Please use Microsoft Word only and make sure that the answers are shown within the

pages margins. Clearly label your answers and submit the answers only (no need to resubmit the questions) showing all calculations. Good luck!
1. (Chapter 2) The following information has been extracted from the records of
Haverhill Company: Sales Purchases of direct materials Indirect labor Indirect materials Depreciation of factory equipment Depreciation of factory buildings Depreciation of administrative building Marketing costs Direct labor Direct materials inventory, 12-31-04 Work in process, 1-1-04 Direct materials inventory, 1-1-04 Work in process, 12-31-04 Finished goods inventory, 1-1-04 Finished goods inventory, 12-31-04 Required: a. Prepare a statement of cost of goods manufactured. HAVERHILL COMPANY Cost of Goods Manufactured Schedule For the Year Ended December 31, 2004 Work in process inventory, January 1 31,000 Direct materials Raw materials inventory, January 1 10,000 Raw materials purchases 70,000 Total raw materials available for use 80,000 Less: Raw materials inventory, December 31 14,000 Direct materials used 66,000 Direct labor 180,000 Manufacturing overhead Indirect Material 4,000 Indirect labor 10,000 Factory utilities 15,900 Depreciationfactory $400,000 70,000 10,000 4,000 15,000 11,000 41,000 25,000 180,000 14,000 31,000 10,000 23,000 49,000 44,000

Equipment Depreciationfactory Building Factory repairs Total manufacturing overhead Total manufacturing costs Total cost of work in process Less: Work in process, December 31 Cost of goods manufactured

15,000 11,000

55,900 301,900 332,900 23,000 309,900

In cost of goods manufactured, we only take into account the factory expenses. The direct material used is calculated as opening inventory + purchases closing inventory. To this add the direct labor and overhead to get the total manufacturing costs Opening WIP + manufacturing cost closing WIP gives the cost of goods manufactured. 2. (Chapter 2) Madisen Consulting, Inc., experienced the following results in the
current year (2004): Sales Beginning work in process Ending work in process Direct materials Direct labor Overhead Selling expenses Administrative expenses Required: Prepare an income statement for Madisen Consulting for the year 2004. Madisen Consulting Income Statement For the year 2004 Sales Cost of Goods Sold Beginning WIP Add:Direct Material Add:Direct Labor Add:Overhead Less:Ending WIP Gross Margin Selling Expenses Administrative Expenses Operating Profit $500,000 10,000 20,000 50,000 100,000 90,000 50,000 70,000

500,000 10,000 50,000 100,000 90,000 20,000

230,000 270,000 50,000 70,000 150,000

Here we are not given the opening and closing finished goods inventory and so is taken as zero. In this vase all cost of goods manufactured is the cost of goods sold.

3. (Chapter 3) Koch, Inc., believes their electricity costs are affected by the
number of machine hours worked. past year were as follows: Month January February March April May June July August September October November December Using the high-low method, a. b. c. d. Develop an estimate of variable electricity costs per machine hour. Develop an estimate of fixed electricity costs per month. Develop a cost function for monthly electricity costs. Estimate electricity costs for a month in which 500 machine hours are worked using the cost function in requirement c above. Machine hours and electricity costs for the Electricity Costs $ 6,000 4,250 7,750 9,750 11,250 11,000 14,000 12,250 14,250 7,750 7,000 6,500

Machine Hours 300 240 580 860 1,040 940 1,140 900 1,240 740 480 380

a. Variable Cost We take the highest and the lowest months Month Machine Hours Cost September 1,240 14,250 February 240 4,250 Difference 1,000 10,000 The variable cost is 10,000/1,000 = $10 per hour b. Fixed Cost The total cost for September is $14,250. The number of hours is 1,240. The variable cost is 1,240X10=$12,400. The fixed cost is 14,250-12,400=$1,850 c. The cost function relates the variable and the fixed cost Total cost = 10 X no. of hours + 1,850 d. If the total number of hours is 500, the total cost will be Total Cost = 10 X 500 + 1,850 = $6,850

4. (Chapter 4) The Oakland plant has two categories of overhead: maintenance and
inspection. Costs expected for these categories for the coming year are as follows: Maintenance Inspection $240,000 500,000

The plant currently applies overhead using direct labor hours and expected capacity of 100,000 direct labor hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus 20 percent markup. Direct materials Direct labor Machine hours Number of inspections Direct labor hours $2,800 $7,500 900 8 1,100

Total expected machine hours for all jobs during the year is 60,000, and the total expected number of inspections is 4,000. Required: a. Compute the total cost of the potential job using direct labor hours to assign overhead. Also determine the bid price for the potential job. b. Compute the total cost of the job using activity-based costing and the appropriate cost drivers. Also determine the bid price if activity-based costing is used.

a. The total overhead is 240,000+500,000=740,000. The total direct labor hours are 100,000. The predetermined overhead rate is 740,000/100,000 = $7.40 per direct labor hour For the potential job, the direct labor hours are 1,100. The overhead assigned will be1,100X7.40=$8,140. The total cost for the job is Direct Material 2,800 Direct Labor 7,500 Overhead 8,140 Total cost $18,440 The bid is cost plus 20%. The bid price is 18,440X1.20 = $22,128 b. In activity based costing, we first find the application rate for each cost pool. Here there are two cost pools Maintenance and Inspection. The cost drivers for these cost pools will be total machine hours and total number of inspections. We get Cost Pool Amount Total activity Application Rate Maintenance 240,000 60,000 240,000/60,000=$4 Inspection 500,000 4,000 500,000/4,000= $125 For the given job, we then calculate the overhead amount using the application rate Cost Pool Application Rate Job Activity Amount Maintenance $4 900 $3,600 Inspection $125 8 $1,000 Total Overhead $4,600 The total cost for the job is Direct Material Direct Labor 2,800 7,500

Overhead Total cost

4,600 $14,900

The bid is cost plus 20%. The bid price is 14,9000X1.20 = $17,880 5. (Chapter 5) The Dewey Company uses a predetermined overhead rate to apply
manufacturing overhead to production. The rate is based on direct labor hours. Estimates for the year just ended are as follows: Estimated manufacturing overhead Estimated direct labor hours During the year Dewey Company used 37,000 direct labor hours. At the end of the year, Dewey Company records revealed the following information: Raw materials inventory Work-in-process inventory Finished goods inventory Cost of goods sold Manufacturing overhead costs incurred Required: a. Calculate the predetermined overhead rate for the year. b. Determine the amount of overhead applied during the year. c. Determine the amount of underapplied or overapplied manufacturing overhead for the year. $ 35,000 60,000 105,000 400,000 210,000 $240,000 40,000

a. Predetermined Overhead Rate = Total Manufacturing Cost/Total direct labor hours Predetermined overhead rate = 240,000/40,000 = $6 per direct labor hour b. The amount of overhead applied = Total Activity X predetermined rate Overhead applied = 37,000 X 6 = $222,000 c. The actual overhead is $210,000. If the actual is less than applied then the overhead is said to be over applied. If the actual is higher than the applied, then the overhead is under applied. In this case the actual at $210,000 is less then applied of $222,000. The overhead is overapplied and the amount is 222,000210,000=$12,000 6. (Chapter 6) AL Corporation produces a product that passes through two

departments. For January, the following equivalent unit schedule was prepared for the first department: Materials 120,000 10,000 130,000 Conversion Cost 120,000 4,000 124,000

Units completed Units in EWIP x Fraction complete: Materials (10,000 x 100%) Conversion (10,000 x 40%) Equivalent units of output

Costs assigned to beginning work in process: Materials: Conversion: $68,000 $33,000

Manufacturing costs incurred during the month: Materials: Conversion: Required: a. Compute the unit cost for January using the weighted average method. b. Determine the cost of goods transferred out. c. Determine the cost of ending work in process. $75,000 $60,000

a. We first find the total cost for material and conversion Total cost = beginning WIP + costs incurrent during the month Total Material Cost = 68,000+75,000 = 143,000 Total equivalent units = 130,000 Material cost per unit = 143,000/130,000 = $1.10 Total conversion cost = 33,000+60,000=93,000 Total equivalent units = 124,000 Cost per unit = 93,000/124,000 = $0.75 Units cost = 1.1+0.75 = $1.85 b. Units transferred out = 120,000 Total cost for units transferred out = 120,000X1.85 = $222,000 c. The cost of ending WIP is Material 10,000 X 1.10=$11,000 Conversion Cost 4,000X0.75=$3,000 Total Cost $14,000 7. (Chapter 8) The Good As Old Company manufactures antique-looking, oak rocking
chairs. Budgeted sales for the first five months of the year are as follows: Budgeted Sales (Units) 200 240 180 160 240

January February March April May

Each rocking chair requires 10 square feet of oak, at a cost of $20 per square foot.

The company wants to maintain an inventory of chairs equal to 25 percent of the following month's sales. At the beginning of the year, 40 chairs are on hand. Assume the company maintains an inventory of oak equal to 10 percent of the next month's needs. At the beginning of the year, 240 square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 180 square feet. Required: a. Prepare a production budget, in units, for each of the first four months of the year. b. Prepare a purchases budget, in dollars, for each of the first three months of the year. a. The production budget is given below Month January February March April May Sales 200 240 180 160 Opening Inventory 40 60 45 40 Ending Inventory 60 45 40 60 Production 220 225 175 180

240 60 0

Sales are as given. The opening inventory for Jan is given as 40 and the ending inventory is 25% of the next month sales. If the total sales is 200 and ending inventory is to be 60, then we need to produce 200+60=260 and since 40 are already available , the production is 260-40=220 Production = Sales + Closing inventory opening inventory b. Purchase budget is shown below Jan Total Production 220 Total Material Required 2,200 Beginning Inventory 240 Ending Inventory 225 Purchases 2,185 Price per Unit 20 Total Cost 43,700 Feb 225 2,250 225 175 2,200 20 44,000 Mar 175 1,750 175 180 1,755 20 35,100 180 1,800 20 -

Each unit requires 10 sq ft of material. Once we know the production, we can calculate the material required. For the purchase we do the same way Purchase = material required in production + ending inventory opening inventory. Given the price per unit, the purchase dollar can be calculated.

8. (Chapter 9) Fosse Manufacturing Company has developed the following standards for
one of their products: STANDARD VARIABLE COST CARD ONE UNIT OF PRODUCT Direct materials: Direct labor: 20 square feet x $10 per square foot 8 hours x $12 per hour $200.00 96.00

Variable overhead: 8 hours x $6 per hour Total standard variable cost per unit

48.00 $344.00

The company records materials price variances at the time of purchase. The following activities occurred during the month of May: Materials purchased Materials used Units produced Direct labor Actual variable overhead 150,000 96,000 5,000 41,000 $238,000 square feet at $10.50 per sq. foot square feet units hours at $13.10 per hour

Required: a. Calculate the materials price variance and indicate whether it is favorable or unfavorable. b. Calculate the materials usage variance and indicate whether it is favorable or unfavorable. c. Calculate the labor rate variance and indicate whether it is favorable or unfavorable. d. Calculate the labor efficiency variance and indicate whether it is favorable or unfavorable.

a. Direct material price variance = (Actual price per unit Standard Price per unit) X Actual quantity Actual Price per unit = $10.50 per sq ft. Standard price = $10 per sq. ft Actual quantity = 96,000 sq. ft Direct Material price variance = (10.50-10) X 96,000=$48,000 Since the actual price is higher than standard, the variance is unfavorable b. Material usage variance = (Actual quantity used standard quantity at actual production) X standard price Actual quantity used = 96,000 Standard quantity at actual production = 5,000 X 20 = 100,000 (total actual units produced X standard rate ) Standard price = $10 Usage variance = (96,000-100,000) X 10 = $40,000 Since the actual quantity is less than standard, the variance is favorable. If we put together, the total material variance is 48,000U+40,000F=8,000U We check standard material cost = 200X5,000=$1,000,000 Actual material cost = 96,000 X 10.50 = $1,008,000 The difference is $8,000U which is the same as our calculation c. Labor Rate variance = (Actual rate standard rate) X actual time

Actual rate = $13.10 per hour Standard Rate = $12 per hour Actual time = 41,000 hours Rate variance = (13.10-12) X 41,000 = $45,100 Since the actual is higher, the variance is unfavorable d. Labor efficiency variance = (actual hours standard hours at actual production) X standard rate Actual hours = 41,000 Standard hours at actual production = 5,000 X 8 = 40,000 Standard rate = $12 per hour Efficiency variance = (41,000-40,000) X 12 = $12,000 Since actual is higher the variance is unfavorable The total labor variance is 45,100U+12,000U = 57,100U To check The total labor amount is 41,000X13.10 = $537,100 Standard labor is 8X5,000 X 12 = 480,000 Variance = 537,100-480,000=57,100 U. The same as we got