1. Managerial accounting:

1. focuses on financial statements and other financial reports.
2. is governed by GAPP.
3. provides information for parties external to the organization.
4. focuses primarily on the needs of the stock market.
5. focuses primarily on the needs of the organization’s internal parties.

1. $200,000.
2. $160,000.
3. $130,000.
4. $150,000.
5. none of the above.

1. $ 160.
2. $ 320.
3. $ 640.
4. $ 800.
5. none of the above.

1. Work-in-Process Inventory account.
2. Manufacturing Overhead Inventory account.
3. Cost-of-Goods-Sold account.
4. Finished-Goods Inventory account.
5. Production Labor account.

1. Cost of Goods Sold, Work-in-Process Inventory, and Raw-Material Inventory.
2. Raw-Material Inventory, Manufacturing Overhead, and Direct Labor.
3. Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold.
4. Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold
5. None of the above.

6.  A custom-furniture manufacturer would most likely use:

1. Job-order budgeting.
2. Joint costing.
3. Job-order costing.
4. Process costing
5. Underapplied joint-job-process costing.

1. materials, 420,000; conversion 404,000.
2. materials, 420,000; conversion 407,200.
3. materials, 430,000; conversion 407,200.
4. materials, 450,000; conversion 420,000.
5. none of the above.

1. completed units.
2. in-process units.
3. physical units.
4. completed and transferred out units.
5. a measure of activity other than those listed above.

The company’s cost per equivalent unit for materials is:

1. $ 0.47
2. $ 0.50
3. $ 1.18
4. $ 2.00
5. none of the above.

1. direct material cost.
2. material handling cost.
3. product-sustaining-level cost
4. setup cost pool.
5. facility-level cost pool.

11.  Activity-based costing systems:

1. have a tendency to distort product costs.
2. assign overhead to products based on the products' relative usage of direct labor.
3. use a single, volume-based cost driver to assign overhead costs to products.
4. typically use fewer cost drivers than more traditional costing systems
5. use a two-stage procedure to assign overhead costs to products.

12. Defender Corporation used a traditional volume-based costing system with a single cost pool and overhead allocated to products based on machine hours. They produced some very high-volume and some very low-volume products. This year they changed to an activity-based costing-system. The company will likely find that:

1. all of its products are undercosted.
2. its high-volume products are overcosted.
3. all of its products are overcosted.
4. Its high-volume products are undercosted.
5. its low-volume products are overcosted.

Instructions: Match the term with the correct definition and mark the appropriate answer on your Scantron. NO CREDIT WILL BE GIVEN IN THIS SECTION FOR ANSWERS ON THE EXAM. You may use each definition as many times as you would like; however, each definition is the correct answer for only one question.

Terms:

13. Product Cost:
14. Job-Order Costing:
15. Activity-Based Costing:

Definitions:

A. It is used by companies that produce large numbers of identical goods.

B. It is a cost that is not directly traceable to a particular department.

C. It is a cost assigned to goods that were either purchased or manufactured for resale.

D. It is used by companies where goods are produced in distinct batches and there are significant differences among the batches.

E. It assigns overhead costs to products or services produced using a two-stage process that focuses on activities.

Problems (60.0%)

All problem in this section will be weighted evenly (15% each).

Instructions: Please show all your work for partial credit where applicable.

16. An automobile factory worker earns $8.00 per hour. The employee earns $12.00 for overtime hours. The operator worked 50 hours during the first week of January, instead of his usual 40 hours (i.e., all hours in excess of 40 hours are overtime).

Required:

1. Compute the factory worker’s total compensation for the week.

Total Compensation………………………………………….$ __________

 

2. Calculate the factory worker’s total overtime premium for the week.

Total overtime premium………………………………………….$__________

            3. How much of the factory worker’s total compensation for the week  is direct-labor cost? How much is overhead?

Direct-labor cost………………………………………………….$__________

Overhead…………………………………………………………$__________

Total compensation…..………………………………………….$__________

Required:

1. Calculate the predetermined overhead rate when the output predictions are 200,000 Cornish game hens.

Show your work here:

Ginnis Company started June with 8,750 units in process that were 60% complete with respect to conversion costs. 27,000 units were completed and transferred out during June. There were 7,500 units in process that were 40% completed with respect to conversion costs on June 30.

 

The following data pertain to the firm’s beer production facility:

Work-in-Process, June 1:

Direct Material………………………………………….$ 62,350

Conversion……………………………………………...$ 32,400

Costs incurred during June:

Direct material…………………………………………..$ 236,000

Conversion……...…...………………………………….$ 517,500

Required: Using weighted-average process costing, calculate the following:

2.   the cost per equivalent unit for conversion cost only $ _____________

Show all your work here:

19.  Whipco Corporation manufactures sophisticated binoculars and telescopes. The company is now preparing its annual profit plan. As part of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information. The total budgeted materials-handling costs are $120,000.

	Binoculars	Telescopes
Units produced	250	10
Material moves per product line	5	25
Direct labor hours per unit	50	20

Required:

1. Using activity-based costing (ABC) calculate the material handling costs allocated to one binocular.

$ _______________per binocular

Show your work here:

 

2. Answer the same question as in requirement 1, but for telescopes.

$ __________________ per telescope

Show your work here:

 

Essay (10%):

20. Discuss the importance of correctly identifying an organization’s cost drivers. In discussing cost drivers, you may want to address the following: (1) the cost driver concept; (2) the negative consequences associated with misidentifying cost drivers; (3) the benefits of correctly identifying cost drivers. Be specific and concise, no credit will be given for wordy answers not addressing the question directly (i.e., B.S.). A short and concise essay dealing directly with the question may receive more credit than a long drawn-out answer that says the same thing. Stay within the allotted space!

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Explain the behavioral tendencies many people show when they encounter opportunity and sunk costs. Be specific, concise and include definitions of opportunity and sunk costs. No credit will be awarded for wordy answers not directly applicable to the question. Stay within the allotted space—no more!

DISCLOSURE STATEMENT: By signing below you agree to allow anonymous disclosure of your essay for academic purposes. Typically, the best student answer(s) may be disclosed (with all names omitted) in class or on the class web site posted on the Internet.

X ___________________________________________________

Key

1. E (page 8 and Chapters 1 & 2 Examination)
2. C (pages 31-33 and Chapters 1 & 2 Examination)
3. A (page 37 & Homework Ex. 2-25)
4. D (page 67--Exhibit 3-1 & Chapter 3 Examination #1)
5. D (page 81 & Chapter 3 Examination # 5)
6. C (page 68 & Chapter 3 Examination # 7)
7. A (page 126—Exhibit 4-6 & Chapter 4 Examination # 6)
8. E (page 126-7 & Chapter 4 Examination # 3)
9. B (page 127—Exhibit 4-7 & Chapter 4 Examination # 10)
10. C (page 162 & Chapter 5 Examination # 2)
11. E (page 160 & Chapter 5 Examination # 7)
12. B (page 165-6 & Chapter 5 Examination # 9)
13. C (page 39)
14. D (page 67)
15. E (page 160)

1.

2. 

3.

17. 

(page 72 & Homework Ex. 3-36)

18. 

(page 126 & 127—Exhibits 4-6; 4-7.)

1. 

2

 $ 17.25 per unit conversion cost

19.

(page 166—Exhibit 5-9 & Homework Exercise 2-25)

1.

$ 120,000

        30

———————— = $400 x 25 = $10,000 per unit

        10

Model Answer:

A cost driver is an event or activity that results in costs being incurred. For example, many of the costs in an automated environment are created by the operation of machines, and machine hours may be a suitable cost driver for overhead application.

In most firms different types of costs respond to widely different cost drivers. Therefore, correctly identifying the relationship between costs and activities is crucial for reliable and accurate accounting information. Firms that misidentify their cost drivers may distort the actual cost of producing products. This could result in some products, such as high-volume products, subsidizing other products, such as low-volume products. [See text at 159-160]. In using the distorted costs firms may be overpricing some products while selling others at a low. Therefore, the firm could be pricing themselves out of the market on some products and selling others at a loss; all the while wondering why no one can compete with their prices on one product, and why they cannot compete with other firms’ prices on other products.

The importance of correctly identifying a cost driver cannot be emphasized enough. It is important, however, that the benefits of having the cost driver information outweigh the costs of collecting it. The main benefit of correctly identifying cost drivers is more accurate cost information. This can maximize the firm’s profitability resulting from better managerial decision-making based on accurate information.

Model Answer:

Opportunity costs are the potential benefits given up when the choice of one action precludes selection of different actions. Studies by behavioral scientists and economists have shown that many people have a tendency to ignore or downplay the importance of opportunity costs. Ignoring or downplaying the importance of opportunity costs can result in inconsistent and faulty business decisions.

Sunk costs are costs that have been incurred in the past and cannot be altered by any current or future decision. Hence, these costs are irrelevant for all future decisions. Human nature runs contrary to this idea. Most people attempt to justify past decisions. So while incorrect, from an economic perspective, people often allow sunk costs to affect future decisions. It is important for managerial accountants to be aware of such behavioral tendencies. Such an awareness enables the accountant to prepare the most relevant data for managers’ decisions and, sometimes, to assist the managers in using the information.