Expert Answers

Use the following to answer questions 1 – 4 The following activities occur at Z, Inc., a company that manufactures a variety of products. Classify each of the activities as either a unit-level, batch-level, product-level, or organization sustaining activity.
1. Materials are moved from the receiving dock to the assembly area.
A) unit level
B) batch level
C) product level
D) organization sustaining
2. Diversity training is provided to all employees in the company.
A) unit level
B) batch level
C) product level
D) organization sustaining
3. Direct labor workers assemble various products
A) unit level
B) batch level
C) product level
D) organization sustaining
4. A product is designed by a cross functional team
A) unit level
B) batch level
C) product level
D) organization sustaining
Use the following to answer questions 5 – 7
L Company operates a fleet of armored cars that make scheduled pickups and deliveries in the local area. L has three activity cost pools, (Travel, Pickup & Delivery, and Other). The other cost pool is made up of idle capacity and organization sustaining cost.
Overhead costs
Driver and guard wages
$410,000
Vehicle expenses
$250,000
Total
$660,000
Activity Cost Pools
Travel
Pickup & Delivery
Other
Total
Driver and guard wages
35%
45%
20%
100%
Vehicle expenses
30%
40%
30%
100%
5. ___________How much cost was assigned to the Travel cost pool in the first stage allocation?
6. __________How much cost was assigned to the Pick-up & Delivery cost pool in the first stage allocation?
7. __________How much of the $660,000 overhead cost will not be assigned in the second stage allocation?
Use the following to answer questions 8 – 10
GRO, is a small gardening service that uses ABC to estimate costs for pricing and other purposes. The company uses three activity cost pools (Caring for lawn, Travel to jobs, Other):
Activity cost pool
Activity measure
Caring for lawn
Square feet of lawn
Travel to jobs
Miles
Other
N/A
The company has carried out the first stage allocations of costs and has summarized its annual costs and activities as follows:
Activity cost pool
Estimated Cost
Expected Activity
Caring for lawn
$80,600
20,000
SF
Travel to jobs
$6,000
12,000
miles
Other
$11,000
n/a
8. _________What is the activity rate for the Caring for Lawn cost pool?
9. _________What is the activity rate for the Travel to jobs cost pool?
10. ___________How much overhead cost should be assigned for a 80 mile trip?
Use the following to answer questions 11 – 13
FC Corp is a diversified manufacturer of industrial goods. The company’s ABC system contains the following six activity cost pools and activity rates:
Activity cost pool
Activity rate
Labor related
$6.00
per DLH
Machine related
$18.00
per MH
Machine set-ups
$135.00
per set-up
Production orders
$55.00
per order
Shipments
$8.00
per shipment
Product sustaining
$1,500.00
per product
Activity for the cost object SK08 follows:
Number of units produced per year
1,000
units
Direct labor hours
2,400
DLH
Machine hours
3,100
MH
Machine set-ups
21
set-ups
Production orders
88
orders
Shipments
88
shipments
Product sustaining
1
product
11. ___________How much overhead cost was assigned to SK08 from the Labor Related cost pool?
12. __________How much overhead cost was assigned to SK08 from the Machine Related cost pool?
13. __________How much overhead cost in total was assigned to SK08?
Use the following to answer questions 14 – 20
FLY makes paragliders for sale through specialty sporting goods stores. The company makes specialized gliders and standard gliders. The ABC system shows:
Activity cost pool
Activity rate
Manufacturing volume
$13
per DLH
Machine set-up
$160
per set-up
Custom design processing
$590
per custom design
Customer service
$700
per customer
Management would like to see the profitability of the Standard Model. Activity for the Standard Model was:
Sales price
$825
per glider
Number of units sold per year
100
units
Direct labor hours per glider
8
DLH per unit
Machine set-ups
12
set-ups
Custom design
0
custom design
Direct material per glider
$225
per glider
Direct labor rate
$53.00
per hour
14. __________How much overhead cost in total was assigned to the Standard Model?
15. __________What was the total cost for the 100 Standard Model glider?
16. __________What was the sales revenue from the sale of the 100 gliders?
17. ___________What was the product profitability margin (product margin) on the sale of the 100 gliders?
18. _____________Assume the company used traditional costing (job order costing, using a predetermined overhead rate of $45 per DLH); how much overhead cost would be assigned to the 100 standard gliders?
19. __________Assuming the company used traditional costing what would the product margin be on the sale of the 100 gliders?
20. Does using a unit level activity measure (DLH) instead of using a combination of unit, batch, product level activity measures over cost or under cost the standard glider?
A) Over cost
B) Under cost
Use the following to answer questions 21 – 27
SE Floors installs oak and other hardwood floors in homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
Production overhead………..
$600,000
Office expense………………….
$300,000
Total………………………………….
$900,000
Distribution of resource consumption:
Installing
Job
Activity Cost Pools
Floors
Support
Other
Total
Production overhead……………….
75%
20%
5%
100%
Office expense…………………………
0%
75%
25%
100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Activity Cost Pool
Annual Activity
Installing floors…………..
1,250,000 SF
Job support………………..
1,000 jobs
Other…………………………
Not applicable
21. __ How much cost, in total, would be allocated in the first stage allocation to the Installing Floors activity cost pool?
22. ___ How much cost, in total, would be allocated in the first stage allocation to the Job Support activity cost pool?
23. __ How much cost, in total, would be allocated in the first stage allocation to the Other activity cost pool?
24. __ What is the activity rate for the Installing Floors activity cost pool?
25. What is the activity rate for the Job Support activity cost pool?
26. ___ How much of the cost assigned to the Other activity cost pool will be allocated during the second stage allocation?
27. ____ What is the overhead cost, according to the ABC system, of a job that involves installing 5,000 square feet.
Use the following to answer questions 1 – 3
Budgeted sales are provided below. From past experience, the company has learned that 40% of a month’s sales are collected in the month of sale, and 60% are collected in the month following sale.
September
October
November
December
Budget sales
$315,000
$425,000
$480,000
$575,000
1. $____________________How much cash is expected to be collected in the month of November?
2. $____________________How much cash is expected to be collected in the month of December?
3. $____________________What are the budgeted accounts receivable on December 31st?
Use the following to answer questions 4 – 6
SR has budgeted sales of its popular toy for the next four months as follows:
September
October
November
December
Budget sales in units
17,000
18,000
20,000
19,000
Management requires that end of month inventory level to be 10% of the following month’s sales. The ending inventory for August was 1,700 units.
4. _____________ UNITS How many units are budgeted to be produced in the month of October?
5. _____________ UNITS How many units are budgeted for ending inventory for the month of September?
6. _____________ UNITS How many units are budgeted for beginning inventory for the month of November?
Use the following to answer questions 7 – 9
5 yards of material are needed to make a sailboard sail. The sail material costs $25.00 per yard. It is necessary for the company to carry ending inventory balances equal to 15% of the following month’s production needs. The company started this period with the appropriate amount of beginning inventory.
September
October
November
December
Budget sailboard production
10,000
12,000
13,000
11,000
7. ___________ YARDS How many yards of sail material are required for production (production needs) in October?
8. ___________ YARDS How many yards of sail material are to be purchased in October?
9. $_______________ What is the budgeted cost for purchases for sail material in October?
Use the following to answer question 10
The production department has submitted the following forecast of units to be produced by quarter for the upcoming year:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Units to be produced
10,000
12,000
11,000
14,000
Each unit requires 6 direct labor hours, and direct laborers are paid $28.00 per hour.
10. $_______________ Assume the labor force is adjusted each quarter to match the number of hours required for production. What is the budgeted cash disbursement for labor in the third quarter?
Use the following to answer questions 11 – 12
The direct labor budget for the upcoming fiscal year contains the following details concerning budgeted direct labor hours:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Budgeted DLH
10,000
12,500
13,000
11,000
The company’s variable manufacturing overhead rate is $6.00 per direct-labor hour and the company’s fixed manufacturing overhead is $120,000 per quarter.  The only non-cash item included in FMOH is depreciation which is $19,000 per quarter.
11. $_______________What is the budgeted manufacturing overhead for the second quarter?
12. $_______________What is the cash disbursement for manufacturing overhead for the second quarter?
Use the following to answer questions 13 – 20
You have been asked to prepare a December cash budget for a distributor of exercise equipment.  The following information is available about the company’s operations:
The cash balance on December 1st is $12,000.
Actual sales for October, November and expected sales for December are as follows:
October
November
December
Cash sales
$220,000
$315,000
$325,000
Credit Sales
$365,000
$460,000
$510,000
Credit Sales (sales on account) are collected as follows: 0% in the month of sale; 75% in the month following the sale and 25% collected in the second month following sale.
Purchases of inventory will total $425,000 for December.  70% of a month’s inventory purchases are paid for in the month of purchase and the rest is paid in the following month.  The ending accounts payable for November’s inventory purchases totaled $134,000, all of which will be paid in December.
Selling and administrative expenses are budgeted at $275,000 for December.  Of this amount, $11,000 is for depreciation.
The company is paying dividends of $58,000 in December.
The company maintains a minimum cash balance of $5,000.  An open line of credit is available from the company’s bank, just in case they have a cash flow shortage.
13. $______________ What are the expected cash collections in December?
14. $______________ What are the expected ending Accounts Receivable at the end of December?
15. $______________ What is the budgeted cash disbursement for the purchase of merchandise in December?
16. $_______________ What is the ending Accounts Payable balance (December 31st)?
17. $______________ What is the budgeted cash disbursement for Selling and Administrative expenses for December?
18. $________________ What is the total budgeted cash disbursement for the month of December?
19. $________________ What is the budgeted ending cash balance (December 31st) before any potential financing?
20. $________________ If the company wants to maintain a minimum cash balance of $5,000, how much should they borrow?
Use the following to answer questions 21 – 30
KB manufactures a specialty product.  Following are the data necessary to prepare KB’s February budgets.
January
February
March
April
Budget sales in units:
7,000
8,000
10,000
9,000
Sales per unit: $80
All sales are on credit.
Sales collection: 25% in month of sale; 75% in month following sale
Finished goods ending inventory requirement: budgeted at 10% of the following month’s sales.
Material: 6 yards of fabric per unit.
Raw material ending inventory requirement: budgeted at 5% of the following month’s production needs.
Cost per yard of fabric: $10.00 per yard.
All purchases are made on credit.
Payment of Accounts Payable:  65% in month of purchase and 35% in month following purchase.
(Prepare as much of the budget as possible for each month (January – April) starting with the Sales budget and ending with the direct material purchases budget).
21. $____ What are the budgeted collections for the month of February?
22. $____ What is the budgeted Accounts Receivable at the end of February?
23. ____units What is the budgeted beginning inventory, in units, for the month of February?
24. ____units What is the budgeted ending inventory, in units, for the month of February?
25. ____units What is the budgeted production for the month of February?
26. ____yards How many yards of material are needed (production needs) to satisfy February’s production?
27. ____yards How many yards of material are budgeted to be purchased in February?
28. $___ The budgeted material purchases for the month of February is:
29. $____ How much cash in total will be disbursed in February for the purchase of material?
30. $____ What is February’s ending accounts payable for the purchase of material?