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You have just been hired by Gracie Faye International   (GFI) as a cost accountant. The company was named for the internationally   popular Toka player, Gracie Faye. The company was started by John Smith who,   in his basement, crafted a toka ball and beautifully strong toka stick for   his daughter, Tresha, who played on a local team.

Tresha’s team saw the benefit of Tresha’s well-crafted   equipment, and soon after, John was asked to equip the whole team. After the   team won the championship, he was taking orders for the whole league and soon   the whole toka world was knocking on John Smith’s door.

From simple beginnings, GFI has branched out to other sports,   taking their brand of solid construction to new heights. Their ping pong   table is known as the elephant’s dancing table, since ping-pong star Kevin   “The Elephant” Pelinsky leapt onto a GFI table to dance across the net after   he won a championship.

Founder Smith was quoted soon after saying, “all of our   products have elephant dancing quality.” Their bleachers sales skyrocketed   after the collapse of a competitor in the early ‘90s, and a Department of   Parks and Recreation remodeled all their baseball fields with GFI electronic   scoreboards and their batting cages with GFI automatic pitching machines.

The CFO (your new department head) has asked you to   prepare a report to submit to the top management of the company. It would   seem that the CFO did not do a very good job justifying your position and   what you can do for the company.

The CFO would like for you to explain cost accounting, as   well as present information to the management team on product costs for the   production of toka balls, specific job order costs for special order products   and provide costing information for two models of pitching machines currently   offered.

You will present all of this information in a management   report divided up into four separate sections as described below.

PART 1: In this section of the report, your job is to explain cost accounting and what skills you can bring to the company. The CFO feels you should include an overview of what cost management is and some of its applications. Be sure to discuss the opportunities available in the cost accounting and how it relates to corporate strategy. This section of your report should be approximately two pages in length.

PART 2: In this section of the report, you are asked to classify the product costs for the production of toka balls. Classify each cost as:

  • fixed      or variable
  • direct      or indirect

Complete the table and include it in your report. The management team will require justification for each cost (i.e. why you classified the costs as you did).


Product Cost








       Real   Estate Taxes


       Wood for   toka sticks


       Leather to   tie wood together


       Manufacturing   Labor




       Lubricants   for Machinery


       Equipment   depreciation

Use Microsoft Excel to calculate your answers for Parts 3 and 4 and cut and paste the calculations from Excel into your report to show your work.

PART 3: The third section of the report should contain your computations for the month of July based on the information given below. The following information is available for a GFI division that produces electronic scoreboards. These are special order products that use a job order cost accounting system. The management team wants to see your calculations in your responses.


June 30

July 31




       Raw   materials




       Goods in   process




       Finished   goods





Activities and information for July


       Raw   materials purchases by cash



       Factory   payroll by cash



       Factory   overhead


               Indirect   materials



               Indirect   labor



               Other   overhead costs



Sales in cash



Predetermined overhead rate based on direct labor cost


Compute the following amounts for the month of July.

  1. Cost      of direct materials used.
  2. Cost      of direct labor used
  3. Cost      of goods manufactured.
  4. Cost      of goods sold. (Do not consider any underapplied or overapplied overhead.)
  5. Gross      profit.
  6. Overapplied      or underapplied overhead.

PART 4: In the last section of the report, the management team would like to know the profits they can expect from the two models of pitching machines they currently manufacture. The softball pitching machine and the hardball machine make up the entire product line. To help determine the profit of each individual product, the CFO wants overheads to be allocated back to the products. Total inspection costs are $40,000.

The estimated production budget is as follows.


Softball pitching machine



20 units


Direct labor hours per unit

200 hours per unit


Number of inspections

5 per unit


Hardball pitching machine



20 units


Direct labor hours per unit

200 hours per unit


Number of inspections

15 per unit

  1. Under      a costing system that uses direct labor hours as a driver for the      allocation, how much of the inspection costs would be allocated to      softball machine?
  2. Repeat      the same question for hardball machine.
  3. Using      ABC and the number of inspections as a driver for allocation, recalculate      the allocation for the softball machine.
  4. Repeat      the activity mentioned in question 3 for hardball machine.

You know that your report will be shared with senior level managers and eventually to the board of directors. However, you are uncertain whether or not you will be allowed to present your work at a later time or in a different manner. Therefore it is important that your report is well written, professional, includes an introduction and a conclusion, and follows APA standards.


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