Cost Accounting PQ1 – Chapters 1, 2, 3 & 4 Do not write anything on this questionnaire.

Part I: True or False (2 points each)

1. Direct costs are allocated to the cost object using a cost-allocation method. F
2. Actual costs and budgeted costs are two different terms referring to the same thing. F
3. Accountants define a cost as a resource to be sacrificed to achieve a specific objective. T
4. The cost driver of an indirect cost is often used as the cost-allocation base. T
5. Quality control costs may be a direct cost of the Manufacturing Department, but an indirect cost of an individual job. T
6. The same cost may be direct for one cost object and indirect for another cost object. T
7. Assigning direct costs poses more problems than assigning indirect costs. F
8. Improvements in information-gathering technologies are making it possible to trace more costs as direct. T
9. Misallocated indirect costs may lead to promoting products that are not profitable. T
10. The materiality of the cost is a factor in classifying the cost as a direct or indirect cost. T
11. The cost of a customized machine only used in the production of a single product would be classified as a direct cost. T
12. Some fixed costs may be classified as direct manufacturing costs. T
13. The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP). F
14. Costs that are difficult to change over the short run are always variable over the long run. T
15. Work-in-Process Control will be decreased (credited) for the amount of direct-labor costs incurred. F
16. Currently, most administrative personnel costs would be classified as fixed costs. T
17. Fixed costs depend on the resources used, not the resources acquired. F
18. The variable cost per unit of a product should stay the same throughout the relevant range of production. T
19. When making decisions using fixed costs, the focus should be on total costs and not unit costs. T
20. When 50,000 units are produced the fixed cost is $10 per unit. Therefore, when 100,000 units are produced fixed costs will
remain at $10 per unit. F

Part II: Problem Solving (3 points each). Show your solutions in good form. Box your final answers. No solution, no point.

For numbers 1 and 2:

The Barnett Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or
variable. Barnett Company has heard about a method of measuring cost functions called the high-low method and has decided to use it
in this situation.
Cost Hours
$24,900 5,250
24,000 5,500
36,400 7,500
44,160 9,750
45,000 9,500

1.What is the cost function? y = $2,430 + $4.28X

b = ($44,160 – $24,900) / (9,750 – 5,250) = $4.28 for the highest and lowest values of the cost driver
$44,160 = a + ($4.28 x 9.750)
a = $2,430

2. What is the estimated total cost at an operating level of 8,000 hours? $36,670

$36,670 = $2,430 + ($4.28 x 8,000)

For numbers 3 and 4:

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company.
Month Cost Units
January $4,890 4,100
February 4,024 3,200
March 6,480 5,300
April 8,840 7,500
May 5,800 4,800
June 7,336 6,600

Gallup Company uses the high-low method to analyze mixed costs.

3. How would the cost function be stated? y = $440 + $1.12X

b = ($8,840 – $4,024) / (7,500 – 3,200) = $1.12

$8,840 = a + $1.12 x 7,500
a = $440

4. What is the estimated total cost at an operating level of 5,000 units? $6,040

y = $440 + $1.12 x 5,000 = $6,040

For numbers 5, 6, 7 and 8:

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
5. Direct manufacturing labor is $10 per hour.
6. Direct materials cost $9.20 per cubic yard.
7. Utilities have a minimum charge of $1,000, plus a charge of $0.05 per kilowatt-hour.
8. Machine operating costs include $200,000 of machine depreciation per year, plus $75 of utility costs for each day the
machinery is in operation.
Cost Accounting PQ1 – Chapters 1, 2, 3 & 4 Do not write anything on this questionnaire.

Answers:
5. y = $10X
6. y = $9.20X
7. y = $1,000 + $0.05X
8. y = $200,000 + $75X

For numbers 9 and 10:

The Wildcat Company has provided the following information:

Units of Output 30,000 Units 42,000 Units

Direct materials $ 180,000 $ 252,000
Workers' wages 1,080,000 1,512,000
Supervisors' salaries 312,000 312,000
Equipment depreciation 151,200 151,200
Maintenance 81,600 110,400
Utilities 384,000 528,000
Total $2,188,800 $2,865,600

Using the high-low method and the information provided above,

9. identify the linear cost function equation and
10. estimate the total cost at 36,000 units of output.

Answer:
9. Variable cost = ($2,865,600 – $2,188,800) / (42,000 – 30,000) = $56.40
Fixed cost = $2,865,600 – $56.40 x 42,000 = $496,800
Cost function is y = $496,800 + $56.40X

10. Output level of 36,000 units = $496,800 + $56.40 x 36,000 =

= $2,527,200 total cost

For numbers 11 and 12:

Jacobs Company manufactures refrigerators. The company uses a budgeted indirect-cost rate for its manufacturing operations and
during 20X5 allocated $1,000,000 to work-in-process inventory. Actual overhead incurred was $1,100,000.
Ending balances in the following accounts are:
Work-in-Process $ 100,000
Finished Goods 750,000
Cost of Goods Sold 4,150,000
Required:
11. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure
your journal entry closes the related overhead accounts.
12. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account
balances. Be sure your journal entry closes the related overhead accounts.

Answer:
14. Manufacturing Overhead Allocated 1,000,000
Cost of Goods Sold 100,000
Manufacturing Overhead Control 1,100,000

15. Work-in-process $100,000 2.0% x $100,000 = $2,000

Finished goods 750,000 15.0 x $100,000 = $15,000
Cost of goods sold 4,150,000 83.0 x $100,000 = $83,000
Total $5,000,000 100.0%

Manufacturing Overhead Allocated 1,000,000

Work-in-Process 2,000
Finished Goods 15,000
Cost of Goods Sold 83,000
Manufacturing Overhead Control 1,100,000

For numbers 13, 14 and 15:

Components of Manufacturing Cost. Myerson Inc. produces video cameras. The direct labor cost of one camera is $200, and the total
manufacturing cost is $650. The overhead cost of one camera is two-thirds as large as its conversion cost.
Required:
13. Compute the conversion cost per unit.
14. Determine the factory overhead cost per unit.
15. Determine the direct materials cost per unit.

Answer:
(13) Let x = Conversion cost per unit
x = $200 + 2/3 x
1/3 x = $200
x = $600
(14) Factory overhead = 2/3 x $600 = $400
(15) Direct materials = $650 - $200 - $400 = $50
Cost Accounting PQ1 – Chapters 1, 2, 3 & 4 Do not write anything on this questionnaire.

For numbers 16, 17, 18 and 19:

LeBlanc Company has the following balances as of the year ended December 31, 20X5.

Direct Materials Inventory $15,000 Dr.

WIP Inventory 34,500 Dr.
Finished Goods Inventory 49,500 Dr.
Factory Department Overhead 4,000Dr.
Cost of Goods Sold 74,500 Dr.

Additional information is as follows:

Cost of direct materials purchased during 20X5 $41,000
Cost of direct materials requisitioned in 20X5 47,000
Cost of goods completed during 20X5 102,000
Factory overhead applied (120% of direct labor) 48,000

Required:
16. Compute beginning direct materials inventory.
17. Compute beginning WIP inventory.
18. Compute beginning finished goods inventory.
19. Compute actual factory overhead incurred.

Answer:
16. $47,000 - $41,000 + $15,000 = $21,000
17. $48,000/120% = $40,000 direct labor costs incurred
$102,000 – $47,000 – $40,000 – $48,000 + $34,500 = $1,500
18. $74,500 – $102,000 + $49,500 = $22,000
19. $48,000 + $4,000 = $52,000

Part III. Identification of Variable, Fixed, and Semivariable Costs. (1 point)

Classify whether the following costs are variable, fixed, or semivariable.

1. Small tools
2. Patent amortization
3. Health and accident insurance
4. Heat, light, and power
5. Straight line depreciation
6. Maintenance of buildings and grounds
7. Royalties
8. Materials handling
9. Property and liability insurance
10. Maintenance of factory equipment

SOLUTION
1. Variable
2. Fixed
3. Semivariable
4. Semivariable
5. Fixed
6. Fixed
7. Variable
8. Variable
9. Fixed
10. Semivariable

Part IV: Formula (2 point for each line item)

Give the Cost of Goods Sold Formula for (1) Merchandising Business and (2) Manufacturing Business. Assume that the
manufacturing business uses normal costing.

15points:

Beg inv
Purchases
Freight in
-purch r&a
Total: TGAS
-end inv
Total: COGS

33 points
RM, beg
Purchase
Freight in
-purch R&a
Cost Accounting PQ1 – Chapters 1, 2, 3 & 4 Do not write anything on this questionnaire.

-indirect materials
-RM, end
Total: RM used
DL
FOHA
Total: TMC
WIP, beg
-WIP, end
Total: COGM
FG, beg
-FG, end
Total: COGS – normal