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business
cost accounting

Questions and Answers of Cost Accounting

Lorraine DuVere has just been named chief executive officer of a high-technology company. Lorraine started in the budgeting section of the controller's office and has risen rapidly through the ranks
Carmen Lorenzo was recently appointed chief executive officer of a diversified corporate organization. The company has been organized along functional lines similar to Illustration 1-5. This company
Barbara Scott has just been hired as the new controller for Physical Therapy Equipment, Inc., a manufacturer of physical therapy equipment. The vice president of finance reports directly to the
Reginald Langley, corporate vice president for UniProduct, a large multinational corporation, made a request for a review of the corporation's recycling management system. The review was assigned to
Alert, a closely held investment services group, has been very successful over the past three years. Bonuses for top management have ranged from 50 percent to 100 percent of base salary. Top
Jorge Martinez recently joined GroChem, Inc., as assistant controller. GroChem processes chemicals for use in fertilizers. During his first month on the job, Jorge spent most of his time getting
The external auditors of HHP (Heart Health Procedures) are currently performing Obsolescence their annual audit of the company with the help of assistant controller Linda Joyner.Several years ago
Florida Fruits, Inc., agreed to sell 20,000 cases of a dehydrated fruit drink called Managerial Purposes "Fang" to NASA for use on space flights at "cost plus 20 percent."Florida Fruits operates a
Amos Division is a division of a large corporation. It normally sells to outside customers but, on occasion, will sell to another division of the corporation. When it does, corporate policy states
Pete's Coffee, Inc., operates a small coffee shop in the downtown area. Profits have been declining, and management is planning to expand and add ice cream to the menu. The annual ice cream sales are
Denver Data Corp. writes software for computer applications. Recently, one of the company's officers was approached by a representative of a scientific research firm who offered a contract to Denver
Define step and mixed costs.
Since historical costs are sunk (and, hence, not directly useful for decisionmaking purposes), why are accounting systems and reports based on historical costs?
In this chapter's Real World Application why did Bethlehem Steel Corp. need to monitor costs more closely?
Will the steel industry stage a comeback? How can managerial accounting methods be used to help see that it does?
For each of the following costs incurred in a manufacturing operation, indicate whether the costs would be fixed or variable (F or V) and whether they would be period costs or product costs (P or R,
For each of the following costs incurred in a manufacturing operation, indicate whether the costs would be included in prime costs (P), conversion costs (C), or both(B).a. Factory heating and air
For each of the following costs incurred in a manufacturing operation, indicate whether the costs would be fixed or variable (F or V) and whether they would be period costs or product costs (P or R,
Laptop Computers, Inc., sells laptop computers. On January 1 last year, it had a beginning merchandise inventory of $250,000 including transportation-in costs. It purchased $1,300,000 of merchandise,
Refer to the information in exercise 2-23 and assume the unit sales price is $200 per unit.Construct graphs of fixed and variable costs. (See Illustratio 2-7.)
Assume you had invested $168 in supplies to set up a window washing business for the summer. During the first week, you are presented with two opportunities. You can wash the windows at a housing
Excalabur Enterprises converted an old train station into a warehouse space, an office space, restaurants, and specialty shops. If the whole train station was used for warehouse space, the estimated
For external financial reporting, all costs of manufacturing the product are product costs (that is, they are inventoriable). (See Illustration 2-1.)Using the data from exercise 2-27, what are the
Rob Roberts has been working a summerjob that pays $1 , 100 a month. His employer has offered to convert the job into a full-time position at $1,500 per month. Takehome pay is 70 percent of these
What are the characteristics of companies that are likely to be using a job
3-2 What is the function of the job cost record?
Refer to the Real World Aplication about Orion Prictures on page 86. What did Orion do with the cost of "flops"? How did this practice overstate assets and profits?
Refer to the Real World Application about Doughties Foods on page 66. How did the senior company official detect fraud?
Power Records, Inc., experienced the following events during the current year:1. Incurred marketing costs of $250,000.2. Purchased $800,000 of merchandise.3. Paid $20,000 for transportation-in
The following events took place at the Bridal Wear Corp. for the current year.1. Purchased $90,000 in direct materials.2. Incurred direct labor costs of $52,000.3. Manufacturing overhead was
The following transactions occurred in January at Kustom-Kraft, Inc., a job order custom manufacturer of cabinets:1. Purchased $40,000 in materials.2. Issued $2,000 in supplies from the materials
Owings Corporation manufactures one product and accounts for costs by a job order cost system. You have obtained the following information for the year ended December 31 of last year from the
Apex Products estimates its manufacturing overhead to be $22,000 and its direct labor costs to be $40,000 for Year 1 . The actual direct labor costs were $10,0(X) for job 1, $15,000 for job 2, and
Avian Co. uses a predetermined factory overhead rate based on direct labor-hours.For the month of October, Avian's budgeted overhead was $300,000 based on a budgeted volume of 100,000 direct
For the month of September, Touche Andersen & Company worked 300 hours for client A and 700 hours for client B. Touche Andersen bills clients at the rate of $140 per hour, whereas the labor cost for
Refer to the data for exercise 3-20. Assume all manufacturing overhead costs were fixed costs.How much of the under- or overapplied overhead was a spending variance, and how much was a production
Grault Company estimates manufacturing overhead to be $80,000 + (.65 x Direct labor costs). Direct labor costs are estimated to be $100,000 for Year 1. The actual manufacturing overhead costs for
Assume the following facts:Estimated manufacturing tm nnn ^ ^cin x, t^- iu u ^overhead for Year 1 = ^^^'^ + ^^^^ ^ ^''^""^ labor-hours)Estimated direct labor-hours for Year 1 = 1 ,000 hoursa. Compute
Terne Corporation had projected its fixed overhead costs to be $240,000. Direct labor was estimated to total 30,000 hours during the year, and the direct labor-hours would be used as a basis for the
For the month of May, Correctall Accountants worked 500 hours for Misfit Manufacturing, 150 hours for Hang Ten Surf Shop, and 250 hours for Mandarin Restaurants.Correctall bills clients at $80 an
Maria Peters, an accountant for a consulting firm, has just received the monthly cost reports for the two jobs she supervises: one for General Dynamics and one for the U.S. government. She
When a company produces custom products to the specifications of its custom¬ ers, why should it not aggregate costs across customer orders to determine the prices to be charged?LO1
What production conditions are necessary for a company to use job order costing?LO1
What is the alternative to the use of a job order costing system? In what type of production environment would this alternative costing system be found?LO1
Identify the three valuation methods discussed in the chapter. What are the differences among these methods?LO1
In a job order costing system, what is a job?LO1
What are the three stages of production of a job? Of what use is cost information pertaining to completed jobs?LO1
What are the principal documents used in a job order costing system and what are their purposes?LO1
Why is the material requisition form an important document in a company’s audit trail?LO1
What is a job order cost sheet, and what information does it contain? How do job order cost sheets relate to control accounts for Work in Process, Finished Goods, and Cost of Goods Sold?LO1
Of what use to management are job order cost sheets? Why do some job order cost sheets contain columns for both budgeted and actual costs?LO1
“Because the costs of each job are included in the job order cost sheet, they do not need to be recorded in the general ledger.” Is this statement true or false, and why?LO1
Which document in a job order costing system would show the amount of over¬ time worked by a specific individual? Explain.LO1
Is an actual overhead application rate better than a predetermined overhead rate? Why or why not?LO1
What creates underapplied or overapplied overhead when applying overhead to jobs?LO1
What is the principal difference between service and manufacturing firms in job order costing?LO1
How is the cost of goods sold determined in a company that uses job order costing?LO1
(Appendix) What differences exist between job order costing based on actual costs and job order costing based on standard costs? Why would a company use a standard cost job order system?LO1
(Appendix) If a company produces a given type of product only one time, will standard costing be as useful as if the company continually produces the same type of product? Explain.LO1
(Appendix) How does a firm use information on “variances” in a standard costing system to control costs?LO1
(Classifying) For each of the following firms, determine whether it is more likely to use job order or process costing. This firma. does custom printing.b. manufactures bottled soft drinks.c. is
(Journal entries) Olson Inc. produces custom-made trash containers for recycling waste. During June 1997, the following information was obtained relating to operations and production: 1. Direct
(Journal entries; cost flows) Prefab Storage produces customized storage buildings that serve the midwest U.S. market. For February 1997, the company incurred the following costs:The February
(Cost flows) Canadian Steel began operations on March 1, 1997. Its Work in Process Inventory account on March 31 appeared as follows:job was still in process on March 31. That job had $44,200 in
(Normal versus actual costing) For fiscal year 1998, Synthetic Solutions estimated it would incur total overhead costs of $1,200,000 and work 40,000 machine hours. During January 1998, the company
(Cost flows) Jacob’s Well is a small firm that manufactures decorative “wishing wells” for residential and commercial applications. The firm applies overhead to jobs at a rate of 120 percent of
(Departmental overhead rates) The Lunford Paving Company uses a predeter¬ mined overhead rate to apply overhead to jobs, and the company employs a job order costing system. Overhead is applied to
(Job cost and pricing) Jason Hart is an attorney who employs a job order costing system related to his client engagements. Hart is currently working on a case for Janice Keene. During the first 4
(Underapplied or overapplied overhead) For 1998, Specialty Advertising Products Company applied overhead to jobs using a predetermined overhead rate of $11.60 per machine hour. This rate was derived
(Assigning costs to jobs) Minnesota Hydraulics uses a job order costing system in which overhead is applied to jobs at a predetermined rate of $1.60 per direct labor dollar. During April 1998, the
(Assigning costs to jobs, cost flows) Joanna’s Custom Designs, an interior decorating firm, uses a job order costing system and applies overhead to jobs using a pre¬ determined rate of 60 percent
(Assigning costs to jobs) Joe Show is an advertising consultant. Recently, he has been working with his accountant to develop a formal accounting system. His accountant has suggested the use of a job
(Appendix) Sue’s Custom Publishing incurred the following direct material costs in November 1998 for high-volume routine print jobs:Calculate the material price variance and the material quantity
(Appendix) Atlanta Textiles uses a standard cost system. The company experi¬ enced the following results related to direct labor in December 1998:a. Calculate the total actual payroll.b. Determine
(Appendix) Allison’s Bird Baths employs a job order costing system based on standard costs. For one of its products, a small teak-rimmed concrete bird bath (Product No. 17), the standard costs per
(Cost control) Baltimore Fabricated Steel Products Company produces a variety Communication of steel drums that are used as storage containers for various chemical products.One of the products the
(Production and marketing environment) When it comes to tortillas, Mexicans and Americans have distinctly different tastes. Americans are content to purchase mass-produced, prepackaged tortillas from
(Cost manipulation) Excel Communications is a direct sales marketer of long¬ distance phone services. The company earns revenues by selling long-distance services to new subscribers. The company is
(Journal entries) Waldrip’s Custom Awning Company installs awnings on resi¬ dential and commercial structures. The company had the following transactions for February 1998:* Purchased $220,000 in
(Journal entries) Rutherford Custom Concrete uses a job order costing system based on actual costs. The following transactions relate to a single period in which the beginning inventory of Direct
(Journal entries, assigning costs to jobs) Florida Yachts uses a job order costing system. On September 1, 1998, the company had the following account balances:Sept. 16 Florida Yachts applies
(Journal entries, cost flows) Custom Office Products Inc. began 1998 with three jobs in process:During 1998, the following transactions occurred: 1. The firm purchased and paid for $266,000 of raw
(Simple inventory calculation) Chicago Custom Tools Company manufactures tools and dies for manufacturing firms. Production information for the first week in November 1998 is as follows:Direct labor
(Job cost sheet analysis) As a candidate for a cost accounting position with Aztec Industrial, you have been asked to take a quiz to demonstrate your knowledge of job order costing. Aztec’s job
(Departmental rates) The Houston Custom Tile Corporation has two depart¬ ments: Mixing and Drying. All jobs go through each department, and the com¬ pany uses a job order costing system. The
(Comprehensive) In May 1998, Tucson Construction Company was the successful bidder on a contract to build a pedestrian overpass in Phoenix. The firm utilizes a job order costing system, and this job
(Comprehensive) The Steel Sentinel designs and manufactures perimeter fencing for large retail and commercial buildings. Each order goes through three stages: design, production, and installation.
(Appendix) One of the products made by Jersey Logistics is a system to move large oil storage tanks. A single model (Model No. 89) accounts for approxi¬ mately 60 percent of the company’s annual
(Appendix) Laton Mechanical uses a job order costing system. During July 1998, the company worked on two production runs of the same product, a trailer hitch component. These units were included in
(Comprehensive;job cost sheet) The Northern Plains Construction Company builds bridges. For the months of October and November 1997, the firm worked ex¬ clusively on a bridge spanning the Niobrara
(Comprehensive) Kids Krafts is a manufacturer of furnishings for infants and chil¬ dren. The company uses a job order cost system. Kids Krafts’ Work in Process Inventory on April 30, 1998,
(Missing amounts) Riveredge Manufacturing Company realized too late that it had made a mistake locating its controller’s office and its electronic data pro¬ cessing system in the basement. Because
[Jn 1995, British steelmaker Ispat purchased Kazakstan 's largest steel plant.] Little known outside the steel world, Ispat has in recent months assumed a new visibility—as an example of Western
From William J. Fife Jr., chairman of Giddings & Fewis Inc.: “The labor con¬ tent of a product today is probably less than 15%. So, I don’t care how much I cut [direct] labor, it’s not going
Cyclemakers Group of Washdyke near Timaru (New Zealand) is lifting its profile locally and overseas in the cycling world through its custom-built bike service.Although the prospect ofsitting astride
There are two common types of contracts used when private firms contract to provide services to governmental agencies: cost-plus and fixed-price. The cost- plus contract allows the contracting firm
Many software companies produce custom programs for computerized account¬ ing applications. Search the Internet and find two or more companies that make software for job order costing (job costing).
Search the Internet for pronouncements of the Cost Accounting Standards Board and find CAS #18, “Allocation of Direct and Indirect Costs.” Read the pronouncement and write a summary of the most
Find the home page on the Internet for E & D Plastics. Review the information found there regarding E & D’s customers, products, and production processes. Considering this information, describe the
How do product life cycles affect product costing and profitability?LO1

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