Question

7. Harvey Chemicals Pty Ltd manufactures a product called Hartik. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following data pertains to the month of October.

Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the month of October.

A. Direct Material 75 000; Conversion Cost 69,400 B. Direct Material 75 000; Conversion Cost 60,400 C. Direct Material 60 000; Conversion Cost 60,400 D. Direct Material 68 000; Conversion Cost 69,400

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Questions 8 and 9 relate to the following information.

The Singleton Boot Company has four departments in its factory with two service departments, S1 and S2, and two production departments Assembly and Finishing.

The current costs of each department are:

Service Departments

S1 S2

$308 000 $256 000

Production Departments

Assembly $505 000 Finishing $495 000

The distribution and consumption of services is given in the following table:
Services provided to:	S1	S2	Assembly	Finishing
Services provided by:
S1	-	35%	45%	20%
S2	15%	-	60%	25%

8.Using direct method how much overhead costs will be allocated from S1 to Assembly:

A. $138,600 B. $213,231 C. $115,200 D. $177,231

9.Using step-down method how much overhead costs will be allocated from S2 to Assembly:

A. $153,600 B. $218,280 C. $256,800 D. $180,706

3

10. Nala Corporation uses direct labour-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labour-hours were 14,400 hours and the total estimated manufacturing overhead was $355,680. At the end of the year, actual direct labour hours for the year were 15,200 hours and the actual manufacturing overhead for the year was $350,680.

Overhead at the end of the year was:

1. $24,760 underapplied

2. $24,760 overapplied

3. $19,760 underapplied

4. $19,760 overapplied

11. A collection of costs that are to be allocated to cost objects is referred to as a:

    A. Cost pool
    B. Costallocation C. Directcost
    D. Indirect cost

12. A special order generally should be accepted if:

    A. Its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order
    B. Excess capacity exists and the revenue exceeds all variable costs associated with the order.

    C. Excess capacity exists and the revenue exceeds allocated fixed costs D. The revenue exceeds variable costs, regardless of available capacity

13. For a manufacturing company, the cost of factory insurance is classified as a:

    A. Direct material cost.

B. Direct manufacturing labour cost. C. Manufacturing overhead cost.
D. Period cost.

4

14. Kaiser Ltd. uses the high-low method to estimate the cost function. The information for 2018 is provided below.

Month	Machine hours	Labour costs ($)
January	130	5,124
February	250	7,611
March	180	6,208
April	165	6,300
May	240	9,800
June	80	3,200
July	155	6326
August	190	7,200
September	230	8,138
October	250	8,600
November	260	10,004
December	190	7,400

What is the estimate of Kaiser’s cost function when 120 machine hours are used (to the nearest dollar)?

A. $4,347 B. $4,712 C. $4,744 D. $4,797

15. Crimson Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. In 2018, the company expects to make 2,000 comforters. With respect to the comforters how would the fabric used to make the comforters be classified?

A. Direct and variable costs B. Direct and fixed costs
C. Indirect and variable costs D. Indirect and fixed costs

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16. McDonnell Industries estimated manufacturing overhead for the year at $290,000. Manufacturing overhead for the year was underapplied by $12,000. The company applied $235,000 to Work in Process. The amount of actual overhead would have been:

A. $278,000.
B. $247,000.
C. $223,000.
D. None of these

17. The benefits arising from the introduction of activity-based costing are likely to be greater where:

i. Overhead is a large proportion of total cost.
ii. Implementation costs are not high due to the support of advanced IT systems. iii. Batches are of a similar size.

A. i and ii
B. i and iii
C. ii and iii
D. None of the above

18. Lawler Manufacturing Co. has three divisions which are in competition with each other, selling slightly different products. Annual results (including per unit sales)

show:

Sales price per unit Variable cost per unit Total Fixed costs Predicted unit sales

Division A $250
$160 $110,000 10,000

Division B $280
$210 $85,000 5,000

Division C $330

$220 $105,000

3,000

The company believes that if it drops Division B, sales of Division A will increase by
3000 units and sales of Division C will increase by 1000 units. Analysis reveals that $50,000 of fixed costs relating to Division B are avoidable for the company if Division B is closed. The incremental effect on the income of the company if it closes Division B will be:

A. An increase of $30,000 B. An increase of $50,000 C. A decrease of $70,000 D. An increase of $80,000

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19. When the step-down method is used to allocate support department costs, a common way to select the first support department in the sequence is to choose the support department which:

1. Obtains the highest yield

2. Serves no other support department

3. Serves the greatest number of other support departments

4. Obtains the highest yield AND serves no other support department

20. Franklin has received a special order for 10,000 units of its product at a special price of $15. The product normally sells for $20 and has the following manufacturing costs:

Per unit Direct materials $6

Direct labour 3 Variable manufacturing overhead 2 Fixed manufacturing overhead 6 Unit cost $17

Franklin is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Franklin accepts the order, what effect will the order have on the company’s short-term profit?

A. $40,000 decrease

2. $40,000 increase

3. $50,000 decrease

D. $10,000 increase

Answer 1

8.Direct method of OH cost allocation

All the OH costs of the service depts. Are allocated fully,only among the production depts.

from S1 to Assembly

308000*45%/(45%+20%)=

308000*45%/65%=

213231

ANSWER: B. $ 213231

9. Step-down method	Production Depts.		Service depts.
	Assembly	Finishing	S1	S2
Costs before allocation	505000	495000	308000	256000
Allocation of S1 costs(being 308000> 256000)(45%,20%& 35%)	138600	61600	-308000	107800
				363800
Allocation of total S2 costs(60%,25%)	256800	107000		-363800
Total costs after step-down allocation of Ohs	900400	663600	0	0
So, ANSWER: C. OHs allocated from S2 to Assembly= $ 256800

10.Nala Corporation

Predetermined OH rate= Estimated MOH/Estd. D/L hrs.

ie. $ 355680/14400 D/L hrs.

24.7

per D/L hr.

So, actual D/L hrs. applied will be

Actual D/L hrs.*Predetermined OH rate.hr.

ie. 15200 hrs.* $ 24.7=

375440

Actual MOH= 350680

Actual MOH($ 350680) < MOH applied ($ 375440)

So, MOH over-applied=

375440-350680=

24760

ANSWER: B

11.A collection of costs that are to be allocated to cost objects is referred to as a

A. Cost pool

ie. Costs are accumulated so as to be assigned to different cost objects , such as a product/branch, etc.

12.A special order generally should be accepted if:

B. Excess capacity exists and the revenue exceeds all variable costs associated with the order.

so as to maximise contribution income , fixed costs remaining the same.

13.For a manufacturing company, the cost of factory insurance is classified as a:

C. Manufacturing overhead cost.

It is also a period cost--ie. Which does not vary/change according to units produced, but incurred for the period.

It is a fixed mfg. OH cost, ie. A fixed indirect cost.

14.As per the High-Low method,
Labor costs at maximum activity level	260	10004
Labor costs at minimum activity level	80	3200
Difference	180	6804
Difference in cost/activity diff.		6804/180=
		37.8
Now, finding the fixed cost ,
Total cost=(M/c hrs.*37.8)+Fixed costs
at 250 m/c hrs.
ie. 10004=(260*37.8)+FC
solving the above, FC= 176
at 80 m/c hrs.
ie. 3200=(80*37.8)+FC
solving the above, FC is the same = 176
So,now, the cost equation at any level of activity will be
Total cost=(M/c hrs.*37.8)+176
So,estimate of Kaiser’s cost function when 120 machine hours are used (to the nearest dollar) will be:
Total cost=(120*37.8)+176
4712
ANSWER: B. $ 4712

15. A. Direct and variable costs
as fabric used to make the comforters are raw materials for the latter & vary directly with the end product.
16.McDonnell Industries
MOH applied	235000
MOH under-applied	12000
So, actual MOH incurred(235000+12000)	247000
Actual MOH($ 247000) > MOH applied ($ 235000)
So, MOH under-applied
ANSWER: B. $ 247000
17..ANSWER: A. i & ii
i-- as ,thenaccuracy of product costing will be very helpful for pricing of the same
ii--will be cost effective without much outlay.
iii.--may not be the answer--then batch costing will be adopted & ABC implementation is more activity based

18. Lawler Manufacturing Co.
Division	A	B	C	Total		Division	A	B	C	Total
S.P./unit	250	280	330			S.P./unit	250		330
V.C/unit	160	210	220			V.C/unit	160		220
Contn./unit	90	70	110			Contn./unit	90		110
Salesunits	10000	5000	3000			Salesunits	13000		4000
Total contn.	900000	350000	330000	1580000		Total contn.	1170000	0	440000	1610000
FC	110000	85000	105000	300000		FC	110000	35000	105000	250000
Profit	790000	265000	225000	1280000		Profit	1060000	-35000	335000	1360000
						Incremental profit				80000
ANSWER: D. An increase of $80,000

19. When the step-down method is used to allocate support department costs, a common way to select the first support department in the sequence is to choose the support department which:

Serves the greatest number of other support departments

(ANSWER)

20.(Franklin) Loss of sale value (20-15)*10000= 50000

ANSWER:

$50,000 decrease