Managerial Concepts & Job-Order Costing
Which of the following would be considered a product cost in a candy factory?
A) Sugar used to make candy
B) Advertising expenses for the company
C) Wages of sales staff in retail stores
D) Delivery costs to ship candy to customers
A) Sugar used to make candy
For the current period, Olya Corp. started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Olya have for the period?
ANSWER: 11,500
Equivalent Units of Production = 10,000 + (5,000 * .3)
= 11,500
Olya’s Enterprise makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning overhead costs to products and customers. Details concerning the ABC system are listed below:
Activity Cost Pool Activity Measure Activity Rate
Supporting assembly Direct labor-hours (DLHs) $ 3.55 per DLH
Processing batches Number of batches $ 189.35 per batch
Processing orders Number of orders $ 59.35 per order
Serving customers Number of customers $ 1,159.00 per customer
The cost of serving customers, $1,159.00 per customer, is the cost of serving a customer for one year.
Mary Corporation buys only one of the company's products which Olya Enterprises sells for $18.85 per unit. Last year Mary Corporation ordered a total of 1,500 units of this product in 4 orders. To fill the orders, 9 batches were required. The direct materials cost is $8.15 per unit and the direct labor cost is $2.60 per unit. Each unit requires 0.15 DLHs.
According to the ABC system, the total cost of the activity "Processing batches" for this customer this past year was closest to:
ANSWER: $1,704.15
Cost of processing batches = $189.35 per batch × 9 batches = $1,704.15
Which of the following statements is correct concerning the Cash Budget?
A) The cash budget is prepared after the income statement and before the production budget.
B) The cash budget is useless.
C) The cash budget helps identify potential cash shortfalls or surpluses during a specific period.
D) It is not necessary to prepare any other budgets before preparing the Cash Budget.
C) The cash budget helps identify potential cash shortfalls or surpluses during a specific period.
Olya Framing's cost formula for its supplies cost is $1,250 per month plus $13 per frame. For the month of November, the company planned for activity of 789 frames, but the actual level of activity was 792 frames. The actual supplies cost for the month was $9,440. The spending variance for supplies cost in November would be closest to:
A) $2,106 F
B) $1,967 U
C) $1,967 F
D) $2,106 U
ANSWER: A) $2,106 F
Actual results $ 9,440
Flexible budget [$1,250 + ($13 × 792)] 11,546
Spending variance $ 2,106
Olya Corporation's relevant range of activity is 2,000 units to 6,000 units. When it produces and sells 3,000 units, its average costs per unit are as follows:
Average Cost per Unit
Direct materials $ 7.00
Direct labor $ 3.35
Variable manufacturing overhead $ 1.30
Fixed manufacturing overhead $ 2.90
Fixed selling expense $ 0.50
Fixed administrative expense $ 0.40
Sales commissions $ 0.30
Variable administrative expense $ 0.60
If 4,000 units are produced and sold, the total amount of costs incurred is closest to:
ANSWER: $61,600
Direct materials $ 7.00
Direct labor $ 3.35
Variable manufacturing overhead $ 1.30
Sales commissions $ 0.30
Variable administrative expense $ 0.60
Variable costs per unit (constant) $ 12.55
Number of units produced 4,000
Total variable cost $ 50,200
Fixed manufacturing overhead $ 2.90
Fixed selling expense $ 0.50
Fixed administrative expense $ 0.40
Fixed costs per unit (for 3,000 units) $ 3.80
Number of units produced 3,000
Total fixed costs $ 11,400
Total costs = variable costs + fixed costs = 50,200 + 11,400 = $61,600
Olya Company produces smartphones that sell for $500 each. The company incurs direct material costs of $200 and direct labor costs of $50 per smartphone. Additionally, Olya has two activities: Assembly, which is applied at the rate of $10 per labor hour, and Testing, which is applied at the rate of $30 per batch. Last month, Olya produced 800 smartphones, using 2,000 labor hours in 50 batches.
What is the manufacturing cost for one smartphone? Round to 2 decimals.
ANSWER: $276.88
Assembly: 2,000 labor hours * $10 = $20,000
Testing: 50 batches * $30 = $1,500
Total Manufacturing Cost = $1,500 + $20,000 + $200(800) + $50(800)
= $221,500
Unit Manufacturing Cost = $221,500/800
= $276.88
A company produces a single product. Variable production costs are $13 per unit and variable selling and administrative expenses are $15 per unit. Fixed manufacturing overhead totals $42,000 and fixed selling and administration expenses total $32,000. Assuming a beginning inventory of zero, production of 14,500 units and sales of 12,200 units, the dollar value of the ending inventory under variable costing would be:
ANSWER: $29,900
Units in ending inventory = 0 units + 14,500 units – 12,200 units
= 2,300 units
Value of ending inventory under variable costing = 2,300 * $13
= $29,900
Budgeted sales in Olya Corporation over the next four months are given below:
September October November December
Budgeted sales $150,000 $170,000 $180,000 $160,000
Thirty percent of the company's sales are for cash and 70% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 20% are collected in the second month following sale. Given these data, cash collections for December should be:
ANSWER: $ 165,600
Cash collections for December:
December cash sales ($160,000 × 30%) $ 48,000
December credit sales collected in December ($160,000 × 70% × 50%) 56,000
November credit sales collected in December ($180,000 × 70% × 30%) 37,800
October credit sales collected in December ($170,000 × 70% × 20%) 23,800
Total cash collections in December $ 165,600
The following labor standards have been established for a particular product:
Standard labor-hours per unit of output 8.6 hours
Standard labor rate $ 18.40 per hour
The following data pertain to operations concerning the product for the last month:
Actual hours worked 3,800 hours
Actual total labor cost $ 67,640
Actual output 550 units
What is the labor efficiency variance for the month?
A) $9,955 F
B) $17,112 U
C) $9,955 F
D) $17,112 F
ANSWER: D) $17,112 F
SH = 550 units × 8.6 hours per unit = 4,730 hours
Labor efficiency variance = (AH – SH) × SR
= (3,800 hours – 4,730 hours) × $18.40 per hour
= (–930 hours) × $18.40 per hour
= $17,112 F
Olya Corporation has provided the following data concerning last month's operations.
Purchases of raw materials $ 23,000
Indirect materials included in manufacturing overhead $ 6,000
Direct labor cost $ 55,000
Manufacturing overhead applied to Work in Process $ 97,000
Beginning Ending
Raw materials inventory $ 13,000 $ 18,000
How much is the total manufacturing cost for the month on the Schedule of Cost of Goods Manufactured?
ANSWER: $164,000
Direct materials:
Beginning raw materials inventory $ 13,000
Add: Purchases of raw materials 23,000
Total raw materials available 36,000
Deduct: Ending raw materials inventory 18,000
Raw materials used in production 18,000
Deduct: Indirect materials included in MOH 6,000 $ 12,000
Direct labor 55,000
Manufacturing overhead cost applied to work in process 97,000
Total manufacturing costs $ 164,000
Olya’s Bubble Tea Co. uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its overhead costs:
Overhead Costs:
Wages and salaries $ 360,000
Depreciation 100,000
Utilities 120,000
Total $ 580,000
The distribution of resource consumption across the three activity cost pools is given below:
Activity Cost Pools
Assembly Setting Up Machining Total
Wages & Salaries 50% 40% 10% 100%
Depreciation 10% 45% 45% 100%
Utilities 5% 60% 35% 100%
How much overhead cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?
ANSWER: $196,000
Wages and salaries (50% × $360,000) $ 180,000
Depreciation (10% × $100,000) 10,000
Occupancy (5% × $120,000) 6,000
_______
Total $ 196,000
Sales $400,000
Variable Expenses $280,000
Contribution Margin (CM) $120,000
Fixed Expenses $100,000
Net Operating Income $20,000
What is the total contribution margin if sales volume decreases by 20%? Assume the information is within the relevant range.
ANSWER: $96,000
CM Ratio = 120,000/400,000
= 0.3
CM = 0.3 * (.8 * 400,000)
= $96,000
Olya Corporation is preparing the budget for the month of May. The firm makes one product and has provided the following information:
Budgeted sales, May 9,500 units
Direct materials requirement per unit of output 2 pounds
Direct materials cost $ 2.00 per pound
Direct labor requirement per unit of output 2.7 direct labor-hours
Direct labor wage rate $ 22.00 per direct labor-hour
Predetermined overhead rate (all variable) $ 10.00 per direct labor-hour
The estimated cost of goods sold for May is closest to:
ANSWER: $ 858,800
The estimated unit product cost is computed as follows:
Direct materials 2 pounds $ 2.00 per pound $ 4.00
Direct labor 2.7 hours $ 22.00 per hour 59.40
Manufacturing overhead 2.7 hours $ 10.00 per hour 27.00
Unit product cost $ 90.40
The estimated cost of goods sold for May is computed as follows:
Unit sales (a) 9,500
Unit product cost (b) $ 90.40
Estimated cost of goods sold (a) × (b) $ 858,800
Olya Electronics Corporation uses a standard cost system for the production of its water ski radios. The direct labor standard for each radio is 0.9 hours. The standard direct labor cost per hour is $7.50. During the month of August, Zanny's water ski radio production used 6,400 direct labor-hours at a total direct labor cost of $48,708. This resulted in production of 6,900 water ski radios for August. What is Zanny's labor rate variance for August?
A) $972 F
B) $708 U
C) $708 F
D) $972 U
ANSWER: B) $708 U
Labor rate variance = (AH × AR) – (AH × SR)
= $48,708 – (6,400 direct labor-hours × $7.50 per direct labor-hour)
= $48,708 – ($48,000)
= $708 U
Olya Corporation has provided the following data concerning last month's operations.
Direct materials $ 25,000
Direct labor $ 54,000
Manufacturing overhead applied to Work in Process $ 95,000
Beginning Ending
Work in process inventory $ 52,000 $ 63,000
Finished goods inventory $ 30,000 $ 32,000
How much is the unadjusted cost of goods sold on the Schedule of Cost of Goods Sold?
ANSWER: $161,000
Direct materials $ 25,000
Direct labor 54,000
Manufacturing overhead cost applied to work in process 95,000
Total manufacturing costs 174,000
Add: Beginning work in process inventory 52,000
226,000
Deduct: Ending work in process inventory 63,000
Cost of goods manufactured $ 163,000
Beginning finished goods inventory $ 30,000
Add: Cost of goods manufactured 163,000
Cost of goods available for sale 193,000
Deduct: Ending finished goods inventory 32,000
Unadjusted cost of goods sold $ 161,000
Olya Corporation uses the weighted-average method in its process costing system. The Fitting Department is the second department in its production process. The data below summarizes the department's operations in March.
Units Percent Complete (Conversion Costs)
Beginning WIP Inventory 3,700 20%
Transferred in 59,000
Ending WIP Inventory 7,200 60%
The Fitting Department's cost per equivalent unit for conversion cost for March was $5.99. How much conversion cost was assigned to the units transferred out of the Fitting Department during March?
ANSWER: $332,445
Units Transferred Out = 3,700 + 59,000 - 7,200
= 55,500
Cost of Units Transferred Out = 55,500 * 5.99
= $332,445
Olya Corporation has provided the following data for its most recent year of operation:
Manufacturing costs:
Variable manufacturing cost per unit produced:
Direct materials $ 13
Direct labor $ 9
Variable manufacturing overhead $ 7
Fixed manufacturing overhead per year $ 310,000
Selling and administrative expenses:
Variable selling and administrative expense per unit sold $ 4
Fixed selling and administrative expense per year $ 92,000
Units in beginning inventory 0
Units produced during the year 5,000
Units sold during the year 4,000
Units in ending inventory 3,000
Which of the following statements is true when Olya uses absorption costing?
A) The amount of fixed manufacturing overhead released from inventories is $186,000
B) The amount of fixed manufacturing overhead deferred in inventories is $76,000
C) The amount of fixed manufacturing overhead released from inventories is $76,000
D) The amount of fixed manufacturing overhead deferred in inventories is $186,000
D) The amount of fixed manufacturing overhead deferred in inventories is $186,000
Fixed MOH/Unit = $310,000/5,000
= $62
Fixed MOH deferred in (released from) inventories = (3,000 * $62)
= $186,000
A customer has requested that Olya Corporation fill a special order for 9,000 units of product S47 for $20.50 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $14.40:
Direct materials $ 3.10
Direct labor 1.50
Variable manufacturing overhead 6.40
Fixed manufacturing overhead 3.40
Unit product cost $ 14.40
The special order would have no effect on the company's total fixed manufacturing overhead costs.
The customer would like modifications made to product S47 that would increase the variable costs by $5.00 per unit and that would require an investment of $33,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The financial advantage (disadvantage) for the company as a result of accepting this special order should be:
ANSWER: $7,500
Incremental revenue (9,000 units × $20.50 per unit) $184,500
Less incremental costs:
Direct materials (9,000 units × $3.10 per unit) 27,900
Direct labor (9,000 units × $1.50 per unit) 13,500
Variable manufacturing overhead
(9,000 units × ($6.40 per unit + $5.00 per unit)) 102,600
Special molds 33,000
Total incremental cost 177,000
Financial advantage (disadvantage) $7,500
The following data have been provided by Olya Corporation, a company that produces forklift trucks:
Budgeted production 3,400 trucks
Standard machine-hours per truck 2.9 machine-hours
Standard supplies cost $ 1.30 per machine-hour
Actual production 3,800 trucks
Actual machine-hours 10,400 machine-hours
Actual supplies cost (total) $ 17,496
Supplies cost is an element of variable manufacturing overhead. The variable overhead efficiency variance for supplies cost is:
A) $725 U
B) $724 F
C) $806 U
D) $806 F
ANSWER: D) $806 F
Efficiency Variance: (AH x SR) - (SH x SR)
AH = 10,400 MH
SR = $1.30/MH
SH = 2.9MH/truck x 3,800 actual trucks produced = 11,020 MH
(AH x SR) - (SH x SR) = (10,400 x 1.3) - (11,020 x 1.3) = 16,395 - 16,530 = -806
Efficiency Variance: $806 Favorable
Olya Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data:
Total machine-hours 70,000
Total fixed manufacturing overhead cost $ 290,000
Variable manufacturing overhead per machine-hour $ 2.10
Recently, Job M825 was completed with the following characteristics:
Number of units in the job 20
Total machine-hours 80
Direct materials $ 665
Direct labor cost $ 1,840
The unit product cost for Job M825 under absorption costing is closest to:
ANSWER: $150.21
Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $290,000 + ($2.10 per machine-hour × 70,000 machine-hours) = $290,000 + $147,000 = $437,000
Predetermined overhead rate = $437,000 ÷ 70,000 machine-hours = $6.24 per machine-hour
Overhead applied to a particular job = $6.24 per machine-hour × 80 machine-hours = $499.20
Direct materials $ 665
Direct labor 1,840
Manufacturing overhead applied 499.20
Total cost of Job M825 $ 3,004.20
Total cost of Job M825 (a) $ 3,004.20
Number of units (b) 20
Unit product cost (a) ÷ (b $150.21
Olya Dynamics operates a weighted-average process costing system. The first processing department's operating data for the month of August are provided below:
Beginning work in process inventory: 18,000 units
Started into production during August: 82,000 units
Finished and transferred out during August: 78,000 units
Ending work in process inventory: 22,000 units
Additionally, the units in ending work in process inventory were 40% complete with respect to conversion. According to the company's records, the conversion cost in beginning work in process inventory was $120,000 at the start of August. Throughout the month, additional conversion costs of $650,000 were incurred in the department.
What was the cost per equivalent unit for conversion costs for the month of August? Round to 2 decimal places.
ANSWER: $8.87
Equivalent Units of Production = 78,000 + (22,000 * .4)
= 86,800
Total Conversion Costs = $120,000 + $650,000
= $770,000
Cost per Equivalent Unit = $770,000/86,800
= $8.87
Olya Corporation, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price $ 120
Units in beginning inventory 0
Units produced 8,900
Units sold 8,400
Units in ending inventory 500
Variable costs per unit:
Direct materials $ 38
Direct labor $ 36
Variable manufacturing overhead $ 6
Variable selling and administrative expense $ 9
Fixed costs:
Fixed manufacturing overhead $ 151,300
Fixed selling and administrative expense $ 109,300
Prepare a contribution format income statement for the month using variable costing and determine the Net Operating Income.
Sales ($120 * 8,400) $1,008,000
Variable Expenses:
Variable COGS ($80 * 8,400) 672,000
Variable Selling & Administrative ($9 * 8,400) 75,600
______________________________________________
Contribution Margin 260,400
Fixed Expenses:
Fixed MOH 151,300
Fixed Selling & Administrative 109,300
______________________________________________
Net Operating Income $(200)
Olya Corporation produces and sells one product. Consider the following assumptions:
a. The budgeted selling price per unit is $112. Budgeted unit sales for February is 9,900 units.
b. Each unit of finished goods requires 6 pounds of raw materials. The raw materials cost $4.00 per pound.
c. The direct labor wage rate is $24.00 per hour. Each unit of finished goods requires 2.4 direct labor-hours.
d. Manufacturing overhead is entirely variable and is $9.00 per direct labor-hour.
e. The variable selling and administrative expense per unit sold is $1.60. The fixed selling and administrative expense per month is $70,000.
The estimated net operating income (loss) for February is closest to:
ANSWER: $ 1,280
The estimated unit product cost is computed as follows:
Direct materials 6 pounds $ 4.00 per pound $ 24.00
Direct labor 2.4 hours $ 24.00 per hour 57.60
Manufacturing overhead 2.4 hours $ 9.00 per hour 21.60
Unit product cost $ 103.20
The estimated selling and administrative expense for February is computed as follows:
Budgeted unit sales 9,900
Variable selling and administrative expense per unit $ 1.60
Total variable selling and administrative expense $ 15,840
Fixed selling and administrative expenses 70,000
Total selling and administrative expenses $ 85,840
The estimated net operating income for February is computed as follows:
Total sales 9,900 units × $112 per unit $ 1,108,800
Cost of goods sold 9,900 units × $103.20 per unit 1,021,680
Gross margin 87,120
Selling and administrative expenses 85,840
Net operating income $ 1,280
At Olya Corporation, maintenance is a variable overhead cost that is based on machine-hours. The performance report for July showed that actual maintenance costs totaled $8,750 and that the associated rate variance was $220 unfavorable. If 5,000 machine-hours were actually worked during July, the standard maintenance cost per machine-hour was:
A) $1.71 per MH
B) $1.78 per MH
C) $1.68 per MH
D) $1.83 per MH
ANSWER: $1.71
Variable overhead rate variance = (AH × AR) – (AH × SR)
$220 U = $8,750 – (5,000 MHs × SR)
$220 = $8,750 – (5,000 MHs × SR)
5,000 MHs × SR = $8,750 – $220
5,000 MHs × SR = $8,530
SR = $8,530 ÷ 5,000 MHs
SR = $1.71 per MH