ACC 213 – Exam 1 Review Session

1. Classify the following as either variable or fixed:

a. Direct Materials – variable
b. Direct Labor – variable
c. Manufacturing Overhead – indirect costs (Both variable and fixed)
d. Selling and admin costs - Both variable and fixed

Manufacturing costs = Product costs

Nonmanufacturing costs = Period costs
2. Assume that a manufacturing company incurred the following:

Direct labor $ 100,000

Advertising $ 45,000
Factory supervision $ 35,000
Sales commissions $ 15,000
Depreciation, office equipment $ 50,000
Indirect materials $ 5,000
Depreciation, factory building $ 20,000
Administrative office salaries $ 1,000
Utilities, factory $ 2,500
Direct materials $ 105,000
Insurance, factory $ 6,000
Property taxes, factory $ 7,000

a. Calculate the prime costs. (SKIP THIS PROBLEM – We cut this material out for Winter
2023 semester)

b. Calculate the conversion costs. (SKIP THIS PROBLEM – We cut this material out for
Winter 2023 semester)

c. Calculate the manufacturing costs (Understand the difference between Manufacturing

Overhead (MOH) and Manufacturing costs).
DM + DL + MOH = 100,000 + 15,000 + 5,000 + 20,000 + 2,500 + 6,000 + 7,000 = 175,500

175,500 + 105,000 = 280,500

d. Calculate the period costs. (Selling or administrative outside of factory)

Advertising $ 45,000

Sales commissions $ 15,000

Depreciation, office equipment $ 50,000
Administrative office salaries $ 1,000
Total = $111,000
 ACC 213 – Exam 1 Review Session
e. Calculate the variable costs.
DL 100,000 + DM 105,000
Indirect materials 5,000 + sales commission 15,000 Total = $225,000

Note: if it asks for variable manufacturing costs exclude sales and admin costs.

f. Calculate the total fixed selling and administrative cost.

Advertising 45,000 + Depreciation office equipment 50,000 + administration office salaries 1,000
= $96,000

g. Calculate the total fixed costs. (Period and product) everything except DL + sales
commissions + indirect materials + direct materials

35,000 + 20,000 + 6,000 + 7,000 + 2,500 + 45,000 + 50,000 + 1,000 = $164,000

3. What is the equation for contribution format income statement?

Sales – variables expenses = CM – fixed expenses = Net Operating Income

4. What is the equation for cost of goods sold?

Cost of goods sold = Beginning inventory + purchases – ending inventory

5. What does each letter stand for in the equation y = a + bX from chapter 1 to calculate mixed
costs?
Y = total mixed cost
a = total fixed cost
b = variable cost per unit
X = level of activity ( DLHs , DLS, MHs)

6. Within the relevant range, do the following costs vary or remain constant with changes in the
level of activity?
a. TOTAL variable cost = Varies (the more I produce , the higher it goes)
b. Variable cost per unit = Remains constant
c. TOTAL fixed cost = Remains constant.
d. Average fixed cost per unit = Varies ( decrease as level of activity increase)

7. Name the costs used for…

a. Assigning costs to cost objects - Direct and indirect costs
b. Predicting cost behavior – variable and fixed cost
c. Preparing financial statements – product and period costs
d. Decision making – relevant or irrelevant.
 ACC 213 – Exam 1 Review Session
8. Skolnick Corporation has provided the following information:

  Cost per Unit Cost per Period

Direct materials $ 5.60  
Direct labor $ 3.40  
Variable manufacturing overhead $ 2.20  
Fixed manufacturing overhead   $ 110,500
Sales commissions $ 1.20  
Variable administrative expense $ 0.80  
Fixed selling and administrative expense   $ 36,550

a. For financial reporting purposes, what is the total amount of product costs incurred to
make 8,500 units?
DM + DL + MOH (Indirect)

Direct materials $ 5.60

Direct labor $ 3.40
Variable manufacturing overhead $ 2.20
Variable manufacturing cost per unit $11.20

X 8,500 units $95,200

+ Fixed manufacturing overhead   $ 110,500 = $205,700

b. If 8,500 units are produced, what is the total amount of direct manufacturing cost
incurred?

DM + DL

Direct materials $ 5.60

Direct labor $ 3.40
Direct manufacturing cost per unit $ 9.00
Number of units produced x 8,500
Total direct manufacturing cost $76,500

c. If 8,500 units are produced, what is the total amount of indirect manufacturing costs
incurred?

Variable manufacturing ($2.20 per unit x 8,500 units) $18,700

Fixed Manufacturing OH $110,500
Total indirect manufacturing costs $ 129,200

Note: I know how to calculate total period costs ( non-manufacturing) and

contribution margin per unit ( Sales – ALL variable costs)

9. What does the formula Y = a + bX calculate in chapter 2 related to predetermined overhead rate
(POHR)?
The estimated total manufacturing overhead cost
 ACC 213 – Exam 1 Review Session

10. How do you assign costs to specific job using normal costing?

Actual DM + actual DL + MOH Applied (predetermined overhead rate x actual amount the
allocation base used by the job)

Note: predetermined overhead rat (POHR) is based on estimates (Estimated manufacturing

overhead costs / estimated allocation base)

11. Does the unit product cost represent actual costs or estimated?

A unit product cost includes actual direct materials costs used by the job, actual direct labor cost
used by the job, and an assigned/ applied amount of manufacturing overhead.

12. At the beginning of the year, a company estimated that 20,000 direct labor-hours would be
required for the period’s estimated level of production. The company also estimated $140,000
of fixed manufacturing overhead cost for the coming period and variable manufacturing
overhead of $1.50 per direct labor-hour. Assume that Job X used $200 in direct materials and 16
direct labor-hours at direct labor wage rate of $18 per hour. What is the total job cost for Job X?

Y = a + bX = estimates total manufacturing overhead cost

Y = 140,000 + (1.50 per DLH x 20,000 estimated DLHs) = 140K + 30K = $170,000
POHR = estimated manufacturing overhead costs / estimated allocation base

= $170,000 / 20,000 DLHs = $8.50 per DLH

MOH applied = $8.50 per DLH x 16 DLHs = $ 136

Total manufacturing costs (job cost):

DM $200
DL $288 (16 DLHs x $18 per hour)
MOH applied $136 (16 DLHs x $8.50 per DLH)
Total cost $624

Note: pay attention to what is asking for Total manufacturing costs is different than
manufacturing overhead

Total job cost = Actual DM + actual DL + MOH Applied

 ACC 213 – Exam 1 Review Session
13. At the beginning of the year, a company estimated a predetermined plantwide overhead rate of
140% of direct labor cost. Job X was charged $200 and $250 for direct materials and direct labor,
respectively. What is the total job cost for Job X?
DM + DL + MOH

$200 + $250 + ($250 x 140% = $350) = $800

14. Lashes Corporation uses a predetermined overhead rate based on machine-hours to apply
manufacturing overhead to jobs. The Corporation has provided the following estimated costs for
the next year:
 
Direct materials $ 6,000
Direct labor $ 20,000
Rent on factory building $ 35,000
Sales salaries $ 25,000
Depreciation on factory equipment $ 10,000
Indirect labor $ 30,800
Production supervisor's salary $ 37,000
 
Lashes estimates that 20,000 direct labor-hours will be worked, and 40,000 machine-hours will
be used during the year. What is the predetermined overhead rate per hour?

Depreciation on factory equipment $ 10,000

Indirect labor $ 30,800
Production supervisor's salary $ 37,000
Rent on factory building $ 35,000
$112,800
$112,800 / 40,000 MHs = $2.82 per MH

Predetermined overhead rate = estimated total manufacturing overhead cost /

estimated total amount of the allocation base

15. Capers Company has two manufacturing departments—Packaging and Inspection. The
predetermined overhead rates in Packaging and Inspection are $20.00 per direct labor-hour and
$12.00 per direct labor-hour, respectively. The company’s direct labor wage rate is $15.00 per
hour. Job A consists of 100 units and includes the following costs:

  Packaging Inspection
Direct materials $ 400 $ 60
Direct labor $ 135 $ 45
 
a. What is the total manufacturing cost assigned to Job A?
1st determine total DLHs by taking the DL cost / DL wage rate
Packaging = $135 / $15 = 9 DLHs (ACTUAL)
Inspection = $45 / $15 = 3 DLHs (ACTUAL)
 ACC 213 – Exam 1 Review Session
DM ($400 + $60) $460
DL ($135 + $45) $ 180
Packaging OH ($20 per DLH x 9 DLHs) $180
Inspection OH ($12 per DLH x 3 DLHS) $36
Total manufacturing cost $856

b. What is the unit product cost for Job A?

Total manufacturing cost / number of units $856 / $100 = $8.44

16. Cally Corporation has sales of 1,250 units at $60 per unit. Variable expenses are 40% of the
selling price. If total fixed expenses are $35,000, the degree of operating leverage is:

Degree of operating leverage = CM / Net operating income

45,000 / 10,000 = 4.50

CM = sales – variable expenses (1,250 units x 60 per unit) = 75,000 sales

1,250 units x 24 per unit = 30,000 variable expense
75,000 sales - 30,000 = $45,000 CM

Net operating income = CM – Fixed expenses

=45,000 – 35,000 = $10,000 NOI

17. Torpedo Corporation produces and sells a single product. Data concerning that product appear
below:

Percent of
 
Per Unit Sales
Selling price $ 140 100%
Variable expenses 84 60%
Contribution margin $ 56 40%

The company is currently selling 5,300 units per month. Fixed expenses are $185,000 per month.
The marketing manager believes that a $5,300 increase in the monthly advertising budget would
result in a 200 unit increase in monthly sales. What should be the overall effect on the
company's monthly net operating income of this change?
 ACC 213 – Exam 1 Review Session
Contribution Income Statement
  5,300 units 5,500 units
Sales (at $140 per unit) 742,000 770,000
Variable expenses (at $84 per unit) 445,200 462,000
Contribution Margin 296,800 308,000
Fixed Expenses (185K + 5.3K) 185,000 190,300
Net Operating Income 111,800 117,700
 Net Operating Income would increase by $5,900

18. An oil manufacturer has supplied the following data:

Tons of oil produced and sold 248,000
Sales revenue $ 1,041,600
Variable manufacturing expense $ 417,000
Fixed manufacturing expense $ 276,000
Variable selling and administrative expense $ 79,000
Fixed selling and administrative expense $ 216,000
Net operating income $ 53,600
 
What is the company's unit contribution margin?
Unit CM = Selling prince per unit – Variable expenses per unit

$ 1,041,600 / 248,000 units = $4.20 selling prince per unit

417,000 + 79,000 = $496,000 /248,000 = $2.00 per unit

=4.20 per unit – $2.00 per unit = $2.20 CM per unit

19. Carefree Company is the exclusive distributor for a cleaning product that sells for $54.00 per
unit and has a CM ratio of 30%. The company’s fixed expenses are $388,800 per year. The
company plans to sell 28,600 units this year.
 
a. What are the variable expenses per unit? 
100 – 30 = 70% variable expense ratio x 54.00 sales price = $37.80

b. What is the break-even point in unit sales and in dollar sales?

Selling price $ 54.00 100%

Variable expenses 37.80 70%
Contribution margin $ 16.20 30%
Fixed expenses / unit CM
$388,800 / 16.20 = 24,000 B.E. in units Fixed expenses / CM ratio
 ACC 213 – Exam 1 Review Session
388,800 / 0.30 = $1,296,000

c. What amount of unit sales and dollar sales is required to attain a target profit of
$226,800 per year?

Target profit + fixed expenses / unit CM

= 226,800 + 388,800 / 16.20 = 38,000 units

d. Assume that by using a more efficient shipper, the company is able to reduce its variable
expenses by $5.40 per unit. What is the company’s new break-even point in unit sales
and in dollar sales? What dollar sales is required to attain a target profit of $226,800?

 
Selling price $ 54.00 100%
Variable expenses 32.40 60%
Contribution margin $ 21.60 40%

 Fixed expenses / unit CM

= 388,800 / 21.60 per unit = 18,000 units

In dollars sales 18,000 units x 54 per unit = 972,000

OR

Fixed expenses / CM Ratio = $388,800 / 0.40 = 972,000