Midterm Exam-October-4-solution-mark break-down-october-15

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1 QUESTION I. 22.5 POINTS Select the best Answer: 1.5 Marks each 1. All the following statements on process costing are correct EXCEPT for: a. The production cost report helps to reconcile transferred-out costs and beginning work in process costs. b. FIFO splits the units transferred into the next department into ‘started & completed’ and ‘completed-beginning work in process’ c. To calculate the total cost per unit under the Weighted Average method, total accumulated costs are divided by the equivalent units. d. Weighted average includes beginning work in process cost in the cost per unit calculation. e. Process costing is used for continuous manufacturing processes. 2. Company generated a net income of $75,000 with an operating leverage of 2.5. What is the company’s net income if sales increases by 20%? a. $52,500 b. $75,000 c. $112,500 d. $127,500 e. None of the above 3. When does the operating leverage cannot be used to predict the impact of changes in sales on net income? a. When total fixed cost remain constant b. When the selling price changes c. When the relationship between sales and variable cost remains the same d. All of the above e. None of the above

2 4. Which of the following statement is TRUE about Cost-Volume-Profit (CVP) Analysis? a. If the sales mix is provided in sales dollars, the Weighted Average Contribution Margin Ratio must be used. b. For CVP Analysis costs must be classified into variable, mixed, and fixed costs. c. If the sales mix is provided in sales units, the FIFO method is used. d. To convert before tax income into after tax income, the net income before taxes figure is divided by (1 – tax rate). e. Costs of Goods Sold are calculated in order to find the break-even point. 5. The beginning and ending Work in Process inventory of Company Steel was $500. Which of the following statements is TRUE? a. All raw materials used were also consumed. b. Total manufacturing costs equal Cost of Goods Sold c. Total manufacturing costs equal Cost of Goods Manufactured d. Total manufacturing costs equal Cost of Goods Manufactured and Cost of Goods Sold e. All units started this period, where also completed this period. 6. Which of the following statements is true about the job-order costing? a. It only uses job cost sheets for cost accounting. b. The job cost sheet lists costs incurred during a given month. c. It accumulates conversion costs and manufacturing overhead of a specific job on a job cost sheet. d. Potential over-/under-applied manufacturing overhead must be adjusted via cost of goods sold. e. The job cost sheet lists product cost of a specific job. 7. What is NOT true about accounting in job-order costing? a. Used indirect materials are debited to the Work in Process Account. b. Indirect materials used in production are variable manufacturing costs. c. The raw materials requisitions slip informs on the direct and indirect materials used .

3 d. The costs of finished goods are debited to finished goods inventory. e. Job-order costing entails accumulating costs and assigning costs. 8. Which of the following statements is NOT true about managerial accounting: a. Managerial accounting provides information for planning, directing, and controlling organizations. b. Managerial accounting practices are annually examined by statutory audits. c. Internal users are the primary users of managerial accounting. d. Lean manufacturing, just-in-time, or theory of constrains are concepts used for managerial accounting. e. None of the above 9. Because the weighted average and FIFO methods treat beginning inventory differently, if a firm has beginning inventory in a process costing system and the Weighted Average method is used, it will a. Always have a lower number of equivalent units of production for conversion costs than the FIFO method b. Always have a higher number of equivalent units of production for conversion costs than FIFO method c. Always have a higher cost per equivalent unit than the FIFO method for materials d. Always have a lower cost per equivalent unit than the FIFO method for conversion costs e. None of the above. 10. If a company has no fixed manufacturing costs in the relevant range of production, a. then Cost of Goods Sold equal the Contribution Margin b. then the unit product cost will be constant c. then the company has only direct cost of production d. then the company has no conversion costs e. then the company has manufacturing overhead

4 11. Company XYZ has a Marin of Safety in Dollars of $30,000. Fixed costs are $60,000, contribution margin ratio 30%, and tax rate 40%. Given this information what is the company’s target income after taxes? a. $2,500 b. $3,600 c. $9,000 d. $5,400 e. None of the above 12. Indirect material is considered a part of which of the following costs? a. Manufacturing overhead b. Variable cost c. Product cost d. Inventoriable costs e. All of the above 13. Manufacturing overhead is applied based on machine hours. Everything else being equal, which of the following statements is NOT true? a. If the estimated machine hours are larger than the actual machine hours, then manufacturing overhead is over-applied. b. If the estimated machine hours are larger than the actual machine hours, then manufacturing overhead is under-applied. c. If estimated overhead costs are larger than actual overhead costs, overhead is over- applied. d. There is no over-/under-applied overhead if estimated overhead cost per unit equal actual overhead cost per unit. e. None of the above.

5 14. Peter Co. has a contribution margin ratio of 30% and a breakeven point of $60,000 in sales. If the firm reports net income of $75,000 after taxes of 50%, what were total sales for the year? a. $150,000 b. $280,000 c. $430,000 d. $560,000 e. None of the above 15. Which of the following is TRUE about non-value adding activities? a. They can be completely eliminated. b. The customer is willing to pay for them. c. They represent areas for continuous improvement of operations. d. They are totally wasteful. e. Management attention is only on value adding activities.

6 QUESTION II. 20 POINTS Sports & Co Inc. prints sports magazines, using its high tech printers. The company uses a normal job order cost system. Manufacturing overhead is applied at the rate of 40% of direct labour cost. On August 1, 2016 two jobs were in process: Job A and Job B. Job D was in the finished goods warehouse in the beginning of August. Their job cost sheets showed the following accumulated cost as of July 31, 2016: Job A Job B Job D Direct material used $4,600 $5,000 $11,000 Direct labour incurred $6,000 $5,000 $10,000 Manufacturing overhead applied $2,400 $2,000 $4,000 During the months Jobs E, G, and K were started. Only Job G was unfinished and Job K was in the finished goods warehouse at the end of August. The following costs information is available for the months of August: Material Requisition Slip for Raw Materials Used during August:  Job A: $6,000  Job B: $1,000  Job E: $9,000  Job G: $9,000  Job K: $5,000  Indirect Materials: $6,000 The hourly gross wage, including all benefits, is $25. Time Ticket for Factory Labour incurred during August:  Job A: 320 hours  Job B: 160 hours  Job E: 480 hours  Job G: 640 hours  Job K: 400 hours  Indirect Labour: 400 hours The company incurred also the following actual manufacturing overhead during August: Factory rent: $14,000 Depreciation (machines): $10,000

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