Page 1 ACG 2071 Managerial Accounting Spring 2018 Exam #4 Sample Review Problems This is an independent effort. Do your own work! The ACE tutors and the SI may not assist you on this sample exam prior to 4 PM on March 26. DUE DATE: Wednesday, March 14 = Problems 1 through 3. All remaining problems = Monday, March 26. DIRECTIONS: Print a hard copy of this sample exam. In the space provided for each problem, show all calculations in the space provided. If you have not completed the work in advance, you will run into two issues.1) You will not get much out of the concepts we go over these problems, and 2) you will only earn participation points if you have the correct answers. Problem 1. Trace Products applies manufacturing overhead based on direct labor cost. Information concerning manufacturing overhead and labor for May follows: Estimated direct labor 5,200 hours @ $13.50 Direct labor incurred 5,100 hours @ $13.00 Estimated manufacturing overhead $121,400 Actual manufacturing overhead $120,300 A. Show the calculation of the overhead rate using the traditional method. Display with 5 decimals. Write it here: $ per B. Post all amounts to the account in which you will find any over or underapplied amount at yearend. Label the account with the correct unabbreviated name. Calculate the account balance prior to disposition. write it in the correct location in the t-account, and circle it. Label the balance as over or underapplied. C. To what account will the amount circles in part B be closed/adjusted?
Page 2 Problem 2. Sweeperlux produces several models of sweepers and employs a normal costing system. It tracks all material costs in the materials storeroom. During June, its transactions and accounts included the following: Sales $385,000 Factory building depreciation $ 5,200 Direct labor cost incurred 27,200 Freight costs of materials acquired 4,000 Sales commissions 5,300 Raw materials, beginning 11,100 Product warranty costs 1,100 Raw materials, ending 7,200 Factory occupancy costs 11,600 Work in process, ending 12,800 Production supervisor s salary 5,100 Work in process, beginning 9,600 Factory equipment maintenance 4,300 Finished goods, beginning 13,400 Cost of materials purchased on account 73,700 Finished goods, ending 11,700 Manufacturing overhead applied 36,700 Product advertising costs 1,200 Paid on account for materials acquired 69,200 Production equipment rental cost 3,600 Product delivery costs to customers 2,700 Factory building property taxes 4,400 Indirect materials used in production 1,400 Selling costs 3,100 A. Show the calculation of the cost of direct materials transferred to production during June. Circle your answer. B. Show the calculation of the cost of goods manufactured for June. Circle your answer. B. Show the calculation of the total manufacturing costs for June.
Page 3 Problem 3. SparkCo produce fire pit starters and reported the following amounts for July: Work in process, July 1 $25,000 Finished goods, July 1 $22,800 Work in process, July 31 21,000 Finished goods, July 31 25,200 Raw materials, July 1 12,300 Cost of goods manufactured 243,000 Raw materials, July 31 14,800 Direct labor used 66,000 Direct materials used 106,000 Selling costs incurred 43,000 After recording all transactions, SparkCo determine it had an underapplied overhead balance of $1,200. SparkCo deems this amount to be immaterial. A. Circle the amounts that will be reported as product costs on SparkCo s balance sheet at the end of July. B. Name the specific section of a classified balance sheet in which the amounts you circled in part A will be reported. C. Show the calculation of cost of goods sold for the year. Circle your answer.
Page 4 Problem 4. Choco manufactures candy bars and uses a normal costing system. It allocates overhead based on direct labor cost. During July, Choco s records include the following balances and transactions: Factory maintenance $ 7,100 Raw materials, beginning $ 7,200 Administrative expenses 26,200 Corporate administrative expenses 41,100 Indirect materials transferred to production 1,800 Direct labor cost incurred 32,000 Freight costs of materials acquired 2,700 Product selling costs 1,200 Corporate utilities 6,400 Work in process, beginning 14,600 Paid on account for materials acquired 120,100 Product advertising costs 11,000 Total manufacturing overhead applied 54,200 Production supervisor s salary 23,600 Factory equipment depreciation 4,200 Product marketing costs 700 Work in process inventory, ending 14,500 Factory building depreciation 3,000 Factory janitor wages 1,900 Production equipment rental costs 2,500 Factory occupancy costs 9,400 Sales vehicle depreciation 3,200 Direct materials used in production 125,000 Finished goods, beginning 24,200 Finished goods, ending 19,600 Sales 331,000 Cost of materials purchased 127,200 Product delivery cost to customers 4,100 The company tracks both direct and indirect material costs in its Raw Materials account. Over and underapplied overhead are considered to be immaterial in amount. Post all applicable amounts to the account below, determine the ending balance prior to disposition, write the balance is the proper location of the t- account, and label as under or overapplied. Manufacturing Overhead
Page 5 Problem 5. Various manufacturing company transaction effects are listed below. Identify which account is affected for each transaction by PRINTING the uppercase letter of the correct account in the answer space. Answers with anything other than the given account letters will be counted incorrect. Accounts Transaction Effects Answer R - Raw Materials Inventory 1. Increases when indirect labor costs are incurred F - Finished Goods Inventory 2. Decreases when manufacturing overhead is applied W - Work in Process Inventory 3. Increases when direct materials are used in production M - Manufacturing Overhead 4. Increases when goods are completed O - Some other account 5. Decreases when goods are finished X - Does not exist under this method 6. Decreases when goods are sold 7. Increases when indirect labor costs are incurred 8. Increases when manufacturing overhead is applied 9. Increases when indirect materials are acquired 10. Increases when freight-in is incurred on materials 11. Increases when goods are sold Problem 6. 8 pts. 2-3 mins. Pave-It installs custom pavers for residences. During May, the employees worked 146 hours and 12 minutes on Job 41 at a rate of $15 per hour. An additional cost of $1.70 per labor hour is incurred for fringe benefits. Pave-It determined that the rate to apply overhead based on machine hours is $5.40, and the rate to apply production overhead based on direct labor hours is $06.65. During May, the materials clerk issued materials to job 41 consisting of $1,540 of direct materials and $35 of indirect materials. Actual machine hours for job 41 totaled 350. Pave-It uses direct labor cost as its activity to apply overhead. Show the calculation of the total cost of Job 41 assuming. Circle the total cost.
Page 6 Problem 7. Dead and Gone produces tombstones. It applies overhead at a rate of $0.60 based on direct labor cost. On April 1, two jobs were in process with total costs of $2,500 for job 61 and $800 for job 64, respectively. In addition, Job 62 was complete with a cost of $980 and awaiting shipment at April 1. During April, the following costs were incurred: Job 61 Job 63 Job 64 Job 65 Total Direct labor $650 $780 $460 $580 $2,470 Direct materials 240 470 830 540 2,080 During April, all jobs were completed except job 64. As of April 30, all completed jobs were shipped expect for job 63. A. Show the calculation of each of the WIP subsidiary account balances for ONLY the jobs that remain in WIP as of the end of April. Circle the total of each of these jobs and label by job number. Note: If you show more accounts, jobs, etc. than required, I will assume you are unsure of what the question is asking and you will lose points. (Erase extraneous work.) B. List the job numbers for which their costs will be included in the cost of goods sold account for April.
Page 7 Problem 8 Fricold produces custom refrigeration units. It applies overhead at a rate of $1.20 per direct labor dollar. At the start of 2017, two jobs were in process with total costs of $1,500 for job 85 and $2,800 for job 87, respectively. In addition, Job 84 was complete with a cost of $1,080 and awaiting shipment at January 1, 2017. During January, the following costs were incurred: Direct Labor Direct Materials Job 85 $650 $240 Job 86 740 970 Job 87 230 830 Job 88 610 540 Job 89 960 420 Total $3,190 $3,000 During January, all jobs were completed except job 87. At the end of January, all completed jobs were shipped expect for jobs 88 and 89. 1. Show the calculation of the total manufacturing costs added to the WIP control account during January. 2. Display a t-account for each job in the WIP subsidiary account balances for January. Post all respective amounts, determine the balances and write the balances in the proper locations. Circle the account balances for ONLY the jobs that remain in WIP as of the end of January 31.
Page 8 Problem 9 Evan Clocks has traditionally allocated manufacturing overhead on the basis of direct labor hours for its two products wall clocks and table clocks. The company recently sat up 3 activity centers to implement ABC. Information concerning this follows: Estimated Estimated Actual Actual Activity Activity Cost Cost Wall Clocks Table Clocks Estimated production 8,000 units 3,300 units 4,600 Direct labor 7,600 hours $110,200 $110,160 3,140 hours 4,510 hours Direct materials 10,460 yards 50,208 48,484 3,450 yards 7,090 yards Maintenance 4,200 machine hrs 52,500 51,600 900 machine hrs 3,180 machine hrs Quality control 450 inspections 20,520 21,000 260 inspections 220 inspections Materials handling 3,100 requisitions 16,120 16,600 1,250 requisitions 1,900 requisitions The company budgeted direct labor at a cost of $14.50 per labor hour and $4.80 per yard of material. Actual material cost per yard is $4.60, and actual labor cost per hour is $14.40. A. Show the calculation of the overhead rate using the traditional method. Display with 5 decimals and write it here----------------------- $ per. B. Show the calculation of the total product cost for wall clocks using the traditional method. Circle your answer. C. Show the calculation of the overhead cost for each wall clock using ABC. Circle your answer.
Page 9 Study Points Prior to exam 4, read through these questions and be sure you know the answers as they include the concepts that will be asked in short answer and objective questions on the exam. For any you are unsure, read the related section in the chapters and watch the related videos. Because these are study points to get you thinking and because the answer to each is located in the chapters assigned for reading or videos, I will not post the solutions. What are the three manufacturing costs and in which product costs will they appear on financial statements? What are the three costs of manufacturing overhead? What does the balance of each of the three inventory accounts represent? How are they reported on the financial statements? Which costs are included in these three accounts? How do inventories of manufacturing and merchandising companies differ? Why is overhead applied instead of using the actual costs? What occurs when overhead is applied? What types of costs are applied? (i.e., direct, indirect, or both?) How are costs assigned to jobs under normal and actual costing? Which cost differs between the two. Which is most appropriate for companies with multiple and those with a single product? Why? Which costs are traced to products and which are allocated? Why are they not all treated the same under normal costing? What accounts are affected by each of the merchandising inventory transactions? What is the nature of the amounts included in direct materials, direct labor, and MOH? What is a job cost sheet? What is an overhead allocation base and why do all companies not all use the same activity base? Why are estimated amounts used instead of actual to determine the predetermined overhead rate? Where do actual MOH, estimated MOH, and applied MOH appear in the accounts? Why might a balance appear in the MOH account at year end before adjustments? What happens to the balance in MOH at the end of the period? What impacts has information technology had on manufacturing? And how does this affect allocating overhead and why? How is a subsidiary ledger used in job costing? What are the two types of product costing systems and what examples of products fall into each? (i.,e., process and job order costing) For what purpose are material requisition forms, time tickets, and purchase orders used and what do they trigger in the accounting records for manufacturing companies? In which factory department does these occur? What is a 'job'? Where do period costs appear on the income statement? Product costs? How does matching differ for these two? What cost is treated differently under an actual versus a normal costing system? What costs are included as part of period costs? Why do selling, marketing, advertising, and G&A costs fall into this category? What do underapplied, and overapplied overhead mean/represent? What does cost of goods manufactured represent? In what accounts might you find this amount as an increase or decrease? What costs are part of total manufacturing costs? How does this differ from cost of goods manufactured? At what point in time is a predetermined overhead allocation rate calculated? Why? How does job order costing differ for service companies? What inventory system--periodic or perpetual--is used for product and job costing? What differences exist between accounting for merchandising and manufacturing companies? What account is used in a normal costing system, but not in an actual costing system? How do indirect materials issued to production impact the CGM calculation? What is a cost driver? What product costs appear on the income statement and where do they appear? At what point are manufacturing and non-manufacturing costs expensed? What concept guides this? What does the balance of CGS represent? CGM? WIP? RM? FG? When MOH is over or underapplied, and a balance remains in the MOH account, to what account is it closed, and why is it closed to this particular account? What costs go into materials for manufacturing companies? e.g. discounts, sales taxes, freight? (i.e., inventory chapter in financial accounting) How are indirect materials and indirect labor handled differently in actual and normal costing? What are prime and conversion costs? What is ABC, what is the traditional method, and for what purpose are they used?
Page 10 Which costs are allocated when the traditional method and ABC are used and to where are they allocated, examples of these types of costs Which costs--direct, indirect--are allocated and why they are allocated What are the management approaches/notions to allocation What is a cost object, cost driver, and a cost pool, how are they created, and how are they are used in cost allocation, which is determined first Be able to recognize which items are cost objects, cost drivers, and cost pools. Purpose of ABC and ABM and how they differ, and what are the goals of each Pros and cons of ABC Which of the 3 product costs differ when ABC is used instead of traditional, how are costs shifted when ABC is implemented Identify if a cost is over or undercosted, what causes overcosting, undercosting, what problems might result when over or undercosted. What type of costs are allocated under traditional? Under ABC? When is an activity base considered to be effective and why are volume-based bases considered ineffective? Identify problems associated with using traditional allocation and ABC How is ABC better than traditional? How does ABC alleviate over and under costing? What does a cause and effect relationship imply?