Classification of costs

Questions:
QUESTION 1
1.1.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:
Costs
____ (a) Property tax on the factory building.
____ (b) The chief financial officer’s salary.
____ (c) Plastic used to manufacture pens.
____ (d) Janitors at the factory.
____ (e) Manufactured pens waiting to be sold to customers.
____ (f) Advertising logos.
____ (g) Partially completed pens.

QUESTION 2
2. The following information has been taken from the perpetual inventory system of Imperial Mfg. Co. for the month ended September 30:
2.1.What does the total amount of inventory to be included in Imperial’s September 30th balance sheet amounts to:
2.2.What are the Total manufacturing costs charged (debited) to Work in Process during September:
2.3.Calculate the cost of finished goods manufactured in September
2.4.Calculate the cost of goods sold in September:
QUESTION 3
3.1. There are two distinct types of cost accounting systems: job costing systems and process costing systems. How does management decide whether to use a job
costing system or a process costing system in any given manufacturing situation? Explain briefly.
3.2. Job cost system
Century Pools designs and builds custom pools and spas to the customer’s and uses a job system. The predetermined overhead rate for the current year is 60%
of direct labor cost.
At the end of the current year, Century Pools’ direct labor cost totaled $170,000 and actual overhead amounted to $105,000.
A pool built for F. Becker required $32,000 of direct materials and $6,500 of direct labor. It was completed in May of the current year.
(a) Compute the total cost of the Becker pool as shown on the job cost sheet at date of completion.
(b) Compute the amount of under- or over-applied manufacturing overhead for Century’s operations for the current year.
QUESTION 4
Percula Farms raises marine fish for sale in the aquarium trade. Each year, Percula obtains a batch of approximately one million eggs from a local supplier. Percula’s
manager is trying to decide whether to use the farm’s facilities to raise Maroon Clownfish or Queen Angelfish. Clownfish eggs cost $5,500 per batch, while angelfish
eggs cost $9,500 per batch. Due to differences in needs, only one species may be raised at a time and only one batch of fish can be raised in any 52-week period.
With current facilities, approximately 10 percent of clownfish eggs and 5 percent of angelfish eggs can be successfully raised to maturity. Clownfish take
approximately 35 weeks to grow to a salable size, while angelfish take 50 weeks. Angelfish also require more care than clownfish. Each week, angelfish need two
complete water changes and 20 feedings, while clownfish need only one water change and 15 feedings. Each feeding costs $150 and each water change costs
$1,000. Heating and lighting costs equal $400 per week of rearing, regardless of which type of fish is being raised. Fixed overhead costs for the year amount to
$80,000. Percula can sell clownfish for $4 each and angelfish for $10 each.
Required:
a-1. Calculate the operating income from raising clownfish and angelfish.
a-2. Which species should Percula raise to earn the highest operating income for the year?
c. & d. Percula’s manager is considering the following improvements, each of which will cost an additional $8,000 for the year. Due to resource limitations, only one
can be implemented.
1. Purchasing a higher quality filter material that will significantly improve water conditions in the rearing tanks. The higher water quality will increase the survival rates
to 12 percent for clownfish and 6 percent for angelfish. The need for water changes will also be reduced to one each week for angelfish. Due to the higher yields,
feeding costs will increase to $160 each.
2. Installing newer, more efficient equipment that will reduce heating and lighting costs to $300 per week of rearing. The new equipment will promote more stable
conditions, increasing the survival rates of clownfish to 10.5 percent and of angelfish to 5.5 percent. The slight change in survival rates is not expected to increase
feeding costs.
i. Calculate the operating income from raising clownfish and angelfish with new filter material.
ii. Calculate the operating income from raising clownfish and angelfish with new heating and lighting.
iii. Which option do you think will be more beneficial and which fish species should be raised?
QUESTION 5
Blaster Corporation manufactures hiking boots. For the coming year, the company has budgeted the following costs for the production and sale of 30,000 pairs of
boots.
Budgeted Costs
Budgeted
Costs
per Pair
Percentage
of Costs
Considered
Variable
Direct materials $ 630,000 $ 21 100%
Direct labor 300,000 10 100
Manufacturing overhead (fixed and variable) 720,000 24 25
Selling and administrative expenses 600,000 20 20
Totals $ 2,250,000 $ 75
Required:
a. Compute the sales price per unit that would result in a budgeted operating income of $900,000, assuming that the company produces and sells 30,000 pairs. (Hint:
First compute the budgeted sales revenue needed to produce this operating income.)
Assume that the company decides to sell the boots at a unit price of $121 per pair.
b-1. Compute the total fixed costs budgeted for the year.
b-2. Compute the variable cost per unit.
b-3. Compute the contribution margin per pair of boots.
b-4. Compute the number of pairs that must be produced and sold annually to break even at a sales price of $121 per pair.
QUESTION 6
Sonic Charge, is a newly organized manufacturing business that plans to manufacture and sell 60,000 units per year of a new product. The following estimates have
been made of the company’s costs and expenses (other than income taxes).
Fixed
Variable
per Unit
Manufacturing costs:
Direct materials $ 25
Direct labor 15
Manufacturing overhead$500,000 8
Period costs:
Selling expenses 2
Administrative expenses 300,000
Totals $800,000 $ 50
Required:
a. What should the company establish as the sales price per unit if it sets a target of earning an operating income of $700,000 by producing and selling 60,000 units
during the first year of operations? (Hint: First compute the required contribution margin per unit.)
b. At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.)
c. What will be the margin of safety (in dollars) if the company produces and sells 60,000 units at the sales price computed in part a?
d. Assume that the marketing manager thinks that the price of this product must be no higher than $60 to ensure market penetration. Will setting the sales price at
$60 enable Ionic Charge to break even, given the plans to manufacture and sell 60,000 units?