Problem 2.

28 Cost Assignmenet Methods

Brody Company makes industrial cleaning solvents. Various chemicals, detergent, and water are
mixed together and then bottled in 10-gallon drums. Brody provided the following information
for last year:

Raw Materials Purchase : $250,000.00

Direct Labour : $140,000.00
Depreciation on Factory Equipment : $45,000.00
Depreciation on Factory Building : $30,000.00
Depreciation on Headquarters Building : $50,000.00
Factory Insurance $15,000.00
Property taxes
Factory : $20,000.00
headquarters : $18,000.00
Utilities for Factory : $34,000.00
Utilities for sales office : $1,800.00
Administrative salaries : $150,000.00
Indirect Labour salaries : $156,000.00
Sales office salaries : $90,000.00
Beginning balance, raw materials : $124,000.00
Beginning balance, Work in Process : $124,000.00
Beginning balance, Finished goods : $84,000.00
Ending Balance, raw materials : $102,000.00
Ending Balance, Work in Process : $130,000.00
Ending Balance, Finished goods : $82,000.00
Last year, Brody completed 100.000 units. Sales revenue equaled $1.200.000 and Brody Paid a sales
commision of 5 percent of sales

Required :
1. Calculate the Direct Materials used in Production for last year.
Answer :
Direct materials
Beginning Inventory : $124,000.00
Add: Purchases : $250,000.00
Materials avaliable : $374,000.00
Less: Ending Inventory : $102,000.00
Direct Materials used In production $272,000.00

2. Calculate Total Primer Cost

Answer :
Direct materials : $272,000.00
Direct Labour : $140,000.00
Total of Primer Cost : $412,000.00

3. Calculate total conversion Cost

Answer :
Step 1 Calculate Overhead Cost
Overhead Cost
Depreciation on Factory Equipment : $45,000.00
Depreciation on Factory Building : $30,000.00
Factory Insurance : $15,000.00
Property taxes Factory : $20,000.00
Utilities for Factory : $34,000.00
Indirect Labour salaries : $156,000.00
Total Overhead Cost : $300,000.00

Conversion Cost
Direct Labour : $140,000.00
Overhead Cost : $300,000.00
Total of Conversion Cost : $440,000.00
4. Prepare a cost of goods manucatured statement for last year. Calculate the unit product cost
Answer :
Brody Company
Statement of Cost of Goods Manufactured
For the Coming Year
Direct materials
Beginning Inventory : $124,000.00
Add: Purchases : $250,000.00
Materials avaliable : $374,000.00
Less: Ending Inventory : $102,000.00
Direct Materials used In production : $272,000.00
Direct Labour : $140,000.00
Manufacturing (factory) Overhead : $300,000.00
Total Manufacturing costs added : $712,000.00
add : Beginning work in process : $124,000.00
Less: Ending work in Process : $130,000.00
Cost of goods manufactured $706,000.00

Unit Product Per Cost

Cost of goods manufactured/Units $706,000.00 / 100,000.00
= $7.06

5. Prepare a cost of goods sold statement for last year.

Answer :
Brody Company
Statement of Cost of Goods Sold
For the Coming Year
Cost of goods manufactured : $706,000.00
add: Beginning Finsihed goods : $84,000.00
Cost of goods available for sale : $790,000.00
less: Ending finished goods : $82,000.00
Cost of goods sold : $708,000.00

6. Prepare an income statement for last year. Show the percentage of sales that each line itemn represents.
Answer :
Brody Company
Income Statement
For the Coming Year
%
Sales ($120 x 100.000) : $1,200,000.00 100.00
Less: Cost of goods sold : $708,000.00 59.00
Gross Margin : $492,000.00 41.00

Less operating expense :

Selling Expense
Sales office salaries : $90,000.00
Utilities for sales office : $1,800.00
Sales comissions (5%x 1.200.000) : $60,000.00
Total Selling Expense $151,800.00
Administrative Expense
Property taxes headquarters : $18,000.00
Administrative salaries : $150,000.00
Depreciation on Headquarters Building : $50,000.00
Total Adminsitrative Expense $218,000.00
Total Operating Expense $369,800.00 30.82
Operating Income $ 122,200.00 10.18
Problem 3.32 Cost Behavior

Cost Behavior, High-Low Method, Pricing Decision

St. Teresa's Medical Center (STMC) offers a number of specialized medical services, including neuroscience, c
reputation for quality medical care allowed it to branch out into other services. It is now ready to expand its
free-standing orthopedic clinic offering a full range of outpatient, surgical, and physical therapy services. The
on a straight-line basis. All equipment within the facility is leased.

Since the clinic had no experience with in-patient orthopedic services (for patients recovering from hip and k
operate the orthopedic center for two months before determining how much to charge per patient day on an
clinic adopted a patient-day charge of $190, an amount equal to the fees charged by a hospital specializing i

This initial per-day charge was quoted to patients entering the orthopedic center during the first two months
costs of the new center justified it, the charge could be less. In no case would the charges be more. A tempo
adopted so that any adjustments could be made.

The orthopedic center opened on January 1. During January, the center had 4,200 patient days of activity. D
days. Costs for these two levels of activity output are as follows:

4200 patient
days (Jan)
Salaries, Nurses $ 55,000.00
Aides $ 32,000.00
Pharmacy $ 235,700.00
Laboratory $ 120,300.00
Depreciation $ 25,000.00
Laundry $ 20,160.00
Administration $ 27,000.00
Lease (Equipment) $ 36,000.00
Total====> $ 551,160.00

Required :
1. Classify each cost as fixed, variable, or mixed, using patient days as the activity driver.
Answer :
Salaries, Nurses Fixed Cost
Aides Fixed Cost
Pharmacy Mixed Cost
Laboratory Mixed Cost
Depreciation Fixed Cost
Laundry Variable Cost
Administration Fixed Cost
Lease (Equipment) Fixed Cost
2. Use the high-low method to separate the mixed costs into fixed and variable.
Answer :
a. Categories and calculate total mixed cost in one Table

Pharmacy
Jan $ 235,700.00
Feb $ 251,300.00
Total $ 487,000.00

b. Calulate Variable Cost and Fixed Cost ( High Point approach)

===> Variable Cost = High cost -Low cost/High patien days-Low pat

===> Fixed Cost = Total Cost - ( Variable Rate x patient days)

Pharmacy
High Cost $ 251,300.00
Low Cost $ 235,700.00
High Move 4,500.00
Low Move 4,200.00
Varibale Cost = $ 52.00
Fixed Cost = $ 17,300.00
*)Total Cost menggunakan High Cost dan Moves menggunakan High Patient d
Fungsi y a= fixed cost
b= var cost/perunit

The administrator of the orthopedic center estimated that the center will average 4,300 patient days per
3. be operated as a nonprofit organization, how much will it need to charge per patient day? How much of
How much is fixed?
Answer :
a. How much will it need to charge per patient day
Total Cost
Fixed Cost $ 216,000.00
Variable Cost $ 343,380.00
Total $ 559,380.00

Charge = Total $ 130.09 *) Per Patien Days

Cost/Unit (patient day)

So, Total charge per patient day for 4.300 patient days per month is $130,09

b. How much of this charge is variable

Average Variable Cost

Pharmacy ($52x 4.300) $ 223,600.00
Laboratory ($23 x 4.300) $ 98,900.00
Laundry $ 20,880.00
Total Variable Cost $ 343,380.00

So, total variable cost for average patient 4.300 per days is $ 343.380,00
 c. How much is fixed
Average Fixed Cost
Salaries, Nurses $ 55,000.00
Aides $ 32,000.00
Pharmacy $ 17,300.00
Laboratory $ 23,700.00
Depreciation $ 25,000.00
Administration $ 27,000.00
Lease (Equipment) $ 36,000.00
Total Fixed Cost $ 216,000.00

So, total Fixed cost for average patient 4.300 per days is $ 216.000,00

4. Suppose the orthopedic center averages 4,800 patient days per month. How much wouldneed to be cha
the center to cover its costs? Explain why the charge per patient day decreased as the activity output inc
Answer :

a. How much wouldneed to be charged per patient day for the center to cover its costs?
Average Variable Cost
Pharmacy ($52x4.800) $ 249,600.00
Laboratory ($23 x 4.800) $ 110,400.00
Laundry $ 20,880.00
Total Variable Cost $ 380,880.00

Average Fixed Cost

Salaries, Nurses $ 55,000.00
Aides $ 32,000.00
Pharmacy $ 17,300.00
Laboratory $ 23,700.00
Depreciation $ 25,000.00
Administration $ 27,000.00
Lease (Equipment) $ 36,000.00
Total Fixed Cost $ 216,000.00

Total Cost
Fixed Cost $ 216,000.00
Variable Cost $ 380,880.00
Total $ 596,880.00

Charge = Total $ 124.35 *) Per Patien Days

Cost/Unit (patient day)

So, Total charge per patient day for 4.800 patient days per month is $124,35

b. Explain why the charge per patient day decreased as the activity output increased.
Refer to answer number (3)&(4) explain that there is an increase of variable cost after the activity
output from patient has increased.Mean while, the fixed cost do not change. We can know from
example the first amount patient per days is 4.500 and increase to be 4.800, the fixed cost is
$216.000, but the variable cost has increased from $343.380,00 to be $380.880,00. and it
affected to decreased charge per patient day from $130,09 to $124,35 .It explain that the greater
the increase of amount patient, the greater the effect on changes in variable costs and total charge per
patient days.
edical services, including neuroscience, cardiology, and oncology. STMC's strong
services. It is now ready to expand its orthopedic services and has just added a
gical, and physical therapy services. The cost of the orthopedic facility is depreciated

(for patients recovering from hip and knee replacements, for example), it decided to
w much to charge per patient day on an ongoing basis. As a temporary measure, the
fees charged by a hospital specializing in orthopedic care in a nearby city.

pedic center during the first two months with assurances that if the actual operating
se would the charges be more. A temporary policy of billing after 60 days was

ter had 4,200 patient days of activity. During February, the activity was 4,500 patient

4500 Patient Days

(Feb) (Jumlah pasien di rawat inap setiap bulan)
$ 55,000.00
$ 32,000.00
$ 251,300.00 $ 56.12 $ 55.84
$ 127,200.00 $ 28.64 $ 28.27
$ 25,000.00
$ 21,600.00 $ 4.80 $ 4.80 pembuktian Variable cost yaitu dengan pendekatan (kons
$ 27,000.00
$ 36,000.00
$ 575,100.00

as the activity driver.

nd variable.

Laboratory Patient days

$ 120,300.00 4,200.00
$ 127,200.00 4,500.00
$ 247,500.00 8,700.00

w cost/High patien days-Low patien days

able Rate x patient days)

Laboratory
$ 127,200.00
$ 120,300.00
4,500.00
4,200.00
$ 23.00 *) Per Patien Days
$ 23,700.00
dan Moves menggunakan High Patient days
sebaiknya data high/low melihat ke data cost drivernya terlebih dahulu

nter will average 4,300 patient days per month. If the center is to
charge per patient day? How much of this charge is variable?

High low method : data belum memprsentasikan atas keseluruhan data

h is $130,09

3.380,00
month. How much wouldneed to be charged per patient day for
day decreased as the activity output increased.

er to cover its costs?

h is $124,35

output increased.
 of variable cost after the activity
not change. We can know from
to be 4.800, the fixed cost is
00 to be $380.880,00. and it
124,35 .It explain that the greater
in variable costs and total charge per
tu dengan pendekatan (konstan perunit)
Problem 5.34 Case on Job-Order Costing and Pricing Decision
Nutratask, Inc., is a pharmaceutical manufacturer of amino-acid-chelated

minerals and vitamin supplements. The company was founded in 1974 and is capable of performing all
company markets its products in the United States, Canada, Australia, Japan, and Belgium. Mineral che
effective supplement. Most of the chelates supplied by Nutratask are in powder form, but the company
The production of all chelates follows a similar pattern. Upon receiving an order, the company’s chemis
yield, and the quantities of materials that should be used). Once the load sheet is received by productio
minerals are added in the order specified and blended together for two to eight hours, depending on th
where it is allowed to dry until the moisture content is 7 to 9 percent. Drying time for most products is
sent to a laboratory to be checked for bacterial level and to determine whether the product meets custo
customer specifications, additional materials are added under the direction of the chemist to bring the p
of different meshes (particle sizes) according to customer specifications. The powder is then placed in h
capsule form and then shipped). Since each order is customized to meet the special needs of its custom
request for a 300- kilogram order of potassium aspartate. The customer offered to pay $8.80 per kilogr
marketing manager, requested a load sheet from the company’s chemist. The load sheet prepared show

Material Amount Required

Aspartic acid 195 kg
Citric acid 15 kg
K2CO3 (50%) 121.5 kg
Rice 30 kg

The theoretical yield is 300 kg.

Lanny also reviewed past jobs that were similar to the requested order and discovered that the expecte
average of $12.50 per hour. Purchasing sent Lanny a list of prices for the materials needed for the job

Material Amount Required

Aspartic acid $ 5.75
Citric acid $ 2.02
K2CO3 (50%) $ 4.64
Rice $ 0.43

Overhead is applied using a companywide rate based on direct labor dollars. The rate for the current pe
Nutratask usually estimates the manufacturing costs of the job and then adds a markup of 30 percent.
Currently, the industry is thriving, and Nutratask is operating at capacity.
1.
Prepare a job-order cost sheet for the proposed job. What is the expected per-unit cost? Should Nutratask

1.1 Prepare a job-order cost sheet for the proposed job

Answer :

JOB COST SHEET

For :
Quantity Completed : 300 kg

Direct Material Unit (Kg) Cost ($)

Aspartic acid 195 $ 5.75
Citric acid 15 $ 2.02
K2CO3 (50%) 121.5 $ 4.64
Rice 30 $ 0.43
Total Direct Materials
Direct Labour Hours Cost ($)
Direct labour 16 $ 12.50
Total Direct Labour

Applied Overhead Rate Cost($)

Overhead 110% $ 200.00
Total Overhead

Total Job Cost

1.2 What is the expected per-unit cost

Answer :
Expected Cost per-unit = Total Cost/Unit

$ 2,148.21 / $ 300.00
= $ 7.16

1.3 Should Nutratask accept the price offered by the prospective customer? Why or why n
Answer : Calculated
Total Cost/Gross Manucaturing Cost :
Mark up selling Price (30%) :
Total Selling Price :

Selling Price to Customer after markup :

(Selling Price/Unit)
 Selling Price to customer :

Deviation
Explanation :

Based on above calculation it can be concluded that the addition 30% for markup causes an incre
case, Nutratask, Inc should not accepted customer offer, because the price $9,30 exceeds the
consumers.Especially when the company is not in certain conditions that affect competition for the

2. Suppose Nutratask and the prospective customer agree on a price of cost plus 30 percent. What is the gros
Answer :
Nutratask, Inc.
Income Statement

Total Cost/Gross Manucaturing Cost :

Cost Plus 30% :
Selling Price/Revenu

Cost of God Sold :

Gross Profit

3. Suppose that the actual costs of producing 300 kg of potassium aspartate were as follows: What is the actu
lose) because of the actual costs differing from the expected costs? Suggest some possible reasons why th

Direct Materials :
Aspartic acid
Citric acid
K2CO3 (50%)
Rice
Total Materials Cost
Direct Labor
Overhead

Answer :
Total Actual Cost = Direct Materials +Direct Labor + Overhead
$ 1,790.00 $ 225.00
= $ 2,262.50

Actual Cost per-unit = Total Actual Cost/Unit

$ 2,262.50 /
=
Calculated
LOSS/GAIN ON COST AFTER MARKUP 30%
Total Profit or Brid price (based on expected Cost)
Total Profit (based on Actual Cost)
Loss
 LOSS/GAIN ON COST USING TOTAL JOB COST
Bid Price (expected cost)
Actual Cost
Loss

Explanation :
1.Uncontrollable related to usage of direct material. For example material Aspartic Acid whose use
2.There is an increase in prices related to direct materials that have not been taken into account p
3.Government policies or regulations related to labor wages that have not been calculated previou
4.There is human error related to experience, knowledge and information obtained is not sufficien
5.Use of labor that is not effective and exceeds the standard working hours should be.

Assume that the customer had agreed to pay actual manufacturing costs plus 30 percent. Suppose the actu
variance is allocated to Cost of Goods Sold and spread across all jobs sold in proportion to their total cost (
in question is $30. Upon seeing the addition of the underapplied overhead in the itemized bill, the custome
4. you were assigned to deal with this customer, what kind of response would you prepare? How would you e

Calculated
Direct Materials :
Aspartic acid
Citric acid
K2CO3 (50%)
Rice
Direct Materials
Direct Labor
Overhead
Underapplied overhead
Total Actual Cost
Markup Price (30%)
Total Customer bills after additional underapplied overhead cost

Total Customer bills before additional underapplied overhead cost

Explanation :

Based on above calculation it can be concluded that additional cost from underapllied overhead ca
things to face the customer are listen to all their complaints and then respond in a polite language
additional overhead costs. Of course, what must be prepared is data or documents or information
explaining the condition of the additional overhead. for example, there is an increase in the price o
causing an increase in overhead costs. What must be conveyed is evidence or information related
electricity rates or other written information and all of this is explained in detail with the intention
does not receive the explanation, then a joint decision must be made by management to determin
providing a discount at a later date for the next order by the customer.
ricing Decisions

pable of performing all manufacturing functions, including packaging and laboratory functions. Currently, the
d Belgium. Mineral chelation enhances the mineral’s availability to the body, making the mineral a more
form, but the company has the capability to make tablets or capsules.
the company’s chemist prepares a load sheet (a bill of materials that specifies the product, the theoretical
s received by production, the materials are requisitioned and sent to the blending room. The chemicals and
hours, depending on the product. After blending, the mix is put on long trays and sent to the drying room,
e for most products is from one to three days. After the product is dry, several small samples are taken and
he product meets customer specifications. If the product is not fit for human consumption or if it fails to meet
e chemist to bring the product up to standard. Once the product passes inspection, it is ground into a powder
wder is then placed in heavy cardboard drums and shipped to the customer (or, if requested, put in tablet or
cial needs of its customers, Nutratask uses a job-order costing system. Recently, Nutratask received a
to pay $8.80 per kilogram. Upon receiving the request and the customer’s specifications, Lanny Smith, the
ad sheet prepared showed the following material requirements:

overed that the expected direct labor time was 16 hours. The production workers at Nutratask earn an
als needed for the job

e rate for the current period is 110 percent of direct labor dollars. Whenever a customer requests a bid,
markup of 30 percent. This markup varies depending on the competition and general economic conditions.
t cost? Should Nutratask accept the price offered by the prospective customer? Why or why not?

Job Number :
Date Ordered :
Date Started :
Date Finished :
Total ($)
$ 1,121.25
$ 30.30
$ 563.76
$ 12.90
$ 1,728.21
Total ($)
$ 200.00
$ 200.00

Total ($)
$ 220.00
$ 220.00

$ 2,148.21

Per Kg

stomer? Why or why not?

$ 2,148.21
$ 644.46
$ 2,792.67

$ 9.31
 $ 8.80

$ 0.51

markup causes an increases in selling price from $8,80 to be $9,31 (deviation $0,51). In this
ice $9,30 exceeds the price offered by consumers by $8.8 which is a reasonable price for
fect competition for the prices offered by the company.

percent. What is the gross profit that Nutratask expects to earn on the job?

$ 2,148.21
$ 644.46
$ 2,792.67

$ 2,148.21
$ 644.46

follows: What is the actual per-unit cost? The bid price is based on expected costs. How much did Nutratask gain (or
possible reasons why the actual costs differed from the projected costs

$ 1,170.00
$ 30.00
$ 577.00
$ 13.00
$ 1,790.00
$ 225.00
$ 247.50

Overhead
$ 247.50

300
$ 7.54 Per Kg

$ 2,792.67
$ 2,941.25
$ -148.58
 $ 2,148.21
$ 2,262.50
$ -114.29

spartic Acid whose use exceeds the daily dose limit that has been set previously.
en taken into account previously.
been calculated previously.
btained is not sufficient to carry out the preparation of the cost budget.
should be.

percent. Suppose the actual costs are as described in Requirement 3 with one addition: an underapplied overhead
ortion to their total cost (unadjusted cost of goods sold). Assume that the underapplied overhead cost added to the job
emized bill, the customer calls and complains about having to pay for Nutratask’ inefficient use of overhead costs. If
epare? How would you explain and justify the addition of the underapplied overhead cost to the customer’s bill?

$ 1,170.00
$ 30.00
$ 577.00
$ 13.00
$ 1,790.00
$ 225.00
$ 247.50
$ 30.00
$ 2,292.50
$ 687.75
$ 2,980.25

$ 2,941.25

derapllied overhead causes total costumer bills increase from $2.941,25 to be $2.980,25. the
nd in a polite language that is understood by the customer and don't forget to apologize for the
uments or information related to the additional overhead costs. These data are the basis for
n increase in the price of the basic electricity tariff in the month when producing the product, thus
or information related to the price, such as government regulations regarding an increase in
etail with the intention of being easily understood by customers. the last step if the customer still
anagement to determine a solution to the problem. for example through eliminating the overhead or
ons. Currently, the
neral a more

the theoretical
e chemicals and
e drying room,
es are taken and
or if it fails to meet
und into a powder
d, put in tablet or
received a
nny Smith, the

sk earn an

uests a bid,
mic conditions.
Nutratask gain (or
 lied overhead
st added to the job
overhead costs. If
stomer’s bill?