Brewer 6e Practice Exam Chapter 2

Print these pages. Answer each of the following questions, explaining your answers or showing your
work, and then compare your solutions to those provided at the end of the practice exam.
1. ReformerCompanyestimatesthat64,000directlaborhourswillbeworkedand80,000machine
hourswillbeincurredduringtheyear.Inaddition,thecompanyhasdevelopedthefollowingcost
estimatesfornextyear:
Sales commissions
Direct labor
Salary of production supervisor
Rent on factory equipment
Direct materials
Advertising expense
Indirect materials

$600,000
440,000
280,000
128,000
120,000
88,000
40,000

Ifoverheadisappliedonthebasisofdirectlaborhours,whatisthecompanyspredetermined
overheadrate?

2. SunsteadCompanyusesajobordercostingsystemandappliesmanufacturingoverheadtoWorkin
Processinventoryusingapredeterminedoverheadrate.Thecompanyhadnobeginningorending
inventoriesinthecurrentmonth.Duringthemonth,thecompanystransactionsincludedthe
following:
Manufacturing overhead cost incurred
Manufacturing overhead cost applied
Direct labor cost incurred
Direct materials issued to production
Indirect materials issued to production
Part (a)
What was the cost of goods manufactured?

$1,000,000
904,000
856,000
720,000
64,000

Part(b)
Whatwastheamountofcostofgoodssold?

3. NorthernCompanyusesapredeterminedoverheadratebasedondirectlaborhourstoapply
manufacturingoverheadtojobs.Atthebeginningoftheyear,thecompanyestimatedmanufacturing
overheadwouldbe$400,000anddirectlaborhourswouldbe40,000.Theactualfiguresfortheyear
were$430,000formanufacturingoverheadand42,000directlaborhours.Ismanufacturing
overheadunderappliedoroverappliedfortheyear?Byhowmuch?

4. IntercontinentalCompanybasesitspredeterminedoverheadrateondirectlaborhours.Atthe
beginningofthecurrentyear,thecompanyestimatedthatitsmanufacturingoverheadwouldtotal
$440,000duringtheyear.Duringtheyear,thecompanyincurred$400,000inactualmanufacturing
overheadcosts.TheManufacturingOverheadaccountshowedthatoverheadwasunderappliedby
$16,000duringtheyear.Ifthepredeterminedoverheadratewas$40.00perdirectlaborhour,how
manyhourswereworkedduringtheyear?

Brewer6ePracticeExamSolutionsChapter2
1. Solution(LearningObjective1):
First,determinetheestimatedmanufacturingoverheadcosts.Notethatmanufacturingoverhead
costsincludeonlyindirectproductcosts.Directmaterialsanddirectlaborareproductcostsbutare
direct(ratherthanindirect)costs.Salescommissionsandadvertisingexpensesareperiod(rather
thanproduct)costs.
Indirect materials
Rent on factory equipment
Salary of production supervisor
Estimated manufacturing overhead costs

$ 40,000
128,000
280,000
$448,000

Then,determinethecompanyspredeterminedoverheadrateasfollows.
Estimated manufacturing overhead costs
Estimated direct labor hours
Predetermined overhead rate

$ 448,000
64,000
$7.00/DLH

2. Solution(LearningObjective6):
Part(a)Determinethecostofgoodsmanufacturedforthemonthasfollows.
Work in process, beginning of period
Direct materials issued to production
Direct labor cost incurred
Manufacturing overhead cost applied
Total manufacturing costs
Less: work in process, end of period
Cost of goods manufactured

0
720,000
856,000
904,000
2,480,000
(0)
$2,480,000

Part(b)First,determinewhetheroverheadwasunderappliedoroverappliedasfollows.
Actual overhead costs
Overhead costs applied to production
Amount of underapplied overhead

$1,000,000
904,000
$ 96,000

Then,determinethecostofgoodssoldasfollows.
Finished goods, beginning of period
Add: Cost of goods manufactured
Cost of goods available for sales
Less: finished goods, end of period
Unadjusted cost of goods sold
Add: Underapplied overhead
Adjusted cost of goods sold

0
2,480,000
2,480,000
0
2,480,000
96,000
$2,576,000

3. Solution(LearningObjectives1,2,and7):
First,calculatethepredeterminedoverheadrate(basedondirectlaborhours(DLH))asfollows.
Predeterminedoverheadrate=EstimatedoverheadcostsEstimateddirectlaborhours
Predeterminedoverheadrate=$400,00040,000directlaborhours=$10.00perDLH
Then,determinetheamountofmanufacturingoverheadappliedduringtheperiod:
Overheadapplied=PredeterminedoverheadratexActualdirectlaborhours
Overheadapplied=$10.00/directlaborhourx42,000directlaborhours=$420,000
Finally,comparetheactualmanufacturingoverheadcoststotheamountappliedanddecidewhether
itisunderappliedoroverapplied:
Actual
Applied
Balance(underapplied)

$430,000
420,000

$10,000

4. Solution(LearningObjectives1,2,and7):
First,determinetheamountofoverheadappliedtoproductionbyreferencetotheinformationabout
theManufacturingOverheadaccount.
Amountunderapplied=ActualoverheadAmountappliedtoproduction
Amountunderapplied=$400,000Amountappliedtoproduction=$16,000;Amountappliedto
production=$384,000
Then,solveforthedirectlaborhourshere(theactivitybasefortheoverheadrate).
Manufacturingoverheadapplied=PredeterminedoverheadratexDirectlaborhours=$384,000=
$40.00perdirectlaborhourxActualdirectlaborhours;Actualdirectlaborhours=9,600