Cost Accumulation Comp PDF

COST ACC UMULATION & CONTROL COMPREHENSIVE EXAM
QUESTION BANK
Name: __________________________ Date: _____________
1. Baar 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:
Beginning Balance Ending Balance

Raw materials................................. $26,000 $20,000
Work in process ............................. $71,000 $53,000
Finished goods ............................... $66,000 $81,000
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 44,000 machine-
hours and incur $176,000 in manufacturing overhead cost. The following transactions were
recorded for the year:
• Raw materials were purchased, $459,000.
• Raw materials were requisitioned for use in production, $465,000 ($431,000 direct and
$34,000 indirect).
• The following employee costs were incurred: direct labor, $296,000; indirect labor, $63,000;
and administrative salaries, $157,000.
• Selling costs, $134,000.
• Factory utility costs, $14,000.
• Depreciation for the year was $119,000 of which $114,000 is related to factory operations
and $5,000 is related to selling and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was
47,000 machine-hours.
• Sales for the year totaled $1,287,000
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead under- or overapplied? By how much?
c. Prepare an income statement for the year in good form. The company closes any under- or
overapplied overhead to Cost of Goods Sold.
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QUESTION BANK
2. The Simkins Company uses a job order costing system. The following activities took
place during the month of May:
a. Raw materials purchased, $40,000.

b. Raw materials (all direct) used in production, $35,000.
c. Salaries and wages cost incurred:
Direct labor cost, $60,000.
Indirect labor cost, $30,000.
Sales salaries $25,000.
d. Factory utility costs incurred, $15,000.
e. Depreciation on factory equipment, $50,000.
f. Advertising expense incurred, $80,000.
g. Manufacturing overhead is applied at the predetermined rate of 150% of
direct labor cost.
h. Cost of Goods Manufactured for the month, $180,000.
i. Cost of Goods Sold for the month, $150,000.
Required:
Prepare journal entries to record the information given above. Key your entries by the letters a
through i.
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QUESTION BANK
3. Hacken Company has a job-order costing system. The company applies manufacturing
overhead to jobs using a predetermined overhead rate based on direct labor cost. The information
below has been taken from the cost records of Hacken Company for the past year:
Direct materials used in production ..................................................... $1,250

Total manufacturing costs charged to production during the year
(includes direct materials, direct labor, and applied factory
overhead) .......................................................................................... $6,050
Manufacturing overhead applied.......................................................... $2,800
Selling and administrative expenses .................................................... $1,000
Inventories:
Direct materials, January 1................................................................ $130
Direct materials, December 31.......................................................... $80
Work in process, January 1 ............................................................... $250
Work in process, December 31 ......................................................... $400
Finished goods, January 1................................................................. $300
Finished goods, December 31........................................................... $200
Required:
a. Compute the cost of direct materials purchased during the year.

b. Compute the predetermined overhead rate that was used during the past year.
c. Compute the Cost of Goods Manufactured for the past year.
d. Compute the Cost of Goods Sold for the past year.
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QUESTION BANK
4. nchor Inc. uses the weighted-average method in its process costing system. The following
data concern the operations of the company's first processing department for a recent month.
Work in process, beginning:

Units in process........................................................... 800
Stage of completion with respect to materials ............ 60%
Stage of completion with respect to conversion ......... 10%
Costs in the beginning inventory:
Materials cost........................................................... $1,296
Conversion cost........................................................ $2,416
Units started into production during the month ............. 16,000

Units completed and transferred out .............................. 16,500
Costs added to production during the month:

Materials cost .............................................................. $47,076
Conversion cost........................................................... $497,213
Work in process, ending:

Units in process........................................................... 300
Stage of completion with respect to materials ............ 60%
Stage of completion with respect to conversion ......... 70%
Required:
Prepare a production report for the department using the weighted-average method.
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QUESTION BANK
5. Dachuna Inc. uses the FIFO method in its process costing system. The following data
concern the operations of the company's first processing department for a recent month.
Work in process, beginning:

Units in process................................................................ 500
Stage of completion with respect to materials ................. 60%
Stage of completion with respect to conversion .............. 70%
Costs in the beginning inventory:
Materials cost................................................................ $1,020
Conversion cost............................................................. $8,925
Units started into production during the month .................. 10,000
Units completed and transferred out ................................... 9,600
Costs added to production during the month:
Materials cost ................................................................... $31,488
Conversion cost................................................................ $259,548
Units in process................................................................ 900
Stage of completion with respect to materials ................. 60%
Stage of completion with respect to conversion .............. 90%
Required:
Prepare a production report for the department using the FIFO method.
6. Rapid Delivery, Inc., operates a parcel delivery service across the nation. The company
keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven
150,000 miles per year the average operating cost is 10 cents per mile. This cost increases to 11
cents per mile if a truck is driven only 100,000 miles per year.
Assume that all of the activity levels mentioned in this problem are within the relevant range.
Required:
a. Using the high-low method, derive the cost formula for truck operating costs.
b. Using the cost formula you derived above, what total cost would you expect the company to
incur in connection with the truck if it is driven 130,000 miles in a year?
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QUESTION BANK
7. Arlo's T-shirt Shop only has three costs: T-shirt cost, rent cost on the shop, and utilities
cost. Arlo's sells the T-shirt for $14.50 each. Management has prepared the following estimated
cost information for next month:
At 8,000 At 10,000
T-shirts T-shirts
T-shirt cost ......................... $48,000 $60,000
Rent cost............................. $3,600 $3,600
Utilities cost ....................... $6,800 $8,300
Assume that all of the activity levels mentioned in this problem are within the relevant range.
Required:
a. Calculate what Arlo's should expect for total variable cost if 9,000 T-shirts are sold next
month.
b. Prepare Arlo's contribution approach income statement for a monthly sales volume level of
10,000 T-shirts.
8. Baker Company has a product that sells for $20 per unit. The variable expenses are $12
per unit, and fixed expenses total $30,000 per year.
Required:
a. What is the total contribution margin at the break-even point?
b. What is the contribution margin ratio for the product?
c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would
net operating income be expected to increase?
d. The marketing manager wants to increase advertising by $6,000 per year. How many
additional units would have to be sold to increase overall net operating income by $2,000?
Page 6
QUESTION BANK
9. Zoran Corporation manufactures and sells a single product; cordless telephones. Zoran is
considering upgrading its current manufacturing facilities with more modern equipment.
Relevant cost data under the current facility and the upgraded facility is provided below:
Current Upgraded
Manufacturing costs:
Direct materials cost per unit ................. $20.00 $20.00
Direct labor cost per unit........................ $18.00 $10.00
Variable overhead cost per unit ............. $34.00 $24.00
Fixed overhead cost in total ................... $43,000 $160,000
Selling and administrative expenses:
Variable expense per unit ....................... $5.00 $5.00
Fixed expense in total ............................ $12,000 $12,000
Under either system, Zoran will sell the cordless phones for $125 per phone.
Required:
a. What is the break-even point (in number of phones) of each option?
b. At what level of sales (in number of phones) will it start being more profitable for Zoran to
have the upgraded facilities?
Page 7
QUESTION BANK
10. Legaz Company, which has only one product, has provided the following data concerning
its most recent month of operations:
Selling price .......................................................... $120
Units in beginning inventory................................. 100

Units produced ...................................................... 3,900
Units sold .............................................................. 3,600
Units in ending inventory...................................... 400
Variable costs per unit:

Direct materials .................................................. $31
Direct labor ........................................................ $54
Variable manufacturing overhead ...................... $5
Variable selling and administrative ................... $8
Fixed costs:
Fixed manufacturing overhead........................... $54,600
Fixed selling and administrative ........................ $21,600
The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.
Required:
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare an income statement for the month using the contribution format and the variable
costing method.
d. Prepare an income statement for the month using the absorption costing method.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.
Page 8
QUESTION BANK
11. Magnani Company, which has only one product, has provided the following data
concerning its most recent month of operations:
Selling price .......................................................... $97
Units in beginning inventory................................. 0

Units produced ...................................................... 6,600
Units sold .............................................................. 6,200
Units in ending inventory...................................... 400
Variable costs per unit:

Direct materials .................................................. $40
Direct labor ........................................................ $10
Variable manufacturing overhead ...................... $4
Variable selling and administrative ................... $9
Fixed costs:
Fixed manufacturing overhead........................... $184,800
Fixed selling and administrative ........................ $12,400
Required:
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare an income statement for the month using the contribution format and the variable
costing method.
d. Prepare an income statement for the month using the absorption costing method.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.
Page 9
QUESTION BANK
12. The Fraley Company, a merchandising firm, has planned the following sales for the next
four months:
March April May June

Total budgeted sales .......... $50,000 $70,000 $90,000 $60,000
Sales are made 40% for cash and 60% on account. From experience, the company
has learned that a month’s sales on account are collected according to the following
pattern:
Month of sale ........................................................ 70%

First month following month of sale..................... 20%
Second month following month of sale ................ 8%
Uncollectible ......................................................... 2%
The company requires a minimum cash balance of $4,000 to start a month.
Required:
a. Compute the budgeted cash receipts for June.
b. Assume the following budgeted data for June:
Purchases..................................................... $52,000
Selling and administrative expenses ........... $10,000
Depreciation ................................................ $8,000
Equipment purchases................................... $15,000
Cash balance, beginning of June ................. $6,000
Using this data, along with your answer to part (1) above, prepare a cash budget in good form
for June. Clearly show any borrowing needed during the month. The company can borrow in
any dollar amount, but will not pay any interest until the following month.
13. The standards for product K17 call for 5.0 meters of a raw material that costs $19.10 per
meter. Last month, 2,700 meters of the raw material were purchased for $51,435. The actual
output of the month was 460 units of product K17. A total of 2,500 meters of the raw material
were used to produce this output.
Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
Page 10
QUESTION BANK
14. The following direct labor standards have been established for product N30A:
Standard direct labor-hours................ 3.3 hours per unit of N30A

Standard direct labor wage rate.......... $10.50 per hour
The following data pertain to the most recent month’s operations during which
400 units of product N30A were made:
Actual direct labor-hours worked ........ 1,100

Actual direct labor wages paid............. $11,385
Required:
a. What was the labor rate variance for the month?
b. What was the labor efficiency variance for the month?
c. Prepare a journal entry to record direct labor costs during the month, including the direct labor
variances.
15. Deschamp Corporation's variable manufacturing overhead is applied on the basis of

direct labor-hours. The company has established the following variable manufacturing overhead
standards for product O28H:
Standard direct labor-hours..................................... 2.5 hours per unit of O28H

Standard variable manufacturing overhead rate ..... $7.70 per hour
The following data pertain to the most recent month’s operations during which
2,160 units of product O28H were made:
Actual direct labor-hours worked ................................... 5,200

Actual variable manufacturing overhead incurred.......... $44,980
Required:
a. What was the variable overhead spending variance for the month?
b. What was the variable overhead efficiency variance for the month?
16. During the most recent month at Luinstra Corporation, queue time was 4.5 days,
inspection time was 0.8 day, process time was 1.9 days, wait time was 5.1 days, and move time
was 0.7 day.
Required:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
Page 11
QUESTION BANK
17. Layt Clock Company has developed the following flexible budget for its overhead costs.
Manufacturing overhead at Layt is applied to production on the basis of standard machine-hours:
Machine Hours
21,600 24,000 26,400
Clocks produced................... 18,000 20,000 22,000
Variable overhead cost ......... $127,440 $141,600 $155,760
Fixed overhead cost ............. $171,072 $171,072 $171,072
Layt was expecting to produce 22,000 clocks last year. The actual results for the
year were as follows:
Number of clocks produced .......... 21,500

Machine-hours incurred ................ 24,940
Variable overhead cost .................. $145,899
Fixed overhead cost ...................... $170,540
Required:
Compute all four manufacturing overhead variances for Layt.
18. Iden Company makes two products from a common input. Joint processing costs up to
the split-off point total $64,800 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
Product X Product Y Total

Allocated joint processing costs............ $32,400 $32,400 $64,800
Sales value at split-off point.................. $36,000 $36,000 $72,000
Costs of further processing.................... $20,300 $14,300 $34,600
Sales value after further processing ...... $55,400 $53,000 $108,400
Required:
a. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-
off point?
b. What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-
off point?
c. What is the minimum amount the company should accept for Product X if it is to be sold at the
split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at
the split-off point?
Page 12
QUESTION BANK
19. Adamyan Co. manufactures and sells medals for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 15,000 medals each month; current monthly
production is 12,750 medals. The company normally charges $120 per medal. Cost data for the
current level of production are shown below:
Variable costs:
Direct materials ...................................... $624,750
Direct labor ............................................ $306,000
Selling and administrative...................... $15,300
Fixed costs:
Manufacturing........................................ $506,175
Selling and administrative...................... $123,675
The company has just received a special one-time order for 700 medals at $83 each. For this
particular order, no variable selling and administrative costs would be incurred. This order would
also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
Page 13
QUESTION BANK
20. Aladili Company is a manufacturing firm that uses job-order costing. At the beginning of
the year, the company's inventory balances were as follows:
Raw materials................................ $36,000

Work in process ............................ $41,000
Finished goods .............................. $104,000
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 21,000 machine-
hours and incur $210,000 in manufacturing overhead cost. The following transactions were
recorded for the year:
a. Raw materials were purchased, $346,000.
b. Raw materials were requisitioned for use in production, $338,000 ($302,000 direct and
$36,000 indirect).
c. The following employee costs were incurred: direct labor, $360,000; indirect labor, $68,000;
and administrative salaries, $111,000.
d. Selling costs, $153,000.
e. Factory utility costs, $29,000.
f. Depreciation for the year was $102,000 of which $93,000 is related to factory operations and
$9,000 is related to selling and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was
19,000 machine-hours.
h. The cost of goods manufactured for the year was $870,000.
i. Sales for the year totaled $1,221,000 and the costs on the job cost sheets of the goods that were
sold totaled $855,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a. through j.). You can assume
that all transactions with employees, customers, and suppliers were conducted in cash.
Use the following to answer questions 21-24:
Marrell is employed on the assembly line of a manufacturing company where she assembles a
component part for one of the company's products. She is paid $16 per hour for regular time and
time and a half for all work in excess of 40 hours per week.
Page 14
QUESTION BANK
21. Marrell works 45 hours during a week in which there was no idle time. The allocation of
Marrell's wages for the week as between direct labor cost and manufacturing overhead cost
would be:
Manufacturing
Direct Labor Overhead
A) $760 $0
B) $720 $40
C) $640 $80
D) $610 $40
A) Item A
B) Item B
C) Item C
D) Item D
22. Marrell works 50 hours in a given week but is idle for 4 hours during the week due to
equipment breakdowns. The allocation of Marrell's wages for the week as between direct labor
cost and manufacturing overhead cost would be:
Manufacturing
A) $816 $64
B) $800 $80
C) $736 $144
D) $640 $160
A) Item A
B) Item B
C) Item C
D) Item D
Page 15
QUESTION BANK
23. Marrell's employer offers fringe benefits that cost the company $4 for each hour of
employee time (either regular or overtime). During a given week, Marrell works 48 hours but is
idle for 3 hours due to material shortages. The company treats all fringe benefits as part of
manufacturing overhead. The allocation of Marrell's wages for the week between the direct labor
cost and manufacturing overhead would be:
Manufacturing
A) $960 $64
B) $768 $256
C) $720 $304
D) $640 $320
A) Item A
B) Item B
C) Item C
D) Item D
24. Marrell's employer offers fringe benefits that cost the company $4 for each hour of
employee time (either regular or overtime). During a given week, Marrell works 48 hours but is
idle for 3 hours due to material shortages. The company treats all fringe benefits relating to direct
labor as added direct labor cost. The allocation of Marrell's wages for the week between direct
labor cost and manufacturing overhead would be:
Manufacturing
A) $832 $128
B) $900 $124
C) $912 $112
D) $960 $64
A) Item A
B) Item B
C) Item C
D) Item D
Page 16
QUESTION BANK
Answer Key
Page 17
QUESTION BANK
1.
a. Schedule of cost of goods manufactured
Estimated total manufacturing overhead (a)................... $176,000

Estimated total machine-hours (b) ................................. 44,000
Predetermined overhead rate (a) ÷ (b)............................ $4.00
Actual total machine-hours (a) ....................................... 47,000

Predetermined overhead rate (b) .................................... $4.00
Overhead applied (a) × (b) ............................................. $188,000
Direct materials:
Raw materials inventory, beginning............................ $ 26,000
Add: purchases of raw materials ................................. 459,000
Total raw materials available ...................................... 485,000
Deduct: raw materials inventory, ending .................... 20,000
Raw materials used in production .................................. 465,000
Less: indirect materials................................................... 34,000
Direct materials .............................................................. 431,000
Direct labor..................................................................... 296,000
Manufacturing overhead applied.................................... 188,000
Total manufacturing costs .............................................. 915,000
Add: Beginning work in process inventory.................... 71,000
986,000
Deduct: Ending work in process inventory .................... 53,000
Cost of goods manufactured........................................... $933,000
b. Overhead under- or overapplied

Actual manufacturing overhead cost incurred:
Indirect materials......................................................... $ 34,000
Indirect labor ............................................................... 63,000
Factory utilities............................................................ 14,000
Factory depreciation.................................................... 114,000
Manufacturing overhead cost incurred........................... 225,000
Manufacturing overhead applied.................................... 188,000
Underapplied overhead................................................... $ 37,000
c. Income Statement
Beginning finished goods inventory............................... $ 66,000

Cost of goods manufactured........................................... 933,000
Goods available for sale ................................................. 999,000
Ending finished goods inventory.................................... 81,000
Unadjusted cost of goods sold........................................ 918,000
Add: underapplied overhead .......................................... 37,000
Adjusted cost of goods sold............................................ $955,000
2.
Page 18
QUESTION BANK
a. Raw materials inventory........................... 40,000
Accounts payable ............................... 40,000
b. Work in process ........................................ 35,000
Raw materials inventory..................... 35,000
c. Work in process ........................................ 60,000
Manufacturing overhead........................... 30,000
Sales salaries expense............................... 25,000
Wages and salaries payable ................ 115,000
d. Manufacturing overhead........................... 15,000
e. Manufacturing overhead........................... 50,000
Accumulated depreciation.................. 50,000
f. Advertising expense ................................. 80,000
g. Work in process ........................................ 90,000
Manufacturing overhead .................... 90,000
$60,000 × 150% = $90,000
h. Finished goods.......................................... 180,000
Work in process.................................. 180,000
i. Cost of goods sold .................................... 150,000
Finished goods ................................... 150,000
3.
a. Cost of raw materials used in production........................................ $1,250
Less decrease in the raw materials inventory during the year
($130 - $80 = $50) ....................................................................... 50
Cost of raw materials purchased during the year ............................ $1,200
b. Total manufacturing costs ............................................................... $6,050

Less: Direct materials used in production ....................................... 1,250
Less: Manufacturing overhead applied ........................................... 2,800
Direct labor cost incurred ................................................................ $2,000
Predetermined overhead rate = Manufacturing overhead cost ÷ Direct labor

cost = $2,800 ÷ $2,000 =140% of direct labor cost
c. Total manufacturing costs ............................................................... $6,050

Add: Work in process inventory, January 1 .................................... 250
6,300
Deduct: Work in process inventory, December 31 ......................... 400
Cost of goods manufactured............................................................ $5,900
d. Finished goods inventory, January 1 ............................................... $ 300

Add: Cost of goods manufactured................................................... 5,900
Cost of goods available for sale ...................................................... 6,200
Deduct: Finished goods inventory, December 31 ........................... 200
Cost of goods sold ........................................................................... $6,000
4.
Page 19
QUESTION BANK
Quantity schedule and equivalent units
Quantity
Schedule
Units to be accounted for:
Work in process, beginning ............ 800
Started into production.................... 16,000
Total units accounted for.................... 16,800
Equivalent Units
Materials Conversion
Units accounted for as follows:
Transferred to next department ....... 16,500 16,500 16,500
Work in process, ending ................. 300 180 210
Total units .......................................... 16,800 16,680 16,710
Costs per equivalent unit

Total Cost Materials Conversion
Cost to be accounted for:
Work in process, beginning ............ $ 3,712 $ 1,296 $ 2,416
Cost added during the month .......... 544,289 47,076 497,213
Total cost (a) ...................................... $548,001 $48,372 $499,629
Equivalent units (above) (b)............... 16,680 16,710

Cost per EU, (a) ÷ (b)......................... $2.900 $29.900
Cost per whole unit $32.800
Cost reconciliation
Total Equivalent Units
Cost Materials Conversion
Cost accounted for as follows:
Transferred out ................................ $541,200 16,500 16,500
Materials ...................................... 522 180
Conversion ................................... 6,279 210
Total work in process, ending ......... 6,801
Total cost ............................................ $548,001
5.
Page 20
QUESTION BANK
Quantity Schedule and Equivalent Units
Quantity
Schedule
Units to be accounted for:
Work in process, beginning ................. 500
Started into production......................... 10,000
Total units to be accounted for ................ 10,500
Equivalent Units
Materials Conversion
Units accounted for as follows:
Transferred out:
From the beginning inventory........... 500 200 150
Started and completed....................... 9,100 9,100 9,100
Work in process, ending ...................... 900 540 810
Total units accounted for......................... 10,500 9,840 10,060
Costs per Equivalent Unit

Total
Cost to be accounted for:
Work in process, beginning ................. $ 9,945
Cost added during the month (a).......... 291,036 $31,488 $259,548
Total cost to be accounted for ................. $300,981
Equivalent units (above) (b).................... 9,840 10,060
Cost per EU, (a) ÷ (b).............................. $3.200 $25.800
Cost per whole unit ................................. $29.000
Cost Reconciliation
Total Equivalent Units
Cost accounted for as follows:
Transferred out:
From the beginning inventory:
Cost in the beginning inventory..... $ 9,945
Cost to complete these units:
Materials ..................................... 640 200
Conversion.................................. 3,870 150
Total cost from beginning inventory. 14,455
Units started and completed.............. 263,900 9,100 9,100
Total cost transferred out ..................... 278,355
Materials ........................................... 1,728 540
Conversion ........................................ 20,898 810
Total work in process, ending .............. 22,626
Total cost accounted for .......................... $300,981
6.
Page 21
QUESTION BANK
a
Miles Cost
High level 150,000 (150,000 miles × $.10 =) $15,000
Low level 100,000 (100,000 miles × $.11 =) 11,000
Change 50,000 $ 4,000
$4,000 ÷ 50,000 miles = $0.08 per mile variable cost
Total cost at high level .................................................... $15,000

Less variable element: 150,000 miles × $0.08................ 12,000
Fixed element .................................................................. $ 3,000
Cost formula: $3,000 plus $0.08 per mile or

Y = $3,000 + $0.08X
b.
Variable cost: 130,000 miles × $0.08 per mile ............... $10,400
Fixed cost ........................................................................ 3,000
Total cost ......................................................................... $13,400
7.
a
T-shirt {[($60,000 - $48,000)/2,000] × 9,000} .................... $54,000
Utilities cost {[($8,300 - $6,800)/2,000] × 9,000} .............. $6,750
Total variable cost ................................................................ $60,750
b
Arlo’s T-Shirt Shop
Contribution Approach Income Statement
Monthly Sales Volume of 10,000 T-Shirts
Sales ($14.50 × 10,000) ................................... $145,000

Less variable expenses:
T-shirt cost .................................................... $60,000
Utilities cost ($0.75 × 10,000) ...................... 7,500 67,500
Contribution margin ......................................... 77,500
Less fixed expenses..........................................
Rent cost........................................................ 3,600
Utilities cost ($8,300 - $7,500) ..................... 800 4,400
Net operating income ....................................... $ 73,100
8. a. At the break-even, the total contribution margin equals total fixed expenses. Therefore,
the total contribution margin would be $30,000.
Page 22
QUESTION BANK
b. Contribution margin ratio =Unit contribution margin ÷ Selling price

= ($20 - $12) ÷ $20 = 40%
c. Increase in sales ...................................... $20,000

CM ratio.................................................. 40%
Increase in net operating income ............ $8,000
d. Increase in advertising expenses .................. $6,000

Desired increase in net operating income..... 2,000
Total required contribution margin .............. $8,000
÷ Contribution margin per unit..................... $8
Required unit sales ....................................... 1,000
9. a.
Current:
($43,000 + $12,000) ÷ ($125 – $20 – $18 – $34 – $5) = 1,146 phones (rounded)
Upgraded:
($160,000 + $12,000) ÷ ($125 – $20 – $10 – $24 – $5) = 2,606 phones (rounded)
b. CM per phone on current system: $125 – $20 – $18 – $34 – $5 = $48

CM per phone on upgraded system: $125 – $20 – $10 – $24 – $5 = $66
$48Q – $55,000 = $66Q – $172,000

$117,000 = $18Q
Q = 6,500 phones
Page 23
QUESTION BANK
10.
a. & b. Unit product costs
Variable costing:
Direct materials...................................... $31
Direct labor ............................................ 54
Variable manufacturing overhead .......... 5
Unit product cost.................................... $90
Absorption costing:
Direct materials...................................... $ 31
Direct labor ............................................ 54
Fixed manufacturing overhead............... 14
c. & d. Income statements
Variable costing income statement

Sales ............................................................. $432,000
Variable cost of goods sold:
Beginning inventory............................... $ 9,000
Add variable manufacturing costs ......... 351,000
Goods available for sale......................... 360,000
Less ending inventory............................ 36,000
Variable cost of goods sold ....................... 324,000
Variable selling and administrative .......... 28,800 352,800
Contribution margin ..................................... 79,200
Less fixed expenses:
Fixed manufacturing overhead.................. 54,600
Fixed selling and administrative ............... 21,600 76,200
Net operating income ................................... $ 3,000
Absorption costing income statement

Sales ............................................................. $432,000
Cost of goods sold:
Beginning inventory.................................. $ 10,400
Add cost of goods manufactured .............. 405,600
Goods available for sale............................ 416,000
Less ending inventory ............................... 41,600 374,400
Gross margin ................................................ 57,600
Less selling and administrative expenses:
Variable selling and administrative .......... 28,800
Net operating income ................................... $ 7,200
11.
Page 24
QUESTION BANK
a. & b. Unit product costs
Variable costing:
Direct labor ............................................ 10
Absorption costing:
Direct labor ............................................ 10
Fixed manufacturing overhead............... 28
c. & d. Income statements
Variable costing income statement

Sales ............................................................. $601,400
Variable cost of goods sold:
Beginning inventory............................... $ 0
Add variable manufacturing costs ......... 356,400
Goods available for sale......................... 356,400
Less ending inventory............................ 21,600
Variable cost of goods sold ....................... 334,800
Variable selling and administrative .......... 55,800 390,600
Contribution margin ..................................... 210,800
Less fixed expenses:
Fixed manufacturing overhead.................. 184,800
Net operating income ................................... $13,600
Absorption costing income statement

Sales ............................................................. $601,400
Cost of goods sold:
Beginning inventory.................................. $ 0
Add cost of goods manufactured .............. 541,200
Goods available for sale............................ 541,200
Less ending inventory ............................... 32,800 508,400
Gross margin ................................................ 93,000
Less selling and administrative expenses:
Variable selling and administrative .......... 55,800
Net operating income ................................... $24,800
12.
Page 25
QUESTION BANK
a. Cash sales, June: $60,000 × 40% ................ $24,000
Collections on account:
June: $60,000 × 60% × 70% .................... 25,200
May: $90,000 × 60% × 20% .................... 10,800
April: $70,000 × 60% × 8% ..................... 3,360
Total cash receipts ....................................... $63,360
b. Cash balance, beginning............................. $ 6,000

Add cash receipts from sales...................... 63,360
Total cash available .................................... 69,360
Less disbursements:
Purchases................................................. 52,000
Selling and administrative....................... 10,000
Equipment purchases .............................. 15,000
Total disbursements ................................... 77,000
Deficiency of cash...................................... (7,640)
Financing:
Borrowing ............................................... 11,640
Repayments............................................. 0
Interest..................................................... 0
Total financing ........................................... 11,640
Cash balance, ending.................................. $ 4,000
13. a. Materials price variance = (AQ × AP) – (AQ × SP)
= $51,435 – (2,700 × $19.10) = $135 F
b. Materials quantity variance = SP(AQ – SQ*)

= $19.10(2,500 – 2,300) = $3,820 U
*SQ = Standard quantity per unit × Actual output

= 5.0 × 460 = 2,300
14. a. Labor rate variance = (AH × AR) – (AH × SR)

= $11,385 – (1,100 × $10.50) = $165 F
b. Labor efficiency variance = SR(AH – SH*)

= $10.50 (1,100 – 1,320) = $2,310 F
*SH = Standard hours per unit × Actual output
= 3.3 × 400 = 1,320
Page 26
QUESTION BANK
c. Journal entries to record the direct labor costs:
Work In Process 13,860

Labor Rate Variance 165
Labor Efficiency Variance 2,310
Wages Payable (or Cash) 11,385
15. a. Variable overhead spending variance = (AH × AR) – (AH × SR)

= $44,980 – (5,200 × $7.70) = $4,940 U
b. Variable overhead efficiency variance = SR(AH – SH*)

= $7.70(5,200 – 5,400) = $1,540 F
*SH = Standard hours per unit × Actual output

= 2.5 × 2,160 = 5,400
16. a. Throughput time
= Process time + Inspection time + Move time + Queue time
= 1.9 days + 0.8 days + 0.7 days + 4.5 days = 7.9 days
b. MCE = Value-added time (Process time) ÷ Throughput time

= 1.9 days ÷ 7.9 days = 0.24
c. Percentage of time spent on non-value-added activities

= 100% – MCE% = 100% – 24% = 76%
d. Delivery cycle time = Wait time + Throughput time

= 5.1 days + 7.9 days = 13.0 days
17.
Page 27
QUESTION BANK
Variable Overhead Spending Variance = (AH × AR) - (AH × SR)
= $145,899 - [($155,760/26,400) × 24,940] = $1,247 F
Variable Overhead Efficiency Varianc e = (AH × SR) - (SH × SR)
= [24,940 × ($155,760/26,400)] - [21,500 × (26,400/22,000) ×
($155,760/26,400)] = $5,074 F
Fixed Overhead Budget Variance =
Actual fixed overhead cost - Budgeted fixed overhead cost
= $170,540 - $171,072 = $532F
Fixed Overhead Volume Variance =
Fixed portion of the predetermined overhead rate × (Denominator hours –
Standard hours allowed)
= $171,072 - [($171,072/26,400) × 21,500 × (26,400/22,000)] = $3,888 U
18.
a. & b.
Product X Product Y
Sales value after further processing .......... $55,400 $53,000
Costs of further processing........................ 20,300 14,300
Benefit of further processing..................... 35,100 38,700
Less: Sales value at split-off point ............ 36,000 36,000
Net advantage (disadvantage) ................... $ (900) $ 2,700
c. & d.
Minimum selling price at split-off .............. $35,100 $38,700
19. Only the direct materials and direct labor costs are relevant in this decision. To make the
decision, we must compute the average direct materials and direct labor cost per unit.
Direct materials ............................................................... $624,750
Direct labor...................................................................... 306,000
Total ................................................................................ $930,750
Current monthly production............................................ 12,750
Average direct materials and direct labor cost per unit... $73
Since price on the special order is $83 per medal and the relevant cost is only $73, the company
would earn a profit of $10 per medal. Therefore, the special order should be accepted.
Page 28
QUESTION BANK
20.
a. Raw Materials Inventory .................................... 346,000
Cash........................................................... 346,000
b. Work in Process Inventory ................................. 302,000
Manufacturing Overhead.................................... 36,000
Raw Materials Inventory........................... 338,000
c. Work in Process Inventory ................................. 360,000
Manufacturing Overhead.................................... 68,000
Administrative Salary Expense .......................... 111,000
Cash........................................................... 539,000
d. Selling Expenses................................................. 153,000
Cash........................................................... 153,000
e. Manufacturing Overhead.................................... 29,000
Cash........................................................... 29,000
f. Manufacturing Overhead.................................... 93,000
Depreciation Expense......................................... 9,000
Accumulated Depreciation........................ 102,000
g. Work in Process.................................................. 190,000
Manufacturing Overhead .......................... 190,000
h. Finished Goods................................................... 870,000
Work in Process ........................................ 870,000
i. Cash .................................................................... 1,221,000
Sales .......................................................... 1,221,000
Cost of Goods Sold............................................. 855,000
Finished Goods ......................................... 855,000
j. Cost of Goods Sold............................................. 36,000
Manufacturing Overhead .......................... 36,000
21. B
22. C
23. C
24. B
Page 29

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COST ACC UMULATION & CONTROL COMPREHENSIVE EXAM

Beginning Balance Ending Balance

a. Raw materials purchased, $40,000.

Direct materials used in production ..................................................... $1,250

a. Compute the cost of direct materials purchased during the year.

Work in process, beginning:

Units started into production during the month ............. 16,000

Costs added to production during the month:

Work in process, ending:

Work in process, beginning:

Selling price .......................................................... $120

Units in beginning inventory................................. 100

Variable costs per unit:

Selling price .......................................................... $97

Units in beginning inventory................................. 0

Variable costs per unit:

March April May June

Month of sale ........................................................ 70%

The company requires a minimum cash balance of $4,000 to start a month.

Standard direct labor-hours................ 3.3 hours per unit of N30A

Actual direct labor-hours worked ........ 1,100

15. Deschamp Corporation's variable manufacturing overhead is applied on the basis of

Standard direct labor-hours..................................... 2.5 hours per unit of O28H

Actual direct labor-hours worked ................................... 5,200

Number of clocks produced .......... 21,500

Compute all four manufacturing overhead variances for Layt.

Product X Product Y Total

Raw materials................................ $36,000

Use the following to answer questions 21-24:

Estimated total manufacturing overhead (a)................... $176,000

Actual total machine-hours (a) ....................................... 47,000

b. Overhead under- or overapplied

Beginning finished goods inventory............................... $ 66,000

b. Total manufacturing costs ............................................................... $6,050

Predetermined overhead rate = Manufacturing overhead cost ÷ Direct labor

c. Total manufacturing costs ............................................................... $6,050

d. Finished goods inventory, January 1 ............................................... $ 300

Costs per equivalent unit

Equivalent units (above) (b)............... 16,680 16,710

Costs per Equivalent Unit

$4,000 ÷ 50,000 miles = $0.08 per mile variable cost

Total cost at high level .................................................... $15,000

Cost formula: $3,000 plus $0.08 per mile or

Sales ($14.50 × 10,000) ................................... $145,000

b. Contribution margin ratio =Unit contribution margin ÷ Selling price

c. Increase in sales ...................................... $20,000

d. Increase in advertising expenses .................. $6,000

b. CM per phone on current system: $125 – $20 – $18 – $34 – $5 = $48

$48Q – $55,000 = $66Q – $172,000

c. & d. Income statements

Variable costing income statement

Absorption costing income statement

c. & d. Income statements

Variable costing income statement

Absorption costing income statement

b. Cash balance, beginning............................. $ 6,000

b. Materials quantity variance = SP(AQ – SQ*)

*SQ = Standard quantity per unit × Actual output

14. a. Labor rate variance = (AH × AR) – (AH × SR)

b. Labor efficiency variance = SR(AH – SH*)

c. Journal entries to record the direct labor costs:

Work In Process 13,860

15. a. Variable overhead spending variance = (AH × AR) – (AH × SR)