Question 1: Short answer type question
(a) Why should managers worry about product over costing or under costing?(35-50 words)
(b) Name four levels of a cost hierarchy.
(c) Define cost pool, cost allocation, and cost-allocation base.

Question 2:

The job costing system at Smith's Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs;

1. Job 215, an order of 15 intricate personalized frame
2. Job 325, an order of 6 standard personalized frames.

The controller wants you to compare overhead allocated under the current simple job-costing system and a newly-designed activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows:

Job 215 Job 325 Number of purchase orders 25 3 Number of material moves 1D 4 Machine-hours 40 Bi} Number of inspections 9 3 Units produced 15 E Machining Department Finishing Department Direct materials used $15,500 $ 5,000 Direct manufacturing labor costs $ 400 $1,1,00 Direct manufacturing labor-hours 50 50 Machine-hours 130 20Machining Department Finishing Department Manufacturing overhead costs $10,660,000 $7,372,000 Direct manufacturing labor costs $ 940,000 $3,800,000 Direct manufacturing labor-hours 36,000 145,000 Machine-hours 205,000 32,000Budgeted Quantity Budgeted Overhead Activity Driver of Activity Driver Purchasing $ 70,000 Purchase orders processed 2,000 Material handling 87,500 Material moves 5,000 Machine maintenance 237,300 Machine-hours 10,500 Product inspection 18,900 Inspections 1,200 Packaging 39,900 Units produced 3,800 $453,600Home Insert Page Layout Formulas Data Review View A B C D 1 Roma Skincare 2 Operating Income Statement June, 2017 3 Units sold 15,000 4 Revenues $1,20,000 5 Cost of goods sold 6 Variable manufacturing costs $60,000 7 Fixed manufacturing costs $22,000 Total cost of goods sold $ 82,000 9 Gross margin $ 38,000 10 Operating costs 11 Variable marketing costs $ 6,000 12 Fixed marketing & admin costs $14,000 13 Total operating costs $ 20,000 14 Operating income $ 18,000