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AMIS 7310Sample Mid-term Exam

Name (Print):____________________________________________

Signature: _______________________________________

DO NOT OPEN THE EXAM UNTIL GIVEN INSTRUCTION TO DO SO!

1. You are reminded that the Code of Student Conduct upheld by The Ohio State University and Fisher College requires you to do your own work and not give or receive assistance on this exam.

2. The exam consists of three question types as follows:

Section Question #’s

Type of Question

Points Total Partial Credit

Points Earned

1 1 Long Problem 35 yes

1 2 Long Problem 35 yes

2 1 thru 5 Short Problems 15 no

3 1 thru 6 Multiple Choice Problems

15 no

Total 100

3. You will have 90 minutes to complete this exam. Budget your time - attempt all questions!

4. When you are done, please hand back the entire question packet.

5. Please be organized and legible in your answers to receive full credit for your work.

6. Check the exam question packet for completeness.

7. The exam is closed-book and no supplemental materials are allowed; pencil, eraser, and calculator [only the basic functions (+, -, *, /) may be used] are the only resources which you may use. Scratch paper is not allowed. A timepiece may be used.

8. Do not ask questions during the exam; assume that all questions are valid and give the answer that you reason is best.


Long (Computational) Problem 1 (35 points)

Fidelity Sound, Inc., which uses a job-order costing system, had two jobs in process at the start of 20x1: job no. 64 ($84,000) and job no. 65 ($53,500). The following information is available:

a. The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $840,000 and 16,000 hours, respectively.

b. The company worked on four jobs during the first quarter. Direct Materials used, direct labor incurred, and machine hours consumed were as follows:

Job No. Direct Material Direct Labor Machine Hours64 $21,000 $35,000 1,200 65 - 22,000 700 66 44,000 65,000 2,000 67 15,000 8,800 500

c. Manufacturing overhead during the first quarter included charges for depreciation ($34,000), indirect labor ($60,000), indirect materials used ($5,000), and other factory costs ($139,500).

d. During the first quarter, Fidelity Sound completed job no. 64 and job no. 65. Also, Job no. 65 was sold on account, producing a gross profit (margin) of $34,700 for the firm.

Required:

1. Determine the company’s predetermined overhead application rate.

2. Prepare journal entries for the first quarter to record the following: a. The issuance of direct material to production and the direct labor incurred.b. The manufacturing overhead incurred during the quarter.c. The application of manufacturing overhead to production.d. The completion of jobs no. 64 and no. 65.e. The sale of job no. 65

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3. Determine the cost of jobs still in production as of March 31.

4. Did the finished-goods inventory increase or decrease during the first quarter? By how much?

5. Was manufacturing overhead under- or overapplied for the first quarter of the year? By how much?

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Long (Computational) Problem 2 (35 points)

Bravo Company produces a chocolate almond bar. Each bar sells for $0.40. The variable costs for each bar total $0.25. The annual fixed costs are $60,000. Last year, one million bars were sold. The president of Bravo, not fully satisfied with the profit performance of the chocolate bar, was considering the following options to increase the bar’s profitability: (Treat requirements a, b, c and d independently)

a. Bravo’s sales price, variable costs and existing fixed costs for this year are expected to remain the same as last year. The sales manager is confident that an advertising campaign will double sales volume. If the company’s president’s goal is to increase this year’s operating profits by 50% over last year’s, what is the maximum amount that could be spent on this advertising campaign?

b. Assume that the company increases the quality of its ingredients, thus increasing variable costs to $0.30. Answer the following questions:

i. How much must the selling price be increased to maintain the same break-even point [in units]?

ii. What will the new price be if the company wants to increase the old contribution margin ratio by 50%

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c. Bravo Company has decided to increase its selling price to $0.50 per bar, with variable costs per unit and total fixed costs remaining the same as last year. Compute the sales volume (in units) that would be needed at the new price for the company to earn the same operating profit as last year.

d. The sales manager is convinced that by increasing the quality of the ingredients, thus increasing variable cost to $.30, and by advertising the increased quality through spending an additional $100,000, sales volume could be doubled. Compute the selling price that would be needed to achieve the goal of increasing profits by 50%.

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Section 2 – Short Problems (3 points each)

1. Brabec Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 19,700 hours. At the end of the year, actual direct labor-hours for the year were 17,700 hours, the actual manufacturing overhead for the year was $392,940, and manufacturing overhead for the year was underapplied by $35,400. What was the estimated manufacturing overhead at the beginning of the year that was used in the predetermined overhead rate calculation?

Answer: ____________

2. Extron, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 100,000 units were produced, fixed manufacturing costs amounted to $200,000 and the cost per unit manufactured totaled $5. On the basis of this information, how much cost would the firm anticipate at an activity level of 97,000 units?

Answer: ____________

3. Missar Company's direct labor cost is 40 percent of its prime cost and 25 percent of its conversion cost. If manufacturing overhead was $150,000 during the month of May, the direct materials cost for the month of May was:

Answer: ____________

4 Weiss Corporation produces two models of wood chairs, Colonial and Early American. The Colonial sells for $60 per chair and the Early American sells for $80 per chair. Variable costs for each model are as follows:

Colonial Early AmericanVariable cost per unit $44 $56

Total fixed costs are $39,600 per month. Expected monthly sales are: Colonial, 1,800 units; Early American, 600 units. If the sales mix is as expected, what would be the sales (in dollars) of Colonial and Early American at the break-even point?

Answer: Colonial____________ Early American____________

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5. James Company has a margin of safety percentage of 20%. The break-even point is $200,000 and the variable expenses are 45% of sales. Given this information, what is the net operating income?

Answer: $________________

Section 3 - Multiple Choice Questions (3 points each)

Identify the letter of your choice that best completes the statement or answers the question.

1. Sharp Company’s records show that overhead was overapplied by $10,000 last year. This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was overapplied by such a large amount, the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true?

a. Manufacturing overhead was actually overapplied by $16,000 for the year.b. The company’s operating income is understated by $6,000 for the year.c. Under the circumstances posed above, the error in recording depreciation would have

no effect on operating income for the year.d. The $6,000 in depreciation should have been charged to Work in Process rather than

to administrative expense

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2. In producing cellular phones, Sonya Company incurs three different costs (XX, YY, and ZZ). Per unit costs for two different activity levels are as follows:

Type XX Type YY Type ZZ Total

5,000 phones $8 $18 $8 $34 7,500 phones $8 $12 $6 $26

The cost function that expresses the behavior of Sonya’s total costs is:

a. Y = $ 40,000 + $26X b. Y = $ 45,000 + $18X c. Y = $ 90,000 + $ 8X d. Y = $120,000 + $10X

3. Montgomery Company has a variable selling cost. If sales volume increases, how will the total variable cost and the variable cost per unit behave?

Total Variable Variable Cost Cost Per Unit

a. Increase Increase b. Increase Remain constant c. Increase Decrease d. Remain constant Decrease e. Decrease Increase

4. If a firm has a negative contribution margin, to reach the breakeven point:

a. Fixed expenses must be decreased.b. Sales volume must be decreased.c. Sales volume must be increased.d. Variable expenses must be increased.e. None of the above changes will result in the firm reaching the breakeven point.

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5. Tressel Company's variable expenses are 60% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $40,000, the new degree of operating leverage will be (rounded):

a. 3.67 b. 2.86 c. 5.25 d. 5.00

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Exam 1 SolutionsComputational Problem 1

1. $52.50 per MH

2.

3. $264,050

4. $203,000 increase

5. $7,500 under applied

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Computational Problem 2

a. $105,000

b. $.05; $.6857

c. 600,000 units

d. $.4475

Short Problems

1. $397,940

2. $491,000

3. $75,000

4. 99,000;44,000

5. $27,500

Multiple Choice

1. c

2. d

3. b

4. e

5. a

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