Exam 11: Product Costing in Service and Manufacturing Entities

A product costing system is needed to determine the amount of product costs that should be reported on the income statement as selling and administrative expenses.

Burgess Company incurred product costs of $50,000 during the period when no units were sold. No product costs will be reported on the company's income statement for the period.

Product cost flows are cyclical in that the set of transactions that record the acquisition of raw materials, the conversion of raw materials to finished goods, and the sale of finished goods and related collection of cash occur over and over again.

Information about all three manufacturing inventory accounts is required to prepare the cost of goods manufactured and sold schedule.

The accounting records for Eisner Manufacturing Company included the following cost information relating to its first year of operations: Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000. The cost per unit under variable and absorption costing would be, respectively: Direct materials \ 60,000 Direct labor \ 80,000 Fixed manufacturing overhead \ 100,000 Variable manufacturing overhead \ 20,000

The Hamilton Company planned to produce 150,000 units during the current year. At that production volume, the company estimated that its overhead costs would amount to $637,500.Required: 1) Calculate the predetermined overhead rate per unit based on expected production.2) Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500 as expected. How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or under-applied.)3) Assume that actual output totaled 150,000 units as expected but actual overhead costs amounted to $600,000. How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or under-applied.)4) Summarize the conditions that lead to over- or under-applied overhead.

Tisdale Company started the year with the following beginning account balances: Raw Materials Inventory, $42,000; Work in Process Inventory, $90,000; and Finished Goods Inventory, $20,000. During the year, the company purchased $60,000 of raw materials and ended the year with $16,000 of raw materials. Direct labor costs for the year were $120,000 and a total of $36,000 of manufacturing overhead costs was allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $82,000 and ending finished goods was $35,000. Goods were sold to customers during the year for $360,000. How much gross margin would be reported for the year?

The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $192,000. What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing? Direct materials \ 60,000 Direct labor \ 80,000 Fixed manufacturing overhead \ 100,000 Variable manufacturing overhead \ 20,000

The accounting records for Grant Manufacturing Company included the following cost information relating to its first year of operations: Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000. Under variable costing, what is the contribution margin for the year? (Ignore selling and administrative expenses.) Direct materials \ 60,000 Direct labor \ 80,000 Fixed manufacturing overhead \ 100,000 Variable manufacturing overhead \ 20,000

Hughes Company paid production workers $25,550 cash. These wages will be classified as:

Generally accepted accounting principles require that a company use variable costing for financial reporting.

Grimes Company sold 2,500 units that had cost $12,000 to produce. The recording of the sale would include an increase to:

Paying for factory utilities used during the current month is a(n):

At the end of the period, the balance remaining in work in process is reported on the balance sheet.

Product cost information for manufacturing companies affects the income statement but does not affect the balance sheet.

Johnson Company estimates that its production workers will work 88,000 direct labor hours to produce 8,800 units during the upcoming period and that overhead costs will amount to $880,000. During the year, its manufacturing employees actually worked 100,000 direct labor hours to produce 10,000 units and incurred $1,100,000 of overhead costs. Because the goods made by Johnson are homogeneous (that is, they are identical), the company has decided it makes sense to use number of units as the allocation base for overhead. Based on this information the predetermined overhead rate is:

Absorption costing provides incentives for a company to hold excess inventory, which may increase the company's costs.

The predetermined overhead rate is found by dividing total estimated overhead costs by the total estimated volume of the overhead allocation base.

Jackson Company estimated that its manufacturing employees would work 88,000 direct labor hours during the current year. During the year, its manufacturing employees actually worked 80,000 direct labor hours. Actual manufacturing overhead costs amounted to $344,000. Jackson applies overhead cost on the basis of direct labor hours. The manufacturing overhead account was overapplied by $16,000 during the current year. Based on this information the predetermined overhead rate was:

During February, Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings. This overhead cost should be allocated to units completed during the month it was paid.