joint mixing process that costs a total of 30 per batch. One batch produces 32 cups of pure lemonade, 21 cups of strawberry lemonade, and 21 cups of raspberrylemonade. After the split-off point, all three lemonades can be sold for 50.80 per cup, but strawberry and raspberry lemonade can be processed further by adding artificial coloring and flavoringand sold for 0.95 and 1.00 per cup, respectively. It is estimated that these additional processingcosts are 0.75 and 1.80 per batch for strawberry and raspberry lemonade, respectively. Allocatethe joint costs of production to each product using the net realizable value method.Support department cost allocation Blue Mountain Masterpieces produces pictures, paintings, and other home decor. The Printing and Framing production departments are supported by the Janitorial and Security departments. Janitorial costs are allocated to the production departments based on square feet, and security costs are allocated based on asset value. Information about these departments is detailed in the following table: Management has experimented with different support department cost allocation methods in the past. The different allocation methods did not yield large differences of cost allocation to the production departments. Instructions 1. Determine which support department cost allocation method Blue Mountain Masterpieces would most likely use to allocate its support department costs to the production departments. 2. Determine the total costs allocated from each support department to each production department using the method you determined in part (1). 3. Without doing calculations, consider and answer the following: If Blue Mountain Masterpieces decided to use square feet instead of asset value as the cost driver for security services, how would this change the allocation of Security Department costs?Support activity cost allocation Jakes Gems mines and produces diamonds, rubies, and other gems. The gems are produced by way of the Mining and Cutting activities. These production activities are supported by the Maintenance and Security activities. Security costs are allocated to the production activities based on asset value. Maintenance costs are normally allocated based on machine hours. However, Maintenance costs typically correlate more with the number of service calls. Information regarding the activities is provided in the following table: Instructions 1. Should Maintenance costs continue to be allocated based on machine hours? Why would a different driver be more appropriate? 2. Based on your response to part (1), determine the total costs allocated from each support activity to the other activities using the reciprocal services method and the most appropriate cost driver for Maintenance. 3. Jakes Gems is considering cutting costs by switching to a simpler support activity cost allocation method. Using the information provided and given your response to part (2), determine if switching to the direct method would significantly alter the production activity costs.Joint cost allocation Lovely Lotion Inc. produces three different lotions: hand, body, and foot. The lotions are produced jointly in a mixing process that costs a total of 250 per batch. At the split-off point, one batchproduces 80, 40, and 25 bottles of hand, body, and foot lotion, respectively. After the split-off point,hand lotion is sold immediately for 2.50 per bottle. Body lotion is processed further at an additional cost of 0.25 per bottle and then sold for 5.75 per bottle. Foot lotion is processed further atan additional cost of 0.85 per bottle and then sold for 4.00 per bottle. Assume that body and footlotion could be sold at the split-off point for 3.00 and 3.20 per bottle, respectively. Instructions 1. Using the market value at split-off method, allocate the joint costs of production to each product. 2. Based on the information provided and your answer to part (1), should Lovely LotionInc. continue processing body and foot lotion after the split-off point? 3. Allocate the joint costs of production to each product using the net realizable value method.Joint cost allocation Florissas Flowers jointly produces three varieties of flowers in the same garden: tulips, lilies, and daisies. The flowers are all watered via the same irrigation system and all receive the same amountof water; daisies require three times as much as lilies, and the water required for tulips is abouthalfway between the amounts needed for daisies and lilies. Although the lilies and tulips receivemore water than they need due to the joint irrigation process, they are not hurt by the overwa-tering. The joint production cost of the three varieties of flowers is about 30 per harvest. Everyharvest yields 10 tulips, 20 lilies, and 20 daisies. Instructions 1. Allocate the joint costs of production to each product using the physical units method. Whichproducts receive the largest portion of the joint costs? 2. Allocate the joint costs of production to each product using the weighted average method. Nowwhich product receives the largest portion of the joint costs? 3. Why would it be important to consider whether the amount of watering is an appropriate weight factor?Support department cost allocation Hooligan Adventure Supply produces and sells various outdoor equipment. The Molding and Assembly production departments are supported by the Personnel and Maintenance departments. Personnel costs are allocated to the production departments based on the number of employees, and Maintenance costs are allocated based on number of service calls. Information about these departments is detailed in the following table: Instructions 1. Assuming that Hooligan Adventure Supply uses the sequential method to allocate its support department costs, which support department does it most likely allocate first? 2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method. 3. If Hooligan Adventure Supply wanted to use a more accurate support department cost allocation method, which method should it choose? What might discourage the company from using this method?Support activity cost allocation Kizzles Crepes Co. produces world famous crepes. The companys crepes are produced via its Mixing and Cooking activities, which both rely on the Janitorial and Maintenance activities. Kizzles management knows the most practical driver of Janitorial costs is square feet, but is uncertain whether to allocate Maintenance costs based on asset value of production equipment, number of service calls, or machine hours. Kizz1es management estimates that the Cooking and Mixing activities each require about twice as much space as the Maintenance activity. Instructions 1. What factors should Kizzles management consider in choosing the driver to use for the allocation of Maintenance costs? Of the three potential drivers mentioned in the problem, which one(s) should Kizz1es most likely not use? 2. Assume that Kizzles management allocates Maintenance costs based on the number of service calls. Further assume that in a given period, the Janitorial, Mixing, and Cooking activities incur 16, 40, and 24 service calls, respectively, and that the Janitorial and Maintenance costs of that period are 3,000 and 4,200, respectively. Determine the total costs allocated from each support activity to the other three activities using the reciprocal services method. 3. Kizz1es Crepes Co. is expanding rapidly due to its exponentially growing sales and popularity. Kizzles management is worried that as the company expands, its current method of support activity cost allocation, the reciprocal services method, may become too burdensome. Is this true? If so, what alternative method should Kizzles Crepes Co. use as it expands?Joint cost allocation McKenzies Soap Sensations, Inc., produces hand soaps with three different scents: morning glory, snowflake sparkle, and sea breeze. The soap is produced through a joint production process thatcosts 30,000 per batch. Each batch produces 14,800 bottles of morning glory hand soap, 12,000bottles of snowflake sparkle hand soap, and 10,000 bottles of sea breeze hand soap at the split-offpoint. Each product is processed further after the split-off point, but the market value of a bottle ofany of the flavors at this point is estimated to be 1.25 per bottle. The additional processing costsof morning glory, snowflake sparkle, and sea breeze hand soap are 10.50, 0.55, and 0.60 perbottle, respectively. Morning glory, snowflake sparkle, and sea breeze hand soap are then sold for2.00, 2.20, and 2.40 per bottle, respectively. Instructions 1. Using the net realizable value method, allocate the joint costs of production to each product. 2. Explain why McKenzies Soap Sensations, Inc., always chooses to process each varietyof hand soap beyond the split-off point. 3. If demand for all products was the same, which product should McKenzies Soap Sensations, Inc., produce in the highest quantity?4PB Analyze Milkrageous, Inc. Milkragcous, Inc., a large, private dairy products company, is determining cost allocations for performance evaluation purposes. Company bonuses are based on cost containment, so accurate costing numbers are imperative. The general managers (GMs) over the cheese and yogurt divisions are being evaluated. Support department costs include Janitorial (150,700) and Maintenance (300,200). The Janitorial costs remain relatively fixed from quarter to quarter. Maintenance costs, however, vary with respect to the number of service calls made each quarter. The joint cost of processing milk before the split-off point for yogurt and cheese is 755,000 for the quarter. Yogurt sells at higher margins than cheese (at split-off as well as after further processing), but is equally difficult to produce as cheese. a. Which support department allocation method (direct, sequential, or reciprocal services) should be used to allocate support department costs for the GMs performance evaluation? b. What cost driver would be best for allocating Janitorial costs? c. What cost driver would be best for allocating Maintenance costs? d. Should Janitorial and Maintenance costs be considered when evaluating the general managers over cheese and yogurt? e. What joint cost allocation method should be used for performance evaluation purposes? f. Regardless of the correct answer to part (e), use the physical units method to allocate joint costs to yogurt and cheese assuming 198,000 pounds of yogurt and 102,000 pounds of cheese were produced during the quarter.Analyze Horsepower Hookup, Inc. Horsepower Hookup, Inc., is a large automobile company that specializes in the production of high-powered trucks. The company is determining cost allocations for purposes of performance evaluation. A portion of company bonuses depends on divisions achieving cost management goals. This necessitates highly accurate support department cost allocation. Management has also stated that it has the means to implement as complex a method as necessary. The general manager over the Mid-Size D wants to get a good idea of what factors are driving the costs of the support departments in order to make accurate cost allocations, so finding accurate support department cost drivers is important. Support department costs include Janitorial (163,100) and Security (285,400). The Janitorial costs vary depending on the number of vehicles produced, increasing with larger production volumes. Security costs are fixed based on the size of the lot, and do not change with respect to how many vehicles are in the lot or warehouse. Joint costs involved in producing the trucks before the split-off point where the various makes, models, and colors are produced are 946,000 for the period. All makes, models, and colors sell at relatively similar margins, but the sports models and metallic colors are normally more difficult to produce during the joint production process. a. Which support department cost allocation method (direct, sequential, or reciprocal services) should be used to allocate support department cost? b. What driver would be best for allocating Janitorial costs? c. What driver would be best for allocating Security costs? d. If Janitorial costs were to be allocated based on square footage, and Security costs based on asset value, what percentage of each support departments costs would be allocated to each production department using the sequential method (allocating Security costs first) given the following: e. Should Janitorial and Security costs be considered when evaluating the performance of cost management employees? f. What joint cost allocation method should be used for performance evaluation purposes?3MAD 4MAD Joint cost allocation and performance evaluation Gigabody, Inc., a nutritional supplement manufacturer, produces five lines of protein supplements. Each product line is managed separately by a senior-level product engineer who is evaluated, in part, based on his or her ability to keep costs low. The five product lines are produced in a joint production process. After splitting off from the joint production process, all five lines are processed further before resale. Traditionally, joint product costs have been allocated to the five product lines using the physical units method. Recently, however, one of the line managers has complained that the supplement she oversees, the Turbo Capsule, is subsidizing the production of the Power Shake. As she puts it, The powder for the Power Shake requires a higher temperature in the early refining process than the powder in my capsules, so it should carry more of the joint costs! However, the line manager does not point out that in terms of the powder used, the Power Shakes sell for a fraction of the Turbo Capsules, such that Turbo Capsules have much higher margins than Power Shakes. This provides a reasonable argument for Turbo Capsules to carry even more of the joint costs than they currently carry. a. Did the line manager behave ethically by not disclosing the facts that go against her argument? b. What factors should be considered when determining the allocation of joint costs?3TIF 1CMA Adam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for the next year: If Adam uses the step-down (sequential) method, beginning with the Maintenance Department, to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be: a. 407,500. b. 422,750. c. 442,053. d. 445,000.Breegle Company produces three products (B-40, J-60, and H-102) from a single process. Breegle uses the physical volume method to allocate joint costs of 22,500 per batch to theproducts. Based on the following information, which product(s) should Breegle continue toprocess after the split-off point in order to maximize profit? a. B-40 only b. J-60 only c. H-102 only d. B-40 and H-102 only Tucariz Company processes Duo into two joint products, Big and Mini. Duo is purchased in 1,000-gallon drums for 2.000. Processing costs are 3,000 to process the 1,000 gallons of Duointo 800 gallons of Big and 200 gallons of Mini. The selling price is 9 per gallon for Big and4 per gallon for Mini. If the physical units method is used to allocate joint costs to the finalproducts, the total cost allocated to produce Mini is: a. 500. b. 4,000. c. 1,000. d. 4,500.Describe how total variable costs and unit variable costs behave with changes in the level of activity.Which of the following costs would be classified as variable and which would be classified as fixed, if units produced is the activity base? A. Direct materials costs B. Electricity costs of 0.35 per kilowatt-hour Describe how total fixed costs and unit fixed costs behave with changes in the level of activity.4DQ 5DQ 6DQ 7DQ 8DQ 9DQ What does operating leverage measure, and how is it computed?High-low method The manufacturing costs of Rosenthal Industries for the first three months of the year follow: Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.Contribution margin Waite Company sells 250,000 units at 120 per unit. Variable costs are 78 per unit, and fixed costs are 8,175,000. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) operating income.3BE

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