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Managerial Accounting Exam 2

Fall 2007 (Form A)

Name: _____________________________

On my honor I have neither given nor received help on this exam. I understand that anyviolation of the University Honor Policy will result in an automatic zero on this exam,and that I will be subject to all sanctions available under the University's Honor Policy.

__________________________Signature

Record the proper test form (FORM A) and your name on the scantron

form.

Part I Problems (75 points)

1. Which of the following statements is true?

I. When there is a great deal of product diversity, activity-based costing willgenerally yield more accurate product costs than traditional overhead applicationrates based on direct labor or machine hours.

II. The activity rates in activity-based costing are computed by dividing theoverhead in each production department by its direct labor-hours.

A) Statement I

B) Statement IIC) Neither statement is true.D) Both statements are true.


I. When a company shifts from a traditional cost system in whichmanufacturing overhead is applied based on direct labor-hours to an activity-basedcosting system in which there are batch-level and product-level costs, the unitproduct costs of high volume products typically decrease whereas the unit productcosts of low volume products typically increase.

II. In an activity-based costing system there is no overhead overapplied orunderapplied because the costing system is much more accurate.

A) Statement I


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I. When materials are purchased in a process costing system, a work in processaccount is debited with the cost of the materials.

II. Costs are accumulated by department in a process costing system.

A) Statement IB) Statement II

C) Neither statement is true.D) Both statements are true.


I. The sales budget is usually prepared before the production budget.

II. The cash budget is the starting point in preparing the master budget.

A) Statement I

B) Statement II



I. One of the weaknesses of budgets is that they are of little value inuncovering potential bottlenecks in an organization

II. One of the advantages of a self-imposed budget is that the person directlyinvolved in an activity is more likely to be in a position to make good budgetestimates.

A) Statement IB) Statement II



I. A direct material quantity standard generally includes an allowance for

waste.

II. An unfavorable labor rate variance can occur if workers with high hourlywage rates are assigned to work on products whose standards assume workers withlow hourly wage rates.

A) Statement IB) Statement IIC) Neither statement is true.D) Both statements are true.

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I. Fixed costs should not be included in a flexible budget since such costs arenot likely to be controllable by managers.

II. The static budget should be used primarily to determine whether cost control

is being maintained.A) Statement IB) Statement IIC) Neither statement is true.

D) Both statements are true.


I. A company has a standard cost system in which fixed and variablemanufacturing overhead costs are applied to products on the basis of direct labor-hours. The company's choice of the denominator level of activity has no effect onthe fixed overhead budget variance.

II. In a standard cost system, overhead is applied on the basis of the actual levelof activity rather than the standard level of activity allowed for the output of aperiod.

A) Statement I


9. A segment of a business responsible for both revenues and expenses would be called:A) a cost center.

B) an investment center.C) a profit center.D) residual income.

10. Assuming that sales and net income remain the same, a company's return oninvestment will:

A) increase if operating assets increase.B) decrease if operating assets decrease.C) decrease if turnover decreases.D) decrease if turnover increases.

11. All other things equal, a company's return on investment (ROI) would generallyincrease when:

A) average operating assets increase.B) sales decrease.C) operating expenses decrease.D) operating expenses increase.

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12. The performance of the manager of Division A is measured by residual income.Which of the following would increase the manager's performance measure?

A) Increase in average operating assets.B) Decrease in average operating assets.C) Increase in minimum required return.

D) Decrease in net operating income.

13. Consider the following three statements:

I. A profit center has control over both cost and revenue.

II. An investment center has control over invested funds, but not over costs andrevenue.

III. A cost center has no control over sales

Which statement(s) is/are correct?A) Only I

B) Only IIC) Only I and IIID) Only I and II

14. Setting up equipment is an example of a:A) Unit-level activity.B) Batch-level activity.C) Product-level activity.D) Facility-level activity.

15. Pardee Company plans to sell 12,000 units during the month of August. If the

company has 2,500 units on hand at the start of the month, and plans to have 2,000units on hand at the end of the month, how many units must be produced during themonth?

A) 11,500.B) 12,500.C) 12,000.D) 14,000.E) None of the above16. Lanta Restaurant compares monthly operating results with a static budget prepared at

the beginning of the year. When actual sales are less than budget, would the

restaurant usually report favorable variances on variable food costs and fixedsupervisory salaries?

Food Costs Supervisory SalariesA) Yes YesB) Yes NoC) No YesD) No No

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17. If the actual labor hours worked exceed the standard labor hours allowed, what typeof variance will occur?

A) Favorable labor efficiency variance.B) Favorable labor rate variance.

C) Unfavorable labor efficiency variance.D) Unfavorable labor rate variance.E) None of the above.

18. Shocker Company's sales budget shows quarterly sales for the next year as follows:

Company policy is to have a finished goods inventory at the end of each quarter equalto 20% of the next quarter's sales. Budgeted production for the second quarter of thenext year would be:

A) 7,200 units.B) 8,000 units.C) 8,800 units.D) 8,400 units.E) None of the above.

19. Which of the following represents the normal sequence in which the indicatedbudgets are prepared?

A) Direct Materials, Cash, SalesB) Production, Cash, Income StatementC) Sales, Balance Sheet, Direct LaborD) Production, Manufacturing Overhead, SalesE) None of the above

20. Masek Corporation has a standard cost system in which it applies manufacturingoverhead to products on the basis of standard machine-hours (MHs). The companyhas provided the following data for the most recent month:

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What was the fixed overhead budget variance for the month?A) $2,360 unfavorableB) $1,000 unfavorableC) $2,360 favorableD) $1,000 favorable

Use the following information to answer questions 21-23

21. A manufacturing company has a standard costing system based on standard machine-hours (MHs) as the measure of activity. Data from the company's flexible budget formanufacturing overhead are given below:

The following data pertain to operations for the most recent period:

22. How much overhead was applied to products during the period to the nearest dollar?

A) $154,980B) $157,046

C) $167,280

D) $160,79023. What was the fixed overhead budget variance for the period to the nearest dollar?

A) $137 FB) $1,750 UC) $7,850 UD.) $7,507 F

24. What was the fixed overhead volume variance for the period to the nearest dollar?

A) $9,600 FB) $7,987 UC) $1,613 FD) $1,615 U

25. When applying overhead to products in an activity-based costing system:

A) Cash or a liability is debited and Manufacturing Overhead is credited.B) Manufacturing Overhead is debited and Cash or a liability is credited.C) Manufacturing Overhead is debited and Work In Process is credited.D) Cash or a liability is debited and Work In Process is credited.E) None of the above.

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Part II - PROBLEMS (50 points)

1. Production and cost data for the month of February for Process A of the PackerManufacturing Company follow:

Production record:Units in process, February 1

(100% complete with respect to materials;25% complete with respect to conversion cost) 2,000

New units started in process 8,000Units completed 7,000Units in process, February 28

(100% complete with respect to materials;1/3 complete with respect to conversion cost) 3,000

Cost record:Work in process inventory, February 1:

Materials $600Conversion 100 $ 700

Costs for February:Materials issued 2,560Conversion 1,500

Total cost to be accounted for $4,760

The company uses the weighted-average cost method in its process costingsystem.

Required:

a. Calculate the equivalent units and unit costs for February for materials and for

conversion costs.b. Determine the cost transferred to finished goods.c. Determine the amount of cost that should be assigned to the ending work in

process and finished goods inventories.

Level: Hard Chapter 4 - Learning Objective: 2,4,5Answer:

a. Equivalent units:

Materials:Completed 7,000

Work in process, Feb. 28 3,000Equivalent units 10,000Conversion:

Completed 7,000Work in process, Feb. 28 (3,000 1/3) 1,000Equivalent units 8,000

Material Conversion

Unit costs:Cost from work in process, Feb. 1 $ 600 $ 100

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Cost recorded in February 2,560 1,500Total cost $ 3,160 $1,600Equivalent units 10,000 8,000Unit cost $ 0.316 $ 0.20

b. and c.

Units completed and transferred7,000 $.516 $3,612Work in process inventory, February 28:Material cost: 3,000 units 100% $0.316 = 948Conversion cost: 3,000 units 1/3 $0.20 = 200Total cost accounted for $4,760

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2. Daston Company manufactures two products, Product F and Product G. Thecompany expects to produce and sell 1,600 units of Product F and 3,000 units ofProduct G during the current year. The company uses activity-based costing tocompute unit product costs for external reports. Data relating to the company'sthree activity cost pools are given below for the current year:

EstimatedActivity Overhead Expected Activity

Cost Pool Costs Product F Product G Total Machine setups $14,960 130 90 220Purchase orders $63,360 650 1,110 1,760General factory $32,240 1,280 1,200 2,480

Required:

Using the activity-based costing approach, determine the overhead cost per unitfor each product.

The overhead rates for each activity center are as follows:

Estimated

Activity Overhead Expected OverheadCost Pool Costs Activity Rate

Machine setups $14,960 220 $68.00Purchase orders $63,360 1,760 $36.00General factory $32,240 2,480 $13.00

The overhead cost charged to each product is:

Product F Product G

Activity Amount Activity

Amount

Machine setups 130 $ 8,840 90 $ 6,120Purchase orders 650 23,400 1,110 39,960General factory 1,280 16,64

01,200 15,600

Total overhead cost $48,88

0

$61,680

Overhead cost per unit:Product F: $48,880 1,600 units = $30.55 per unitProduct G: $61,680 3,000 units = $20.56 per unit

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3. Albert Manufacturing Company manufactures a single product. The standard costof one unit of this product is:

Direct materials: 6 feet at $1.50 $ 9.00Direct labor: 1 hour at $6.75 6.75

Variable overhead: 1 hour at $4.50 4.50Total standard variable cost per unit $20.25

During the month of October, 6,000 units were produced. Selected cost data relating to themonths production follow:

Material purchased: 60,000 feet at $1.43 $85,800Material used in production: 38,000 feet -Direct labor: ? hours at $ ? per hr. $41,925Variable overhead cost incurred $30,713Variable overhead efficiency variance $ 2,250 U

There was no beginning inventory of raw materials. The variable overhead rate is based on directlabor-hours.

Required:

a. For direct materials, compute the price and quantity variances for the month.b. For direct labor, compute the rate and efficiency variances for the month.c. For variable overhead, compute the spending variance for the month, and prove theefficiency variance given above.

Answer:a. Materials Price Variance:

Actual Quantity of Inputs, at Actual Price:

60,000 feet @ $1.43 per foot $85,800

Actual Quantity of Inputs, at Standard Price:60,000 feet @ $1.50 90,000

Materials Price Variance $ 4,200 F

Materials Quantity Variance:

Actual Quantity of Inputs, at Standard Price:

38,000 feet @ $1.50 per foot $57,000

Standard Quantity of Inputs, at Standard Price:

6,000 units @ 6 feet per unit $1.50 per foot 54,000

Materials Quantity Variance $ 3,000 U

Journal entries:

Raw Materials (60,000 feet @ $1.50) 90,000

Materials Price Variance (60,000 feet @ $.07 F) 4,200

Accounts Payable (60,000 feet @ $1.43) 85,800

Work in Process (36,000 feet @ $1.50) 54,000

Materials Quantity Variance (2,000 feet U @ $1.50) 3,000

Raw Materials (38,000 feet @ $1.50) 57,000

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b. The actual hours worked during the period can be computed through the variableoverhead efficiency variance, as follows:

SR(AH - SH) = Variable Overhead Efficiency Variance$4.50(AH - (6,000 units @ 1 hr. per unit) = $2,250 U

$4.50AH - $27,000 = $2,250 U$4.50AH = $29,250AH = 6,500 hours

Labor Rate Variance:

Actual Hours of Input, at the Actual Rate:

6,500 hours @ $6.45 $49,056

Actual Hours of Input, at the Standard Rate:

6,500 hours @ $6.75 per hour 43,875

Labor Rate Variance $ 1,950 F

Labor Efficiency Variance:


6,500 hours @ $6.75 per hour $43,875

Standard Hours of Input, at the Standard Rate:

6,000 @ 1 hour per unit @ $6.75 per hour 40,500

Labor Efficiency Variance $ 3,375 U

Journal entry:Work in Process (6,000 hours @ $6.75) 40,500Labor Efficiency Variance (500 hrs. U @ $6.75) 3,375

Labor Rate Variance (6,500 hrs. @ $0.30 F) 1,950

Wages Payable (6,500 hrs. @ $6.45) 41,925

c. Variable Overhead Spending Variance:Actual Hours of Input, at the Actual Rate $30,713


6,500 hours @ $4.50 per hour 29,250

Variable Overhead Spending Variance $ 1,463 U

Variable Overhead Efficiency Variance:


6,500 hours @ $4.50 per hour $29,250

Standard Hours of Input, at the Standard Rate:

6,000 hours @ $4.50 per hour 27,000

Labor Efficiency Variance $ 2,250 U

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