THE HONG KONG POLYTECHNIC UNIVERSITY
HONG KONG COMMUNITY COLLEGE
Subject Title : Cost Accounting
Subject Code
: CC2106
: Semester Two, 2009/10
Session
Numerical Answers
Section B
Questions B1
a.
The expected total direct labor hours during the period are computed as follows:
Product C: 400 units × 1.2 hours per unit .......
480 hours
Product D: 3,000 units × 1.3 hours per unit .... 3,900 hours
Total direct labor hours ................................... 4,380 hours
Using these hours as a base, the predetermined overhead using direct labor hours would be:
Estimated overhead cost ÷ Estimated direct labor hours
= $119,100 ÷ 4,380 = $27.19/DLH
Using this overhead rate, the unit product costs are:
Direct materials ......................
Direct labor.............................
Manufacturing overhead ........
Total unit product cost............
b.
Product C
$ 4.00
12.00
32.63
$48.63
Product D
$22.80
13.00
35.35
$71.15
The overhead rates for each activity center are as follows:
Machine setups.......
Purchase orders ......
General factory.......
Estimated
Overhead
Costs
$10,440
$78,000
$30,660
Expected
Activity
180
2,000
4,380
Overhead
Rate
$58.00
$39.00
$7.00
The overhead cost charged to each product is:
Machine setups............
Purchase orders ...........
General factory............
Product C
Activity Amount
60
$ 3,480
820
31,980
480
3,360
Product D
Activity Amount
120 $ 6,960
1,180
46,020
3,900
27,300
Page 1 of 7
Total overhead cost .....
$38,820
$80,280
Overhead cost per unit:
Product C: $38,820 ÷ 400 units = $97.05 per unit.
Product D: $80,280 ÷ 3,000 units = $26.76 per unit.
Using activity based costing, the unit product cost of each product would be:
Direct materials ........................
Direct labor...............................
Manufacturing overhead ..........
Total unit product cost..............
Product C
$ 4.00
12.00
97.05
$113.05
Product D
$22.80
13.00
26.76
$62.56
Question B2
Part I
a.
Production units ..........................
Cash required per unit.................
Production costs ..........................
April
25,000
$6
$150,000
May
25,000
$6
$150,000
June
30,000
$6
$180,000
Cash disbursements:
Production this month (40%)...
Production prior month
(60%)....................................
Selling and administration .......
Total disbursements ....................
$ 60,000
$ 60,000
$ 72,000
96,000
60,000
$216,000
90,000
60,000
$210,000
90,000
60,000
$222,000
Sales units ...................................
Sales price ...................................
Total sales ...................................
April
30,000
$15
$450,000
May
20,000
$15
$300,000
June
25,000
$15
$375,000
b.
Cash receipts:
February sales ..........................
March sales ..............................
April sales ................................
May sales .................................
June sales .................................
Total receipts...............................
$ 45,000
157,500
270,000
$472,500
$ 52,500
135,000
180,000
$367,500
$ 45,000
90,000
225,000
$360,000
Part II
Page 2 of 7
The company’s production budget is as follows:
Budgeted sales (units) .................
Add: Desired ending inventory ...
Total needs ..................................
Deduct beginning inventory........
Units to be produced ...................
January
20,000
7,000
27,000
4,000
23,000
February
35,000
12,000
47,000
7,000
40,000
March
April
60,000 40,000
8,000 6,000
68,000 46,000
12,000 8,000
56,000 38,000
The materials purchase budget (based on the above production budget) would be as
follows:
Jan
23,000
Feb
40,000
Mar
56,000
Quarter
119,000
3
3
3
3
Production needs (number of switches)
69,000
120,000
168,000
357,000
Add desired ending inventory (number of
switches)**
36,000
50,400
34,200
34,200
105,000
170,400
202,200
391,200
Deduct beginning inventory (number of
switches)*
20,700
36,000
50,400
20,700
Required purchases (number of switches)
84,300
134,400
151,800
370,500
Units to be produced
Switches per unit
Total needs
* For January: 69,000 × 0.30 = 20,700.
** For March: 38,000 × 3 = 114,000; 114,000 × 0.30 = 34,200
Question B3
Part I
Labor rate variance = (AH × AR) - (AH × SR)
= $95,680 – (9,200 × $10.20)
= $1,840 U
SH = Standard hours per unit × Actual output
= 7.8 × 1,300
= 10,140
Labor efficiency variance = SR(AH - SH)
= $10.20(9,200 – 10,140)
= $9,588 F
Page 3 of 7
Part II
AH × AR
1,600 hours × $2.60
=$4,160
AH × SR
1,600 hours × $2.50
=$4,000
Spending Variance
$160 U
SH × SR
1,800 hours × $2.50
=$4,500
Efficiency Variance
$500 F
Total Variance, $340 F
Calculations-in this order:
Efficiency variance = Total variance - Spending variance
= $340 F - $160 U
= -$340 - $160
= $500 F
Actual Hours × Standard Rate = 1,600 × $2.50
= $4,000
AH × AR = AH × SR + Spending Variance
= $4,000 + $160 U
= $4,000 + $160
= $4,160
AR = (AH × AR) ÷ AH
= $4,160 ÷ 1,600 hours
= $2.60/hour
SH × SR = AH × SR - Efficiency Variance
= (1,600 × $2.50) - $500 F
= $4,000 - (-$500)
= $4,500
SH = (SH × SR) ÷ SR
= $4,500 ÷ $2.50
= 1,800 hours
Summary:
Direct
Labor-Hours
Actual ................
1,600
Standard.............
1,800
Rate per Direct
Labor Hour
$2.60
$2.50
Total Actual Overhead ...............................
Total Applied Overhead .............................
$4,160
$4,500
Page 4 of 7
Variable Overhead Spending Variance ......
Variable Overhead Efficiency Variance ....
Total Variable Overhead Variance.............
$1,60 U
$500 F
$340 F
Question B4
a.
Standard variable
overhead rate = $262,500 ÷ 150,000 machine hours
= $1.75 per machine hour
Standard fixed
overhead rate = $300,000 ÷ 150,000 machine hours
= $2 per machine hour
b.
Variable overhead
variances:
Spending variance = AH(AR - SR)
= 126,000 ($1.68* - $1.75)
= $8,820 F
* $211,680 ÷ 126,000 = $1.68
Efficiency variance = SR(AH - SH)
= $1.75 (126,000 - 120,000*)
= $10,500 U
* 120,000 units × 1
hour per unit = 120,000 hours
c
.
Fixed overhead
variances:
Budget variance = Actual fixed overhead - Budgeted fixed
overhead
= $315,000 - $300,000
= $15,000 U
Volume variance = Fixed rate (Denominator hrs. - Standard hrs.)
= $2 (150,000 - 120,000)
= $60,000 U
Page 5 of 7
Question B5
a. Operating assets do not include investments in other companies or in
undeveloped land.
Beginning
Ending
Balance
Balance
Cash ..................................... $ 250,000 $260,000
Accounts receivable.............
120,000 135,000
Inventory..............................
230,000 205,000
Plant and equipment (net)....
420,000 380,000
Total operating assets .......... $1,020,000 $980,000
Average operating
assets = ($1,020,000 + $980,000) ÷ 2
= $1,000,000
Margin = Net operating income ÷ Sales
= $280,000 ÷ $1,750,000
= 16%
Turnover = Sales ÷ Average operating assets
= $1,750,000 ÷ $1,000,000
= 1.75
ROI = Margin × Turnover
= 16% × 1.75
= 28%
b. Net operating income ..............................................
Minimum required return (25% × $1,000,000).......
Residual income ......................................................
$280,000
250,000
$ 30,000
Question B6
a.
Schedule of cost of goods manufactured
Direct materials:
Raw materials inventory, beginning ...............
Add: Purchases of raw materials.....................
Raw materials available for use ......................
Deduct: Raw materials inventory, ending.......
Raw materials used in production......................
Direct labor ........................................................
Manufacturing overhead ....................................
Total manufacturing cost ...................................
$ 10
$170
$180
$ 50
$130
$220
$210
$560
Page 6 of 7
Add: Work in process inventory, beginning ......
$ 80
$640
$ 60
$580
Deduct: Work in process inventory, ending.......
Cost of goods manufactured ..............................
b.
Computation of cost of goods sold
Finished goods inventory, beginning .................
Add: Cost of goods manufactured .....................
Goods available for sale.....................................
Deduct: Finished goods inventory, ending ........
Cost of goods sold..............................................
c.
$110
$580
$690
$100
$590
Income statement
Sales .................................................
Less: Cost of goods sold ..................
Gross margin ....................................
Less: Administrative expenses.........
Less: Selling expenses .....................
Net operating income .......................
$860
$590
$270
$120
$170
$ (20)
Page 7 of 7