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Principles of Accounting, Volume 2: Managerial Accounting

Problem Set A

Principles of Accounting, Volume 2: Managerial AccountingProblem Set A
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Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index
PA 1.

LO 4.1For each item listed, state whether a job order costing system or process costing system would be best.

  1. cereal
  2. team uniforms
  3. houses
  4. beach chairs
  5. plastic
  6. restaurant-specific pizza boxes
  7. sneakers customized with number and colors
PA 2.

LO 4.4York Company is a machine shop that estimated overhead will be $50,000, consisting of 5,000 hours of direct labor. The cost to make Job 0325 is $70 in aluminum and two hours of labor at $20 per hour. During the month, York incurs $50 in indirect material cost, $150 in administrative labor, $300 in utilities, and $250 in depreciation expense.

  1. What is the predetermined overhead rate if direct labor hours are considered the cost driver?
  2. What is the cost of Job 0325?
  3. What is the overhead incurred during the month?
PA 3.

LO 4.4Pocono Cement Forms expects $900,000 in overhead during the next year. It does not know whether it should apply overhead on the basis of its anticipated direct labor hours of 60,000 or its expected machine hours of 30,000. Determine the product cost under each predetermined allocation rate if the last job incurred $1,550 in direct material cost, 90 direct labor hours, and 75 machine hours. Wages are paid at $16 per hour.

PA 4.

LO 4.5Job cost sheets show the following information:

Six column chart with the headings: Job, January, February, March, Completed, Sold. First line: AA2 $2,500, $1,200, blank, February, Not Sold. Second line: AA4 4,838, blank, blank, January, February. Third line: AA5 blank 3,250, blank, February, March. Fourth line: AA3 blank, 3,409, 2,319, April, Not Sold. Fifth Line Total 7,338, 7,859, 2,319, blank, blank.

What are the balances in the work in process inventory, finished goods inventory, and cost of goods sold for January, February, and March?

PA 5.

LO 4.5Complete the information in the cost computations shown here:

Three cost computation charts .Raw Materials chart: Beginning Raw Materials Inventory $342, Minus Purchases 1533 equals Materials available for use ? then subtract Ending Raw Materials Inventory of 321 to get Materials Used in Production ?. Work In Process Inventory chart: Beginning WIP Inventory $932 plus Materials used in production ? plus Direct Labor 1535 plus Overhead Applied ?, equals Manufacturing costs Incurred 22,441. Then subtract Ending WIP Inventory 935 to get Cost of Goods Manufactured ?. Finished Goods Inventory chart: Beginning Finished Goods Inventory of ? plus Cost of Goods Manufactured of ? equals Goods Available for Sale of 25,002. Then subtract Ending Finished Goods Inventory of ? to get Cost of Goods Sold of 21,788.
PA 6.

LO 4.5During the year, a company purchased raw materials of $77,321, and incurred direct labor costs of $125,900. Overhead is applied at the rate of 75% of the direct labor cost. These are the inventory balances:

Chart showing Beginning and Ending inventory balances. Raw Materials Inventory: 17,433 and 16,428, respectively. Work In Process Inventory: 241,439 and 234,423, respectively. Finished Goods Inventory: 312,842 and 342,384, respectively.

Compute the cost of materials used in production, the cost of goods manufactured, and the cost of goods sold.

PA 7.

LO 4.5Freeman Furnishings has summarized its data as shown:

Data chart showing; Depreciation of factory building $100,000 Factory real estate taxes 15,000, Factory utility expenses 85,000, Indirect materials 32,000, Indirect labor 25,000, Direct labor cost 85,000, Direct labor hours incurred 23,500, Estimated direct labor hours 24,000, Raw materials purchased 350,000, Raw materials beginning inventory 30,000, Raw materials ending inventory 28,000, Work in Process beginning inventory 51,000, Work in process ending inventory 67,000, Estimated overhead 270,000.

Compute the cost of goods manufactured, assuming that the overhead is allocated based on direct labor hours.

PA 8.

LO 4.6Coop’s Stoops estimated its annual overhead to be $85,000 and based its predetermined overhead rate on 24,286 direct labor hours. At the end of the year, actual overhead was $90,000 and the total direct labor hours were 24,100. What is the entry to dispose of the overapplied or underapplied overhead?

PA 9.

LO 4.6Mountain Peaks applies overhead on the basis of machine hours and reports the following information:

A chart showing Overhead budget $350,000, actual $352,000; Machine hours budget 50,000, 49,000 actual; Direct materials $210,000, and Direct labor $350,000.
  1. What is the predetermined overhead rate?
  2. How much overhead was applied during the year?
  3. Was overhead over- or underapplied, and by what amount?
  4. What is the journal entry to dispose of the over- or underapplied overhead?
PA 10.

LO 4.6The actual overhead for a company is $74,539. Overhead was based on 6,000 direct labor hours and was $2,539 underapplied for the year.

  1. What is the overhead application rate per direct labor hour?
  2. What is the journal entry to dispose of the underapplied overhead?
PA 11.

LO 4.6When setting its predetermined overhead application rate, Tasty Box Meals estimated its overhead would be $100,000 and would require 25,000 machine hours in the next year. At the end of the year, it found that actual overhead was $102,000 and required 26,000 machine hours.

  1. Determine the predetermined overhead rate.
  2. What is the overhead applied during the year?
  3. Prepare the journal entry to eliminate the underapplied or overapplied overhead.
PA 12.

LO 4.7The following data summarize the operations during the year. Prepare a journal entry for each transaction.

  1. Purchase of raw materials on account: $3,000
  2. Raw materials used by Job 1: $500
  3. Raw materials used as indirect materials: $100
  4. Direct labor for Job 1: $300
  5. Indirect labor incurred: $50
  6. Factory utilities incurred on account: $700
  7. Adjusting entry for factory depreciation: $250
  8. Manufacturing overhead applied as percent of direct labor: 200%
  9. Job 1 is transferred to finished goods
  10. Job 1 is sold: $3,000
  11. Manufacturing overhead is overapplied: $100
PA 13.

LO 4.7The following events occurred during March for Ajax Company. Prepare a journal entry for each transaction.

  1. Materials were purchased on account for $35,429.
  2. Materials were requisitioned to begin work on Job C15 in the amount of $25,259.
  3. Direct labor expense for Job C15 was $24,129.
  4. Actual overhead was incurred on account of $32,852.
  5. Factory overhead was charged to Job C15 at the rate of 200% of direct labor.
  6. Job C15 was transferred to finished goods at $97,646.
  7. Job C15 was sold on account for $401,000.
PA 14.

LO 4.8A movie production studio incurred the following costs related to its current movie:

  1. Purchased office supplies on account: $33,000
  2. Issued direct supplies: $22,512
  3. Issued indirect supplies: $7,535
  4. Time tickets showing direct labor: $32,503,230
  5. Time tickets showing indirect labor: $574,326
  6. Utilities expense on account: $957,323
  7. Overhead applied: 10% of direct labor cost

Create journal entries for the listed transactions.

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