Reference no: EM131799054

Question 1

MR Company produced 4,000 office chairs during the year. The office chairs sell for $800 each. MR Company had 600 office chairs in finished inventory at the beginning of the year. At the end of the year there were 800 office chairs in finished good inventory. MR Company's accounting records provide the following information.

Purchase of materials	$640,000
Direct materials inventory, 1 January, 2017	93,600
Direct materials inventory, 31 December 2017	133,600
Direct labour	400,000
Indirect labour	80,000
Rent, factory building	84,000
Depreciation, factory equipment	120,000
Utilities, factory	23,912
Salary, sales supervisor	180,000
Commissions, salespersons	360,000
General administration	600,000
Work in process inventory, 1 January 2017	126,080
Work in process inventory, 31 December 2017	159,992
Finished goods inventory, 1 January 2017	160,000
Finished goods inventory, 31 December 2017	228,200

Required:

1. Prepare a Schedule of cost of goods manufactured.

2. Compute the cost of producing one office chair in 2017.

3. Prepare an income statement for the current year.

Question 2

Teer Electronics manufactures various computer hardware products.  The company estimated it would incur $165,000 in manufacturing overhead costs during the current period. At present, Teer currently uses a single overhead rate that is applied to the products on the basis of direct labour-hours. Data concerning the current period's operations appear below:

	Sound card	Video Card
Estimated volume	3,400 units	4,800 units
Direct labour-hours per unit	1.40 hour	1.90 hours
Direct materials cost per unit	$7.40	$12.70
Direct labour cost per unit	$14.00	$19.00

The company is considering using an activity-based costing system (ABC) to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Expected  actual data relating to these activities for the current period are given below:

Activity Cost Pool	Expected Overhead Costs	Expected Activity
		Sound Card		Video        Card	Total
Machine setups	$ 15,000	80	170			250
Purchasing	80,000	700	900			1,600
General factory	70,000	5,000	9,000			14,000
	$165,000
Activity Cost Pool	Actual Overhead Costs	Actual Activity
		Sound Card		Video        Card	Total
Machine setups	$ 12,190	80	150			230
Purchasing	79,200	730	920			1,650
General factory	69,400	4,760	9,120			13,880
	$160,790

Required:

1. Compute the predetermined overhead rate under the present method and determine the unit product cost of each product for the current year.

2. Calculate the activity rate for each of the activities.

3. Determine the unit product costs of each product using ABC. Assume that the company is using a normal costing system and allocates overheads on the basis of actual activity levels.

4. Suggest  one  possible cost driver  for each of  the following activities, machine set up and purchasing.

Question 3

Waterloo Company is considering to manufacture a new product. Direct materials and direct labour cost for the new product would be $50 per unit. In order to have a place to store finished units of the new product, the company would have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the company an additional $4,000 each month to advertise the new product. A new production supervisor would be hired to oversee production of the new product who would be paid $3,000 per month. The company would pay a sales commission of $10 for each unit of product that is sold.

Required:

Complete the chart below by placing an "X" under each column heading that helps to identify the costs listed to the left. There can be "X's" placed under more than one heading for a single cost. For example, a cost might be a product cost,  a fixed cost and a conversion cost; there would be an "X" placed under each of these headings on the answer sheet opposite the cost.

	Variable Cost	Fixed Cost	Product Cost	Conversion costs
Direct labour cost
Depreciation on the factory space
Direct material
Rental cost of the small warehouse
Advertising cost
Production supervisor's salary
Sales commissions

Question 4

Panama  Ltd is a manufacturer of  a single product. The company prepares its financial statements using  absorption costing.The company's revenues and expenses for the last two months are given below:

Panama Ltd
Comparative Income Statements
For the Months of April and May
	April	May
Production in units	4,800	5,000
Sales in units	4,500	5,250
Sales revenue	$630,000	$735,000
Less cost of goods sold (Mixed expense)	297,000	344,520
Gross Margin	333,000	390,480
Less operating expenses:
Shipping expense  (Mixed expense)	56,000	63,500
Salaries and commissions (Mixed expense, fixed component = $30,500)	143,000	161,750
Other fixed expenses	73,000	73,000
Total operating expenses	272,000	298,250
Net income	mce_markernbsp; 61,000	mce_markernbsp; 92,230

Additional information:

Beginning inventory for April in units: 0

June production in units: 6,400

June sales in units: 6,000                    

Fixed production costs per month: $48,000; Variable production costs per unit: $56          

Required:

1. Separate the shipping expense into its variable and fixed components. State the cost formula for shipping expense.

2. Prepare an income statement for the month of June using the same format as the April and May statements and assuming no changes in fixed costs.

3. Recast the May income statement using a variable costing format.