April 19, 2015

Homework Help: ACCOUNTING

Posted by DAVID on Saturday, December 1, 2012 at 1:44am.

Mills Company uses standard costing for direct materials and direct labor. Management would like to use standard costing for variable and fixed overhead.

The following monthly cost functions were developed for manufacturing overhead items:

Overhead Item Cost Function
Indirect materials $1.00 per DLH
Indirect labor $1.25 per DLH
Utilities $0.50 per DLH
Insurance $10,000
Depreciation $40,000

The cost functions are considered reliable within a relevant range of 20,000 to 40,000 direct labor hours. The company expects to operate at 25,000 direct labor hours per month.

Information for the month of June is as follows:

Actual overhead costs incurred:
Indirect materials $ 20,000
Indirect labor 30,000
Utilities 12,000
Insurance 11,000
Depreciation 40,000
Total $113,000

Actual direct labor hours worked: 24,000
Standard direct labor hours allowed for production achieved: 27,000


a. Calculate the following standard manufacturing overhead rates based upon expected capacity:

Variable manufacturing overhead
Fixed manufacturing overhead rate
Total manufacturing overhead rate

b. Calculate the following variances:

Variable overhead spending variance
Variable overhead efficiency variance
Fixed overhead spending variance
Fixed overhead volume variance

2.. Marconi, Inc., a retailer of specialty paints, prepares a monthly master budget. Data for the September master budget are given below:

a. The August 31st balance sheet:

Cash $ 25,500 Accounts payable $ 53,760
Accounts receivable 90,000 Capital stock 265,000
Inventory 28,800 Retained earnings 25,540
Building and equipment (net) 200,000

b. Actual sales for August and budgeted sales for September, October, and November are given below:

August $120,000
September 360,000
October 200,000
November 180,000

c. Sales are 25 percent for cash and 75 percent on credit. All credit sales are collected in the month following the sale. There are no bad debts.

d. The gross margin percentage is 60 percent of sales. The desired ending inventory is equal to 20 percent of the following month's sales. One fifth of the purchases are paid for in the month of purchase and the others are purchased on account and paid in full the following month.

e. The monthly cash operating expenses are $80,000 including the monthly depreciation expense of $7,000.

f. During September, Marconi Company will purchase new office equipment for $17,000 cash.

g. Dividends of $13,500 were declared and paid in September.

h. The company must maintain a minimum cash balance of $25,000. A line of credit is used to maintain this balance. Borrowing will be made in increments of $1,000. All borrowing is done at the beginning of the month and repayments are made at the end of the month. The annual interest rate is 12 percent, paid when the loan is repaid (ignore accrual of interest).

3. Smithson Corporation has the following budgeted sales for the selected six-month period:

Month Unit Sales
June 15,000
July 20,000
August 35,000
September 25,000
October 30,000
November 20,000

There were 7,500 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished product equal to 20 percent of the unit sales for the next month.

Three pounds of materials are required for each unit produced. Each pound of material costs $20. Inventory levels for materials equal 30 percent of the needs for the next month. Materials inventory on June 1 was 5,000 pounds.

a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds and dollars for July, August, and September.

4. Horn Bank has two bank locations: Main and Rural. The central office provides check-processing services for the two banks. Information pertaining to the banks is as follows:

Check Processing Main Rural
Budgeted fixed costs $100,000 - -
Budgeted variable rate per hour $20 - -
Normal usage in hours - 600 400

Actual fixed costs $107,500 - -
Actual variable costs $ 17,500 - -
Actual usage in hours - 550 250


a. Use the direct method to allocate the check-processing center costs to each bank to provide information for setting service charges.
b. Use the direct method to allocate the computer center costs to each bank for performance evaluation purposes.
c. Determine the costs of the check-processing center NOT allocated to the two banks. Why were these costs not allocated to the operating units?

5 Earl, Inc., has two producing departments. Each producing department is held responsible for a share of the costs of a support department.

Actual and budgeted data are as follows:
Support department hours used:
Department X 8,000
Department Y 16,000
Total hours 24,000

Support department costs:
Actual support department costs $72,000
Budgeted fixed service center costs $24,000
Budgeted variable rate per hour $3.00

Normal support department usage is 12,000 hours each for Department X and Department Y.

a. Assuming the purpose is product costing, allocate the costs of the support department using the direct method.
b. Assuming the purpose is to evaluate performance, allocate the costs of the support department.

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