Part I: Workout questions

Question 1
Han plc is nine month old since established to manufacture different parts of a manual irrigation
pump. The company owners failed to maintain a formal accounting record for the nine months of
operation with the presumption that the volume of activity is small and can thus be effectively
administered by them. Lately, they have discovered the importance of maintaining an accounting
record. Assume that the firm hires you and your first duty is to prepare a six month income
statement covering the period from January 1, to June 30. The company management is capable
of supplying actual data on some items but the rest are estimates. You are given the following
actual data.
1 Sales for the first six month is Br.240, 000
2. Inventory January 1.
Direct material --------------- 12,000
Work in process -------------- 8,800
Finished goods ---------------28,500
3. The gross margin is fairly estimated at 40% of sales, and direct labor is estimated to be one
third of conversion cost and one fourth of prime cost.
4. The period cost is totally estimated at 54,000 and marketing cost is estimated to be 40%.
5. Physical count of all inventories made as of June 30 reveals the following.
Direct material --------------- 9,000
Work in process --------------7,500
Finished goods --------------52,000
Required
1. Calculate the cost of goods sold
2. Calculate the cost goods manufactured
3. Calculate the direct labor cost
4. Calculate the direct material cost
5. Calculate the direct MOH cost

Question2
Assume that Addis Ababa university press is wholly owned by the university and performs the
bulk of its work for other university department, which pay as though the press were an outside
business enterprise. The press also publishes and maintains a stock of books for general sale. A
job costing system is used to cost each job. There are two direct cost category (direct material
and direct labor) and one indirect cost pool ( MOH cost, allocated on the basis of direct labor
cost). During the year 2008, the following transactions occurred:
i. Raw materials of Br. 800,000 was purchased on account
 ii. Raw material of Br. 810,000 was used in the production of which Br.100,000 is
indirect material.
iii. Labor cost of Br. 2,200,000 was incurred of which Br. 900,000 is indirect labor.
iv. Actual MOH cost other than indirect material and indirect labor is Br.750,000
v. MOH is applied at a rate of 160% of direct labor cost.
vi. Cost of goods manufactured in the year is Br. 4,120,000
vii. Revenue from sale of finished goods is Br. 8,000,000 for which cost of goods sold is
Br. 4,020,000.All sales are on account.
Required:
a. Record the above transactions using controlling account
b. Calculate the under or over applied MOH cost
c. Close the under or over applied MOH cost to cost of goods sold

Question 3
Assume Bishoftu Furniture Company manufactures chair for different hotels. The total
manufacturing cost for January is as follows.
A. The company purchases materials (direct and indirect) on credit, $200,000
B. It uses direct materials, $150,000, and indirect materials, $80,000
C. Manufacturing payroll for February: direct labour, $80,000, and indirect labour,
$30,000, paid in cash.
D. Other manufacturing overhead costs incurred during February, $80,000, consisting of
supervision and engineering salaries, $60,000 (paid in cash); plant utilities, repairs, and
insurance, $20,000 (paid in cash); and plant depreciation, $20,000.
E. Allocation of manufacturing overhead to jobs, $180,000
F. Completion and transfer of individual jobs to finished goods, $340,800
G. Cost of goods sold, $430,000
H. Marketing costs for February, $80,000, and customer service costs for February,
$20,000 paid in cash.
I. Sales revenues, all on credit, $500,000
Instruction: Prepare a journal entry

Question 4
In January 2015, Dell Computers Company places another 1000 units of Laptops into
production. Because all units placed into production in December were completely assembled,
there is no beginning inventory of partially completed units in the assembly department on
January. Additionally Only 450 units are completed and transferred to the testing department.

Data for the assembly department for February 2012 are as follows:

Physical Units Direct Conversion

(Car Seats) Materials Costs
Work in process, January 2015 0 $1,250,000 $ 402,750
Started during January 2015 1000
Completed and transferred out during January 450
Work in process, ending inventory (January 31) 550
Degree of completion of ending work in process 100% 60%
 Total costs added during October 2012 $800,000 $300,000
Required: Perform the process costing by following the five steps of process costing system.

Question 5
Calculate the cost allocated using reciprocal method
Support departments Operating departments Total
Plant Information Machining Assembly
Maintenance Systems
Budgeted OH costs before Br. 600,000 Br. 116,000 Br. 400,000 Br. 200,000 Br. 1,316,000
any inter department cost
allocations
Support work furnished
By Plant Maintenance
Budgeted labor-hours – 1,600 2,400 4,000 8,000
Percentage – 20% 30% 50% 100%
By Information Systems
Budgeted computer time 200 – 1600 200 2000
Percentage 10% – 80% 10% 100%

Question 6
Calculate constant Gross profit percentage method for Sheno Lega Farmer’s cooperative,
using the information from the illustration on chapter 5

Question 7
A world-famous photographer of wild animals and nature, Sonja Rego sells framed prints of
select photographs over the Internet.
Regardless of the picture bought, she offers buyers a choice in framing: a plain black frame or a
fancy frame with a certificate of authenticity. Based on initial cost estimates, Sonja believes the
Deluxe frames to be more profit able than the Standard frames. However, her profits have
slipped every quarter even as the proportion of Deluxe frames sold has increased. She has asked
for your help in figuring out what she might be doing wrong. She provides the following data:

She further informs us that her total overhead is $390,000 per year
Required:
a. Calculate the profit per unit for the Deluxe and Standard prints, if Sonja allocates overhead
using labor hours as the allocation basis.
b. You find that only $156,000 of Sonja’s cost relates directly to labor. Of the remainder,
$136,500 corresponds to batch-level activities and $58,500 to product-level activities. She
runs separate batches (50 prints for Deluxe, 250 for Standard) for Deluxe and Standard
pictures. The product-level costs, she believes, are equally attributable to both product lines.
The remaining facility-level costs relate to the rent on her studio, hosting the Web site, and
other such business-sustaining actions. Prepare an income statement for Sonja, clearly
highlighting the allocation from each cost pool.
c. Based on the answers to parts (a) and (b), what insights could you offer to Sonja?