Expand Your Critical Thinking 24-02 a-d Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size. One such non-custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 1,060 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows. Standard (1,000 units) Actual (1,060 units) Indirect materials $ 14,600 $ 15,000 Indirect labor 52,400 62,200 (Fixed) Manufacturing supervisors salaries 27,400 26,800 (Fixed) Manufacturing office employees salaries 15,800 15,200 (Fixed) Engineering costs 32,900 30,500 Computer costs 12,200 12,200 Electricity 3,000 3,000 (Fixed) Manufacturing building depreciation 9,700 9,700 (Fixed) Machinery depreciation 3,600 3,600 (Fixed) Trucks and forklift depreciation 1,800 1,800 Small tools 900 1,700 (Fixed) Insurance 600 600 (Fixed) Property taxes 400 400 Total $175,300 $182,700

Calculate the 1) total overhead variance, 2) controllable variance, and 3) volume variance. (Round variable overhead to 2 decimal places and final answers to 0 decimal places, e.g. 1,575.)

56. Mr. Max is about to purchase 4 units of good A and 6 units of good B. The price of both A and B is $2. Mr. Max has only $20 to spend. If the marginal utility of the fourth unit of A is 12 and the marginal utility of the sixth unit of B is 12, then:

a. he should not buy anything.

b. he should buy more of A and less of B.

c. he should buy less of A and more of B.

d. he should buy A and B in the quantities indicated.

e. he should buy more of A and little more than that of B.

57. If an oligopolist cuts the prices of its products,

a. customers will switch to a rival firm.

b. customers will remain unchanged in number.

c. customers will switch from rival firms to buy from them.

d. rival firms will not react.

58. Cy recently went into the business of producing and selling cardboard boxes. For this business, which of the following is most likely to be a fixed cost?

a. fire insurance

b. labor costs

c. paper costs

d. adhesive costs e. b, c, and d are equally likely to be fixed costs

59. At 100 units of output, total cost is $22,000 and total variable cost is $14,000. At 100 units of output, what is the value of average total cost, average variable cost, and average fixed cost, respectively?

a. $22; $14; $8

b. $220; $140; $80

c. $740; $340; $400

d. $340; $740; $60

e. $400; $340: There is not enough information provided to determine the average fixed cost

CASE 2 – COST OF PRODUCTION SUMMARY: WEIGHTED AVERAGE AND FIFO METHODS

The Company uses a single department production process. Materials are added at the start of the production process and labor and overhead are added as indicated. For January 2018, the Company records have the following information:

UNITS:
Beginning WIP:                                                                                                          10,000 units

100% complete for materials, 50% complete for labor; 3% complete for overhead

Units started in process                                                                                               50,000 units

Units completed                                                                                                          49,000 units

Ending WIP:                                                                                                             11,000 units

100% complete for materials, 60% complete for labor; 20% complete for overhead

PRODUCTION COSTS:

Work in Process, Beginning of the Month:
Materials                                          $ 22,000
Labor                                                   18,000
Overhead                                            11,000             51,000

Current Month Costs:
Materials                                          $ 320,000
Labor                                                   180,160
Overhead                                            152,840           653,000

                                    Total Costs:                        $   704,000

1.Prepare a Cost of Production Summary using the weighted average method (calculations for equivalent units of production, cost per equivalent unit of production, total cost for units completed and WIP, ending). Prepare your calculations for Materials, Labor, and Overhead separately.
Prepare the appropriate journal entries at month end

2.Prepare a Cost of Production Summary using the FIFO method (calculations for equivalent units of production, cost per equivalent unit of production, total cost for WIP, beginning, units started and completed and WIP, ending). Prepare your calculations for Materials, Labor, and Overhead separately. Prepare the appropriate journal entries at month end

Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company’s predetermined overhead rate of $12.00 per direct labor-hour was based on a cost formula that estimated $480,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year:

1. Raw materials were purchased on account, $696,000.
2. Raw materials used in production, $655,400. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $430,000; indirect labor, $150,000; selling and administrative salaries, $251,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $411,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $330,000.
6. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.
7. Jobs costing $1,521,800 to manufacture according to their job cost sheets were completed during the year.
8. Jobs were sold on account to customers during the year for a total of $3,255,000. The jobs cost $1,531,800 to manufacture according to their job cost sheets.

5. What is the total manufacturing cost added to Work in Process during the year?

Test Company produces a product that passes through two departments: Department 1 and Department 2. Test Company determines product cost using a normal cost system. The company applies overhead using a plant-wide rate based on machine hours. The company prepared the following estimates at the beginning of the year.

During the year, Test Company reported the following actual results.

Q1. Calculate the predetermined overhead rate Test Company uses to apply overhead.

a. $5 per machine hour

b. $16.2 per machine hour

c. $5.5 per machine hour

d. $10 per direct labor hour

Q2. Calculate the overhead applied to production for the year.

Q3. Calculate the overhead variance for the year.

Q4. Calculate the total normal product cost for the year.

Zoe Corporation has the following information for the month of March:

a. Prepare a schedule of cost of goods manufactured. Enter all amounts as positive numbers.

b. Prepare an income statement for the month ended March 31. Enter all amounts as positive numbers.

c. Prepare only the Inventory section of the balance sheet.

Digitone_Co is exploring to use air freight to transport lasers from China to Bulgaria. How much more or less they will have to pay if they shift from ocean to air transportation?

Assume the below numbers for this part (Assume no additional cost other than the ones mentioned below):

1. The total annual demand for headsets is 100000. The per unit cost is € 400.
2. The weight of each unit of the laser is 0.4 Kg.
3. Inventory holding cost is 11% per year.
4. Air rate is € 5/kg and it takes 4 days to transport the headsets from China to Bulgaria via air.
5. Ocean rate is € 0.3/kg and it takes 21 days to transport the headsets from China to Bulgaria via ocean.
6. There are 365 days in a year.

1. Enter the difference between the Cost of Ocean Transportation and the Cost of Air Transportation (Ocean Cost - Air Cost)?

HomeShop has a branch/local office in Japan. HomeShop sells 30000 units to customers in Bulgaria and 100000 units to customers in Japan. Profit per unit is € 89 (Ignore all other costs). All profits are repatriated from Japan. The corporate tax rate in Bulgaria is 40% and 32% in Japan.

2. With no Tax relief agreement in Japan, what are the total taxes that HomeShop has to pay in both countries?

3. Now assume that there is a possibility to use foreign tax credit (FTC) in Bulgaria. What will be the total taxes HomeShop has to pay in this scenario in both countries?

As of the end of June, the job cost sheets at Racing Wheels, Inc., show the following total costs accumulated on three custom jobs. Job 102 Job 103 Job 104 Direct materials $ 17,000 $ 64,000 $ 57,000 Direct labor 13,000 29,500 45,000 Overhead 6,240 14,160 21,600 Job 102 was started in production in May and the following costs were assigned to it in May: direct materials, $10,000; direct labor, $3,100; and overhead, $1,488. Jobs 103 and 104 are started in June. Overhead cost is applied with a predetermined rate based on direct labor cost. Jobs 102 and 103 are finished in June, and Job 104 is expected to be finished in July. No raw materials are used indirectly in June. Using this information, answer the following questions. (Assume this company’s predetermined overhead rate did not change across these months). 1. What is the cost of the raw materials requisitioned in June for each of the three jobs? (Omit the "$" sign in your response.) Job 102 $ Job 103 $ Job 104 $ 2. How much direct labor cost is incurred during June for each of the three jobs? (Omit the "$" sign in your response.) Job 102 $ Job 103 $ Job 104 $ 3. What predetermined overhead rate is used during June? (Omit the "%" sign in your response.) Predetermined overhead rate % 4. How much total cost is transferred to finished goods during June? (Omit the "$" sign in your response.) Total transferred cost $

Mattey Publishing Company (Mattey) is a publisher of novels. The monthly equipment maintenance cost for Mattey is considered to be a mixed cost. The variable portion of the cost is related to the number of novels published. The production volume and maintenance costs for the past six months are presented below. Mattey uses the high-low method to separate mixed costs into its fixed and variable portions.

Do not enter dollar signs or commas in the input boxes.

a) Calculate the variable rate for the equipment maintenance cost.
Round your answer to 5 decimal places.

Variable Cost per Unit: $Answer

b) Calculate the fixed portion of the equipment maintenance cost.
Round your answer to the nearest whole number.

Fixed Cost: $Answer

c) Assume that 420,000 novels is the budgeted production level for July. Using the results of the high-low method in parts a) and b), what is the expected total equipment maintenance cost for July?
Round your answer to 2 decimal places.

Expected total equipment maintenance cost for July: $Answer