Management Accounting

Part 1 – Sample costing flow for a product (10 marks)

Box D
Finished Goods:
Opening Balance
+ Transfers in
– Transfers out
Ending Balance
Box B
Sales
– Cost of Goods Sold
Gross Margin
– Corporate Overhead
Earnings before Taxes (operating profit)
– Taxes
Net Income
Box A
Materials:
Opening Balance
+ New work
– Transfers out
Ending Balance
Box C
Work In Process:
Opening Balance
+ Transfers in
+ Labour
+ Mfg Overhead
– Transfers out
Ending Balance

Questions:

1. What type of costing system is illustrated above on this page?

__________________________________________________________________________________

2. What is the correct ordering of the flow of boxes above (example: B to D to C to A)

___________________________________________________________________________________

3. True and False questions – Mark with X.

Question True False
A. Inventory in “finished goods” is the end of the production process.
B. Units transferred out from a department will have material, labour and factory overhead in its cost and is considered material in the next department.
C. Equivalent units of production are the portion of whole units that are complete with respect to either materials or conversion (direct labour and factory overhead) costs.
D. Process costing is used for custom production.
E. Process costing and job costing assign the same costs.
F. FIFO costing includes beginning inventory costs in the equivalent per unit cost.
G. If material for 1000 products was added to Work in Process but conversion costs are 75% complete at month end, the equivalent units for allocating conversion costs incurred in the month are A = 1,000 or B = 750 units. Which is correct? A B
H. The Finished Goods in Box D received $25,000 of costs (Transferred in). Opening inventory was $10,000 and ending inventory was $5,000. Transferred out must be A = $25,000 or B = $30,000. Which is correct? A B

Part 2 – Sample costing flows and pricing for three customers (10 marks)

Box A
Customer 1
+ Material
+ Labour
+ Mfg. Overhead
+ Corp Overhead
+ Mark up
= Floating Price
Box D
Customer 4
+ Material
+ Labour
+ Mfg. Overhead
+ Corp Overhead
+ Mark up
= Fixed Price
Box C Actual
Customer 2
+ Material to-date
+ Labour to date
+ Mfg. Overhead
+ Corp Overhead
Costs to date
Box C Forecast
Customer 2
+ Material
+ Labour
+ Mfg. Overhead
+ Corp Overhead
+ Mark up
= Fixed Price

Questions:

1. What type of costing system is illustrated above on this page?

__________________________________________________________________________________

2. What is a potential issue with Customer 2 if the overhead allocation is based on a budget and actual results mean the allocation should have been higher.

_________________________________________________________________________________________________

Question True False
A. Factory (Mfg) overhead includes all manufacturing costs except direct materials and direct labour and is allocated based on overall direct labour hours worked.
B. Labour in the Customer Boxes above (this page) are based on specific labour rates and hours worked on the particular job.
C. Materials are tracked through a requisition system.
D. Factory overhead applied represents the actual overhead costs incurred for the particular job. In Box A, this is the actual Mfg overhead incurred.
E. Material, Labour Costs, and Mfg Overhead in the Boxes above on this page would be recorded in Cost of Goods Sold when a sale is realized.
F. A job costing system is not applicable for a service company.
G. The mark-up (i.e., profit) in the Box D is 20% of costs. If the manufacturing costs are $75,000 and corporate overhead is $25,000, the profit to the company is A = $20,000 or B = $15,000. Which is correct? A B
H. Labour hours are tracked through a time ticket system. If the labour component of costs in G just above unexpectedly increased and manufacturing costs are now $80,000, the company would A= increase its profits or B = decrease its profits. Which is correct? A B

3. True and False questions – Mark with X.

Part 3 – Opinion questions

Part 3A – In a job order cost system, briefly state two important policies that would help the company produce customized products as desired by customers and would help the company control costs in setting prices for these products. This is particularly important for fixed price contracts. (4 marks)

1. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________2. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3B – In a process cost system, briefly state two important methods of assigning costs to the beginning inventory in a department. (4 marks)

1. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3C – Could a company use both the job and process costing methods in building products? Yes or No and Why. (2 marks)

__________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4 – Calculation Question (10 marks)

Use the worksheet below to assign costs to the inventory transferred out and the ending inventory using the weighted average method. The percentages indicate the amount of work completed.

Part 5 – Calculation Question (10 marks)

Use the worksheet below to assign costs to the inventory transferred out and the ending inventory using the FIFO method. The percentages indicate the amount of work completed.

Part 6 – Activity Based Cost (10 marks)

A company reports the following information about its indirect costs:

1. Total indirect costs of $3,000,000 for the next year.

2. There two products: Product A and Product B.

3. Direct labour hours for Product A is 40,000 and Product B is 60,000

4. The company’s accountant has suggested an alternative to the traditional allocation of indirect overhead based on direct labour hours. The accountant suggested the following:

a. Indirect costs can be broken down into supervisory wages $500,000, machine set up $250,000, machinery operating costs including depreciation $1,250,000, engineering changes $500,000, quality inspection costs $250,000, shipping costs $250,0000.

b. Activity drivers are supervisory wages (direct labour hours), machine set up (2,500 set up hours), machinery operating (12,500 machine hours), engineering changes (2,500 engineering hours), inspection (2,500 inspection hours), shipping (5,000 shipments)

Driver Product A Product B
DLH 40,000 60,000
Machine set up 750 1,750
Machine operating 3,500 9.000
Engineering changes 1,000 1,500
Inspections 500 2,000
Shipping Units 1,500 3,500

Questions:

A. Under the traditional allocation method, what is the amount of indirect cost allocated to Product A and Product B?

____________________________________________________________

B. Under the Activity Based Accounting (ACB) method, what is the amount of indirect cost allocated to Product A and Product B?

____________________________________________________________

C. Would the ABC method add value to the company, Yes or No and Why or Why Not?

____________________________________________________________

D. The accountant alternatively suggested a “standard costing system” for indirect costs. This would be a set / fixed amount for the year for each unit of Product A or Product B shipped. What is the standard cost per unit for Product A and Product B assuming a traditional cost allocation approach?

____________________________________________________________

Part 7 – Short answer – Fill in the right column with one example of the specified cost such as “labour to produce a product”. Only the first example will be considered for marks. (10 total marks, 1 mark for each item)

Cost Term Indicate a good example of the Cost Term.
1. Indirect manufacturing cost
2. Direct cost
3. Cost object
4. Prime cost
5. Conversion cost
6. Variable cost
7. Product cost
8. Period cost
9. Direct labour cost
10.. Corporate cost

Weighted  Average  Method Units Dollars Direct  Material Conversion  Costs Direct  Material Conversion  Costs

Beginning  WIP 500                           50,000                   35,000                                     15,000                                             Started 600                           70,000                   40,000                                     30,000

1,100                     120,000               75,000                                     45,000

Transfer  out 800                           100% 100% A1 A2 Ending  WIP 300                           100% 50% B1 B2

1,100

Per  Unit C D

Assigned  Costs Transfer  out Ending  WIP      Total

Weighted Average Method

UnitsDollarsDirect MaterialConversion Costs Direct MaterialConversion Costs

Beginning WIP 500 50,000 35,000 15,000

Started 600 70,000 40,000 30,000

1,100 120,000 75,000 45,000

Transfer out 800 100% 100%A1 A2

Ending WIP 300 100% 50%B1 B2

1,100

Per Unit

C D

Assigned Costs

Transfer out

Ending WIP

Total

FIFO  Method Units Dollars Direct  Material Conversion  Costs Direct  Material Conversion  Costs

Beginning  WIP 500                           50,000                   35,000                                     15,000                                             Started 600                           70,000                   40,000                                     30,000

1,100                     120,000               75,000                                     45,000

Beginning  WIP 450                           0% 40% A1 A2 Started  and  Completed 350                           100% 100% B1 B2 Ending  WIP 300                           100% 50% C1 C2

1,100

Per  Unit Assigned  Costs D E Beginning  WIP Added  to  Beginning  WIP      Transfer  from  Beg  WIP Started  and  Completed      Total  Transferred  Out Ending  WIP      Total

FIFO Method

UnitsDollarsDirect MaterialConversion Costs Direct MaterialConversion Costs

Beginning WIP 500 50,000 35,000 15,000

Started 600 70,000 40,000 30,000

1,100 120,000 75,000 45,000

Beginning WIP 450 0% 40%A1 A2

Started and Completed 350 100% 100%B1 B2

Ending WIP 300 100% 50%C1 C2

1,100

Per Unit

Assigned Costs D E

Beginning WIP

Added to Beginning WIP

Transfer from Beg WIP

Started and Completed

Total Transferred Out

Ending WIP

Total