44. Which of the following is an assumption of the law of diminishing returns?

1. All variable inputs, like workers, are of the same quality

2. Capital and labor are both variable inputs

3. Average product is increasing

4. Technology changes in the short-run

45. A firm's marginal cost equals

1. Change in quantity divided by the change in variable cost

2. Slope of its total cost curve

3. Change in quantity divided by the change in total cost

4. Slope of its fixed cost curve

46. Which of the following would be a variable cost for a car manufacturer?

1. The cost of building the factory for production

2. Yearly property taxes for the factory building

3. Interest payment on a lean used to purchase capital

4. The cost of steel used to build cars

0. 1. A total of 10000 hours was spent inspecting 400,000 lines of code with the result that 6000 potential defects were prevented. Assume that a programmer cost $55/hour.  
1. What is the total cost of preventing 6000 defects?
2. What is the cost of preventing one defect?
   2. Suppose that there had been no inspections and three defects per 1000 lines of code escaped into the shipped product. In order to fix a field defect, it cost $30000 per defect.

1. How many defects per 400,000 lines of code will be escaped?
2. What is the overall cost of fixing field defects (derived/computed in part a)?
3. What is the cost relationship between the overall cost calculated in 3.1 and overall cost calculated in 3.2?

LAB #1

Chapter 1

Cost Classifications

OBJECTIVE: Apply appropriate cost classifications and use to determine average cost per unit.

--------------------------------------------------------------------------------------------------------------------

Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has a backlog of orders that is large enough to keep production going indefinitely at the plant’s full capacity of 4,000 bookcases per year. Annual cost data at full capacity follow:

INSTRUCTIONS: (REMINDER - You should use Excel formulas to make the calculations in #2-#5)

Enter each cost item in the appropriate column on your spreadsheet. Each item should be classified in two ways: first, as either variable or fixed with respect to the number of units produced and sold; and second, as either a period cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) This has been done already for the first two cost items as an example.

Total the dollar amounts in each of the columns on your spreadsheet.

Compute average cost to manufacture a bookcase at the given activity level.

What is total prime cost?

What is total conversion cost?

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $326,400. During that time, the company produced 14,400 units of the M-008 and 2,400 units of the M-123. The direct costs of production were as follows:

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $320,800. During that time, the company produced 12,800 units of the M-008 and 2,900 units of the M-123. The direct costs of production were as follows:

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $311,200. During that time, the company produced 13,200 units of the M-008 and 2,500 units of the M-123. The direct costs of production were as follows:

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

(Round your intermediate calculations to 2 decimal places. Round your "Predetermined Overhead Rate" answers to 2 decimal places and all other answers to the nearest whole dollar.)

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $298,400. During that time, the company produced 12,900 units of the M-008 and 2,300 units of the M-123. The direct costs of production were as follows:

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

Cost of Quality and Value-Added/Non-Value-Added Reports for a Service Company

Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows:

a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added.

b. Prepare a cost of quality report. Assume that sales are $3,550,000. If required, round percentages to one decimal place.

c. Prepare a value-added/non-value-added analysis.

d. What percentage of total costs of quality are considered to be value-added?
72.0%

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $328,000. During that time, the company produced 15,000 units of the M-008 and 2,200 units of the M-123. The direct costs of production were as follows:

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)