Hampton Company

Show work. Submit answers using either Word or Excel. Label answers.  Format the Excel portion so that it may be easily printed

1. (6 points) Hampton Company had the following inventory balances at the beginning and end of the year:

  

During the year, the company purchased $100,000 of raw material and spent $340,000 on direct labor. Other data: manufacturing overhead incurred, $450,000; sales, $1,560,000; selling and administrative expenses, $90,000; income tax rate, 30%.

Required:
A. Calculate cost of goods manufactured.
B. Calculate cost of goods sold.
C. Determine Hampton's net income. 

2. (6 points) The following terms are used to describe various economic characteristics of costs:

  

Required:
Choose one of the preceding terms to characterize each of the amounts described below. Each term may be used only once.

A. The cost of including one extra child in a day-care center.
B. The cost of merchandise inventory purchased five years ago. The goods are now obsolete.
C. The cost of feeding 300 children in a public school cafeteria is $450 per day, or $1.50 per child per day. What economic term describes this $1.50 cost?
D. The management of a high-rise office building uses 3,000 square feet of space in the building for its own administrative functions. This space could be rented for $30,000. What economic term describes this $30,000 of lost rental revenue?
E. The cost of building an automated assembly line in a factory is $700,000; a manually operated assembly line would cost $250,000. What economic term is used to describe the $450,000 variation between these two amounts?
F. Refer to the preceding question and assume that the firm is currently building the assembly line for $700,000. What economic term is used to describe the $700,000 construction cost? 

3.  (7 points) The selected data that follow relate to the Berger Furniture Company. Assume purchases and sales are made with cash.

a. Purchased materials for $160,000.

b. Requisitioned $89,000 of materials for use, of which $10,000 were considered indirect materials.

c. Paid assembly workers $170,000, supervisors $10,000 and sales people $15,000.

d. Recorded $80,000 for depreciation of production equipment.

e. Manufacturing overhead applied $90,000.

f. During the year, products costing $310,000 were completed.

g. Products costing $306,000 were sold for $455,000.

Required:
Prepare journal entries (or T accounts) to record the preceding transactions and events. 

4. (9 points)  Dodge Products uses a job-costing system for its units, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The following information relates to the Machining Department for the year just ended:

  

The Machining Department data that follow pertain to job no. 775, the only job in production at year-end.

  

Required:
A. Assuming the use of normal costing, calculate the predetermined overhead rate that is used in the Machining Department.
B. Compute the cost of the Machining Department's year-end work-in-process inventory.
C. Determine whether overhead was under- or overapplied during the year in the Machining Department.
D. If Dodge disposes of the Machining Department's under- or overapplied overhead as an adjustment to Cost of Goods Sold, would the company's Cost-of-Goods-Sold account increase or decrease? Explain.
E. How much overhead would have been charged to the Machining Department's Work-in-Process account during the year?
F. Comment on the appropriateness of direct labor cost to apply manufacturing overhead in the Assembly Department. 

5.  (6 points) The controller for Wolfe Machining has established the following overhead cost pools and cost drivers:

  

Order no. 715 has the following production requirements:

Machine setups: 7
Raw material: 11,200 units
Inspections: 16
Machine hours: 850

Required:
A. Compute the total overhead that should be assigned to order no. 715 by using activity-based costing.
B. Suppose that Wolfe were to use a single, predetermined overhead rate based on machine hours. Compute the rate per hour and the total overhead assigned to order no. 715.
C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system. 

6. (6 points)  Baker, Inc., produces a number of components that are used in home theater systems. Fred Briggs, head of the company's market research department, has identified the need for a new component that will most likely sell for $75. Projected volume levels are anticipated to reach 28,000 units in the first year, as several firmly entrenched competitors will be introducing a similar product in the not-too-distant future.

Conversations with Baker's engineers and reviews of cost accounting data related to similar products that the company manufactures resulted in the following cost estimates for the new component:

  

Baker currently uses cost-plus pricing and adds a 20% markup on total production cost to arrive at what is normally a competitive selling price.

Required:
A. What is the anticipated selling price of the new component if Baker uses its current pricing policy? What difficulties, if any, might the company face in the marketplace?
B. Assume that Baker decides to switch to target costing. What price would the company charge for the new component?
C. With the switch to target costing, what would Baker have to do to the component's manufacturing cost to achieve the normal profit margin on sales? Be specific and show calculations.
D. Briefly describe a process that Baker can use to achieve your answer in requirement "C."