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Problem 1
The San Gabriel Company has budgeted costs for service and production department
as follows:
Service Departments:
-Maintenance: $20,000
-Personnel: $30,000
-Design: $25,000
Production Departments:
-Assembly: $50,000
-Finishing: $60,000
The management decides cost allocation bases for service department and usage by
departments as following:
Personnel 10 10 40 20
(employees)
1) Use the step-down method in the order of percentage of services provided to allocate
service department costs (round to three decimal places)
2) Assume that step-down method is the best approach to allocate service costs in the
San Gabriel Company after every method (including reciprocal) is considered.
Assembly Department is offered a quote of $8,000 for Product Design Work by an
outside company, should the Design for Assembly Department be outsourced? Why?
3) Set up the algebraic equations for the service costs if the reciprocal method is used.
Problem 2
Larry Inc. uses rotten-log fungi to produce Goop and Slop. Each ton of rotten-log fungi
that Larry purchases for $500 can be converted for an additional $400 into 500 pounds
of pre-Goop and 100 pounds of pre-Slop. A pound of pre-Goop can be sold at splitoff for
$1.20 and pre-Slop can be sold for $4 per pound.
Larry can process the 500 lbs of pre-Goop into 1000 ounces of Goop at an additional
cost of $600. Each ounce of Goop can be sold for $2 per ounce. The 100 pounds of
pre-Slop can be processed at an additional cost of $200 and made into 400 ounces of
Slop. Each ounce of Slop can be sold for $5 per ounce.
In October 2010, Larry processed 100 tons of rotten-log fungi, and sold 80,000 ounces
of Goop and 30,000 ounces of Slop.
1) What amount of joint costs will be allocated to Goop if the sales-value-at-splitoff
method is used?
2) What amount of joint costs will be allocated to Goop if the Net-realizable value
method is used?
3) What amount of joint costs will be allocated to Goop if the constant-gross margin
NRV method is used?
Problem 3
G Clothing Inc. assembles its product in several departments. It has two departments
that process all units. During October, the beginning work in process in the cutting
department was 60% completed as to conversion, and complete as to direct materials.
The beginning inventory included $12,000 for materials and $3,000 for conversion
costs. Ending work-in-process inventory in the cutting department was 50% complete in
process; direct materials are added at the beginning of the process and conversion
costs are added evenly in the process.
Cutting Finishing
Required:
1) Determine a) the amount of Ending WIP, b) the amount of transferred-out cost, using
weighted-average for the Cutting Department
2) Determine a) the amount of Ending WIP, b) the amount of transferred-out cost, using
FIFO for the Finishing Department
Problem 4
ABC Company produces a single product. Material A is added at the start of the
production process and packaging material B is added at the end of the process.
Conversion costs are incurred uniformly throughout the process. Inspection takes place
when manufacturing is completed, but before packaging Material B is added. Normal
spoilage for this production process is 5% of good output. Spoiled units are discarded.
Production data for this year was as follows:
Using a first-in, first out (FIFO) process costing system, determine the equivalent units
for:
1) Material A
2) Material B
3) Conversion cost