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ACC349 Week 2 P2-4A P3-3A P4-1B P4-3B

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P2-4A Acquatic Manufacturing uses a job order cost system in each of its three manufacturing
departments. Manufacturing overhead is applied to jobs on the basis of direct
labor cost in Department A, direct labor hours in Department B, and machine hours in
Department C.

In establishing the predetermined overhead rates for 2005 the following estimates
were made for the year.

(a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing costs assigned to jobs in January in each department.
(c) Compute the under- or overapplied overhead for each department at January 31.

P3-3A Stein Corporation manufactures in separate processes refrigerators and freezers
for homes. In each process, materials are entered at the beginning and conversion costs
are incurred uniformly. Production and cost data for the first process in making two products
in two different manufacturing plants are as follows.

(a) For each plant:
(1) Compute the physical unit flow.
(2) Compute equivalent units of production for materials and for conversion costs.
(3) Determine the unit costs of production.
(4) Show the assignment of costs to units transferred out and in process.
(b) Prepare the production cost report for Plant A for June 2005.

P4-1B Waves Galore, Inc. manufactures hair curlers and blow-dryers. The handheld
hair curler is Waves Galore’s high volume product (80,000 units annually). It is a “large
barrel,” 20-watt, triple-heat appliance designed to appeal to the teenage market segment
with its glow-in-the-dark handle. The handheld blow-dryer is Waves Galore’s lower-volume
product (40,000 units annually). It is a three-speed, 2,000 watt appliance with a “cool setting”
and a removable filter. It also is designed for the teen market.

Both products require one hour of direct labor for completion. Therefore, total
annual direct labor hours are 120,000, (80,000 40,000). Expected annual manufacturing
overhead is $438,000. Thus, the predetermined overhead rate is $3.65 per direct
labor hour. The direct materials cost per unit is $5.25 for the hair curler and $9.75
for the blow-dryer. The direct labor cost is $8.00 per unit for the hair curler and the

(a) Under traditional product costing, compute the total unit cost of each product. Prepare
a simple comparative schedule of the individual costs by product (similar to Illustration
(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead
rates (per cost driver).
(c) Prepare a schedule assigning each activity’s overhead cost pool to each product based
on the use of cost drivers. (Include a computation of overhead cost per unit, rounding
to the nearest cent.)
(d) Compute the total cost per unit for each product under ABC.
(e) Classify each of the activities as a value-added activity or a non-value-added activity.

P4-3B Kitchen Kabinets Company designs and builds upscale kitchen cabinets for luxury
homes. Many of the kitchen cabinet and counter arrangements are custom made, but
occasionally the company does mass production on order. Its budgeted manufacturing
overhead costs for the year 2006 are as follows

For the last 3 years, Kitchen Kabinets Company has been charging overhead to products
on the basis of machine hours. For the year 2006, 100,000 machine hours are budgeted.
Ben Chen, the owner-manager, recently directed his accountant, John Kandy, to
implement the activity-based costing system he has repeatedly proposed. At Ben’s request,
John and the production foreman identify the following cost drivers and their usage for
the previously budgeted overhead cost pools.

Sara Sosa, sales manager, has received an order for 50 kitchen cabinet arrangements
from Bitty Builders, a housing development contractor. At Sara’s request, John prepares
cost estimates for producing components for 50 cabinet arrangements so Sara can submit
a contract price per kitchen arrangement to Bitty Builders. He accumulates the following
data for the production of 50 kitchen cabinet arrangements.

(a) Compute the predetermined overhead rate using traditional costing with machine
hours as the basis. (Round to the nearest cent.)
(b) What is the manufacturing cost per complete kitchen arrangement under traditional
(c) What is the manufacturing cost per kitchen arrangement under the proposed activity based
costing? (Prepare all of the necessary schedules.)
(d) Which of the two costing systems is preferable in pricing decisions and why?

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