Reference no: EM131767709
Question-1
Pet Products Company uses an automated process to manufacture its pet replica products. For June, the company had the following activities:
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Beginning work-in-process inventory
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4500 items, 1/4 complete
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Units placed in production
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15 000 units
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Units completed
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17 500 units
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Ending work-in-process inventory
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2000 items, 3/4 complete
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Cost of beginning work in process
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$5250
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Direct material costs, current
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$16 500
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Conversion costs, current
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$23 945
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Question 3
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Selling price
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$40
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$20
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$30
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Direct materials
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$8
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$4
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$8
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Direct labour
Overhead cost based on direct labour hours
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$15
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$3
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$9
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(traditional system)
Hours per 1000-unit batch:
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$12
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$3
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$9
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Direct labour hours
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40
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10
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30
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Machine hours
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25
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25
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10
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Setup hours
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1.0
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0.5
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1.0
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Inspection hours
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30
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20
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20
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Activity Overhead costs
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Activity levels
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Direct labour hours
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2900 hours
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Machine hours
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2400 hours
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Setups $465 500
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95 setup hours
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Inspections $405 000
$870 500
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2700 inspection hours
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Question 4
Direct materials are placed into production at the beginning of the process and conversion costs are incurred evenly throughout the process.
Required:
a) Prepare a production cost worksheet using the FIFO method.
b) What is the difference between a weighted-average method of process costing and a first-in, first-out method of process costing?
Question2
Universal Industries operates a division in Zimbabwe, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries to facilitate reporting to corporate headquarters. However, the financial accounting reports from Zimbabwe never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information. The reason for this is that the inventories have a different financial base because of the severe inflation.
Required:
How can process costing assist in addressing the problem facing Universal Industries?
Brilliant Accents Company manufactures and sells three styles of kitchen taps: brass, chrome, and white. Production takes 25, 25, and 10 machine hours to manufacture 1000-unit batches of brass, chrome and white taps, respectively. The following additional data apply:
BRASS CHROME WHITEProjected sales in units 30 000 50 000 40 000
PER UNIT data:
Total overhead costs and activity levels for the year are estimated as follows:
Required:
a. Using the traditional system, determine the operating profit per unit for each style of tap.
b. Determine the activity-cost-driver rate for setup costs and inspection costs.
c. Using the ABC system, for each style of tap
1. compute the estimated overhead costs per unit.
2. compute the estimated operating profit per unit.
d. Explain the differences between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?
Jack Halpern is the owner and CEO of Aerospace Comfort, a firm specialising in the manufacture of seats for aeroplanes. He has just received a copy of a letter written to the general audit section of the RAAF. He believes it is from an ex-employee of Aerospace Comfort.
Dear Sir,
Aerospace Comfort manufactured 100 X7 seats for the RAAF in 2014. The following may be of interest.
1- Direct materials costs billed for the 100 X7 seats were $25000.
2- Direct manufacturing labour costs billed for 100 X7 seats were $6000. These costs include 16 hours of set-up labour at $25 per hour, an amount included in the manufacturing overhead cost pool as well. The $6000 also includes 12 hours of design time at $50 an hour. Design time was explicitly identified as a cost the RAAF would not reimburse.
3- Manufacturing overhead costs billed for 100 X7 seats were $9000 (150% of direct manufacturing labour costs). This amount includes the 16 hours of set-up labour at $25 per hour that is incorrectly included as part of direct manufacturing labour costs.
You may also want to know that over 40% of the direct materials is purchased from Frontier Technology, a company that is 51% owned by Jack Halpern's brother. For obvious reasons, this letter will not be signed.
cc: The Australian, Jack Halpern, CEO of Aerospace Comfort
Aerospace Comfort's contract states that the RAAF reimburses Aerospace Comfort at 130% of total manufacturing costs. Assume that the facts in the letter are correct as you answer the following questions.
Required
a- What is the cost amount per X7 seat that Aerospace Comfort billed the RAAF? Assume that the actual direct materials costs were $25 000.
b- What is the amount per X7 seat that Aerospace Comfort should have billed the RAAF?
Assume that the actual direct materials costs were $25000.
c- What should the RAAF do to tighten its procurement procedures to reduce the likelihood of such situations recurring in the future?