I.

Classification of Costs
Complete the table that follows and classify each of the costs listed as (1) a product or period cost
and (2) a variable or fixed cost by placing an "X" in the appropriate column. If product cost, further
classify if direct material (DM), direct labor (DL) or manufacturing overhead (OH).
A. Rubber used in the manufacture of Puma shoes
B. Administrative salaries of executives employed by Singapore Airlines
C. Wages of assembly-line workers at Acer’s plant
D. Marketing expenditures of the Raju Omlet
E. Commissions paid to Accor Hotel’s travel agents
F. Depreciation on factory equipment owned by Big Boss Cement
G. Shipping charges incurred by Matterhorn Health on out-going orders of GlucoGauge
H. Speakers used in Sony home-theater systems
I. Insurance costs related to a Nestle’s manufacturing plant

Product or Period Variable or Fixed

Item Product
Period Variable Fixed
DM DL OH
A
B
C
D
E
F
G
H
I

II. Manufacturing Cost Flow

Dove had the following inventory balances at the beginning and end of the year:

January 1 December 31
Raw material $ 50,000 $ 35,000
Work in process 130,000 170,000
Finished goods 280,000 255,000

During the year, the company purchased $100,000 of raw materials and spent $340,000 on
direct labor. Other data: manufacturing overhead incurred, $450,000; sales, $1,560,000; selling
and administrative expenses, $90,000; income tax rate, 30%.

Required:
A. Calculate cost of goods manufactured.
B. Calculate cost of goods sold.
C. Determine Dove’s net income.

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III. Overhead Computation
Miller Corporation applies overhead at the rate of 70 percent of direct labor. Miller incurred $450,000 of
direct labor during the current year. Miller incurred actual overhead of $367,000.

(a) Compute the amount of under- or overapplied overhead for Miller Corporation for the current year
(b) Prepare the necessary journal entry to dispose of the under- or overapplied overhead (assuming that
the amount is immaterial).

IV. Job-Order Costing

Vijay’s Consulting Company, which uses a job-costing system, began business on January 1, 2019
and applies manufacturing overhead on the basis of direct-labor cost. The following information
relates to 2019:
• Budgeted direct labor and manufacturing overhead were anticipated to be $200,000 and
$250,000, respectively.
• Job nos. 1, 2, and 3 were begun during the year and had the following charges for direct
material and direct labor:

Job No. Direct Materials Direct Labor

1 $145,000 $35,000
2 320,000 65,000
3 55,000 80,000

• Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of
cost. Job no. 3 remained in production.
• Actual manufacturing overhead by year-end totaled $233,000. Vijay adjusts all under- and
overapplied overhead to cost of goods sold.

Required:
A. Compute the company's predetermined overhead application rate.
B. Compute Vijay’s ending work-in-process inventory.
C. Determine Vijay’s sales revenue.
D. Was manufacturing overhead under- or overapplied during 2019? By how much?
E. Present the necessary journal entry to handle under- or overapplied manufacturing
overhead at year-end.

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V. Activity-Based Costing
The controller for British Columbia Box has established the following overhead cost pools and
cost drivers:

Budgeted
Overhead Cost Pool Overhead Cost Cost Driver
Machine setups $240,000 Number of setups
Material handling 90,000 Units of raw material
Quality control inspection 48,000 Number of inspections
Other overhead costs 160,000 Machine hours
Total $538,000

Budgeted Level
Overhead Cost Pool for Cost Driver
Machine setups 200 setups
Material handling 60,000 units
Quality control 1,200 inspections
Other overhead 20,000 machine hours

Order no. 715 has the following production requirements:

Machine setups: 7
Raw material: 11,200 units
Inspections: 16
Machine hours: 850

Required:
A. Compute the total overhead that should be assigned to order no. 715 by using activity-
based costing.
B. Suppose that BCB were to use a single, predetermined overhead rate based on machine
hours. Compute the rate per hour and the total overhead assigned to order no. 715.

VI. Process Costing

On May 1, Yellow Tail Wine Company had a work-in-process inventory of 10,000 units. The units
were 100% complete for materials and 30% complete for conversion, with respective costs of
$30,000 and $1,850.

During the month, 150,000 units were completed and transferred to finished goods. The May
31 ending work-in-process inventory consisted of 10,000 units that were 100% complete with
respect to materials and 80% complete with respect to conversion.

Costs added during the month were $330,000 for materials and $503,750 for conversion.

Required:
Using the weighted-average method, calculate:
A. total equivalent units for materials and conversion.
B. the cost per equivalent unit for materials and conversion.
C. the cost transferred to finished goods.
D. the cost of ending work in process.

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