1. The document provides information on classifying different types of manufacturing costs as direct or indirect, fixed or variable, and product vs period costs. 2. It also asks to classify costs using different costing methods like job order costing vs process costing. 3. Journal entries are provided to record the transfer of costs from work in process to finished goods for two jobs completed in December.

1. 1. Classify each of the costs shown below as either a product cost or a period
cost. For product costs also indicate if it is direct material, direct labour or
factory overhead.
The following costs are incurred by Homer Ltd which manufactures tricycles:
(a) metal used for making the tricycle frames (direct material)
(b) power used by factory machinery (factory overhead)
(c) protective clothing supplied to employees who powder coat the tricycles
(factory overhead)
(d) advertising of tricycles to the retail industry (factory overhead)
(e) seats attached to the tricycles (direct material)
(f) salary paid to sales manager (factory overhead)
(g) freight inwards on tyres for the tricycles (direct material)
(h) hourly wages paid to assembly line workers (direct labour)
(i) salary of factory maintenance supervisor (factory overhead)
2. Indicate how the following manufacturing costs are classified – Direct or
Indirect and Fixed or Variable. (Treat semi-variable costs as variable.)
(a) Insurance on plant and machinery (I F)
(b) Repairs and maintenance –plant and machinery (I F)
(c) Depreciation on plant and machinery using the reducing balance method (I F)
(d) Wood used in making furniture (D V)
(e) Sanding material used in making furniture (D V)
(f) Wages for a carpenter making furniture (D V)
(g) Factory cleaner’s wages (I V)
(h) Employer superannuation contribution (I F)
(i) Oil and greases for plant and machinery (I V)
(j) Council rate (I V)

2. 3. Classify the following costs as Direct or Indirect in relation to the product by
writing a D or an I next to each item:
a. (i) Wages for an operator of a moulding machine （I）
(ii)Materials used to clean the factory machinery （I）
(iii)Depreciation of the factory machinery using the straight-line method （I）
(iv)Sheet metal used in the manufacture of filing cabinets （D）
(v) Fuel oil used to fire a boiler to produce steam for the factory （D）
b. Classify the following costs as Fixed or Variable by entering an F or a V next
to each item.
(i) Cost of paper used in the production of advertising leaflets （V）
(ii) Depreciation of machinery using the reducing balance method （F）
(iii) Council rates incurred on factory properly （F）
(iv) Salary for the raw materials store manager （F）
(v) Insurance on factory property （F）
c. Classify the following costs as Manufacturing or Non-manufacturing by
entering an M or N next to each item.
(i) Advertising expense （N）
(ii) Cost of direct materials used （M）
(iii) Audit fees （N）
(iv) Freight inwards on raw materials （N）
(v) Cost of cleaning the factory premises （N）
d. For each of the following products or services, indicate whether Job/Order (J)
costing or Process (P) costing would probably be used.
(i) Building an America’s Cup yacht （J）
(ii) Canning baked beans （P）
(iii) Audit work carried out （J）

3. (iv) Kitchen renovation （J）
(v) Manufacturing toothpaste （P）
Answer 4.
a) What is the pre-determined overhead allocation rate for the year?
Calculate of Pre-determined overhead rate
Expected annual overhead costs Expected Annual O/H cost
= =
Estimated annual DL dollars Estimated DL hrs × Labour rate
$32,000
= =0,821
1950×$20
b) Prepare a summary of Job Cost Sheets for last month
Summary of the job cost sheets last month
July costs-traced & /or allocated
Job Direct Direct Factory Total Unfinish Finishe Sold
numb Materials Labour overhead costs $ ed d$ (COGS
er traced $ traced $ allocated $ (WIP) $ )$
H47 14,300 1,120 920 16,340 16,340 16,340
H48 6,200 40 33 6,273 6,273
H49 19,850 1,420 1,166 22,436 22,436
40,350 2,580 2,119 45,049 22,436 22,613 16,340
c) Snow the “T” accounts for Overhead Control, Overhead Applied ,WIP, Fin
Goods and COGS
Overhead control a/c Overhead Applied
Actual O/H cost Adj. 259 WIP a/c 2,119
1,860
Adjustment Bal.1,860
WIP Finished Goods control a/c

4. Bal. 0 finished goods WIP 22,613 COGS 16,340
Dir. Mat 40,350 22,613
Dir. Lab 2,580 unadjusted Bal. Adjustment
O/H app 2,119 6,273 36
Unadjusted Bal. Adjustment
22,436 129
COGS
Finished goods Adj.94
16,340
d) Is overhead over or under-applied for last month, and by how much?
Answer: variance between Overhead applied and actual overhead cost
=2,119-1,860=259 over applied
e) Any over or under applied overhead is allocated back to the relevant accounts
in proportion to their total costs at month-end. What would have been the end-
of-period adjusting journal entry for last month? Post that entry to the “T” a/cs
% Adjustment
WIP 22,436 49.8% 129(49.8%×259)
Finished goods 6,273 13.9% 36(13.9%×259)
COGS 16,340 36.3% 94(36.3%×259)
Total: 45,049 100% 259
Answer 5.
Material A ¾ 100%
(10,000)
Material B (85%) Completion
(a) weighted average cost method

5. Weighted average cost(Equivalent Units)
Material A Material Conversion
B costs
Physical % of Added at Added Incurred
units completion the three- uniformly
beginning quarters
of the way
Beginning WIP 1000 30%
Commenced in Oct 9500
Completed Units 9000 9000 9000 9000
Ending WIP 1500 85% 1500 1500 1275
Total Eu’s 10500 10500 10275
(b) first in first out method
FIFO(Equivalent Units)
Material A Material B Conversion costs
Added at the Added three- Incurred uniformly
beginning quarters of the way
Beginning Balance 1000 700
Started and finished 8000 8000 8000
Ending Balance 1500 1500 1275
Total Eu’s 9500 10500 9975
Answer 6.
(a) The company uses weighted average process costing
(b) A report to the parent company in Perth for the month ended 31 March shows:
(c) All materials are purchased on a daily basis from Crabcatchers Inc, and their
records show that Crabfilm purchased 195 000 kgs for $15 620. No stocks of
materials are kept on hand.
(d) Sales of film amounted to 40 000 metres for $78 000. Assume FIFO for
valuing closing finished goods inventory.
(e) Inventories on hand at 18 April were:
Finished goods: 6000 metres
Work in process: 1000 metres complete for materials and 40% processed.
(f) Direct labour cost per equivalent unit in April is assumed to be the same as in
March
(g) The rate for applying overhead in April is the same as in March

6. (h) No spoilage or lost units occurred in April.
Process Costing-Weighted Average Assumption
WIP(work in process)
units $ units $
mat:
1000 Com 38000*0.42
Bal.(begin) metres mat: 380 plete 38000 =15960
50% cc:38000*0.
WIP cc: (150+75)=225 45=17100
605 33060
goods
production
current period 38000 mat: 15620
38000*0.45+1
cc: 80-225=17055
32675
1000 0.42*(1000*40
Bal(ending) metres mat: %)=168
40% 0.45*(1000*40
WIP cc: %)=180
348
finished goods inventory
units $ units $
8000 8000
Bal(beginning) metres 6640 Sold 40000 (first in) 6640
goods
production 40000+6000- 38000*0.8 40000-8000 32000
current period 8000=38000 7=33060 =32000 *0.87=
(last in) 27840
6000 6000*0.87
Bal(ending) metres =5220 34480
materials conversion costs
Costs 380 225
Bal.(begin) 15620 17055
16000 17280
Quantities
Completed
units 38000 38000

7. In WIP(end) 400 400
38400 38400
∴Wt Av. cost per Eq. Unit= 0.42 0.45 0.87
Costs
Assigned
3306
to Completed units 38000*0.42=15960 38000*0.45=17100 0
To WIP(end) 400*0.42=168 400*0.45=180 348
Answer 7.
(a) Calculate the rates to charge production using activity-based costing (ABC)
for the four costs.
Rate of activity-based costing (ABC)
Activity & Cost driver Activity level Rate
estimated cost
Engineering design 312,000 Design changes 960 changes 325
Set-up 188,000 Number of set-ups 580 set-ups 325
Machining 234,000 Machine hours 72,000 hours 3.25
Testing 207,000 Number of tests 1,150 tests 180
(b) Calculate the costs of each of these jobs for the four costs
Costs of each of jobs
Job 120 Job 127 Rate ABC costing ABC costing
of job 120 of job 127
Design changes 9 15 325 2,925 4,875
Set-ups 1 3 325 325 975
Machine -hours 60 120 3.25 195 390
Tests 18 9 180 3,240 1,620
Total costing 6,685 7,860
Answer 8.
(a) Compute cost application rates for each cost pool.
Cost application rate for each cost pool
Overhead cost pool Budgeted Cost driver Activity level Rate
O/H cost $
Materials handing 102,900 No. of requisitions 490 210
Machine set-ups 45,600 No. of set-ups 240 190
Machine 96,600 Machine hours 32,200 3
maintenance
Quality control 58,240 No. of inspections 4,480 13

8. Packing 58,800 No. of units 39,200 1.5
(b) Compute total costs of production for August
Total costs of production for August
units Cost($) Cost driver Rate
Materials handing 45 9,450 No. of requisitions 210
Machine set-ups 20 3,800 No. of set-ups 190
Machine 2,730 8,190 Machine hours 3
maintenance
Quality control 360 4,680 No. of inspections 13
Packing 3,360 5,040 No. of units 1.5
Direct Materials 73,500
Direct Labour 44,100
Total costs(ABC costing) 148,760
Answer 9.
(a) Compute cost application rates for each cost pool
Cost application rate for each cost pool
Overhead Budgeted Cost driver Predicted level for Rate
cost pool O/H cost $ cost driver
Preparation 40,000 Weight 20,000 kg 2
Cutting 84,000 Machine hours 5,000 hours 16.8
Assembly 120.000 Number of units 10,000 units 12
Packing 80,000 Labour hours 2,500 hours 32
(b) Compute total costs and unit costs for each job
Total costs and unit costs for each job
Job No.98 Job No.99 Cost driver Rate
units Cost($) units Cost($)
Direct Materials 700 1,600
Direct Labour 2,800 5,500
Weight of materials 30 60 75 150 Weight 2
Machine hours-cutting 100 1680 200 3360 Machine hours 16.8
Labour hours-packing 35 1120 75 2400 Labour hours 32
Total costs 6,360 13,010
Number of units 210 450
produced
Total units 30.29 28.91

9. (c) The factory closes for annual vacation during the latter part of December. Job
Nos 98 and 99 were the only jobs worked on and completed in December.
Prepare the journal entries to transfer costs to work in process and finished
goods.
Job no.98 journal entries
Dr. Cr.
Direct Materials inventory 700
Accounting Payable 700
To record inventory of materials
Direct Labour costs 2,800
Labour payable 2,800
To record Direct labour cost on job
Work in Process costs 2,860
Materials costs 60
Machine hours costs 1,680
Labour hours costs 1,120
To purchase of materials, record O/H of packing labour and machine cutting
hours on job
Finished Goods Costs 6360
WIP cost 6360
To record to costs of goods completed
Job no.99 journal entries
Dr. Cr.
Direct Materials inventory 1,600
Accounting Payable 1,600
To record inventory of materials
Direct Labour costs 5,500
Labour payable 5,500
To record Direct labour cost on job
Work in Process costs 5,910
Materials costs 150
Machine hours costs 3,360
Labour hours costs 2,400
To purchase of materials, record O/H of packing labour and machine cutting
hours on job
Finished Goods Costs 13010
WIP cost 13010
To record to costs of goods completed