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ACT 202 Sample Exam 1 Ladies & Gentlemen: We have prepared this sample exam to assist you in your

preparation for your first exam. This sample exam consists of 30 multiple choice questions and fours problems. I would suggest that you would make the best possible use by using it as a diagnostic tool. As such you should go through this exam under exam like conditions closed notes and textbook as well as limited time. You should take no more than 90 minutes to complete the exam. Please complete for class on beginning the week of February 2, 2014. TRY TO UNDERSTAND THE REASON behind A FORMULA. It will help you when you try to memorize things. Do not just blindly memorize the format of a question and the respective answer. Good Luck!

1. What is the biggest disadvantage of ABC? a. It does not provide costing information needed for GAAP purposes. b. It causes management to make frivolous decisions. c. It often causes managers to argue about the best activity measure. d. It is expensive. 2. Ideally, how many units should be produced in a just-in-time manufacturing system? A) budgeted customer demand for the current week. B) budgeted customer demand for the following week. C) actual customer demand for the current week. D) maximum production capacity for the current week. 3. Management accounting focuses primarily on providing data for: A) internal uses by managers. B) external uses by stockholders and creditors. C) external uses by the Internal Revenue Service. D) external uses by the Securities and Exchange Commission. 4. The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n): A) period cost. B) direct material cost. C) indirect material cost. D) none of the above. 5. Which of the following statements is (are) true? A) Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours. B) Activity rates in activity-based costing are computed by dividing costs from the firststage allocations by the activity measure for each activity cost pool. C) An activity-based costing system is generally easier to implement and maintain than traditional costing system. D) One of the goals of activity-based management is the elimination of waste by allocating costs to products that waste resources. 6. Prime cost and conversion cost share what common element of total cost? A) Direct materials. B) Direct labor. C) Variable overhead. D) Fixed overhead.

7. When manufacturing overhead is applied to production, it is added to: A) the Cost of Goods Sold account. B) the Raw Materials account. C) the Work in Process account. D) the Finished Goods inventory account. 8. The appropriate journal entry to record the application of overhead in a job costing system involves a debit to Work in Process and a credit to: a. Cost of Goods Sold b. Factory Overhead c. Cash d. Income Summary 9. Select the response that indicates the correct sequence of product cost flows from production to sale. A) Raw materials, work in process, finished goods, and cost of goods sold B) Cost of goods sold, finished goods, work in process, raw materials C) Work in process, finished goods, cost of goods sold D) Raw materials, finished goods, cost of goods sold 10. Which of the following statements is true with regard to product costs versus general, selling, and administrative costs? A) Product costs associated with unsold units appear on the income statement as general expenses. B) General, selling, and administrative costs appear on the balance sheet. C) Product costs associated with units sold appear on the Income Statement as cost of good sold expense. D) All of the above 11. Which of the following statements about differences between financial and managerial accounting is incorrect? a. Managerial accounting information is prepared primarily for external parties such as stockholders and creditors; financial accounting is directed at internal users. b. Financial accounting is aggregated; managerial accounting is focused on products and departments. c. Managerial accounting pertains to both past and future items; financial accounting focuses primarily on past transactions and events. d. Financial accounting is based on generally accepted accounting practices; managerial accounting faces no similar constraining factors.

12. Acronyms are perhaps overused, but nonetheless important to know. Which of the following acronyms is used to described a process for describing an inventory management process that attempts to minimize the money invested in inventory? a. CFM b. TQM c. ABC d. JIT 13. Which of the following statements concerning job cost sheets is incorrect? a. A job cost sheet would show the direct materials used on that specific job. b. A job cost sheet would reveal the selling costs associated with a particular job. c. The total costs recorded on a job cost sheet should also be reflected in the Work in Process account in the general ledger. d. The amount of overhead on a job cost sheet is the applied factory overhead rather than the actual factory overhead. 14. The overhead application rate is calculated by: a. Dividing the estimated factory overhead by the estimated application base. b. Dividing estimated per unit factory overhead by the sum of the per unit cost for direct labor and direct materials. c. Multiplying the estimated factory overhead by the estimated application base. d. Dividing the estimated application base by the estimated factory overhead. 15. With the job order cost system a credit balance in the Factory Overhead account at the end of an accounting period would indicate: a. That an error in the job cost system has occurred. b. That the company lost money during the period. c. The presence of underapplied overhead. d. The presence of overapplied overhead. 16. Which cost accumulation procedure is best suited to a production process of unique units? a. Job order b. Process c. Standard d. Actual 17. Which of the following comments regarding activity-based costing is not a correct observation? a. The per unit cost of an end product under ABC will necessarily be less than the per unit cost under traditional costing methods. b. ABC may produce results that are not suitable for external reporting under GAAP. c. Activities are said to be resource drivers because they consume resources necessary for the activities to happen. d. Batch-level activities produce costs that may not be in proportion to the number of units produced.

18. Which of the following most accurately describes information that is prepared to be used by management? a. useful, historical, precise b. comparable, verifiable, unbiased c. budgeted, projected, flexible format d. exact, actual only, external 19. Management accounting information assists management in making which of the following decisions? a. how to advertise the product b. how to price the product c. planning for profitability d. both b. and c. 20. Planning and control are a. the same thing, just two different terms b. two of the basic functions of management c. similar to budgeting and performance evaluation d. both b. and c. 21. Which of the following per unit Cost do not change when the activity base fluctuates are known as: a. Variable costs b. Discretionary costs c. Fixed costs d. Mixed costs 22. A company's telephone bill consisting of a $200 monthly base amount, plus long distance charges, would be classified as a: a. Variable cost b. Committed fixed cost c. Discretionary fixed cost d. Mixed cost 23. All of the following are examples of batch-level activities except: A. Purchase order processing. B. Setting up equipment. C. Clerical activity associated with processing purchase orders to produce an order for a standard product. D. Worker recreational facilities. E. None of the above.

24. Which of the following would be considered factory overhead using a job order cost system? A. Direct materials. B. Direct labor. C. Depreciation on factory buildings D. Salesperson's salary E. None of the above 25. Which of the following would be considered a major aim of a job order costing system? A. To determine the costs of producing each job or lot B. To compute the cost per unit C. To include separate records for each job to track the costs D. All of the above E. None of the above 26. Which of the following are characteristics of the lean business model? A. An increased emphasis on customers as the most important constituent B. The realization that customers expect to derive a certain value for the money they spend to buy products and services. C. Companies accept the notion of customer orientation that means the employees understand the changing needs D. All of the above E. None of the above. 27. Which of the following is true with respect to a variable cost? A) It changes in proportion to changes in the volume of activity. B) It remains constant even if activity levels change. C) It has an inverse relationship to sales and production levels. D) Variable costs are not important in manufacturing environments. E) None of the above. 28. Which of the following inventory accounts would be found on a manufacturer's balance sheet? A) Goods in process Inventory B) Raw Materials Inventory C) Finished goods Inventory D) All of the above. E) None of the above. 26. Which of the following is true with respect to factory overhead costs? A) They include direct labor and direct materials. B) They can be readily traced into the finished products. C) They include selling and administrative expenses. D) They are classified as product costs. E) None of the above.

27. Which of the following is a characteristic of a direct material cost? A) It is a tangible component of a finished product. B) It is an expenditure for materials that can be separately and readily traced through the manufacturing process to the finished good. C) Examples (for a bike) would include tires, seat, frame, and handlebars D) All of the above. E) None of the above. 28. Which of the following is an example of a period cost? A) Factory electricity B) Depreciation on the factory equipment C) Salary of the CEO D) Salary of the line worker E) None of the above. 29. Which of the following is a feature of a process production system? A) Homogeneous products B) Low production volume C) High product flexibility D) Customized production E) Low standardization 30. Which of the following would be an advantage to using a single plant-wide rate? A) Information is generally readily available. B) The ease of implementation, when compared to other methods. C) It is sufficient to meet external financial reporting needs. D) All of the above. E) None of the above.

Problem 1:

The following data were taken from the cost records: Depreciation, factory $ 70,000 Indirect labor 110,000 Utilities, factory 50,000 Insurance factory 15,000 Lubricants for machines 10,000 Direct Labor 210,000 Purchases of raw materials 160,000 Depreciation, sales furniture 7,000 Inventories at the beginning and end of the year were as follows: January 1 December 31 Raw materials $15,000 $25,000 Work in process 25,000 10,000 Finished goods 52,000 60,000 Required: a) Prepare a Schedule of Cost of Goods Manufactured for the year. b) Prepare a Schedule of Cost of Goods Sold for the year.

Problem 2. Alpha Mechanical uses a job order costing system. On September 1, 2002, the company had the following account balances: Raw Material Inventory $ 332,400 Work in Process Inventory 1,056,300 Cost of Goods Sold 4,732,000 Work in Process Inventory is the control account for the job cost subsidiary ledger. On September 1, the three accounts in the job cost ledger had the following balances: Job #75 $593,200 Job #78 316,800 Job #82 146,300 The company assigned overhead based on direct labor costs and total Overhead for the period is estimated to be $5,062,500 while total direct labor costs is estimated to be $675,000. The following transactions occurred during September: Sept. 1 Purchased $940,000 of raw material on account. 4 Issued $950,000 of raw material as follows: Job #75, $43,800 Job #78 $227,800 Job #82 $396,600 Job #86 $256,200 Indirect material $25,600. 15 Prepared and paid the factory payroll for Sept. 115 in the amount of $368,500. 15 Analysis of the payroll for Sept. 115 reveals the following information as to where labor effort was devoted: Job #75 4,430 hours $ 44,300 Job #78 11,160 hours 111,600 Job #82 12,150 hours 121,500 Job #86 5,540 hours 55,400 Indirect wages 35,700 16 Alpha Mechanical applies manufacturing overhead to jobs each time the payroll is made. 16 Job #75 and #78 was completed. 17 Paid $12,000 rent for the selling & administrative offices. 19. Job #75 is sold to the customer on credit for $1,800,000. . 20 Paid the following monthly factory bills: utilities, $17,200; rent, $38,300; and accounts payable (accrued in August), $91,000.

25 Closed the manufacturing overhead account to cost of goods sold. Required: Prepare the required journal entries
Date Debit Credit

Date

Debit

Credit

Date

Debit

Credit

Problem 3:

AAA Company manufactures two products, Product C and Product D. To determine the amount of overhead to assign to each product line, the controller has developed the following information. Product C Product D 40,000 10,000 1 3

Estimated production Direct labor per unit

Total estimated overhead costs for the two product lines are $770,000. a. Compute the overhead cost assigned to Product C and D, assuming that direct labor hours is used to allocated overhead costs. Assume that the cost of Direct Materials per unit for Product C is $ 10 and $20 for D; and the cost of Direct Labor per unit is $15 for C and $5 for D, calculate the product cost per unit for Product C and D. b. The controller is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the Product D line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Activity Cost Pool Expected Use of Estimated Overhead Cost Drivers Cost Machine setups 1,000 setups $ 220,000 Assembling 70,000 labor hours 280,000 Inspection 1,200 inspections 270,000 Compute the activity-based overhead rates for these three cost pools. c. Compute the manufacturing overhead cost that is assigned to Product C and D using activity-based costing system, given the following information. Expected Use of Cost Drivers per Product Product C Product D Number of setups 200 800 Direct labor hours 40,000 30,000 Number of inspections 100 1,100 d. Assuming the same direct material and direct labor costs as in (a), calculate product cost per unit for Product C and D using activity-based costing.

Problem 4: The Alfred Company uses a predetermined overhead rate based on

direct labor hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for the last year are as follows: Estimated Actual Direct labor hours 500,000 480,000 Manufacturing overhead $1,000,000 $965,000 Required: a) Compute the predetermined overhead rate for the year b) Calculate the overhead applied for the year. c) What is the amount of over-applied or under-applied overhead? d) Journalize the entry to close the over or under-applied overhead to COGS