Practice Midterm: COMM 112

Question 1
Winkle, Kotter and Zale is a small law firm that contains 10 partners and 10 support
persons. The firm employs a job-order costing system to accumulate costs
chargeable to each client, and it is organized into two departments- the Research
and Documents Department and the Litigation Department. The firm uses
predetermined overhead rates to charge the costs of these departments to its
clients. At the beginning of the current year, the firms management made the
following estimates for the year:
Research-hours
Direct lawyer-hours
Materials and supplies
Direct lawyer cost
Departmental overhead
cost

Research and Documents

20,000
9,000
$18,000
$430,000
$700,000

Litigation
16,000
$5,000
$800,000
$320,000

The predetermined overhead rate in the Research and Documents Department is

based on research-hours, and the rate in the Litigation Department is based on
direct lawyer cost. The costs charged to each client are made up of three elements:
materials and supplies used, direct lawyer costs incurred, and an applied amount of
overhead from each department in which work is performed on the case.
Case 618-3 was initiated on February 10th and completed on June 30th. During this
period, the following costs and time were recorded on the case:
Research-hours
Direct lawyer-hours
Materials and supplies
Direct lawyer cost

Research and Documents

18
9
$50
$410

Litigation
42
$30
$2,100

Required:
1. Compute the predetermined overhead rate used during the year in the Research
and Documents Department. Compute the rate in the Litigation Department.
2. Using the rates you computed in 1) above, compute the total overhead cost
applied to case 618-3.
3. What would be the total cost charged to case 618-3? Show computations by
department and in total for the case.

4. At the end of the year, the firms records revealed the following actual cost and
operating data for all cases handled during the year:
Research and Documents
Litigation
Research-hours
23,000
Direct lawyer-hours
8,000
15,000
Materials and supplies
$19,000
$6,000
Direct lawyer cost
$400,000
$725,000
Departmental overhead
$770,000
$300,000
cost
Determine the amount of under-applied or over-applied overhead cost in the
department for the year.
Question 2
Honeybutter, Inc., manufactures a product that goes through two departments prior
to completion. The following information is available about work in the first
department, the mixing department, during June.
Work in process,
beginning
Started into production
Completed and
transferred out
Work in process,
ending

Units
70,000

Materials
70%

Conversion
40%

75%

25%

460,000
450,000
80,000

Materials
Work in process,
$36,550
beginning
Cost added during June
$391,850
Assume that the company uses the weighted average method.

Conversion
$13,500
$267,300

1. Determine the equivalent units for June in the first process.

2. Compute the costs per equivalent unit for June for the first process.
3. Determine the total cost of ending work in process inventory and the total cost of
units transferred to the next process in June.
4. Prepare a report that reconciles the total costs assigned to the ending work in
process inventory and the units transferred out with the costs in beginning
inventory and costs added during the period.
Question 3
To help understand the companys cost structure, an activity-based costing system
has been designed. Three major activities are carried out in the company: animation

concept, animation production, and contract administration. The animation concept

activity is carried out at the contract proposal stage when the company bids on
projects. This is an intensive activity. The activity cost pools and their activity
measures and rates are listed below:
Activity Cost Pool
Animation concept
Animation production

Activity Measures
Number of proposals
Minutes of animation

Activity Rate
$6,000 per proposal
$7,700 per minute of
animation
Contract administration
Number of contracts
$6,600 per contract
Preliminary analysis using these activity rates has indicated that the local
commercials segment of the market may be unprofitable. Data concerning activity
in the local commercials market appear below:
Activity Measures
Local Commercials
Number of proposals
20
Minutes of animation
12
Number of contracts
8
The total sales for local commercials amounted to $240,000
1. Determine the cost of the local commercials market (think of it as a product)
2. Prepare a report showing the product margin of the local commercials market.
(Remember this company has no direct materials or direct labour costs).
3. What would you recommend to management concerning the local commercials
market?