T1& 2 (Q)-Introduction True/False
The three cost elements ordinarily included in the inventoriable cost of a manufactured product are direct materials, direct labor, and marketing costs.
Depreciation on manufacturing equipment is a period cost.
Salaries and wages incurred in the factory would be product costs
Commissions paid to salespersons are a variable selling expense.
Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of activity.
Multiple Choice Questions 6.
Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table?
A)The amount paid to the individual who stains the table.
B)The commission paid to the salesperson who sold the table.
C)The cost of the glue used in the table.
D)The cost of the wood used in the table.
Which of the following statements is correct in describing manufacturing overhead costs?
A)Manufacturing overhead when combined with direct material cost forms conversion cost.
B)Manufacturing overhead consists of all manufacturing costs except for prime cost.
C)Manufacturing overhead is a period cost.
D)Manufacturing overhead when combined with direct labor cost forms prime cost.
When volume or level of activity decreases, variable costs will:
A)increase per unit.
B)increase in total.
C)decrease in total.
D)decrease per unit.
Within the relevant range:
A)variable cost per unit decreases as production decreases.
B)fixed cost per unit increases as production decreases.
C)fixed cost per unit decreases as production decreases.
D)variable cost per unit increases as production decreases.
During the month of May, direct labor cost totaled $10,000 and direct labor cost was 40% of prime cost. If total manufacturing costs during May were $86,000, the manufacturing overhead was:
What was the cost of goods manufactured for the month?
The cost of goods manufactured was:
Lortnoc ltd operates its production processes for 50 weeks each year. Material G is regularly used over this period resulting in an average weekly rate of 15000kg. Seasonal fluctuation does occur up to a minimum of 12000kg per week, and a maximum of 16000kg per week. Material G is purchased at RM1. 50 per kg from a supplier whose delivery period varies from a minimum of 2 weeks to a maximum of 6 weeks from the date of order. The cost of ordering is RM250 per order and the stockholding cost is estimated at 10% per annum. Required: Calculate for material G:
a) Reorder level
b) Minimum stock level
c) Maximum stock level
The annual demand is 128000 kg and sufficient storage space is available to accommodate order sizes up to and including 12800kg. The cost of holding stocks is 15% per annum and the cost of placing an order is RM11. 25. Required
a) Using the five order size options like headings, prepare a tabular statement which shows the stockholding costs
b) Indicate at the end of the statement which order size you recommend should be selected
c) Calculate the EOQ using the formulae, showing details of your workings T 4 & 5 (Q) – Overheads Question 1
The metal company supplies nonstandard metal machine parts to customer’s drawings and specifications. The factory comprises the following production departments: Heavy machine (HM) Light Machine (LM) Finishing (F) Direct materials and wages are charged to jobs whilst production overhead is added by applying a fixed percentage on direct wages cost (based on the annual budget), one blanket or overall rate being used for all factory production. Consideration is being given to a suggestion that the application of separate departmental rates, based on machine hours (for HM and LM) and based on manual hours (for F), would result in more accurate job costs. Required
a) Calculate the current blanket absorption rate (% on direct wages)
b) Calculate separate departmental absorption rates per hour(machine or manual)
c) Compute the total production cost of job no. 782 i) using the current blanket absorption rate
d) using a separate hourly rate for each department
e) Ascertain the over/(under) absorption by departments and in total for the month of May
g) using the current blanket absorption rate ii) using a separate hourly rate for each department
The costs and activity are expected to arise evenly throughout the year, and the budget has been used as the basis of calculating the company’s absorption rates. The company uses the departmental basis for calculating absorption rate as follows: DepartmentBasis MachiningMachine hours Hand finishingLabour hours During March 20X1 the monthly profit statement reported (i) that the actual hours worked in each department were Machining 6,000 machine hours and 1,000 labor hours Hand finishing 2,000 machine hours and 9,600 labor hours (ii) that the actual overhead costs incurred were Fixed Variable RM RM Machining 48,500 36,000 Hand finishing 33,600 33,500 Total82,10069,500 (iii) that the actual production was 15 000 units.
(a) Calculate appropriate pre-determined absorption rates for the year ended 31 December 20X1
(b) Calculate the under/over absorption of overhead for each department of the company for March 20X1; Comment on the problems of using predetermined absorption rates based on the arbitrary apportionment of overhead costs, with regard to comparisons of actual/target performance;
(c) State the reasons why absorption costing is used by companies Question 3 One of the factories in the XYZ Group of companies absorbs fixed production overheads into product cost using a pre-determined machine hour rate. In Year 1, machine hours budgeted were 132,500 and the absorption rate for fixed production overheads was $18. 0 per machine hour. Overheads absorbed and incurred were $2,442,440 and $2,317,461 respectively. In Year 2, machine hours were budgeted to be 5% higher than those actually worked in Year 1. Budgeted and actual fixed production overhead expenditure was $2,620, 926, and $2,695,721 respectively, and actual machine hours were 139,260. You are required to analyze in as much detail as possible, the under/over absorption of fixed production overhead occurring in Years 1 and 2, and the change in absorption rate between the two years.
If overhead is underapplied, then:
A)actual overhead cost is less than the estimated overhead cost.
B)the amount of overhead cost applied to Work in Process is less than the actual overhead cost incurred.
C)the predetermined overhead rate is too high.
D)the Manufacturing Overhead account will have a credit balance at the end of the year
Overapplied overhead would result if:
A)the plant was operated at less than normal capacity.
B)overhead costs incurred were less than estimated overhead costs.
C)overhead costs incurred were less than overhead costs charged to production.
D)overhead costs incurred were greater than overhead charged to production.
Actual overhead amounted to $325,000 with actual direct labor-hours totaling 110,000 for the month. How much was the overapplied or underapplied overhead?
Darrow Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the company worked 10,000 direct labor-hours and incurred $80,000 of actual manufacturing overhead cost. If overhead was underapplied by $2,000, the predetermined overhead rate for the company for the year must have been:
D)$8. 40 10.
At the beginning of the year, manufacturing overhead for the year was estimated to be $250,860. At the end of the year, actual direct labor-hours for the year were 20,800 hours, the actual manufacturing overhead for the year was $245,860, and manufacturing overhead for the year was underapplied by $10,820. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been:
A)22,200 direct labor-hours
B)20,800 direct labor-hours
C)21,758 direct labor-hours
D)22,715 direct labor-hours
Brabec Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 19,700 hours. At the end of the year, actual direct labor-hours for the year were 17,700 hours, the actual manufacturing overhead for the year was $392,940, and manufacturing overhead for the year was underapplied by $35,400. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been:
Under variable costing:
A)net operating income will tend to move up and down in response to changes in levels of production.
B)inventory costs will be lower than under absorption costing.
C)net operating income will tend to vary inversely with production changes.
D)net operating income will always be higher than under absorption costing.
In an income statement prepared using the variable costing method, fixed selling and administrative expenses would:
A)be used in the computation of the contribution margin.
B)be used in the computation of net operating income but not in the computation of the contribution margin.
C)be treated the same as variable manufacturing expenses.
D)not be used.
Advocates of variable costing argue that:
A)fixed production costs should be added to inventory because such costs have future service potential and therefore are inventoriable as an asset.
B)fixed production costs should be capitalized as an asset and amortized over future periods when benefits from such costs are expected to be received.
C)fixed production costs should be charged to the period in which they are incurred unless sales do not equal production in which case any difference should be capitalized as an asset and amortized over future periods.
D)fixed production costs should be charged to the period in which they are incurred.
A company produces a single product. Variable production costs are $12 per unit and variable selling and administrative expenses are $3 per unit. Fixed manufacturing overhead totals $36,000 and fixed selling and administration expenses total $40,000. Assuming a beginning inventory of zero, production of 4,000 units, and sales of 3,600 units, the dollar value of the ending inventory under variable costing would be:
What is the net operating income for the month under variable costing?
If the fixed manufacturing overhead cost was $2. 00 per unit, what would have been the net operating income using absorption costing?
Maya Bhd makes only one product, the detailed standard cost of which is as follows: Per uniter unit RMRM Direct materials 40 Direct labor 25 Variable factories overhead 10 Fixed factories overhead 25 Production cost 100 Variable selling overhead 15 Fixed selling overhead 20 Net profit 15 Selling Price 150 The above unit cost for fixed factory overhead and fixed selling overhead are based on a monthly budget of 3,000 units produced and sold. 2,400 units are in stock at the beginning of Month 1 and budgets for the next two months are as follows: Month 1 Month 2 Production (units) 2,800 2,600 Sales (units) 2,200 3,800 Required:
Prepare a budgeted Income statement for each of Month 1 and 2 in tabular format:
(a) using the absorption principle;
(b) using the marginal principle.
Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory’s purchasing department?
C)Number of orders processed
D)Cost of materials purchased
Guerra Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the costs of inspecting the finished products at Guerra?
D)Number of inspections
The labor time required to assemble a product is an example of a:
Production order processing is an example of a:
Assembling a product is an example of a:
The plant manager’s salary is an example of a:
The activity rate for the Fabrication activity cost pool is closest to:
A)$5. 30 per machine-hour
B)$3. 60 per machine-hour
C)$7. 20 per machine-hour
D)$4. 80 per machine-hour
What would be the total overhead cost per order according to the activity-based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.
D)$37. 50 12.
What would be the total overhead cost per customer according to the activity-based costing system? In other words, what would be the overall activity rate for the customer support activity cost pool? (Round to the nearest whole dollar.
How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity cost pool?
How much cost, in total, would be allocated in the first-stage allocation to the Customer Support activity cost pool?
How much cost, in total, should NOT be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision-making?
Why performance measurement is important in today’s business. Discuss the limitations of traditional performance measures when they are applied in companies that are creating a new manufacturing environment.
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