NATIONAL ECONOMICS UNIVERSITY COST ACCOUNTING

School of Accounting and Auditing

Mode of study: Full time. Intake: 63
Exam place: A2
Exam date: __/__/2023 Exam time: _
Allowed time: 90 minutes
Department of Management Accounting

Version: 01

Note: Closed book

You must submit workings for all numerical questions attempted; otherwise they will not be marked.
Credit will be given for your logic/method as well as the results of your calculations.
Question 1 (2.0 marks)
The following costs incurred in Company X in April:

Direct materials used $100,000 Salespersons’ company vehicle costs $2,000

Indirect materials used 5,000 Property taxes on office building 15,000
Direct manufacturing labor 20,000 Depreciation of manufacturing equipment 9,000
Plant utilitites 6,000 Depreciation of office equipment 8,000
General office expenses 7,000 Production equipmenet repairs 1,000
Advertising costs 4,000
Compute manufacturing ovehead, general and administrative costs, conversion costs, and non-
manufacturing costs.
MOH = Indirect material + Plant utilities + Dep of manufacturing equipment + Equipment repairs
= 5,000 + 6,000 + 9,000 + 1,000 = 21,00
General and administrative cost = Office expense + Property taxes + Dep of office equipment
= 7,000 + 15,000 + 8,000 = 30,000
Conversion cost = Direct labor + MOH = 20,000 + 5,000 = 25,000
Non-manu cost = G&A cost + Salepersons’ cost + Advertising
= 30,000 + 2,000 + 4,000 = 36,000

Question 2 (2.0 marks)

Company Y uses a job-order costing system and started the month of May with zero balance in its work
in process and finished goods inventory accounts. During May, the company worked on two jobs and
incurred the following direct costs on those jobs:
Job #1 Job #2 Job #3
Direct materials $200,000 $550,000 $450,000
Direct labor ($20 per hour) $350,000 $220,000 $120,000
The company applies manufacturing overhead at a rate of $15 per direct labor hour. During May, the
company completed Job #1 and Job #2.
1. Apply manufacturing overhead to jobs in May. (0.5 mark)
Job 1 Job 2 Job 3
Direct labor hours 17,500 11,000 6,000
MOH allocated 15 * 17,500 = 262,500 15 * 11,000 = 165,000 15 * 6,000 = 90,000

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2. Compute the ending balance of Work in Process account. (0.5 mark)
Total cost of Job 3 = 450,000 + 120,000 + 90,000 = 660,000
Because the Job 3 is not yet completed, its total cost is considered a Work – in – process cost
 The ending balance of WIP is $660,000
3. Last year, the company’s estimated total manufacturing overhead was $5,000,000; but actually
incurred $4,900,000. Total manufacturing overhead applied to jobs was $5,300,000.
a. Compute over- or under-applied overhead. (0.5 mark)

Budgeted MOH: 5,000,000

Actual MOH: 4,900,000

Allocated MOH: 5,300,000

The actual total manufacturing overhead is smaller than the allocated one.

 Overallocated MOH = 5,300,000 – 4,900,000 = 400,000

b. Prepare a journal entry to close over- or under-applied overhead using proration approach (based
on balances of related accounts). Assume that the ending balance of Materials, finished goods and
Cost of goods sold accounts are $300,000, $400,000, and 3,000,000, respectively. (The ending
balance of Work in process account is computed in requirement 2).

Account balance. Account balance.

(Before proration) Proration of overallocated MOH (2) (After proration)
(1) (3) = (1) - (2)
WIP 660,000 (16.26%) 400,000 * 16.26% = 65,040 594,960
Finished goods 400,000 (9.85%) 400,000 * 9.85% = 39,400 360,600
COGS 3,000,000 (73.89%) 400,000 * 73.89% = 295,560 2,704,440
Total 4,060,000 400,000 3,660,000

- Journal entries:

Dr MOH allocated 5,300,000

Cr MOH control 4,900,000

Cr Work – in – process control 65,040

Cr Finished goods 39,400

Cr COGS 295,560

Question 3 (2.0 marks)

Company Z uses the FIFO method in its process costing system. Direct materials are added at the
beginning of the production process. Operating data for the Department #1 for the month of March
appear below:
Units Percentage
complete
Beginning work in process inventory 2,000 60%
Started during March 58,000

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Completed and transferred to Department #2 during March 56,000
Ending work in process inventory 4,000 40%

According to the company’s records, the cost in beginning work in process inventory was $100,000
($70,000 direct materials and $30,000 conversion costs) at the beginning of March. Additional
manufacturing costs of $500,000 ($350,000 direct materials and $150,000 conversion costs) were
incurred in the department during the month.
1. Compute the cost per equivalent unit in Department #1 for March. (0.5 mark)
Physical Equivalent units
Flow of production
units Direct materials Conversion costs
WIP, beginning 2,000
Started during March 58,000
To account for 60,000
Completed and transferred during March
From beginning WIP
[2,000*(100%-100%); 2,000*(100%- 2,000 0 800
60%)
Started and completed.
54,000 54,000 54,000
(54,000 * 100%; 54,000 * 100%)
Ending WIP
4,000 4,000 1,600
(4,000 * 100%; 4,000 * 40%)
Accounted for 60,000
Equivalent units 58,000 56,400

2. Assign costs to units completed and transferred out to the Department #2. (1.0 mark)
Total production Direct Conversion
cost materials cost
WIP, beginning 100,000 70,000 + 30,000
Costs added during March 500,000 350,000 + 150,000
Total cost to account for 600,000 420,000 + 180,000

Cost added during March 350,000 150,000

Divide bt equivalent units of work done : 58,000 : 56,400
Cost per equivalent units of work done 6 2.7

Assignment of costs:
Completed and transferred out
WIP, beginning 100,000 70,000 + 30,000
Cost added to beginning WIP in March 2,160 0*6 + 800 * 2.7
Total from beginning inventory 102,160
Started and completed 469,800 54,000 * 6 + 54,000 * 2.7
Total cost of unit completed and
571,960
transfered
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Ending WIP (4,000 units) 34,800 4,000 * 6 + 4,000 * 2.7
Total cost to account for 606,760 418,000 + 188,760

3. Prepare a journal entry to transfer out completed units. (0.5 mark)

Dr WIP – Department 2 571,960
Cr WIP – Department 1 571,960
Dr Finished goods control 565,200
Cr WIP – Department 2 565,200
Question 4 (2.0 marks)
Company T uses the Weighted average method in its process costing system. Operating data for the
Department #1 for the month of March appear below:
Units Percentage
complete
Beginning work in process inventory 10,00 70%
0
Started during March 60,00
0
Completed and transferred to the Department #2 during March 50,00
0
Ending work in process inventory 5,000 80%
The inspection occurs at the 100% completion stage. Normal spoilage is 3% of the good units passing
inspection. Cost per equivalent unit for March is $10.
1. Compute the normal and abnormal spoilage in units. (0.5 mark)
Total spoilage = (Beginning WIP + Units started) – (Units completed + Ending WIP)
= (10,000 + 60,000) – (50,000 + 5,000) = 15,000
Total good units passing inspection = 10,000 + 50,000 = 60,000 units
Normal spoilage = 60,000 * 3% = 1,800
 Abnormal spoilage = 15,000 – 1,800 = 13,200
2. Compute loss from abnormal spoilage and prepare a journal entry to record abnormal spoilage
detected in March. (0.5 mark)
Dr Materials control (1,800 * 10) 18,000
Dr Loss from abnormal spoilage (10 * 13,200) 132,000
Cr Work – in – process control (10 * 15,000) 150,000
3. Compute the cost transferred out to Department #2. (1 mark)
Equivalent units
Flow of production Physical units Direct Conversion cost
materials
WIP, beginning 10,000
Started during March 60,000
To account for 70,000
Units completed and transferred during March
Started and completed 50,000 50,000 50,000
Normal spoilage 1,800 1,800 1,800
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Abnormal spoilage 13,200 13,200 13,200
WIP, ending. 5,000 5,000 4,000
(5,000 * 100%; 5,000 * 80%)
Accounted for 70,000
Equivalents units 70,000 69,000

Total cost of units completed and transferred out = Cost before nornal spoilage + Normal spoiage

= [50,000 * (10 + 10)] + [1,800 * (10 + 10)]

= 1,036,000

Question 5 (2.0 marks)

Company U manufactures two products: A and B. The company applies an activity-based costing system.
The following activity and cost information has been compiled:
A B
Number of units produced 10,000 20,000
Number of setups 100 80
Number of quality inspections 200 150
Number of direct labor hours 500 400
Costs incurred to set up machines were $30,000 and costs incurred to inspect product quality were
$90,000.
1. Compute the rates per unit of each cost-allocation base. (1.0 mark)
30,000 500
Cost per unit setup = =
100+80 3
90,000 1,800
Cost per unit inspected = =
200+150 7
2. Compute the allocated indirect costs per unit for Product A. (0.5 mark)
Activity Rate per unit Units Allocated overhead
(1) (2) (3) = (1) * (2)
Set up 500/3 100 16,667
Quality 1,800/7 200 51,429
inspections
Total 68,096

68,096
Cost per unit = =6.8
10,000
3. Assume a traditional costing system applies the $120,000 of overhead costs based on direct
labor hours. Would cost per unit of A have been overstated or understated? Explain. (0.5 mark)
120,000
Traditional overhead rate = =133
500+400
 Overhead allocated for A = 133 * 500 = 66,667
66,667
 Cost per unit = =6.67
10,000
Meanwhile, the cost per overhead allocated unit for A is $6.8 in requirement 2
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 Cost per unit of A has been understated