Cost Accounting

1. The following relationships pertain to a year's budgeted activity for Buckeye Company:

High Low
Direct labor hours ............................................................................ 400,000 300,000
Total costs............................................................................................ $154,000 $129,000

What are the budgeted fixed costs for the year?

SUPPORTING CALCULATION:

High ........................................................................................................ $ 154,000 400,000

Low ......................................................................................................... 129,000 300,000
Difference ............................................................................................ $ 25,000 100,000

Variable rate = $25,000  100,000 = $.25/direct labor hour

Fixed cost = $154,000 - $.25(400,000) = $54,000

2. A company allocates its variable factory overhead based on direct labor hours. During the past
three months, the actual direct labor hours and the total factory overhead allocated were as
follows:

October November December

Direct labor hours ............................................ 2,500 3,000 5,000
Total factory
overhead allocated ................................. $80,000 $75,000 $100,000

Based upon this information, the estimated variable cost per direct labor hour was:

SUPPORTING CALCULATION:

High ........................................................................................................ $ 100,000 5,000

Low ......................................................................................................... 75,000 2,500
Difference ............................................................................................ $ 25,000 2,500

Variable rate = $20,000  2,500 = $8.00/direct labor hour

3. Method of Least Squares. The management of Rainbow Inc. would like to separate the fixed and
variable components of electricity as measured against machine hours in one of its plants. Data
collected over the most recent six months follow:

Electricity Machine
Month Cost Hours
January ............................................................................................................................. $1,100 4,500
February .......................................................................................................................... 1,110 4,700
March ................................................................................................................................ 1,050 4,100
April ................................................................................................................................... 1,200 5,000
May .................................................................................................................................... 1,060 4,000
June .................................................................................................................................... 1,120 4,600

Required: Using the method of least squares, compute the fixed cost and the variable cost rate for electricity
expense. (Round estimates to the nearest cent.)
SOLUTION

(1) (2) (3) (4) (5) (6)

Electricity Cost Machine Activity
Month Cost Deviation Hours Deviation (4) Squared (4) x (2)
January .................................... $1,100 (7) 4,500 17 289 (119)
February ................................. 1,110 3 4,700 217 47,089 651
March ....................................... 1,050 (57) 4,100 (383) 146,689 21,831
April .......................................... 1,200 93 5,000 517 267,289 48,081
May ........................................... 1,060 (47) 4,000 (483) 233,289 22,701
June ........................................... 1,120 13 4,600 117 13,689 1,521
$6,640 (2)* 26,900 2* 708,334 94,666

y bar = Σy  n = $6,640  6 = $1,107

x bar = Σx  n = $26,900  6 = $4,483

*rounding difference

Column (6) 94,666

Variable rate = = = $.13
Column (5) 708,334

Fixed cost = $1,107 - ($.13)(4,483) = $524.21

4. Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget.
Examination of past records disclosed the following costs and volume measures:

High Low
Cost per month .................................................................................. $39,200 $32,000
Machine hours ................................................................................... 24,000 15,000

Using the high-low method of analysis, the estimated variable cost per machine hour is:

SUPPORTING CALCULATION:

High ........................................................................................................ $ 39,200 24,000

Low ......................................................................................................... 32,000 15,000
Difference ............................................................................................ $ 7,200 9,000

Variable rate = $7,200 / 9,000 = $.80/machine hour

5. A company allocates its variable factory overhead based on direct labor hours. During the past three
months, the actual direct labor hours and the total factory overhead allocated were as follows:

October November December

Direct labor hours ............................................ 2,500 3,000 5,000
Total factory
overhead allocated ................................. $80,000 $75,000 $100,000

Based upon this information, the estimated variable cost per direct labor hour was:
 SUPPORTING CALCULATION:

High ........................................................................................................ $ 100,000 5,000

Low ......................................................................................................... 75,000 2,500
Difference ............................................................................................ $ 25,000 2,500

Variable rate = $20,000  2,500 = $8.00/direct labor hour

6. For a simple regression-analysis model that is used to allocate factory overhead, an internal auditor finds
that the intersection of the line of best fit for the overhead allocation on the y-axis is $50,000. The
slope of the trend line is .20. The independent variable, factory wages, amounts to $900,000 for the
month. What is the estimated amount of factory overhead to be allocated for the month?

SUPPORTING CALCULATION:

Factory overhead = $50,000 + .2($900,000) = $230,000

7. Ziffel Company had the following account balances and results from operations for the month of July:
direct materials consumed, $10,400; direct labor, $8,000; factory overhead, $8,800; July 1, work
in process inventory, $2,400; July 31, work in process inventory, $1,800; finished goods
inventory, July 1, $1,200; finished goods inventory, July 31, $1,000. The cost of goods
manufactured was:

SUPPORTING CALCULATION: $27,200 + $2,400 - $1,800 = $27,800

8. Glyde Company had the following account balances and results from operations for the month of July:
direct materials consumed, $10,400; direct labor, $8,000; factory overhead, $8,800; July 1, work
in process inventory, $2,400; July 31, work in process inventory, $1,800; finished goods
inventory, July 1, $1,200; finished goods inventory, July 31, $1,000. The cost of goods sold was:

SUPPORTING CALCULATION: $27,800 + $1,200 - $1,000 = $28,000

9. Howell Corporation has a job order cost system. The following debits (credits) appeared in Work in
Process for the month of July:

July 1, balance ........................................................................................................................................ $ 12,000

July 31, direct materials .................................................................................................................... 40,000
July 31, direct labor ............................................................................................................................. 30,000
July 31, factory overhead .................................................................................................................. 27,000
July 31, to finished goods .................................................................................................................. (100,000)

Howell applies overhead to production at a predetermined rate of 90% based on the direct labor
cost. Job 1040, the only job still in process at the end of July, has been charged with factory
overhead of $2,250. What was the amount of direct materials charged to Job 1040?

SUPPORTING CALCULATION:

Job 1040 = $12,000 + $40,000 + $30,000 + $27,000 - $100,000 = $9,000

 $2,250
Direct materials = $9,000   $2,250 = $4,250
.9

10. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.

Inventories
Beginning Ending
Materials .............................................................................................................. $75 $ 85
Work in process ................................................................................................ 80 30
Finished goods ................................................................................................... 90 110

Materials used, $326

Total manufacturing costs charged to production during the year (including direct materials,
direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25

The cost of direct materials purchased during the year amounted to:

SUPPORTING CALCULATION: $326 + $85 - $75 = $336

11. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.

Inventories
Beginning Ending
Materials .............................................................................................................. $75 $ 85
Work in process ................................................................................................ 80 30
Finished goods ................................................................................................... 90 110

Materials used, $326

Total manufacturing costs charged to production during the year (including direct materials,
direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25

Direct labor costs charged to production during the year amounted to:

SUPPORTING CALCULATION: $686 = $326 + x + .6x

x = $225

12. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.

Inventories
Beginning Ending
Materials .............................................................................................................. $75 $ 85
Work in process ................................................................................................ 80 30
Finished goods ................................................................................................... 90 110
 Materials used, $326
Total manufacturing costs charged to production during the year (including direct materials,
direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25

The cost of goods manufactured during the year was:

SUPPORTING CALCULATION: $80 + $686 - $30 = $736

13. J. D. Doonesbury Company manufactures tools to customer specifications. The following data pertain to
Job 1501 for April:

Direct materials used ........................................................................................................................... $ 4,200

Direct labor hours worked ................................................................................................................. 300
Direct labor rate per hour .................................................................................................................. $ 8.00
Machine hours used .............................................................................................................................. 200
Applied factory overhead rate per machine hour ................................................................... $ 15.00

What is the total manufacturing cost recorded on Job 1501 for April?

SUPPORTING CALCULATION: $4,200 + (300 x $8) + (200 x $15) = $9,600

Manufacturing Costs. The work in process account of Meyers Company showed:

Work in Process
Materials $22,000 | Finished goods $68,000
Direct labor 37,000 |
Factory overhead 55,500 |

Materials charged to the one job still in process amounted to $5,000. Factory overhead is applied as a
predetermined percentage of direct labor cost.

Required: Compute the following:

(14.) The amount of direct labor cost in finished goods.

(15.) The amount of factory overhead in finished goods.

SOLUTION

(14.) The amount of direct labor in finished goods:

Finished goods ........................................................................................................................................................ $68,000
Materials included in finished goods ............................................................................................................ 17,000
Direct labor and factory overhead in finished goods ............................................................................ $51,000

Factory overhead charged to work in process $55,500

= = 1.5
Direct labor charged to work in process $37,000

Let x = direct labor in finished goods

2.5x = $51,000 direct labor and factory overhead in finished goods
x = $20,400 direct labor in finished goods
(15.) The amount of factory overhead in finished goods:

x = $20,400
1.5x = 1.5($20,400)
1.5x = $30,600 factory overhead in finished goods

Manufacturing Costs. Teddy Company is to submit a bid on the production of 5,500 vases. It is estimated that
the cost of materials will be $8,500, and the cost of direct labor will be $12,000. Factory overhead is applied
at 50% of direct labor cost in the Molding Department and at $7.50 per direct labor hour in the Finishing
Department. Of the above direct labor, it is estimated that 500 direct labor hours at a cost of $4,000 will be
required in Finishing. The company wishes a markup of 100% of its total production cost.

Required: Determine the following:

(16) Estimated cost to produce.

(17) Estimated prime cost.
(18) Estimated conversion cost.
(19) Bid price.

SOLUTION

(16) Materials ............................................................................................................................................................ $ 8,500

Direct labor ....................................................................................................................................................... 12,000
Factory overhead:
Molding (50% x $8,000) ..................................................................................................................... 4,000
Finishing (500 DLH x $7.50) ............................................................................................................. 3,750
Estimated cost to produce ......................................................................................................................... $ 28,250

(17) Materials ............................................................................................................................................................ $ 8,500

Direct labor ....................................................................................................................................................... 12,000
Estimated prime cost ................................................................................................................................... $ 20,500

(18) Direct labor ....................................................................................................................................................... $ 12,000

Factory overhead ........................................................................................................................................... 7,750
Estimated conversion cost......................................................................................................................... $ 19,750

(19) Estimated cost to produce ......................................................................................................................... $ 28,250

Markup ($28,250 x 100%) ........................................................................................................................ 28,250
Bid price ............................................................................................................................................................. $ 56,500

20. Dover Corporation's production cycle starts in the Mixing Department. The following information is
available for April:

Units
Work in process, April 1 (50% complete) ................................................................................. 40,000
Started in April ....................................................................................................................................... 240,000
Work in process, April 30 (60% complete) ............................................................................... 25,000
 Materials are added at the beginning of the process in the Mixing Department. Using the average
cost method, what are the equivalent units of production for the month of April?

SUPPORTING CALCULATION:

Materials = 40,000 + 240,000 = 280,000

Conversion = (280,000 - 25,000) + .6(25,000) = 270,000

21. Information concerning Department A of Neeley Company for June is as follows:

Materials
Units Costs
Beginning work in process ................................................................................. 17,000 $12,800
Started in June .......................................................................................................... 82,000 69,700
Units completed ....................................................................................................... 85,000
Ending work in process ........................................................................................ 14,000

All materials are added at the beginning of the process. Using the average cost method, the cost
per equivalent unit for materials is:

SUPPORTING CALCULATION: ($12,800 + $69,700)  (85,000 + 14,000) = $.833

22. Charlotte Company adds materials in the beginning of the process in the Forming Department, which is
the first of two stages of its production cycle. Information concerning the materials used in the
Forming Department in October is as follows:

Materials
Units Costs
Work in process, October 1 ................................................................................ 6,000 $ 3,000
Units started .............................................................................................................. 50,000 25,560
Units completed and transferred out ............................................................. 44,000

Using the average cost method, what was the materials cost of work in process at October 31?

SUPPORTING CALCULATION:

($3,000 + $25,560)  (44,000 + 12,000) = $.51

$.51 x 12,000 = $6,120

23 A company manufactures plastic products for the home and restaurant market. The company also does
contract work for other customers and utilizes a job order costing system. The flexible budget
covering next year's expected range of activity is:

Direct labor hours ............................................................... 50,000 80,000 110,000

Machine hours ...................................................................... 40,000 64,000 88,000
Variable overhead costs ................................................... $100,000 $160,000 $220,000
Fixed overhead costs ......................................................... 150,000 150,000 150,000
Total overhead costs ......................................................... $250,000 $310,000 $370,000
 A predetermined overhead rate based on direct labor hours at expected actual capacity is used to
apply total overhead. Management has estimated that 100,000 direct labor hours will be used
next year. The predetermined overhead rate per direct labor hour to be used to apply total
overhead to individual jobs next year is:

SUPPORTING CALCULATION:

$310,000 + $2(100,000 - 80,000) 350,000 / 100,000 = $3,50

24. Jeffrey Co. manufactures Products A and B from a joint process. Market value at split-off was $700,000 for
10,000 units of A, and $300,000 for 15,000 units of B. Using the market value at split-off
approach, joint costs properly allocated to A were $140,000. Total joint costs were:

SUPPORTING CALCULATION:

700,000 / (700,000 + 300,00) = 70 % 140,000 / 70 %= $200,000

25. Avery Co. uses a predetermined factory overhead rate based on direct labor hours. For the month of
October, Avery's budgeted overhead was $300,000 based on a budgeted volume of 100,000
direct labor hours. Actual overhead amounted to $325,000 with actual direct labor hours
totaling 110,000. How much was the overapplied or underapplied overhead?

SUPPORTING CALCULATION:

[(300,000 /100,000 ) x 110,00 ] – 325,000 = $5,000