Question

1) Which of the following statements is true?

A. A common cost can be easily traced to a cost object. B. Some of the prime costs are period costs. C. Discretionary fixed costs may not be altered in the short term by current managerial decisions. D. All sunk costs should be ignored in making a decision. E. None of the product costs are fixed costs.

2)

Basil company produces special raincoats. Their manufacturing overhead costs are all fixed. The cost structure of all expenses are inflexible, except sales force cost. The company has no sales force of its own; at the moment, it relies completely on independent sales agents to market its products.

Starting in 2018, Basil is considering employing its own sales force. In their plan, salespersons will be paid a small fixed salary and a commission lower than the current. Compared with year 2017, such a plan will increase the fixed marketing expenses but reduce commissions as follows:

	2018	2017
Commission rate	11%	19%	of sales
Total fixed marketing expense $	2260	1060
The statement of year 2017 follows:
Heron Company
Income Statement 12/31/2017
Sales	20250
Prime cost	6075
Indirect manufacturing costs	2940
Net operating income	6327.5

Determine the 2018 sales at which net income would be equal regardless of whether Basil Company sells through agents (at the 2017 commission rate) or employs its own sales force (as the 2018 plan suggested). Choose the closest answer.

a)51,750 b) 15,000 c) 28,250 d) 20,250 e)19,538

Show work

Dudek Industries uses a job order costing system and applies Manufacturing Overhead (MOH) based on Direct Labor Hours (DLHs) at a predetermined overhead rate of $8.55 per DLH. The company provided the following information for the most recent month of operations:

Direct materials purchased			$	49,400
Estimated DLHs for the period				1,975	DLHs
Actual DLHs worked in the period				2,200	DLHs
Actual Direct Labor cost			$	10.00	per DLH
	Actual MOH			19,100
	Beg Balance			End Balance
Raw Materials (all Direct)	$	4,200	$	3,600
Work in Process	$	20,000	$	10,000
Finished Goods	$	16,000	$	15,275

Before closing any over- or under-applied MOH, the unadjusted Cost of Goods Sold balance for the month would be closest to:

A.	$	100,935
B.	$	101,535
C.	$	99,611
D.	$	101,825

None of the above

Rosemary Corporation uses direct labor-hours to allocate their manufactuing overhead cost with capacity-based method. At the end of year, they attribute the under/over-applied manufacuturing overhead entirely to cost of goods sold. They find that they need to credit cost of goods sold by $25650 for this adjustment.

		Actual direct labor hours	12000
		Estimate direct labor hours	13000
		Estimated direct labor hours at capacity	13200
		Actual manufacturing overhead	$276,750
The estimated manufacturing overhead at capacity must have been:
A.	$	276,210
B.	$	332,640
C.	$	327,600
D.	$	272,025

None of the above

Answer 1

1. True and False

A. A common cost can be easily traced to a cost object = False - Direct cost can be easily traced to a cost object

B. Some of the prime costs are period costs = False - Period cost is cost which are not product cost

C. Discretionary fixed costs may not be altered in the short term by current managerial decisions = True

D. All sunk costs should be ignored in making a decision. = True

E. None of the product costs are fixed costs = False

2. Basil company - Answer = b) 15,000

Sales would be 'x' at level where 2017 & 2018 marketing expences will same

2260 + 0.11 x = 1060 + 0.19 x

2260 - 1060 = 0.19 x - 0.11 x

1200 = 0.08 x

x = 1200 / 0.08 = 15000

3. Dudek Industrie - Answer = None of the above

4. Rosemary Corporation - Answer = A. $ 276,210

Actual manufacturing overhead ($276,750) - credit cost of goods sold for the adjustment ($25,650)

= $ 251,100 - Net actual manufacturing overhead

Actual direct labor hours = 12000

Per direct labor hours rate = $ 251,100 / 12,000 = $ 20.925 / hour

Estimated direct labor hours at capacity = 13,200

The estimated manufacturing overhead at capacity = 13,200 * 20.925 = $ 276,210