ACC 206 Week 3 DQs + Exercise Assignment (Chapter 4 & 5 Problems)


Chapter 4 and 5 Problems


Please complete the following 7 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.


Chapter 4 Exercise 3

3. Cost flows and overhead application

Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.




Job no. 636 was the only job in process on January 1 of the current year. The Work in Process account contained a $24,600 balance on this date.

·         Jobs no. 637, 638, and 639 were started during January.

·         Total direct material requisitions and direct labor incurred during January amounted to $89,200 and $114,500, respectively.

·         The only job that remained in process on January 31 was job no. 638, with costs of $15,000 for direct materials and $


for direct labor.


Compute the total cost of the work in process inventory on January 31.


Compute the cost of jobs completed during January, and present the proper journal entry to reflect job completion.


Chapter 4 Exercise 7

7. Overhead application: Working backward

The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:








Division A

Division B

Actual machine hours


Estimated machine hours

Overhead application rate



Actual overhead


Estimated overhead


Applied overhead


Over- (under-) applied overhead


Find the unknowns for each of the divisions.


Chapter 4 Problem 2

2. Computations using a job order system

General Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger;


Work in process           $ 35,200

Finished goods                         86,900

Cost of goods sold       128,700


Work in Process consisted of two jobs, no. 101 ($20,400) and no. 103 ($14,800). During May, direct materials requisitioned from the storeroom amounted to $96,500, and direct labor incurred totaled $114,500. These figures are subdivided as follows:




Direct Materials Direct LaborJob No. Amount Job No. Amount101 $5,000  101 $7,800 115 19,500 103 20,800116 36,200 115 42,000Other 35,800 116 18,000  $96,500  Other  25,900      $114,500

Job no. 115 was the only job in process at the end of the month. Job no. 101 and three “other” jobs were sold during May at a profit of 20% of cost. The “other” jobs contained material and labor charges of $21,000 and $17,400, respectively.


General applies overhead daily at the rate of


% of direct labor cost as labor summaries are posted to job orders. The firm’s fiscal year ends on May 31.


a.       Compute the total overhead applied to production during May.

b.      Compute the cost of the ending work in process inventory.


Compute the cost of jobs completed during May.


Compute the cost of goods sold for the year ended May 31.


Chapter 5 Exercise 1

1. High-low method The following cost data pertain to 19X6 operations of Heritage Products:



Quarter 1

Quarter 2

Quarter 3

Quarter 4

Shipping costs





Orders shipped





The company uses the high-low method to analyze costs.

a.       Determine the variable cost per order shipped.

b.      Determine the fixed shipping costs per quarter.

c.       If present cost behavior patterns continue, determine total shipping costs for 19X7 if activity amounts to 570 orders.


Chapter 5 Exercise 2 The treasurer anticipates the following costs for the event, which will be held at the Regency Hotel: Room rental                                         $300 Dinner cost (per person)                      25 Chartered buses                                   500 Favors and souvenirs (per person)       5 Band                                                    900

Each person would pay $40 to attend; 200 attendees are expected.

a.       Will the event be profitable for the sorority? Show computations.

b.      How many people must attend for the sorority to break even?

c.       Suppose the sorority encouraged its members to drive to the hotel and did not charter the buses. Further, a planned menu change will reduce the cost per meal by $2. If each member will still be charged $40, compute the contribution margin per person.


Chapter 5 Exercise 3

3. Break-even and other CVP relationships

Cedars Hospital has average revenue of $180 per patient day.


costs are $45 per patient day; fixed costs total $4,320,000 per year.

a.       How many patient days does the hospital need to break even?

b.      What level of revenue is needed to earn a target income of $540,000?

c.       If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?


Chapter 5 Problem 6

6. Direct and absorption costing

The information that follows pertains to Consumer Products for the year ended December 31, 19X6.

factory overhead



Inventory, 1/1/X6

24,000 units

Units manufactured


Units sold


Inventory, 12/31/X6

? units

Manufacturing costs:

Direct materials

$3 per unit

Direct labor

$5 per unit

Variable factory overhead

$9 per unit



Selling & administrative expenses:

$2 per unit



The unit selling price is $26. Assume that costs have been stable in recent years.


a.       Compute the number of units in the ending inventory.

b.      Calculate the cost of a unit assuming use of:

Direct costing.

Absorption costing.

c.       Prepare an income statement for the year ended December 31, 19X6, by using direct costing.

d.      Prepare an income statement for the year ended December 31, 19X6, by using absorption costing.


DQ 01:

Describe three issues/problems that a company could encounter when trying to determine the actual cost of a good or service to be used in the cost of goods sold. For each of your issues, provide an example of a company or industry where these issues could be present.


DQ 02:

We’ve all experienced (or heard about) the challenges that the airlines have been facing. Read the Zacks Investment Research article, Airline Industry Stock Outlook – August 2012
Identify three factors that are affecting airline company’s ability to break even. For each of your factors, discuss how these have an impact on the breakeven (contribution margin, fixed costs, variable costs, a combination, etc.), and what happens if these factors increase or decrease.


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