SUBJECT ACTIVITY 002 (SA002)

COST ACCOUNTING AND CONTROL

Exercise 1 (Operation Costing)

The Packo Company, a small manufacturer, makes a variety of toolboxes. The company’s
manufacturing operations and their costs for November were:

Cutting Assembly Finishing Total

Direct Manufacturing Labor ₱ 2,600.00 ₱ 16,500.00 ₱ 4,800.00 ₱ 23,900.00
Manufacturing Overhead 3,000.00 22,900.00 3,300.00 29,200.00
₱ 5,600.00 ₱ 39,400.00 ₱ 8,100.00 ₱ 53,100.00

Three styles of boxes were produced in November. The quantities and direct materials were
Style Quantity Direct Material
Standard 1,200 ₱ 18,000.00
Home 600 6,600.00
Industrial 200 5,400.00
30,000.00

The company uses actual costing. It takes direct materials to each style of box. It combines
direct manufacturing labor and manufacturing overhead and allocates the conversion costs
based on all product units passing through an operation. All product units are assumed to
receive an identical amount of time and effort in each operation. The industrial style, however,
does not go through the finishing operation.

Required:
1. Tabulate the conversion costs of each operation, the total units produced, and the
conversion costs per unit for November.
2. Calculate the total costs and the cost per unit of each style of box produced in November.
Be sure to account for all the total costs.
3. Prepare summary journal entries for each operation. For simplicity, assume that all direct
materials are introduced at the beginning of the cutting operation. Also, assume that all units
were transferred to finished goods when completed and that there was no beginning or
ending work in process. Prepare one summary entry for all conversion costs incurred, but
prepare a separate entry for allocating conversion costs in each operation.
Exercise 2 (Backflush journal entries and JIT production)
The Lim Company has a plant that manufactures transistor radios. The production time is only a
few minutes per unit. The company uses a just-in-time production system and a backflush
costing system with two trigger points for journal entries:

 Purchase of direct (raw) materials

 Completion of good finished units of product
There are not beginning inventories. The following date pertain to April manufacturing:

Direct (raw) materials purchased ₱ 8,800,000.00

Direct (raw) materials used 8,500,000.00
Conversion costs incurred 4,220,000.00
Allocation of conversion costs 4,000,000.00
Costs transferred to finished goods 12,500,000.00
Cost of goods sold 11,900,000.00

Required:
1. Prepare summary journal entries for April (without disposing of under or overallocated
conversion costs). Assume no direct materials variances.
2. Post the entries in requirement 1 to T-accounts for applicable Inventory Control, Conversion
Costs, Control, Conversion Costs Allocated and Cost of Goods Sold.
3. Under an ideal JIT production system, how would the amounts in your journal entries differ
from those in requirement 1?
Exercise 3 (JIT purchasing, choosing suppliers)
The Donnie Corporation and the Thea Corporation manufacture fairly similar remote-controlled
toy cars. The Tristan Corporation, a retailer of children’s toys, expects to buy and sell 4,000 of
these cars each year. Both Donnie and Thea can supply all of Tristan’s needs, and Tristan
prefers to use only one supplier for these cars. An electronic hookup will make ordering costs
negligible for either supplier. Tristan wants 80 cars delivered 50 times each year. Tristan obtains
the following additional information.

Donnie Thea
Purchase price of the car ₱ 50.00 ₱ 49.00
Relevant incremental carrying costs of insurance,
materials handling, breakage, etc., per car per year ₱ 11.00 ₱ 10.00
Expected number of stockouts per year resulting from
late deliveries 20 cars 150 cars
Stockout costs per car ₱ 25.00 ₱ 26.00
Expected number of cars sold that will be returned
owing to quality and other problems 40 cars 140 cars
Additional to Tristan of handling each returned car ₱ 21.00 ₱ 21.00
Inspection costs per dilivery ₱ 20.00 ₱ 28.00

Tristan requires a rate of return of 15% per year on investments in inventory.

Required:
1. Which supplier should Tristan choose? Show all calculations.
2. What other factors should Tristan consider before choosing a supplier?
Exercise 4
BB Systems, Inc. makes paragliders for sale through specialty sporting goods stores. The
company has a standard paraglider model, but also makes custom-designed paragliders.
Management has designed an activity-based costing system with the following activity cost
pools and activity rate:

Activity Cost Pool Acitivity Rate

Supporting manufacturing ₱ 18.00 per direct labor-hour
Order processing ₱ 192.00 per order
Custom designing ₱ 261.00 per custom design
Cutom service ₱ 426.00 per customer

Management would like an analysis of the profitability of a particular customer, Fly High, which
has ordered the following over the last 12 months:

Standard model Custom Design

Number of gliders 10 2
Number of orders 1 2
Number of custom designs 0 2
Direct labor-hours per glider 28.5 32.0
Selling price per glider ₱ 1,650.00 ₱ 2,300.00
Direct material cost per glider ₱ 462.00 ₱ 576.00

The company’s direct labor rate is ₱19 per hour.

Required:
Using the company’s activity-based costing system, compute the customer margin of Fly High.

ANSWER: https://www.homeworklib.com/qaa/1592486/thermal-rising-inc-makes-paragliders-
for-sale
Exercise 5
JHLR Corporation makes ultra-lightweight backpacking tents. Data concerning the company’s
two product lines appear below:

Special Regular
Direct materials per unit ₱ 60.00 ₱ 45.00
Direct labor per unit ₱ 9.60 ₱ 7.20
Direct labor-hours per unit 0.8 DLHs 0.6 LHs
Estimate annual production 10,000 units 70,000 units

The company has a traditional costing system in which manufacturing overhead is applied to
units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-
hours for the upcoming year appear below:

Estimated total manufacturing overhead ₱ 290,000.00

estimated total direct labor-hours 50,000 DLHs

Required:
1. Determine the unit product costs of the Special and Regular products under the company’s
traditional costing system.
2. The company is considering replacing its traditional costing system for determining unit
product costs for external reports with an activity-based costing system. The activity based-
costing system would have the following three activity cost pools:

Estimated Expected Activity

Activities and Activity Measures Overhead Cost Special Regular Total
Supporing direct labor (direct labor-hours) ₱ 150,000.00 8,000 42,000 50,000
Batch setups (setups) 60,000.00 200 50 250
Safety tesing (tests) 80,000.00 80 20 100
Total manufacturing overhead cost ₱ 290,000.00

Determine the unit product cost of the Special and Regular products under the activity-based
costing system.

ANS: https://www.homeworklib.com/qaa/1158806/stillicum-corporation-makes-ultra-light-
weight
https://www.homeworklib.com/qaa/1068180/stillicum-corporation-makes-ultra-light-
weight

Period of Submission: on or before JULY 09, 2021, 2359H

FILE NAME: Mercado, Erica Mae—ATAE22-0709021-SA002
FORMAT: Handwritten at any size white bond or yellow pad
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