Cost accounting unit 5
After reading information on the operation of a process cost accounting system in Chapter 8 of the Fundamentals of Cost Accounting text, complete the following exercise and problem. In the exercise you will prepare a production cost report, and in the problem you will determine how unit costs are computed in a process cost accounting system.
Complete the following exercise and problem:
Exercise 8-39, “Prepare a Production Cost Report,” page 312.
Problem 8-46, “Compute Equivalent Units,” page 315.
8-39. Prepare a Production Cost Report: FIFO Method
(
LO 8-2
, 4
, 5
)
Lansing, Inc. provides the following information for one of its departments operations for June (no new material is added in Department T):
WIP inventoryDepartment T
Beginning inventory (15,000 units, 60% complete with respect to Department T costs)
Transferred-in costs (from Department S)
$ 116,000
Department T conversion costs
53,150
Current work (35,000 units started)
Prior department costs
280,000
Department T costs
209,050
The ending inventory has 5,000 units, which are 20 percent complete with respect to Department T costs and 100 percent complete for prior department costs.
Required
Prepare a production cost report using FIFO
8-46. Compute Equivalent Units
(
LO 8-1
, 3
, 5
)
Select the best answer for each of the following independent multiple-choice questions.
a. Adams Companys production cycle starts in Department A. The following information is available for July:
Units
Work in process, July 1 (60% complete)
150,000
Started in July
720,000
Work in process, July 31 (30% complete)
80,000
Materials are added at the beginning of the process in Department A. Using the weighted-average method, what are the equivalent units of production for the month of July?
Materials
Conversion
(1)
720,000
744,000
(2)
870,000
814,000
(3)
734,000
720,000
(4)
795,000
734,000
(5)
None of the above
B. Department B is the second stage of Boswell Corporations production cycle. On November 1, beginning work in process contained 50,000 units, which were 30 percent complete as to conversion costs. During November, 320,000 units were transferred in from the first stage of the production cycle. On November 30, ending work in process contained 40,000 units, which were 65 percent complete as to conversion costs. Materials are added at the end of the process. Using the weighted-average method, the equivalent units produced during November were as follows:
Prior Department Costs
Materials
Conversion
(1)
370,000
330,000
304,000
(2)
370,000
330,000
345,000
(3)
370,000
330,000
356,000
(4)
320,000
330,000
356,000
(5)
None of the above
C. Department C is the first stage of Cohen Corporations production cycle. The following equivalent unit information is available for conversion costs for the month of September:
Beginning work-in-process inventory (30% complete)
20,000
Started in September
340,000
Completed in September and transferred to Department D
320,000
Ending work-in-process inventory (70% complete)
40,000
Using the FIFO method, the equivalent units for the conversion cost calculation are:
(1)
298,000
(2)
320,000
(3)
348,000
(4)
342,000
(5)
None of the above
D. Draper Corporation computed the physical flow of units for Department D for the month of December as follows:
Units completed
From work in process on December 1
40,000
From December production
140,000
Total
180,000
Materials are added at the beginning of the process. Units of WIP at December 31 were 32,000. As to conversion costs, WIP at December 1 was 70 percent complete and WIP at December 31 was 50 percent complete. What are the equivalent units produced for the month of December using the FIFO method?
Materials
Conversion
(1)
172,000
168,000
(2)
212,000
204,000
(3)
212,000
200,000
(4)
172,000
172,000
(5)
None of the above After reading information on the operation of an activity-based cost accounting system in Chapter 9 of the Fundamentals of Cost Accounting text, use the Activity-Based Costing Template to complete the following problem. In the problem, you will apply your knowledge of the operation of an activity-based costing system and its predetermined overhead application rate.
Complete the following problem:
Problem 9-51, “Activity-Based Costing and Predetermined Overhead Application Rates,” page 365.
9-51. Activity-Based Costing and Predetermined Overhead Allocation Rates
(
LO 9-3
,
5
,
6
)
Kitchen Supply, Inc. (KSI), manufactures three types of flatware: institutional, standard, and silver. It applies all indirect costs according to a predetermined rate based on direct labor-hours. A consultant recently suggested that the company switch to an activity-based costing system and prepared the following cost estimates for year 2 for the recommended cost drivers.
Activity
Recommended Cost Driver
Estimated Cost
Estimated Cost Driver Activity
Processing orders
Number of orders
$ 54,000
200 orders
Setting up production
Number of production runs
216,000
100 runs
Handling materials
Pounds of materials used
360,000
120,000 pounds
Machine depreciation and maintenance
Machine-hours
288,000
12,000 hours
Performing quality control
Number of inspections
72,000
45 inspections
Packing
Number of units
144,000
480,000 units
Total estimated cost
$1,134,000
In addition, management estimated 7,500 direct labor-hours for year 2.
Assume that the following cost driver volumes occurred in January, year 2:
Institutional
Standard
Silver
Number of units produced
60,000
24,000
9,000
Direct materials costs
$39,000
$24,000
$15,000
Direct labor-hours
450
450
600
Number of orders
12
9
6
Number of production runs
3
3
6
Pounds of material
15,000
6,000
3,000
Machine-hours
580
140
80
Number of inspections
3
3
3
Units shipped
60,000
24,000
9,000
Actual labor costs were $15 per hour.
Required
a. Compute a predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units prepared by the consultant. Also compute a predetermined rate for year 2 using direct labor-hours as the allocation base.
b. Compute the production costs for each product for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement (a).
c. Compute the production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement (a). (Note: Do not assume that total overhead applied to products in January will be the same for activity-based costing as it was for the labor-hour-based allocation.)
d. Management has seen your numbers and wants an explanation for the discrepancy between the product costs using direct labor-hours as the allocation base and the product costs using activity-based costing. Write a brief response to management.
