ACCT 305 VAN HUYNH EXAM 1 100% CORRECT

1. The Knapp Company needs to predict the labor cost in producing small ceramic dolls. The following production information is available: Year Dolls Produced Labor Hours Labor Dollars 2011 1,150 850 $17,000 2012 1,600 975 23,40 2013 1,100 800 25,60 2014 2,100 1,150 36,80 2015 1,500 950 34,20 2016 1,300 875 35,00 Wage rates have steadily increased since 2011; however, management expects no further increases in 2017. Required: a. Select the appropriate independent variable for predicting labor cost. Explain the reason for your selection. Labor hour is independent variable for predicting labor cost because it measures activity output and explains the changes in labor dollars b. Develop an equation to predict for 2017 the labor cost of producing ceramic dolls. Use the high- low method. V= ( Y2 -Y1)/ ( X2-X1) = ( $36,800-$25,600) /( 2,100-1,100) = $11.20 per doll produced F = $36,800- ($11.20 X 2,100) = $13,280 Total predicting labor cost for 2017 is TC = F+ V = $13,280 + $11.20 X number of ceramic dolls produced 2. Given the following information: Month HR Dept Costs # new hires # terminations January $785,000 444 137 February $569,000 276 250 March $603,000 219 138 April $445,000 343 99 May $463,000 355 75 June $489,000 298 83 July $400,000 196 47 August $423,000 258 92 September $469,000 307 101 October $538,000 389 175 November $667,000 402 23 December $403,000 361 10 Required: a. Calculate an estimate of HR department costs using regression analysis using # of new hires as the variable parameter HR department cost = $ 267,262.81 + ( $792 X # of new hires ) b. Calculate an estimate of HR department costs using regression analysis using # termination as the variable parameter HR Department Cost = $458,111.93+ ( $615 X # of termination) c. Which parameter do you feel is a better driver of HR cost? I think using number of new hires is a better driver of HR cost because the cost budget is lower and managers always can control on the number of new hires , which helps to reduce the cost for HR Department during some of the slow months . 3. The Hamilton Mills Company cost accountant wants to determine the cost behavior for overhead. Based on observation and discussion with the plant workers, the following accounts have been identified as the most relevant: Supervisor salaries and depreciation are believed to be generally fixed; Indirect labor, Utilities, and Purchasing are generally believed to be variable; Indirect labor primarily is responsible for moving materials; Utility cost is primarily caused by the electricity to run machinery; and Purchasing costs are driven by the number of purchase orders. These accounts and their balances are given below: Indirect Labor Utilities Purchasing Supervisory Salaries Depreciation on Plant and Equipment January $ $ $ $ $ February 31,60 21,20 70,80 46,00 13,00 March 33,60 25,00 75,20 64,00 13,00 April 41,40 25,00 80,40 55,60 13,00 May 40,00 25,00 79,80 50,80 13,00 June 34,00 25,00 79,40 34,00 13,00 Total $209,10 $145,20 $ $ $ Information on the activities is given below: # of moves machine hours purchase orders January 340 5,400 250 February 380 5,200 300 March 400 5,800 450 April 500 6,200 380 May 480 6,000 340 June 420 5,600 200 Total 2,520 4,200 1,920 Required: 1. Why did the cost accountant decide that salaries and depreciation were fixed? Cost accountant decided salaries and depreciation were fixed because these cost did not change substantially , easy to predict and also rarely vary from the current period to the next period . 2. Calculate the average account balance for each of the 5 accounts and calculate the average monthly amount for each of the three drivers. For 5 Accounts : Indirect labor = $209,100/6 = $34,850 Utilities = $145,200/6 = $24,200 Purchasing = $462,000 /6 $77,000 Supervisor salaries = $290,400/6 = $48,400 Depreciation on Plan and Equipment $78,000/6 = $13,000 For 3 Drivers: # of moves = 2,520/6 = 420 moves Machine hour = 4,200/6 =700 hours Purchase order 1,920/6=320 purchase orders 3. Calculate the fixed overhead and variable rates for each of the costs. Write an equation for the total overhead cost. Fixed OH cost = $ 48,400+$13,000 = $61,400 Variable Rate Indirect Labor = $34,850/ 420 moves = $82.97 per move Utilities = $24,200/ 700 hours = $34.57 per machine hour Purchasing = $77,000/ 320 purchase order = $ 240.63 per purchase order The equation for total OH cost = $ 61,400 + $82.97 X( moves ) + $34.57 X ( machine hours ) + $240.63 X ( purchase orders ) 4. In January, 490 moves; 4,375 machine hours, and 220 purchase orders were expected. What is the amount of overhead predicted? OH predicted for January = $61,400+ ( $82.97 X 490) + ($34.57 X 4,375 ) + ( $240.63 X 220) = $ 306,238 4. Maroone, Inc., has identified the following overhead costs and activity drivers for next year: Overhead Item Expected Cost Activity Driver Expected Setup costs $150,000 Number of setups 1,200 Ordering costs 40,000 Number of orders 10,000 Maintenance 200,000 Machine hours 16,000 Power 20,000 Kilowatt hours 100,000 The following are the two product models completed during the year: Model SS Model TT Direct materials $2,250 $2,500 Direct labor 3,000 1,875 Units completed 375 300 Direct labor hours 90 110 Number of setups 6 8 Number of orders 8 15 Machine hours 180 150 Kilowatt hours 90 120 The company's normal activity is 20,000 direct labor hours. Required: a. Determine the unit cost for each job using direct labor hours to apply overhead. b. Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.) c. Which method produces the more accurate cost assignment? Why? a. Determine the unit cost for each job using direct labor hours to apply overhead Overhead Rate = ($150,000+$40,000+$200,000+$20,000)/ (20,000) = $20.5 per direct labor hour Model SS Model TT Direct material 2,250 2,500 Direct Labor 3,000 1,875 Overhead 1,845 2,250 ( $20.5 per hour X 90 hours) ( $20.5 per hour X 110 hours) Total cost 7,095 6,625 Units / 375 / 300 Unit cost $18.92 $22.08 b. Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.) Activity rates: Setups $150,000/ 1,200 = $ 125 per setup Ordering $40,000 / 10,000 = $ 4.00 per order Maintenance $200,000/ 16,000 =$ 12.5 per machine hour Power $ 20,000 /100,000 = $ 0.2 per kilowatt hour Direct material Model SS 2,250 Model TT 2,500 Direct labor 3,000 1,875 Overhead Setups 750 ($125 per set up X 6 setups ) 1,000 ($125 per set up X 8 setups ) Orderings Maintenance 32 ( $4.00 per order X 8 orders ) 2,250 60 ( $4.00 per order X 15 orders ) 1,875 Power 18 24 Total cost 8,300 7,334 Units /375 /300 Unit cost $22.13 $24.45 c, Which method produces the more accurate cost assignment? Why? To determine the unit cost using the four activates driver is more accurate because the demand of products for overhead activities are more fully considered . This method requires more details information from all the activities driver have been used to produce units , that also helps management to approach to the true costing and profitability of certain kind of products 5. The Anchorage plant of the Tundra Company produces two calculators and has two production departments: assembly and packaging. Information for the products is given below: Deluxe Regular Total