ACCOUNTING 326

FALL SEMESTER 1997

PROFESOR PETER CHALOS

MS. BARBARA PECK

SAMPLE EXAM QUESTIONS-MIDTERM

QUESTION 1:

1. 1. Hartwell Company distributes service department overhead costs directly to producing departments without allocation to the other service departments. Information for January appears below. Determine the amounts of service department costs that Hartwell would allocate to each producing department.

   	Maintenance	Utilities
   Overhead Costs Incurred	$18,700	$9,000
   Services provided to:
   Maintenance Dept.	--	10%
   Utilities Dept.	20%	--
   A	40%	30%
   B	40%	60%

2. Repeat item 1 assuming that Hartwell elects to use the step-down method, first allocating the costs of the utilities department.
3. Write the equations necessary to allocate the service department costs using the reciprocal method and determine the amounts of service department cost allocated to each producing department.

QUESTION 2:

The Cutting Department is the first stage of Mark Company’s production process. Conversion costs for the department were 80% complete for the beginning inventory and 50% complete for the ending inventory. Mark uses FIFO method. Other data appear below:

1. Determine the equivalent cost per unit.
2. Ignoring part 1 results, if the equivalent cost per unit was $1.50, determine the conversion cost in the ending work-in-process and transfers out.

QUESTION 3:

Alton Company manufactures various types of furniture. The following data relate to jobs worked on in August.

The company applies overhead at $1.50 per direct labor dollar. Actual overhead in August was $65,800. Job HG-11 was completed and sold for $115,500. Job WS-14 was completed but not shipped, and job CF-32 was incomplete.

1. Determine the ending inventories of work-in-process and of finished goods.
2. Determine the amount of overapplied or underapplied overhead.
3. Prepare an income statement for August. Selling and administrative expenses were $33,500. The company treats any overapplied or underapplied overhead as an adjustment to normal cost of sales.
4. Prepare summary journal entries for total debits to work-in-process, total transfers to finished goods and cost of goods sold.

QUESTION 4:

Able Processing Company provides the following information:

1. Use the direct method to allocate costs and to determine the total overhead of Department A after allocation. Do the same for "other production departments."
2. Use the step-down method to allocate costs and to determine the total overhead of Department A and "other production departments" after allocation. Begin with Dept. 1.

C. Set up the equations for solving the allocations, using the reciprocal method, but do not solve these equations. Discuss the advantages of this method.

QUESTION 5:

Chalos, Inc. had the following account balances for May:

Direct materials – May 1 $18,000

Accounts Payable – May 1 10,000

Work-in-Process – May 1 20,000

1. Accounts payable represent only direct material. The May 31 balance was $5,000. $135,000 were paid in May.
2. Finished Goods Inventory at May 31 was $22,000.
3. May cost of goods sold was $1,104,000.
4. May manufacturing cost were $1,081,000.
5. In May 80,000 hours of direct labor were used at $6.50 per hour.
6. Direct materials requisitioned were $136,000.
7. No ending Work-in-Process on May 31.
8. May’s gross margin was $428,000 and operating profit was $210,000.

Derive (you should recognize this):

1. May 31 direct materials balance.
2. Total overhead for May.
3. Cost of goods manufactured for May.
4. Finished goods inventory on May 1.
5. Marketing and administration costs for May.

QUESTION 6:

A firm uses actual costs in a weighted average process costing system. In Department 1, the direct materials are added at the beginning of processing and conversion costs are considered to be added evenly throughout the process. Given the following information for May:

*degree of completion

Direct material cost has been omitted to simplify the problem.

Required:

1. How many units were started in May in Department 1?
2. How many equivalent units were used in determining the unit cost for conversion?
3. What is the total dollar amount of the conversion cost of the ending work-in-process?
4. What is the total dollar amount of the conversion cost being transferred out of Department 1?
5. What is the total amount of conversion cost charged to Department 1 during May.
6. Assume the firm was using FIFO. How many equivalent units would have been used to determine the unit cost for conversion?
7. Assume the firm was using FIFO. What is the total amount of conversion cost charged to Department 1 in May?

QUESTION 7:

Chalos, Inc. had the following activity:

Chalos had no beginning inventories. At year-end, jobs that were in ending inventories had the following:

Required:

1. Prepare an income statement for 19x7, assuming that Chalos uses actual costing and allocates overhead based on direct labor hours.
2. Prepare an income statement for 19x7, assuming that Chalos uses normal costing. The predetermined overhead rate is based on 25,000 expected direct labor hours and $275,000 budgeted overhead cost. Show any overapplied or underapplied overhead solely as an adjustment to normal cost of goods sold.
3. Reconcile the Actual and Normal Net Incomes with their inventories.