ACG 4361–Cost Accounting – Test 1 Review Problems
Problem 1: Hanover manufactures candy bars and uses a normal costing system. It allocates
overhead based on direct labor cost. During July, Hanover’s accounts included the following
balances and transactions:
Factory maintenance & supplies
$7,100
Raw materials, beginning
$ 7,200
Administrative expenses
26,200
Indirect labor
7,200
Indirect materials transferred to
1,800
Direct labor cost incurred
32,000
production
Direct materials used in production
121,000
Work in process, beginning
14,600
Total manufacturing overhead cost
38,700
Sales
331,000
incurred
Cost of goods manufactured
186,200
Manufacturing overhead applied
40,100
Cost of materials purchased
127,200
Cost to ship products to customers
4,100
Product advertising costs
18,000
Production supervisor’s salary
22,600
Hanover tracks both direct and indirect material costs in the Raw Materials account. Over and
underapplied overhead are considered to be immaterial in amount. Show the calculation of the
following amounts and circle your final answer.
A. Raw Materials balance at July 31
B. Work in process balance at July 31
C. Total period costs for July
D. If the company had used actual costing, what is the amount by which the balance of work in
process will differ at July 31 before the adjustment for any over or underapplied amounts?
Indicate amount and whether WIP will be greater or smaller than normal costing. Show
calculations.
E. List any additional information you would need to calculate cost of goods sold
Problem 2 - Twellman Enterpirses applies overhead at $11.50 per machine hour. Actual factory
overhead was $428,000 and actual machine-hours were 37,500. Budgeted factory overhead
was $425,500 and budgeted machine hours were 37,000. The company uses only one control
account for factory overhead and deems under or overapplied overhead to be material in
amount. Actual year end account balances at December 31 before disposition of the under or
over applied amount were as follows:
Account Names
Account Balances
Raw materials
$ 24,000
Work in process
72,000
Finished goods
104,000
Cost of goods sold
624,000
Total
$824,000
The overhead cost included in each account is not readily determinable.
A. Draw and properly name (no abbreviations) the t-account in which any over/underapplied
overhead will be found at the end of December. 1) Post all relevant amounts to the account,
and 2) display the account balance in its respective place. 3) Circle the account balance. 4)
Label as over or underapplied.
B. Show the calculation of the balance in cost of goods sold after disposing of any over or
underapplied overhead. Circle the balance.
C. In addition to allocating/disposing of any material under or overapplied overhead amounts to
account balances, on what basis may it be allocated other than that used by Twellman?
Problem 3- Radio Flyers produced and sold 400 wagons for $53 each in June. The following
information is available for each unit of the finished product produced and sold:
Variable manufacturing cost
$21
Variable marketing and administrative cost
8
The monthly total fixed manufacturing cost is $3,300 and the total fixed general and
administrative cost is $1,100. Show the calculations for each of the following and circle and
label each answer.
A. Full absorption cost per unit
B. Product cost per unit under variable costing
C. Gross margin per unit
D. Contribution margin per unit
E. Total operating profit
F. Contribution margin ratio
G. Interpret Radio Flyers’ contribution margin ratio, i.e., what specific information does it
provide for Radio?
Problem 4 Lanahan Freeze produces custom refrigeration units. It applies overhead at a rate of
$1.20 per direct labor dollar. At the start of 2011, two jobs were in process with total costs of
$1,500 for job 85 and $2,800 for job 86, respectively. In addition, Job 84 was complete with a
cost of $1,080 and awaiting shipment at January 1, 2011. During January, the following costs
were incurred:
Direct Labor
Direct
Materials
Job 85
$650
$240
Job 86
$740
$970
Job 87
$230
$830
Job 88
$610
$540
Job 89
$960
$420
During January, all jobs were completed except job 87. At the end of January, all completed
jobs were shipped expect for jobs 88 and 89.
1. Show the flow of jobs by posting ONLY the JOB NUMBERS in the t-accounts below for
January. Circle the job numbers that make up the ending balances of work in process,
finished goods, and cost of goods sold, respectively.
WIP
FG
CGS
2. Show the calculation of each of the WIP subsidiary account balances for ONLY the jobs that
remain in WIP as of the end of January 31. Circle the job totals of each and label by job
number.
Problem 5- Listed below are effects of various transactions in the manufacturing process
using a normal costing system. Identify which account is affected as a result of each action
listed in items 1 to 5 by printing the code of the account(s) in the space provided.
Accounts
RM - Raw Materials Inventory
FG - Finished Goods Inventory
WIP - Work-in-Process
Inventory
CGS - Cost of Goods Sold
MOH - Manufacturing Overhead
X – Some other account
Changes
1. Increases when indirect materials are transferred to
production
3. Decreases when manufacturing overhead is applied
Answers
3. Decreases when goods are sold.
4. Increases when goods are finished.
5. Increases when a factory janitor is paid for work he just
performed.
Problem 6 –Cinatol uses an actual costing system. It reported the following amounts for July:
Work in process, July 1
$26,000
Finished goods, July 1
$25,800
Work in process, July 31
22,000
Finished goods, July 31
25,100
Raw materials, July 1
14,300
Cost of goods manufactured
244,000
Raw materials, July 31
11,800
Direct labor used
61,000
Direct materials used
104,000
Selling costs incurred
43,000
A. In good form, show and properly label which product costs would appear on the balance
sheet at the end of July in the space provided. Be sure to label which section they go in
(be specific) and show respective amounts.
Balance Sheet
$
B. Show the calculation of cost of goods sold for the year. Circle your answer.
Problem 7: Rock Roofing applies manufacturing overhead based on direct labor hours.
Information concerning manufacturing overhead and labor for July follows:
Estimated direct labor
5,400 hours @ $14.00
Direct labor incurred
5,500 hours @ $14.70
Estimated manufacturing overhead
$122,040
Actual manufacturing overhead
$120,350
The production supervisor requisitioned materials for Job 954 totaling $10,500 during July, of
which $800 were indirect. Employees worked 270 hours on Job 954 and were paid an average
of $14.50 per hour.
A. Show the calculation of the total cost of Job 954. Circle the total cost.
B. Show the calculation of total prime costs in job 954. Circle the total.
Problem 8: Modex, Inc. manufacture headphones and had unit production costs
totaling $11.00 for direct materials, $4.50 for direct labor, and $2.40 for variable
overhead. During the year, 12,000 headphones were produced and 12,800 of them
were sold. The company has annual fixed selling and administrative costs of $31,800
and fixed annual manufacturing overhead costs totaling $48,000. The finished goods
inventory at the beginning of the year had 1,500 headphones. Operating income using
variable costing is $21,700. In good form, use the reconciliation format we used in
class to determine operating income under absorption costing.
Problem 9- Radio Flyers has provided the following information the wagons it produces
and sells:
Wagons produced
14,000
Wagons sold
15,200
Beginning inventory in units
2,700
Selling price per unit
$24
Direct material per unit
$4.50
Direct labor per unit
$3.20
Variable manufacturing overhead per unit
$2.50
Variable selling cost per unit
$1.00
Annual fixed manufacturing overhead
$28,000
Annual fixed operating expenses
$16,000
Show the calculations for each of the following in the space provided and circle and
label each answer.
A. Contribution margin per unit
B. Total gross profit
D. Operating income using absorption costing
E. Product cost per unit using variable costing
F. Fixed manufacturing overhead costs that are included on the balance sheet at
year end using full costing