Accounting 225 Quiz Section #12

Midterm 2 Review Class Exercises

1. Data concerning Sonderegger Company's operations last year appear below:

a) Prepare an income statement for the year using absorption costing.

b) Prepare a contribution format income statement for the year using variable costing.

c) Prepare a report reconciling the difference in net operating income between absorption and
variable costing for the year.

Accounting 225 Quiz Section #12

Midterm 2 Review Class Exercises
2. A sales budget is given below for one of the products manufactured by the Key Co.:

The inventory of finished goods at the end of each month must equal 20% of the next month's
sales. On December 31, the finished goods inventory totaled 4,000 units.
Each unit of product requires three specialized electrical switches. Since the production of these
specialized switches by Key's suppliers is sometimes irregular, the company has a policy of
maintaining an ending inventory at the end of each month equal to 30% of the next month's
production needs. This requirement had been met on January 1 of the current year.
Prepare a budget showing the quantity of switches to be purchased each month for January,
February, and March and in total for the quarter. (Hint: Prepare production budget and then
material purchase budget)

Accounting 225 Quiz Section #12

Midterm 2 Review Class Exercises
3. Lido Company's standard and actual costs per unit for the most recent period, during which
400 units were actually produced, are given below:

From the foregoing information, compute the following variances. Show whether the variance is
favorable (F) or unfavorable (U). Record the journal entries and prepare T-accounts.
a) Materials Price Variance.

b) Materials Quantity Variance.

Accounting 225 Quiz Section #12

Midterm 2 Review Class Exercises
c) Direct Labor Rate Variance and Direct Labor Efficiency Variance.

d) Variable Overhead Rate Variance and Variable Overhead Efficiency Variance.

e) Close all the variances to Cost of Goods Sold.

Accounting 225 Quiz Section #12

Midterm 2 Review Class Exercises
4. The selected information presented in the table below relates to Franklin Corporations output
of 1,800 units of its single product during the month of April, 2012. Note that Franklin applies
manufacturing overhead on the basis of standard direct-labor hours (SDLH).
Standard quantity of direct materials per unit of output.
2.5 lb.
Standard price for materials.
$1.60 per lb.
Standard labor hours (SDLH) allowed per unit of output.
1.25 hours
Standard variable manufacturing overhead application rate per SDLH $3.00
Total variable manufacturing overhead incurred
$5,800
Direct materials on hand, April 1
400 lb.
Cost of 5,000 lb. of materials purchased during April.
$7,400
Direct materials on hand, April 30.
350 lb.
a) The materials price variance for April was $___________________.

b) The materials quantity variance for April was $_____________________.

c) Was variable manufacturing overhead under- or over-applied relative to actual VMOH

incurred for the month? By how much?