Cost Accounting Exercise



1) Mayberry Company had the following journal entries
recorded for the end of June. Unfortunately, the company’s only accountant quit
on July 10 and the president is at a loss as to the company’s performance for
the month of June.

Materials Control 150,000

Direct Materials Price Variance 5,000

Accounts Payable Control 145,000


Direct Materials
Efficiency Variance

Materials Control 64,000


Manufacturing Labor Price Variance

Direct Manufacturing Labor Efficiency Variance 9,000

Wages Payable Control 423,500


a. What
kind of performance did the company have for June? Explain each variance.

b. Why
is Direct Materials given in two entries?

2) Quiett Truck manufactures part WB23 used in several of
its truck models. 10,000 units are produced each year with production costs as

Direct materials $

Direct manufacturing labor 15,000

Variable support costs 35,000

Fixed support costs 25,000

Total costs $120,000

Quiett Truck has the option of purchasing part WB23 from an
outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed
costs cannot be immediately converted to other uses.

a. Describe
avoidable costs. What amount of the WB23 production costs is avoidable?

b. Should
Quiett Truck outsource WB23? Why or why not?

c. What
other items should Quiett Truck consider before outsourcing any of the parts it
currently manufactures?

3) Collier Bicycles has been manufacturing its own wheels
for its bikes. The company is currently
operating at 100% capacity, and variable manufacturing overhead is charged to
production at the rate of 30% of direct labor cost. The direct materials and direct labor cost
per unit to make the wheels are $1.50 and $1.80, respectively.
Normal production is 200,000 wheels per year.

A supplier offers to make the wheels at a price of $4
If the bicycle company accepts
this offer, all variable manufacturing costs will be eliminated, but the
$42,000 of fixed manufacturing overhead currently being charged to the wheels
will have to be absorbed by other products.


a. Prepare
an incremental analysis for the decision to make or buy the wheels.

b. Should
Collier Bicycles buy the wheels from the outside supplier? Justify your answer.

4)Today, Turbo Ovens Manufacturing announced the
availability of a new convection oven that cooks more quickly with lower
operating expenses. Pat is considering the purchase of this faster, lower
operating cost
convection oven to replace the existing one they recently purchased. Selected
information about the two ovens is given below:

Existing New Turbo Oven

Original cost $60,000 $50,000

Accumulated depreciation $ 5,000 ?

Current salvage value $40,000 ?

Remaining life 5 years 5 years

Annual operating expenses $10,000 $ 7,500

Disposal value in 5 years $ 0 $ 0


a. What
costs are sunk?

b. What
costs are relevant?

c. What
are the net cash flows over the next 5 years assuming the Pizzeria purchases
the new convection oven?

d. What
other items should Pat, as manager of the Pizzeria, consider when making this

5) Buck Corporation plans to grow by offering a computer
monitor, the CM3000 that is superior and unique from the competition. Buck
believes that putting additional resources into R&D and staying ahead of
the competition with technological innovations are critical to implementing its


a. Is
Buck’s strategy one of product differentiation or cost leadership? Explain

Identify at least one key element
that you would expect to see included in the balanced scorecard

b. for
the financial perspective.

c. for
the customer perspective.

d. for
the internal business process perspective.

e. for
the learning and growth perspective.

6) Heather’s Pillow Company manufactures pillows. The 20X5
operating budget is based on production of 20,000 pillows with 0.5 machine
hour allowed
per pillow. Variable manufacturing overhead is anticipated to be $220,000.

Actual production for 20X5 was 18,000 pillows using 9,500
Actual variable costs were $20 per machine


Calculate the variable overhead spending and efficiency

7) Everjoice Company makes clocks. The fixed overhead costs
for 20X5 total $720,000. The company uses direct labor
hours for fixed overhead
allocation and anticipates 240,000 hours during the year for 480,000 units. An
equal number of units are budgeted for each month.

During June, 42,000 clocks were produced and $63,000 were
spent on fixed overhead.


a. Determine
the fixed overhead rate for 20X5 based on units of input.

b. Determine
the fixed overhead static
budget variance for June.

c. Determine
the production
overhead variance for June.

8) Silver Lake Cabinets is approached by Ms. Jenny Zhang, a
new customer, to fulfill a large one
timeonly special order for a product similar
to one offered to regular customers. The following per unit data apply for
sales to regular customers:

Direct materials $100

Direct labor 125

Variable manufacturing support 60

Fixed manufacturing support 75

Total manufacturing costs 360

Markup (60%) 216

Targeted selling price $576

Silver Lake Cabinets has excess capacity. Ms. Zhang wants
the cabinets in cherry rather than oak, so direct material costs will increase
by $30 per unit.


a. For Silver
Lake Cabinets, what is the minimum acceptable price of this one
timeonly special

b. Other
than price, what other items should Silver Lake Cabinets consider before accepting
this one
timeonly special

c. How
would the analysis differ if there was limited capacity?


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