NAME THAT COST
A factory pays $4 of wood for every picture frame it manufactures.
Question: Is the wood a variable cost or a fixed cost?
Variable cost. The total cost of wood increases as more frames are manufactured.
A company has already spent $9,000 developing a product. The money cannot be recovered regardless of whether the product is launched.
What type of cost is the $9,000?
Sunk cost.
A company produces custom-made kitchen cabinets, with each customer's order differing in design and materials.
Would job-order costing be appropriate? Why or why not?
Yes. Job-order costing fits distinct/customized jobs whose costs can be traced individually.
Which is manufacturing overhead?
A. Wood used in a table
B. Wages of the employee who assembles the table
C. Salary of the factory supervisor
D. Sales commission
C. Salary of the factory supervisor
Complete the manufacturing cost flow:
Raw Materials -> ______ -> Finished Goods -> ______
Raw Materials -> Work in Process -> Finished Goods -> Cost of Goods Sold
A company manufactures custom bicycles.
Classify each cost as Direct Materials (DM), Direct Labor (DL), Manufacturing Overhead (MOH), or Period Cost:
1. Tires used on bicycles
2. Wages of employees assembling bicycles
3. Salary of the factory supervisor
4. Advertising expense
1. Direct Materials
2. Direct Labor
3. Manufacturing Overhead
4. Period Cost
A company pays $1,200 per month for equipment plus $3 for each unit produced.
Write the monthly cost equation in the form Y = a + bX.
Y = $1,200 + $3X
Job 72 contains: Direct materials $3,000; Direct labor $2,000; Applied overhead $1,500. The job produced 100 units.
Determine: (1) Total job cost and (2) Unit product cost.
Total job cost = $6,500
Unit product cost = $65 per unit
A company estimates annual manufacturing overhead of $480,000 and annual machine-hours of 20,000.
What is the predetermined overhead rate?
$24 per machine-hour
The production department sends $7,000 of direct materials into production.
Give the journal entry.
Debit Work in Process $7,000
Credit Raw Materials $7,000
A manufacturer reports:
- Direct materials = $24,000
- Direct labor = $18,000
- Manufacturing overhead = $13,000
Calculate: (1) Prime cost, (2) Conversion cost, (3) Total manufacturing cost
Prime cost = $42,000
Conversion cost = $31,000
Total manufacturing cost = $55,000
A company normally sells its product for $30 per unit. It receives a one-time special order for 100 units at $22 each. Variable manufacturing cost is $14 per unit. There is unused capacity and fixed costs will not change.
How much would operating income increase or decrease if the company accepts the order?
Incremental revenue = $2,200
Incremental cost = $1,400
Operating income increases by $800.
Job 16 requires $8,000 of direct materials and 300 direct labor-hours. The predetermined overhead rate is $12 per direct labor-hour.
Determine: (1) MOH applied
Applied MOH = 300 x $12 = $3,600
A company's predetermined overhead rate is $18 per machine-hour. Actual production required 25,000 machine-hours.
How much manufacturing overhead is applied?
$450,000
A company incurs $20,000 in factory labor: $17,000 direct labor and $3,000 indirect labor.
Give the journal entry assigning those labor costs to production.
Debit Work in Process $17,000
Debit Manufacturing Overhead $3,000
Credit Wages Payable $20,000
A company's factory building depreciation is $36,000 per year. At 6,000 units, depreciation averages $6 per unit. If production increases to 9,000 units:
1. What is total factory depreciation?
2. What is depreciation cost per unit?
Total depreciation = $36,000
Depreciation per unit = $4
A student can work a five-hour shift earning $18 per hour or attend a concert. The concert ticket was purchased two months ago for $45 and cannot be refunded.
Identify: (1) sunk cost and (2) opportunity cost of attending the concert.
Sunk cost = $45 ticket
Opportunity cost = $90 of forgone wages
A company estimates MOH of $600,000 and 30,000 machine-hours. Job 45 uses $6,000 direct materials, $4,000 direct labor, and 400 machine-hours.
Calculate: (1) POHR, (2) applied overhead, and (3) total cost of Job 45.
POHR = $20 per machine-hour
Applied MOH = $8,000
Total job cost = $18,000
Actual manufacturing overhead is $510,000 and applied manufacturing overhead is $485,000.
Determine: (1) underapplied or overapplied, (2) amount, and (3) whether COGS increases or decreases if closed directly to COGS.
$25,000 underapplied. COGS increases by $25,000.
Beginning Finished Goods = $15,000; Cost of Goods Manufactured = $80,000; Ending Finished Goods = $20,000.
Calculate unadjusted Cost of Goods Sold.
COGS = $15,000 + $80,000 - $20,000 = $75,000
A company incurred: Direct materials $42,000; Direct labor $31,000; Factory rent $12,000; Sales commissions $8,000; Factory equipment depreciation $6,000; Advertising $5,000.
Calculate: (1) Product costs, (2) Period costs, (3) Prime costs, (4) Conversion costs.
Product costs = $91,000
Period costs = $13,000
Prime costs = $73,000
Conversion costs = $49,000
A company sells 1,000 units for $50 each. Variable manufacturing cost is $22 per unit, variable selling cost is $3 per unit, and total fixed costs are $14,000. Sales are expected to increase to 1,200 units with no other changes.
By how much should operating income increase?
Contribution margin per unit = $25
Increase = 200 units x $25 = $5,000
Operating income increases by $5,000.
A custom furniture company uses a POHR of 150% of direct labor cost. Job 88 incurred $12,000 direct materials and $8,000 direct labor. The selling price is 125% of total manufacturing cost.
Determine: (1) Applied overhead, (2) total manufacturing cost, (3) selling price.
Applied MOH = $12,000
Total manufacturing cost = $32,000
Selling price = $40,000
A company estimates annual MOH of $540,000 and 30,000 machine-hours. Actual MOH is $558,000 and actual machine-hours are 32,000. Find (1) POHR, (2) applied MOH, and (3) over- or underapplied overhead and amount.
$18/MH; $576,000 applied; $18,000 overapplied.
During the month: (1) $15,000 direct materials enter production; (2) $12,000 direct labor is assigned; (3) $9,000 MOH is applied; (4) the completed job is transferred out of production; (5) the entire job is sold.
Ignoring revenue, give the five journal entries needed to move these costs from Raw Materials through COGS.
1. Dr WIP $15,000; Cr Raw Materials $15,000
2. Dr WIP $12,000; Cr Wages Payable $12,000
3. Dr WIP $9,000; Cr MOH $9,000
Total job cost = $36,000
4. Dr Finished Goods $36,000; Cr WIP $36,000
5. Dr COGS $36,000; Cr Finished Goods $36,000