Midterm Exam Cost Accounting

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Midterm Exam 

Cost Accounting

Points 

2

0

Problem 1

Financial Statements

Morton Buildings is a manufacturer of steel buildings. They close their books at the end of the month 

and prepare financial statements. The statement of cost of goods sold for April is below:

Morton Buildings

Statement of Cost of Goods Sold

For the Month Ending April 30, 2016

($000 omitted)

Inventory of 

F

inished 

G

oods, March 31

$

50

Cost of Goods Manufactured 

$790

Cost of Goods Available for Sale

$840

Less Inventory of Finished Goods, April 30

$247

Cos

t of Goods Sold

$593

Of the utilities, 80% is for the manufacturing plant; the remaining 20% is for the 

sales and 

administrative building.

All rent is for the office building.

Property taxes are assessed on the manufacturing plant.

Of the insurance, 60

% is related to manufacturing the steel; the remaining 40% is related to the 

sales and administrative functions.

Depreciation expense includes the following:

Manufacturing plant

$20,000

Manufacturing equipment

$30,000

Office equipment

$  4,000

Total

$

54,000

The company manufactured 7,825 tons of steel during May.

The inventory balances at May 31, follow:

Direct materials inventory $23,000

Work

-

in

-

process inventory $220,000

Finished goods inventory $175,000

Morton Buildings

Account Balances, May 31, 

2016

($000 omitted)

Direct materials inventory (April 30)

28

Work

-

in

-

process inventory (April 30)

150

Finished goods inventory (April 30)

247

Sales

1,488

Midterm Exam 

Cost Accounting

Sales discounts

20

Other revenue

2

Purchases of direct materials

510

Direct labor

260

Indirect

factory labor

90

Office salaries

122

Sales salaries

42

Utilities

135

Rent

9

Property taxes

60

Insurance

20

Depreciation

54

Interest expense

6

Freight

-

in for materials purchases

15

1.

Prepare a 

s

tatement of cost of goods manufactured for 

Morton Buildings for May.

2.

Prepare an 

i

ncome statement for Morton Buildings for May.

Midterm Exam 

Cost Accounting

Points

-

2

0

Problem 2

Job Costing System

Acme

Company uses a job costing system, and factory overhead is applied on the basis of machine 

hours. At the beginning of the 

year, management estimated that the company would incur $1,050,000 

of factory overhead costs and use 70,000 machine hours.

Acme

Company recorded the following events during the month of March.

(a) Purchased 200,000 pounds of materials on account. The

cost was $4.00 per pound.

(b) Issued 150,000 pounds of materials to production, of which 20,000 pounds were used as indirect 

materials. Assume all materials are at $4 per pound.

(c) Incurred $250,000 of direct labor costs and $50,000 of indirect labor c

osts.

(d) Recorded depreciation on equipment for the month, $18,000.

(e) Recorded $4,000 of insurance costs for the manufacturing property.

(f) Paid $8,000 cash for utilities and other miscellaneous items for the manufacturing plant.

(g) Completed job 

M11 costing $17,000 and job M12 costing $80,000 during the month and transferred 

them to Finished Goods inventory account.

(h) Shipped job M12 to the customer during the month. The job was invoiced at 40 percent above cost.

(i) Used 10,000 machine hours 

during March.

Required:

(1) Compute 

Acme

Company's predetermined overhead rate for the year.

(2) Prepare journal entries to record the events that occurred during March.

(3) Compute the amount of overapplied or underapplied

overhead and prepare a journal entry to close 

overapplied or underapplied overhead into cost of goods sold on March 31. 

Midterm Exam 

Cost Accounting

Points 

-

30

Problem 3

Activity

-

Based Costing

The O’Donnell Company uses volume

-

based costing system. They apply overhead

costs based 

on direct labor hours at $250 per direct labor hour.

The company is considering adopting an activity

-

based costing system with the following data:

Activity Area

Cost Driver

Cost Driver Rate

Materials 

handling

Number of parts

$1.20

Lathe work

Number of turns

0.30

Milling

Number of machine 

hours

16.00

Grinding

Number of parts

1.25

Testing

Number of units tested

12.00

The two jobs processed in the month of June had the following characteristics:

Job A

Job B

Direct materials 

costs

$10,000

$50,000

Direct labor costs

$1,000

$10,000

Number of direct labor hours

40

400

Number of parts

500

2,000

Number of turns

25,000

50,000

Number of machine hours

140

1,000

Number of units in each job 

(all tested)

15

200

Midterm Exam 

Cost Accounting

Required:

1. Compute the unit manufacturing cost of each job under the firm's current volume

-

based 

costing system.

2. Compute the unit manufacturing cost of each job under the activity

-

based costing system.

3. Compare the unit manufacturing cost for Jobs A and B 

computed in requirements 1 and 2.

(a) Why do the two cost systems differ in their total cost for each job?

(b) Why might these differences be important to the Company? 

Points 

-

30

Problem 

4

Process Costing

Williams Co. manufactures a 

single product that goes through two processes 

mixing and cooking. The 

following data pertains to the Mixing Department for September.

Work

-

in

-

process inventory, September 1

38,000

units

Conversion

60% completed

Work

-

in

-

process inventory, 

September 30

24,000

units

Conversion 

40% completed

Units started into production

86,000

units

Units completed and transferred out

?

units

Costs:

Work

-

in

-

process inventory, September 1

Material R

$122,300

Material S

143,780

Conversion

194,550

Costs added during September:

Material R

409,660

Material S

246,820

Conversion

526,618

Midterm Exam 

Cost Accounting

Material R is added at the beginning of work in the Mixing Department. Material S is also added 

in the 

Mixing Department, but not until units of product are thirty percent completed with regard to 

conversion. Conversion costs are incurred uniformly during the process.

Required:

(1) Calculate the equivalent units for Material R using the weighted

-

average method.

(2) Calculate the equivalent units for Material S using the weighted

-

average method.

(3) Calculate the equivalent units for conversion using the weighted

-

average method

.

(4) Calculate the unit costs using the weighted

-

average method.

(5) Calculate the cost of units completed and transferred out using the weighted

-

average method.

(6) Calculate the cost of ending work in process using the weighted

-

average method.

30

P

oints

Problem 5 

-

Cost Allocation 

The Thompson Manufacturing Company has two service departments 

manufacturing support and 

facilities management, and two production departments 

assembly and packing/shipping. The 

distribution of each service departme

nt's efforts to the other departments is shown below:

FROM

TO

Support

Facilities

Assembly

Pack/Ship

Support

0%

45%

25%

30%

Facilities

30%

0%

30%

40%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Manufacturing Support

$240,000

Facilities Management

450,000

Assembly

1,200,000

Pack/Ship

225,000

Midterm Exam 

Cost Accounting

Required:

(Calculate all ratios and 

percentages to 4 decimal places, for example 33.3333%, and round all dollar 

amounts to the nearest whole dollar.):

(1) Allocate the service department costs to the production departments using the direct method.

(2) Allocate the service department cost

s to the production departments using the step method with 

the support department going first.

(3) Allocate the service department costs to the production departments using the reciprocal method.

10 

Points

P

roblem 6 

-

Learning Curve Analysis

Williams

Equipment Inc. produced a pilot run of 20 units of a recently developed motor used in the 

finished products. The pilot run required an average of 12 direct labor hours per motor. 

Williams

has an 

80%

learning curve on the direct labor hours needed to produ

ce new motors.

Required:

Calculate the average direct labor hours per unit for the first 640 motors (including the pilot run) 

produced. 

10 

Points

Problem 7

-

Cost 

Behavior

Caboose 

Co

mpany

manufactures locomotive engines

.

The company 

is attempting to predict its 

maintenance costs more accurately. Maintenance costs are a mixed cost. Maintenance costs and 

machine hours for the first 

4

months of 

2016

are as follows:

Month

Maintenance 

Costs

Machine 

Hours

January

$50,320

1,340

Februar

y

60,210

1,580

March

58,005

1,450

April

62,370

1,840

Required:

Using the high

-

low method, calculate unit variable cost and monthly fixe

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