Cost Accounting Final Exam Review

Management and financial accounting are used for which of the following purposes? Select one: a. Management Accounting Financial Accounting external external b. Management Accounting Financial Accounting internal internal c. Management Accounting Financial Accounting external internal d. Management Accounting Financial Accounting internal external

d. Management Accounting Financial Accounting internal external

Which of the following could not be used in job-order costing? Select one: a. standards b. overhead allocation based on the job's direct labor hours c. normal costing d. an average cost per unit for all jobs

d. an average cost per unit for all jobs

For purposes of allocating joint costs to joint products using the relative sales value at split-off method, the costs beyond split-off Select one: a. are deducted from the sales value at the point of sale. b. are deducted from the relative sales value at split-off. c. are allocated in the same manner as the joint costs. d. do not affect the allocation of the joint costs.

d. do not affect the allocation of the joint costs.

Joint cost allocation is useful for Select one: a. control. b. evaluating managers' performance. c. decision making. d. product costing.

d. product costing.

Productivity is measured by the Select one: a. total quantity of output generated from a limited amount of input during a time period b. total quantity of input used to generate total quantity of output for a time period c. quantity of good output generated from the quantity of good input used during a time period d. quantity of good output generated from a specific amount of input during a time period

d. quantity of good output generated from a specific amount of input during a time period

Minot Company Minot Company has the following information available for March when 4,200 units were produced (round answers to the nearest dollar). Standards: Material 4.0 pounds per unit @ $5.25 per pound Labor 6.0 hours per unit @ $10.00 per hour Actual: Material produced 17,500 pounds @ $5.10 Material used 16,700 pounds 25,500 direct labor hours @ $9.85 per hour Refer to Minot Company. What is the labor rate variance? Select one: a. $3,780 F b. $3,825 F c. $3,780 U d. $3,825 U

Labor Rate Variance = (AP - SP) * AQ = ($9.85 - $10.00) * 25,500 hrs. = $3,825 F The correct answer is: $3,825 F

Campbell Corporation Beginning inventory (30% complete as to Material B and 60% complete for conversion) 700 units Started this cycle 2,000 units Ending inventory (50% complete as to Material B and 80% complete for conversion) 500 units Beginning inventory costs: Material A $14,270 Material B 5,950 Conversion 5,640 Current Period costs: Material A $40,000 Material B 70,000 Conversion 98,100 Material A is added at the start of production, while Material B is added uniformly throughout the process. Refer to Campbell Corporation. Assuming a FIFO method of process costing, compute the average cost per EUP for Material A. Select one: a. $31.25 b. $31.00 c. $20.00 d. $20.10

Material A Costs (Current Period) Equivalent Units Average Cost per EUP $40,000 2,000 $20.00 The correct answer is: $20.00

Doron Company The following information is for Doron Company's September production: Standards: Material 4.0 feet per unit @ $3.75 per foot Labor 3.0 hours per unit @ $8.25 per hour Actual: Production 3,500 units produced during the month Material 14,200 feet used; 14,700 feet purchased @ $3.70 per foot Labor 10,400 direct labor hours @ $8.35 per hour (Round all answers to the nearest dollar.) Refer to Doron Company. What is the material price variance (calculated at point of purchase)? Select one: a. $735 U b. $735 F c. $710 F d. $710 U

Material Price Variance = (AP - SP) * AQ = ($3.70 - $3.75) * 14,700 feet purchased = $735 F The correct answer is: $735 F

Plantwide vs. Departmental OH Rates Roddickton Manufacturing Co. has gathered the following information to develop predetermined OH rates for the year. The company produces a wide variety of energy-saving products that are processed through two departments, Assembly (automated) and Finishing (labor intensive). Assembly Finishing Budget total overhead $840,560 $239,520 Budgeted total direct labor hours 14,000 48,000 Budgeted total machine hours 106,400 4,800 Note: For the following questions, round your answers to two decimal places. a. Compute a plantwide predetermined OH rate using direct labor hours. Note: Round your answers to two decimal places. Plantwide rate using DLHs b. Compute a plantwide predetermined OH rate using machine hours. Note: Round your answers to two decimal places. Plantwide rate using MHs c. Compute departmental predetermined OH rates using machine hours for Assembly and direct labor hours for Finishing. Assembly department rate using MHs Finishing department rate using DLHs d. Determine the amount of overhead that would be assigned to a product that required five machine hours in Assembly and one direct labor hour in Finishing using the answers developed in (a), (b), and (c). Total OH assigned under (a) Total OH assigned under (b) Total OH assigned under (c)

Solution a. ($840,560 + $239,520) /(14,000 + 48,000) = $17.42 b. ($840,560 + $239,520) / (106,400 + 4,800) = $9.71 c. Assembly $840,560 / 106,400 = $7.90 Finishing $239,520 / 48,000 = $4.99 d. OH (a) $17.42 x 1= $17.42 OH (b) $9.71 x 5 = $48.55 OH (c) Assembly $7.90 x 5 = $39.50 Finishing $4.99 x 1 = $4.99 Total $44.49

Sell or process further Winn Mills processes cotton in a joint process that yields two joint products: fabric and yarn. May's joint cost is $96,000, and the sales value at split-off are $288,000 for fabric and $240,000 for yarn. If the products are processed beyond split-off, the final sales value will be $432,000 for fabric and $336,000 for yarn. Additional costs of processing are expected to be $96,000 for fabric and $81,600 for yarn. Should the products be processed further?

Solution: Fabric Yarn Final revenues $432,000 $336,000 Revenues at split-off (288,000) (240,000) Incremental revenues $144,000 $96,000 Incremental costs (96,000) (81,600) Net benefit (cost) of further processing $48,000 $14,400 Both products should be processed further.

Target costing Utah Utensil has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product: Year Expected Volume (Units) Expected Price per Unit 1 40,320 $19 2 48,000 20 3 90,000 16 4 33,600 12 The firm wants to net a minimum of $3.50 per unit in profit over the product's life, and selling and administrative expenses are expected to average $42,000 per year. Calculate the life cycle target cost per unit to produce the new utensil. Note: Round your answer to two decimal places (i.e., round 2.4555 to 2.46).

Solution: Life-cycle revenue: Year 1 40,320 x $19 $766,080 Year 2 48,000 x $20 960,000 Year 3 90,000 x $16 1,440,000 Year 4 33,600 x $12 403,200 Total 211,920 $3,569,280 Required profit 211,920 x $3.50 (741,720) Selling & Administrative expenses (for 4 years) (168,000) Total target cost $2,659,560 Target cost per unit: $2,659,560 / 211,920 = $12.55

JIT variances Oklahoma Pneumatic uses a JIT system. The following standards are related to materials A and B, which are used to make one unit of the company's final product: Annual Material Standards 3 pounds of Material A × $2.50 $7.50 4 pounds of Material B × $3.40 13.60 $21.10 Current Material Standards 2 pounds of Material A × $2.50 $5.00 5 pounds of Material B × $3.40 17.00 $22.00 Current material standards differ from the original because of an engineering change made near the end of June. During July, the company produced 7,800 units of its final product and used 28,600 pounds of Material A and 26,000 pounds of Material B. All material is acquired at the standard cost per pound. Calculate the material quantity variance and the engineering change order (ECO) material variance. Note: Do not use a negative sign with your answer. Material quantity variance $ ECO material variance $

Solution: Material usage variance: Actual cost of material this month: (A) 28,600 lbs. x $2.50 per lb. = $71,500 (B) 26,000 lbs. x $3.40 per lb. = 88,400 $159,900 Current material standard: (A) 7,800 x 2 x $2.50 per lb. = $39,000 (B) 7,800 x 5 x $3.40 per lb. = $132,600 $171,600 Material usage variance $(11,700) F Annual material standard: (A) 7,800 x 3 x $2.50 per lb. = $58,500 (B) 7,800 x 4 x $3.40 per lb. = $106,080 $164,580 Current standard (171,600) ECO variance $7,020 U

Financial statement classification Wayside Machine Tool Company purchased a $1,080,000 welding machine to use in production of large machine tools and robots. The welding machine was expected to have a life of 10 years and a salvage value at time of disposition of $108,000 . The company uses straight-line depreciation. During its first operating year, the machine produced 1,080 product units, of which 864 were sold. a. What part of the $1,080,000 machine cost expired? $ b. Where would each of the amounts related to this machine appear on the financial statements at the end of the first year of operations?

Solution: a. ( $1,080,000 - $108,000 ) / 10 x 864 / 1,080 = $77,760 b. Cost of goods sold: $77,760 Finished goods inventory:(( $1,080,000 - $108,000 ) / 10) - $77,760 = $19,440

FIFO cost assignment In October, Manchaca Company, who uses the FIFO method for process costing, had the following production and cost data: Beginning inventory units* 17,040 October completed production 628,000 Units in ending inventory** 11,360 Beginning inventory cost $183,393 October direct material cost per EUP $10.74 October direct labor cost per EUP $13.88 October overhead cost per EUP $24.80 * 80% complete as to DM; 45% complete as to DL; 30% complete as to OH ** 35% complete as to DM; 15% complete as to DL; 25% complete as to OH Note: When answering the following questions, round your answers to two decimal places (i.e. round $4.355 to $4.36). a. What is the cost of the beginning inventory transferred out in October? $ b. What is the total cost transferred out in October? $ c. What is the cost of ending inventory at the end of October? $ d. What is the total cost to account for during October? $

Solution: a. BI cost $183,393.00 Cost to complete: DM1 $36,601.92 DL2 130,083.36 OH3 295,814.40 462,499.68 Total cost of BI transferred $645,892.68 1 17,040 x 20% x $10.74 = $36,601.92 2 17,040 x 55% x $13.88 = $130,083.36 3 17,040 x 70% x $24.80 = $295,814.40 b. Goods started and completed = 628,000 - 17,040 = 610,960 Total FIFO cost per EUP = $10.74 + $13.88 + $24.80 = $49.42 Cost of goods started and completed = 610,960 x $49.42 = $30,193,643.20 Total cost of BI transferred $645,892.68 Cost of goods S&C 30,193,643.20 Total cost of goods transferred $30,839,535.88 c. DM = 11,360 x 35% x $10.74 = $42,702.24 DL = 11,360 x 15% x $13.88 = 23,651.52 OH = 11,360 x 25% x $24.80 = 70,432.00 Total cost of EI $136,785.76 d. Total cost to account for Cost of goods transferred $30,839,535.88 Cost of ending inventory 136,785.76 Total cost to account for $30,976,321.64

Cost accumulation; assigning costs to jobs The law firm of Taub & Lawson, LLP, currently has four cases in process. Following is information related to those cases as of the end of March: Case #1 Case #2 Case #3 Case #4 Direct material $1,248 $22,880 $9,620 $2,210 Direct labor hours 40 90 70 15 Estimated court hours 12 65 120 40 Taub & Lawson allocates overhead to cases based on a predetermined rate of $390 per estimated court hour. The charge for direct labor each hour is $494. a. Determine the total cost assigned to each case as of March 31. b. Case #3 was completed at the end of April. At that time, $26,260 of direct materials had been used and 174 direct labor hours had been incurred. Of the DLHs, 72 had been spent in court. Taub & Lawson's policy is to charge clients actual costs plus 45 percent. What amount will be billed to the client involved in Case #3? Note: Round your final answer to the nearest whole dollar.

Solution: a. Case #1 Case #2 Case #3 Case #4 DM $1,248 $22,880 $9,620 $2,210 DL 19,760 44,460 34,580 7,410 OH 4,680 25,350 46,800 15,600 Totals $25,688 $92,690 $91,000 $25,220 b. DM $26,260 DL 85,956 OH 28,080 Total cost $140,296 Markup (45%) 63,133 Total billed to client $203,429

Cost behavior Spirit Company produces baseball caps. The company incurred the following costs to produce 12,000 caps last month: Cardboard for the brims $8,640 Cloth 21,600 Plastic for headbands 10,800 Straight-line depreciation 12,960 Supervisors' salaries 34,560 Utilities 6,480 Total $95,040 a. What did each cap component cost on a per-unit basis? Enter in table below. b. What is the probable type of behavior that each of the costs exhibits? Enter in table below. c. The company expects to produce 10,000 caps this month. Would you expect each type of per-unit cost to increase, decrease not change, or is the change not determinable?

Solution: a. Component Cost Per-Unit Cardboard for the brims $0.72 ( $8,640 / 12,000) Cloth 1.80 ( $21,600 / 12,000) Plastic for headbands 0.90 ( $10,800 / 12,000) Straight-line depreciation 1.08 ( $12,960 / 12,000) Supervisors' salaries 2.88 ( $34,560 / 12,000) Utilities 0.54 ( $6,480 / 12,000) b. Cardboard, variable; cloth, variable; plastic, variable; depreciation, fixed; supervisors' salaries, fixed; and utilities, mixed. c. If the company produces 10,000 caps this month, the total cost per unit will increase. The variable costs (cardboard, cloth, plastic) will remain constant per unit. The total cost for depreciation and supervisors' salaries will remain fixed, and, thus, will result in a higher cost per unit. The utility cost will go down in total and up on a per-unit basis but, because it is mixed, it is impossible (without other information) to estimate its total or per-unit cost. Component Change in Per-Unit Cost Cardboard for the brims Answer No change Cloth No change Plastic for headbands No change Straight-line depreciation Increase Supervisors' salaries Increase Utilities Increase

OH allocation using cost drivers Wambaugh Corp. has decided to implement an activity-based costing system for its in-house legal department. The legal department's primary expense is professional salaries, which are estimated for associated activities as follows: Reviewing supplier or customer contracts (Contracts) $405,000 Reviewing regulatory compliance issues (Regulation) $569,250 Court actions (Court) $1,293,750 Management has determined that the appropriate cost allocation base for Contracts is the number of pages in the contract reviewed, for Regulation is the number of reviews, and for Court is number of hours of court time. For the year, the legal department reviewed 500,000 pages of contracts, number responded to 750 regulatory review requests, and logged 3,750 hours in court. a. Determine the allocation rate for each activity in the legal department. Note: Round unit costs to two decimal places (i.e. round $4.355 to $4.36). b. What amount would be charged to a department that had 21,000 pages of contracts reviewed, made 27 regulatory review requests, and consumed 315 professional hours in court services during the year? Note: Use the rounded unit cost determined in part (a) in your calculations; round your final answer to the nearest whole dollar.

Solution: a. Contracts rate: $405,000 / 500,000 = $0.81 per contract page Regulation rate: $569,250 / 750 = $759.00 per review request Court rate: $1,293,750 / 3,750 = $345.00 per professional hour b. Contracts: 21,000 x $0.81 = $17,010 Regulation: 27 x $759.00 = 20,493 Court: 315 x $345.00 = 108,675 Total $146,178

Cost accumulation in two departments Rio Valde Co. uses a normal cost, job order costing system. In the Mixing Department, overhead is applied using machine hours; in Paving, overhead is applied using direct labor hours. In December of Year One, the company estimated the following data for its two departments for Year Two: Mixing Department Paving Department Direct labor hours 31,200 72,800 Machine hours 156,000 31,200 Budgeted overhead cost $1,248,000 $1,820,000 a. Compute the predetermined OH rate for each department of Rio Valde. b. Job #220 was started and completed during March of Year Two. The job cost sheet shows the following information: Mixing Department Paving Department Direct material $58,760 $8,840 Direct labor cost $3,250 $10,530 Direct labor hours 62.4 884 Machine hours 754 114.4 Compute the overhead applied to Job #220 for each department and in total. c. The president of Rio Valde suggested that, for simplicity, a single predetermined overhead rate be computed using machine hours. How much overhead would have been applied to Job #220 if that single rate had been used? Note: Round your final answer to the nearest whole dollar.

Solution: a. Mixing: $1,248,000 / 156,000 = $8 per MH Paving: $1,820,000 / 72,800 = $25 per DLH b. Mixing: 754 MHs x $8 = $6,032 Paving: 884 DLHs x $25 = 22,100 Total $28,132 c. OH rate: ( $1,248,000 + $1,820,000) / ( 156,000 + 31,200) = $16.3889 per MH Applied OH: $16.3889 x ( 754 + 114.4) = $14,232

Product cost classifications Barbieri Co. makes aluminum canoes. The company's June costs for material and labor were as follows: Material costs Janitorial supplies $3,240 Chrome rivets to assemble canoes 22,518 Sealant 2,214 Aluminum 3,029,400 Labor costs Janitorial wages $16,740 Aluminum cutters 101,088 Salespeople's salaries 77,490 Welders 280,800 Factory supervisors' salaries 182,250 a. What is the direct material cost for June? $ b. What is the direct labor cost for June? $

Solution: a. Rivets and aluminum $22,518 + $3,029,400 = $3,051,918 The janitorial supplies and the sealant are indirect materials. b. Aluminum cutters and welders $101,088 + $280,800 = $381,888 The janitorial wages and factory supervisors' salaries are indirect labor. The salespeople's salaries are period costs.

WA EUP In manufacturing its products, Trevano Corp. adds all direct material at the beginning of the production process. The company's direct labor and overhead are considered to be continuously at the same degree of completion. September production information is as follows: Beginning WIP Inventory 26,000 pounds Started during September 65,000 pounds Completed during September 83,200 pounds As of September 1, the beginning WIP Inventory was 30 percent complete as to labor and overhead. On September 30, the ending WIP Inventory was 80 percent complete as to conversion. a. Determine the total number of pounds to account for if Trevano uses the weighted average process costing method. Answer 91,000 pounds b. Determine the equivalent units of production for direct material. pounds c. Determine the equivalent units of production for direct labor and overhead. pounds

Solution: a. 26,000 + 65,000 = 91,000 pounds b. & c. Units DM CC Beginning WIP Inventory 26,000 26,000 26,000 Started & completed* 57,200 57,200 57,200 Ending WIP Inventory (80%) 7,800 7,800 6,240 EUP 91,000 91,000 89,440 *Started and completed = 65,000 - ( 91,000 - 83,200) = 57,200 pounds

Cost of quality Managers at Walla-Walla LTD want to determine the company's cost of quality. The following information has been gathered from the records for August: Defective units 4,500 Units reworked 900 Defective units returned 300 Appraisal costs $13,125 Cost per unit for rework $18 Prevention costs $63,750 Profit per good unit produced and sold $85 Profit per defective unit sold $43 Cost per unit for customer returns $14 Cost of warranty work $6,750 Compute the following: a. Lost profits from selling defective work $ b. Total costs of failure $ c. Total quality cost $

Solution: a. Profits lost by selling defective units: ( 4,500 - 900) x ($85 - $43) = $151,200 b. Profits lost by selling defective units $151,200 Rework costs 16,200 = 900 x $18 Cost of warranty work 6,750 Cost of customer returns 4,200 = 300 x $14 Total failure costs $178,350 c. Total failure costs $178,350 Prevention costs 63,750 Appraisal costs 13,125 Total quality costs $255,225 Correct

DM variances In November, DayTime Publishing Company's costs and quantities of paper consumed in manufacturing its annual collegiate calendar were as follows: Actual unit purchase price $0.13 per page Standard unit price $0.14 per page Standard quantity for good production 176,220 pages Actual quantity purchased during November 207,000 pages Actual quantity used in November 180,000 pages a. Calculate the total cost of purchases for November. $ b. Compute the material price variance (based on quantity purchased). Note: Do not use a negative sign with your answer. Note: Round your final answers to the nearest whole dollar. $ c. Calculate the material quantity variance. Note: Do not use a negative sign with your answer. Note: Round your final answers to the nearest whole dollar.

Solution: a. Total purchases = $0.13 x 207,000 = $26,910 b. Material price variance = (AP x AQ) - (SP x AQ) = ( $0.13 x 207,000) - ( $0.14 x 207,000) = $(2,070) Favorable c. Material quantity variance = (SP x AQ) - (SP x SQ) = ( $0.14 x 180,000) - ( $0.14 x 176,220) = $529 Unfavorable

Keyser Corporation The following information is available for Keyser Corporation for the current year: Beginning Work in Process Cost of Beginning Work in Process: (75% complete) 14,500 units Material $25,100 Started 75,000 units Conversion 50,000 Ending Work in Process Current Costs: (60% complete) 16,000 units Material $120,000 Abnormal spoilage 2,500 units Conversion 300,000 Normal spoilage (continuous) 5,000 units Transferred out 66,000 units All materials are added at the start of production. Refer to Keyser Corporation. What is the cost per equivalent unit for material using weighted average? Select one: a. $1.77 b. $1.62 c. $2.07 d. $1.72

Weighted Average: Materials Beginning $25,100 Current Period 120,000 $145,100 ÷ 84,500 units = $ 1.72 per unit The correct answer is: $1.72

A cost management system would be an integral part of implementing which of the following? Select one: a. Strategic resource management Core competency assessment Centralized management Yes No Yes b. Strategic resource management Core competency assessment Centralized management Yes Yes No c. Strategic resource management Core competency assessment Centralized management No No No d. Strategic resource management Core competency assessment Centralized management No Yes Yes

a. Strategic resource management Core competency assessment Centralized management Yes No Yes

Cost accounting is directed toward the needs of Select one: a. internal users. b. regulatory agencies. c. external users. d. stockholders.

a. internal users.

ABC should be used in which of the following situations? Select one: a. multiple-product firms with multiple processing steps b. multiple-product firms with only a single process c. in all manufacturing firms d. single-product firms with multiple steps

a. multiple-product firms with multiple processing steps

Predetermined overhead rates are computed based on Select one: a. Estimated overhead costs Estimated level of activity no yes b. Estimated overhead costs Estimated level of activity yes yes c. Estimated overhead costs Estimated level of activity no no d. Estimated overhead costs Estimated level of activity yes no

b. Estimated overhead costs Estimated level of activity yes yes

An activity driver is used for which of the following reasons? Select one: a. To measure demands To measure resources consumed No Yes b. To measure demands To measure resources consumed Yes Yes c. To measure demands To measure resources consumed Yes No d. To measure demands To measure resources consumed No No

b. To measure demands To measure resources consumed Yes Yes

_____ is a way of teaching accounting concepts to financially unsophisticated employees. Select one: a. BPR b. Game playing c. open-book management d. Data mining

b. Game playing

The reward system for subunit managers of mature businesses should emphasize Select one: a. exceeding last year's subunit profit b. near-term profit and cash flow c. success in product design and development d. long-term competitive prospects

b. near-term profit and cash flow

Which ethical standard is violated by an accountant who accepts a gift from a client Select one: a. Confidentiality b. Competence c. Integrity d. Credibility

c. Integrity

In a JIT system, the quality of each product begins with Select one: a. inspection of finished goods inventory. b. a good product warranty. c. a company's vendors. d. employees.

c. a company's vendors.