1
Goodman
School of Business
ACTG 1P02: Introduction to Accounting II
Mid-term Examination: February 11, 2019
Brock University
INSTRUCTIONS
Student Number:
KE
1.
Please write your student number in the space provided above.
2.
Please answer all questions in the space provided. Show supporting calculations.
3.
If you think any additional information is required to answer a question, make an assumption,
label the assumption clearly, and proceed with your answer. Any reasonable assumption,
which does not contradict a fact stated in the problem, will be considered.
4.
Please write neatly, if we can’t read it we can’t mark it. It is preferable if you use blue or
black ink for your answers. If you do use pencil, you will not be able to submit your
exam answers for re-evaluation should you believe that the marking key was not applied
appropriately to your responses.
5.
Only non-programmable calculators allowed.
6.
Please keep in mind that partial marks are available for all questions.
7.
This is an 80 minute, closed-book, examination.
Section
Marks Available
Question 1
25
Question 2
15
Question 3
15
Question 4
15
Total
70
Good luck!
Marks awarded
Question 1
Better Call Saul’s Corporation had the following transactions during its first month of operations:
A. Raw materials were purchased on account, $60,000.
B. Raw materials were requisitioned for use in production in the amount of $27,000. An
analysis of the materials requisition slips indicated that $2,400 were classified as indirect
materials.
C. Labour costs incurred included $35,000 for direct labour, $4,500 was indirect labour,
$15,000 of sales commissions and $6,000 of administrative salaries.
D. Overhead costs incurred on account were $48,000.
E. Monthly rent for the entire facility was $8,500 and paid in cash. Square footage for the
factory was 85% of the building’s total floor space.
F. Manufacturing overhead was applied at the rate of 160% of direct labour cost.
G. Goods costing $18,000 are still incomplete at the end of the month; the other goods
were completed and transferred to finished goods.
H. Finished goods costing $77,000 to manufacture were sold on account for $114,000.
I. Adjust for the over- or under-applied overhead amount to cost of goods sold.
Required: (25 marks)
Journalize the above transactions for Saul’s Corporation.
a A.
60,000
Raw materials inventory
Accounts Payable (A/P)
60,000
B. Work in process inventory (WIP)
3z
Manufacturing overhead (MOH)
Raw materials inventory (RMI)
24,600
2,400
27,000
35,000
4,500
15,000
6,000
C. Work in process
MOH
>g
Sales commission
Admin salaries
Wages Payable
60,500
48,000
D. MOH
48,000
A/P
3
E. Rent expense
MOH
Cash
1,525
7,225
8,500
2 56,000
2
•
F. WIP (DL * POR) = 35,000*160% =
MOH
3
G. Finished goods inventory (FGI)
WIP
97,600
H. Cost of goods sold (COGS)
FGI
Accounts Receivable
Sales
77,000
a
56,000
97,600
77,000
114,000
114,000
Page 2 of 8
I.
COGS
6,125
6,125
MOH
DM = 24,600
DL = 35,000
MOH = 56,000
Total mfg cost = 115,600
WIP, end = 18,000
Transferred to finished goods = 97,600
MOH account
Total debits = 62,125
Total credits = 56,500
Underapplied = $6,125
Page 3 of 8
Question 2
Mrs. Maisel’s Products Ltd. has just created a new division to manufacture and sell elaborate
party hats. The facility is highly automated and thus has high monthly fixed costs, as shown in
the following schedule of budgeted monthly costs. This schedule was prepared based on an
expected monthly production volume of 2,000 units.
Manufacturing costs
Variable costs per unit
Direct materials
$25
Direct labour
40
Variable overhead
10
Total fixed overhead
65,000
Selling and administrative costs
Variable
7% of sales
Fixed
$45,000
During March 2019, the following activity was recorded:
Units produced
2,000
Units sold
1,700
Selling price per unit
$175
Required: (15 marks)
A. Prepare an income statement for the month ended March 31, 2019, under absorption
costing
B. Prepare an income statement for the month ended March 31, 2019, under variable costing.
C. Reconcile the absorption-costing and variable-costing income figures for the month. Identify
the difference.
Mrs. Maisel
Absorption Income Statement
Mont i ending Marc n2019
Sales
COGS
• Gross Margin
297,500.00
uW t
182,750.00
114,750.00
S&A-vbl
20,825.00
S&A - fixed
45,000.00
Net income
48,925.00
Page 4 of 8
Pvodudl cost = I 07.50
—----- —----
Mrs. Maisel |
Variable Income Statemenl
Month ending March 2019
297,500.00
----—----- — Sales
VCOGS
20,825.00
VS&A
(buhon
M Avin
127,500.00
149,175.00
CM
FS&A
45,000.00
FOH
65,000.00
Net income
39,175.00
$ 9,750.00 300 units in ending inventory
$
needS El #s -*
32.50
Page 5 of 8
FoH
Question 3
Selected account balances of Walking Dead Manufacturing Company appear below for 2019:
Beginning of Year
$15,000
28,000
43,000
Finished Goods Inventory
Work in Process Inventory
Raw Materials Inventory
Sales
Direct Labour
Factory Supervisory Salaries
Income Tax Expense
Factory Insurance
Raw Material Purchases
Administrative Expenses
Sales Returns and Allowances
Factory Depreciation
Indirect Labour
Selling Expenses
End of Year
$21,000
34,000
25,000
350,000
55,000
18,000
27,000
13,000
85,000
25,000
17,000
22,000
13,000
32,000
Required: (15 marks)
Using the above information for Walking Dead Manufacturing Company, answer the following
questions. Support your answers with clearly identified computations.
A. What was the amount of direct materials used in production?
B. What were the total manufacturing costs incurred?
C. What was the cost of goods manufactured?
D. What was the cost of goods sold?
E. What was the amount of net income?
Direct Materials
RMJan 1 |
43000
Raw materials purch
85000
RM available
RM Dec 31
DM used
128000
25000
103000
DM used
DL
103000
I
MOH
Salaries
18000
Insurance
13000
Depreciation
22000
Indirect labour
13000
Total manufacturing costs
•
55000
2
224000
Page 6 of 8
WIPJan 1
28000
DM used
103000
DL
55000
MOH
66000
Total WIP
WIP Dec31
COGM
FGI Jan 1
252000
34000
218000
15000
COGM
218000
COGAS
233000
FGI Dec 31
COGS
Sales
Less returns and allowances
21000
212000
350000
17000
333000
Expenses
COGS
212000
Selling
32000
Admin
25000
Income tax
27000
Net Income
37000
Page 7 of 8
Question 4
The Big Bang Theory Corp, sells a single product for $40. Its management estimates the
following revenues and costs for the year 2019:
Net sales
Direct materials
Direct labour
Manufacturing overhead - variable
Manufacturing overhead - fixed
$500,000
150,000
90,000
30,000
40,000
Selling expenses - variable
Selling expenses - fixed
Administrative expenses - variable
Administrative expenses - fixed
$20,000
30,000
10,000
20,000
Required: (15 marks)
A. Assuming fixed costs and net sales are spread evenly throughout the year, calculate The
Big Bang Theory’s monthly break-even point in (1) units and (2) dollars.
B. Calculate the contribution margin ratio, the annual margin of safety ratio and the degree of
operating leverage.
C. Assume the price remains at $40 per unit and variable costs remain the same per unit, but
fixed costs increase by 30% annually. Calculate the percentage increase in unit sales
required to achieve the same level of annual profit currently achieved.
D. Return to the original cost estimates and determine the sales dollars required to earn an
operating income of $360,000 aftertax. The Big Bang Theory’s income tax rate is 40%.
Monthly
Yearly
BEP - units
BEP - $
5625
468.75
225000
18750
MSR
0.55
DOL
1.818182
TS
CM
New units
Old units
Increase in units
% increase in units
227000
27000
16
14187.5
1687.5
12500
1687.5
0.135
OIAT
360000
OIBT
600000
TS
2 maksf ver Y JiVen
1725000
Page 8 of 8