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Exercises

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Exercise 1 – CH 2 & 6Indicate whether it is a product or period cost: a) Cost of grapes purchased by a winery b) Cost of plant manager’s salary in a computer production facility c) Wages of security personnel in a department store d) Cost of utilities in a manufacturing facility e) Wages of aircraft mechanics employed in an airline companyf) Cost of food in a microwavable dinner

Indicate whether it is a controllable or uncontrollable cost:g) Cost of electricity used in the maintenance department h) Idle time of maintenance department employee i) Cost of plant manager’s salary, which is allocated to the maintenance

department

Exercise 1 – CH 2 & 6• Advertising costs of Nike • Straight line depreciation of factory machinery of Goodyear• Wages of assembly line personnel of Proton • Delivery costs on customer shipments of Marigold’s ice cream • Plant insurance cost of Ikea • Glass costs incurred in light bulb manufacturing of Philips• Sales commissions paid to the sales force of Apple• Wood glue consumed in manufacturing of Homelife furniture • Hourly wages of refinery security guards employed by Petronas Bhd • The salary of a financial VP of Microsoft \

Evaluate based on the following:a) Product or period cost b) Product cost – DM, DL, MOH c) Cost behavior – variable or fixed d) Cost classification – direct or indirect and controllable or uncontrollable

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Additional exercise

An employee of Ezzy Dobi worked a normal 40-hour shift, but four hours were idle due to a small fire in the plant. The employee earns RM16 per hour. Required: • Calculate the employee’s total compensation for

the week • How much of this compensation is a direct labor

cost? How much is overhead?

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Additional exercises• Differential cost Global Communication manufactures communication satellites used in TV signal transmission. The firm currently purchases one component from a European firm. The costs of the component is RM9,100. However, the engineering team has suggested to use the company’s own modified component, part number A220. The cost of this component before modified is RM4,900 and the modification cost per part is RM650. Global Communications currently uses 15 of the European component per year.

Required: Compute the annual differential cost between two alternatives.

• Marginal cost i. The marginal cost of adding a flight KL to KKii. The marginal cost of keeping a travel agency open one additional hour on Sunday iii. The marginal cost of one additional of serving one additional customer in a restaurant

Required: List the costs that would likely be included in marginal-cost calculations.

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Exercise 2 – CH 2 & 6Months Machine hours Manufacturing overhead (RM)

May JuneJuly August

46,00060,00068,00052,000

889,0001,130,0001,274,000980,000

Manufacturing overhead consists of machine supplies, depreciation and plant maintenance. July’s manufacturing overhead costs were RM170,000 for machine supplies, RM24,000 for depreciation and RM1,080,000 for plant maintenance. Required: a) By using the high and low method, compute the monthly fixed portion

and variable cost per machine hour. b) Determine the cost function.c) Compute the manufacturing overhead for September if 56,000 machine

hours are worked.