Practice Problems For Chapters 1, 2, 3, 4, And 66a Fall 2020

practice Problems For Chapters 1 2 3 4 And 66a Fall 20201 Lilah

Practice problems covering chapters 1, 2, 3, 4, and 6/6A involve calculating various aspects of manufacturing costs, overhead application, cost behavior, break-even analysis, activity-based costing, and profit analysis. The exercises include computing over- or under-applied overhead, cost of goods sold, predetermined overhead rates, contribution margins, break-even points, and effects of cost changes on net income. They also encompass analyzing the implications of switching costing systems, estimating fixed costs using the high-low method, and evaluating the impact of pricing and expenditure strategies on profitability.

Paper For Above instruction

Cost accounting plays a vital role in managerial decision-making by providing detailed insights into the costs associated with production processes. It helps managers understand how costs behave, allocate manufacturing overhead, and assess profitability. The problems presented illustrate key concepts such as applying overhead costs, calculating the cost of goods sold, implementing activity-based costing, and analyzing profit scenarios under different cost structures.

One of the fundamental topics in managerial accounting is the application of manufacturing overhead. Companies estimate overhead costs based on expected activity levels. For example, Lilah’s Toy Company estimates its manufacturing overhead for 2013 at $2,500,000, with actual costs of $2,900,000. Using projected direct labor hours as the base, the predetermined overhead rate is calculated by dividing estimated overhead by estimated activity. The actual overhead can then be compared to applied overhead (predetermined rate multiplied by actual activity) to determine over- or under-applied overhead. This analysis helps in adjusting cost data and ensuring accurate product costing.

Another essential area is the calculation of the cost of goods sold (COGS). It involves considering beginning and ending inventories of raw materials, work-in-process, and finished goods, along with purchases and direct labor costs. For instance, the GMS Corporation’s June data illustrates the application of inventory and production costs to determine COGS, which is central to assessing gross profit and overall profitability.

Estimating overhead rates based on different activity bases, like machine hours or direct labor hours, impacts how costs are allocated. Complex Company’s example demonstrates the process of deriving a predetermined overhead rate per machine hour by dividing estimated overhead by expected activity levels. This rate is then used to apply overhead accurately to products or jobs, influencing product margins and decisions on pricing and production.

The problems concerning contribution margin and break-even analysis emphasize the importance of separating variable and fixed costs. Debbie’s Bakery’s example asks for the contribution margin, which quantifies the amount available to cover fixed expenses and generate profit. Break-even analysis, such as figuring out the units needed to break even at specific cost structures, informs strategic decisions related to pricing, sales volume, and cost control.

Switching from traditional costing to activity-based costing (ABC) offers more precise cost allocations by identifying major activities and assigning costs accordingly. EDHC’s examples highlight how ABC can refine product costing, especially when products consume activities differently. Calculating the ABC cost of a product involves analyzing activity measures and assigning allocated costs based on actual activity levels, thereby providing more accurate cost data for pricing and product line decisions.

Assessing the impact of cost changes and pricing strategies on net income involves understanding contribution margins and fixed costs. For the toy company, a reduction in selling price combined with increased advertising may increase sales volume, potentially increasing net income if the contribution margin per unit covers fixed costs. Similarly, analyzing how variations in fixed and variable costs influence profitability helps managers evaluate the effectiveness of different strategies.

Finally, analyzing operational efficiency and cost estimation techniques such as high-low methods assists managers in budgeting and forecasting. For example, estimating the fixed component of X-ray costs via the high-low method informs decisions on resource allocation and cost control at different levels of activity. Accurate cost estimates ensure sound financial planning and operational effectiveness.

In conclusion, mastering these managerial accounting problems enhances understanding of cost behaviors, resource allocation, and profitability analysis, essential for strategic management and operational control in manufacturing and service firms.

References

• Drury, C. (2013). Management and Cost Accounting. Cengage Learning.
• Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost Accounting: A Managerial Emphasis. Pearson.
• Banker, R. D., & Kauffman, R. J. (2004). What "Cost" Means in Activity-Based Costing. Journal of Cost Management.
• Garrison, R., Noreen, E., & Brewer, P. (2018). Managerial Accounting. McGraw-Hill Education.
• Kaplan, R. S., & Anderson, S. R. (2004). Time-Driven Activity-Based Costing. Harvard Business Review.
• Robin Cooper, Robert S. Kaplan, & Anthony A. A. (2014). The Evolution of Activity-Based Costing. Journal of Cost Management.
• Williams, J. R., Haka, S. F., & Bettner, M. S. (2019). Cost Accounting: A Managerial Emphasis. McGraw-Hill.
• Hilton, R. W., & Platt, D. E. (2013). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill.
• Mascarenhas, S., & McCluskey, A. (2019). Cost Analysis and Cost Management. Routledge.
• Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems. McGraw-Hill Education.