1. Overhead application: Working backward The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review: Division A Division B Actual machine hours 26,500 ? Estimated machine hours 20,000 ? Overhead application rate $5.00 $6.00 Actual overhead $120,000 ? Estimated overhead ? $90,000 Applied overhead ? $87,000 Over- (under-) applied overhead ? $8,500 Find the unknowns for each of the divisions. 2. Computationsusing a job order system Spencer Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger; Work in process $ 36,200 Finished goods 86,900 Cost of goods sold 130,700 Work in Process consisted of two jobs, no. 101 ($22,400) and no. 103 ($13,800). During May, direct materials requisitioned from the storeroom amounted to $96,500, and direct labor incurred totaled $116,500. These figures are subdivided as follows: Direct Materials Direct Labor Job No. Amount Job No. Amount 101 $6,000 101 $7,800 117 18,500 103 20,800 116 34,200 117 44,000 Other 36,800 116 18,000 $95,500 Other 25,900 $116,500 Job no. 117 was the only job in process at the end of the month. Job no. 101 and three "other" jobs were sold during May at a profit of 20% of cost. The "other" jobs contained material and labor charges of $23,000 and $17,400, respectively. General applies overhead daily at the rate of 150% of direct labor cost as labor summaries are posted to job orders. The firm's fiscal year ends on May 31. Instructions: a. Compute the total overhead applied to production during May. b. Compute the cost of the ending work in process inventory. c. Compute the cost of jobs completed during May. d. Compute the cost of goods sold for the year ended May 31. 3. High-low methodThe following cost data pertain to 20X8 operations of Houston Products: Quarter 1 Quarter 2 Quarter 3 Quarter 4 Shipping costs $56,200 $58,620 $61,000 $59,400 Orders shipped 120 135 170 145 The company uses the high-low method to analyze costs. a. Determine the variable cost per order shipped. b. Determine the fixed shipping costs per quarter. c. If present cost behavior patterns continue, determine total shipping costs for 20X9 if activity amounts to 570 orders. 4. Break-even and other CVP relationships Pine Hospital has average revenue of $190 per patient day. Variable costs are $50 per patient day; fixed costs total $4,620,000 per year. a. How many patient days does the hospital need to break even? b. What level of revenue is needed to earn a target income of $560,000? c. If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)? 5. Direct and absorption costing The information that follows pertains to XYZ Products for the year ended December 31, 20X8. Inventory, 1/1/X8 26,000 units Units manufactured 80,000 Units sold 83,000 Inventory, 12/31/X8 ? units Manufacturing costs: Direct materials $4 per unit Direct labor $5 per unit Variable factory overhead $9 per unit Fixed factory overhead $300,000 Selling & administrative expenses: Variable $2 per unit Fixed $136,000 The unit selling price is $26. Assume that costs have been stable in recent years. Instructions: a. Compute the number of units in the ending inventory. b. Calculate the cost of a unit assuming use of: 1. Direct costing. 2. Absorption costing. c. Prepare an income statement for the year ended December 31, 20X8, by using direct costing. d. Prepare an income statement for the year ended December 31, 20X8, by using absorption costing.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
1.
The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:
|
Division A |
Division B |
|
|
Actual machine hours |
26,500 |
? |
|
Estimated machine hours |
20,000 |
? |
|
Overhead application rate |
$5.00 |
$6.00 |
|
Actual overhead |
$120,000 |
? |
|
Estimated overhead |
? |
$90,000 |
|
Applied overhead |
? |
$87,000 |
|
Over- (under-) applied overhead |
? |
$8,500 |
Find the unknowns for each of the divisions.
2. Computationsusing a job order system
Spencer Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger;
Work in process $ 36,200
Finished goods 86,900
Cost of goods sold 130,700
Work in Process consisted of two jobs, no. 101 ($22,400) and no. 103 ($13,800). During May, direct materials requisitioned from the storeroom amounted to $96,500, and direct labor incurred totaled $116,500. These figures are subdivided as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Job no. 117 was the only job in process at the end of the month. Job no. 101 and three "other" jobs were sold during May at a profit of 20% of cost. The "other" jobs contained material and labor charges of $23,000 and $17,400, respectively.
General applies overhead daily at the rate of 150% of direct labor cost as labor summaries are posted to job orders. The firm's fiscal year ends on May 31.
Instructions:
a. Compute the total overhead applied to production during May.
b. Compute the cost of the ending work in process inventory.
c. Compute the
d. Compute the cost of goods sold for the year ended May 31.
3. High-low method
The following cost data pertain to 20X8 operations of Houston Products:
|
Quarter 1 |
Quarter 2 |
Quarter 3 |
Quarter 4 |
|
|
Shipping costs |
$56,200 |
$58,620 |
$61,000 |
$59,400 |
|
Orders shipped |
120 |
135 |
170 |
145 |
The company uses the high-low method to analyze costs.
a. Determine the variable cost per order shipped.
b. Determine the fixed shipping costs per quarter.
c. If present cost behavior patterns continue, determine total shipping costs for 20X9 if activity amounts to 570 orders.
4. Break-even and other CVP relationships
Pine Hospital has average revenue of $190 per patient day. Variable costs are $50 per patient day; fixed costs total $4,620,000 per year.
a. How many patient days does the hospital need to break even?
b. What level of revenue is needed to earn a target income of $560,000?
c. If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?
5. Direct and absorption costing
The information that follows pertains to XYZ Products for the year ended December 31, 20X8.
|
Inventory, 1/1/X8 |
26,000 units |
|
Units manufactured |
80,000 |
|
Units sold |
83,000 |
|
Inventory, 12/31/X8 |
? units |
|
|
|
|
Direct materials |
$4 per unit |
|
Direct labor |
$5 per unit |
|
Variable factory overhead |
$9 per unit |
|
Fixed factory overhead |
$300,000 |
|
Selling & administrative expenses: |
|
|
Variable |
$2 per unit |
|
Fixed |
$136,000 |
The unit selling price is $26. Assume that costs have been stable in recent years.
Instructions:
a. Compute the number of units in the ending inventory.
b. Calculate the cost of a unit assuming use of:
1. Direct costing.
2. Absorption costing.
c. Prepare an income statement for the year ended December 31, 20X8, by using direct costing.
d. Prepare an income statement for the year ended December 31, 20X8, by using absorption costing.
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