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Sample Test 2 - Copyright © Rowland Atiase 2009 Sample...

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Unformatted text preview: Copyright © Rowland Atiase, 2009 Sample Problems and Solutions II .1 . Copyright © Rowland Atiase= 2009 [\J Part 1 Theory Questions from Class Notes —— Especially Chapters 6, 7, 8, 22 and ABC material. Examples: “/‘W Question: Q’I‘Lrugr False? Responsibility Accounting suggests that there should be no responsibility without control. Answer: True. Question: True [email protected] While there is never an Efficiency Fell fl El/ - WM g} 9W Variance for VOH, there is never a Production Volume Variance for FOH. Answer: False. The opposite is true. Question: What is Total OH Efficiency Variance? Via-5st ..: t/ Answer: VOH Efficiency Variance. Question: What is total OH Production Volume Variance? filler-r remix Answer: FOH Production Volume Variance. Question: What is Total OH Budget Variance? WM (321/, rat») ,7]. For! as . (7/01“! 4 Iron) a 9/ Answer: VOH & FOH Budget Vartance. " Part II Assigned Problems and Solutions to Chapters 7 Problems. Example 7~38 Direct Materials: (6) AQ Purchased DMPV w AQ Purchased X AP u AQ Purchased X SP (11 "3'" Copyright © Rowland Atiase, 2009 3 AQ Purchased X SP m AQ Purchased x AP ~ DMPV(U) = 68250 — 3250 W 65000 AQ Purchased fl 65000/5 W 13000 lbs (7) AP = AQ Purchased x AP/AQ Purchased = 68250/13000 = $5.25/lb (4) SQ Allowed m 4000 X 3 Has 2 12000 lbs (5) DMEV : 25000 = SP (AQ _ SQ) (AQ - SQ) 2 2500/5 m 500 DM‘EV is Unfav, AQ = SQ 9 500 = 12,000 + 500 9 12,500 lbs Direct Labor: (1) SH Ailowed = 4000 X 0.5 ""—"* 2000 HRS (2) DLEV : 2000 En AH < SH 9 SR (SH .- AH) (SH - AH) w DLEV/SR : 2000/20 = :00 AH = SH 9100 m 2000 — :00 9190010123 (3) DLRV x 19001} n AR > SR. I AH (AR ~ SR) AR~SR m DLRV/AH AR : SR + DLRV/AH m 20 + 1900/1900 = $21/HR Alternative Solution for DL AHXAR AHXSR SHXSR (1900 x $21) (1900 x $20*) (4000*x0.5*x$20*) $39,900 $38,000 $40,000 Q RV = $19000* 3 EV = $2000F* Q * 2) Given Copyright © Rowland Atiase, 2009 4 Part III HO # 9 Effects of Choice of Denominator (SIA, adapted) In setting up the annual factory budget at the Talisman Company, the production manager and the sales manager spent much time discussing the volume level. As a result, the factory manager prepared two estimates of factory overhead: VOLUME TOTAL FACTORY OVERHEAD 150,000 units $540,000 l70,000 units $564,000 At the last moment however, the sales manager obtained another order, which prompter management to set the predetermined overhead rate per unit at the 180,000 unit lever; this rate was applied during the year. The company writes off overhead variances to cost of goods sold. During the latter part of the year sales dropped unexpectedly. Production was reduced immediately; however, 60,000 units of the annual production remained unsold in finished—goods inventory. Actual overhead amounted to $560,000. When the overhead variances were being analyzed, an unfavorable denominator variance of $40,000 was determined; HINT: Denominator Variance = Production Volume Variance REQUIRED: For each of the following multiple choice questions, select the appropriate answer and enter its identification letter in the space provided (Note: Umunfavorable, Fflfavorable) l. The total overhead will he a. $30,000 under applied e. $48,000 under applied h. $30,000 over applied ' ll. $48,000 over applied 0. $8,000 under applied g. $40,000 under applied d. $8,000 over applied h. $40,000 over applied 2. The total overhead budget variance equals - a. $40,000U e. $48,000U b. $40,000F f. $48,000F $8,000U g. $3,600F d. $8,000}: 11. $3,600U Copyright © Rowland Atiase, 2009 5 3. The effect on the balance sheet, had the company used the actual overhead rate (as discovered at year end), throughout the year, instead of the predetermined rate will be a. An increase in the ending inventory balance by $12,000 b. An decrease in the ending inventory balance by $12,000 c. An increase in the ending inventory balance by $9,000 d. An decrease in the ending inventory balance by $9,000 e. An increase in the ending inventory balance by $30,000 f. An decrease in the ending inventory balance by $30,000 g. An increase in the ending inventory baiance by $18,000 An decrease in the ending inventory balance by $18,000 4. The effect on the annual income statement, had the company used the actual overhead rate (as discovered at year end), throughout the year, instead of the predetermined rate will be /a. ‘ An increase in net income by $18,000 ". An decrease in net income by $18,000 , An increase in net income by $ 12,000 An decrease in net income by $12,000 An increase in net income by $9,000 An decrease in net income by $9,000 An increase in net income by $30,000 An decrease in net income by $30,000 Freer-events Copyright © Rowland Atiase, 2009 6 Solutions VOH Rate = $664,000 ~ 540,000) / (170,000 m 150,000) = $1.20/unit FOH Budget TOH m FOH + VOH * (X) Fixed Overhead Budget m 564,000 —~ (170,000 X 81.20) = $360,000 per annurn FOH Rate set at the 180,000uunit level => D : 180,000 units/year FOH Rate (F) 3 FOR Budget / D = $360,000/ 180,000 = $2.00/unit VOH Rate = $1.20/unit FOH Rate ~—~ $2.00/unit Total OH Ratem $3.20/unit Actual Production Volume (V p) Denominator Var. (DV) W $40,000 U => Actual Production Volume (VP) was (DV/F) $ ($40,000/ $2.00 per unit) 3 20,000 units below Denominator Activity Level (D). Therefore, Actual Production Volume m 180,000 ~ 20,000 = 160,000 units. Actual Total Overhead Flex Budget Output Achieved Applied V = 160,000 X $1.20 W $192,000 V 2 160,000 x $1.20 2 $192,500 : $360,000 F = 160,000 x $2.00 = $320,000 $560,000 Total: $552,000 Total = $512,000 Total Overhead Bud et Var. m 8 000 U Denominator Var. E 40 00011 Under Applied Overhead = $48,000 Answer to Question #1 » Total Overhead is $48,000 under applied Answer to Question #2 —— Total Overhead Budget Variance is $8,000U Copyright © Rowlané Attase, 2009 7 Answer to Question #3 Actual OH Rate = $560,000 / 160,000 units = $3.50/unlt Prod. OH Rate W = $3.20/unit Difference (under statement in unit cost of El) $0.30/unit Therefore the effect of using the Actual OH Rate (as opposed to using the Pred. OH Rate) would increase the Ending Inventory on the Balance Sheet by 60,000 units x $0.30 = $18,000. Answer to Question #4 Since Ending Inventory would be higher by $18,000, the Net Income in the Income Statement would also be higher by $18,000. Absorption Costing Income Statement Sales xxxx Cost of Goods sold: Beginning Inventory xx Cost of goods mfg 3.; Total Available for sale xx Less:Ending Inventory 3% T Cost of Good Sold xxxx l Gross Profit xxxx 1‘ Net Income xxxx Copyright © Rowland Atlase, 2009 Alternative Solution 1 Rate used Pred. OH Rate Actual OH Rate OH component of $3.20/unit $3.50/unit Cost of Goods Sold (100,000 units) $320,000 $350,000 Underapplied OH 48,000 - Total Charges to Income $3 68,000 $350,000 \ / Difference $l8,000 Alternative Solution 2 If the company prorates all the under (0) applied OH to cost of Goods Sold and Ending Inventory (FG) by the theoretically preferred method, that would convert the standard costs to actual costs and Ending Inventory would have" been higher by its prorated share of U(()) applied OH = 60,000/ 160,000 x $48,000 5 $18,000 Therefore NI would have been higher by $18,000 Alternative Solution 3 Amount of U(O) applied OH currently charged to COGS = $48,000 Amount of 11(0) applied OH that would have been charged to COGS under proration . 3100,000/160900 X $48,000 3 $30,000 Decrease in COGS $18,000 Therefore increase in NI $18,000 Part IV ABC Problems Assigned Problems. and Solutions to 526 and 5-38. 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