Set A

NORTH SOUTH UNIVERSITY

Instructions:
❖ Answer all questions on the answer script.
Q1. Multiple Choice Questions: Find the correct answer: [Marks: 5x1=5]
1. Process costing usually deals with which of the following industries?
□ Airplane manufacturer □ Tailor □ Cola manufacturer □ Hairdresser
2. Process costing systems accumulate costs by-
□ Job □ Person □ Activity □ Department
3. The following costs were incurred in January 2020: Direct materials $39,000, Direct labor $24,000,
Manufacturing overhead $14,000, Selling expenses $11,000 and Administrative expenses $19,000. What
is the prime cost during the month-
□ $63,000 □ $107,000 □ $38,000 □ $77,000
4. Which of the following is not true within the relevant range?
□ Fixed cost per unit is constant □ Variable Cost per unit is constant
□ Total variable Cost is variable □ Total fixed cost is constant
5. Lannister Company produces a product which sells for $90, cost of goods sold is $ 40, variable sales
expense is $10 and variable administrative expense is $5. The contribution margin per unit is-
□ $40 □ $35 □ $50 □ $45
Q2. Sabu Company is a manufacturing firm that uses job-order costing. At the beginning of the year, the
company's inventory balances were as follows:
Raw materials $36,000
Work in process $41,000
Finished goods $104,000
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 21,000 machine-hours and incur
$210,000 in manufacturing overhead cost. The following transactions were recorded for the year:
a. Raw materials were purchased, $346,000.
b. Raw materials were requisitioned for use in production, $338,000 ($302,000 direct and $36,000 indirect).
c. The following employee costs were incurred: direct labor, $360,000; indirect labor, $68,000; and
administrative salaries, $111,000.
d. Selling costs, $153,000.
e. Factory utility costs, $29,000.
f. Depreciation for the year was $102,000 of which $93,000 is related to factory operations and $9,000 is related
to selling and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 19,000 machine-
hours.
h. The cost of goods manufactured for the year was $870,000.

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 Set A
i. Sales for the year totaled $1,221,000 and the costs on the job cost sheets of the goods that were sold totaled
$855,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.
Required: [Marks: 11+10=21]
i. Prepare journal entries to record the preceding transactions.
ii. Prepare all relevant T-accounts (must show balances of each t-account).

Q3. The following data have been taken from the accounting records of Island Corporation for the just
completed year.
Sales $870,000
Purchases of raw materials $190,000
Direct labor $200,000
Manufacturing overhead $230,000
Administrative expenses $150,000
Selling expenses $140,000
Raw materials inventory, beginning $10,000
Raw materials inventory, ending $40,000
Work in process inventory, beginning $20,000
Work in process inventory, ending $50,000
Finished goods inventory, beginning $90,000
Finished goods inventory, ending $130,000
Required: [Marks: 10]
Prepare a schedule of cost of goods manufactured for the year 2019 (calendar year).
Q4. Switch Company produces and sells a single product. The company's income statement for the most
recent month is given below:
Sales (6,000 units at $40 per unit) $240,000
Less manufacturing costs:
Direct materials $48,000
Direct labor (variable) $60,000
Variable factory overhead $12,000
Fixed factory overhead $30,000 $150,000
Gross margin $90,000
Less selling and other expenses:
Variable selling and other expenses $24,000
Fixed selling and other expenses $42,000 $66,000
Net operating income $24,000
Note: There are no beginning or ending inventories.
Required: [Marks: 2+2+2+1+2=9]
a. Prepare a contribution format income statement.
b. Compute the company's monthly break-even point both in units and dollars.
c. What would the company's monthly net operating income be if sales increased by 25% and there is no
change in total fixed expenses?
d. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month?
e. The company has decided to automate a portion of its operations. The change will reduce direct labor
costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-
even point in units.

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