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INTRODUCTORY MANAGERIAL ACCOUNTING ACCT2242 .1B (Prof. Shirley Carras) MIDTERM EXAM SUMMER SESSION I of 2011 THURSDAY, MAY 26th

NAME:
AVAILABLE MARKS
16 12 8 14 26 12 12

A:
MARK RECEIVED

QUESTION
1 2 3 4 5 6 7

TOTAL

100

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. What are the three costs that make up the Total Manufacturing Costs? For each cost. the higher the per unit fixed cost) 2 . the company will generally focus on one reason a customer might choose them over their competitors. Direct or Indirect Direct Materials Direct Labour (Applied) Overhead Direct Direct Indirect 2 .. 1 . faster. 1 . 2 . When a company is developing its strategy to attract customers by distinguishing itself from competitors. the lower the level of activity. 3 . 2. Cost 1. If you answer more than the four. Describe the characteristics of fixed costs from the perspectives of (1) total costs. and (2) unit costs. Customer Intimacy – we know you and understand you and we can serve your needs better than someone else Operational Excellence – we can provide you with goods easier. These reasons are more formally called "customer value propositions". 3.QUESTION 1 (16 marks) Answer any four (4) of the following short answer questions. Within the Relevant Range . • Fixed costs in total are constant (or the same) regardless of changes of level of activity • Fixed costs per unit vary inversely with the level of activity (the higher the level of activity. the lower the per unit fixed cost. only the first four will be marked. Name the three customer value propositions. cheaper Product Leadership – we have better quality. more innovative products 3 . indicate whether it is a direct cost or an indirect cost.

which method is the Least precise and why? Which method is the Most precise. Cost Cost of sand spread on the factory floor to absorb oil from manufacturing machines Depreciation on the warehouse used to store the finished goods Cost of guided public tours through the company's facilities Depreciation on the computer system that controls the operation of the factory machinery Product or Period a . 6 . MOST Precise Because it uses all data Regression points. and the placement of the line is subjective. Product Period Period Product 5 . QUESTION 2 (12 marks) 3 . and why? Method LEAST Precise Why Scattergra m Because it uses at most only one data point. (b) What do the credits to the Work-in-Progress Inventory account represent? Credits represent the cost of goods manufactured. Indicate whether the costs itemized below are a Product cost or a Period cost. b . c . We discussed three methods of analyzing mixed costs to determine which portion is Fixed and which portion is Variable. which are the goods finished and transferred into finished goods inventory. giving a more precise Analysis fit. (a) What do the debits to the Work-in-Progress Inventory account represent? Debits represent the total manufacturing costs which are comprised of direct materials. direct labour and applied overhead. d .4 . Of the three methods.

000 a= $313.500 $ 1. Required: Calculate an estimate of what the company will incur in actual overhead costs for the next year by analyzing the cost data which has been collected.200) a = $655.400) a = $997.50 x 7.000 November 13.400 .200 $342.042..000 14.000 7.000 October 11.Low activity $997.000 August 12.400 $ 997.000 June 7.7.000 December 14.600 $ 1.000 $ 991.$655..001. Step 1: Use High-Low to analyse the Mixed Cost.180 units will be produced over the next year.500 $ 996.. Y = a + bX $997.900 $ 715. Show ALL calculations.000 February 13.000 July 12.200 $ 1.000 The management team at Demgren Company has estimated that 15.200 $ 655. He was aware that the overhead costs were mixed costs and.050.000 .800 $ 1.000 January 8. collected the following monthly data.50 x 14.. and to predict what the overhead costs for the 12-month period ending April 30.000 April 9.000 September 12. therefore.000 $342. Y = a + bX $655.The newly hired cost accountant at Demgren Company was asked to analyze the company’s overhead costs for the last year.111.$684.500 $ 1.300 $ 1.131. breaking it into the Fixed and the Variable components Variabl e: = = $ at High activity .000 = a + ($47.200 = $47. Month.$ at Low activity High activity .000 = a + ($47.000 4 . 2012 might be.000 March 12.000 a = $313. UNITS OVERHEAD MONTH PRODUCED COSTS May 7.119.50 per unit Fixed : O R Using the Low volume.000 Using the High volume.400 $ 835.000 .

00 0 5 Estimated Overhead Estimated Labour Cost Estimated Machine Hours .050.180) as the activity level. In a normal job-order costing system. 1. Y = $313.000 overhead Direct labour hours 6.000 8.000 Manufacturing $60.000 Machine hours 2.050 Because of the typo.Step 2: Predict overhead costs at the level of 15.00 200% and $5.50X Y = $313.050 Y = $1. I would also accept 12 x $1.00 50% and $5.000 $40.00 110% and $15. A $60.50 x 15. Raw Materials Manufacturing Overhead Work in Process Finished Goods The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs.000 A) B) C) D) 50% and $8.000 + $47. B $50.0 00 10.034.000 + ($47.000 10.00 0 $30. At the beginning of the year. The predetermined overhead rate is based on labour cost in Department A and on machine hours in Department B.034. the use of indirect materials would usually be recorded as a debit to which account? A) B) C) D) 2. the company made the following estimates: Department A Department B Direct labour cost $30.000 + $721. or using (12 x 15.180) Y = $313.00 Dept.000 $50. QUESTION 3 (8 marks) Circle the correct response.00 0 Dept.180 units.

00 D) $6.500 6 .70 C) $6.Dept. During March.000 Cost per shirt $5. what was the Cost of Goods Sold per shirt? A) $5. and Job ICU2 required 800 machine hours. Estimated Expense Category Costs Direct materials $ 800.00 0 $38.70 0 $4.000 Factory supervision $ 62.800 $20. The direct labour cost is $23.000 = 2 POHR . If Job ICU2 consisted of 7. The controller’s office has provided you with the following estimated costs for the upcoming year.Dept.000 were incurred on the job.000 = POHR .000 / $30. Manufacturing overhead was applied at the rate of $25 per machine hour. B $5 3.500 Selling expenses $ 210.50 B) $5. The company uses a job-order costing system.75 per hour.000 / 10.000 shirts. Lucy Sportswear manufactures a specialty line of T-shirts. QUESTION 4 (14 marks) Southwest Manufacturing uses job order costing to accumulate costs for billing purposes. A times or 200% $50.800 In addition.50 Note: Selling & shipping costs are NOT included in the product cost.700 $ 4. the following costs were incurred on Job ICU2: Direct materials: Direct labour: $13.50 0 Total job costs Total # shirts produced 7. selling and shipping costs of $7.50 Direct materials Direct labour Applied overhead 800 machine hours x $25 $13. It applies overhead to its jobs using a pre-determined overhead rate based on direct labour hours.$60.

Indirect materials Utilities for factory Administrative expenses Depreciation factory building and equipment Depreciation administrative offices and equipment Other miscellaneous factory costs Direct labour Required: (a) $ $ $ $ $ $ $ 45.000 of direct materials and 480 direct labour hours were charged to the job. Show your work.000 39.75 labour hour = = * Estimated Factory Overhead Factory supervision Indirect materials Utilities for factory Depreciatiopn factory building & equipment Other miscellaneous factory costs $62.0 00 $88.000 100.000 hours (b) The job cost sheet for Job Y236 indicated that $18. What was the total cost of Job Y236? Costs of Job Y236 Direct $18.000 = $23.5 00 $100.000 60. POHR = Total Estimated Overhead Cost * Total Estimated Direct Labour Hours ** $335.75 direct labour = 20. 000 $39.000 Calculate the predetermined overhead rate that Southwest Manufacturing will use to apply overhead to its jobs.000 7 .000 88. 000 ** Estimated Direct Labour Hours Estimated Direct Labour Cost = Cost per hour of Direct Labour $475.500 300.0 00 $335.000 per direct $16.000 475.5 00 $45.000 20.

000 $66.400 23. 2010 Beginning $14. The overhead costs which were applied during 2010 totalled $298.000 187. Administrative costs Direct labour Direct material purchases Indirect labour Indirect materials Other factory overhead Selling costs $ $ $ $ $ $ $ 311.000 94.600.000 16.500 8 . Abbott Manufacturing has also provided you with the following information of its actual costs for the year ended December 31.500 $47.300 $72.00 $8.600 217.800 160.200 Ending $16.000 160.040.000 Direct Materials Raw materials inventory. Abbott Manufacturing Cost of Goods Manufactured for the year ended December 31. 2010.400 .00 $11.75 POHR .000 174. ending 14.000 178. beginning Add: Purchases Raw materials available for use Less: Raw materials inventory.440 . 00 $37. 2010 for Abbott Manufacturing.materials Direct labour 480 hours x $23.900 Additional information regarding the inventory balances is as follows: Inventory Raw materials Work in progress Finished goods Required: (a) Prepare a Statement of Cost of Goods Manufactured for the year ended December 31.00 Total Job Costs QUESTION 5 (26 marks) Abbott Manufacturing uses a job order costing system and applies overhead on the basis of machine hours.75 Applied overhead 480 DL hours x $16.000 $51.

000 724.300 677.600 NOTE: if you subtracted Indirect Materials from the Raw Materials to get Direct Materials used.800 298.900 51.500 217.600 673.900 47. 9 . but the simper one (assuming the inventory was only direct materials) is presented here.Raw materials used Direct Labour Applied Overhead Total Manufacturing Costs Add: Work in progress inventory. beginning Less: Work in progress inventory. I accepted that. ending COST of GOODS MANUFACTURED 157. That is the more technical solution.

000 304.000 94.400 187.400 298. beginning Add: Cost of Goods Manufactured Cost of goods available for sale Less: Finished goods inventory.600 743. Abbott Manufacturing Cost of Goods Sold for the year ended December 31.600 23. 2010 for Abbott Manufacturing.200 677.800 10 .800 677. 2010 Finished goods inventory.800 72.000 671. ending Unadjusted Cost of Goods Sold ADD: UNDER applied Overhead ADJUSTED COST OF GOODS SOLD Actual Overhead: Indirect materials Indirect labour Other factory overhead Total ACTUAL Overhead APPLIED Overhead UNDER APPLIED Overhead 66.(b) Prepare a Statement of Cost of Goods Sold for the year ended December 31.800 5.600 5. Assume that any over or under applied overhead is shown separately as an adjustment to the cost of goods sold.

800 589.000 Administrative (40% x $180.000) 72.000 NOTE: CofGS is a variable expense. The administrative expenses are 40% variable. 2011 Sales 850.00 0 139.000 Selling (80% x $139. Horngren Manufacturing Income Statement for the year ended March 31. also there is no such thing as a gross margin when using this format.000 41. Horngren Manufacturing Income Statement for the year ended March 31.000 Horngren has advised you that both the administrative and selling expenses are mixed costs. but the selling costs are only 20% variable.000 Selling (20% x $139.000) 27.200 Fixed Expenses Administrative (60% x $180.000 Variable Expenses Cost of goods sold 490.200 Net Income 41. 11 .00 0 850.000) 108.800 Contribution Margin 260.000) 111. 2011 Sales Cost of Goods Sold Gross Margin Operating Expenses Administrative Selling Net Income 180. Required: Prepare a Contribution Margin format Income Statement for Horngren for the year ended March 31.200 219.000 360.QUESTION 6 (12 marks) Horngren Manufacturing has asked you to reformat their traditional income statement into a Contribution Margin format Income Statement.000 490.000 319. 2011.

000 10.900.000 $500.000 + $700.000 2.400.000 $700.000 Total Manufacturing Costs = DM + DL + Applied OH TMC = $800.000 400.QUESTION 7 (12 marks) Fill in the blanks in each of the independent questions below.000 TMC = $2.000 $186.WIP(e) CofGM 2. beginning Work in Progress.000 12. Show your work.00 0 $400.000 TMC + WIP(b) .400.000 500.000 POHR = Estimated Overhead 12 .000 $180. ending Direct Materials used in Production $900.000 $2. (a) Applied Overhead Direct Labour Cost of Goods Manufactured Work in Progress.500.000 + $900.000 (b) Estimated manufacturing overhead Estimated direct labour hours Actual manufacturing overhead Actual direct labour hours Applied Overhead (based on direct labour hours) $150.000 2.000 $800.500.

600 $801.350 $804.000 10.000 = $180.350 Over or Under applied overhead Differen or Under applied (fill in Is it Over ce O or U) 750 $800.600 overhead Applied 80 1.000 (c) Actual manufacturing overhead COMPARE: Applied manufacturing overhead Actual 80 Estimated manufacturing 0.= = Estimated direct labour hours $ 150.000 $ 15.00 / dlh Applied Overhead = POHR x actual DLH = $15 x 12.900 $750 OVER OVER because the applied was more than the actual 13 .

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