3-35 Predicting Costs
Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs:
1. Fuel costs of driving vehicles, $0.20 per mile, driven 17,000 miles per month
2. Equipment rental cost, $6,000 per piece of equipment per month for seven pieces for three
months
3. Ambulance and EMT personnel cost for a soccer tournament, $1,200 for each 250 tournament participants; the tournament is expecting 2,400 participants
4. Purchasing department cost, $7,500 per month plus $4 per material order processed at 4,000 orders in one month
Click here for the solution: Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs
Showing posts with label activity. Show all posts
Showing posts with label activity. Show all posts
Friday, April 15, 2016
Wednesday, April 13, 2016
The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity
The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company’s controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 45,000 machine- hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 per year. For simplicity, it’s assumed that this is the esti- mated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Required:
A. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
B. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
C. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.
Click here for the solution: The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity
Required:
A. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
B. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
C. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.
Click here for the solution: The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity
Wednesday, November 11, 2015
Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows
12-49 Direct and Step-Down Methods of Allocation
Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows:
Building and grounds $ 20,000
Personnel 1,200
General factory administration* 28,020
Cafeteria operating loss 1,430
Storeroom 2,750
Machining 35,100
Assembly 56,500
Total $145,000
*To be allocated before cafeteria.
Management has decided that the most sensible product costs are achieved by using departmental overhead rates. These rates are developed after allocating appropriate service department costs to production departments.
Cost-allocation bases for allocation are to be selected from the following data:
Square Feet of Direct-Labor Number of Floor Space Total Number of Department Hours Employees Occupied Labor Hours Requisitions
Building and grounds — — — — —
Personnel* — — 2,000 — —
General factory administration — 35 7,000 — —
Cafeteria operating loss — 10 4,000 1,000 —
Storeroom — 5 7,000 1,000 —
Machining 5,000 50 30,000 8,000 3,000
Assembly 15,000 100 50,000 17,000 1,500
20,000 200 100,000 27,000 4,500
*Basis used is number of employees.
1. Allocate service department costs by the step-down method. Develop overhead rates per direct labor hour for machining and assembly.
2. Same as in number 1, using the direct method.
3. What would be the plantwide factory-overhead application rate, assuming that direct-labor hours are used as a cost-allocation base?
4. Using the following information about two jobs, prepare three different total overhead costs for each job, using rates developed in numbers 1, 2, and 3.
Direct-Labor Hours
Machining Assembly
Job K10 19 2
Job K12 3 18
Click here for the solution: Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows
Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows:
Building and grounds $ 20,000
Personnel 1,200
General factory administration* 28,020
Cafeteria operating loss 1,430
Storeroom 2,750
Machining 35,100
Assembly 56,500
Total $145,000
*To be allocated before cafeteria.
Management has decided that the most sensible product costs are achieved by using departmental overhead rates. These rates are developed after allocating appropriate service department costs to production departments.
Cost-allocation bases for allocation are to be selected from the following data:
Square Feet of Direct-Labor Number of Floor Space Total Number of Department Hours Employees Occupied Labor Hours Requisitions
Building and grounds — — — — —
Personnel* — — 2,000 — —
General factory administration — 35 7,000 — —
Cafeteria operating loss — 10 4,000 1,000 —
Storeroom — 5 7,000 1,000 —
Machining 5,000 50 30,000 8,000 3,000
Assembly 15,000 100 50,000 17,000 1,500
20,000 200 100,000 27,000 4,500
*Basis used is number of employees.
1. Allocate service department costs by the step-down method. Develop overhead rates per direct labor hour for machining and assembly.
2. Same as in number 1, using the direct method.
3. What would be the plantwide factory-overhead application rate, assuming that direct-labor hours are used as a cost-allocation base?
4. Using the following information about two jobs, prepare three different total overhead costs for each job, using rates developed in numbers 1, 2, and 3.
Direct-Labor Hours
Machining Assembly
Job K10 19 2
Job K12 3 18
Click here for the solution: Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows
Wednesday, October 14, 2015
Dewey and Cheatam is a law firm that is initiating an activity-based costing system
ACC 560 Week 3 Assignment
E4-16 Dewey and Cheatam is a law firm that is initiating an activity-based costing system. Jim Dewey, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm.
Classify each activity as either value-added or non-value-added.
Activity Hours
Writing contracts and letters 1.0
Attending staff meetings 0.5
Taking depositions 1.0
Doing research 1.0
Traveling to/from court 1.0
Contemplating legal strategy 1.0
Eating lunch 1.0
Litigating a case in court 2.5
Entertaining a prospective client 2.0
Instructions:
a) How much was value-added time
b) How much was non-value-added time
Click here for the solution: Dewey and Cheatam is a law firm that is initiating an activity-based costing system
E4-16 Dewey and Cheatam is a law firm that is initiating an activity-based costing system. Jim Dewey, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm.
Classify each activity as either value-added or non-value-added.
Activity Hours
Writing contracts and letters 1.0
Attending staff meetings 0.5
Taking depositions 1.0
Doing research 1.0
Traveling to/from court 1.0
Contemplating legal strategy 1.0
Eating lunch 1.0
Litigating a case in court 2.5
Entertaining a prospective client 2.0
Instructions:
a) How much was value-added time
b) How much was non-value-added time
Click here for the solution: Dewey and Cheatam is a law firm that is initiating an activity-based costing system
On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record
Minicase 3: On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record. Assume all assets were purchased on January 1.
Equipment Cost Salvage Date Life Method of Depreciation
Machine 1 $65,000 $5,000 2002 5 DDB
Building #3 $900,000 not including land $50,000 2004 25 S/L
Mine 316 $1,000,000 $0 2003 1,000,000 tons 30,000 tons extracted
Mine 682 $500,000 $100,000 2001 40,000 barrels 6,000 barrels extracted
Patent $50,000 0 2004 17
Truck 1 $35,000 $3,000 2004 200,000 miles Units of production: total miles depreciated to date are 60,000 as of January 1, 2006. Miles this year 30,000
Truck 2 $50,000 $5,000 2006 150,000 miles Units of production, miles this year are 15,000
Truck 3 $75,000 $10,000 2001 200,000 miles Units of production: total miles depreciated to date are 180,000 as of January 1, 2006. Miles in 2006 are 30,000 miles.
Machine 2 $100,000 $5,000 2003 10 S/L
REQUIRED:
• Compute the depletion, amortization, and depreciation expense on December 31, 2006 for each asset listed above.
• Record the entries for the assets above
• Suppose that we sold machine 2 for $50,000, record the entry
• Suppose that the building life increased from 25 years to 30 years, revise the depreciation and prepare the entry.
• Suppose that the corporation spent $20,000 in 2006 to defend the patent. Record the entry.
Click here for the solution: On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record
Equipment Cost Salvage Date Life Method of Depreciation
Machine 1 $65,000 $5,000 2002 5 DDB
Building #3 $900,000 not including land $50,000 2004 25 S/L
Mine 316 $1,000,000 $0 2003 1,000,000 tons 30,000 tons extracted
Mine 682 $500,000 $100,000 2001 40,000 barrels 6,000 barrels extracted
Patent $50,000 0 2004 17
Truck 1 $35,000 $3,000 2004 200,000 miles Units of production: total miles depreciated to date are 60,000 as of January 1, 2006. Miles this year 30,000
Truck 2 $50,000 $5,000 2006 150,000 miles Units of production, miles this year are 15,000
Truck 3 $75,000 $10,000 2001 200,000 miles Units of production: total miles depreciated to date are 180,000 as of January 1, 2006. Miles in 2006 are 30,000 miles.
Machine 2 $100,000 $5,000 2003 10 S/L
REQUIRED:
• Compute the depletion, amortization, and depreciation expense on December 31, 2006 for each asset listed above.
• Record the entries for the assets above
• Suppose that we sold machine 2 for $50,000, record the entry
• Suppose that the building life increased from 25 years to 30 years, revise the depreciation and prepare the entry.
• Suppose that the corporation spent $20,000 in 2006 to defend the patent. Record the entry.
Click here for the solution: On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record
Sunday, September 6, 2015
The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity”
P. 7-4 Governments sometimes add to, but do not delete, their capital assets.
The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity,” included in the city’s financial statements for the year ending June 30, 2012:
General capital assets, July, 1, 2011 $33,276,151
Additions/transfers-in 459,430
Deletions/transfers-out (265,795)
General capital assets, June 30, 2012 $33,469,786
The complete schedule disaggregates the data by function (e.g., general government, public safety, public works, health and welfare, culture, and recreation) and subfunction (e.g., park maintenance, recreation, tourism). Another schedule, “Schedule of General Capital Assets by Source,” shows the beginning and ending balances of the specific types of assets:
Type of Asset 2012 2011
Land $ 8,209,380 $ 8,209,380
Buildings $ 9,293,847 $ 9,292,611
Improvements other $ 1,088,307 $ 1,088,307
than buildings
Office furniture and $ 4,863,535 $ 4,536,506
equipment
Mobile equipment $ 7,834,277 $ 8,073,945
Other equipment $ 2,180,440 $ 2,075,402
Total $ 33,469,786 $ 33,276,151
1. Assume that the assets, excluding land, had an average useful life of 20 years. What percentage of the total assets, excluding land, would you expect to have been retired each year?
2. What percentage of the assets (beginning of year values). Excluding land, were actually retired during 2012 (assuming that all deletions/transfers out represent retirements?
3. What was the average useful life of the assets as implied by this percentage?
4. Assume that the entire $265,795 of the deletions and transfers-out applied to the mobile equipment. What would have been the useful life of the equipment as suggested by the percentage of the equipment retired?
Click here for the solution: The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity”
The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity,” included in the city’s financial statements for the year ending June 30, 2012:
General capital assets, July, 1, 2011 $33,276,151
Additions/transfers-in 459,430
Deletions/transfers-out (265,795)
General capital assets, June 30, 2012 $33,469,786
The complete schedule disaggregates the data by function (e.g., general government, public safety, public works, health and welfare, culture, and recreation) and subfunction (e.g., park maintenance, recreation, tourism). Another schedule, “Schedule of General Capital Assets by Source,” shows the beginning and ending balances of the specific types of assets:
Type of Asset 2012 2011
Land $ 8,209,380 $ 8,209,380
Buildings $ 9,293,847 $ 9,292,611
Improvements other $ 1,088,307 $ 1,088,307
than buildings
Office furniture and $ 4,863,535 $ 4,536,506
equipment
Mobile equipment $ 7,834,277 $ 8,073,945
Other equipment $ 2,180,440 $ 2,075,402
Total $ 33,469,786 $ 33,276,151
1. Assume that the assets, excluding land, had an average useful life of 20 years. What percentage of the total assets, excluding land, would you expect to have been retired each year?
2. What percentage of the assets (beginning of year values). Excluding land, were actually retired during 2012 (assuming that all deletions/transfers out represent retirements?
3. What was the average useful life of the assets as implied by this percentage?
4. Assume that the entire $265,795 of the deletions and transfers-out applied to the mobile equipment. What would have been the useful life of the equipment as suggested by the percentage of the equipment retired?
Click here for the solution: The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity”
The following data reflect the current month’s activity for Sills, Inc
Variable cost variances
The following data reflect the current month’s activity for Sills, Inc.:
Actual total direct labor ……………………………………………………. $546,000
Actual hours worked ……………………………………………………… 26,000
Standard labor-hours allowed for actual output (flexible budget)…. 27,000
Direct labor price variance ……………………………………………… $ 19,500 U
Actual variable overhead ………………………………………………… $132,000
Standard variable overhead rate per standard direct labor-hour ……. $ 5.25
Variable overhead is applied based on standard direct labor-hours allowed.
Required:
Compute the labor and variable overhead price and efficiency variances.
Click here for the solution: The following data reflect the current month’s activity for Sills, Inc
The following data reflect the current month’s activity for Sills, Inc.:
Actual total direct labor ……………………………………………………. $546,000
Actual hours worked ……………………………………………………… 26,000
Standard labor-hours allowed for actual output (flexible budget)…. 27,000
Direct labor price variance ……………………………………………… $ 19,500 U
Actual variable overhead ………………………………………………… $132,000
Standard variable overhead rate per standard direct labor-hour ……. $ 5.25
Variable overhead is applied based on standard direct labor-hours allowed.
Required:
Compute the labor and variable overhead price and efficiency variances.
Click here for the solution: The following data reflect the current month’s activity for Sills, Inc
Tuesday, August 18, 2015
Which of the following is correct concerning reactions to INCREASES in activity
MULTIPLE CHOICE
1. Which of the following is correct concerning reactions to INCREASES in activity?
a. Total Variable Cost
b. Variable Cost Per Unit (Points : 2)
2. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs? (Points : 2)
3. How much sunk cost is represented in the following list?
Annual operating cost $80,000
Fixed operating costs other than depreciation $14,000
Resale value, if sold now $25,000
Original cost of current machine $68,000 (Points : 2)
4. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle?
a. Direct Cost
b. Fixed Cost (Points : 2)
5. A manufacturing plant produces two product lines: football equipment and hockey equipment. An indirect cost for the hockey equipment line is the: (Points : 2)
6. At a sales volume of 20,000 units, Choice Corporation's sales commmissions (a cost that is variable with respect to sales volume) total $132,000.
To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.) (Points : 2)
7. The potential benefit that is given up when one alternative is selected over another is called: (Points : 2)
8. An example of a fixed cost that would be considered a direct cost is: (Points : 2)
9. An example of a cost object is: (Points : 2)
10. When the level of activity decreases within the relevant range, the fixed cost per unit will: (Points : 2)
11. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was $68,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company's merchandise purchases for the month? (Points : 2)
12. A sunk cost is: (Points : 2)
13. Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.
Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: (Points : 2)
14. Cost distortion is common in conventional costing systems because: (Points : 2)
15. At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400.
To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) (Points : 2)
16. Indirect manufacturing costs: (Points : 2)
17. A manufacturing plant produces two product lines: football equipment and hockey equipment. Direct costs for the football equipment line are the: (Points : 2)
18. At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400.
To the nearest whole center, what should be the average property tax per unit at a sales volume of 37,300 units? (Assume that this sales volume is within the relevant range.) (Points : 2)
19. A recent college graduate has the choice of buying a new auto for $20,000 or to invest the money for four years with a 12% expected rate of return. If the graduate decides to purchase the auto, the BEST estimate of the opportunity cost of that decision is: (Points : 2)
20. The fixed portion of the cost of electricity for a manufacturing plant is:
a. Period cost
b. Product cost (Points : 2)
Click here for the solution: Which of the following is correct concerning reactions to INCREASES in activity
1. Which of the following is correct concerning reactions to INCREASES in activity?
a. Total Variable Cost
b. Variable Cost Per Unit (Points : 2)
2. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs? (Points : 2)
3. How much sunk cost is represented in the following list?
Annual operating cost $80,000
Fixed operating costs other than depreciation $14,000
Resale value, if sold now $25,000
Original cost of current machine $68,000 (Points : 2)
4. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle?
a. Direct Cost
b. Fixed Cost (Points : 2)
5. A manufacturing plant produces two product lines: football equipment and hockey equipment. An indirect cost for the hockey equipment line is the: (Points : 2)
6. At a sales volume of 20,000 units, Choice Corporation's sales commmissions (a cost that is variable with respect to sales volume) total $132,000.
To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.) (Points : 2)
7. The potential benefit that is given up when one alternative is selected over another is called: (Points : 2)
8. An example of a fixed cost that would be considered a direct cost is: (Points : 2)
9. An example of a cost object is: (Points : 2)
10. When the level of activity decreases within the relevant range, the fixed cost per unit will: (Points : 2)
11. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was $68,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company's merchandise purchases for the month? (Points : 2)
12. A sunk cost is: (Points : 2)
13. Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.
Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: (Points : 2)
14. Cost distortion is common in conventional costing systems because: (Points : 2)
15. At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400.
To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) (Points : 2)
16. Indirect manufacturing costs: (Points : 2)
17. A manufacturing plant produces two product lines: football equipment and hockey equipment. Direct costs for the football equipment line are the: (Points : 2)
18. At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400.
To the nearest whole center, what should be the average property tax per unit at a sales volume of 37,300 units? (Assume that this sales volume is within the relevant range.) (Points : 2)
19. A recent college graduate has the choice of buying a new auto for $20,000 or to invest the money for four years with a 12% expected rate of return. If the graduate decides to purchase the auto, the BEST estimate of the opportunity cost of that decision is: (Points : 2)
20. The fixed portion of the cost of electricity for a manufacturing plant is:
a. Period cost
b. Product cost (Points : 2)
Click here for the solution: Which of the following is correct concerning reactions to INCREASES in activity
Saturday, July 25, 2015
Springsteen Co. had the following activity in its most recent year of operations
E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations.
(a) Pension expense exceeds amount funded. (e) Exchange of equipment for furniture.
(b) Redemption of bonds payable. (f) Issuance of capital stock.
(c) Sale of building at book value. (g) Amortization of intangible assets.
(d) Depreciation. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment.
Instructions
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.
Click here for the solution: Springsteen Co. had the following activity in its most recent year of operations
(a) Pension expense exceeds amount funded. (e) Exchange of equipment for furniture.
(b) Redemption of bonds payable. (f) Issuance of capital stock.
(c) Sale of building at book value. (g) Amortization of intangible assets.
(d) Depreciation. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment.
Instructions
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.
Click here for the solution: Springsteen Co. had the following activity in its most recent year of operations
Wednesday, July 15, 2015
Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level
BE5-4 Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level
Miles Driven Total Cost Miles Driven Total Cost
January 8,000 $14,150 March 8,500 $15,000
February 7,500 13,500 April 8,200 14,490
Compute the variable and the fixed cost element using the high-low method
Click here for the solution: Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level
Miles Driven Total Cost Miles Driven Total Cost
January 8,000 $14,150 March 8,500 $15,000
February 7,500 13,500 April 8,200 14,490
Compute the variable and the fixed cost element using the high-low method
Click here for the solution: Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level
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