# ACC 206

Chapter 4 Exercise 3

3. Cost flows and overhead application

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Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.

Â·         Job no. 636 was the only job in process on January 1 of the current year. The Work in Process account contained a \$24,600 balance on this date.

Â·         Jobs no. 637, 638, and 639 were started during January.

Â·         Total direct material requisitions and direct labor incurred during January amounted to \$89,200 and \$114,500, respectively.

Â·         The only job that remained in process on January 31 was job no. 638, with costs of \$15,000 for direct materials and \$20,000 for direct labor.

a.       Compute the total cost of the work in process inventory on January 31.

b.      Compute the cost of jobs completed during January, and present the proper journal entry to reflect job completion.

Chapter 4 Exercise 7

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 22,500 ? Estimated machine hours 20,000 ? Overhead application rate \$4.50 \$5.00 Actual overhead \$110,000 ? Estimated overhead ? \$90,000 Applied overhead ? \$86,000 Over- (under-) applied overhead ? \$6,500

Find the unknowns for each of the divisions.

Chapter 4 Problem 2

2. Computations using a job order system

General Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger;

Work in process           \$ 35,200

Finished goods                         86,900

Cost of goods sold       128,700

Work in Process consisted of two jobs, no. 101 (\$20,400) and no. 103 (\$14,800). During May, direct materials requisitioned from the storeroom amounted to \$96,500, and direct labor incurred totaled \$114,500. These figures are subdivided as follows:

 Direct Materials Direct Labor Job No. Amount Job No. Amount 101 \$5,000 101 \$7,800 115 19,500 103 20,800 116 36,200 115 42,000 Other 35,800 116 18,000 \$96,500 Other 25,900 \$114,500

Job no. 115 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 \$21,000 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.

Chapter 5 Exercise 1

1. High-low method
The following cost data pertain to 20X6 operations of Heritage Products:

 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Shipping costs \$58,200 \$58,620 \$60,125 \$59,400 Orders shipped 120 140 175 150

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 20X7 if activity amounts to 570 orders.

Chapter 5 Exercise 2
The treasurer anticipates the following costs for the event, which will be held at the Regency Hotel:
Room rental                                         \$300
Dinner cost (per person)                      25
Chartered buses                                   500
Favors and souvenirs (per person)       5
Band                                                    900

Each person would pay \$40 to attend; 200 attendees are expected.

a.       Will the event be profitable for the sorority? Show computations.

b.      How many people must attend for the sorority to break even?

c.       Suppose the sorority encouraged its members to drive to the hotel and did not charter the buses. Further, a planned menu change will reduce the cost per meal by \$2. If each member will still be charged \$40, compute the contribution margin per person.

Chapter 5 Exercise 3

3. Break-even and other CVP relationships

Cedars Hospital has average revenue of \$180 per patient day. Variable costs are \$45 per patient day; fixed costs total \$4,320,000 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 \$540,000?

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)?

Chapter 5 Problem 6

6. Direct and absorption costing

The information that follows pertains to Consumer Products for the year ended December 31, 20X6.

 Inventory, 1/1/X6 24,000 units Units manufactured 80,000 Units sold 82,000 Inventory, 12/31/X6 ? units Manufacturing costs: Direct materials \$3 per unit Direct labor \$5 per unit Variable factory overhead \$9 per unit Fixed factory overhead \$280,000 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, 20X6, by using direct costing.

d.      Prepare an income statement for the year ended December 31, 20X6, by using absorption costing.