Mid Test 2014, questions PDF

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SCHOOL OF ACCOUNTING & FINANCE AF102: INTRODUCTION TO ACCOUNTING & FINANCIAL MANAGEMENT PART II MID-SEMESTER TEST – SEMESTER 2, 2014

Time Allowed 2 hours plus 10 minutes reading 80 marks (Weight: 20% of overall course grade) INSTRUCTIONS 1. This test has THREE (3) compulsory sections. SECTION QUESTION A MULTIPLE CHOICE – 30 Questions B PROBLEM SOLVING (2 Questions @ 25 marks each) TOTAL

MARKS 30 50 80

2. Answer all questions in the answer booklet provided. 3. Non-programmable calculators may be used, but are not provided.

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SECTION A

MULTIPLE CHOICE QUESTIONS

30 Marks

1. Kushman Combines, Inc. has $20,000 of ending finished goods inventory as of December 31, 2013. If beginning finished goods inventory was $10,000 and cost of goods sold was $50,000, how much would Kushman report for cost of goods manufactured? a. b. c. d.

$70,000 $10,000 $60,000 $40,000

2. Dolan Company's accounting records reflect the following inventories: Dec. 31, 2013 Dec. 31, 2012 Raw materials inventory $310,000 $260,000 Work in process inventory 300,000 160,000 Finished goods inventory 190,000 150,000 During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000. The total raw materials available for use during 2013 for Dolan Company is a. b. c. d.

$910,000. $460,000. $550,000. $860,000.

3.

Dolan Company's accounting records reflect the following inventories: Dec. 31, 2013 Dec. 31, 2012 Raw materials inventory $310,000 $260,000 Work in process inventory 300,000 160,000 Finished goods inventory 190,000 150,000 During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000. Dolan Company's total manufacturing costs incurred in 2013 amounted to a. b. c. d.

$1,530,000. $1,490,000. $1,390,000. $1,580,000.

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4. Dolan Company's accounting records reflect the following inventories: Dec. 31, 2013 Dec. 31, 2012 Raw materials inventory $310,000 $260,000 Work in process inventory 300,000 160,000 Finished goods inventory 190,000 150,000 During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000. If Dolan Company's cost of goods manufactured for 2013 amounted to $1,390,000, its cost of goods sold for the year is a. b. c. d.

$1,500,000. $1,250,000. $1,350,000. $1,430,000.

5. Sanborn Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year. Activity Cost Pool Ordering and Receiving Machine Setup Machining Assembly Inspection

Cost Driver Orders Setups Machine hours Parts Inspections

Est. Overhead $ 120,000 297,000 1,500,000 1,200,000 300,000

Cost Driver Activity 500 orders 450 setups 125,000 MH 1,000,000 parts 500 inspections

If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is a. $9.60. b. $12.00. c. $15.00. d. $34.17. 6. Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Assembly Inspections

Titanium Aluminum Total Cost 500 mach. hours 500 mach. hours $45,000 350 150 $75,000 2,100 labor hours 1,900 labor hours Sitwell is considering switching from one overhead rate based on labor hours to activitybased costing. Using activity-based costing, how much inspections cost is assigned to titanium racquets? a. $22,500. b. $35,625. c. $37,500. d. $52,500. 3

7. A well-designed activity-based costing system starts with a. identifying the activity-cost pools. b. computing the activity-based overhead rate. c. assigning overhead costs to products. d. analyzing the activities performed to manufacture a product. 8. One of Hartman Company's activity cost pools is inspecting, with estimated overhead of $140,000. Hartman produces throw rugs (700 inspections) and area rugs (1,300 inspections). How much of the inspecting cost pool should be assigned to throw rugs? a. $49,000. b. $70,000. c. $75,384. d. $140,000. 9. Use of activity-based costing will result in the development of a. one overhead rate based on direct labor hours. b. one plantwide activity-based overhead rate. c. multiple activity-based overhead rates. d. no overhead rates; overhead rates are not used in activity-based costing. 10. Wilder Company manufactures two models of its banjo, the Basic and the Luxury. The Basic model requires 10,000 direct labor hours and the Luxury requires 30,000 direct labor hours. The company produces 3,400 units of the Basic model and 600 units of the Luxury model each year. The company inspects one Basic for every 100 produced, and inspects one Luxury for every 10 produced. The company expects to incur $84,600 of total inspecting costs this year. How much of the inspecting costs should be allocated to the Basic model using ABC costing? a. $21,150 b. $30,600 c. $42,300 d. $71,910 11. Ben Gordon, Inc. manufactures 2 products, wheels and seats. The company has estimated its overhead in the assembling department to be $330,000. The company produces 300,000 wheels and 600,000 seats each year. Each wheel uses 2 parts, and each seat uses 3 parts. How much of the assembly overhead should be allocated to wheels? a. $ 82,500. b. $110,000. c. $132,000 d. $141,428.

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12. Clemson Co. incurs $700,000 of overhead costs each year in its three main departments, machining ($400,000), inspections ($200,000) and packing ($100,000). The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year. Information about Clemson’s two products is as follows: Product X 1,000 100 350 1,700

Machining hours Inspections Orders packed Direct labor hours

Product Y 3,000 500 650 1,800

Using ABC, how much overhead is assigned to Product X this year? a. $168,334 b. $242,308 c. $340,000 d. $350,000 13. Wallace Computer Company produces three products: Earth, Wind, and Fire. Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Wallace has identified an activity cost pool with allocated overhead of $720,000 for which the cost driver is machine setups. How much overhead is assigned to each product? a. b. c. d.

Earth $240,000 $150,000 $180,000 $135,000

Wind $240,000 $112,500 $135,000 $240,000

Fire $240,000 $337,500 $405,000 $345,000

14. An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: Unit Variable Cost Unit Fixed Cost a. Increases Decreases b. Remains constant Remains constant c. Decreases Remains constant d. Remains constant Decreases

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15. Portman Company's activity for the first three months of 2013 are as follows: Machine Hours

Electrical Cost

January

2,100

$3,600

February

2,600

$4,350

March

2,900

$4,800

Using the high-low method, how much is the cost per machine hour? a. $1.50 b. $2.25 c. $1.69 d. $1.34 16. Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $12 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio? a. 30% b. 40% c. 60% d. 70% 17. If a company had a contribution margin of $750,000 and a contribution margin ratio of 40%, total variable costs must have been a. $1,125,000. b. $450,000. c. $1,875,000. d. $300,000. 18. A company has contribution margin per unit of $90 and a contribution margin ratio of 40%. What is the unit selling price? a. $150 b. $225 c. $36 d. Cannot be determined. 19. Dunbar Manufacturing’s variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $44,000. If sales are expected to increase $80,000, by how much will the company's net income increase? a. $36,000 b. $56,000 c. $24,000 d. $12,000

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20. Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $90, and the total monthly fixed costs are $300,000. How much is Weatherspoon’s contribution margin ratio? a. 55% b. 45% c. 150% d. 222% 21. Armstrong Industries has a contribution margin of $300,000 and a contribution margin ratio of 30%. How much are total variable costs? a. $90,000 b. $700,000 c. $210,000 d. $1,000,000 22. The following information is available for Wade Corp.: Sales $550,000 Cost of goods sold 390,000

Total fixed expenses Total variable expenses

$150,000 360,000

A CVP income statement would report a. gross profit of $160,000. b. contribution margin of $400,000. c. gross profit of $190,000. d. contribution margin of $190,000. 23. O’Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement? a. $600,000. b. $700,000. c. $950,000. d. $1,050,000. 24. A company has total fixed costs of $200,000 and a contribution margin ratio of 20%. The total sales necessary to break even are a. $800,000. b. $1,000,000. c. $250,000. d. $240,000.

25. A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $180,000. The number of units the company must sell to break even is a. 90,000 units. b. 36,000 units. c. 360,000 units. d. 60,000 units.

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26. Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. What sales are needed by Cunningham to break even? a. $120,000. b. $225,000. c. $270,000. d. $360,000.

27. Pascal, Inc. is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Pascal will break even at this level of sales, what are the fixed costs? a. $240,000. b. $560,000. c. $800,000. d. $960,000.

28. Kaplan, Inc. produces flash drives for computers, which it sells for $20 each. The variable cost to make each flash drive is $13. During April, 700 drives were sold. Fixed costs for April were $2 per unit for a total of $1,400 for the month. How much is the monthly break-even level of sales in dollars for Kaplan? a. $200 b. $4,000 c. $14,000 d. $8,400 29. A company requires $1,360,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $240,000. What is the target net income? a. $408,000 b. $312,000 c. $560,000 d. $168,000 30. The following monthly data are available for Lumberyard Company which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $84,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June? a. $84,000 b. $42,000 c. $126,000 d. $1,000

~ Refer to Section B~ 8

SECTION B

PROBLEM SOLVING QUESTIONS

50 MARKS

QUESTION 31

JOB ORDER COSTING

25 MARKS

Lolo Productions Ltd uses a job order costing system to control costs in its two production departments. Factory overhead is applied on the basis of machine hours in the Construction Department and on the basis of direct labour cost in the Finishing Department. The company prepared the following estimates for its production. Machine hours Direct labour cost Direct labour hours Factory overhead

Construction Department 6,800 $240,000 13,000 $408,000

Finishing Department 7,125 $380,000 24,000 $570,000

The accounting records for Job 431 reveal the following:

Machine hours Direct labour cost Direct labour hours Direct materials

Construction Department 40 $1,640 90 $1,300

Finishing Department 50 $1,800 100 $1,420

Show all workings. Required: (a) Calculate the predetermined overhead rate for each department. (3 marks) (b)

Calculate the total cost of Job 431. (5 marks)

(c) If the actual direct labour cost in the Finishing Department was $375,800 and the actual factory overhead was $560,000, was the overhead overapplied or underapplied? (2 marks) (d)

This part (d) is independent of the above question. Prepare the general journal entries to record the following transactions: i. ii.

iii. iv. v. vi. vii.

Raw materials purchased, $342 000. Manufacturing overhead costs incurred were: Rates $52 000 Supplies $40 500 Insurance $48 000 Gas $76 800 Raw materials issued to the production process, $320 000 direct and $42,000 indirect. Factory payroll included $498 000 of direct labour and $96,000 of indirect labour. Manufacturing overhead is applied at 80% of direct labour cost. Jobs completed and transferred to finished goods at cost, $1 170 000. Jobs with a cost of $1 100 000 was sold for $1 375 000 cash. (15 marks) 9

QUESTION 32

PROCESS COSTING

25 MARKS

Bass Ltd produces a chemical used to clean showers in a single process in the Production Department. Raw materials in the form of chemicals are added at the beginning of the process, and a litre container is added at the end. The conversion costs (direct labour and factory overhead) are incurred uniformly throughout the process. The following cost and production data are available for the month of September 2014. Beginning work in process inventory: Units Cost of chemicals Cost of containers Conversion costs September operating data: Units started Units finished Costs of chemicals added Costs of containers added Conversion costs added

15,000 litres $12,000 $ 4,500 300,000 litres 290,000 litres $240,000 $43,500 $361,500

The ending work in process inventory was 60% complete as to conversion costs. Required: Fill in the production cost report template for the Production Department for the month of September, 2014, using the weighted-average method.

~ THE END ~

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FORMULAE 1. Unit Contribution Margin = Fixed Costs / Break-even sales in units 2. Break Even Point (in Units) = Fixed Costs / Unit Contribution Margin 3. Break Even (Sales $) = Fixed Costs / Contribution Margin Ratio 4. Contribution Margin Ratio = Unit Contribution Margin / Sales 5. Sales (units) = (Fixed Costs + Target Net Profit) / Unit Contribution Margin 6. Sales ($) = (Fixed Costs + Target Net Profit) / Contribution Margin Ratio 7. Margin of safety $ = Actual/Expected Sales – Break-even sales 8. Margin of safety ratio = Margin of safety in $ / Actual(Expected) Sales

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