Betty DeRose, Inc. operates two departments, the handling department and
the packaging department. During April, the handling department reported
the following information:

                                           % complete      % complete
                                units         DM           conversion 
work in process, April 1        18,000        38%             71%
units started during April      80,000
work in process, April 30       44,000        82%             47%

The cost of beginning work in process and the costs added during April
were as follows:

                                 DM         Conversion       Total cost
work in process, April 1      $ 51,764       $152,477         $204,241
costs added during April       191,452        232,125          423,577
total costs                    243,216        384,602          627,818

Calculate the conversion unit cost using the weighted average process
costing method.

Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours × (54,000 + 10,200)]. Estimated annual manufacturing overhead is $1,573,108. Thus, the predetermined overhead rate is $16.34 or ($1,573,108 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.)

Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. 12.25.)

Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Round overhead cost per unit to 2 decimal places, e.g. 12.25 and cost assigned to 0 decimal places, e.g. 2,500.)

Compute the total cost per unit for each product under ABC.

Kuantan ATV, Inc. assembles five different models of all-terrain vehicles (ATVs) from various ready-made components to serve the Las Vegas, Nevada, market. The company uses the same engine for all its ATVs. The purchasing manager, Ms. Jane Kim, needs to choose a supplier for engines for the coming year. Due to the size of the warehouse and other administrative restrictions, she must order the engines in lot sizes of 1,000 each. The unique characteristics of the standardized engine require special tooling to be used during the manufacturing process. Kuantan ATV agrees to reimburse the supplier for the tooling. This is a critical purchase, since late delivery of engines would disrupt production and cause 50 percent lost sales and 50 percent back orders of the ATVs. Jane has obtained quotes from two reliable suppliers but needs to know which supplier is more cost-effective. The terms of sale are 5/10 net 30 for Supplier 1 and 3/10 net 30 for Supplier 2. The data related to the costs of ownership associated with two reliable suppliers has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Questions

1. What is the total cost of ownership for each of the suppliers? Assume the buyer will take advantage of the largest discount. Do not round intermediate calculations. Round your answers to the nearest cent.

2. Which supplier is more cost-effective?

1.(B)Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 8%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies.

For years, Worley believed that the 8% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits, Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown:

Activity Cost Pool (Activity Measure)Total CostTotal ActivityCustomer deliveries (Number of deliveries)$567,0007,000deliveriesManual order processing (Number of manual orders) 312,0004,000ordersElectronic order processing (Number of electronic orders) 208,00013,000ordersLine item picking (Number of line items picked) 574,000410,000line itemsOther organization-sustaining costs (None) 690,000  Total selling and administrative expenses$2,351,000  

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $32,000 to buy from manufacturers):

Activity

Activity MeasureUniversityMemorialNumber of deliveries1228Number of manual orders043Number of electronic orders170Number of line items picked110250

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial.

4. Compute Worley's customer margin for University and Memorial. (Hint: Do not overlook the $32,000 cost of goods sold that Worley incurred serving each hospital.)

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s two product lines appear below:

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Required:

1. Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system.

2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools:  

Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Prior to the first month of operations ending October 31 Marshall Inc. estimated the following operating results:

The company is evaluating a proposal to manufacture 22,400 units instead of 20,000 units, thus creating an Inventory, October 31 of 2,400 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses.

a. 1. Prepare an estimated income statement, comparing operating results if 20,000 and 22,400 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank or enter “0”.

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a. 2. Prepare an estimated income statement, comparing operating results if 20,000 and 22,400 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank or enter “0”.

1. Sonata Corporation makes three types of products—Model Z, Model EF, and Model DS. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Destiny has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

Model Z           $93

Model EF         $88

Model DS        $127

Sonata Corporation has 5 activities—assembly, materials management, testing, inspecting and milling. The cost driver for assembly is machine hours. Total costs and production volumes for the year 2019 were estimated as follows

The following is the amount each product uses of each driver:

1. Calculate the estimated cost of overhead per unit using the ABC method. Complete the 4 step process to allocate indirect costs to each unit. Calculate the estimate total cost per unit. (40 points)
2. Calculate the estimated total cost per unit using the single base allocation method for the same data set using machine hours as the driver. (10 points)
3. Which method is superior? Why? (4 points)

Income Statements under Absorption Costing and Variable Costing

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (46,200 units) during the first month, creating an ending inventory of 4,200 units. During February, the company produced 42,000 units during the month but sold 46,200 units at $100 per unit. The February manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for the month ending February 28.

b. Prepare an income statement according to the variable costing concept for the month ending February 28.

c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?

Under the   method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under  , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the   income statement will have a lower operating income.

40. TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.

During November, TaskMaster purchased 200,000 pounds of direct materials at a total cost of $400,000. The total factory wages for November were $44,000, 90% of which were for direct labor. TaskMaster manufactured 23,000 units of product during November using 182,000 pounds of direct materials and 5,000 direct labor hours.

What is the direct materials efficiency (quantity) variance for November?

$28,800.

$3,600.

$36,400.

$40,000.

41. In 2016, Evans Corporation had an operating profit of $764,000 and a residual income of $307,000. If Evans' cost of capital is 10%, what is the amount of the invested capital?

$3,070,000.

$2,613,000.

$7,640,000.

$4,570,000.

42.

Danske Company had total underapplied overhead of $22,500. Additional information is as follows:

What is the actual total overhead for the period?

$57,500.

$102,500.

$124,500.

$67,500.

Income Statements under Absorption Costing and Variable Costing

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (77,000 units) during the first month, creating an ending inventory of 7,000 units. During February, the company produced 70,000 units during the month but sold 77,000 units at $90 per unit. The February manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for the month ending February 28.

b. Prepare an income statement according to the variable costing concept for the month ending February 28.

c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?

Under the   method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under  , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the   income statement will have a lower operating income.