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Oakton Community College

Accounting 154 Managerial Accounting


Robert Bruebach
Review Questions for Exam I

CHAPTER 1
1. Salaries and wages incurred in the factory would be product costs.
T / F

2. The cost of goods manufactured is included in the cost of goods available for sale in a
manufacturing company.
T / F

3. Which of the following would most likely be included as part of manufacturing


overhead in the production of a wooden table?
A) The amount paid to the individual who stains the table.
B) The commission paid to the salesperson who sold the table.
C) The cost of glue used in the table.
D) The cost of the wood used in the table.

4. Using the following data for April, calculate the cost of goods manufactured:
Direct materials................................................
Direct labor......................................................
Manufacturing overhead..................................
Beginning work in process inventory..............
Ending work in process inventory...................
The cost of goods manufactured was:

$23,00
0
$21,00
0
$37,00
0
$13,00
0
$18,00
0

5. The following data were taken from the cost records of the Beca Company for last
year:
Depreciation, factory equipment...........
Depreciation, office equipment.............
Supplies, factory....................................
Maintenance, factory equipment...........
Utilities, factory.....................................
Sales commissions................................
Indirect labor.........................................
Rent, factory building............................
Purchases of raw materials....................
Direct labor cost....................................
Advertising expense..............................
Inventories:
Raw materials.............

Beginnin
g
$ 9,000

Work in process..........
Finished goods............

6,000
69,000

$30,00
0
7,000
1,500
20,000
8,000
30,000
54,500
70,000
124,00
0
80,000
90,000

Ending
$11,00
0
21,000
24,000

Required:
Prepare a schedule of cost of goods manufactured.

CHAPTER 2
6. The following journal entry would be made to apply overhead cost to jobs in a joborder costing system:
Manufacturing Overhead......................
Work in Process..........................

XX
X
XXX

T / F
7. Under- or overapplied overhead represents the difference between actual overhead
costs and applied overhead costs.

T / F
8. In computing its predetermined overhead rate, Brady Company included its factory
insurance cost twice. This error will result in:
A) the ending balance of Finished Goods to be understated.
B) the credits to the Manufacturing Overhead account to be understated.
C) the Cost of Goods Manufactured to be overstated.
D) the Net Operating Income to be overstated.
9. Steele Company uses a predetermined overhead rate based on machine hours to apply
manufacturing overhead to jobs. Steele Company has provided the following
estimated costs for next year:
Direct materials....................................
Direct labor..........................................
Sales commissions...............................
Salary of production supervisor...........
Indirect materials.................................
Advertising expense.............................
Rent on factory equipment...................

$20,00
0
60,000
80,000
40,000
8,000
16,000
20,000

Steele estimates that 10,000 direct labor hours and 16,000 machine hours will be
worked during the year. The predetermined overhead rate per hour will be:

10. Birk Co. uses a job order cost system. The following debits (credit) appeared in Birks
Work in Process account for the month of April:
Apri
l
1
30
30
30
30

Description

Amount

Balance......................................
Direct materials..........................
Direct labor................................
Manufacturing overhead............
To finished goods......................

$ 4,000
24,000
16,000
12,800
(48,000
)

Birk applies overhead to jobs at a predetermined rate of 80% of direct labor cost. Job
No. 5, the only job still in process on April 30, has been charged with direct labor of
$2,000. What was the amount of direct materials charged to Job No. 5?
A) $3,000
B) $5,200
C) $8,800
D) $24,000

11. Pinnini Co. uses a predetermined overhead rate based on direct labor hours to apply
manufacturing overhead to jobs. Last year, Pinnini Company incurred $225,000 in
actual manufacturing overhead cost. The Manufacturing Overhead account showed
that overhead was overapplied $14,500 for the year. If the predetermined overhead
rate was $5.00 per direct labor hour, how many hours did the company work during
the year?

Use the following to answer questions 12-13:


Snappy Company has a job-order cost system and uses a predetermined overhead rate based
on direct labor-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost
and direct labor-hours were estimated at $100,000 and 40,000 hours, respectively, for the
year. In July, Job #334 was completed at a cost of $5,000 in direct materials and $2,400 in
direct labor. The labor rate is $6 per hour. By the end of the year, Snappy had worked a total
of 45,000 direct labor-hours and had incurred $110,250 actual manufacturing overhead cost.
12. If Job #334 contained 200 units, the unit cost on the completed job cost sheet would
be:

13. Snappys manufacturing overhead for the year was:


$_______________

underapplied / overapplied
(circle one)

Use the following to answer questions 14-15:


Munos Publishing Company uses a job-order costing system to collect costs related to the
manufacture of specialty publications for corporate training.
14. What journal entry would Munos make to record the application of $1,200 of
manufacturing overhead to Job KN672?
A)

B)

Work in Process.............................................................................................
$1,20
0
Manufacturing Overhead...............................................................................
$1,20
0
Cost of Goods Manufactured.........................................................................
$1,20
0
Manufacturing Overhead...............................................................................
$1,20
0

C)

D)

Manufacturing Overhead...............................................................................
$1,20
0
Work in Process.............................................................................................
$1,20
0
Cost of Goods Manufactured.........................................................................
$1,20
0
Work in Process.............................................................................................
$1,20
0

15. What journal entry would Munos make to record the completion of Job KN668 at a
total cost of $7,600?
Work in Process.............................................................................................
$7,60
0
Finished Goods..............................................................................................
$7,60
0
B) Cost of Goods Manufactured.........................................................................
$7,60
0
Work in Process.............................................................................................
$7,60
0
C) Finished Goods..............................................................................................
$7,60
0
Work in Process.............................................................................................
$7,60
0
D) Cost of Goods Manufactured.........................................................................
$7,60
0
Finished Goods..............................................................................................
$7,60
0
CHAPTER 3
A)

16. In activity-based costing, unit product costs computed for external financial reports
include direct materials, direct labor, and manufacturing overhead costs.
T / F
17. Vex Corporation manufactures a variety of products. In the past, Vex had been using a
traditional overhead allocation system based on machine hours. For the current year,
Vex decided to switch to an activity-based costing system using machine hours and
the number of inspections as measures of activity. Information on these measures of
activity and related overhead rates for the current year are as follows:
Machine hours........................
Number of inspections...........

Estimated Activity
50,000
3,000

Activity Rate
$8 per machine hour
$40 per inspection

Job #812 for the current year required 15 machine hours and 2 inspections. Would this
job have been overcosted or undercosted under the traditional system and by how
much?
A) undercosted by $36.

B) undercosted by $44.
C) overcosted by $80.
D) undercosted by $80.

Use the following to answer questions 18-19:


Acker Company uses activity-based costing. The company has two products: A and B. The
annual production and sales of Product A is 1,800 units and of Product B is 1,000 units. There
are three activity cost pools, with estimated costs and expected activity as follows:
Activity Cost Pool
Activity 1..............
Activity 2..............
Activity 3..............

Estimated Cost
$29,010
$32,448
$45,482

Expected Activity
Product A Product B
1,100
400
1,400
200
720
500

Total
1,500
1,600
1,220

18. The activity rate for Activity 3 is closest to:


A) $87.66.
B) $90.96.
C) $37.28.
D) $24.75.

19. The overhead cost per unit of Product A is:

Use the following to answer questions 20-22:


Nimbe Corporation manufactures a variety of products. In the past, Nimbe has been using a
traditional costing system in which the predetermined overhead rate was 150% of direct labor
cost. Nimbe has decided to switch to an activity-based costing system for manufacturing
overhead costs using three activity cost pools. Information on these cost pools for next year
are as follows:
Activity Cost Pool
Machine Setups............
Quality Control............
Other Overhead............

Activity Measure
Number of setups
Number of inspections
Machine hours

Estimated
Activity
400
1,500
30,000

Estimated
Overhead Cost
$150,000
$180,000
$480,000

Information (on a per unit basis) related to three popular products at Nimbe are as follows:
Direct material cost.......................
Direct labor cost...........................
Number of setups..........................
Number of inspections..................

Model #19
$400
$810
2
1

Model #36
$540
$600
3
3

Model #58
$310
$220
1
1

Number of machine hours............

10

20. Under the traditional system, what would be the total cost of one unit of Model #36?

21. Under the activity-based costing system, what would be the total cost of one unit of
Model #36?

22. In comparing the traditional system with the activity-based costing system, which of
Nimbe's Models had higher unit product costs under the traditional system?
A) #19
B) #58
C) #19 and #58
D) #36 and #58
E) #19, #36, and #58

Use the following to answer questions 23-24:


Angel Corporation uses activity-based costing to determine product costs for external
financial reports. The company has provided the following data concerning its activity-based
costing system:
Activity Cost Pools (and Activity Measures)
Machine related (machine-hours).......................
Batch setup (setups)............................................
General factory (direct labor-hours)...................
Activity Cost Pools
Machine related................
Batch setup.......................
General factory.................

Total
8,000
10,000
12,000

Estimated Overhead Cost


$81,600
$387,000
$274,800

Expected Activity
Product X
Product Y
3,000
5,000
2,000
8,000
7,000
5,000

23. The activity rate for the batch setup activity cost pool is closest to:
A) $48.40
B) $38.70
C) $74.30
D) $193.50

24. Assuming that actual activity turns out to be the same as expected activity, the total
amount of overhead cost allocated to Product X would be:

25. Cabat Company manufactures two products, Product C and Product D. The company
estimated it would incur $177,910 in manufacturing overhead costs during the current
period. Overhead currently is applied to the products on the basis of direct labor-hours.
Data concerning the current period's operations appear below:
Estimated volume.........................
Direct labor-hours per unit...........
Direct materials cost per unit........
Direct labor cost per unit..............

Product C
3,800 units
1.20 hours
$11.60
$10.80

Product D
3,000 units
0.80 hour
$23.70
$ 7.20

Required:
a. Compute the predetermined overhead rate under the current method, and
determine the unit product cost of each product for the current year.
b. The company is considering using an activity-based costing system to compute
unit product costs for external financial reports instead of its traditional system
based on direct labor-hours. The activity-based costing system would use three
activity cost pools. Data relating to these activities for the current period are given
below:
Estimate
d
Overhea
d
Activity Cost Pool
Machine setups...........
Purchase orders...........
General factory...........

Costs
$ 12,190
75,240
90,480
$177,910

Expected Activity
Product
Product
C
D
Total
110
120
230
820
1,160
1,980
4,560
2,400
6,960

Determine the unit product cost of each product for the current period using the
activity-based costing approach.
26. Ermine Company uses activity-based costing to compute product costs for external
reports. The company has three activity centers and applies overhead using
predetermined overhead rates for each activity center. Estimated costs and activities
for the current year are presented below for the three activity centers:

Batch setups..............
Material handling......
General factory.........

Estimate
d
Overhea
d
Cost
$5,600
$88,800
$79,200

Expecte
d
Activity
800
2,400
2,200

Actual costs and activities for the current year were as follows:
Actual
Overhea
d
Actual
Cost
Activity
Batch setups..............
$5,060
850
Material handling...... $87,970
2,420
General factory......... $77,830
2,240
Required:
a. How much total overhead was applied to products during the year?

b. By how much was overhead overapplied or underapplied? (Be sure to clearly label
your answer as to whether the overhead was overapplied or underapplied.)
CHAPTER 8
27. When more hours of labor time are necessary to complete a job than the standard
allows, the labor rate variance is unfavorable.
T / F
28. The general model for calculating a quantity variance is:
A) actual quantity of inputs used (actual price - standard price).
B) standard price (actual quantity of inputs used - standard quantity allowed for
output).
C) (actual quantity of inputs used at actual price) - (standard quantity allowed for
output at standard price).
D) actual price (actual quantity of inputs used - standard quantity allowed for
output).

29. The general model for calculating a price variance is:


A) actual quantity of inputs (actual price - standard price).
B) standard price (actual quantity of inputs - standard quantity allowed for output).
C) (actual quantity of inputs at actual price) - (standard quantity allowed for output at
standard price).
D) actual price (actual quantity of inputs - standard quantity allowed for output).
30. Dolittle Company purchased materials on account. The entry to record the purchase of
materials having a standard cost of $0.50 per pound from a supplier at $0.60 per pound
would include a:
Increase / Decrease to the Materials Price Variance expense account.
(circle one)
Use the following to answer questions 31-32:
The following materials standards have been established for a particular product:
Standard quantity per unit of output.......
8.7 grams
Standard price......................................... $15.30 per gram
The following data pertain to operations concerning the product for the last month:
Actual materials purchased............................ 3,900 grams
Actual cost of materials purchased................
$56,550
Actual materials used in production............... 3,600 grams
Actual output..................................................
400 units
31. What is the materials price variance for the month?
32. What is the materials quantity variance for the month?
Answers
1. True
2. True
3. C
4. $76,000
5. Answer:
Beca Company
Schedule of Cost of Goods Manufactured
Direct Materials:
Beginning raw materials inventory
......................................................................
Add: Purchases of raw materials
......................................................................
Raw materials available for use

$ 9,000
124,000
133,000

......................................................................
Deduct: Ending raw materials inventory
......................................................................
Raw materials used in production....................
Direct labor......................................................
Manufacturing overhead:
Rent, factory building
......................................................................
Indirect labor
......................................................................
Utilities, factory
......................................................................
Maintenance, factory equipment
......................................................................
Supplies, factory
......................................................................
Depreciation, factory equipment
......................................................................
Total overhead costs........................................
Total manufacturing costs................................
Add: Beginning work in process inventory.....
Deduct: Ending work in process inventory......
Cost of goods manufactured............................
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.

False
True
C
$4.25
B
47,900 Hours
$42.00
$2,250 overapplied
A
C
True
B
C
$42.50
$2,040
$2,753
A
B
$268,300

25. Answer:

11,000
$122,00
0
80,000
70,000
54,500
8,000
20,000
1,500
30,000
184,00
0
386,000
6,00
0
392,000
21,00
0
$371,00
0

a. The expected total direct labor hours during the period are computed as follows:
Product C: 3,800 units 1.2 hour per unit...... 4,560 hours
Product D: 3,000 units 0.8 hour per unit...... 2,400 hours
Total direct labor hours.................................... 6,960 hours
Using these hours as a base, the predetermined overhead using direct labor hours
would be:
Estimated overhead cost Estimated direct labor hours
= $177,910 6,960 = $25.56/DLH
Using this overhead rate, the unit product costs are:
Direct materials......................
Direct labor.............................
Manufacturing overhead.........
Total unit product cost............

Product C
$11.60
10.80
30.67
$53.07

Product D
$23.70
7.20
20.45
$51.35

b. The overhead rates for each activity center are as follows:

Machine setups......
Purchase orders......
General factory......

Estimated
Overhead
Costs
$12,190
$75,240
$90,480

Expected
Activity
230
1,980
6,960

Overhead
Rate
$53.00
$38.00
$13.00

The overhead cost charged to each product is:

Machine setups...........
Purchase orders..........
General factory...........
Total overhead cost....

Product C
Product D
Activity Amount Activity Amount
110 $ 5,830
120 $ 6,360
820
31,160
1,160
44,080
4,560
59,280
2,400
31,200
$96,270
$81,640

Overhead cost per unit:


Product C: $96,270 3,800 units = $25.33 per unit.
Product D: $81,640 3,000 units = $27.21 per unit.
Using activity based costing, the unit product cost of each product would be:
Direct materials.....................
Direct labor...........................
Manufacturing overhead.......
Total unit product cost..........

Product C
$11.60
10.80
25.33
$47.73

Product D
$23.70
7.20
27.21
$58.11

26.

Answer:
a.

Estimated
Overhead
Activity Cost Pool
Costs
Batch setups...................
$5,600
Material handling........... $88,800
General factory.............. $79,200

Expected
Activity
800
2,400
2,200

Activity
Rate
$7
$37
$36

The amount of overhead applied to production is determined as follows:


Overhead
Applied
$ 5,950
89,540
80,640
$176,130
$176,13
Overhead applied...........................................................................................
0
Actual overhead costs:
$ 5,06
Batch setups................................................................................................
0
Material handling........................................................................................
87,970
77,83
General factory...........................................................................................
0 170,860
Overhead overapplied (underapplied)............................................................
$ 5,270
Activity Cost Pool
Batch setups..........................
Material handling..................
General factory......................
Total overhead applied..........
b.

27.
28.
29.
30.
31.
32.

False
B
A
Increase
$3,120 Favorable
$1,836 Unfavorable

Activity
Rate
$7
$37
$36

Actual
Activity
850
2,420
2,240