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Managerial Accounting Midterm Exam Revision Materials 2

Question 1.
Job Order Cost Accounting
Dena Manufacturing uses a job order cost accounting system. On April 1, the company has Work in
Process Inventory of $5,700 and two jobs in process: Job No. 221, $2,500, and Job No. 222, $3,200.
During April, a summary of source documents reveals the following:

For Materials Requisition Slips Labor Time Tickets

Job No. 221 $900 $1,200

222 1,300 2,050

223 2,150 2,720

224 2,430 2,615

General use 800 500

Totals $6,680 $7,885

Dena applies manufacturing overhead to jobs at an overhead rate of 55% of direct labor cost. Job No.
221 is completed during the month.

Instructions

(a) Prepare summary journal entries to record the raw materials requisitioned, factory labor used,
the assignment of manufacturing overhead to jobs, and the completion of Job No. 221.

(b) Calculate the balance of the Work in Process Inventory account at April 30.

(c) If Dena Manufacturing incurred $3,500 of manufacturing overhead in addition to indirect materials
and indirect labor, was overhead over- or under-applied in April and by how much?

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Solution
(a) April 30 Work in Process Inventory................................................................5,880

Manufacturing Overhead.................................................................800

Raw materials................................................................................... 6,680

Work in Process Inventory................................................................7,385

Manufacturing Overhead.................................................................500

Factory Labor......................................................................... 7,885

Work in Process Inventory................................................................4,062

Manufacturing Overhead....................................................... 4,062

($7,385 × 55% = $4,062)

Finished Goods Inventory.................................................................5,260

Work in Process Inventory................................................................ 5,260

($2,500 + $900 + $1,200 + $660 = $5,260)

(b) Work in Process Inventory, April 30 = $23,340

Job No. 222 $7,678 ($3,200 + $1,300 + $2,050 + $1,128)

Job No. 223 6,366 ($2,150 + $2,720 + ($2,720 x 55%))

Job No. 224 6,483 ($2,430 + $2,615 + (2,615 x 55%))

$20,527

(c) Under or over applied

Overhead incurred (800+500+3500) 4,800

Overheads applied 4,062

Overhead under applied 738

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Question 2.
Process Cost Accounting
The Polishing Department of Lena Company has the following production and manufacturing cost
data for September. Materials are entered at the beginning of the process.

Production: Beginning inventory 3,000 units that are 100% complete as to materials and 30%
complete as to conversion costs; units started during the period are 45,000, ending inventory of
8,000 units 20% complete as to conversion costs.

Manufacturing costs: Beginning inventory costs, comprised of $20,000 of materials and $15,000 of
conversion costs; materials costs added in Polishing during the month $230,000; labor and
overhead applied in Polishing during the month $220,500 and $352,500 respectively.

Instructions

(a) Compute the equivalent units of productions for materials and conversion costs for the month
of September.

(b) Compute the unit costs for materials and conversion costs for the month.

(c) Determine the costs to be assigned to the units transferred out and in process.

Solution
(a) Physical

Units

Work in process, September 1 3,000

Units started into production 45,000

48,000

Units transferred out 40,000

Work in process, September 30 8,000

48,000

Equivalent Units

Materials Conversion
Costs

Units transferred out 40,000 40,000

Work in process

8,000  100% 8,000

8,000  20%
1600

48,000 41,600

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(b) Materials

Work in process, September 1

Direct materials....................................................... $ 20,000

Costs added to production during September....................... 230,000

Total materials cost......................................................... $250,000

$250,000  48,000 = $5.21 (Materials cost per unit)

Conversion Costs

Work in process, September 1

Conversion costs..................................................... $ 15,000

Costs added to production during September

Conversion costs...................................................... 573,000

Total conversion costs....................................................... $588,000

$588,000  41,600 = $14.13

(c) Costs accounted for

Transferred out (40,000  $19.34)............................................. $773,533

Work in process, September 30

Materials (8,000  $5.21)............................................. $41,680

Conversion costs (1,600  14.13)................................ 22,608 64,288

Total costs............................................................................... $837,821

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Question 3.

Activity-Based Costing
XYZ Manufacturing Company manufactures two products: radiators and gas tanks. During June, 1300
radiators and 2480 gas tanks were produced and overhead costs of $174,000 were incurred. The
following information related to overhead costs was available:

Activity Cost Driver Total Cost

Materials handling Number of requisitions $48,000

Machine setups Number of setups 66,000

Quality inspections Number of inspections 60,000

The cost driver volume for each product was as follows:

Cost Driver Radiators Gas Tanks Total

Number of requisitions 1100 1300 2400

Number of setups 110 250 360

Number of inspections 125 85 210

Instructions

(a) Compute the overhead rate for each activity.

(b) Assign the manufacturing overhead costs for June to the two products using activity-based
costing. Calculate the unit cost for each. Please show full details of your calculations.

Solution

Cost Driver Total Cost Pool ($) Activity Level O/H rate per activity
Cost Pool
Materials handling Number of requisitions 48,000 2400 20.00

Machine setups Number of setups 66,000 360 183.33

Quality inspections Number of inspections 60,000 210 285.71

Cost Pool Cost Driver Radiators Gas Tanks Radiators Gas Tanks

Materials handling Number of requisitions 1100 1300 22,000 26,000

Machine setups Number of setups 110 250 20,167 45,833

Quality inspections Number of inspections 125 85 35,714 24,286

Total overhead allocated 77,881 96,119

Overhead cost per unit 59.91 38.76

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Question 4. Cost-Volume-Profit
Deniz Company prepared the following income statement for 2017:

DENIZ COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales (48,000 units) $1,728,000
Variable expenses 1,008,000
Contribution margin 720,000
Fixed expenses 390,000
Net income 330,000
Instructions

Answer the following independent questions and show computations to support your answers.

1. What is the company’s break-even point in units in 2017?

2. How many more units would the company have had to sell to earn net income of $450,000 in
2017?

3. If the company expects a 22% increase in sales volume in 2018 over 2017, what would be the
expected net income in 2018?

4. How much sales (in dollars) would the company have to generate in order to earn a target net
income of $550,000 in 2018?

Solution
Answer the following independent questions and show computations to support your answers.

1. What is the company’s break-even point in units in 2017?

Breakeven point = 390,000 / (720,000/48,000) = 26,000 units

2. How many more units would the company have had to sell to earn net income of $450,000 in
2017? The required sales in units = (390,000 + 450,000) / 15= 56,000 units

3. If the company expects a 22% increase in sales volume in 2018 over 2017, what would be the
expected net income in 2018? Increased contribution margin = 878,400 – 390,000 = 488,400

4. How much sales (in dollars) would the company have to generate in order to earn a target net
income of $550,000 in 2018? (390,000 + 550,000)/0.4167= $2,255,820