1. ACTIVITY BASED COSTING
Service Type
Activity Driver
Total Amount
Auditing
Tax
Activity Cost
Providing Accounting
Billable hours
200
75
125
$
30,000.00
Overhead costs:
Internal support Dept

2. Preparing documents
docs
30
16
14
$
4,000.00
Occupying office space
hours
200
75
125
$
1,200.00
Utilties
hours
200
75
125
$
350.00

3. External support departments
Registering documentation
docs
30
16
14
$
1,250.00
Consultants
days
6
5
1
$
10,000.00
Contract services
days
6
5
1

4. $
5,000.00
Total overhead costs
$
51,800.00
Gotham Accounting Firm provides tax and auditing services to a
variety of clients. Attorneys keep track of the time they spend
on each case, which is used to charge fees to clients at a rate of
$300 per hour. A management advisor commented that activity-
based costing might prove useful in evaluating the costs of its
services, and the firm has decided to evaluate its fee structure
by comparing ABC to its alternative cost allocations. The
following data relate to a typical month at the firm. During a
typical month the firm handles seven mediation cases and three
litigation cases.
Required
Determine the cost of providing services to each type of case
using activity-based costing (ABC).
Determine the cost of each type of case using a single plantwide
rate for nonattorney costs based on billable hours.

5. Determine the cost of each type of case using multiple
departmental overhead rates for the internal support department
(based on number of documents) and external support
department (based on billable hours).
Compare and discuss the costs assigned under each method for
management decisions.
COST VOLUME PROFIT
Texon Co. manufactures and sells three products: product 1,
product 2, and product 3. Their unit sales prices are product 1,
$40; product 2, $30; and product 3, $14. The per unit variable
costs to manufacture and sell these products are product 1, $30;
product 2, $20; and product 3, $8. Their sales mix is reflected
in a ratio of 6:3:5. Annual fixed costs shared by all three
products are $200,000. One type of raw material has been used
to manufacture products 1 and 2. The company has developed a
new material of equal quality for less cost. The new material
would reduce variable costs per unit as follows: product 1 by
$10, and product 2, by $5. However, the new material requires
new equipment, which will increase annual fixed costs by
$50,000.
Required
If the company continues to use the old material, determine its
break-even point in both sales units and sales dollars of each
individual product.
If the company uses the new material, determine its new break-
even point in both sales units and sales dollars of each
individual product.
What insight does this analysis offer management for long-term
planning?

6. VARIABLE COSTING
Navaroli Company began operations on January 5, 2014. Cost
and sales information for its first two calendar years of
operations are summarized below.
Manufacturing costs
Direct materials
$80 per unit
Direct labor
$120 per unit
Factory Overhead
Variable

7. $30 per unit
Fixed
$14,000,000
Nonmanufacturing costs
Variable Selling and administrative
$10 per unit
Fixed selling and administrative
$8,000,000

8. Production and sales data
Units produced in 2014
200,000.00
Units sold in 2014
140,000.00
Units in ending inventory, 2014
60,000.00
Units producd in 2015
80,000.00
Units sold in 2015
140,000.00
Units in ending inventory 2015

9. 0
Sales price per unit
$600
Required
1.
Prepare an income statement for the company for 2014 under
absorption costing.
2.
Prepare an income statement for the company for 2014 under
variable costing.
3.
Explain the source(s) of the difference in reported income for
2014 under the two costing methods.
4.
Prepare an income statement for the company for 2015 under
absorption costing.
5.
Prepare an income statement for the company for 2015 under
variable costing.

10. 6.
Prepare a schedule to convert variable costing income to
absorption costing income for the years 2014 and 2015.
MASTER BUDGETS
November Company's management asks you to prepare its
master budget using the following information. The budget is to
cover the months of April, May, & June 2015
Additional Information
Sales for March total 10,000 units. Each month's sales are
expected to exceed the prior month's results by 5%. The
product's selling price is $25 per unit.
Company policy calls for a given month's ending inventory to
equal 80% of the next month's expected unit sales. The March
31 inventory is 8,400 units, with a value of $126,000 which
complies with the policy. The purchase price is $15 per unit.
Sales representatives' commissions are 12.5% of sales and are
paid in the month of the sales. The sales manager's monthly
salary will be $3,500 in April and $4,000 per month thereafter.
Monthly general and administrative expenses include $8,000
administrative salaries, $5,000 depreciation, and 0.9% monthly
interest on the long-term note payable.
The company expects 30% of sales to be for cash and the
remaining 70% on credit. Receivables are collected in full in the
month following the sale (none is collected in the month of the
sale). Beginning accounts receive is $175,000.
All merchandise purchases are on credit, and no payables arise
from any other transactions. One month's purchases are fully
paid in the next month.

11. Beginning accounts payable is $156,000.
The minimum ending cash balance for all months is $50,000. If
necessary, the company borrows enough cash using a short-term
note to reach the minimum. Short-term notes require an interest
payment of 1% at each month-end (before any repayment). If
the ending cash balance exceeds the minimum, the excess will
be applied to repaying the short-term notes payable balance.
Beginning balance in short-term note is $12,000.
Dividends of $100,000 are to be declared and paid in May.
No cash payments for income taxes are to be made during the
second calendar quarter. Income taxes will be assessed at 35%
in the quarter.
Equipment purchases of $55,000 are scheduled for June.
Required:
Prepare the following budgets and other financial information
as required:
1.
Sales budget, including budgeted sales for July.
2.
Purchases budget, the budgeted cost of goods sold for each
month and quarter, and the cost of the June 30 budgeted
inventory.
3.
Selling expense budget.
4.

12. General and administrative expense budget.
5.
Expected cash receipts from customers and the expected June 30
balance of accounts receivable.
6.
Expected cash payments for purchases and the expected June 30
balance of accounts payable.
7.
Cash budget.
8.
Budgeted income statement.
9.
Budgeted statement of retained earnings.
10.
Budgeted balance sheet.
Flexible Budgets
Pacific Company provides the following information about its
budgeted and actual results for June 2015. Although the
expected June volume was 25,000 units produced and sold, the
company actually produced and sold 27,000 units as detailed

13. here:
Budget
Actual
25,000 units
27,000 units
Selling price
$
5.00
$
5.23
Variable costs

14. Direct materials
$
1.24
$
1.12
Direct labor
$
1.50
$
1.40
Factory supplies
$
0.25
$

15. 0.37
Utilities
$
0.50
$
0.60
Selling costs
$
0.40
$
0.34
Fixed costs

16. Depreciation
$
6,250.00
$
6,250.00
Insurance
$
1,200.00
$
1,250.00
Property taxes
$
500.00
$

17. 485.00
Other
$
750.00
$
900.00
In dicates factory overhead item: $0.75 per unit or $3 per direct
labor hour for variable overhead,
and $0.25 per unit or $1 per direct labor hour for fixed
overhead.
Standard costs based on 25, 000 units output

18. Per unit of output
Quantity to be used
Total Cost
Direct materials, 4 oz @ $0.31 per ounce
$
1.24
100000 oz
$
31,000.00
Direct labor, 0.25 hour @ $6 per hour
$
1.50
6250 hrs
$
37,500.00

19. Overhead
$
1.00
$
25,000.00
Actual costs
Direct materials 4 oz @ 0.28
$
1.12

20. 108,000 oz
$
30,240.00
Direct labor .2 hr @$7 per hr
$
1.40
5400 hrs
$
37,800.00
Overhead
$
1.20
$
32,400.00
Standard costs based on 27, 000 units output

21. Per unit of output
Quantity to be used
Total Cost
Direct materials, 4 oz @ $0.31 per ounce
$
1.24
100000 oz
$
33,480.00
Direct labor, 0.25 hour @ $6 per hour
$
1.50
6750 hours
$

22. 40,500.00
Overhead
$
26,500.00
Required
Prepare June flexible budgets showing expected sales, costs,
and net income assuming 20,000, 25,000, and 30,000 units of
output produced and sold.
Prepare a flexible budget performance report that compares
actual results with the amounts budgeted if the actual volume
had been expected.
Apply variance analysis for direct materials and direct labor.
Compute the total overhead variance, and the controllable and
volume variances.
Compute spending and efficiency variances for overhead.
Prepare journal entries to record standard costs, and price and
quantity variances, for direct materials, direct labor, and factory
overhead.
PROCESS COSTING PROBLEM
Spectre Chemicals produces Canovic in a two department
process.

23. Information on the two departments for March and April, 2016
are as follows:
March 2016:
Department 1:
The Company had beginning inventory of 6,000 units, 40%
completed with a cost of $45,000.
During the month, the department transferred in 22,000 units of
the direct materials with a cost of $10 per unit.
Ending inventory was 7,000 units, 30% completed. Direct labor
is $310,500 and factory overhead is $103,500.
Department 2:
The Company had beginning inventory of 5,000 units, 70%
completed with a cost of $80,000.
During the month, direct labor was $175,000 and factory
overhead was $87,500.
Ending inventory was 10,000 units, 50% completed.
April
2016:
Department 1:

24. During the month, the department transferred in 20,000 units of
the direct materials with a cost of $11 per unit.
Direct labor is $209,000 and factory overhead is $104,500.
Ending inventory is 10,000 units 60% completed.
Department 2:
During the month, direct labor is $175,000 and factory overhead
is $87,500. The company had ending inventory of 5,000 units,
70% completed with a cost of $80,000.
Required:
Compute the Equivalent Units of Production, Material costs,
and Conversion costs for each department for March and April,
2014.
Complete the attached chart – one for each department and each
month
Prepare a cost of production report for March and April 2014.