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28. Lionel Corporation manufactures two products, Product B and Product H. Product H is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product B. Product H is the more complex of the two products, requiring two hours of direct labour time per unit to manufacture, compared to one hour of direct labour time for Product B. Product H is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour hours. The company estimated it would incur $450,000 in manufacturing overhead costs and produce 7,500 units of Product H and 30,000 units of Product B during the current year. Unit costs for materials and direct labour are:



Required:

a) Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year.
b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:



Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.


ACCT 3320_Quiz One

 

1. (1) Which of the following would not be treated as a product cost for external financial

 

reporting purposes? D

 

a) Depreciation on a factory building.

 

b) Salaries of factory workers.

 

c) Indirect labour in the factory.

 

d) Advertising expenses.

 

2. (1) The advertising costs incurred by Pepsi to air its commercials during the hockey season

 

can best be described as a: B

 

a) Variable cost.

 

b) Fixed cost.

 

c) Prime cost.

 

d) Conversion cost.

 

3. (1) Prime costs consist of: B

 

a) Direct Labour and Manufacturing Overhead.

 

b) Direct Material and Direct Labour.

 

c) Direct Material and Manufacturing overhead.

 

d) Direct Material, Direct Labour and Manufacturing Overhead.

 

4. (1) What does manufacturing overhead cost consist of? B

 

a) All manufacturing costs.

 

b) All manufacturing costs, EXCEPT direct materials and direct labour.

 

c) Indirect materials but NOT indirect labour.

 

d) Indirect labour but NOT indirect materials.

 

5. (1) Within the relevant range, what is the difference between variable costs and fixed costs? B

 

a) Variable costs per unit fluctuate and fixed costs per unit remain constant.

 

b) Variable costs per unit are constant and fixed costs per unit fluctuate.

 

c) Total variable costs and total fixed costs are constant.

 

d) Total variable costs and total fixed costs fluctuate. 6. (1) Which of the following best defines an opportunity cost? B

 

a) The difference in total costs from selecting one alternative instead of

 

another.

 

b) The benefit forgone by selecting one alternative instead of another.

 

c) A cost that may be saved by NOT adopting an alternative. 7. (1) 8. (1) d) A cost that may be shifted to the future with little or no effect on current

 

operations.

 

What does conversion cost consist of? D

 

a) Manufacturing overhead cost.

 

b) Direct materials and direct labour cost.

 

c) Direct labour cost.

 

d) Direct labour and manufacturing overhead cost.

 

A manufacturing company prepays its insurance coverage for a three-year period. The

 

premium for the three years is $2,700 and is paid at the beginning of the first year. Eighty

 

percent of the premium applies to manufacturing operations and 20% applies to selling and

 

administrative activities. What amounts should be considered product costs and period

 

costs respectively for the first year of coverage? B Option A

 

Option B

 

Option C

 

Option D Bergeron Inc. reported the following data for last year: 9. (1) Which of the following is the prime cost? B

 

a. $900. b. $800.

 

c. $1,200.

 

d. $700.

 

(1) The following data (in thousands of dollars) have been taken from the accounting records of

 

Karlana Corporation for the year just ended. 10. What was the cost of the raw materials used in production (in thousands of dollars) during the

 

year? D

 

A. $180.

 

B. $40.

 

C. $120.

 

D. $160. 11. What was the cost of goods manufactured (finished) for the year (in thousands of dollars)? B

 

A. $530.

 

B. $520.

 

C. $500

 

D. $460.

 

12. What was the net income (in thousands of dollars) for the year? B

 

A. $410.

 

B. $110.

 

C. $40. D. $180.

 

13. Kelly Sportswear manufactures a specialty line of T-shirts. The company uses a job-order

 

costing system. During March, the following costs were incurred on Job 1052:

 

Direct Materials

 

Direct Labour $13,700

 

$ 4,800 Manufacturing overhead was applied at the rate of $25 per machine hour and Job 1052

 

required 800 machine hours. In addition, selling and shipping costs of $7,000 were

 

incurred. Job 1052 consisted of 7,000 shirts and was completed on March 24. The total

 

cost of job 1052 transferred from Work in Process to Finished Goods on March 24 is:

 

a. $33,700

 

b. $18,500

 

c. $38,500

 

d. $20,000

 

14. In a normal job-order costing system, the journal entry to record the application of

 

overhead cost to jobs includes which of the following?

 

a. A credit to the Work in Process inventory account.

 

b. A credit to the Manufacturing Overhead account.

 

c. A debit to Cost of Goods Sold.

 

d. A debit to the Manufacturing Overhead account. 15. In a normal job-order costing system, the use of indirect materials would usually be

 

recorded as a debit to which account?

 

a. Raw Materials.

 

b. Work in Process.

 

c. Finished Goods.

 

d. Manufacturing Overhead. 16. The Work in Process inventory account of a manufacturing company shows a balance of

 

$2,400 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and $200 for direct materials and charges of $300 and $500 for

 

direct labour. From this information, what predetermined overhead rate, as a percentage

 

of direct labour costs, does the company appear to be using?

 

a. 300%.

 

b. 240%.

 

c. 125%.

 

d. 80%.

 

17. Harrell Company uses a predetermined overhead rate based on direct labour hours to

 

apply manufacturing overhead to jobs. At the beginning of the year, the company

 

estimated its total manufacturing overhead cost at $400,000 and its direct labour hours at

 

100,000 hours. The actual overhead cost incurred during the year was $350,000 and the

 

actual direct labour hours incurred on jobs during the year was 90,000 hours. What would

 

be the manufacturing overhead for the year?

 

a. $10,000 over applied.

 

b. $10,000 under applied.

 

c. $50,000 over applied.

 

d. $50,000 under applied. 18. Kelsh Company uses a predetermined overhead rate based on machine hours to apply

 

manufacturing overhead to jobs. The company has provided the following estimated costs

 

for next year: Kelsh estimates that 5,000 direct labour hours and 10,000 machine hours will be worked

 

during the year. What will be the predetermined overhead rate per hour?

 

a. $6.80.

 

b. $6.40.

 

c. $3.40.

 

d. $8.20. 19. The Samuelson Company uses a job-order costing system. The following data were

 

recorded for June: Overhead is charged to production at 70% of the direct materials cost. Jobs 475, 477, and

 

478 have been delivered to the customer. What was Samuelson's Work in Process

 

inventory balance on June 30?

 

a. $6,450.

 

b. $2,860.

 

c. $2,300.

 

d. $2,720.

 

20. 21. Kanuck Company applies overhead to completed jobs on the basis of $0.70 per machine

 

hour. If Job 501 shows $28,000 of manufacturing overhead applied, how many machine

 

hours were used for the job?

 

a. 40,000.

 

b. 30,000.

 

c. 28,000.

 

d. 19,600. 22. 23 24. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk (1) a memo from her boss, Gary Resnick, to the controller of the company. The memo appears

 

below:

 

Galaxy Toys Internal Memo

 

Sept 15

 

To: Harry Wilson, Controller

 

Fm: Gary Resnick, Executive Vice President

 

As you know, we won't start recording many sales until October when stores start accepting

 

shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are

 

building up our finished goods inventories so that we will be ready to ship next month.

 

Unfortunately, we are in a bind right now since it looks like the net income for the quarter

 

ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank

 

since they always review the quarterly financial reports and may call in our loan if they

 

don't like what they see. Is there any possibility that we could change the classification of

 

some of our period costs to product costs--such as the rent on the finished goods

 

warehouse?

 

Please let me know as soon as possible. The President is pushing for results.

 

Mary didn't know what to do about the memo. It wasn't intended for her, but its contents

 

were alarming.

 

Required:

 

a. Why has Gary Resnick suggested reclassifying some period costs as product costs?

 

b. Why do you think Mary was alarmed about the memo? 25. Distinguish between the following: (a) direct materials, (b) indirect materials, (c) direct

 

labour, (d) indirect labour, and (e) manufacturing overhead. 26. The following partially completed T-accounts summarize last year's transactions for Kelshaw

 

Company: At the end of the year, the company closes out the balance in the Manufacturing Overhead account to

 

Cost of Goods Sold.

 

a. What is the indirect labour cost?

 

b. What is the cost of goods manufactured?

 

c. What is the cost of goods sold (after adjustment for under- or over applied overhead)?

 

d. What is the manufacturing overhead applied?

 

e. What is the cost of direct materials used?

 

f. What would be the ending Work in Process account balance?

 

g. What are the total manufacturing costs for the year? 27. Scanlon Company has a job-order costing system and applies manufacturing overhead cost to

 

products on the basis of machine hours. The following estimates were used in preparing the

 

predetermined

 

overhead

 

rate

 

for

 

the

 

most

 

recent

 

year: During the most recent year, a severe recession in the company's industry caused the

 

curtailment of production and a buildup of inventory in the company's warehouses. The

 

company's cost records revealed the following actual cost and operating data for the year: Required:

 

(a.) Compute the company's predetermined overhead rate for the year and the amount of

 

under-or-overapplied overhead for the year.

 

(b.) Determine the difference between net income for the year if the under-or overapplied

 

overhead is allocated to the appropriate accounts rather than closed out directly to Cost of Goods Sold.

 

28. Lionel Corporation manufactures two products, Product B and Product H. Product H is of fairly recent

 

origin, having been developed as an attempt to enter a market closely related to that of Product B.

 

Product H is the more complex of the two products, requiring two hours of direct labour time per unit to

 

manufacture, compared to one hour of direct labour time for Product B. Product H is produced on an

 

automated production line.

 

Overhead is currently assigned to the products on the basis of direct labour hours. The company

 

estimated it would incur $450,000 in manufacturing overhead costs and produce 7,500 units of Product

 

H and 30,000 units of Product B during the current year. Unit costs for materials and direct labour are: Required:

 

a) Compute the predetermined overhead rate under the current method of allocation, and determine

 

the unit product cost of each product for the current year.

 

b) The company's overhead costs can be attributed to four major activities. These activities and the

 

amount of overhead cost attributable to each for the current year are given below: Using the data above and an activity-based costing approach, determine the unit product cost of each

 

product for the current year. END OF QUIZ

 







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