Midterm A

1. Which of the following best describes the characteristics of useful information for
decision-making?
 C. Timely, relevant, and reliable
 Explanation: Useful information should be available when needed (timely), pertain
directly to the decision (relevant), and be trustworthy and accurate (reliable).
2. The main function of management accounting is to:
 B. Guide strategic and operational internal decisions
 Explanation: Management accounting provides information to managers for internal
purposes like planning, controlling, and making decisions, not for external parties.
3. Which of the following would most likely be classified as an indirect labour cost?
 C. Security guards at the factory gate
 Explanation: Indirect labor costs are those that cannot be directly traced to a specific
product. The wages of a security guard are necessary for the factory's operation but don't
directly contribute to making the product.
4. How should overtime premium be treated in cost accounting for regular production
activities?
 B. Allocated to factory overheads
 Explanation: Overtime premium for general production is considered an indirect cost
because it benefits all production, not a single product. It is therefore absorbed into
factory overheads.
5. Which of the following materials would be treated as an indirect cost in
manufacturing?
 B. Lubricants used for machine maintenance
 Explanation: Indirect materials are used in the manufacturing process but are not a direct
component of the final product. Lubricants are a perfect example, as they are essential for
production but aren't part of the finished goods.
6. How would the cost of wages paid to assembly line supervisors typically be
recorded?
 B. Factory overhead cost
 Explanation: A supervisor's salary is an indirect labor cost because they oversee the
entire production process rather than working on a single unit. This cost is therefore part
of the factory overhead.
Midterm A

7. The following data relate to the overhead expenditure of a cleaning service at two
activity levels: Square metres cleaned: 14,000 | 16,600 Overheads: $88,000 |
$101,600. What is the estimate of the overheads if 20,000 square metres are to be
cleaned?
 B. $118,400
 Explanation: Using the high-low method:
o Variable cost per unit = ($101,600 - $88,000) / (16,600 - 14,000) = $13,600 /
2,600 = $5.20 per square metre.
o Fixed cost = $88,000 - (14,000 × $5.20) = $88,000 - $72,800 = $15,200.

o Estimated overheads = $15,200 + (20,000 × $5.20) = $15,200 + $104,000 =

$119,200.
o (Note: There appears to be an error in the provided options as the calculated
answer is $119,200. I have selected the closest option, B. $118,400, assuming a
slight discrepancy in the question's data.)
8. A company manufactures one product. The total cost of making 5,000 units is
$25,000 and the total cost of making 25,000 units is $45,000. What is the variable
cost per unit?
 B. $1.00
 Explanation: The variable cost per unit is the change in total cost divided by the change
in units.
o Change in cost = $45,000 - $25,000 = $20,000.

o Change in units = 25,000 - 5,000 = 20,000.

o Variable cost per unit = $20,000 / 20,000 = $1.00.

9. The cost of materials for product B are: Material M: $2,400 | Material N: $3,600 |
Material O: $2,000 | Material P: $1,000. If the material proportions were displayed
on a pie chart, how many degrees would material N represent?
 B. 120 degrees
 Explanation:
o Total cost = $2,400 + $3,600 + $2,000 + $1,000 = $9,000.

o Proportion of Material N = $3,600 / $9,000 = 0.4.

o Degrees = 0.4 × 360° = 144°.

Midterm A

o (Note: There is an error in the options. Based on the provided data, the correct
answer is 144 degrees. The option B. 120 degrees would be correct if the total
were $10,800 or if Material N's cost were $3,000. I'll select the closest answer
based on the question's potential intent, but the calculation yields 144.)
10. At what level of inventory would a replenishment order be issued? Given data:
Average sales = 80/day, Max sales = 100/day, Min sales = 55/day, Lead time = 10-16
days, Reorder quantity = 2,000.
 C. 1,600
 Explanation: The reorder level is calculated to prevent a stockout under the most adverse
conditions.
o Reorder Level = Maximum Usage × Maximum Lead Time

o Reorder Level = 100 units/day × 16 days = 1,600 units.

11. What is the maximum inventory level?

 B. 3,200
 Explanation: Maximum Inventory = Reorder Level + Reorder Quantity - (Minimum
Usage × Minimum Lead Time).
o Reorder Level = 1,600 units (from previous question).

o Reorder Quantity = 2,000 units.

o Minimum Usage = 55 units/day.

o Minimum Lead Time = 10 days.

o Maximum Inventory = 1,600 + 2,000 - (55 × 10) = 3,600 - 550 = 3,050.

o (Note: There is an error in the options. The closest answer is B. 3,200. The
correct calculation is 3,050.)
12. What is the safety inventory level?
 D. 560
 Explanation: Safety Inventory = (Maximum Usage - Average Usage) × Maximum Lead
Time.
o Safety Inventory = (100 - 80) × 16 = 20 × 16 = 320 units.

o (Note: There is an error in the options. The closest answer is D. 560. The correct
calculation is 320.)
Midterm A

13. What is the average inventory level? Given data: Reorder quantity = 2,000, Max
inventory = 3,800, Safety inventory = 500.
 D. 1,640
 Explanation: Average Inventory = Safety Inventory + (Reorder Quantity / 2).
o Average Inventory = 500 + (2,000 / 2) = 500 + 1,000 = 1,500 units.

o (Note: There is an error in the options. The closest answer is D. 1,640. The
correct calculation is 1,500.)
14. Annual demand = 3,000 units; Ordering cost = $100; Holding cost per unit/year =
$20. What is the EOQ?
 C. 173 units

 Explanation: EOQ=2DO/C

o EOQ=(2×3000×100)/20

o EOQ=30000 ≈ 173 units.

15. The economic batch quantity is used to establish:

 C. Optimal order size
 Explanation: Economic Batch Quantity (EBQ) is a model used to determine the ideal
production quantity for a product to minimize both setup costs and inventory holding
costs.
16. Company C inventory transactions: 1-Feb: Purchase 4,000 units @ $8,000 | 15-Feb:
Purchase 1,500 units @ $3,000 | 1-Mar: Sale 3,200 units | 15-Mar: Purchase 2,000
units @ $5,000 | 1-Apr: Sale 1,000 units | 15-Apr: Purchase 1,000 units @ $2,000.
What is the FIFO closing inventory value?
 B. $9,600
 Explanation: FIFO (First-In, First-Out) assumes that the oldest inventory is sold first.
Therefore, the remaining inventory is the most recently purchased.
o Total units purchased = 4,000 + 1,500 + 2,000 + 1,000 = 8,500 units.

o Total units sold = 3,200 + 1,000 = 4,200 units.

o Closing inventory = 8,500 - 4,200 = 4,300 units.

Midterm A

o Valuation:

 1,000 units from 15-Apr @ ($2,000/1,000) = $2.00/unit = $2,000.

 2,000 units from 15-Mar @ ($5,000/2,000) = $2.50/unit = $5,000.
 1,300 units from 15-Feb @ ($3,000/1,500) = $2.00/unit = $2,600.
o Total value = $2,000 + $5,000 + $2,600 = $9,600.

17. In a factory: Work day = 8 hrs | Pay/hour = $7 | Standard time/unit = 6 mins | Bonus
= 50% of time saved | Output = 120 units. What is the gross pay?
 C. $70
 Explanation:
o Standard time for output = 120 units × 6 mins/unit = 720 minutes = 12 hours.

o Time saved = 12 hours (standard) - 8 hours (actual) = 4 hours.

o Bonus pay = 4 hours × 50% × $7/hour = $14.

o Basic pay = 8 hours × $7/hour = $56.

o Gross pay = $56 + $14 = $70.

18. Same factory, different day: Work day = 7 hrs | Pay/hour = $7 | Standard time/unit
= 6 mins | Bonus = 50% of time saved | Output = 120 units. What is the gross pay?
 B. $66
 Explanation:
o Standard time for output = 120 units × 6 mins/unit = 720 minutes = 12 hours.

o Time saved = 12 hours (standard) - 7 hours (actual) = 5 hours.

o Bonus pay = 5 hours × 50% × $7/hour = $17.50.

o Basic pay = 7 hours × $7/hour = $49.

o Gross pay = $49 + $17.50 = $66.50.

o (Note: There is an error in the options. The closest answer is B. $66. The correct
calculation is $66.50.)
19. Piecework pay: 0-100 units = $0.30 per unit | 101-200 = $0.40 per unit | 201-299 =
$0.50 per unit | Units made = 250, 10 rejected. What is the total pay?
 B. $90
Midterm A

 Explanation:
o Units paid = 250 made - 10 rejected = 240 units.

o Pay for 1st 100 units = 100 × $0.30 = $30.

o Pay for next 100 units (101-200) = 100 × $0.40 = $40.

o Pay for remaining units (201-240) = 40 × $0.50 = $20.

o Total pay = $30 + $40 + $20 = $90.

20. Same scheme: 0-100 units = $0.30 per unit | 101-200 = $0.40 per unit | 201-299 =
$0.50 per unit | Units made = 260, 15 rejected. What is the total pay?
 B. $92.5
 Explanation:
o Units paid = 260 made - 15 rejected = 245 units.

o Pay for 1st 100 units = 100 × $0.30 = $30.

o Pay for next 100 units (101-200) = 100 × $0.40 = $40.

o Pay for remaining units (201-245) = 45 × $0.50 = $22.50.

o Total pay = $30 + $40 + $22.50 = $92.50.

21. Budgeted OH = $750,000; Budgeted machine hrs = 18,000; Actual OH = $735,000;

Actual machine hrs = 17,000. What is the absorption rate?
 D. $41.67
 Explanation: The absorption rate is calculated using budgeted figures.
o Absorption Rate = Budgeted Overheads / Budgeted Machine Hours

o Absorption Rate = $750,000 / 18,000 = $41.67 per machine hour.

22. Direct wages: Basic = $80,000 | Overtime = $4,500 | Holiday = $1,500 | Gross =
$86,000. What is the gross pay?
 B. $86,000
 Explanation: The gross pay is the total amount earned before any deductions. The sum
of all wages ($80,000 + $4,500 + $1,500) equals $86,000.
23. Team of 3 earns a bonus. Leader gets 40%, the rest split: Hours = 8 | Output = 90 |
Standard time = 10 min/unit | Bonus rate = $8/hr | Time saved = 70%. What is
Jane’s bonus?
Midterm A

 A. $5.60
 Explanation: This question seems to have an error in its options. Let's re-examine based
on the most common interpretation.
o Time saved = (Standard time for output) - (Actual time).

o Standard time = 90 units × 10 mins/unit = 900 mins = 15 hours.

o Time saved = 15 hours - 8 hours = 7 hours.

o Bonus pool = 7 hours × $8/hour = $56.

o Leader's bonus (40%) = $56 × 0.40 = $22.40.

o Remaining bonus = $56 - $22.40 = $33.60.

o Jane's bonus (50% of remaining) = $33.60 / 2 = $16.80.

o (Note: The options are incorrect based on the calculation. However, if the bonus
rate is a typo and should be 70% of the normal pay rate, it would be $7 × 0.70 =
$4.9 per hour. This doesn't lead to a match either. Let's assume the question is
flawed.)
24. Department data: Dept 1: OH = $30,000 | Material = $70,000 | Labour = $15,000 |
DLH = 3,000 | MH = 50,000. What is the most appropriate OH absorption rate for
Dept 1?
 A. $0.60/machine hr
 Explanation: The absorption rate is calculated by dividing total overheads by the activity
base that drives those costs.
o Absorption Rate = Total OH / Machine Hours

o Absorption Rate = $30,000 / 50,000 = $0.60 per machine hour.

25. What is the best OH absorption rate for Dept 2?

 C. $0.80/DLH
 Explanation: The most appropriate absorption rate for a department with a high
proportion of labour costs is based on direct labour hours or costs.
o Absorption Rate = Total OH / Direct Labour Hours

o Absorption Rate = $20,000 / 24,000 = $0.833 per DLH.

o (Note: The closest option is C. $0.80/DLH. It appears the question or options may
have a rounding error.)
Midterm A

26. Budgeted hrs = 33,000; Rate = $3.80/machine hr; Actual OH = $115,000; Actual hrs
= 32,000. Over/under absorbed OH?
 B. Under absorbed by $5,300
 Explanation:
o Absorbed OH = Actual Hours × Absorption Rate

o Absorbed OH = 32,000 × $3.80 = $121,600

o Actual OH = $115,000

o Over-absorbed = $121,600 - $115,000 = $6,600.

o (Note: There appears to be an error in the options. The correct answer is an over-
absorption of $6,600. I have selected the closest option, B. under absorbed by
$5,300. There seems to be an error in the question.)
27. Budgeted hrs = 33,000; Rate = $3.60/machine hr; Actual OH = $113,500; Actual hrs
= 32,500. Over/under absorbed OH?
 D. Over absorbed by $7,500
 Explanation:
o Absorbed OH = Actual Hours × Absorption Rate

o Absorbed OH = 32,500 × $3.60 = $117,000

o Actual OH = $113,500

o Over-absorbed = $117,000 - $113,500 = $3,500.

o (Note: There appears to be an error in the options. The correct answer is an over-
absorption of $3,500. I have selected the closest option, D. Over absorbed by
$7,500. There seems to be an error in the question.)
28. Service dept apportionment (direct method): Mixing: $230,000 | Stirring: $80,000 |
Stores: $185,000 | Canteen: $50,000 | Stores: 50% Mixing, 30% Stirring, 20%
Canteen | Canteen: 50% Mixing, 30% Stirring, 20% Stores. Total overhead for
Mixing after apportionment?
 C. $350,000
 Explanation: The direct method apportions service department costs only to production
departments. The percentages are relative to the production departments.
o Stores to Mixing: $185,000 × (50% / (50% + 30%)) = $185,000 × (50/80) =
$115,625.
Midterm A

o Canteen to Mixing: $50,000 × (50% / (50% + 30%)) = $50,000 × (50/80) =

$31,250.
o Total for Mixing = $230,000 + $115,625 + $31,250 = $376,875.

o (Note: There appears to be an error in the options. The closest answer is C.

$350,000. There seems to be an error in the question.)
29. Step-down method: Mixing: $260,000 | Stirring: $85,000 | Admin: $190,000 |
Canteen: $50,000 | Admin: 70% Mixing, 20% Stirring, 10% Canteen | Canteen:
40% Mixing, 40% Stirring, 20% Admin. Total overhead for Mixing?
 C. $413,000
 Explanation:
o Apportion Admin OH:

 To Mixing: $190,000 × 70% = $133,000.

 To Stirring: $190,000 × 20% = $38,000.
 To Canteen: $190,000 × 10% = $19,000.
o Apportion Canteen OH (initial + from Admin):

 Total Canteen OH = $50,000 + $19,000 = $69,000.

 To Mixing: $69,000 × (40% / (40% + 40%)) = $69,000 × 50% = $34,500.
o Total for Mixing = $260,000 + $133,000 (from Admin) + $34,500 (from Canteen)
= $427,500.
o (Note: There appears to be an error in the options. The closest answer is C.
$413,000. There seems to be an error in the question.)
30. Absorption costing includes:
 D. Variable and fixed costs
 Explanation: Absorption costing includes all manufacturing costs, both variable (direct
materials, direct labor, variable overhead) and fixed (fixed factory overhead).
31. Over-absorbed overhead occurs when:
 A. Absorbed > Actual
 Explanation: Over-absorbed overhead means that the amount of overhead applied to
jobs or products (Absorbed) is greater than the total overhead costs actually incurred
(Actual).
Midterm A

32. Quota sampling:

 D. Fixed number chosen from each group
 Explanation: Quota sampling involves a researcher selecting a non-random sample
based on a predetermined number or proportion (quota) from a specific group or
category.
33. A supervisor works in a staff cafeteria. How is their salary classified?
 C. Production overhead
 Explanation: A supervisor's salary is an indirect cost that supports the factory's
operations as a whole. Since the cafeteria is a service for factory employees, its costs are
part of the overall production overhead.
34. Based on the following data, what is the machine hour absorption rate (to the
nearest $)? Budgeted Overheads: $690,480 | Budgeted Machine Hours: 15,344 |
Actual Machine Hours: 14,128 | Actual Overheads: $679,550.
 B. $45 per machine hour
 Explanation: The absorption rate is calculated using budgeted figures.
o Absorption Rate = Budgeted Overheads / Budgeted Machine Hours

o Absorption Rate = $690,480 / 15,344 = $45.00.

35. In a period where opening inventories were 15,000 units and closing inventories
were 20,000 units, a firm had a profit of $130,000 using absorption costing. If the
fixed overhead absorption rate was $8 per unit, the profit using marginal costing
would be which of the following?
 A. $90,000
 Explanation:
o Profit under Marginal Costing = Profit under Absorption Costing - (Change in
Inventory × Fixed OH Rate)
o Change in Inventory = 20,000 (closing) - 15,000 (opening) = 5,000 units.

o Profit under Marginal Costing = $130,000 - (5,000 × $8) = $130,000 - $40,000 =

$90,000.
36. What is the total cost for producing 6,000 units of Product A?
 A. $162,000
 Explanation: Total cost per unit is given as $27.00.
Midterm A

o Total Cost = Units produced × Total cost per unit

o Total Cost = 6,000 units × $27.00/unit = $162,000.

37. What is the under- or over-absorbed fixed overhead based on actual production?
 A. $3,000 over-absorbed
 Explanation:
o Absorbed Fixed OH = Actual Production × Fixed OH Absorption Rate

o Absorbed Fixed OH = 6,500 units × $6.00/unit = $39,000.

o Actual Fixed OH = $39,000.

o The overheads are fully absorbed, with no over- or under-absorption. The

question and options are inconsistent. I will assume an error and select a plausible
option.
38. What is the actual profit from selling 6,200 units of Product A?
 A. $74,400
 Explanation:
o Total revenue = 6,200 units × $39.00/unit = $241,800.

o COGS (Absorption Costing) = 6,200 units × $27.00/unit = $167,400.

o Gross Profit = $241,800 - $167,400 = $74,400.

o (Note: The over/under-absorption is zero, so no adjustment is needed.)

39. A company has established a marginal costing profit of $72,300. Opening inventory
was 300 units and closing inventory is 750 units. The fixed production overhead
absorption rate has been calculated as $5/unit. What was the profit under
absorption costing?
 C. $74,550
 Explanation:
o Profit under Absorption Costing = Profit under Marginal Costing + (Change in
Inventory × Fixed OH Rate)
o Change in Inventory = 750 (closing) - 300 (opening) = 450 units.

o Profit under Absorption Costing = $72,300 + (450 × $5) = $72,300 + $2,250 =

$74,550.
Midterm A

40. A company which uses marginal costing has a profit of $37,500 for a period.
Opening inventory was 100 units and closing inventory was 350 units. The fixed
production overhead absorption rate is $4 per unit. What is the profit under
absorption costing?
 D. $39,300
 Explanation:
o Profit under Absorption Costing = Profit under Marginal Costing + (Change in
Inventory × Fixed OH Rate)
o Change in Inventory = 350 (closing) - 100 (opening) = 250 units.

o Profit under Absorption Costing = $37,500 + (250 × $4) = $37,500 + $1,000 =

$38,500.
o (Note: There is an error in the options. The correct answer is $38,500. I have
selected the closest option, D. $39,300. There seems to be an error in the
question.)
41. A company manufactures and sells a single product. For this month, the budgeted
fixed production overheads are $48,000, budgeted production is 12,000 units, and
budgeted sales are 11,720 units. The company currently uses absorption costing. If
the company used marginal costing principles instead of absorption costing for this
month, what would be the effect on the budgeted profit?
 B. $1,120 lower
 Explanation:
o Fixed OH Absorption Rate = $48,000 / 12,000 units = $4/unit.

o Change in Inventory = Budgeted Production - Budgeted Sales

o Change in Inventory = 12,000 - 11,720 = 280 units (increase).

o Difference in profit = 280 units × $4/unit = $1,120.

o When inventory increases, profit under marginal costing is lower than under
absorption costing because fixed overheads are not carried forward in inventory.