2020-2021 Semester 2

AF3112 Management Accounting

Mid-Term Test (Max: 25 marks)

Part 1: True or False (1 mark, @0.5)

1. At the splitoff point, decisions relating to the sell-off or further processing of a certain
identifiable product can be made independently of decisions related to the other products.
2. In a homogeneous cost pool, all costs have a similar cause-and-effect relationship with the
cost-allocation base.

Part 2: Multiple Choice Questions (9 marks, @0.5)

3. The Kowloon Service Shop produces stationary parts. Typically, 10 pieces out of a job lot of
1,000 parts are spoiled. Costs are assigned at the inspection point, $50.00 per unit. Spoiled
pieces may be disposed at $10.00 per unit. The spoiled goods must be inventoried
appropriately when the normal spoilage is detected. Job Hunghom201 requires the
production of 2,500 good parts.

Which of the following journal entries would be correct if the normal spoilage occurred due
to specifications required for Job Hunghom201?

A. Work-in-Process Control 100

Materials Control 100
B. Work-in-Process Control 250
Materials Control 250
C. Materials Control 250
Work-in-Process Control 250
D. Materials Control 100
Work-in-Process Control 100

4. The information for March for Hung Hom company is as follows:

Beginning work in process 10,000 units

Units started 20,000 units

Ending work in process 5,000 units

Beginning work in
process was 50%
complete regarding
Beginning work-in-process direct materials $ 6,000
direct labor and
Beginning work-in-process conversion $ 2,600 overhead. Direct
materials are added
Direct materials added during month $30,000 at the beginning of
the process. All
Direct manufacturing labor during month $12,000
conversion costs are
Factory overhead $ 5,000
 incurred evenly throughout the process. Ending work in process was 60% complete.

Using the weighted-average method, what is the cost allocated to the completed units?
___________ dollars.

A. $53,400
B. $48,500
C. $55,600
D. $47,500

5. The KAI Corporation has a central materials laboratory. The laboratory has only two users,
the KFX Department and the Mini-KFX Department. The following data apply to the coming
budget year:

Budgeted costs of operating the materials laboratory

for 100,000 to 200,000 technician hours per year:
Fixed costs per year $6,000,000
Variable costs $80 per technician hour
Budgeted long-run usage in hours per year:
KFX Department 90,000 technician hours
Mini-KFX Department 70,000 technician hours

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the KFX Department was 60,000 technician hours and by the
Mini-KFX Department was 65,000 technician hours.

If a single-rate cost-allocation method is used, what is the allocation rate per hour used?

A. $100.00
B. $146.67
C. $117.50
D. $80.00

6. The dual-rate cost-allocation method classifies costs in each cost pool into a:
A. budgeted-cost pool and an actual-cost pool
B. variable-cost pool and a fixed-cost pool
C. used-capacity-cost pool and a practical-capacity-cost pool
D. direct-cost pool and a reciprocal-cost pool
7. An assumption of the FIFO process-costing method is that:
A. the units in beginning inventory are not necessarily assumed to be completed by the end
of the period
B. no calculation of conversion costs is possible
C. ending inventory will always be completed in the next accounting period
D. the units in beginning inventory are assumed to be completed first

8. BTS Company produces milk bars and protein shakes. It has two departments (Assembly and
Inspection) that process all products.

For Assembly, during September 2020, the beginning work in process was half completed as
to conversion, and complete as to direct materials. The beginning inventory of Assembly
included $40,000 for materials and $60,000 for conversion costs. Ending work-in-process
inventory in the Assembly department was 40% complete as to conversion. Direct materials
are added at the beginning of the process.

For Inspection, beginning work in process was 80% complete as to conversion. Direct
materials for Inspection the units are added at the end of the process. Beginning inventories
(Inspection) included $24,000 for transferred-in costs and $28,000 for conversion costs.
Ending inventory (Inspection) was 30% complete.

Additional information about the two departments follows:

Assembly Inspection

Beginning work-in-process units 20,000 24,000

Units started this period 60,000

Units transferred this period 64,000 68,000

Ending work-in-process units 20,000

Material costs added $48,000 $34,000

Conversion costs 28,000 68,500

Transferred-out cost 128,000

How much is the dollar value of Inspection Department’s WIP ending inventory? (using
FIFO method)

A. $47,500
B. $88,000
C. $52,000
 D. $165,000

9. To discourage unnecessary use of a support department, management might:

A. allocate a fixed amount of support department costs to each department regardless of
use
B. issue memos on useful services provided by the support department
C. allocate support department costs based upon user department usage
D. not allocate any support department costs to user departments

10. Jungkook-Jimin Printing Co. has contracts to complete weekly supplements required by
forty-six customers. For the year 2020, manufacturing overhead cost estimates total
$840,000 for an annual production capacity of 12 million pages.

Jungkook-Jimin Co. decided to evaluate the use of additional cost pools. After analyzing
manufacturing overhead costs, it was determined that number of design changes, setups,
and inspections are the primary manufacturing overhead cost drivers. The following
information was gathered during the analysis:

Cost pool Manufacturing overhead costs Activity level

Design changes $120,000 200 design changes
Setups 640,000 4,000 setups
Inspections 80,000 16,000 inspections
Total manufacturing overhead costs $840,000

During 2010, two customers, Suga Systems and J-Hope ENM, are expected to use the
following printing services:

Activity Money Managers Hospital System

Pages 60,000 76,000
Design changes 10 2
Setups 20 10
Inspections 30 38

Assuming activity-cost pools are used, what are the activity-cost driver rates for design
changes, setups, and inspections cost pools?
A. $600 per change, $160 per setup, $5.00 per inspection
B. $500 per change, $400 per setup, $7.50 per inspection
C. $420 per change, $210 per setup, $52.50 per inspection
D. $666 per change, $250 per setup, $8.00 per inspection
11. Costs of abnormal spoilage are usually accounted for as:
A. part of the cost of goods sold
B. a separate line item in the income statement
C. part of the cost of goods manufactured
D. an asset in the balance sheet
12. All costs incurred beyond the splitoff point that are assignable to one or more individual
 products are called:
A. joint costs
B. main costs
C. byproduct costs
D. separable costs

13. Cost assignment:

A. is the same as cost accumulation
B. is finding the difference between budgeted and actual costs
C. includes tracing and allocating
D. is always arbitrary

14. ________ costs support the organization as a whole.

A. Product-sustaining
B. Unit-level
C. Batch-level
D. Facility-sustaining

15. The Biden-Xee-Obama Corporation has an in-house copying center. The copying center has
only two users, the Trump Department and the Carrie Department. The following data apply
to the coming budget year:
Budgeted costs of operating the copying center
for 400,000 to 600,000 technician hours per year:
Fixed costs per year $60,000
Variable costs 3 cents (.03) per copy
Budgeted long-run usage in copies per year:
Trump Department 120,000 copies
Carrie-RM Department 380,000 copies
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Trump Department was 80,000 copies and by the Carrie-
RM Department was 360,000 copies.
If a dual-rate cost-allocation method is used, what amount of copying center costs will be
budgeted for the Carrie-RM Department?
A. $56,400
B. $59,890
C. $60,490
D. $57,000

16. Transferred-in costs are treated as if they are:

A. a separate direct material added at the beginning of the process
B. direct labor costs added at the beginning of the process
C. costs of beginning inventory added at the beginning of the process
D. conversion costs added at the beginning of the process
17. The Blackpink company manufactures Cheese. During October, the firm's Cooking
Department started production of 60,000 units. During the month, the firm completed
66,000 units, and transferred them to the Inspection Department. The firm ended the
month with 22,000 units in ending inventory. There were 28,000 units in beginning
inventory. All direct materials costs are added at the beginning of the production cycle and
conversion costs are added uniformly throughout the production process. The FIFO method
of process costing is used by Blackpink. Beginning work in process was 25% complete as to
conversion costs, while ending work in process was 50% complete as to conversion costs.

Beginning inventory:
Direct materials costs $39,200
Conversion costs $30,800
Manufacturing costs added during the accounting period:
Direct materials costs $90,000
Conversion costs $280,000

What is the amount of direct materials cost assigned to ending work-in-process inventory
at the end of October?

A. $39,200
B. $33,000
C. $22,000
D. $44,000

18. When a joint production process yields two or more products with high total sales values,
these products are called:
A. main products
B. joint products
C. byproducts
D. scrap

19. Moon Jae-In, owner of Blackpink-BTS Fabricators, Inc., is interested in using the reciprocal
allocation method. The following data from operations were collected for analysis:

Budgeted manufacturing overhead costs:

Plant Maintenance PM (Support Dept) $350,000
Data Processing DP (Support Dept) $75,000
Matching M (Operating Dept) $225,000
Capping C (Operating Dept) $125,000

Services furnished:
By Plant Maintenance By Data Processing
(budgeted labour-hours): (budgeted computer time):
To Data Processing 3,500 To Plant Maintenance 600
To Machining 5,000 To Machining 3,500
 To Capping 8,200 To Capping 600

Which of the following linear equations represents the complete reciprocated cost of the
Data Processing Department?
A. DP= $75,000 + (3,500/16,700) PM
B. DP= $75,000 + (600/4,700) PM
C. DP= $75,000 × (600/4,700) + $350,000 × (3,340/16,700)
D. DP= $350,000 + (600/16,700) DP

20. The Jisoo-Rose Factory produces expensive pencils. It has two departments that process all
the items. During January, the beginning work in process in the tanning department was
40% complete as to conversion and 100% complete as to direct materials. The beginning
inventory included $6,000 for materials and $18,000 for conversion costs. Ending work-in-
process inventory in the tanning department was 40% complete. Direct materials are added
at the beginning of the process.

Beginning work in process in the finishing department was 60% complete as to conversion.
Beginning inventories included $7,000 for transferred-in costs and $10,000 for conversion
costs. Ending inventory was 30% complete.

Additional information about the two departments follows:

Tanning Finishing

Beginning work-in-process units 5,000 4,000

Units started this period 14,000 ?

Units transferred this period 16,000 18,000

Ending work-in-process units ? 2,000

Material costs added $18,000 ?

Conversion costs 32,000 $19,000

Transferred-out cost 50,000 ?

How much is the transferred-in cost per equivalent unit? (using Weighted Average method)

A. $4.41
B. $3.22
C. $1.56
D. $2.85
Part 3: Short Questions (15 marks; If needed, round your answers to 3 decimal places)

Read the following texts to answer the question 21-24.

William Company manufactures two types of massage oil from a joint process. The joint costs
incurred are $210,000 for a standard production run that generates 90,000 bottles of Standard-
Massage Oil (SMO) and 60,000 bottles of Premier-Massage Oil (PMO). SMO sells for $2.40 per
bottle, while PMO sells for $3.90 per bottle.

21. Assuming that both products are sold at the split-off point, how much of the joint cost of
each production run is allocated to SMO on the sales value method basis? (0.5 marks)

22. Assuming that both products are sold at the split-off point, how much of the joint cost of
each production run is allocated to PMO on the sales value method basis? (0.5 marks)

23. If no separable costs are incurred after the split-off point, how much of the joint cost of each
production run is allocated to SMO on the physical measure method basis? (0.5 marks)

24. If no separable costs are incurred after the split-off point, how much of the joint cost of each
production run is allocated to PMO on the physical measure method basis? (0.5 marks)

25. Up lamp, Inc. operates at capacity and sells LTD items. Senior management decided to
adopt ABC to determine product-line profitability for all corporate divisions. The company
sends catalogs to corporate purchasing departments monthly. The customers are entitled to
return unsold merchandise within nine months from the purchase date and receive a full
purchase price refund. Youngie, one of the divisions, reported gross sales for January 20x9
totaled $100,000, and the cost of goods sold was 60% of the sale. The cost accountant
 found the following data for the month of Youngie:

Sales returns: 100 units, amount: $10,000

Number of orders: Regular: 80 Rush: 20

Activity Cost-Driver Rate ($)

Regular order processing 40
Rush order processing 20
Returned items processing 20
Catalog and customer support 5,000
(Fixed one-time charge)

Please determine the contribution (loss) margin to profit of Youngie under the ABC method.
(1 mark)

26. Kat Inc. produces high-end young and mature hiking equipment and operates at capacity.
Data related to the two products are presented here:

Young Mature
Annual production in units 30,000 120,000
Direct material costs $240,000 $480,000
Direct manufacturing labour costs $75,000 $150,000
Direct manufacturing labour-hours 5,000 10,000
Machine hours 80,000 80,000
Number of production runs 90 60
Inspection hours 1,500 750

Total manufacturing overhead costs are as follows:

Total
Machining costs $720,000
Setup costs 150,000
Inspection costs 135,000

Please compute the manufacturing overhead cost per unit for the Young product. (hint: to
start, you have to choose a cost driver for each overhead cost pool and calculate a unit rate)
(1 mark)

Read the following texts to answer the question 27-28.

Eva Company, a reputable card design company has two service departments, Maintenance and
Human Resources, and two operating departments, Card Design and Development.
Maintenance costs are allocated on the basis of machine-hours in each department and human
resources costs on the basis of labor-hours worked by the employees in each department.
The following data appear in the company records for the current period:

Maintenance Human Card Design Development

Resources
Departmental $10,000 $24,000 $30,000 $20,000
cost before
allocation
Machine-hours -- 2,000 2,000 6,000
Labour-hours 1,000 -- 1,000 4,000
27. Compute the costs allocated to the Development Department from the two service
departments using the step method. The step-down sequence begins with the support
department that renders the highest percentage of its total services to other support
departments. The sequence continues with the department that renders the next highest
percentage, and so on, ending with the support department that renders the lowest
percentage. (1 mark)
28. Compute the costs allocated to the Card Design Department from the two service
departments using the step method. The step-down sequence begins with the support
department that renders the highest percentage of its total services to other support
departments. The sequence continues with the department that renders the next highest
percentage, and so on, ending with the support department that renders the lowest
percentage. (1 mark)

29. Happy Inc. uses a process costing system to manufacture paper sorter. The following
information summarizes operations for its Super model during the month of December,
20x9:

Work-in-process inventory, December 1: 200 units

Started during the month: 300 units
Completed during the month :400 units

Work-in-process inventory, December 31: 100 units

Direct materials of the beginning work-in-process inventory amounted to $60,000 and cost
added during the month was $840,000. Beginning work-in-process inventory was 50%
complete for direct materials. Ending work-in-process inventory was 80% complete for
direct materials. What were the equivalent units for direct materials for the month using the
FIFO method? (2 marks)
30. Go Bakery makes wonderful bread that can be stored for a long time. It seldom has spoilage.
In January 2021, the cost accountant noted the following information. The beginning
inventory was 80% complete for materials and 20% complete for conversion costs. The
ending inventory was 90% complete for materials and 40% complete for conversion costs

Units
 Beginning work-in-process inventory 16,000
Started in production 216,000
Completed production 184,000
Ending work-in-process inventor 48,000

The costs for January are as follows.

· Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory
overhead, $15,240.
· Costs incurred during May are: materials used, $468,000; direct labor, $182,880; and
factory overhead, $391,160.

Using the weighted-average method, what is the equivalent-unit conversion cost for the
month? (1 mark)

31. Roy Shield Inc. produces surgical and industrial medical-dental equipment and operates at
capacity. Data related to the two products are presented here:
Surgical Industrial
Annual production in units 30,000 120,000
Direct material costs $60,000 $480,000
Direct manufacturing labour costs $75,000 $150,000
Direct manufacturing labour-hours 5,000 10,000
Machine hours 40,000 80,000
Number of production runs 90 60
Inspection hours 1,500 750

Total manufacturing overhead costs are as follows:

Total
Machining costs $720,000
Setup costs 150,000
Inspection costs 135,000

Please compute the manufacturing overhead cost per unit for the Surgical product. (hint: to
start, you have to choose a cost driver for each overhead cost pool and calculate a unit rate)
(2 marks)

Read the following texts to answer the question 32-33.

Leon Company produces two financial software products, Fin X and Fin Y in two separate
departments (M and N). Department M produces Fin X, and department N produces Fin Y. The
production departments are supported by two support departments, systems design and
programming services. The source and use of the support department time are summarized as
follows:
To
From System Programmin Department Department Total Labour
Design g M N Hours
System -- 10,000 2,000 18,000 30,000
Design
Programmin 800 -- 1,200 2,000 4,000
g

System Design Programmin

g
Labour and materials (all variable) $100,000 $72,000
Depreciation and other fixed costs $80,000 $8,000
Total departmental costs before allocation $180,000 $80,000

32. Compute the costs allocated to Department M from the two service departments using the
direct method. (1 mark)
33. Compute the costs allocated to Department N from the two service departments using the
direct method. (1 mark)

34. Peter Company runs several mines that produces joint products. At one, a typical batch of
ore run through the plant yields two products: lead and copper, each of which incurs
separable production costs after the split-off point. Information regarding a batch produced
at a $400,000 joint cost before split-off point follows:

Product Separable Costs Sales Value

Lead $20,000 $160,000
Copper $40,000 $100,000
Total $60,000 $260,000

Compute the joint cost allocated to lead, if costs are allocated using relative net realizable
value method. (2 marks)

Answer:
1. True 2. True 3. C 4. D 5. C
6. B 7. D 8. A 9. C 10. A
11. B 12. D 13. C 14. D 15. D
16. A 17. B 18. B 19. A 20. D
21. 100,800 22. 109,200 23. 126,000 24. 8,400 25. 21,800
26. 18 27. 26,800 28. 7,200 29. 380 30. 3
31. 14 32. 48,000 33. 212,000 34. 280,000