Question 1: Why might an advertising agency use job costing for an advertising campaign by Pepsi, whereas a bank uses process costing to determine the cost of checking accounts withdrawals?
Question 2: When Might a company use budgeting cost rather actual costs to compute direct labor rates?
Question 3: Explain equivalent units. Why are equivalent-unit calculations necessary in process costing?
Question 4: Name the three inventory methods commonly associated with process costing.
Question 5: Identify the main difference between journal entries in process costing and job costing.
Question 6: “Transferred-in costs are those incurred in the preceding accounting period” Do you agree? Explain
Question 7: What is an activity-based approach to design a costing system?
Question 8: What are the key reasons for product cost differences between traditional costing systems and ABC systems?
Question 9: “Activity-based costing is the wave of the present and the future. All companies should adopt it” Do you agree? Explain
Question 10: Job-costing, normal and actual costing. Anderson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2003, Anderson budgets 2004 assembly-support costs to be $8,000,000 and 2004 direct labor-hours to be 160,000.
At the end of 2004, Anderson is comparing the costs of several jobs that were started and completed in 2004.
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Laguna Model
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Mission Model
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Construction period
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Feb-June 2004
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May-Oct 2004
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Direct materials
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$106,450
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$127,604
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Direct labor
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$36,276
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$41,410
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Direct-labor -hours
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900
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1,010
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Direct materials and direct labor are paid for on a contract basis. The costs of ech are know when direct materials are used or direct labor-hours are worked. The 2004 actual assembly-support costs were $6,888,000, and the actual direct labor cost were 164,000.
Compute:
1. Compute the
a. budgeted
b. actual indirect-cost rates
Why do they differ?
2. What is the job cost of the Laguna Model and the Mission Model using
a. normal costing
b. actual costing
3. Why might Anderson Construction prefer normal costing over actual costing?
Question 11: Job costing, service industry, actual, normal, variation from normal costing. Web creation, a Web-site design and maintenance company, uses job-costing. Its job-costing system has a single direct-cost category (professional services) and a single indirect-cost pool (client support). Client support costs are allocated to individual jobs using actual professional service-hours. Budgeted and actual amounts for 2004 are as follows:
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Budget for 2004
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Professional services staff compensation
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$10,000,000
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Client support costs
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$6,500,000
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Professional service-hours billed to clients
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50,000 hours
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Actual results for 2004
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Client support costs
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$6,220,000
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Professional service-hours bulled to clients
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55,000 hours
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Actual professional services staff rate
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$225 per hour
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1. Compute the direct-cost rate per professional service-hour and the indirect-cost rate per professional service-hour for 2004 under
a. actual costing
b. normal costing
c. the variation from normal costing that uses budgeted rates for direct costs.
2. In 2004, Web Creation provided services to Amazing.com. Web Creation budgeted to spend 500 professional service-hours. Actual professional service-hours were 575. Compute the job cost of Amazing.com project using
a. actual costing
b. normal costing
c. the variation from normal costing that uses budgeted rates for direct costs. Explain any differences in the job cost.
Question 12: Equivalent units, zero beginning inventories. International Electronics manufactures microchips in large quantities. Each microchip undergoes assembly and testing. The total assembly costs during January 2004 were
Direct material used $720,000
Conversion costs $760,000
Total manufacturing costs $1,480,000
1. Assume there was no beginning inventory on January 1, 2004. During January 10,000 microchips were placed into production and all 10,000 were fully completed at the end of the month. What is the unit cost of an assembled microchip in January?
2. Assume that during February 10,000 microchips are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9,000 microchips are fully completed at the end of the month. All direct materials have been added to the remaining 1,000 microchips. However, on average, these remaining 1,000 microchips are only 50% complete as to conversion costs. A. What are the equivalent units for direct materials and conversion costs and their respective equivalent-units costs for February? B. What is the unit cost of an assembled microchip in February 2004?
3. Explain the difference in your answers to requirements 1 and 2.
Question 13: ABC, process costing. Parker Company produces mathematical and financial calculators. Data related to the two products is presented below:
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Mathematical
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Financial
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Annual production in units
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50,000
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100,000
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Direct material costs
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$150,000
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$300,000
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Direct manufacturing labor costs
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$50,000
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$100,000
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Direct manufacturing labor-hours
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2,500
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5,000
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Machine-hours
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25,000
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50,000
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Number of production runs
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50
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50
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Inspection hours
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1,000
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500
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Both products pass through Department 1 and Department 2. The departments’ combined manufacturing overhead costs are
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Total
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Machining costs
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$375,000
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Setup costs
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120,000
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Inspection costs
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105,000
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1. Compute the manufacturing overhead cost per unit for each product.
2. Compute the manufacturing cost per unit for each product.
Question 14: Activity-based costing, job-costing system. The Hewlett-Packard (HP) plants in Roseville, California, assembles and tests printer-circuit (PC) boards. The job-costing system at this plant has two direct-cost categories (direct materials and direct manufacturing labor) and seven indirect-cost pools. These indirect-cost pools represent the seven activity areas that operating personnel at the plant determined are sufficiently different (in terms of cost-behavior patterns or individual products being assembled) to warrant separate cost pools. The cost-allocation base chosen for each activity area is the cost driver at that activity area.
Debbie Berlant, a new appointed marketing manager at HP, is attended a training session that describes how an activity-based costing approach was used to design the Roseville plant’s job-costing system. Berlant is provided with the following incomplete information for a specific job (an order for a single PC board, No A82):
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Direct materials
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$75.00
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Direct manufacturing labor
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15.00
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$90.00
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Manufacturing overhead (see below)
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?
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Total manufacturing cost
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$ ??
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Manufacturing Overhead cost Pool
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Cost-Allocation Base
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Cost-Allocation Rate
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Units of Cost-Allocation Base Used on Job No A82
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Manufactured Overhead Allocated to Job
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1. Axial insertion
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Axial insertions
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0.08
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45
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?
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2. Dip insertion
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Dip insertion
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0.25
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?
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6.00
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3. Manual insertion
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Manual insertion
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?
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11
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5.50
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4. Wave solder
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Boards soldered
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3.5
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?
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3.5
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5. Backload
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Backload insertion
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?
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6
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4.20
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6. Test
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Budgeted time board is test activity
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90.00
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0.25
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?
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7. Defect analysis
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Budgeting time for defect analysis and repair
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?
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0.10
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8.00
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1. Present an overview diagram of the activity –based job-costing system at the Roseville plant
2. Fill in blanks (noted by question marks) in the cost information provided to Berlant for Job No. A82
3. Why might manufacturing managers and marketing manager favor this ABC job-costing system over the previous costing system, which had the same two direct-cost categories but only a single indirect-cost pool (manufacturing overhead allocated using direct manufacturing labor costs)?
Question 15: Service industry, job costing, accounting for overhead costs, budgeted rates. Jefferson Company, a painting contactor, uses normal costing to cost each job. Jefferson’s job-costing system has two direct-cost categories (direct materials and direct labor) and one indirect-cost pool called overhead costs. Jefferson’s budgeted overhead rate for allocation overhead costs to job is 80% of direct labor costs.
Jefferson provides the following additional information:
1. As of January 31, 2004, Job A21 was the only job in process, with direct materials costs of $30,000 and direct labor costs of $50,000
2. Jobs A22, A23, and A24 were started during February.
3. Direct material used during February were $150,000
4. Direct-labor costs for February were $120,000
5. Actual overhead costs for February were $102,000
6. The only job still in process February 29,2004, was job A24, with direct materials costs of $20,000 and direct labor costs of $40,000.
Jefferson maintains a “Job-in process Control” account unit’s general ledger. When a job is completed, Jefferson transfers the costs of the completed job to “Cost of Job Billed” account. Each month, Jefferson closes any under allocated or over allocated overhead to “Cost of Jobs Billed”.
1. Calculate the overhead allocated to Job A21 as of January 31, 2004, and the overhead allocated to Job A24 as February 29, 2004.
2. Calculate the underalllocated or overallocated overhead for February 2004
3. Calculate the Cost of Billed for February 2004.
Question 16: Transferred-in costs, equivalent-unit costs, working backward. Lennox Plastics has two processes: extrusion and thermo-assembly. Consider the June 2004 data for physical units in the thermo-assembly process: beginning work in process, 15,000 units; transferred in from the Extruding Department during June, 9,000; ending work in process, 5,000. Direct materials are added when the process in the Thermo-assembly Department is 80% complete. Conversion costs are added evenly during the process. Lenox Plastics uses the FIFO method of process costing. The following information is available.
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Transferred-In costs
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Direct Materials
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Conversion Costs
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Beginning work in process
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$90,000
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------------------
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$45,000
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Percentage completion of beginning work in process
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100%
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----------------------
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60%
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Costs added in current period
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$58,500
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$57,000
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$57,200
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Cost per equivalent unit of work done in current period
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$6.50
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$3.00
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$5.20
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1. For each cost category, compute equivalent units of work done in the current period.
2. For each cost category, compute separately the equivalent units of work done to complete beginning work-in-process inventory, to start and complete new units, and to produce ending work in process.
3. For each cost category, calculate the percentage of completion of ending work-in-process inventory.
4. Summarize total costs to account for, and assign these costs to units completed (and transferred out) and to units in ending work in process.