Concept Introduction:
Direct and Indirect Costs:
Manufacturing overhead costs:
Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing costs include indirect material indirect labor and overheads.
To Indicate:
The example for each type of the cost for a takeout pizza restaurant
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Chapter 10 Solutions
CengageNOWv2, 1 term Printed Access Card for Warren's Survey of Accounting, 8th
- Felipes Restaurant and Pie Shop needs help defining the costs for his business. He also wants to know which costs are relevant or irrelevant to his decision. Identify each cost as relevant or irrelevant. Then identify the type of cost (sunk. fixed, variable, or opportunity).arrow_forwardStan is opening a coffee shop next to Big State University. He knows that controlling his costs will be important to the success of the shop. He will not be able to work all the hours the shop is open, so the employees will need some guidelines to perform their jobs correctly. After talking to an accounting professor, he decides he needs a standard cost system for his shop. Describe the process Stan should follow in setting his standards for materials and labor.arrow_forwardCost Identification Following is a list of cost terms described in the chapter as well as a list of brief descriptive settings for each item. Cost terms: a. Opportunity cost b. Period cost c. Product cost d. Direct labor cost e. Selling cost f. Conversion cost g. Prime cost h. Direct materials cost i. Manufacturing overhead cost j. Administrative cost Settings: 1. Marcus Armstrong, manager of Timmins Optical, estimated that the cost of plastic, wages of the technician producing the lenses, and overhead totaled 30 per pair of single-vision lenses. 2. Linda was having a hard time deciding whether to return to school. She was concerned about the salary she would have to give up for the next 4 years. 3. Randy Harris is the finished goods warehouse manager for a medium-sized manufacturing firm. He is paid a salary of 90,000 per year. As he studied the financial statements prepared by the local certified public accounting firm, he wondered how his salary was treated. 4. Jamie Young is in charge of the legal department at company headquarters. Her salary is 95,000 per year. She reports to the chief executive officer. 5. All factory costs that are not classified as direct materials or direct labor. 6. The new product required machining, assembly, and painting. The design engineer asked the accounting department to estimate the labor cost of each of the three operations. The engineer supplied the estimated labor hours for each operation. 7. After obtaining the estimate of direct labor cost, the design engineer estimated the cost of the materials that would be used for the new product. 8. The design engineer totaled the costs of materials and direct labor for the new product. 9. The design engineer also estimated the cost of converting the raw materials into their final form. 10. The auditor for a soft drink bottling plant pointed out that the depreciation on the delivery trucks had been incorrectly assigned to product cost (through overhead). Accordingly, the depreciation charge was reallocated on the income statement. Required: Match the cost terms with the settings. More than one cost classification may be associated with each setting; however, select the setting that seems to fit the item best. When you are done, each cost term will be used just once.arrow_forward
- Assign the customer-related activity costs to each customer type using activity rates. Now calculate the profitability of each customer category. As a manager, how would you use this information? Emery Company sells small machine parts to heavy equipment manufacturers for an average price of 1.05 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is required. Scheduling is also needed to coordinate the many different orders that come in and place demands on the plants manufacturing resources. Emery also inspects a sample of the products each time a batch is produced to ensure that the customers specifications have been met Inspection takes essentially the same time regardless of the type of part being produced. Emerys Cost Accounting Department has provided the following budgeted data for customer-related activities and costs (the amounts expected for the coming year): Required: 1. Assign the customer-related activity costs to each category of customers in proportion to the sales revenue earned by each customer type. Calculate the profitability of each customer type. Discuss the problems with this measure of customer profitability.arrow_forwardVentana Window and Wall Treatments Company provides draperies, shades, and various window treatments. Ventana works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Ventanas income statement for last year is as follows: Ventana wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year. Required: 1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round the percentage to two significant digits.) 2. A customer orders draperies and shades for a remodeling job. The job will have the following costs: What is the price that Ventana will quote given the markup percentage calculated in Requirement 1? (Round the price to the nearest dollar.) 3. What if Ventana wants to calculate a markup on direct materials cost, since it is the largest cost of doing business? What is the markup on direct materials cost that will maintain the same profit as last year? (Round the percentage to two significant digits.) What is the bid price Ventana will use for the job given in Requirement 2 if the markup percentage is calculated on the basis of direct materials cost? (Round to the nearest dollar.)arrow_forwardWhich 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.arrow_forward
- Assume you are the manager for the semi-trucks division at the Speedy Delivery Company. The semi-truck division is a cost center and you are reviewing the driver overtime costs for the previous year, shown here: A. Microsoft Excel or another spreadsheet application, create a line chart with markers showing the driver overtime expense. Describe your observations. B. Knowing that safety is important in your industry and weather plays a significant role in the safety of drivers, you decide to talk with the safety manager and obtained the following information: Using Microsoft Excel or another spreadsheet application, create individual line charts with markers showing the average snowfall and non-company highway accidents. Describe your observations and actions you might consider.arrow_forwardIdentifying Fixed, Variable, Mixed, and Step Costs Consider each of the following independent situations: a. A computer service agreement in which a company pays 150 per month and 15 per hour of technical time b. Fuel cost of the companys fleet of motor vehicles c. The cost of beer for a bar d. The cost of computer printers and copiers at your college e. Rent for a dental office f. The salary of a receptionist in a law firm g. The wages of counter help in a fast-food restaurant h. The salaries of dental hygienists in a three-dentist office. One hygienist can take care of 120 cleanings per month. i. Electricity cost which includes a 15 per month billing charge and an additional amount depending on the number of kilowatt-hours used Required: 1. For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost. (Hint: First, consider what the driver or output measure is. If additional assumptions are necessary to support your cost type decision, be sure to write them down.) Example: Raw materials used in productionVariable cost 2. CONCEPTUAL CONNECTION Change your assumption(s) for each situation so that the cost type changes to a different cost type. List the new cost type and the changed assumption(s) that gave rise to it. Example: Raw materials used in production. Changed assumptionthe materials are difficult to obtain, and a years worth must be contracted for in advance. Now, this is a fixed cost. (This is the case with diamond sales by DeBeers Inc. to its sightholders. See the following website for information: www.keyguide.net/sightholders/.)arrow_forwardPocket Umbrella, Inc. is considering producing a new type of umbrella. This new pocket-sized umbrella would fit into a coat pocket or purse. Classify the following costs of this new product as direct materials, direct labor, manufacturing overhead, or selling and administrative. Cost of advertising the product Fabric used to make the umbrellas Maintenance of cutting machines used to cut the umbrella fabric so it will fit the umbrella frame Wages of workers who assemble the product Presidents salary The salary of the supervisor of the people who assemble the product Wages of the product tester who stands in a shower to make sure the umbrellas do not leak Cost of market research survey Salary of the companys sales managers Depreciation of administrative office buildingarrow_forward
- For each item listed, state whether a job order costing system or process costing system would be best. cereal team uniforms houses beach chairs plastic restaurant-specific pizza boxes sneakers customized with number and colorsarrow_forwardThe following situations describe decision scenarios that could use managerial accounting information: The manager of High Times Restaurant wishes to determine the price to charge for various lunch plates. By evaluating the cost of leftover materials, the plant manager of a precision tool facility wishes to determine how effectively the plant is being run. The division controller of West Coast Supplies needs to determine the cost of products left in inventory. The manager of the Maintenance Department of a large manufacturing company wishes to plan next year’s anticipated expenditures. For each situation, discuss how managerial accounting information could be used. b) What are the major differences between managerial accounting and financial accounting?arrow_forwardClassify the following costs of this new product as direct materials, direct labor, manufacturing overhead, selling, or administrative 1. President's salary. 2. Packages used to hold the skin wipes. 3. Cleaning materials used to clean the skin wipe packages. 4. Wages of workers who package the product. 5. Cost of advertising the product. 6. The salary of the supervisor of the workers who package the product. 7. Cost accountant's salary (the accountant works in the factory). 8. Cost of a market research survey. 9. Sales commissions paid as a percent of sales. 10. Depreciation of administrative office building. Problem B Classify the costs listed in the previous problem as either product costs or period costs.arrow_forward
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