Exam 2 Review

1
Exam 2 Review

• This review does NOT cover every thing we
  discussed, use it with your notes, handouts,
  quizzes, and books.

2
Chapter 4

• You need to know
• The difference between job order costing and
  process order costing.
• What type of organizations would use process
  costing?
• What type of organizations would use job order
  costing?
• Cost accumulation.
• Cost measurement.
• Cost assignment.
• The difference between actual costing and normal
  costing.
• What is (are) the disadvantage (s) of the actual
  costing system?

3
Chapter 4

• Predetermined overhead rate (allocation rate ?/
  ?.
• The over or under applied overhead is the
  difference between ? And ?.
• What are the two methods you learned to deal with
  over or under applied overhead.

4
Chapter 4

• What is the appropriate cost driver for labor
  intensive department?
• What is the appropriate cost driver for machine
  intensive department?

5
Chapter 4

• Manufacturing overhead
• a. consists of all costs other than direct
  materials.
• b. consists of all manufacturing costs other than
  direct materials.
• c. consists of all costs other than direct
  materials and direct labor.
• d. consists of all manufacturing costs other than
  direct materials and direct labor.

6
Chapter 4

• Manufacturing overhead
• a. consists of all costs other than direct
  materials.
• b. consists of all manufacturing costs other than
  direct materials.
• c. consists of all costs other than direct
  materials and direct labor.
• d. consists of all manufacturing costs other than
  direct materials and direct labor.
• D

7
Chapter 4

• Disadvantages of actual costing include
• a. actual cost systems cannot provide accurate
  unit cost information on a timely basis.
• b. actual cost systems produce unit costs that
  fluctuate from period to period.
• c. estimates must be used when calculating the
  actual overhead rate.
• d. both a and b.

8
Chapter 4

• Disadvantages of actual costing include
• a. actual cost systems cannot provide accurate
  unit cost information on a timely basis.
• b. actual cost systems produce unit costs that
  fluctuate from period to period.
• c. estimates must be used when calculating the
  actual overhead rate.
• d. both a and b.
• D

9
Chapter 4

• Carlson Company uses a predetermined rate to
  apply overhead. At the beginning of the year,
  Carlson estimated its overhead costs at 240,000,
  direct labor hours at 40,000, and machine hours
  at 10,000. Actual overhead costs incurred were
  249,280, actual direct labor hours were 41,000,
  and actual machine hours were 11,000.
• What is the predetermined overhead rate per
  machine hour for Carlson?
• a. 6.08
• b. 5.85
• c. 24.00
• d. 22.66

10
Chapter 4

• Carlson Company uses a predetermined rate to
  apply overhead. At the beginning of the year,
  Carlson estimated its overhead costs at 240,000,
  direct labor hours at 40,000, and machine hours
  at 10,000. Actual overhead costs incurred were
  249,280, actual direct labor hours were 41,000,
  and actual machine hours were 11,000.
• What is the predetermined overhead rate per
  machine hour for Carlson?
• a. 6.08
• b. 5.85
• c. 24.00
• d. 22.66
• 240,000/10,000 24.00 per MH

11
Chapter 4

• The following information is provided for the
  year
• Actual direct labor hours worked 36,000
• Budgeted overhead 300,000
• Budgeted direct labor hours 30,000
• Actual overhead costs incurred 360,000
• If normal costing is used, the amount of overhead
  applied for the year is

12
Chapter 4

• The following information is provided for the
  year
• Actual direct labor hours worked 36,000
• Budgeted overhead 300,000
• Budgeted direct labor hours 30,000
• Actual overhead costs incurred 360,000
• If normal costing is used, the amount of overhead
  applied for the year is
• Budgeted overhead/Budgeted direct labor hours
• 300,000/30,000 10/DLH
• 10 36,000 360,000

13
Chapter 4

• Walter Company uses a job-order costing system to
  account for product costs. The following
  information pertains to 2004
• Materials placed into production 140,000
• Indirect labor 40,000
• Direct labor (10,000 hours) 160,000
• Depreciation of factory building 60,000
• Other factory overhead 100,000
• Increase in work-in-process inventory 30,000

14
Chapter 4

• Factory overhead rate is 18 per direct labor
  hour.
• What is the amount of under- or overapplied
  overhead for Walter Company in 2004?

15
Chapter 4

• Factory overhead rate is 18 per direct labor
  hour.
• What is the amount of under- or overapplied
  overhead for Walter Company in 2004?
• Actual overhead (40,000 60,000
  100,000) 200,000
• Applied overhead 180,000
• Underapplied overhead 20,000

16
Chapter 6

• You need to know
• The difference between the producing departments
  and the supporting departments (examples on
  both).
• What are the objective for overhead allocations.
• What are the two methods we learned on
  calculating the charging rate ( single and dual).

17
Chapter 6

• The three methods for allocating the support
  departments costs.

18
Chapter 6

• A company incurred 60,000 of common fixed costs
  and 90,000 of common variable costs. These
  costs are to be allocated to Departments 1 and 2.
  Data on capacity provided and capacity used are
  as follows
• Capacity Provided Capacity UsedDepartment    in
  Hours        in Hours   
• 1 1,000 800
• 2 600 800

19
Chapter 6

• Assume that both fixed and variable costs are
  allocated on the basis of capacity used. The
  fixed and variable costs allocated to Department
  1 are
• Fixed Variable
• a. 37,500 56,250
• b. 37,500 45,000
• c. 30,000 56,250
• d. 30,000 45,000

20
Chapter 6

• Assume that both fixed and variable costs are
  allocated on the basis of capacity used. The
  fixed and variable costs allocated to Department
  1 are
• Fixed Variable
• a. 37,500 56,250
• b. 37,500 45,000
• c. 30,000 56,250
• d. 30,000 45,000
• Fixed 800/1,600 60,000 30,000
• Variable 800/1,600 90,000 45,000

21
Chapter 6

• Staff Company allocates common Building
  Department costs to producing departments (P1 and
  P2) based on space occupied, and it allocates
  common Personnel Department costs based on the
  number of employees. Space occupancy and
  employee data are as follows
• Building Personnel  Dept. P1 
   Dept. P2 
• Space occupied 2,000 ft. 10,000 ft
  120,000 ft. 70,000 ft.
• Employees 6 10 80
  50

22
Chapter 6

• If Staff Company uses the sequential allocation
  method and the building department services is
  allocated first, the ratio representing the
  portion of Personnel Department costs allocated
  to Department P2 is
• a. 50/146.
• b. 90/140.
• c. 50/140.
• d. 50/130.

23
Chapter 6

• If Staff Company uses the sequential allocation
  method and the building department services is
  allocated first, the ratio representing the
  portion of Personnel Department costs allocated
  to Department P2 is
• a. 50/146.
• b. 90/140.
• c. 50/140.
• d. 50/130.
• Allocate Building Department first, therefore,
  50/140

24
Chapter 6

• Plants Company has two support departments (S1
  and S2) and two producing departments (P1 and
  P2). Department S1 costs are allocated on the
  basis of number of employees, and Department S2
  costs are allocated on the basis of space
  occupied expressed in square feet.
• Data on direct department costs, number of
  employees, and space occupied are as follows

25
Chapter 6

•    S1      S2      P1      P2  
• Direct dept. costs 7,500 11,000 27,500 30,000
  
• Number of employees 10 5 20 25
• Space occupied (sq. ft.) 1,000 500 1,500 2,500

26
Chapter 6

• If Plants used the reciprocal method, the
  algebraic equation expressing the total costs
  allocated from S1 is
• a. S1 7,500 0.10S2.
• b. S1 10,000 0.20S2.
• c. S1 7,500 0.20S2.
• d. S1 10,000 0.10S2.

27
Chapter 6

• If Plants used the reciprocal method, the
  algebraic equation expressing the total costs
  allocated from S1 is
• a. S1 7,500 0.10S2.
• b. S1 10,000 0.20S2.
• c. S1 7,500 0.20S2.
• d. S1 10,000 0.10S2.

28
Chapter 6

• Which of the following would be the most
  appropriate base for allocating the costs of the
  housekeeping department?
• a. machine hours
• b. direct labor hours
• c. number of employees
• d. square feet

29
Chapter 6

• Which of the following would be the most
  appropriate base for allocating the costs of the
  housekeeping department?
• a. machine hours
• b. direct labor hours
• c. number of employees
• d. square feet

30
Chapter 6

• A company incurred 120,000 of common fixed costs
  and 180,000 of common variable costs. These
  costs are to be allocated to Departments XX and
  YY. Data on capacity provided and capacity used
  are as follows
• Capacity Provided Capacity UsedDepartment     in
  Hours        in Hours   
• XX 500 400
• YY 300 400

31
Chapter 6

• Assume that common fixed costs are to be
  allocated to Departments XX and YY on the basis
  of capacity provided and that common variable
  costs are to be allocated to Departments XX and
  YY on the basis of capacity used. The fixed and
  variable costs allocated to Department XX are

32
Chapter 6

• Assume that common fixed costs are to be
  allocated to Departments XX and YY on the basis
  of capacity provided and that common variable
  costs are to be allocated to Departments XX and
  YY on the basis of capacity used. The fixed and
  variable costs allocated to Department XX are
• Fixed 500/800 120,000 75,000
• Variable 400/800 180,000 90,000

33
Chapter 6

• Oaks Company has two support departments,
  Maintenance Department (MD) and Personnel
  Department (PD), and two producing departments,
  P1 and P2. The Maintenance Department costs of
  30,000 are allocated on the basis of standard
  service used. The Personnel Department costs of
  4,500 are allocated on the basis of number of
  employees. The direct costs of Departments P1
  and P2 are 9,000 and 15,000, respectively.

34
Chapter 6

• Data on standard service hours and number of
  employees are as follows
•  MD  PD  P1  P2
• Standard service hours used 100 50 300 150
• Number of employees 10 20 90 90
• Direct labor hours 50 50 250 250
• Using the direct method, the cost of the
  Maintenance Department allocated to Department P1
  is
• 300/450 30,000 20,000

35
Chapter 6

• Rust Company has two support departments (S1 and
  S2) and two producing departments (X and Y).
  Department S1 serves Departments S2, X, and Y in
  the following percentages, respectively 10,
  35, 55. Department S2 serves Departments S1,
  X, and Y in the following percentages,
  respectively 6, 50, and 44. Direct
  department costs for S1, S2, X, and Y are
  15,000, 8,000, 105,000, and 97,500,
  respectively.
• What is S2s cost equation?
• a. S2 15,000 0.06S1
• b. S2 8,000 0.06S1
• c. S2 15,000 0.10S1
• d. S2 8,000 0.10S1

36
Chapter 6

• Rust Company has two support departments (S1 and
  S2) and two producing departments (X and Y).
  Department S1 serves Departments S2, X, and Y in
  the following percentages, respectively 10,
  35, 55. Department S2 serves Departments S1,
  X, and Y in the following percentages,
  respectively 6, 50, and 44. Direct
  department costs for S1, S2, X, and Y are
  15,000, 8,000, 105,000, and 97,500,
  respectively.
• What is S2s cost equation?
• a. S2 15,000 0.06S1
• b. S2 8,000 0.06S1
• c. S2 15,000 0.10S1
• d. S2 8,000 0.10S1

37
Chapter 8

• You need to know
• what is a budget?
• What is the master budget?
• What is the operating budget?
• What is the financial budget?
• What are the purpose of budgets?

38
Chapter 8

• Amy Company produces and sells bikes. It expects
  to sell 15,000 bikes in March 2004 and had 1,200
  bikes in finished goods inventory at the end of
  February 2004. Amy Company would like to
  complete operations in March with at least 1,500
  completed bikes in inventory. The bikes sell for
  100 each.
• How many bikes would be produced in March?

39
Chapter 8

• Amy Company produces and sells bikes. It expects
  to sell 15,000 bikes in March 2004 and had 1,200
  bikes in finished goods inventory at the end of
  February 2004. Amy Company would like to
  complete operations in March with at least 1,500
  completed bikes in inventory. The bikes sell for
  100 each.
• How many bikes would be produced in March?
• 15,000 1,500 - 1,200 15,300 bikes

40
Chapter 8

• Oriental Lamp Company manufactures lamps. The
  estimated number of lamp sales for the last three
  months of 2004 are as follows
• Month Sales
• October 10,000
• November 14,000
• December 13,000
• Finished goods inventory at the end of September
  was 3,000 units. Ending finished goods inventory
  is budgeted to equal 25 percent of the next
  months sales. Oriental lamp expects to sell the
  lamps for 25 each. January 2004 sales is
  projected at 16,000 lamps.

41
Chapter 8

• How many lamps should be produced in November?
• a. 11,000 lamps
• b. 10,500 lamps
• c. 14,000 lamps
• d. 13,750 lamps
• (13,000 .25) 14,000 - (14,000 .25) 13,750
  lamps

42
Chapter 8

• How many lamps should be produced in October?
• a. 10,000 lamps
• b. 14,000 lamps
• c. 9,500 lamps
• d. 10,500 lamps
• D, SUPPORTING CALCULATIONS
• (14,000 .25) 10,000 - 3,000 10,500 lamps

43
Chapter 8

• Gerald Company manufactures books. Manufacturing
  a book takes 10 units of A1 and 1 unit of A2.
  Scheduled production of books for the next two
  months is 1,000 and 1,200 units, respectively.
  Beginning inventory is 4,000 units of A1 and 30
  units of A2. The ending inventory of A1 is
  planned to decrease 500 units in each of the next
  two months, and the A2 inventory is expected to
  increase 5 units in each of the next two months.
• Based on this information, the number of units of
  A1 that needs to be purchased by Gerald during
  the first month is

44
Chapter 8

• Gerald Company manufactures books. Manufacturing
  a book takes 10 units of A1 and 1 unit of A2.
  Scheduled production of books for the next two
  months is 1,000 and 1,200 units, respectively.
  Beginning inventory is 4,000 units of A1 and 30
  units of A2. The ending inventory of A1 is
  planned to decrease 500 units in each of the next
  two months, and the A2 inventory is expected to
  increase 5 units in each of the next two months.
• Based on this information, the number of units of
  A1 that needs to be purchased by Gerald during
  the first month is
• (1,000 10) 3,500 - 4,000 9,500 units

45
Chapter 8

• Michael Corporation has the following sales
  forecasts for the first three months of 2001
• Month Sales
• January 36,000
• February 24,000
• March 40,000
• Sixty-five percent of sales are collected in the
  month of the sale and the remainder are collected
  in the following month.
• Accounts receivable balance (January 1,
  2004) 16,000
• Cash balance (January 1, 2001) 12,000
• Minimum cash balance needed 20,000
• What is the cash balance at the end of January,
  assuming that cash is received only from
  customers and that 48,000 is paid out during
  January?

46
Chapter 8

• 12,000 16,000 (0.65 36,000) - 48,000
  3,400
• Amount borrowed to meet minimum 20,000
• Total 23,400

47
Chapter 8

• This review does NOT cover every thing we
  discussed, use it with your notes, handouts,
  quizzes, and books.
• If you have questions, please email me.
• Good luck