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Qt/Consider the following case;

Data refer to operations for April 20/ 8, assume standard costing. Also
assltme the use of a flexible budget for control of
variable and fixed manufacturing overhead based on machine-fiours.

(/) Fixed manufacturing overhead incurred

$ 84,920
(2) Variable manufacturing overhead incurred
$/20,000
(3) Denominator level in machine-hours
(4) Standard machine-hours allowed for actual output achieved
6,200
fr17d ytalufacturing overhead (per standard machine_hour)
Q/
Flexible-Budget Data:
(6) Variable manufacturing overhead (per standard machine_hour)
(7) Budgeted fked manufacturing overhead
$ 8A,200
(8) Budgeted variable manufacturlng overhead a
(9) Total budgeted manufacturing overhead
AdditionalData:
(/0) Standard variable manufacturing averhead allocated
6124,000
(1/) Standard fixed manufacturing overhead al/ocated
$ 86,800
( 2) Production-volume variance
1

(/3) Variable ntanufacturing overhead spending variance

$ 4,600 F
( / 4) Va riable man u facturing overhead efficieniy varia n
ce
(/5) Fixed manufacturing overhead spending variance
(/6) Actual machine-hours used
a For standard machine-hours allowed for actual output produced.
Reouired: Fill in the blanks.

A2 (N) Bank is examining the profitability of its Premier Account, a combined savings and checking account.
Depositors receive a 7% annual in{erest rate on their average deposit. (N) earns aiinterest rate
spreacl of 3% (the
dlfference between the rate at which it /ends money and the rate'it payi depositors) by lending
money for home loan
purposes al 10%. Thus, (N) would gain $60 on the interest spread if depositor hid'r,
i ,rrrig, premier Account
balance of $2,000 in 20 s ($2,000 x 3% = $60). The Premier Account aiows depositors unlim"ited use
7
of seruices such
as deposits, withdrawals, checking accounts, and foreign currency drafts. Depo'sitors with premier Account
balances of
61,000 or more receive unlimited free use of seruices.bepositori with minimium balances of less than $1,000 pay a
$22-a-month seruice fee for their Premier Account. ( N) re'cently conducted an activity-based costing study of its
seruices. lt assessed the following costs for stx individual seruices. The use of these servtces in Zdta nyinree
customers is as follows:
Activity-Based Cost Account Usage
Per transaction holi turner graham
Deposit/withdrawalwith teller $ 2.50 42485
Deposit/withdrawalwith automatic lellermachine (ATM) 0.70 7 70 77
Deposit/withdrawalon prearranged monthty basis 0.40 0 13
Bank checks wrilten g.40 /1 I 3
Foreign curency drafts /2.40 426
balance
lnquiries about account /.40 /2209
Average Premier Account balance for 20 / g $1,/oo $7oo $24,600
Assume Holt and Graham always maintain a balance above 97,000, whereas Turner always has a balance
below $1,000.
Reouired:
1.
!.|yOut9 the 20/8 profitability of the Holt, Turner, and Graham PremierAccounts at (N).
(N) worry about the profitability of individual customers if the Premier Accoint product
.Why might
2.
offering is profitable as a whole?
Qi/A' (D) C_orporation produces a computer chip. Manufacturing costs of one chip, excluding rework costs, are direct
materials, $60; direct manufacturing tabor, 912,. and manufactuiing overhead, $3i8. At the inZpection point, defectrve
units are sent back for rework. Rework costs per chip are direct materials, gl2; direct manuiacturing labor, g9; and
manufacturing overhead, $15. ln August 20/9, (D) manufactured 1,000 chtps, 80 of which required iework. Of these B0
chips, 50 were considered normal rework common to all jobs and the other 30 were considered abnormal rewark.
Reauired:
/, Prepare iournal entrtes lo record the accounting for both the normal and abnormal rework.
2. What were the total rework costs of chips in August 2019?
3. Now assume rnstead that the normal rework is attributable entlrely to
iob 20, for 200 units of chtps. ln this case, what
would be the total and unit cost af lhe good units produced for that job n August 2019? Prepare journal entries for the
manufacture of the 200 units, as well as the normal rework costs.
B- Answer the following (in short) :
l-What is the effect on costs of errors in predicting paraneters of the 800 nodel? How can
conpanies reduce the conflict between the E00 decislon nodel and nodels used for perfornance
evaluation?
2- How is lean accounting different fron traditional costing systens?

44ff) Company is a furniture manufacturer with two departments; molding and finishing. The company uses the
weighted-average method of process costing. ln August, the following data were recorded for the finishing depaftment;
Units of beginning work tn process inventory /2,500
Percentage completian of beginnrng work in process units 25%
Cost of direct materrals in beginning work in process $o
Units started 87,500
Units completed 62,500
Units in endlng tnventory 25,000
Percentage completion of ending work in process units 95%
Spoiled units /2,500
Total costs added during current period:
Dlrect materials
Direct manufacturing labor
, $819,000
$794,500
M a n u fa c t u ri n g o ve rh e a d $770,000
Work in process, beginning:
Transferred-in costs $70s,62s
Conversion costs $52,500
Cost of units transferred in during current period $809,375
Conversion costs are added evenly during the process. Direct material costs are added when production is g0%
complete, The inspection point is at the 80% stage of production. Norntal spoilage is 70% of all good units that pass
inspection. Spoiled units are disposed of at zero net disposal value.
Required: For August, summarize total costs to account for and assign these costs to units completed and transferred
out (including normal spoilage), to abnormal spoilage, and lo units in ending work in process,
Q5/ lt is the end of 2019. The All-Fixed Company began operations in January 2018. The company is so named
because it has
no variable costs, All its costs are fixed; they da not vary with output. The All-Fixed Company is located on the bank of a
river and has its own hydroelectric plant to supply power, light, and heat, The company manufactures a synthetic
feftilizer from air and river water and sells its product at a price thal is not expected to change. lt has a small staff of
employees, all paid fixed annual salaries. The output of the plant can be'increased or decreased by adjusting a few
dials on a control panel. The following budgeted and actual data are for the operations of the AlLFked Company. All-
Fixed uses budgeted production as the denominator level and writes off any production-volume variance to cost of
goods sold.
2018 20/9a
Sales 20,000 tons 20,000 tons
Production 40,000 tons 0 tons
Selling price $ 20 per ton $ 20 per ton
Costs (al/fixed):
Manufacturing $s20,000 $320,000
Ope ra tin g (n o n m a n u fa ct u n n g) $ 60,000 $ 60,000
a Management adopted the policy, effective January 7, 2019, of producing only as
much product as needed to fill sales orders. During 2019, sales were the same as for
2018 and were frlled entirely from inventory at the start of 201 9.
Required:
/. Prepare income statements wlth one column for 2078, one column for 20/9, and one column for the two
years together, using (a) variable costing and (b) absorption costing.
2. What is the breakeven point under (a) variable costing and (b) absorption costing?
3. What inventory costs would be carried in the batlance sheet on December 31, 2018 and 2019, under
each method?
4. Assume that the peiormance of the top manager of the company is evaluated and rewarded largely on
the basis of reported operaling income. Which costing method would the manager prefer? Why?

Dr. Parzheen Sh.Mohammad BEST OF LUCK

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QU (S) Company manufactures a product for which the following standards have been set:

Standard Quantity Standard Price Standard

or Hours or Rate Cost
Direct materials . 3 feet $5 per foot $15
Directlabor. ...?hours ?perhour ?

During March, the company purchased direct materials at a cost of $55,650, all of which were
used in the production of 3,200 units of product. In addition,4,900 hours of direct labor time were
worked on the product during the month" The cost of this labor time was $36,750. The following
variances have been computed for the month:

Direct materials quantity variance $4,500 U

Total directlaborvariance.. . . . . $1,650 F
Direct laborefficiencyvariance . . . . . . . . . $800 U

Required:
l. For direct materials:
a. Compute the actual cost per foot for materials for March.
D. Compute the materials price variance and a total variance for materials.
2. For direct labor:
a. Compute the standard direct labor rate per hour.
&. Compute the standard hours allowed for the month's production.
c. Compute the standard hours allowed per unit of product.
Q2/ (M) Corporation makes two types of products-X and P. Data concerning these two product lines appear below:

Sellingpriceperunit.. ...$140.00 $99.00

Direct materials per unit . . $72.00 $53.00
Directlaborperunit.. ....$24.00 $12.00
Direct labor-hours per unit. 2.0 DLHs 1.0 DLHs
Estimated annual production. . . . . 20,000 units 80,000 units

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-
hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:
Estimatedtotal manufacturingoverhead . . . . $1,980,000
Estimated total direct labor-hours . . . 120,000 DLHs

Required:
1. compute the product margins for the X and the P products under the company's traditional costing system.
2.The company is considering replacing its traditional costing system with an activity-based costing system that would
assigrr its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-
sustaining costs and idle capacity costs)
Estimated Expected Activity
Activities and Activity Measures Overhead Cost X P Total
Supporting direct labor (direct labor-hours) . . $ 783,600 40,000 80,000 120,000
Batch setups (setups) 495,000 200 100 300
Product sustaining (number of products) . . 602,400 I 1 2
Other .99.000
Total manufacturing overhead cost . . $1,980,000

compute the product margins for the X and P products under the activity-based costing system.
3. prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional
and activity-based cost assignments differ.
Q3/ (C) manufactures chemicals in a continuous process. The company combines various materials in a
specially configured machine at the beginning of the process, and conversion is considered uniform through
the period. Occasionally, the chemical reactions among the materials do not work as expected and the
output is then considered spoiled. Normal spoilage is 4olo of the good units that pass inspection. The
following information pertains to March 2017:

Beginning inventory 2,500 units (100% complete for materials; 25o/o complete for
conversion costs)
Units started 30,000
Units in ending work in process 2,100 (100% complete for materials;7Oo/o complete for
conversion costs)
(C) had 1,900 spoiled units in March 2017
Required: compute the normal and abnormalspoilage in units, assuming the inspection
point is at (a)the 20% stage of completion, (b) the 45% stage of completion, and (c)the 100% stage of
completion.
a4/ ( R) Corporation manufactures electrical meters. For August, there were no beginning inventories of
direct materials and no beginning or ending work in process. ( R) uses a JIT production system and
backflush costing with three trigger points for making
entries in the accounting system:

_ Purchase of direct materials and incurring of conversion costs

_ Completion of good finished units of product
_ Sale of finished goods

(R) August standard cost per meter is direct material, $26, and conversion cost, $19. (R) has no direct
materials variances. The following data apply to August manufacturing:
Direct materials purchased $546,000 Number of finished units manufactured 20,000
Conversion costs incurred $399,000 Number of finished units sold 19,000

Required:
1. Prepare summary journal entries for August (without disposing of under- or overallocated conversion
costs). Assume no direct materials variances.
2. Post the entries in requirement 1 to T-accounts for Materials and ln-Process lnventory Control,
Finished Goods Control, Conversion Costs Control, Conversion Costs Allocated, and Cost of Goods Sold.

Q5/ What is Downward Demand Spiral and how it affects pricing decision? discuss with giving examples.

a6/ W) Company produces a line of non-motorized boats. (W) uses a normal-costing system and allocates
manufacturing overhead using direct manufacturing labor cost. The following data are for 2019:
Budgeted manufacturing overhead cost $250000
Budgeted direct manufacturing laborcost $500000
Actual manufacturing overhead cost $234000
Actual direct manufacturing laborcost $456000

lnventory balances on December 31, 2019, were as follows:

Account Ending balance 2019 Direct manufacturing

Finished goods 490100 118560

Cost ofgoodssold 1098500 296400

Required: 1, Calculate the manufacturing overhead allocation rate.

2. Compute the amount of under- or overallocated manufacturing overhead.
3. Calculate the ending balances in work in process, finished goods, and cost of goods sold if under-
overallocated manufacturing overhead is as follows:
a. Written off to cost of goods sold
b. Prorated based on ending balances (before proration) in each of the three accounts
c. Prorated based on the overhead allocated in 2019 in the ending balances (before proration) in each
of the three accounts
4. Which method makes the most sense? Justify your answer.

Dr. Parzheen Sh.Mohammad BEST OF LUCK u

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Q/1 one Company produces products X and Y. Data related to the two products are presented here:
XY
Annual production in units 45,000 90,000
Direct material costs $t a0,000 $360,000
Direct manufacturing labor costs $ 90,000 $180,000
Direct manufacturing labor-hours 4,500 9,000
Machine-hours 30,000 60,000
Number of production runs 45 45
lnspection hours 1,200 600

Total manufacturing overhead costs are as follows:

Total
Machining costs $360,000
Setup costs 109,000
Inspection costs 1 17,000

Required:

1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product.
2. Compute the manufacturing cost per unit for each product according to ABC.
a/2 (SE) produces Z. Akey step in the conversion of raw material to a completed unit occurs in the assembly department, in this
department, materials are added at the beginning of the process and conversion takes place uniformly. At the start of November
2017, SE's assembly department had 2,400 units in beginning work in process, which were 100% coinplete for materials and 40%
complete for conversion costs. An additional 12,000 units were started in the department in November, and 3,600 units remain in
work in process at the end of the month. These unfinished units are 100% complete for materials andTOo/o complete for conversion
costs' The assembly department had 1,800 spoiled units in November., normal spoilage is approximately 12o/o df gooO units. The
department's costs for the month of November are as follows:

Beginning WIP Costs Incurred During Period

Direct materials costs $ 76,800 $ 240,000

Conversion costs 123,000 1,200,000

Required:

1. compute the normal and abnormal spoilage in units for November, assuming the inspection point is at (a) the 30% stage of
completion, (b) the 60% stage of completion.
2. Now assume that the assembly department inspects at the 60% stage of completion. Using the weighted-average method,
calculate the cost of units transferred out, the cost of abnormal spoilage, and the cost of ending inventory for the aisembly
department in November.
Q/3 The G Corporation is a manufacturing company that uses automatic stamping machines to manufacture garage doors from rolled
sheets of raw steel. G's inventory of raw steel averages $600,000. Juan Sanchez, president of G, and .,lane Anderson, G's controller,
are concerned about the costs of carrying inventory. The steel supplier is willing to supply steel in smaller lots at no additional charge.
Anderson identifies the following effects of adopting a JIT inventory program to virtualiy eliminate steel inventory:
r Without scheduling any overtime, lost sales due to stockouts would increase by 700 units per year. However, by incurring overtime
premiums of $90,000 per year, the increase in lost sales could be reduced to 300 units per year. This would be the maximim amount
of overtime that would be feasible for G,
r Two warehouses currently used for rolled steel storage would no longer be needed. G rents one warehouse from another company
under a cancelable leasing arangement at an annual cost of $8O,OOO. The other warehouse is owned by G and contains 20,000
square feet' Three-fourths of the space in the owned warehouse could be rented for $2.50 per square foot per year. lnsurance and
property tax costs totaling $16,000 per year would be eliminated. G's required rate of return on investment is tS"Z" per year. G's
budgeted income statement for the year ending December 31, 2017, (in thousands) is:
Revenues (20,000 units) $16,000
Cost of goods sold
Variable costs $8,450
Fixed costs 3,290
Total costs of goods sold 11,730
Gross margin 4,270
Marketing and distribution costs
Variable costs $1,040
Fixed costs 890
Total maketing and distribution costs 1,935
Operating income $ 2,335
Required;
1. Calculate the estimated dollar savings (loss) for the G Corporation that would result in 2017 trom
the adoption of JIT purchasing.
2. ldentiff 3 features of JIT briefly.
CU4 Mountain Press produces textbooks for high school accounting courses. The company recently hired
a new editor, Jan Green, to handle production and sales of books for an introductory accounting course. Jan's
compensation depends on the gross margin associated with sales of this book. Jan needs to decide how many
copies of the books to produce, The following information is available for the fall semester o12017:

Estimated sales 50,000 books

Beginning inventory 0 books
price
Average selling $ 160 per book
costs
Variable production $ 100 per book
costs
Fixed production $750,000 per semester
The fixed-cost allocation rate is based on expected sales and is
therefore equal to $750,000/50,000 books = $15 per book.

Jan has decided to produce either 50,000, 65,000, or 70,000 books.

1, Calculate expected gross margin if Jan produces 50,000, 65,000, or 70,000 books. (Make sure you include
the production-volume variance as part of cost of goods sold.)
2. Calculate ending inventory in units and in dollars for each production level.

3. Managers who are paid a bonus that is a function of gross margin may be inspired to produce a product in
excess of demand to maximize their own bonus. Do you think the following metric will accomplish this objective?
Show your work.
- lncorporate a charge of 10o/o of the cost of the ending inventory as an expense for evaluating the
manager.
Q/5 M P, Inc., manufactures auto accessories. One of the company's products is a set of seat covers that can be adjusted to fit nearly any
small car. The company uses a standard cost system for all of its products. According to the standards that have been set for the seat covers,
the factory should work 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of
production are:
Total
Per Set
of Covers
Directmaterials..... ....$42,560 $22.40
Directlabor .....$51,300 27.00
Variable manufacturing overhead
.
(based on direct labor-hours) . . $6,840 3.60
$ 53.00

During August, the factory worked only 2,800 direct labor-hours and produced 2,000 sets of covers.
The following actual costs were recorded during the month:

Total
Per Set
of Covers
Directmaterials(12,000yards). ... $45,600 $ 22.80
Direct labor $49,000 24.50
Variable manufacturing overhead $7,000 3.50
$ 50.80

At standard, each set of covers should require 5.6 yards of material. All of the materials purchased during the month were used in
production,
Required:
Compute the following variances for August:
1. The materials price and quantityvariances.
2. The laborrate and efiiciencyvariances.
3. The variable overhead rate and efficiency variances.

Dr.Parzheen Sh.Mohammed GOOD LUCK

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Af/ the following information concerns Y company

Product H D

Units Unit cost Unit U nits Un it cost Unit price

price

19A 1500 Sroo $zro L400 Sgo Sroo

198 1250 110 200 1750 85 L10

Required/compute the price and volume variances for sales and cost and the sales mix and fina! sales
volume variances.

Q2fihe A Corporation manufactures product X. For August, there were no beginning inventories of direct
materials and no beginning or ending work in process. A uses a JIT production system and backflush costing
with two trigger points for making entries in the accounting system:
I Completion of good finished units of product
I Sale of finished goods

A's August standard cost per unit is direct materials, $24, and conversion cost, $18. A has no direct
materials variances. The following data apply to August manufacturing:
Direct materials purchased $540,000 Number of finished units manufactured 19,000
Conversion costs incuned $425,000 Number of finished units sold 18,000

Required:
{. Prepare summary joumal entries for August, including the disposition of under- or overallocated
conversion costs. A has no direct materials variances.
2. Post the entries in requirement 1 to T-accounts for Finished Goods Control, Conversion Costs Gontrol,
Conversion Costs Allocated, and Cost of Goods Sold.

QSrA- HA assembles dishwashers at its plant in Tuscaloosa, Alabama. ln February 2017,60 circulation
motors that cost $1 10 each (from a new supplier who subsequently went bankrupt) were defective and had
to be disposed of atzero net disposal value. Appliances was able to rework all 60 dishwashers by
substituting new circulation motors purchased from one of its existing suppliers. Each replacement motor
cost $125.
Required:
1. What alternative approaches are there to account for the materials cost of reworked units?
2. Should HA Appliances use the $110 circulation motor or the $125 motor to calculate the cost of materials
reworked? Explain.
3. What other costs might HA Appliances include in its analysis of the total costs of rework due to the
circulation motors purchased from the (now) bankrupt supplier?
Q3, B- How do you distinguish actual costing from normal costing? Answer briefly
Q4/ ln the T department, conversion costs are added evenly during the process, and direct materials are
added at the end of the process. Spoiled units are detec'ted upon inspection at the end of the process and
are disposed of at zero net disposal value. Al! completed work is transferred to the next department. The
transferred-in costs for May equal the total cost of good units completed and transfened out in May
from the prep department, Summary data for May follow
World Class Physical Transferred-ln Direct Conversion
Steaks: Shipping Units Costs Materials Costs
Department
\tVork in process, 25,200 $62,397 0 $ 46,950
beginning inventory
(May 1)
Degree of LA}% 0 70%
completion of
beginning work in
process
Started during May 49,2A0
Good units 52800
completed and
transferred out
during May
Work in process, 16,800
ending inventory
(May 31)
Degree of LOO% 0 4A%
completion of
ending work in
process
Total costs added ? $1 1 ,52A $erogo
during May
Normal spoilage as 7%
a percentage of
good units
Degree of LAO% rca%
completion of
normal spoilage
Degree of LOA% LAO%
completion of
abnormal spoilage
Required: For T department, use the weighted-average method to summarize the total costs to account for
and assign those costs to units completed and transfened out (including normal spoilage), to abnormal
spoilage, and to units in ending work in process.
Q5/ you are given the following information related to a fictitious Belgian chocolatier for the month of June.
The chocolatier manufactures truffles in 12-piece boxes. The production is labor intensive, and the delicate
nature of the chocolate requires a high degree of skill.
Actual r'

Boxes produced 10,000

Direct materials used in production 2,150,000 g
Actual direct material cost $ 60,200
Actual direct manufacturing labor-hours 1,100
Actualdirect manufacturing labor cost $ 12,650
Standards
Purchase price of direct materials 0.03 $/g
Materials per box 200 g
Wage rate 12 $/hour
Boxes per hour 10
Required:
1. Calculate the materials price and quantity variance and the wage and labor efficiency variances for
the month of June.
2. Discuss some possible causes of the variances you have calculated. Can you make any possible
connection between the material and labor variances? What recommendations do you have forfuture
improvement?

Dr.Paruheen Sh.Mohammed GOOD LUCK