Question

1. Sheldon Cooper operates Daddy’s Nursery which provides baby-sitting services for children between 2 to 5 years old. Working mothers leave their children at 8:00 am and pick them up after office hours.

Sheldon converted his house into a nursery home where children are provided with sleeping areas, play pen and study areas, as well as meals, milk, and snacks. Nursery fee is computed by adding a mark up to the total cost of service provided to each child.

At present, Sheldon uses the traditional costing system in computing the cost of service per child, where the total cost is divided by the number of children served.

During the previous month, the nursery served100 children, for which the company incurred P50,000 total cost of service. Sheldon observed, however, that it is not right to just divide the total cost by the number of children because incurrence of some costs may vary depending on some factors. For example, children between 2 to 3 years old need more attention and are provided more services that those above 3 years old.

Considering this, Sheldon, plans to apply ABC system in determining the cost of service per child. He conducted a study of the previous month’s operations, and the following results came out:

Cost Category	Cost	Cost Driver	Cost Driver Quantity
Meals, Snacks, Supplies	P20,000	Number of children	100 children
Caregiving hours	P30,000	Staff hours	1,200 staff

Children Category	Number of children	Staff hours
Babies (2-3 years old)	60	1,000
Kiddies (above 3 years old)	40	200

1. If the traditional costing system were used and nursery fee was computed at 300% of the cost of service per child, Daddy’s Nursery could have charged each child a fee of _________.
2. If the ABC system were used, nursery fee per child should have been _________.

2. Summit Company provide the cost data for the month of January

Inventories:                                                                  January 1         January 31

            Direct materials                                                P30, 000 P40, 000

            WIP   P15, 000 P20, 000

            Finished Goods                                               P65, 000 P50, 000

Factory overhead applied                      P150, 000

Cost of goods manufactured                  P515, 000

Direct materials used                            P190, 000

Actual FOH                                          P144, 000

Required:

1. Adjusted COGS if under or over-applied overhead were closed to COGS
2. Adjusted COGS if under or -applied overhead were allocated to inventories and COGS.

Answer 1

Ans 1.
Sheldon & Cooper	Amt P
Total Cost of Services last month	50,000
Total Service fee @300% of cost in traditional system	150,000
Total no of childres	100
Fee per child =	$          1,500.00

ABC System
Cost Category	Cost driver	Cost Driver Qty	Total cost	Rate /Unit cost driver
Meals, snacks, Supplies	No of children	100	20,000	200
Caregiving Hrs	Staff Hrs	1,200	30,000	25

Service fee calculation for each of the children category	a	b	c	d	e	f	g	h	i
Children category	No of Children	Rate of Meals , snacks per child	Total Cost of Meals, snacks=a*b	Rate per staff Hr	Staff Hrs	Total Cost of Staff Hrs=d*e	Total Cost	Total Service fee with 300% mark up	Service fee per child=h/a
Babies (2-3 yrs old)	60	200	12,000	25	1,000.00	25,000.00	37,000.00	111,000.00	1,850.00
Kiddies (above 3 yrs old)	40	200	8,000	25	200.00	5,000.00	13,000.00	39,000.00	975.00

Children Type	Babies (2-3 yrs old)	Kiddies (above 3 yrs old)
in ABC system , nursery fee/ child =	1,850	975

Ans 2.
Factory OH Applied	150,000
Actual FOH	144,000
Overapplied FOH	6,000
when overapplied FOH adjusted with COGS
COGS Determination	Amt P
Opening stock Finished Goods	65,000
Add Cost of Goods Manufactured	515,000
Less : Ending stock Finished Goods	(50,000)
Total : Cost of Goods Sold	530,000
Less : Factory OH overapplied	(6,000)
Adjusted COGS	524,000

if Overapplied FOH adjusted with COGS & Inventory
Finding ratio of ending inventory & COGS	Value	% weight of value	Oveapplied FOG credited in weight of value	Adjsuted Value
Ending WIP	20,000	3.33%	(200.00)	19,800.00
Ending Finished Goods	50,000	8.33%	(500.00)	49,500.00
COGS	530,000	88.33%	(5,300.00)	524,700.00
Total	600,000	100.00%	(6,000.00)	594,000.00

So adjusted COGS in this case =524,700