Explain the impact on unit product costs of the switch in costing systems.

APPLICATION PROBLEMS:

All work must be shown to receive any credit

Question 26:Learned Corporation recorded the following transactions for the just completed month.

a.$80,000 in raw materials were purchased on account.

b.$71,000 in raw materials was requisitioned for use in production. Of this amount, $62,000 was for direct materials and the remainder was for indirect materials.

c.Total labor wages of $112,000 were incurred. Of this amount, $101,000 was for direct labor and the remainder was for indirect labor.

d.Additional manufacturing overhead costs of $175,000 were incurred.

Required:

Record the above transactions in journal entries.

Question 27:Midwest Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 50,000 units next year and Product L is expected to sell 10,000 units. A unit of either product requires 0.2 direct labor hours.

The company’s total manufacturing overhead for the years is expected to be $1,920,000.

Required:

1.The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this is followed, how much overhead cost would be applied to each product? Compute both the overhead cost per unit and the total amount of overhead cost that would be applied to each product. (In other words, how much overhead cost is applied

to a unit of Product H? Product L? How much overhead cost is applied in total to all the units of Product H? Product L?)

2.Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $960,000 assigned to Product H and $960,000 assigned to Product L.

If this is followed, how much overhead cost per unit would be applied to each product?

3.Explain the impact on unit product costs of the switch in costing systems.

Question 28:Data concerning a recent period’s activity in the Prep Department, the first processing department in a company that uses processing costs, appear below.

Material

Conversion

Equivalent units of production in ending work in process

2,000

800

Cost per equivalent unit

$13.86

$4.43

A total of 20,100 units were completed and transferred to the next processing department during the period.

Required:

Compute the cost of the units transferred to the next department during the period and the cost of the ending work in process inventory.

Question 29:Harris Company manufactures and sells a single product. A partially completed schedule of the company’s total and per unit costs over the relevant range of 30,000 to 50,000 units produced and sold annually is given below:

Units Produced and Sold

30,000

40,000

50,000

Total Costs:

Variable costs

$180,000

?

?

Fixed costs

300,000

?

?

Total Costs

?

?

Cost per unit:

Variable cost

?

?

?

Fixed cost

?

?

?

Total cost per unit

?

?

?

Required:

1.Complete the schedule of the company’s total and unit costs above.

2.Assume that the company produces and sells 45,000 units during the year at a selling price of $16 per unit. Prepare a contribution format Income Statement for the year.

Question 30:Whirly Corporation’s most recent Income Statement is shown below:

Total

Per Unit

Sales (10,000 units)

$350,000

$35.00

Variable expenses

200,000

20.00

Contribution Margin

150,000

$15.00

Fixed expenses

135,000

Net Operating income

$ 15,000

Required:

Prepare a new contribution format Income Statement under each of the following conditions (consider each case independently):

1.The sales volume increases by 100 units.

2.The sales volume decreases by 100 units.

3.The sales volume is 9,000 units.

Question 31:Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

April

May

June

Total

Budgeted sales (all on account)

$300,000

$500,000

$200,000

$1,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of the sale, another 70% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.

Required:

1.Prepare a schedule of expected cash collections from sales, by month and in total for the second quarter.

2.Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

Question 32:Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:

Puget Sound Divers

Planning Budget

For the Month Ended May 31

Budgeted diving-hours (q)……………………

100

Revenue ($365.00q)……………………………

$36,500

Expenses

Wages and salaries ($8,000 + 125.00q)……..

$20,500

Supplies ($3.00q)……………………………

300

Equipment rental ($1,800 + $32.00q)……….

5,000

Insurance ($3,400)…………………………..

3,400

Miscellaneous ($630 + $1.80q)……………..

810

Total expense………………………………….

$30,010

Net operating income………………………….

$ 6,490

Required:

During May, the company’s activity was actually 105 diving-hours. Prepare a flexible budget for that level of activity.

Question 33:Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers – the number of cruises and the number of passengers – that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:

Fixed Cost

Per Month

Cost per

Cruise

Cost per

Passenger

Vessel operating costs……..

$5,200

$480.00

$2.00

Advertising………………..

$1,700

Administrative costs………

$4,300

$ 24.00

$1.00

Insurance………………….

$2,900

For example, vessel operating costs should be $5,200 per month plus $480 per cruise plus $2 per passenger. The company’s sales should average $25 per passenger. The company’s planning budget for July is based on 24 cruises and 1,
400 passengers.

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