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Assignment 6

This document provides instructions for Assignment 6 which includes 3 problems involving backflush costing, activity-based costing, and service cost allocation. Problem 1 involves computing raw materials purchased and materials cost of sold goods using backflush costing. Problem 2 requires calculating unit costs and advantages/disadvantages of implementing activity-based costing for 3 products. Problem 3 requires calculating total costs of 3 production departments using service hours as the allocation base for service department costs, and computing the advantages/disadvantages compared to the current sales-based allocation.

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Geoff Macarate
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33 views

Assignment 6

This document provides instructions for Assignment 6 which includes 3 problems involving backflush costing, activity-based costing, and service cost allocation. Problem 1 involves computing raw materials purchased and materials cost of sold goods using backflush costing. Problem 2 requires calculating unit costs and advantages/disadvantages of implementing activity-based costing for 3 products. Problem 3 requires calculating total costs of 3 production departments using service hours as the allocation base for service department costs, and computing the advantages/disadvantages compared to the current sales-based allocation.

Uploaded by

Geoff Macarate
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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2022 1st Semester

Assignment 6 (Total pts. – 70 pts.) Topics: Backflush Costing; Activity-Based Costing; Service Cost
Allocation

Instructions:
 Show your computations and answers coherently and with proper labelling in separate sheets of yellow
paper (handwritten).
 BOX YOUR FINAL ANSWERS. Avoid too much erasures.
 Decimals should be up to the hundredths.
 Submit the scanned copy of your work in the Google Classwork. Please make sure that the scanned copy
is in PDF format.

Problem 1 (10 pts.)

The Kinnari Company manufactures finished goods in an average production cycle time of two days. With the high
velocity in the inventory, backflush accounting is used to account for the inventory costs. The following information
pertains to the inventory balances and some transactions that occurred for Kinnari Company:

Beginning balance of raw and in-process (RIP) inventory, including P3,600 conversion cost P23,600
Beginning balance of finished goods (FG) inventory, including P14,000 conversion cost 42,000
Ending balance of RIP inventory per physical count, including P5,100 conversion cost estimate 28,100
Ending balance of FG inventory, including P10,200 conversion cost estimate 27,900

The materials cost component of the completed goods is backflushed from the RIP inventory amounting P187,000.

Required:
1. Compute for the raw materials purchased. (5 pts.)
2. Compute for the materials cost component of the sold goods backflushed from the FG inventory. (5 pts.)

Problem 2 (30 pts.)

Waikiki Company produces three (3) products – Alpha, Beta and Gamma. Overhead costs include setup costs of
P90,000, shipping costs of P140,000 and engineering costs of P180,000. The following shows the production
information:

Product Units produced Direct labor No. of setups No. of shipments Engineering change
hours orders
Alpha 2,000 4,000 100 200 15
Beta 6,000 2,000 150 225 10
Gamma 12,000 4,000 250 275 5

In the current system, overhead costs are accumulated in a single cost pool, and allocates to the three products based
on direct labor hours. The company conducted a cost study and found out that significant amounts of overhead are
not related to direct labor hours. Hence, the study has recommended to implement an activity-based costing (ABC)
system for a better allocation of overhead costs.

Required:
1. Compute for the per-unit costs of each product under the ABC system. (5 pts. each)
2. Compute for the net advantage/disadvantage of each product if ABC system is implemented. (5 pts. each)

Problem 3 (30 pts.)

Macy Company has two service departments and three production departments. For a number of years, Macy has
allocated the costs of the service departments to the production departments on the basis of the annual peso sales. In
a recent audit report, the internal auditor stated that the distribution of service department costs on the basis of
annual sales would lead to serious inequities. It was recommended that maintenance and engineering service hours
be used as a better service cost allocation basis. For illustration purposes, the following information was appended
to the audit report:

Service Departments Producing Departments


Particulars
Maintenance Engineering Dept. A Dept. B Dept. B
Annual peso sales P3,500,000 P4,500,000 P2,000,000
Department direct costs P15,000 P60,000 P80,000 P90,000 P50,000
Maintenance hours used 400 800 200 200
Engineering hours used 400 800 400 400

Required:
1. Assuming maintenance and engineering service hours are used as an allocation basis for service department
costs and step method is used, compute for the total cost of each producing department. (5 pts. each)
2. Compute for the net advantage/disadvantage of each producing departments if maintenance and
engineering service hours are used as an allocation basis for service department costs compared to the
current allocation base, and that direct method is used in allocating. (5 pts. each)

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