# Exam I

Pages: 8 (827 words) Published: September 19, 2014
﻿Q1. Altima Company uses an overhead costing system based on direct labor hours for its two products X and Y. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.

(1) Compute the unit manufacturing cost of Product X under a volume-based costing system based on direct labor hours.

(2) Compute the unit manufacturing cost of Product Y under a volume-based costing system based on direct labor hours.

*Note that the direct labor based costing system overcosted the high volume Job B and undercosted the low volume Job A

Q2. Assad Company uses the process costing method with the following data for the month of July.

Required:

(1) Compute cost per equivalent unit under the weighted-average method.
EUs for materials = 50,000+20,000 = 70,000
EUS for conversion = 50,000+(20,000*0.6) = 62,000

(2) Compute cost per equivalent unit under FIFO method.
EUs for DM = 50,000 + 20,000 – 30,000 = 40,000
EUs for Conv: 50,000 + 12,000 – 30,000 * 0.3 = 53,000

DM: \$120,000/40,000 =\$3 per DM EU
Conv: \$199,810/53,000=\$3.77 per Conv EU
Total: \$3+\$3.77= \$6.77 per EU

(3) Calculate the cost of units completed and transferred out using the weighted-average method. Under WA
50,000*\$6.71 = \$335,500
Under FIFO
# of units started & completed this period = 50,000 - 30,000 = 20,000 - 20,000 * \$6.77 = \$135,400
Let’s calculate the cost incurred to finish BWIP:
6,000 * 0 * \$3 = \$0
6,000 * 0.7 * \$3.77 = \$79,170
Total cost of units finished from BWIP = \$0 + \$79,170 + \$65,500 + \$51,910 = \$196,580 Thus, the cost of completed and transferred out units = \$135,400 +\$196,580= \$331,980

(4) Calculate the cost of ending work in process using the weighted-average method Under WA
DM : 20,000 EUs *\$2.65 = \$53,000
Conv: 12,000 EUS * \$4.06 = \$48,720
EWIP = \$101,720
Under FIFO
20,000 * 100% * \$3 + 20,000 * 0.6 * \$3.77 = \$105,240

Q3. The Insurance Plus Company has two service departments — actuarial and premium rating, and two production departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:

The operating costs of the departments were as follows:
Actuarial \$50,000.
Premium Rating \$40,000.
Marketing \$60,000.
Sales \$70,000.
The total cost accumulated in the marketing department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Solution:

30/50 x 50,000=\$30,000
40/70 x 40,000= \$22,857
Thus, the total cost accumulated in the marketing department = \$52,857 + \$60,000 = \$112,857

Q5. Using the information in Q4, the total cost accumulated in the marketing department using the step method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar): Step 1

First allocating Actuarial department since it provides 50% (50%>30%) to the rating department. \$50,000*0.5 = \$25,000  \$25,000+40,000=\$65,000
 Total allocated amount of Rating Dep’t
\$50,000*0.3=\$15,000  \$15,000+\$60,000=\$75,000
 Total allocated amount of Marketing Dep’t
\$50,000*0.2 = \$10,000  \$10,000 + \$70,000=\$80,000
 Total allocated amount of Sales Dep’t
Step 2
Allocating the cost in Rating department to the Marketing department using Direct method: \$65,000 * 40/70 = \$37,143  \$37,143 + \$75,000 = \$112,143
Q4. Using the information in Q4, the total cost accumulated in the marketing department using the reciprocal method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):  Solution:

Actuarial costs = Initial allocation in Actuarial + costs allocated from Rating Rating costs = Initial allocation in Rating + costs allocated from Actuarial

Denote Actuarial Costs = x and Rating costs = y
x=\$50,000+0.3y...

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