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1. (TCO 1) Distinguish between product costs and period costs. Define both types of costs and provide examples. (Points : 20)
2. (TCO 6) Booth Financial Services, LLC has two revenue producing departments, Financial Planning and Business Consulting. The accounting department is trying to determine the best method to allocate $1,000,000 of common costs (secretarial staff, reception personnel, etc), either by salary or number of employees. Information on the revenue departments are as follows:
DepartmentEmployeesSalaries
Financial Planning150 employees$10,000,000
Business Consulting50 employees$5,000,000
(a) Allocate the $1,000,000 common costs to the two revenue departments using both methods.
(b) Why are allocations called arbitrary? (Points : 25)
3. (TCO 10) Charlie Corp sells it products on both credit and cash basis. Monthly sales are sold 20% for cash, 80% for credit. Credit sales are collected 40% in the month of sale and 60% the following month. Sales for the first quarter are as follows:
January $100,000
February $150,000
March $125,000
Compute cash collections for February. (Points : 25)
4. (TCO 2) Singleton Company is trying to determine a predetermined manufacturing overhead. Estimated overhead for the upcoming year is $600,000. Budgeted machine hours are 120,000 hours, and budgeted labor hours are 15,000 hours at a rate of $20.00 per hour. Compute the predetermined overhead rate based on:
(a) Machine hours
(b) Direct labor hours
(c) Direct labor dollars (Points : 25)