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Exam 11: Product Costing in Service and Manufacturing Entities

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Question 21

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Which is required for preparation of a company's external financial statements: absorption costing or variable costing? Which is frequently used for internal decision making?

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Absorption c...

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Question 22

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Frost Corporation incurred the following transactions during its first year of operations.(Assume all transactions involve cash. ) 1) Acquired $1,000 of capital from the owners. 2) Purchased $300 of direct raw materials. 3) Used $100 of these direct raw materials in the production process. 4) Paid production workers $400 cash. 5) Paid $200 for manufacturing overhead (applied and actual overhead are the same) . 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $6 each. 8) Paid $40 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be:

A) $100.
B) $200.
C) $300.
D) $0.

E) C) and D)
F) A) and B)

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Question 23

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Absorption costing provides incentives for a company to hold excess inventory,which may increase the company's costs.

On December 31,Year 1,Zeus Manufacturing reported the following balances in its inventory accounts: $\begin{array}{|l|r|}\hline \text { Account } & \text { Balance } \\\hline \text { Raw materials inventory } & \$ 21,000 \\\hline \text { Work in process inventory } &32,500 \\\hline \text { Finished goods inventory } &36,500 \\\hline\end{array}$ The following events occurred during Year 2: a)purchased raw materials for cash,$375,000 b)raw materials used to make products,$359,500 c)direct labor costs of $204,000 were paid in cash d)estimated overhead applied to work in process,$183,600 e)paid cash for actual overhead costs,$180,500 f)completed products that cost $704,500 g)sold goods that had cost $696,000 for $985,000 cash h)paid cash for selling and administrative expenses,$206,000 Required: 1)Prepare Zeus' schedule of cost of goods manufactured and sold for Year 2. 2)Prepare the income statement for Year 2. 3)Calculate the balances in the Raw Materials,Work in Process,and Finished Goods Inventory accounts as of December 31,Year 2.

Lexington Company's predetermined overhead rate is $4.00 per direct labor hour.Which of the following equations correctly computes the amount of overhead cost that should be applied to work in process assuming a job required 100 hours but was estimated to require 90 hours?

Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month.As a result of this transaction the:

Product costs flow through the manufacturer's inventory accounts in the following order: raw materials,finished goods,and cost of goods sold.

Herald Company paid $2,800 cash for production supplies.The recognition of this event will:

What is a volume variance,and what is its cause? Under what circumstances is the volume variance unfavorable?

At the beginning of the year,Hilliard Company estimated that its total overhead cost would be $250,000 and its production volume would be 80,000 units.Total actual overhead cost for the year was $246,000.The actual number of units produced during the year was 78,000. Required: 1)What amount of overhead was applied to the products Hilliard completed during the year? 2)Calculate the volume variance for the year.Indicate whether it is favorable or unfavorable.Do not round intermediate calculations. 3)Calculate the spending variance for the year.

Which of the following statements is

The Winchester Company estimates that its overhead costs will amount to $595,000 and the company's manufacturing employees will work 85,000 direct labor hours during the current year.If actual overhead costs for the year amounted to $599,000 and actual labor hours amounted to 87,000,then overhead would be:

Select the term from the list that best matches the description or definition.Enter the number of the best answer in "Your Answer" column. $\begin{array}{|l|l|l|}\hline \text {Your Answer } & \text {Defiution or Descrivtion} &\text { Term } \\\hline & \text { A. Asset account used to accumulate cost of materials that will be used to make the company's products } &\text {1. Absorption costing } \\\hline & \text { B. Asset account containing product costs associated with units that have been completed and are awaiting sale } &\text {2. Applied overhead } \\\hline & \text { C. Practice of capitalizing all product costs, including fived manufacturing costs, in ilwentory } &\text {3. Cost of goods} \\\hline & \text { D. Asset account used to accumulate all product costs associated with production } &\text {4. Cost of goods sold } \\\hline & \text { E. Amount of overhead costs assigned to Work in Processusing the predetermined rate } &\text {5. Finished goods iwentory } \\\hline & \text {F. Product costing system that does not incluck fived manufacturing costs as part of the cost of inventory} &\text {6. Manufacturing overhead account } \\\hline & \text {G. Calculated by dividing estimated overhead costs for the period by scome measure of estimated total production activity for the period } &\text {7. Overapplied or underapplied overhead } \\\hline & \text { H. The result of allocating more or less overhead cost to Work in Process than the anount of actual overhead costs incurred } &\text {8. Predeternined overhead rate } \\\hline & \text { I. Schedule that summarizes the flow of manufacturing product costs } &\text {9. Raw materials inventory } \\\hline & \text {J. Product costs associated with prochicts that were sold during an accounting period} &\text {10. Retained earmings} \\\hline & \text { K. Temporary account used to accuunulate the actual overhead costs incurred and the total amount of overhead applied to Work in Process } &\text {11. Variable costing} \\\hline & \text { L. Eqpity account that is the culnination of all earnings kept in the basiness since inception } &\text {12. Work in process inventory } \\\hline\end{array}$

Selected accounts from Harper Company are provided below: Required: In the space provided,briefly describe each indicated transaction.Transaction (a)has been completed as an example. $\begin{array}{|l|l|}\hline \text { Transaction } & \text { Description of Transaction } \\\hline \text { (a) } & \text { Common stock issued for cash } \\\hline \text { (b) } \\\hline \text { (c) } \\\hline \text { (d) } \\\hline \text { (e) } \\\hline \text { (f) } \\\hline \text { (g) } \\\hline \text { (h) } \\\hline \text { (i) } \\\hline\text { (j) } \\\hline\end{array}$

If actual volume is smaller than the budgeted or expected volume,then a favorable volume variance will occur.

The Hamilton Company planned to produce 150,000 units during the current year.At that production volume,the company estimated that its overhead costs would amount to $637,500. Required: 1)Calculate the predetermined overhead rate per unit based on expected production. 2)Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500 as expected.How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or under-applied. ) 3)Assume that actual output totaled 150,000 units as expected but actual overhead costs amounted to $600,000.How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or under-applied. ) 4)Summarize the conditions that lead to over- or under-applied overhead.

Which of the following statements is

Ringgold Company had beginning finished goods of $36,000.During the period,the company produced goods that cost $150,000.If the ending balance in the Finished Goods Inventory account was $24,000,the amount of cost of goods sold was:

The cost of goods completed during a period is transferred from the Finished Goods Inventory account to Cost of Goods Sold.

Jones Manufacturing Company experienced an accounting event that affected its financial statements as indicated below: $\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|}\hline {\text { Assets }}& & = & \text { Liab. } & + & \text { Equity } & \text { Rev. } & - & \text { Exp. } & = & \text { Net Inc. } \\\hline+ \mid - & && \text { NA } & & \text { NA } & \text { NA } & & \text { NA } & & \text { NA } \\\hline\end{array}$ Which of the following accounting events could have caused the indicated effects on the firm's accounting equation?