Midterm Review Questions

ACCT 225
MIDTERM REVIEW
Question 1
Chapter 2 - Cost of Goods Manufactured
Any Manufacturing Company

The following information has been collected for the Any Manufacturing Company
for the year ended December 31.
Inventories
January 1 December 31
Raw Materials $260,000 150,000
Work in Process 475,000 750,000
Finished Goods 215,000 260,000
Sales $3,700,000
Raw Materials purchased $575,000
Wages and salaries Sales 320,000
Manufacturing – Direct 750,000
Manufacturing – Indirect 75,000
Insurance Factory 10,000
Head Office & Sales facilities 5,000
Depreciation Factory 25,000
Utilities Factory 250,000
Maintenance Factory 15,000
REQUIRED: Compute the following based on the information provided above

a. Total direct materials used (considering raw material inventory balances)
b. Total manufacturing overhead
c. Total manufacturing costs
d. Cost of goods manufactured (considering WIP inventory balances)
e. Cost of goods sold (considering FG inventory balances)
f. Gross margin
You may wish to create the standard schedules (cost of goods manufactured,
cost of goods sold, income statement) to present this information, however it is
not required.
Question 2
Chapter 3 - Cost Behaviour
Oz Manufacturing Company
The records of Oz Manufacturing Company provide the following information.
January February March
Sales in units 8,000 12,000 14,000
Per unit Per unit Per unit

Sales revenues 600,000 75.00 900,000 75.00 1,050,000 75.00
Less: Cost of goods sold 272,000 34.00 408,000 34.00 476,000 34.00
Gross margin 328,000 492,000 574,000
Less: Operating Expenses

Advertising expense 40,000 5.00 40,000 3.33 40,000 2.86
Insurance expense 6,000 0.75 6,000 0.50 6,000 0.43
Maintenance and repairs 26,000 3.25 36,000 3.00 41,000 2.93
Rent expense 30,000 3.75 33,000 2.75 34,500 2.46
Salaries 47,000 5.88 50,500 4.21 52,250 3.73
Royalty payments 10,000 1.25 15,000 1.25 17,500 1.25
Depreciation 60,000 7.50 60,000 5.00 60,000 4.29
Total Operating expenses 219,000 240,500 251,250
Net income 109,000 251,500 322,750
REQUIRED:
1. Identify each cost (including cost of goods sold) as fixed, variable or mixed.
2. For mixed costs, use the high-low method to determine the fixed and variable
portions.
3. For mixed costs, state the cost formula.
4. Recast the income statement into the contribution format of the month of
February.
Question 3
Chapter 4 - Manufacturing Transactions
Pete’s Pocket Protectors
Pete’s Pocket Protectors manufactures fashion accessories for professional

engineers. Each product is treated as a separate job, and will be manufactured
in several production runs through the year. Pete’s uses a job-order costing
system.
Overhead in the manufacturing department is allocated to jobs based on

machine hours. In the coming year, the company estimates total overhead for
manufacturing will be $80,000 and that 100,000 machine hours will be used.
The following transactions occurred during the year.
a. Raw materials purchased (on credit) 80,000

b. Raw materials issued to production:
Direct materials 85,000
Indirect materials 5,000
c. Payroll costs for the year:
Direct labour 120,000
Indirect labour 30,000
Administration and selling 75,000
d. Manufacturing department utilities 12,000
e. Annual amortization (depreciation)
Manufacturing 25,000
Administration and selling 5,000
f. Prepaid insurance expired in the year:
Manufacturing 4,000
Administration and selling 800
g Shipping expenses 40,000
h. Other overhead costs incurred (paid cash) 17,000
i. Manufacturing overhead was applied. 120,000 actual machine hours were used in
the year.
j. Cost of accessories completed during the year. 310,000
k. Accessories were sold to customers. (on credit)
Sales price 450,000
Cost of the accessories 300,000
l. Payments received from customers 445,000
m. Payments made for credit purchases 85,000
Other information: Balances in selected accounts at the beginning of the year:
Accounts Payable 10,000
Raw Material inventory 25,000
Work in process inventory 30,000
Finished goods inventory 45,000
REQUIRED:
1. Calculate the predetermined overhead rate.
2. Prepare journal entries for each of the above transactions. Open T accounts
for Raw Materials, Work in Process, Finished Goods, and Manufacturing
Overhead. Post the transactions to the T accounts.
3. Determine if manufacturing overhead is over or under applied. Record the

entry to transfer the amount to cost of goods sold in the T accounts.
4. Job # 42 completed in the year required $8,000 in direct materials, $ 6,000 in

direct labour, and 7,000 hours to complete. Determine the retail price for the job
if Pete uses and 80% markup on total costs.
Question 4
Chapter 8 - Cost Volume Profit Analysis
Samantha’s Shoe Horns
Samantha’s Shoe Horns sells hand carved shoe horns. The following cost and
revenue data represents a year of business.
Sales in Units 20,000 Per Unit %
Sales $320,000
Variable Expenses 240,000
Contribution Margin $ 80,000
Fixed Expenses 60,000
Net Income $ 20,000
REQUIRED:
Part 1
1. Calculate the annual break-even point in dollar sales, and in unit sales.
2. Calculate the margin of safety (in dollars and as a % of sales).
Part 2
Refer to the original data. Samantha is considering an increase in advertising of
$15,000. She expects that this will lead to a 10% increase in sales. Would you
advise Samantha to make this change?
Part 3
Refer to the original data. Samantha is considering automating her sales
process. The variable costs would be reduced by $2 per shoe horn, and there
would be an increase of 45,000 in fixed expenses. The level of sales will remain
the same.
1. Determine the new contribution margin per unit.

2. Using the incremental approach, would you advise Samantha to make this
change?
Part 4
Refer to Part 3. Samantha also assumes that the automated process will reduce
lost orders, and sales will increase by 10%. Should she make the change?

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ACCT 225

Any Manufacturing Company

REQUIRED: Compute the following based on the information provided above

The records of Oz Manufacturing Company provide the following information.

January February March

Sales in units 8,000 12,000 14,000

Per unit Per unit Per unit

Less: Operating Expenses

3. For mixed costs, state the cost formula.

Pete’s Pocket Protectors

Pete’s Pocket Protectors manufactures fashion accessories for professional

Overhead in the manufacturing department is allocated to jobs based on

The following transactions occurred during the year.

a. Raw materials purchased (on credit) 80,000

3. Determine if manufacturing overhead is over or under applied. Record the

4. Job # 42 completed in the year required $8,000 in direct materials, $ 6,000 in

Samantha’s Shoe Horns

Sales in Units 20,000 Per Unit %

1. Determine the new contribution margin per unit.

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