...other items. Contract vehicles are not one size fit all and depending on the circumstance the acquisition personnel will reach into their tool box and choose the correct vehicle to administer the contract. There is a wide selection of contract types available to provide needed flexibility in acquiring the large variety and volume of supplies required by the DoD. The various contract types vary according to the degree and timing of the responsibility assumed by the contractor for the costs of performance, and the amount and nature of the incentive offered to the contractor for achieving or exceeding specified standards or goals. Contract types are grouped into two broad categories; Fixed-price contracts and Cost-reimbursement contracts. The specific contract types range from firm-fixed price, in which the contractor has full responsibility for the performance costs and resulting profit (or loss), to cost-plus-fixed-fee, in which the contractor has minimal responsibility for the performance costs and the negotiated fee (profit) is fixed. This paper will discuss another type of contract; Time and Material (T&M) contracts are not the most desirable they serve a purpose and are used in many organizations throughout the Department of Defense. Federal Acquisition Regulations (FAR)...
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...Question: O.T company manufactures and sells two types of wooden deck chairs: Deluxe and Standard. Annual sales in units, direct labour hours (DLHs) per unit, and total direct labour hours per year are provided below. Deluxe deck chairs: 2,000 units × 5 DLHs per unit................. 10,000 Standard deck chair: 10,000 units × 4 DLHs per unit............... 40,000 Total direct labour hours 60,000 Cost for direct materials and direct labour for one unit of each product are given below: Deluxe Standard Direct materials....................................................... $25 $17 Direct labour ( at $12 per DLH)............................... $60 $48 Manufacturing overhead costs total $800,000 each year. The breakdown of these costs among the company’s six activity cost pools is given below. The activity measures are shown below. Activities & Activity Measure Estimated Overhead Expected Acitivity Cost Deluxe Standard Total Labour related (direct labour hours) $80,000 10,000 40,000 50,000 Machine Setups (number of setups) $150,000 3,000 2,000 5,000 Part administration (number of parts) $160,000 50 30 80 Production orders (number of orders) $70,000 100 300 400 Materials receipts (number of receipts)...
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...Manufacturing Overhead Costs Allocation The report provided will assist you with selecting an allocation base to assign your budgeted manufacturing overhead costs of producing the two camera boxes the company manufactures. The report also addresses the questions and concerns you had regarding the allocation bases. First, the predetermined overhead rate is computed. The predetermined overhead rate is used to charge overhead costs to products or jobs. This rate is established in advance for each period by use of estimates of total manufacturing overhead cost and of the total allocation base for the period. Based on the information you provided, your estimated manufacturing overhead costs will be $171,400. The most common allocation bases are machine hours, direct labor hours and direct labor costs. The predetermined overhead rates for each allocation base are as follows: Predetermined overhead based on L&L’s machine hours used 171,400/6,000 = 28.5667 Predetermined overhead based on L&L‘s direct labor hours used 171,400/5,000 = 34.28 Predetermined overhead based on L&L’s direct labor costs 171,400/100,000 = 1.714 Selecting an allocation base is arbitrary. The decision is based on your own judgment or preference. My advice is to use direct labor hours as the allocation base. The direct labor hours indicates the amount of time and effort utilized in manufacturing each product. For each hour used to make an individual product the appropriate amount...
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... D) any of the above could be the constraint. 2. The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management Accountants contain a policy regarding confidentiality that requires management accountants to refrain from disclosing confidential information acquired in the course of their work: A) except when authorized by management. B) in all situations. C) except when authorized by management, unless legally obligated to do so. D) in all cases not prohibited by law. 3. The Institute of Management Accountants (IMA) has developed ethical standards for management accountants. What four categories has the IMA classified these standards into? A) Reliability, Objectivity, Commitment, and Competence B) Objectivity, Integrity, Commitment, and Confidentiality C) Observation, Integrity, Closure, and Competence D) Competence, Objectivity, Integrity, and Confidentiality E) Reliability, Understandability, Flexibility, and Integrity 4. Prime cost and conversion cost share what common element of total cost? A) Direct materials. B) Direct labor. C) Variable overhead. D) Fixed overhead. 5. Wages paid to a timekeeper in a factory are a: | |Prime cost |Conversion cost | |A) |Yes |No | |B) ...
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...goods * Three alternative valuation methods: Actual, Normal, Standard * Actual- Job order and process costing assign cost based on actual cost; actual DM, DL, and OH * Normal – Job order costing assign cost based on actual DM, DL, and OH is applied using predetermined rate at completion. Process Costing assign cost based on actual DM, DL, and OH is applied using predetermine rate using either FIFO or WA * Standard – Job order costing assigns cost based on the standard cost for DM,DL, and OH is applied using predetermined rate when goods are completed. Process costing is assigned using standard cost for DM, DL, and OH is standard using predetermined rate always FIFO * Job order cost sheet- is a source document that provides virtually all financial information about a particular job. This is for all incomplete jobs compose the WIP inventory subsidiary ledger. Includes job number, job description, customer identification, scheduling information delivery instructions, and contract price * Material requisition form – is prepared so material can be released from inventory, or purchased, and sent to production. Indicates types, quantities, usually prenumbered * Shrinkage- losses that are inherent in the manufacturing process such as evaporation, leakage, or oxidation * Defects - production process errors, rejection at inspection for failure to meet appropriate quality standards or designated product specifications * Spoilage – units that...
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...Chapter 4: ABC Practice Problems Warner Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year. | Budgeted | Actual | Overhead cost | $1,000,000 | $950,000 | Machine hours | 50,000 | 45,000 | Direct labor hours | 100,000 | 92,000 | | | What is the predetermined overhead rate based on machine hours? Estimated MOH = $1,000,000 = $20/MH Est. activity base 50,000 Machine hours (MH) If the company used a predetermined OH rate based on direct labor hours(LH), how much was the overhead over or under applied? POR=Predetermined Overhead Rate $1,000,000 = $10/LH POR x actual activity usag = $10 x 92,000 LH’s = $920,000 OH applied 100,000 LH’s MOH JE actual | applied | $950,000 | $920,000 | $30,000 under-applied Hollins, Inc., a manufacturer of computer chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2014. Activity Cost Pools | Estimated Overhead | Expected Use of Cost Drivers per Activity | Ordering and receiving | $ 90,000 divided by | 12,000 | Orders =$7.50/order | Machining | 480,000 divided by | 60,000 | machine hours =$8/MH | Soldering | 1,760,000 divided by | 440,000 | labor hours =$4/LH | | | For 2014, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000. What is the total...
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...Types of Contracts [pic] Choosing type appropriate contract type is essential to successful performance under a contract. The type of contract determines the cost and performance risks which are placed on the contractor. There are two broad contract groups--fixed price and cost reimbursement. Within each of these groups, there are various types of contracts which can be used individually or in combination. [pic] Firm Fixed Price Contracts [pic] This type of contract requires the contractor to successfully perform the contract and deliver conforming supplies or services for a price agreed to up front. This type of contract places the most performance and cost risk paid. It if costs them more than they expected, they still get the amount originally agreed upon. If it costs them less, they make more profit. A firm-fixed price contract is suitable for supplies and services that can be described in sufficient detail to ensure complete understanding of the requirements by both parties and assessment of the inherent risks of performance. [pic] Other Fixed Fixed Price Contracts [pic] Within the fixed price contract group you can award contracts with: • economic price adjustment factors to allow for industries where costs fluctuate frequently either up or down • various incentive types which can be used to reward good performance or to impose provisions to deduct for poor performance • price redetermination provisions which permit issuing an order on a fixed...
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...operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a “good” unit. Any differences are sent to a QC engineer, who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the 10 QC inspectors with two QC engineers. The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company's plant-wide manufacturing-overhead rate, which is based on direct-labor dollars. The company's president is confused. His vice president of production has told him how efficient the new system is. Yet there is a large increase in the overhead rate. The computation of the rate before and after automation is as follows: | Before | After | Budgeted Manufacturing Overhead | 1,900,000 | 2,100,000 | Budgeted Direct Labor Cost | 1,000,000 | 700,000 | Budgeted Overhead Rate | 190% | 300% | “Three hundred percent,” lamented the president. “How can we compete with such a high overhead rate?” Research manufacturing...
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...the net operating income because it will cause to the high overhead rate. The overhead rate of products is calculated by dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base and the formula of that is: Predetermined overhead rate= estimated total manufacturing overhead cost / estimated total of allocation base Indeed, it is calculated before period begins using several procedures: * Estimate the total amount of allocation base, * Then, estimate total fixed manufacturing overhead cost for period and total variable manufacturing overhead cost per unit of the allocation base. * The following equation is used to estimate the total amount of manufacturing overhead: Y = a + bX (Y = the estimated total manufacturing overhead cost, a= the estimated total fixed manufacturing overhead cost, b= the estimated variable manufacturing overhead cost per unit of the allocation base, and X= the estimated total amount of the allocation base). * Finally, calculate predetermined overhead rate. Obviously, the high-predetermined overhead rate will lead to an over applied overhead and the impact of that will known at the end of the fiscal year, which is December when the balance of the manufacturing overhead is closed out to the cost of goods sold. According to the second question that I think if the Terri discuss this situation with her supervisor at the headquarters; however, if she did that she will...
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...Chapter 3—Predetermined Overhead Rates, Flexible Budgets, and Absorption/Variable Costing LEARNING OBJECTIVES |LO 1 |Why and how are overhead costs allocated to products and services? | |LO 2 |What causes underapplied or overapplied overhead, and how is it treated at the end of a period? | |LO 3 |What impact do different capacity measures have on setting predetermined overhead rates? | |LO 4 |How are the high-low method and least squares regression analysis used in analyzing mixed costs? | |LO 5 |How do managers use flexible budgets to set predetermined overhead rates? | |LO 6 |How do absorption and variable costing differ? | |LO 7 |How do changes in sales or production levels affect net income computed under | | |absorption and variable costing? | QUESTION GRID |True/False | | | | | | | | | | | |Difficulty Level | |Learning Objectives...
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...Ontario, Inc. manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period is $800,000 and 25,000 hours, respectively. Information about the company's products follows. Standard: Enhanced: Estimated production volume 3,000 units 4,000 units Direct-material cost $25 per unit $40 per unit Direct labor per unit 3 hours at $12 per hour 4 hours at $12 per hour Ontario's overhead of $800,000 can be identified with three major activities: order processing ($150,000), machine processing ($560,000), and product inspection ($90,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow: Orders Processed Machine Hours Worked Inspection Hours Standard 300 18,000 2,000 Enhanced 200 22,000 8,000 Total 500 40,000 10,000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed - machinery that was expected to produce significant operating efficiencies. Using a Microsoft Excel format for calculations...
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...Ratio Formula Current Assets Current Liabilities Short term Investments Current Receivables Current Liabilities Net sales Average accounts receivable Cost of goods sold Average inventory 365 365 Net Sales Average total assets Total liabilities Total assets Total equity Total assets Total liabilities Total equity Income before interest expense and income taxes Interest Expense Net Income Net Sales Cost of goods sold Net Sales Net Income Average total assets Net income Preferred dividents Average common stockholders equity Net Sales Measure of Short‐term debt‐paying ability (2:1 guideline) Immediate short‐term debt‐paying ability (1:1 guideline) Efficiency of collection (bigger is better) Efficiency of inventory management (higher is better) Liquidity of receivables (not exceeding 1 1/3 times the days Liquidity of inventory Efficiency of assets in producing sales Creditor financing and leverage (1 is all debt, .50 means half of the assets are through debt) Owner financing Debt versus equity financing Protection in meeting interest payments (large ratio means less risky to creditors) Net income in each sales dollar (10‐15% for appliance and 1% or 2% for supermarket) Gross margin in each sales dollar Overall profitability of assets Profitability of owner investment Liquidity and Efficiency Current Ratio Acid‐test ratio Accounts receivable turnover Inventory turnover Days’ sales uncollected Days’ sales in inventory ...
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...Managerial Accounting – Exam 4 Summer 2006 Student Number: __________________________ Pledge: On my honor I have neither given or received help on this exam. I understand that any violation of the University Honor Policy will result in an automatic zero on this exam, and that I will be subject to all sanctions available under the University's Honor Policy. Part I - Multiple Guess (135 points) 1. A segment of a business responsible for both revenues and expenses would be called: A) a cost center. B) an investment center. C) a profit center. D) residual income. 2. Lanta Restaurant compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, would the restaurant usually report favorable variances on variable food costs and fixed supervisory salaries? | |Food Costs |Supervisory Salaries | |A) |No |No | |B) |No |Yes | |C) |Yes |No | |D) |Yes |Yes | 3. All other things equal, a company's return on investment (ROI) would generally increase when: A) average operating assets increase. B) sales decrease. C) operating expenses decrease...
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...controlling, | | |and decision making info) Internal accounting | | |Financial accounting – producing info for external users, including investors, creditors, customers, suppliers,| | |government agencies, and labor unions. External accounting | | |Identify cost classifications—Direct Materials, Direct Labor, Manufacturing Overhead, Nonmanufacturing costs. | | |Direct materials – materials that are part of the final product and can be directly traced to the goods being | | |produced. (tires on cars, wood in dining room table, alcohol in cologne, denim in jeans) | | |Direct labor – labor that can be directly traced to the goods being produced. (workers on an assembly line) | | |Manufacturing overhead – factory burden or indirect manufacturing costs. (depreciation on plant buildings and | | |equipment, janitorial and maintenance labor, plant supervision, materials handling, power for plant utilities, | | |plant property taxes.)...
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...This case contrasts a standard cost system with an actual job cost system, and thereby brings out several points about cost accounting, including: the purposes for which cost accounting data are used; the paperwork involved in cost accounting; the use of costs for pricing; the problem of controlling costs under the two types of systems; and the problem of the normal overhead rate. Students may have difficulty in seeing that: (1) in the Conley standard cost system, costs are not traceable to individual bodies or models, and therefore no comparison of actual and standard costs by models is possible; (2) the Conley system easily could be changed to permit comparison of actual and standard labor and material costs by models, but it is doubtful that such information would be useful for control; (3) the variances have no meaning unless the standard costs for each model are reasonable; (4) the overhead variance in Exhibit 1 is meaningless; and (5) the paperwork involved in the Conley system is less than that in the Bennett system. Comments on Questions (Numbered as in Mr. Bennett’s memorandum) It may be well to discuss the Bennett system first. The subject may be broken down into records of material, labor, and overhead cost, and the job-cost sheet. Enough hints are given in the case so that students should be able to visualize the contents of the documents needed to record the incurrence of each type of cost and how information is recorded on the job-cost sheet. They should also...
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