Advance & Cost Accounting

Q:1 Turner & Associates, a consulting firm, has the following condensed budget for 2011:
Revenues $21,250,000
Total costs:
Direct costs
Professional Labor $5,312,500
Indirect costs
Client support 13,600,000 18,912,500
Operating income $2,337,500
Turner has single direct -cost category (professional labor) and a single indirect-cost pool (client
support) Indirect costs are allocated to jobs on the basis of professional labor cost.
Required
1. Prepare an overview diagram of the job-costing system. Calculate the 2011 budgeted
indirect-cost rate for turner & Associates
2. The markup rate for pricing jobs is intended to product operating income equal to 11%
of revenues. Calculate the markup rate as a percentage of professional labor costs.
3. Turner is bidding on a consulting job for tasty chicken, a fast-food chain specializing in
poultry meats. The budgeted breakdown of professional labor on the job is as follows:
Professional Labor Category Budgeted Rate per hour Budgeted Hours
Director &198 4
Partner 10 17
Associate 49 42
Assistant 36 153
Calculate the budgeted cost of the Tasty Chicken job. How much will Turner bid for the job if it to earn
its target operating income of 11% of revenues?

Q:2 Automotive Products (AP) designs and pro. Duces automotive parts. In 2011, actual variable
manufacturing overhead is $308,600. AP’s simple costing system allocates variable manufacturing
overhead is $308,600. AP’s simple costing system allocates variable manufacturing overhead to its
three customers based on machine-hours and prices its contracts based on full costs. One of its
customers has regularly complained of being charged noncompetitive prices, so AP’s controller Devon
Smith realizes that it is time to examine the consumption of overhead resources more closely. He
known that there are three main departments that consume overhead resources: design, production,
and engineering. Interviews with the department personnel and examination of tome records yield the
following detailed information:
Department Cost Driver Variable Usage of cost Divers by Customer
Manufacturing Contract
Overhead in 2011 United Holden Leland
Motors Motors Vehicle
Design CAD-Design- &39,000 110 200 50
hours
Production Engineering- 29,600 70 60 240
hours
Engineering Machin e- 240,000 120 2,800 1,080
 hours
Total &308,600
Required
1. Compute the variable manufacturing overhead allocated to each customer in 2011 using the
simple costing system that uses machine-hours as the allocation base.
2. Compute the variable manufacturing overhead allocated to each customer in 2011 using
department-based variable manufacturing overhead rates.
3. Comment on your answers in requirements 1 and 2. Which customer do you think was
complaining about being overcharged in the simple system? If the new department-based rates
are used to price contracts, which customer(s) will be unhappy? How would you respond to
these concerns?
4. How else might AP use the information available from its department by department analysis
of variable manufacturing overhead costs?
5. AP’s managers are wondering if they should further refine the department -by-department
costing system into an ABC system by identifying different activities within each department.
Under what conditions would it not be worthwhile to further refine the department costing
system into an ABC system?

Q.3: The Suzuki C. in Japan has a division that manufactures two- wheel motorcycles. Its budgeted sales for
Model G in 2013 is 900,000 units. Suzuki’s target ending inventory is 80,000 units, and its beginning
inventory is 100,000 units. The company’s budgeted selling price to its distributors and dealers is
400,000 yen (¥) per motorcycle.
Suzuki buys all its wheel’s form and outside supplier. No defective wheels are accepted.
(Suzuki’s needs for extra wheels for replacement parts are ordered by a separate division of the
company.) the company’s target ending inventory is 60,000 wheels, and its beginning inventory is
50,000 wheels. The budgeted purchase price is 16,000 yen (¥) per wheel.
1. Compute the budgeted revenues in yen.
2. Compute the number of motorcycles to be produced
3. Compute the budgeted purchases of wheels in units and in yen.

Q.4: Consider the following data collected for Great Homes, Inc:
Direct Materials Direct Manufacturing Labor
Cost incurred: Actual inputs × actual prices $ 200,000 $90,000
Actual inputs × Standard prices 214,000 86,000
Standard inputs allowed for actual output ×
Standard prices 225,000 80,000
Required: Compute the price, efficiency, and flexible-budget variances for direct material and direct
manufacturing labor.

Q.5: Rhaden Company produces sweat- resistant headbands for joggers. Information pertaining to Rhaden’s
operations for May 2011 Follows:
Actual Budget
Units sold 230,550 220,000
Sales revenue $3,412,140 $3,300,000
 Variable cost ratio 68% 64%
Market size in units 4,350,000 4,400,000
Required:
1. Compute the sales volume variance for May 2011.
2. Compute the market-share and market -size variances for May 2011.
3. Comment on possible reasons for the variances you computed in requirement 2.

Q.6: The French Bread Company bakes baguettes for distribution to upscale grocery stores. The company
has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing
overhead is allocated to products on the basis of standard direct manufacturing labor-hours. Following
is some budget data for the French Bread Company:
Direct manufacturing labor use 0.02 hours per baguette
Variable manufacturing overhead $10.00 per direct manufacturing labor hour
The French Bread Company provides the following additional data for the year ended December
31,2012:
Planned (budgeted) output 3,200,000 baguettes
Actual production 2,800,000 baguettes
Direct manufacturing labor 50,400 hours
Actual variable manufacturing overhead $680,400
Required
1. What is the denominator level used for allocating variable manufacturing overhead? (That is
for how many direct manufacturing labor -hours is French Bread budgeting?)
2. Prepare a variance analysis of variable manufacturing overhead. Use exhibit 8-4 (p.277) for
reference.
3. Discuss the variances you have calculated and give possible explanation for them.