department of business and administration
DEPARTMENT OF BUSINESS AND ADMINISTRATION BUS2003 Test 2 October 18, 2010 Name:____________________________________________________
Student Number: __________________________________________
Instructions: Please answer the following questions on the examination test sheets. If you need more room, please use the back of the pages. Show your calculations in detail.
Grading: Q1 /16 Q2 /20 Q3 /9 Q4 /3 Total /48
Question One: (16 marks) Staffordville Company produces baseball bats and cricket paddles. It has two departments that process all products, Cutting and Finishing. During July the beginning work in process in the Cutting department was half completed as to conversion and complete as to direct materials. The beginning inventory included $40,000 for materials and $60,000 for conversion costs. Ending work in process inventory in the Cutting department was 40 percent complete. Direct materials are added at the beginning of the cutting process. Beginning work in process in the Finishing department was 80 percent complete as to conversion. Direct materials for finishing the units are added at the end of the process. Beginning inventories included $24,000 for transferred-in costs and $28,000 for conversion costs. Ending work in process inventory for the Finishing department was 30 percent converted. Additional information about the two departments follows:
Beginning work in process units Units started this period Units transferred this period Ending work in process units Material costs added Conversion costs Transferred-out cost
Cutting ---------20,000 60,000 64,000
Finishing -----------24,000 ? 68,000 20,000
$48,000 28,000 128,240
$34,000 68,200 ?
Required: a) Prepare a production cost worksheet using the weighted average method for the Finishing department. Be sure to reconcile total units and total costs. (Round to the nearest cent for dollar calculations). (14 marks) b) Prepare the journal entry to record the transfer of goods from the Cutting Department to the Finishing Department for the month. (2 marks)
Question One Solution: a) Finishing Department Cost Production Worksheet Equivalent Units Calc Physical BI 24,000 Started 64,000 Total 88,000
DM
CON
Completed 68,000 100% 68,000 100% 68,000 EI 20,000 0% 0 30% 6,000 Total 88,000 68,000 74,000 1 mark for balancing to 88,000 units 1 mark for units started 1 mark for each ending inventory cost category = 3 marks
Trans-In
100% 100%
Unit Cost BI Added Total / units Unit cost
Total 52,000 230,440 282,440 3.53
DM 0 34,000 34,000 68,000 0.50
CON 28,000 68,200 96,200 74,000 1.30
Trans-In 24,000 128,240 152,240 88,000 1.73
1 mark for added trans-in costs 1 mark for each unit cost amounts – cfw = 4 marks Cost Reconciliation: Cost of units transferred (68,000 x 3.53) Ending Inventory: CON (6,000 x $1.30) 7,800 Trans-in (20,000 x $1.73) 34,600 Total
240,040 42,400 282,440
1 mark for matching 282,440 totals b)
WIP – Finishing 128,240 WIP – Cutting 1 mark for each line = 2 marks total
128,240
1 mark 1 mark 1 mark
68,000 20,000 88,000
Question Two (20 marks) Cabanos Company manufactures two products, Product C and Product D. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below: Estimated Volume Direct Labour Hours per Unit Direct Materials Cost per Unit Direct Labour Cost per Unit
Product C 3,400 units 1.40 hour $ 7.40 $14.00
Product D 4,800 units 1.90 hours $12.70 $19.00
Required: a) Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. Round calculations to the nearest cent) (6 marks) b) The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Determine the unit product cost of each product for the current period using the activitybased costing approach. (9 marks) c)
Determine if ABC costing is appropriate for this company. Be sure to include any relevant criteria and calculations to support your position. (5 marks)
Question Two Solution a) The expected total direct labour hours during the period are computed as follows: Product C: 3,400 units x 1.4 hr. Product D: 4,800 units x 1.9 hrs. Total direct labour hours 1 mark for DLH
4,760 hours 9,120 hours 13,880 hours
Using these hours as a base, the predetermined overhead using direct labour hours would be: Predetermined overhead rate = $160,790 / 13,880 DLHs = $11.58/DLH 1 mark Using this overhead rate, the unit product costs are: Product C Direct Materials $ 7.40 Direct Labour $14.00 Manufacturing Overhead $16.22 Total Unit Product Cost $37.62 0.5 marks for each DM and DL = 2 marks total 1 mark for each MOH per product = 2 marks Total = 4 marks
Product D $12.70 $19.00 $22.01 $53.71
b) The overhead rates for each activity centre are as follows:
Machine Setups Purchase Orders General Factory
Estimated Overhead Costs $12,190 $79,200 $69,400
Expected Activity 230 1,650 13,880
Overhead Rate $53.00 $48.00 $ 5.00
The overhead cost charged to each product is:
Overhead cost per unit: Product C: $63,080 / 3,400 units = $18.55 per unit. Product D: $97,710 / 4,800 units = $20.36 per unit. 3 marks per units overhead cost = 6 marks total Using activity-based costing, the unit product cost of each product would be: Product C Product D Direct Materials $ 7.40 $12.70 Direct Labour $14.00 $19.00 Manufacturing Overhead $18.55 $20.36 Total Unit Product Cost $39.95 $52.06 0.5 marks for each DM, DL and MOH = 3 marks total c) ABC criteria: 1. multiple products – Yes (1 mark) 2. significant non-unit level overhead costs – Yes (1 mark); $23,800/63,080 = 38% units level; 62% non-unit level costs (1 mark for calculation) 3. product diversity – Yes (1 mark) Machine setups Purchase orders General factory 1 mark for calculations
Product C 80/230 = 35% 730/1,650 = 44% 4,760/13,880 = 34%
Product D 65% 56% 66%
Question Three: (9 marks) Eaker Company uses activity-based costing to compute product costs for external reports. The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated costs and activities for the current year are presented below for the three activity centres: Activity Centre Batch Setups Material Handling General Factory
Estimated Overhead Costs Expected Activity $20,400 $52,800 $78,000
1,200 2,400 2,600
Actual costs and activities for the current year were as follows: Activity Centre Batch Setups Material Handling General Factory
Actual Overhead Costs
Actual Activity
$20,740 $52,360 $77,590
1,230 2,470 2,680
Required: a) How much total overhead was applied to products during the year? (6 marks) b) By how much was overhead overapplied or underapplied? (Be sure to clearly label your answer as to whether the overhead was overapplied or underapplied for each activity centre as well as for the total.) (3 marks)
Question three Solution a) The overhead rates for each activity centre are as follows:
1 mark for each rate = 3 marks The amount of overhead applied to production is determined as follows:
1 mark for each “applied amount” = 3 marks b) The amount of underapplied (overapplied) for each centre and all activity centres is as follows:
1 mark for each “over/under” amount = 3 marks Question Four: (3 marks) Explain the difference between job costing, process costing and activity based costing. (3 marks) Question four solution: Job costing is used to cost out customer/unique products or jobs (1 mark), where as process costing is used for homogeneous products (1 mark). ABC traces costs to activities and then allocates out to cost objects (unit of product) (1 mark). ABC can be used in conjunction with job or process costing, whereas job costing and process costing are mutually exclusive (1 mark). Maximum 3 marks
Student Number: __________________________________________
Instructions: Please answer the following questions on the examination test sheets. If you need more room, please use the back of the pages. Show your calculations in detail.
Grading: Q1 /16 Q2 /20 Q3 /9 Q4 /3 Total /48
Question One: (16 marks) Staffordville Company produces baseball bats and cricket paddles. It has two departments that process all products, Cutting and Finishing. During July the beginning work in process in the Cutting department was half completed as to conversion and complete as to direct materials. The beginning inventory included $40,000 for materials and $60,000 for conversion costs. Ending work in process inventory in the Cutting department was 40 percent complete. Direct materials are added at the beginning of the cutting process. Beginning work in process in the Finishing department was 80 percent complete as to conversion. Direct materials for finishing the units are added at the end of the process. Beginning inventories included $24,000 for transferred-in costs and $28,000 for conversion costs. Ending work in process inventory for the Finishing department was 30 percent converted. Additional information about the two departments follows:
Beginning work in process units Units started this period Units transferred this period Ending work in process units Material costs added Conversion costs Transferred-out cost
Cutting ---------20,000 60,000 64,000
Finishing -----------24,000 ? 68,000 20,000
$48,000 28,000 128,240
$34,000 68,200 ?
Required: a) Prepare a production cost worksheet using the weighted average method for the Finishing department. Be sure to reconcile total units and total costs. (Round to the nearest cent for dollar calculations). (14 marks) b) Prepare the journal entry to record the transfer of goods from the Cutting Department to the Finishing Department for the month. (2 marks)
Question One Solution: a) Finishing Department Cost Production Worksheet Equivalent Units Calc Physical BI 24,000 Started 64,000 Total 88,000
DM
CON
Completed 68,000 100% 68,000 100% 68,000 EI 20,000 0% 0 30% 6,000 Total 88,000 68,000 74,000 1 mark for balancing to 88,000 units 1 mark for units started 1 mark for each ending inventory cost category = 3 marks
Trans-In
100% 100%
Unit Cost BI Added Total / units Unit cost
Total 52,000 230,440 282,440 3.53
DM 0 34,000 34,000 68,000 0.50
CON 28,000 68,200 96,200 74,000 1.30
Trans-In 24,000 128,240 152,240 88,000 1.73
1 mark for added trans-in costs 1 mark for each unit cost amounts – cfw = 4 marks Cost Reconciliation: Cost of units transferred (68,000 x 3.53) Ending Inventory: CON (6,000 x $1.30) 7,800 Trans-in (20,000 x $1.73) 34,600 Total
240,040 42,400 282,440
1 mark for matching 282,440 totals b)
WIP – Finishing 128,240 WIP – Cutting 1 mark for each line = 2 marks total
128,240
1 mark 1 mark 1 mark
68,000 20,000 88,000
Question Two (20 marks) Cabanos Company manufactures two products, Product C and Product D. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below: Estimated Volume Direct Labour Hours per Unit Direct Materials Cost per Unit Direct Labour Cost per Unit
Product C 3,400 units 1.40 hour $ 7.40 $14.00
Product D 4,800 units 1.90 hours $12.70 $19.00
Required: a) Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. Round calculations to the nearest cent) (6 marks) b) The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Determine the unit product cost of each product for the current period using the activitybased costing approach. (9 marks) c)
Determine if ABC costing is appropriate for this company. Be sure to include any relevant criteria and calculations to support your position. (5 marks)
Question Two Solution a) The expected total direct labour hours during the period are computed as follows: Product C: 3,400 units x 1.4 hr. Product D: 4,800 units x 1.9 hrs. Total direct labour hours 1 mark for DLH
4,760 hours 9,120 hours 13,880 hours
Using these hours as a base, the predetermined overhead using direct labour hours would be: Predetermined overhead rate = $160,790 / 13,880 DLHs = $11.58/DLH 1 mark Using this overhead rate, the unit product costs are: Product C Direct Materials $ 7.40 Direct Labour $14.00 Manufacturing Overhead $16.22 Total Unit Product Cost $37.62 0.5 marks for each DM and DL = 2 marks total 1 mark for each MOH per product = 2 marks Total = 4 marks
Product D $12.70 $19.00 $22.01 $53.71
b) The overhead rates for each activity centre are as follows:
Machine Setups Purchase Orders General Factory
Estimated Overhead Costs $12,190 $79,200 $69,400
Expected Activity 230 1,650 13,880
Overhead Rate $53.00 $48.00 $ 5.00
The overhead cost charged to each product is:
Overhead cost per unit: Product C: $63,080 / 3,400 units = $18.55 per unit. Product D: $97,710 / 4,800 units = $20.36 per unit. 3 marks per units overhead cost = 6 marks total Using activity-based costing, the unit product cost of each product would be: Product C Product D Direct Materials $ 7.40 $12.70 Direct Labour $14.00 $19.00 Manufacturing Overhead $18.55 $20.36 Total Unit Product Cost $39.95 $52.06 0.5 marks for each DM, DL and MOH = 3 marks total c) ABC criteria: 1. multiple products – Yes (1 mark) 2. significant non-unit level overhead costs – Yes (1 mark); $23,800/63,080 = 38% units level; 62% non-unit level costs (1 mark for calculation) 3. product diversity – Yes (1 mark) Machine setups Purchase orders General factory 1 mark for calculations
Product C 80/230 = 35% 730/1,650 = 44% 4,760/13,880 = 34%
Product D 65% 56% 66%
Question Three: (9 marks) Eaker Company uses activity-based costing to compute product costs for external reports. The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated costs and activities for the current year are presented below for the three activity centres: Activity Centre Batch Setups Material Handling General Factory
Estimated Overhead Costs Expected Activity $20,400 $52,800 $78,000
1,200 2,400 2,600
Actual costs and activities for the current year were as follows: Activity Centre Batch Setups Material Handling General Factory
Actual Overhead Costs
Actual Activity
$20,740 $52,360 $77,590
1,230 2,470 2,680
Required: a) How much total overhead was applied to products during the year? (6 marks) b) By how much was overhead overapplied or underapplied? (Be sure to clearly label your answer as to whether the overhead was overapplied or underapplied for each activity centre as well as for the total.) (3 marks)
Question three Solution a) The overhead rates for each activity centre are as follows:
1 mark for each rate = 3 marks The amount of overhead applied to production is determined as follows:
1 mark for each “applied amount” = 3 marks b) The amount of underapplied (overapplied) for each centre and all activity centres is as follows:
1 mark for each “over/under” amount = 3 marks Question Four: (3 marks) Explain the difference between job costing, process costing and activity based costing. (3 marks) Question four solution: Job costing is used to cost out customer/unique products or jobs (1 mark), where as process costing is used for homogeneous products (1 mark). ABC traces costs to activities and then allocates out to cost objects (unit of product) (1 mark). ABC can be used in conjunction with job or process costing, whereas job costing and process costing are mutually exclusive (1 mark). Maximum 3 marks
