Midterm No.

One Review
CHAPTERS 1-4

Extra credit points awarded: 5 Dr. Seyedin

The purpose of this extra credit assignment is to prepare you for the first midterm. You must
show your work as it relates to each problem-solving question. Please complete the review
using pen (not pencil) or MS Word. Turn in the review at the beginning of the class
on Thursday, January 28.

SOLUTIONS

Watson Company uses the weighted-average method in its process costing system. The
following information pertains to Processing Department B for the month of May:

Number Cost of
of units materials
Beginning work in process 25,000 $10,000
Started in May 70,000 $40,000
Units completed 65,000
Ending work in process 30,000

All materials are added at the beginning of the process. The cost per equivalent unit for
materials is closest to:
% of completion, % of completion,
Units Materials Conversion
Transferred out* 65000 100% *65000=65000
Ending Inventory 30000 100% *30000=30000
Equivalent Units of 95,0000
Production

*Please note transferred out (TO) units are also called units completed.

(10,000 + 40,000)/950000 =0.5263157

1. The following data were taken from the accounting records of the Hazel Corporation
which uses the weighted-average method in its process costing system:

Beginning work in process inventory, 30,000 units

(100% complete as to materials; 60% complete as to conversion)
Started in process during the period, 70,000 units
Ending work in process inventory, 40,000 units
(100% complete as to materials; 50% complete as to conversion)
The equivalent units of production for conversion costs were:
 Beg. WIP Units + Started Units = TO + Ending WIP Units

30000 + 70000 = TO + 40000

TO = 60000

% of completion, % of completion,
Units Materials Conversion
Transferred out* 60000 100% *60000=60000
Ending Inventory 40000 50% *40000=20000
Equivalent Units 80000
of Production

2. The Bears Company's cost of goods manufactured was $180,000 when its sales were
$500,000 and its gross margin was $220,000. If the ending inventory of finished goods
was $20,000, the beginning inventory of finished goods must have been:
Cost of goods sold = Sales – Gross margin
Cost of goods sold = 500,000 – 220,000 = 280,000

*Beg. Inv. of FG + CGM- End. Inv. FG = CGS

Beg. Inv. of FG + 180,000 – 20,000 = 280,000
Beg. Inv. of FG = 120,000

*Beginning Inventory of Finished Goods+ Cost of Goods Manufactured –Ending

Inventory of Finished Goods = Cost of Goods Sold
3. Carlo Company uses a predetermined overhead rate based on direct labor hours to apply
manufacturing overhead to jobs. The company estimated manufacturing overhead at
$400,000 for the year and direct labor-hours at 100,000 hours. Actual manufacturing
overhead costs incurred during the year totaled $440,000. Actual direct labor hours were
105,000. What was the overapplied or underapplied overhead for the year?
Estimated MOH $400,000
Estimated DLH 100,000 hours
Actual MOH $440,000
Actual DLH 105,000 hours
Predetermined overhead rate: 400,000 / 100,000 = $4.00
Total MOH applied: 105,000 x $4.00 = $420,000
The Underapplied overhead for the year: 440,000 – 420,000= $20,000

4. Amarillo Company's costs for the month of August were as follows: direct materials,
$37,000; direct labor, $30,000; sales salaries, $11,000; indirect labor, $11,000; indirect
materials, $15,000; general corporate administrative cost, $10,000; taxes on
manufacturing facility, $2,000; and rent on factory, $20,000. The beginning work in
process inventory was $16,000 and the ending work in process inventory was $9,000.
What was the cost of goods manufactured for the month?
DM 37,000
DL 30,000
MOH 48,000 (11,000+15,000+2,000+20,000)
TMC 115,000
Add: begin. WIP 16,000
131,000
Deduct end. WIP 9,000
CGM 122,000

5. Mifflin Company has the following estimated costs for next year:

Direct materials $15,000

Direct labor 60,000
Sales commissions 75,000
Salary of production supervisor 50,000
Indirect materials 5,000
Advertising expense 11,000
Rent on factory equipment 20,000

Mifflin estimates that 10,000 direct labor and 25,000 machine hours will be worked
during the year. If overhead is applied on the basis of machine hours, the overhead rate
per hour will be:

Estimated MOH =50,000 + 5,000 + 20,000 = 75,500

Overhead rate per hour = 75,000 / 25,000 = $3
6. The Ying Manufacturing Company uses a job-order costing system and applies overhead
to jobs using a predetermined overhead rate. The company closes any balance in the
Manufacturing Overhead account to Cost of Goods Sold. During the year the company's
Finished Goods inventory account was debited for $125,000 and credited for $110,000.
The ending balance in the Finished Goods inventory account was $28,000. At the end of
the year, manufacturing overhead was overapplied by $3,000. If the estimated
manufacturing overhead for the year was $24,000, and the applied overhead was
$30,000, the actual manufacturing overhead cost for the year was:
Overapplied MOH = Applied MOH - Actual MOH
3000= 30000- Actual MOH
Actual MOH = 30000 –3000
Actual MOH = 27000

7. Underline the correct answer

DL cost is:
a. Conversion cost, Manufacturing Cost, Period cost
b. Conversion cost, Manufacturing Cost, Prime cost
c. Fixed cost, Manufacturing Cost, Prime cost
d. Conversion cost, Manufacturing Cost, Mixed cost

8. Underline the correct answer

Direct material cost:
a. Variable cost, Manufacturing Cost, Prime cost
b. Conversion cost, Manufacturing Cost, Prime cost
c. Conversion cost, Manufacturing Cost, Product cost
d. Fixed cost, Manufacturing Cost, Prime cost

9. Determine cost of goods manufactured below:

• DM $42,000
• DL 24,000
• MOH 16,000
• Beginning WIP 10,000
• Ending 11,500
• Cost of GM ?
DM 42,000
DL 24,000
MOH 16,000
TMC 82,000
Add: begin. WIP 10,000
92,000
Deduct end. WIP 11,500
CGM 80,500
 10. Name two types of Manufacturing Cost that are variable. Direct Materials and
Direct labor
11. Underline the correct answer (s)
The corporate controller salary would be classified as:
a. Product
• Direct Labor (DL)
• Manufacturing overhead (MOH)
b. Period
• Selling expense
• Administrative expense

12. What is the entry to record the purchase of raw materials on account?
Raw Materials xxx
Accounts Payable xxx

13. What is the entry to record depreciation on manufacturing equipment?

Manufacturing Overhead xxx
Accumulated Depreciation xxx

14. What is the entry to transfer the cost of goods manufactured for the period?
Finished Goods xxx
WIP xxx

15. Name the two categories of cost comprising conversion costs. Direct Labor and
Manufacturing Overhead