accounting-Variable-Costing and Absorption-Costing Income

QUESTION

Variable-Costing and Absorption-Costing Income
Borques Company produces and sells wooden
pallets that are used for moving and stacking materials. The operating costs
for the past year were as follows:

Variable costs per unit:

Direct materials

$2.85

Direct labor

$1.92

Variable overhead

$1.60

Variable selling

$0.90

Fixed costs per year:

Fixed overhead

$180,000

Selling and administrative

$ 96,000

During the year, Borques produced 200,000
wooden pallets and sold 204,300 at $9 each. Borques had 8,200 pallets in
beginning finished goods inventory; costs have not changed from last year to
this year. An actual costing system is used for product costing.
Required:
1. What
is the per-unit inventory cost that is acceptable for reporting on Borques’s
balance sheet at the end of the year? How many units are in ending inventory?
What is the total cost of ending inventory? Round the per unit amount to the
nearest cent.

Per-unit inventory cost

$

Units in ending inventory

units

Total ending inventory

$

2. Calculate
absorption-costing operating income.
$
3. Conceptual
Connection: What would the per-unit inventory cost be under variable costing?
Round to the nearest cent.
$
4. Calculate
variable-costing operating income.
$

Activity Costing, Assigning Resource Costs, Primary and
Secondary Activities
Elmo Clinic has identified three activities
for daily maternity care: occupancy and feeding, nursing, and nursing
supervision. The nursing supervisor oversees 150 nurses, 25 of whom are maternity
nurses (the other nurses are located in other care areas such as the emergency
room and intensive care). The nursing supervisor has three assistants, a
secretary, several offices, computers, phones, and furniture. The three
assistants spend 75% of their time on the supervising activity and 25% of their
time as surgical nurses. They each receive a salary of $60,000. The nursing
supervisor has a salary of $80,000. She spends 100% of her time supervising.
The secretary receives a salary of $35,000 per year. Other costs directly
traceable to the supervisory activity (depreciation, utilities, phone, etc.)
average $170,000 per year.
Daily care output is measured as “patient
days.” The clinic has traditionally assigned the cost of daily care by
using a daily rate (a rate per patient day). Daily rates can differ between
units, but within units the daily rates are the same for all patients. Under
the traditional approach, the daily rate is computed by dividing the annual
costs of occupancy and feeding, nursing, and a share of supervision by the
unit’s capacity expressed in patient days. The cost of supervision is assigned
to each care area based on the number of nurses. A single driver (patient days)
is used to assign the costs of daily care to each patient.
A pilot study has revealed that the demands
for nursing care vary within the maternity unit, depending on the severity of a
patient’s case. Assume that the maternity unit has three levels of increasing
severity: normal patients, cesarean patients, and patients with complications.
The pilot study provided the following activity and cost information:

Activity

Annual Cost

Activity Driver

Annual Quantity

Occupancy and feeding

$1,500,000

Patient days

10,000

Nursing care (maternity)

1,200,000

Hours of nursing care

50,000

Nursing supervision

?

Number of nurses

150

The pilot study also revealed the following
information concerning the three types of patients and their annual demands:

Patient Type

Patient Days
Demanded

Nursing Hours
Demanded

Normal

7,000

17,500

Cesarean

2,000

12,500

Complications

1,000

20,000

Total

10,000

50,000

Required:
2. Calculate
the cost per patient day by using an activity-based approach. (Round rates and
unit cost to two decimal places.)

Patient

Daily Rate (per patient day)

Normal

$

Cesarean

$

Complications

$

3. Conceptual
Connection: The hospital processes 1,250,000 pounds of laundry per year. The
cost for the laundering activity is $600,000 per year. In a functional-based
cost system, the cost of the laundry department is assigned to each user
department in proportion to the pounds of laundry produced. Typically,
maternity produces 240,000 pounds per year. How much would this change the cost
per patient day calculated in Requirement 1? Round your answer to the nearest
cent.
$per patient day

ANSWER:

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