Quiz 1 ACC 2

Wednesday Class
SPRING 2014
ANSWERS IN RED
Please keep this document to review your exam preparations.
Note; For each multiple choice question more than one answer could
be right please indicate ALL answer that are right!
Each multiple choice question is 3 points (60 points in total)
Each open question is 20 points (total 40 points)
1) The WIP account had an ending balance of $ 5,700 on February 28,
during February the cost of direct materials was $ 30,000 and direct
labor applied to production was
$ 15,100.. If the cost of
Finished goods was $ 45,100 and the beginning balance on the WIP
account was $ 1,200 the applied overhead in the period for units
take into production must have been:
A) $ 4,500
2) Manufacturing overhead costs would include:
A) Depreciation on Manufacturing equipment
B) Cleaning materials used for the production machines
3) The accounting records of a company show the following details at
31 December ;
DECEMBER 31
JANUARY 1
(ending)
(beginning)
Inventory WIP
$ 10,000
$ 10,000
Inventory Finished
$ 50,000
$ 60,000
Goods
Direct Materials used
$ 220,000
Direct labor
$ 130,000
Manufacturing
$ 100,000
Overhead
Selling expenses
$ 100,000
Which of the following statements is correct?
A) Amount debited to WIP Inventory during the year was $ 450,000
B) Cost of Finished goods manufactured was $ 450,000
C) Cost of goods sold was $ 460,000
D) Total manufacturing cost for the year was $ 500,000
4) The following company/business is most likely process industry
where we apply process costing:
a) China Mobile
b) A Cell Phone Factory

c) A Paper Mill
d) A shoe factory
5) The way we determine the cost of manufacturing and the value of
the WIP (Work In Process) at the end of a period under job order
costing is by:
a) Job Cost Cards
6) The following relationship(s) is/are true: (WIP=Work in Process)
a) Wip end of period- Wip beginning of period = Taken into
Production- Finished goods
7) Fixed Costs are:
a) Costs that are the same per period within a certain range
of output of a company
8) Indirect costs are:
a) Costs that are indirectly related to a product and thus not
easy to identify
9) The following statement(s) is/are true:
a) Most variable costs are direct costs but not all variable
costs
10)

When job costing is used over-applied overhead costs:

a) is closed to Cost of Goods sold if the amount is not material
b) results when actual overhead incurred are less than the
amounts applied to individual production jobs

11) Which of the following is true with respect to Activity Based

Costing?
a) ABC can be used in conjunction with job order costing
12) Which of the following would be the most appropriate basis for
allocating the cost of electricity of the factory equipment/machines
if on every machine several different products can be
manufactured?
a) Machine hours used for different jobs

13) Which of the following would be the most appropriate basis for
allocating the cost of plant insurance covering the risk of damage
on factory process control (automation and networks-IT)
a) Machine hours per job
14)
Using ABC to allocate manufacturing overhead can help
managers to:
a) Identify what activities drive what costs
b) Locate inefficiencies in the production process
15)

Equivalent units of production:

a) are used as a basis to calculate per unit costs in process
accounting
b) are computed for all significant inputs in production
separately

16)

A process cost sheet contains:

a) total manufacturing cost accounted for in a period and
value of WIP end of period

17)
18)

Debited to Direct Labor in Manufacturing is:

a) The direct labor paid for in the period
The WIP account is debited for:
a) new units taken into production in the accounting period

19)

The Manufacturing Overhead account is credited for:

a) applied manufacturing overhead to WIP in the accounting
period

20)

An example of a variable cost that is indirect at the same time is:

a) cost of transport packaging like containers
b) cost of indirect materials used to clean the machines in
between jobs
c) cost of bringing raw materials to the machines in a factory
d) all of the above

Open Question 1)
Process Costing (20 points)
Make a Process Cost sheet for the company producing Magnum ice
creams below; show clearly the equivalent units the unit costs and the
Cost of Manufacturing Finished Goods and the value of the WIP at the
end of January 2008. The company uses FIFO !

ANSWER

Note that this question is almost identical as the Class Assignment in

Session 2 that you handed in HOWEVER this company does not use
LIFO but FIFO.
Thus the ending inventory in the WIP consists of the units at the
beginning of the period and the valuation is thus based on that value
per unit.
This well then result in a different value for Finished Goods as well.
Open Question 2)
Activity Based Costing: (20 points- 5 points each)
a) Allocate the total overhead of this shoe company based on
Purchase orders
b) Allocate the total overhead of this company based on Set Ups
c) Allocate the overhead based on ABC where (volume related
costs based on machine hours; purchase related costs are
allocated based on purchase orders and set-up related costs are
allocated based on number of set ups )
d) What is your conclusion about your allocations under a) b) and c)
and which allocation would you prefer? (explain)

e)

ANSWER

The question is almost identical to the case we discussed in session 3

in week 3.
Conventional allocation will almost always lead to the wrong allocation
of overhead costs thus resulting in product L having a too low and
product H having a too high allocation of costs. This will then result in
higher than needed product cost for H and over pricing in the market .
Normally this will result in losing market share.
Product L will be underpriced (too cheap) and as a result will gain
market share.
The higher sales of L will result in disproportionate higher overhead
costs and the company will lose profitability quickly The
consequences of wrongly allocated overhead costs could be significant
and lead to even bankruptcy.