Exercise
1. Classify Curly
Company’s costs for a typical month into prevention costs, appraisal costs,
internal failure costs, and external failure costs:

·
Inspection at the end of the
production process $14,000

·
Scrap 12,600

·
Design work to improve the way
products are made 16,800

·
Cost of customer complaints 28,000

·
Employee training 8,400

·
Incoming materials inspection 7,000

Suppose Curly Company could increase
employee training by $10,500 per month, and thereby reduce internal failure and
external failure costs by 28 percent each per month. (Appraisal costs would not
be affected.) Would this be a wise thing for Curly Company to do?

Exercise
2.Vehicle Performance
(VP) designs and produces vehicle parts. In 2015, actual variable manufacturing
overhead is $400,000. VP’s simple costing system allocates variable
manufacturing overhead to its three customers based on machine-hours and prices
its contracts based on full costs. One of its customers has regularly
complained of being charged noncompetitive prices, so VP’s controller realizes
that it is time to examine the consumption of overhead resources more closely.
He knows that there are three main departments that consume overhead resources:
design, production and engineering. Interview with the department personnel and
examination of time records yield the following detailed information:

Required:

1. Compute the manufacturing overhead
allocated to each customer in 2015 using the simple costing system that uses
machine-hours as the allocation base.

2. Compute the manufacturing overhead
allocated to each customer in 2015 using department based manufacturing
overhead rates.

Exercise
3.

Crystal, Inc., manufactures networking
devices for personal computer systems, using just-in-time methods. After
receiving an order for 450 devices, the company bought materials (for cash)
costing $21,000 to fill this order. It incurred labor and overhead costs of $72,000,
of which $15,000 was for wages and the rest overhead. After the production was
finished, but before all goods were sold, the company needed to compute an
inventory cost for financial statement purposes. The cost of finished goods
inventory was $3,720.

Required:

a. Use T-accounts to show the flow of costs
under a traditional costing system.

b. Prepare journal entries for these
transactions using backflush costing.

c. Use T-accounts to show the flow of costs
using a JIT system with backflush costing.

Exercise
4.

Dynamic sells two types of end tables – Basic
and Superior.

There are two types of direct materials,
oak and marble.

The following data are available for the 2016 budget:

Direct materials:

Red $14 per board foot (b.f.)
(same as in 2015)

Marble $20 per square foot(s.f.)
(same as in 2015)

Direct manufacturing labor $40 per hour

Required:

1. Prepare a revenues budget
in units and dollars

2. Prepare a production
budget in units

3. Prepare a direct materials
usage budget in units

Exercise
5.

During July, the cutting department
completed 8,000 units of a product that had a standard materials cost of 2
square feet per unit at $2.40 per square foot. The actual materials purchased
consisted of 16,400 square feet at $2.20 per square foot, for a total cost of $36,080.
The actual material used this period was 16,160 square feet. Compute the
materials price and usage variances. Indicate whether each is favorable or
unfavorable.

Direct materials
– 4 pounds at $5 per pound $20

Direct labor – 3
hours at $6 per hour 18

Manufacturing
overhead – 150% of direct labor 27

$65

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