MODEL ((B))
Islamic university – Gaza
Final exam
2010/2011
College of commerce
Accounting department
Cost accounting 1
Sunday 16/01/2011
2 hours
Name:
……………………………………………………………………………………………………………………………….
Id.:……………………………….………………
Question 1 (10 marks): Identify whether of the following statements is true
or false.
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Statement
1 Managers always require the information in an accounting system to be
presented in the same format.
2 The balance sheet, income statement, and statement of cash flows are used
for financial accounting, but not for management accounting.
3 Products, services, departments, and customers may be cost objects.
4 Costs are accounted for in two basic stages: assignment followed by
accumulation
5 A cost function is a mathematical description of how a cost changes with
changes in the level of an activity relating to that cost.
6 All cost functions are linear.
7 The longer the time horizon, the more likely that a cost will have a fixed
cost behavior
8 Raw materials that can be traced to a cost object are an example of an
indirect cost.
9 Fixed and variable costs may be allocated to a cost object.
1 Quality control costs may be a direct cost of the Manufacturing
0 Department, but an indirect cost of an individual job.
Question 2(10marks) : choose the best answer.
1
A
B
Which of the following descriptors refers to management accounting
information?
It is verifiable and reliable.
It is driven by rules.
1
C
D
It is prepared for shareholders.
It provides reasonable and timely estimates.
2
A
B
C
D
Which of the following statements refers to management accounting
information?
There are no regulations governing the reports.
The reports are generally delayed and historical.
The audience tends to be stockholders, creditors, and tax authorities.
It primarily measures and records business transactions.
3
A
B
C
D
In order to make decisions, managers need to know:
actual costs
budgeted costs
Both costs
neither cost
4
A
B
C
D
A cost system determines the cost of a cost object by:
accumulating and then assigning costs
accumulating costs
assigning and then accumulating costs
assigning costs
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Product cost for reimbursement under government contracts may include
all costs EXCEPT:
marketing costs
design costs
production costs
research and development costs
A
B
C
D
6
A
B
C
D
Which of the following statements related to assumptions about
estimating linear cost functions is FALSE?
Variations in a single cost driver explain variations in total costs.
A cost object is anything for which a separate measurement of costs is
desired.
A linear function approximates cost behavior within the relevant range of
the cost driver.
A high correlation between two variables ensures that a cause-and-effect
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relationship exists.
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A
B
C
D
Job costing information is used:
to develop strategies
to make pricing decisions
for external financial reporting
All of these answers are correct.
8
A
B
C
D
Each indirect-cost pool of a manufacturing firm:
utilizes a separate cost-allocation rate
is a subset of total indirect costs
relates to one cost object
All of these answers are correct.
9
A
B
An updated costing system should:
be installed even if the costs outweigh the additional benefits
be tailored to fit the underlying operations rather than the current cost
system
focus specifically on the costing needs of the CFO
provide all information for management decision needs
C
D
10 Which of the following cost(s) are inventoried when using absorption
costing?
A direct manufacturing costs
B Variable marketing costs
C fixed manufacturing costs
D Both A and C are correct.
Question 3 (8 marks): answer the following questions
1. MMM Hospital uses an indirect job-costing system for all patients. In June, the
budgeted nursing care charges for each department and budgeted allocation
bases of nursing days are as follows:
June
Critical CareSpecial Care General Care
Budgeted nursing costs$2,480,000$1,644,000$1,280,400
Budgeted nursing days 5,000
4,000
8,000
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Patient Ms. SSS spent six days in critical care and eight days in special care during
June. The remainder of the 30-day month was spent in the general care area.
Required:
a. Determine the budgeted overhead rate for each department.
b. What are the total charges to Ms. SSS if she was in the facility the entire
month?
2. A local attorney employs ten full-time professionals. The budgeted
compensation per employee is $80,000. The maximum billable hours for each
client are 400. Clients always receive their full amount of time. All professional
labor costs are included in a single direct-cost category and are traced to jobs on
a per-hour basis. Any other costs are included in a single indirect-cost pool,
allocated according to professional labor-hours. Budgeted indirect costs for the
year are $400,000 and the firm had 20 clients.
Required:
a. What is the direct-labor-cost rate per hour?
b. What is the indirect-cost rate per hour?
3. For each item below indicate the source documents that would most likely
authorize the journal entry in a job-costing system.
ITEM
ANSWER
0 Example (indirect manufacturing labor)
labor time card
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1
2
3
4
direct materials purchased
direct materials used
direct manufacturing labor
cost of goods sold
QUESTION 4(8 marks): answer the following questions
1. MMM Corporation applies overhead based upon machine-hours. Budgeted
factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual
factory overhead was $287,920 and actual machine-hours were 19,050. Before
disposition of under/oeverallocated overhead, the cost of goods sold was
$560,000 and ending inventories were as follows:
Direct materials
WIP
Finished goods
Total
$ 60,000
190,000
250,000
$500,000
Required:
a. Determine the budgeted factory overhead rate per machine-hour.
b. Compute the over/ oeverallocated overhead.
c. Prepare the journal entry to dispose of the variance using the write-off to cost
of goods sold approach.
d. Prepare the journal entry to dispose of the variance using the proration
approach
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2. Match each of the following items with one or more of the denominator-level
capacity concepts
ITEM
ANSWER
0 Example (Ideal goal of capacity utilization)
Theoretical
capacity
1 Reduces theoretical capacity by considering unavoidable
operating interruptions
2 Producing at full efficiency all the time
3 Measures capacity levels in terms of demand
4 Does not allow for plant maintenance
QUESTION 5(11 marks):
1. For each report listed below, identify whether the major purpose of the
report is for (1) routine internal reporting, (2) nonroutine internal reporting,
or for (3) external reporting to investors and other outside parties.
REPORT
ANSWER
0 Example
3
1 study detailing sale information of the top-ten selling
products
2 weekly report of total sales generated by each store in the
metropolitan area
3 annual Report sent to shareholders
4 monthly report comparing budgeted sales by store to
actual sales
2.Classify each cost item of Ripon Printers into one of the business functions
of the value chain, either (1) R&D, (2) design, (3) production, (4) marketing,
(5) distribution, or (6) customer service.
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ITEM
ANSWER
0 Example
3
6
1
2
3
4
cost of customer order forms
cost of paper used in manufacture of books
cost of paper used in packing cartons to ship books
cost of paper used in display at national trade show
3.At the Jordan Company, the cost of the personnel department has always
been charged to production departments based upon number of employees.
Recently, opinions gathered from the department managers indicate that the
number of new hires might be a better predictor of personnel costs. Total
personnel department costs are $160,000
Department
A
B
C
Number of employees 30 270 100
The number of new hires 8 12
5
#
1
2
3
QUESTION
If the number of employees is considered the cost driver,
what amount of personnel costs will be allocated to
Department A?
If the number of new hires is considered the cost driver,
what amount of personnel costs will be allocated to
Department A?
Which cost estimation method is being used by Jordan
Company?
ANSWER
QUESTION 6 (9 marks): answer the following questions
A. Discuss the reasons a consulting firm might use a normal costing system
rather than an actual costing system.
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B. What might be some reasons for the firm to change from a one-pool to a
multiple-pool allocation concept?
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C. are three possible ways to dispose of underallocated or overallocated
overhead costs at the end of a fiscal year? Briefly comment on the
theoretical correctness or incorrectness of each method.
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QUESTION 7 (6 marks): answer the following questions
The following data are available for MMM Company for the year ended
September 30, 2010.
Sales:
24,000 units at $50 each
Expected and actual production:
30,000 units
Manufacturing costs incurred:
Variable:
$525,000
Fixed:
$372,000
Nonmanufacturing costs incurred:
Variable:
$144,800
Fixed:
$77,400
Beginning inventories:
none
Required:
a. Determine operating income using the variable-costing approach.
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b. Determine operating income using the absorption-costing approach.
c. Explain why operating income is not the same under the two approaches.
With best wishes
Mohammad Marwan Al Ashi
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