MODELA

Cost accounting 1
Final exam 2009/2010
Islamic university Gaza
Sunday 24/01/2010 College o commerce
2 !ours
"ccounting de#artment
Name: Id.:
Question 1 (17 marks): True or False.
1. Direct costs are allocated to the cost object using a cost-allocation method.
2. Raw materials that can be traced to a cost object are an example of an indirect cost.
3. Fixed and ariable costs ma! be allocated to a cost object
4. "ualit! control costs ma! be a direct cost of the #anufacturing Department$ but an
indirect cost of an indiidual job.
5. %ost objects ma! be jobs$ products$ or customers.
6. &he two most common methods of costing inentories in manufacturing companies
are ariable costing and fixed costing.
7. 'bsorption costing (absorbs( onl! ariable manufacturing costs.
8. )ariable costing includes all ariable costs$ both manufacturing and non
manufacturing in inentor!.
9. *nder both ariable and absorption costing$ all ariable manufacturing costs are
inentoriable costs.
10.&he main difference between ariable costing and absorption costing is the wa! in
which fixed manufacturing costs are accounted for.
11. &he dual cost-allocation method classifies costs into two pools$ a budgeted cost
pool and an actual cost pool.
12.&he single-rate method ma+es a distinction between fixed and ariable costs.
13.*sing the single-rate method transforms the fixed costs per hour into a ariable cost
to users of that facilit!.
14.&he single-rate cost-allocation method proides better information for decision
ma+ing than the dual-rate method.
15.'n adantage of the single-rate method is that it is easier and alwa!s the most
accurate cost-allocation choice.
16.Retailers generall! hae a high percentage of net income to reenues.
17.Inentor! management is the planning$ organi,ing$ and controlling actiities that
focus on the flow of materials into$ through$ and from the organi,ation.
Please transer !our ans"er to t#e ollo"in$ ta%le:
Q. &'.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
(&)*+,
F F T T T F F F T T F F T F F F T
-.P',T(&T &'T+: an! ans"er out o t#e ta%le "ill not /onsi0er.
-
Question 2(15marks) : /#oose t#e %est ans"er.
1. .ob costing information is used:
a. &o deelop strategies.
b. &o ma+e pricing decisions.
c. For external financial reporting.
d. 'll of these answers are correct.
2. In a costing s!stem:
a. %ost tracing allocates indirect costs.
b. %ost allocation assigns direct costs.
c. ' cost-allocation base can be either financial or non financial.
d. ' cost object should be a product and not a department or a geographic territor!.
3. Identif!ing department costs helps managers:
a. %ontrol the costs for which the! are responsible.
b. /aluate the performance of subordinates.
c. /aluate the performance of subunits.
d. 'll of these answers are correct.
4. .ob costing:
a. %an onl! be used in manufacturing.
b. Records the flow of costs for each customer.
c. 'llocates an e0ual amount of cost to each unit made during a time period.
d. Is commonl! used when each unit of output is identical.
5. .ob-costing ma! onl! be used b!:
a. 1erice companies.
b. merchandising companies
c. #anufacturing companies.
d. 'll of these ma! use job-costing.
6. 2hich of the following cost3s4 are inentoried when using ariable costing5
a. Direct manufacturing costs.
b. )ariable mar+eting costs.
c. Fixed manufacturing costs.
d. 6oth ' and 6 are correct
7. 'bsorption costing is re0uired for all of the following /7%/8&:
a. 9enerall! accepted accounting principles.
b. Determining a competitie selling price.
c. /xternal reporting to shareholders.
d. Income tax reporting.
8. )ariable costing:
a. /xpenses administratie costs as cost of goods sold.
b. &reats direct manufacturing costs as a product cost.
c. Includes fixed manufacturing oerhead as an inentoriable cost.
d. Is re0uired for external reporting to shareholders.
:

9. )ariable costing regards fixed manufacturing oerhead as a3n4:
a. 'dministratie cost.
b. Inentoriable cost.
c. 8eriod cost.
d. 8roduct cost.
10. &he onl! difference between ariable and absorption costing is the expensing of:
a. Direct manufacturing costs.
b. )ariable mar+eting costs.
c. Fixed manufacturing costs.
d. 6oth ' and % are correct.
11. &he method that allocates costs in each cost pool using the same rate per unit is +nown as the:
a. Incremental cost-allocation method.
b. Reciprocal cost-allocation method.
c. 1ingle-rate cost allocation method.
d. Dual-rate cost-allocation method.
12. &he dual-rate cost-allocation method classifies costs in each cost pool into a:
a. 6udgeted-cost pool and an actual-cost pool.
b. )ariable-cost pool and a fixed-cost pool.
c. *sed-capacit!-cost pool and a practical-capacit!-cost pool.
d. Direct-cost pool and a reciprocal-cost pool.
13. &he adantage of using practical capacit! to allocate costs:
a. Is that it allows a downward demand spiral to deelop.
b. Is that it focuses management;s attention on managing unused capacit!.
c. Is that budgets are much easier to deelop.
d. /ither ' or 6 are correct.
14. 2hen using the single-rate method$ fixed cost allocation ma! be based on:
a. 'ctual usage.
b. 6udgeted usage.
c. Incremental cost allocation.
d. /ither ' or 6 are correct.

15. 6enefits of the single-rate method include:
a. &he low cost of implementation.
b. Fixed costs that are transformed into ariable costs for user decision ma+ing.
c. 1ignals regarding how ariable and fixed costs behae differentl!.
d. Information that leads to outsourcing decisions that benefit the organi,ation as a whole.
Please transer !our ans"er to t#e ollo"in$ ta%le:
Q. &'. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
(&)*+, 1 2 1 3 1 ( 3 3 2 1 2 3 3 1 (
<
-.P',T(&T &'T+: an! ans"er out o t#e ta%le "ill not /onsi0er.
Question 3(16 marks): ()4- Furniture %ompan! manufactures tables. In #arch$ the two
production departments had budgeted allocation bases of =$>>> machine-hours in
Department ->> and ?$>>> direct manufacturing labor-hours in Department :>>. &he
budgeted manufacturing oerheads for the month were @AB$A>> and @C:$A>>$ respectiel!.
For .ob '$ the actual costs incurred in the two departments were as follows:
1e5artment 100 1e5artment 200
Direct materials purchased on account @-->$>>> @-BB$A>>
Direct materials used <:$A>> -<$A>>
Direct manufacturing labor A:$A>> A<$A>>
Indirect manufacturing labor --$>>> D$>>>
Indirect materials used B$A>> =$BA>
Eease on e0uipment -C$:A> <$BA>
*tilities -$>>> -$:A>
.ob ' incurred ?>> machine-hours in Department ->> and <>> manufacturing labor-hours
in Department :>>. &he compan! uses a budgeted oerhead rate for appl!ing oerhead to
production .
,e6uire0: a. Determine the budgeted manufacturing oerhead rate for each department .
b. 8repare the necessar! journal entries to summari,e the #arch transactions
for Department ->> . (*-T4'7T +8P9(-&(T-'&)
c. 2hat is the total cost of .ob ' 5
(: T#e %u0$ete0 manua/turin$ o:er#ea0 rate or ea/# 0e5artment
#anufacturing oerhead rate Department ->> F @AB$A>>G=$>>> hours
F @-=.<BA per machine-hour
#anufacturing oerhead rate Department :>> F @C:$A>>G?$>>> hours
F @B.?-:A per labor-hour
3: T#e ;ournal entries to summari<e t#e .ar/# transa/tions or 1e5artment 100 .
= +&T,> 1+3-T 2,+1-T
1
Materials Control Department 100 110?000
Accounts Payable Control 110?000
2
Work-in-Process Control Department 100 32?500
Materials Control Department 100 32?500
3
Manufacturing Overhead Control Department 100 7?500
Materials Control Department 100 7?500
4
Work-in-Process Control Department 100 52?500
Wages Payable Control 52?500
5
Manufacturing Overhead Control Department 100 11?000
Wages Payable Control 11?000
6
Manufacturing Overhead Control Department 100 16?250
Leaseholds Payable Control 16?250
7
Manufacturing Overhead Control Department 100 1?000
Leaseholds Payable Control 1?000
8
Work-in-Process Control Dept. 100 ($14.375 800 hrs)
1?500
=
Manufacturing Overhead Allocated 1?500
2'&T-&7+ @@@ P(A+ 5 BBB
2: T#e total /ost o Co% (
= -T+. (.'7&T
- Direct materials Dept. ->> <:$A>>
: Direct materials Dept. :>> -<$A>>
< Direct manufacturing labor Dept. ->> A:$A>>
= Direct manufacturing labor Dept. :>> A<$A>>
A #anufacturing oerhead Dept. ->> 3@-=.<BA x ?>>4 --$A>>
C #anufacturing oerhead Dept. :>> 3@B.?-:A x <>>4 :$<==
B
T'T(9
-CA$?==
Q7+)T-'& 4(5 marks): ... *niersit! offers onl! high-tech graduate-leel
programs. ... has two principal operating departments$ /ngineering and %omputer
1ciences$ and two support departments$ Facilit! and &echnolog! #aintenance and
/nrollment 1erices. &he base used to allocate facilit! and technolog! maintenance is
budgeted total maintenance hours. &he base used to allocate enrollment serices is number
of credit hours for a department. &he Facilit! and &echnolog! #aintenance budget is
@<A>$>>>$ while the /nrollment 1erices budget is @DA>$>>>. &he following chart
summari,es budgeted amounts and allocation-base amounts used b! each department :
3u0$et
FDT
.aintenan/e
+nrollment
)er:i/e
+n$ineerin$
2om5uter
)/ien/es
F&T
Maintenance
@<A>$>>> Hero A$>>> -$>>> :$>>>
Enrollment
Service
@DA>$>>> :$>>> Hero :=$>>> <C$>>>
,+Q7-,+1: Pre5are a s/#e0ule "#i/# allo/ates ser:i/e 0e5artment /osts usin$ t#e ste5E0o"n met#o0.
Calculations: FI& #aintenance proided to enrollment serices F A$>>>G?$>>>
/nrollment serices proided to maintenance F :$>>>GC:$>>>
FI& #aintenance proides the greatest amount of serice to support departments $
so it is allocated first .
FI& #aintenance @<A>$>>> to /nrollment 1erices F @<A>$>>> J AG?F @:-?$BA>
to /ngineering F @<A>$>>> J -G?F @ =<$BA>
to %omputer 1cience F @<A>$>>> J :G?F @ ?B$A>>
/nrollment 1erice costs of @DA>$>>> K @:-?$BA> F @-$-C?$BA>
are allocated to /ngineering and %omputer 1cience
to /ngineering F @-$-C?$BA> J :=GC> F @=CB$A>>
to %omputer 1cience F @-$-C?$BA> J <CGC> F @B>-$:A>
F&T MaintenanceEnrollment ServiceEngineeringComputer Science
$350,000
($350,000)
$950,000
$218,750 $ 43,750 $ 87,500
$ 0 ($1,168,750) $467,500 $701,250
Totals $ 0 $511,250 $788,750
A
Q7+)T-'& 5(12 marks): 666 %ompan! sells a special putter for @:> each. In #arch$
it sold :?$>>> putters while manufacturing <>$>>>. &here was no beginning inentor! on
#arch . 8roduction information for #arch was :
Direct manufacturing labor per unit -A minutes
Fixed selling and administratie costs @ =>$>>>
Fixed manufacturing oerhead -<:$>>>
Direct materials cost per unit :
Direct manufacturing labor per hour :=
)ariable manufacturing oerhead per unit =
)ariable selling expenses per unit :
,e6uire0: a. %ompute the cost per unit under both absorption and ariable costing .
b. %ompute the ending inentories under both absorption and ariable costing .
c. %ompute operating income under both absorption and ariable costing.
a. 2om5ute t#e /ost 5er unit un0er %ot# a%sor5tion an0 :aria%le /ostin$
L -T+. '61MR8&IMN )'RI'6E/
- Direct manufacturing labor 3@:=G=4 C.>> C.>>
:
Direct materials :.>> :.>>
< )ariable manufacturing oerhead =.>> =.>>
= Fixed manufacturing oerhead 3@-<:$>>>G<>$>>>4 =.=> >
A
C
B
T'T(9 -C.=> -:.>>
%. 2om5ute t#e en0in$ in:entories un0er %ot# a%sor5tion an0 :aria%le /ostin$.
L -T+. '61MR8&IMN )'RI'6E/
- 3e$innin$ in:entor! > >
: 2ost o $oo0s manua/ture0:
< <>$>>> @-C.=> $$<>$>>> @-:.>> @=D:$>>> @<C>$>>>
4 2ost o $oo0s a:aila%le or sale F492?000 F360?000
A 2ost o $oo0s sol0:
C :?$>>> @-C.=>$$:?$>>> @-:.>> @=AD$:>> @<<C$>>>
7 Total o +n0in$ in:entor! F 32?800 F 24?000
/. 2om5ute o5eratin$ in/ome un0er %ot# a%sor5tion an0 :aria%le /ostin$.
L -T+. (3)',PT-'& G(,-(39+
1 )ales (28?000 H F20) F560?000 F560?000
: %ost of goods sold 3:?$>>> J @-C.=>4$$3:?$>>> J @-:4 459?200 F336?000
< )ariable selling expenses 3:?$>>> J @:4 0 56?000
= 9ross margin $$ %ontribution margin 100?800 168?000
5 9ess :
C )ariable selling and administratie $$ #anufacturing F56?000 F132?000
B Fixed selling and administratie$$ 1elling and administratie 40?000 40?000
T'T(9 F 4?800 F (4?000)
2ith best wishes
C
#ohammad #arwan 'l 'shi
B