EXAM 1 Version 2 (70 points total) ACC 302, Spring 2009 Name_____________________________ Show supporting calculations on all problems.

Problem I (15 points) Ivey Company does custom t-shirt printing and uses a job costing system. Please make journal entries for the following transactions and key each entry to the numbered transaction: 1. Depreciation of $27,000 on the printing equipment was recorded 2. Labor costs incurred but not paid were $11,000 for indirect labor and $40,000 for direct labor 3. An administrative bonus of $10,000 was paid to the companys president 4. Overhead was allocated to jobs at the rate of 120% of labor dollars 5. Cost of goods manufactured was $150,000 6. Goods costing $110,000 were sold for $190,000 cash Ref. 1. Manufacturing Overhead Control Accumulated Depreciation 2. Manufacturing Overhead Control Work-in-process Inventory Control Wages Payable 3. Administrative Expense Cash 4. Work-in-process Inventory Control Manufacturing Overhead Allocated 5. Finished Goods Inventory Control Work-in-process Inventory Control 6. Cost of Goods Sold Finished Goods Inventory Control Cash Sales 190,000 190,000 110,000 110,000 150,000 150,000 48,000 48,000 10,000 10,000 11,000 40,000 51,000 Debit 27,000 27,000 Credit

Problem II (17 points) Gemco Company manufactures colored glass blocks that are used in construction. The firm has two product lines: Plain Blocks and Fancy Blocks. After a recent cost accounting class, the controller of the firm has decided to convert the firms simple costing system to a system that uses activity-based costing. The firms direct materials consist of sand. Since the process is highly automated, labor costs are not traced to jobs but are considered part of manufacturing overhead. Last year, the company incurred $820,000 of overhead costs and paid $50,000 for 1,000,000 pounds of sand. The current simple-costing system allocated overhead to products based on pounds of material used. The firm produced 400,000 Plain Blocks, and 50,000 Fancy Blocks. The controller has determined that there are three main activities associated with the production of the blocks: Materials Handling (includes movement and chemicals added to the sand), Cooling (time spent in a specially controlled environment, so the blocks do not shatter) and Packing (freight, packing materials and packing labor). Information regarding last years production appears below: Cost Pool Materials Handling Cooling Packing Cost Driver Materials pounds Cooling time Cubic Feet Shipped Manufacturing Costs (indirect) $120,000 $200,000 $500,000 Cost Driver UsagePlain Blocks 800,000 pounds 6,000 hours 160,000 cubic feet Cost Drive UsageFancy Blocks 200,000 pounds 4,000 hours 240,000 cubic feet

1. Use the simple costing system and pounds of material as the cost driver: a. Calculate the rate used to allocate overhead to the two product lines. $820,000 $ 0.82 per pound 1,000,000 lbs b. Calculate the overhead, in total and per block, allocated to the Plain and Fancy product lines Plain: Total Overhead =800,000 pounds * $0.82 = $656,000; Per unit= $656,000/400,000 = $1.64 Fancy: Total Overhead=200,000 pounds * $0.82 = $164,000; Per unit= $164,000/50,000= $3.20 2. Use the ABC system and the cost drivers shown above: a. Calculate the rates that would be used to allocate costs from each indirect cost pool. Materials Handling: $120,000/1,000,000 = $0.12 per pound Cooling: $200,000/10,000=$20 per hour Packing: $500,000/400,000=$1.25 per cubic foot shipped b. Calculate the overhead, in total and per block, allocated to the Plain and Fancy product lines. Plain: Fancy

Materials Handling: 24,000

800,000 * $0.12= $ 96,000

200,000*$0.12=$

Cooling: 6,000 * $20= 120,000 4,000*$20= 80,000 Packing 160,000*$1.25 200,000 240,000*$1.25= 300,000 Total Overhead $416,000 $404,000 Divide by units 50,000 400,000

Cost per block $8.08

$1.04

Problem III (8 points) Use the T-accounts shown below and the following information to answer requirements a. through d. MOH Control MOH Allocated WIP Control $629,000 $640,000 BBal. 10,000 DM $100,000 DL $400,000 MOH ???

a. The direct labor rate is $20 per hour. If overhead is allocated by direct labor hours, what was the rate used to allocate the overhead? $400,000 = 20,000 hours $20 $640,000 20,000 hours = $32.00 per hour

b. Was overhead under- or over-allocated? Circle one. Allocated OH = $640,000 and actual overhead = 629,000 Under-allocated Over-allocated

c. Use the space below to make a journal entry to close the overhead accounts and dispose of the under- or over-allocated overhead. Assume that the under- or over-allocated overhead is all closed to one accountthe proration method is NOT used. MOH Allocated COGS 640,000 11,000

MOH Control

$629,000

d. If the ending balance in WIP control was $40,000, what was cost of goods manufactured? $1,110,000

Multiple Choice:

2 points each. Choose the best answer and enter it on your bubble sheet.

Correct answer is in Bold 1. In a job order cost system, the use of direct materials previously purchased usually is recorded as an increase in: a. Work-in-process control

b. Factory overhead applied c. Factory overhead control d. Direct materials control

2. Infocoms CFO, Evan Slater, was probably least guility of violating which of the following sub-parts
of the IMA Standards: a. Perform professional duties in accordance with relevant laws, regulations and technical standards b. Abstain from engaging in or supporting any activity that might discredit the profession c. Keep information confidential except when disclosure is authorized or legally mandated d. Disclose all relevant information that could reasonably be expected to influence an intended users understanding of reports, analyses, or recommendation 3. How would you characterize the following actions taken by a firms CFO in order to increase firm earnings at year end of 2008? A. Extending the close of the current year (holding the books open) in order to allow sales made on January 1 and 2, 2009 to be included as revenue in 2008 B. Promising sales staff a double commission to exceed sales targets by conducting sales calls to clients in December, 2008, even though the client was scheduled for a January 2009 visit.

a. Both actions are violations of the IMA Standards of Ethical Conduct b. Neither action is a violation of the IMA Standards of Ethical Conduct c. Action A is bad from a business perspective, but OK as far as the IMA Standards go, while action B is a clear violation of the IMA Standards d. Action B is bad from a business perspective, but OK as far as the IMA Standards go, while action A is a clear violation of the IMA Standards

4. As we design an ABC system, it is usually most difficult to find a valid cost driver for:
a. Unit-level costs b. Batch-level costs c. Product sustaining costs d. Facility sustaining costs

5. Choosing your fathers firm to run the company cafeteria, even though he was not near the top
during the ranking process violates, which of the IMA Standards: a. Competence b. Confidentiality c. Integrity d. Credibility

6. Allens Upholstery re-upholsters used furniture and resells it.

Mr. Allens son cleans the factory each night after work is completed. Assuming the individual jobs are the cost object, the cost of the sons salary is: a. An indirect product cost b. An indirect period cost c. A direct product cost d. A direct period cost

7. Which of the following would NOT be a characteristic of management accounting?

a. It is future oriented b. It is designed to provide information to creditors c. It is subject to a cost-benefit criterion d. It is designed to influence behavior of managers and other employees 8. Which of the following Standards of Ethical Conduct would be most clearly violated by making one of the firms clients aware of an upcoming price increase, six months before the increase is publically announced: a. Competence b. Confidentiality c. Integrity d. Credibility 9. On a cost of goods manufactured statement, total manufacturing costs for a period (the costs added to production for the period): a. Are equal to cost of goods manufactured b. Need to be adjusted for the change in work-in-process inventory in order to calculate cost of goods manufactured

c. Need to be adjusted for the change in finished goods inventory in order to calculate the cost of
goods manufactured d. Are equal to cost of goods sold

10. If the cost object is the mixing department of a peanut butter manufacturer, which of the following
would be classified as an indirect cost: a. Cost of peanuts added during mixing b. Depreciation on the mixer c. Plant accountants salary d. Both b. and c. would be indirect costs 11. Conversion costs are defined as: a. Direct materials and direct labor b. All manufacturing costs c. All variable costs d. Direct labor and manufacturing overhead costs (indirect manufacturing costs) 12. Normal costing: a. Multiplies a budgeted overhead rate times budgeted activity to allocate overhead to jobs b. Allows manufacturing overhead to be assigned to jobs as they are completed even if actual manufacturing overhead has not been determined c. Will never result in under- or over-allocated overhead d. Divides actual overhead by budgeted activity to calculate the overhead allocation rate 13. Beach-Buddy builds large, medium and small sun shelters in a variety of colors and fabrics. The cost of requisitioning and moving materials to begin the manufacture of a job consisting of 100 pink, medium-sized shelters would be a(n): a. Unit-level cost b. Batch-level cost c. Facility-sustaining cost d. Product-sustaining cost

14. Before any adjustments, Ginsberg Manufacturing had ending debit balances in their accounts as follows: Direct materials control $ 20,000 Work-in-process control $ 40,000 Finished goods control $ 60,000 Cost of goods sold $100,000 Manufacturing OH control $ 40,000 Manufacturing overhead allocated was $55,000. Using the proration approach and the information shown above, the adjustment to work-in-process control would be: a. $0 b. $3,000 credit c. $3,000 debit d. $2,727 debit

e. $2,727 credit
15. Birk Co. uses a job order costing system. The following debits (credits) appeared in Birks work-inprocess account for the month of April: April 1 30 30 30 30 Description Balance Direct Materials Direct Labor Factory Overhead To Finished Goods Amount $ 4,000 24,000 16,000 12,800 (48,000)

Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process at the end of April, has been charged with direct labor of $2,000. What was the amount of direct materials charged to Job No. 5? a. $24,000

b.
c.

$3,000 $8,800 $5,200

d.