Exam 4: Accumulating and Assigning Costs to Products

Apple Valley Corporation uses a job order cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are: The actual material and labor costs charged to Job #432 are as follows: Apple Valley applies manufacturing overhead costs to jobs on the basis of direct labor cost using departmental rates determined at the beginning of the year. -For Department B,the manufacturing overhead cost driver rate is:

The goal of both job order costing and process costing is accurate product cost.

Distinguish between direct and indirect costs. Give examples of each with regard to a specific product.

(Appendix)Using the direct method for service department's cost allocations are likely to undercost low-volume products.

Labor hours are always an appropriate cost driver in a manufacturing environment.

Ocean Technical Services applies manufacturing overhead costs to products at a predetermined rate of $70 per direct labor hour. One customer has requested a bid on a special order of a product. Estimates for this order include: direct materials $50,000; direct labor 900 direct labor hours @ $30 per hour; and a markup rate of 25%. -Manufacturing overhead cost estimates for this special order total:

Overhead costs such as factory rent and supervisory salaries are allocated to cost objects in a multi-product facility.

(Appendix)The direct method of allocating service department costs assigns indirect costs to products in two stages.In the first stage,production department costs are allocated to the service departments.

Elfie Enterprises uses three cost pools to allocate manufacturing overhead costs.The following estimates were provided for the coming year. The accounting records show the Lacio Job consumed the following resources. Required: a. If direct labor hours are considered the only manufacturing overhead cost driver,compute: 1.the single cost driver rate for Elfie Enterprises; and 2.the amount of manufacturing overhead costs allocated to the Lacio job. b. If Elfie Enterprises uses the three cost pools to allocate manufacturing overhead costs,compute: 1.the cost driver rate for each of the three overhead activities above; and 2.the amount of manufacturing overhead costs allocated to the Lacio job. c. Review the amount of manufacturing overhead costs allocated in (a2)and (b2).Why do the two estimates differ? Which method of allocation probably best estimates the actual manufacturing overhead costs used? Why?.

Product costs estimated using the sequential method of cost allocation

Three types of product costs are estimated on a job bid sheet.List each of these costs and explain how each is estimated.

The practical capacity of a cost driver is the short-term capacity made available by the amount of resources committed to an overhead activity.

Apple Valley Corporation uses a job order cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are: The actual material and labor costs charged to Job #432 are as follows: Apple Valley applies manufacturing overhead costs to jobs on the basis of direct labor cost using departmental rates determined at the beginning of the year. -Total manufacturing costs associated with Job #432 equal:

LCR Company manufactures paint and applies manufacturing overhead costs to production at a predetermined rate of $20 per direct labor hour. The following data are obtained from the accounting records for October 2011: -The actual amount of manufacturing overhead costs incurred in October 2011 total:

Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT:

Apple Valley Corporation uses a job order cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are: The actual material and labor costs charged to Job #432 are as follows: Apple Valley applies manufacturing overhead costs to jobs on the basis of direct labor cost using departmental rates determined at the beginning of the year. -Manufacturing overhead costs applied to Job #432 total:

Direct labor and overhead are referred to as conversion costs because they convert direct materials into finished products.

On a job bid sheet,four items are added together to arrive at a bid price.List each of these items and explain why each is necessary to arrive at the bid price.

Determining cost pools and realistic cost driver rates is a relatively complex process.

Fixed manufacturing overhead costs remain constant at $400,000 per month and are allocated based on a monthly professional labor-hour allocation rate.Professional labor hours are estimated at 12,000 for high-output months and 3,000 for low-output months.The final customer price includes a markup of 50% of cost.As a result: