Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate

Isaac Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

The estimated direct labor rate is $20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Isaac Engines is $235,200.

If required, round all per unit answers to the nearest cent.

a. Determine the plantwide factory overhead rate.
$ per dlh

b. Determine the factory overhead and direct labor cost per unit for each product.

c. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place.

d. What does the report in (c) indicate to you?

Valves have the   gross profit as a percent of sales. Valves may require a   price or   cost to manufacture in order to achieve a higher profitability similar to the other two products.

Problem 08-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, P4

[The following information applies to the questions displayed below.]

Antuan Company set the following standard costs for one unit of its product.

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

The company incurred the following actual costs when it operated at 75% of capacity in October.

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$13 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4.70 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $19,500 in new equipment during May and $47,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $20,250 each quarter, payable in the first month of the following quarter.

The company’s balance sheet as of March 31 is given below:

The company maintains a minimum cash balance of $57,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $57,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

1. a. A sales budget, by month and in total.

    b. A schedule of expected cash collections, by month and in total.

    c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

    d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $57,000.

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

4. A budgeted balance sheet as of June 30.

Kitchen Supply, Inc. (KSI), manufactures three types of flatware: institutional, standard, and silver. It applies all indirect costs according to a predetermined rate based on direct labor-hours. A consultant recently suggested that the company switch to an activity-based costing system and prepared the following cost estimates for year 2 for the recommended cost drivers.

In addition, management estimated 7,100 direct labor-hours for year 2.

Assume that the following cost driver volumes occurred in January, year 2.

Actual labor costs were $16 per hour.

Required:

a.

(1) Compute a predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units prepared by the consultant.
(2) Compute a predetermined rate for year 2 using direct labor-hours as the allocation base.

Processing orders: Rate per order?

Setting up Production: Rate per run?

Handling Materials: Rate per pound?

Using Machines: Rate per machine hour?

Performing Quality Control: Rate per Inspection?

Packing: Rate per unit?

a2. Predetermined Rate per direct labor-hour?

b. Compute the production costs for each product for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement a(2).

Direct Labor for: Institutional? Standard? Silver?

Indirect Costs for: Instituional? Standard? Silver?

c. Compute the production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement a. (Note: Do not assume that total overhead applied to products in January will be the same for activity-based costing as it was for the labor-hour-based allocation.)

Institutional Standard Silver

Direct Labor?

Processing Orders?

Setting up Production?

Handling Materials?

Using Machines?

Performing Quality Control?

Packing?

What decisions on the basis of this information, including the same data for the previous period and possibly two years prior, can investors or shareholders take (focus on future growth, evolution of risk level, or volatility of future earnings and evolution of the 'time horizon of visibility' into the firm's future)?

Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.

The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were:

In this particular area, Cain produces two of its many products: Standard and Deluxe. The following are data for production for the latest full year of operations.

Required:

a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the two products if the current cost system continues to be used?

Direct Costs: Standard? Deluxe?

Overhead: Standard? Deluxe?

Number of Units: Standard? Deluxe?

b. The intern suggests an ABC system using the cost drivers identified above. What unit product costs will be reported for the two products if the ABC system is used?

Direct Costs: Standard? Deluxe?

Receiving: Standard? Deluxe?

Manufacturing: Standard? Deluxe?

Machine Set Up: Standard? Deluxe?

Shipping: Standard? Deluxe?

Number of Units: Standard? Deluxe?

Christopher’s Custom Cabinet Company uses a job order cost system with overhead applied as a percentage of direct labor costs. Inventory balances at the beginning of 2016 follow:

The following transactions occurred during January:
(a) Purchased materials on account for $26,800.
(b) Issued materials to production totaling $21,000, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
(c) Payroll costs totaling $18,400 were recorded as follows:
    $10,100 for assembly workers
     2,500 for factory supervision
     2,700 for administrative personnel
      3,100 for sales commissions
(d) Recorded depreciation: $5,000 for machines, $1,100 for the copier used in the administrative office.
(e) Recorded $1,800 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
(f) Paid $5,600 in other factory costs in cash.
(g) Applied manufacturing overhead at a rate of 200 percent of direct labor cost.
(h) Completed all jobs but one; the job cost sheet for this job shows $2,200 for direct materials, $2,100 for direct labor, and $4,200 for applied overhead.
(i) Sold jobs costing $50,200. The revenue earned on these jobs was $65,260.

Required:
1. Set up T-accounts, record the beginning balances, post the January transactions, and compute the final balance for the following accounts: (Post all amounts separately. Do not combine/add any dollar amounts when posting to the t-accounts.)

1. Raw Materials Inventory.
2. Work in Process Inventory.
3. Finished Goods Inventory.
4. Cost of Goods Sold.
5. Selling, General, and Administrative Expenses.
6. Sales Revenue.
7. Other accounts (Cash, Payables, etc.).

2. Determine how much gross profit the company would report during the month of January before any adjustment is made for the overhead balance.



3. Determine the amount of over- or underapplied overhead.



4. Compute adjusted gross profit assuming that any over- or underapplied overhead balance is adjusted directly to Cost of Goods Sold.

Please Answer in Detail

Question 01: Qualitative characteristics of accounting information relates to the second level of conceptual framework. Discuss in detail, the primary qualitative characteristics relating to the content and presentation of information with particular emphasis to their importance.

.

Question 02: Financial statements prepared under historical cost convention do not have regard for changes in price levels and therefore do not reflect financial realities. Discuss six limitations that statements prepared by historical cost accounting possess that reduce their utility to the users.

Bob Stone, Inc., budgets the following amounts for its Buildings & Grounds and Computer Services Departments in servicing each other and the two manufacturing divisions of Signs and Mailers:  

If you are using the step down method to allocate support department costs which of the support departments would you allocate the costs from second:

Kingbird Corporation was organized on January 1, 2017. It is authorized to issue 9,600 shares of 8%, $100 par value preferred stock, and 501,500 shares of no-par common stock with a stated value of $1 per share. The following stock transactions were completed during the first year.

Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Stamboul Company lists the following condensed balance sheet as of the beginning of 2016:

Stamboul is considering the impact of various types of dividends on this balance sheet. Each dividend would be declared and paid in 2016. These include:

Required:

Olivia’s Outdoor Essentials produces gear for climbing, hiking, and camping. Last month, Olivia reported the following: Beginning Work in Process Inventory: $20,000 Ending Work in Process Inventory: $25,000 Beginning Finished Goods Inventory: $15,000 Ending Finished Goods Inventory: $13,000 Direct Labor: $60,000 Beginning Raw Materials Inventory: $20,000 New Raw Materials Purchased: $48,000 Ending Raw Materials Inventory: $10,000 Indirect Materials Used: $8,000 Indirect Labor: $10,000 Other Applied Manufacturing Overhead: $30,000

Required:

a. What was the Manufacturing Costs for the period?

b. What was the Cost of Goods Manufactured for the period?

c. What was the Cost of Goods Sold for the period?

Fairness of the Federal Estate Tax"

• Based on the information contained in the textbook, several arguments exist for the repeal of the estate tax. Using the Strayer Library or an Internet search, find an article from within the last three (3) years that makes a case for or against repealing estate taxes. Provide the link to the article, as well as a summary of its key ideas. Finally, share whether you agree or disagree with the concepts in the article. Justify your response.
• need to discussion

Discuss "Overhead Costs" and the difficulty it causes when dealing with manufacturing costs.

Sandra’s Purse Boutique has the following transactions related to its top-selling Gucci purse for the month of October. Sandra's Purse Boutique uses a periodic inventory system.

1. Calculate ending inventory and cost of goods sold at October 31, using the specific identification method. The October 4 sale consists of purses from beginning inventory, the October 13 sale consists of one purse from beginning inventory and two purses from the October 10 purchase, and the October 28 sale consists of three purses from the October 10 purchase and four purses from the October 20 purchase.

Ending Inventory=

Cost of Goods Sold=

2. Using FIFO, calculate ending inventory and cost of goods sold at October 31.

Ending Inventory=

Cost of Goods Sold=

3. Using LIFO, calculate ending inventory and cost of goods sold at October 31.

Ending Inventory=

Cost of Goods Sold=

4. Using weighted-average cost, calculate ending inventory and cost of goods sold at October 31. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Ending Inventory=

Cost of Goods Sold=