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(WIP) ACC 350 Exam 1 Study Material

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Practice Problems

Practice Problems ACC 350 Practice problem—chapter 5 Name _____________________________ The Oakland plant uses a normal cost system and has the following overhead pool cost estimates for the coming year: Machine maintenance costs $240,000 Set-up costs $200,000 Inspection costs $500,000 Total $940,000 Total expected machine hours are 60,000. Total expected set-ups are 500 (one per batch). Total expected inspections are 4,000. Overhead is currently applied using direct labor hours, with an expected and normal capacity of 100,000 direct labor hours. The following data has been assembled for a proposed job which would require the production of 1,000 units of a product. Bid prices normally reflect a 20% mark-up on cost. Proposed Job (1,000 units) Direct material $ 10,000 Direct labor hours ($12 per hour) 1,000 Machine hours 900 Batch size 100 Number of inspections 60 Required: a. Determine the bid price per unit for the proposed job using the current costing system. b. Determine the bid price per unit for the proposed job using activity based costing.

Solutions ACC 350 Practice problem solution—chapter 5 Name _____________________________ The Oakland plant uses a normal cost system and has the following overhead pool cost estimates for the coming year: Machine maintenance costs $240,000 Set-up costs $200,000 Inspection costs $500,000 Total $940,000 Total expected machine hours are 60,000. Total expected set-ups are 500 (one per batch). Total expected inspections are 4,000. Overhead is currently applied using direct labor hours, with an expected and normal capacity of 100,000 direct labor hours. The following data has been assembled for a proposed job which would require the production of 1,000 units of a product. Bid prices normally reflect a 20% mark-up on cost. Proposed Job (1,000 units) Direct material $ 10,000 Direct labor hours ($12 per hour) 1,000 Machine hours 900 Batch size 100 Number of inspections 60 Required: a. Determine the bid price per unit for the proposed job using the current costing system. b. Determine the bid price per unit for the proposed job using activity based costing. 1. $940,000 of Ovhd / 100,000 DLH = $9.40 per hour DLH = 1,000 X $9.40 = 9,400 of applied overhead Total Cost = DM + DL + MOH = $10,000 + $12,000 + $9,400 = $31,400 Bids are marked up 20% over cost - $31,400 X 120% = $37,680 Total Bid Price $37,680 total bid price / 1,000 units = $37.68 per unit bid price 2. Maintenance-related activity rate = $240,000 / 60,000 MH = $4 per MH Set-up-related activity rate = $200,000/ 500 setups = $400 per setup Inspection-related activity rate = $500,000/4,000 inspections = $125 per inspection Maintenance-related ovhd on job = $4 per MH X 900 MH = $3,600 Set-up related ovhd on job = $400 per setup X 10 setups = $4,000 (NOTE – each batch is 100 units; total job is 1,000 units; therefore, there are 10 setups) Inspection-related activity rate = $125 per inspection X 60 inspections = $7,500 Total overhead applied to job = $3,600 + $4,000 + $7,500 = $15,100 Total Cost = DM + DL + MOH = $10,000 + $12,000 + $15,100 = $37,100 Bids are marked up 20% over cost - $37,100 X 120% = $44,520 Total Bid Price $44,520 total bid price / 1,000 units = $44.52 per unit bid price