ISE 304 – Principles of Industrial Costing Exam 1 Sample

Name: ______________________________

General instructions

  • Write with clear hand writing, ambiguous statements will not be graded.
  • Expression of opinion is acceptable, but should be supplemented with necessary assumptions.
  • This is a closed book exam.
  • Calculators are allowed, but iphones are not welcomed.
  1. Explain how the engineering cost estimation method is implemented.
  2. Why it seems reasonable to assume that the total cost can be broken into fixed and variable costs? Refer to this formula: TC = F + VX.
  3. Alarm & Safety Equipment Factory in Dammam manufactures smoke detectors for customers in the Kingdom of Saudi Arabia and abroad.  In a typical month, the factory produces 1,000 detectors with a total fixed cost of SR 7,500 and unit variable cost of SR 120.  What is the total cost per unit?

  4. In Jell-O gelatin dessert plant, part of Olayan Group, the following unit costs are estimated:

    Direct material SR 2
    Direct labor SR 1
    Variable manufacturing overhead SR 0.5
    Fixed manufacture overhead SR 3
    Variable nonmanufacturing cost SR 0.3
    Fixed nonmanufacturing cost SR 0.2

    Compute the following cost components per unit:

    1. Variable manufacturing cost
    2. Variable cost
    3. Fixed cost
    4. Full cost

  5. Consider the accounting sheet taken from a manufacturing company, in million riyals:

    Manufacturing cost

    SR 50

    Beginning work in process

    SR 2

    Ending work in process

    SR 4

    Beginning finished goods inventory

    SR 15

    Ending finished goods inventory

    SR 20

    1. Compute the work in process inventory.
    2. Compute the cost of goods manufactured.
    3. Compute the cost of goods available for sale.
    4. Compute the cost of goods sold.

  6. In one of its sub-product production departments, Hadeed employs temporary workers when demand for production increases. Hadeed has identified that the cost driver of the total manufacturing cost is the temporary workman-hours. From last year, the monthly temporary workman-hours and the manufacturing costs are collected and shown below:

    Manufacturing cost (1,000 riyals) Temporary workman-hours
    1,240 450
    1,182 300
    1,304 600
    1,038 150
    1,456 750

    1. Estimate the variable temporary workman-hour cost and establish a 95% confidence interval on its value.
    2. The industrial engineer is to make a decision between manufacturing the subparts in the plant, and purchasing the subparts from another company. Making the decision is largely influenced by the variable workman-hour cost. If the cost is 350 riyals or less, the industrial engineer will order subparts produced in the plant; else, the subparts will be purchased. How can you help the industrial engineer make a reasonable decision?Linear regression formulas

  7. Classify the costs, as direct labor, direct materials, or overhead, associated with the following items in manufacturing:

    Item Type of cost
    Material handling personnel  
    Quality control personnel  
    Inspection worker in dates packing plant  
    Machine repair worker  
    CD drive in Acer PC manufacturing  

  8. In the lighting poles production department of the National Co. For Galvanizing And Steel Poles - GALVANCO, the following data have been collected from last year’s production.

    Drill bits consumed (riyals) Production hours
    9,654 26,000
    7,495 20,000
    9,115 25,000
    7,873 22,000
    9,807 27,000

  9. The following data were taken from Saudi Transformers:

      Beginning Ending
    Direct materials inventory 12,000 13,000
    Finished goods inventory 7,000 9,100

    The direct materials purchased during the year are estimated at 22,000 riyals. The cost of goods sold is estimated at about 28,000 riyals. It is estimated that the labor and overhead cost is 7,500 riyals. Find the following:

    1. direct materials used during the year
    2. cost of goods manufactured during the year
    3. manufacturing cost incurred during the year
  10. In Arabian Factory for Emergency and Public Service Vehicles, the industrial engineer has to find the cost driver for the line balancing and clogging removal cost, which is consider an overhead. After meeting with the production manager and personnel, it has been believed that the production hours could be the cost driver. To prove this, he has decided to conduct a regression analysis on data collected from the records from last year, and the data are summarized in the following table:
    (1) (2)
    Line balancing and clogging removal cost (riyals) Production hours
    2,712 72
    935 21
    2,433 64
    1,498 37
    2,980 79

    ∑(1)=10,558 ∑(1)^2=25,273,062 ∑(2)=273 ∑(2)^2=17,331 ∑(1)(2) =661,457
    Show how regression can be used to prove whether production hours can be a cost driver for line balancing and clogging removal cost.

  11. Consider the production line consisting of two main stages and one stage for reworking defective parts coming from the first stage, as explained in the figure below:
    production with rework station
    The proportion of work pieces that will need rework is 5%. The standard time Ts in a stage is shown. The salary of workers in the plant is 4,000 riyals per month. The plant runs a single shift per day of 7.5 hours for 5 days in a week, and there are 4 weeks in a month. An order of 1000 units has been received by production. Compute the direct labor cost associated with this order.

  12. A certain brand of diesel electricity generator manufactured by Arabi Diesel Generators is assembled from three main items. The items are purchased in large quantities and stored in a warehouse. The number of assembly items per generator, item purchase cost, average stay in the warehouse, and the item’s cost in the warehouse are shown below:

    Assembly item Number of items per generator Item cost (Euros) Average stay in warehouse (months) Warehouse cost (riyals per month)
    Diesel engine 1 9,800 5 450
    Generator 1 5,700 7 640
    Base 1 4,020 6 260
    The current exchange rate is 5.3 riyals per euro. Compute the materials cost associated with the manufacture of 5 diesel generators.
  13. Consider the balance sheet from the Saudi Tea Factory from this year:
    Beginning work in process inventory SAR 5,000
    Direct materials available during the year SAR 12,600
    Ending raw material inventory SAR 4,800
    Direct labor SAR 21,000
    Manufacturing overhead SAR 19,000
    Calculate:
    1. The direct materials that was put in production
    2. Total manufacturing costs incurred
    3. Total work-in-process during the year
  14. Manufacturing has received a rush order of 1,000 units; which has to be delivered in 3 days. In the painting stage of manufacturing, the standard time is 14 minutes and there are 7 workers who work in parallel. The working day consists of 8 hours. The company has an incentive plan; by this plan, a worker is paid 50 riyals for any additional unit he produces. The labor wage in the painting department is 12 riyals per hour. Calculate the labor cost associated with this order in the painting department.

Instructor: Dr Muhammad Al-Salamah