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EXAM REVIEW
ACCOUNTING 102 - UNIT I - CHAPTERS 1, 2 & 3
STUDY SUGGESTIONS
Review your class notes, homework exercises and problems. Review Summary, Review Problem and Glossary at the end of each chapter. Use your Study Guide, especially Multiple Choice and True & False questions Review the resource materials and practice quizzes and exams available on the Textbook Website : http://highered.mcgraw-hill.com/sites/0073048836/information_center_view0/ Additional review materials are available online at sites such as: http://www.cliffsnotes.com/WileyCDA/Section/id-305261.html
Chapter 1 - An Introduction To Managerial Accounting And Cost Concepts Understand the major differences between financial and managerial accounting. Know and understand the following terms and concepts: Planning Directing and motivating Controlling Feedback Period costs (nonmanufacturing costs): Selling & Administrative Expenses Product costs (inventory costs or manufacturing costs): Direct materials Direct labor Manufacturing overhead Prime cost (direct materials and direct labor) Conversion Cost (direct labor and manufacturing overhead) Cost behavior: Variable Cost Fixed cost Relevant Range Cost object: Direct Cost Indirect cost Cost Classifications used in decisionmaking Differential cost and differential revenue Opportunity cost Sunk cost
Know how to prepare a Schedule of Cost of Goods Manufactured Know how to prepare an Income Statement including calculation of the cost of goods sold Know how to prepare a Schedule of Cost of Goods Sold Understand the flow of product costs through inventory to cost of goods sold Raw materials Work in process including manufacturing overhead Finished goods
Chapter 2 – Systems Design: Job Order Costing Understand the differences and similarities between job order and process costing. Understand the flow of overhead costs: How manufacturing overhead costs are assigned to production How to compute predetermined overhead rates How to apply overhead costs to production How to compute over and under applied overhead and close it to the appropriate accounts. Understand how product costs flow through the three inventory accounts and into cost of goods sold. Know the journal entries required in a Job Order Cost system.
Chapter 3 – Systems Design: Activity Based Costing Explain the major differences between activity-based costing and a traditional costing system. Distinguish between unit-level, batch-level, product-level, and facility-level activities. Understand the ABC methodology: How to compute activity rates for cost pools. How to assign costs to products. How to compute overhead cost per unit for each product. How to compute total unit cost for each product. Explain why product costs computed under activity based costing and conventional costing methods differ. Explain how activity based costing can be used to target process improvements. Understand the flow of costs in an activity based costing system.
Problem 2 - Schedules of Cost of Goods Manufactured and Costs of Goods Sold
The following data were taken from the cost records: Depreciation, factory 70, Indirect labor 110, Utilities, factory 50, Insurance factory 15, Lubricants for machines 10, Direct Labor 210, Purchases of raw materials 160,
Inventories at the beginning and end of the year were as follows: January 1 December 31 Raw materials 15,000 25, Work in process 30,000 10, Finished goods 40,000 60,
(a) Prepare a Schedule of Cost of Goods Manufactured
(b) Determine the Cost of Goods Sold for the year.
Problem 3 - Calculation of overhead rate and application of overhead
The J & M Plastics Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for the last year are as follows: Estimated Actual Direct labor hours 500,000 480, Manufacturing overhead 1,000,000 965,
Required: (1) Compute the predetermined overhead rate for the year (2) Calculate the overhead applied for the year. (3) What is the amount of over-applied or under-applied overhead? (4) Journalize the entry to close the over or under-applied overhead to COGS
Problem 4 - Journal Entries, T Accounts and Overhead Applied
The Jordan Company uses a job order costing system and applies overhead cost to jobs on the basis of direct labor hours. The following estimates were made for the purpose of computing the predetermined overhead rate: manufacturing overhead cost $360, and direct labor hours, 900. The following transactions took place during the year: a. Raw materials purchased, $200,000. b. Raw materials used in production (all direct materials), $185,000. c. Salary and wages incurred: Direct labor (975 hours) ........................$230, Indirect labor ...................................... $ 90, Selling & Administrative salaries ............$110, d. Utility costs incurred, $70,000 (90% related to factory operations, remainder to selling & administrative) e. Maintenance costs were incurred in the factory, $54,000. f. Advertising costs were incurred, $136,000. g. Depreciation was recorded for the year, $95,000 (80% related to factory equipment, remainder to selling & adm equip.) h. Rental costs incurred on the buildings, $120,000 (85% related to factory operations, remainder to selling & adm.) i. Manufacturing overhead was applied to jobs, $_____________. j. Cost of goods manufactured for the year, $770,000. k. Sales on account for the year totaled $1,200,000 with a cost to produce of $800,000. l. The balances in the inventory accounts at the beginning of the year were: Raw Materials......................................$30, Work in Process................................... 21, Finished Goods.................................... 60,
Required: (a) Prepare the journal entries to record the information given above.
(b) Prepare T-accounts for Raw Materials, Work in Process, Finished Goods and Manufacturing Overhead. Post the relevant journal entries above to each T-account.
- Determine the ending balance in each account.
- What is the amount of over or under-applied overhead?
- Journalize the entry to transfer it to COGS.
(c) Job 412 was one of the many jobs started and completed during the year. The job required $8,000 in direct materials and 39 hours of direct labor time at a total direct labor cost of $9,200. The job contained only four units. If the company bills at a price 60% above the unit cost on the job cost sheet, what price per unit would have been charged to the customer?
SOLUTIONS TO SAMPLE PROBLEMS
Problem 1
- The missing data is indicated by an asterisk Case 1 Case 2 Direct materials 8,000 6, Direct labor 3,000 5, Manufacturing overhead 21,000* 7, Total manufacturing costs 32,000 18,000* Add: Beginning work in process inventory 1,500* 2, Deduct: Ending work in process inventory 2,000 4,000* Cost of goods manufactured 31,500 16,000**
Sales 50,000 30, Beginning finished goods inventory 9,000 7, Add: Cost of goods manufactured 31,500 16,000* Goods available for sale 40,500* 23, Deduct: Ending finished goods inventory 7,000 5, Cost of goods sold 33,500 18,000** Gross margin (Sales -Cost of goods sold) 16,500* 12, Operating expenses 10,000 9,000* Net income 6,500 3,
Problem 2 - Schedule of Cost of Goods Manufactured
Problem 3 - Calculation of overhead rate and application of overhead
a. Predetermined overhead rate for the year:
T Accounts
Manufacturing Overhead (c) 90,000 (f) 390, (d) 63, (e) 54, (g) 76, (h) 102,
Bal 5,
Raw Materials Work in Process Finished Goods Bal 30,000 (b) 185,000 Bal 21,000 Bal 60,000 (k) 800, (b) 185,000 (j) 770,000 (j) 770, (a)200,000 (c) 230, (i) 390,
Bal 45,000 Bal 56,000 Bal 30,
a. Manufacturing overhead is $5,000 overapplied
b. Manufacturing Overhead 5, COGS 5,
Job 412
Cost of Manufacturing Job 412: Direct Materials $8, Direct Labor (39 hours) 9, Manufacturing Overhead 15,600 = 39 dlh * 400 Total Cost $32,
Cost Per Unit Produced in Job 412: Total Cost (a) $32, Units Produced (b) 4 Unit Cost (a/b) $ 8,
Selling Price Per Unit Charged to Customer for Job 412: Unit Cost $ 8, Markup (60%) 4,920 (8,200 * .60) Selling Price per unit $13,
Problem 5 - Activity-Based Costing
A. Predetermined Overhead Rate:
$130,890 / 1,720 = $76.
Direct Labor Hours: Product C Product D Total 400 units 1,200 units x .7 dlh x^ 1.2 dlh 280 1,440 1,
Unit Product Cost: Product C Product D Direct Materials $ 10.70 $ 16. Direct Labor 11.20 19. Manufacturing Overhead 53.27* 91.32** Total Unit Cost $ 75.17 $127.
*.7 dlh/unit * $76.10 = $53. **1.2 dlh/unit * $76.10 = $91.
B. Activity-Based Costing – Activity Rates:
Estimated Estimated Activity Cost Pool OH Cost Activity Activity Rate Machine set-ups $ 13,570 230 setups $59 per setup Purchase orders 91,520 2,080 orders $44 per order General Factory 25,800 1,720 dlh $15 per dlh
C. 1) Activity-Based Costing – Applying Overhead Cost to Products
Product C Product D Activity Estimated Estimated Activities Rates Activity Amount Activity Amount Machine set-ups $59 per set-up 100 $ 5,900 130 $ 7, Purchase orders $44 per order 810 35,640 1,270 55, General Factory $15 per dlh 280 4,200 1,440 21, Total Overhead Cost (a) $45,740 $85,
Number of units produced (b) 400 units 1,200 units
Overhead cost per unit (a/b) $114.35/unit $70.96/unit
