Acct 201B

Summer 2015
Exam 2 prep
Chapter 3
Solution for Ex 3 7

1. The unit product costs under the company's conventional

costing system would be computed as follows:
Merco Wurco
n
n
Total
Number of units produced (a)............... 10,000 40,000
Direct labor-hours per unit (b)...............
0.20
0.25
Total direct labor-hours (a) (b)........... 2,000 10,000 12,000
Total manufacturing overhead (a)......... $336,000
Total direct labor-hours (b)....................
12,000 DLHs
Predetermined overhead rate (a) (b).
$28.00 per DLH
Merco Wurco
n
n
Direct materials..................................... $10.00 $ 8.00
Direct labor...........................................
3.00
3.75
Manufacturing overhead applied:
0.20 DLH per unit $28.00 per DLH...
5.60
0.25 DLH per unit $28.00 per DLH...
7.00
Unit product cost................................... $18.60 $18.75

2. The unit product costs with the proposed ABC system can be computed as follows:
Estimate
d
Overhea
d
Activity Cost Pool
Cost*
$168,000
Labor related..........
Engineering
168,000
design..................
$336,000

(b)
Expected
Activity
direct labor12,000 hours
engineering8,000 hours

$14.00

(a) (b)
Activity
Rate
per direct labor-hour

per engineering$21.00 hour

*The total manufacturing overhead cost is split evenly between the two activity cost
pools.
Manufacturing overhead is assigned to the two products as follows:
Mercon

Labor related, at $14.00 per direct labor-hour.

Engineering design, at $21.00 per
engineering-hour...........................................
Total overhead cost assigned (a)......................
Number of units produced (b)..........................
Overhead cost per unit (a) (b)......................

Expected
Activity
Amount
2,000 $ 28,000
4,000
84,000

Wurcon
Expecte
d
Activity Amount
10,000 $140,000
4,000
84,000

$112,000
10,000
$11.20

$224,000
40,000
$5.60

The unit product costs combine direct materials, direct

labor, and manufacturing overhead costs:
Mercon Wurcon
Direct materials........................... $10.00
$ 8.00
Direct labor.................................
3.00
3.75
Manufacturing overhead (see
above)...................................... 11.20
5.60
Unit product cost......................... $24.20 $17.35
3. The unit product cost of the high-volume product, Wurcon,
declines under the activity-based costing system, whereas
the unit product cost of the low-volume product, Mercon,
increases. This occurs because half of the overhead is
applied on the basis of engineering design-hours instead
of direct labor-hours. When the overhead was applied on
the basis of direct labor-hours, most of the overhead was
applied to the high-volume product. However, when the
overhead is applied on the basis of engineering-hours,
more of the overhead cost is shifted over to the lowvolume product. Engineering design is a product-level
activity, so the higher the volume, the lower the unit cost
and the lower the volume, the higher the unit cost.
Exam prep questions:
Chapter 3

Selena Company has two products: A and B. The company uses

activity-based costing. The estimated total cost and expected
activity for each of the company's three activity cost pools are as
follows:

The activity rate under the activity-based costing system for

Supporting Customers is closest to:
A.
B.
C.
D.

$46.33
$21.67
$65.00
$18.53

Activity rate = Estimated overhead cost Expected activity =

$26,000 1,200 = $21.67

The controller of Ferrence Company estimates the amount of

materials handling overhead cost that should be allocated to the
company's two products using the data that are given below:

The total materials handling cost for the year is expected to be

$16,486.40.
If the materials handling cost is allocated on the basis of direct
labor-hours, how much of the total materials handling cost should
be allocated to the wall mirrors? (Round off your answer to the
nearest whole dollar.)
A.
B.
C.
D.

$13,220
$15,053
$9,892
$8,243

Predetermined overhead rate = $16,486.40 (6 DLHs per unit

7,000 units + 4 DLHs per unit 1,000 units) = $16,486.40
(42,000 DLHs + 4,000 DLHs) = $0.3584 per DLH
Materials handling cost allocated to Wall Mirrors = $0.3584 per
DLH 42,000 DLHs = $15,052.80
If the materials handling cost is allocated on the basis of material
moves, how much of the total materials handling cost should be
allocated to the specialty windows? (Round off your answer to the
nearest whole dollar.)
A.
$3,266
B.
$9,274
C.
$8,243
D.
$6,595
Activity rate = $16,486.40 (700 material moves + 900 material
moves) = $10.304 per material move
Materials handling cost allocated to Specialty Windows = $10.304 per
material move 900 material moves = $9,273.60
Chapter 4

Chae Corporation uses the weighted-average method in its

process costing system. This month, the beginning inventory in
the first processing department consisted of 500 units. The costs
and percentage completion of these units in beginning inventory
were:

A total of 8,100 units were started and 7,500 units were

transferred to the second processing department during the
month. The following costs were incurred in the first processing
department during the month:

The ending inventory was 80% complete with respect to materials

and 75% complete with respect to conversion costs.
Note: Your answers may differ from those offered below due to
rounding error. In all cases, select the answer that is the closest to
the answer you computed. To reduce rounding error, carry out all
computations to at least three decimal places.
How many units are in ending work in process inventory in the
first processing department at the end of the month?
A.
B.
C.
D.

1,100
900
600
7,600

Units in ending work in process = Units in beginning work in

process + Units started into production - Units transferred to the
next department = 500 + 8,100 - 7,500 = 1,100

What are the equivalent units for conversion costs for the month in the
first processing department?
A.
B.
C.
D.

8,600
825
7,500
8,325

The cost per equivalent unit for materials for the month in the first
processing department is closest to:
A.
B.
C.
D.

$16.32
$17.17
$15.91
$16.73