Nanyang Technological University

BU8101 Accounting: A User Perspective

Semester 2, 2014/2015

Seminar 8 (week commencing 16 March 2015)

Topic: Lecture 8 Introduction to Managerial Accounting, Job-order Costing, Activity Based
Costing
(Unless otherwise stated, questions are taken from WHB 17th edition)
Section 1- To be discussed in class during week commencing 16 March 2015
1. Computation of Unit Product Cost
(Susan, Powers, Crosson, Chpt 17, qn E9)
Wild Things Inc manufactures custom-made small toys. The following were costs incurred during
March

Liability insurance for manufacturing

Rent for sales office
Depreciation for manufacturing equipment
Direct materials
Indirect labour for manufacturing
Indirect materials
Heat, light and power for factory
Fire insurance for manufacturing
Depreciation of sales equipment
Rent for manufacturing
Direct labour
Manufacturing managers salary
Presidents salary
Sales commission
Advertising expenses

$2,500
2,900
6,100
32,650
3,480
1,080
1,910
2,600
4,250
3,850
18,420
3,100
5,800
8,250
2,975

(a) Prepare an answer sheet with the following column headings.

Cost
item

Direct
materials

Product Costs
Direct
Manufacturing
Labour
Overhead

Period
Costs

Enter each cost item on your answer sheet, placing the dollar amount under the appropriate
headings. Total the dollar amounts in each of the columns.

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(b) The inspection department reported that 48,800 good units were produced during March.
Using job order costing, determine the unit product cost based on the following costs
incurred during March. Round your answer to two decimal places.

2. BU8101 S1 1213 Exam Question 4

Sun-Pad Technology was set up at the beginning of this year to produce and market a revolutionary
new solar-powered tablet known as the Sun-Pad. The founder and CEO of the company, Sun Wing
Hoo, is also the creator of the Sun-Pad tablet. As a cost-saving measure, Sun Wing Hoo has
engaged his niece and part-time accounting student Candy Sun as his accountant. Candy has
presented Sun Wing Hoo with the following first quarterly income statement:
Sun-Pad Technology Pte. Ltd.
Income Statement
For the Quarter Ended 31 March 2012
Sales (32,000 units)
Less: Operating expenses
Selling and administrative expenses *
Manufacturing overhead **
Purchases of raw materials
Direct labour
Net operating loss

$960,000
$290,000
410,000
360,000
70,000

1,130,000
$(170,000)

* Selling and administrative expenses includes building depreciation of $30,000. The usage of
building space is estimated as follows: sales office 40%, factory 60%
** Manufacturing overhead is applied to products based on direct labour hours
Sun Wing Hoo was shocked and disappointed that the company had suffered such a huge loss
despite the Sun-Pads successful launch at recent IT shows.
On 3 April 2012, the companys warehouse was engulfed by fire and all 8,000 unsold tablets were
destroyed. The unsold tablets were part of the 40,000 tablets completed during the first quarter. The
companys insurance policy states that the company will be reimbursed for the cost of any
finished and completed tablets destroyed or stolen. In order for the company to furnish an insurance
claim, Candy has determined the cost of the 8,000 unsold tablets as follows:
Total costs for the quarter
Tablets produced during the quarter

8,000 tablets x $28.25 per unit

=
=

$1,130,000
40,000 units
$28.25 per unit

$226,000

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Inventories at the beginning and end of the quarter were as follows:

Raw materials
Work in process
Finished goods

Beginning of the Quarter

$0
$0
$0

End of the Quarter

$10,000
$50,000
?

The insurance company reviewed the claim amount and responded that $226,000 was an inflated
amount. Sun Wing Hoo exclaimed in frustration, We may not last long unless the insurance
company pays us the $226,000 it owes use for the 8,000 tablets lost in the fire. The insurance
company is just trying to pressure us into claiming a lower amount. We have the data to back up
our claim!
Required
(a) What conceptual errors, if any, were made in preparing the income statement for the quarter
ended 31 March 2012?
(b) Prepare a schedule of cost of goods manufactured for the first quarter
(c) Prepare a corrected income statement for the first quarter. A detailed computation of the cost of
goods sold is required
(d) Do you agree that the insurance company owes Sun-Pad Technology $226,000? If you dont
agree, state the likely insurance payout that Sun-Pad Technology would receive and provide
detailed explanations as well as computations

3. Short Discussion Questions

(Williams, Haka, Bettner, Carcello, Chpt 17)
(a) Why is the use of direct labour hours as a basis in applying manufacturing overhead costs to
products likely to be inappropriate in a highly mechanised production facility?
(b) Discuss how activity based costing can improve overhead cost allocation in companies that
produce a diverse line of products.

4. Review Clickers MCQs

Section 2 - Compulsory Questions due date 23 March 2015
Do the following on the McGraw-Hill Connect e-site.
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5. Problem 16.1A
6. Problem 16.7A
7. Problem 17.1A
8. Problem 17.3A

Section 3 - Self-Practice Problems

9. The following self-practice problems are from McGraw-Hill Connect website.
Classification of Costs in Manufacturing Accounts
Brief Exercise 16.9
Exercise 16.13
Exercise 17.5
Job Order Costing
Exercise 16.6
Exercise 16.9
Problem 16.3A
Problem 17.2A
Problem 17.4A
Activity Based Costing
Problem 17.6A

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