Exercise 3-6 (Static) Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3]

The following data from the just completed year are taken from the accounting records of Mason Company:

Required:

1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials.

2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.

3. Prepare an income statement.

What is cost effectiveness analysis? Why might we focus on cost effectiveness instead of efficiency?

What is the relationship between cost effectiveness and efficiency?

If an allocation of pollution control across firms is cost-effective – meaning that it is the least cost way of achieving the total level of pollution control done by the firms – what must be true of the allocation?

Why is an emissions tax cost (or cap-and-trade scheme) effective?

In general, why is a technology standard not cost effective? In general, why is a uniform emissions standard not cost effective? Could a uniform emissions standard ever be cost effective? Explain.

Why does tax provide stronger incentives for technological innovation and adoption than an emissions standard? Why does a CAT scheme provide slightly weaker incentives than a tax?

Is a technology standard a good way to promote technological innovation?

Would we ever want to subsidize R&D directly? Why?

If our goal is to constrain emissions, would it be better to use an emissions tax or a CAT scheme in a rapidly growing economy? What about in an economy with high inflation?

Compare the impact of an emissions tax and a CAT scheme in an economy experiencing rapid technological change which is bringing down the cost of abating emissions.

Identify one situation in which a command-and-control policy might be preferred to a market-based policy. Explain your answer.

What are pollution hotspots? Explain what the uniform mixing assumption is and why violations of that assumption can potentially be problematic for market-based policies. How can these policies be adjusted to mitigate this issue?

U.S. Sulfur Dioxide Trading Program

T/F. The U.S. Acid Rain Program (Title IV of the Clean Air Act Amendments of 1990) was successful at reducing pollution, but ultimately the costs of the program exceeded the benefits. The greatest benefits from the program came from reducing ecosystem acidification.

Relevant to Cost Accounting, briefly explain the following terms:

(a) Sunk cost

(b) Opportunity cost

(c) Relevant cost

1- What kind of effects do the cost estimation methods have on employee behavior? (HINTS: cost estimates are used to support budgetary allocations to various departments; cost estimates are used in bidding for contracts (e.g., cost-plus contracts); learning phenomenon).

Edney Company employs a standard cost system for product costing. The per-unit standard cost of its product is:

The manufacturing overhead rate is based on a normal capacity level of 600,000 direct labor hours. (Normal capacity is defined as the level of capacity needed to satisfy average customer demand over a period of two to four years. Operationally, this level of capacity would take into consideration sales trends and both seasonal and cyclical factors affecting demand.) The firm has the following annual manufacturing overhead budget:

Edney incurred $435,950 in direct labor cost for 54,800 direct labor hours to manufacture 26,000 units in November. Other costs incurred in November include $338,000 for fixed manufacturing overhead and $373,500 for variable manufacturing overhead.

Required:

1. Determine each of the following for November. [Note: Indicate whether each variance is favorable (F) or unfavorable (U).]

a. The variable overhead spending variance.

b. The variable overhead efficiency variance.

c. The fixed overhead spending (budget) variance.

d. The fixed overhead production volume variance.

e. The total amount of under- or overapplied manufacturing overhead (i.e., the total manufacturing overhead cost variance for the period).

2. Prepare the following four journal entries: (a) to record actual variable overhead costs, (b) to record actual fixed overhead costs, (c) to record standard overhead costs applied to production, and (d) to record all four overhead cost variances. The company uses a single account, Factory Overhead, to record all overhead costs. Assume that the actual variable manufacturing overhead consists of utilities payable of $171,500, indirect materials of $126,000 (all materials, direct and indirect, are recorded in a single account, Materials Inventory), and $76,000 depreciation on factory equipment (determined under the units-of-production method). Assume that the fixed manufacturing overhead consists of accrued (i.e, unpaid) salaries of $73,000 and factory depreciation of $265,000. All unpaid salaries should be recorded in a single account, Accrued Payroll.

3. Prepare the appropriate journal entry to close all manufacturing overhead variances to the cost of goods sold (CGS) account. (Assume the cost variances you calculated above are for the year, not the month.)

Unit Cost and Cost Assignment, Nonuniform Inputs

Loran Inc. had the following equivalent units schedule and cost for its fabrication department during September:

Required:

1. Calculate the unit cost for materials, for conversion, and in total for the fabrication department for September. If required, round your answers to the nearest cent.

2. Calculate the cost of units transferred out and the cost of EWIP. Round unit cost value to the nearest cent in intermediate calculations. If required, round final answers to the nearest dollar.

How could the model you just examined be extended to more than four types of health insurance consumers?

10. What if the insurance company does incur administrative costs? How would this affect the expected costs of running the insurance policy, the premiums charged, and the consumer surplus of those who buy insurance? (Provide realistic estimates of administrative costs and your reasons).

11. How would the results of this model change if the insurance companies were not required to provide full insurance to everyone and could offer multiple policies ( including one with either a co-pay or deductible?

Manufacturing cost data for Orlando Company, which uses a job order cost system, are presented below.

Indicate the missing amount for each letter. Assume that in all cases manufacturing overhead is applied on the basis of direct labor cost and the rate is the same. (Round overhead rate to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 5,275.)

2.  2: Interest Rates: Cost of Money

How do we determine the Net Pension Expense?