Ex 1-16, Value chain and classification of costs, computer company. Compaq Computer incurs the following costs:
a. Electricity costs for the plant assembling the Presario computer line of products
b. Transportation costs for shipping the Presario line of products to a retail chain
c. Payment to David Kelley Designs for design of the Armada Notebook
d. Salary of computer scientist working on the next generation of minicomputers
e. Cost of Compaq employees’ visit to a major customer to demonstrate Compaq’s ability to interconnect withother computers
f. Purchase of competitors’ products for testing against potential Compaq products
g. Payment to television network for running Compaq advertisements
h. Cost of cables purchased from outside supplier to be used with Compaq printers
1-17, Value chain and classification of costs, pharmaceutical company. Pfizer, a pharmaceutical company, incurs the following costs:
a. Payment of booth registration fee at a medical conference to promote new products to physicians
b. Cost of redesigning an insulin syringe to make it less painful
c. Cost of a toll-free telephone line used for customer inquiries about drug usage, side effects of drugs, and so on
d. Equipment purchased to conduct experiments on drugs yet to be approved by the government
e. Sponsorship of a professional golfer
f. Labor costs of workers in the packaging area of a production facility
g. Bonus paid to a salesperson for exceeding a monthly sales quota
h. Cost of FedEx courier service to deliver drugs to hospitals
1-18, Value chain and classification of costs, fast food restaurant. Burger King, a hamburger fast food
restaurant, incurs the following costs:
a. Cost of oil for the deep fryer
b. Wages of the counter help who give customers the food they order
c. Cost of the costume for the King on the Burger King television commercials
d. Cost of children’s toys given away free with kids’ meals
e. Cost of the posters indicating the special “two cheeseburgers for $2.50”
f. Costs of frozen onion rings and French fries
g. Salaries of the food specialists who create new sandwiches for the restaurant chain
h. Cost of “to-go” bags requested by customers who could not finish their meals in the restaurant
Ex 2-16,Computing and interpreting manufacturing unit costs. Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product hasits own dedicated production line at the plant. It currently uses the following three-part classification for itsmanufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Totalmanufacturing overhead costs of the plant in July 2014 are $150 million ($15 million of which are fixed). Thistotal amount is allocated to each product line on the basis of the direct manufacturing labor costs of eachline. Summary data (in millions) for July 2014 are as follows:
Supreme Deluxe Regular
Direct material costs $ 89 $ 57 $ 60
Direct manufacturing labor costs $ 16 $ 26 $ 8
Manufacturing overhead costs $ 48 $ 78 $ 24
Units produced 125 150 140
1. Compute the manufacturing cost per unit for each product produced in July 2014.
2. Suppose that, in August 2014, production was 150 million units of Supreme, 190 million units of Deluxe,and 220 million units of Regular. Why might the July 2014 information on manufacturing cost per unit bemisleading when predicting total manufacturing costs in August 2014?
Ex 4-5,Give examples of two cost objects in companies using job costing.
4-8, Give two reasons why most organizations use an annual period rather than a weekly or monthly
period to compute budgeted indirect-cost rates.
Problem 4-20Job costing, accounting for manufacturing overhead, budgeted rates. The Lynn Company uses a normal job-costing system at its Minneapolis plant. The plant has a machining department and anassembly department. Its job-costing system has two direct-cost categories (direct materials and directmanufacturing labor) and two manufacturing overhead cost pools (the machining department overhead,allocated to jobs based on actual machine-hours, and the assembly department overhead, allocated to jobsbased on actual direct manufacturing labor costs). The 2014 budget for the plant is as follows:
Machining Department Assembly Department
Manufacturing overhead $1,800,000 $3,600,000
Direct manufacturing labor costs $1,400,000 $2,000,000
Direct manufacturing labor-hours 100,000 200,000
Machine-hours 50,000 200,000
1. Present an overview diagram of Lynn’s job-costing system. Compute the budgeted manufacturing
overhead rate for each department.
2. During February, the job-cost record for Job 494 contained the following:
Ex 5-5,Describe four levels of a cost hierarchy.
5-6, Why is it important to classify costs into a cost hierarchy?