Harambee University College

Assignment on Cost Management and Accounting I

Part I Short Answer
1 Define cost object and give three examples.
2 Define direct costs and indirect costs.
3 Why do managers consider direct costs to be more accurate than indirect costs?
4 Name three factors that will affect the classification of a cost as direct or indirect.
5 Define variable cost and fixed cost. Give an example of each.
6 What is a cost driver? Give one example.
7 What is the relevant range? What role does the relevant-range concept play in explaining how
costs behave?
8 Explain why unit costs must often be interpreted with caution.
9 Describe how manufacturing-, merchandising-, and service-sector companies differ from
each other.
10 What are three different types of inventory that manufacturing companies hold?
11 Distinguish between inventoriable costs and period costs.
12 Define the following: direct material costs, direct manufacturing-labor costs, manufacturing overhead
costs, prime costs, and conversion costs.
13 Describe the overtime-premium and idle-time categories of indirect labor.
14 Define product cost. Describe three different purposes for computing product costs.
15 What are three common features of cost accounting and cost management?

Part II Workout
Problem I
Missing records computing inventory costs. Ron Williams recently took over as the controller of
Johnson Brothers Manufacturing. Last month, the previous controller left the company with little notice
and left the accounting records in disarray. Ron needs the ending inventory balances to report first quarter
numbers.
For the previous month (March 2011) Ron was able to piece together the following information:
Direct materials purchased $ 240,000
Work-in-process inventory, 3/1/2011 $ 70,000
Direct materials inventory, 3/1/2011 $ 25,000
Finished goods inventory, 3/1/2011 $ 320,000
Conversion Costs $ 660,000
Total manufacturing costs added during the period $ 840,000
Cost of goods manufactured 4 times direct materials used
Gross margin as a percentage of revenues 20%
Revenues $1,037,500
Required
Calculate the cost of:
1. Finished goods inventory, 3/31/2011
2. Work-in-process inventory, 3/31/2011
3. Direct materials inventory, 3/31/2011
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Problem II
FNS manufacturing company submits the following information on June 30, 2005.
Sales for the year ------------------------------------------------450,000
Raw material inventory, July 1, 2004 --------------------15,000
Finished goods inventory, July 1, 2004 -----------------------70,000
Purchases -----------------------------------------------------120,000
Direct labor -------------------------------------------------------65,000
Power, heat and light ---------------------------------------------2,500
Indirect material purchased and consumed --------------------4,500
Administrative expenses--------------------------------------------21,000
Depreciation of plant --------------------------------------------14,000
Selling expenses------------------------------------------------------25,000
Depreciation of building-----------------------------------------------7,000
Bad debts --------------------------------------------------------------1,500
Indirect labor -------------------------------------------------------------3,000
Other manufacturing expense -------------------------------------10,000
Work in process, July 1, 2004 ----------------------------------14,000
Work in process, June 30, 2005------------------------------------19,000
Raw materials inventory, June 30, 2005-------------------------21,000
Finished goods inventory, June 30, 2005 ----------------------60,000
Applied factory head rate is 20% of the prime cost
Instruction
Prepare:
1) Cost of Goods Manufactured Statement
2) Cost of Goods sold statement at normal and at actual
3) Income statement.
Problem III
Suppose that Akaki General Metal work Factory manufacture 35 and 37 gauge corrugated sheets. The
factory uses the application of one cost pool of manufacturing overhead costs to the product lines. Assume
the factory uses machine hours as cost drivers (allocation base).
The payment for the direct labor is birr 10/hour. The total hours worked on during the year for the same are
10,000 hrs. The total manufacturing labor cost is amounted to birr 150,000.
The total estimated manufacturing overhead costs for the next year are birr 300,000 plus any additional
amount in excess of capacity hours worked. The direct materials consumed are birr 200,000. During the
year, 15,000 machine hours are used to produce 6,000, 35 gauge and 35,000 machine hours are used to
produce 5000, 37 gauge. The total machine hours worked will be 50,000 hours. Prime costs are consumed
1/3 by 35 gauges and 2/3 by 37 gauges.
Instruction: Using traditional approach
1. Calculate the predetermined overhear rate under this method.
2. Apply manufacturing overhead costs to product lines and compute overhead cost per unit
3. Calculate the normal product unit cost.
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Problem IV (ABC Method)

Assume the same case as traditional approach except the general cost pool is disintegrated in to several
activity cost pools related to the production of the two models.
Activity cost Pool Budgeted overhead cost Cost Driver Budgeted level of cost driver
Machine setup $ 150,000 No. of setups 1200 setups
Quality control 70,000 No. of inspections 500 inspections
Machine depreciation 50,000 Machine hours 50,000 hrs
Engineering and Design 80,000 hours in design dept 10,000 hrs
The two models of the factory’s production have the following requirements:
6000 units of 35 gauge 5000 units of 37 gauge
Number of runs (setup) 500runs 700 runs
Number of inspections 250 250
Machines hours 20,000 30,000
Design dept hours 4,500 5,500
Instruction
A) Compute activity cost pool rates
B) Apply MOH costs to product lines
C) Calculate the normal product unit cost under this method
Problem V
1. Midroc business group has a power plant designed and built to serve its three factories. Data for 2008
are as follows:
Usage in kilowatt-hours
Factory Budget Actual

Wanza 100,000 80,000

Midroc Gold 60,000 120,000
ELFORA 40,000 40,000
Actual fixed costs of the power plant were $1,000,000 in 2008; actual variable costs, $2,000,000
Required:
a. Calculate the amount of power costs that would be allocated to Midroc Gold using a single- rate
method.
b. Calculate the amount of power costs that would be allocated to Midroc Gold using a dual- rate
method.

Problem XI
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Lee Company has a small factory with two service departments and two operating departments. The
service departments, Power and Maintenance provide support to the operating departments and also use
some of their own services. Budget estimates are provided in the following schedule:
Support Department Operating Department
Power Maintenance Cutting Assembly Total
Budgeted factory
Over head costs
Before any inter
Department cost
Allocations $100,000 $40,000 $200,000 $160,000 $500,000
Support work furnished:
By Power:
Budgeted kilowatt
Hours _ 100 600 200 900
Percentage _ 11.11% 66.67% 22.22 100%
By Maintenance
Budgeted Maintenance
hours 20 - 150 100 270
Percentage 7.41% - 55.55% 37.04% 100%

NB. Power costs are allocated using kilowatt hours. Maintenance costs are allocated using maintenance
hours.
Required: Allocate service department costs using
a. The direct method
b. The step- down method

Submission Date 16/01/2009

Submitted Before final Exam Date

Problem I
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Assume that GH Company has three production departments and one service department the following
transaction occurred in the month of September Year 2012
1. Purchased raw materials for $300,000 on credit
2. Issued Raw materials from store room to:
- Shaping department -------------------------------- 120,000
- Painting ---------------------------------------------- 90,000
- Finishing ---------------------------------------------- 50,000
- Service ------------------------------------------------- 30,000
3. Recorded labor costs of birr 470,000 at the payroll dates
4. Charged Labor costs to production as following
- Shaping dep’t ------------------------------------------- birr 70,000
- Painting -------------------------------------------------------130,000
- Finishing ------------------------------------------------------110,000
- Service --------------------------------------------------------- 70,000
5. Incurred $ 160,000 in Miscellaneous Manufacturing costs (credit to other accounts)
6. Advocated MOH costs to the three production dep’t as following
- Shaping -------------------------------------------- Br70,000
- Painting ---------------------------------------------- 40,000
- Finishing ---------------------------------------------- 50,000
7. Transferred goods costing birr 300,000 from shaping dep’t to the painting dep’t
8. Transferred goods costing birr 480,000 from painting to finishing dep’t
9. Transferred goods costing birr 600,000 from finishing to warehouse
10. Sold goods for birr 720,000 on credit whose cost is birr 560,000
Required
I- Prepare entry for each of the above transactions
II- Determine ending balances for the following accounts
a- Raw Materials
b- Factory payroll clearing
c- Work in process-shaping
d- Work in process-painting
e- Work in process- Finishing
f- Finished Goods
g- Cost of goods sold
Problem II
The beginning of September 2003, XYZ Inc., had 1250 units partially assembled units in the Assembly
Department. During September 2003, XYZ inc. Placed another 4000 units into production. Data for the
Assembly Department for Sept, 2003 are:
Physical units for September, 2003
Work in process, beginning inventory (Sep 1) --------------- 1250 unit
Direct Materials (90% complete)
Conversion cost (80% Complete)
Started during September --------------------------------------- 4000unit
Completed and transferred out During September ---------- 4250unit
Work in process, ending inventory (Sep 30) ------------------ ?
Direct Materials (80% complete)
Conversion costs (60% complete)
Total costs for Sep 2003
Work in process, beginning inventory
Directs materials ------------------------------------------------41,250
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Conversion cost -------------------------------------------------25,000

Total beg. WIP cost 66,250
Direct Materials costs added during September ------------ 110,000
Conversion costs added during September------------------ 82,300
Cost added during the period ---------------------------------192,300
Required
Compute the above problem using FIFO method:
A) Equivalent unit of production
B) Cost per equivalent unit
C) Cost of end. WIP, cost of beg. WIP required to complete & cost of unit transferred out
D) Reconciliation