Exercise 1

A company engages in a manufacturing process that uses one input product (Q) to produce three outputs (X,P and Z). Outputs X and P are considered main products. Output Z is by- product. During a recent month, the following events occurred.

1) Produces and sold 200 units of X and 100 units of P. Produces 25 units of Z.

2) Recorded sales revenue of 35,000 from sales of X and P. The cost of sales before accounting for the by- product was 18,000.

3) Incurred 125 to process the 25 units of Z to completion. These cost are are charged as they are incurred against any by- product's sales. (None of these by- product costs are kept in inventory at the end of the period.)

4) Received 570 in revenue from the sale of 10 units of Z.

Required:

Make a statement showing, in parallel columns, the sales revenue, other income, costs of goods sold, separate costs to process by- products, and gross margin that would be reported for each of the two methods of by- product accounting described in the text.

Exercise 2

Listed below are various observed in Tulip company, Each activity has been classified as unit level, batch level, product level, or facility level in nature.

Activity Activity Classification Examples of traceable costs Examples of cost driver

a.Materials are moved from the receiving dock to

product flow lines by a material-handling crew..... batch level

b.direct labor workers assemble carious products... unit level

c. ongoing training is provided to all........ facility level

employees in the company

d. a product is designed by a specialized design team..... product level

e. Equipment setups are performed on a regular basis.... Batch level

f. Numerical control (NC) machines are

used to cut and shape materials..... Unit level

Required: complete the table above by listing examples of traceable costs and example of cost divers for each activity.

Exercise 3

Listed are below are several terms relating to activity- based costing:

process value analysis Plantwide overhead rate

Facility level Low Volume

High volume Batch level

Activity Centers Two stage

Product level Unit level

Volume Stage

1.The major problem with using direct labor -hours or machine -hours as the basis for assigning overhead cost to products is that these bases rely on ________________ as the sole factor in over head cost assignment.

2.Activity-based costing involves a _______________ allocation process, in which the first ______________ assigns overhead cost from centers and the second __________ assigns overhead costs from activity centers to products and services.

3.______________ which involves a systematic analysis of the activities required to make a product or perform a service, is the beginning point in activity-based costing.

4._______________ Activities, such as the consumption of power, are performed each time a unit is produces and arise as a result of the total volume of production going through a facility.

5._____________ activities, which are performed each time a batch of goods is handled or processed, include tasks such as placement of purchase order.

6.___________ activities, which are performed as needed to support the production of a particular product, include task such as maintaining parts inventories.

7.____________ activities, just sustain a facility's general manufacturing process and include items such as insurance or general factory management.

8.the use of activity-based costing often causes a shift in overhead costs from____________ __ products to ___________ products, therby causing the unit cost of the ___________ products to sharply increase.

9.one of the benefits of activity based costing is that it increases the number of cost pools, or ______________,used to accumulate and assign overhead costs to products and services