THE HONG KONG POLYTECHNIC UNIVERSITY HONG KONG COMMUNITY COLLEGE
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1 THE HONG KONG POLYTECHNIC UNIVERSITY HONG KONG COMMUNITY COLLEGE Subject Title : Cost Accounting Subject Code : CC2106 Session : Semester Two, 2009/10 Numerical Answers Section B Questions B1 a. The expected total direct labor hours during the period are computed as follows: Product C: 400 units 1.2 hours per unit... Product D: 3,000 units 1.3 hours per unit... Total direct labor hours hours 3,900 hours 4,380 hours Using these hours as a base, the predetermined overhead using direct labor hours would be: Estimated overhead cost Estimated direct labor hours = $119,100 4,380 = $27.19/DLH Using this overhead rate, the unit product costs are: Product C Product D Direct materials... $ 4.00 $22.80 Direct labor Manufacturing overhead Total unit product cost... $48.63 $71.15 b. The overhead rates for each activity center are as follows: Estimated Overhead Expected Overhead Costs Activity Rate Machine setups... $10, $58.00 Purchase orders... $78,000 2,000 $39.00 General factory... $30,660 4,380 $7.00 The overhead cost charged to each product is: Product C Product D Activity Amount Activity Amount Machine setups $ 3, $ 6,960 Purchase orders ,980 1,180 46,020 General factory ,360 3,900 27,300 Page 1 of 7
2 Total overhead cost... $38,820 $80,280 Overhead cost per unit: Product C: $38, units = $97.05 per unit. Product D: $80,280 3,000 units = $26.76 per unit. Using activity based costing, the unit product cost of each product would be: Product C Product D Direct materials... $ 4.00 $22.80 Direct labor Manufacturing overhead Total unit product cost... $ $62.56 Question B2 Part I a. April May June Production units... 25,000 25,000 30,000 Cash required per unit... $6 $6 $6 Production costs... $150,000 $150,000 $180,000 Cash disbursements: Production this month (40%)... $ 60,000 $ 60,000 $ 72,000 Production prior month (60%)... 96,000 90,000 90,000 Selling and administration... 60,000 60,000 60,000 Total disbursements... $216,000 $210,000 $222,000 b. April May June Sales units... 30,000 20,000 25,000 Sales price... $15 $15 $15 Total sales... $450,000 $300,000 $375,000 Part II Cash receipts: February sales... $ 45,000 March sales ,500 $ 52,500 April sales , ,000 $ 45,000 May sales ,000 90,000 June sales ,000 Total receipts... $472,500 $367,500 $360,000 Page 2 of 7
3 The company s production budget is as follows: January February March April Budgeted sales (units)... 20,000 35,000 60,000 40,000 Add: Desired ending inventory... 7,000 12,000 8,000 6,000 Total needs... 27,000 47,000 68,000 46,000 Deduct beginning inventory... 4,000 7,000 12,000 8,000 Units to be produced... 23,000 40,000 56,000 38,000 The materials purchase budget (based on the above production budget) would be as follows: Jan Feb Mar Quarter Units to be produced 23,000 40,000 56, ,000 Switches per unit Production needs (number of switches) 69, , , ,000 Add desired ending inventory (number of switches)** 36,000 50,400 34,200 34,200 Total needs 105, , , ,200 Deduct beginning inventory (number of switches)* 20,700 36,000 50,400 20,700 Required purchases (number of switches) 84, , , ,500 * For January: 69, = 20,700. ** For March: 38,000 3 = 114,000; 114, = 34,200 Question B3 Part I Labor rate variance = (AH AR) - (AH SR) = $95,680 (9,200 $10.20) = $1,840 U SH = Standard hours per unit Actual output = 7.8 1,300 = 10,140 Labor efficiency variance = SR(AH - SH) = $10.20(9,200 10,140) = $9,588 F Page 3 of 7
4 Part II AH AR AH SR SH SR 1,600 hours $2.60 1,600 hours $2.50 1,800 hours $2.50 =$4,160 =$4,000 =$4,500 Spending Variance Efficiency Variance $160 U $500 F Calculations-in this order: Total Variance, $340 F Efficiency variance = Total variance - Spending variance = $340 F - $160 U = -$340 - $160 = $500 F Actual Hours Standard Rate = 1,600 $2.50 = $4,000 AH AR = AH SR + Spending Variance = $4,000 + $160 U = $4,000 + $160 = $4,160 AR = (AH AR) AH = $4,160 1,600 hours = $2.60/hour SH SR = AH SR - Efficiency Variance = (1,600 $2.50) - $500 F = $4,000 - (-$500) = $4,500 SH = (SH SR) SR = $4,500 $2.50 = 1,800 hours Summary: Direct Labor-Hours Rate per Direct Labor Hour Actual... 1,600 $2.60 Standard... 1,800 $2.50 Total Actual Overhead... $4,160 Total Applied Overhead... $4,500 Page 4 of 7
5 Variable Overhead Spending Variance... Variable Overhead Efficiency Variance... Total Variable Overhead Variance... $1,60 U $500 F $340 F Question B4 a. Standard variable overhead rate = $262, ,000 machine hours = $1.75 per machine hour Standard fixed overhead rate = $300, ,000 machine hours = $2 per machine hour b. Variable overhead variances: Spending variance = AH(AR - SR) = 126,000 ($1.68* - $1.75) = $8,820 F * $211, ,000 = $1.68 Efficiency variance = SR(AH - SH) = $1.75 (126, ,000*) = $10,500 U * 120,000 units 1 hour per unit = 120,000 hours c. Fixed overhead variances: Budget variance = Actual fixed overhead - Budgeted fixed overhead = $315,000 - $300,000 = $15,000 U Volume variance = Fixed rate (Denominator hrs. - Standard hrs.) = $2 (150, ,000) = $60,000 U Page 5 of 7
6 Question B5 a. Operating assets do not include investments in other companies or in undeveloped land. Beginning Ending Balance Balance Cash... $ 250,000 $260,000 Accounts receivable , ,000 Inventory , ,000 Plant and equipment (net) , ,000 Total operating assets... $1,020,000 $980,000 Average operating assets = ($1,020,000 + $980,000) 2 = $1,000,000 Margin = Net operating income Sales = $280,000 $1,750,000 = 16% Turnover = Sales Average operating assets = $1,750,000 $1,000,000 = 1.75 ROI = Margin Turnover = 16% 1.75 = 28% b. Net operating income... $280,000 Minimum required return (25% $1,000,000) ,000 Residual income... $ 30,000 Question B6 a. Schedule of cost of goods manufactured Direct materials: Raw materials inventory, beginning... $ 10 Add: Purchases of raw materials... $170 Raw materials available for use... $180 Deduct: Raw materials inventory, ending... $ 50 Raw materials used in production... $130 Direct labor... $220 Manufacturing overhead... $210 Total manufacturing cost... $560 Page 6 of 7
7 Add: Work in process inventory, beginning... $ 80 $640 Deduct: Work in process inventory, ending... $ 60 Cost of goods manufactured... $580 b. Computation of cost of goods sold Finished goods inventory, beginning... $110 Add: Cost of goods manufactured... $580 Goods available for sale... $690 Deduct: Finished goods inventory, ending... $100 Cost of goods sold... $590 c. Income statement Sales... $860 Less: Cost of goods sold... $590 Gross margin... $270 Less: Administrative expenses... $120 Less: Selling expenses... $170 Net operating income... $ (20) Page 7 of 7
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