Q. 01). P1-31A E-commerce cost-benefit analysis (Learning Objective 5)

Sun Gas wants to move its sales order system to the Web. Under the proposed system, gas stations and other merchants will use a Web browser and, after typing in a password for the Sun Gas Web page, will be able to check the availability and current price of various products and place an order, Currently, customer service representatives take dealers’ orders over the phone: they record the information on a paper form, then manually enter it into the firm’s computer system.

                CFO Carrie Smith believes that dealers will not adopt the new Web System unless Sun Gas provides financial assistance to help them purchase or upgrade their PCs. Smith estimates this one-time at $750,000. Sun Gas will also have to invest $150,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing eh system will be $230,000. The Web System will enable Sun Gas to eliminate 25 clerical positions. Smith estimates’ that the new system’s lower labor costs will have saved the company $1,357,000. 

Requirement

·        Use a cost-benefit analysis to recommend to Smith whether Sun Gas should proceed with the Web-based ordering system. Give your reasons, showing supporting calculations.

Q. 02). E2-21A Classify and calculate a manufacturer’s costs (Learning Objectives 3 & 4)

                                An airline manufacturer incurred the following costs last months (in thousands of dollars) :

Requirements

1.      If the cost object is an airplane, classify each cost as one of the following: direct material (DM), direct labor, (DL), indirect labor (IL), indirect materials (IM), other manufacturing overhead (other MOH), or period cost. (Hint: Set up a column for each type of cost). What is the total for each type of cost?

2.      Calculate total manufacturing overhead costs.

3.      Calculate total inventoriable product costs.

4.      Calculate total prime costs.

5.      Calculated total conversation costs.

6.      Calculate total period costs.

Q. 03. E2-25A Compute cost of goods manufactured and cost of goods sold (Learning Objective 5)

                Compute the cost of goods manufactured and cost of goods sold for Strike Marine Company for the most recent year using the amounts described below. Assume that raw materials inventory contains only direct materials.

Q. 04. E2-34B Classify costs along the value chain for a manufacturer (Leaning Objectives 2 & 3)

                Suppose the cell phone manufacturer Plum Electronics provides the following information for its costs last month (in hundreds of thousands):

Requirements

1.      Classify each of these costs according to its place in the value chain (Hint : You should have at least one cost in each value chain function)

2.      Compute the total costs for each value chain category

3.      How much are the total inventoriable product costs?

4.      How much are the total prime costs?

5.      How much are the total conversion costs?

Q. 5. E3-28A Record journal entries (Learning Objectives 2, 3,5 & 6)

                The following transactions were incurred by Dutch Fabricators during January, the first month of its fiscal year.

Requirements

1.      Record the proper journal entry for each transaction.

a)      $190, 000 of materials were purchased on account.

b)      $ 174,000 of materials was used in production: of this amount, $152, 000 was used on specific jobs.

c)       Manufacturing labor and salaries for the month totaled $ 225,000. A total of $ 190,000 of manufacturing labor and salaries was traced to specific jobs, while the remainder was indirect labor used in the factory.

d)      The company recorded $20,000 of depreciation on the plant and plant equipment. The company also received a plant utility bill for $ 10,000

e)      $81,000 of manufacturing overhead was allocated to specific jobs.

2.      By the end of January, was manufacturing overhead over allocated or under allocated? By how much?

Q.6 S4-19 Quality initiative decision (Learning Objective 5)

Wharfedale manufactures high-quality speakers. Suppose Wharfedale is considering spending the following amounts on a new quality program:

Wharfedale expects this quality program to save costs as follows:

It also expects this program to avoid lost profits from the followings:

1)     Classify each of these costs into one of four categories of quality costs (prevention, appraisal, internal failure, external failure)

2)     Should Whardale implement the quality program? Give your reasons.

Q.07 Mission, Inc., Data Set for S4-11 through S4-14:

                Mission, Inc., is a technology consulting firm focused on Web site development and integration of Internet business applications President Susan Nelson’s ear is ringing after an unpleasant call form client Jerry Webb. Webb said irate after opening his bill for Mission’s redesign of his company’s Web site. Webb said that Mission’s manor competitor, Delta Applications, charged much lower fees to another company for which Webb serves on the board of directors.

Nelson is puzzled for two reasons. First, she is confident that her firm knows Web site design and support as well as any of Mission’s competitors. Nelson cannot understand how Delta Applications can undercut Mission’s rates and still make a profit. But Delta Applications is reputed to be very profitable. Second, just yesterday Nelson received a call from client Keith Greg. Greg was happy with excellent service and reasonable fees Nelson charged him for adding a database-driven job-posting feature to his company’s Web site. Nelson was surprised by Greg’s compliments because this was an unusual job for Mission that required development of complex database management and control applications, and she had felt a little uneasy accepting it.

                Like most consulting firms, Mission traces direct labor to individual engagements (jobs). Missions allocate indirect costs to engagements using a budgeted rate based on direct labor hours. Nelson is happy with this system, which she has used since she established Mission in 1995.

                Nelson expects to incur $706,000 of indirect costs this year, and she expects her firm to work 5,000 direct labor hours. Nelson and the other system consultants earn $350 per hour. Clients are billed at 150% of direct labor cost, Last month; Mission’s consultants spent 100 hours on Webb’s engagement. They also spent 100 hours on Greg’s engagement.

a)      S4-11 Compute and use traditional allocation rate (Learning Objective 1)

Refer to Mission Data Set.

1)      Compute Mission’s indirect  cost allocation rate

2)      Compute the total costs assigned to the Web and Greg engagements.

3)      Compute the operating income from the Web and Greg engagements.

b)     S4-12  Identify clues that old system is broken (Learning Objective 3)

Refer to the Mission Data Set. List all of the signals or clues indicating that Mission’s cost system may be “broken”.

c)      S4-13 Compute activity cost allocation rates (Learning Objective 2)

Refer to the Mission Data Set. Nelson suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system, She identifies three activities: documentation preparation, information technology support, and training. Nelson figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are most closely associated with the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow:

Compute the cost allocation rate for each activity

Q.08). P5-49A Process costing in a single processing department (Learning Objectives 1, 2 & 3)

Winter Lips produces a lip balm used for cold-weather sports. The balm is manufactured in a single processing department. No lip balm was in process on May 31, and Winter Lips started production on 20,400 lip balm tubes during June, Direct materials are added at the beginning of the process, but conversation costs are incurred evenly throughout the process. Completed production for June totaled 15,200 units. The June 30 work in process was 40% of the way though the production process. Direct materials costing $4,080 were placed in production during June, and direct labor of $3,315 and manufacturing overhead of $1,005 were assigned to the process.

Requirements

1)     Draw a time line for Winter Lips that is similar to Exhibit 5-6

2)     Use the time line to help you compute the total equivalent units and the cost per equivalent unit for June.

3)     Assign total costs to (a) units completed and transferred to Finished Goods and (b) units still n process at June 30.

4)     Prepare a T-account for Work in Process Inventory to show activity during June, including the June 30 balance.

Q.09 Prepare a production cost report and journal entries (Learning Objectives 4  & 5)

Classic Accessories manufactures auto roof racks in a two-stage process that includes shaping and plating. Steel alloy is the basic raw material of the shaping process. The steel is molded according to the design specifications of automobile manufacturers (Ford and General Motors). The Planting Department then adds an anodized finish.

                At March 31, before recording the transfer of cost form the Plating Department to Finished Goods Inventory, the Classic Accessories general ledger included the following account:

The direct material (rubber pads) are added at the end of the plating process. Conversion costs are incurred evenly throughout the process. Work in process of the plating Department on March 1 consisted of 600 racks. The $26,370 beginning balance of “Work in Process-Planting” includes $14,400 of transferred-in cost and $11,970 of conversion cost. During March, 3,000 racks were transferred in from the Shaping Department. The Plating Department transferred 2,200 racks to Finished Goods Inventory in March and 1,400 were still in process on March 31. This ending inventory was 50% of the way through the plating process.

Requirements

1)     Draw  a time line for the Plating Department, similar to Exhibit 5-10.

2)     Prepare the March production cost report for the Plating Department.

3)     Journalize all transactions affecting the Plating department during March, including the entries that have already been posted.

Q.10 ) Essay Question :

Write a 400 word minimum essay discussing how lean versus traditional production might affect a management accountant trying to calculate company’s costs. How would the information a management accountant would use to determine company costs change depending on type of production?