Exam 2 Review

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Exam 2 Review (No Formulas Provided on the Exam)
(Please bring No. 2 pencil and a basic calculator)
CELL PHONE IS PROHIBITED DURING AN EXAM.

Twenty-Six Multiple-Choice Questions @ Two Points
Chapter 1: Managerial Accounting (6 questions)
- Managerial accounting VS Financial accounting.
- Three broad functions of management.
- When do product costs become expenses on the income statement?
- Business ethics and the Sarbanes-Oxley Act.
- Managerial accounting practices today (2 questions).
Work on MC questions 1, 2, 3, 4, 5, 6, 7, 8, 9 and 12 on pages 25-26 of printed book or
“Review and Practice” of OL book.
Chapter 2: Job Order Cost System (10 questions)
-

Companies that use job-order cost system vs. process cost system.
Journal entries in job order cost system. (E 2-7, E 2-8)
- Direct and indirect materials used (entry #4 in class notes)
- Direct labor used (entry #5 in class notes)
- Overhead applied (entry #6 in class notes)
- Completion of a job (entry #7 in class notes)
- Purpose of job cost sheet.
- Cost of goods manufactured = Amount transferred from Work in Process to Finished Goods
during a period.
- Compute overhead applied. (E 2-5, P 2-4A)
- Why do firms use overhead applied (instead of overhead incurred) to cost jobs?
- Is manufacturing overhead overapplied or underapplied, and by how much? How to handle it?
(E 2-5, P 2-4A)
Manufacturing Overhead
(3) 59,800 (6) 62,400
(4)

3,000

(5)

2,000

Work on MC questions 8, 9, 11, 12 and 15 on pages 70-71 of printed book or “Review and
Practice” of OL book.
Chapter 4: Activity-Based Costing (ABC) (10 questions)
-

Traditional costing VS ABC
Flow of overhead costs in ABC.
Identify cost driver for a particular activity. (E 4-6)
Benefits and limitation of ABC. (2 questions)
Factors suggesting a switch to ABC.
Concepts about ABM.
Identify value-added and nonvalue-added activities (E 4-8).

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-

Elements and benefits of just-in-time processing. (2 questions)

Work on MC questions 2, 4, 5, 6, 7, 8, 9, 10, 13 and 14 on pages 158-159 of printed book or
“Review and Practice” of OL book.
Four Problems
Problem 1:
(12 points)

Classify items into direct materials, direct labor, manufacturing overhead, and
period costs. (Redo E1-2, E1-4, P1-1A)

Problem 2:

Sustainability in Chapter 1 class notes (True or False) – (6 points).

Problem 3:
(14 points)

Compute total manufacturing costs, cost of goods manufactured, cost of goods
sold, and total inventories (Redo E2-9 & Practice Problem 1)

Problem 4: ABC: Compute overhead rate for two different cost pools.
(14 points)
Assign OH from cost pools to a product.
Compute total and per-unit OH cost of the product.

(Practice Problem 2)
(Do it! 4-2 & E4-5)
(P4-2A)

If you have time after redoing all indicated homework above, and want more practice on
multiple-choice questions, you may use ORION Personalized Practice at the top of each chapter
on WileyPlus site.

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Practice Problem 1: Martinez Inc. uses a job cost system and applies overhead to
production on the basis of direct labor cost.
Direct materials used
$30,000,000
Direct material purchases
25,000,000
Direct labor cost incurred
21,000,000
Manufacturing overhead incurred
22,000,000
Manufacturing overhead applied
26,000,000
Selling expense
20,000,000
Administrative expense
15,000,000
Martinez had balances in the beginning and ending inventory as follows:
1/1/13
12/31/13
Work in process
$ 5,000,000
$ 4,000,000
Finished goods
13,000,000
11,000,000
Raw material
500,000
700,000
Determine total manufacturing costs
Direct materials used + Direct labor + Manufacturing overhead applied*

Determine cost of goods manufactured
Beginning work in process + Total manufacturing costs – Ending work in process*

Determine cost of goods sold (Ignore overapplied or underapplied overhead)
Beginning finished goods + Cost of goods manufactured – Ending finished goods*

Determine total amount of inventories at the end of 2013
Ending raw materials + Ending work in process + Ending finished goods*

*Formulas are NOT provided on the exam.

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Practice Problem 2 ABC Inc. has two activity cost pools and two products.
Activity Cost Pools Cost Driver
Factory Utilities
Quality Control

Machine Hours
No. of Tests

Estimated
Cost Drivers by Product
Estimated Overhead Standard
Premium
$900,000
70,000

10,000
4,500

5,000
2,500

Compute the overhead rate for each of the two activity cost pools.
Factory Utilities:

Quality Control:

Assign overhead costs from the two cost pools to Standard.
Factory Utilities:

Quality Control:

Compute total overhead costs assigned to Standard.

Compute total cost for each unit of Standard given that 100,000 units of Standard
were produced, and per-unit costs of direct materials and direct labor were $5 and
$10 respectively.

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Formulas you should know for the exam. They will NOT be provided in the
exam.
Chapter 2 Formulas (In addition to the four formulas in Practice Problem 1)
Overhead applied = Predetermined overhead rate X Actual operating activity level
(e.g., DLH, MH)
Predetermined overhead rate

=

Estimated annual overhead costs
Estimated annual operating activity level

Chapter 4 Formulas
Overhead rate of
= Estimated annual overhead costs for that cost pool
an activity cost pool
Estimated cost drivers across all products for that cost pool
OH assigned to a product = OH rate of the activity
from an activity cost pool
cost pool

X Cost drivers used by
the product

Total overhead costs = The sum of OH assigned to the product across all activity
assigned to a product
cost pools
Per unit OH costs =

Total overhead costs assigned to a product
Production volume of the product