NAME (print) ______
MichaelG. Foster
School of Business
University of Washington
Accounting 507b
Winter 2009
PracticeMidterm Examination
** Please write your name at the top of this page and initial the top of all other pages. **
For multiple choice questions, please circle the BEST answer.
This exam consists of 9 pages including this cover.
*****
The bad news is time flies. The good news is you're the pilot. -- Michael Althsuler
I neither participated in nor observed any one else involved in academic misconduct.
Signed: ______
Best of luck--Larry
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Accounting 507b Winter 2009 PracticeMidterm Examination Initial ______
1. An angry employee, Betty Heavyfoot, on Jan. 1, 2008 ran a heavy truck into your manufacturing plant and destroyed all of your inventory. Your accounting records are kept at a separate location. You were able to calculate the following for the period 10/1/2007 to 12/31/2007:
Direct materials purchases$120,000
Direct materials (10/1/2007)11,000
Work-in-process (10/1/2007) 35,000
Finished goods (10/1/2007)80,000
Manufacturing Overhead costs35% of conversion costs
Revenues$625,000
Direct manufacturing labor200,000
Prime costs305,000
Gross Margin % based on revenues20%
Cost of Goods Manufactured437,000
What is the Cost of Goods sold for 10/1/2007 to 12/31/2007? [3 pts.]
What $ amount of direct materials were used during the period? [3 pts.]
What $ amount of factory overhead was allocated to WIP? To nearest $. [3 pts.]
What $ amount of direct materials inventory was destroyed? [3 pts.]
What $ amount of work-in-process inventory was destroyed? [3 pts.]
What $ amount of finished goods inventory was destroyed? [3 pts.]
2.BARNEY Manufacturing Company (has both corporate offices and manufacturing facilities) had the following selected account balances for the quarter ending March 31, unless otherwise noted:
Work-in-process inventory (January 1) $ 140,400
Work-in-process inventory (March 31)100,000
Finished goods inventory (January 1)540,000
Finished goods inventory (March 31)510,000
Direct materials used378,400
Indirect materials used84,000
Direct manufacturing labor517,000
Indirect manufacturing labor186,000
Property taxes on manufacturing plant building28,800
Salespersons' company vehicle costs12,000
Depreciation of manufacturing equipment259,000
Depreciation of corporate office equipment123,600
Miscellaneous plant overhead135,000
Plant utilities92,400
General corporate office expenses305,400
Marketing distribution costs30,000
A.Calculate Cost of Goods Manufactured for the quarter. [12 pts.]
B.Calculate Cost of Goods Sold for the quarter. [4 pts.]
3. Assume that FOSTER Inc.’s breakeven point in revenues is $1,000,000 and fixed costs are $350,000.
What is the contribution margin %? [4 pts.]
What is the selling price if variable costs are $65.00 per unit? [4 pts.]
If 25,000 units are sold, what is the margin of safety in units? [4 pts.]
4. KARBOSKI Corp. is deciding how to structure its operation cost structure. It sells water valves for $38 each and at this price it can sell 75,000 valves next year. It can (1) make them mostly by hand and have unit variable costs of $13 with total fixed costs of $1.2 million or (2) automate the plant and have unit variable costs of $11 with fixed costs of $1.65 million.
What is KARBOSKI’s operating leverage under these two options?
If sales increased 10% which option would yield the highest operating profit? [6 pts.]
5. What is the correct journal entry if $17,000 worth of materials ($15,000 direct and $2,000 indirect) are sent to the factory plant floor? [4 pts.]
6. LUI Corp. uses a normal costing system and applies overhead based on direct labor hours used. Budgeted factory overhead was $400,000 and budgeted direct labor hours were 20,000. Actual MOH was $365,000 and actual direct labor hours were 19,000. Before disposition of under/overapplied overhead, the cost of goods sold was $1,850,000 and ending inventory balances were:
Materials--control$ 30,000
WIP105,000
Finished goods45,000
Total$180,000
What was the budgeted MOH rate (per direct labor hour)? [2 pts.]
What amount of MOH was over or underapplied? [4 pts.]
What journal entry would you make to dispose of the overhead variance using the proration approach based on account ending total dollar balances? Answer to the nearest dollar. [8 pts.]
7.Under standard costingone reason indirect costs may be underapplied is because: [4 pts.]
A. actual indirect costs exceed budgeted indirect costs.
B. requisitioned direct materials are less than budgeted material costs.
C. the actual allocation base quantity is less than the budgeted quantity.
D. Both A and C are correct.
8. For externally reported inventory costs, the Work-in-process Control account is increased (debited) by
A. marketing costs.
B. the purchase costs of direct and indirect materials.
C. customer-service costs.
D. allocated plant utility costs.
9. An error was made in the computation of the percentage of completion of the current year’s ending Work-in-Process inventory. The error resulted in assigning a lower percentage of completion to each component of the inventory than actually was the case. Consequently, the following were misstated:
1. The computation of the total equivalent units.
2. The computation of costs per equivalent unit.
3. Costs assigned to cost of goods completed for the period.
What were the effects of the error?
1 2 3
A. Understate Overstate Overstate
B. Understate Understate Overstate
C. Overstate Understate Understate
D. Overstate Overstate Understate
10. Multiple regression differs from simple regression in that it:
A. provides an estimate of the constant term.
B. has more dependent variables.
C. allows the computation of the coefficient of determination.
D. has more independent variables.
12. REES Industries, Inc. is trying to estimate labor costs for next month. The production schedule calls for production of 7,500 water valves next month. The manager insists on using the high-low method to estimate cost functions and has given you the following data from last year:
Month / Water valvesproduced / Labor
costs ($)
Jan. / 1,100 / $111,675
Feb. / 3,000 / $119,750
Mar. / 4,500 / $126,125
Apr. / 5,200 / $129,100
May / 5,700 / $131,225
Jun. / 6,500 / $134,625
Jul. / 6,400 / $135,200
Aug. / 4,000 / $124,000
Sep. / 3,100 / $120,175
Oct. / 3,300 / $121,025
Nov. / 1,700 / $110,500
Dec. / 1,250 / $112,313
Use the high-low method to answer the following three questions.
What is the estimated fixed labor costs? [3 pts.]
What is the estimate of labor cost when 7,500 water valves are produced? [3 pts.]
13. Excel outputs a statistic called the “coefficient of determination” when regressions are run. What does this number measure? [4 pts.]
14. In class we discussed the p-value (probability level) of the coefficient estimates from regression analysis. A small p-value (< 5%) allows us to do what? [4 pts.]
15. At the breakeven point, the contribution margin equals total [4 pts.]
A. Variable costs.
B. Sales revenues.
C. Selling and administration costs.
D. Fixed costs.
16. The dollar amount of revenues needed to attain a desired income is calculated by dividing the contribution margin ratio (%) into: (ignore taxes)
A. Fixed cost.
B. Desired income.
C. Desired income plus fixed costs.
D. Desired income minus fixed costs.
E. Desired income plus contribution margin.
17. There are several alternative denominator measures for applying overhead. Which is not commonly used?
A. Direct labor hours.
B. Direct labor cost.
C. Machine hours
D. Sales value of product produced.
18. Briefly discuss how you calculate “abnormal” spoilage. [4 pts.]
19. YARNELL Beverage, Inc. uses the weighted-average method of process costing. Direct materials are added at the end of the process and conversion costs are added evenly throughout the process. Consider the following data for the Bottling Department of YARNELL for the month of January:
Physical Units / Direct Materials / Conversion CostsWIP, Jan.1 / 60,000 / $0 / $5,200
Started or work done in Jan. / 7,515,000
CTO
Cost added in Jan. / $375,000 / $524,000
WIP, Jan.31 / 75,000
Jan. 1 degree of completion: CC = 75%
Jan. 31 degree of completion: CC = 80%
Fill in the table below: (in $) [18 pts.]
DM / CC / TOTALCTO
E.WIP
TOTAL / No points / No points
20. During the period you produced 100,000 units total of which 475 units were spoiled. You expected spoilage to average 0.5% of units produced. How many units would you record as “abnormal” spoilage? [2 pts.]
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Accounting 507b Winter 2009 Practice MIDTERM ******* KEY *******
1. An angry employee, Betty Heavyfoot, on Jan. 1, 2008 ran a heavy truck into your manufacturing plant and destroyed all of your inventory. Your accounting records are kept at a separate location. You were able to calculate the following for the period 10/1/2007 to 12/31/2007:
Direct materials purchases$120,000
Direct materials (10/1/2007)11,000
Work-in-process (10/1/2007) 35,000
Finished goods (10/1/2007)80,000
Manufacturing Overhead costs35% of conversion costs
Revenues$625,000
Direct manufacturing labor200,000
Prime costs305,000
Gross Margin % based on revenues20%
Cost of Goods Manufactured437,000
What is the Cost of Goods sold for 10/1/2007 to 12/31/2007? [3 pts.]
625 * (1-.20) = $500,000
What $ amount of direct materials were used during the period? [3 pts.]
PC = DM + DL; $305 = DM + 200 DM = $105,000
What $ amount of factory overhead was allocated to WIP? To nearest $.[3 pts.]
MOH = 0.35 (MOH + DL) = 0.35 MOH + 0.35 ($200,000)
0.65 MOH = $70,000
MOH = $107,692
What $ amount of direct materials inventory was destroyed? [3 pts.]
11 + 120 – 105 = $26,000
What $ amount of work-in-process inventory was destroyed? [3 pts.]
35 + 200 + 105 + 107,692 – 437 =$10,692
What $ amount of finished goods inventory was destroyed? [3 pts.]
80 + 437 – 500 = $17,000
2.BARNEY Manufacturing Company (has both corporate offices and manufacturing facilities) had the following selected account balances for the quarter ending March 31, unless otherwise noted:
Work-in-process inventory (January 1) $ 140,400
Work-in-process inventory (March 31)100,000
Finished goods inventory (January 1)540,000
Finished goods inventory (March 31)510,000
Direct materials used378,400
Indirect materials used84,000
Direct manufacturing labor517,000
Indirect manufacturing labor186,000
Property taxes on manufacturing plant building28,800
Salespersons' company vehicle costs12,000
Depreciation of manufacturing equipment259,000
Depreciation of corporate office equipment123,600
Miscellaneous plant overhead135,000
Plant utilities92,400
General corporate office expenses305,400
Marketing distribution costs30,000
A.Calculate Cost of Goods Manufactured for the quarter. [12 pts.]
Cost of Goods Manufactured Schedule--For quarter ending March 31
Direct materials used$ 378,400
Direct manufacturing labor517,000
Manufacturing overhead:
Depreciation of manufacturing equipment$259,000
Indirect manufacturing labor186,000
Indirect materials84,000
Miscellaneous plant overhead 135,000
Plant utilities92,400
Property taxes on building28,800 785,200
Manufacturing costs incurred$1,680,600
Add beginning work-in-process inventory 140,400
Total manufacturing costs$1,821,000
Less ending work-in-process inventory -100,000
Cost of goods manufactured$1,721,000
B.Calculate Cost of Goods Sold for the quarter. [4 pts.]
B.FG + CoGM – E.FG = COGS
$ 540,000 + 1,721,000 – 510,000 = $1,751,000
3. Assume that FOSTER Inc.’s breakeven point in revenues is $1,000,000 and fixed costs are $350,000.
What is the contribution margin %? [4 pts.]
350 / 1,000 = 35%
What is the selling price if variable costs are $65.00 per unit? [4 pts.]
USP = UVC / (1 – CM%) = $65.00 / 0.65 = $100.00
If 25,000 units are sold, what is the margin of safety in units? [4 pts.]
BEP = $350,000 / (100 – 65) = 10,000
Margin of safety = 10,000 – 25,000 = 15,000units
4. KARBOSKI Corp. is deciding how to structure its operation cost structure. It sells water valves for $38 each and at this price it can sell 75,000 valves next year. It can (1) make them mostly by hand and have unit variable costs of $13 with total fixed costs of $1.2 million or (2) automate the plant and have unit variable costs of $11 with fixed costs of $1.65 million.
What is KARBOSKI’s operating leverage under these two options?
If sales increased 10% which option would yield the highest operating profit? [6 pts.]
Operating leverage: 1) 1.875m / 0.675m =2.778; 2) 2.2275 / 0.375 =5.4
#1 gives the highest total operating income if sales increased 10%.
#1: 0.675m 0.8625m and #2: 0.375m 0.5775m
op. leverage = CM / op. inc.
5. What is the correct journal entry if $17,000 worth of materials ($15,000 direct and $2,000 indirect) are sent to the factory plant floor? [4 pts.]
WIP$15,000
MOH-control2,000
Materials-control$17,000
6. LUI Corp. uses a normal costing system and applies overhead based on direct labor hours used. Budgeted factory overhead was $400,000 and budgeted direct labor hours were 20,000. Actual MOH was $365,000 and actual direct labor hours were 19,000. Before disposition of under/overapplied overhead, the cost of goods sold was $1,850,000 and ending inventory balances were:
Materials--control$ 30,000
WIP105,000
Finished goods45,000
Total$180,000
What was the budgeted MOH rate (per direct labor hour)? [2 pts.]
$400,000 / 20,000 dlh = $20 / DLH
What amount of MOH was over or underapplied? [4 pts.]
Applied = 19,000 DLH * $20 / DLH = $380,000
Overapplied = $365,000 – 380,000 = $ 15,000
What journal entry would you make to dispose of the overhead variance using the proration approach based on account ending total dollar balances? Answer to the nearest dollar. [8 pts.]
1.85 + .105 + .045 = 2.0m -3 pts if used DM
COGS = 0.925 * 15,000 = $13,875
WIP = 0.0525 * 15,000 = $ 787.50
FG = 0.0225 * 15,000 = $ 337.50
MOH—allocated (or ctr.)$15,000
COGS$13,875
WIP788
FG338
or----
MOH—allocated$380,000
COGS$ 13,875
WIP788
FG338
MOH—control$365,000
7.Under standard costingone reason indirect costs may be underapplied is because: [4 pts.]
A. actual indirect costs exceedbudgeted indirect costs.
B. requisitioned direct materials are less than budgeted material costs.
C. the actual allocation base quantity is less than the budgeted quantity.
D. Both A and C are correct.
8. For externally reported inventory costs, the Work-in-process Control account is increased (debited) by
A. marketing costs.
B. the purchase costs of direct and indirect materials.
C. customer-service costs.
D. allocated plant utility costs.
9. An error was made in the computation of the percentage of completion of the current year’s ending Work-in-Process inventory. The error resulted in assigning a lower percentage of completion to each component of the inventory than actually was the case. Consequently, the following were misstated:
1. The computation of the total equivalent units.
2. The computation of costs per equivalent unit.
3. Costs assigned to cost of goods completed for the period.
What were the effects of the error?
1 2 3
A. Understate Overstate Overstate
B. Understate Understate Overstate
C. Overstate Understate Understate
D. Overstate Overstate Understate
If % completion assigned is lower than actually attained, then total equivalent units will be understated. This error results in higher (overstated) cost per EU and higher (overstated) costs assigned to finished goods for the period (assuming cost are constant).
10. Multiple regression differs from simple regression in that it:
A. provides an estimate of the constant term.
B. has more dependent variables.
C. allows the computation of the coefficient of determination.
D. has more independent variables.
12. REES Industries, Inc. is trying to estimate labor costs for next month. The production schedule calls for production of 7,500 water valves next month. The manager insists on using the high-low method to estimate cost functions and has given you the following data from last year:
Month / Water valvesproduced / Labor
costs ($)
Jan. / 1,100 / $111,675
Feb. / 3,000 / $119,750
Mar. / 4,500 / $126,125
Apr. / 5,200 / $129,100
May / 5,700 / $131,225
Jun. / 6,500 / $134,625
Jul. / 6,400 / $135,200
Aug. / 4,000 / $124,000
Sep. / 3,100 / $120,175
Oct. / 3,300 / $121,025
Nov. / 1,700 / $110,500
Dec. / 1,250 / $112,313
Use the high-low method to answer the following three questions.
What is the variable labor cost per valve? [Use 3 decimal places in your answer, 3 pts.]
High-low of the driver (# water valves)
(134,625-111,675) / (6,500 – 1,100) = $22,950/ 5,400 valves = $4.25 / valve
What is the estimated fixed labor costs? [3 pts.]
134,625 = a + 6,500 * 4.25 a = 134,625 – 27,625 = $107,000
What is the estimate of labor cost when 7,500 water valves are produced? [3 pts.]
y = $107,000 + ($4.25 * 7,500) =$107,000 + $31,875= $138,875
(assuming that 7,500 is within the relevant range where the cost function holds).
13. Excel outputs a statistic called the “coefficient of determination” when regressions are run. What does this number measure? [4 pts.]
The amount of variation in Y explained by changes in X. or “Goodness of fit.”
14. In class we discussed the p-value (probability level) of the coefficient estimates from regression analysis. A small p-value (< 5%) allows us to do what? [4 pts.]
Reject the null hypothesis that the real coefficient is equal to zero.
I.e., accept the hypothesis that the coefficient in not zero.
15. At the breakeven point, the contribution margin equals total [4 pts.]
A. Variable costs.
B. Sales revenues.
C. Selling and administration costs.
D. Fixed costs.
16. The dollar amount of revenues needed to attain a desired income is calculated by dividing the contribution margin ratio (%) into: (ignore taxes)
A. Fixed cost.
B. Desired income.
C. Desired income plus fixed costs.
D. Desired income minus fixed costs.
E. Desired income plus contribution margin.
17. There are several alternative denominator measures for applying overhead. Which is not commonly used?
A. Direct labor hours.
B. Direct labor cost.
C. Machine hours
D. Sales value of product produced.
18. Briefly discuss how you calculate “abnormal” spoilage. [4 pts.]
Total spoilage – normal spoilage = abnormal spoilage
Abnormal spoilage is the excess of spoilage above normal (expected) levels.
19. YARNELL Beverage, Inc. uses the weighted-average method of process costing. Direct materials are added at the end of the process and conversion costs are added evenly throughout the process. Consider the following data for the Bottling Department of YARNELL for the month of January:
Physical Units / Direct Materials / DM-eu / Conversion Costs / CCeu
WIP, Jan.1 / 60,000 / $0 / 0 / $5,200 / 45,000
Started or work done in Jan. / 7,515,000
CTO / 7,500,000 / 7,500,000 / 7,500,000
Cost added in Jan. / $375,000 / $524,000
WIP, Jan.31 / 75,000 / 0 / 60,000
total $ / $375,000 / 7,500,000 / $529,200 / 7,560,000
$wa/eu = / $0.05 /eu / $0.07/eu
Jan. 1 degree of completion: CC = 75%
Jan. 31 degree of completion: CC = 80%
Fill in the table below: (in $) [18 pts.]
DM / CC / TOTALCTO
7,500,000 / $375,000 / 7.5M * $0.07 =
$525,000 / $900,000
E.WIP
0 : 60,000 / $0 / 60K * $0.07 =
$4,200 / $4,200
TOTAL / No points / No points / $904,200
20. During the period you produced 100,000 units total of which 475 units were spoiled. You expected spoilage to average 0.5% of units produced. How many units would you record as “abnormal” spoilage? [2 pts.]
Expected 500 spoiled units.
Therefore, 0 units of abnormal spoilage!
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