Acc 312 - Spring 2005 Sample Exam I

1. When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts? A. Raw-Material Inventory, Manufacturing Overhead, and Direct Labor. B. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory. C. Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold. D. Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold. E. Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory Corruption, Inc., uses a process-costing system. They overstated the percentage of work completed with respect to conversion cost on the ending work-in-process inventory. What is the effect of this overstatement on conversion-cost equivalent units and physical units manufactured, respectively? A. Overstated, overstated. B. Overstated, understated. C. Overstated, none. D. None, overstated. E. None, none. The total production cost of a job is composed of: A. direct material and direct labor. B. direct material, direct labor, manufacturing overhead, and outlays for selling costs. C. direct material, direct labor, manufacturing overhead, and outlays for both selling and administrative costs. D. direct material, direct labor, and applied manufacturing overhead. E. direct material, direct labor, and actual manufacturing overhead. Excelsior Corporation recently used $90,000 of direct materials and $1,500 of indirect materials in production activities. The journal entries reflecting these transactions would include: A. a debit to Raw-Material Inventory for $90,000. B. a debit to Manufacturing Overhead for $1,500. C. a credit to Manufacturing Overhead for $1,500. D. a debit to Work-in-Process Inventory for $91,500. E. a debit to Manufacturing Overhead for $91,500. Gary, Inc., applies manufacturing overhead at the rate of $40 per machine hour. Budgeted machine hours for the current period were anticipated to be 70,000; however, a lengthy strike resulted in actual machine hours being worked of only 55,000. Budgeted and actual manufacturing overhead figures for the year were $2,800,000 and $2,150,000, respectively. On the basis of this information, the company's year-end overhead was: A. overapplied by $50,000. B. underapplied by $50,000. C. overapplied by $600,000. D. underapplied by $600,000. E. overapplied by $650,000.
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XYZ Co., had 3,000 units of work in process on April 1 that were 60% complete. During April, 10,000 units were completed and as of April 30, 4,000 units that were 40% complete remained in production. How many units were started during April? A. 8,600. B. 9,800. C. 11,000. D. 12,200. E. None of the above. Which of the following is the proper sequence of events in an activity-based costing system? A. Identification of cost drivers, identification of cost pools, calculation of cost application rates, assignment of cost to products. B. Identification of cost pools, identification of cost drivers, calculation of cost application rates, assignment of cost to products. C. Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of cost application rates. D. Calculation of cost application rates, identification of cost drivers, identification of cost pools, assignment of cost to products. E. Some other sequence of the four activities listed above. Michael, Inc., uses a process-costing system. A newly hired accountant has identified the following procedures that must be performed by the close of business on Friday: 1 Calculation of equivalent units 2 Analysis of physical flows of units 3 Assignment of costs to completed units and units still in process 4 Calculation of unit costs Which of the following choices correctly expresses the proper order of the preceding tasks? A. 1, 2, 3, 4. B. 1, 2, 4, 3. C. 1, 4, 3, 2. D. 2, 1, 4, 3. E. 2, 1, 3, 4.

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When calculating unit costs under the weighted-average process-costing method, the unit cost is based on: A. only the current period's manufacturing costs. B. only costs in the period's beginning work-in-process inventory. C. a summation of the costs in the beginning work-in-process inventory plus costs incurred in the current period. D. only costs incurred in previous accounting periods. E. a summation of the costs in the beginning work-in-process inventory plus costs to be incurred in the upcoming period.

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Which of the following is an appropriate way to analyze customer profitability? A. The cost of servicing a customer computed as a percentage of the customer's gross margin. B. The cost of servicing a customer computed as a percentage of the customer's gross margin, compared against company or industry norms. C. The cost of servicing a customer computed as a percentage of the customer's gross margin, examined over several years. D. A and B. E. A, B, and C. The comparison of a company's practices and performance levels against those of other organizations is most commonly known as: A. benchmarking. B. continuous improvement. C. re-engineering. D. comparative analysis. E. kaizen business analysis (KBA). In comparison with a system that uses a single, volume-based cost driver, an activity-based costing system is preferred when a company has: A. a large proportion of nonunit-level activities. B. product diversity or a large proportion of nonunit-level activities. C. minimal product diversity and a small proportion of nonunit-level activities. D. existing variances from budgeted amounts. E. a situation other than those noted above. In the pull method of coordinating a production process: A. departments early in the production process continually make components in order to ensure that later departments do not run out. B. nothing is manufactured at a work center until a need is signaled from a subsequent process. C. work-in-process inventories are increased throughout the plant. D. production employees never have idle time, thus increasing efficiency. E. defective products are "pulled" off the line and sent to a special department for rework. Which of the following is not an objective of managerial accounting? A. Providing information for decision making and planning. B. Assisting in directing and controlling operations. C. Maximizing profits and minimizing costs. D. Measuring the performance of managers and subunits. E. Motivating managers toward the organization's goals.

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Alden Company currently uses traditional costing procedures, applying $200,000 of overhead to products A and B on the basis of direct labor hours. The firm is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. Pool 1 Product A B Pool Cost (Driver: DLH) 400 600 $40,000 Pool 2 (Driver: SU) 25 75 $70,000 Pool 3 (Driver: PC) 1,900 1,100 $90,000

The overhead cost allocated to product A by using activity-based costing procedures would be: A. $80,000. B. $90,500. C. $109,500. D. $120,000. E. an amount other than those listed above. 16. Total variable costs are those costs that: A. vary inversely with changes in activity. B. vary directly with changes in activity. C. remain constant as activity changes. D. decrease on a per-unit basis as activity increases. E. increase on a per-unit basis as activity increases. If the total cost of alternative A is $50,000 and the total cost of alternative B is $34,000, then $16,000 is termed the: A. opportunity cost. B. average cost. C. sunk cost. D. out-of-pocket cost. E. differential cost. Which of the following statements represents a similarity between financial and managerial accounting? A. Both are useful in providing information for external users. B. Both are governed by GAAP. C. Both draw upon data from an organization's accounting system. D. Both rely heavily on published financial statements. E. Both are solely concerned with historical transactions.

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Much of managerial accounting information is based on: A. a cost-benefit theme. B. profit maximization. C. cost minimization. D. the generation of external information. E. effectiveness but not efficiency. Which of the following statements is (are) correct? A. Overtime premiums should be treated as a component of manufacturing overhead. B. Overtime premiums should be treated as a component of direct labor. C. Idle time should be treated as a component of direct labor. D. Idle time should be accounted for as a special type of loss. E. Both B and C are correct.

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Problem 1 (10 points) The Morton Company recorded the following transactions for February 20x1: Purchases Beginning inventory Ending inventory Direct materials used Direct labor Manufacturing overhead (includes indirect materials used of $10,000) Transferred to finished goods Cost of goods sold Materials $100,000 $ 18,000 A Work in Process $ 8,000 $ 20,000 $ 90,000 B $115,000 C D Finished Goods $ E $30,000

Sales were $560,000, with sales prices determined by adding a 40% markup to the firms manufacturing cost. The total cost of direct materials used, direct labor, and manufacturing overhead during the month was $285,000. Required: Calculate the missing values.

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Problem 2 (8 points) On May 1, the Dandy Company had a work-in-process inventory of 10,000 units. The units were 100% complete for material and 30% complete for conversion, with respective costs of $30,000 and $1,850. During the month, 150,000 units were completed and transferred to finished goods. The ending work-inprocess inventory on May 31 consisted of 10,000 units. These latter units were 100% complete with respect to materials and 80% complete with respect to conversion. Costs added during the month were $330,000 for materials and $503,750 for conversion. Required: Using the weighted-average method, calculate:

A. the cost per equivalent unit for material and conversion.

B. the cost transferred to finished goods. C. the cost of ending work in process.

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Problem 3 (12 points) Pitney Corporation manufactures two types of space-age transpondersNo. 156 and No. 157and applies manufacturing overhead to all units at the rate of $76.50 per machine hour. Production information follows. Anticipated volume (units) Direct material cost Direct labor cost No. 156 6,000 $40 25 No. 157 14,000 $65 25

The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours worked, and outgoing shipments, the activities' three respective cost drivers, follow. No. 156 60 15,000 120 No. 157 40 25,000 80 Total 100 40,000 200

Setups Machine hours worked Outgoing shipments

The firm's total overhead of $3,060,000 is subdivided as follows: manufacturing setups, $260,000; machine processing, $2,400,000; and product shipping, $400,000. Required: A. Compute the application rates that would be used for manufacturing setups, machine processing, and product shipping in an activity-based costing system. B. Assuming use of activity-based costing, compute the total manufacturing costs of No. 156 and No. 157 if the expected manufacturing volume is attained. C. If the company's selling price is based heavily on cost, would a switch to activity-based costing from the current traditional system result in a price increase or decrease for model No. 156? Show computations.

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Problem 4 (10 Points) Selected data concerning the past years operations of the Patterson Manufacturing Company are as follows: Inventories Beginning Raw Material $71,000 Work in process $80,000 Finished goods $90,000 Other data: Direct materials used Total manufacturing costs charged to production during the year (includes direct material, direct labor, and manufacturing overhead applied at a rate of 60% of direct-labor cost). Cost of goods available for sale Selling and administrative expenses A. B. C. D. Ending $81,000 $30,000 $110,000 $326,000

$686,000 $826,000 $31,500

What was the cost of raw materials purchased during the year? What was the direct-labor cost charged to production during the year? What was the cost of goods manufactured during the year? What was the cost of goods sold during the year?

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Question # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Answer B C D B A C B D C E A B B C B B E C A A

Problem 1 (2 points each) Item A: Beginning materials Add: Purchases Less: Direct materials used Less: Indirect materials used Ending materials Item B: Total product costs Less: Direct materials used Less: Manufacturing overhead Direct labor Item C: Beginning work in process Add: Total product costs Less: Ending work in process Transferred to finished goods Item D: Sales Divided by rate Cost of goods sold $18,000 100,000 -90,000 -10,000 $18,000 $285,000 -90,000 -115,000 $80,000 $8,000 285,000 -20,000 $273,000 $560,000 140% $400,000

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Item E: Ending finished goods Add: Cost of goods sold Less: Transferred to finished goods Beginning finished goods Problem 2 A. Cost per equivalent unit (4 pts)

$30,000 400,000 -273,000 $157,000

Direct Work in process, May 31 Costs added during May Total costs Equivalent units Cost per equivalent unit Material (150,000 x $2.25) Conversion (150,000 x $3.20) Total Material (10,000 x $2.25) Conversion (8,000 x $3.20) Total Problem 3 A. ( 3 points) Manufacturing setups: $260,000 100 setups (SU) = $2,600 per SU Machine processing: $2,400,000 40,000 machine hours (MH) = $60 per MH Product shipping: $400,000 200 outgoing shipments (OS) = $2,000 per OS B. Setup, machine processing, and product shipping costs of No. 156 and No. 157: (6 points) Activity Direct Material $40 x 6,000 $65 x 14,000 Direct Labor $25 x 6,000 $25x 14,000 Manufacturing setup: 60 SU x $2,600 40 SU x $2,600 Machine processing: 15,000 MH x $60 25,000 MH x $60 Product shipping: 120 OS x $2,000 80 OS x $2,000 Total No. 156 $240,000 $910,000 150,000 350,000 156,000 104,000 900,000 1,500,000 240,000 $1,686,000 160,000 $3,024,000 No. 157 Material $30,000 330,000 $360,000 160,000 $2.25 $337,500 480,000 $817,500 $22,500 25,600 $48,100 Conversion $1,850 503,750 $505,600 158,000 $3.20

B. Cost transferred to finished goods (2points)

C. Cost of work in process at May 31 (2 pts)

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C. (3 points) Traditional system Machine hours (15,000) units produced (6,000) = 2.5 hours per unit; 2.5 hours x $76.50 = $191.25 overhead applied Direct material ($40.00) + direct labor ($25.00) + overhead ($191.25) = $256.25/unit ABC Costing $1,686,000 (from above) / 6,000 = $281/unit No. 156 is currently undercosted ($256.25 vs. $281.00), so a switch to activity-based costing will likely result in a price hike. Problem 4 A. Raw material (2 points) Beginning inventory Add: Purchases Deduct: Raw material used Ending inventory B Direct labor (4 points) Total manufacturing cost Deduct: Direct material Direct labor and manufacturing overhead Direct labor + manufacturing overhead Direct labor + (60%) (direct labor) (160%) (direct labor) Direct labor Direct labor C. Cost of goods manufactured (2 points) Work in process, beginning inventory Add: Total manufacturing costs Deduct: Cost of goods manufactured Work in process, ending inventory D. Cost of goods sold (2 points) Finished goods, beginning inventory Add: Cost of goods manufactured Deduct: Cost of goods sold Finished goods, ending inventory $90,000 736,000 716,000 $110,000 $80,000 686,000 736,000 $30,000 = = = = = $686,000 326,000 $360,000 $360,000 $360,000 $360,000 $360,000/1.6 $225,000 $71,000 336,000 326,000 $81,000

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