financial and managerial accounting

Complete following exercises

Exercise 17.15

Spear Custom Furniture uses an activity-based cost accounting system to apply overhead to production.

The company maintains four overhead cost pools. The four cost pools, and their budgeted

amounts for the upcoming period, are as follows:

Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000

Materials handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Quality control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000

Four cost drivers are used by Spear to allocate its overhead cost pools to production. The four cost

drivers, and their budgeted total levels of activity for the upcoming period, are shown below:

Machine hours (to allocate maintenance costs) . . . . . . . . . . . . . . . . . . . . . . . 600 hours

Material moves (to allocate materials handling costs) . . . . . . . . . . . . . . . . . . 400 moves

Set-ups (to allocate set-up costs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 set-ups

Number of inspections (to allocate quality control costs) . . . . . . . . . . . . . . . . 300 inspections

The company has been asked by Cosmopolitan University to submit a bid for tables to be used in a

new computer lab. The plant manager feels that obtaining this job would result in new business in

future years. Estimates for the Cosmopolitan University project are as follows:

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000

Direct labor (500 hours) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000

Number of machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Number of material moves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Number of set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Number of inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A.) Estimate the total cost of manufacturing the tables for Cosmopolitan University.

b.) Determine the company’s bid price if bids are based upon the total estimated manufacturing

cost of a particular project, plus 75 percent

Exercise 18.10

Accessory World makes floor mats for the automobile industry. Finished sets of mats must pass

through two departments: Cutting and Coating. Large sheets of synthetic material are cut to size in

the Cutting Department and then transferred to the Coating Department, where each set is sprayed

with a chemical coating for improved durability. The following information pertains to May activity

in the Cutting Department:

Cost data:

Total cost of beginning inventory on May 1 . . . . . . . . . . . . . . . . . . . . . . . . . $45,300

Direct materials costs incurred in May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,925

Conversion costs incurred in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,525

Cut sets transferred in during May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

Physical units data:

Units in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 sets

Units started in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? sets

Units in process, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 sets

Percentage of completion data:

Direct materials, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%

Conversion, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Cut sets transferred in, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

Direct materials, May 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70%

Conversion, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Cut sets transferred in, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

Cost data:

Total cost of beginning inventory on May 1 . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,800

Direct materials costs incurred in May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000

Conversion costs incurred in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,200

Physical units data:

Units in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 sets

Units started in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 sets

Units in process, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 sets

Percentage of completion data:

Direct materials, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

Conversion, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Direct materials, May 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

Conversion, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

a. Prepare a schedule showing: (1) the number of mat sets transferred from the Cutting Department

to the Coating Department in May, and (2) the number of mat sets started and completed

by the Cutting Department in May.

b. Compute the equivalent units of input resources for the Cutting Department in May.

c. Compute the cost per equivalent unit of input resource for the Cutting Department in May.

d. Prepare the summary journal entry required to transfer the cost of completed mat sets from the

Cutting Department to the Coating Department in May.

e. Compute the total cost assigned to the Cutting Department’s ending inventory on May 31.

Exercise 18.11 is an extension of Exercise 18.10.

EXERCISE 18.11 The following information pertains to May activity in Accessory World’s Coating Department:

Cost data:

Total cost of beginning inventory on May 1 . . . . . . . . . . . . . . . . . . . . . . . . . $45,300

Direct materials costs incurred in May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,925

Conversion costs incurred in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,525

Cut sets transferred in during May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

Physical units data:

Units in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 sets

Units started in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? sets

Units in process, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 sets

Percentage of completion data:

Direct materials, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%

Conversion, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Cut sets transferred in, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

Direct materials, May 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70%

Conversion, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Cut sets transferred in, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

a. Compute how many cut mat sets were started in the Coating Department during May.

b. Prepare a schedule showing: (1) the number of mat sets transferred out of the Coating Department

in May, and (2) the number of mat sets started and completed by the Coating Department

in May.

c. Compute the equivalent units of input resources for the Coating Department in May.

d. Compute the cost per equivalent unit of input resource for the Coating Department in May.

e. Prepare the summary journal entry required to transfer the cost of finished mat sets from the

Coating Department’s Work in Process Inventory to the company’s Finished Goods Inventory in

May.

f. Compute the total cost assigned to the Coating Department’s ending inventory in process on

May 31.

Exercise 19.1

The following are eight technical accounting terms introduced or emphasized in this chapter:

Activity-based management Total quality management

Just-in-time manufacturing system Target costing

Life-cycle costing Value-added activity

Non-value-added activity Value engineering

Each of the following statements may (or may not) describe one of these terms. For each statement,

indicate the accounting term described, or answer “none” if the statement does not correctly

describe any of these terms.

a. Can be eliminated without changing a product’s desirability in the eyes of consumers.

b. The focus of this costing method is to assign manufacturing costs to final products.

c. The process of determining the least costly combination of resources needed to create a product

desired by customers.

d. This method considers all costs borne by the consumer from purchase to disposal of a product.

e. If eliminated, the product’s desirability to consumers is decreased.

f. The process of using activity-based costs to help reduce and eliminate non-value-added activities.

g. A method in which a product’s selling price is determined by adding a fixed amount to the product’s

current production cost.

h. An approach that explicitly monitors quality costs and rewards quality-enhancing behavior.

i. An important aspect of this method is the reduction of unnecessary inventories

Problem 19.1A

Castner Corporation is considering implementation of a JIT inventory system. The company’s

industrial engineer recently conducted a study to determine the average number of days spent in

each activity of the production process. The following table summarizes her findings:

Flip Flop’s To Go has gathered the following data on its quality costs for the past two years:

EXERCISE 19.14

Quality Cost Trade-offs

LO19-7

Year 1 Year 2

Prevention costs:

Quality training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $10,500

Quality technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 9,000

Quality production design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 9,000

Failure costs:

Warranty handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 $10,000

Customer reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 7,200

Customer returns handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 4,000

a. Compute the percentage change in the total quality costs from year 1 to year 2.

b. Explain what you think caused the change.

In the Home Depot financial statements in Appendix A at the end of this textbook, find note 1

to the financial statements. Note 1 summarizes significant accounting policies for Home Depot .

Read the section in Note 1 titled “ Merchandise Inventories.”

a. Identify Home Depot ’s definition of “shrink.”

b. What are the causes of inventory shrink mentioned by Home Depot ? Classify those causes as

value-added or non-value-added.

c. What methods does Home Depot use to measure shrink?

d. How does Home Depot account for shrink?

EXERCISE 19.15

Home Depot Non-

Value-Added Costs

LO19-3

Production Activity Number of Days

Inspecting materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Storing materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Moving materials into production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Setting up production equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Cutting materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Bending materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Assembling finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Painting finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Instructions

a. Identify Castner’s value-added production activities.

b. Identify Castner’s non-value-added production activities.

c. Calculate Castner’s total cycle time.

d. Determine Castner’s manufacturing efficiency ratio.

e. Which of the above activities might be reduced or eliminated if Castner implemented a JIT

system?

f. What ethical issues might be related to eliminating some of the non-value-added activities?

 
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