Workshop 1 – Chapters 1-3 Exercise 2-2 (15 minutes) | | Product Cost | Period Cost | 1. | The cost of the memory chips used in a radar set | X | | 2. | Factory heating costs | X | | 3. | Factory equipment maintenance costs | X | | 4. | Training costs for new administrative employees | | X | 5. | The cost of the solder that is used in assembling the radar sets | X | | 6. | The travel costs of the company’s salespersons | | X | 7. | Wages and salaries
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company applies manufacturing overhead on the basis of machinehours. The predetermined overhead rate is $11 per machine-hour. The total cost for the job on its job cost sheet would be: A. $4‚571 B. $3‚757 C. $3‚090 D. $3‚427 Applied manufacturing overhead = Predetermined overhead rate x Actual machine-hours Applied manufacturing overhead = $11 x 104 Applied manufacturing overhead = $1‚144 Total cost = Direct materials + Direct labor + Applied manufacturing overhead Total cost of Job 607 = $3‚067
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Shaving 5% off the estimated direct labor hours in the base for the predetermined overhead rate will falsely produce a high overhead rate‚ which will result in over applied overhead. Thus‚ inflating the cost of goods sold until year end‚ and overstating the inventories. The over applied overhead will be recognized at year end by closing it to cost of goods sold. The adjustment for the over applied overhead will result in a big boost in net operating income at year end.
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rather that Product Cost. This type of cost is unrelated to manufacturing overhead and cost of goods sold. | Manufacturing Overhead:Manufacturing overhead includes all costs of manufacturing such as indirect material‚ indirect labor‚ property taxes‚ maintenance and repairs‚ insurance etc. It excludes the direct material and direct labor. The selling and administrative expenses will not be reported in the manufacturing overhead since they are not incurred for the production of the goods. | Cost of
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appropriate for Wall Décor‚ when overhead allocation based job-order costing provides product cost distortion. As seen on previous case‚ this distortion happens when one product is manufacturing in high volume and the others are manufacturing in complexity as well as in low volume. In this situation Wall Décor should change its costing system for selling its high volume produced products whereas low-volume produced products have good profit. 2. The activity-based overhead rates for each of the four
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Activity-Based Costing Traditional Costing Systems Allocates overhead using a single predetermined rate. ► Job order costing: direct labor cost may be the relevant activity base. ► Process costing: machine hours may be the relevant activity base. Assumption was satisfactory when direct labor was a major portion of total manufacturing costs. ► Wide acceptance of a high correlation between direct labor and overhead costs. 4-3 LO1 Recognize the difference between traditional
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classifications of products. Question 1 According to Exhibit 2‚ Model Year Budgets for the ACF‚ we can know the total overhead‚ and direct labor costs. Therefore‚ we can calculate the budget of overhead allocation rate. | Total Overhead | Direct Labor Costs | Overhead/ Direct Labor Costs | 1987 | $107‚954 | $24‚682 | 437% | However‚ according to the question 1‚ the overhead allocation rate used in the 1987 model-year strategy study at the ACF was 435%. The two numbers are different because
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long-term variables overheads‚ traditionally considered fixed costs‚ can be traced to products (AICPA‚ 2014). The process used when applying the ABC method
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Analysis 24-2‚ 24-5 Analysis‚ communication‚ judgment B. Ex. 24.6 B. Ex. 24.7 B. Ex. 24.8 B. Ex. 24.9 B. Ex. 24.10 Computing labor cost variances Journal entry for direct labor Computing materials cost variances Journal entry for direct materials Overhead cost variances 24-1‚ 24-3‚ 24-5 Analysis‚ judgment 24-3 Analysis 24-3 Analysis 24-3 Analysis 24-4 Analysis‚ communication Exercises 24.1 24.2 24.3 24.4 24.5 24.6 Learning Topic Objectives Skills Accounting terminology 24-1–24-5 Analysis Relationships
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Lesson-13 Elements of Cost and Cost Sheet Learning Objectives • • • To understand the elements of cost To classify overheads on different bases To prepare a cost sheet Elements of Cost Raw materials are converted into finished products by a manufacturing concern with the help of labor‚ plants etc. The elements that constitute the cost of manufacturing are known as elements of cost. The elements of cost include the following: • • • Material Labor Expenses Each of these elements is again subdivided
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