Expert answer:financial and managerial accounting

Solved by verified expert:Complete following exercisesExercise 17.15Spear Custom Furniture uses an activity-based cost accounting system to apply overhead to production.The company maintains four overhead cost pools. The four cost pools, and their budgetedamounts for the upcoming period, are as follows:Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000Materials handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000Set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000Quality control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000Four cost drivers are used by Spear to allocate its overhead cost pools to production. The four costdrivers, and their budgeted total levels of activity for the upcoming period, are shown below:Machine hours (to allocate maintenance costs) . . . . . . . . . . . . . . . . . . . . . . . 600 hoursMaterial moves (to allocate materials handling costs) . . . . . . . . . . . . . . . . . . 400 movesSet-ups (to allocate set-up costs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 set-upsNumber of inspections (to allocate quality control costs) . . . . . . . . . . . . . . . . 300 inspectionsThe company has been asked by Cosmopolitan University to submit a bid for tables to be used in anew computer lab. The plant manager feels that obtaining this job would result in new business infuture years. Estimates for the Cosmopolitan University project are as follows:Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000Direct labor (500 hours) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000Number of machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Number of material moves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Number of set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Number of inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A.) Estimate the total cost of manufacturing the tables for Cosmopolitan University.b.) Determine the company’s bid price if bids are based upon the total estimated manufacturingcost of a particular project, plus 75 percentExercise 18.10Accessory World makes floor mats for the automobile industry. Finished sets of mats must passthrough two departments: Cutting and Coating. Large sheets of synthetic material are cut to size inthe Cutting Department and then transferred to the Coating Department, where each set is sprayedwith a chemical coating for improved durability. The following information pertains to May activityin the Cutting Department:Cost data:Total cost of beginning inventory on May 1 . . . . . . . . . . . . . . . . . . . . . . . . . $45,300Direct materials costs incurred in May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,925Conversion costs incurred in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,525Cut sets transferred in during May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?Physical units data:Units in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 setsUnits started in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? setsUnits in process, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 setsPercentage of completion data:Direct materials, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%Conversion, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Cut sets transferred in, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?Direct materials, May 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70%Conversion, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Cut sets transferred in, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?Cost data:Total cost of beginning inventory on May 1 . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,800Direct materials costs incurred in May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000Conversion costs incurred in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,200Physical units data:Units in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 setsUnits started in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 setsUnits in process, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 setsPercentage of completion data:Direct materials, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%Conversion, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Direct materials, May 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%Conversion, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20a. Prepare a schedule showing: (1) the number of mat sets transferred from the Cutting Departmentto the Coating Department in May, and (2) the number of mat sets started and completedby the Cutting Department in May.b. Compute the equivalent units of input resources for the Cutting Department in May.c. Compute the cost per equivalent unit of input resource for the Cutting Department in May.d. Prepare the summary journal entry required to transfer the cost of completed mat sets from theCutting Department to the Coating Department in May.e. Compute the total cost assigned to the Cutting Department’s ending inventory on May 31.Exercise 18.11 is an extension of Exercise 18.10.EXERCISE 18.11 The following information pertains to May activity in Accessory World’s Coating Department:Cost data:Total cost of beginning inventory on May 1 . . . . . . . . . . . . . . . . . . . . . . . . . $45,300Direct materials costs incurred in May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,925Conversion costs incurred in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,525Cut sets transferred in during May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?Physical units data:Units in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 setsUnits started in May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? setsUnits in process, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 setsPercentage of completion data:Direct materials, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%Conversion, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Cut sets transferred in, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?Direct materials, May 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70%Conversion, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Cut sets transferred in, May 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?a. Compute how many cut mat sets were started in the Coating Department during May.b. Prepare a schedule showing: (1) the number of mat sets transferred out of the Coating Departmentin May, and (2) the number of mat sets started and completed by the Coating Departmentin May.c. Compute the equivalent units of input resources for the Coating Department in May.d. Compute the cost per equivalent unit of input resource for the Coating Department in May.e. Prepare the summary journal entry required to transfer the cost of finished mat sets from theCoating Department’s Work in Process Inventory to the company’s Finished Goods Inventory inMay.f. Compute the total cost assigned to the Coating Department’s ending inventory in process onMay 31.Exercise 19.1The following are eight technical accounting terms introduced or emphasized in this chapter:Activity-based management Total quality managementJust-in-time manufacturing system Target costingLife-cycle costing Value-added activityNon-value-added activity Value engineeringEach of the following statements may (or may not) describe one of these terms. For each statement,indicate the accounting term described, or answer “none” if the statement does not correctlydescribe any of these terms.a. Can be eliminated without changing a product’s desirability in the eyes of consumers.b. The focus of this costing method is to assign manufacturing costs to final products.c. The process of determining the least costly combination of resources needed to create a productdesired by customers.d. This method considers all costs borne by the consumer from purchase to disposal of a product.e. If eliminated, the product’s desirability to consumers is decreased.f. The process of using activity-based costs to help reduce and eliminate non-value-added activities.g. A method in which a product’s selling price is determined by adding a fixed amount to the product’scurrent production cost.h. An approach that explicitly monitors quality costs and rewards quality-enhancing behavior.i. An important aspect of this method is the reduction of unnecessary inventoriesProblem 19.1ACastner Corporation is considering implementation of a JIT inventory system. The company’sindustrial engineer recently conducted a study to determine the average number of days spent ineach activity of the production process. The following table summarizes her findings:Flip Flop’s To Go has gathered the following data on its quality costs for the past two years:EXERCISE 19.14Quality Cost Trade-offsLO19-7Year 1 Year 2Prevention costs:Quality training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $10,500Quality technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 9,000Quality production design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 9,000Failure costs:Warranty handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 $10,000Customer reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 7,200Customer returns handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 4,000a. Compute the percentage change in the total quality costs from year 1 to year 2.b. Explain what you think caused the change.In the Home Depot financial statements in Appendix A at the end of this textbook, find note 1to the financial statements. Note 1 summarizes significant accounting policies for Home Depot .Read the section in Note 1 titled “ Merchandise Inventories.”a. Identify Home Depot ’s definition of “shrink.”b. What are the causes of inventory shrink mentioned by Home Depot ? Classify those causes asvalue-added or non-value-added.c. What methods does Home Depot use to measure shrink?d. How does Home Depot account for shrink?EXERCISE 19.15Home Depot Non-Value-Added CostsLO19-3Production Activity Number of DaysInspecting materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Storing materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Moving materials into production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Setting up production equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Cutting materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Bending materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Assembling finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Painting finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Instructionsa. Identify Castner’s value-added production activities.b. Identify Castner’s non-value-added production activities.c. Calculate Castner’s total cycle time.d. Determine Castner’s manufacturing efficiency ratio.e. Which of the above activities might be reduced or eliminated if Castner implemented a JITsystem?f. What ethical issues might be related to eliminating some of the non-value-added activities?

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