Midterm Exam - Model Answer

Midterm exam Model answer Final grade (20) There is 17 questions, every question has 1 mark except Q (8, 11, and 14) have 2 marks: 1- The Cook Corporation has two divisions—East and West. The divisions have the following revenues and expenses: East Sales Variable costs Traceable fixed costs Allocated common corporate costs Net operating income (loss) $ 500,000 200,000 150,000 135,000 $ 15,000 West $ 550,000 275,000 180,000 170,000 $ (75,000) The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of: a) b) c) d) $15,000 ($155,000) ($75,000) ($60,000) 2- Matthias Corporation has provided data concerning the Corporation's Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $63,000 and the total of the credits to the account was $89,000. Which of the following statements is true? a) Manufacturing overhead applied to Work in Process for the month was $89,000. b) Manufacturing overhead for the month was underapplied by $26,000. c) Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $63,000. d) Actual manufacturing overhead incurred during the month was $89,000. 3- Assume a company has two products—A and B—that emerge from a joint process. Product A has been allocated $24,000 of the total joint costs of $48,000. A total of 2,000 units of Product A are produced from the joint process. Product A can be sold at the split-off point for $16 per unit, or it can be processed further for an additional total cost of $14,900 and then sold for $25 per unit. What is the financial advantage (disadvantage) of further processing Product A? a) $(3,100) b) $3,100 c) $(22,000) d) $22,000 4- Assume that a company introduced a new product. To determine a selling price, the company has gathered the following information Number of units to be produced and sold each year Unit product cost Invested asset Desired return on investment (ROI) $ $ 15,000 50 780,000 12% What is the markup percentage? a) b) c) d) 12.5% 13.9% 44.4% 49.5% 5- In a job-order costing system, indirect labor cost is usually recorded as a debit to: A. Manufacturing Overhead. B. Finished Goods. C. Work in Process. D. Cost of Goods Sold. 6- Crich Corp uses direct labor hour in its predetermined overhead rate. At the beginning of the year, the estimated direct labor hour were 22,000 hours and the total estimated Manufacturing Overhead was $545,600. At the end of the year, actual direct labor hour were 21,900 hours and the actual Manufacturing Overhead was $545,600. Manufacturing Overhead will be A. $2,530 overapplied B. $2,530 underapplied C. $2,480 underapplied D. $2,480 overapplied 7- A product whose revenues do not cover its variable costs and its traceable fixed costs should usually be dropped. a) True b) False 8- Norgaard Corporation makes 8,000 units of part G25 each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity: (2 marks) Per Unit Direct materials $ 6.70 Direct labor $ 8.10 Variable manufacturing overhead $ 1.10 Supervisor's salary $ 2.00 Per Unit Depreciation of special equipment Allocated general overhead $ 4.20 $ 2.10 An outside supplier has offered to make and sell the part to the company for $21.20 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $2,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part G25 would be used to make more of one of the company's other products, generating an additional segment margin of $16,000 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part G25 from the outside supplier should be: a) ($8,400) b) $16,000 c) ($8,000) d) ($40,000) 9- In a special order situation, any fixed cost associated with the order would be irrelevant. a) True b) False 10- Accepting a special order will improve overall net operating income if the revenue from the special order exceeds: a) b) c) d) the contribution margin on the order. the incremental costs associated with the order. the variable costs associated with the order. the sunk costs associated with the order. 11- Globe Manufacturing Company has just obtained a request for a special order of 12,000 units to be shipped at the end of the current year at a discount price of $7.00 each. The company has a production capacity of 100,000 units per year. At present, Globe is only selling 80,000 units per year through regular channels at a selling price of $11.00 each. Globe's per unit costs at an 80,000 unit level of production and sales are as follows: (2 marks) Variable selling and administrative expense will drop to $0.30 per unit on the special order units. If Globe accepts this special order, by what amount will its net operating income increase? a) $13,200 b) $25,200 c) $32,000 d) $15,000 12- Fixed costs are irrelevant in decisions about whether a product should be dropped. a) True b) False 13- Mitchener Corp. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $300,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point.Each product may be sold at the split-off point or processed further. The additional processing costs and sales value after further processing for each product (on an annual basis) are: Which product or products should be sold at the split-off point, and which product or products should be processed further? a) Products M and P b) Products M and N c) Products P d) Products M and N and P 14- At the beginning of the year, manufacturing overhead for the year was estimated to be $670,700. At the end of the year, actual direct labor-hours for the year were 36,200 hours, the actual manufacturing overhead for the year was $665,700, and manufacturing overhead for the year was overapplied by $22,100. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been: (2 marks) a) b) c) d) 35,037 direct labor-hours 35,300 direct labor-hours 36,200 direct labor-hours 33,874 direct labor-hours 15- Rediger Incorporated a manufacturing Corporation, has provided the following data for the month of June. The balance in the Work in Process inventory account was $35,000 at the beginning of the month and $23,500 at the end of the month. During the month, the Corporation incurred direct materials cost of $57,600 and direct labor cost of $31,900. The actual manufacturing overhead cost incurred was $54,300. The manufacturing overhead cost applied to Work in Process was $53,600. The cost of goods manufactured for June was: a) b) c) d) $155,300. $154,600. $143,100. $143,800. 16- Assume that a company closes out any manufacturing overhead overapplied or underapplied to cost of goods sold. Then in the Schedule of Cost of Goods Sold, Adjusted cost of goods sold = Unadjusted cost of goods sold + Overapplied overhead − Underapplied overhead. a) True b) False 17- Entry (4) in the below T-account could represent the cost of overhead applied to Work in Process. Manufacturing Overhead Debit Credit (2) (3) (4) (5) (6) Balance a) True b) False 4,000 (7) 30,000 80,000 40,000 36,000 190,000 10,000 180,000 180,000