midterm exam solution fall 2013

8/20/2019 Midterm Exam Solution Fall 2013

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COMM 305 ALL SECTIONSMID TERM EXAMINATION – FALL 2013

Dear Students

I hope you are doing well and getting ready for the midterm exam. The midterm exam has fivequestions covers chapter 1 to chapter 5.

• Do not forget to write your class section, name and student ID num er on your lined oo!let.

• This examination will last Three "#$ hours and consists of %ive "5$ &uestions printed on "1'$ pages including this page. (a!e sure your copy of the exam is complete efore starting.

• )ou may answer the questions in any order. In front of the oo!let place the num er associated to the order in which they are done. )our answers may e written in pencil or in!.

• *ead the &uestions carefully and udget your time carefully. Show details of all wor! andcalculations in order to enefit from part mar!s, +ttempt all &uestions.

• This is a closed oo! examination no reference to notes, etc. is allowed. -owever, a silenthand held four function calculator and one standard "not electronic$ dictionary are permitted.

• /hen you have finished, su mit your lined answer oo!let"s$, I0( sheet with your name and!eep exam questions.

• lease enumerate your exam oo!lets.

&uestion Topic (ar!s

& 1 (ultiple 2hoice 35 &uestions2hapter 1 to 2hapter 5

#1.35

& 3 2-+ T4* 3 15

& # 2-+ T4* # 1 . 5

& 6 2-+ T4* 6 17

& 5 2-+ T4* 5 17

T8T+9 1''

COM 305 MIDTERM EXAM Page 1 OF 11


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Question I. 31.25 m !"sSe#e$t t%e &est ns'e!(

1. (anagerial accounting:

a$ is governed y generally accepted accounting principles. $ emphasi;es special purpose information .c$ pertains to the entity as a whole and is highly aggregated.d$ is limited to cost data.

3. /hich of the following is not one of the categories in Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management <

a$ 2onfidentiality $ 2ompetencec$ Integrity

d$ Independence

#. /hat criteria must e met in order to consider the wor! of factory employees to e directla our<

a$ It must e promptly associated with converting materials into products. $ It must e physically associated with converting materials into products.c$ It must e materially associated with converting materials into products.d$ It must e periodically associated with converting materials into products.

6. 8utside of the relevant range, which of the following outcomes is unli!ely<

a$ It may e difficult for management to change all fixed costs. $ +chieving cost efficiency may e difficult.c$ Total fixed costs will not change.d$ +t a '= activity level all fixed costs will cease.

5. The main difference etween varia le and fixed costs isa$ varia le costs can e controlled y management, while fixed costs are not.

$ varia le costs change in small amounts while fixed costs never change.c$ total varia le costs are varia le in the relevant range and fixed in the long term,

while fixed costs never change.d$ varia le costs per unit are fixed in the relevant range and fixed costs per unit are

varia le.

>. +t (ay #1, 3'13, Smythe Inc. has ?6,5'' in eginning raw materials, ?>,''' of directla our. If manufacturing overhead was ?1',5'', total manufacturing costs was ?5',5''



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and total raw material purchases were ?#>,''', how much is ending amount of rawmaterials<

a$ ?#>,''' $ ?13,'''c$ ?6',5''

d$ ?>,5''e$ @one of the a ove

. /hich is a true statement a out predetermined overhead rates<a$ + Ao costing system that uses predetermined overhead rates to apply overhead is called a

normal costing system. $ %irms use predetermined overhead rates ecause actual overhead costs and activity

volumes frequently do not fluctuate.c$ redetermined overhead rate equals expected overhead costs for the period times the

expected activity level.d$ +ll of the a ove.

7. 0ayview (anufacturing has ?1>,''' of under applied overhead in (anufacturing8verhead at Decem er #1 and the following account alances at year end:

/or! in rocess Inventory ? 1','''%inished Boods Inventory 3','''2ost of Boods Sold ','''Total costs ?1'','''

The portion of under applied overhead that should e applied to 2ost of Boods Sold is:

a$ ?1>,'''. $ ?11,3''.c$ ?1,13'.d$ "?11,3''$e$ @one of the a ove

C. /hich of the following more closely descri es Ao order and process accountingdifferences<

a$ o order costing is est used when there are more material costs than la our costsinvolved.

$ rocess costing assigns costs to departments while Ao order costing assigns coststo Ao s.

c$ rocess costing emphasi;es the application of overheads more than Ao ordercosting.

d$ o order costing emphasi;es the application of overheads more than processcosting.

1'. + company completed all postings for its Ao costs for the year. /hich of the followingshould have the same totals at year end<



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a$ The cost of materials purchased and the total of the *aw (aterials Inventorycontrol account

$ The total of the amount in the /or! in rocess su sidiary ledger and the /or! inrocess Inventory control account total

c$ The total of the accounts in the /or! in rocess su sidiary ledger and the *aw

(aterials Inventory control account totald$ The cost of materials charged to /or! in rocess Inventory and the total of theaccounts in the /or! in rocess su sidiary ledger

11. 2hin 2ompany incurred direct materials costs of ? 5,''' during the year. (anufacturingoverhead applied was ? ',''' and is applied ased on direct la our costs. The

predetermined overhead rate is '=. -ow much are 2hin 2ompanyEs total manufacturingcosts for the year<

a$ ?1C6,''' $ ?1 5,'''c$ ?165,'''d$ ?365,'''e$ @one of the a ove

13. The otter 2ompany uses the weighted average method and egan the month of (aywith no units completed or in process. During the month the company egan 31','''units ut only completed 175,''' units. The units still in process are 6'= complete. Thecompany incurred ?1,5 5,>'' in manufacturing costs. The cost per equivalent unit is"rounded to the nearest cent$:

a$ ?7.'7 $ ?7.53c$ ? .5'd$ ?15.C3e$ @one of the a ove

1#. The )ang 9td. egan the period with no units in process and 7',''' units in finishedgoods inventory. During the period they sold 37',''' units and also had the following atthe end of the period:

%inished goods "units$ 6','''/or! in process "5'= conversion complete$ 13,'''

4quivalent units for conversion using %I%8 approach for the period totaled:a$ #16,'''

$ 37','''.c$ 36','''.d$ 36>,'''e$ @one of the a ove

16. The 2armel 2ompany egan the period with no units in process or in finished goodsinventory. During the period they egan C>,''' units and completed 7',''' units. If



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equivalent units for the period totalled C',''' then the units in process were what percentcomplete "rounded$<

a$ >3.5.= $ 7#.#=c$ 77.C=

d$ 5=e$ @one of the a ove

15. (anufacturing costs always follow the physical flow of goods. The costs of completedunits from the mixing department are treated as input material costs in the a!ingdepartment. Such a sequential process requires the use of an additional cost componentcalled<

a$ rime costs $ Transferred in costsc$ 2ost of goods soldd$ %actory costs

1>. In the 2arter 2ompany, there are 15,''' units in eginning wor! in process, #',''' unitsstarted into production, and ,''' units in ending wor! in process >'= completed. -owmany physical units are to e accounted for<

a$ 65,''' $ #7,'''c$ 53,'''d$ 3 ,'''e$ @one of the a ove

1 . The mixing department of a companyEs output during the period consists of 35,''' unitscompleted and transferred out, and 15,''' units in ending wor! in process that were #'=complete as to materials and conversion costs. 0eginning inventory was 1 ,''' units thatwere 15= complete as to materials and conversion costs. -ow many units were startedduring the period under weighted average method<

a$ 3 ,''' $ 35,'''c$ 3#,'''d$ 1 ,'''e$ @one of the a ove

17. The /rapping DepartmentEs output during the period consists of 1',''' units completedand transferred out, and >'' units in ending wor! in process that were 5= complete asto materials and conversion costs. 0eginning inventory was 7'' units that were #'=



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complete as to materials and conversion costs. Fnder the %I%8 method, what are theequivalent units of production for materials<a$ 1',>C'

$ 11,'1'c$ 1',65'

d$ 1',31'e$ @one of the a ove

1C. (yrnaEs (anufacturing has >,''' units in eginning wor! in process, 15= complete asto conversion costs, 15,''' units transferred out to finished goods, and 3,''' units inending wor! in process 1'= complete as to conversion costs. (aterials are fully added atthe eginning of the process. -ow much are equivalent units for materials if the %I%8method is used<a$ 3#,'''

$ 1C,'''c$ 15,'''d$ 11,'''e$ @one of the a ove

3'. (yrnaEs (anufacturing has >,''' units in eginning wor! in process, 15= complete asto conversion costs, 15,''' units transferred out to finished goods, and 3,''' units inending wor! in process 1'= complete as to conversion costs. (aterials are fully added atthe eginning of the process. -ow much are equivalent units for conversion costs if the%I%8 method is used<a$ 1>,1''

$ 15,C''c$ 16,#''d$ 1#,C''e$ @one of the a ove

31. Schiller 2ompany has unit costs of ?> for materials and ?15 for conversion costs. Thereare 6,3'' units in ending wor! in process which are 35= complete as to conversion costs,and fully complete as to materials cost. -ow much is the total cost assigna le to theending wor! in process inventory if the weighted average method is used<a$ ?6',C5'

$ ?77,3''c$ ?35,3''d$ ?35,3''e$ @one of the a ove

33. Schiller 2ompany has unit costs of ?> for materials and ?15 for conversion costs. Thereare 6,3'' units in ending wor! in process which are 35= complete as to conversion costs,and fully complete as to materials cost. -ow much is the total cost assigna le to theending wor! in process inventory if the %I%8 method is used<



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a$ ?6',C5' $ ?77,3''c$ ?35,3''d$ ?35,'''e$ @one of the a ove

3#. +n activity that adds costs to the product ut does not increase its mar!et value is a:a$ Galue added activity

$ 2ost driver c$ 2ost enefit activityd$ @on value added activity

36. Donna 2rawford 2o. has identified an activity cost pool and has estimated overhead of?1,C3',''' to it. It has determined the expected use of cost drivers for that activity to e1>',''' inspections. /idgets require 6',''' inspections, Badgets #',''' inspections,and targets C',''' inspections. The overhead assigned to each product is:a$ /idgets ?6',''', gadgets ?#',''', targets ?C','''

$ /idgets ?67',''', gadgets ?#>',''', targets ?1'7,'''c$ /idgets ?#>',''', gadgets ?67',''', targets ?1,'7','''d$ /idgets ?67',''', gadgets ?#>',''', targets ?1,'7','''e$ @one of the a ove

35. /hich of the following is @8T one of the four steps involved in calculating unit costsunder activity ased costing<a$ +ssign manufacturing overhead costs for each cost pool to products, using the

overhead rates. $ Identify the cost driver that has a minor correlation to the costs accumulated in the

activity cost poolc$ Identify and classify the maAor activities involved in the manufacture of specific

products, and allocate manufacturing overhead costs to the appropriate cost poolsd$ 2alculate the overhead rate per cost driver



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Q)ESTION II. 15 MAR*S

(ina 2ompany speciali;es in manufacturing motorcycle helmets. The company has enoughorders to !eep the factory production at 1,''' motorcycle helmets per month. (inaHs monthly

manufacturing cost and other expense data are as follows.(aintenance costs on factory uilding ? 1,#''

%actory managerHs salary 6,'''

+dvertising for helmets 7,'''

Sales commissions 5,'''

Depreciation on factory uilding ''

*ent on factory equipment >,'''

Insurance on factory uilding #,'''

*aw materials used "plastic, polystyrene, etc.$ 3','''Ftility costs for factory 7''

Supplies for general office 3''

/ages for assem ly line wor!ers 55,'''

Depreciation on office equipment 5''

(iscellaneous materials in production "glue, thread, etc.$ 3,'''

Instructions

"a$ repare an answer sheet with the following column headings.roduct 2osts

2ost Item Direct (aterials Direct 9a our (anufacturing 8verhead eriod 2osts

4nter each cost item on your answer sheet, placing the dollar amount under the appropriateheading. Total the dollar amounts in each of the columns.

" $ 2alculate the cost to produce one helmet.



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Each correct entry = .75 x 17 =12.75 Marks

Product Costs

Cost ItemDirect

MaterialsDirect

LabourManufact.Overhead

PeriodCosts

Maintenance on factory equipmentFactory manager’s s alaryDepreciation on factory buildingRent on factory equipmentInsurance on factory b uildingRaw materialsUtility costs for factoryWages for assembly line workersMiscellaneous materialsAdvertising for helmetsSales commissionsSupplies for general officeDepreciation on office equipment

$20,000

$20,000

$55,000

$55,000

$1,300 4,000

700 6,000

3,000

800

2,000

$17,800

$8,0005,000

200 500

$13,700

(b)Total production costsDirect materials $20,000Direct labour 55,000 Manufacturing overhead 17,800

Total production cost $92,800

Production cost per helmet = $92,800/1,000 = $92.80 = 2.25 MarksNO PARTIAL MARK



10/17

Q)ESTION III. 1+.+5 MAR*S

Barnett rinting 2orp. uses a Ao order cost system. The following data summari;e the operationsrelated to the first quarterHs production:

1.

(aterials purchased on account were ?1C3,''', and factory wages incurred were ?C1,5''.

3.

(aterials used for production and factory la our used y Ao were as follows:o @um er (aterials %actory 9a our

+3' ? ##,36' ?17,'''

+31 63,C3' 36,'''

+33 #>,1'' 1 ,'''

+3# 61,3 ' 35,'''

%or Beneral factory use 6,6 ' ,5''

?157,''' ?C1,5''

#.

(anufacturing overhead costs incurred on account were ?5C,5''.

6.

Depreciation on factory machinery and equipment was ?16,55'.

5.

The manufacturing overhead rate is 7'= of the direct la our cost.

>.

o s completed during the quarter were +3', +31, and +3#.

Instructions1. repare accounting entries to record all the operations summari;ed a ove.3. repare a schedule showing the rea!down of individual cost elements and then the total

cost for each Ao in item >.

Each correct entry = 0.5 mark X 18 = 9 Marks1. Raw Materials Inventory........................................................192,000

cco!nts "aya#le......................................................... 192,000

$actory %a#o!r....................................................................... 91,500$actory &a'es "aya#le................................................ 91,500

2. &ork in "rocess Inventory....................................................15(,5(0



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Man!)act!rin' *verhea+...................................................... , -0 Raw Materials Inventory............................................... 158,000

&ork in "rocess Inventory.................................................... 8 ,000Man!)act!rin' *verhea+...................................................... -,500

$actory %a#o!r.............................................................. 91,500

(. Man!)act!rin' *verhea+...................................................... 59,500cco!nts "aya#le......................................................... 59,500

. Man!)act!rin' *verhea+...................................................... 1 ,550cc!m!late+ e/reciation Machinery

E !i/ment................................................................. 1 ,550

5. &ork in "rocess Inventory.................................................... 3-,200

Man!)act!rin' *verhea+.............................................. 3-,200480 6 78 ,000

3. $inishe+ oo+s Inventory.....................................................2(8,0(0&ork in "rocess Inventory........................................... 2(8,0(0

2. :om/!tation o) cost o) ;o#s )inishe+<

o#irect

Materialsirect

%a#o!r Man!)act!rin'

*verhea+ >otal

20212(

7((,2 02,9201,2-0

718,0002 ,00025,000

71 , 0019,20020,000

7 35,3 083,120 83,2-0

72(8,0(0

Each correct entry = 0.-5 mark X 12 = 9 Marks with ma? 8.-5 marks

1 @ 2 = 1-.-5 marks

Q)ESTION I,. 1- MAR*S

asten 2ompany manufactures owling alls through two processes: moulding and pac!aging. In

the moulding department, urethane, ru er, plastic, and other materials are moulded into owling alls. In the pac!aging department, the alls are placed in cartons and sent to the finished goodswarehouse. +ll materials are entered at the eginning of each process.9a our and manufacturing overhead are incurred uniformly throughout each process. roductionand cost data for the moulding department during une 3'13 are presented elow:



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roduction Data une

0eginning wor! in process units '

Fnits started into production #','''

4nding wor! in process units 6,'''

ercent completeJending inventory 7'=

2ost Data

(aterials ?3C7,'''

9a our >',6''

8verhead 15',7''

Total ?5'C,3''

Instructions"a$ repare a schedule showing physical units of production." $ Determine the equivalent units of production for materials and conversion costs."c$ 2alculate the unit costs of production."d$ Determine the costs to e assigned to the units transferred and in process for une.



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(a) Physical unitsUnits t o be a ccounted for

Work in process, June 1Started into productionTotal units

Units ac counted forTransferred outWork in process, June 30

Total unitsEach correct entry 0.50 X 3 =( Marks

0

30,00030,000

26,0004,000

30,000

(b)

Equivalent unitsMaterials Conversion

CostsUnits transferred outWork in process, June 30

4,000 × 100%4,000 × 80%

Total equivalent units

26,000

4,000

26,000

3,200

30,000 29,200

Each correct entry 1 Mark X 3 = 3 Marks

(c) Unit CostsMaterialsConversion costsTotal unit cost

$9.9333 ($298,000 ÷ 30,000) $7.2329 (($60,400 + $150,800) ÷ 29,200) $17.1662 ($9.9333 + $7.2329) rounded

Each correct entry 1Mark X ( = ( Marks



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(d) Costs accounted forTransferred out (26,000 × $17.1662)

$446,321Work in process, June 30

Materials (4,000 × $9.9333) $39,733Conversion costs (3,200 × $7.2329) 23,146 62,879

Total costs$509,200

Each correct entry 2 Mark X ( = 3 Marks

Tot # 3 / / 3 / 1- M !"s



15/17

Q)ESTION ,. 1- MAR*S

iddy 2ompany manufactures icycles. It recently received a request to manufacture 1' units of amountain i!e at a price lower than it normally accepts. 0ruce, the sales manager, indicated that if

the order were accepted at that price, the company could expect additional orders from the sameclient. 0ruce elieves that if iddy could offer this price in the mar!et generally, sales of this i!ewould increase y #'=. (elany, president of iddy, is s!eptical a out accepting the order. Thecompany has a policy of not accepting any order that does not provide a mar!up of 3'= on fullmanufacturing costs. The price offered is ?57' per i!e.The controller, SanAay, has recently researched the possi ility of using activity ased multipleoverhead rates instead of the single rate currently in use. -e has promised more accurateestimated overhead product costing, and (elany is curious a out how this approach would affect

product costing and pricing of the mountain i!e.The plant wide overhead rate is ased on an expected volume of 1',''' direct la our hours andthe following udgeted overhead:

(achine operating costs ? 5,'''*ewor! la our 65,'''

Inspection 35,'''

Scrap costs #5,'''

Beneral factory overhead 13','''

Total ?#'','''

4xpected activities for selected cost drivers for 3'13:(achine hours 35,'''

Fnits rewor!ed >''

Inspection hours 5''

Fnits scrapped 16'

Direct la our hours 1','''4stimated data for the production of one mountain i!e:Direct materials ? 1>'

Direct la our " .5 hoursKunit$ ? 17'

@um er of units rewor!ed '.35

@um er of inspection hours '.1'

@um er of units scrapped '.'5

@um er of machining hours >Instructions"a$ Fsing the single rate method to assign overhead on a plant wide asis, determine whether or

not iddy should accept the order for the 1' mountain i!es. 4xplain your decision.



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" $ Fsing activity ased costing to assign overhead, determine whether or not iddy shouldaccept the order for the 1' mountain i!es. 4xplain your decision.

(a) The normal selling price per m ountain bike using the single-ratemethod for assigning overhead on a p lant-wide b asis i s a s follows:

Overhead rate = $300,000 ÷ 10,000 direct labour hours = $30 perdirect labour hour 1 Mark

1 Mark Each X 5 = 5 MarksSingle rate method:Direct material $160.00Direct labour 180.00Applied overhead

($30 × 7.5 hours per unit) 225.00Full cost per unit 565.00Plus: m ark-up at 20% 113.00

Normal price per mountain bike $678.00

The unit price offered of $580 is lower than the normal price.Therefore the company should refuse the offer even if sales wouldincrease 30 %. 1 Mark

A) Total = 1 + 5 + 1 = 7 Marks



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(b) Determine a ctivity-based overhead rates:

Machining: $75,000 ÷ 25,000 = $3.00 per machine hourReworking: $4 5,000 ÷ 60 0 = $75 p er unitInspection: $ 25,000 ÷ 50 0 = $5 0 per hourScrap: $35,000 ÷ 140 = $250 per unitGeneral: $120,000 ÷ 1 0,000 = $ 12 per direct labour hour

0.5 Mark Each X 0.5 = 2.5 MarksActivity-based costing method:Direct material 1 mark $160.00Direct labour 1 mark 180.00Machining ($3 × 6 h rs) 0.5 M 18.00Rework labour ($75 × 0.25 units) 0.5 M 18.75Inspection ($50 × 0.1 hour) 0.5 M 5.00Scrap costs ( $250 × 0.05 units) 0.5 M 12.50General overhead ($12 × 7.5 DLH) 0.5 M 90.00Full cost per unit 1 mark 484.25Plus: mark-up at 20% 1 mark 96.85

Normal price p er mountain bike $581.18

Using an activity-based costing approach, Kiddy should acceptthe offered price of $580, which has a s lightly h igher mark-up thanthe target mark-up of 20%.

2 Marks

# >otal = 9 @ 2 = 11

A / & + / 11 1- M !"s


midterm exam solution fall 2013

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