Midterm Exam Chapters 1 through 7
Name___________________________________ PROBLEMS. Write your answer in the space provided or on a separate sheet of paper.
1) 10% At an activity level of 8,800 units, Pember Corporation’s total variable cost is $146,520 and its total
fixed cost is $219,296.
For the activity level of 8,900 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total
cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per
unit. Assume that this activity level is within the relevant range. 2) 15% Cosgrove, Inc., is a wholesaler that distributes a single product. The company’s revenues and expenses
for the last three months are given below: Required:
a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into
variable and fixed elements. (Use unit sales as the activity measure.) State the cost formula for each mixed
b. Compute the company’s contribution margin for May. 3) 15%Allenton Company is a manufacturing firm that uses job-order costing. At the beginning of the year, the
company’s inventory balances were as follows: The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the
beginning of the year, the company estimated that it would work 31,000 machine-hours and incur $248,000 in
manufacturing overhead cost. The following transactions were recorded for the year:
a. Raw materials were purchased, $411,000.
b. Raw materials were requisitioned for use in production, $409,000 ($388,000 direct and $21,000 indirect).
c. The following employee costs were incurred: direct labor, $145,000; indirect labor, $61,000; and
administrative salaries, $190,000.
d. Selling costs, $148,000.
e. Factory utility costs, $12,000.
f. Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7,000 is
related to selling, general, and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 29,000 machinehours.
h. The cost of goods manufactured for the year was $783,000.
i. Sales for the year totaled $1,107,000 and the costs on the job cost sheets of the goods that were sold totaled
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.
Prepare the appropriate journal entry for each of the items above (a. through j.). You can assume that all
transactions with employees, customers, and suppliers were conducted in cash. 4) 15%Able Inc. uses the weighted-average method in its process costing system. The following data concern
the operations of the company’s first processing department for a recent month. Required:
a. Determine the equivalent units of production.
b. Determine the costs per equivalent unit.
c. Determine the cost of ending work in process inventory.
d. Determine the cost of the units transferred to the next department. 5) 15%The following is Arkadia Corporation’s contribution format income statement for last month: The company has no beginning or ending inventories and produced and sold 20,000 units during the month.
a. What is the company’s contribution margin ratio?
b. What is the company’s break-even in units?
c. If sales increase by 100 units, by how much should net operating income increase?
d. How many units would the company have to sell to attain a target profit of $125,000?
e. What is the company’s margin of safety in dollars?
f. What is the company’s degree of operating leverage? 6) 15%Pabbatti Corporation, which has only one product, has provided the following data concerning its most
recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to
month. The company’s variable costs per unit and total fixed costs have been constant from month to month.
a. What is the unit product cost for the month under variable costing?
b. Prepare a contribution format income statement for the month using variable costing.
c. Without preparing an income statement, determine the absorption costing net operating income for the month.
(Hint: Use the reconciliation method.) 7) 15%Deraney Corporation has an activity-based costing system with three activity cost pools-Machining,
Setting Up, and Other. The company’s overhead costs have already been allocated to the cost pools and total
$5,800 for the Machining cost pool, $4,700 for the Setting Up cost pool, and $7,500 for the Other cost pool.
Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the
Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are
not assigned to products. Data concerning the two products appear below: Required:
a. Calculate activity rates for each activity cost pool using activity-based costing.
b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.