Planning and Measurement Flashcards
Jonathan Mfg. adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overheads were $50,000 and $25,000, respectively.
The actual costs and hours for the year were as follows:
Direct labor hours 21,000
Direct labor costs $110,000
Machine hours 35,000
For a particular job, 1,500 direct labor hours were used. Using direct labor hours as the cost driver, what amount of overhead should be applied to this job? A. $3,214. B. $5,357. C. $5,625. D. $7,500.
C. $5,625.
Overhead is applied to jobs using a pre-determined overhead rate, which is calculated by dividing estimated overhead costs (both variable and fixed) by a budgeted or estimated quantity of a cost driver. In this case, the total overhead costs of $75,000 are divided by the 20,000 budgeted direct labor hours to arrive at an overhead application rate of $3.75 per direct labor hour.
The costs are applied to production based on the 1,500 actual direct labor hours used ($3.75 * 1,500 = $5,625).
In a process cost system, the application of factory overhead usually would be recorded as an increase in A. Finished goods inventory control. B. Factory overhead control. C. Cost of goods sold. D. Work-in-process inventory control.
D. Work-in-process inventory control.
Journal entries to record the manufacturing cost are similar for job-order and process costing. When overhead is applied, it is debited to work in process. The credit is to factory overhead applied. Work in process receives only applied overhead, unless some underapplied factory overhead is allocated to work in process at the end of the period.
Which of the following is assigned to goods that were either purchased or manufactured for resale? A. Relevant cost. B. Period cost. C. Opportunity cost. D. Product cost.
D. Product cost.
Product costs include direct materials costs and, in a manufacturing environment, direct labor and indirect manufacturing costs assigned to goods held for resale.
Fab Co. manufactures textiles. Among Fab’s Year 1 manufacturing costs were the following salaries and wages:
Loom operators $120,000 Factory foremen 45,000 Machine mechanics 30,000 What was the amount of Fab's Year 1 direct labor? A. $195,000. B. $165,000. C. $150,000. D. $120,000.
D. $120,000.
Direct labor includes the wages of only those employees working directly in the manufacture of the product. Only the loom operators meet this definition. The factory foremen are supervisory, and the machine mechanics maintain the machines.
The accountant for Champion Brake, Inc. applies overhead based on machine hours. The budgeted overhead and machine hours for the year are $260,000 and 16,000, respectively. The actual overhead and machine hours incurred were $275,000 and 20,000. The cost of goods sold and inventory data compiled for the year is as follows:
Direct Materials $ 50,000
COGS 450,000
WIP (units) 100,000
Finished Goods (units) 150,000
What is the amount of over/underapplied overhead for the year? A. $15,000 B. $50,000 C. $65,000 D. $67,000
B. $50,000
Traditional overhead allocation happens in 3 steps. (1) Establish the estimated overhead and divide by the estimated machine hours to get a predetermined rate (POR) of $16.25 = $260,000 / 16,000MH; (2) Multiply the POR ($16.25) by the “actual” number of machine hours (20,000) to get allocated overhead of $325,000; (3) Compare the $325,000 allocated to the actual of $275,000. This difference is $50,000 overapplied.
On January 1 Maples had two jobs in process: #506 with assigned costs of $10,500 and #507 with assigned costs of $14,250. During January three new jobs, #508 through #510, were started and three jobs, #506, #507, and #508, were completed. Materials and labor costs added during January were as follows:
Job number Materials Labor 506 $0 $2,000 507 0 1,500 508 4,000 3,600 509 3,800 2,000 510 2,600 3,100
Manufacturing overhead is assigned at the rate of 200 percent of labor. What is the January cost of goods manufactured and transferred from work-in-process? A. $25,300 B. $35,850 C. $42,950 D. $50,050
D. $50,050
Jobs 506 – 508 were the only jobs completed so the costs of these jobs is the focus of this question. DM and DL for those jobs is $35,850, but OH had to be added at ($2,000 + $1,500 + $3,600) x 200% = ($7,100 x 2) + $35,850 = $50,050.
Hoyt Co. manufactured the following units:
Saleable 5,000 Unsaleable (normal spoilage) 200 Unsaleable (abnormal spoilage) 300 The manufacturing cost totaled $99,000. What amount should Hoyt debit to finished goods? A. $90,000. B. $93,600. C. $95,400. D. $99,000.
B. $93,600.
Normal spoilage is a manufacturing cost because it is an expected and inherent part of production. Thus, it is included in the cost of finished goods. Abnormal spoilage is the amount of spoilage in excess of normal spoilage, and it is treated as a period cost.
The total units completed are 5,500 (5,000 + 200 + 300). Of this total, 5,200 are included in finished goods. Thus, 5,200/5,500 of the total cost incurred is included in finished goods. The remainder is a period cost.
Debit to finished goods = $93,600 = (5,200/5,500)$99,000
In the past, four direct labor hours were required to produce each unit of product Y. Material costs were $200 per unit, the direct labor rate was $20 per hour, and factory overhead was three times the direct labor cost.
In budgeting for next year, management is planning to outsource some manufacturing activities and to further automate others. Management estimates that these plans will reduce labor hours by 25%, increase the factory overhead rate to 3.6 times the direct labor costs, and increase material costs by $30 per unit. Management plans to manufacture 10,000 units.
What amount should management budget for the cost of goods manufactured? A. $4,820,000. B. $5,060,000. C. $5,200,000. D. $6,500,000.
B. $5,060,000.
The three factors of production - materials, labor, and overhead - must be adjusted to reflect the new budget constraints. This means that
Materials per unit = $200 + $30 = $230 per unit
Direct labor per unit = (4 hours labor X .75 X $20 per hour) = $60 per unit
Overhead per unit = (3.6 X (4 hours labor X .75 X $20 per hour)) = $216 per unit
Total cost per unit = $230 + $60 +$216 = $506 per unit
Total cost of manufacturing = $506 per unit X 10,000 units = $5,060,000
In June, Delta Co. experienced scrap, normal spoilage, and abnormal spoilage in its manufacturing process. The cost of units produced includes
A. Scrap, but not spoilage.
B. Normal spoilage, but neither scrap nor abnormal spoilage.
C. Scrap and normal spoilage, but not abnormal spoilage.
D. Scrap, normal spoilage, and abnormal spoilage.
C. Scrap and normal spoilage, but not abnormal spoilage.
Scrap is the material left over after making a product. It has minimal or no sales value. Scrap is automatically included in work in process for a product because it is part of the material cost of a product. In many manufacturing settings, it is impossible to use every bit of material input. For example, the circular punch-outs for conduit boxes are scrap.
Normal spoilage is output that cannot be sold through normal channels. It is an inherent result of production. In many cases, it is not cost effective to attempt to reduce the normal spoilage cost to zero. It is a normal part of the production process and, therefore, its cost is included in the cost of units produced.
Abnormal spoilage is considered avoidable. It occurs as a result of an unexpected event, such as a machine breakdown or accident. This cost is treated as a loss rather than a normal production cost.
Hoyt Co. manufactured the following units:
Saleable 5,000 Unsaleable (normal spoilage) 200 Unsaleable (abnormal spoilage) 300 The manufacturing cost totaled $99,000. What amount should Hoyt debit to finished goods? A. $90,000. B. $93,600. C. $95,400. D. $99,000.
B. $93,600.
This answer allocates no spoilage to finished goods. But normal spoilage is a manufacturing cost because it is an expected and inherent part of production. Thus, it is included in the cost of finished goods. Therefore, 5,200/5,500 of the total incurred cost is debited to finished goods.
Normal spoilage is a manufacturing cost because it is an expected and inherent part of production. Thus, it is included in the cost of finished goods. Abnormal spoilage is the amount of spoilage in excess of normal spoilage, and it is treated as a period cost.
The total units completed are 5,500 (5,000 + 200 + 300). Of this total, 5,200 are included in finished goods. Thus, 5,200/5,500 of the total cost incurred is included in finished goods. The remainder is a period cost.
Debit to finished goods = $93,600 = (5,200/5,500)$99,000
Indirect labor is a
A. Prime cost.
B. Conversion cost.
C. Period cost.
D. Nonmanufacturing cost.B. Conversion cost.
Conversion cost is the sum of direct labor and overhead. It is so named because this is the cost of the efforts that convert raw material into finished goods. Indirect labor is included in overhead and, thus, is part of conversion cost.
The accountant for Champion Brake, Inc. applies overhead based on machine hours. The budgeted overhead and machine hours for the year are $260,000 and 16,000, respectively. The actual overhead and machine hours incurred were $275,000 and 20,000. The cost of goods sold and inventory data compiled for the year is as follows:
Direct Materials $ 50,000
COGS 450,000
WIP (units) 100,000
Finished Goods (units) 150,000
What is the amount of over/underapplied overhead for the year?
A. $15,000 B. $50,000 C. $65,000 D. $67,000
B. $50,000
Traditional overhead allocation happens in 3 steps. (1) Establish the estimated overhead and divide by the estimated machine hours to get a predetermined rate (POR) of $16.25 = $260,000 / 16,000MH; (2) Multiply the POR ($16.25) by the “actual” number of machine hours (20,000) to get allocated overhead of $325,000; (3) Compare the $325,000 allocated to the actual of $275,000. This difference is $50,000 overapplied.
When production levels are expected to decline within a relevant range, and a flexible budget is used, what effect would be anticipated with respect to each of the following?
Variable costs per unit Fixed costs per unit
No change No change
Increase No change
No change Increase
Increase Increase
No change Increase
Variable cost per unit in the relevant range is defined to be a constant. This assumption enables cost-volume-profit analysis and many other functions within cost accounting.
Total fixed cost is assumed to be constant in the relevant range. With declining production, fixed costs per unit would increase because the number of units produced is decreasing.
In an activity-based costing system, cost reduction is accomplished by identifying and eliminating
All cost drivers Nonvalue-adding activities
No No
Yes Yes
No Yes
Yes No
All cost drivers Nonvalue-adding activities
No Yes
ABC systems increase (rather than eliminate) the number of cost drivers, to enable better modeling of cost along cause-effect lines. Cost drivers are explanatory variables that help to explain the behavior of cost. One or two independent variables typically are insufficient to explain the behavior of many indirect manufacturing costs.
ABC systems also seek to eliminate nonvalue-added activities, which are activities that do not add to the value of the product as perceived by the customer. In so doing, the total cost of producing the product is reduced without any effect on the value of the product.
Nile Co.’s cost allocation and product costing procedures follow activity-based costing principles. Activities have been identified and classified as being either value-adding or nonvalue-adding as to each product.
Which of the following activities, used in Nile's production process, is nonvalue-adding? A. Design engineering activity. B. Heat treatment activity. C. Drill press activity. D. Raw materials storage activity.
D. Raw materials storage activity.
A value-added activity is one that makes the product or service more valuable to the customer.
The only activity listed in the answer alternatives that adds no value to the product or service as perceived by the customer is raw materials storage.
ABC systems and JIT purchasing systems are frequently used together. One objective is to minimize inventory holdings. The level of inventory held has no bearing on product quality or the satisfaction of the customer. By reducing inventories, less material must be stored, reducing all the attendant activities and costs related to material storage. Thus, the total cost is reduced without affecting the customer and sales.
A delivery company is implementing a system to compare the costs of purchasing and operating different vehicles in its fleet. Truck 415 is driven 125,000 miles per year at a variable cost of $0.13 per mile. Truck 415 has a capacity of 28,000 pounds and delivers 250 full loads per year. What amount is the truck's delivery cost per pound? A. $0.00163 per pound. B. $0.00232 per pound. C. $0.58036 per pound. D. $1.72000 per pound.
B. $0.00232 per pound.
Given that the truck costs $16,250 per year = 125,000 miles @ $0.13 per mile, and given that the truck has a capacity of 7,000,000 lbs. per year = 250 loads @ 28,000 lbs. each, the cost per lb. is $.00232 = $16,250 / 7,000,000 lbs.
