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Chapter 19: Q35PGA-3 (page 1077)

Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar鈥檚 activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 240,000

Number of parts

\)1.00

Assembly

3,500,000

Number of assembling direct labor hours

17.00

Finishing

190,000

Number of finished units*

4.50

*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Oscar produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

7,000

\(91,000

\)105,000

28,000

10,500

Unfinished bookcase

7,500

82,500

75,000

22,500

7,500

Requirements

3. Which product costs are reported in the external financial statements? Which costs are used for management decision-making? Explain the difference.

Short Answer

Expert verified

Answer

Manufacturing cost is reported in the external financial statement and differs from the full product cost in terms of the pre and post-manufacturing costs not included in it.

Step by step solution

01

Manufacturing cost

Manufacturing cost is related to the all the manufacturing elements such as material, labor, and overhead. It is the cost that affects the external parties鈥� decisions relating to investment, financing, and pricing.

Manufacturing cost is a part of the cost of goods sold and is reported in the income statement.

02

Full product cost

Full product cost is the total cost incurred before manufacturing, at the time of manufacturing, and after the manufacturing process. This cost includes all the components that are related to the production decisions.

Some costs included in the full product cost may not be relevant to the external parties but are very important for management.

Full product cost is not reported on the external financial statement but is used in the internal reporting and helps in the management decision making.

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Most popular questions from this chapter

Refer to Exercise E19-20. For 2019, Eason鈥檚 managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based n costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company鈥檚 standard and deluxe models for 2019:

Standard Deluxe

Sales price \( 800.00 \) 940.00

Direct materials 31.00 48.00

Direct labor 45.00 52.00

Because of limited machine hour capacity, Eason can produce either2,000 standard rims or2,000 deluxe rims.

Requirements

2. If the managers rely on the single plantwide overhead allocation rate cost data, which model will they produce?

Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.

Low Range has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.

The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March鈥檚 activities follow:

Number of jackets completed 15,000

Number of jackets sold (on account, for \)50 each) 14,600

Direct materials purchased (on account) \( 177,500

Conversion costs incurred \) 521,000

Requirements

3. Use a T-account to determine the March 31, 2018, balance of Raw and In-Process Inventory.

Question:Gateway produces electronic calculators. Suppose Gateway鈥檚 standard cost per calculator is \(25 for direct materials and \)68 for conversion costs. The following data applyto August activities:

Direct materials purchased (on account) \( 8,300

Conversion costs incurred 20,500

Number of calculators produced 300 calculators

Number of calculators sold (on account, at \)105 each) 295 calculators

Requirements

1. Prepare summary journal entries for August using JIT costing, including the entryto adjust the Conversion Costs account.

2. The beginning balance of Finished Goods Inventory was $1,300. Use a T-accountto find the ending balance of Finished Goods Inventory.

Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:

Activity Predetermined

Allocation Base Overhead Allocation Rate

Designing Number of designs \( 290 per design

Planting Number of plants \) 20 per plant

The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.

Requirements

1. What is the total cost of the Brenton job?

Activity-based costing requires four steps. List the four steps in the order they are performed.
See all solutions

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