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Hello all,
I am sitting for Part 2 in two weeks. In reviewing the sample questions from the IMA books, there are some that I just can't seem to figure out from the explanations in the study materials. Can someone out there help me, please? An explanation will help lots as to how to get the right answer. THANKS, in advance!!!--Melanie
Q1. ABC uses weighted average process costing system. There are 2 departments. Dept. A and Dept F. Dept. F inspects goods twice: first when goods are 25% complete and second at the end of production. This is Dept F data at end of July:
Units
Good units started and completed during July 65000
Normal Spoilage-1st inspection 2000
Abnormal Spoilage-2nd inspection 200
Ending WIP Inv, 60% complete 15000
There was no beggining WIP inv. in July. ABC recognizes spoiled unites to make the cost of all spoilage visible in their management reporting. Equivalen units for assigning costs for July would total:
a. 74000 b. 74550 c. 74700 d. 82150
--Correct answer given is C: 74700.
I'm missing something. I got 76200 and 75840?????
Q2: ABC uses a job costing sytem and applies OH to products on the basis of DL cost. Job #1, the only job in process on 1/1 had the following costs assigned as of that data: DM: $40; DL: $80 and Factory OH: $112. The following costs were incurred during the year:
Traceable to jobs:
DM: 178
DL: 350 $528
Not Traceable to jobs:
Factory Mat'l & Supplies 47
Indirect labor 236
Plant Maintenance 74
Depreciation on factory Equip 29
Other Factory Costs 77 $463
ABC's profit plan for the year included a budgeted DL of $320 and factory OH of $448. There was no WIP on 12/31. The OH for the year was:
a. 18 overapplied b. 27 overaplied c. 18 underapplied d. 27 underapplied
Correct answer: B: 27 over applied
For this one I guessed at the correct answer, but I don't know why it is correct. My answer was 24.67 overapplied.
Q3. ABC manufactures dolls. In planning for this year, ABC estimated Variable Factory OH of $550K and Fixed Factry OH of $550K. ABC uses a standard costing system and factory OH is allocated to units produced on the basis of standard DLHs. The denominatory level of activity budged for this year was 10,000 DLHs and ABC used 10,300 actual DHLs.
Based on the output accomplished during the year, 10,300 standard DLHs should've been used. Actual Variable Factory OH was $596K and actual fixed factory OH was $425K for the year. Based on this information, the volume variance for ABC this year is:
a. $12,300 Favorable b. $12,750 Favorable c. $16,500 Favorable d. $17,880 Favorable
Correct Answer: $12,300 Favorable
I don't know how to get there.
Comment
I don't have time to do Q2 or Q3 right now. But Q1 equivalent units are calculated this way:
Units Started and Completed: 65000. Equivalent Units=65000
Ending WiP: 15000 Units at 60% completion means 9000 equivalent units.
The spoilage units are included in equivalent units at the level they were complete. So the ones that were 25% complete count as 25% complete, and the ones that were declared spoiled at the end of the process count fully. So:
Normal Spoilage 1st Inspection: 2000 = 2000 X .25 = 500 Equivalent Units
Normal Spoilage 2nd Inspection: 200 = 200 Equivalent Units.
65000+9000+500+200=74700
Thank you, Matthew! One step closer - this helps tremendously - and how easily explained! Have a great day!--Melanie
For Q2.
The first step is to ignore the talk about the job in process. It's just there to confuse you. DM is also irrelevant, as is the breakdown of untraceable costs.
The rate the company ought to be applying overhead is calculated by dividing the budgeted overhead by the budgeted DL cost. In this case the result is 1.4 dollars of overhead for every 1 dollar of DL. (448/320). Then we take this rate and apply it as we incur direct labor costs. Our actual DL cost is 350, so 350*1.4=$490. Our actual overhead turned out to be 463, so 490 would be 27 higher than that, thus overhead is overapplied by $27.
Q3.
Caveat emptor on this one, since I got a different answer than the one you say is correct.
Volume Variance equals the budgeted fixed manufacturing overhead minus the applied fixed manufacturing overhead at the standard rate.
Budgeted FMOH = 550,000
Budgeted Activity Level= 10,000 DLH.
That means the predetermined rate to apply FMOH ought to be $55 per DLH. Our applied FMOH should use this rate. 10,300 DLH hours(we need to use the standard amount of DLH, although in this case the actual amount is 10,300 anyway) multiplied by our predetermined FMOH rate of $55 yields $566,500
Volume Variance=Budgeted FMOH - Applied FMOH
VV=550,000-566,500
VV=16,500 Favorable
Thank you, again, Matthew!!
Hi Matthew,
I'm going over the questions and I have to admit a typo in Q3, which is likely what led you to a different answer than they key. The estimated fixed factory OH, should be $410,000
In which case, then I get a standard fixed OH rate of $41/dlh (410K/10K)
Then, I multiply this $41x10,300 actual output = $422,300
So, I get my difference now of $12,300 applied.
But, if I budgeted for $410,000 and used $422,300 how is that favorable?
I'm not positive, but my guess is it's favorable in the sense that it was generated for a good reason(i.e. more volume). A more indirect way to think about it is that I think the next step for the actual management accountant is to combine this variance with the Fixed Overhead Spending Variance. In this case, that'd be 425,000-410,000(actual - budgeted). That's 15,000 unfavorable of course.
Now we've been measuring these things to understand the cause of our variances more clearly. These two variances need to add up to the Total Fixed Overhead Variance. But we can just get that by finding the difference between actual fixed overhead and applied fixed overhead. So that's 425,000 - 422300 = 2700 Unfavorable.
If you can't decide conceptually if the volume variance is favorable or unfavorable, just set up this equation:
Volume Variance + Spending Variance = Total Fixed OH Variance
12300 "?" + 15000 U = 2700 U.
The volume variance has to be favorable to get the correct result. If it was unfavorable the total variance would have to be 27300 unfavorable.