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Problem 8-5 (Algo) Various inventory costing methods [LO8-1, 8-4]

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Ferris Company began January with 7,000 units of its principal product. The cost of each unit is $6. Merchandise transactions for the month of January are as follows:

* Includes purchase price and cost of freight.

12,000 units were on hand at the end of the month.

Problem 8-5 (Algo) Part 1

Required:
1. Calculate January's ending inventory and cost of goods sold for the month using FIFO, periodic system.

2. Calculate January's ending inventory and cost of goods sold for the month using LIFO, periodic system.
  

4. Calculate January's ending inventory and cost of goods sold for the month using Average cost, periodic system.

5. Calculate January's ending inventory and cost of goods sold for the month using Average cost, perpetual system. (Round average cost per unit to 4 decimal places. Enter sales with a negative sign.)
  

1. Cost of Production Report

   The Cutting Department of Karachi Carpet Company provides the following data for January. Assume that all materials are added at the beginning of the process.

   Work in process, January 1, 10,200 units, 75% completed		$116,025*
   *Direct materials (10,200 × $8.00)	$81,600
   Conversion (10,200 × 75% × $4.50)	34,425
   	$116,025
   Materials added during January from Weaving Department, 157,200 units		$1,281,180
   Direct labor for January		318,511
   Factory overhead for January		389,291
   Goods finished during January (includes goods in process, January 1), 159,000 units		—
   Work in process, January 31, 8,400 units, 30% completed		—

   a. Prepare a cost of production report for the Cutting Department. If an amount is zero or a blank, enter in "0". For the cost per equivalent unit computations, round your answers to two decimal places.

   Karachi Carpet Company
   Cost of Production Report-Cutting Department
   For the Month Ended January 31
   Unit Information
   Units charged to production:
   Inventory in process, January 1			fill in the blank c9badbff1f81fe7_1
   Received from Weaving Department			fill in the blank c9badbff1f81fe7_2
   Total units accounted for by the Cutting Department			fill in the blank c9badbff1f81fe7_3
   Units to be assigned costs:
   		Equivalent Units
   	Whole Units	Direct Materials	Conversion
   Inventory in process, January 1	fill in the blank c9badbff1f81fe7_4	fill in the blank c9badbff1f81fe7_5	fill in the blank c9badbff1f81fe7_6
   Started and completed in January	fill in the blank c9badbff1f81fe7_7	fill in the blank c9badbff1f81fe7_8	fill in the blank c9badbff1f81fe7_9
   Transferred to finished goods in January	fill in the blank c9badbff1f81fe7_10	fill in the blank c9badbff1f81fe7_11	fill in the blank c9badbff1f81fe7_12
   Inventory in process, January 31	fill in the blank c9badbff1f81fe7_13	fill in the blank c9badbff1f81fe7_14	fill in the blank c9badbff1f81fe7_15
   Total units to be assigned cost	fill in the blank c9badbff1f81fe7_16	fill in the blank c9badbff1f81fe7_17	fill in the blank c9badbff1f81fe7_18
   Cost Information
   Cost per equivalent unit:
   		Direct Materials	Conversion
   Total costs for January in Cutting Department		$fill in the blank c9badbff1f81fe7_19	$fill in the blank c9badbff1f81fe7_20
   Total equivalent units		fill in the blank c9badbff1f81fe7_21	fill in the blank c9badbff1f81fe7_22
   Cost per equivalent unit		$fill in the blank c9badbff1f81fe7_23	$fill in the blank c9badbff1f81fe7_24
   Costs assigned to production:
   	Direct Materials	Conversion	Total
   Inventory in process, January 1			$fill in the blank c9badbff1f81fe7_25
   Costs incurred in January			fill in the blank c9badbff1f81fe7_26
   Total costs accounted for by the Cutting Department			$fill in the blank c9badbff1f81fe7_27
   Costs allocated to completed and partially completed units:
   Inventory in process, January 1 balance			$fill in the blank c9badbff1f81fe7_28
   To complete inventory in process, January 1	$fill in the blank c9badbff1f81fe7_29	$fill in the blank c9badbff1f81fe7_30	fill in the blank c9badbff1f81fe7_31
   Cost of completed January 1 work in process			$fill in the blank c9badbff1f81fe7_32
   Started and completed in January	fill in the blank c9badbff1f81fe7_33	fill in the blank c9badbff1f81fe7_34	fill in the blank c9badbff1f81fe7_35
   Transferred to finished goods in January			$fill in the blank c9badbff1f81fe7_36
   Inventory in process, January 31	fill in the blank c9badbff1f81fe7_37	fill in the blank c9badbff1f81fe7_38	fill in the blank c9badbff1f81fe7_39
   Total costs assigned by the Cutting Department			$fill in the blank c9badbff1f81fe7_40

   b. Compute and evaluate the change in the costs per equivalent unit for direct materials and conversion from the previous month (December). If required, round your answers to two decimal places.

   	Increase or Decrease	Amount
   Change in direct materials cost per equivalent unit		$fill in the blank f115df085fd3fa2_2
   Change in conversion cost per equivalent unit		$fill in the blank f115df085fd3fa2_4

A subsidiary of Elektra Electronics has developed new software that allows Windows-based personal computers to run all Apple (i.e., Mac, iPhone, iPad, etc.) and Droid applications. Elektra has collected preliminary data on the weekly total cost of producing the new product at a number of different levels of production. Cost data are available in the worksheet entitled Software Cost.

a) Generate a scatterplot in order to understand the nature of the relationship between weekly quantity produced and weekly total cost. Use this information to complete the statements below.

According to the scatterplot, weekly total cost  --- remains the same decreases sharply increases sharply at first, then it  --- decreases sharply increases sharply levels off for a while, and then it begins to  --- increase again levels off decrease again , as the quantity produced increases. There appears to be  bend(s) or curve(s) in the data which suggests that a  --- 2nd order polynomial 3rd order polynomial reciprocal transformation logarithmic transformation 4th order polynomial regression model is appropriate.

b) Use the data to fit three separate regression models. For the first model, fit the 2nd order polynomial regression model to predict weekly total cost. For the second model, fit the 3rd order polynomial regression model to predict weekly total cost. For the third model, fit the 4th order polynomial regression model to predict weekly total cost.

Provide summary measures for each model separately in the table below. (Enter your R² values as percents to two decimal places and enter your standard errors to three decimal places.)

According to your analysis so far, summarize your results.

According to R2adj, the second-order model is clearly worse than either the third or fourth-order models, however, results are not so clear concerning whether the third or fourth-order model is best.According to R2adj, the second-order model is clearly superior to either the third or fourth-order models.    According toR2adj, the third-order model is clearly superior to either the second or fourth-order models.According toR2adj, the fourth-order model is clearly worse than either the second or third-order models, however, results are not so clear concerning whether the second or third-order model is best.According to R2adj, the third-order model is clearly worse than either the second or fourth-order models, however, results are not so clear concerning whether the second or fourth-order model is best.According to R2adj, the fourth-order model is clearly superior to either the second or third-order models.

c) Perform the appropriate statistical test to test whether the fourth-order model explains a statistically significant amount of variation in total weekly cost above and beyond of that explained by the third-order model. Use a 5% significance level.

State the appropriate test statistic name, degrees of freedom, test statistic value, and the associated p-value (Enter your degrees of freedom as a whole number, the test statistic value to three decimal places, and the p-value to four decimal places).

---Select--- G t F z p (  ) = , p  ---Select--- ≤ > = ≥ <  

State your decision.

The fourth-order model explains a significant amount of variation in total weekly cost compared to the third-order model. Therefore, the fourth-order term in the model is needed and the fourth-order model is best.The fourth-order model explains an insignificant amount of variation in total weekly cost compared to the third-order model. Therefore, the fourth-order term in the model is needed and the fourth-order model is best.    The fourth-order model explains a significant amount of variation in total weekly cost compared to the third-order model. Therefore, the fourth-order term in the model is not needed and a simpler model is preferred.The fourth-order model explains an insignificant amount of variation in total weekly cost compared to the third-order model. Therefore, the fourth-order term in the model is not needed and a simpler model is preferred.

d) Regardless of your results above, assume that the third-order model is best. Based on this estimated total cost function, provide the estimated marginal total cost function (Enter all function coefficients to four decimal places).

C'(x) =

e) Compute the following quantities WITHOUT any intermediate rounding. In other words, do NOT use the rounded version of the function you reported above in part d. Instead, use the one stored in you EXCEL worksheet. Enter your answers to two decimal places.

How quickly is the weekly total cost increasing when the level of production is 125 units per week?

dollars per unit

How quickly is the weekly total cost increasing when the level of production is 400 units per week?

dollars per unit

How quickly is the weekly total cost increasing when the level of production is 700 units per week?

dollars per unit

Goertz Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Distribution of Resource Consumption Across Activity Cost Pools:

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:

Activity:

Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins.

Sales and Direct Cost Data:

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

Multiple Choice

• $3.33 per order

• $3.00 per order

• $54.00 per order

• $6.00 per order

Provenzano Corporation manufactures two products: Product B56Z and Product D32N. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B56Z and D32N.

What is the activity rate for the Machining activity cost pool?

rev: 03_17_2018_QC_CS-119201

Multiple Choice

• $55.00 per MH

• $22.00 per MH

• $36.67 per MH

• $74.80 per MH

Abel Corporation uses activity-based costing. The company makes two products: Product A and Product B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with total cost and activity as follows:

The cost per unit of Product B is closest to:

Multiple Choice

• $41.58

• $81.53

• $74.73

• $17.69

Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

Data concerning two recent orders appear below:

Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even?

Multiple Choice

• $74.72

• $215.13

• $28.60

• $260.31

Which of the following budgets are prepared before the sales budget?

Multiple Choice

• Choice A

• Choice B

• Choice C

• Choice D

Fiwrt Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales Fiwrt (in units) for the next three months are as follows:

Fiwrt likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fiwrt plan on producing during the month of November?

Multiple Choice

• 35,400 mugs

• 26,800 mugs

• 36,000 mugs

• 34,300 mugs

The Tobler Corporation has budgeted production for next year as follows:

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 pounds. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. Budgeted purchases of raw materials in the third quarter would be:

Multiple Choice

• 63,200 pounds

• 62,400 pounds

• 56,800 pounds

• 50,400 pounds

Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 2019 and 2020 (in thousands of dollars):

Required:

1. Classify the cost items in the table into cost-of-quality (COQ) categories.

2. Calculate the ratio of each COQ category to revenues in each of the 2 years.

3. Calculate the percentage change in each COQ category and total COQ and comment on the results:

a. Percentage change in total COQ as a percentage of sales, from 2019 to 2020;

b. Total COQ in 2020 expressed as a percentage of 2019 sales dollars;

c. Percentage change in total prevention costs, 2019 to 2020;

d. Percentage change in total appraisal costs, 2019 to 2020;

e. Percentage change in total internal failure costs, 2019 to 2020;

f. Percentage change in total external failure costs, 2019 to 2020.

Because most of the parts for its irrigation systems are standard, Waterways handles the majority of its manufacturing as a process cost system. There are multiple process departments. Three of these departments are the Molding, Cutting, and Welding departments. All items eventually end up in the Package department which prepares items for sale in kits or individually. The following information is available for the Molding department for January. Work in process beginning: Units in process 22,000 Stage of completion for materials 80% Stage of completion for labor and overhead 30% Costs in work in process inventory: Materials $168,360 Labor 67,564 Overhead 17,270 Total costs in beginning work in process $253,194 Units started into production in January 60,000 Units completed and transferred in January 58,000 Costs added to production: Materials $264,940 Labor 289,468 Overhead 60,578 Total costs added into production in January $614,986 Work in process ending: Units in process 24,000 Stage of completion for materials 50% Stage of completion for labor and overhead 10% Collapse question part

(a) Prepare a production cost report for Waterways using the weighted-average method. (Round unit costs to 2 decimal places, e.g. 2.25.)

Units to be accounted for Work in process, Jan. 1 253194

Started into production 60000

Total units Units accounted for

Transferred out

Work in process, Jan 31

Total units Costs

Materials

Conversion Costs

Total Unit costs Costs in January $ $ $

Equivalent units Unit costs $ $ $

Costs to be accounted for Work in process, Jan. 1 $

Started into production

Total costs $

Cost Reconciliation Schedule Costs accounted for

Transferred out $

Work in process, Jan. 31

Materials

Conversion costs

Total costs

Sole Purpose Shoe Company

Sole Purpose Shoe Company is owned and operated by Sarah Charles. The company manufactures casual shoes, with manufacturing facilities in your state. Sarah began the business this year, and while she has a great deal of experience in manufacturing popular and comfortable shoes, she needs some help in evaluating her results for the year, and asks for your help.

Starting Questions

Sarah’s first questions for you have to do with the general ideas and terminology used to evaluate variances.

Provide answers to the following questions (1)-(3).

1. Why might Sarah want to use standard costs to compare with her actual costs?

a. Standard costs give management a cost structure for products that is applicable for the entire life of the business.

b. Standard costs allow management to motivate employees by comparing their performance to what it would be under perfect conditions.

c. Management can evaluate the differences between standard costs and actual costs to focus on correcting the cost variances.

c

2. What are some possible drawbacks to using standard costs that Sarah might consider?

a. Standards limit operating improvements because employees may be discouraged from improving beyond the standards.

b. Standards may become “stale” in a dynamic manufacturing environment.

c. Employees may focus only on efficiency improvement and their own operations rather than considering the larger objectives of the organization.

d. Since standards are impossible to attain, they are a distraction from the work at hand.

e. Since standards never change, they do not reflect reality.

b, c and d

3. Sarah wants to be sure she understands the basic definitions involved:

Answer the following questions by selecting the correct words.

A favorable variance occurs when the actual cost (what the product does cost) is less than  the standard cost (what the product should cost). A favorable variance is represented by a negative  number, indicating that costs are lower  than expected.

An unfavorable variance occurs when the actual cost (what the product does cost) is greater than  the standard cost (what the product should cost). An unfavorable variance is represented by a positive  number, indicating that costs are higher  than expected.

Feedback

1. Review the reasoning for using standard costs and comparing them with actual costs, and the advantages, the computation and analysis that cost variances can provide.

2. Review the criticisms of using standard costs and comparing them with actual costs, and the possible disadvantages inherent in the computation and analysis of cost variances.

3. Review the definitions of favorable and unfavorable variance.

Direct Materials

Under normal conditions, Sarah spends $8.40 per unit of materials, and it will take 3.60 units of material per pair of shoes. During July, Sole Purpose Shoe Company incurred actual direct materials costs of $61,321 for 6,890 units of direct materials in the production of 2,150 pairs of shoes.

Complete the following table, showing the direct materials variance relationships for July for Sole Purpose Shoe Company. If required, round your answers to two decimal places. When entering variances, use a negative number for a favorable cost variance, and a positive number for an unfavorable cost variance.

Feedback

Review Exhibit 6 in the text.

Direct Labor

Under normal conditions, Sarah pays her employees $8.50 per hour, and it will take 2.80 hours of labor per pair of shoes. During August, Sole Purpose Shoe Company incurred actual direct labor costs of $65,340 for 7,260 hours of direct labor in the production of 2,100 pairs of shoes.

Complete the following table, showing the direct labor variance relationships for August for Sole Purpose Shoe Company. If required, round your answers to two decimal places. When entering variances, use a negative number for a favorable variance, and a positive number for an unfavorable variance.

Feedback

Review Exhibit 7 in the text.

Budget Performance Report

Sarah has learned a lot from you over the past two months, and has compiled the following data for Sole Purpose Shoe Company for September using the techniques you taught her. She would like your help in preparing a Budget Performance Report for September. The company produced 3,500 pairs of shoes that required 12,250 units of material purchased at $8.20 per unit and 9,450 hours of labor at an hourly rate of $8.90 per hour during the month. Actual factory overhead during September was $28,350. When entering variances, use a negative number for a favorable cost variance, and a positive number for an unfavorable cost variance.

Use the data in the following table to prepare the Budget Performance Report for Sole Purpose Shoe Company for September.

Feedback

Review Exhibit 3 and computations for the amounts on the report.

Final Questions

Before Sarah makes any changes based on the Budget Performance Report for September, she wants to be sure she understands the results, and has the following questions for you.

Answer the following questions (1) and (2). All questions pertain to the September data.

1. What caused the total cost variance for direct materials?

a. The actual quantity of direct materials per unit was less than the standard quantity.

b. The actual price for direct materials per unit was less than the standard price.

c. The favorable price variance dominated the unfavorable quantity variance, causing the total cost variance for direct materials to be favorable.

d. The unfavorable quantity variance dominated the favorable price variance, causing the total cost variance for direct materials to be unfavorable.

e. A factor other than those listed caused the total cost variance for direct materials.

2. What caused the total cost variance for direct labor?

a. The actual number of labor hours per unit was less than the standard number.

b. The unfavorable rate variance was larger than the favorable time variance, causing the total cost variance for direct labor to be unfavorable.

c. The favorable time variance was larger than the unfavorable rate variance, causing the total cost variance for direct labor to be favorable.

d. The actual rate for labor hours per unit was less than the standard rate.

e. A factor other than those listed caused the total cost variance for direct labor.

Georgia Cabinets manufactures kitchen cabinets that are sold to local dealers throughout the Southeast. Because of a large backlog of orders for oak and cherry cabinets, the company decided to contract with three smaller cabinetmakers to do the final finishing operation. For the three cabinetmakers, the number of hours required to complete all the oak cabinets, the number of hours required to complete all the cherry cabinets, the number of hours available for the final finishing operation, and the cost per hour to perform the work are shown here:

a. Formulate a linear programming model that can be used to determine the proportion of the oak cabinets and the proportion of the cherry cabinets that should be given to each of the three cabinetmakers in order to minimize the total cost of completing both projects.

b. Solve the model formulated in part (a). What proportion of the oak cabinets and what proportion of the cherry cabinets should be assigned to each cabinetmaker? What is the total cost of completing both projects? If required, round your answers for the proportions to three decimal places, and for the total cost to two decimal places.

Total cost = $ __________

c. If Cabinetmaker 1 has additional hours available, would the optimal solution change? YES OR NO
Explain.

d. If Cabinetmaker 2 has additional hours available, would the optimal solution change? YES OR NO
Explain.

e. Suppose Cabinetmaker 2 reduced its cost to $38 per hour. What effect would this change have on the optimal solution? If required, round your answers for the proportions to three decimal places, and for the total cost to two decimal places.

Total cost = $ __________

Explain.