Sample costing flow for a product & Sample costing flows and pricing

Part 1 - Sample costing flow for a product (10 marks)

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Box D

Finished Goods:

Opening Balance

+ Transfers in

- Transfers out

Ending Balance

Box B

Sales

- Cost of Goods Sold

Gross Margin

- Corporate Overhead

Earnings before Taxes (operating profit)

- Taxes

Net Income

Box A

Materials:

Opening Balance

+ New work

- Transfers out

Ending Balance

Box C

Work In Process:

Opening Balance

+ Transfers in

+ Labour

+ Mfg Overhead

- Transfers out

Ending Balance

Questions:

1. What type of costing system is illustrated above on this page?

__________________________________________________________________________________

2. What is the correct ordering of the flow of boxes above (example: B to D to C to A)

Also read: Calculation and classification of cost

___________________________________________________________________________________

3. True and False questions – Mark with X.

Question

True

False

A. Inventory in “finished goods” is the end   of the production process.

B. Units transferred out from a department   will have material, labour and factory overhead in its cost and is considered   material in the next department.

C. Equivalent units of production are the   portion of whole units that are complete with respect to either materials or   conversion (direct labour and factory overhead) costs.

D. Process costing is used for custom   production.

E. Process costing and job costing assign   the same costs.

F. FIFO costing includes beginning inventory   costs in the equivalent per unit cost.

G. If material for 1000 products was added   to Work in Process but conversion costs are 75% complete at month end, the   equivalent units for allocating conversion costs incurred in the month are A   = 1,000 or B = 750 units. Which is correct?

A

B

H. The Finished Goods in Box D received   $25,000 of costs (Transferred in). Opening inventory was $10,000 and ending   inventory was $5,000. Transferred out must be A = $25,000 or B = $30,000.   Which is correct?

A

B

Part 2 - Sample costing flows and pricing for three customers (10 marks)

Box A

Customer 1

+ Material

+ Labour

+ Mfg. Overhead

+ Corp Overhead

+ Mark up

= Floating Price

Box D

Customer 4

+ Material

+ Labour

+ Mfg. Overhead

+ Corp Overhead

+ Mark up

= Fixed Price

Box C Actual

Customer 2

+ Material to-date

+ Labour to date

+ Mfg. Overhead

+ Corp Overhead

Costs to date

Box C Forecast

Customer 2

+ Material

+ Labour

+ Mfg. Overhead

+ Corp Overhead

+ Mark up

= Fixed Price

Questions:

1. What type of costing system is illustrated above on this page?

__________________________________________________________________________________

2. What is a potential issue with Customer 2 if the overhead allocation is based on a budget and actual results mean the allocation should have been higher.

_________________________________________________________________________________________________

Question

True

False

A. Factory (Mfg) overhead includes all   manufacturing costs except direct materials and direct labour and is   allocated based on overall direct labour hours worked.

B. Labour in the Customer Boxes above (this   page) are based on specific labour rates and hours worked on the particular   job.

C. Materials are tracked through a   requisition system.

D. Factory overhead applied represents the   actual overhead costs incurred for the particular job. In Box A, this is the   actual Mfg overhead incurred.

E. Material, Labour Costs, and Mfg Overhead   in the Boxes above on this page would be recorded in Cost of Goods Sold when   a sale is realized.

F. A job costing system is not applicable   for a service company.

G. The mark-up (i.e., profit) in the Box D   is 20% of costs. If the manufacturing costs are $75,000 and corporate   overhead is $25,000, the profit to the company is A = $20,000 or B = $15,000.   Which is correct?

A

B

H. Labour hours are tracked through a time   ticket system. If the labour component of costs in G just   above unexpectedly increased and manufacturing costs are now $80,000, the   company would A= increase its profits or B = decrease its profits. Which is   correct?

A

B

3. True and False questions – Mark with X.

Part 3 – Opinion questions

Part 3A – In a job order cost system, briefly state two important policies that would help the company produce customized products as desired by customers and would help the company control costs in setting prices for these products. This is particularly important for fixed price contracts. (4 marks)

1. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________2. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3B – In a process cost system, briefly state two important methods of assigning costs to the beginning inventory in a department. (4 marks)

1. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3C – Could a company use both the job and process costing methods in building products? Yes or No and Why. (2 marks)

__________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4 – Calculation Question (10 marks)

Use the worksheet below to assign costs to the inventory transferred out and the ending inventory using the weighted average method. The percentages indicate the amount of work completed.

Part 5 – Calculation Question (10 marks)

Use the worksheet below to assign costs to the inventory transferred out and the ending inventory using the FIFO method. The percentages indicate the amount of work completed.

Part 6 – Activity Based Cost (10 marks)

A company reports the following information about its indirect costs:

1. Total indirect costs of $3,000,000 for the next year.

2. There two products: Product A and Product B.

3. Direct labour hours for Product A is 40,000 and Product B is 60,000

4. The company’s accountant has suggested an alternative to the traditional allocation of indirect overhead based on direct labour hours. The accountant suggested the following:

a. Indirect costs can be broken down into supervisory wages $500,000, machine set up $250,000, machinery operating costs including depreciation $1,250,000, engineering changes $500,000, quality inspection costs $250,000, shipping costs $250,0000.

b. Activity drivers are supervisory wages (direct labour hours), machine set up (2,500 set up hours), machinery operating (12,500 machine hours), engineering changes (2,500 engineering hours), inspection (2,500 inspection hours), shipping (5,000 shipments)

Driver

Product A

Product B

DLH

40,000

60,000

Machine set up

750

1,750

Machine operating

3,500

9.000

Engineering changes

1,000

1,500

Inspections

500

2,000

Shipping Units

1,500

3,500

Questions:

A. Under the traditional allocation method, what is the amount of indirect cost allocated to Product A and Product B?

____________________________________________________________

B. Under the Activity Based Accounting (ACB) method, what is the amount of indirect cost allocated to Product A and Product B?

____________________________________________________________

C. Would the ABC method add value to the company, Yes or No and Why or Why Not?

____________________________________________________________

D. The accountant alternatively suggested a “standard costing system” for indirect costs. This would be a set / fixed amount for the year for each unit of Product A or Product B shipped. What is the standard cost per unit for Product A and Product B assuming a traditional cost allocation approach?

____________________________________________________________

Part 7 - Short answer – Fill in the right column with one example of the specified cost such as “labour to produce a product”. Only the first example will be considered for marks. (10 total marks, 1 mark for each item)

Cost Term

Indicate a good example of the Cost Term.

1. Indirect manufacturing cost

2. Direct cost

3. Cost object

4. Prime cost

5. Conversion cost

6. Variable cost

7. Product cost

8. Period cost

9. Direct labour cost

10.. Corporate cost

Weighted  Average  Method Units Dollars Direct  Material Conversion  Costs Direct  Material Conversion  Costs

Beginning  WIP 500                           50,000                   35,000                                     15,000                                             Started 600                           70,000                   40,000                                     30,000                                            

1,100                     120,000               75,000                                     45,000                                            

Transfer  out 800                           100% 100% A1 A2 Ending  WIP 300                           100% 50% B1 B2

1,100                    

Per  Unit C D

Assigned  Costs Transfer  out Ending  WIP      Total

Weighted Average Method

UnitsDollarsDirect MaterialConversion Costs Direct MaterialConversion Costs

Beginning WIP 500 50,000 35,000 15,000

Started 600 70,000 40,000 30,000

1,100 120,000 75,000 45,000

Transfer out 800 100% 100%A1 A2

Ending WIP 300 100% 50%B1 B2

1,100

Per Unit

C D

Assigned Costs

Transfer out

Ending WIP

Total

FIFO  Method Units Dollars Direct  Material Conversion  Costs Direct  Material Conversion  Costs

Beginning  WIP 500                           50,000                   35,000                                     15,000                                             Started 600                           70,000                   40,000                                     30,000                                            

1,100                     120,000               75,000                                     45,000                                            

Beginning  WIP 450                           0% 40% A1 A2 Started  and  Completed 350                           100% 100% B1 B2 Ending  WIP 300                           100% 50% C1 C2

1,100                    

Per  Unit Assigned  Costs D E Beginning  WIP Added  to  Beginning  WIP      Transfer  from  Beg  WIP Started  and  Completed      Total  Transferred  Out Ending  WIP      Total

FIFO Method

UnitsDollarsDirect MaterialConversion Costs Direct MaterialConversion Costs

Beginning WIP 500 50,000 35,000 15,000

Started 600 70,000 40,000 30,000

1,100 120,000 75,000 45,000

Beginning WIP 450 0% 40%A1 A2

Started and Completed 350 100% 100%B1 B2

Ending WIP 300 100% 50%C1 C2

1,100

Per Unit

Assigned Costs D E

Beginning WIP

Added to Beginning WIP

Transfer from Beg WIP

Started and Completed

Total Transferred Out

Ending WIP

Total

For this module, you created an image of a Terra Cotta Warrior/Animal. You viewed the National Geographic documentary on the subject. Now, answer these questions.

· Who were the images of?

· What was the reason these images were built?

· Who requested (demanded) that they be built?

· What purpose did the figures serve?

· How many of these images were made?

· Would this have been an easy place to work? Why or why not?

· What was the process (details) in how these were constructed?

· What were the figures created with? (materials/medium)?

· Is the appearance of these figures the same as when they were buried?

· What is different or similar?

· What was problematic in creating and having them completed in one piece?

· Were all the images made in a mold?

· Were all the images identical? How is that proven?