# Altima Company

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**849** - Category: Finance

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Order NowQ1. 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.