COST ACCOUNTING PROBLEMS:

Problem 1

The San Gabriel Company has budgeted costs for service and production department
as follows:

Service Departments:
-Maintenance: $20,000
-Personnel: $30,000
-Design: $25,000

Production Departments:
-Assembly: $50,000
-Finishing: $60,000

The management decides cost allocation bases for service department and usage by
departments as following:

Supplied by Maintenance Personnel Design Assembly Finishing

Maintenance 2000 3000 16000 11000

(sq. feet)

Personnel 10 10 40 20
(employees)

Design 100 150

(Hours)

1) Use the step-down method in the order of percentage of services provided to allocate
service department costs (round to three decimal places)

2) Assume that step-down method is the best approach to allocate service costs in the
San Gabriel Company after every method (including reciprocal) is considered.
Assembly Department is offered a quote of $8,000 for Product Design Work by an
outside company, should the Design for Assembly Department be outsourced? Why?

3) Set up the algebraic equations for the service costs if the reciprocal method is used.
Problem 2

Larry Inc. uses rotten-log fungi to produce Goop and Slop. Each ton of rotten-log fungi
that Larry purchases for $500 can be converted for an additional $400 into 500 pounds
of pre-Goop and 100 pounds of pre-Slop. A pound of pre-Goop can be sold at splitoff for
$1.20 and pre-Slop can be sold for $4 per pound.
Larry can process the 500 lbs of pre-Goop into 1000 ounces of Goop at an additional
cost of $600. Each ounce of Goop can be sold for $2 per ounce. The 100 pounds of
pre-Slop can be processed at an additional cost of $200 and made into 400 ounces of
Slop. Each ounce of Slop can be sold for $5 per ounce.
In October 2010, Larry processed 100 tons of rotten-log fungi, and sold 80,000 ounces
of Goop and 30,000 ounces of Slop.
1) What amount of joint costs will be allocated to Goop if the sales-value-at-splitoff
method is used?
2) What amount of joint costs will be allocated to Goop if the Net-realizable value
method is used?
3) What amount of joint costs will be allocated to Goop if the constant-gross margin
NRV method is used?
Problem 3

G Clothing Inc. assembles its product in several departments. It has two departments
that process all units. During October, the beginning work in process in the cutting
department was 60% completed as to conversion, and complete as to direct materials.
The beginning inventory included $12,000 for materials and $3,000 for conversion
costs. Ending work-in-process inventory in the cutting department was 50% complete in
process; direct materials are added at the beginning of the process and conversion
costs are added evenly in the process.

Beginning work in process in the finishing department was 75% complete as to

conversion. Direct materials are added at the end of the process and conversion costs
are added evenly in the process. Beginning inventories included $16,000 for
transferred-in costs and $20,000 for conversion costs. Ending inventory was 25%
complete. Additional information about the two departments follows:

Cutting Finishing

Beginning work-in-process 10000 20000

units

Units started this period 50000 40000

Units transferred this 40000 ?

period

Ending work-in-process 20000 20000

units

Material costs added $48,000 $28,000

Direct Manufacturing $16,000 $40,000

Labor Added

Other Conversion Costs $8,000 $24,000

added

Required:

1) Determine a) the amount of Ending WIP, b) the amount of transferred-out cost, using
weighted-average for the Cutting Department
2) Determine a) the amount of Ending WIP, b) the amount of transferred-out cost, using
FIFO for the Finishing Department
Problem 4

ABC Company produces a single product. Material A is added at the start of the
production process and packaging material B is added at the end of the process.
Conversion costs are incurred uniformly throughout the process. Inspection takes place
when manufacturing is completed, but before packaging Material B is added. Normal
spoilage for this production process is 5% of good output. Spoiled units are discarded.
Production data for this year was as follows:

Beginning work-in-process inventory (80% complete) 2,000 units

Units Started 18,000 units
Good units completed and sold 16,000 units
Ending work-in-process inventory (40% complete) 1,000 units

Using a first-in, first out (FIFO) process costing system, determine the equivalent units
for:
1) Material A
2) Material B
3) Conversion cost