1. As an analyst at Delta Airlines, you are asked to help the operations staff.

Operations has identified a

new method of loading baggage that is expected to result in a 30 percent reduction in labor time but no
changes in any other costs. The current labor cost to load bags is $2 per bag. Other costs are $1 per
bag.

Required:
a. What differential costs should the operations staff consider for the decision to use the new method
next year? What would be the cost savings per bag using it? (Round your answer to 2 decimal
places.)

b. Describe how management would use the information in requirement (a) and any other appropriate
information to proceed with the contemplated use of the new baggage loading method.

Management would use the information, but would also want to know the effect on quality.

Explanation:
a.
Differential costs are costs that would change, which are the labor costs in this situation. Other costs
would presumably not be affected by the change in labor. Other issues include the quality and
dependability of the new approach.

Differential costs next year are $0.60 ( = $2.00 – $1.40) calculated as follows:

Labor Cost

Old Method New Method

Next year $2.00 $1.40 [ = (1 – 0.30) × $2.00]

b.
Management would use the information to help decide whether to use the new method. Management
would also want to know the effect on quality (lost bags, delays in delivering bags to the baggage claim,
etc.).

2.

Assume that Carmen's Cookies is preparing a budget for the month ending June 30. Management
prepares the budget by starting with the actual results for April 30. Next, management considers what the
differences in costs will be between April and June.
Management expects the number of cookies sold to be 15 percent greater in June than in April, and it
expects all food costs (e.g., flour, eggs) to be 15 percent higher in June than in April. Management
expects "other" labor costs to be 20 percent higher in June than in April, partly because more labor will
be required in June and partly because employees will get a pay raise. The manager will get a pay raise
that will increase the salary from $3,000 in April to $3,750 in June. Rent and utilities are not expected to
change.

Required:
Prepare a budget for Carmen's Cookies for June.
Explanation:
Food:
Flour = $2,100 × 1.15 = $2,415
Eggs = $5,200 × 1.15 = $5,980
Chocolate = $2,000 × 1.15 = $2,300
Nuts = $2,000 × 1.15 = $2,300
Other = $2,200 × 1.15 = $2,530

Labor:
Other = $1,500 × 1.20 = $1,800

Number of cookies sold = 32,000 × 1.15 = 36,800

CARMEN'S COOKIES
Retail Responsibility Center
Budgeted Costs
For the Month Ending June 30

Food
Flour
Eggs
Chocolate
Nuts
Other
Total food
Labor
Manager
Other
Total labor
Utilities
Rent
Total cookie cost
Number of cookies sold
3.

The following balances are from the accounts of Hill Components:

January 1 December 31
(Beginning) (Ending)
Direct materials inventory $48,100 $44,200
Work-in-process inventory 67,730 71,500
 Finished goods inventory 15,600 18,200

Direct materials used during the year amount to $59,800, and the cost of goods sold for the year was
$68,900.

Required:
a. Find the cost of direct materials purchased during the year. 55900
b. Find the cost of goods manufactured during the year. 71500
c. Find the total manufacturing costs incurred during the year. 75270
Cost of Goods Sold Statement
For the Year Ended December 31
Beginning work in
$ 67,730
process inventory
Manufacturing costs:
Direct materials:
Beginning inventory $ 48,100
Purchases 55,900(a)*

Materials available $ 104,000

Less ending inventory 44,200

Direct materials used $ 59,800

Other manufacturing *
15,470
costs *

Total manufacturing
75,270 (c)
costs

Total costs of work in

143,000
process
Less ending work in
71,500
process

Cost of goods
71,500 (b)
manufactured
Beginning finished goods
15,600
inventory

Finished goods available

87,100
for sale
Ending finished goods
18,200
inventory

Cost of goods sold $ 68,900

* Letters (a), (b), and (c) refer to amounts found in solutions to requirements a, b, and c.
** Difference between total manufacturing costs of $75,270 and direct materials used of $59,800.

4.
The following balances are from the accounts of Todd Machining Company:

January 1 December 31
(Beginning) (Ending)
Direct materials inventory $ 96,000 $118,000
Work-in-process inventory 116,000 112,000
Finished goods inventory 97,600 90,000

Direct materials purchased during the year amount to $598,000, and the manufacturing costs other than
direct materials for the year were $1,584,800.

Required:
Prepare a cost of goods sold statement.
TODD MACHINING COMPANY
Cost of Goods Sold Statement
For the Year Ended December 31
Beginning work-in-process inventory $116,000
Manufacturing costs:
Direct materials:
Beginning inventory $96,000
Purchases 598,000
Materials available $694,000
Less: Ending inventory (118,000)
Direct materials used $576,000
Other manufacturing costs 1,584,800
Total manufacturing costs 2,160,800
Total costs of work in process $2,276,800
Less: Ending work in process (112,000)
Cost of goods manufactured $2,164,800
Beginning finished goods inventory 97,600
Finished goods available for sale $2,262,400
Less: Ending finished goods inventory (90,000)

Cost of goods sold $2,172,400

5.

Anu’s Amusement Center has collected the following data for operations for the year:
 Total revenues $ 1,600,000
Total fixed costs $ 437,500
Total variable costs $ 900,000
Total tickets sold 100,000

Required:
(a) What is the average selling price for a ticket? $1,600,000 ÷ 100,000 tickets = $16.00 per ticket

(b) What is the average variable cost per ticket? $900,000 ÷ 100,000 tickets = $9.00 per ticket

(c) What is the average contribution margin per ticket? ($16.00 – $9.00) = $7.00 per ticket

(d) What is the break-even point?

Profit = ($16.00 – $9.00)X – $437,500

Let Profit = 0
0 = ($16.00 – $9.00)X – $437,500

$437,500
X=
$7.00

X = 62,500 tickets

(e) Anu has decided that unless the operation can earn at least $43,750 in operating profits, she will
close it down. What number of tickets must be sold for Anu’s Amusements to make a $43,750
operating profit for the year on ticket sales?

Let Profit = $43,750

$43,750 = ($16.00 – $9.00)X – $437,500

$437,500 + $43,750
X=
$7.00

X = 68,750 tickets

6.

The manager of Kima’s Food Mart estimates operating costs for the year will include $900,000 in fixed
costs.

Required:
(a) Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
Break even point in sales dollars = Fixed costs ÷ Contribution margin ratio
= $900,000 ÷ 0.40 = $2,250,000

(b) Find the break-even point in sales dollars with a contribution margin ratio of 25 percent.
Break even point in sales dollars = Fixed costs ÷ Contribution margin ratio
= $900,000 ÷ 0.25 = $3,600,000
(c) Find the sales dollars required to generate a profit of $200,000 for the year assuming a contribution
margin ratio of 40 percent.
Sales dollars required = (Fixed costs + Desired profit) ÷ Contribution margin ratio
= ($900,000 + $200,000) ÷ 0.40 = $2,750,000

7.

Rainbow Tours gives walking tours of Springfield. Rainbow charges $40 per person for the tour and
incurs $16 in variable costs for labor, drinks, and maps. The monthly fixed costs for Rainbow Tours are
$3,600.

Required:
(a) How many tours must Rainbow sell every month to break even?
Profit = (P – V)X – F
$0 = ($40.00 – $16.00)X – $3,600
$24.00X = $3,600
$3,600
X=
$24.00

X = 150 tours

(b) Rainbow Tours’s owner believes that 175 people a month will sign up for the walking tour. What is the
margin of safety in terms of the number of people signing up for the tour?
Margin of safety = 175 – 150
= 25 people (14.3%)

8.
Suburban Bus Lines operates as a not-for-profit organization providing local transit service. As a not-for-
profit, it refers to an excess of revenues over costs as a "surplus" and an excess of costs over revenues
as a "deficit." Suburban charges $1.00 per ride. The variable costs of a ride are $1.50. The fixed costs of
Suburban are $200,000 annually. The county government provides Suburban with a flat subsidy of
$250,000 annually.

Required:
(a) What is the break-even point for Suburban?
Surplus = (P – V)X – F + Subsidy
$0 = ($1.00 – $1.50)X – $200,000 + $250,000
$0.50X = $50,000

$50,000
X=
$0.50

X = 100,000 riders

(b) Suburban expects 75,000 riders this year. Will it operate at a surplus or deficit?

Operates with a surplus below break-even

With 75,000 riders, Suburban will operate at a surplus because the subsidy more than offsets the
negative contribution margin plus fixed costs. It is "below" break-even, but because Suburban loses
money on each rider ($1.00 revenue less the $1.50 variable costs), it operates with a surplus below
break-even and at a deficit above break-even.
9.
Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel
assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these
rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as
follows (based on annual production of 2,000 units):

Direct materials $ 50
Direct labor 106
Variable overhead 32
Fixed overhead 94

Total $ 282

Trailblazers has offered to sell the assembly to Mobility for $220 each. The total order would amount
to 2,000 rear wheel assemblies per year, which Mobility's management will buy instead of make if
Mobility can save at least $20,000 per year. Accepting Trailblazers's offer would eliminate annual fixed
overhead of $80,000.

Required:
a. Prepare a schedule that shows the differential costs per rear wheel assemblies.
Alternative Difference
Status Quo
Trailblazers’ offer $440,000 $440,000 higher
Materials 100,000 100,000 lower
Labor 212,000 212,000 lower
Variable overhead 64,000 64,000 lower
Fixed overhead applied 188,000 108,000 80,000 lower
Total costs $564,000 $548,000 $16,000 lower

Status Quo = Based on 2,000 units.

Fixed overhead applied = $94 × 2,000 = $188,000; or $94 × 2,000 units − $80,000 = $108,000

b. Should Mobility make rear wheel assemblies or buy them from Trailblazers? Make

The $20,000 savings could not be achieved. The cost to make is only $16,000 more than the cost to
purchase from Trailblazers.

10.
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells
annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases
the cookies for $0.60 each but is considering making them instead. Mel's can bake each cookie for $0.20
for materials, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for
overhead includes an allocation of $0.30 per cookie for fixed overhead. However, total fixed overhead for
the company would not increase if Mel's makes the cookies.
 Mel himself has come to you for advice. "It would cost me $0.80 to make the cookies, but only $0.60
to buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead
would be only $0.15 per cookie. Two cookies are put into every lunch.

Required:
a. Prepare a schedule to show the differential costs per cookie. (Round your answers to 2 decimal
places.)
Alternative Difference
Status Quo
Cost to buy $0.60 $0.60 lower
Direct material $0.20 $0.20 higher
Direct labor $0.15 $0.15 higher
Variable overhead $0.15 $0.15 higher
Total costs $0.60 $0.50 $0.10 lower

b. Should Mel continue to buy the cookies? NO

Mel could save $0.10 per cookie ($0.20 per lunch) by making the cookies rather than buying them.

11. Custom Home builders (CH) designs and constructs high-end homes on large lots owned by
customers. CH has developed several formulas, which it uses to quote jobs. These include costs for
materials, labor, and other costs. These estimates are also dependent on the region of the country a
particular customer lives. Below are the cost estimates for one region in the Midwest:

Administrative costs $20,000

Building costs – per square foot (basic) $ 90
Building costs – (moderate) $ 150
Building costs – per square foot (luxury) $ 225
Appliances (basic) $15,000
Appliances (moderate) $25,000
Appliances (luxury) $45,000
Utilities costs (if required) $40,000

Required:
A customer has expressed interest in having CH build a moderate, 3,000 square-foot home on a vacant
lot, which does not have utilities. Based on the engineering estimates above, what will such a house cost
to build?
Explanation:
Building costs – per square foot
= 3,000 ×$150 = $450,000
(moderate)
$20,000
Administrative costs
Building costs – per square foot
450,000
(moderate)
Appliances (moderate) 25,000
Utilities costs (if required) 40,000

Estimated cost $535,000

12.
The accounting records for Frankie’s Fixtures report the following production costs for the past year:

Direct Materials $ 420,000

Direct Labor 350,000
Variable Overhead 308,000

Production was 210,000 units. Fixed manufacturing overhead was $480,000.

For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent,
excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by
10 percent. Variable manufacturing overhead per unit is expected to remain the same.

Required:
(a) Prepare a cost estimate for a volume level of 220,000 units of product this year.

(b) Determine the costs per unit for last year and for this year.
Costs per unit: Last year: $7.42 = ($1,558,000 ÷ 210,000) This year: $8.00 = ($1,760,000 ÷ 220,000)

a.)
Cost This
Chang Year's
e Cost
(1+Co (at last
st year's
Last Year's Increa volume Growth in This Year's
Cost se) ) Volume Cost
(1) ×
(1) (2) (2) = (4) (3) × (4) = (5)
Cost Item (3)
220,000
504,0
Direct materials $ 420,000 × 120 % =$ × = $ 528,000
00
210,000
220,000
364,0
Direct labor 350,000 × 104 % = × = 381,333
00
210,000
220,000
Variable 308,0
308,000 × 100 % = × = 322,667
overhead 00
210,000
528,0
Fixed overhead 480,000 × 110 % = × (fixed) = 528,000
00

Total costs $ 1,558,000 $ 1,760,000

13.

The Office Mart store in South Beach experienced the following events during the current year:

1.Incurred $400,000 in marketing costs.

2.Purchased $1,200,000 of merchandise.
3.Paid $40,000 for transportation-in costs.
4.Incurred $400,000 of administrative costs.
5.Took an inventory at year-end and learned that goods costing $200,000 were on hand. This compared
with a beginning inventory of $300,000 on January 1.
6.Determined that sales revenue during the year was $3,000,000.
7.Debited all costs incurred to the appropriate account and credited to Accounts Payable. All sales were
for cash.

Required:
Give the amounts for the following items in the Merchandise Inventory account:
Amount

a. Beginning balance (BB) $300,000

b. Transfers-in (TI) $1,240,000
c. Ending balance (EB) $200,000
d. Transfers-out (TO) $1,340,000
Explanation:
a
$300,000 (see item 5)
.
b
$1,240,000 = $1,200,000 + $40,000 (see items 2 & 3)
.
c.$200,000 (see item 5)
d
$1,340,000.BB + TI – TO = EB
.
$300,000 + $1,240,000 – X = $200,000
X = $300,000 + $1,240,000 – $200,000
X = $1,340,000
14.

Fill in the missing items for the following inventories:

A B C
Beginning balance $51,000 $28,400 $67,000
Ending balance 48,000 24,800 56,000
Transferred in 54,000 88,000 159,000
Transferred out 57,000 91,600 170,000
Explanation:
Based on the basic formula:
BB + TI – TO = EB
A. $51,000 + X – $57,000 = $ 48,000
X = $ 54,000
B. $28,400 + $88,000 – X = $ 24,800
X = $ 88,000 + $28,400 – $24,800
X = $ 91,600
C. $67,000 + X – $170,000 = $ 56,000
 X = $ 56,000 + $170,000 – $67,000
X = $ 159,000

15.

Enviro Corporation manufactures a special liquid cleaner at its Green plant. Operating data for June
follow:

Materials $714,000
Labor 61,200
Manufacturing overhead 244,800

The Green plant produced 850,000 gallons in June. The plant never has any beginning or ending
inventories.

Required:
Compute the cost per gallon of liquid cleaner produced in June.

Materials $ 714,000
Labor 61,200
Manufacturing
244,800
overhead

Total cost $ 1,020,000

÷ Gallons produced ÷ 850,000
= Cost per gallon $ 1.20

16.

Clean Corporation manufactures liquid window cleaner. The following information concerns its work in
process:

• Beginning inventory, 12,000 partially complete gallons.

• Transferred out, 63,000 gallons.
• Ending inventory (materials are 20 percent complete; conversion costs are 10 percent complete).
• Started this month, 72,000 gallons.

Required:
(a)Compute the equivalent units for materials using the weighted-average method.
(b)Compute the equivalent units for conversion costs using the weighted-average method.
Materials Conversion Costs
Units transferred out 63,000 63,000
Equivalent units in ending
inventory:
Materials: 20% ×
4,200 EU
21,000a units
Conversion costs: 10% ×
2,100 EU
21,000 units

Total equivalent units for all

67,200 EU (A) 65,100 EU (B)
work done to date
a
21,000 units in ending inventory = 12,000 units in beginning inventory + 72,000 units started this period
– 63,000 units transferred out.
17.

Missouri Corporation shows the following information concerning the work in process at its plant:

• Beginning inventory was partially complete (materials are 100 percent complete; conversion costs are
60 percent complete).
• Started this month, 180,000 units.
• Transferred out, 150,000 units.
• Ending inventory, 100,000 units (materials are 100 percent complete; conversion costs are 15 percent
complete).

Required:
(a) Compute the equivalent units for materials using the weighted-average method.
(b)Compute the equivalent units for conversion costs using the weighted-average method.
Conversion
Materials Costs
Units transferred out 150,000 EU 150,000 EU
Equivalent units in ending inventory:
Materials: 100% × 100,000 units 100,000 EU
Conversion costs: 15% × 100,000
15,000 EU
units

Total equivalent units for all work done 165,000 EU

250,000 EU(A) (B)
to date

18. What are the transfers-out from the Finished Goods Inventory called?

Cost of Goods Manufactured.

Cost of Goods Available.
Cost of Goods Completed.
Cost of Goods Sold.
When transfers occur from Finished Goods Inventory they go to Cost of Goods Sold.

19. One of the primary differences between job costing for service and manufacturing companies is
service firms generally:
use fewer direct materials.
have less direct labor.
do not use predetermined overhead rates.
have no Work-in-Process Inventory.
Services are more intangible and have less materials.

20. Which of the following statements is (are) true regarding product costing?
(A) Twenty cans of paint that are 25% full are equivalent to four cans of paint that are completely full.
(B) The equivalent unit concept refers to the actual amount of work during the period stated in terms of
whole units.
Only A is true.
Only B is true.
Both A and B are true.
Neither A nor B is true.
This is a basic description of equivalent units. 20 x 25% = 5 equivalent units
21. If the units in the beginning Work-in-Process Inventory are greater than the units in the ending Work-
in-Process Inventory, then the units transferred out are:
more than the units started during the period.
equal to the equivalent units of production.
less than the units started during the period.
equal to the actual work done during the period.
BWIP + TI - TO = EWIP; BWIP - EWIP = TO - TI. If BWIP > EWIP then TO > TI

22.
After reviewing the new activity-based costing system that Janis McGee has implemented at Joplin
Industries’s Port Arthur manufacturing facility, Kris Kristoff, the production supervisor, believes that he
can reduce production costs by reducing the time spent on machine setups. He has spent the last month
working with employees in the plant to change over the machines more quickly with the same reliability.
He plans to produce 100,000 units of J25P and 40,000 units of J40X in the first quarter. He believes that
with his more efficient setup routine, he can reduce the number of setup hours for both the J25P and the
J40X products by 25 percent. (Refer to Exhibit 9.16)
Required:
(a) Compute the amount of overhead allocated to the J25P and the J40X cameras for the first quarter
using activity-based costing. Assume that all events are the same in the first quarter as in the third
quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.

Explanation:
J25P J40X
Direct material $ 1,500,000 $ 2,400,000

Direct labor
Assembly $ 750,000 $ 600,000
Packaging 990,000 360,000

Total direct labor $ 1,740,000 $ 960,000

Direct costs $ 3,240,000 $ 3,360,000

Overhead
Assembly building
Assembling (@$30/mh) $ 180,000 $ 900,000
Setting up machine
27,000 270,000
(@$900/setup-hour)a
Handling material
24,000 120,000
(@$3,000/run)
Packaging building
Inspecting and
Packaging (@$5/direct labor- 300,000 114,000
hour).
Shipping
132,000 264,000
(@$1,320/shipment)

Total ABC O/H $ 663,000 $ 1,668,000

Total ABC cost $ 3,903,000 $ 5,028,000

 Number of units 100,000 40,000
Unit cost $ 39.03 $ 125.70

a
75% of the amounts in Exhibit 9.16. ($27,000 = .75 × $36,000; $270,000 = .75 × $360,000).
23. Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-
cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the
introduction of the new product, profits have been steadily declining. Management believes that the accounting system is
not accurately allocating costs to products, particularly because sales of the new product have been increasing.
Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is
currently assigned to products based on their direct labor costs. For your investigation, you have data from last year.
Manufacturing overhead was $360,000 based on production of 140,000 wired mice and 50,000 wireless mice. Direct labor
and direct materials costs were as follows:
Wired Wireless Total
Direct labor $290,100 $109,900 $400,000
Materials 187,500 171,000 358,500

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last
year are as follows:
Activity Level

Cost Driver Costs Assigned Wired w/l Total

Number of production runs $ 165,000 20 5 25
Quality tests performed 148,500 6 9 15
Shipping orders processed 46,500 50 25 75

Total overhead $ 360,000

Required:
(a) How much overhead will be assigned to each product if these three cost drivers are used to allocate
overhead? What is the total cost per unit produced for each product?
(b) How much overhead will be assigned to each product if direct labor cost is used to allocate overhead?
What is the total cost per unit produced for each product?
(a)
Rate Wired Wireless Total
Direct
$ 290,100 $ 109,900 $ 400,000
labora

Direct
$ 187,500 $ 171,000 $ 358,500
materialsb

Overhead
costs
Prod. 6,60c f
$ $ 132,000 $ 33,000 $ 165,000
runs 0
Quality 9,90d g
59,400 89,100 148,500
tests 0
e h
Ship.
620 31,000 15,500 46,500
orders

Total
$ 222,400 $ 137,600 $ 360,000
overhead
 Total costs $ 700,000 $ 418,500 $1,118,500

i j
Total unit
$ 5.00 $ 8.37
cost

a
Data given in the first table of the exercise in the text.
b
Data given in the first table of the exercise in the text.
c
$6,600 per run = $165,000 in production run costs ÷ 25 total runs.
d
$9,900 per test = $148,500 in quality costs ÷ 15 total tests.
e
$620 per order = $46,500 in shipping costs ÷ 75 processed orders.
f
$132,000 = $6,600 per production run x 20 runs for Wired.
g
$59,400 = $9,900 per quality test x 6 tests for Wired.
h
$31,000 = $620 per order shipped x 50 orders shipped for Wired.
i
$5.00 = $700,000 total costs for Wired ÷ 140,000 units produced.
j
$8.37 = $418,500 ÷ 50,000 units produced.
Reading from the table above, we can see that the total overhead assigned is $222,400 and $137,600
for Wired and Wireless, respectively. The total cost per unit is the total cost per product divided by the
total units produced; $5.00 per Wired mouse and $8.37 per Wireless mouse.

(b)
Rat
Wired Wireless Total
e
Dire
ct $ 290,100 $ 109,900 $ 400,000
labora
Dire
ct
187,500 171,000 358,500
materi
alsb
c d
Total
90
overh $ 261,090 98,910 360,000
%
ead

Total
$ 738,690 $ 379,810 $ 1,118,500
costs

e
Total
unit $ 5.28 $ 7.60
cost

a
Data given in the first table in the exercise.
b
Data given in the first table in the exercise.
c
90% = $360,000 total overhead ÷ $400,000 total direct labor.
d
$261,090 = $290,100 × 0.90
e
$5.28 = $738,690 ÷ 140,000 units produced (rounded).
From the table above, total overhead allocated to Wired and Wireless is $261,090 and $98,910
respectively. The unit cost for Wired and Wireless is $5.28 and $7.60 respectively.
24.

Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the
cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A
consultant has analyzed the delivery service using activity-based costing methods and identified four
activities. Data on these activities follow:

Cost Driver Volume

Activity Cost Driver Cost Driver Volume

Processing Number
$ 75,000 5,000 orders
order of orders
Number
Loading truck 150,000 100,000 items
of items
Delivering Number
90,000 5,000 orders
merchandise of orders
Processing Number
72,000 4,000 invoices
invoice of invoices

Total
$ 387,000
overhead

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these
two customers follow:
City Diner Le Chien Chaud
Order value $75,000 $90,000
Number of orders 52 110
Number of items 600 1,500
Number of invoices 12 150

Required:
(a) What would the delivery charge for each customer be under the current policy of 10 percent of order
value?
Custo Order Delivery Charge
mer Value (@10%)
City Diner $75,000 $7,500
LeWhat
(b) Chien Chaud
would 90,000
the activity-based 9,000
costing system estimate as the cost of delivering to each customer?

Delivery cost based on activity-based costing:

Cost driver rates:

Activity Cost Driver Cost ÷ Driver Volume = Rate

Processing order Number of orders $ 75,000 ÷ 5,000 orders = $ 15 per order
150,00
Loading truck Number of items ÷ 100,000 items = 1.50 per item
0
Delivering merchandise Number of orders 90,000 ÷ 5,000 orders = 18 per order
Number of
Processing invoice 72,000 ÷ 4,000 invoices = 18 per invoice
invoices

Cost driver delivery:

City Diner Le Chien Chaud

Activity Units of Cost Units of Cost

Cost Cost
 Driver Driver
a
Processi order order
52 $ 780 110 $ 1,650
ng order s s
b
Loading 60 1,5
items 900 items 2,250
truck 0 00
c
Deliveri
ng order order
52 936 110 1,980
merchan s s
dise
d
Processi
invoic invoic
ng 12 216 150 2,700
es es
invoice

Total
$ 2,832 $ 8,580
cost

a
$780 = 52 orders × $15.00 per order.
b
$900 = 600 items × $1.50 per item.
c
$936 = 52 orders × $18.00 per order.
d
$216 = 12 invoices × $18.00 per invoice.

(c) Marvin can use this information to change the way he prices delivery service.

True

Marvin's can use this information to change the way they price delivery service. They can also use the
information to work with customers to change the way they (customers) order to reduce the costs of
order and delivery.

25.

Davis Fabricators buys metal for manufacturing from two suppliers, Alpha Metals and First Parts. If the
metal is delivered late, the shipment to the customer is delayed. Delayed shipments lead to contractual
penalties that call for Davis to reimburse a portion of the purchase price to the customer.
During the past quarter, the purchasing and delivery data for the two suppliers showed the following:

Alpha First Total

6,00
Total purchases (tons) 10,000 16,000
0
12.0
Average purchase price $ 10.00 $ $ 10.75
0
Number of deliveries 80 20 100
Percentage of late deliveries 25% 5% 21%

The Accounting Department recorded $22,400 as the cost of late deliveries to customers.

Required:
Assume that the average quality, measured by the percentage of late deliveries, and prices from the two
companies will continue as in the past. What is the effective price for metal from the two companies when
late deliveries are considered? (Do not round your intermediate calculations. Round your final
answers to 2 decimal places.)

Explanation:
First compute the cost of a late delivery.

Number of tons delivered late (10,000 × 25% + 6,000 × 5%) 2,800

Cost of late deliveries (Given) $22,400
Cost of late delivery per ton ($22,400 ÷ 2,800) $8

Now compute the “effective” price of a ton.

Alpha First
10.0
Average purchase price per ton $ $12.00
0
Additional cost of late delivery per ton $ 8.00 $ 8.00
Probability of late delivery 25% 5%
Expected cost of late delivery per ton $ 2.00 $ 0.40
12.0
Effective cost per ton $ $12.40
0
26.

Smelly Perfume Company manufactures and distributes several different products. The company
currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.
Cindy is the department manager of Department C which produces Products J and P. Department C has
$16,200 in traceable overhead. Diane is the department manager of Department D which manufactures
Product X. Department D has $11,100 in traceable overhead. The product costs (per case of 24 bottles)
and other information are as follows:

If Smelly changes its allocation basis to machine hours, what is the total product cost per case for
Product X?
$80.48.
$79.50.
$74.00.
$75.17.
Total overhead = $28(300) + $21(500) + $14(600) = $27,300; Total machine hours = 4(300) + 2(500) +
3(600) = 4,000; Overhead rate = $27,300/4,000 = $6.825/MH; Product cost for X: $48.00 + $12.00 +
$6.825(3) = $80.48

27. A company has identified the following overhead costs and cost drivers for the coming year: (CIA
adapted)

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $280,000. The following
information was collected on three jobs that were completed during the year:

If the company uses activity-based costing (ABC), what is the cost of each unit of Job 102?
$340.
$392.
$440.
$520.
[($20,000/200) × 2] + [($130,000/6,500) × 10] + [($80,000/8,000) × 10] + [($50,000/1,000) × 50] =
$3,000; $12,000 + 2,000 + 3,000 = $17,000; $17,000/50 = $340
28.Warren Ltd. has two production departments, Building A and Building B, and two service
departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service
costs used by the various departments for the month of June follow:
Proportion of Services Used by

Department Direct Costs Maintenance Cafeteria Building A Building B

Building A $495,000
Building B 322,000
Maintenance 200,000 — 0.2 0.5 0.3
Cafeteria 160,000 0.8 — 0.1 0.1

Required:
Compute the allocation of service department costs to producing departments using the direct
method. (Do not round intermediate calculations.)
Explanation:
Direct Method:

To

Building A Building B
Maintenanc a
$ 125,000 $ 75,000
e
Cafeteria 80,000 b 80,000

Total Costs $ 205,000 $ 155,000

a 0.5
$125,000
× $200,000
=
0.5 + 0.3

0.1
b
$80,000 = × $160,000
0.1 + 0.1

(Note that the use of Maintenance's costs by Cafeteria and the use of Cafeteria's costs by Maintenance
are ignored.)

29.
University Printers has two service departments (Maintenance and Personnel) and two operating
departments (Printing and Developing). Management has decided to allocate maintenance costs on the
basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by
the employees in each.
The following data appear in the company records for the current period:

Maintenance Personnel Printing Developing

Machine-hours — 1,000 1,000 3,000
Labor-hours 500 — 500 2,000
Department direct
$15,000 $36,000 $45,000 $30,000
costs
Required:
Use the direct method to allocate these service department costs to the operating departments.

Personnel Printing Developing

Maintenance
Service department costs $15,000 $36,000 $0 $0
Maintenance allocation (15,000) 0 3,750 11,250
Personnel allocation 0 (36,000) 7,200 28,800
$10,95
Total costs allocated $0 $0 $40,050
0

Explanation:
Maintenance allocation:
1,000
$ 3,750 = × $15,000
(1,000 + 3,000)

3,000
$ 11,250 = × $15,000
(1,000 + 3,000)

Personnel allocation:
500
$ 7,200 = × $36,000
(500 + 2,000)

2,000
$28,800 = × $36,000
(500 + 2,000)
30.

Which of the following methods provides no data for service departments to monitor each other's costs?
Direct method.
Reciprocal method.
Step method.
All three methods, Direct, Reciprocal, and Step, provide data for monitoring costs.
No reciprocal services are recognized.

31.

Joint products and byproducts are produced simultaneously by a single process or series of processes
and:
joint products are salable at the split-off point, but byproducts are not.
by-products are salable at the split-off point, but joint products are not.
the revenue from by-products may be recognized at the time of production.
all by-products must be allocated some portion of joint costs.
By-products can be recognized either at time of production or time of sale.
32. Bagley Company has two service departments and two producing departments. Square footage of
space occupied by each department follows:

The department costs of Custodial Services are allocated on a basis of square footage of space. If
Custodial Services costs are budgeted at $38,000, the amount of cost allocated to General
Administration under the direct method would be:
$0.
$7,125.
$6,000.
$5,700.
$0. There are no allocations between service departments when using the direct method.

33. Castle Company has two service departments and two producing departments. The number of
employees in each department is:

The department costs of the Personnel Department are allocated on a basis of the number of
employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to
Department B under the direct method would be:
$0.
$17,187.50.
$16,875.00.
$18,021.84.
[250/(265 + 250)] × $37,125 = $18,021.84

34. Starlite Company manufactures office products. Last year, it sold 45,000 electric staplers for $10 per
unit. The company estimates that this volume represents a 30 percent share of the current electric
stapler market. The market is expected to increase by 10 percent next year. Marketing specialists have
determined that as a result of new competition, the company’s market share will fall to 25 percent (of this
larger market). Due to changes in prices, the new price for the electric staplers will be $11 per unit. This
new price is expected to be in line with the competition and have no effect on the volume estimates.

Estimate Starlite’s sales revenues from electric staplers for the coming year.
Explanation:
Market size last year = 45,000 units ÷ 0.3 = 150,000 units
Market size next year = 1.10 × 150,000 units
= 165,000 units
Company share = 25% × 165,000 units
= 41,250 units
Sales revenue = 41,250 units × $11 per unit
= $453,750

35. Sanlax, Inc., makes portable appliances and develops plans using an annual budgeting cycle. For
next year, the production budget is 400,000 units. Inventories are expected to increase by 20,000 units.

What is the sales budget for the coming year?

Sanlax Inc.
Sales Budget
For the Year Ended
(in units)
Expected sales 400,000 units
Subtract: Increase in inventory level 20,000 units

Budgeted sales 380,000units

36.

Ashland Corporation, a merchandising firm, is preparing its cash budget for October. The following
information is available concerning its inventories:

Inventories at beginning of October $ 505,000

1,980,00
Estimated purchases for October
0
2,025,00
Estimated cost of goods sold for October
0
Estimated payments in October for purchases in September 495,000
Estimated payments in October for purchases prior to September 90,000
Estimated payments in October for purchases in October 70%

Required:
What are the estimated cash disbursements in October?

Ashland Corporation
Schedule of Cash Disbursements
For the Period Ended October 31
Payments for purchases prior to September $ 90,000
Payments for September purchases 495,000
a
October purchases 1,386,000
 Total cash disbursements $ 1,971,000
a
$1,386,000 = $1,980,000 × 70%.

37.

Duluth Company is preparing its cash budget for December. The following information is available
concerning its accounts receivable:

Estimated credit sales for December $ 300,000

Actual credit sales for November $ 225,000
Estimated collections in December for credit sales in December 25%
Estimated collections in December for credit sales in November 70%
Estimated collections in December for credit sales prior to November $ 24,000
Estimated write-offs in December for uncollectible credit sales $ 12,000
Estimated provision for bad debts in December for credit sales in December $ 10,500

Required:
What is the estimated amount of cash receipts from accounts receivable collections in December?
Duluth Company
Schedule of Cash Collections
For the Month Ended December 31
Collections in December for sales prior to November $ 24,000
November sales 157,500a
December sales 75,000b

Total cash collections $ 256,500

a
$157,500 = $225,000 × 70%
b
$75,000 = $300,000 × 25%
38. Nassau Products is preparing a cash budget for April. The following information on accounts
receivable collections is available from past collection experience:

Percent of current month’s sales collected this month 25%

Percent of prior month’s sales collected this month 62
Percent of sales two months prior to current month collected this month 7
Percent of sales three months prior to current month collected this month 4

The remaining 2 percent is not collected and is written off as bad debts. Credit sales to date are:

April-estimated $300,000
March 270,000
February 240,000
January 285,000

What are the estimated cash receipts from accounts receivable collections in April?

Nassau Products
Schedule of Cash Collections
For the Month Ended April 30
January sales $ 11,400a
 February sales 16,800b
March sales 167,400c
April sales 75,000d

Total cash collections $ 270,600

a b
$11,400 = $285,000 × 4% $16,800 = $240,000 × 7%

c
$167,400 = $270,000 × 62% d $75,000 = $300,000 × 25%

39.
Varmit-B-Gone is a pest control service that operates in a suburban neighborhood. The company
attempts to make service calls at least once a month to all homes that subscribe to its service. It makes
more frequent calls during the summer. The number of subscribers also varies with the season. The
number of subscribers and the average number of calls to each subscriber for the months of interest
follow:

Service Calls
Subscribers (per subscriber)
March 600 0.6
April 700 0.9
May 1,400 1.5
June 1,600 2.5
July 1,600 3.0
August 1,500 2.4

The average price charged for a service call is $80. Of the service calls, 30 percent are paid in the month
the service is rendered, 60 percent in the month after the service is rendered, and 8 percent in the
second month after. The remaining 2 percent is uncollectible.

Varmit-B-Gone estimates that the number of subscribers in September should fall 10 percent below
August levels, and the number of service calls per subscriber should decrease by an estimated 20
percent. The following information is available for costs incurred in August. All costs except depreciation
are paid in cash.

Service costs
Variable costs $ 24,000
Maintenance and repair 22,000
Depreciation (fixed) 42,000

Total $ 88,000

Marketing and administrative costs

Marketing (variable) $ 14,500
Administrative (fixed) 55,000

Total $ 69,500

Total costs $ 157,500

Variable service and marketing costs change with volume. Fixed depreciation will remain the same, but
fixed administrative costs will increase by 5 percent beginning September 1. Maintenance and repair are
provided by contract, which calls for a 1 percent increase in September.
Prepare a budgeted income statement for September.

Sales revenue $ 207,360 (90% × 1,500) × (80% × 2.4) × $80

Variable costs $ 17,280 (.72a × $24,000)
Maintenance and repair 22,220 (1.01 × $22,000)
Depreciation 42,000 (no change)
Marketing (variable) $ 10,440 (.72a × $14,500)
Administrative (fixed) 57,750 (1.05 × $55,000)

a
Ratio of September to August volume:
September: (90% × 1,500) × (80% × 2.4) = 2,592
August: 1,500 × 2.4 = 3,600 Ratio = .72 = 2,592 ÷ 3,600 or Ratio = .80 × .90 = .72

40.
TL Division of Giant Bank has assets of $14.4 billion. During the past year, the division had profits of $1.8
billion. Giant Bank has a cost of capital of 6 percent. Ignore taxes.

Required:
(a) Compute the divisional ROI.

$1,800,000,000
= 12.5% (ROI)
$14,400,000,000

(b) Compute the divisional RI.

$1,800,000,000 – (.06 × $14,400,000,000) = $936,000,000 (Residual Income)

41.

The following data are available for two divisions of Solomons Company:

North
South Division
Division
Division operating profit $ 6,000,000 $ 40,000,000
Division investment 30,000,000 320,000,000

The cost of capital for the company is 8 percent. Ignore taxes.

Required:
(a) If Solomons measures performance using ROI, which division had the better performance? (Round
"ROI %" to 1 decimal place.)

Using return on investment measures:

$6,000,000
North: = 20%
$30,000,000
$40,000,000
South: = 12.5%
320,000,000
North division's performance is better than that of south division.

(b) If Solomons measures performance using economic value added, which division had the better
performance? (The divisions have no current liabilities.)

Using EVA:
North: $6,000,000 − (8% × $30,000,000) = $3,600,000
South: $40,000,000 − (8% × $320,000,000) = $14,400,000

South division's performance is better than that of north division.

(c) Would your evaluation change if the company’s cost of capital were 16 percent?

(1) When evaluated by ROI?

North division-- Using ROI, the comparison is not affected by the cost of capital; the cost of capital
serves only as a benchmark against which to judge ROI.

(2) When evaluated by EVA?

For EVA, the comparison is affected.

North: $6,000,000 − (16% × $30,000,000) = $1,200,000
South: $40,000,000 − (16% × $320,000,000) = ($11,200,000)

North division's performance is better than that of south division.

42.

Mississippi Company has two decentralized divisions, Illinois and Iowa. Illinois always has purchased
certain units from Iowa at $60 per unit. Because Iowa plans to raise the price to $80 per unit, Illinois is
considering buying these units from outside suppliers for $60 per unit. Iowa's costs follow:

Variable costs per unit $ 56

Annual fixed costs $ 100,000
Annual production of these units 5,000 units

Required:
If Illinois buys from an outside supplier, the facilities that Iowa uses to manufacture these units will remain
idle. What will be the result if Mississippi enforces a transfer price of $80 per unit between Illinois and
Iowa?
he Mississippi Company's contribution margin woulddecrease$20,000

Explanation:
If Illinois Division buys from outsiders because the transfer price is greater than $60, this would cost the
company $20,000. The difference between the price paid for the units from an outside supplier ($60) and
the differential costs of producing in Iowa Division ($56) multiplied by the 5,000 units in the order =
$20,000.
43.

The master budget at Windsor, Inc., last period called for sales of 90,000 units at $12 each. The costs
were estimated to be $5 variable per unit and $300,000 fixed. During the period, actual production and
actual sales were 92,000 units. The selling price was $12.15 per unit. Variable costs were $5.90 per unit.
Actual fixed costs were $300,000.

Required:
Prepare a sales activity variance analysis Exhibit 16.4. (Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).
Leave no cells blank - be certain to enter "0" wherever required.)
Windsor, Inc.
Sales Activity Variance

Sales revenue
Variable costs
Contribution margin
Fixed costs
Operating profits

44.

Information on Thurmster Corporation's direct materials costs follows:

Actual quantities of direct materials used 7,500

Actual costs of direct materials used $ 98,550
Standard price per unit of direct materials $ 12.60
Flexible budget for direct materials $ 89,775

Thurmster Corporation has no materials inventories.

Required:
(a) Compute the direct materials price and efficiency variances for Thurmster Corporation
Direct materials price variance $4,050 U
Direct materials efficiency variance $4,725 U

(b) (Appendix) Prepare the journal entries to record the purchase and use of the direct materials using
standard costing. (If no entry is required for an event, select "No journal entry required" in the
first account field.)

General journal Deb Cred

Work in prog inv 89775
Mat price var 4050
Mat eff var 4725
Acc pay 98550

Explanation:
(a)
Actual Costs = $98,550
Actual Inputs at Standard Price = $12.60 × 7,500 = $94,500
Flexible Budget (Standard Inputs Allowed for Good Output) = $89,775
Price Variance = $98,550 – $94,500 = $4,050 U
Efficiency Variance = $94,500 – $89,775 = $4,725 U
(b)
To record the purchase and use of 7,500 units of materials at an actual cost of $98,550 and the transfer
to work in process at a standard cost of $12.60 per unit.

A company had beginning inventories as follows: Direct Materials, $900; Work-in-Process,

$1,100; Finished Goods, $1,900.

Beginning: DM: 900 WIP 1100 FG 1900

Dm 950 WIP 1150 FG 2000

Ending DM 1000 WIP 1200 FG 2000

DM 1050 WIP 1250 FG 2100

MP 4400 DL 5100 OH 5800

MP 4650 DL 5400 OH 6150

It had ending inventories as follows: Direct Materials, $1,000; Work-in-Process, $1,200;

Finished Goods, $2,000. Material Purchases (net including freight) were $4,400, Direct Labor
$5,100, and Manufacturing Overhead $5,800. What is the Cost of Goods Sold for the period?

Selected Answer: D.
$15,000.
Answers: A.
$14,900.
B.
$15,800.
C.
$15,100.

D.
$15,000.
Respo $900 + $4,400 - $1,000 = $4,300 (Direct materials used in production)
nse
Feedba $1,100 + $4,300 + $5,100 + $5,800 - $1,200 = $15,100 (COGM)
ck:
$1,900 + $15,100 - $2,000 = $15,000 (COGS)
 Question 1
10 out of 10 points

Castle Company has two service departments and two producing departments. The
number of employees in each department is:

Personnel 10
Cafeteria 95
Producing
310
Department A
Producing
340
Department B

755

The department costs of the Personnel Department are allocated on a basis of the number
of employees. If these costs are budgeted at $57,000 during a given period, the amount of
cost allocated to Department B under the direct method would be:

Selected Answer: B.
$29,815.38.
Answers: A.
$0.

B.
$29,815.38.
C.
$27,184.62.
D.
$25,668.87.
Response Feedback: [340/(310 + 340)] × $57,000 = $29,815.38

 Question 2
10 out of 10 points

The electricity used for production machinery would be classified as a:

Selected Answer: B.
volume-related activity.
Answers: A.
product-related activity.

B.
volume-related activity.
 C.
facility-related activity.
D.
batch-related activity.
Response The more units are produced, the more the machines run and the
Feedback: more electricity is consumed.

 Question 3
10 out of 10 points

Activity-based costing (ABC) is a costing technique that uses a two stage allocation
process. Which of the following statements best describes these two stages?
Selected A.
Answer: The costs are assigned to activities, and then to the products based
upon their use of the activities.
Answers: A.
The costs are assigned to activities, and then to the products based
upon their use of the activities.
B.
The costs are assigned to departments, and then to the products
based upon their use of activity resources.
C.
Service department costs are allocated to the production
departments, and then to the products based upon their use of the
activities.
D.
Indirect costs are assigned to activities, and then to the products
based upon the direct cost resources used by the activities.
Response Costs are assigned to activities first; activity usage is then used to
Feedback: allocate the activity costs.

 Question 4
10 out of 10 points

A company has identified the following overhead costs and cost drivers for the
coming year:

Budgeted
Overhead Item Cost Driver Budgeted Cost Activity Level
Machine setup Number of setups $ 19,000 190
Inspection Number of inspections 106,800 4,450
Material Number of material
82,600 5,900
handling moves
 Engineering Engineering hours 11,800 590

Budgeted direct labor cost was $175,000 and budgeted direct material cost was $490,000.
The following information was collected on three jobs that were completed during the year:

Job 101 Job 102 Job 103

Direct materials $ 4,250 $ 9,250 $ 5,250
$ 1,900
Direct labor $ 1,900 $ 3,800

Units completed 50 25 150

Number of setups 1 2 2
Number of inspections 10 5 15
Number of material moves 15 5 40
Engineering hours 5 25 8

If the company uses activity-based costing (ABC), how much overhead cost should be
assigned to Job 101?

Selected Answer: B.
$650.
Answers: A.
$1,280.

B.
$650.
C.
$1,611.
D.
$4,250.
Response [($19,000/190) × 1] + [($106,800/4,450) × 10] + [($82,600/5,900)
Feedback: × 15] + [($11,800/590) × 5] = $650

 Question 5
10 out of 10 points

Decentralizationrefers to the delegation of decision-making authority to:

Selected Answer: D.
subordinates.
Answers: A.
superiors.
B.
board of directors.
C.
 top management.

D.
subordinates.
Response Delegation is to the subordinates; delegation is from the
Feedback: superiors/top management.

 Question 6
10 out of 10 points

Which of the following measures is used by traditional costing systems as an

allocation base for allocating overhead costs to the units produced?

Selected Answer: D.
Volume-related activities.
Answers: A.
Batch-related activities.
B.
Facility-related activities.
C.
Product-related activities.

D.
Volume-related activities.
Response Feedback: Traditional costing uses volume-related activities exclusively.

 Question 7
10 out of 10 points

Which of the following costs is NOT related to a batch-related activity?

Selected Answer: B.
Compliance costs.
Answers: A.
Material handling.

B.
Compliance costs.
C.
Shipping costs.
D.
Machine setups.
Response Feedback: Compliance costs are considered a product-related activity.

 Question 8
10 out of 10 points
 An operating unit of an organization is called a cost center if it is responsible:

Selected Answer: D.
only for costs.
Answers: A.
for costs and revenues.
B.
only for revenues.
C.
for investments in assets.

D.
only for costs.
Response An operating unit of an organization is called a cost center if it is
Feedback: responsible only for costs.

 Question 9
10 out of 10 points

Smelly Perfume Company manufactures and distributes several different products.

The company currently uses a plant wide allocation method for allocating overhead
at a rate of $4 per direct labor hour. Cindy is the department manager of Department
C which produces Products J and P. Department C has $12,000 in traceable overhead.
Diane is the department manager of Department D which manufactures Product X.
Department D has $10,800 in traceable overhead. The product costs (per case of 24
bottles) and other information are as follows:

Products
J P X
Direct materials $150.00 $ 108.00 $72.00
Direct labor 63.00 47.25 18.00
Overhead 30.00 21.00 20.00

$243.00 $176.25 $110.00

Machine hours
4 2 3
(per case)
Number of
300 500 600
cases (per year)

If Smelly changes its allocation basis to machine hours, what is the total product cost per
case for Product P?
 Selected Answer: D.
$171.00.
Answers: A.
$192.00.
B.
$244.50.
C.
$197.25.

D.
$171.00.
Respo
nse
Feedb
Total overhead = $30(300) + $21(500) + $20(600) = $31,500;
ack:
Total machine hours = 4(300) + 2(500) + 3(600) = 4,000;
Overhead rate = $31,500/4,000 = $7.875/MH;
Product cost for P: $108.00 + $47.25 + $7.875(2) = $171.00

 Question 10
10 out of 10 points

Which of the following best describes the objective of joint cost allocation?
Selected Answer: A.
Inventory valuation.
Answers: A.
Inventory valuation.
B.
Making decisions about raw materials requirements.
C.
Pricing goods for sale.
D.
Making decisions about levels of production.
Response Joint cost allocations generally do not provide good decision making
Feedback: support, it is used primarily to account for cost allocation between
inventory and cost of goods sold.