Exercise 1:

Pando, Inc. uses a job-order costing system. The company had two jobs in process at the start of the year: job no. 501
($165,000) and job no. 502 ($100,000) and worked on four jobs during the first quarter. At the end of the first quarter,
job no. 501 and job no. 502 was completed. Direct materials used, direct labor incurred, and machine hours consumed
were as follows:

Job No Direct Material Direct labour Machine hours

501 $42,000 $70,000 2,400
502 0 44,000 1,400
503 88,000 130,600 4,000
504 30,000 17,600 1,000

Manufacturing overhead incurred during the first quarter included:

- Charges for depreciation $ 70,000
- Indirect labor 130,000
- Indirect materials used 11,000
- Other factory costs 289,000

The company applies manufacturing overhead on the basis of machine hours (based on practical capacity).
Budgeted overhead and machine activity for the year was anticipated to be $1,780,000 and 32,000 hours,
respectively.

Requirements:
1. Determine the company’s predetermined overhead application rate.
2. Produce Schedule of cost of good manufactured for Job no 501 and Job no 503
3. Calculate manufacturing overhead under-applied or over-applied for the first quarter of the year

Exercise 2:

Toronto Titanium Corporation manufactures a highly specialized titanium sheathing material that is
used extensively in the aircraft industry. The following data have been compiled for the month of June.
Conversion activity occurs uniformly throughout the production process.

Work in process, June 1 …………………………………………………………………………………….. 40,000 units

Direct material: 80% complete, cost of ............................................................................................... $110,500
Conversion: 38% complete, cost of ...................................................................................................... 22,375
Balance in work in process, June 1 ............................................................................................... $132,875
Units started during June ........................................................................................................................ 190,000
Units completed during June and transferred out to finished-goods inventory ............................... 180,000
Work in process, June 30:
Direct material: 75% complete
Conversion: 55% complete

Costs incurred during June:

Direct material .................................................................................................................................... $430,000
Conversion costs:
Direct labor .................................................................................................................................... $128,000
Applied manufacturing overhead ..................................................................................................... 192,000
Total conversion costs ..................................................................................................................... $320,000

Requirements: Using the weighted-average method of process costing, prepare the production report for the month
of June including the following information:
1. Analysis of physical flow of units.
2. Calculation of equivalent units.
3. Computation of unit costs.
4. Analysis of total costs.

Exercise 3:

Wilmington Office Equipment Corporation manufactures two types of filing cabinets—Deluxe and Executive—and
applies manufacturing overhead to all units at the rate of $82 per machine hour. Production information follows.
 Deluxe Executive
Direct materials per unit $42 $64
Direct labour per unit $26 $24
Budgeted units 16,000 30,000

The controller, who is studying the use of activity-based costing, has determined that the firm’s overhead
can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the
number of setups, machine hours, and outgoing shipments, which are the activities’ three respective cost drivers,
follow.

Deluxe Executive
Setups 110 65
Machine hours 31,000 46,000
Outgoing shipments 210 170

The firm’s total overhead as follows: manufacturing setups, $1,444,000; machine processing, $3,596,000; and
product shipping, $1,274,000.

Required:
1. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using the company’s
current overhead costing procedures.

2. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using activity based
costing.

3. Is the cost of the Deluxe filing cabinet overstated or understated (i.e., distorted) by the use of
machine hours to allocate total manufacturing overhead to production? By how much?

4. Assume that the current selling price of a Deluxe filing cabinet is $280 and the marketing manager
is contemplating a $32 discount to stimulate volume. Is this discount advisable? Briefly discuss.
Exercise 1:

Pando, Inc. uses a job-order costing system. The company had two jobs in process at the start of the year: job no. 701
($170,000) and job no. 702 ($110,000) and worked on four jobs during the first quarter. At the end of the first quarter,
job no. 701 and job no. 702 was completed. Direct materials used, direct labor incurred, and machine hours consumed
were as follows:

Job No Direct Material Direct labour Machine hours

701 $44,000 $72,000 2,400
702 0 46,000 1,400
703 89,000 132,600 4,000
704 31,000 17,600 1,000

Manufacturing overhead incurred during the first quarter included:

- Charges for depreciation $ 72,000
- Indirect labor 132,000
- Indirect materials used 12,000
- Other factory costs 290,000

The company applies manufacturing overhead on the basis of machine hours (based on practical capacity).
Budgeted overhead and machine activity for the year was anticipated to be $1,800,000 and 33,000 hours,
respectively.

Requirements:
4. Determine the company’s predetermined overhead application rate.
5. Produce Schedule of cost of good manufactured for Job no 702 and Job no 704
6. Calculate manufacturing overhead under-applied or over-applied for the first quarter of the year

Exercise 2:

Toronto Titanium Corporation manufactures a highly specialized titanium sheathing material that is
used extensively in the aircraft industry. The following data have been compiled for the month of June.
Conversion activity occurs uniformly throughout the production process.

Work in process, June 1 …………………………………………………………………………………….. 42,000 units

Direct material: 75% complete, cost of ............................................................................................... $120,500
Conversion: 40% complete, cost of ...................................................................................................... 21,375
Units started during June ........................................................................................................................ 200,000
Units completed during June and transferred out to finished-goods inventory ............................... 182,000
Work in process, June 30:
Direct material: 70% complete
Conversion: 65% complete

Costs incurred during June:

Direct material .................................................................................................................................... $450,000
Conversion costs:
Direct labor .................................................................................................................................... $118,000
Applied manufacturing overhead ..................................................................................................... 182,000

Requirements: Using the weighted-average method of process costing, prepare the production report for the month
of June including the following information:
1. Analysis of physical flow of units.
2. Calculation of equivalent units.
3. Computation of unit costs.
4. Analysis of total costs.

Exercise 3:

Wilmington Office Equipment Corporation manufactures two types of filing cabinets—Deluxe and Executive—and
applies manufacturing overhead to all units at the rate of $85 per machine hour. Production information follows.

Deluxe Executive
Direct materials per unit $43 $63
 Direct labour per unit $25 $22
Budgeted units 15,000 32,000

The controller, who is studying the use of activity-based costing, has determined that the firm’s overhead
can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the
number of setups, machine hours, and outgoing shipments, which are the activities’ three respective cost drivers,
follow.

Deluxe Executive
Setups 115 65
Machine hours 31,000 46,000
Outgoing shipments 220 180

The firm’s total overhead as follows: manufacturing setups, $1,500,000; machine processing, $3,696,000; and
product shipping, $1,349,000.

Required:
1. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using the company’s
current overhead costing procedures.

2. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using activity based
costing.

3. Is the cost of the Deluxe filing cabinet overstated or understated (i.e., distorted) by the use of
machine hours to allocate total manufacturing overhead to production? By how much?

4. Assume that the current selling price of a Deluxe filing cabinet is $260 and the marketing manager
is contemplating a $31 discount to stimulate volume. Is this discount advisable? Briefly discuss.