Practice Exam Question With Solutions

Practice Exam Solutions

Exam 1

CHAPTER 1

Use the following information for Questions 1 and 2

1) Chapter 1, Learning Objective 1-6

Correct Answer B

Boersma Sales, Inc., a merchandising company, reported sales of 7,100 units in September at a selling price of $682 per unit. Cost of goods sold, which is a variable cost, was $317 per unit. Variable selling expenses were $44 per unit and variable administrative expenses were $22 per unit. The total fixed selling expenses were $157,200 and the total administrative expenses were $338,000.

1) The contribution margin for September was:

1. A) $3,878,400
2. B) $2,122,900
3. C) $2,591,500
4. D) $1,627,700

Sales (7,100 units × $682 per unit)		$4,842,200
Variable expenses:
Cost of goods sold (7,100 units × $317 per unit)	$2,250,700
Variable selling expense (7,100 units × $44 per unit)	312,400
Variable administrative expense (7,100 units × $22 per unit)	156,200	2,719,300
Contribution margin		$2,122,900

2) Chapter 1, Learning Objective 1-6

Correct Answer B

The gross margin for September was:

1. A) $2,122,900
2. B) $2,591,500
3. C) $1,627,700
4. D) $4,347,000

Sales (7,100 units × $682 per unit)	$4,842,200
Cost of goods sold (7,100 units × $317 per unit)	2,250,700
Gross margin	$2,591,500

3) Chapter 1, Learning Objective 1-4

Correct Answer D

At an activity level of 7,200 machine-hours in a month, Falks Corporation’s total variable production engineering cost is $556,416 and its total fixed production engineering cost is $226,008. What would be the total production engineering cost per unit, both fixed and variable, at an activity level of 7,300 machine-hours in a month? Assume that this level of activity is within the relevant range.

1. $107.93
2. $107.18
3. $108.67
4. $108.24

Variable cost per unit = $556,416 ÷ 7,200 units = $77.28 per unit

Fixed cost per unit at 7,300 units = $226,008 ÷ 7,300 units = $30.96 per unit

Total cost = Variable cost + Fixed cost

= $77.28 per unit + $30.96 per unit

= $108.24 per unit

4) Chapter 1, Learning Objective 1-2, 1-3

Correct Answer B

A partial listing of costs incurred at Archut Corporation during September includes:

Direct materials	$113,000
Utilities, factory	$5,000
Administrative salaries	$81,000
Indirect labor	$25,000
Sales commissions	$48,000
Depreciation of production equipment	$20,000
Depreciation of administrative equipment	$30,000
Direct labor	$129,000
Advertising	$135,000

The total of the manufacturing overhead costs listed above for September is:

1. A) $586,000
2. B) $50,000
3. C) $292,000
4. D) $30,000

Manufacturing overhead includes: Utilities, factory; Indirect labor; and Depreciation of production equipment.

$5,000 + $25,000 + $20,000 = $50,000

5) Chapter 1, Objective 1-5

Correct Answer C

Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000.

In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was:

1. $545,000
2. $450,000
3. $527,000
4. $532,000

Sunk cost = Cost of old machine = $527,000

CHAPTER 2

6) Chapter 2, Learning Objective 2-1

Correct Answer B

Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct labor-hours during the period. The predetermined overhead rate is closest to:

1. $10.37
2. $12.10
3. $11.10
4. $11.30

	Estimated total fixed manufacturing overhead (a)	$121,000
	Estimated activity level (b)	10,000
	Predetermined overhead rate (a) ÷ (b)	$12.10

7) Chapter 2, Learning Objective 2-1, 2-2, 2-4

Correct Answer D

Boward Corporation has two production departments, Milling and Assembly. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling Department’s predetermined overhead rate is based on machine-hours and the Assembly Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:

	Milling	Assembly
Machine-hours	18,000	12,000
Direct labor-hours	2,000	7,000
Total fixed manufacturing overhead cost	$120,600	$76,300
Variable manufacturing overhead per machine-hour	$2.00
Variable manufacturing overhead per direct labor-hour		$4.30

During the current month the company started and finished Job T818. The following data were recorded for this job:

Job T818:	Milling	Assembly
Machine-hours	50	30
Direct labor-hours	10	40

The total amount of overhead applied in both departments to Job T818 is closest to:

1. $1,651
2. $608
3. $435
4. $1,043

Milling Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)

= $120,600 + ($2.00 per machine-hour × 18,000 machine-hours)

= $120,600 +$36,000 = $156,600

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $156,600 ÷ 18,000 machine-hours = $8.70 per machine-hour

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $8.70 per machine-hour × 50 machine-hours = $435

Assembly Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)

= $76,300 + ($4.30 per direct labor-hour × 7,000 direct labor-hours)

= $76,300 + $30,100 = $106,400

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $106,400 ÷7,000 direct labor-hours = $15.20 per direct labor-hour

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $15.20 per direct labor-hour × 40 direct labor-hours = $608

Overhead applied to Job T818

	Milling Department	$435
	Assembly Department	608
	Total	$1,043

8) Chapter 2, Learning Objectives 2-1, 2-2, 2-3, 2-4

Correct Answer C

Kalp Corporation has two production departments, Machining and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining Department’s predetermined overhead rate is based on machine-hours and the Finishing Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:

	Machining	Finishing
Machine-hours	19,000	12,000
Direct labor-hours	2,000	8,000
Total fixed manufacturing overhead cost	$136,800	$69,600
Variable manufacturing overhead per machine-hour	$1.80
Variable manufacturing overhead per direct labor-hour		$3.20

During the current month the company started and finished Job K928. The following data were recorded for this job:

Job K928:	Machining	Finishing
Machine-hours	90	10
Direct labor-hours	30	50
Direct materials	$775	$415
Direct labor cost	$630	$1,050

If the company marks up its manufacturing costs by 20% then the selling price for Job K928 would be closest to:

1. $4,275.00
2. $5,643.00
3. $5,130.00
4. $855.00

Machining Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per machine-hour × Total machine-hours in the department)

= $136,800 + ($1.80 per machine-hour × 19,000 machine-hours)

= $136,800 +$34,200 = $171,000

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $171,000 ÷ 19,000 machine-hours = $9.00 per machine-hour

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $9.00 per machine-hour × 90 machine-hours = $810

Finishing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)

= $69,600 + ($3.20 per direct labor-hour × 8,000 direct labor-hours)

= $69,600 + $25,600 = $95,200

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base incurred = $95,200 ÷8,000 direct labor-hours = $11.90 per direct labor-hour

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $11.90 per direct labor-hour × 50 direct labor-hours = $595

	Machining	Finishing	Total
Direct materials	$775	$415	$1,190
Direct labor	$630	$1,050	1,680
Manufacturing overhead applied	$810	$595	1,405
Total cost of Job K928			$4,275

Total cost of Job K928	$4,275.00
Markup ($4,275.00 × 20%)	855.00
Selling price	$5,130.00

9) Chapter 2, Learning Objectives 2-1, 2-2, 2-3

Correct Answer C

Janicki Corporation has two manufacturing departments--Machining and Customizing. The company used the following data at the beginning of the year to calculate predetermined overhead rates:

	Machining	Customizing	Total
Estimated total machine-hours (MHs)	1,000	9,000	10,000
Estimated total fixed manufacturing overhead cost	$4,800	$23,400	$28,200
Estimated variable manufacturing overhead cost per MH	$1.10	$2.50

During the most recent month, the company started and completed two jobs--Job A and Job J. There were no beginning inventories. Data concerning those two jobs follow:

	Job A	Job J
Direct materials	$12,000	$7,700
Direct labor cost	$20,700	$6,400
Machining machine-hours	700	300
Customizing machine-hours	3,600	5,400

Assume that the company uses a plantwide predetermined manufacturing overhead rate based on machine-hours and uses a markup of 50% on manufacturing cost to establish selling prices. The calculated selling price for Job A is closest to:

1. A) $90,707
2. B) $27,487
3. C) $82,461
4. D) $54,974

The first step is to calculate the estimated total overhead costs in the two departments.

Machining

Estimated fixed manufacturing overhead	$4,800
Estimated variable manufacturing overhead ($1.10 per MH × 1,000 MHs)	1,100
Estimated total manufacturing overhead cost	$5,900

Customizing

Estimated fixed manufacturing overhead	$23,400
Estimated variable manufacturing overhead ($2.50 per MH × 9,000 MHs)	22,500
Estimated total manufacturing overhead cost	$45,900

The second step is to combine the estimated manufacturing overhead costs in the two departments ($5,900 + $45,900 = $51,800) to calculate the plantwide predetermined overhead rate as follow:

Estimated total manufacturing overhead cost	$51,800
Estimated total machine hours	10,000	MHs
Predetermined overhead rate	$5.18	per MH

The overhead applied to Job A is calculated as follows:

Overhead applied to a particular job = Predetermined overhead rate x Machine-hours incurred by the job

= $5.18 per MH x (700 MHs + 3,600 MHs)

= $5.18 per MH x (4,300 MHs)

= $22,274

Job A’s manufacturing cost:

Direct materials	$12,000
Direct labor cost	20,700
Manufacturing overhead applied	22,274
Total manufacturing cost	$54,974

The selling price for Job A:

Total manufacturing cost	$54,974
Markup (50%)	27,487
Selling price	$82,461

CHAPTER 3

10) Chapter 3, Learning Objective 3-3

Correct Answer C

Gabat Inc. is a merchandising company. Last month the company's merchandise purchases totaled $67,000. The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was $22,000. What was the company's cost of goods sold for the month?

1. $108,000
2. $67,000
3. $64,000
4. $70,000

Cost of goods sold = Beginning merchandise inventory + Purchases - Ending merchandise inventory = $19,000 + $67,000 - $22,000 = $64,000

11) Chapter 3, Learning Objective 3-4

Correct Answer C

Dipaola Corporation has provided the following data concerning last month’s operations.

Purchases of raw materials			$26,000
Indirect materials included in manufacturing overhead			$6,000
Direct labor cost			$58,000
Manufacturing overhead applied to Work in Process			$87,000
Overapplied overhead			$6,000
	Beginning	Ending
Raw materials inventory	$12,000	$18,000
Work in process inventory	$46,000	$64,000
Finished goods inventory	$31,000	$46,000

How much is the direct material cost for the month on the Schedule of Cost of Goods Manufactured?

1. A) $38,000
2. B) $32,000
3. C) $14,000
4. D) $26,000

Direct materials:
Beginning raw materials inventory	$12,000
Add: Purchases of raw materials	26,000
Total raw materials available	38,000
Deduct: Ending raw materials inventory	18,000
Raw materials used in production	20,000
Deduct: Indirect materials included in manufacturing overhead	6,000
Direct materials	$14,000

12) Chapter 3 Learning Objective 3-4

Correct Answer D

Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 57,000 actual direct labor-hours and incurred $345,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 55,000 direct labor-hours during the year and incur $330,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:

1. Overapplied by $15,000
2. Underapplied by $15,000
3. Overapplied by $3,000
4. Underapplied by $3,000

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $330,000 ÷ 55,000 direct labor-hours = $6 per direct labor-hour

Overhead over or underapplied

13) Chapter 3, Learning Objective 3-3

Correct Answer A

Hudek Inc., a manufacturing Corporation, has provided the following data for the month of July. The balance in the Work in Process inventory account was $20,000 at the beginning of the month and $10,000 at the end of the month. During the month, the Corporation incurred direct materials cost of $50,000 and direct labor cost of $22,000. The actual manufacturing overhead cost incurred was $58,000. The manufacturing overhead cost applied to Work in Process was $56,000. The cost of goods manufactured for July was:

1. $138,000
2. $140,000
3. $130,000
4. $128,000

Cost of goods manufactured = Direct materials + Direct labor + Manufacturing overhead applied + Beginning work in process inventory - Ending work in process inventory
= $50,000 + $22,000 + $56,000 + $20,000 - $10,000
= $138,000

14) Chapter 3, Objective 3-4

Correct Answer D

Thomas Inc. has provided the following data for the month of November. The balance in the Finished Goods inventory account at the beginning of the month was $149,000 and at the end of the month was $145,000. The cost of goods manufactured for the month was $226,000. The actual manufacturing overhead cost incurred was $74,000 and the manufacturing overhead cost applied to Work in Process was $70,000. The adjusted cost of goods sold that would appear on the income statement for November is:

A. $226,000
B. $230,000
C. $222,000
D. $234,000

Manufacturing overhead underapplied (overapplied) = Actual manufacturing overhead incurred - Manufacturing overhead applied = $74,000 - $70,000 = $4,000 underapplied

Adjusted cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory + Manufacturing overhead underapplied
= $149,000 + $226,000 - $145,000 + $4,000
= $234,000

15) Chapter 3, Objective 3-2 (Using T-Accounts)

Correct Answer C

The following accounts are from last year's books of Sharp Manufacturing:

Raw Materials
Bal	0	(b)	154,000
(a)	164,000
	10,000
Work In Process
Bal	0	(f)	510,000
(b)	132,000
(c)	168,000
(e)	210,000
	0
Finished Goods
Bal	0	(g)	460,000
(f)	510,000
	50,000
Manufacturing Overhead
(b)	22,000	(e)	210,000
(c)	26,000
(d)	156,000
			6,000

Cost of Goods Sold
(g)	460,000

Sharp uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. What is the amount of direct materials used for the year?

1. A) $164,000
2. B) $154,000
3. C) $132,000
4. D) $168,000

The journal entry to record Issue of direct and indirect materials was entry (b) above:

Work in Process	132,000
Manufacturing Overhead	22,000
Raw Materials		154,000

Direct materials are debited to Work in Process; indirect materials are debited to Manufacturing Overhead.

16) Chapter 3, Objective 3-2 (Using T-Accounts)

Correct Answer

Cai Corporation uses a job-order costing system and has provided the following partially completed T-account summary for the past year.

Raw Materials
Bal. 1/1	17,000	Credits	?
Debits	97,000
Bal. 12/31	30,000

Work In Process
Bal. 1/1	19,000	Credits	506,000
Direct materials	74,000
Direct labor	13,000
Overhead applied	257,000
Bal. 12/31	?

The cost of indirect materials requisitioned for use in production during the year was:

1. A) $74,000
2. B) $10,000
3. C) $40,000
4. D) $13,000

Feedback:

Raw materials inventory, 1/1	$17,000
Add: Debits (purchases of raw materials)	97,000
Materials available for use	114,000
Deduct: Raw materials inventory, 12/31	30,000
Materials requisitioned for use in production	84,000
Deduct: Direct materials	74,000
Indirect materials	$10,000

CHAPTER 4

17) Chapter 4, Learning Objective 4-2

Correct Answer A

Jimmy Corporation uses the weighted-average method in its process costing system. The ending work in process inventory consists of 9,000 units. The ending work in process inventory is 100% complete with respect to materials and 70% complete with respect to labor and overhead.

If the cost per equivalent unit for the period is $3.75 for material and $1.25 for labor and overhead, what is the balance of the ending work in process inventory account?

1. $41,625
2. $33,750
3. $45,000
4. $31,500

Weighted-average method

18) Chapter 4, Learning Objective 4-2 and 4-3

Correct Answer A

Larner Corporation uses the weighted-average method in its process costing system. Operating data for the first processing department for the month of June appear below:

According to the company's records, the conversion cost in beginning work in process inventory was $68,064 at the beginning of June. Additional conversion costs of $585,324 were incurred in the department during the month.

What was the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.)

1. $6.892
2. $6.806
3. $5.575
4. $7.090

Weighted-average method Units transferred to the next department = Units in beginning work in process + Units started into production - Units in ending work in process = 24,000 + 86,000 - 19,000 = 91,000

19) Chapter 4, Learning Objective 4-5

Correct Answer D

In February, one of the processing departments at Manger Corporation had beginning work in process inventory of $25,000 and ending work in process inventory of $34,000. During the month, $290,000 of costs were added to production and the cost of units transferred out from the department was $281,000.

In the department's cost reconciliation report for February, the total cost to be accounted for under the weighted-average method would be:

1. $59,000
2. $605,000
3. $630,000
4. $315,000

Weighted-average method

20) Chapter 4, Learning Objective 4-4

Correct Answer D

Lap Corporation uses the weighted-average method in its process costing system. The beginning work in process inventory in a particular department consisted of 80,000 units, 100% complete with respect to materials and 25% complete with respect to conversion costs. The total dollar value of this inventory was $226,000. During the month, 150,000 units were transferred out of the department. The costs per equivalent unit for the month were $2.00 for materials and $3.50 for conversion costs.

The cost of the units completed and transferred out of the department was:

1. A) $681,000
2. B) $765,000
3. C) $821,000
4. D) $825,000

Weighted-average method

	Materials	Conversion	Total
Units completed and transferred out:
Units transferred to the next department (a)	150,000	150,000
Cost per equivalent unit (b)	$2.00	$3.50
Cost of units completed and transferred out (a) × (b)	$300,000	$525,000	$825,000