Reference no: EM132086790

COST ACCOUNTING ASSIGNMENT -

Part A - Answer any five (5) out of six (6) questions.

Essay questions

1. Identify and discuss the factors that are affecting the way cost accounting is practiced.

2. Explain the relationship between the financial accounting system and the cost management system.

3. You are a management accountant for Burn's Corporation. Ruth Hamilton, the sales representative for one of Burn's suppliers, invited you to attend a professional sporting event. Because you are an avid sports fan, you accepted Ruth's invitation. At the sporting event, Ruth begins talking about Burn's upcoming contract renewals with suppliers. Because there is intense competition and because it is the first bid she will submit to Burn's Corporation, she asks you to review her bid to make sure "it is good enough" before she submits it to the company. In addition, because you are knowledgeable about costs, especially regarding this contract, she asks you to tell her if her bid is "in the ballpark" or "needs improvement." She indicates that if she wins the contract, you will be provided with season tickets for the rest of the year.

Required: Considering the Conduct of Cost Accountants, how would you respond to Ruth's request?

4. What is responsibility accounting? Compare and contrast financial-based responsibility accounting with activity-based responsibility accounting.

5. In the Cost-Volume-Profit analysis, what are the ways management can deal with risk and uncertainty? Discuss with reasoning.

6. Why should predetermined overhead rates be used instead of actual rate? Justify your views with logical arguments.

Part B - Question No. 6 is compulsory. Out of remaining 5 questions, attempt any 3 questions.

Exercise 1 - The cost of goods sold for a manufacturing firm for the month of January was $90,000. The finished goods inventory was $15,000 on January 1 and $17,500 on January 31. Beginning and ending work-in-process inventories were $20,000 and $25,000, respectively. What was the cost of goods manufactured during January?

Exercise 2 - Information from the records of the Tyler Enterprises for March 2011 is as follows:

Sales	$41,000
Direct labor	10,000
Selling and administrative expenses	7,000
Direct materials purchases	6,000
Factory overhead	13,500

 

	Inventories
	March 1, 2011	March 31, 2011
Direct materials	$1,200	$1,400
Work in process	2,500	2,800
Finished goods	2,300	1,900

Required:

a. What was the cost of materials used in production?

b. What is cost of goods manufactured in March?

c. What is the cost of goods sold?

d. What is the gross margin (profit)?

e. Analyze the cost of goods manufactured and sold (calculated above) and identify the major costing component affecting both of them.

Exercise 3 - The following cost functions were developed for manufacturing overhead costs:

Manufacturing Overhead Cost	Cost Function
Electricity	$200 + $20 per direct labor hour
Maintenance	$400 + $30 per direct labor hour
Supervisors' salaries	$20,000 per month
Indirect materials	$16 per direct labor hour

If June production is expected to be 2,000 units requiring 3,000 direct labor hours, what is the estimated manufacturing overhead costs? Also discuss the role of direct labor hours in determining the predetermined overhead rates.

Exercise 4 - The following information pertains to Black Corporation for 2011:

Estimated total overhead costs for 2011	$37,500
Estimated direct labor costs for 2011	25,000
Actual direct labor costs	22,500
Actual overhead costs	36,000
Activity base	Direct labor costs

Required:

a. What is the predetermined overhead rate for Black Corporation for 2011?

b. Discuss the drawbacks of using direct labor hours as an activity base.

Exercise 5 - The following information is provided for the year:

Actual overhead	$450,000
Actual machine hours worked	25,000
Budgeted machine hours	27,500
Applied overhead	$487,500

Required:

a. If normal costing is used, what is the total budgeted overhead cost used to calculate the predetermined rate?

b. Which type of corporations should prefer using machine hours as a base for FOH? Why? Justify your standing with appropriate reasoning.

Exercise 6 - The Kringel Company provides the following information:

Sales (200,000 units)	$500,000
Manufacturing costs:
Variable	170,000
Fixed	30,000
Selling and administrative costs:
Variable	80,000
Fixed	20,000

Required:

a. What is the break-even point in units for Kringel?

b. What is the variable cost per unit for Kringel?

c. What is the variable product cost per unit for Kringel?

d. What is the contribution margin per unit for Kringel?

e. What is the total contribution margin for Kringel?

f. What is the net income for Kringel?

g. Should a multiple product firm focus on individual product break-even point? Why or why not? Discuss with logical arguments.

Part C - Answer any two questions.

Problem 1 - The Holland Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. What is the overhead variance? Is it favorable or unfavorable? Discuss with supportive arguments.

Problem 2 - Amati, Incorporation is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below:

Amati, Incorporation had the following budgeted data:

Unit sales for 2011	26,000
Unit production for 2011	26,000
Budgeted fixed overhead for 2011:
Supervision	$  800
Depreciation	2,000
Rent	100
Budgeted variable costs per unit:
Direct materials	$0.15
Direct labor	0.20
Supplies	0.02
Indirect labor	0.05
Power	0.02

The following actually occurred:

Actual unit sales for 2011	24,000
Actual unit production for 2011	28,000
Actual fixed overhead for 2011:
Supervision	$  850
Depreciation	2,000
Rent	100
Actual variable costs:
Direct materials	$3,500
Direct labor	4,900
Supplies	530
Indirect labor	1,250
Power	470

Required:

a. The total budgeted costs for 2011 were ____________________________________.

b. The budgeted cost for direct labor for 2011 was _____________________________.

c. The static budget variance for rent is ______________________________________.

d. The actual cost for direct materials for 2011 was ____________________________.

e. The static budget variance for total fixed overhead is _________________________.

f. The static budget variance for direct materials is _____________________________.

g. The static budget for total variable costs is _________________________________.

h. The total flexible budgeted costs for 2011 are _______________________________.

i. The flexible budget for direct materials cost in 2011 is ________________________.

j. The flexible budget variance for indirect labor for 2011 is _____________________.

k. The flexible budget for rent in 2011 is _____________________________________.

l. The flexible budget variance for supervision for 2011 is ______________________.

m. The flexible budget variance for total cost for 2011 is ________________________.

n. The total actual costs for 2011 were ______________________________________.

o. The static budget variance for supplies is __________________________________.

p. Discuss the features of an ideal budgetary process.

q. Compare and contrast static budgets, flexible budgets, and activity-based budgets.

Problem 3 - Mertz, Incorporation has done a cost analysis for its production of flags. The following activities and cost drivers have been developed:

Activity	Cost Formula
Maintenance	$13,000 + $2 per machine hour
Machining	$45,000 + $6 per machine hour
Inspection	$70,000 + $500 per batch
Setups	$2,000 per batch
Purchasing	$80,000 + $150 per purchase order

Following are the actual costs of producing 75,000 flags: 1,000 machine hours; 15 batches; 10 purchase orders.

Maintenance	$14,000
Machining	50,000
Inspection	70,000
Setups	32,000
Purchasing	82,000

Required:

a. Prepare an activity-based performance report.

b. Discuss how activity based budget differ from traditional budget.

c. How activity-based budget can improve the activity based performance? Explain.