comprehensive examination f -...

COMPREHENSIVE EXAMINATION F

(Chapters 19 - 23)

ApproximateProblem Topic Points Minutes

F - I Multiple Choice ........................................... 20 20

F - II Cost of Goods Manufactured and Sold ....... 15 10

F - III Job Order Cost Accounting ......................... 15 10

F - IV Process Cost Accounting ............................ 23 20

F - V Cost-Volume-Profit ...................................... 12 10

F - VI Production and Direct Materials Budgets .... 15 15

100 85

Checking Work ........................................... 5

90

Test Bank for Accounting Principles, Ninth EditionF- 2

Problem F - I — Multiple Choice (20 points)

Circle the one best answer.

1. Cost of goods manufactured during a period is obtained by taking the total manufacturing costs incurred during the period and adding and subtracting the following inventories:

Adding Subtractinga. Beginning work in process inventory Ending work in process inventoryb. Beginning work in process inventory Ending finished goods inventoryc. Beginning raw materials inventory Ending work in process inventoryd. Beginning finished goods inventory Ending finished goods inventory

2. Raw materials that can be physically and directly associated with the finished product are calleda. indirect materials.b. conversion costs.c. direct materials.d. finished materials.

3. Which one of the following would not be classified as a component of conversion costs?a. Indirect laborb. Direct laborc. Direct materials d. Indirect materials

4. In process cost accounting, equivalent units of production are thea. work done on physical units expressed in terms of fully completed units.b. units that are transferred to the next processing department.c. units completed and transferred to finished goods.d. units that are incomplete at the end of a period.

Use the following information for questions 5 and 6.

In the month of April, a department had 500 units in the beginning work in process inventory that were 60% complete. These units had $16,000 of materials costs and $12,000 of conversion costs. Materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During April, 10,000 units were completed and transferred to the finished goods inventory and there were 2,000 units that were 25% complete in the ending work in process inventory on April 30. During April, manufacturing costs charged to the department were: Materials $368,000; Conversion costs $408,000.

5. The cost assigned to the units transferred to finished goods during April wasa. $724,000.b. $720,000.c. $752,000.d. $716,000.

6. The cost assigned to the units in the ending work in process inventory on April 30 wasa. $144,000.b. $84,000.c. $64,000.d. $116,000.

Comprehensive Examination F F- 3

7. A company has total fixed costs of $60,000 and a contribution margin ratio of 40%. The total variable costs incurred at the break-even level of activity would bea. $60,000.b. $150,000.c. $24,000.d. $90,000.

8. A company desires to earn target net income of $30,000 from the sale of its product. If the unit sales price is $15, unit variable cost is $9, and total fixed costs are $90,000, the number of units that the company must sell to earn its target net income isa. 8,000 units.b. 20,000 units.c. 16,000 units.d. 12,000 units.

9. A company has a policy of having sufficient direct materials inventory on hand at the end of each month equal to 20% of next month's budgeted production needs. The company has budgeted production of 15,000 units of product in June and 20,000 units in July. It takes 2 pounds of direct materials to produce one unit of product and 6,000 pounds of direct materials were on hand on May 31. How many pounds of direct materials should be purchased in the month of June?a. 32,000 poundsb. 30,000 poundsc. 38,000 poundsd. 28,000 pounds

10. A company has budgeted direct materials purchases of $100,000 in March and $160,000 in April. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During April, the following items were budgeted:

Wages Expense $50,000Purchase of office equipment 24,000Selling and Administrative Expenses 16,000Depreciation Expense 12,000

The budgeted cash disbursements for April area. $216,000.b. $232,000.c. $142,000.d. $244,000.


Problem F - II — Cost of Goods Manufactured and Sold (15 points)

Selected account balances of Fleming Manufacturing Company appear below for 2010:

Beginning of Year End of YearFinished Goods Inventory $25,000 $ 32,000Work In Process Inventory 30,000 35,000Raw Materials Inventory 46,000 26,000Sales 360,000Direct Labor 45,000Factory Supervisory Salaries 18,000Income Tax Expense 25,000Factory Insurance 12,000Raw Material Purchases 75,000Administrative Expenses 17,000Sales Returns and Allowances 15,000Factory Depreciation 22,000Indirect Labor 11,000Selling Expenses 35,000

InstructionsUsing the above information for Fleming Manufacturing Company, answer the following questions. Support your answers with clearly identified computations.

1. What were the total overhead costs incurred?

2. What was the amount of direct materials used in production?

3. What was the cost of goods manufactured?

4. What was the cost of goods sold?

5. What was the amount of net income?


Problem F - III — Job Order Cost Accounting (15 points)

Barber Manufacturing uses a job order cost accounting system. On May 1, the company has a balance in Work in Process Inventory of $5,500 and two jobs in process: Job No. 429, $3,000 and Job No. 430, $2,500. During May, a summary of source documents reveals the following:

For Materials Requisition Slips Labor Time TicketsJob No. 429 $ 3,500 $ 4,400Job No. 430 2,600 3,400Job No. 431 3,400 4,200Job No. 432 3,000 4,000General Use 1,000 1,500

$13,500 $17,500

Barber Manufacturing applies manufacturing overhead to jobs at an overhead rate of 70% of direct labor cost. Job No. 429 is completed during the month.

Instructions(a) Prepare summary journal entries to record the requisition slips, time tickets, the assignment

of manufacturing overhead to jobs, and the completion of Job No. 429. Show computations.

(b) Answer the following questions.

1. What is the balance in Work in Process Inventory at May 31?

2. If Barber Manufacturing incurred $8,000 of manufacturing overhead in addition to indirect materials and indirect labor, was overhead over- or underapplied in May and by how much?


Problem F - IV — Process Cost Accounting (23 points)

The Painting Department of Garner Manufacturing Company has the following production and manufacturing cost data for September.

Production: Beginning inventory 8,000 units that are 100% complete as to materials and 40% complete as to conversion costs; units started into production 27,000; ending inventory of 12,000 units that are 20% complete as to conversion costs.

Manufacturing Costs: Beginning work in process inventory of $40,000, comprised of $30,000 of materials and $10,000 of conversion costs. Materials added during the month, $110,000; labor and overhead applied during the month, $62,000 and $55,000, respectively.

Instructions(a) Compute the equivalent units of production for materials and conversion costs for the month

of September.(b) Compute the unit costs for materials and conversion costs.(c) Determine the costs to be assigned to the units transferred out and ending work in process.

Problem F - V — Cost-Volume-Profit (12 points)

Embassy Company prepared the following income statement for 2010:

FINNEY COMPANYIncome Statement

For the Year Ended December 31, 2010———————————————————————————————————————————Sales (20,000 units) ........................................................................................ $500,000Variable expenses........................................................................................... 300,000Contribution margin ......................................................................................... 200,000Fixed expenses ............................................................................................... 120,000Net income...................................................................................................... $ 80,000

InstructionsAnswer the following independent questions and show computations to support your answers.

1. What is the company's break-even point in units?

2. How many more units would the company have had to sell to earn net income of $120,000 in 2010?

3. If the company expects a 25% increase in sales volume in 2011, what would be the expected net income in 2011?

4. How much sales dollars would the company have to generate in order to earn a target net income of $160,000 in 2011?


Problem F - VI — Budgeting (15 points)

Grace Company has budgeted the following unit sales for the first quarter of 2011:

UnitsJanuary 36,000February 54,000March 45,000

It takes two pounds of direct materials, which cost $6 per pound, to manufacture one unit of product. It is the company's policy to have a finished goods inventory on hand at the end of each month equal to 20% of next month's sales and to maintain a direct materials inventory at the end of the month equal to 30% of the next month's production needs. The inventory levels at December 31, 2010, were in accordance with company policy.

InstructionsAnswer the following independent questions and show computations which support your answers.

1. What was the number of units in ending finished goods inventory at December 31, 2010?

2. Calculate the number of units that should be scheduled for production in the month of February.

3. What was the number of units in ending direct materials inventory at December 31, 2010?

4. What was the number of units and the dollar amount of direct materials purchases budgeted for the month of January?


Solutions — Comprehensive Examination F

Problem F - I — Solution

1. a 6. b2. c 7. d3. c 8. b4. a 9. a5. b 10. b

Problem F - II — Solution

1. Manufacturing overheadFactory supervisory salaries ..................................................... $18,000Factory insurance ..................................................................... 12,000Factory depreciation ................................................................. 22,000Indirect labor............................................................................. 11,000Total overhead costs………………………………………………. $63,000

2. Direct materialsRaw materials inventory, Jan. 1....................................................................... $ 46,000Raw material purchases .................................................................................. 75,000Raw materials available for use ....................................................................... 121,000Raw materials inventory, Dec. 31 .................................................................... 26,000Direct materials used ……………………………………………………………….. $95,000

3. Work in process inventory, Jan. 1................................................... $ 30,000Direct materials used...................................................................... $95,000Direct labor..................................................................................... 45,000Manufacturing overhead................................................................. 63,000 203,000Total work in process...................................................................... 233,000Work in process inventory, Dec. 31 ................................................ 35,000Cost of goods manufactured........................................................... $198,000

4. Finished goods inventory, Jan. 1 .................................................... $ 25,000Cost of goods manufactured........................................................... 198,000Cost of goods available for sale...................................................... 223,000Finished goods inventory, Dec. 31.................................................. 32,000Cost of goods sold.......................................................................... $191,000

5. Sales .............................................................................................. $360,000Less sales returns and allowances ................................................. 15,000 $345,000Expenses

Cost of goods sold .................................................................... 191,000Selling expenses....................................................................... 35,000Administrative expenses ........................................................... 17,000Income tax expense.................................................................. 25,000 268,000

Net income ..................................................................................... $ 77,000


Problem F - III — Solution

(a) Requisition slipsMay 31 Work In Process Inventory..................................................... 12,500

Manufacturing Overhead ....................................................... 1,000Raw Materials Inventory................................................ 13,500

Time ticketsWork in Process Inventory..................................................... 16,000Manufacturing Overhead ....................................................... 1,500

Factory Labor................................................................ 17,500

Assignment of overheadWork in Process Inventory ($16,000 × 70%).......................... 11,200

Manufacturing Overhead............................................... 11,200

Completion of Job 429Finished Goods Inventory...................................................... 13,980

Work in Process Inventory ............................................ 13,980($3,000 + $3,500 + $4,400 + $3,080)

(b) 1. Work in Process Inventory balance:May 1 balance $ 5,500Costs added in May 39,700

45,200Completed jobs 13,980May 31 balance $31,220

2. Under- or overapplied overhead:Overhead incurred ($1,000 + 1,500 + $8,000) $10,500Overhead applied 11,200Overhead overapplied $ 700

Problem F - IV — Solution

(a) Equivalent UnitsPhysical Units Materials Conversion Costs

Transferred out 23,000* 23,000 23,000Work in process, September 30 12,000 12,000 2,400**

Total 35,000 35,000 25,400

*(8,000 + 27,000) – 12,000 **(12,000 × .20)

(b) Materials: [($30,000 + $110,000) ÷ 35,000] ................................................ $4Conversion Costs: [($10,000 + $62,000 + $55,000) ÷ 25,400].................... 5

$9

(c) Costs accounted forTransferred out (23,000 × $9) $207,000

Work in process, 9/30Materials (12,000 × $4) 48,000Conversion costs (2,400 × $5) 12,000 60,000

$267,000


Problem F - V — Solution

1. Unit contribution margin = $10 ($200,000 ÷ 20,000).Break-even point in units = 12,000 units ($120,000 ÷ $10).

2. Additional units to be sold = 4,000 units ($40,000 ÷ $10).

3. Contribution margin $250,000 ($200,000 × 1.25)Fixed expenses 120,000Expected net income $130,000

OR

Additional units: 20,000 × 25% = 5,000Additional CM: 5,000 × $10 = $50,000Additional net income: $80,000 + $50,000 = $130,000

4. Contribution margin ratio = 40% ($200,000 ÷ $500,000).Sales dollars necessary = $700,000 [($120,000 + $160,000) ÷ .4].

Problem F - VI — Solution

1. 7,200 units (36,000 × 20%)

2. Production BudgetFebruary

UnitsBudgeted unit sales 54,000Desired ending inventory in units 9,000 (20% × 45,000)Total required units 63,000Less beginning inventory in units 10,800 (20% × 54,000)Required production units 52,200

3. Production Budget January

Budgeted unit sales 36,000Desired ending inventory in units 10,800 (20% × 54,000)Total required units 46,800Less beginning inventory in units 7,200 (20% × 36,000)Required production units 39,600Direct material per unit × 2Raw material inventory, Dec. 31 79,200 × 30% = 23,760 pounds

4. Direct MaterialsJanuary BudgetPounds needed for production 79,200Desired ending inventory

(52,200 × 2 = 104,400) × 30% 31,320Total materials required 110,520Less beginning inventory in units 23,760Direct materials purchases 86,760

× $6Total cost of direct materials purchases $520,560

comprehensive examination f -...

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