Question

Hudson Inc.

Hudson Inc. has the following information available for September:

Beginning                            Ending

Raw materials                                    $ 8,000                                  $ 5,000

Work-in-process                              30,000                                  40,000

Finished goods                                     7,000                                     3,000

                                               

Raw materials purchased                                                             $ 25,000

Direct labor costs                                                                                70,000

Manufacturing overhead costs                                                      30,000

Administrative costs                                                                          12,000

Marketing costs                                                                                     6,000

      Refer to the Hudson Inc. information above. Cost of goods sold for September is:

1. $122,000.            
2. $140,000.            
3. $119,000.            
4. $143,000.            

Which of the following would be classified as a service department?

1. The accounting department of a manufacturing company.            
2. The painting department of an automobile manufacturer.            
3. The bottling department of a soft drink manufacturer.   
4. The claims processing department of an insurance company.      

Which of the following is false regarding activity-based costing (ABC)?

1. The cost of implementing ABC may outweigh the benefits.          
2. Increased accuracy with budgeting resources is often realized.   
3. Companies that have a high potential for cost distortions are more likely to benefit with ABC.      
4. Opportunities for continuous improvement are rarely revealed by using ABC.      

Which of the following types of companies would be most likely to benefit from activity-based
      costing?

1. Companies with a low potential for cost distortions         
2. Companies that have a large proportion of unit-level costs           
3. Companies that have a relatively high proportion of overhead compared to direct materials and direct labor     
4. None of these choices is correct.              

Answer 1

1. a. $ 122,000

Raw materials issued to production
Beginning	8,000
Purchase	25,000
Ending	(5,000)	28,000
Direct Labor		70,000
Manufacturing Overhead		30,000
Total Manufacturing Costs		128,000
Add: Beginning WIP		30,000
Less: Ending WIP		(40,000)
Cost of Goods Manufactured		118,000
Add: Beginning Finished Goods		7,000
Less: Ending Finished Goods		(3,000)
Cost of Goods Sold		122,000

2. a. The accounting department of a manufacturing company.

3. d. Opportunities for continuous improvement are rarely revealed by using ABC.

4. c. Companies that have a relatively high proportion of overhead compared to direct materials and direct labor.