lassify Curly Company's costs for a typical month into prevention costs, appraisal costs, internal failure costs, and external failure costs:

Question

Exercise 1. Classify Curly Company’s costs for a typical month into prevention costs, appraisal costs, internal failure costs, and external failure costs:

· Inspection at the end of the production process $14,000

· Scrap 12,600

· Design work to improve the way products are made 16,800

· Cost of customer complaints 28,000

· Employee training 8,400

· Incoming materials inspection 7,000

Suppose Curly Company could increase employee training by $10,500 per month, and thereby reduce internal failure and external failure costs by 28 percent each per month. (Appraisal costs would not be affected.) Would this be a wise thing for Curly Company to do?

Exercise 2.Vehicle Performance (VP) designs and produces vehicle parts. In 2015, actual variable manufacturing overhead is $400,000. VP’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so VP’s controller realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production and engineering. Interview with the department personnel and examination of time records yield the following detailed information:

Usage of Cost Drivers by Customer Contract

Department

Cost Driver

Manufacturing

Overhead in 2015

United

Motors

Holden

Motors

Leland

Auto

Design

CAD design hours

$50,550

143

259

104

Production

Engineering hours

38,365

91

78

312

Engineering

Machine hours

311,085

156

3,626

1,404

Total

$400,000

Required:

1. Compute the manufacturing overhead allocated to each customer in 2015 using the simple costing system that uses machine-hours as the allocation base.

2. Compute the manufacturing overhead allocated to each customer in 2015 using department based manufacturing overhead rates.

Exercise 3.

Crystal, Inc., manufactures networking devices for personal computer systems, using just-in-time methods. After receiving an order for 450 devices, the company bought materials (for cash) costing $21,000 to fill this order. It incurred labor and overhead costs of $72,000, of which $15,000 was for wages and the rest overhead. After the production was finished, but before all goods were sold, the company needed to compute an inventory cost for financial statement purposes. The cost of finished goods inventory was $3,720.

Required:

a. Use T-accounts to show the flow of costs under a traditional costing system.

b. Prepare journal entries for these transactions using backflush costing.

c. Use T-accounts to show the flow of costs using a JIT system with backflush costing.

Exercise 4.

Dynamic sells two types of end tables – Basic and Superior.

There are two types of direct materials, oak and marble.

The following data are available for the 2016 budget:

Direct materials:

Red $14 per board foot (b.f.) (same as in 2015)

Marble $20 per square foot(s.f.) (same as in 2015)

Direct manufacturing labor $40 per hour

Product

Basic Marble Table

Superior Marble Table

Red Oak

12 board feet

12 board feet

Granite

6 square feet

8 square feet

Direct manufacturing labor

4 hours

6 hours

Direct Materials

Oak

Marble

Beginning inventory

63,000 b.f.

54,000 s.f.

Target ending inventory

72,000 b.f.

18,000 s.f.

Product

Basic Marble Table

Superior Marble Table

Expected sales in units

45,000

9,000

Selling price

$ 550

$ 735

Target ending inventory in units

9,900

450

Beginning inventory in units

900

450

Beginning inventory in dollars

$345,600

$235,800

Required:

1. Prepare a revenues budget in units and dollars

2. Prepare a production budget in units

3. Prepare a direct materials usage budget in units

Exercise 5.

During July, the cutting department completed 8,000 units of a product that had a standard materials cost of 2 square feet per unit at $2.40 per square foot. The actual materials purchased consisted of 16,400 square feet at $2.20 per square foot, for a total cost of $36,080. The actual material used this period was 16,160 square feet. Compute the materials price and usage variances. Indicate whether each is favorable or unfavorable.

Direct materials – 4 pounds at $5 per pound $20

Direct labor – 3 hours at $6 per hour 18

Manufacturing overhead – 150% of direct labor 27

$65

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