Cost Accounting: Income Statement & Activity-Based Costing for Marwick's & Lionheart Co., Lecture notes of Piano

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Recap Exs (Ch. 1-4)

Cost classifications

Required:

1. Prepare a traditional format income statement for August;
2. Prepare a contribution format income statement for August. Show costs and revenues on both total and a per unit basis through contribution margin.
3. Refer to the Income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?

Solutions

1. (^) Marwick’s Pianos, Inc. Traditional Income Statement For the Month of August Sales (40 pianos × $3,125 per piano) $125, Cost of goods sold (40 pianos × $2,450 per piano) (^) 98, Gross margin 27, Selling and administrative expenses: Selling expenses: Advertising $ 700 Sales salaries and commissions [$950 + (8% × $125,000)] 10, Delivery of pianos (40 pianos × $30 per piano) 1, Utilities 350 Depreciation of sales facilities 800 Total selling expenses 14, Administrative expenses: Executive salaries 2, Insurance 400 Clerical [$1,000 + (40 pianos × $20 per piano)] 1, Depreciation of office equipment 300 Total administrative expenses 5, Total selling and administrative expenses 19, Net operating income $ 8,

Solutions

3. Fixed costs remain constant in total but vary on a per unit basis inversely with changes in the activity level. As the activity level increases, for example, the fixed costs will decrease on a per unit basis. Showing fixed costs on a per unit basis on the income statement might mislead management into thinking that the fixed costs behave in the same way as the variable costs. That is, management might be misled into thinking that the per unit fixed costs would be the same regardless of how many pianos were sold during the month. For this reason, fixed costs generally are shown only in totals on a contribution format income statement.

Job order costing

Molding

• Total direct labor-hours required for Job HC-
• Direct labor cost $
• Direct labor wage rate per hour $
• Total direct labor hours

Requirement 1: What is the total manufacturing cost assigned to Job HC-916?

Manufacturing overhead applied Molding =

Predetermined overhead rate per DLH x Actual Quantity of DLH

= $23/DLH x 11

Direct materials $ Direct labor 270 Manufacturing Overhead Molding Department $ Manufacturing Overhead Firing Department 510 763 Total manufacturing cost $1,

Manufacturing overhead applied Firing =

Predetermined overhead rate per DM$ x DM$

=150% x $

Activity Based Costing

Greyson Company uses an activity-based costing system. At the beginning of the year, the company made the estimates at the right for

costs and activity for its four activity cost pools. The expected activity for the year was distributed among the company’s three products,

as shown in the lower chart.

Activity Cost

Pool

Activity Measure

Expected

Overhead Cost

Expected Activity

Labor-related Direct labor-hours $260,275 14,500DLHs

Purchase orders Number of orders $ 16,950 150 orders

Parts

management

Number of part

types $ 54,000 30

part

types

General factory Machine-hours $219,450 57,000MHs

Expected Activity

Activity Cost Pool Product A Product B

Product

C

Labor-related (DLHs) 4,000 7,000 3,

Purchase orders (orders) 80 25 45

Parts management (part

types) 15 5 10

General factory (MHs) 17,000 22,000 18,

EX. 03

Required:

1. Compute the activity rate for each of the activity cost pools.

2. Using the ABC data, determine the total amount of overhead cost assigned to each product.

Product B Labor-related $ 17.95 per DLH 7,000 DLHs $125, Purchase orders $ 113.00 per order 25 orders 2, Parts management $1,800.00 per part type 5 part types 9, General factory $ 3.85 per MH 22,000 MHs 84, Total $222, Activity Cost Pool Activity Rate Expected Activity ABC Cost Requirement 2/1: Using the ABC data, determine the total amount of overhead cost assigned to each product. Product A $173, Activity Cost Pool Activity Rate Actual Activity ABC Cost Labor-related $ 17.95 per DLH 4,000 DLHs $ 71, Purchase orders $ 113.00 per order 80 orders 9, Parts management $1,800.00 per part type 15 part types 27, General factory $ 3.85 per MH 17,000 MHs 65, Total × = × =

Product C Labor-related $ 17.95 per DLH 3,500 DLHs $ 62, Purchase orders $ 113.00 per order 45 orders 5, Parts management $1,800.00 per part type 10 part types 18, General factory $ 3.85 per MH 18,000 MHs 69, Total $155, Activity Cost Pool Activity Rate (^) Expected Activity ABC Cost Requirement 2/2: Using the ABC data, determine the total amount of overhead cost assigned to each product. × =