Exam #: A-

Fundamentals of Managerial Accounting ACC 312 Spring 2007 Exam I Form A Name Instructor Section

DO NOT OPEN until given instructions to do so.

Instructions
1. Confirm that you have 12 numbered pages. There is also one blank sheet of paper at the end of the exam that you may use for scratch paper. 2. On your Scantron answer sheet, write and bubble in your name, section number, and the Test Form letter noted above. 3. Use a #2 pencil only to mark your responses on your Scantron answer sheet. Mark clearly and erase completely as needed. You should also mark your answers on your exam. However, only multiple choice answers marked on your Scantron answer sheet will be graded. 4. Multiple choice questions are 3 points each; all other questions have their point value noted with the problem. 5. Cell phones, PDA's and calculators capable of storing text are NOT allowed at your desk during the exam. 6. Bring your entire exam book, Scantron answer sheet and student ID to the front of the room when you have finished. 7. You are reminded of the Universitys honor policy which requires you do your own work and not give or receive assistance on this exam.

ACC 312 Midterm #1

Form A - Page 1

Spring 2007

SECTION I - MULTIPLE CHOICE (60points - 3 points each) - Please choose the BEST answer for each question and record your answer on the Scantron answer sheet. 1. In a job-order cost system using normal costing, debits to work-in-process inventory can originate from all of the following except: A. B. C. D. E. 2. Applying manufacturing overhead using the predetermined overhead rate Assigning direct labor from a timekeeping system (time cards) Assigning actual manufacturing overhead costs to jobs Assigning direct materials from the purchasing system (requisition slips) Proration of over- or underapplied manufacturing overhead

MNS Company uses a normal cost system. Costs for the year were: Applied manufacturing overhead Cost of goods manufactured, pre-adjustment Actual manufacturing overhead $400,000 $880,000 $392,600

Finished goods inventory was $218,000 on January 1 and $190,000 on December 31. If MNS closes over- or underapplied manufacturing overhead to cost of goods sold at year-end, what is the adjusted cost of goods sold for the year? A. B. C. D. E. 3. $857,400 $900,600 $915,400 $942,600 $908,000

FGI_Beg +CGM - FGI_End COGS

$218,000 $880,000 400,000 + 392,600 $190,000 $900,600

Suppose MNS Company (from the prior question) instead preferred to prorate its over- or underapplied manufacturing overhead. The December 31 adjustment to work-in-process inventory (WIP) is calculated as over- or underapplied manufacturing overhead multiplied by which of the following? A. B. C. D. E. (Raw materials + Direct labor) / Total manufacturing overhead applied (Raw materials + Direct labor) / Manufacturing overhead applied to ending WIP Manufacturing overhead applied to ending WIP / Total manufacturing overhead applied Manufacturing overhead applied to ending WIP / (Raw materials + Direct labor) It is not possible to prorate in this case

4.

Wolfpack Company uses weighted-average process costing for the product it manufactures. All direct materials are added at the beginning of production, and conversion costs are applied evenly during production. The following data apply to the past month: Physical units in beginning inventory (30% complete as to conversion costs) Physical units transferred to finished goods inventory Physical units in ending inventory (60% complete as to conversion costs) How many physical units did Wolfpack start into production during the past month? A. B. C. D. E. 7,400 8,200 8.900 9,700 11,200 1,500 7,400 2,300

Beginning WIP + Started Total Completed/transferred Ending WIP Total

1,500 ????? ????? 7,400 2,300 9,700

9,700 1,500 = 8,200 9,700

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Referring back to the data in the prior question, Wolfpack Companys total equivalent units for materials and conversion costs, respectively, equal: A. B. C. D. E. 9,700 & 9,700 9,700 & 8,780 7,400 & 8,780 7,400 & 7,400 9,700 & 8,330
Process Costing, Step 2 Completed/transferred Ending WIP Total EU DM 7,400 2,300 9,700 CC 7,400 1,380 (2,300 x 60%) 8,780

6.

Wahoo Inc. has fixed costs per unit of $20 when the company produces 25,000 units. At the same level of production, total variable costs are $200,000. What is the total cost when Wahoo produces 50,000 units? A. B. C. D. E. $700,000 $800,000 $900,000 $1,200,000 $1,400,000

Total FC = 25,000 x $20 = $500,000 VC/Unit = $200,000 / 25,000 = $8/unit So $500,000 FC + ($8 VC/unit x 50,000 units) = $900,000

7.

WestCo makes two products: X, produced in batches of 10 units, and Y, produced in batches of 100 units. Its ABC system has eight activity cost pools. One of those pools is Shipping, and the cost driver for Shipping is Production Batches. Which one of the following statements about the cost of X and Y is true? A. B. C. D. E. Each unit of X is assigned the same Shipping cost as each unit of Y Each unit of X is assigned more Shipping cost than each unit of Y Each unit of Y is assigned more Shipping cost than each unit of X We cannot know in advance how much Shipping cost will be assigned to each product We can know in advance how much Shipping cost will be assigned to each product, but the amount assigned to X and Y will depend on the other seven cost pools and cost drivers

Use the following information for the next three questions. Stuart Company uses an actual costing system and the accounting records reflect the following inventory information: Raw materials inventory increased by $20,000 during the year Work-in-process inventory increased by $125,000 during the year Finished goods inventory decreased by $10,000 during the year During the year, Stuart purchased $950,000 of raw materials, incurred direct labor costs of $125,000 and incurred manufacturing overhead totaling $160,000. 8. How much raw material is put into production during the year? A. B. C. D. E. $1,070,000 $1,050,000 $970,000 $950,000 $930,000

RM_Beg + Additions Deductions(DM) = RM_End RM_Beg + $950k DM = (RM_Beg + $20k) DM = $930k

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After finding an error in the accounting records, Stuart Company concludes that the amount of raw material put into production during the year was actually $1,000,000 (i.e., ignore your answer to the prior question and use this value in calculations for this question) How much is cost of goods manufactured during the year? A. B. C. D. E. $1,160,000 $1,175,000 $1,190,000 $1,200,000 $1,230,000

WIP_Beg + Additions Deductions = WIP_End WIP_Beg + (DM+DL+MOH) - CGM = WIP_End WIP_Beg + ($1M+$125k+$160k) CGM = (WIP_Beg + $125k) CGM = $1,160,000

10.

During their annual audit, Stuart is forced by its auditors to adjust its cost of goods manufactured for the year to $1,400,000. What amount would Stuart have to report as cost of goods sold for the year? A. B. C. D. E. $1,425,000 $1,410,000 $1,400,000 $1,395,000 $1,390,000

FGI_Beg + Additions Deductions = FGI_End FGI_Beg + CGM - COGS = FGI_End FGI_Beg + $1.4M COGS = (FGI_Beg - $10k) COGS = $1,410,000

11.

Conversion costs should be used as a cost category in a weighted average process costing system when? A. B. C. D. E. Manufacturing overhead exceeds direct labor Manufacturing overhead exceeds prime costs Conversion costs exceed 50% of total cost There are many non-unit-level costs Manufacturing overhead is applied using a labor-based cost driver

12.

True or false: Product costing systems based on a single volume-based cost driver tend to overcost highvolume products. A. True B. False

13.

Which of the following is not a level in the ABC cost hierarchy? A. B. C. D. E. Unit-level Batch-level Shipment-level Product-sustaining-level Facility-level

ACC 312 Midterm #1 14.

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SylCos 10 production workers earn $10/hour for a 40-hour work week, and when they work overtime they are paid $15/hour. For the most recent week, SylCos total payroll included the following (except as indicated all time is considered direct labor): 40 hours of clean-up time (indirect labor) 16 hours of on-the-job training (other manufacturing overhead) 4 hours of idle time (other manufacturing overhead) 80 overtime hours Employee fringe benefits payments at 25% of total wages earned What is the cost of Direct Labor for that week (recall that fringe benefits on direct labor time are treated as part of direct labor cost)? A. B. C. D. E. $4,000 $4,200 $5,200 $5,250 $6,500

10 workers x 40 hrs = 400 regular hrs + 80 OT hrs = 480 total hrs worked 40 hrs 16 hrs 4 hrs non-DL = 420 DLH x $10/hr = $4,200 DL cost before benefits x 1.25 = $5,250 with benefits note: OT premium of $5 is MOH, not DL; benefits follow labor

15.

Assuming SylCo uses a normal costing system, what is the journal entry used to record payroll-related manufacturing overhead at the time employee payroll is recorded? A. dr. Manufacturing overhead cr. Wages payable B. dr. Work-in-process inventory cr. Wages payable C. dr. Finished goods inventory cr. Wages payable D. dr. Cost of goods sold cr. Wages payable E. dr. Payroll expense cr. Wages payable

16.

All costs can be classified as either product costs or ___________________. A. B. C. D. E. Period costs Sunk costs Research and development costs Administrative costs Manufacturing overhead

17.

Frost Bank owns the largest building in downtown Austin. Which of the following describes the opportunity cost to Frost Bank of their decision to occupy several floors of the building? A. B. C. D. The total overhead cost of those floors The cost of overhead plus their investment in finishing the space, including fixed assets The cost of adding one additional cubic foot of space to the building The net loss in revenue from not leasing the space to someone else and locating Frosts offices in a less expensive but equally suitable building. E. The revenue expected to be earned from business on those floors less the total cost of occupancy on those floors.

ACC 312 Midterm #1 18.

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Which of the following is the main factor in deciding whether to use Process costing or Job-order costing? A. B. C. D. E. Cost of products or services produced Selling price of products or services produced Preference of management Type of production process Number of production departments

19.

The hybrid product costing systems called operation costing system typically assigns the cost of direct materials to work-in-process inventory following which of these methods? A. B. C. D. E. Opportunity costing Job-order costing Process costing Multi-period averaging Service-department cost allocation

20.

Which of the following does not accurately describe customer profitability analysis? A. B. C. D. E. Requires the use of activity-based costing. Adds customer-level costs to the cost hierarchy. Uses opportunity costs and product costs to classify customers. Frequently expresses results using a customer-profitability profile graph. Is an example of activity-based management.

ACC 312 Midterm #1

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SECTION II (40 points) You MUST show your work to receive credit for your answers and to receive partial credit. Please try to be as neat and organized as possible. Problem 1 (12 points) Thompson Products has a job-order costing system. Manufacturing overhead is applied using a predetermined overhead rate of 50% of direct labor cost, and over- or underapplied overhead is only adjusted at the end of the year (December 31). Thompson provided the information below: Raw materials inventory Work in process inventory Finished goods inventory May 1 $8,000 $15,000 $32,000 May 31 $12,000 $9,000 $18,000

During May, gross margin was 30% of sales and Thompson sold 25,000 units at an average price of $28/unit. The applied manufacturing overhead for May was $120,000. Required

A.

Compute the cost of goods sold for May. (3 points)

Sales COGS = Gross Margin, so COGS = Sales Gross Margin Sales = (25,000 units x $28/unit) = $700,000 Gross Margin = 30% x Sales = 30% x $700,000 = $210,000 COGS = $700,000 - $210,000 = $490,000

B.

Compute the cost of goods manufactured for May. (3 points)

Cost of goods manufactured (CGM) = Additions to Finished-goods inventory (FGI) From the Schedule of COGS: Beginning FGI + CGM Ending FGI = COGS, so CGM = COGS + Ending FGI Beginning FGI COGS = $490,000 (from part A) and Beginning and Ending FGI are given, so CGM = $490,000 + $18,000 - $32,000 = $476,000

C.

Compute the amounts of (i) direct materials used (3 points) and (ii) raw materials purchased (3 points) during May.
From the Schedule of CGM: CGM = Total manufacturing costs (TMC) + Beginning WIP inventory Ending WIP inventory, so TMC = CGM Beginning WIP + Ending WIP = $476,000 (from part B) - $15,000 (given) + $9,000 (given) = $470,000 TMC = Direct materials (used) + Direct labor + Manufacturing overhead applied $470,000 = DM_Used + ($120,000 / 50%)* + $120,000 (given), and solving for DM we get DM_used = $110,000 * Overhead is applied at 50% of DL$ Ending raw materials (RM) inventory = Beginning RM inventory + RM_purchased DM_used, so RM_purchased = Ending RM inventory Beginning RM inventory + DM_used = $12,000 (given) - $8,000 (given) + $110,000 (above) = $114,000

ACC 312 Midterm #1

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Problem 2 (9 points, plus 3 points extra credit if you solve part D) Vail Inc. manufactures a product that goes through several departments prior to completion. The following information is available from the mixing department during June. Physical Units 20,000 180,000 160,000 40,000 % Complete Materials Conversion 100% 75% 100% 25%

Work in process, beginning Started into production Completed and transferred out Work in process, ending

Cost in beginning inventory and cost added during June were as follows: Work in process, beginning Cost added during June Materials $25,200 $334,800 Conversion $24,800 $238,700

The company uses the weighted-average process costing method to compute unit costs. The Mixing department is the first department in the production process, after mixing has been completed; the units are transferred to the molding department. Required

A.

Calculate the equivalent units of production for direct materials and conversion costs. (3 points)
Physical Units 160,000 40,000 200,000 Equivalent Units DM Conversion 160,000 160,000 40,000 200,000 10,000 170,000

Transferred out Ending WIP TOTAL

B.

Calculate the total cost of ending work in process. (3 points)

Cost per Equivalent Unit: DM ($25,200 + $334,800) / 200,000 EU = $1.80/EU Conv Cost ($24,800 + $238700) / 170,000 EU = $1.55/EU Ending WIP = (40,000 EU x $1.80/EU) + (10,000 EU x $1.55/EU) = $72,000 + $15,500 = $87,500

ACC 312 Midterm #1

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(Problem 2, conclusion)
C. Calculate the total cost of goods completed and transferred out. (3 points)
Cost per Equivalent Unit: DM ($25,200 + $334,800) / 200,000 EU = $1.80/EU Conv Cost ($24,800 + $238700) / 170,000 EU = $1.55/EU Completed and transferred out = 160,000 EU x ($1.80/EU + $1.55/EU) = $536,000

D.

In the following month (July), $317,980 of raw materials were put into production, and all July ending WIP units were again 100% complete for direct materials. If the cost per equivalent unit of direct materials in July was $0.05 per equivalent unit greater than in June, how many physical units of Vails product were started in the Mixing department in July? (3 points extra credit)
Cost per Equivalent Unit of DM in July: $1.80 (from June, part B) + $0.05 = $1.85

Total cost in July: ($317,980 given + $72,000 June ending WIP for DM from part B) = $389,980 July EU for DM = $389,980 / $1.85 = 210,800 and for DM, EU = physical units Since total physical units accounted for = 210,800 and the beginning WIP contained 40,000 units (ending WIP units for June), the Step 1 calculation yields (210,800 40,000) = 170,800 units started in July.

ACC 312 Midterm #1 Problem 3 (19 points)

Form A - Page 9

Spring 2007

Lonestar Ltd. manufactures several high-priced talking-animal toys, including Bevos (3-tall longhorns that wiggle their horns and say things like Hook 'em, horns and A&M sucks!) and Dillos (life-sized armadillos that flatten out and develop tire marks when touched and say things like Please dont hit me and No, Im not diseased.). Their products are sold through high-end retail outlets and Texas specialty shops. The firm presently computes a single, plant-wide predetermined overhead rate based on direct-labor hours, and direct labor hours for the present period are budgeted at 17,000. Production and product costing budget data are as follows: Production quantity Direct material per unit Bevo Voice and Wiggle mechanism Dillo Voice and Flatten mechanism Fabric and stuffing Direct labor per unit (at $15 per hour) Dillos 1,000 units Bevos 5,000 units $12.50 $25.00 $10.00 0.5 hr. $17.50 1.5 hr.

Manufacturing overhead costs for all products have been assigned to the following cost pools/activities: Sewing and Assembly $ 450,000 Setup and Inspection $ 180,000 Product Support $ 90,000 Plant Operations $ 96,000 Lonestar Ltd. would like to price their products at 130% of production cost. Required A. Compute the single, pre-determined overhead rate for the direct-labor based system. (3 points)
Overhead = ($450,000 + $180,000 + $90,000 + $96,000) = $816,000 DLH = 17,000 (given) DLH-Based Overhead Rate = $816,000/17,000 = $48 per DLH

B.

Compute Lonestars desired selling price for each product under the direct-labor based system. (3 points)

Dillos:
DM DL MOH (0.5x$48; 1.5x$48) Total Production Cost Mark-Up Desired Selling Price

Bevos:
Dillos $35.00 $7.50 $24.00 66.50 1.30 $86.45 Bevos $30.00 $22.50 $72.00 $124.50 1.30 $161.85

ACC 312 Midterm #1

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(Problem 3, continued)
C. The following cost drivers have been identified for the four cost pools: Cost Pool Sewing and Assembly Setup and Inspection Product Support Plant Operations Cost Driver Machine hours (MH) Number of production runs (PR) Engineering change orders (CO) Square feet of plant space (SF) Cost Driver Quantity 20,000 hrs. 100 runs 240 change orders 19,200

You have gathered the following information specific to the Dillo and Bevo products:

Each Dillo requires 4 machine hours. Bevos require only 1 machine hour each since they are primarily hand sewn. Dillos are manufactured in production runs of 50 units each. Bevos are manufactured in 250-unit batches. It is anticipated that Dillos will need 75 change orders during the period and Bevos will need 25. The plant has 19,200 square feet of space, 30% of which is used in the production of Bevos and 15% in the production of Dillos (the rest is used for other products not considered here).

Compute the desired selling price of each product using this information in an ABC system (the remainder of this page and the next page can be used for your work). (8 points)

Dillos: Bevos: (please round answers to the nearest cent)

ACC 312 Midterm #1

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(Reserved for calculations relating to Problem 3, Part C)

Step 1: compute pool rates Sewing and Assembly Set-up and Inspection Product Support Plant Operations Pool $ $450,000 $180,000 $90,000 $96,000 Driver Units 20,000 100 240 19,200 Pool Rate

Step 2: compute product costs Dillos ($25 voice/flatten + $10 fabric) (0.5 DLH x $15/DLH) (4 MH x $22.50/MH) Sewing and Assembly Set-up and Inspection Product Support Plant Operations Total MOH/Unit Total Production Cost/Unit Bevos ($12.50 voice/wiggle + $17.50 fabric) (1.5 DLH x $15/DLH) (1 MH x $22.50/MH) Sewing and Assembly Set-up and Inspection Product Support Plant Operations Total MOH/Unit Total Production Cost/Unit ($1800/run 250 units/run) (25 CO x $375/CO) 5,000 units) ((19,200SF x 30% x $5/SF) 5,000 units) ($1,800/run 50 units/run) (75 CO x $375/CO) 1,000 units) ((19,200SF x 15% x $5/SF) 1,000 units)

DM/Unit DL/Unit MOH:

$35.00 $7.50 $90.00 $36.00 $28.125 $14.40 $168.525 $211.025

DM/Unit DL/Unit MOH:

$30.00 $22.50 $22.50 $7.20 $1.875 $5.76 $37.335 $89.835

Step 3: compute desired prices Dillos $211.025 X 1.30 $274.33 Bevos $89.835 x 1.30 $116.79

Total Production Cost per Unit Mark-up Desired Price per Unit

ACC 312 Midterm #1

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(Problem 3, conclusion) D. Very briefly what two characteristics make Lonestar a desirable setting for an ABC system? (3 points)
1. Product diversity (consumption of overhead, as indicated by cost drivers, differs significantly between products) 2. Presence of a significant proportion of non-unit level costs (cost diversity)

E.

If prices for Lonestars toys are set by a competitive market and a normal amount of competition is present, which of the two products considered in this problem is most likely to be considered unprofitable (or at least insufficiently profitable) by Lonestar when viewed through the lens of the present (single-pool, DLH-based) cost system? (No explanation required) (2 points)
Bevos (The competitive market will force the price to be near the ABC-based price of $116.97, or even less if the competition will not allow a 30% margin. Under the present cost system, Lonestar views the costs of Bevos to be $124.50 and would consider them as underperformers unless they can sell for the 30%-margin level of $161.85 not likely in a normally competitive market.)