Periodic Inventory by Three Methods

Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, and the inventory count at December 31 are summarized as follows:

Determine the cost of the inventory on December 31 by the first-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the units PURCHASED MOST RECENTLY first.

2. Determine the cost of the inventory on December 31 by the last-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the OLDEST units first.

3. Determine the cost of the inventory on December 31 by the weighted average cost method.

Manning Company produces 3 products and uses the job order method to determine unit costs. Manning uses direct labor hours as a base to allocate overhead. The following beginning of the year estimates are known:

Total manufacturing overhead                $1,100,000
Total units produced (all 3 products)           100,000
Total direct labor hours                             100,000
Total direct labor cost                            $1,120,000
Total direct material cost                        $2,000,000
Total machine hours                                    50,000


The following end of the year results are also known:

                                                Product1           Product2           Product3                     Total
Direct labor hours                          50,000              30,000              35,000               115,000
Direct labor costs                      $600,000           $200,000           $400,000           $1,200,000
Direct materials costs                $700,000           $800,000           $600,000           $2,100,000
Manufacturing overhead                                                                                                $1,050,000
Total units produced                      41,000              29,000              35,000               105,000
Machine hours                               13,000              22,000              13,000                 48,000

1.         Calculate the cost per unit of each product.







2.         At this stage, is manufacturing overhead under or over applied (and by how much)?





3.         If all three products sell at a market determined price of $55, what strategy would            you recommend?

Multiple choice: The presence of a black hole in a galaxy core can be inferred from (a) the total mass of the galaxy; (b) the speeds of stars near the core; (c) the color of the galaxy; (d) the distance of the galaxy from the Milky Way Galaxy; or (e) the diminished brightness of starlight in the galaxy core, relative to surrounding areas.

Multiple choice: Which one of the following statements about black holes is false? (a) Inside a black hole, matter is thought to consist primarily of iron, the endpoint of nuclear fusion in massive stars. (b) Photons escaping from the vicinity of (but not inside) a black hole lose energy, yet still, travel at the speed of light. (c) Near the event horizon of a small black hole (mass = a few solar masses), tidal forces stretch objects apart. (d) A black hole that has reached an equilibrium configuration can be described entirely by its mass, electric charge, and amount of spin (“angular momentum”). (e) A black hole has an “event horizon” from which no light can escape, according to classical (i.e., non-quantum) ideas.

Multiple choice: Which one of the following statements about black holes is true? (a) The surface of the singularity of a black hole is known as the event horizon. (b) Being more massive, a supermassive black hole has a greater gravitational pull than a stellar-mass black hole, so if you approach the event horizon of a supermassive black hole, you will be torn apart more easily than if you approach the event horizon of a stellar-mass black hole. (c) If the Sun were to become a black hole of the same mass, Earth would spiral into the black hole and be eaten. (d) The “photon sphere” is a region inside a black hole where photons orbit the center, so they cannot escape. (e) In principle, energy can be extracted from a region outside a rotating black hole.

Multiple choice: Which one of the following statements about the detection (or potential detection) of black holes is false? (a) Black holes cannot be detected because they emit no light and are therefore impossible to directly observe. (b) A binary pair of black holes was recently detected through measurements of the gravitational waves emitted when they merged to form a single black hole. (c) The presence of supermassive black holes in the centers of galaxies has been inferred from the motions of stars and gas near them. (d) Evidence for black holes can be found if material in the surrounding accretion disk goes through the event horizon and fades from view, rather than releasing energy as it hits a hard stellar surface. (e) Candidate black holes are sometimes found in binary systems that suddenly brighten at X-ray wavelengths.

Calculate the cost of goods sold and the cost of the ending inventory using the LIFO periodic cost flow assumption.

Sales 97 units at $ 18 per unit

Beginning inventory 88 units at $ 6 per unit

Purchases 58 units at $ 10 per unit

Calculate the cost of goods sold using the LIFO periodic cost flow assumption. Units x Cost per Unit = Total Cost Units from beginning inventory x = Units from purchase x = Cost of Goods Sold - LIFO method Calculate the cost of the ending inventory using the LIFO periodic cost flow assumption. ?(Enter 0's for any layers where there were no units? sold.) Units x Cost per Unit = Total Cost Units from beginning inventory x = Units from purchase x = Ending Inventory - LIFO method

Consider a widget factory that uses both labor and capital in its production process. The cost of each worker is $12 per hour. The cost of each machine is $20 per hour, regardless of the number of widgets produced. The following table shows the production and cost structure of the firm, where L is the number of workers, K is the number of machines, and TP is the total product, measured in the number of widgets produced per hour.

L K TP MP FC VC TC AFC AVC ATC MC

0 2 0

1 2 20
2 2 35
3 2 45

4 2 50

5 2 53

6 2 55

(a) Calculate the firm’s marginal product of labor (MP), fixed cost (FC), variable cost (V C), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and marginal cost (MC) at each level of output. (7 points)

(b) For the range of output specified in the table, graph and explain the reasoning behind the shape of the firm’s production function and each of the following cost curves: TC, AFC, AV C, ATC, and MC. (9 points)

Best Ride Pty Ltd. produces electric scooters. Best Ride scooters are considered the most reliable in the marketplace. The firm is planning to launch a new electric scooter model featured with the new long-lasting battery generation and the lightest weight.

The following data relating to this model are based on production of 70,000 units per year.

Daniel, the marketing manager uses the cost-plus pricing to set the new model’s target selling price. For previous scooter models, management usually adds 35% as the markup on total unit cost.

Required:

Compute each of the following for the new product: (Round all calculations to two decimal places.)

a)​Total variable cost per unit, total fixed cost per unit, and total cost per unit.

b)​Desired ROI per unit.

c)​Target selling price. (3 marks

d)​Another cost-based approach to pricing is called time and material pricing. Under this approach, two pricing rates are set.  Explain where this approach is used and identify the steps involved in time-and-material pricing. Also explain why this approach is used in some industries.

_{Matching Exercise – Costs of Production}

_TERM

1. _{Implicit Cost}

2. _{Normal Profit}

3. _{Factor substitution}

4. _{Explicit Cost}

5. _{Alternative cost}

6. _{Decreasing Returns to Scale}

7. _{Envelope Curve}

8. _{MC=MR rule}

9. _{Marginal Cost}

10. _{Economic profit}

11. _{Profit maximization in the short run}

12. _{Total fixed costs}

13. _{Constant costs industry}

14. _{Stage II}

15. _{Production function}

16. _{Shutdown point}

17. _{Variable input}

18. _{Marginal Revenue}

19. _{Sunk Cost}

20. _{Variable Costs}

_DEFINITION

_{a. The area in which every firm will produce.}

_{b. Another name for the long run average total cost curve.}

_{c. The cost of self-owned, self-utilized resources}

_{d. The profits necessary to ensure that a firm stays in business. Considered by economists to be part of implicit costs.}

_{e. The change in total cost associated with a one unit change in output.}

_{f. Inputs that rise and fall with the quantity of output.}

_{g. The substituting of one input for another to produce a given level of output.}

_{h. The addition to total revenue from selling one more unit of the product}

_{i. The ordinary expenses of the firm that accountants include, such as payroll costs and payments for raw materials. Accounting Costs}

_{j. A cost that has been incurred and cannot be recovered}

_{k. Costs of the fixed inputs such as rent. Does not change with changes in output. Also called overhead costs.}

_{l. The costs resulting from variable inputs.}

_{m. The rule a firm should follow to find the profit maximizing quantity.}

_{n. The production relationship that would lead to increasing costs.}

_{o. The value of what particular resources could have produced had they been used in the best alternative way; opportunity cost.}

_{p. An industry with a horizontal long run supply curve; its expansion does not result in an increase or decrease in input prices.}

_{q. The difference between total cost and total revenue.}

_{r. The relationship between the inputs used in production and the level of output.}

_{s. Considered to be the goal of every firm.}

_{t. The minimum point on the AVC. The lowest price at which the firm will produce.}

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?(Do not round intermediate calculations and round "Unit cost" answers to 2 decimal places.)

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?(Do not round intermediate calculations and round "Unit cost" answers to 2 decimal places.)

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis

Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 5,600 units of product were as follows:

Each unit requires 0.25 hour of direct labor.

Required:

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

c. Determine variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.