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management cost accounting

Cost Accounting Using A Cost Management Approach 6th Edition Letricia Gayle Rayburn, Martin K. Gay - Solutions

In 19X1, Jett Company began work on Job No. 218, incurring a direct materials cost of $1,200 and a direct labor cost of $4,209 representing an actual labor rate of $6.10. The factory overhead application rate was $4.75 per direct labor-hour for 19X1. After evaluating 19X1 variances and undertaking
The following information regarding one unit of product has been abstracted from the records for the year ending March 31, 19X2, of Donnell Manufacturing Company:Management is formulating a strategy to increase company sales over the 5,000 units sold last year. The alternative that is presently
One product line is manufactured by Bond Company with sales of this product line for 19X1 expected to be $300,000. The following data indicate the cost of goods sold:Company management expects costs to rise and at year-end predicts the following will occur in 19X2 unless the product is
Management of Peru, Inc., desires to have 1,800 units in ending inventory of finished goods at the end of 19X3; production is assumed to occur evenly throughout the year. Direct materials and work in process inventories are so small that they can be ignored in the next year’s forecasts. Marketing
Barton Company’s cost of goods manufactured and income statement for the year ended December 31, 19X1, follow. Beside the cost figures is an indication of whether they are variable(V) or/and fixed (F). The company produced 50,000 units in 19X1. Assume that finished goods inventory is carried at
Discuss the characteristics of the production process which determine whether to use job order costing or process costing.
Define equivalent units. Why is it necessary to compute equivalent units and how are they used?
Why is it suggested that the product unit under process costing may be visualized as a snowball as it travels from one department to another?
On the quantity schedule for a department, 1,000 units are indicated as finished and transferred; does this necessarily mean that the unit is in a finished stage ready for- sale to a customer?
When would you advise using estimated factory overhead application rates in a process costing system?
Contrast how the costs of beginning inventory are treated in the weighted-average and FIFO costing approaches used in process costing.
What information about beginning inventory is needed for FIFO costing that is not needed to compute the unit costs under weighted-average costing?
Why is the FIFO method of accounting for beginning inventory costs sometimes referred to as the modified or departmental FIFO method? Why not use strict FIFO costing?
Why should the accountant be concerned about determining when material is issued into the production process?
What changes in job order and process costing systems do you expect will become more prevalent because of increased usage of flexible manufacturing and automation?
Analysis of the records of the Burnett Company revealed the following:Required:a. Calculate equivalent units for FIFO costing.b. Calculate equivalent units for weighted-average costing. Beginning inventory 1/5 of inventory is 1/3 complete 3,000 units 4/5 of inventory is 1/4 complete Transferred
You are able to obtain only limited data from Steele Company before having to prepare cost sections of the production report. The ending balance in Work in Process for the previous month shows 500 units having three-fifths of their material at a cost of $324 and one-fifth of their conversion costs,
Hastings Company places material in production at the beginning of operations. In September, material costs totaled $6,240; direct labor, $10,500; and factory overhead, $5,724. On September 1, there were 600 units in process, one-third completed as to direct labor and onefourth completed as to
Determine finished equivalents for the following process of Watch Company:Workers issued materials at the beginning of the process in this second department of operations.Required:a. Determine the equivalent units using weighted-average costing for:(1) Preceding departmental cost.(2) Materials.(3)
Courtney Company places material in production at the beginning of operations. In April, material costs totaled $16,660; direct labor, $20,560; and factory overhead, $7,139. On April 1, there were 750 units in process, one-fifth completed as to direct labor and one-third completed as to factory
The following computations are for Creite’s, Inc.’s cost of production report. The 200 units in beginning inventory have a total cost of $500.Required:a. Explain why you know that this is not the first processing department.bh. (1) Identify the costing method (FIFO or weighted average) being
Department One of Bacon, Inc., provides the following limited data for May:The ending inventory contains 600 units having 30 percent of material and 40 percent conversion cost. Due to a change in suppliers, material unit cost decreased $0.20 but the cheaper grade of material caused unit conversion
Because you are such an industrious cost accountant, you decide to return to the office tonight and finish the cost of production report you started during regular working hours. However, to your dismay, you find that the safe is locked up and you forgot to bring your keys. After extracting the
Assume inspection is made at the beginning of operations in processing departments except the first department.a. What cost is assigned to the lost units?b. How would you allocate the cost of normal loss of units?
Why are the units lost through either normal or abnormal causes included in computing equivalent units?
a. Contrast the treatment for normal and abnormal loss in a process costing system.b. When would you allocate abnormal loss to cost of units produced under a process costing system?
Under an actual cost system, indicate reasons why the total unit cost determined in the first department under process costing could differ from the preceding department unit cost computed in the second department.
What is the FIFO equivalent unit calculation for material, labor, and overhead if material is added in processing at the beginning of operations and 12,800 units were started in production? Beginning inventory consisted of 2,600 units, one-fourth complete for labor and overhead, and ending
What factors would you consider in deciding at what points in the manufacturing operations to make inspections? Why is there a trade-off in selecting more frequent inspection points?
a. Assuming the company has units in beginning and ending inventory, indicate the equivalent unit computation for the preceding department cost when the units received from the preceding department are diluted with additional material creating an increase in units to account for using (1)
Assume a process introduces one-half of the material needed at the beginning of operations with the remaining one-half material entering at the 60 percent stage of operation. If inspection is at the 30 percent stage of operations and 100 units are discovered to be defective at the inspection stage
Assume inspection is made at the midpoint of operations in a department subsequent to the first department and material is introduced at the beginning of operations. What cost is assigned to any lost units?
What are the equivalent units for material, labor, and overhead using the weightedaverage method of product costing if: 1,200 units were started in process, 200 units were lost, and ending inventory consisted of 500 units, having one-fifth material, three-fifths labor, and four-fifths overhead.
What is the weakness in a system in which workers are continually compensating for others’ perceived errors?
Blackmon Company introduces material at the beginning of operations in its process while adding conversion costs evenly throughout production. The following data is available for one period:A total of 30 percent of the lost units were due to abnormal conditions. Inspection is at the 50 percent
Immediately after the third department of Bennett, Inc., receives an 8,000 gallon batch of liquid from the second department, the mixture is diluted. At the end of operations in the third department, each finished gallon is packaged in containers, which is a material cost in the third department.
In the fourth department of David, Inc., inspection occurs at the 25 percent stage of processing.Material X is introduced at the beginning of operations while Material Y is added at the end of processing within the fourth department. During the current month, of the 600 units lost, two-thirds were
Judi Company experiences loss in the manufacture of its product. Inspection is at the 60 percent stage of production. Labor and overhead costs are added evenly up to the inspection point.Material is added at the beginning of operations. Beginning inventory consisted of 5,000 gallons, complete for
Why should managers be alert for market developments affecting their by-products and joint products?
(a) Contrast scrap, by-products, and joint products. (b) Under which conditions should a product be treated as a by-product rather than as a joint product?
Discuss the basic difference between the methods of accounting for by-products and for joint products.
When would it be appropriate to allocate all producing costs to the joint products and treat the recovery value of by-products as other income?
Which of the two major approaches to accounting for by-products usually results in a lower valuation of joint (main) product inventories?
Discuss the methods available for accounting for joint products and describe the advantages and weaknesses of each method.
(a) Why do the joint cost allocation methods illustrated in the chapter have limited usefulness in cost control and planning? (b) What type of cost analysis would yield results that management can use in deciding on the most profitable stage at which the joint products can be sold?
Define the relationship between the split-off point and separable costs.
Compare common costs with joint costs.
Since the choice of which joint allocation method to use often is arbitrary, why are these approximations necessary?
Sugar Farmers grows sugar beets; these large beets have a high natural sugar content that the company refines to produce commercial sugar. The sugar processing factory accepts only topped beets, whose leaves, stems, and crowns (called tops) are removed. Thus, the topping process is necessary for
Oury Company’s Chemicals X12 and YR8 are joint products; 20,000 gallons of X12 and 40,000 gallons of YR8 were produced. Their cost for April up to the point of separation was$350,000. No costs were incurred beyond that point. The selling price was $8 for X12 and$6 for YR8.Required:a. Determine
Cinnamon Refining Company produces three different chemicals. A batch costing $23,750 produces the following:Required:a. Using the net market (realizable) value method for allocating joint costs, determine the joint cost to be assigned to each product and the gross margin for each chemical.b. The
Texco Company manufactures three products, R, S, and T, from a particular joint process.Each product may be sold at split-off or may be processed further. Joint production costs for the period were $412,500. All costs of additional processing are of a variable nature and are directly traceable to
Freedman Corporation uses a joint process to manufacture Products A, B, and C. Each product may be sold at its split-off point or processed further. Additional processing costs are entirely variable and traceable to the respective products manufactured. Joint production costs for 19X1 were
Assume that to gain better insight into budgeting methods used in practice, you interview a number of business executives. You ask if they have a flexible budgeting approach and are surprised to find that they all reply, “Yes.” What is amazing is that you know an accountant from one of the
Why is it important to have available the budget formula for a company’s fixed and variable cost behavior?
What abilities does a budget director need to perform effectively?
Discuss the budgets a company should prepare as part of a master budget plan; discuss their interrelationships to each other.
Discuss several advantages and limitations of budgets, both for internal and external purposes.
How are predetermined overhead rates useful in the development of budgets?
What factors should be evaluated in deciding to purchase enough materials to maintain a large ending inventory?
If a company’s policy is that each month’s units of ending inventory sh
As a newly hired cost accountant for a manufacturing firm, you find that a fixed budgeting system is being used. You immediately suggest a flexible budgeting approach. Your supervisor’s reply is, “You haven’t been here long enough to know how many hours it takes to set up only one budget! How
Assume Cost Center A produces 1,000 units in January 19X1, incurring the following actual costs:Required:a. Using the flexible budget formula given in Exhibit 10-2, determine variances for each line expense.b. Explain if a flexible budget can incorporate revenue and nonmanufacturing costs as well
Budgeted data for the Puryear Company indicates that 40,000 pounds of sugar are needed to remain in the ending inventory for processing its cola drink. Beginning sugar inventory is expected to contain 25,000 pounds. The expected cost per pound of sugar is 50 cents. The expected total cost of sugar
Managers use budgets for planning and establishing goals for the future. Budgets also help managers evaluate past performance.Required:a. What areas of conflict are there between these two purposes of budgets?b. How does allowing employees to participate in the budgeting process help solve these
Based on an average unit selling price of $100, monthly sales during 19X1 were as follows for the Lark Company:Since the company is faced with increasing labor cost, management plans to increase the sales price by 10 percent in 19X2. However, demand for this product is so high that sales volume is
Georgia, Inc., manufactures baby bottles and uses marketing research to estimate future sales. Research has shown that an average of 20 bottles is purchased per birth and that generally all 20 are bought within the same quarter of birth. The forecasted births for the Georgia, Inc., marketing area
Webber, Inc., recently developed a new glass casserole dish. Webber promotes the dish as being not only highly attractive but also able to withstand intense oven heat for extended periods. In advertising the new product, marketing personnel have stressed the reason that its price is higher than
Skelly, Inc., has provided the following actual cost data for your use in determining variable factory overhead costs and fixed factory overhead costs for budgeting purposes:Required:Determine an overall variable factory overhead rate per machine-hour and total fixed factory overhead using the
Discuss how the calculation of overhead rates is used in cost control evaluation.
Determine the budgeted fixed overhead and the variable overhead rate for indirect labor if the two budgets are: 1,000 units—$4,000; 3,000 units—$8,000. Can you compute the fixed overhead application rate for this company?
A company wants to realize a profit of $150,000. Its salespeople plan to sell 100,000 units of a product for $15 each; fixed costs are $250,000. To realize this desired profit, what would variable costs be?
Understanding cost behavior is vital to all organizations, but it is crucial to hospitals because their patterns of cost differ from most manufacturing firms. Discuss why you think the cost structure of health care institutions presents additional challenges and indicate whether you think a
Is depreciation cost a fixed or variable cost? Indicate the factor determining whether the cost is fixed or variable.
In analyzing cost behavior, why must the accountant guard against feeding large amounts of data to the computer and letting a regression program find a relationship among the variables?
What factors cause costs to vary?
If total costs for Ban Company are $280,000 for 600,000 machine-hours and $310,000
for 700,000 machine-hours, what are the budgeted fixed costs for the year?
State why you agree or disagree with this statement: The basic concept in cost estimation is to estimate the relation between costs and the variables affecting costs.What is likely to be determined by a cost-estimation study?Briefly explain three assumptions of regression analysis.
Fairleigh, Inc., makes children’s toys. The company uses a chain of merchandisers for retail distribution. Even though sales and production increase dramatically near the end of the year, management maintains enough manufacturing activity to keep its labor force employed year round. Data for the
Bartell, Inc., wishes to determine the fixed portion of its semivariable expense, electricity, as measured against direct labor-hours, for the first three months of the year. Information for this period is as follows:Required:What is the company’s variable and fixed portion of electricity
You have plotted the data points below and are now ready to begin a regression analysis.Required:a. Do you see anything that should be done before running the regression?b. What could have caused any unusual observations that you detect in the preceding graph? Regression line including outlier
Stallings Company provides you with a summary of its total budgeted production costs at three production levels:Required:a. Indicate the cost behavior for Costs A through D.b. What would the total budgeted cost be for Costs A and C if the company produces 2,500 units?c. Give an example of a
The controller for Stern, Inc., prepared this regression diagram drawing a line of best fit (trend line) for factory overhead and wages. The line of best fit in this diagram is described by the formula y = a + bx.Required:a. Determine the slope of the line of best fit in numerical terms.b. Give the
The total monthly overhead budget for Deb Corporation is given for two volume levels:Required:a. Management asks you for an approximate fundamental measure of fixed and variable cost behavior using the high-low method as follows:(1) Prepare the mathematical analysis.(2) Diagram the high-low
. In the graphs shown, assume that total costs for the Greer Company are measured on the vertical axis while the horizontal axis measures the volume or activity level.Required:Indicate the graph that best describes the cost-volume relationship in the following situations (a graph may be used more
The data for six bimonthly cost observations of the Steve Douglass Company follow:Required:a. Plot a statistical scattergraph from the data to obtain the fixed and variable cost elements.b. Use the least squares method to determine the fixed and variable cost elements. Direct Labor-Hours Costs
In the graphs shown, assume that unit costs for Butcher Company are measured on the vertical axis while the horizontal axis measures production volume.Required:Indicate the graph that best describes the cost-volume relationship in the following situations (a graph may be used more than once).
Smile, Inc., has provided the following actual cost data for your use in determining variable factory overhead costs and fixed factory overhead costs for budgeting purposes:Required:a. Determine an overall variable factory overhead rate per machine-hour and total fixed factory overhead using the
During your examination of the financial statements of Imperial Company, you wish to analyze selected aspects of the company’s operations. Machine-hours and maintenance costs for the first four months of 19X1, which you believe are representative for the year, were as follows:Required:Use the
Phoenix, Inc., plans to produce 10,000 motors each month. Time and motion studies reveal it takes five machine-hours per motor. The established monthly manufacturing overhead budget iS:Required:a. What is the cost estimating formula for each fixed and variable cost? Express the total cost
Sand, Inc., has experienced difficulty in estimating its costs at various levels of occupancy for its hotel. Management believes that this difficulty is part of the reason that they are not maintaining the profitability of past years. In an attempt to predict its cost-behavior patterns, managers
A Canadian bank has many branch offices. To help prepare budgets for its branch offices, the bank hired the services of a consulting firm. The consulting firm studied the past behavior of different types of costs at several of the branches and, using regression analysis, developed mathematical
The controller of the Connecticut Electronics Company believes that identification of the variable and fixed components of the firm’s costs will enable the firm to make better planning and control decisions. Among the costs the controller is concerned about is the behavior of indirect supplies
Plywood Plastics Manufacturing Company was formed as a partnership 25 years ago by Buell Edmonds and Harold Douglass after Edmonds, a successful business executive in the floor-covering business, acquired a plastics franchise. His new product was to be bonded with plywood and used for sink tops,
A cost accountant estimates that next year’s normal capacity for the Susan Douglass Company will be 40,000 machine-hours. At this level, managers estimate fixed costs at $140,000 with variable costs of $90,000. There were 41,000 actual machine-hours for the year ended February 28, 19X1, and total
The details pertaining to the Utilities Department of Sun, Inc., are as follows:During the month of May the expense of operating the Utilities Department amounted to $17,400; of this amount $6,000 was considered to be fixed costs.Required:a. What dollar amounts of the Utilities Department expense
Regarding the allocation of overhead,a. Discuss the theoretical merit of three different methods of allocating service department costs to production departments.b. Distinguish between direct and indirect costs and their relationship in determining overhead application rates for production
Brown Company’s budget formula is $93,000 fixed overhead plus a variable rate of $5 per machine-hour, yielding a total application rate of $8. Actual machine-hours for the period were 31,800; actual factory overhead of $254,800 was reported.Required:Determine the spending and volume variances.
Overhead budgets for the production and service departments of Lynn Company are as follows:Accountants use the following factory statistics in determining the percentage of service received from each service department. The company uses the number of repair-hours to allocate the Maintenance

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