Altima Company

Q1. Altima Company uses an overhead costing system based on direct labor hours for its two products X and Y. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.

(1) Compute the unit manufacturing cost of Product X under a volume-based costing system based on direct labor hours.

(2) Compute the unit manufacturing cost of Product Y under a volume-based costing system based on direct labor hours.

*Note that the direct labor based costing system overcosted the high volume Job B and undercosted the low volume Job A

Q2. Assad Company uses the process costing method with the following data for the month of July.

Required:

(1) Compute cost per equivalent unit under the weighted-average method.
EUs for materials = 50,000+20,000 = 70,000
EUS for conversion = 50,000+(20,000*0.6) = 62,000

(2) Compute cost per equivalent unit under FIFO method.
EUs for DM = 50,000 + 20,000 – 30,000 = 40,000
EUs for Conv: 50,000 + 12,000 – 30,000 * 0.3 = 53,000

DM: $120,000/40,000 =$3 per DM EU
Conv: $199,810/53,000=$3.77 per Conv EU
Total: $3+$3.77= $6.77 per EU

(3) Calculate the cost of units completed and transferred out using the weighted-average method. Under WA
50,000*$6.71 = $335,500
Under FIFO
# of units started & completed this period = 50,000 – 30,000 = 20,000 – 20,000 * $6.77 = $135,400
Let’s calculate the cost incurred to finish BWIP:
6,000 * 0 * $3 = $0
6,000 * 0.7 * $3.77 = $79,170
Total cost of units finished from BWIP = $0 + $79,170 + $65,500 + $51,910 = $196,580 Thus, the cost of completed and transferred out units = $135,400 +$196,580= $331,980

(4) Calculate the cost of ending work in process using the weighted-average method Under WA
DM : 20,000 EUs *$2.65 = $53,000
Conv: 12,000 EUS * $4.06 = $48,720
EWIP = $101,720
Under FIFO
20,000 * 100% * $3 + 20,000 * 0.6 * $3.77 = $105,240

Q3. The Insurance Plus Company has two service departments — actuarial and premium rating, and two production departments — marketing and sales. The distribution of each service department’s efforts to the other departments is shown below:

The operating costs of the departments were as follows:
Actuarial $50,000.
Premium Rating $40,000.
Marketing $60,000.
Sales $70,000.
The total cost accumulated in the marketing department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Solution:

30/50 x 50,000=$30,000
40/70 x 40,000= $22,857
Thus, the total cost accumulated in the marketing department = $52,857 + $60,000 = $112,857

Q5. Using the information in Q4, the total cost accumulated in the marketing department using the step method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar): Step 1

First allocating Actuarial department since it provides 50% (50%>30%) to the rating department. $50,000*0.5 = $25,000  $25,000+40,000=$65,000
 Total allocated amount of Rating Dep’t
$50,000*0.3=$15,000  $15,000+$60,000=$75,000
 Total allocated amount of Marketing Dep’t
$50,000*0.2 = $10,000  $10,000 + $70,000=$80,000
 Total allocated amount of Sales Dep’t
Step 2
Allocating the cost in Rating department to the Marketing department using Direct method: $65,000 * 40/70 = $37,143  $37,143 + $75,000 = $112,143
Q4. Using the information in Q4, the total cost accumulated in the marketing department using the reciprocal method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar): Solution:

Actuarial costs = Initial allocation in Actuarial + costs allocated from Rating Rating costs = Initial allocation in Rating + costs allocated from Actuarial

Denote Actuarial Costs = x and Rating costs = y
x=$50,000+0.3y y=$40,000+0.5x
Using two equations,
X=50,000 + 0.3 * (40,000 + 0.5 * X)
0.85X=62,000
X=72,941  Actuarial Costs
Put X in either equation, then
Y=76,471  Rating Costs

So, total cost accumulated in the marketing department using the reciprocal method = 0.3 * 72,941 + 0.4 * 76,471 + 60,000 = $112,471.

Allocating cost in each of service departments to production departments:
Marketing Sales Costs in Serv.D.
Actuarial 30% 20% $72,941
Amount30%*$72,94120%*$72,941
Rating 40% 30% $76,471
Amount 40%*$76,47130%*$76,471
Initial Allocation $60,000 $70,000
Total for each: Marketing 0.3*72,941 + 0.4*76,471 + 60,000 = $112,471
Sales0.2 * 72,941 + 0.3 * 76,471 + 70,000 =

Q5. Stulce Inc. produces joint products A, B, and C from a joint process. Information concerning a batch produced in May at a joint cost of $120,000 was as follows:

Required(calculate all ratios, percentages, and unit costs to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

1) Allocate the joint costs to the joint products using the physical measures method.

2) Calculate the gross margin for each of the three products using the cost allocation for the physical unit method in part (1) above.

3) Allocate the joint costs to the joint products using the net realizable method.

4) Calculate the gross margin for each of the three products using the cost allocation for the net realizable value method in part (3) above.