1. Distinguish between a traditional costing system and an activity-based costing (ABC) system, and explain some benefits of ABC? 2. Lockhart Products manufactures custom-built ships. Each ship is built to customer specifications. Most of the direct labor time is spent on welding activities. Following is the job cost sheet for an incinerator manufactured for the Galveston Harbor Corporation:
| 1. Distinguish between a traditional costing system and an activity-based costing (ABC) system, and explain some benefits of ABC? | |||||||||||||
| 2. Lockhart Products manufactures custom-built ships. Each ship is built to customer specifications. Most of the direct labor time is spent on welding activities. Following is the job cost sheet for an incinerator manufactured for the Galveston Harbor Corporation: | |||||||||||||
| Lockhart Products | Job Cost Sheet | ||||||||||||
| Job: | Galveston | ||||||||||||
| Form Reference | Direct Labor | Direct Material | Applied Overhead | Total | |||||||||
| Hours | Rate | Total | Qty | Cost Per Unit | Total | Qty | Rate | Total | |||||
| 8-May-15 | |||||||||||||
| M. Martinez | DTS.05.08.X7.RB | 9 | $25 | $ 225 | $ 225 | ||||||||
| V. Garza | DTS.05.08.X7.SS | 1 | $12 | $ 12 | $ 12 | ||||||||
| Steel | MR.05.08.X7.RB | 10 | $ 80 | $ 800 | $ 800 | ||||||||
| 9-May-15 | |||||||||||||
| M. Martinez | DTS.05.09.X7.SS | 2 | $12 | $ 24 | $ 24 | ||||||||
| Applied Overhead | ? | ? | $ 360 | $ 360 | |||||||||
| Totals | 12 | $ 261 | $ 800 | $ 360 | $ 1,421 | ||||||||
| (a) | What types of costs do you imagine would be included in factory overhead? If overhead is applied based on direct labor hours, what is the application rate? | ||||||||||||
| (b) | Lockhart is considering installation of a robotic machine that will do all welding operations. How might this decision impact the total overhead and the application method? | ||||||||||||
| (c) | How does the applied overhead relate to the actual overhead? When they are not the same, what happens to the difference? Why is actual overhead not assigned to each job? | ||||||||||||
| 3. Tee Time
Products, Inc. produces handmade golf clubs.
The process is labor intensive.
The speed at which a club can be built depends on the skill level of
the individual worker. Management has
established a standard of 2 labor hours per club. The standard wage rate is $12 per hour. During a recent month, 2,500 custom clubs
were produced. Management was pleased
that only 4,900 labor hours were worked; however, total wages amounted to
$63,700. Compute the total variance for labor, and determine how much is related to rate and efficiency components. | |||||||||||||
| 4. The standard direct material cost to produce one widget is four meters of widget line (material) at $3.00 per meter. Durig May 2016, 6,000 meters of line (material) costing $17,500 were purchased and used to produce 1,500 units of widgets. What was the material price variance for May 2016? | |||||||||||||
| a. $200 Favorable | |||||||||||||
| b. $500 Unfavorable | |||||||||||||
| c. $800 Unfavorable | |||||||||||||
| d. $500 Favorable | |||||||||||||
| 5. The Machining Department is the first of a 2-stage production process. Spoilage is identified when the units have completed the Machining process. Costs of spoiled units are assigned to units completed and transferred to the second department in the period spoilage is identified. The following information concerns Machining’s conversion costs in May 2016: | |||||||||||||
| Units | Conversion Costs | ||||||||||||
| Beginning WIP (50% Complete) | 4,500 | $20,000 | |||||||||||
| Units started during May | 16,500 | $160,000 | |||||||||||
| Spoilage – normal | 500 | ||||||||||||
| Units completed and transferred | 15,500 | ||||||||||||
| Ending WIP (80% Complete) | 5,000 | ||||||||||||
| Using the weighted average method, what was Machining’s conversion cost transferred to the second production department? | |||||||||||||
| a. $150,000 | |||||||||||||
| b. $160,000 | |||||||||||||
| c. $144,000 | |||||||||||||
| d. $140,000 | |||||||||||||
| 6. A 2017 Cash Budget is being prepared for the purchase of widgets. Budgeted data are: | |||||||||||||
| Cost of Goods Sold (2017) | $400,000 | ||||||||||||
| Accounts Payable (1/1/2017) | $10,000 | ||||||||||||
| Inventory (1/1/2017) | $50,000 | ||||||||||||
| Inventory (12/31/2017) | $85,000 | ||||||||||||
| Purchases will be made in 12 equal monthly amounts and paid for in the following month. What is the 2017 budgeted cash payment for purchases of these widgets? | |||||||||||||
| a. $399,750 | |||||||||||||
| b. $408,750 | |||||||||||||
| c. $400,000 | |||||||||||||
| d. $475,000 | |||||||||||||
| 7. Which is the best cost accumulation procedure to use when there is a continuous mass production of like units? | |||||||||||||
| A. Process. | |||||||||||||
| B. Standard. | |||||||||||||
| C. Job order. | |||||||||||||
| D. ABC. | |||||||||||||
| E. None of these. | |||||||||||||
| 8. An equivalent unit of material is equal to: | |||||||||||||
| A. the amount of material necessary to complete one unit of production. | |||||||||||||
| B. a unit of work in process inventory. | |||||||||||||
| C. the amount of material necessary to start a unit of production into work in process. | |||||||||||||
| D. fifty percent of the material cost of a unit of finished goods. | |||||||||||||
| E. None of these. | |||||||||||||
| (True or False) | |||||||||||||
| 9. To apply process costing, there is no need to decide on a specific methods such as FIFO or weighted-average. |
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