Cost Accounting (Summer Accounting 1B): Midterm (7 Problems)

Cost Accounting (Summer Accounting 1B) 

Problems – various points – Total (140 points) 
1. (5 points) 
Grassi Company produces high definition television sets. The following information is available for this product: 
Fixed cost per unit 250 
Variable cost per unit 750 
Markup per unit 300 

Grassi Company's markup percentage would be 
a. 30%. 
b. 40%. 
c. 60%. 
d. 120%. 

2. (5 points) 
In each of the following situations, identify whether the setting is primarily financial accounting or managerial accounting. 
a. Abba Company purchased a new telephone system costing $132,000 for its sales division. The new phone system will be depreciated using the straight-line method over a period of five years and has an estimated salvage value of $5,000. 
b. Bandex Company has had several customers who are experiencing the negative effects of the downturn in the economy. As a result, the company believes its allowance for doubtful accounts should be increased from 1% of credit sales to 1.5% of credit sales. 
c. Cortez, Inc. has experienced a decline in net income over the past three years. The engineering department is considering redesigning a product to eliminate waste and inefficiency in the production process. 
d. The sales manager of Decca Corporation believes one salesman is creating fictitious sales to inflate his commission. The sales manager has asked the controller for a detailed report of sales by salesman. 
e. Essex, Inc. executives are meeting to analyze the company’s actual results compared to budgeted amounts. 

3. (10 points) 
Georgiana operates a nail salon. She is trying to plan her costs for the next month and is uncertain as to how to estimate those costs. Help her estimate next month’s costs given the following information she collected, based on number of customers per month. 
Number of Customers 1,300 1,800 1,500 1,200 
Nail supplies 4,030 5,580 4,650 3,720 
Equipment Rental 2,200 2,200 2,200 2,200 
Electricity 274 364 310 256 
Total 6,504 8,144 7,160 6,176 

Georgiana wants to know what her total costs would be if she estimates 1,450 customers next month. 
a. $2,240 
b. $6,832 
c. $6,996 
d. $4,756 

4. (20 points) 
Mega Bright Window Cleaners’ monthly income statement at several levels of activity is as follows: 
Windows washed 2,000 4,000 6,000 
Sales revenue 3,000 6,000 9,000 
Cost of goods sold 1,200 2,400 3,600 
Gross profit 1,800 3,600 5,400 
Operating expenses 
Advertising expense 500 500 500 
Salaries and wages expense 700 900 1,100 
Insurance expense 200 200 200 
Postage expense 500 1,000 1,500 
Total operating expenses 1,900 2,600 3,300 
Operating income (100) 1,000 2,100 

a. Identify each expense as fixed, variable, or mixed. 
b. Prepare a contribution margin income statement based on a volume of 5,000 windows. 

5. (30 points) 
Mirada Manufacturing produces pumps for residential swimming pools. For the year, management estimated that total manufacturing overhead would be $1,488,000. Management decided to use direct labor hours to apply manufacturing overhead and budgeted 62,000 direct labor hours. The following information was compiled before an adjustment had been made to close Manufacturing Overhead Control: 
Raw Materials Inventory 304,291 
Work in Process Inventory 337,997 
Finished Goods Inventory 756,362 
Actual direct labor hours used 68,970 
Actual overhead incurred 1,434,576 

How much overhead did Mirada apply to jobs during the year (if necessary, round your answer to the nearest dollar)? 
a. $1,434,576 
b. $1,655,280 
c. $1,487,683 
d. $1,434,680 

For the year, manufacturing overhead was 
a. $220,704 underapplied 
b. $220,704 overapplied 
c. $144,976 overapplied 
d. $144,976 underapplied 

6. (30 points) 
Herzig Industries sells two electrical components with the following characteristics. Fixed costs for the company are $200,000 per year. 
XL-709 CD-918 
Sales price $10.00 $25.00 
Variable cost 6.00 17.00 
Sales volume 40,000 units 60,000 units 

a. How many units of each product must Herzig Industries sell in order to break even? 
b. Herzig’s vice president of sales has determined that due to market changes, the sales price of component XL-709 can be increased to $14.00 withno impact on sales volume. What will be Herzig’s new breakeven point in units? 
c. Returning to the original information, Herzig’s vice president of marketing believes that spending $80,000 on a new advertising campaign will increase sales of component CD-918 to 80,000 units, without affecting the sales of product XL-709. How many units of each product must Herzig sell to break even under this new scenario? 

7. (40 points) 
Windows of the World (WOW) produces decorative windows in several styles and finishes. The company uses a job order costing system to accumulate product costs. Because much of the production process is automated, WOW has selected machine hours as its overhead application base. 
In May, WOW worked on three jobs. Job 69 was started in April and completed and delivered to customers in May. Job 70 was started and finished in May, and at the end of May, the windows from the job were in the warehouse. Job 71 was started but not completed at the end of May. 
69 70 71 
Costs Added in April 
Direct materials 10,000 
Direct labor 1,000 
Overhead 450 
Machine hours 10 MH 

Costs Added in May 
Direct materials 5,000 8,000 4,000 
Direct labor 24,000 12,000 500 
Machine hours 600 MH 500 MH 15 MH 

a. Calculate the total manufacturing cost for May. 
b. Calculate the total cost of each of the three jobs as of the end of May. 
c. Calculate the balance in the Work in Process Inventory account at the end of May. 
d. Calculate the cost of goods manufactured for May. 
e. Calculate the Cost of Goods Sold for May. 
f. Calculate the Finished Goods Inventory balance at the end of May. 
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