ANSWERS TO PRACTICE MIDTERM (multiple choice)

1. D
2. C
3. B
4. C
5. C
6. C
7. A
8. D
9. A
10. A
11. A
12. D
13. D
14. D
15. B
16. C
17. A
18. C
19. A
20. B
21. C
22. C
23. D
24. C
25. D

ANSWERS TO PRACTICE MIDTERM (written)

26. Myklebust Corporation's relevant range of activity is 4,000 units to 8,000 units. When it produces
and sells 6,000 units, its average costs per unit are as follows:

Average
Cost per Unit
Direct materials ................................ $6.40
Direct labor ....................................... $3.80
Variable manufacturing overhead .... $1.60
Fixed manufacturing overhead ........ $3.00
Fixed selling expense ...................... $0.75
Fixed administrative expense .......... $0.60
Sales commissions .......................... $1.50
Variable administrative expense ...... $0.45

Required:
a. For financial reporting purposes, what is the total amount of product costs incurred to make 6,000
units?
b. For financial reporting purposes, what is the total amount of period costs incurred to sell 6,000 units?
c. If the selling price is $20.20 per unit, what is the contribution margin per unit sold?
d. If 7,000 units are produced, what is the total amount of direct manufacturing cost incurred?
E. What incremental manufacturing cost will the company incur if it increases production from 6,000 to
6,001 units?
Answer:
a.
Direct materials ........................................................ $6.40
Direct labor ............................................................... 3.80
Variable manufacturing overhead ............................ 1.60
Variable manufacturing cost per unit ....................... $11.80

Total variable manufacturing cost

($11.80 per unit x 6,000 units produced) ............. $70,800
Total fixed manufacturing overhead cost
($3.00 per unit x 6,000 units produced) .............. 18,000
Total product (manufacturing) cost $88,800

b.
Sales commissions .......................................................................... $1.50
Variable administrative expense ...................................................... 0.45
Variable selling and administrative expense per unit ...................... $1.95

Total variable selling and administrative expense

($1.95 per unit x 6,000 units sold) ................................................ $11,700
Total fixed selling and administrative expense
($0.75 per unit x 6,000 units + $0.60 per unit x 6,000 units) ....... 8,100
Total period (nonmanufacturing) cost .............................................. $19,800

c.
Selling price per unit .......................... $20.20
Direct materials .................................. $6.40
Direct labor ......................................... 3.80
Variable manufacturing overhead ...... 1.60
Sales commissions ............................ 1.50
Variable administrative expense ........ 0.45
Variable cost per unit sold .................. 13.75
Contribution margin per unit............... $6.45

d.
Direct materials ............................................................... $6.40
Direct labor ...................................................................... 3.80
Direct manufacturing cost per unit (a) ............................. $10.20
Number of units produced (b) ......................................... 7,000
Total direct manufacturing cost (a) × (b) ......................... $71,400

E.
Direct materials ..................................... $6.40
Direct labor ............................................ 3.80
Variable manufacturing overhead ......... 1.60
Incremental manufacturing cost ............ $11.80
27. Bakerston Company is a manufacturing firm that uses job-order costing. The company's
inventory balances were as follows at the beginning and end of the year:

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours.
At the beginning of the year, the company estimated that it would work 33,000 machine-hours and
incur $231,000 in manufacturing overhead cost

A. Statement of COGM (3 points)

First, calculate the POHR = $231,000/33000 hours = $7 per machine hour

B. i. Overhead underapplication (calculation)

ii. Journal entry for write off to COGS

Debit Cost of Goods Sold $14,000

Credit Manufacturing Overhead $14,000

28. Italia Espresso Machina Inc. produces a single product. Data concerning the company's operations
last year appear below:

Required:

a. Compute the unit product cost under both absorption and variable costing. OMITTED
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Briefly describe why the incomes are different.
d. The reason for the difference is that $2000 of fixed manufacturing cost is deferred (placed in
inventory) under absorption costing but not in variable costing, thus increasing the absorption
costing income by $2000 compared to the variable costing income.
This is shown in the below reconciliation.

Reconciliation
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 2,000 units - 1,900 units = 100 units

Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in

ending inventory - Fixed manufacturing overhead in beginning inventory = ($20 per unit × 100
units) - $0 = $2,000