Professor Zachary Kaplan

2620 Fall 2014

Mid-Term # 1
Name:____________________
Student ID #:_______________
Test: A

1) For the year just ended, Cole Corporations manufacturing costs (raw materials used, direct labor
and manufacturing overhead) totaled $1,500,000. Beginning and ending work-in-process
inventories were $60,000 and $90,000, respectively. Coles balance sheet also revealed
respective beginning and ending finished-goods-inventories of $250,000 and $180,000. On the
basis of this information, how much would the company report as cost of goods sold?
a. $1,400,000
b. $1,460,000
c. $1,540,000
d. $1,600,000

2) Provide the journal entry a manufacturing firm would make to record $1,000,000
depreciation on a factory used to manufacture products during the year.
a. Dr. Manufacturing Overhead
$1,000,000
Cr.
Depreciation Expense
$1,000,000
b. Dr. Manufacturing Overhead
$1,000,000
Cr.
Accumulated Depreciation $1,000,000
c. Dr. Depreciation Expense
$1,000,000
Cr.
Manufacturing Overhead
$1,000,000
d. Dr. Accumulated Depreciation
$1,000,000
Cr.
Manufacturing Overhead
$1,000,000
3) Provide the journal entry a manufacturing firm would make to apply $1,000,000 of
manufacturing overhead to inventory.
a. Dr. Manufacturing Overhead
$1,000,000
Cr.
Work-in-process inventory $1,000,000
b. Dr. Manufacturing Overhead
$1,000,000
Cr.
Finished Goods Inventory
$1,000,000
c. Dr. Work-In-Process Inventory
$1,000,000
Cr.
Manufacturing Overhead $1,000,000
d. Dr. Finished Goods Inventory
$1,000,000
Cr.
Manufacturing Overhead
$1,000,000

4) Provide the journal entry a manufacturing firm would make to record direct labor cost of
$1,000,000.
a. Dr. Work-in-process inventory
$1,000,000
Cr.
Direct Labor Expense
$1,000,000
b. Dr. Work-in-process inventory
Cr.
Wages Payable

$1,000,000
$1,000,000

c. Dr. Finished Goods Inventory

$1,000,000
Cr.
Direct Labor Expense
$1,000,000
d. Dr. Finished Goods Inventory
Cr.
Wages Payable

$1,000,000
$1,000,000

5) A manufacturing firm under-applied overhead by $60,000 during the period. The firm
closes all under or over-applied overhead to cost of goods sold (COGS) at the end of the
period. Please provide the correct journal entry.
a. Dr. Manufacturing Overhead
Cr. COGS

$60,000
$60,000

b. Dr. Work-in-process Inventory

Cr. COGS

$60,000
$60,000

c. Dr. COGS
$60,000
Cr. Manufacturing Overhead
$60,000
d. Dr. COGS
$60,000
Cr. Work-in-process inventory
$60,000

6) A manufacturing firm spent $120,000 in cash on advertising during the period. Please
provide the correct journal entry.
a. Dr. Advertising Expense
Cr. Cash

$120,000
$120,000

b. Dr. Work-in-process Inventory

Cr. Cash

$120,000
$120,000

c. Dr. Manufacturing overhead

Cr. Cash

$120,000
$120,000

d. Dr. Cash
$120,000
Cr. Manufacturing Overhead
$120,000
e. Dr. Cash
$120,000
Cr. Work-in-process inventory
$120,000

Questions 7 8 rely on the following information:

Trek, which traditionally has manufactured bicycles, is planning to introduce a tricycle in
the coming year. Based on the design of the tricycle, and Treks estimate of product
demand, Trek expects to manufacture 3 million tricycles.
Trek expects direct materials costs of $135 per tricycle and direct labor costs of $64 per
tricycle (4 hours at $16 per hour).
Trek estimates the amount of overhead by using the regression method to estimate the
relationship between direct labor hours and overhead in a bicycle factory. They assume
the relationship between direct labor hours and overhead will be similar in the tricycle
factory. Trek obtained the following results.
Computed values: Fixed overhead cost: $800,000
Increase in overhead cost per direct labor hour: $3.50
7) Compute the total budgeted cost of 3,000,000 tricycles.
a.
b.
c.
d.

11,300,000
42,800,000
608,300,000
639,800,000

8) Will the overhead cost estimates for tricycles be more or less precise than overhead cost
estimates for bicycles?
a. Less precise, the bicycle data the analyst uses to estimate the relationship
between overhead cost and output will be less applicable to the manufacture
of tricycles than bicycles.
b. More precise, tricycles are a new product so management will spend a lot more
time trying to forecast overhead costs.
c. About the same management will spend a lot more time trying to forecast
overhead costs, but the lack of historical data will make forecasting more difficult.
The result of these two opposing forces should result in equally accurate
estimates.

Questions 9 - 13 rely on the following information:

A law firm (the firm) employs two types of professionals, attorneys and paralegals.
The firm pays attorneys $200,000/year and paralegals $60,000/year. The firm employs
10 attorneys and 10 paralegals. The firm expects attorneys and paralegals to work 2,000
hours per year. The firms budgeted overhead is $2,000,000 per year. The firm applies
overhead on the basis of professional labor hours (Traditional system). The firm
recently hired a managerial accountant who suggested applying different amounts of
overhead to cases for attorney hours and paralegal hours. The managerial accountant
grouped overhead costs into three cost pools, and estimated the percentage of overhead
consumed by attorneys and paralegals for each cost pool.

9) Under the traditional costing system, when an attorney works an hour, the total cost
assigned to a project will be:
a. $80
b. $100
c. $150
d. $160
e. $180
10) After the firm implements an activity based system, when an attorney works an hour, the
total cost assigned to a project will be:
a. $80
b. $100
c. $150
d. $160
e. $180

11) The most plausible advantage of the traditional costing system relative to an activity
based system is?
a. The traditional system is simpler. Simple systems encourage better decision
making.
b. The traditional system is simpler. Simple systems require fewer calculations
which likely reduces costs.
c. The traditional system is simpler. It will more accurately charge jobs for the
economic resources sacrificed.
d. Because of the simplicity of the traditional system, the law firm will be able to
allocate all of the overhead to projects. A downside of complex costing systems is
that some costs remain unallocated.
12) The traditional costing system will:
a. Assign too much cost to jobs with relatively more attorney hours and too little
cost to jobs with relatively more para-legal hours.
b. Assign too little cost to jobs with relatively more attorney hours and too
much cost to jobs with relatively more para-legal hours.
c. Allocate too much overhead to cases.
d. Allocate too little overhead to cases.
13) True or False: The firm should not allocate hiring costs to either attorney hours or
paralegal hours because those costs have been incurred in the past.
TRUE
FALSE

Questions 14 16 rely on the following information:

Cohns Couches manufactures love seats and sofas. They use a traditional costing system
and allocate all overhead based on direct labor hours. The CEO of Cohns recently fired
his accountant, and he cannot figure out several important facts based on the paperwork
left behind. He found the following details:
Cohns pre-determined overhead rate is $100 per hour.
Cohns applied $150,000 of overhead to sofas last year
Cohns total budgeted overhead was $250,000
Cohns over-applied overhead by $20,000 (sofas and love seats combined)
14) How much overhead was allocated to love seats last year?
a. $20,000
b. $80,000
c. $100,000
d. $120,000
e. Not enough information
15) Across both products, how many labor hours did Cohns budget?
a. 2,300
b. 2,500
c. 2,700
d. 5,000
e. Not enough information
16) How many labor hours did Cohns budget specifically for sofas?
a. 1,000
b. 1,300
c. 1,500
d. 1,700
e. Not enough information

17) A consulting firm would like to learn how overhead costs vary with billable hours. The
consulting firm has billable hours and overhead cost data for four months. The
consulting firm would like to select two months of data and use the high-low method to
predict costs (it is a not very good consulting firm and the office manager does not know
how to do linear regression). However, many odd events happened in these four months
and the office manager does not know which two months to use. Please circle the two
best months for use in cost-prediction (4 points versus 3 for all other multiple choice):
December Christmas, many people were out of the office and billable hours
were really low
November An oil embargo caused oil prices to spike which impacted overhead
October The local baseball team went deep into the playoffs and the firm spent
a lot of money entertaining clients at baseball playoff games
September Consultants billed an unusually high number of hours because they
helped a huge client with a major restructuring.
DECEMBER and SEPTEMBER

18) Chesterfield Cigarettes has three costs: A which is variable. B which is semi-variable

and C which is fixed. The CEO has provided you with the following cost information
(17 points):

At 50,000 packs Cost A totaled $77,500

At 20,000 packs the fixed portion of cost B was $0.35 per pack.
At 25,000 packs cost C was $0.50 per pack
At 25,000 packs the sum of cost C and cost B was $29,500

The CEO asked you to predict the following costs:

a. Compute cost A at 10,000 packs

b. Compute cost C at 15,000 packs

c. Compute cost B at 15,000 packs

19) Dans Dollies (DD) manufactures non-motorized moving equipment. They

manufacture two types of dollies: an ultra-durable dolly used by professional movers and
a regular dolly primarily available for rent at IKEA. Information about the companys
products follow:
Durable --Estimated production volume

60,000 units

Direct materials cost

$40/unit

Direct Labor

$45 (3 hours)

Direct labor hours

3.0 hours/unit

Regular --Estimated production volume

40,000 units

Direct materials cost

$40/unit

Direct labor

$30/unit

Direct labor hours

2.5 hours/unit

DDs overhead of $1,600,000 can be identified with four major activities: assembly
(800,000), finishing ($200,000), set-up ($200,000) and order processing ($400,000). DD
only applies finishing to durable dollies. All other data relevant to these activities follow
(17 points):

Required:
a. Compute the pool rates that would be used for assembly, set-ups, order processing
and finishing.
Activity
Assembly
Finishing
Set-up
Order
Processing

Cost

Driver

$800,000
$200,000
$200,000

Machine
hours
Units
Set-ups

$400,000

Orders

Driver
Units

Cost/Driver
Unit

1,200
60,000
40

$667
$3
$5,000

150

$2,666.67

b. Assuming use of activity based costing,

Compute the applied overhead per unit of durable.

Compute the total cost per unit of durable if the expected manufacturing
volume is attained.

c. How much overhead would be applied per durable dolly if DD applied all

overhead to products using a traditional system with direct labor hours as the cost
driver? Which product would be over-costed using the traditional system?

Over-costed (circle one):

Durable

Regular

20) Peters Pants (PP) manufactures blue and tan pants. PP manufactures pants in two steps.
First, the assembly department manufactures plain colored pants. Second, the coloring
department colors the pants either blue or tan. The coloring process is different for blue and
tan pants, so PP assigns different costs to pants of different colors.
As of March 1st, there were 6,000 pants in the assembly department, 100% complete with
respect to materials and 70% complete with respect to conversion costs. PP started 60,000
units into production during March. By March 31st, PP had finished and transferred 53,000
units to the coloring division. The ending work-in-process inventory is 50% complete with
respect to materials and 70% complete with respect to conversion costs.
PP colored all 53,000 pants they received from the assembly department. PP colored 23,000
pants tan and 30,000 pants blue. The coloring department had no uncompleted units at the
beginning or end of the period.
The uncompleted units in the assembly department on March 1st had $160,000 of direct
materials costs and $180,000 of conversion costs allocated to them. During the month of
March the assembly department incurred $530,000 of direct materials costs and applied
$700,000 of conversion costs.
The coloring department incurred $50,000 in cost coloring pants blue and $30,000 in cost
coloring pants tan (18 points).

a) For the assembly department only, give the equivalent units for the month of March for
both direct materials and conversion costs.

b) For the assembly department only, give the total cost per unit for the month of March,
and the cost per unit for direct materials and conversion costs.

c) In the month of March, what was the cost of coloring a pair of pants blue? What was the
cost of coloring a pair of pants tan?

1 point each, must be right

d) How much total cost was allocated to the goods completed during the month of March
(pants are completed once they are colored)? How much cost is allocated to the
uncompleted goods?

3 points for completed goods. 1 point for assembly department, multiply total cost per
unit from b (can be wrong) by number of completed units.
2 point for coloring department costs (must be right, 80,000)
2 points for remaining units.
1 point for DM. Must multiply 13,000 by 70% and DM cost per unit from b (only
cost per unit from b can be wrong).
1 point for CC. Must multiply 13,000 by 50% and CC cost per unit from b (only
cost per unit from b can be wrong).

e) For part e only, assume the coloring department made a mistake and instead of coloring
all 53,000 pairs of pants, they only colored 50,000 pairs. Below, show how you would
adjust your answer to part d above to reflect the reality that 3,000 pants have not been
colored. How much cost is now allocated to uncompleted goods? How much cost is
allocated to the finished goods (the amount spent coloring pants is the same as above)?