Management 11B Problem Set #2 Chapter 16

Management 11B

Problem Set #2

Total Points:    130

Chapter 16

1) Exercise  16-3                            (15 points)

E16-3      Answer questions on costs and production.
(SO 3, 5, 6), AP
The ledger of Custer Company has the following work in process account.
Work in Process—Painting
5/1    Balance    3,590    5/31    Transferred out    ?
5/31    Materials    5,160               
5/31    Labor    2,740               
5/31    Overhead    1,380               
5/31    Balance     ?               

Production records show that there were 400 units in the beginning inventory, 30% complete, 1,400 units started, and 1,500 units transferred out. The beginning work in process had materials cost of $2,040 and conversion costs of $1,550. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.
Instructions
(a)      How many units are in process at May 31?
(b)      What is the unit materials cost for May?
(c)      What is the unit conversion cost for May?
(d)      What is the total cost of units transferred out in May?
(e)      What is the cost of the May 31 inventory?

2) Exercise  16-4                            (18 points)

E16-4      Journalize transactions for two processes.
(SO 4), AP
Schrager Manufacturing Company has two production departments: Cutting and Assembly. July 1 inventories are Raw Materials $4,200, Work in Process—Cutting $2,900, Work in Process—Assembly $10,600, and Finished Goods $31,000. During July, the following transactions occurred.
 
     1.       Purchased $62,500 of raw materials on account.
2.       Incurred $60,000 of factory labor. (Credit Wages Payable.)
3.       Incurred $70,000 of manufacturing overhead; $40,000 was paid and the remainder is unpaid.
4.       Requisitioned materials for Cutting $15,700 and Assembly $8,900.
5.       Used factory labor for Cutting $33,000 and Assembly $27,000.
6.       Applied overhead at the rate of $18 per machine hour. Machine hours were Cutting 1,680 and Assembly 1,720.
7.       Transferred goods costing $67,600 from the Cutting Department to the Assembly Department.
8.       Transferred goods costing $134,900 from Assembly to Finished Goods.
9.       Sold goods costing $150,000 for $200,000 on account.

 
Instructions
Journalize the transactions. (Omit explanations.)

3) Problem 16-3B                            (30 points)

P16-3B      Complete four steps necessary to prepare a production cost report.
(SO 5, 6, 7), AP
Borman Corporation manufactures in separate processes refrigerators and freezers for homes. In each process, materials are entered at the beginning and conversion costs are incurred uniformly. Production and cost data for the first process in making two products in two different manufacturing plants are as follows.
     Stamping Department
Production Data—June    Plant A R12 Refrigerators    Plant B F24 Freezers
Work in process units, June 1    –0–    –0–
Units started into production    20,000    20,000
Work in process units, June 30    4,000    2,500
Work in process percent complete    75    60
Cost Data—June          
Work in process, June 1    $      –0–    $      –0–
Materials    840,000    720,000
Labor    245,000    259,000
Overhead    420,000    292,000
Total    $1,505,000    $1,271,000

Instructions
(a)      For each plant:
 
     1.       Compute the physical units of production.
2.       Compute equivalent units of production for materials and for conversion costs.
3.       Determine the unit costs of production.
4.       Show the assignment of costs to units transferred out and in process.

(b)      Prepare the production cost report for Plant A for June 2012.

Chapter 17

4) Exercise 17-1                            (9 points)

E17-1      Assign overhead using traditional costing and ABC.
(SO 1, 4), AP
Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plant wide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company's operations.
     Standard    Custom
Direct labor costs    $50,000    $100,000
Machine hours    1,000    1,000
Setup hours    100    400

Total estimated overhead costs are $270,000. Overhead cost allocated to the machining activity cost pool is $170,000, and $100,000 is allocated to the machine setup activity cost pool.
Instructions
(a)      Compute the overhead rate using the traditional (plant wide) approach.
(b)      Compute the overhead rates using the activity-based costing approach.
(c)      Determine the difference in allocation between the two approaches.

5) Exercise 17-6                            (21 points)

E17-6      Assign overhead using traditional costing and ABC.
(SO 1, 4), AN
Perdon Corporation manufactures safes—large mobile safes, and large walk-in stationary bank safes. As part of its annual budgeting process, Perdon is analyzing the profitability of its two products. Part of this analysis involves estimating the amount of overhead to be allocated to each product line. The information shown relates to overhead.
     Mobile Safes    Walk-in Safes
Units planned for production    200       50
Material moves per product line    300      200
Purchase orders per product line    450      350
Direct labor hours per product line    800    1,700

Instructions
(a)      The total estimated manufacturing overhead was $260,000. Under traditional costing (which assigns overhead on the basis of direct-labor hours), what amount of manufacturing overhead costs are assigned to:
 
     1.       One mobile safe?
2.       One walk-in safe?

(b)      The total estimated manufacturing overhead of $260,000 was comprised of $160,000 for material-handling costs and $100,000 for purchasing activity costs. Under activity-based costing (ABC):
 
     1.       What amount of material handling costs are assigned to:
 
     a.       One mobile safe?
b.       One walk-in safe?

2.       What amount of purchasing activity costs are assigned to:
 
     a.       One mobile safe?
b.       One walk-in safe?

(c)      Compare the amount of overhead allocated to one mobile safe and to one walk-in safe under the traditional costing approach versus under ABC.

6) Exercise 17-18                            (10 points)

E17-8      Identify activity cost pools and cost drivers.
(SO 3, 4), AN
Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first quarter's operations.
Machine setup, indirect materials    $  4,000
Inspections    16,000
Tests    4,000
Insurance, plant    110,000
Engineering design    140,000
Depreciation, machinery    520,000
Machine setup, indirect labor    20,000
Property taxes    29,000
Oil, heating    19,000
Electricity, plant lighting    21,000
Engineering prototypes    60,000
Depreciation, plant    210,000
Electricity, machinery    36,000
Machine maintenance wages    19,000

Instructions
Classify the above costs of Santana Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, maintenance. Next, identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.

7)  Problem 17-5B                            (27 points)

P17-5B      Assign overhead costs to services using traditional costing and ABC; compute overhead rates and unit costs; compare results.
(SO 1, 4, 6, 8), AN
Smith and Jones is a law firm that serves both individuals and corporations. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The individual partners argue for assigning overhead on the basis of 30% of direct labor dollars, while the corporate partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.
                    Expected Use of Cost Drivers per Service
Activity Cost Pool    Cost Driver    Estimated Overhead    Expected Use of Cost Drivers    Corporate    Individual
Employee training    Direct labor dollars    $120,000    $1,600,000    $900,000    $700,000
Typing and secretarial    Number of reports/forms    60,000    2,000    500    1,500
Computing    Number of minutes    130,000    40,000    17,000    23,000
Facility rental    Number of employees    100,000    25    14    11
Travel    Per expense reports    70,000    Direct    48,000    22,000
          $480,000               

Instructions
(a)      Using traditional product costing, compute the total overhead cost assigned to both services (individual and corporate) of Smith and Jones.
(b)       
     1.       Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2.       Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.

(c)      Classify each of the activities as a value-added activity or a non–value-added activity.
(d)      Comment on the comparative overhead for the two service lines under both traditional costing and ABC.