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Product code:-Accounts-AW46

I. (12; 4,6,2 points)

         The MNH Company uses one overhead rate for the entire plant.  Estimated overhead for the coming year is $450,000 and the activity level (denominator level) is estimated at 15,000 direct labor hours (DLH).  Two jobs worked on this year were Job #3, which consisted of one hundred (100) plain chairs, and Job #7, which consisted of twenty (20) fancy customized chairs.  Data for each job are presented below.




                                                                        Job #3                                      Job #7

Direct material                                                            $29,000                                   $ 1,900

Direct labor (@$100/hr)                                  $  6,000                                   $ 5,000

Overhead applied                                                  ?                                              ?


The President of MNH Co. has just learned about activity-based costing (ABC) and is interested in how it might change the costs assigned to each job.  After some deliberation the cost accounting group has decided that the single pool of overhead costs ($450,000) could be broken down into three smaller, more homogeneous cost pools: set-up activity, design activity, and material handling activity.  The cost drivers selected for each activity are, respectively, number of set-up hours, number of design changes, and number of material loads transported.  This information was presented as follows.


                                                  Set-up                        Design             Mat. Hand.

                                                 Activity          Activity             Activity


Cost                                          $100,000        $300,000           $50,000


Set-up hrs                                   20,000

# of design changes                                            25,000

No. of loads                                                                                 5,000



                                                                        Job #3              Job #7

Set-up hrs                                                          20                      10

Design changes                                                              30                   400

No. of loads                                                      20                       5


Under the old system (one oh rate) compute the following

  1. The overhead rate
  2. The overhead applied to each job
  3. The total cost of each job
  4. The cost per chair for each job


  1. Under the new system compute
    1. The overhead rates
    2. The overhead applied to each job
    3. The total cost of each job
    4. The cost per chair for each job


  1. Compare and evaluate the two systems of overhead allocation. Be as specific as possible.




II.        (8 points)

            Bill Smith worked for the ABC Company and his performance was measured against his flexible budget.  He was given the following two planning budgets  at the beginning of the year.


                                                            10,000 units                            40,000 units

Variable production costs                   $60,000                                   $240,000

Electricity costs                                                90,000                                      330,000

Rent & insurance                                  50,000                                        50,000

Total                                                   $200,000                                              $620,000


Last month Bill’s department produced 22,000 units and incurred the following costs: Variable production costs were $140,000, electricity costs were $196,000, and the rent and insurance costs were $31,000.


Evaluate Bill’s performance, supporting your conclusions quantitatively where possible.

III. (8 points)

            A new company expects that for the first four months sales will be as follows.

                                                MONTH           CASH SALES           CREDIT SALES

                                                Jan                               $40,000                       $60,000

                                                Feb                                80,000                         80,000

                                                Mar                              130,000                       300,000

                                                Apr                               270,000                      400,000


The company expects to collect credit sales in the following manner: seventy percent (70%) in the month of sale, twenty percent (20%) one month later, and the remaining ten percent (10%) two months later.


            Compute the expected cash collections for the month of April.  SHOW ALL YOUR WORK.


IV. (12 points)

            The MH Toy Company produces toy scooters that consist of one set of handlebars, a platform and two aluminum alloy wheels.  In order to standardize parts the Company has designed the product so that the nuts and bolts used to attach the parts (the wheels and the handlebars) to the platform are all the same.  It takes two nuts and two bolts to attach the handlebars; each wheel needs one nut and  one bolt to be attached to the platform.

The Company has budgeted sales of scooters for the first six months of 2015 as follows:


                                                Jan                               12,000 units

                                                Feb                              17,000

                                                Mar                              20,000

                                                Apr                              30,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

                                                May                                6,000

                                                June                             15,000


The finished goods inventory on Dec 31, 2014 is 2,000 units.  The parts inventory on 12/31/14 includes 2,500 nuts.  For the year 2015 the Company has decided that each month’s finished goods ending inventory should be 20% of the next month’s demand, while the parts ending inventory should be 10% of the next two month’s demand.



1.         Prepare a production budget for scooters for the months of March, April and May (do each month separately).

2.         Prepare a purchases budget for nuts for the month of March.



V. (20 points)

                        Standard Prime Costs per Widget

            Direct material                                                3 lbs @ $ 25     =    $ 75

            Direct labor                                         8 hrs @ $15   =      150

            Total prime costs                                                              $275


The ABC Co. produced 500 widgets during the month of January, which was the first month the company was in business.  The company purchased 1,700 pounds of raw material for a total price of $51,000.  At month end there were 250 pounds of raw material left in inventory.  The workers took 4,200 hours for the month’s production and received on average $17 .00 per hour.  



1. Compute the material price variance.

2. Compute the material quantity variance.

3. Compute the rate variance.

4. Compute the efficiency variance.

5. Compute the direct labor budget variance..


VI. (12 points)


The Singapore division of a Canadian telecommunications company uses standard costing for its machine-based production of telephone equipment.  Data regarding production during June are as follows:


            Variable manufacturing overhead costs incurred                               $127,000

            Variable manufacturing overhead cost rate                $8 per standard machine-hour

            Fixed manufacturing overhead costs incurred                                    $485,000

            Fixed manufacturing overhead budgeted                                           $480,000

            Denominator level in units (normal capacity)                           40,000

            Standard machine-hour allowed per unit of output                    0.40

            Units of output                                                                                      42,000

            Actual machine-hours used                                                        15,800

            Ending work-in process inventory                                                 0



  1. Compute the variable spending and efficiency variances.
  2. Compute the fixed spending and volume variances.             


VII. (8 points)

            Fixed overhead is budgeted at $24,000.  The company actually produced 4,500 widgets in 10,000 direct labor hours.  The total spending variance is $2,000 favorable; standard time per widget is set at two (2) direct labor hours.  The total overhead rate is $10 per DLH.  The volume variance is equal to $3,000 favorable.



            1. What was the level of actual spending?

            2. How much is the efficiency variance (label it)?

            3. What is the variable overhead rate?

            4. What was budgeted normal capacity?

VIII.    (15; 10, 5 points)         Hi-Speed Electronics manufactures low-cost, consumer-grade computers.  It sells these computers to various electronics retailers to market under store brand names.  It manufactures two computers, the Lightning 2.0 and the Lightning 2.4, which differ in terms of speed, included memory, and included hard drive capacity.  The following information is available:


                        Costs per unit              Lightning 2.0             Lightning 2.4

                        Direct materials                             $ 40                              $ 75

                        Direct labor                        100                               125

                        Variable overhead              200                                250

                        Fixed overhead                              120                               150

                        Total cost per unit            $460                              $600

                        Price                                          $620                              $900

                        Units sold                               10,000                            7,000


            The average wage rate is $25 per hour.  The plant has a capacity of 100,000 direct labor-hours.


            a.         A nationwide discount chain has approached Hi-Speed with an offer to buy 2,000 Lightning 2.0 computers and 3,000 Lightning 2.4 computers if the price is lowered to $400 and $600, respectively, per unit.  If Hi-Speed accepts the offer, how many direct labor-hours will be required to produce the additional computers?  How much will the profit increase (or decrease) if Hi-Speed accepts this proposal?  Prices on regular sales will remain the same.


            b.         Suppose that the customer has offered instead to buy 3,000 of L2.0 and 4,000 of L2.4 at the above special prices.  How much will the profits change if the order is accepted?  Assume that the company cannot increase its production capacity to meet the extra demand.  (N.B. Time is the scarce resource).


IX.   (5 points)

                        The M&H Co. manufactures "faces," each one composed of one plain cookie and eight chocolate chips.  Management has decided that the April ending inventory for chocolate chips should be 130,000 chips, while the beginning inventory on April 1 would be targeted at 40,000 chips.  Estimated sales of "faces" for March and May are 15,500 and 18,750 units, respectively; the company desires to keep an ending inventory of "faces" equal to 20% of next month's estimated sales.  If the company has correctly projected a need to purchase 600,000 chocolate chips during the month of April, how many "faces" did the company expect to sell during April?



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