BSCV Cost Accounting 1 3 Final
BSCV Cost Accounting 1 3 Final
BSCV Cost Accounting 1 3 Final
I. Theories
5. The cost estimation method that gives the most mathematically precise cost prediction
equation is
A. the high-low method C. the scatter-diagram method
B. the contribution margin method D. regression analysis
6. Regression analysis is better than the high-low method of cost estimation because regression
analysis:
A. is more mathematical. C. fits its data into a mathematical equation.
B. uses all the data points, not just two. D. takes more time to do.
7. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e?
A. The amount of the dependent variable, the cost to be estimated.
B. The regression error, which is the distance between the regression line and the data point.
C. The value for the independent variable, the cost driver for the cost to be estimated; there
may be one or more cost drivers.
D. The unit variable cost, also called the coefficient of the independent variable.
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D. could be severely affected by outliers.
9. The closeness of the relationship between the cost and the activity is called
A. correlation C. spurious
B. regression analysis D. manufacturing overhead
10. Advantages of the method of least squares over the high-low method include all of the following
except
A. a statistical method is used to mathematically derive the cost function
B. only two points are used to develop the cost function
C. the squared differences between actual observations and the line (cost function) are
minimized
D. all the observations have an effect on the cost function
11. The process of assigning overhead costs to the jobs that are worked on is commonly called:
A. service department cost allocation.
B. overhead cost distribution.
C. overhead application.
D. transfer costing.
E. overhead cost apportionment.
12. Which of the following is the correct method to calculate a predetermined overhead rate?
A. Budgeted total manufacturing cost ÷ budgeted amount of cost driver.
B. Budgeted overhead cost ÷ budgeted amount of cost driver.
C. Budgeted amount of cost driver ÷ budgeted overhead cost.
D. Actual overhead cost ÷ budgeted amount of cost driver.
E. Actual overhead cost ÷ actual amount of cost driver.
13. Metro Corporation uses a predetermined overhead rate of $20 per machine hour. In
deriving this figure, the company's accountant used:
A. a denominator of budgeted machine hours for the current accounting period.
B. a denominator of actual machine hours for the current accounting period.
C. a denominator of actual machine hours for the previous accounting period.
D. a numerator of budgeted machine hours for the current accounting period.
E. a numerator of actual machine hours for the current accounting period.
14. The left side of the Manufacturing Overhead account is used to accumulate:
A. actual manufacturing overhead costs incurred throughout the accounting period.
B. overhead applied to Work-in-Process Inventory.
C. underapplied overhead.
D. predetermined overhead.
E. overapplied overhead.
15. Throughout the accounting period, the credit side of the Manufacturing Overhead account is
used to accumulate:
A. actual manufacturing overhead costs.
B. overhead applied to Work-in-Process Inventory.
C. overapplied overhead.
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D. underapplied overhead.
E. predetermined overhead.
17. Sanger Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at
year-end. On the basis of this information, one can conclude that:
A. budgeted overhead exceeded actual overhead.
B. budgeted overhead exceeded applied overhead.
C. budgeted overhead was less than applied overhead.
D. actual overhead exceeded applied overhead.
E. actual overhead was less than applied overhead.
18. Howard Manufacturing's overhead at year-end was underapplied by $5,800, a small amount
given the firm's size. The year-end journal entry to record this amount would include:
A. a debit to Cost of Goods Sold.
B. a debit to Manufacturing Overhead.
C. a debit to Work-in-Process Inventory.
D. a credit to Cost of Goods Sold.
E. a credit to Work-in-Process Inventory.
19. Fog Company, which uses labor hours to apply overhead to manufacturing, may have
increased amounts of underapplied overhead at month-end if:
A. suppliers of direct materials have an across-the-board price increase.
B. an accountant failed to record the period's charges for plant maintenance and security.
C. employees are hit hard with a widespread outbreak of the flu.
D. direct laborers are granted a wage increase.
E. outlays for advertising expenditures are increased.
20. The estimates used to calculate the predetermined overhead rate will virtually always:
A. prove to be correct.
B. result in a year-end balance of zero in the Manufacturing Overhead account.
C. result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in
amount.
D. result in underapplied overhead that is closed to Cost of Goods Sold if it is immaterial in
amount.
E. result in either underapplied or overapplied overhead that is closed to Cost of Goods
Sold if it is immaterial in amount.
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C. charged or credited to a special loss account.
D. prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of
Goods Sold.
E. ignored because there is no effect on the Cash account.
23. Which of the following statement(s) is (are) correct regarding overhead application?
I. Actual overhead rates result in more accurate but less timely information.
II. Predetermined overhead rates result in less accurate but more timely information.
III. Predetermined overhead rates tend to smooth product costs over time.
A. III only.
B. I and II.
C. I and III.
D. II and III.
E. I, II, and III.
25. Which of the following statements about the use of direct labor as a cost driver is false?
A. Direct labor is the most commonly used cost driver when calculating a predetermined
overhead rate.
B. Direct labor is gaining in importance in many manufacturing applications with respect
to being a significant cost driver.
C. Direct labor is an inappropriate cost driver to use if a company is highly automated.
D. If direct labor is a good cost driver, increases in direct labor are matched with increases
in manufacturing overhead.
E. Companies can use either direct labor cost or direct labor hours as a cost driver.
26. If the amount of effort and attention to products varies substantially throughout a firm's
various manufacturing operations, the firm might consider the use of:
A. a plant-wide overhead rate.
B. departmental overhead rates.
C. actual overhead rates instead of predetermined overhead rates.
D. direct labor hours to determine the overhead rate.
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E. machine hours to determine the overhead rate.
27. At the Nassau Advertising Agency, partner and staff compensation cost is a key driver of
agency overhead. In light of this fact, which of the following is the correct expression to
determine the amount of overhead applied to a particular client job?
A. (Budgeted overhead ÷ budgeted compensation) x budgeted compensation cost on the
job.
B. (Budgeted overhead ÷ budgeted compensation) x actual compensation cost on the job.
C. (Budgeted compensation ÷ budgeted overhead) x budgeted compensation cost on the
job.
D. (Budgeted compensation ÷ budgeted overhead) x actual compensation cost on the job.
E. None of the above, because service providers do not apply overhead to jobs.
28. In comparison with firms that use plantwide overhead rates and departmental overhead rates,
companies that have adopted activity-based costing will typically use:
A. more cost pools and more cost drivers.
B. more cost pools and fewer cost drivers.
C. fewer cost pools and more cost drivers.
D. fewer cost pools and fewer cost drivers.
E. only one cost pool and one cost driver.
29. The cost estimation method that gives the most mathematically precise cost prediction equation
is
a. the high-low method.
b. the scatter-diagram method.
c. the contribution margin method.
d. regression analysis.
33. A seasonal business that sets selling prices at 20% above average cost for the preceding month
will
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a. be better off if it closed down during the off-season.
b. charge higher prices in the off-season than in the busy season.
c. always charge higher prices than its competitors.
d. make a consistent return on sales of 20%.
35. Cost allocation is the assignment of ______ costs to one or more products using a reasonable basis.
direct indirect
a. yes yes
b. yes no
c. no no
d. no yes
36. An actual cost system differs from a normal cost system in that an actual cost system
a. assigns overhead as it occurs during the manufacturing cycle.
b. assigns overhead at the end of the manufacturing process.
c. does not assign overhead at all.
d. does not use an Overhead Control account.
a. yes no yes
b. yes yes yes
c. yes yes no
d. no yes no
a. yes yes
b. yes no
c. no yes
d. no no
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40. Which of the following is not a reason to use predetermined overhead rates?
a. to overcome the problems of assigning overhead to diverse types of products
b. to compensate for fluctuations in monthly overhead costs
c. to provide a means for assigning overhead during the period rather than at the end of
the period
d. to smooth out the amount of overhead cost assigned to products when monthly
production activity differs
41. When a manufacturing company has a highly automated manufacturing plant producing many
different products, which of the following is the more appropriate basis of applying manufacturing
overhead costs to work in process?
a. direct labor hours
b. direct labor dollars
c. machine hours
d. cost of materials used
a. yes no
b. yes yes
c. no no
d. no yes
a. no no
b. no yes
c. yes yes
d. yes no
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a. yes yes
b. no no
c. no yes
d. yes no
48. Weaknesses of the high-low method include all of the following except
a. only two observations are used to develop the cost function.
b. the high and low activity levels may not be representative.
c. the method does not detect if the cost behavior is nonlinear.
d. the mathematical calculations are relatively complex.
49. If there is no "a" value in a linear cost equation, this is an indication that the cost is
a. fixed.
b. mixed.
c. variable.
d. either fixed or mixed.
50. An outlier is
a. something that happens outside the organization that does not affect production.
b. always used in analyzing a mixed cost.
c. something that happens inside the organization that does not affect production.
d. never used in analyzing a mixed cost.
52. If a company used two overhead accounts, the one that would receive the most debits
would be
a. actual overhead.
b. applied overhead.
c. both would receive an equal number of debits.
d. impossible to determine without additional information.
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c. yes no no
d. no no yes
54. All other things being equal, if actual cost per unit is greater than budgeted cost per unit,
variable overhead will be
a. overapplied.
b. the same as fixed overhead.
c. underapplied.
d. applied to Finished Goods.
56. Actual overhead exceeds applied overhead and the amount is immaterial. Which of the
following will be true? Upon closing,
Overhead is Cost of Goods Sold will
a. underapplied increase
b. overapplied decrease
c. overapplied increase
d. underapplied decrease
57. If actual overhead is less than applied overhead, which of the following will be true? Upon closing,
Overhead is Cost of Goods Sold is
a. underapplied credited
b. underapplied debited
c. overapplied debited
d. overapplied credited
58. The estimated maximum potential activity for a specified time is:
a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity
59. The measure of activity that allows for routine variations in manufacturing activity is:
a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity
60. The measure of production that considers historical and estimated future production levels and
cyclical fluctuations is referred to as:
a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity
61. A short-run measure of activity that represents a firm’s anticipated activity level for an upcoming
period based upon expected demand is referred to as:
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a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity
62. An item or event that has a cause-effect relationship with the incurrence of a variable cost is
called a
a. mixed cost.
b. predictor.
c. direct cost.
d. cost driver.
True or False
Write T if the statement is true otherwise, Write F.
1. In an actual cost system, factory overhead is assigned directly to products and services.
2. In a normal cost system, factory overhead is assigned directly to products and services.
3. In a normal cost system, factory overhead is assigned to an overhead control account and then
allocated to products and services.
4. In an actual cost system, factory overhead is assigned to an overhead control account and then
allocated to products and services.
5. A debit to the factory overhead account represents actual overhead costs.
6. A debit to the factory overhead account represents applied overhead costs.
7. A credit to the factory overhead account represents actual overhead costs.
8. A credit to the factory overhead account represents applied overhead costs.
9. If actual overhead exceeds applied overhead, factory overhead is said to be overapplied.
10. If actual overhead exceeds applied overhead, factory overhead is said to be underapplied.
11. If overapplied factory overhead is immaterial, the account is closed by a credit to Cost of Goods
Sold.
12. If overapplied factory overhead is material, the account is closed by a credit to Cost of Goods Sold.
13. If overapplied factory overhead is immaterial, the account is closed by a debit to Cost of Goods Sold.
14. If underapplied factory overhead is immaterial, the account is closed by a debit to Cost of Goods
Sold.
15. If underapplied factory overhead is immaterial, the account is closed by a credit to Cost of Goods
Sold.
16. If underapplied factory overhead is material, it is prorated among Work in Process Inventory,
Finished Goods Inventory, and Cost of Goods Sold.
17. The estimated maximum potential activity for a specified time is known as theoretical capacity.
18. Practical capacity does not adjust for routine downtime in a production process.
19. Normal capacity considers present and future production levels and cyclical fluctuations.
20. Expected capacity is a long-run measure of activity.
21. Practical capacity is the capacity that can be achieved during normal working hours.
22. The regression equation y = a+ bX assumes that the function is curvilinear in nature.
23. The regression equation y = a+ bX assumes that the function is linear in nature.
24. The slope of a regression line is determined by dividing the change in activity level by the change in
total cost.
25. The slope of a regression line is determined by dividing the change in total cost by the change in
activity level.
26. The high-low method excludes outliers from the calculation of the slope of a regression line.
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27. When using the high-low method, fixed costs are computed before the variable component is
computed.
28. When using the high-low method, the variable component is computed before the fixed component
is.
29. A flexible budget is a planning document that presents expected variable and fixed overhead costs
at different activity levels.
30. Plantwide overhead rates provide a more accurate computation of factory overhead than
departmental overhead rates
31. Plantwide overhead rates provide a less accurate computation of factory overhead than
departmental overhead rates
Problems
Problem I
Birmingham Machine Works had the following data regarding monthly power costs:
1. Assume that management expects 500 machine hours in October. Using the high-low method,
calculate October’s power cost using machine hours as the basis for prediction.
Problem II
2. Walton Corporation wishes to develop a single predetermined overhead rate. The
company's expected annual fixed overhead is P340,000 and its variable overhead cost per
machine hour is P 2. The company's relevant range is from 200,000 to 600,000 machine
hours. Walton expects to operate at 425,000 machine hours for the coming year. The plant's
theoretical capacity is 850,000. The predetermined overhead rate per machine hour should
be?
Problem III
Burke Corporation has the following data for use of its machinery
Problem IV
The records of Zenith Corporation revealed the following data for the current year.
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5. Assume that Zenith has underapplied overhead of P37,200 and that this amount is material,
what is the balance of finished goods after closing the underapplied overhead?
6. Refer to #5, how much of the underapplied overhead is attributable to work in process
account?
7. Assume that Zenith has underapplied overhead of P 10,000 and that this amount is
immaterial. What is the balance in Cost of Goods Sold after the underapplied overhead is
closed?
8. Refer to #7, what is the balance of finished goods after the underapplied overhead is closed?
9. Assume that Zenith has overapplied overhead of P25,000 and that this amount is material.
What is the balance in Cost of Goods Sold after the overapplied overhead is closed?
10. Refer to #9, how much of the overapplied overhead is attributable to finished goods?
Problem V
Hume Corporation has the following data for the current year:
Any amount of under (over-)applied overhead is considered material. Sales revenue for the current
year amounted to P 390,000.
11. What is the amount of under- or overapplied overhead? (indicate wheter under- or
overapplied)
12. What is the balance of work in process after disposing the under- or overapplied overhead?
13. What is the adjusted gross profit for the current year?
Problem VI
Leon Corporation has the following data relating to its power usage for the first six months of the current
year.
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May 450 380
June 725 484
Problem VII
Action Trainers provides a personalized training program that is popular with many companies. The
number of programs offered over the last five months, and the costs of offering these programs are
as follows:
Problem VIII
18. Nite Corporation has developed the following flexible budget formula for annual indirect
labor costs:
Total Cost = P480,000 + P5.00 per machine hour
Operating budgets for the current month are based upon 20,000 machine hours of planned
machine time. Indirect labor costs included in this planning budget are?
Problem IX
Barney Company applies manufacturing overhead by using a predetermined rate of 200% of direct
labor cost. The data that follow pertain to job no. 764:
19. If Barney adds a 40% markup on total cost to generate a profit, how much is the gross profit
on job no. 764?
Problem X
20. Media, Inc., an advertising agency, applies overhead to jobs on the basis of direct
professional labor hours. Overhead was estimated to be P150,000, direct professional labor
hours were estimated to be 15,000, and direct professional labor cost was projected to be
P225,000. During the year, Media incurred actual overhead costs of P146,000, actual direct
professional labor hours of 14,500, and actual direct labor cost of P222,000. By year-end,
the firm's overhead was over or underapplied by?
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Problem XI
21. Maher, Inc., applies manufacturing overhead at the rate of P60 per machine hour. Budgeted
machine hours for the current period were anticipated to be 80,000; however, a lengthy
strike resulted in actual machine hours being worked of only 65,000. Budgeted and actual
manufacturing overhead figures for the year were P4,800,000 and P4,180,000, respectively.
On the basis of this information, the company's year-end overhead was under- or
overapplied by?
Problem XII
Carlson charges manufacturing overhead to products by using a predetermined application rate,
computed on the basis of labor hours. The following data pertain to the current year:
Problem XIII
Brickman Corporation, which began operations on January 1 of the current year, reported the
following information:
Brickman applies manufacturing overhead to jobs on the basis of direct labor cost and adds
a 60% markup to the cost of completed production when finished goods are sold. On
December 31, job no. 18 was the only job that remained in production. That job had direct-
material and direct-labor charges of P16,500 and P36,000, respectively.
Problem XIV
Athens Corporation applies manufacturing overhead to products on the basis of machine hours.
The company's accountant estimated that overhead and machine hours would total
P800,000 and 50,000, respectively, for 2001. Actual costs incurred follow.
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Manufacturing overhead 816,000
Problem XV
Packard Products uses a job-costing system for its units, which pass from the Machining
Department, to the Assembly Department, to finished-goods inventory. The Machining
Department is heavily automated; in contrast, the Assembly Department performs a
number of manual-assembly activities. The following information relates to the Machining
Department for the year just ended:
The Machining Department data that follow pertain to job no. 243, the only job in
production at year-end.
30. Assuming the use of normal costing, calculate the predetermined overhead rate that is used in
the Machining Department.
31. Compute the cost of the Machining Department's year-end work-in-process inventory.
32. Determine whether overhead was under- or overapplied during the year in the Machining
Department.
33. How much overhead would have been charged to the Machining Department's Work-in-
Process account during the year?
Problem XVI
Kent Products uses a predetermined overhead application rate of P18 per labor hour. A review of
the company's accounting records revealed budgeted manufacturing overhead for the period of
P621,000, applied manufacturing overhead of P590,400, and overapplied overhead of P11,900.
Determine:
34. Kent's actual labor hours
35. Kent’s budgeted labor hours.
36. Kent’s actual manufacturing overhead.
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Problem XVII
A review of the records of Milgrim, Inc., a new company, disclosed the following year-end
information:
Manufacturing Overhead account: Contained debits of P872,000, which included
P20,000 of sales commissions.
Work-in-Process Inventory account: Contained charges for overhead of P875,000.
Cost-of-Goods-Sold account: Contained a year-end debit balance of P3,680,000. This
amount was computed prior to any year-end adjustment for under- or overapplied
overhead.
Problem XVIII
Fine & Associates is an interior decorating firm in Tucson. The following costs were incurred in a
project to redecorate the mayor's offices:
The firm's budget for the year included the following estimates:
Problem XIX
Genner Company earned P125,000 on sales of P750,000. It earned P225,000 on sales of
P1,000,000.
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46. Find the total fixed costs.
“Failure is the opportunity to begin again more intelligently.”
~ Henry Ford
ANSWER KEY
Multiple Choice
1. A 22. B 43. B
2. C 23. E 44. D
3. C 24. D 45. D
4. D 25. B 46. C
5. D 26. B 47. C
6. B 27. B 48. D
7. C 28. E 49. C
8. D 29. D 50. D
9. A 30. C 51. A
10. B 31. B 52. A
11. C 32. D 53. D
12. B 33. B 54. C
13. A 34. A 55. C
14. A 35. D 56. A
15. B 36. B 57. D
16. A 37. C 58. A
17. D 38. A 59. B
18. A 39. A 60. C
19. C 40. A 61. D
20. E 41. C 62. D
21. B 42. B
True-False
1. T 12. F 23. T
2. F 13. F 24. F
3. T 14. T 25. T
4. F 15. F 26. F
5. T 16. T 27. F
6. F 17. T 28. T
7. F 18. F 29. T
8. T 19. T 30. F
9. F 20. F 31. T
10. T 21. T
11. T 22. F
Problems
1. 700 17. 16,583.58 33. 8,160,000.
2. 2.80 18. 140,000 34. 32,800 hours
3. 0.98 19. 70,000 35. 34,500 hours
4. 138 20. 1,000 underapplied. 36. 578,500
5. 128,294 21. underapplied by 280,000. 37. 852,000
6. 8,456 22. Underapplied by 96,000. 38. 875,000
7. 143,650 23. 125% of direct labor cost 39. overapplied by 23,000
8. 115,000 24. 14,000 underapplied 40. 3,657,000
9. 123,267 25. 755,000 41. 43,750
10. 8,934 26. 97,500 42. 45,000 hours
11. 75,000 overapplied 27. 16 per machine hour 43. 123,500
12. 85,426 28. 8,000 overapplied 44. 25,750 overapplied
13. 180,318 29. 768,000 45. 60%
14. 63.50 + 0.58x 30. 16 per machine hour 46. 175,000
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15. 446.30 31. 107,200
16. 6,152.97 + 176.79x 32. overapplied by 185,000
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