APPLICATION AND ESSAY QUESTIONS FOCUSING
STUDENT
NAME: STUDENT
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QUESTION 1 (14 Marks)
Classification of costs
Using the code letters below, indicate in the space provided how each of the following costs should be classified for a pen manufacturing company:
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1.1. Property tax on the factory building =
1.2. The chief financial officer's salary =
1.3. Plastic used to manufacture pens =
1.4. Janitors at the factory =
1.5. Manufactured pens waiting to be sold to customers =
1.6. Advertising logos =
1.7. Partially completed pens =
Answers:
- MO (Manufacturing overhead)
- PC (Period cost)
- DM (Direct materials)
- MO (Manufacturing overhead)
- FG (Finished goods)
- PC (Period cost)
- WP (Work in process)
QUESTION 2 (10 Marks)
Product cost vs. period cost
Briefly define the terms product cost and period cost. Explain why the distinction between these two types of costs is important.
Answer: Product cost refers to cost which is incurred to create the product. These costs can includes the direct materials, factory overhead, direct labor and consumable production supplies (Drury, 2018). The product cost also be considered labor cost which is required for deliver the services to consumer. On the other hand, period cost are not tied to process of production in direct manner for an example: general costs, sales cost and administrative costs (Drury, 2018). Moreover, the product cost is variable cost and period cost is fixed cost.
Indicate whether each of the following is a product cost or a period cost:
3.1. Electricity for lighting a factory building =
3.2. Costs of delivering finished bicycles to dealers =
3.4. Cost of a store detective in a retail establishment =
3.5. Cost of eggs in a bakery =
3.6. Cost of chocolate to a candy manufacturer =
3.7. Salary of injection molding machine operator in a plastics factory =
3.8. Salary of a sewing machine operator in a clothing factory =
3.9. Depreciation of a freezer in an ice cream plant =
Answers:
3.1 – Product cost.
3.2 – Period cost.
3.3 – Period cost.
3.4 - Product cost.
3.5- Product cost.
3.6 - Product cost.
3.7 - Product cost.
3.8 - Product cost.
3.9 - Product cost.
QUESTION 4 (20 Marks)
4. There are two distinct types of cost accounting systems: job order costing systems and process costing systems. How does management decide whether to use a job order costing system or a process costing system in any given manufacturing situation? Explain briefly.
Answer:
The job order costing states the costing method that used for determine manufacturing cost of each product (Drury, 2018). On the other hand, process costing system is method used in certain sectors of a manufacturing industry for determine the cost of total production of each product unit (Drury, 2018). Furthermore, both costing systems are best as job costing is effective for those manufacturing situation where services and products are customized as per demand of customer. It can support in make estimates for material and labor value which will be spent in particular job or situation (Drury, 2018). On the other hand, process costing is effective for the mass based production manufacturing situation along with the standardized goods (Drury, 2018). It can assist in determine the each process cost of final good cost in short time frame.
QUESTION 5 (15 Marks)
5.1. Define fixed costs and provide an example
Answer: Fixed costs which do not changes at the time of sales and production based volumes raise or decline. It is because they are not associated directly with the manufacturing of a goods or service delivery (Chen & Koebel, 2017). These type of costs are based on any number of the expenses in business function that can including the salaries, property taxes, rental lease payments, interest expenses, potentially utilities and depreciation.
5.2. Define variable costs and provide an example
Answer: The variable cost is the corporate based expense which changes in the proportion about how much business produce and sells. These type of costs increase and decrease as per volume of production and sales in company (Chen & Koebel, 2017). For an example: Delivery cost, raw materials, piece rate labor, packaging supplies and production supplies.
QUESTION 6 (15 Marks)
Under- and over-applied overhead
6.1. What is meant by under-applied overhead? By over-applied overhead? Briefly explain each term.
Answer:
Under-applied overhead: This is refers to the situation which arises when the overhead expenses are more than what business actually budgets for run operations. It is basically reported as the prepaid expense on balance sheet of organisation and this is balanced through inputting the debit to cost of products sold section by end of year (Jonick, 2019). The sold goods costs are based on direct cost that is associated with production. For an example: when business incurs the $250,000 in overhead after the budgeting only $200,000 and it has under applied the overhead of an amount $50,000.
Over-applied overhead: This refers to situation when expenses incurred are less than what organisation is account for budget. It means that business comes under the budget and attains lower amount of the overhead costs in accounting period (Jonick, 2019). For an example: company allocates the overheads on the basis of machine hours used in the overall production. At the initial of quarter it assumed that machines will operate for 6,000 hours in total then consequently this allocates overhead costs amounting to the $60,000 that is $10 based on per hour.
QUESTION 7 (8 Marks)
Alice Blue is a wholesale dress manufacturer. In manufacturing dresses, the following costs were incurred in March:
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Projected overhead for the year was $560,000 to be allocated based on project direct labor cost of $395,000. What are the total manufacturing costs for March (round your answers)?
(Assumed direct labor cost - $80,000 and direct material cost - $30,000).
Answer:
$560,000 / $395,000 = 1.4
1.4 * $80,000 (Direct labor cost) = 1,12,000
$30,000 (Direct material cost) + $80,000 ( direct labor cost) + $1,12,000 = $2,22,000
The manufacturing costs for March is $2, 22,000.
References
Chen, X., & Koebel, B. M. (2017). Fixed cost, variable cost, markups and returns to scale. Annals of Economics and Statistics/Annales d'Économie et de Statistique, (127), 61-94. https://www.jstor.org/stable/pdf/10.15609/annaeconstat2009.127.0061.pdf
Drury, C. (2018). Cost and management accounting. Cengage Learning. https://d1wqtxts1xzle7.cloudfront.net/61659347/StudentManual_-Drury_Q___A_Study_book_1_20200102-115374-1jy93px-with-cover-page-v2.pdf?Expires=1647169570&Signature=Rw4SRRm1X5CJyNb589nQvPuZ3ZZRfQi0nExvoxl1ffIX7HVABNfGNtvfq71rBmwVVbe-GBPhavS8vNOR8zOiTA2gqzpPH3y1IsV2JfOtPV61HOptzR531xZoAD4n4wXif-WMSbl7lgdw4IFKt0kwTCbmD7y9os2ONHqfVxiqiccgPcATUVtVAsAFNW0fLgmzj8WW5SeAb5gqaH1CZhKKoBdzCdrBYrk9wKhK1Vtk3cHIltBCAK70spaPpCuP2p6zM~V7s4Ok3aw930oh0L2t1KK0D8WZ6VhzqLSqUtMGzbc5SL4fPxU7ANL~uBCftj6gpnJVCYmzgfgJcPf72lBGcw__&Key-Pair-Id=APKAJLOHF5GGSLRBV4ZA
Jonick, C. (2019). Principles of Managerial Accounting. https://oer.galileo.usg.edu/cgi/viewcontent.cgi?article=1008&context=business-textbooks
