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PROBLEM 4-33 (30 MINUTES) 1. a. Equivalent units: Percentag e of Completio n with Respect Tax to Returns Conversio n (physic al (labor and Equivalent Units units) overhead) Labor Overhea d Returns in process, February 1............ 30 0 20% Returns started in February.............. 900 Total returns to account for........... 1,20 0 Returns completed during February..... 80 0 100% 800 800 Returns in process, February 28........... 4 00 75% 300 300 Total returns accounted for......... 1,20 0 ____ ____ Total equivalent units of activity..... 1,100 1,100 b. Costs per equivalent unit: McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e 5-1

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McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-1 PROBLEM 4-33 (30 MINUTES) 1.a.Equivalent units: Percentage of Completion with Respect Taxto ReturnsConversion (physical(labor andEquivalent Units units)overhead)LaborOverhead Returns in process, February 1 .....30020% Returns started in February ...........900 Total returns to account for ........... 1,200 Returns completed during February ........................800100%800800 Returns in process, February 28 ...400 75%300300 Total returns accounted for ........... 1,200________ Total equivalent units of activity ... 1,1001,100 b.Costs per equivalent unit: Labor Overhead Total Returns in process, February 1 ...................3,5004,0007,500 Costs incurred during February ..................90,00051,000141,000 Total costs to account for ............................93,50055,000148,500 Equivalent units ............................................1,1001,100 Costs per equivalent unit .............................85.0050.00135.00 2.Cost of returns in process on February 28: Labor:equivalent units cost per equivalent unit 300 85.00 .......................................................25,500 Overhead:equivalent units cost per equivalent unit 300 50.00 .......................................................15,000 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-2 Total cost of returns in process on February 28 .........................................40,500 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-3 PROBLEM 4-34 (50 MINUTES) The missing amounts are shown below. A completed production report follows. Units started during January ................................................................................55,000 Units completed and transferred out during January .........................................60,000 Total equivalent units: conversion .......................................................................66,000 Work in process, January 1: conversion .............................................................$ 110,600 Costs incurred during January: direct material ..................................................400,000 Cost per equivalent unit: conversion ...................................................................14.10 Cost of goods completed and transferred out during January ..........................1,320,000 Cost remaining in ending work-in-process inventory: direct material ..............158,000 PRODUCTION REPORT: CANANDAIGUA CARPET COMPANY Weighted-Average Method Physical Units Percentage of Completion with Respect to Conversion Equivalent Units Direct Material Conversion Work in process, January 1 ............ 25,00025% Units started during January .......... 55,000 Total units to account for ................ 80,000 Units completed and transferred out during January ...................... 60,000 100% 60,000 60,000 Work in process, January 31 .......... 20,00030%20,0006,000 Total units accounted for ................ 80,000__________ Total equivalent units ...................... 80,00066,000 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-4 PROBLEM 4-34 (CONTINUED) Direct Material Conversion Total Work in process, January 1 .............................. $232,000$110,600$342,600 Costs incurred during January .........................400,000820,0001,220,000 Total costs to account for ................................. $632,000$930,600$1,562,600 Equivalent units ................................................. 80,00066,000 Costs per equivalent unit .................................. $7.90$14.10$22.00 *$7.90 = $632,000 80,000 $14.10 = $930,600 66,000 **$22.00 = $7.90 + $14.10 Cost of goods completed and transferred out during January: ||.|

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\|unit equivalentper costtotal

out d transferreunits of number .............................60,000 $22.00$1,320,000 Cost remaining in January 31 work-in-process inventory: Direct material: |||||.|

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\|material direct of unit equivalentper cost

material direct of unitsequivalentof number ................................ 20,000 $7.90 $158,000 Conversion: |||||.|

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\|conversionof unit equivalentper cost

conversionof unitsequivalentof number .......................................... 6,000 $14.10 84,600 Total cost of January 31 work in process ...............................................$242,600 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-5 Check:Cost of goods completed and transferred out .. $1,320,000 Cost of January 31 work-in-process inventory .242,600 Total costs accounted for ................................... $1,562,600 PROBLEM 4-35 (45 MINUTES) 1.PRODUCTION REPORT: MIXING DEPARTMENT (Weighted-Average Method) November 20x5 Percentage of Completion withEquivalent Units PhysicalRespect toDirect UnitsConversionMaterialConversion Work in process, November 1 .......5,000 70% Units started during November ....17,000 Total units to account for ..............22,000 Units completed and transferred out during November ..........16,000100%16,00016,000 Work in process, November 306,00030%6,0001,800 Total units accounted for ..............22,000____ __ ____ Total equivalent units ....................22,00017,800 Direct MaterialConversionTotal Work in process, November 1 .......$31,600 $55,220 $86,820 Costs incurred during November .85,000* 210,000295,000 Total costs to account for .............$116,600 $265,220 $381,820 Equivalent units .............................22,000 17,800 Costs per equivalent unit ..............$5.30 $14.90 $20.20 *$85,000 = $16,000 + $44,000 + (5,000 12,000)($60,000) $210,000 = $70,000 + (1.50)($70,000) + $35,000 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-6 PROBLEM 4-35 (CONTINUED) Cost of goods completed and transferred out during November: ||.|

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\|unit equivalentper costtotal

out d transferreunits of number .............................16,000 $20.20$323,200 Cost remaining in November 30 work-in-process inventory Direct material: |||||.|

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\|material direct of unit equivalentper cost

material direct of unitsequivalentof number................................. 6,000 $5.30$31,800 Conversion |||||.|

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\|conversionof unit equivalentper cost

conversionof unitsequivalentof number........................................... 1,800 $14.9026,820 Total cost of November 30 work in process ..................................................... $58,620 Check: Cost of goods completed and transferred out ........ $323,200 Cost of November 30 work-in-process inventory58,620 Total costs accounted for ..................................... $381,820 2.a.Work-in-Process Inventory: Mixing Department ............ 85,000 Raw-Material Inventory ........................................... 85,000 b.Work-in-Process Inventory: Mixing Department ............ 70,000 Wages Payable ........................................................ 70,000 c.Work-in-Process Inventory: Mixing Department ............ 140,000* Manufacturing Overhead ........................................ 140,000 *$140,000 = (1.50)($70,000) + ($35,000) McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-7 d.Work-in-Process Inventory: Finishing Department ........ 323,200 Work-in-Process Inventory: Mixing Department .. 323,200 EXERCISE 5-32 (20 MINUTES) The activities of the Seneca Falls Winery may be classified as follows: U: Unit-level B: Batch-level P: Product-sustaining-level F: Facility-level McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-8 EXERCISE 5-32 (CONTINUED) ActivityClassificationActivityClassification (1)P(11)B (2)P(12)B (3)P(13)U (4)P(14)U (5)P(15)U (6)P(16)U (7)P(17)B (8)B(18)F (9)B(19)F (10)B McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-9 EXERCISE 5-33 (30 MINUTES) 1.ZODIAC MODEL ROCKETRY COMPANY COMPUTATION OF SELLING COSTS BY ORDER SIZE AND PER MOTOR WITHIN EACH ORDER SIZE Order Size SmallMediumLargeTotal Sales commissionsa (Unit cost: $675,000/225,000 = $3.00 per box) ....................................................box) $ 6,000 $135,000 $534,000 $ 675,000 Catalogsb (Unit cost: $295,400/590,800 = $.50 per catalog) ...............................................catalog)127,150 105,650 62,600 295,400 Costs of catalog salesc (Unit cost: $105,000/175,000 = $.60 per motor) ..................................................skein)47,400 31,200 26,400 105,000 Credit and collectiond (Unit cost: $60,000/6,000 = $10.00 per order) ...............................................order)4,850 24,150 31,000 60,000 Total cost for all orders of a given size ..................................................................... $185,400 $296,000 $654,000 $1,135,400 Units (motors) solde .................................................... 103,000592,0002,180,000 Unit cost per order of a given sizef .............................................................................. $1.80 $.50 $.30 aRetail sales in boxes unit cost: Small, 2,000 $3 Medium, 45,000 $3 Large, 178,000 $3 bCatalogs distributed unit cost cCatalog sales unit cost dNumber of retail orders unit cost McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-10 eSmall: (2,000 12) + 79,000 = 103,000 Medium: (45,000 12) + 52,000 = 592,000 Large: (178,000 12) + 44,000 = 2,180,000 fTotal cost for all orders of a given size units sold EXERCISE 5-33 (CONTINUED) 2.Theanalysisofsellingcostsshowsthatsmallorderscostmorethanlargeorders. Thisfactcouldpersuademanagementtomarketlargeordersmoreaggressively and/or offer discounts for them. PROBLEM 5-51 (30 MINUTES) 1.ValdostaVinylCompany(VVC)iscurrentlyusingaplantwideoverheadratethatis appliedonthebasisofdirect-labordollars.Ingeneral,aplantwide manufacturing-overheadrateisacceptableonlyifasimilarrelationshipbetween overheadanddirectlaborexistsinalldepartmentsorthecompanymanufactures products that receive the same proportional services from each department Inmostcases,departmentaloverheadratesarepreferabletoplantwideoverhead rates because plantwide overhead rates do not provide the following: -Aframeworkforreviewingoverheadcostsonadepartmentalbasis,identifying departmentalcostoverruns,ortakingcorrectiveactiontoimprovedepartmental cost control. -Sufficientinformationaboutproductprofitability,thusincreasingthedifficulties associated with management decision making. McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-11 2.Becausethecompanyusesaplantwideoverheadrateappliedonthebasisof direct-labordollars,theeliminationofdirectlaborintheMoldingDepartmentthrough theintroductionofrobotsmayappeartoreducetheoverheadcostoftheMolding Departmenttozero.However,thischangewillnotreducefixedmanufacturingcosts suchasdepreciationandplantsupervision.Inreality,theuseofrobotsislikelyto increasefixedcostsbecauseofincreaseddepreciation.Underthecurrentmethodof allocatingoverheadcosts,thesecostsmerelywillbeabsorbedbytheremaining departments. McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-12 PROBLEM 5-51 (CONTINUED) 3.a.In order to improve the allocation of overheadcosts in the Cutting and Finishing departments, management should move toward an activity-based costing system. The firm should: -Establish activity-cost pools for each significant activity. -Selectacostdriverforeachactivitythatbestreflectstherelationshipofthe activity to the overhead costs incurred. b.InordertoaccommodatetheautomationoftheMoldingDepartmentinits overhead accounting system, the company should: -Establish a separate overhead pool and rate for the Molding Department. -Identifyfixedandvariableoverheadcostsandestablishfixedandvariable overhead rates. -ApplyoverheadcoststotheMoldingDepartmentonthebasisofrobotor machine hours. PROBLEM 5-54 (50 MINUTES) 1.Activity Cost PoolType of Activity I:Machine-related costsUnit-level II:Setup and inspectionBatch-level III:EngineeringProduct-sustaining-level IV:Plant-related costsFacility-level 2.Calculation of pool rates: I:Machine-related costs: hrs. machine 18,000$1,800,000 =$100 per machine hr. McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-13 II.Setup and inspection: runs 80$720,000=$9,000 per run III.Engineering: orders change 200$360,000 =$1,800 per change order IV.Plant-related costs: ft. sq. 3,840$384,000 =$100 per sq. ft. PROBLEM 5-54 (CONTINUED) 3.Unit costs for odds and ends: I:Machine-related costs: Odds: $100 per machine hr. 8 machine hr. per unit=$800 per unit Ends: $100 per machine hr. 2 machine hr. per unit=$200 per unit II:Setup and inspection: Odds: $9,000 per run 25 units per run=$360 per unit Ends: $9,000 per run 125 units per run=$72 per unit III:Engineering: Odds: units 1,00075% orders change 200 order change per $1,800 = units 1,000$270,000 = $270 per unit McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-14 Ends: units 5,00025% orders change 200 order change per $1,800 = units 5,000$90,000 = $18 per unit IV.Plant-related costs: Odds: units 1,00080% ft. sq. 3,840 ft. sq. per $100 = units 1,000$307,200 =$307.20 per unit Ends: units 5,00020% ft. sq. 3,840 ft. sq. per $100 = units 5,000$76,800 =$15.36 per unit PROBLEM 5-54 (CONTINUED) 4.New product cost per unit using the ABC system: OddsEnds Direct material ......................................................................$160.00$240.00 Direct labor ...........................................................................120.00180.00 Manufacturing overhead: Machine-related .............................................................800.00200.00 Setup and inspection ....................................................360.0072.00 Engineering....................................................................270.0018.00 Plant-related...................................................................307.2015.36 Total cost per unit ................................................................$2,017.20$725.36 5.New target prices: OddsEnds New product cost (ABC) ......................................................$2,017.20$725.36 Pricing policy ........................................................................120%120% McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-15 New target price ...................................................................$2,420.64$870.43(rounded) 6.Full assignment of overhead costs: OddsEnds Manufacturing overhead costs: Machine-related .............................................................$800.00$ 200.00 Setup and inspection ....................................................360.0072.00 Engineering ...................................................................270.0018.00 Plant-related ..................................................................307.20 15.36 Total overhead cost per unit ...............................................$1,737.20$ 305.36 Production volume ...........................................................1,000 5,000 Total overhead assigned .....................................................$1,737,200$1,526,800 Total = $3,264,000 PROBLEM 5-54 (CONTINUED) 7.Cost distortion: OddsEnds Traditional volume-based costing system: reported product cost ................................................... $664.00$996.00 Activity-based costing system: reported product cost ...................................................2,017.20 725.36 Amount of cost distortion per unit .....................................$(1,353.20 )$270.64 Traditional system undercosts odds by $1,353.20 per unit Traditional system overcosts ends by $270.64 per unit McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-16 Production volume ...............................................................1,0005,000 Total amount of cost distortion for entire product line .................................................................... $(1,353,200)$1,353,200 Sum of these two amounts is zero. PROBLEM 5-55 (45 MINUTES) 1.a.GSCC's predetermined overhead rate, using direct-labor cost as the single cost driver, is $10 per direct labor dollar, calculated as follows: Overhead rate = cost labor - direct budgetedcost overhead - ing manufactur total =$12,000,000/$1,200,000 =$10 per direct-labor dollar b.The full product costs and selling prices of one pound of Jamaican and one pound of Colombian coffee are calculated as follows: JamaicanColombian Direct material ........................................$2.90$3.90 Direct labor ..............................................40.40 Overhead (.40 $10) .............................4.004.00 Full product cost ...................................$7.30$8.30 Markup (30%) .........................................2.192.49 Selling price ...........................................$9.49$10.79 2.The new product cost, under an activity-based costing approach, is $11.06 per pound of Jamaican and $4.62 per pound of Columbian coffee, calculated as follows: Activity Cost Driver Budgeted Activity Budgeted Cost Unit Cost PurchasingPurchase orders2,316$2,316,000$1,000 Material handlingSetups3,6002,880,000800 Quality controlBatches1,440576,000400 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-17 RoastingRoasting hours192,2003,844,00020 BlendingBlending hours67,2001,344,00020 PackagingPackaging hours52,0001,040,00020 PROBLEM 5-55 (CONTINUED) Jamaican Coffee Standard cost per pound: Direct material .......................................................................................$2.90 Direct labor .............................................................................................40 Purchasing (4 orders* $1,000/2,000 lb.) ...........................................2.00 Material handling (12 setups $800/2,000 lb.) ...................................4.80 Quality control (4 batches $400/2,000 lb.) .........................................80 Roasting (10 hours $20/2,000 lb.) ......................................................10 Blending (5 hours $20/2,000 lb.) ........................................................05 Packaging (1 hours $20/2,000 lb.) .....................................................01 Total cost ...............................................................................................$11.06 *Budgeted salespurchase order size 2,000 lbs. ................................... 500 lbs.=4 orders Colombian Coffee Standard cost per pound: Direct material .......................................................................................$3.90 Direct labor .............................................................................................40 Purchasing (2 orders* $1,000/100,000 lb.) ........................................02 Material handling (15 setups $800/100,000 lb.).................................12 Quality control (5 batches $400/100,000 lb.) .....................................02 Roasting (500 hours $20/100,000 lb.) ................................................10 McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc. Managerial Accounting, 8/e5-18 Blending (250 hours $20/100,000 lb.) ................................................05 Packaging (50 hours $20/100,000 lb.)................................................01 Total cost ...............................................................................................$4.62 *Budgeted salespurchase order size 100,000 lbs. .......................... 50,000 lbs.=2 orders 3.a.TheABCanalysisindicatesthatseveralactivitiesotherthandirectlabordrive overhead.Thecostcomputationsshowthatthecurrentsystemsignificantly undercostedJamaicancoffee,thelow-volumeproduct,andsignificantly overcosted the high-volume product, Colombian coffee. b.TheimplicationoftheABCanalysisisthatthelow-volumeproductsareusing resourcesbutarenotcoveringtheirshareofthecostofthoseresources.The Jamaicanblendiscurrentlypricedat$9.49[seerequirement1(b)],whichis significantlybelowitsactivity-basedcostof$11.06.Thecompanyshouldset long-run prices above cost. If there is excess capacity and many of the costs are fixed,it maybe acceptable to pricesomeproducts below full activity-based cost temporarily in order to build demand for the product. Otherwise, the high-volume, high-margin products are subsidizing the low-volume, low-margin products.