Name That Cost
A factory pays $4 of wood for every picture frame it manufactures. Is the wood a variable cost or fixed cost?
Answer: Variable cost.
Explanation: The wood cost changes in total as the number of frames changes, so it behaves as a variable cost.
A company already spent $9,000 developing a product and cannot recover it. What type of cost is this?
Answer: Sunk cost.
Explanation: The $9,000 was incurred in the past and cannot be changed by the current decision.
A company produces custom kitchen cabinets with each order differing in design and materials. Is job-order costing appropriate? Why?
Answer: Yes.
Explanation: Each order is distinct, so costs can be accumulated and traced by individual job.
Which is MOH? A. Wood in a table B. Table assembler wages C. Factory supervisor salary D. Sales commission
Answer: C. Factory supervisor salary.
Explanation: The supervisor supports factory production but is not conveniently traceable to individual units, so the salary is indirect manufacturing cost.
Complete: Raw Materials -> ______ -> Finished Goods -> ______.
Answer: Work in Process; Cost of Goods Sold.
Explanation: Direct manufacturing costs move into WIP during production, into Finished Goods when completed, and into COGS when sold.
Classify: (1) bicycle tires, (2) assembly wages, (3) factory supervisor salary, (4) advertising as DM, DL, MOH, or period cost.
Answer: 1. DM; 2. DL; 3. MOH; 4. Period cost.
Explanation: Tires can be traced to the product, assembly wages are traceable labor, the supervisor supports production indirectly, and advertising is a selling expense rather than a manufacturing cost.
A company pays $1,200 per month for equipment plus $3 per unit produced. Write Y = a + bX.
Answer: Y = $1,200 + $3X.
Explanation: $1,200 is the fixed component a, and $3 is the variable rate b for each unit X.
Job 72: DM $3,000; DL $2,000; applied MOH $1,500; 100 units. Find total job cost and unit product cost.
Answer: $6,500 total; $65 per unit.
Explanation: Add DM, DL, and applied MOH for total cost. Then divide $6,500 by 100 units.
Estimated annual MOH is $480,000 and estimated machine-hours are 20,000. Find POHR.
Answer: $24 per machine-hour.
Explanation: POHR = estimated MOH / estimated activity = $480,000 / 20,000 = $24 per machine-hour.
$7,000 of direct materials are sent into production. Give the entry.
Answer: Dr Work in Process $7,000; Cr Raw Materials $7,000.
Explanation: Direct materials become part of the jobs in production, so their cost moves from Raw Materials to WIP.
Direct materials = $24,000; direct labor = $18,000; MOH = $13,000. Calculate prime cost, conversion cost, and total manufacturing cost.
Answer: $42,000; $31,000; $55,000.
Explanation: Prime cost = DM + DL. Conversion cost = DL + MOH. Total manufacturing cost = DM + DL + MOH.
Special order: 100 units at $22 each; variable manufacturing cost $14 each; unused capacity; fixed costs unchanged. How will operating income change?
Answer: Increase by $800.
Explanation: Incremental revenue is $2,200 and incremental cost is $1,400. The $800 difference increases operating income.
Job 16: DM $8,000; 300 direct labor-hours; POHR $12 per DLH. Find applied MOH and total job cost.
Answer: $3,600 applied MOH; total job cost cannot be determined.
Explanation: Applied MOH is 300 x $12. Direct labor cost is missing, so DM + DL + MOH cannot be fully calculated.
POHR is $18 per machine-hour and actual production used 25,000 machine-hours. How much MOH is applied?
Answer: $450,000.
Explanation: Applied MOH = POHR x actual activity = $18 x 25,000 = $450,000.
Factory labor totals $20,000: $17,000 direct and $3,000 indirect. Give the assignment entry.
Answer: Dr WIP $17,000; Dr MOH $3,000; Cr Wages Payable $20,000.
Explanation: Direct labor is traced to jobs through WIP. Indirect labor is accumulated in MOH. The total wage obligation is credited.
Factory building depreciation is $36,000 per year. At 6,000 units it averages $6 per unit. If production increases to 9,000 units, find total depreciation and depreciation per unit.
Answer: $36,000 total; $4 per unit.
Explanation: Depreciation is fixed within the relevant range, so total cost stays $36,000. Dividing by 9,000 units lowers the fixed cost per unit to $4.
A student can work 5 hours at $18/hour or attend a concert. The nonrefundable ticket cost $45 two months ago. Identify the sunk cost and opportunity cost.
Answer: Sunk cost = $45; opportunity cost = $90.
Explanation: The ticket is already paid and unrecoverable. The $90 in wages forgone is the benefit sacrificed by attending the concert.
Estimated MOH $600,000; 30,000 machine-hours. Job 45: DM $6,000; DL $4,000; 400 MH. Find POHR, applied MOH, total job cost.
Answer: $20/MH; $8,000; $18,000.
Explanation: POHR = $600,000 / 30,000 = $20/MH. Apply $20 to 400 MH, then add DM + DL + MOH.
Actual MOH $510,000; applied MOH $485,000. Is overhead under- or overapplied, by how much, and what happens to COGS if closed directly?
Answer: $25,000 underapplied; COGS increases $25,000.
Explanation: Actual overhead exceeds applied overhead by $25,000. Underapplied overhead represents cost not yet assigned to production, so closing it to COGS increases COGS.
Beginning FG $15,000; COGM $80,000; ending FG $20,000. Find unadjusted COGS.
Answer: $75,000.
Explanation: COGS = beginning Finished Goods + COGM - ending Finished Goods = $15,000 + $80,000 - $20,000.
Costs: DM $42,000; DL $31,000; factory rent $12,000; sales commissions $8,000; factory equipment depreciation $6,000; advertising $5,000. Calculate product, period, prime, and conversion costs.
Answer: $91,000; $13,000; $73,000; $49,000.
Explanation: Product costs include DM, DL, and all MOH. Period costs are selling/administrative. Prime = DM + DL. Conversion = DL + MOH.
Selling price $50; variable manufacturing $22/unit; variable selling $3/unit. Sales rise from 1,000 to 1,200 units; fixed costs unchanged. By how much does operating income increase?
Answer: $5,000.
Explanation: Contribution margin is $50 - $22 - $3 = $25 per unit. The 200 additional units add 200 x $25 = $5,000 to operating income.
POHR is 150% of direct labor cost. Job 88: DM $12,000; DL $8,000. Selling price is 125% of total manufacturing cost. Find applied MOH, manufacturing cost, and selling price.
Answer: $12,000; $32,000; $40,000.
Explanation: MOH = 150% x $8,000 = $12,000. Total manufacturing cost is $32,000. Price = 125% x $32,000 = $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.
Answer: $18/MH; $576,000 applied; $18,000 overapplied.
Explanation: POHR = $540,000 / 30,000 = $18/MH. Applied MOH = $18 x 32,000 = $576,000. Applied exceeds actual by $18,000, so overhead is overapplied.
Transactions: $15,000 direct materials; $12,000 direct labor; $9,000 MOH applied; job completed; entire job sold. Ignoring revenue, give the five cost-flow entries.
Answer: Dr WIP 15,000 / Cr Raw Materials 15,000; Dr WIP 12,000 / Cr Wages Payable 12,000; Dr WIP 9,000 / Cr MOH 9,000; Dr FG 36,000 / Cr WIP 36,000; Dr COGS 36,000 / Cr FG 36,000.
Explanation: The first three entries accumulate $36,000 in WIP. Completion transfers that accumulated cost to Finished Goods, and the sale transfers it to COGS.