Problem 1
AndrackiConsulting provides business consulting services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.
Activity Cost Pool Total Cost Total Activity
Consulting .................................. $4,600,000 8,000 days
Research Support.............................. $285,000 1,900 hours
Account Support........................... $91,000 350 clients
Other...................................... $150,000 Not applicable
Total...................................... $5,126,000
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the LasonCompany, required 46 days of consulting and 92 hours of research during the year. For this consulting service, the client was charged $68,555.
Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all calculations to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Lason family. Round off all calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of consulting days. Compute the margin for the Lason Company family. Round off all calculations to the nearest whole cent.
Problem 2
Finkel& Robbins PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:
Costs:
Wages and salaries........... $800,000
Travel expenses.............. 275,000
Other expenses............... 160,000
Total............................ $860,000
Distribution of resource consumption:
Activity Cost Pools
Working on Business
Engagements Development Other Total
Wages and salaries 40% 30% 30% 100%
Travel expenses 55% 35% 10% 100%
Other expenses 15% 45% 40% 100%
Required:
a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool?
b. How much cost, in total, would be allocated to the Business Development activity cost pool?
c. How much cost, in total, would be allocated to the Other activity cost pool?
Problem 3
Welnor Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:
- Sales are budgeted at $320,000 for April, $340,000 for May, $330,000 for June and $300,000 for July.
- Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% are uncollectible.
- The cost of goods sold is 65% of sales.
- The company desires ending merchandise inventory to equal 80% of the following month's cost of goods sold.
- Payment for merchandise is made in the month following the purchase.
- Other monthly expenses to be paid in cash are $21,000.
- Dividends of $25,000 are payable in April
- Equipment costing $60,000 will be purchased for cash in April
- Monthly depreciation for April is $16,000 and $18,000 for May and June.
- Company requires a minimum cash balance of $50,000 per month. If necessary an open line of credit is available at a rate of 12% per year. Short-term borrowing is done at the beginning of the required month and repayment with interest is made at the end of the month.
- Ignore taxes.
Statement of Financial Position
March 31,
Assets
Cash......................................................................................................... $22,000
Accounts Receivable (net of allowance for uncollectable accounts).................................82,000
Merchandise Inventory.......................................................................................166,400
Property, plant and equipment (net of $658,000 accumulated depreciation)...................... 1,170,000
Total Assets.................................................................................................. $1,440,400
Liabilities & Stockholders' Equity
Accounts Payable........................................................................................... $199,000
Common Stock.............................................................................................. 840,000
Retained Earnings............................................................................................ 401,400
Total Liabilities &Stockholders' Equity................................................................. $1,440,000
Required:
a. Prepare a Schedule of Expected Cash Collections for April, May and June.
b. Prepare a Merchandise Purchases Budget for April, May and June.
c. Prepare a Cash Budgets for April, May and June.
d. Prepare a Budgeted Income Statement for the Quarter.
e. Prepare a Budgeted Balance Sheet for the end of June.
Problem 4
Capati Corporation is working on its direct labor budget for the quarter. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $12.50 per direct labor-hour. The production budget calls for producing 2,300 units in June, 2,350 units in July and 2,800 units in September. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 960 hours in total each month even if there is not enough work to keep them busy.
Required: Using the template
a. Calculate the total direct labor cost for the quarter if the company follows its no lay-off policy, but pays time-and-a-half for every hour worked in excess of 960 hours in a month?
Problem 5
Mccoo Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $1.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $25,900 per month, which includes depreciation of $6,900 per month. All other fixed manufacturing overhead costs represent current cash flows. Budgeted sales for June are $500,000, July $600,000 and August $700,000, based on an average selling price of $25.00 per unit, with the corresponding production budget showing 20,000 units in June, 24,000 units in July and 28,000 in August. The direct labor budget for the quarter indicates a labor rate of 0.40 per unit.
Required: Using the template
a. Determine the cash disbursement for manufacturing overhead for the quarter.
b. Determine the predetermined overhead rate for the quarter.
Problem 6
Cajun Candy Corporation manufactures giant gourmet suckers. The cost standards developed by Cajun appear below. Manufacturing overhead at Cajun is applied to production on the basis of standard direct labor-hours:
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Standard quantity per sucker
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Standard cost per ounce or hour
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Standard cost per sucker
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Direct materials.............................................
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0.75 ounces
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$20.00
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$15.00
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Direct labor....................................................
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1.2 hours
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$12.00
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14.40
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Variable overhead........................................
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1.2 hours
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$3.00
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3.60
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Fixed overhead.............................................
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1.2 hours
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$5.00
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6.00
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Total standard cost per sucker...................
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$39.00
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The standards above were based on an expected annual volume of 8,000 suckers. The actual results for last year were as follows:
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Number of suckers produced..................................................................
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8,200
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Direct labor-hours incurred......................................................................
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10,000
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Ounces of direct materials purchased....................................................
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7,900
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Ounces of direct materials used in production.....................................
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6,070
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Total cost of direct materials purchased...............................................
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$156,815
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Total direct labor cost...............................................................................
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$122,800
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Total variable overhead cost...................................................................
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$28,600
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Required:
Compute the following variances for Cajun.
a. Materials price variance.
b. Materials quantity variance.
c. Labor efficiency
d. Labor rate variance.
e. Labor spending variance
f. Variable overhead spending variance.
g. Variable overhead efficiency variance.