Cost Accounting I(ACTE 2301). Midterm Exam. 1st, 2014/15

The Islamic University-Gaza

Faculty of Commerce

Department of Accounting

MID-TERM EXAMINATION

SEMESTER 1

2014/2015

COST ACCOUNTING I (ACTE2301)

Dr. Hisham Madi

DATE: 26/11/2014

TIME ALLWOED: 1 (HOUR)

QUESTION 1

Choose the best answer

  1. Cost allocation is:
  1. The process of tracking both direct and indirect costs associated with a cost object
  2. The process of determining the actual cost of the cost object
  3. The assignment of indirect costs to the chosen cost object
  4. A function of cost tracing
  1. Classifying a cost as either direct or indirect depends upon:
  1. The behavior of the cost in response to volume changes
  2. Whether the cost is expensed in the period in which it is incurred
  3. Whether the cost can be easily identified with the cost object
  4. Whether an expenditure is avoidable or not in the future
  1. Indirect labor is a:
  1. Non-manufacturing cost.
  2. Raw material cost.
  3. Product cost.
  4. Period cost.
  1. A cost of goods manufactured schedule shows beginning and ending inventories for:
  1. Raw materials and work in process only.
  2. Work in process only.
  3. Raw materials only.
  4. Raw materials, work in process, and finished goods.
  1. If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is:
  1. Considered to be a direct fixed cost
  2. Considered to be a direct variable cost
  3. Considered to be an indirect fixed cost
  4. Considered to be an indirect variable cost
  1. The following information pertains to the Cannady Corporation:

Beginning work-in-process inventory$ 50,000

Ending work-in-process inventory$48,000

Beginning finished goods inventory$180,000

Ending finished goods inventory$195,000

Cost of goods manufactured$1,220,000

What is cost of goods sold?

  1. $1,235,000
  2. $1,205,000
  3. $1,218,000
  4. $1,222,000
  1. Answer the following question using the information below

Beginning finished goods, 1/1/20X3$ 90,000

Ending finished goods, 12/31/20X3$77,000

Cost of goods sold$270,000

Sales revenue$500,000

Operating expenses$155,000

What is cost of goods manufactured for 20X3?

  1. $230,000
  2. $257,000
  3. $283,000
  4. $355,000
  1. Fixed costs equal $12,000, unit contribution margin equals $20, and the number of units sold equal 1,600. Operating income is:
  1. $12,000
  2. $20,000
  3. $32,000
  4. $40,000

Answer the following questions using the information below (9,10,11):

  1. Sherry's Custom Jewelry sells a single product. 700 units were sold resulting in $7,000 of sales revenue, $2,800 of variable costs, and $1,200 of fixed costs

Contribution margin per unit is:

  1. $4.00
  2. $4.29
  3. $6.00
  4. None of these answers are correct.
  1. If sales increase by $25,000, operating income will increase by:
  1. $10,000
  2. $15,000
  3. $22,200
  4. None of these answers are correct
  1. The number of units that must be sold to achieve $6,000 of operating income is:
  1. 1,000 units
  2. 1,166 units
  3. 1,200 units
  4. None of these answers are correct
  1. If the breakeven point is 1,000 units and each unit sells for $50, then:
  1. Selling 1,250 units will result in a profit
  2. Sales of $40,000 will result in a loss
  3. Sales of $50,000 will result in zero profit
  4. All of these answers are correct.
  1. If the contribution margin ratio is 0.25, targeted operating income is $25,000, and targeted sales volume in dollars is $200,000, then total fixed costs are:
  1. $50,000
  2. $100,000
  3. $75,000
  4. $25,000
  1. Each indirect-cost pool of a manufacturing firm:
  1. Utilizes a separate cost-allocation rate
  2. Is a subset of total indirect costs
  3. Relates to one cost object
  4. All of these answers are correct.
  1. Job-costing may only be used by:
  1. Service companies
  2. Merchandising companies
  3. Manufacturing companies
  4. All of these may use job-costing.
  1. Which of the following statements about normal costing is true?
  1. Direct costs and indirect costs are traced using an actual rate.
  2. Direct costs and indirect costs are traced using budgeted rates.
  3. Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.
  4. Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.

Answer the following questions using the information below:

For 2010, Jake's Dog Supply Manufacturing uses machine-hours as the only overhead cost-allocation base. The accounting records contain the following information:

EstimatedActual

Manufacturing overhead costs$200,000$240,000

Machine-hours40,00050,000

  1. Using actual costing, the amount of manufacturing overhead costs allocated to jobs during 2010 is:
  1. $300,000
  2. $250,000
  3. $240,000.
  4. $200,000
  1. The difference between actual costing and normal costing is:
  2. Normal costing uses actual quantities of direct-costs
  3. Actual costing uses actual quantities of direct-costs
  4. Normal costing uses budgeted indirect-costs
  5. Actual costing uses actual quantities of cost-allocation bases

Manufacturing overhead costs incurred for the month are:

Utilities$30,000

Depreciation on equipment$25,000

Repairs$20,000

  1. Which is the correct journal entry assuming utilities and repairs were on account?
  1. Manufacturing Overhead Control75,000

Accounts Payable Control50,000

Accumulated Depreciation Control25,000

  1. Manufacturing Overhead Control75,000

Accounts Payable Control75,000

  1. Manufacturing Overhead Control75,000

Accumulated Depreciation Control75,000

  1. Accumulated Depreciation Control25,000

Accounts Payable Control50,000

Manufacturing Overhead Control75,000

  1. When the allocated amount of indirect costs are less than the actual amount, indirect costs have been:
  2. Overabsorbed
  3. Underpriced
  4. Underallocated
  5. Overpriced

QUESTION 2

Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:

MachiningAssembly

Direct labor-hours10,000dlh90,000dlh

Machine-hours100,000mh5,000mh

Direct labor cost$ 80,000$720,000

Manufacturing overhead costs$250,000$360,000

The accounting records of the company show the following data for Job #846:

MachiningAssembly

Direct labor-hours50dlh120dlh

Machine-hours170mh10mh

Direct material cost$2,700$1,600

Direct labor cost$ 400$ 900

Required:

  1. Compute the manufacturing overhead allocation rate for each department.
  2. Compute the total cost of Job #846.
  3. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates

QUESTION 3

Magic Manufacturing’s sales slumped badly in 2012. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 600,000 units of product: Net sales $2,400,000; total costs and expenses $2,540,000; and net loss $140,000. Costs and expenses consisted of the amounts shown below:

Total / Variable Cost / Fixed Cost
Cost of Goods Sold / 2,100,000 / 1,440,000 / 660,000
Selling Expenses / 240,000 / 72,000 / 168,000
Administrative exp. / 200,000 / 48,000 / 152,000
Total / 2,540,000 / 1,560,000 / 980,000

Management is considering the following independent alternatives for 2013.

  1. Increase unit selling price 20% with no change in costs, expenses, and sales volume.
  2. Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 3% commission on net sales.
  3. Purchase new automated equipment that will change the proportion between variable and fixed cost of goods sold to 54% variable and 46% fixed

Required

  1. Compute the break-even point in dollars under each of the alternative courses of action.
  2. Which course of action do you recommend? Why?

Best Wishes

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